<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 June 30, 1997 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)
847-827-9494
(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 June 30, 1997, are:
19,795,643 shares, Common Stock, $.008 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 14.
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1
<PAGE> 2
PART I
Schawk, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 890 $ 483
Short term investments 25,924 --
Trade accounts receivable, less
allowance for doubtful accounts
of $884 in 1997 and $760 in 1996 19,696 19,294
Inventories 4,937 3,675
Prepaid expenses and other 4,139 6,258
Current assets of Plastics
business held for sale -- 27,495
Deferred income taxes 590 590
---------------------------
Total current assets 56,176 57,795
Marketable Securities 31,586 --
Property and equipment, net 27,065 27,453
Property and equipment of Plastics
business held for sale -- 48,788
Excess of cost over net assets acquired,
less accumulated amortization
of $3,933 in 1997 and $3,449 in 1996 12,839 13,158
Other assets of Plastics business
held for sale -- 9,593
Other assets 5,085 4,053
---------------------------
Total assets $132,751 $160,840
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,140 $ 4,116
Accrued expenses 9,161 8,786
Income taxes payable 12,779 --
Notes payable to stockholders -- 5,765
Current liabilities of Plastics
business held for sale -- 7,270
Notes payable to banks 4,707 9,586
Current portion of long-term debt
and capital lease obligations 391 391
---------------------------
Total current liabilities 31,178 35,914
Long-term debt 40,000 62,500
Capital lease obligations 5,072 5,285
Other 1,113 1,217
Deferred income taxes 3,983 3,187
Deferred income taxes of Plastics
business held for sale -- 3,811
STOCKHOLDERS' EQUITY:
Common stock 159 168
Preferred stock -- --
Additional paid-in capital 77,937 77,928
Retained earnings (25,229) (26,987)
Unrealized gain on available for
sale securities 1,195 --
Cumulative foreign currency
translation adjustment (107) --
---------------------------
53,955 51,109
Treasury stock, at cost (2,550) (1,523)
Notes receivable from employees -- (660)
---------------------------
51,405 48,926
---------------------------
Total liabilities and stockholders' equity $132,751 $160,840
===========================
</TABLE>
See accompanying notes.
2
<PAGE> 3
Schawk, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Net sales $29,397 $21,629
Cost of sales 16,167 11,900
Selling, general, and administrative expenses 8,374 6,367
------------------------
Operating income 4,856 3,362
Other income (expense)
Interest and dividend income 997 120
Interest expense (966) (1,050)
Other 141 85
------------------------
172 (845)
------------------------
Income from continuing operations before income taxes 5,028 2,517
Income tax provision 2,011 1,007
------------------------
Income from continuing operations 3,017 1,510
Income from discontinued operations -- 701
------------------------
Net income 3,017 2,211
Preferred dividends 285 313
------------------------
Net income available for common shares $ 2,732 $ 1,898
========================
Primary and fully diluted earnings per share:
Continuing operations $ 0.14 $ 0.06
Discontinued operations -- 0.04
------------------------
Total $ 0.14 $ 0.10
========================
Weighted average number of common and common
equivalent shares outstanding 19,861 19,380
Dividends per Class A common share $ 0.065 $ 0.065
</TABLE>
See accompanying notes.
3
<PAGE> 4
Schawk, Inc.
Condensed Consolidated Statements of Operations
Six Months Ended June 30, 1997 and 1996
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
Net sales $55,589 $40,909
Cost of sales 31,330 23,353
Selling, general, and administrative expenses 15,655 11,844
------------------------
Operating income 8,604 5,712
Other income (expense)
Interest and dividend income 1,306 231
Interest expense (1,873) (2,126)
Other 141 86
------------------------
(426) (1,809)
------------------------
Income from continuing operations before income taxes 8,178 3,903
Income tax provision 3,271 1,391
------------------------
Income from continuing operations 4,907 2,512
Income from discontinued operations -- 1,288
------------------------
Net income 4,907 3,800
Preferred dividends 570 626
------------------------
Net income available for common shares $ 4,337 $ 3,174
========================
Primary and fully diluted earnings per share:
Continuing operations $ 0.22 $ 0.10
Discontinued operations -- 0.06
------------------------
Total $ 0.22 $ 0.16
========================
Weighted average number of common and common
equivalent shares outstanding 19,883 19,394
Dividends per Class A common share $ 0.13 $ 0.13
</TABLE>
See accompanying notes.
4
<PAGE> 5
Schawk, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,907 $ 3,800
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 3,510 7,787
Other -- (221)
Deferred income taxes -- 380
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade accounts receivable (402) 285
Inventories (1,262) (1,556)
Prepaid expenses and other 2,119 443
Trade accounts payable and accrued expenses (3,545) 433
Income taxes payable (1,307) --
-----------------------
Net cash provided by (used in) operating activities 4,020 11,351
INVESTING ACTIVITIES
Proceeds from disposal of operating division 93,485 5,000
Proceeds from disposal of property and equipment 441 --
Purchase of marketable securities (55,519)
Purchases of property and equipment (3,130) (7,007)
Other (1,146) --
-----------------------
Net cash provided by (used in) investing activities 34,131 (2,007)
FINANCING ACTIVITIES
Principal payments on debt (27,379) (5,188)
Principal payments on capital lease obligations (213) (190)
Principal payments on notes payable to stockholders (5,765) --
Cash dividends (3,149) (2,013)
Purchase of common stock (1,027) (1,139)
Other (104) (293)
-----------------------
Net cash provided by (used in) financing activities (37,637) (8,823)
Effect of foreign currency exchange rates (107) (577)
-----------------------
Net increase (decrease) in cash and cash equivalents 407 (56)
Cash and cash equivalents beginning of period 483 1,917
-----------------------
Cash and cash equivalents end of period $890 $ 1,861
=======================
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Dividends issued in the form of Class A common stock $ 5 $ 1,245
Cash paid for interest 2,368 2,281
Cash paid for income taxes 4,449 1,443
Note received for sale of operating division -- 2,619
</TABLE>
See accompanying notes.
5
<PAGE> 6
Schawk, Inc.
Notes to Condensed Consolidated Interim Financial Statements
(Thousands of dollars, except per share data)
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 the disclosures included 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, 1996.
The Company consummated the sale of its Plastics business segment on February
7, 1997 for cash of $93,485 plus working capital adjustments. The Company
recorded a loss of $33 million in the fourth quarter of 1996 to adjust the
carrying value of the net assets of this business to net realizable value at
December 31, 1996, and to reflect the related settlement of shareholder
litigation. The consolidated statements of operations for the three and six
months ended June 30, 1996 have been restated to segregate the discontinued
operations, and the accounts of the discontinued operations have been
segregated in the balance sheet at December 31, 1996.
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. is a leader in the prepress industry in the United States and
Canada primarily serving consumer products businesses. The Company offers a
complete line of prepress services, digital image management, art production,
digital photography and products for the production of consumer product
packaging and related marketing and advertising materials.
NOTE 4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
------- -----------
<S> <C> <C>
Raw materials $1,366 $1,512
Work in process 4,306 2,898
------- --------
5,672 4,410
Less: LIFO reserve (735) (735)
------- --------
$4,937 $3,675
======= ========
</TABLE>
6
<PAGE> 7
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
---- ----
<S> <C> <C>
Land and improvements $ 522 $ 522
Building and improvements 7,794 7,794
Machinery and equipment 50,067 47,370
Leasehold improvements 3,209 3,209
Building and improvements under capital leases 7,500 7,500
-------- ---------
69,092 66,395
Accumulated depreciation and amortization (42,027) (38,942)
-------- ---------
$ 27,065 $ 27,453
======== =========
</TABLE>
NOTE 6. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to have a material
impact on primary or fully diluted earnings per share for the three and six
month periods ended June 30, 1997.
NOTE 7. INVESTMENTS
The Company has adopted State of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which
requires that investments in debt securities and marketable equity securities
be designated as trading, held-to-maturity or available-for-sale. Management
determines the appropriate classification of its securities at the time of
purchase and reevaluates such designation as of each balance sheet date. The
Company's investments maybe classified as available-for-sale or trading.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses, net of income taxes, reported in a separate component of
stockholders' equity. Realized gains and losses and declines in value judged
to be other-than-temporary on available for sale securities are included in
investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income. Trading securities are
reported at fair value, with changes in fair value included in investment
income. Interest and dividends on securities classified as trading are
included in investment income. At June 30, 1997 all of the Company's
investments were classified as available for sale. Unrealized appreciation on
these securities totaled $1,991 ($1,195 net of tax effects) at June 30, 1997
and is included as a separate component of stockholders' equity.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Thousands of dollars, except per share amounts)
On February 7, 1997, the Company closed the sale of the Plastics business
segment and received cash of $93,485. A final adjustment (the amount to be
determined) will be made based on working capital as of the date of the
closing. The statements of operations for the three and six month periods
ended June 30, 1996 and March 31, 1996 have been restated to segregate the
operations of the Plastics Group.
NET SALES FROM CONTINUING OPERATIONS of $29,397 for the second quarter of 1997
represents a 36% increase from sales of $21,629 from continuing operations for
the same period in 1996. The second quarter sales growth included an increase
of sales to existing customers of approximately 13% with the remaining growth
resulting from the 1996 acquisitions in Canada, Atlanta and Connecticut. Sales
for the first six months of 1997 also increased 36% to $55,589 from $40,909 in
1996, with comparable growth from existing customers and acquisitions.
COST OF SALES FROM CONTINUING OPERATIONS for the second quarter of 1997
remained at 55% of net sales compared to the same period of 1996 while cost of
sales decreased to 56% for the first six months of 1997 versus 57% for the
first six months of 1996 due to greater efficiency on increased volume.
OPERATING INCOME FROM CONTINUING OPERATIONS increased 44% to $4,856 in the
second quarter of 1997 from operating income from continuing operations of
$3,362 in the second quarter of 1996. This increase was due largely to the
increased sales volume. General and administrative expenses increased by
$2,007 for the second quarter but decreased as a percentage of sales. For the
first six months of 1997 operating income increased 51% to $8,604 from $5,712
due to the increased sales volume. General and administrative expenses also
decreased as a percentage of sales for the six month period.
INTEREST INCOME increased to $997 for second quarter of 1997 compared with $120
for the second quarter of 1996 due to the invested balances on hand as a
result of the sale of the Plastics Group. Interest expense decreased to $966
in 1997 from $1,050 in 1996 as the Company retired debt with the proceeds of
the sale. For the six month period the Company also experienced a growth in
interest income to $1,306 in 1997 from $231 in 1996 due to the increase in
invested balances. Additionally, interest expense decreased for the first six
months of 1997 to $1,873 from $2,126 in 1996.
NET INCOME FROM CONTINUING OPERATIONS increased 100% to $3,017 for the second
quarter of 1997 compared with $1,510 in 1996 and increased 95% to $4,907 from
the first six months of 1997 versus $2,512 for the first half of 1996 due to
the factors previously described.
NET INCOME increased to $3,017 in the second quarter 1997 from $2,211 in the
second quarter of 1996, which included $701 of income from the discontinued
Plastics Group and increased to $4,907 for the first half of 1997 from $3,800
for the first half of 1996, which included $1,288 of income from the Plastics
Group.
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
increased 133% to $0.14 for the second quarter of 1997 from $0.06 for the
second quarter of 1996. Primary and fully diluted earnings per share of $0.10
for the second quarter of 1996 included $0.04 from the discontinued Plastics
Group. Weighted average shares outstanding increased to 19,861 in 1997 from
weighted average shares outstanding of 19,380 in 1996 due primarily to the
Company's conversion of Series A preferred stock into Class A commons shares
during 1996, stock issued in connection with acquisitions in 1996, issuance of
Class A common shares under the Company's dividend reinvestment plan, offset by
the Company's purchase of outstanding shares. Primary and fully diluted
earning per share from continuing operations increased 120% to $0.22 for the
first six months of 1997 from $0.10 for the first half of 1996. Primary and
fully diluted earnings per share of $0.16 for the first half of 1996 included
$0.06 from the discontinued Plastics Group. Weighted average shares
outstanding increased to 19,883 for the first half of 1997 from 19,394 for the
first half of 1996 for the reasons previously described.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Long-term debt and capital lease obligations decreased to $45,072 in 1997 from
$67,785 in 1996 as the Company repaid debt with the proceeds from the sale of
the Plastics Group. The Company had $26,814 of available cash and short term
investments at June 30, 1997. The Company's current ratio at June 30, 1997 was
1.8 with available working capital of $24,998 compared to a current ratio on
December 31, 1996 of 1.6 with available working capital of $21,881.
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.
Capital expenditures of $3,130 were made during the first quarter of 1997 for
machinery, equipment and automation to expand production facilities and improve
productivity.
The Company has also invested $31,586 of the proceeds from the sale of the
Plastics Group in equity and bond mutual funds. These funds are available for
sale to provide for acquisitions and Corporate requirements. Unrealized
appreciation on these investments of $1,991 ($1,195 net of tax effects) at June
30, 1997 has been excluded from earnings in the Company's statement of
operations, and has been included as a separate component of stockholders'
equity.
9
<PAGE> 10
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Item 14. 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 were filed on Form 8-K for the quarter ended June
30,1997:
Form 8-K dated May 5, 1997
(C) Exhibit 27 - Financial Data Schedule
10
<PAGE> 11
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 30th day of July, 1997.
SCHAWK, INC.
- ------------
(Registrant)
/s/ David A. Schawk
- ---------------------------------
President, Chief Executive Officer and Director
/s/ Dennis D. Wilson
- ---------------------------------
Director of Financial Reporting and Chief Accounting Officer
11
<PAGE> 1
EXHIBIT 11
Schawk, Inc.
Computation of Net Income Per Common and Common Equivalent Shares
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30
1997 1996
------- -------
<S> <C> <C>
Primary:
Average number of shares used to compute primary
earnings per share 19,830 19,284
Common stock issuable upon assumed conversion of
stock option exercises 31 96
------- -------
Total 19,861 19,380
======= =======
Net income available for Class A common shares:
Net income $ 3,017 $ 2,211
Less preferred dividends 285 313
------- -------
Net income available for Class A common shares $ 2,732 $ 1,898
======= =======
Primary earnings per share $ 0.14 $ 0.10
Fully diluted:
Average number of shares used to compute fully
diluted earnings per share 19,830 19,284
Common stock issuable upon assumed conversion
of stock option exercises 31 96
------- -------
19,861 19,380
======= =======
Net income available for Class A common shares:
Net income $ 3,017 $2,211
Less preferred dividends 285 313
------- ------
Net income available for Class A common shares 2,732 $1,898
======= ======
Fully diluted earnings per share $ 0.14 $ 0.10
</TABLE>
12
<PAGE> 2
<TABLE>
<CAPTION>
Six months ended June 30
1997 1996
------- -------
<S> <C> <C>
Primary:
Average number of shares used to compute primary
earnings per share 19,858 19,295
Common stock issuable upon assumed conversion of
stock option exercises 25 99
------- -------
Total 19,883 19,394
======= =======
Net income available for Class A common shares:
Net income $ 4,907 $ 3,800
Less preferred dividends 570 626
------- -------
Net income available for Class A common shares $ 4,337 $ 3,174
======= =======
Primary earnings per share $ 0.22 $ 0.16
Fully diluted:
Average number of shares used to compute fully
diluted earnings per share 19,858 19,295
Common stock issuable upon assumed conversion
of stock option exercises 25 99
------- -------
19,883 19,394
======= =======
Net income available for Class A common shares:
Net income $ 4,907 $ 3,800
Less preferred dividends 570 626
------- -------
Net income available for Class A common shares $ 4,337 $ 3,174
======= =======
Fully diluted earnings per share $ 0.22 $ 0.16
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 890 890
<SECURITIES> 25,924 25,924
<RECEIVABLES> 20,580 20,580
<ALLOWANCES> 884 884
<INVENTORY> 4,937 4,937
<CURRENT-ASSETS> 56,176 56,176
<PP&E> 69,092 69,092
<DEPRECIATION> 42,027 42,027
<TOTAL-ASSETS> 132,751 132,751
<CURRENT-LIABILITIES> 31,178 31,178
<BONDS> 45,072 45,072
0 0
0 0
<COMMON> 159 159
<OTHER-SE> 51,246 51,246
<TOTAL-LIABILITY-AND-EQUITY> 132,751 132,751
<SALES> 29,397 55,589
<TOTAL-REVENUES> 29,397 55,589
<CGS> 16,167 31,330
<TOTAL-COSTS> 16,167 31,330
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 966 1,873
<INCOME-PRETAX> 5,028 8,178
<INCOME-TAX> 2,011 3,271
<INCOME-CONTINUING> 3,017 4,907
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,017 4,907
<EPS-PRIMARY> 0.14 0.22
<EPS-DILUTED> 0.14 0.22
</TABLE>
