[SCHAWK, INC. 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: SARAH KOMUNIECKI
312-780-7208
SKOMUNIECKI@DRESNERCO.COM
SCHAWK ANNOUNCES EARNINGS
FOR THIRD QUARTER AND FIRST NINE-MONTHS OF 2005
o Quarterly Revenue Up Significantly from Acquisitions
o Quarterly Operating Income up 56 Percent before Integration Costs
o Quarterly Net Income up 36 Percent before Integration Costs
o Quarterly Earnings Per Share before Integration Costs Totals
36 cents vs. 33 cents Last Year
DES PLAINES, IL, NOVEMBER 1, 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 financial results for the
third quarter and first nine-months of 2005 periods. Schawk reported
third-quarter 2005 earnings of $0.32 per fully diluted share ($0.36 per fully
diluted share before acquisition integration costs) as compared to $0.33 per
fully diluted share in the third quarter of 2004. For the nine months ended
September 30, 2005, the Company reported earnings of $0.83 ($0.91 before
acquisition integration costs and a non-recurring income item) compared to $0.79
per fully diluted share in the first nine months of 2004.
Net income was $8.8 million in the third quarter of 2005, compared to $7.3
million in the third quarter of 2004, an increase of 19.7 percent. For the nine
months ended September 30, 2005, net income was $22.2 million, compared to $17.6
million in the prior-year nine-month period, an increase of 26.3 percent.
ACQUISITION INTEGRATION EXPENSES
During the third-quarter and nine-month periods ended September 30, 2005, Schawk
incurred acquisition integration expenses totaling $2.0 million ($1.2 million,
or $0.04 per share, on an after tax basis), and $4.0 million ($2.5 million, or
$0.09 per share, on an after-tax basis), respectively, 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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Schawk Inc. Third-Quarter and Nine-Months 2005 Results
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CONSOLIDATED RESULTS FOR THIRD QUARTER ENDED SEPTEMBER 30, 2005
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 27.7 million for the third quarter of 2005 versus
22.5 million in the same period last year.
Schawk reported net sales of $165.3 million for the third quarter of 2005
compared to $62.2 million in the same quarter of 2004. The increase was
primarily a result of the aforementioned acquisitions.
Gross margin for the third quarter decreased to 35.1 percent in 2005 from 45.3
percent in 2004, as expected, primarily due to lower margin business from Seven
Worldwide and Winnetts. Gross margin improved 0.4 percentage points from the
second quarter of 2005 as a result of cost reductions. The Company expects to
see further improvement in margins over the next twelve months.
Operating income for the third quarter of 2005 increased 39.2 percent to $16.2
million (56.1 percent to $18.2 million before acquisition integration expenses)
compared to $11.7 million in the third quarter of 2004, primarily due to
operating income from the acquired companies. Operating margin was 9.8 percent
in the third quarter of 2005 compared to 18.7 percent in the same period of
2004, as expected, primarily due to lower margin business from the acquired
companies and $2.0 million of acquisition integration expenses. Excluding
integration costs the operating margin would have been 11.0 percent, an increase
over the second-quarter of 2005 operating margin on the same basis of 10.4
percent. The improvement in the operating margin as compared to the previous
quarter is a result of cost reductions as part of the ongoing integration
activities.
Other income (expense) for the third quarter of 2005 was $2.3 million of net
other expense, compared to $0.4 million of net expense for the same period of
2004. Third-quarter 2005 net other income (expense) included interest expense of
$2.5 million, offset by $0.1 million of interest income. The increase in
interest expense over the 2004 period was due to approximately $155 million of
additional indebtedness incurred in connection with the aforementioned
acquisitions.
Income tax expense for the third quarter of 2005 was at an effective tax rate of
37.0 percent compared to 35.0 percent in the prior-year third quarter. The lower
effective tax rate in the third quarter of 2004 was attributable to state and
federal tax refunds and credits realized in 2004 that did not occur again in
2005.
CONSOLIDATED RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 2005
For the nine-month period ended September 30, 2005, net sales were $454.7
million compared to $178.8 million for the same period of the prior year,
primarily from the acquired companies.
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Gross margin for the first nine months of 2005 decreased to 34.6 percent,
compared to 42.7 percent in the comparable prior-year period, as expected,
primarily due to lower margin business from the acquired companies.
Operating income increased to $41.6 million for the nine months ended September
30, 2005, ($45.6 million before acquisition integration expenses), compared to
$28.9 million in the same period last year, and operating margin for the 2005
nine-month period was 9.1 percent compared to 16.2 percent for the prior-year
period. Before acquisition integration expenses, the operating margin would have
been 10.0 percent for the current nine-month period.
Other income (expense) in the nine-month period ended September 30, 2005,
resulted in net other expense of $6.1 million, compared to $1.4 million of net
expense in the comparable prior-year period, primarily as a result of increased
interest expense. Interest expense increased primarily as a result of the
increase in debt incurred in connection with the acquired companies as noted
previously.
Income tax expense for the first nine months of 2005 was at an effective rate of
37.5 percent compared to 36.2 percent in the prior-year period. The lower tax
rate in 2004 was primarily due to tax refunds and credits realized in 2004 as
noted previously.
OTHER INFORMATION
Depreciation and amortization expense was $7.1 million for the third quarter of
2005 compared to $2.6 million in the prior-year third quarter. For the 2005
nine-month period, depreciation and amortization expense was $20.1 million
compared to $9.5 million in the prior-year nine-month period. The increase was
due to the inclusion of depreciation and amortization expense from the acquired
companies.
Capital expenditures in the third quarter of 2005 were $6.2 million compared to
$3.8 million in the same period of 2004. For the first nine months of 2005,
capital expenditures were $13.6 million compared to $8.3 million in the
prior-year period. The increase in capital expenditures is a result of normal
capital spending for the company's historical operations and the acquired
businesses.
Schawk recently was ranked in the Forbes 200 Best Run Small Companies list for
the second consecutive year. The Company qualified for the list as a result of
its steady growth over the past five years both organically and through
acquisitions. Schawk attributes its continued success and growing visibility to
a number of factors, including a focused strategic plan, the ability to
successfully integrate acquired companies, the ability to adapt as technology
changes and increased recognition by its clients as a key business partner.
Schawk partners with its clients to help them quickly and effectively keep pace
with consumer trends and expedite the introduction of new package design
solutions.
MANAGEMENT COMMENTS
President and Chief Executive Officer David A. Schawk commented, "Our
integration of Winnetts and Seven Worldwide is on track. While we had hoped to
be further along in Europe, we are confident that we will be substantially
completed with our European integration by year-end. With respect to US
integration efforts, there may be as much as an additional four to five
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cents per share of integration and restructuring costs in the fourth quarter of
2005. However, we believe we will be substantially completed with our current
restructuring efforts in the US by the end of the year. We expect to see
improvements in our profitability in 2006 because of our consolidation efforts
in 2005."
Mr. Schawk continued, "Strong revenues in the third quarter were driven by
higher sales in the consumer products packaging, retail and entertainment
markets. The sequential improvement in our margins over the past two quarters of
2005 is an important trend, which we believe is evidence that our restructuring
efforts are taking hold. We anticipate a further improvement in margins over the
next twelve months.
"Additionally, most of our business involves imaging for consumer products. In
this era of increased gasoline prices and energy costs along with the resulting
decrease in discretionary funds, consumers tend to combine their errands, stay
at home more and eat out at restaurants less often. This environment creates
robust activity in couponing and promotions on packaging and in the grocery
aisles to appeal to this "stay at home" trend. Our service offering provides
stability and opportunity in response to these changes in consumer behavior.
"Schawk's strong results for the first nine months of 2005 are attributable to
our vision of delivering world-class service to our clients," Mr. Schawk
concluded. "Through the consolidation of the acquired companies, we continue to
see tremendous opportunities in terms of our people, services and new business.
As the largest brand imaging solutions firm in the world, our people, knowledge,
information, and assets have never been stronger than they are today.
"Finally, we are extremely proud to be named for the second consecutive year to
Forbes recent competitive listing of 200 Best Run Small Companies in America. To
qualify for inclusion on Forbes list, candidates must demonstrate a consistent
pattern of positive growth during a five-year period, as well as over the last
year. Key to our successful growth during these periods has been Schawk's
ability to deliver our clients' products to market quickly and efficiently.
Since our founding in 1953, we have been committed to delivering extraordinary
value to our clients. We are honored to have Forbes once again recognize our
progress and success."
CONFERENCE CALL
Schawk invites you to join its Third-Quarter 2005 Earnings Conference Call today
at 9:30 a.m. central time. Hosting the call will be David 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
participate in the call, please dial 866-249-6463 or 303-262-2005 at least five
minutes prior to the start time and ask for the Schawk, Inc. conference call, or
on the Internet, go to http://www.actioncast.acttel.com, event ID 31026. If you
are unavailable to participate on the live call, a replay will be available
through November 8 at 11:59 p.m. eastern time. To access the replay, dial
800-405-2236 or 303-590-3000, enter conference ID 11042457, and follow the
prompts. The replay will also be available on the Internet at
http://www.actioncast.acttel.com, event ID 31026, for 30 days.
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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.
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. For more information
about Schawk, visit our website at http://www.schawk.com.
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 SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 2004
--------- ---------
Net sales $ 165,343 $ 62,245
Cost of sales 107,388 34,027
Selling, general, and administrative expenses 39,760 16,562
Acquisition integration expenses 1,971 --
--------- ---------
Operating income 16,224 11,656
Other income (expense)
Interest income 103 126
Interest expense (2,452) (519)
Other 21 --
--------- ---------
(2,328) (393)
--------- ---------
Income before income taxes 13,896 11,263
Income tax provision 5,136 3,946
--------- ---------
Net income $ 8,760 $ 7,317
========= =========
Earnings per share:
Basic $ 0.34 $ 0.34
Diluted $ 0.32 $ 0.33
Weighted average number of common and common equivalent shares outstanding 27,705 22,511
Dividends per common share $ 0.0325 $ 0.0325
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SCHAWK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2005 2004
--------- ---------
Net sales $ 454,742 $ 178,778
Cost of sales 297,251 102,362
Selling, general, and administrative expenses 111,869 47,516
Acquisition integration expenses 4,043 --
--------- ---------
Operating income 41,579 28,900
Other income (expense)
Interest income 254 127
Interest expense (6,875) (1,497)
Other 507 --
--------- ---------
(6,114) (1,370)
--------- ---------
Income before income taxes 35,465 27,530
Income tax provision 13,289 9,965
--------- ---------
Net income $ 22,176 $ 17,565
========= =========
Earnings per share:
Basic $ 0.88 $ 0.82
Diluted $ 0.83 $ 0.79
Weighted average number of common and common equivalent shares outstanding 26,761 22,370
Dividends per common share $ 0.0975 $ 0.0975
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SCHAWK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
2005 2004
(UNAUDITED)
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,064 $ 7,268
Trade accounts receivable, less allowance for doubtful accounts of
$5,565 at September 30, 2005 and $1,773 at December 31, 2004 137,614 56,332
Inventories 32,968 10,339
Prepaid expenses and other 10,453 4,702
Refundable income taxes 1,021 1,832
Deferred income taxes 16,467 2,353
--------- ---------
Total current assets 208,587 82,826
Property and equipment, less accumulated depreciation of $76,989 at
September 30, 2005 and $69,668 at December 31, 2004 91,475 46,431
Goodwill 212,681 71,720
Intangible assets, net 53,909 12,754
Other assets 7,013 7,032
--------- ---------
Total assets $ 573,665 $ 220,763
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 23,588 $ 8,424
Accrued expenses 71,875 26,578
Income taxes payable 15,101 --
Current portion of long-term debt and capital lease obligations 541 6,683
--------- ---------
Total current liabilities 111,105 41,685
Long-term debt 180,959 39,500
Capital lease obligations 70 464
Other 15,604 979
Deferred income taxes 40,577 6,695
Stockholders' Equity:
Common stock 225 191
Additional paid-in capital 168,265 92,350
Retained earnings 80,981 61,330
Accumulated comprehensive income 1,465 2,442
--------- ---------
250,936 156,313
Treasury stock, at cost (25,586) (24,873)
--------- ---------
Total stockholders' equity 255,350 131,440
--------- ---------
Total liabilities and stockholders' equity $ 573,665 $ 220,763
========= =========
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SCHAWK, INC.
RECONCILIATION OF NON-GAAP MEASURES TO GAAP
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2005
THREE MONTHS NINE MONTHS
SEPT 30, 2005 SEPT 30, 2005
($000'S) ($000'S)
Amount Amount
------ ------
OPERATING INCOME PER GAAP $ 16,224 $ 41,579
Acquisition integration expenses 1,971 4,043
-------- --------
Operating income before acquisition integration expenses (Non-GAAP) 18,195 45,622
OTHER INCOME (EXPENSE) PER GAAP (1,912) (6,114)
Non-recurring other income item (proceeds of life insurance policy) 21 507
-------- --------
Other income (expense) before non-recurring other income item (Non-GAAP) (1,933) (6,621)
INCOME BEFORE INCOME TAXES PER GAAP 13,896 35,465
Acquisition integration expenses and non-recurring
other income item 1,950 3,536
-------- --------
Income before income taxes, acquisition integration
expenses and non-recurring other income item (Non-GAAP) 15,846 39,001
Income tax provision on Non-GAAP pretax income 5,863 14,625
-------- --------
Net income before acquisition integration expenses and
non-recurring other income item after tax (Non-GAAP) $ 9,983 $ 24,376
======== ========
Weighted average number of common and common equivalent
shares outstanding 27,705 26,761
Earnings per share before acquisition integration expenses and
non-recurring other income item after tax (Non-GAAP) $ 0.36 $ 0.91
EARNINGS PER SHARE FULLY DILUTED PER GAAP $ 0.32 $ 0.83
Add back acquisition integration expenses after tax 0.04 0.09
Less; non recurring other income item after tax (0.00) (0.01)
-------- --------
Earnings per share before acquisition integration expenses and
non-recurring other income item after tax (Non-GAAP) $ 0.36 $ 0.91
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