[LOGO]
AT SCHAWK, INC.: AT DRESNER CORPORATE SERVICES:
JAMES J. PATTERSON INVESTORS: PHILIP KRANZ
SR. VP AND CFO 312-780-7240
847-827-9494 PKRANZ@DRESNERCO.COM
JPATTERSON@SCHAWK.COM
MEDIA: STEVE CARR
312-780-7211
SCARR@DRESNERCO.COM
SCHAWK ANNOUNCES EARNINGS
FOR SECOND QUARTER AND FIRST SIX-MONTH PERIODS OF 2005
o Quarterly Revenue Up Significantly from Acquisitions
o Quarterly Operating Income up 50 Percent before Integration Costs
o Quarterly Earnings Per Share before Integration Costs and
Non-Recurring Other Income Totals 33 cents vs. 30 cents Last Year
DES PLAINES, IL, AUGUST 2, 2005--SCHAWK, INC. (NYSE: SGK), one of North
America's leading providers of digital imaging graphic services to the consumer
products and brand imaging markets, today reported second quarter 2005 results.
Schawk reported second quarter 2005 earnings of $0.29 per fully diluted share
($0.33 per fully diluted share before acquisition integration costs and a
non-recurring income item) as compared to $0.30 per fully diluted share in the
second quarter of 2004. For the six months ended June 30, 2005, the Company
reported earnings of $0.51 ($0.55 before acquisition integration costs and a
non-recurring income item) compared to $0.46 per fully diluted share in the
first six months of 2004.
Net income was $7.9 million in the second quarter of 2005, compared to $6.6
million in the second quarter of 2004, an increase of 18.6 percent. For the six
months ended June 30, 2005, net income was $13.4 million, compared to $10.2
million in the prior-year six-month period, an increase of 30.9 percent.
ACQUISITION, INTEGRATION EXPENSES
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During the second quarter and six-month periods ended June 30, 2005 Schawk
incurred acquisition integration expenses totaling $2.1 million or $0.05 on an
after-tax EPS basis related to the acquisition and integration of the Seven
Worldwide and Winnetts businesses. These costs included severance payments,
travel, legal and professional consulting fees, and various closed facilities
costs related to combining operations. These costs are identified separately on
the statement of operations as acquisition integration expenses.
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CONSOLIDATED RESULTS FOR SECOND QUARTER ENDED JUNE 30, 2005
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The following results reflect the combined revenues of Schawk, Winnetts and
Seven Worldwide, Inc. As previously disclosed, the Company completed the
acquisition of certain assets of Weir Holdings Inc. (trade name "Winnetts") on
December 31, 2004, and completed the acquisition of Seven Worldwide on January
31, 2005. Since a portion of the consideration for the Seven Worldwide
acquisition included Schawk common stock, the Company's weighted average diluted
shares outstanding totaled 27.2 million for the second quarter of 2005 versus
22.3 million in the same period last year.
Schawk reported net sales of $158.6 million for the second quarter of 2005
compared to $64.5 million in the same quarter of 2004. The increase was
primarily a result of the aforementioned acquisitions.
Gross margin for the second quarter decreased to 34.7 percent in 2005 from 42.6
percent in 2004, as expected, primarily due to lower margin business from Seven
Worldwide and Winnetts. Gross margin did improve 0.6 percent from the first
quarter as a result of cost reductions.
Operating income for the second quarter of 2005 increased 31.4 percent to $14.5
million (50.2 percent to $16.5 million before acquisition integration expenses)
compared to $11.0 million in the second quarter of 2004, primarily due to
operating income from the acquired companies. Operating margin was 9.1 percent
in the second quarter of 2005 compared to 17.1 percent in the same period of
2004, as expected, primarily due to lower margin business from Seven Worldwide
and Winnetts and $2.1 million of acquisition integration expenses. Excluding
integration costs the operating margin would have been 10.4 percent, a
significant increase over the first quarter operating margin of 8.3 percent. The
improvement in the operating margin as compared to the first quarter is a result
of cost reductions as part of the ongoing integration activities.
Other income (expense) for the second quarter of 2005 was $1.9 million of net
other expense, compared to $0.5 million for the same period of 2004.
Second-quarter 2005 net other income (expense) included interest expense of $2.5
million, offset by a $0.5 million non-recurring income item (proceeds of a life
insurance policy) and $0.1 million of interest income. The increase in interest
expense was due to approximately $155 million of additional indebtedness
incurred in connection with the Winnetts and Seven Worldwide acquisitions.
Income tax expense for the second quarter of 2005 was at an effective tax rate
of 37.5 percent compared to 37.0 percent in the prior-year second quarter. The
higher effective tax rate in 2005 was attributable to increased profits in
higher tax jurisdictions as compared to the prior year.
CONSOLIDATED RESULTS FOR SIX MONTHS ENDED JUNE 30, 2005
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For the six-month period ended June 30, 2005, net sales were $289.4 million
compared to $116.5 million for the same period of the prior year, primarily from
the aforementioned acquired companies.
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Schawk Inc. 2005 Second Quarter Results
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Gross margin for the first six months of 2005 decreased to 34.4 percent,
compared to 41.4 percent in the comparable prior-year period, as expected,
primarily due to lower margin business from Seven Worldwide and Winnetts.
Operating income increased to $25.4 million for the six months ended June 30,
2005 ($27.4 million before acquisition integration expenses), compared to $17.2
million in the same period last year, and operating margin for the 2005
six-month period was 8.8 percent compared to 14.8 percent for the prior-year
period. Before acquisition integration expenses, the operating margin would have
been 9.5% for the current six month period.
Other income (expense) in the six-month period ended June 30, 2005, resulted in
net other expense of $3.8 million, compared to $1.0 million of net expense in
the comparable prior year period primarily as a result of increased interest
expense as well as the other reasons described above for the second quarter.
Income tax expense for the first half of 2005 was at an effective rate of 37.8
percent compared to 37.0 percent in the prior year period. It is currently
anticipated that the effective tax rate will be in the range of 37 percent to 38
percent for the full year of 2005.
OTHER INFORMATION
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Depreciation and amortization expense was $6.9 million for the second quarter of
2005 compared to $3.9 million in the prior-year second quarter. For the 2005
six-month period, depreciation and amortization expense was $13.0 million
compared to $6.8 million in the prior-year six-month period. The increase was
due to the inclusion of depreciation and amortization expense from Winnetts and
Seven Worldwide.
Capital expenditures in the second quarter of 2005 were $4.1 million compared to
$2.5 million in the same period of 2004. For the first six months of 2005,
capital expenditures were $7.5 million compared to $4.4 million in the
prior-year period.
MANAGEMENT COMMENTS
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President and Chief Executive Officer David A. Schawk commented, "We are pleased
to report that we are on track with our integration of Winnetts and Seven
Worldwide. Significant cost reductions have been acted upon with much of the
benefit yet to be realized in the third and fourth quarters. As indicated in our
results, we achieved 33 cents per share before integration costs and
non-recurring other income. The five cents per share integration and
restructuring cost is in line with our estimate of 5 to 10 cents of integration
costs in 2005 that we previously announced. We expect to have at least another
five cents per share of integration and restructuring costs during the balance
of 2005. We are also pleased to report that our team continues to drive the
business forward and that the new Schawk operations are transitioning well.
Mr. Schawk continued, "On the business development front, we are pleased to
announce that we have been awarded a significant portion of the global business
for H.J. Heinz Company. We were also awarded substantially all of the North
American business of Safeway Inc. including project management, creative design,
and prepress and digital asset management. Both of these accounts are
anticipated to be significant accounts for Schawk within the next twelve months.
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"With our new strength in Europe as well as the strength of Schawk legacy
operations in North America and Asia, Schawk's vision of delivering world-class
service to our clients has never been stronger than it is today. We believe the
combination of Schawk, Seven Worldwide and Winnetts into our One Company
strategy is already providing tremendous, untapped opportunities in terms of our
people, services and meeting existing and new client demands, which will benefit
the Company and its shareholders in the future.
"As we stated previously, new regulations regarding consumer product labeling as
well as the continuation of "better-for-you" and other consumer and personal
appearance product introductions along with drives toward globalization and
business simplification are strong trends we believe will continue through 2005.
These trends are driving new products requiring new packaging concepts and
graphics, along with branding, advertising and promotional requirements, all of
which translate into revenue opportunities for Schawk. Schawk is able to meet
its clients' needs on the packaging front, as well as provide the speed-to-shelf
and supply chain efficiencies demanded by the new product introductions."
Schawk, Inc., headquartered in suburban Chicago, is a leading supplier of
digitized high resolution color graphic services, brand consulting and design
and an array of digitally based workflow solutions, all aimed at bringing
enhanced value to its clients. Schawk provides these advanced services for the
food, beverage, health & beauty, pharmaceutical, home care and consumer products
packaging, point of sale, retail and advertising markets.
CONFERENCE CALL
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Schawk invites you to join its Second-Quarter 2005 Earnings Conference Call
today at 9:30 a.m. central time. Hosting the call will be David A. Schawk,
president and CEO, A. Alex Sarkisian, executive vice president and chief
operating officer, and Jim Patterson, senior vice president and chief financial
officer. To join the call, please dial 800-218-4007 or 303-262-2131 at least
five minutes prior to the start time and ask for the Schawk, Inc. conference
call. If you are unable to participate on the call, a replay will be available
through August 9, 2005, at 11:59 p.m. eastern time, by dialing 800-405-2236 or
303-590-3000, entering conference ID 11034552, and following the prompts. To
access the call on the Internet, go to: http://www.actioncast.acttel.com, event
ID 29639, with a replay available for 30 days.
For more information about Schawk, visit our website at http://www.schawk.com.
NOTE:
This press release contains mention of various non-GAAP measures in an effort to
better provide an understanding of Schawk's financial performance. Schawk has
provided a reconciliation of GAAP to Non-GAAP numbers as they relate to
integration costs and non-recurring other income in a table on the last page of
today's press release.
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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,
higher than expected costs, or unanticipated difficulties associated with,
integrating the acquired operations of Winnetts and Seven Worldwide, 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, 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.
Financial Tables to Follow
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SCHAWK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 2004
-------- --------
Net sales $158,648 $64,456
Cost of sales 103,666 37,025
Selling, general, and administrative expenses 38,433 16,412
Acquisition integration expenses 2,072 --
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Operating income 14,477 11,019
Other income (expense)
Interest income 82 1
Interest expense (2,480) (513)
Other 486 --
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(1,912) (512)
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Income before income taxes 12,565 10,507
Income tax provision 4,713 3,886
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Net income $ 7,852 $ 6,621
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Earnings per share:
Basic $ 0.31 $ 0.31
Diluted $ 0.29 $ 0.30
Weighted average number of common and common equivalent shares outstanding
27,243 22,323
Dividends per common share $ 0.0325 $0.0325
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SCHAWK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 2004
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Net sales $289,399 $116,533
Cost of sales 189,863 68,335
Selling, general, and administrative expenses 72,109 30,954
Acquisition integration expenses 2,072 --
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Operating income 25,355 17,244
Other income (expense)
Interest income 151 1
Interest expense (4,423) (978)
Other 486 --
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(3,786) (977)
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Income before income taxes 21,569 16,267
Income tax provision 8,153 6,019
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Net income $ 13,416 $ 10,248
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Earnings per share:
Basic $ 0.54 $ 0.48
Diluted $ 0.51 $ 0.46
Weighted average number of common and common equivalent shares outstanding 26,413 22,320
Dividends per common share $ 0.065 $ 0.065
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SCHAWK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, 2005 DECEMBER 31, 2004
(UNAUDITED)
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ASSETS
Current assets:
Cash and cash equivalents $ 14,641 $ 7,268
Trade accounts receivable, less allowance for doubtful accounts of
$5,735 at June 30, 2005 and $1,773 at December 31, 2004 125,428 56,332
Inventories 34,123 10,339
Prepaid expenses and other 10,620 4,702
Refundable income taxes 313 1,832
Deferred income taxes 16,449 2,353
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Total current assets 201,574 82,826
Property and equipment, less accumulated depreciation of $73,015 at June
30, 2005 and $69,668 at December 31, 2004 92,097 46,431
Goodwill 211,503 71,720
Intangible assets, net 54,248 12,754
Other assets 6,654 7,032
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Total assets $566,076 $220,763
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 24,977 $ 8,424
Accrued expenses 77,596 26,578
Income taxes payable 12,835 --
Current portion of long-term debt and capital lease obligations 6,611 6,683
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Total current liabilities 122,019 41,685
Long-term debt 172,411 39,500
Capital lease obligations 203 464
Other 15,920 979
Deferred income taxes 40,284 6,695
Stockholders' Equity:
Common stock 225 191
Additional paid-in capital 165,589 92,350
Retained earnings 73,078 61,330
Accumulated comprehensive income 1,945 2,442
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240,837 156,313
Treasury stock, at cost (25,598) (24,873)
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Total stockholders' equity 215,239 131,440
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Total liabilities and stockholders' equity $566,076 $220,763
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SCHAWK, INC.
REGULATION G: GAAP TO NON-GAAP RECONCILIATION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2005 JUNE 30, 2005
Operating income per GAAP $14,477 $25,355
Acquisition integration expenses 2,072 2,072
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Operating income before acquisition integration expenses (Non-GAAP) 16,549 27,427
Other income (expense) per GAAP (1,912) (3,786)
Non-recurring other income item (proceeds of life insurance policy) 486 486
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Other income (expense) before non-recurring other income item (Non-GAAP) (2,398) (4,272)
Income before income taxes per GAAP 12,565 21,569
Acquisition integration expenses and non-recurring
other income item, net 1,586 1,586
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Income before income taxes, acquisition integration
expenses and non-recurring other income item (Non-GAAP) 14,151 23,155
Income tax provision on Non-GAAP pretax income 5,292 8,753
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Net income before acquisition integration expenses and
non-recurring other income item after tax (Non-GAAP) $8,859 $14,402
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Weighted average number of common and common equivalent
shares outstanding 27,243 26,413
Earnings per share, fully diluted, before acquisition integration
expenses and non-recurring other income item after tax (Non-GAAP) $0.33 $0.55
Earnings per share fully diluted per GAAP $0.29 $0.51
Add back acquisition integration expenses after tax 0.05 0.05
Less; non recurring other income item after tax (0.01) (0.01)
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Earnings per share, fully diluted before acquisition integration
expenses and non-recurring other income item after tax (Non-GAAP) $0.33 $0.55
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