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<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, 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 March 31, 1997, are:
19,863,791 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 11.
<PAGE> 2
PART I
Schawk, Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 46,076 $ 483
Short term investments 9,937 --
Trade accounts receivable, less allowance for doubtful accounts
of $907 in 1997 and $760 in 1996 19,287 19,294
Inventories 4,638 3,675
Prepaid expenses and other 5,304 6,258
Current assets of Plastics business held for sale -- 27,495
Deferred income taxes 593 590
---------- ----------
Total current assets 85,835 57,795
Property and equipment, net 27,090 27,453
Property and equipment of Plastics business held for sale -- 48,788
Excess of cost over net assets acquired, less accumulated amortization
of $3,690 in 1997 and $3,449 in 1996 12,667 13,158
Other assets of Plastics business held for sale -- 9,593
Other assets 5,007 4,053
---------- ----------
Total assets $ 130,599 $ 160,840
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,800 $ 4,116
Accrued expenses 7,410 8,786
Income taxes payable 15,346 --
Notes payable to stockholders -- 5,765
Current liabilities of Plastics business held for sale -- 7,270
Notes payable to banks 4,839 9,586
Current portion of long-term debt and capital lease obligations 401 391
---------- ----------
Total current liabilities 31,796 35,914
Long-term debt 40,000 62,500
Capital lease obligations 5,181 5,285
Other 1,111 1,217
Deferred income taxes 3,182 3,187
Deferred income taxes of Plastics business held for sale -- 3,811
STOCKHOLDERS' EQUITY:
Common stock 168 168
Preferred stock -- --
Additional paid-in capital 77,928 77,928
Retained earnings (26,672) (26,987)
Cumulative foreign currency translation adjustment (128) --
---------- ----------
51,296 51,109
Treasury stock, at cost (1,967) (1,523)
Notes receivable from employees -- (660)
---------- ----------
49,329 48,926
---------- ----------
Total liabilities and stockholders' equity $ 130,599 $ 160,840
========== ==========
</TABLE>
See accompanying notes.
2
<PAGE> 3
Schawk, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net sales $ 26,192 $ 19,280
Cost of sales 15,163 11,453
Selling, general, and administrative expenses 7,281 5,477
-------- --------
Operating income 3,748 2,350
Other income (expense)
Interest and dividend income 309 110
Interest expense (907) (1,075)
-------- --------
(598) (965)
-------- --------
Income from continuing operations before income taxes 3,150 1,385
Income tax provision 1,260 384
-------- --------
Income from continuing operations 1,890 1,001
Income from discontinued operations -- 587
-------- --------
Net income 1,890 1,588
Preferred dividends 285 313
-------- --------
Net income available for common shares $ 1,605 $ 1,275
======== ========
Primary and fully diluted earnings per share:
Continuing operations $ 0.08 $ 0.04
Discontinued operations -- 0.03
-------- --------
Total $ 0.08 $ 0.07
======== ========
Weighted average number of common and common
equivalent shares outstanding 19,904 19,451
Dividends per common share $ 0.26 $ 0.26
</TABLE>
See accompanying notes.
3
<PAGE> 4
Schawk, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,890 $ 1,588
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 1,748 3,935
Deferred income taxes (8) 377
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade accounts receivable 7 (494)
Inventories (963) (1,567)
Prepaid expenses and other 954 318
Trade accounts payable and accrued expenses (5,636) (2,009)
Income taxes payable 1,260 --
-------- --------
Net cash provided by (used in) operating activities (748) 2,148
INVESTING ACTIVITIES
Proceeds from disposal of Plastics business 93,485 --
Proceeds from disposal of property and equipment 441 --
Purchase of short term investments (9,937) --
Purchases of property and equipment (1,804) (3,013)
Other (485) 172
-------- --------
Net cash provided by (used in) investing activities 81,700 (2,841)
FINANCING ACTIVITIES
Proceeds from debt -- 1,623
Principal payments on debt (27,237) (163)
Principal payments on capital lease obligations (104) (89)
Principal payments on notes payable to stockholders (5,765) --
Cash dividends (1,575) (1,008)
Purchase of common stock (444) (654)
Other (106) 307
-------- --------
Net cash provided by (used in) financing activities (35,231) 16
Effect of foreign currency exchange rates (128) (289)
-------- --------
Net increase (decrease) in cash and cash equivalents 45,593 (966)
Cash and cash equivalents beginning of period 483 1,917
-------- --------
Cash and cash equivalents end of period $ 46,076 $ 951
======== ========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Dividends issued in the form of Class A common stock 3 621
Cash paid for interest 1,594 1,192
Cash paid for income taxes 20 340
</TABLE>
See accompanying notes.
4
<PAGE> 5
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 statement of operations for the three months
ended March 31, 1996 has 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
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>
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Raw materials $ 1,192 $ 1,512
Work in process 4,181 2,898
-------- ---------
5,373 4,410
Less: LIFO reserve (735) (735)
-------- ---------
$4,638 $3,675
======== =========
</TABLE>
5
<PAGE> 6
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
-------- -----------
<S> <C> <C>
Land and improvements $ 522 $ 522
Building and improvements 7,794 7,794
Machinery and equipment 48,486 47,370
Leasehold improvements 3,209 3,209
Building and improvements under capital leases 7,500 7,500
------- --------
67,511 66,395
Accumulated depreciation and amortization (40,421) (38,942)
------- --------
$27,090 $ 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 first quarter
ended March 31, 1997 and 1996.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST QUARTER 1997 COMPARED TO THE FIRST QUARTER 1996
(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 statement of operations for the three months ended March 31, 1996
has been restated to segregate the operations of the Plastics Group.
NET SALES FROM CONTINUING OPERATIONS of $26,192 for the first quarter of 1997
represents a 36% increase from sales of $19,280 from continuing operations for
the same period in 1996. The first quarter sales growth included an increase
of sales to existing customers of approximately 10% with the remaining growth
resulting from the 1996 acquisitions in Canada, Atlanta and Connecticut.
COST OF SALES FROM CONTINUING OPERATIONS for the first quarter of 1997
decreased to 58% from 59% of net sales for the first quarter of 1996 due to
greater efficiencies on the increased volume.
OPERATING INCOME FROM CONTINUING OPERATIONS increased 59% to $3,748 in 1997
from operating income from continuing operations of $2,350 in the first quarter
of 1996. This increase was due largely to the increased sales volume. General
and administrative expenses increased by $1,804 for the first quarter but
decreased as a percentage of sales.
INTEREST INCOME increased to $309 for first quarter of 1997 compared with $110
for the first quarter 1996 due to the invested cash balances on hand as a
result of the sale of the Plastics Group. Interest expense decreased to $907
in 1997 from $1,075 in 1996 as the Company retired debt with the proceeds of
the sale.
NET INCOME FROM CONTINUING OPERATIONS increased 89% to $1,890 for the first
quarter of 1997 compared with $1,001 in 1996 due to the factors previously
described.
NET INCOME increased to $1,890 in the first quarter 1997 from 1,588 in the
first quarter of 1996, which included $587 of income from the discontinued
Plastics Group.
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
increased 100% to $0.08 for the first quarter of 1997 from $0.04 for the first
quarter of 1996. Primary and fully diluted earnings per share of $0.07 for the
first quarter of 1996 included $0.03 from the discontinued Plastics Group.
Weighted average shares outstanding increased to 19,904 in 1997 from weighted
average shares outstanding of 19,451 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.
LIQUIDITY AND CAPITAL RESOURCES
Long-term debt and capital lease obligations decreased to $45,181 in 1997 from
$67,785 in 1996 as the Company repaid debt with the proceeds or the sale of the
Plastics Group. The Company had $56,013 of available cash and short term
investments at March 31, 1997. The Company's current ratio at March 31, 1997
was 2.7 with available working capital of $54,039 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 $1,804 were made during the first quarter of 1997 for
machinery, equipment and automation to expand production facilities and improve
productivity.
7
<PAGE> 8
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 March
31,1997:
Form 8-K dated February 7, 1997
(C) Exhibit 27 - Financial Data Schedule
8
<PAGE> 9
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 28th day of April, 1997.
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
/s/ Dennis D. Wilson
- ------------------------------------------------------------
Director of Financial Reporting and Chief Accounting Officer
9
<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 March 31
1997 1996
---- ----
Primary:
Average number of shares used to compute primary
<S> <C> <C>
earnings per share 19,885 19,305
Common stock issuable upon assumed conversion of
stock option exercises 19 102
--------- --------
Total 19,904 19,407
========= ========
Net income available for Class A common shares:
Net income $ 1,890 $ 1,588
Less preferred dividends 285 313
--------- --------
Net income available for Class A common shares $ 1,605 $ 1,275
========= ========
Primary earnings per share $ 0.08 $ 0.07
Fully diluted:
Average number of shares used to compute fully
diluted earnings per share 19,885 19,305
Common stock issuable upon assumed conversion
of stock option exercises 19 146
--------- ---------
19,904 19,451
========= =========
Net income available for Class A common shares:
Net income $ 1,890 $ 1,588
Less preferred dividends 285 313
--------- ---------
Net income available for Class A common shares $ 1,605 $ 1,275
========= =========
Fully diluted earnings per share $ 0.08 $ 0.07
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 46,076
<SECURITIES> 9,937
<RECEIVABLES> 20,194
<ALLOWANCES> 907
<INVENTORY> 4,638
<CURRENT-ASSETS> 85,835
<PP&E> 67,511
<DEPRECIATION> 40,421
<TOTAL-ASSETS> 130,599
<CURRENT-LIABILITIES> 31,796
<BONDS> 45,181
0
0
<COMMON> 168
<OTHER-SE> 49,161
<TOTAL-LIABILITY-AND-EQUITY> 130,599
<SALES> 26,192
<TOTAL-REVENUES> 26,192
<CGS> 15,163
<TOTAL-COSTS> 15,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 907
<INCOME-PRETAX> 3,150
<INCOME-TAX> 1,260
<INCOME-CONTINUING> 1,890
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
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