Schawk Announces 2012 Second-Quarter Results

Second-Quarter Revenues Grow 2.6 Percent Over Prior Year

Marketwired

DES PLAINES, IL--(Marketwire -08/01/12)- Schawk, Inc. (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 Six Months Ended
June 30, 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.

Contact:
AT SCHAWK, INC.:
Timothy Allen
Vice President, Finance
Operations and Investor Relations
847-827-9494
Timothy.Allen@schawk.com
AT DRESNER CORPORATE SERVICES:
Investors:
Philip Kranz
312-780-7240
pkranz@dresnerco.com

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