<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1995 Commission File Number 1-9335
SCHAWK, INC.
(Exact name of Registrant
as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
36-2545354
(I.R.S. Employer Identification No.)
1695 RIVER ROAD
DES PLAINES, ILLINOIS
(Address of principal executive office)
60018
(Zip Code)
708-827-9494
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Exchange on Which Registered
-------------------------- -----------------------------------------
CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.008 PAR VALUE
Indicated by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of common
stock as of April 15, 1995, are:
19,179,005 shares, Common Stock, $.008 par value
139,737 shares, Class B Common Stock, $.05 par value
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to the Securities Exchange Act of 1934 Release 15502 and Rule
240.03(b), the pages of this document have been numbered sequentially. The
total number of pages contained herein is 11.
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PART I
Schawk, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(Thousands of Dollars)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 773 $ 2,288
Trade accounts receivable, less allowance for
doubtful accounts of $1,028 in 1995 and $947 in 1994 33,650 31,906
Inventories 21,486 19,078
Prepaid expenses and other 2,154 3,464
-------- --------
Total current assets 58,063 56,736
Property and equipment - Net 81,025 81,450
Excess of cost over net assets acquired, less accumulated
amortization of $4,897 in 1995 and $4,516 in 1994 49,802 48,287
Other intangible assets, less accumulated amortization of
$1,958 in 1995 and $1,788 in 1994 1,638 1,321
Other 5,999 5,632
-------- --------
Total assets $196,527 $193,426
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9,120 $ 6,719
Accrued expenses 11,829 13,908
Notes payable to stockholders 8,043 8,780
Current portion of long-term debt and capital lease obligations 8,776 2,075
-------- --------
Total current liabilities 37,768 31,482
Long-term debt 71,221 75,059
Capital lease obligations 5,954 6,031
Deferred income taxes 3,084 3,370
Other 1,546 1,209
Stockholders' equity:
Common stock 164 164
Preferred stock -- --
Additional paid-in capital 75,412 75,412
Retained earnings 3,939 3,971
Cumulative foreign currency translation adjustment (236) (947)
-------- --------
79,279 78,600
Less: Treasury stock at cost 2,325 2,325
-------- --------
76,954 76,275
-------- --------
Total liabilities and stockholders' equity $196,527 $193,426
======== ========
</TABLE>
See accompanying notes.
2
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Schawk, Inc.
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1995 And 1994
(Unaudited)
(Thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 45,420 $ 46,430
Cost of Sales 31,159 28,667
Selling, general and administrative expenses 10,516 10,426
--------- ---------
Operating Income 3,745 7,337
Interest income (144) (65)
Interest expense 1,558 1,395
Other income (106) (152)
--------- ---------
1,308 1,178
--------- ---------
Income before income taxes and minority interest 2,437 6,159
Income tax provision 826 394
--------- ---------
Income before minority interest 1,611 5,765
Minority interest in net income of consolidated
subsidiary -- 404
--------- ---------
Net income 1,611 5,361
--------- ---------
Preferred dividends 340 --
--------- ---------
Net income available for Class A common shares $ 1,271 $ 5,361
========= =========
Primary and fully diluted income per Class A
common share $ 0.07
Cash dividends per Class A common share $ 0.065
Cash dividends per Class B common share $ 0.45
Weighted average Class A common shares
outstanding 19,359
Weighted average Class B common shares
outstanding 139
PRO FORMA DATA (NOTE 4):
Pro forma income taxes $ 2,360
Pro forma net income adjusted only for income
taxes $ 3,395
Pro forma net income adjusted for merger,
purchase accounting and income taxes $ 3,914
Pro forma primary and fully diluted earnings per
share adjusted for merger, purchase accounting
and income taxes $ .20
Pro forma weighted average number of common and
common equivalent shares outstanding 19,525
</TABLE>
See accompanying notes.
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Schawk, Inc.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1995 and 1994
(Unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net income $ 1,611 $ 5,361
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 4,160 3,217
Deferred income taxes (286) 688
Other (833) (752)
Changes in operating assets and
liabilities:
Trade accounts receivable (1,744) (2,886)
Inventories (2,408) (2,696)
Prepaid expenses and other 1,310 1,481
Trade accounts payable and
accrued expenses 322 (561)
-------- --------
Net cash provided by operating activities 2,132 3,852
INVESTING ACTIVITIES
Purchases of property and equipment (2,672) (3,010)
Acquisitions, net of cash acquired (1,243) --
Other (337) 162
-------- --------
Net cash used in investing activities (4,252) (2,848)
FINANCING ACTIVITIES
Proceeds from debt 3,162 --
Principal payments on debt and capital leases (376) (1,906)
Repayment of loans from stockholders (737) --
Cash dividends (1,643) (1,746)
Other 199 (200)
-------- --------
Net cash provided by (used in) financing
activities 605 (3,852)
-------- --------
Net decrease in cash and cash equivalents (1,515) (2,848)
Cash and cash equivalents beginning of period 2,288 3,533
-------- --------
Cash and cash equivalents end of period $ 773 $ 685
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the periods for:
Interest $ 1,374 $ 1,095
Income taxes $ 602 $ 265
</TABLE>
See accompanying notes.
4
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Schawk, Inc.
Notes to Condensed Consolidated Interim Financial Statements
(Thousands of Dollars, Except Per Share Amounts)
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the periods presented have been reflected
and are of a normal recurring nature. These financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto for the three years ended December 31, 1994.
NOTE 2. INTERIM RESULTS
Results of operations for the interim periods are not necessarily indicative of
the results to be expected for the year.
NOTE 3. DESCRIPTION OF BUSINESS
Schawk, Inc. (the Company) operates in two business segments, graphics and
plastics. The graphics segment provides prepress graphics arts services to
customers primarily in the consumer products industries located in the United
States. The plastics segment develops and manufactures insert injection molded
plastic filtration elements and custom specialty plastic products for the
automotive, healthcare and industrial markets. The plastics group also
manufacturers thermoform visual and specialty packaging for the general
commercial, healthcare, and consumer markets. The Company operates plastics
manufacturing facilities in the United States, Puerto Rico, Ireland, and
France.
The graphics segment consists of the company known as Schawk, Inc. (Old Schawk)
and companies previously affiliated through common ownership, Lincoln Graphics,
Inc. and Flexo Graphics, Inc., collectively, the Old Schawk Companies. The
plastics segment consists of the previously 60% owned subsidiaries, Filtertek,
Inc. and subsidiaries (Filtertek or the Filtertek Companies).
On December 30, 1994, the Old Schawk Companies merged with and into Filtertek
(the Merger). Pursuant to the Merger, Filtertek issued an aggregate of
16,245,399 shares of Class A common stock, 22,000 shares of Series A Preferred
stock, and 5,207 shares of Series B Preferred stock to the stockholders of the
Old Schawk Companies, and the shares of Filtertek's Class A common stock
previously held by Old Schawk (which had a controlling interest prior to the
Merger) were canceled. The new Company was renamed Schawk, Inc.
Because Old Schawk owned a controlling interest of Filtertek prior to the
Merger, AICPA Accounting Interpretation 26 of Accounting Principles Board
Opinion No. 16, requires that the Merger be accounted for as if the Old Schawk
Companies acquired all the remaining Class A common stock of Filtertek.
The accompanying condensed consolidated financial statements include the
accounts of the Old Schawk Companies and the Filtertek Companies based upon Old
Schawk's effective control as of September 21, 1992. All significant
intercompany balances and transactions have been eliminated. The Company's
condensed consolidated balance sheet at December 31, 1994 reflects the
accounting as described in the previous paragraph as of the date of the
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Schawk, Inc.
Notes to Condensed Consolidated Interim Financial Statements
(Thousands of Dollars, Except Per Share Amounts)
Merger and includes purchase accounting adjustments for the portion of
Filtertek (40%) not owned by Old Schawk prior to the Merger.
NOTE. 4 INCLUSION OF PRO FORMA DISCLOSURES
Because of the merger with Filtertek on December 30, 1994, the Company does not
consider the historical earnings per share calculation for the three months
ended March 31, 1994 to be meaningful information. Pro forma earnings per
share information for the three months ended March 31, 1994 shown on the
statements of income is presented to compare net income and earnings per share
as if the merger had occurred at the beginning of each of the periods
presented. The following pro forma adjustments have been made for the three
months ended March 31, 1994. Increased depreciation and amortization was
recorded to reflect the increased basis in property and equipment and goodwill
amortization resulting from the merger. Compensation expense was reduced to
reflect the terms of employee/stockholder agreements in effect at January 1,
1995. Income tax expense was adjusted to reflect taxation at regular income
tax rates instead of S Corporation rates. Preferred stock dividends were
recorded to reflect the issuance of preferred stock in connection with the
merger.
NOTE 5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 7,142 $ 7,633
Work in process 8,866 6,792
Finished goods 6,123 5,298
------- -------
22,131 19,723
Less: LIFO reserve (645) (645)
------- -------
$21,486 $19,078
======= =======
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
---- ----
<S> <C> <C>
Land and improvements 2,315 2,315
Building and improvements 35,988 35,390
Machinery and equipment 83,278 81,782
Leasehold improvements 3,167 3,167
Building and improvements under capital leases 7,500 7,500
------- -------
132,248 130,154
Accumulated depreciation and amortization 51,223 48,704
------- -------
$81,025 $81,450
======= =======
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST QUARTER 1995 COMPARED TO THE FIRST QUARTER 1994
(Thousands of dollars, except per share amounts)
Pro forma calculations:
The income from operations, net income and earnings per share presented for the
three months ended March 31, 1994 are pro forma calculations. The Company
believes that the pro forma presentation best represents the actual results of
the combined operations as if they had been merged for the comparable periods
of 1994 and 1995. The actual earnings per share for Schawk, Inc. for periods
prior to January 1, 1995 do not permit meaningful comparisons to subsequent
periods because Schawk was a privately owned S Corporation and had a limited
number of outstanding shares prior to the Merger with Filtertek, Inc. on
December 30, 1994. Further, as an S Corporation, taxation of the Corporate
entity was minimal. The shares outstanding in the pro forma earnings per share
calculations for the three months ended March 31, 1994 account for the shares
exchanged in the Merger as if the exchange occurred at the beginning of the
period. Consequently, the minority interest in the earnings of Filtertek has
been eliminated. In addition, pro forma purchase accounting adjustments for
increased goodwill amortization, increased depreciation for fair value
adjustments to property and equipment, and reductions in compensation expense
for new employee/stockholder agreements effective January 1, 1995 have also
been made. Additionally, the earnings have been adjusted as if the Graphics
Group had been taxed at regular corporate income tax rate instead of S
Corporation rates. Schawk terminated S Corporation tax status on December 30,
1994.
NET SALES of $45,420 for the first quarter 1995 represents a 2% decline from
sales of $46,430 for the same period in 1994. Sales in the plastics group
increased 12% from steadily increasing orders from automotive, healthcare, and
industrial/consumer customers. Graphics group sales declined by 13% in the
first quarter. The Company had expected a decline in Graphics Group sales for
the quarter because 1994 first quarter sales were boosted by the federal
mandate to bring all food package labeling into compliance with the National
Labeling Education Act (NLEA) by May 1, 1994.
COST OF SALES for the first quarter of 1995 increased to 69% from 62% for the
first quarter of 1994. The plastics group cost of sales increased to 83% in
1995 from 81% in 1994 due to higher overhead, increased labor costs and
increased raw material costs. One of the thermoforming operations lost
significant sales volume over the past six months and the Company has changed
management leadership and downsized the plant to reach a break even point.
Management anticipates that this rationalization will help strategically
realign this operation as a manufacturing site while all other overhead can be
absorbed by the corporate office of the Tek Packaging group.
The graphics group cost of sales increased to 55% in 1995 from 48% in 1994 due
to the reduced volume resulting from the NLEA drop off and the resulting under
absorption of overhead on the lower sales volume. This increased cost of sales
was experienced by all pre-press graphics divisions. One graphics division
which also does commercial printing, however, had increased sales volume due to
an acquisition and rebounded from an operating loss in the first quarter of
1994 to an operating profit for the first quarter of 1995.
INCOME FROM OPERATIONS declined to $3,745 in 1995 from historical operating
income of $7,337 and pro forma operating income of $7,832 in the first quarter
of 1994. This decline was due to the cost of sales increase previously
described as well as an approximate 6% increase in sales, general and
administrative expenses, the largest of which is increased amortization of
intangibles resulting from the Company's prior and current year merger and
acquisition activity.
For the three months ended March 31, 1994 pro forma adjustments were made to
increase depreciation and amortization related to the merger with Filtertek and
reduce compensation expense to reflect the terms of employee/stockholder
agreements in effect at January 1, 1995.
OTHER EXPENSE increased to $1,308 in 1995 from $1,178 in 1994 primarily as a
result of increased interest expense from the additional debt drawn on the
Company's line of credit.
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NET INCOME available for Class A common stock declined to $1,271 in 1995 from
pro forma net income available for Class A common stock of $3,914 for the first
quarter of 1994 due to the factors described above.
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE declined to $.07 for the first
quarter of 1995 from $.20 for the first quarter of 1994 as the result of the
factors previously discussed. Primarily and fully diluted weighted average
shares outstanding declined to 19,359 in 1995 from pro forma primary and fully
diluted weighted average shares outstanding of 19,525 in 1994 due to the
Company's purchase of outstanding shares.
LIQUIDITY AND CAPITAL RESOURCES
Long-term debt declined to $71,221 in 1995 from $75,059 in 1994. This was a
combination of repayment of amounts outstanding and a reclassification of
amounts to current liabilities. As of March 31, 1995 the Company had
approximately $11,000 available under its $ 91,000 line of credit agreements.
The Company's current ratio at March 31, 1995 was 1.5 with available working
capital of $20,295 compared to a current ratio on March 31, 1994 of 1.8 with
available working capital of $25,254. The decline in working capital is almost
entirely due to the required retirement of amounts outstanding on the Company's
revolving credit line over the next twelve months.
The Company believes that available amounts on its existing line of credit
agreement, along with the current level of working capital and the cash
generated from future operations will be sufficient to meet its needs for
working capital, capital expenditures, and the payment of dividends. However,
the Company is currently negotiating for a line of credit agreement to replace
its current agreements and provide additional available borrowings, more
flexibility, and better overall terms.
Capital expenditures of $2,672 were made during the first quarter of 1995 for
machinery, equipment, automation, and tooling to expand production facilities
and improve productivity.
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PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 11 - Calculation of net income per common share.
(B) Reports on Form 8-K
The following reports filed on Form 8-K for the quarter ended March 31, 1995:
Form 8-K dated January 16, 1995
Form 8-K dated February 8, 1995
Form 8-K dated March 27, 1995
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EXHIBIT 11
Schawk, Inc.
Computation of Actual and Pro Forma Net Income per Share of Common and Common
Equivalent Shares
(In Thousands, except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended March 31
Pro forma data
1995 1994(1)
---- -------
<S> <C> <C>
Primary and fully diluted earnings per share:
Average number of shares used to compute primary
and fully diluted earnings per share 19,176 19,335
Common stock usable upon assumed conversion of
stock option exercises 183 190
-------- --------
Total 19,359 19,525
======== ========
Net income available for Class A common shares:
Net income $ 1,611
Less preferred dividends 340
--------
Pro forma net income adjusted for merger, purchase accounting,
and income taxes 4,254
Less pro forma preferred dividends 340
--------
Net income available for Class A common shares $ 1,271 $ 3,914
======== ========
Primary and fully diluted earnings per share $ .07
Pro forma primary and fully diluted earnings per share,
adjusted for merger, purchase accounting, and
income taxes $ .20
</TABLE>
(1) Pro forma data
Because of the merger with Filtertek on December 30, 1994, the Company does not
consider the historical earnings per share calculation for the three months
ended March 31, 1994 to be meaningful information. Pro forma earnings per
share information shown on the statements of income for the three months ended
March 31, 1994 is presented to compare net income and earnings per share as if
the Merger had occurred at the beginning of each of the periods presented. The
following pro forma adjustments have been made for the three months ended March
31, 1994. Increased depreciation and amortization was recorded to reflect the
increased basis in property and equipment and goodwill amortization resulting
from the merger. Compensation expense was reduced to reflect the terms of
employee/stockholder agreements in effect at January 1, 1995. Income tax
expense was adjusted to reflect taxation at regular income tax rates instead of
S Corporation rates. Preferred stock dividends were recorded to reflect the
issuance of preferred stock in connection with the Merger.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 1st day of May, 1995.
SCHAWK, INC.
- - ------------
(Registrant)
/s/ David A. Schawk
- - -----------------------------
President, Chief Executive Officer and Director
/s/ Marie Meisenbach Graul
- - -----------------------------
Chief Financial Officer, Treasurer, Public Information Officer and Director
11
