SOURCE: SGK

SGK

April 30, 2014 17:00 ET

SGK Announces 2014 First-Quarter Results

DES PLAINES, IL--(Marketwired - Apr 30, 2014) - Schawk, Inc. (NYSE: SGK), now marketed as SGK (the "Company"), a leading global brand development, activation and deployment company, reported first-quarter 2014 results. Loss from continuing operations in the first quarter of 2014 was $2.7 million, or a loss of $0.10 per diluted share, versus income of $1.3 million, or $0.05 per diluted share, in the first quarter of 2013. 

Included in the loss from continuing operations for the first quarter of 2014 was $8.1 million of merger-related expenses relating to the Company's entry into a definitive merger agreement with Matthews International Corporation on March 16, 2014.

In addition, the Company reported income of $1.9 million in the first quarter of 2014, relating to a decrease in the estimated liability originally recorded in 2012 for the Company's withdrawal from its remaining multiemployer pension plan within the United States. 

Operating loss for the first quarter of 2014 was $5.0 million compared to operating income of $1.7 million for the same quarter of 2013.

On a non-GAAP basis, adjusting for financial impacts relating to merger-related expenses, the reduction in the Company's multiemployer pension withdrawal liability and certain other items further detailed in this release, 2014 first-quarter adjusted operating income was $3.6 million compared to $4.4 million in the prior-year period.

Adjusted income from continuing operations was $2.7 million, or $0.10 per diluted share, for the first quarter of 2014 compared to $3.0 million, or $0.11 per diluted share, during the same period of 2013. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Chief Executive Officer David A. Schawk commented, "As previously announced, we entered into a definitive merger agreement with Matthews International Corporation on March 16, 2014, which we presently expect to close sometime during the third quarter of 2014. While we work toward completing the steps necessary to consummate the merger, we continue to remain focused on providing world-class brand development and deployment services to our clients."

Consolidated Results for the Quarter Ended March 31, 2014
Consolidated net revenues in the first quarter of 2014 were $101.9 million compared to $107.2 million in the prior-year period, a decrease of approximately $5.3 million, or 4.9 percent. Year-over-year revenues were negatively impacted by changes in foreign currency translation rates of approximately $0.7 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries.

Consumer packaged goods (CPG) client revenue during the first quarter of 2014 was $89.0 million, or 87.3 percent of total net revenues, compared to $94.1 million in the same period of 2013, a decrease of 5.4 percent, due to reduced client activity within brand development and deployment. Retail and advertising client revenue in the first quarter of 2014 was essentially flat at $12.9 million, or 12.7 percent of total revenues, compared to $13.0 million during the same period of 2013. 

Cost of services (excluding depreciation and amortization) was $65.4 million in the first quarter of 2014, a decrease of approximately $2.7 million from $68.2 million in the prior-year period, mainly due to cost reduction actions taken during 2013 and in the first quarter of 2014.

Selling, general and administrative expenses (excluding depreciation and amortization) decreased $2.2 million to $28.3 million in the first quarter of 2014 from $30.4 million in the same period of 2013. Reductions in expenses were driven by the Company's cost reduction efforts implemented during 2013 and in the first quarter of 2014.

Expenses related to the Company's pending merger with Matthews International Corporation, which included compensation-related expenses and professional fees, were $8.1 million during the first quarter of 2014. 

Business and systems integration expenses related to the Company's information technology and business process improvement initiative decreased $1.1 million to $1.6 million in the first quarter of 2014 from $2.7 million in the prior-year period.

In addition, the Company reported $1.9 million of income resulting from a decrease in its multiemployer pension withdrawal liability originally recorded in 2012.

During the first quarter of 2014, operating loss was $5.0 million compared to operating income of $1.7 million in the prior-year period driven primarily by the merger-related expenses and a decline in consolidated net revenues, partially offset by decreases in cost of services and SG&A as well as the multiemployer pension withdrawal income. Non-GAAP adjusted operating income was $3.6 million for the first quarter of 2014 compared to $4.4 million in the prior-year comparable period.

The Company reported a tax benefit of $3.1 million in the first quarter of 2014 compared to a benefit of $0.7 million during the same period of 2013, due primarily to the Company's loss from continuing operations coupled with certain discrete tax benefits recorded during the 2014 quarter.

Loss from continuing operations was $2.7 million in the first quarter of 2014, or a loss of $0.10 per diluted share, compared to income of $1.3 million, or $0.05 per diluted share, in the same period of 2013. Non-GAAP adjusted income from continuing operations was $2.7 million, or $0.10 per diluted share, for the first quarter of 2014 compared to $3.0 million, or $0.11 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management Adjusted EBITDA for the first quarter of 2014 was $8.6 million compared to $9.0 million in 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
In light of the pending merger with Matthews International Corporation, the Company will not be holding a first-quarter 2014 earnings conference call.

About SGK
SGK is a leading global brand development, activation and deployment company that drives brand performance. By creating brands, helping sell brands, producing brand assets and protecting brand equities, we help our clients achieve higher brand performance. SGK's global footprint spans more than 20 countries. For more information visit: http://www.sgkinc.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 may differ materially from those contained in the forward-looking statements because of factors, such as, among other things, the strength of the United States economy in general and, specifically, market conditions for the consumer products industry in the U.S. and abroad; the level of demand for the Company's services; unfavorable foreign exchange fluctuations; changes in or weak consumer confidence and consumer spending; loss of key management and operational personnel; the ability of the Company to implement its business strategy 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; the ability of the Company 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; the stability of state, federal and foreign tax laws; the ability of the Company to identify and capitalize on industry trends and technological advances in the imaging industry; higher than anticipated costs or lower than anticipated benefits associated with the Company's ongoing information technology and business process improvement initiative or unanticipated costs or difficulties associated with integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; any impairment charges due to declines in the value of the Company's fixed and intangible assets, including goodwill; the stability of political conditions in foreign countries in which the Company has production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in the Company's filings with the Securities and Exchange Commission. In addition, factors relating to the proposed merger between the Company and Matthews could cause results to differ materially from those set forth in forward-looking statements, including, among other things, the impact the pending merger will have on the Company's financial results prior to and following completion of the merger; the ability to complete the merger in the expected timeframe or at all, including as a result of purported class action lawsuits seeking to, among other things, enjoin the merger; merger integration risks and uncertainties; and disruptions to client and employee relationships and business operations as a result of the merger. The Company can give no assurance that the assumptions upon which such forward-looking statements are based will prove to have been correct, and undue reliance should not be placed on such statements. The Company assumes no obligation to update publicly any of these statements in light of future events.

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 and Form 10-Q filed with the Securities and Exchange Commission.

For more information about SGK, visit its website at http://www.sgkinc.com.

Schawk, Inc. is now marketed as SGK

   
   
Schawk Inc.
Consolidated Statements of Comprehensive Income (Loss)
 
(Unaudited)  
(In thousands, except per share amounts)  
                         
    Three Months Ended              
    March 31,     Increase (Decrease)  
    2014     2013     Amount     Percent  
                               
Net revenues   $ 101,886     $ 107,158     $ (5,272 )   (4.9 )%
                               
Operating expenses:                              
Cost of services (excluding depreciation and amortization)     65,448       68,186       (2,738 )   (4.0 )%
Selling, general and administrative expenses (excluding depreciation and amortization)    
28,261
     
30,441
     
(2,180
)  
(7.2
)%
Merger-related expenses     8,135       --       8,135     nm  
Depreciation and amortization     4,587       4,096       491     12.0 %
Business and systems integration expenses     1,608       2,658       (1,050 )   (39.5 )%
Foreign exchange loss (gain)     349       (242 )     591     nm  
Acquisition integration and restructuring expenses    
345
     
243
     
102
   
42.0
%
Multiemployer pension withdrawal income     (1,870 )     --       (1,870 )   nm  
Impairment of long-lived assets     --       36       (36 )   nm  
Operating income (loss)     (4,977 )     1,740       (6,717 )   nm  
                               
Other income (expense)                              
  Interest income     87       26       61     nm  
  Interest expense     (902 )     (1,095 )     193     (17.6 )%
                               
Income (loss) from continuing operations before income taxes     (5,792 )     671       (6,463 )   nm  
Income tax benefit     (3,059 )     (651 )     (2,408 )   nm  
                               
Income (loss) from continuingoperations     (2,733 )     1,322       (4,055 )   nm  
Income from discontinuedoperations, net of tax     --       133       (133 )   nm  
                               
Net income (loss)   $ (2,733 )   $ 1,455     $ (4,188 )   nm  
                               
Diluted earnings (loss) per share:                              
  Income (loss) from continuingoperations   $ (0.10 )   $ 0.05     $ (0.15 )      
  Income from discontinuedoperations     --       0.01       (0.01 )      
  Net income (loss) per common share   $ (0.10 )   $ 0.06     $ (0.16 )      
                               
Weighted average number of common and common equivalent shares outstanding:                              
  Diluted     26,350       26,224                
                               
Comprehensive loss   $ (2,797 )   $ (886 )              
                               
                               
nm = not meaningful                              
                               
                               
                               
Schawk, Inc.  
Consolidated Balance Sheets  
(In thousands, except share amounts)  
   
    March 31,     December 31,  
    2014     2013  
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 4,947     $ 6,171  
  Trade accounts receivable, less allowance for doubtful accounts of $2,079 at March 31, 2014 and $2,040 at December 31, 2013    
94,128
     
96,559
 
  Unbilled services     18,322       18,095  
  Prepaid expenses and other current assets     13,403       8,584  
  Income tax receivable     11,076       2,053  
  Deferred income taxes     1,240       1,227  
Total current assets     143,116       132,689  
                 
Property and equipment, net     57,098       59,003  
Goodwill, net     201,610       201,913  
Other intangible assets, net:                
  Customer relationships     23,082       24,035  
  Other     420       461  
Deferred income taxes     4,295       4,218  
Other assets     8,271       8,222  
                 
Total assets   $ 437,892     $ 430,541  
                 
Liabilities and stockholders' equity                
Current liabilities:                
  Trade accounts payable   $ 16,144     $ 17,132  
  Accrued expenses     68,620       51,137  
  Deferred income taxes     217       215  
  Income taxes payable     256       3,902  
  Current portion of long-term debt     1,266       1,266  
Total current liabilities     86,503       73,652  
                 
Long-term liabilities:                
  Long-term debt     60,534       56,636  
  Deferred income taxes     11,231       8,759  
  Other long-term liabilities     38,326       40,647  
Total long-term liabilities     110,091       106,042  
                 
Stockholders' equity:                
  Common stock, $0.008 par value, 40,000,000 shares authorized, 31,324,898 and 31,321,010 shares issued at March 31, 2014 and December 31, 2013, respectively, 26,230,827 and 26,226,303 shares outstanding at March 31, 2014 and December 31, 2013, respectively    


229
     


229
 
  Additional paid-in capital     208,596       213,247  
  Retained earnings     87,153       92,000  
  Accumulated comprehensive income, net     10,541       10,605  
  Treasury stock, at cost, 5,094,071 and 5,094,707 shares of common stock at March 31, 2014 and December 31, 2013, respectively    
(65,221
)    
(65,234
)
Total stockholders' equity     241,298       250,847  
                 
Total liabilities and stockholders' equity   $ 437,892     $ 430,541  
                 
                 
                 
Schawk Inc.
Segment Financial Data
 
(Unaudited)  
(In thousands)  
                         
    Three Months Ended              
    March 31,     Increase (Decrease)  
    2014     2013     Amount     Percent  
                               
Net revenues:                              
Americas   $ 73,167     $ 82,574     $ (9,407 )   (11.4 )%
Europe     23,566       19,872       3,694     18.6 %
Asia Pacific     10,053       9,706       347     3.6 %
Intersegment revenue elimination     (4,900 )     (4,994 )     94     1.9 %
                               
Total (1)   $ 101,886     $ 107,158     $ (5,272 )   (4.9 )%
                               
Operating segment income (loss):                              
Americas   $ 8,527     $ 11,842     $ (3,315 )   (28.0 )%
Europe     1,522       (181 )     1,703     nm  
Asia Pacific     581       347       234     67.4 %
Corporate     (15,607 )     (10,268 )     (5,339 )   (52.0 )%
                               
Operating income (loss)   $ (4,977 )   $ 1,740     $ (6,717 )   nm  
                               
Quarter-over-quarter net revenues were negatively impacted by changes in foreign currency translation rates for the Americas and Asia Pacific segments by approximately $1.0 million and $0.8 million, respectively. Net revenues for the Europe segment benefited by approximately $1.1 million for the quarter. Total consolidated net revenues were negatively impacted by changes in foreign currency translation rates by approximately $0.7 million in the first quarter of 2014 compared to the prior-year comparable quarter.  
   
   
   
Schawk, Inc.  
Reconciliation of Non-GAAP Measures to GAAP  
(Unaudited)  
(In thousands, except per share amounts)  
             
    Three Months Ended  
    March 31,  
    2014     2013  
                 
Operating income (loss) - GAAP   $ (4,977 )   $ 1,740  
Adjustments:                
  Merger-related expenses     8,135       --  
  Business and systems integration expenses     1,608       2,658  
  Foreign currency (gain) loss     349       (242 )
  Impairment of long-lived assets     --       36  
  Acquisition integration and restructuring expenses     345       243  
  Multiemployer pension withdrawal income     (1,870 )     --  
                 
Adjusted operating income - non GAAP   $ 3,590     $ 4,435  
                 
                 
Income (loss) from continuing operations - GAAP   $ (2,733 )   $ 1,322  
Adjustments - net of tax effects (1):                
  Merger-related expenses     5,023       --  
  Business and systems integration expenses     1,069       1,641  
  Foreign currency (gain) loss     269       (174 )
  Impairment of long-lived assets     --       32  
  Acquisition integration and restructuring expenses     216       156  
  Multiemployer pension withdrawal income     (1,155 )     --  
                 
Adjusted income from continuing operations - non GAAP   $ 2,689     $ 2,977  
                 
                 
Earnings (loss) from continuing operations per diluted share - GAAP   $ (0.10 )   $ 0.05  
Adjustments - net of tax effects (1):                
  Merger-related expenses     0.19       --  
  Business and systems integration expenses     0.04       0.06  
  Foreign currency (gain) loss     0.01       (0.01 )
  Impairment of long-lived assets     --       --  
  Acquisition integration and restructuring expenses     --       0.01  
  Multiemployer pension withdrawal income     (0.04 )     --  
                 
Adjusted earnings from continuing operations per diluted share - non GAAP   $ 0.10     $ 0.11  
                 
Weighted average common and common stock                
equivalents outstanding - GAAP (diluted)     26,350       26,224  
                 
(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     Twelve Months Ended  
    March 31,     March 31,  
    2014     2013     2014     2013  
Income (loss) from continuing operations - GAAP   $ (2,733 )   $ 1,322     $ 9,163     $ (20,669 )
Interest expense     902       1,095       4,131       3,905  
Income tax expense (benefit)     (3,059 )     (651 )     4,495       (10,705 )
Depreciation and amortization expense     4,587       4,096       18,627       17,163  
Impairment of long-lived assets     --       36       466       4,317  
Stock based compensation     1,247       416       2,475       1,713  
Adjusted EBITDA - non GAAP     944       6,314       39,357       (4,276 )
Permitted add backs on debt covenants:                                
Proforma effect of acquisitions and asset sales     --       290       210       1,601  
Acquisition integration and restructuring expenses     --       --       --       181  
Business and systems integration expenses     --       2,658       --       10,000  
Multiemployer pension withdrawal expense     (1,870 )     --       (1,870 )     31,683  
Adjusted EBITDA for covenant compliance - non GAAP    
(926
)    
9,262
     
37,697
     
39,189
 
Merger-related expenses     7,196       --       7,196       --  
Acquisition integration and restructuring expenses     345       243       1,876       4,234  
Business and systems integration expenses     1,608       --       6,438       1,647  
Proforma effect of acquisitions and asset sales     --       (290 )     (210 )     (1,601 )
Multiemployer pension plan withdrawal expense     --       --       --       (203 )
Foreign exchange loss (gain)     349       (242 )     1,882       1,111  
Management Adjusted EBITDA - non GAAP   $ 8,572     $ 8,973     $ 54,879     $ 44,377  
                                 

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.  

Contact Information

  • AT SGK:
    Timothy Allen
    Vice President, Finance
    Operations and Investor Relations
    847-827-9494
    Email Contact