<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, 2000 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, 2000, are: 21,301,308 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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PART I
Schawk, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,568 $ 2,893
Short term investments -- 3,604
Trade accounts receivable, less allowance for doubtful accounts
of $744 at March 31, 2000 and $730 December 31, 1999 44,240 41,441
Inventories 9,705 7,813
Prepaid expenses and other 4,218 3,629
Refundable income taxes 252 252
Deferred income taxes 1,484 1,197
--------- ---------
Total current assets 61,467 60,829
Property and equipment less accumulated depreciation and amortization 47,592 48,777
of $ 58,969 at March 31, 2000 and $ 55,715 at December 31, 1999
Excess of cost over net assets acquired, less accumulated amortization
of $7,687 at March 31, 2000 and $7,180 at December 31, 1999 64,632 64,529
Other assets 3,347 3,126
--------- ---------
Total assets $ 177,038 $ 177,261
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 7,491 $ 6,928
Accrued expenses 14,977 17,116
Income taxes payable 2,766 356
Notes payable to banks 11,274 8,400
Current portion of long-term debt and capital lease obligations 5,655 5,665
--------- ---------
Total current liabilities 42,163 38,465
Long-term debt 56,500 63,370
Capital lease obligations 4,141 4,124
Other 1,252 1,013
Deferred income taxes 2,681 2,403
Minority interest in consolidated subsidiary 1,173 1,228
STOCKHOLDERS' EQUITY:
Common stock, $0.008 par value, 40,000,000 shares authorized, 23,002,991 and
22,907,563 shares issued at March 31, 2000 and December 31, 1999,
respectively; 21,301,308 and 21,205,101 shares outstanding at March 31,
2000 and December 31, 1999,
respectively 182 182
Additional paid-in capital 83,110 82,951
Retained earnings 5,629 3,410
Accumulated comprehensive loss, net (176) (263)
--------- ---------
88,745 86,280
Treasury stock, at cost, 1,701,683 and 1,702,462 shares of Common
stock at March 31, 2000 and December 31, 1999, respectively (19,617) (19,622)
--------- ---------
Total stockholders' equity 69,128 66,658
--------- ---------
Total liabilities and stockholders' equity $ 177,038 $ 177,261
========= =========
</TABLE>
See accompanying notes.
2
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Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999
(Unaudited)
(In Thousands, Except Per Share Amounts)
2000 1999
-------- --------
Net sales $ 52,856 $ 41,977
Cost of sales 31,194 23,513
Selling, general, and administrative expenses 14,608 10,716
Goodwill amortization 579 453
-------- --------
Operating income 6,475 7,295
Other income (expense)
Interest and dividend income 20 232
Interest expense (1,427) (883)
Other income 72 211
-------- --------
(1,335) (440)
-------- --------
Income before income taxes 5,140 6,855
Income tax provision 2,232 2,791
-------- --------
Net income $ 2,908 $ 4,064
======== ========
Earnings per share:
Basic $ 0.14 $ 0.19
Diluted $ 0.14 $ 0.19
Weighted average number of common and common
Equivalent shares outstanding 21,460 21,905
Dividends per common share $ 0.0325 $ 0.065
See accompanying notes.
3
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Schawk, Inc.
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999
(In Thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,908 $ 4,064
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 3,833 2,736
Deferred income taxes (9) --
Loss realized on sale of marketable securities 2 (80)
Minority interest (55) --
Changes in operating assets and liabilities, net of effects from
acquisitions:
Trade accounts receivable (2,799) 1,942
Inventories (1,892) (1,461)
Prepaid expenses and other (589) (1,385)
Trade accounts payable and accrued expenses (1,031) (1,933)
Income taxes refundable/payable 2,410 2,032
-------- --------
Net cash provided by (used in) operating activities 2,778 5,915
INVESTING ACTIVITIES
Proceeds from sale of short term investments 3,602 11,582
Purchase of short term investments -- (6,266)
Capital expenditures (2,614) (2,322)
Acquisitions, net of cash acquired (610) (2,803)
Other (293) (2,023)
-------- --------
Net cash provided by (used in) investing activities 85 (1,832)
FINANCING ACTIVITIES
Proceeds from short-term borrowings, net 2,874 --
Principal payments on debt (6,870) (1,159)
Principal payments on capital lease obligations (10) (158)
Common stock dividends (689) (1,418)
Issuance of common stock 164 601
Purchase of common stock -- (2,514)
Other 343 --
-------- --------
Net cash provided by (used in) financing activities (4,188) (4,648)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,325) (565)
Cash and cash equivalents beginning of period 2,893 2,226
-------- --------
Cash and cash equivalents end of period $ 1,568 $ 1,661
======== ========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 1,258 $ 722
Cash paid for income taxes 683 572
</TABLE>
See accompanying notes.
4
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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 Schawk,
Inc. (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 Company's consolidated financial
statements and the notes thereto for the three years ended December 31, 1999.
NOTE 2. INTERIM RESULTS
Results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
NOTE 3. DESCRIPTION OF BUSINESS
The Company is a leading provider of digital imaging prepress services for the
consumer products industry. The Company focuses on providing these services to
multi-national clients in three primary markets: consumer products packaging,
advertising agencies and promotion.
NOTE 4. RESTRUCTURING PLAN
The Company has acquired thirteen businesses within the last twenty-four months,
of which 8 business units were acquired during 1999. As a result of these
acquisitions, in the fourth quarter of fiscal 1999, the Company adopted and
began executing a restructuring plan (the Plan) to integrate, consolidate and/or
move certain operations, replace obsolete assets used in its operations with
newly acquired technologies with more efficient throughput and eliminate
redundant activities within the Company's workforce through early retirements,
lay-offs and normal terminations. The Plan included the consolidation of certain
duplicate operations at various Company facilities in Connecticut, Illinois,
Ohio, New Jersey and New York as well as workforce reductions at the Company's
operations in Wisconsin, primarily due to lower sales volumes. A total of
approximately 60 employees (approximately 4% of the Company's workforce) were
impacted by the workforce reduction efforts through early retirements, lay-offs
and normal terminations. The shutdowns and consolidations were started in
December 1999, and are scheduled to be completed by September 30, 2000. As a
result of the Plan, the Company recorded restructuring and other charges of $2.2
million pre-tax in the fourth quarter of 1999, which consisted of $1.7 million
of estimated lease termination costs and $0.5 million of estimated severance
costs. During the three months ended March 31, 2000, approximately $0.1 million
was charged against the restructuring reserve.
NOTE 5. IMPAIRMENT OF MACHINERY AND EQUIPMENT
In connection with the adoption of the Plan, the Company performed a
comprehensive review of all of its remaining fixed assets to identify any
obsolete and impaired assets in both the operations being consolidated and the
Company's other operations. As a result of this review, assets with a net book
value $0.9 million pre-tax, consisting of equipment and software, were deemed to
be impaired or obsolete. Accordingly, a charge for that amount was recorded as
part of the restructuring and other charges during the fourth quarter of 1999.
The largest
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part of the charge related to a short-run digital press that was written down to
its estimated net realizable value of $0.2 million, resulting in a $0.4 million
write-down. The press is currently idle and is being held for disposal.
NOTE 6. INVENTORIES
Inventories consist of the following:
March 31 December 31
2000 1999
---- ----
Raw materials $ 2,606 $ 2,521
Work in process 8,307 6,500
-------- --------
10,913 9,021
Less: LIFO reserve (1,208) (1,208)
-------- --------
$ 9,705 $ 7,813
======== ========
NOTE 7. INVESTMENTS
The Company liquidated the remaining investment in its portfolio in January 2000
and received proceeds of $3,602. This investment had been written down to a fair
market value of $3,604 as of December 31, 1999. A loss of $2 was recorded in
connection with the sale of the investment in January 2000. Realized losses on
investments are included in Other income on the Consolidated Statement of
Operations. The Company had no investments as of March 31, 2000.
NOTE 8. 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 by the weighted average shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common shares and common stock equivalent shares outstanding (stock
options) for the period.
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended March 31
---------------------------
2000 1999
------- -------
Income available for common shareholders $ 2,908 $ 4,064
======= =======
Weighted average shares 21,301 21,805
Effect of dilutive stock options 159 100
------- -------
Adjusted weighted average shares and
assumed conversions 21,460 21,905
======= =======
Basic earnings per share $ 0.14 $ 0.19
======= =======
Diluted earnings per share $ 0.14 $ 0.19
======= =======
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NOTE 9. SEGMENT REPORTING
The Company operates in a single business segment, Imaging and Information
Technologies. The Company operates primarily in two geographic areas, the United
States and Canada. Summary financial information by geographic area is as
follows:
Three months ended March 31
---------------------------
2000 United States Canada Total
- ---- ------------- ------ -----
Sales $ 41,209 $ 11,647 $ 52,856
Identifiable assets 149,571 27,467 177,038
Three months ended March 31
---------------------------
1999 United States Canada Total
- ---- ------------- ------ -----
Sales $ 34,314 $ 7,663 $ 41,977
Identifiable assets 121,161 18,623 139,784
NOTE 10. 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. During
the quarter ended March 31, 2000, the Company liquidated all of its remaining
available-for-sale securities.
The following table sets forth the components of comprehensive income, net of
related tax:
Three months ended March 31
---------------------------
2000 1999
------ ------
Net income $2,908 $4,064
Increase (decrease) in unrealized appreciation of
investments -- 572
Foreign currency translation adjustments 87 156
------ ------
Comprehensive income $2,995 $4,792
====== ======
The components of accumulated comprehensive loss, net of related tax as of March
31, 2000 and December 31, 1999 consisted entirely of foreign currency
translation adjustments.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Thousands of dollars, except per share amounts)
Certain statements contained herein that relate to the Company's beliefs or
expectations as to future events relating to, among other things, the
anticipated revenues from recent acquisitions, the success of the Company's
growth strategy, the ability of the Company to exploit industry trends, such as
outsourcing, the Company' exploitation of technological advancements in the
imaging industry, are not statements of historical fact and are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act and are subject to the "Safe Harbor" created thereby.
Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable within the bounds of its
knowledge of its business and operations, it can give no assurance the
assumptions will prove to have been correct. Important factors that could cause
actual results to differ materially and adversely from the Company's
expectations and beliefs include, among other things, the continued demand for
its services, retention of key management and operational personnel, the ability
of the Company to implement its growth strategy, the stability of state, federal
and foreign tax laws, the ability of the Company to identify and exploit
industry trends and to exploit technological advances in the imaging industry,
as well as other factors detailed in the Company's filings with the Securities
and Exchange Commission.
ACQUISITIONS AND RESTRUCTURING
The Company has acquired thirteen businesses within the last twenty-four months,
of which 8 business units were acquired during 1999. As a result of these
acquisitions, in the fourth quarter of fiscal 1999, the Company adopted and
began executing a restructuring plan (the Plan) to integrate, consolidate and/or
move certain operations, replace obsolete assets used in its operations with
newly acquired technologies with more efficient throughput and eliminate
redundant activities within the Company's workforce through early retirements,
lay-offs and normal terminations. The Plan included the consolidation of certain
duplicate operations at various Company facilities in Connecticut, Illinois,
Ohio, New Jersey and New York as well as workforce reductions at the Company's
operations in Wisconsin, primarily due to lower sales volumes. A total of
approximately 60 employees (approximately 4% of the Company's workforce) were
impacted by the workforce reduction efforts through early retirements, lay-offs
and normal terminations. Also, in connection with the adoption of the Plan, the
Company performed a comprehensive review of all of its remaining fixed assets to
identify any obsolete and impaired assets.
As a result of the Plan and the asset review efforts, the Company recorded
restructuring and other charges of $3.1 million pre-tax in the fourth quarter of
1999, which consisted of $1.7 million of estimated lease termination costs, $0.9
million of costs related to the write-down of impaired or obsolete machinery and
equipment and $0.5 million of estimated severance costs. During the three months
ended March 31, 2000, approximately $0.1 million was charged against the
restructuring reserve. Management currently expects its remaining efforts under
the Plan to be completed by September 30, 2000.
NET SALES of $52,856 for the first quarter of 2000 represented a 25.9% increase
from sales of $41,977 for the same period in 1999. The increase was primarily
attributable to revenues from businesses acquired in 1999 as well as internal
growth. Sales from acquired business units accounted for 20.1% of the increase
while sales to new and existing customers resulted in the remaining 5.8%
increase in net sales.
COST OF SALES for the first quarter of 2000 increased to 59.0% from 56.0% of net
sales for the comparable period in the prior year. The higher cost of sales
resulted from lower gross margins in the business units acquired in 1999 as well
as the impact of lower high margin sales in the fiscal 2000 period.
OPERATING INCOME in the first quarter of 2000 decreased 11.0% to $6,475 from
$7,295 for the same period in 1999. The decrease primarily resulted from lower
operating margins at business units acquired during 1999 and lower high margin
sales at the Company's historical operations during the first two months of
2000. Selling, general and administrative expenses increased to 27.6% of sales
for the first quarter of 2000 from 25.5% for the comparable prior year period.
The increase resulted from higher fixed general and administrative expenses as
well as higher amortization costs associated with operations acquired during
1999.
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OTHER INCOME (EXPENSE) - NET increased to $(1,335) of net expense for the first
quarter of 2000 compared with $(440) of net expense for the same period of 1999.
Interest expense for the first quarter of 2000 increased to 2.7% versus 2.1% of
sales in the comparable prior year period. The increase in interest expense
primarily resulted from higher new borrowings used to fund acquisitions.
Interest income and dividend income have steadily declined as the Company has
liquidated its investment portfolio to provide funds for financing acquisitions.
Other income, which consists primarily of gains on sales of investments and
capital gain distributions, also declined in the first quarter of 2000 from the
same period as 1999 as the remainder of the Company's investment portfolio was
liquidated in January, 2000.
INCOME BEFORE INCOME TAXES decreased to $5,140 for the first quarter of 2000
from $6,855 for the same period of 1999 for the reasons previously discussed.
INCOME TAX PROVISION increased to 43.4% of pretax income during the first
quarter of 2000 versus 40.7% for the comparable prior year period. The increase
in the effective tax rate is primarily attributable to an increase in
non-deductible goodwill incurred in conjunction with businesses acquired in 1999
as well as an increase in the proportion of the Company's income that is derived
from states with higher tax rates. The Company's annual effective tax rate for
fiscal 1999 was 41.1%.
NET INCOME decreased to $2,908 for the first quarter of 2000 from $4,604 for the
same period of 1999 for the reasons previously discussed.
BASIC AND DILUTED EARNINGS PER SHARE was $0.14 for the first quarter of 2000
compared with $0.19 for the same period in 1999. Weighted average common and
common equivalent shares outstanding decreased to 21,460 for the first quarter
of 2000 from 21,905 for the same period of 1999, primarily as a result of shares
repurchased during the latter part of 1999 under the Company's common stock
repurchase program and a decrease in the number of dilutive outstanding stock
options for the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently finances its business from available cash held by the
Company and from cash generated from operations. The Company maintains a $65
million unsecured credit facility, which expires in May 2004, of which
approximately $ 38.5 million was available for borrowings at March 31, 2000.
This 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. In addition, the Company maintains a $15 million unsecured
line of credit and the Company's Canadian subsidiary maintains a Cdn $7.5
million unsecured line of credit, both of which provide financing and working
capital flexibility. Both of these lines of credit are due on demand. As of
March 31, 2000, approximately $5,175 million was available under the domestic
line of credit and approximately $3,725 was available under the Canadian line of
credit.
Cash from operating activities decreased by approximately $3,127 for the period
ended March 31, 2000 versus the comparable period of the prior year primarily
due to higher required levels of working capital as a result of the acquisitions
and other factors discussed above.
During January 2000, the Company liquidated the remainder of its investments
held for sale and received proceeds of $3,602. This investment had been written
down to a fair market value of $3,604 as of December 31, 1999. A loss of $2 was
recorded in connection with the sale of the investment in January 2000. The
Company had no other investments as of March 31, 2000.
At March 31, 2000, outstanding debt of the Company consisted of: (i) unsecured
notes issued pursuant to a Note Purchase Agreement dated August 18, 1995, for
$40.0 million, the remaining $35.0 million of which is due in installments from
2000 through 2005 (averaging seven years) at an average interest rate of 6.92%;
and (iii) $26.5
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million of borrowings under the Company's unsecured credit facility; and (ii)
approximately US $11.3 million of combined borrowings under the Company's
domestic and Canadian subsidiary's lines of credit.
Capital expenditures of $2,614 were made during the first quarter of 2000 for
machinery, equipment and automation to expand production facilities and improve
productivity. Depreciation and amortization for the first quarter of 2000
totaled $3,833.
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, both currently and in the foreseeable future, and that the Company
has sufficient resources to support its growth, either through cash generated
from future operations or through availability under its financing arrangements.
SEASONALITY
The historical seasonal impact of the Company's operations is changing due to
its expansion into the advertising and promotion markets and the impact from
recent acquisitions. Due to these changes 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.
10
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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
None.
(B) Exhibit 27 - Financial Data Schedule
11
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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 12th day of May, 2000.
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/ Jo Ann Doherty
- ------------------
Vice President of Finance and Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,568
<SECURITIES> 0
<RECEIVABLES> 44,240
<ALLOWANCES> 730
<INVENTORY> 9,705
<CURRENT-ASSETS> 61,467
<PP&E> 106,561
<DEPRECIATION> (58,969)
<TOTAL-ASSETS> 177,038
<CURRENT-LIABILITIES> 42,163
<BONDS> 60,641
0
0
<COMMON> 182
<OTHER-SE> 68,946
<TOTAL-LIABILITY-AND-EQUITY> 177,038
<SALES> 52,856
<TOTAL-REVENUES> 52,856
<CGS> 31,194
<TOTAL-COSTS> 31,194
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 744
<INTEREST-EXPENSE> 1,427
<INCOME-PRETAX> 5,140
<INCOME-TAX> 2,232
<INCOME-CONTINUING> 2,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,908
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
