SOURCE: Schawk, Inc.

Schawk, Inc.

October 31, 2012 17:00 ET

Schawk Announces 2012 Third-Quarter Results

DES PLAINES, IL--(Marketwire - Oct 31, 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 2012 third-quarter results. Net loss in the third quarter of 2012 was $2.2 million, or $0.09 loss per diluted share, versus net income of $8.1 million, or $0.31 per diluted share, in the third quarter of 2011. Included in the 2012 third quarter net loss is $4.3 million of non-cash expense related to the impairment of long-lived assets further detailed in this press release. In addition, business and system integration expenses for the company's ongoing information technology and business process improvement initiative increased by approximately $1.0 million for the quarter compared to the prior-year period, which also contributed in part to the decline in net income. 

On a non-GAAP basis, adjusting for financial impacts relating to the non-cash impairment expenses, business and system integration expense and other items as further detailed in this release, adjusted net income was $3.1 million, or $0.12 per diluted share, compared to $5.6 million, or $0.22 per diluted share, during the prior-year period.

Chief Executive Officer David A. Schawk, commented, "During the third quarter, we saw measured growth with our largest client channel, consumer packaged goods, offset by continued declines in promotional activity with our retail and advertising and entertainment clients. Our growth in Europe and Asia Pacific continued to positively reflect the impact of emerging markets, investments made in expanding our capabilities, and our clients' desire to consolidate their spending with fewer vendors. However, the Americas continued to reflect our clients' uncertainty with local markets by taking a more cautionary approach to spending domestically. Adjusting for the non-cash impairment charge during the third quarter, the year-over-year decline in profitability was primarily driven by certain investments made to expand our brand development and deployment capabilities and extend our presence in emerging markets. However, due to continued economic headwinds in the Americas, we took additional steps to leverage our operations during the third quarter, which will extend to the fourth quarter and set us up for a more competitive cost structure in 2013."

Consolidated Results for the Third Quarter Ended September 30, 2012
Consolidated net sales in the third quarter of 2012 were $110.8 million compared to $112.3 million in 2011, a decrease of approximately $1.5 million, or 1.3 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $0.6 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 fell approximately 0.8 percent in the third quarter of 2012 compared to the prior-year period.

Consumer packaged goods (CPG) accounts sales in the third quarter of 2012 were $88.2 million, or 79.5 percent of total net sales, compared to $86.2 million in the same period of 2011, an improvement of 2.3 percent, primarily due to higher product and brand development activity. Retail and advertising accounts sales in the third quarter of 2012 were $17.3 million, or 15.6 percent of total sales, a decrease of 9.8 percent, from $19.2 million during the 2011 third quarter, primarily driven by continued reductions in client promotional activity. Entertainment accounts sales for the third quarter of 2012 of $5.4 million, or 4.9 percent of total sales, decreased 22.5 percent, from $7.0 million in the 2011 period, driven by continued declines in print-related promotional activity. 

Gross profit was $39.2 million in the third quarter of 2012, a decline of $2.7 million from the third quarter of 2011. Gross profit as a percentage of sales decreased to 35.4 percent from 37.4 percent in the prior-year period. Lower gross profit percent was driven by the sales decline and previously mentioned investments in expanding the company's brand development and deployment capabilities.

Selling, general and administrative (SG&A) expenses increased approximately $1.3 million to $32.5 million during the third quarter of 2012 from $31.1 million in the 2011 period. Higher SG&A expenses in the third quarter of 2012 compared to the third quarter of 2011 is principally due to increases in the company's previously mentioned investments in expanding brand development and deployment capabilities.

For the third quarter of 2012, Schawk reported business and systems integration expenses of $3.0 million, compared to $2.0 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.

Acquisition integration and restructuring expenses increased from $0.5 million in the third quarter of 2011 to $1.2 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 third quarter of 2012 are expected to result in annualized savings of approximately $5.2 million, with approximately $0.6 million expected to be realized during 2012.

During the third quarter of 2012, Schawk recorded a non-cash expense of $4.3 million related to the impairment of long-lived assets, of which $3.8 million related to the write down of customer relationship intangible assets within the Americas and European segments and $0.5 million related to company-owned real estate written down to its estimated market value. 

The company reported an operating loss of $1.5 million in the third quarter of 2012 compared to operating income of $8.2 million in the 2011 period. The decline in income year over year was driven primarily by lower gross profit and higher expenses associated with the non-cash impairment of long-lived assets, business and systems integration, acquisition integration and restructuring and SG&A.

For the third quarter of 2012, Schawk reported a tax benefit of $0.1 million compared to a benefit of $1.1 million during the same period in 2011, principally driven by the release of certain valuation allowances at the company's UK subsidiary during the third quarter of 2011.

Interest expense in the third quarter of 2012 was $0.9 million, a decline of $0.3 million compared to $1.2 million in the same quarter last year. The decrease in interest expense in the third quarter of 2012 compared to the third quarter of 2011 reflects interest capitalized in the 2012 period in connection with the company's information technology and business process improvement initiative and lower interest rates resulting from the company's 2012 credit facility refinancing.

Net loss in the third quarter of 2012 was $2.2 million, or $0.09 loss per diluted share, compared to net income of $8.1 million, or $0.31 per diluted share, in the 2011 period. Non-GAAP adjusted net income was $3.1 million, or $0.12 per diluted share, for the 2012 period, compared to $5.6 million, or $0.22 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 third quarter of 2012 was $11.9 million compared to $15.7 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 2012 third-quarter earnings conference call on Thursday, November 1, 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 Q3 2012 Schawk, Inc. conference call, or on the Internet, go to http://Phoenix.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=4857891. If you are unavailable to participate on the live call, a replay will be available through November 8 at 11:59 p.m. Central time. To access the replay, dial 888-843-7419 or 630-652-3042, enter conference ID 33635552, 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=4857891.

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 Adjusted net income 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 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; any impairment charges due to declines in the value of the Company's fixed and intangible assets, including goodwill; 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              
    September 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Net sales   $ 110,838     $ 112,298     $ (1,460 )   (1.3 )%
Cost of sales     71,599       70,344       1,255     1.8 %
Gross profit     39,239       41,954       (2,715 )   (6.5 )%
                               
Selling, general and administrative expenses     32,454       31,131       1,323     4.2 %
Business and systems integration expenses     2,997       1,997       1,000     50.1 %
Acquisition integration and restructuring expenses     1,218       468       750     nm  
Impairment of long-lived assets     4,281       --       4,281     nm  
Foreign exchange loss (gain)     (12 )     121       (133 )   nm  
Multiemployer pension withdrawal expense (income)     (203 )     --       (203 )   nm  
Operating income (loss)     (1,496 )     8,237       (9,733 )   nm  
                               
Other income (expense)                              
  Interest income     57       4       53     nm  
  Interest expense     (917 )     (1,212 )     295     (24.3 )%
                               
Income (loss) before income taxes     (2,356 )     7,029       (9,385 )   nm  
Income tax benefit     (143 )     (1,057 )     914     (86.5 )%
                               
Net income (loss)   $ (2,213 )   $ 8,086     $ (10,299 )   nm  
                               
Earnings (loss) per share:                              
  Basic   $ (0.09 )   $ 0.31     $ (0.40 )      
  Diluted   $ (0.09 )   $ 0.31     $ (0.40 )      
                               
Weighted average number of common and common equivalent shares outstanding:                              
  Basic     25,980       25,771                
  Diluted     25,980       25,976                
                               
Comprehensive income   $ 577     $ 4,292                
                               
nm = not meaningful                              
   
   
Schawk Inc.
Consolidated Statements of Comprehensive Income
 
(Unaudited)  
(In thousands, except per share amounts)  
                         
    Nine Months Ended              
    September 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Net sales   $ 339,850     $ 332,861     $ 6,989     2.1 %
Cost of sales     223,716       210,577       13,139     6.2 %
Gross profit     116,134       122,284       (6,150 )   (5.0 )%
                               
Selling, general and administrative expenses     100,415       91,822       8,593     9.4 %
Business and systems integration expenses     10,459       5,385       5,074     94.2 %
Acquisition integration and restructuring expenses     4,774       1,590       3,184     nm  
Impairment of long-lived assets     4,281       --       4,281     nm  
Foreign exchange loss     548       829       (281 )   (33.9 )%
Multiemployer pension withdrawal expense (income)     (203 )     1,846       (2,049 )   nm  
Operating income (loss)     (4,140 )     20,812       (24,952 )   nm  
                               
Other income (expense)                              
  Interest income     82       43       39     90.7 %
  Interest expense     (2,676 )     (3,772 )     1,096     (29.1 )%
                               
Income (loss) before income taxes     (6,734 )     17,083       (23,817 )   nm  
Income tax provision (benefit)     (1,418 )     2,246       (3,664 )   nm  
                               
Net income (loss)   $ (5,316 )   $ 14,837     $ (20,153 )   nm  
                               
Earnings (loss) per share:                              
  Basic   $ (0.21 )   $ 0.57     $ (0.78 )      
  Diluted   $ (0.21 )   $ 0.57     $ (0.78 )      
                               
Weighted average number of common and common equivalent shares outstanding:                              
  Basic     25,876       25,830                
  Diluted     25,876       26,171                
                               
Comprehensive income (loss)   $ (3,466 )   $ 14,276                
                               
nm = not meaningful                              
   
   
Schawk, Inc.  
Consolidated Balance Sheets  
(In thousands, except share amounts)  
   
    September 30,     December 31,  
    2012     2011  
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 10,226     $ 13,732  
  Trade accounts receivable, less allowance for doubtful accountsof $2,699 at September 30, 2012 and $1,926 at December 31, 2011    
94,546
      99,967  
  Inventories     25,940       24,672  
  Prepaid expenses and other current assets     12,524       14,894  
  Income tax receivable     7,185       5,620  
  Deferred income taxes     945       682  
Total current assets     151,366       159,567  
                 
Property and equipment, net     66,524       60,064  
Goodwill, net     211,616       205,365  
Other intangible assets, net:                
  Customer relationships     30,502       41,709  
  Other     679       354  
Deferred income taxes     5,970       5,933  
Other assets     6,922       6,521  
                 
Total assets   $ 473,579     $ 479,513  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Trade accounts payable   $ 20,416     $ 18,366  
  Accrued expenses     57,822       60,636  
  Deferred income taxes     3,209       3,209  
  Income taxes payable     1,207       511  
  Current portion of long-term debt     4,865       21,442  
Total current liabilities     87,519       104,164  
                 
Long-term liabilities:                
  Long-term debt     89,833       73,737  
  Deferred income taxes     14,478       13,476  
  Other long-term liabilities     12,820       14,211  
Total long-term liabilities     117,131       101,424  
                 
Stockholders' equity:                
  Common stock, $0.008 par value, 40,000,000 shares authorized, 31,097,862 and 30,766,517 shares issued at September 30, 2012 andDecember 31, 2011, respectively, 26,037,648 and 25,703,125 shares outstanding at September 30, 2012 and December 31, 2011, respectively    


227
      225  
  Additional paid-in capital     208,461       203,811  
  Retained earnings     114,081       125,619  
  Accumulated comprehensive income, net     10,930       9,080  
  Treasury stock, at cost, 5,060,214 and 5,063,392 shares of commonstock at September 30, 2012 and December 31, 2011, respectively    
(64,770
)     (64,810 )
Total stockholders' equity     268,929       273,925  
                 
Total liabilities and stockholders' equity   $ 473,579     $ 479,513  
   
   
Schawk Inc.
Segment Financial data
 
(Unaudited)  
(In thousands)  
                         
    Three Months Ended              
    September 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Sales to external clients:                              
Americas   $ 91,793     $ 95,213     $ (3,420 )   (3.6 )%
Europe     19,617       18,328       1,289     7.0 %
Asia Pacific     10,457       8,451       2,006     23.7 %
Intercompany sales elimination     (11,029 )     (9,694 )     (1,335 )   (13.8 )%
                               
Sales to external clients   $ 110,838     $ 112,298     $ (1,460 )   (1.3 )%
                               
Operating segment income (loss):                              
Americas   $ 9,235     $ 14,936     $ (5,701 )   (38.2 )%
Europe     (1,658 )     1,157       (2,815 )   nm  
Asia Pacific     668       1,533       (865 )   (56.4 )%
Corporate     (9,741 )     (9,389 )     (352 )   (3.7 )%
                               
Operating segment income (loss)   $ (1,496 )   $ 8,237     $ (9,733 )   nm  
                               
                               
    Nine Months Ended              
    September 30,     Increase (Decrease)  
    2012     2011     Amount     Percent  
                               
Sales to external clients:                              
Americas   $ 282,337     $ 284,262     $ (1,925 )   (0.7 )%
Europe     63,206       53,663       9,543     17.8 %
Asia Pacific     28,887       23,852       5,035     21.1 %
Intercompany sales elimination     (34,580 )     (28,916 )     (5,664 )   (19.6 )%
                               
Sales to external clients   $ 339,850     $ 332,861     $ 6,989     2.1 %
                               
Operating segment income (loss):                              
Americas   $ 27,703     $ 40,383     $ (12,680 )   (31.4 )%
Europe     249       4,160       (3,911 )   (94.0 )%
Asia Pacific     1,610       2,941       (1,331 )   (45.3 )%
Corporate     (33,702 )     (26,672 )     (7,030 )   (26.4 )%
                               
Operating segment income (loss)   $ (4,140 )   $ 20,812     $ (24,952 )   nm  
   
   
Schawk, Inc.  
Reconciliation of Non-GAAP measures to GAAP  
(Unaudited)  
(In thousands, except per share amounts)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
                                 
Income (loss) before income taxes - GAAP   $ (2,356 )   $ 7,029     $ (6,734 )   $ 17,083  
Adjustments:                                
  Acquisition integration and restructuring expenses     1,218       468       4,774       1,590  
  Business and systems integration expenses     2,997       1,997       10,459       5,385  
  Impairment of long-lived assets     4,281       --       4,281       --  
  Multiemployer pension withdrawal expense (income)     (203 )     --       (203 )     1,846  
  Foreign currency loss (gain)     (12 )     121       548       829  
Adjusted income before income tax - non GAAP     5,925       9,615       13,125       26,733  
Adjusted income tax provision - non GAAP     2,806       3,976       5,911       9,949  
                                 
Adjusted net income - non GAAP   $ 3,119     $ 5,639     $ 7,214     $ 16,784  
                                 
Weighted average common and common stock equivalents outstanding - GAAP (diluted)     26,102       25,976       26,006       26,171  
                                 
Earnings (loss) per diluted share - GAAP   $ (0.09 )   $ 0.31     $ (0.21 )   $ 0.57  
  Adjustments - net of tax effects:                                
  Acquisition integration and restructuring expenses     0.03       0.01       0.12       0.04  
  Business and systems integration expenses     0.07       0.05       0.25       0.12  
  Impairment of long-lived assets     0.11       --       0.11       --  
  Multiemployer pension withdrawal expense (income)     --       --       --       0.04  
  Foreign currency loss (gain)     --       --       0.01       0.02  
  Discrete tax adjustments - UK     --       (0.15 )     --       (0.15 )
                                 
Adjusted earnings per diluted share - non GAAP   $ 0.12     $ 0.22     $ 0.28     $ 0.64  
                                 
                                 
Income tax provision (benefit) - GAAP   $ (143 )   $ (1,057 )   $ (1,418 )   $ 2,246  
Adjustments: (1)                                
  Acquisition integration and restructuring expenses     392       167       1,644       565  
  Business and systems integration expenses     1,176       793       4,103       2,139  
  Impairment of long-lived assets     1,482       --       1,482       --  
  Multiemployer pension withdrawal expense (income)     (80 )     --       (80 )     733  
  Foreign currency loss (gain)     (21 )     65       180       258  
  Discrete tax adjustments - UK     --       4,008       --       4,008  
                                 
Adjusted income tax provision - non GAAP   $ 2,806     $ 3,976     $ 5,911     $ 9,949  
                                 
(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     Nine Months Ended     Trailing 12 Months  
    September 30,     September 30,     Ended September 30,  
    2012     2011     2012     2011     2012     2011  
                                                 
Net income (loss) - GAAP   $ (2,213 )   $ 8,086     $ (5,316 )   $ 14,837     $ 458     $ 21,159  
Interest expense     917       1,212       2,676       3,772       4,174       5,572  
Income tax expense (benefit)     (143 )     (1,057 )     (1,418 )     2,246       (2,168 )     7,634  
Depreciation and amortization expense    

4,696
     

4,358
     

14,116
     

13,140
     

19,033
     

17,493
 
Impairment of long-lived assets    
4,281
     
--
     
4,281
     
--
     
4,281
     
8
 
Non-cash restructuring charges    

--
     

--
     

--
     

--
     

137
     

--
 
Stock based compensation     424       508       2,665       1,578       3,185       2,050  
Adjusted EBITDA - non GAAP     7,962       13,107       17,004       35,573       29,100       53,916  
Permitted add backs on debt covenants:                                                
Proforma effect of acquisitions and asset sales     --       1,250       --       3,750       258       3,831  
Acquisition integration and restructuring expenses    

219
      --       246       239       334       239  
Business and systems integration expenses     2,944       --       10,000       --       10,000       --  
Adjusted EBITDA for covenant compliance - non GAAP     11,125       14,357       27,250       39,562       39,692       57,986  
Acquisition integration and restructuring expenses     999       468       4,528       1,351       4,360       2,588  
Business and systems integration expenses     --       1,997       234       5,385       3,270       6,301  
Proforma effect of acquisitions and asset sales     --       (1,250 )     --       (3,750 )     (258 )     (3,831 )
Multiemployer pension plan withdrawal expense (income)     (203 )     --       (203 )     1,846       (203 )     1,146  
Foreign exchange (gain) loss     (12 )     121       548       829       831       891  
                                                 
Management adjusted EBITDA - non GAAP   $ 11,909     $ 15,693     $ 32,537     $ 45,223     $ 47,692     $ 65,081  
                                                 
                                                 

Use of Non-GAAP Adjusted EBITDA, Adjusted EBITDA for covenant compliance, and Management adjusted EBITDA
Adjusted EBITDA - non GAAP, 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 - non GAAP 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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