DES PLAINES, IL--(Marketwire - July 2, 2008) - 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 first-quarter 2008 results. Net income in the first
quarter of 2008 was $4.3 million, or $0.15 per fully diluted share, versus
$6.0 million, or $0.22 per fully diluted share, in the first quarter of
2007 as restated.
Restated Financial Information
As reported in its Form 10-K for the year ended December 31, 2007, the
Company has restated its consolidated financial statements for the years
ended 2005 and 2006 and for the previously released 2007 interim periods.
Additionally, as reported in the Company's Form 8-K filed with the
Securities and Exchange Commission on June 26, 2008, the Company will
reflect unaudited, restated consolidated balance sheet information as of
December 31, 2007, in its Form 10-Q for the three months ended March 31,
2008. Accordingly, the financial results for the three month period ended
March 31, 2007, and balance sheet data at December 31, 2007, reflected in
this release are as restated.
Consolidated Results for First Quarter Ended March 31, 2008
Net sales in the first quarter of 2008 were $126.4 million compared to
$129.6 million in the same period of last year, a reduction of $3.2
million, or 2.5 percent. Acquisitions completed since March 31, 2007,
contributed $3.6 million of revenue in the first quarter of 2008. Total
revenues would have declined 5.3 percent without the revenue from these
acquisitions. The quarter-over-quarter decline in sales was the result of
lower sales in North America and Europe, which declined by $5.3 million, or
4.6 percent. Partially offsetting the overall sales decline in the quarter
was increased sales in Schawk's Other reportable segment, which were driven
by strong sales at Anthem, the Company's creative design group, including
two acquisitions which contributed to revenue gains in the current quarter.
In the 2008 first quarter, consumer products packaging accounts revenue,
which represents approximately two-thirds of the Company's total revenue,
improved 0.6 percent, advertising and retail accounts revenue decreased 6.2
percent, and entertainment accounts revenue decreased 12.0 percent as
compared to the first quarter of 2007. Comparing the first quarter of 2008
to the same period in 2007, the slight improvement in consumer products
packaging accounts revenue reflects sluggishness in the U.S. economy
partially offset by strong Canadian revenue, including the impact of an
acquisition, and improved European revenues. Advertising and retail
accounts revenue was adversely affected by the loss of a retail account
during the first quarter of 2007, as previously disclosed, and by reduced
European revenues, offset by new business from existing customers in the
U.S. and stronger Canadian business. Advertising and retail accounts
revenue would have increased 3.1 percent excluding the effect of the lost
account. The decline in entertainment accounts revenue primarily resulted
from lower spending from these customers.
Gross profit was 34.0 percent in the first quarter of 2008, a decline from
34.7 percent in the first quarter of 2007. The decrease in gross profit is
partly attributable to the decrease in sales volume, as a significant
portion of the expenses associated with cost of sales is fixed and does not
decrease proportionately with a decline in sales.
Operating income decreased to $6.7 million in the first quarter of 2008
from $12.2 million in the first quarter of 2007. First-quarter 2008
operating income percentage was 5.3 percent compared to 9.4 percent in the
2007 first quarter. The decrease in operating income in the first quarter
of 2008 compared to the first quarter of 2007 is the result of lower sales
volume, since the majority of selling, general and administrative expenses
is relatively fixed in nature and does not fluctuate with sales volume, and
a $1.8 million increase in professional fees, which included audit fees and
other costs related to Schawk's restatement, internal controls remediation
and related matters, professional fees for due diligence related to a
potential acquisition that was not consummated, and consulting fees related
to the Company's re-branding initiative. Additionally, there was an
increase of $1.4 million in selling, general and administrative expenses
associated with acquisitions that occurred in 2007.
Interest expense in the first quarter of 2008 was $1.8 million compared to
$2.4 million in the first quarter of 2007 as a result of a decrease in
outstanding debt of $18.0 million and a reduction in average interest rates
as compared to the first quarter of 2007. Outstanding debt rose by $6.7
million at quarter end, compared to outstanding debt at December 31, 2007,
due to working capital requirements, driven in part by a $6.0 million
income tax payment related to pre-acquisition tax obligations of the Seven
Worldwide Group, which was acquired by the Company in 2005.
Income tax expense for the first quarter of 2008 was at an effective rate
of 14.7 percent compared to an effective tax rate of 39.0 percent in the
first quarter of 2007. The decrease in the effective tax rate was
primarily a result of a release of a FIN48 tax reserve of $1.4 million
related to a statute of limitation closure.
Other Information
Depreciation and amortization expense was $5.5 million for the first
quarter of 2008 compared to $5.2 million in the prior-year first quarter.
Capital expenditures in the first quarter of 2008 were $2.4 million
compared to $4.4 million in the same period of 2007.
Cost Reduction Actions
The Company began certain cost reduction actions during the 2008 second
quarter that are expected to continue for the remainder of the year. These
actions are expected to result in future savings to the Company primarily
through reductions in personnel and more efficient use of operating space.
The Company currently estimates that it will incur charges in the last
three quarters of 2008 of between $7.0 million and $8.5 million for
severance and related costs, lease termination costs and asset write-downs.
Non-cash charges are expected to comprise $0.4 million of the total
charges.
The Company currently estimates that these actions will make it possible to
reduce operating expenses between $4.0 million and $5.0 million during the
last half of 2008 and between $12.0 million and $13.0 million annually in
2009 and thereafter.
Management Comments
President and Chief Executive Officer David A. Schawk commented, "During
the first quarter, we experienced a slowdown in business compared to the
first quarter of 2007, due primarily to general softness in the U.S.
economy. This slowdown in our markets is the result of reduced
promotional, innovation and marketing activities by many of our clients in
an effort to absorb higher costs of raw materials and shipping. Market
softness was particularly evident in our domestic business, which
represents approximately two-thirds of our overall revenue.
"First-quarter 2008 sales were also negatively impacted by $3.5 million as
a result of the loss of a major account that we ceased doing business with
during the first quarter of 2007. Outside the U.S., our Canadian
operations experienced strong sales, while sales from our European and
Asian operations were down slightly comparing the 2008 first quarter to the
prior-year first quarter. Our creative design group, Anthem, also
experienced improved sales in the quarter, as two acquisitions contributed
to revenue gains as compared to the prior-year first quarter.
"Although we have seen a modest improvement in consumer products packaging
activity related to both new products and promotional programs beginning in
the second quarter, we are increasing the utilization of our global network
as we implement the latest in best practice workflows and technologies to
be as efficient as possible. While our markets have been soft, we believe
we are more efficiently positioned than ever before to deliver traditional
and expanded products and services to meet our clients' demands. During
the current soft market conditions however, we will focus on controlling
costs to improve our operating margins. By closing and consolidating
manufacturing locations and expanding our sales and services offering while
reducing staffing levels, we seek to consolidate technologies and
workflows. Consistent with this, we anticipate charges between $7.0
million and $8.5 million for the remainder of the 2008 fiscal year related
to the reduction of personnel and the realignment of sites to perform work
in lower cost venues, while continuing to provide high levels of service
and quality to our clients."
Schawk continued, "We are intensely focused on remedying the weaknesses in
our internal controls and are working diligently to improve our processes,
to design effective controls and to add accounting resources as necessary.
During the first quarter, we incurred $0.9 million in professional fees
related to our internal control issues, and anticipate higher general and
administrative costs of up to $3.0 million during the remaining three
quarters of 2008 related to the development of the proper internal
controls. We expect to significantly improve our internal control system
by year end."
Schawk concluded, "With improvement in our consumer products packaging
business currently anticipated for the remainder of 2008, along with the
steps we are taking to reduce costs, we anticipate that our operating
margins will improve through the latter half of 2008 and forward. As
always, we remain dedicated to the Schawk vision of world-class service to
our clients."
Conference Call
Schawk invites you to join its first-quarter 2008 Earnings Conference Call
today at 9:00 a.m. Central time. Hosting the call will be David A. Schawk,
president and CEO, A. Alex Sarkisian, executive vice president and COO, and
Timothy J. Cunningham, interim CFO. To participate in the call, please
dial 866-314-5050 or 617-213-8051 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?p=irol-eventDetails&c=82169&eventID=1882608. If you are unavailable to
participate on the live call, a replay will be available through July 9,
11:59 p.m. Central time. To access the replay, dial 888-286-8010 or
617-801-6888, enter conference ID 86644130, 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?p=irol-eventDetails&c=82169&eventID=1882608.
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 60
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.
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, unanticipated difficulties associated with
additional accounting issues, if any, which may cause our investors to lose
confidence in our reported financial information and may have a negative
impact on the trading price of our stock; our ability to remedy known
internal control deficiencies and weaknesses and the discovery of future
control deficiencies or weaknesses, which may require substantial costs and
resources to rectify; higher than expected costs, or unanticipated
difficulties associated with, integrating the 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; loss of key management and
operational personnel; our ability to implement our growth strategy,
rebranding initiatives and cost reduction plans; 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.
For more information about Schawk, visit its website at
http://www.schawk.com.
Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2008 and 2007
(Unaudited)
(In Thousands, Except Share Amounts)
March 31, March 31,
2008 2007
------------ ------------
(Restated)
Net sales $ 126,407 $ 129,624
Cost of sales 83,440 84,602
------------ ------------
Gross profit 42,967 45,022
Selling, general and administrative expenses 36,271 32,863
------------ ------------
Operating income 6,696 12,159
Other income (expense):
Interest income 74 90
Interest expense (1,778) (2,398)
------------ ------------
(1,704) (2,308)
------------ ------------
Income before income taxes 4,992 9,851
Income tax provision 732 3,839
------------ ------------
Net income $ 4,260 $ 6,012
============ ============
Earnings per share:
Basic $ 0.16 $ 0.23
Diluted $ 0.15 $ 0.22
Weighted average number of common and common
equivalent shares outstanding:
Basic 27,053 26,607
Diluted 27,582 27,444
Dividends per common share $ 0.0325 $ 0.0325
Schawk, Inc.
Consolidated Balance Sheets
(Unaudited)
(In Thousands, Except Share Amounts)
March 31, December 31,
2008 2007
------------ ------------
(Restated)
Assets
Current assets:
Cash and cash equivalents $ 11,155 $ 11,754
Trade accounts receivable, less allowance for
doubtful accounts of $1,945 at March 31, 2008
and $2,063 at December 31, 2007 103,404 113,215
Inventories 27,594 21,902
Prepaid expenses and other current assets 13,131 13,524
Income tax receivable 1,469 --
Deferred income taxes 4,724 4,755
------------ ------------
Total current assets 161,477 165,150
Property and equipment, less accumulated
depreciation of $93,868 at March 31, 2008
and $89,715 at December 31, 2007 75,323 77,083
Goodwill 246,120 246,368
Intangible assets, net 40,432 41,528
Other assets 4,909 4,858
------------ ------------
Total assets $ 528,261 $ 534,987
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 23,346 $ 26,308
Accrued expenses 46,795 52,420
Income taxes payable -- 4,754
Current portion of long-term debt and capital
lease obligations 3,574 4,433
------------ ------------
Total current liabilities 73,715 87,915
Long-term debt 113,475 105,942
Other liabilities 21,139 24,547
Deferred income taxes 15,742 15,814
Stockholders' equity:
Common stock, $0.008 par value, 40,000,000
shares authorized, 29,330,243 and
29,213,166 shares issued at March 31, 2008
and December 31, 2007, respectively;
27,130,958 and 27,013,482 shares outstanding
at March 31, 2008 and December 31, 2007,
respectively 216 216
Additional paid-in capital 184,925 184,110
Retained earnings 134,836 131,457
Accumulated comprehensive income 13,383 14,162
------------ ------------
333,360 329,945
Treasury stock, at cost, 2,199,285 and
2,199,684 shares of common stock at
March 31, 2008 and December 31, 2007,
respectively (29,170) (29,176)
------------ ------------
Total stockholders' equity 304,190 300,769
------------ ------------
Total liabilities and stockholders' equity $ 528,261 $ 534,987
============ ============
Contact Information: AT SCHAWK, INC.:
Timothy J. Cunningham
Interim Chief Financial Officer
847-827-9494
tim.cunningham@schawk.com
AT DRESNER CORPORATE SERVICES:
Investors:
Philip Kranz
312-780-7240
pkranz@dresnerco.com