<PAGE> 1
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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, 1999 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, 1999, are:
21,643,225 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 15.
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1
<PAGE> 2
PART I
Schawk, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
(UNAUDITED) 1998
-------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,661 $ 2,226
Short term investments 10,900 16,137
Trade accounts receivable, less allowance for doubtful accounts
of $739 in 1999 and $ 730 in 1998 33,470 34,426
Inventories 7,431 5,948
Prepaid expenses and other 4,846 3,456
Refundable income taxes 1,562 1,475
Deferred income taxes 830 830
-------------------------------------------
Total current assets 60,700 64,498
Property and equipment, net 36,585 36,421
Excess of cost over net assets acquired, less accumulated amortization
of $ 5,689 in 1999 and $5,236 in 1998 38,105 34,913
Other assets 4,394 2,678
-------------------------------------------
Total assets $139,784 $138,510
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,541 $ 6,143
Accrued expenses 11,934 11,691
Income taxes payable 4,857 2,660
Notes payable to banks 1,782 2,941
Current portion of long-term debt and capital lease obligations 5,622 5,610
-------------------------------------------
Total current liabilities 28,736 29,045
Long-term debt 35,000 35,000
Capital lease obligations 4,461 4,619
Other 1,084 1,174
Deferred income taxes 4,019 3,649
STOCKHOLDERS' EQUITY:
Common stock 181 181
Additional paid-in capital 80,863 80,262
Accumulated deficit (857) (3,503)
Accumulated comprehensive income (loss), net 237 (491)
-------------------------------------------
80,424 76,449
Treasury stock, at cost (13,940) (11,426)
-------------------------------------------
Total stockholders' equity 66,484 65,023
-------------------------------------------
Total liabilities and stockholders' equity $139,784 $138,510
===========================================
</TABLE>
See accompanying notes.
2
<PAGE> 3
Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------
<S> <C> <C>
Net sales $41,977 $31,011
Cost of sales 23,513 16,352
Selling, general, and administrative expenses 11,169 8,313
-------------------------------------------
Operating income 7,295 6,346
Other income (expense)
Interest and dividend income 232 776
Interest expense (883) (909)
Other income 211 373
-------------------------------------------
(440) 240
-------------------------------------------
Income before income taxes 6,855 6,586
Income tax provision 2,791 2,634
-------------------------------------------
Net income 4,064 3,952
Preferred dividends (114)
Discount on redemption of preferred stock -- 5,832
-------------------------------------------
Net income available for common shares $ 4,064 $ 9,670
===========================================
Earnings per share:
Basic $ 0.19 $ 0.45
Diluted $ 0.19 $ 0.45
Weighted average number of common and common
equivalent shares outstanding 21,905 21,303
Dividends per Class A common share $ 0.065 $ 0.065
</TABLE>
See accompanying notes.
3
<PAGE> 4
Schawk, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(In Thousands)
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,064 $ 3,952
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 2,736 1,887
Deferred income taxes -- (94)
Gain realized on sale of marketable securities (80) (373)
Changes in operating assets and liabilities, net of effects from
acquisitions:
Trade accounts receivable 1,942 (158)
Inventories (1,461) (1,086)
Prepaid expenses and other (1,385) 814
Trade accounts payable and accrued expenses (1,933) (1,451)
Income taxes refundable/payable 2,032 1,303
-------------------------------------------
Net cash provided by (used in) operating activities 5,915 4,794
INVESTING ACTIVITIES
Proceeds from sale of short term investments 11,582 5,755
Purchase of short term investments (6,266) (5,898)
Purchases of property and equipment (2,322) (2,355)
Acquisitions, net of cash acquired (2,803) (1,938)
Other (2,023) 266
-------------------------------------------
Net cash provided by (used in) investing activities (1,832) (4,170)
FINANCING ACTIVITIES
Issuance of common stock 601 16,029
Redemption of preferred stock -- (14,715)
Principal payments on debt (1,159) (165)
Principal payments on capital lease obligations (158) (110)
Common stock dividends (1,418) (1,570)
Purchase of common stock (2,514) (230)
Other -- (123)
-------------------------------------------
Net cash provided by (used in) financing activities (4,648) (884)
-------------------------------------------
Net increase (decrease) in cash and cash equivalents (565) (260)
Cash and cash equivalents beginning of period 2,226 4,022
-------------------------------------------
Cash and cash equivalents end of period $ 1,661 $ 3,762
===========================================
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Stock issued in connection with acquisitions $ -- $ 3,469
Cash paid for interest 722 744
Cash paid for income taxes 572 1,807
</TABLE>
See accompanying notes.
4
<PAGE> 5
Schawk, Inc.
Notes to Consolidated Interim Financial Statements
(Thousands of dollars, except per share data)
NOTE 1. BASIS OF PRESENTATION
The 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, 1998.
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 leading provider of digital imaging prepress services for the
consumer products industry in North America primarily serving the consumer
products, packaging, advertising and promotional markets. The Company offers a
complete line of high quality prepress services, digital image management,
digital photography and art production. The Company also provides services for
point-of-sale, advertising and direct mail.
NOTE 4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 1,442 $ 1,429
Work in process 7,176 5,706
------- -------
8,618 7,135
Less: LIFO reserve (1,187) (1,187)
------- -------
$ 7,431 $ 5,948
======= =======
</TABLE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
---- ----
<S> <C> <C>
Land and improvements $ 1,125 $ 1,125
Building and improvements 7,850 7,850
Machinery and equipment 62,688 60,241
Leasehold improvements 5,054 5,054
Building and improvements under capital leases 7,500 7,500
------- -------
84,217 81,770
Accumulated depreciation and amortization (47,632) (45,349)
------- -------
$36,585 $36,421
======= =======
</TABLE>
5
<PAGE> 6
NOTE 6. INVESTMENTS
At March 31, 1999 all of the Company's investments were classified as
available-for-sale. 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. Unrealized appreciation
on these securities totaled $1,006 ($636 net of tax effects) at March 31, 1999
and is included as a separate component of stockholders' equity.
The following is a summary of available for sale securities at March 31, 1999:
<TABLE>
<CAPTION>
Gross
Unrealized Estimated Fair
Cost Gains (Losses) Value
---- -------------- -----
<S> <C> <C> <C>
Equity securities $6,185 $1,123 $ 7,308
Bond mutual funds 3,709 (117) 3,592
------ ------ -------
$9,894 $1,006 $10,900
====== ====== =======
</TABLE>
During the three month period ended March 31, 1999, available-for-sale
securities were sold with a fair value at the date of sale of $11,582 resulting
in a gross realized gain of $80.
The following is a summary of available-for-sale securities by maturity date:
<TABLE>
<CAPTION>
Estimated Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ -- $ --
Due after one year through five years 3,709 3,592
Due after five years through ten years -- --
------ -------
Total debt securities 3,709 3,592
Equity securities 6,185 7,308
------ -------
$9,894 $10,900
====== =======
</TABLE>
Amounts shown as short term investments on the balance sheet at March 31, 1999
represent management's estimates of amounts available for current operations.
Equity securities represent the Company's ownership of 5,075 shares of common
stock of Wace Group Plc, for which a tender offer was made and withdrawn in the
first quarter of 1999. The Company intends to liquidate this investment during
the second quarter of 1999.
NOTE 7. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share are shown on the face of
the statement of operations. Basic earnings per share is computed by dividing
net income less preferred dividends (in the first quarter of 1998), plus the
discount on the redemption of preferred stock (in the first quarter of 1998), by
the weighted average shares outstanding for the period. Diluted earnings per
share is computed by dividing net income less preferred dividends (in the first
quarter of 1998) , plus the discount on the redemption of preferred stock (in
the first quarter of 1998), by weighted average number of common shares and
common stock equivalent shares outstanding (stock options) for the period.
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The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
----------------------------------------------------
<S> <C> <C>
Net income $ 4,064 $ 3,952
Preferred stock dividends -- (114)
Discount on redemption of preferred stock -- 5,832
----------------- -----------------
Income available for common shareholders $ 4,064 $ 9,670
================= =================
Weighted average shares 21,805 21,257
Effect of dilutive stock options 100 46
----------------- -----------------
Adjusted weighted average shares and
assumed conversions 21,905 21,303
================= =================
Basic earnings per share $ 0.19 $ 0.45
================= =================
Diluted earnings per share $ 0.19 $ 0.45
================= =================
</TABLE>
NOTE 8. SEGMENT REPORTING
The Company operates a single business segment, Imaging and Information
Technologies. The Company operates primarily in two geographic areas, the United
States and Canada. Summary financial information for the three months ended
March 31, 1999 and 1998 and by geographic area is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 UNITED STATES CANADA TOTAL
<S> <C> <C> <C>
Sales $ 34,314 $ 7,663 $ 41,977
Operating income 6,959 336 7,295
Identifiable assets 121,161 18,623 139,784
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1998 UNITED STATES CANADA TOTAL
<S> <C> <C> <C>
Sales $ 26,588 $ 4,423 $ 31,011
Operating income 6,040 306 6,346
Identifiable assets 120,391 13,187 133,578
</TABLE>
NOTE 9. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards 130 (SFAS 130) requires unrealized
gains and losses on the Company's available-for-sale securities and foreign
currency translation adjustments to be included in comprehensive income.
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The components of comprehensive income (loss), net of related tax, for the three
month period ended March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended March 31
----------------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Net income $4,064 $3,952
Increase (decrease) in unrealized appreciation of
investments 572 (118)
Foreign currency translation adjustments 156 17
----------------- -----------------
Comprehensive income $4,792 $3,851
================= =================
</TABLE>
The components of accumulated comprehensive income (loss), net of related tax,
at March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Unrealized appreciation of investments $636 $ 64
Foreign currency translation adjustments (399) (555)
----------------- -----------------
Accumulated comprehensive income $237 $(491)
================= =================
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Thousands of dollars, except per share amounts)
Certain statements contained in this report 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. Although the
Company believes that the expectations reflected in any such forward-looking
statements such as the future income tax rates, the amount and timing of
proceeds from its investments, the sufficiency of liquidity and capital
resources for working capital and anticipated acquisitions, and the
effectiveness of the Company's compliance, review and implementation plan to
identify and resolve year 2000 issues are reasonable, it can give no assurance
that such expectations will prove to be correct. The Company's expectations
regarding these issues assume, among other things, completion of anticipated
acquisitions, general economic conditions, continued demand for its services,
retention of key management and operation personnel, and the stability of state
and federal income tax laws, as well as other factors detailed in the Company's
filings with the Securities and Exchange Commission.
NET SALES of $41,977 for the first quarter of 1999 represents a 35.4% increase
from sales of $31,011 for the same period in 1998. The increase was primarily
attributable to revenues from businesses acquired in 1998 as well as internal
growth. Sales from new and existing customers increased by 4.3% and the
remaining increase was due to businesses acquired throughout 1998.
COST OF SALES for the first quarter of 1999 increased to 56.0% from 52.7% of net
sales for the same period in 1998. The higher cost of sales percentage was
primarily in the business units acquired in 1998 that have not yet achieved
targeted gross margins as well as the impact of slower seasonal sales in the
advertising and promotion markets in the first quarter of the fiscal year.
OPERATING INCOME in the first quarter of 1999 increased 15.0% to $7,295 from
$6,346 for the same period in 1998. This increase was primarily due to the
higher sales volume in the first quarter of 1999 versus 1998, resulting
primarily from businesses acquired during 1998 and internal growth. Selling,
general and administrative expenses decreased to 26.6% of sales for the first
quarter of 1999 from 26.8% of sales for the same period in 1998. Sales volume
increases resulted in efficiencies leveraging the fixed portion of selling,
general and administrative expenses.
OTHER INCOME (EXPENSE) - NET decreased to $(440) for the first quarter of 1999
compared with $240 for the same period of 1998. Interest expense has remained
relatively constant over the periods as the Company's debt level has remained
stable and most of its borrowings are at fixed rates. Interest and dividend
income have steadily declined as the Company has liquidated its investment
portfolio for acquisitions. Other income, which consists primarily of gains on
sales of investments and capital gain distributions, also declined in the first
quarter of 1999 from the same period as 1998 as the Company's investment
portfolio was liquidated.
INCOME BEFORE INCOME TAXES increased to $6,855 for the first quarter of 1999
from $6,586 for the same period of 1998 for the reasons previously discussed.
INCOME TAX PROVISION increased to 40.7% of pretax income during the first
quarter of 1999, as the Company derived a larger percentage of its income from
higher taxed states. The Company's previous effective tax rate was 40%. The
Company's effective tax rate is expected to increase to 41% over the remainder
of the fiscal year.
NET INCOME increased to $4,064 for the first quarter of 1999 from $3,952
for the same period of 1998 for the reasons previously discussed.
PREFERRED DIVIDENDS decreased to zero in the first quarter of 1999 from $114 in
the first quarter of 1998 as the Company repurchased all of the preferred stock
outstanding in February of 1998.
DISCOUNT ON REDEMPTION OF PREFERRED STOCK resulted in non-recurring income
available for common shares of $5,832 for the first quarter of 1998 (zero in
1999) as the Company repurchased its outstanding preferred stock at a discount
compared to its liquidation value of $20,607 in February 1998.
BASIC AND DILUTED EARNINGS PER SHARE was $0.19 for the first quarter of 1999
compared with $0.45 for the same period in 1998. Basic and diluted earnings per
share for the first quarter of 1998 without the non-
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recurring benefit from the repurchase of the Company preferred stock was $0.18.
Weighted average common and common equivalent shares outstanding increased to
21,905 for the first quarter of 1999 from 21,303 for the same period of 1998,
primarily as a result of an offering of common stock in February of 1998, stock
issued in connection with acquisitions, increase in dilution from stock options,
and reduced by shares repurchased under the Company's common stock repurchase
program.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently finances its business from available cash held by the
Company and from cash generated from operations. In January 1999 the Company
entered into a five year unsecured $35,000 revolving credit facility expiring in
January 2004. The facility is subject to certain financial covenants that
require the Company to maintain certain levels of net worth, working capital,
and certain other financial ratios. No amount was outstanding on this facility
at March 31, 1999. The Company also maintains a $10,000 unsecured credit
facility and its consolidated Canadian subsidiary maintains a Cdn $10,000
unsecured working capital facility. Both of these facilities are due on demand.
The domestic demand facility was unused at March 31, 1999 and the Canadian
credit facility had approximately U.S. $4,800 available at March 31, 1999.
The Company held invested funds at March 31, 1999 of $10,900 (fair market value)
primarily in bond mutual funds and investment in the common stock of Wace Group
Plc. The investment in the Wace stock at a cost of $6,185 ($7,308 fair market
value) arose through a tender offer for all of the outstanding stock of Wace
that was withdrawn in the first quarter of 1999. These funds are
available-for-sale to provide for acquisitions and corporate requirements. The
Company intends to liquidate the Wace investment in the second quarter of 1999.
Unrealized appreciation on all of the Company's investments of $1,006 ($636 net
of tax effects) at March 31, 1999, has been excluded from earnings in the
Company's consolidated statement of operations and has been included as a
separate component of stockholders' equity.
At March 31, 1999, outstanding debt of the Company consisted of: (i) unsecured
notes issued pursuant to a Note Purchase Agreement dated August 18, 1995, for
$40,000 due in installments from 1999 through 2005 (averaging seven years) at an
average interest rate of 6.88%; and (ii) approximately US $1,800 of borrowings
under the Company's Canadian subsidiary's working capital facility.
Management believes that the level of working capital and the cash generated
from operations is adequate for the Company's liquidity needs related to normal
operations and internal growth. The Company intends to finance planned
acquisitions through the proceeds from its investment portfolio, amounts
available under various unsecured credit agreements, and the issuance of common
stock.
Capital expenditures of $2,322 were made during the first quarter of 1999 for
machinery, equipment and automation to expand production facilities and improve
productivity. Depreciation and amortization for the first quarter of 1999
totaled $2,736.
YEAR 2000 ISSUE
GENERAL DESCRIPTION OF THE ISSUE
The "Year 2000 issue" is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
computer applications could fail or create erroneous results. As required by
recent guidance from the Securities and Exchange Commission (SEC) applicable to
all public companies, the following disclosure provides more detail regarding
the Company's Year 2000 compliance than previous reports filed by the Company.
STATUS OF PROGRESS IN YEAR 2000 COMPLIANCE
The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has substantially completed its assessment of all internal information,
production, and manufacturing systems that could be significantly affected by
the Year 2000. The assessment indicated that although the information technology
systems for most of the Company's operations are not at risk, certain of the
Company's operations which have been acquired during the last few years have
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<PAGE> 11
information technology systems that are not Year 2000 compliant. That assessment
also indicated that software and hardware (embedded chips) used in production
and manufacturing systems "operating equipment", are not significantly at risk.
The Company believes that it does not have a material exposure for Year 2000 as
it relates to its products. The assessment of building systems, equipment at
properties which make use of embedded computer chips, such as elevators,
security systems, telecommunications equipment, and HVAC equipment, has not yet
been completed. It is expected that the assessment of building systems will be
completed by June 30, 1999. The Company has not completed its assessment with
regard to Year 2000 compliance status of its significant suppliers. It is
expected that this assessment will be completed by June 30, 1999.
Based on recent assessments, the Company has determined that it will be required
to modify or replace portions of its software and certain hardware at those
divisions that have noncompliant systems so that those systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that with
modifications or replacements of existing software and certain hardware, the
Year 2000 issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.
For the divisions at risk for information technology problems, to date the
Company is 90% complete on the remediation phase. The remediation phase involves
primarily the purchase of software and hardware that has already been verified
as Year 2000 compliant. The Company is currently testing a new accounting and
financial software system, which will be implemented at those divisions by June
30, 1999.
THIRD PARTY EXPOSURE
The Company's accounts payable, purchasing and accounts receivable information
technology systems do not interface directly with third parties. The Company has
not yet completed its query of these third parties with regard to whether their
systems are Year 2000 compliant. This is expected to be completed by the end of
the second quarter 1999. The inability of these third parties to complete their
Year 2000 compliance process in a timely fashion could materially impact the
Company.
COSTS
The Company had previously planned and/or begun implementing several system
replacement projects to modernize and improve its systems. The Year 2000 problem
heightened the need for the timely completion and some project schedules have
been accelerated. These project costs have been included in the Company's
budgeting process and its internal forecasts, and already form part of the
Company's financial plans. It is not expected that these costs will be material
to the Company's financial statements. The actual costs to be incurred by the
Company depend on a number of factors which cannot be accurately predicted,
including the extent and difficulty of the remediation and other work to be
done, the availability and cost of consultants, and the extent of testing
required to demonstrate Year 2000 compliance.
RISKS
Based on current information, the Company believes that the Year 2000 problem
will not have a material adverse effect on the Company, its business or its
financial condition. There can, however, be no assurances that Year 2000
remediation by the Company or third parties will be properly and timely
completed, and failure to do so could have a material adverse effect on the
Company, its business and its financial condition. The Company cannot predict
the actual effects to it of the Year 2000 problem, which depends on numerous
uncertainties such as the factors listed above under Costs, whether significant
third parties properly and timely address the Year 2000 issue, whether broad
based or systemic economic failures may occur, and the severity and duration of
such failures, which could include disruptions in transportation systems
generally, loss of utility and/or telecommunications services, and errors or
failures in financial transactions or payment processing systems and whether the
Company becomes the subject of litigation or other proceedings regarding any
Year 2000 related events and the outcome of any such litigation or proceedings.
As part of its contingency planning, the Company is analyzing the most
reasonably likely worst case scenarios that could result from failing to
complete all necessary phases of the Year 2000 program in a timely manner. In
the event the Company does not complete any additional phases, the Company may
experience difficulty in producing, shipping and billing orders in the event of
the failure of building systems, may experience difficulty in producing
11
<PAGE> 12
timely and accurate financial data for certain of its divisions, and will be
susceptible to significant disruption in its business due to failures of third
parties previously described. Additionally, broad based and systemic economic
failures could have a materially adverse effect on the Company. The amount of
potential liability or lost revenue from these factors cannot be reasonably
estimated at this time.
The Company has contingency plans for certain critical applications and is
working on such plans for others. These contingency plans involve, among other
actions, manual workarounds, reallocating work among its divisions, increasing
inventories, and adjusting staffing strategies. There can be no assurance,
however, that these plans would mitigate all of the effects previously
described.
SEASONALITY
Historically, the Company has experienced lower revenues in the first and fourth
quarters due to the seasonal trends of its clients and lower overall economic
activity. However, the seasonal impact of the Company is changing due to its
expansion into the advertising and promotion markets. Due to this change in the
mix of revenues and the impact of the Company's active acquisition and expansion
program, future seasonal patterns, if any, cannot be accurately predicted at
this time.
IMPACT OF INFLATION
The Company believes that over the past three years inflation has not had a
significant impact on the Company's results of operations.
12
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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) Reports on Form 8-K
Form 8-K dated January 28, 1999
(B) Exhibit 27 - Financial Data Schedule
13
<PAGE> 14
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 12th day of May, 1999.
SCHAWK, INC.
- ------------
(Registrant)
/s/ David A. Schawk
- ------------------------------------
President, Chief Executive Officer and Director
/s/ James J. Patterson
- ------------------------------------
Senior Vice President and Chief Financial Officer
/s/ Dennis D. Wilson
- ------------------------------------
Director of Financial Reporting and Chief Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,661
<SECURITIES> 10,900
<RECEIVABLES> 34,209
<ALLOWANCES> 739
<INVENTORY> 7,431
<CURRENT-ASSETS> 60,700
<PP&E> 84,217
<DEPRECIATION> (47,632)
<TOTAL-ASSETS> 139,784
<CURRENT-LIABILITIES> 28,736
<BONDS> 39,461
0
0
<COMMON> 181
<OTHER-SE> 66,303
<TOTAL-LIABILITY-AND-EQUITY> 139,784
<SALES> 41,977
<TOTAL-REVENUES> 41,977
<CGS> 23,513
<TOTAL-COSTS> 23,513
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 883
<INCOME-PRETAX> 6,855
<INCOME-TAX> 2,791
<INCOME-CONTINUING> 4,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,064
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
