<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 September 30, 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)
66-0323724
(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:
<TABLE>
<CAPTION>
Title of Each Class Name of Exchange on Which Registered
--------------------- ------------------------------------
<S> <C>
CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.008 PAR VALUE
</TABLE>
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 September 30, 2000, are:
21,339,468 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 16.
================================================================================
<PAGE> 2
PART I Schawk, Inc.
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,118 $ 2,893
Short term investments -- 3,604
Trade accounts receivable, less allowance for doubtful accounts
of $842 at September 30, 2000 and $730 at December 31, 1999 43,989 41,441
Inventories 9,557 7,813
Prepaid expenses and other 4,969 3,629
Refundable income taxes 64 252
Deferred income taxes 1,207 1,197
--------- ---------
Total current assets 61,904 60,829
Property and equipment, net 45,420 48,777
Excess of cost over net assets acquired, less accumulated amortization
of $8,761 at September 30, 2000 and $7,180 at December 31, 1999 63,942 64,529
Other assets 4,158 3,126
--------- ---------
Total assets $ 175,424 $ 177,261
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 6,030 $ 6,928
Accrued expenses 14,295 17,116
Income taxes payable 1,659 356
Notes payable to banks 15,005 8,400
Current portion of long-term debt and capital lease obligations 6,656 5,665
--------- ---------
Total current liabilities 43,645 38,465
Long-term debt 48,000 63,370
Capital lease obligations 3,688 4,124
Other 1,067 1,013
Deferred income taxes 2,403 2,403
Minority interest in consolidated subsidiary 1,160 1,228
STOCKHOLDERS' EQUITY
Common stock, $0.008 par value, 40,000,000 shares authorized,
23,040,019 and 22,907,563 shares issued at September 30, 2000
and December 31, 1999, respectively; 21,339,468 and 21,205,101
shares outstanding at September 30, 2000 and December 31, 1999,
respectively 184 182
Additional paid-in capital 83,387 82,951
Retained earnings 11,703 3,410
Accumulated comprehensive loss, net (209) (263)
--------- ---------
95,065 86,280
Treasury stock, at cost, 1,700,551 and 1,702,462 shares of Common
stock at September 30, 2000 and December 31, 1999, respectively (19,604) (19,622)
--------- ---------
Total stockholders' equity 75,461 66,658
--------- ---------
Total liabilities and stockholders' equity $ 175,424 $ 177,261
========= =========
</TABLE>
See accompanying notes
2
<PAGE> 3
Schawk, Inc.
Consolidated Statements of Operations
Three Months Ended September 30, 2000 and 1999
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net sales $ 50,631 $ 47,188
Cost of sales 29,975 27,127
Selling, general, and administrative expenses 13,110 12,567
Amortization of intangibles 579 503
Restructuring and other charges 880 --
-------- --------
Operating income 6,087 6,991
Other income (expense)
Interest and dividend income 5 120
Interest expense (1,421) (1,160)
Other income (expense) 1,209 (7)
-------- --------
(207) (1,047)
-------- --------
Income before income taxes 5,880 5,944
Income tax provision 2,305 2,426
-------- --------
Net income $ 3,575 $ 3,518
======== ========
Earnings per share:
Basic $ 0.17 $ 0.17
Diluted $ 0.17 $ 0.17
Weighted average number of common and common
equivalent shares outstanding 21,441 21,290
Dividends per common share $ 0.0325 $ 0.065
</TABLE>
See accompanying notes
3
<PAGE> 4
Schawk, Inc.
Consolidated Statements of Operations
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net sales $ 158,228 $ 133,618
Cost of sales 93,297 76,547
Selling, general, and administrative expenses 41,587 34,829
Amortization of intangibles 1,736 1,396
Restructuring and other charges 880 --
--------- ---------
Operating income 20,728 20,846
Other income (expense)
Interest and dividend income 34 494
Interest expense (4,307) (2,940)
Other income 1,358 523
--------- ---------
(2,915) (1,923)
--------- ---------
Income before income taxes 17,813 18,923
Income tax provision 7,443 7,743
--------- ---------
Net income $ 10,370 $ 11,180
========= =========
Earnings per share:
Basic $ 0.49 $ 0.52
Diluted $ 0.49 $ 0.52
Weighted average number of common and common
equivalent shares outstanding 21,358 21,598
Dividends per common share $ 0.065 $ 0.013
</TABLE>
See accompanying notes.
4
<PAGE> 5
Schawk, Inc.
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
(In Thousands)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 10,370 $ 11,180
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 10,894 8,681
Deferred income taxes and other (4) --
Gain (loss) realized on sale of marketable securities 2 (420)
Minority interest (68) --
Changes in operating assets and liabilities, net of effects from
acquisitions:
Trade accounts receivable (3,277) (2,354)
Inventories (1,965) (1,420)
Prepaid expenses and other (473) 874
Trade accounts payable and accrued expenses (3,174) (1,884)
Income taxes refundable/payable 1,491 (383)
-------- --------
Net cash provided by operating activities 13,796 14,274
INVESTING ACTIVITIES
Proceeds from sale of short term investments 3,602 20,424
Purchase of short term investments -- (7,563)
Proceeds from sale of division 1,332 --
Proceeds on sale of equipment 1,200 --
Capital expenditures (8,956) (13,436)
Acquisitions, net of cash acquired (1,127) (38,899)
Other (899) 892
-------- --------
Net cash used in investing activities (4,848) (38,582)
FINANCING ACTIVITIES
Proceeds from borrowings 6,605 34,798
Issuance of common stock 456 1,046
Redemption of preferred stock -- --
Principal payments on debt (14,370) --
Principal payments on capital lease obligations (445) (235)
Common stock dividends (2,067) (4,193)
Purchase of common stock -- (8,201)
Other 98 --
-------- --------
Net cash provided by (used in) financing activities (9,723) 23,215
-------- --------
Net increase (decrease) in cash and cash equivalents (775) (1,093)
Cash and cash equivalents beginning of period 2,893 2,226
-------- --------
Cash and cash equivalents end of period $ 2,118 $ 1,133
======== ========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,640 $ 2,377
Cash paid for income taxes $ 7,030 $ 7,370
</TABLE>
5
<PAGE> 6
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
included in the Company's Form 10-K filed with the Securities and Exchange
Commission.
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
UNITED STATES RESTRUCTURING
The Company has acquired thirteen businesses within the last twenty-four months,
eight of which 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 "US Restructuring 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 US Restructuring 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 were scheduled to be completed
by September 30, 2000. As a result of the US Restructuring 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.
In the third quarter of 2000 the Company reversed $0.4 million of the US
Restructuring charge recorded in the fourth quarter of 1999. This reversal
reflects the fact that the Company continued to operate at certain facilities
beyond the anticipated move-out date and as a result, the amount of rental costs
to be incurred after the move-out date were less than accrued for at December
31, 1999. The reversal is included on the Restructuring and other charges line
on the Statement of Operations.
6
<PAGE> 7
Of the three consolidations that were accrued for last December in the US
restructuring, the East Coast consolidation was completed in July and the Ohio
and Illinois consolidations are now expected to be completed by November 30th,
2000.
CANADIAN RESTRUCTURING
Of the thirteen businesses acquired in the last twenty-four months, four
businesses were in Toronto, Ontario Canada: Design Partners, Herzig Somerville
Ltd., Cactus Imaging Centres and Plewes Bertouche.
In 1999, the operations of Design Partners and Plewes Bertouche were combined
into Design Partners to take advantage of the synergies and efficiencies of two
design firms that specialized in consumer products packaging designs. The costs
associated with this integration were immaterial to the financial statements of
the Company.
In the third quarter of 2000, the Company consolidated its Herzig Somerville
operation in Toronto into its sister division, Batten Graphics in Toronto. The
total cost of the "Canadian Restructuring", consisting primarily of severance of
$1.0 million of costs related to the termination of 49 employees and lease
termination costs of $0.3 million. This charge is included on the "Restructuring
and other charges" line on the Statement of Operations. In addition, the Company
sold three printing presses that were part of the Herzig Somerville operation,
which resulted in a gain of $0.9 million. The gain is reflected on the other
income line of the Statement of Operations. Finally, in connection with the sale
of the Company's Montreal operation, the Company recognized a gain of $0.4
million. The gain is reflected on the other income line on the Statement of
Operations. The net effect of the three items noted above is zero on income
before income taxes for the three and nine months ended September 30, 2000.
The total on the restructuring and other charges line on the Statement of
Operations for the three and nine-month period is $0.9 million consisting of the
Canadian restructuring charge of $1.3 million as discussed above, and a reversal
of $0.4 million of the US Restructuring charge recorded in the fourth quarter of
1999 as discussed under US Restructuring above.
NOTE 5. IMPAIRMENT OF MACHINERY AND EQUIPMENT
In connection with the adoption of the US Restructuring 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 part of the charge related to a short-run
digital press that was written down to its estimated net realizable value of
$0.1 million, resulting in a $0.4 million write-down. The press was sold in
July, 2000 for $0.2 million resulting in a $0.1 million pretax gain.
NOTE 6. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
------------ -----------
<S> <C> <C>
Raw materials $ 2,136 $ 2,521
Work in process 8,629 6,500
-------- --------
10,765 9,021
Less: LIFO reserve (1,208) (1,208)
-------- --------
$ 9,557 $ 7,813
======== ========
</TABLE>
7
<PAGE> 8
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.
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 tables set forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
2000 1999
------- -------
<S> <C> <C>
Income available for common shareholders $ 3,575 $ 3,518
======= =======
Weighted average shares 21,323 21,237
Effect of dilutive stock options 118 53
------- -------
Adjusted weighted average shares and
assumed conversions 21,441 21,290
======= =======
Basic earnings per share $ 0.17 $ 0.17
======= =======
Diluted earnings per share $ 0.17 $ 0.17
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
2000 1999
------- -------
<S> <C> <C>
Income available for common shareholders $10,370 $11,180
======= =======
Weighted average shares 21,301 21,493
Effect of dilutive stock options 57 105
------- -------
Adjusted weighted average shares and
assumed conversions 21,358 21,598
======= =======
Basic earnings per share $ 0.49 $ 0.52
======= =======
Diluted earnings per share $ 0.49 $ 0.52
======= =======
</TABLE>
8
<PAGE> 9
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
---------------------------------------------
2000 United States Canada Total
---- ------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 42,135 $ 8,496 $ 50,631
Identifiable assets 160,639 14,785 175,424
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
---------------------------------------------
1999 United States Canada Total
---- ------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 36,851 $ 10,337 $ 47,188
Identifiable assets 144,568 30,204 174,772
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------------------
2000 United States Canada Total
---- ------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 127,311 $ 30,917 $ 158,228
Identifiable assets 160,639 14,785 175,424
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------------------
1999 United States Canada Total
---- ------------- ------------- -------------
<S> <C> <C> <C>
Sales $ 105,127 $ 28,491 $ 133,618
Identifiable assets 144,568 30,204 174,772
</TABLE>
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 nine months ended September 30, 2000, the Company liquidated all of its
remaining available-for-sale securities.
The following tables set forth the components of comprehensive income, net of
related tax:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net income $ 3,575 $ 3,518
Increase (decrease) in unrealized appreciation of
investments -- 24
Foreign currency translation adjustments 53 88
------------- -------------
Comprehensive income $ 3,623 $ 3,630
============= =============
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
---------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Net income $ 10,370 $ 11,180
Increase (decrease) in unrealized appreciation of
investments -- (220)
Foreign currency translation adjustments 54 497
--------------- ---------------
Comprehensive income $ 10,424 $ 11,457
=============== ===============
</TABLE>
The components of accumulated comprehensive loss, net of related tax on the
Consolidated Balance Sheet as of September 30, 2000 and December 31, 1999
consisted entirely of foreign currency translation adjustments.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Thousands of dollars, except per share amounts)
Statements contained herein that relate to the Company's beliefs or expectations
as to future events relating to, among other things, the ability of the Company
to finance growth and acquisitions from future cash flows and available
borrowings and the future income tax rate of the Company, are not statements of
historical fact and are forward-looking statements with in 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 that 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 the ability of the
Company to implement its growth strategy, to identify and exploit industry
trends, and to exploit technological advances in the imaging industry.
Included in the Company's Consolidated Statements of Operations are the
operations of its wholly-owned subsidiary, InterchangeDigital, Inc., a start-up
digital asset management software and services company. During the three and
nine months ended September 30, 2000, InterchangeDigital, Inc. had pre-tax
losses of $448 and $875, respectively. Excluding InterchangeDigital, Inc. would
have resulted in earnings per share of $0.18 and $0.51 for the three and nine
months ended September 30, 2000, respectively. Management anticipates losses at
this subsidiary for the foreseeable future. Such losses are anticipated to
increase in the fourth quarter of 2000 and throughout 2001 as InterchangeDigital
incurs the necessary expenses in employee hiring and recruiting costs and other
operating costs to increase sales of its software and consulting services. Such
losses are anticipated to reduce the Company's earnings per share for the
remainder of 2000 and 2001. The Company is currently exploring strategic
alliances and other partnerships, including potential investors, to help fund
InterchangeDigtital's growth.
NET SALES of $50,631 for the third quarter of 2000 represents a 7.3% increase
from sales of $47,188 for the same period in 1999. The increase was attributable
to 12.8 points of an increase in revenues from businesses acquired in 1999 and a
decrease of 2.2 points in the Company's historical operations as well as a
decrease of 3.3 points from the sale of the Company's Montreal Quebec
operations.
The softness in sales at the Company's historical operations in the third
quarter was primarily due to the Company's top ten accounts being down 3.3%
versus the prior year third quarter. The Company believes that there was
uncertainty as to promotional and/or packaging design change decisions at these
clients because of the number of mergers occurring in the consumer products
industry. Fully nine of the top twenty accounts were either recently acquired,
have announced that they are being acquired or are rumored to be for sale. As a
result, the Company believes that these clients are hesitant to release projects
with old logos and other design items that may not be consistent with the new
direction of the combined or combining companies. For all accounts other than
the top ten clients, sales increased 1.1% versus the prior year third quarter.
COST OF SALES for the third quarter of 2000 increased to 59.2% from 57.5% of net
sales for the same period in 1999. The higher cost of sales percentage was
primarily a result of higher overhead costs due to the increased number of
facilities from the 1999 acquisitions and the lower productivity levels at many
of the Company's operations. The lower productivity levels are a result of lower
volumes from our top ten accounts as previously described. The Company believes
that it is addressing this issue by reducing the number of facilities it is
operating in. (See Restructuring And Other Charges below) and believes that
there will continue to be changes made to improve efficiency and profitability.
RESTRUCTURING AND OTHER CHARGES relate to the Company's previously announced
restructuring of its operations in Toronto, Ontario Canada. The Company moved
its Herzig Somerville operation into its sister division, Batten Graphics in
Toronto. The combination of the two businesses in one location is anticipated to
reduce costs and improve profitability of the Company's Toronto operations. The
total cost of the restructuring consisted primarily of severance and lease
termination costs totaling $1,280. Offsetting the $1,280 is $400 of reversal of
restructuring charges from the December 31, 1999 US restructuring. The net of
these two items is $880 as listed on the Consolidated Statement of Operations.
The reversal of $400 of the December 31, 1999 US restructuring resulted from
delays in moving out of operating facilities. Since the Company continued to
operate through October 2000 in two of the facilities it had planned on
abandoning at the end of May 2000, the duplicate rent charge the Company had
predicted did not occur. As a result, the amount of the duplicate rental costs
accrued for in the restructuring reserve was not required and was reversed in
the third quarter of 2000.
11
<PAGE> 12
OPERATING INCOME before "Restructuring and other charges" in the third quarter
of 2000 of $6,967 was essentially the same as 1999. Operating margin decreased
to 13.8% of sales for the third quarter of 2000 versus 14.8% for the same period
in 1999. This decrease was primarily the result of lower volumes of work from
the Company's top ten accounts as previously described.
Selling, general and administrative expenses as a percentage of sales decreased
to 25.9% of sales for the third quarter of 2000 from 26.7% of sales for the same
period in 1999. The decrease was primarily as a result a reduction of accrued
bonuses to reflect the lower results for the Company versus plan for the
quarter.
OTHER INCOME (EXPENSE) - NET resulted in lower net expense at $(207) for the
third quarter of 2000 compared with $(1,047) for the same period of 1999. The
lower net expense was due to higher other income of $1,209 in the third quarter
of 2000. Other income in the third quarter of 2000 includes a $900 gain on the
sale of printing presses in connection with the relocation of the Herzig
Somerville operation and the reversal of a reserve from our Montreal operations,
which were sold, of $300. Interest expense increased by $261 during the third
quarter of 2000 compared with the prior year quarter primarily as a result of
higher borrowings related to financing acquisitions in the second half of 1999.
INCOME BEFORE INCOME TAXES was essentially the same in both periods with $5,880
for the third quarter of 2000 versus $5,944 for the third quarter of 1999.
INCOME TAX PROVISION decreased to 39.2% of pretax income during the third
quarter of 2000 from 40.9% for the same period of 1999. The decrease resulted
from a decrease in the Company's annual effective tax which reflected the
beneficial impact of certain tax planning strategies.
NET INCOME increased slightly to $3,575 for the third quarter of 2000 from
$3,518 for the same period of 1999, for the reasons previously discussed.
BASIC AND DILUTED EARNINGS PER SHARE was $0.17 for the third quarter of 2000
compared with $0.17 for the same period in 1999. Weighted average common and
common equivalent shares outstanding increased to 21,441 for the third quarter
of 2000 from 21,290 for the same period of 1999, primarily as a result of
increased share issuances under the Company's employee stock purchase plan.
NINE MONTHS ENDED SEPTEMBER 30, 2000
NET SALES of $158,228 for the first nine months of 2000 represents an 18.5%
increase from sales of $133,618 for the same period of 1999. Revenues from
businesses acquired during the last twelve months represented 17.8 points of the
increase and internal growth was 0.7 points. The softness in demand in the third
quarter and the sale of the Montreal operations were the primary reasons for the
weak internal growth.
COST OF SALES for the first nine months of 2000 increased to 59.0% from 57.3% of
net sales for the first nine months of 1999. The higher cost of sales percentage
for the first nine months of 2000 compared with the previous year is a result of
having an increased number of facilities with lower productivity levels due to
the softness in sales throughout the nine month year to date period versus the
prior year nine month period.
OPERATING INCOME before "Restructuring and other charges" for the first nine
months of 2000 increased to $21,608 from $20,846 for the same period in 1999.
The increase was primarily attributable to increased operating earnings in the
first six months of 2000 as the third quarter was essentially flat with the
prior year third quarter.
Selling, general and administrative expenses as a percent of sales were
approximately the same as the prior year-to-date period at 26.3% for 2000 versus
26.1% for the first nine months of 1999.
OTHER INCOME (EXPENSE) - NET decreased for the first nine months of 2000 to
$(2,915) from $(1,923) for the first nine months of 1999. The largest increase
in other expense was interest expense which increased by $1,367 over the
previous nine month periods as the Company's debt level increased due to
acquisitions. Offsetting the increase in interest expense was an increase in
other income, substantially all of which occurred in the third quarter of 2000,
as a result of a gain of $900 on the sale of printing presses as previously
discussed in the third quarter discussion.
12
<PAGE> 13
INCOME BEFORE INCOME TAXES decreased $1,110 to $17,813 in the nine month period
ended September 30, 2000 as compared to $18,923 for the prior year period. The
increased interest expense was the primary reason for the lower income before
income taxes.
INCOME TAX PROVISION was 41.8% for the first nine months of 2000 versus 40.9%
for the same period in 1999, as the Company derived a larger percentage of its
income from higher taxed states and there was an increase in non-deductible
goodwill versus the prior year period. The Company's effective tax rate is
expected to approximate 41.8% for the full year ended December 31, 2000.
NET INCOME decreased $810 to $10,370 for the first nine months of 2000 from
$11,180 for the first nine months of 1999 for the reasons previously described.
BASIC AND DILUTED EARNINGS PER SHARE was $0.49 for the first nine months of 2000
compared with $0.52 basic and diluted for the first nine months of 1999.
Weighted average common and common equivalent shares outstanding decreased to
21,358 for the first nine months of 2000 from 21,598 for the first nine months
of 1999 as a result of fewer stock options included in the calculation of
earnings per share.
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 an
unsecured $65,000 revolving credit facility expiring in May 2004 ($40,000
available at September 30, 2000). The facility is subject to certain financial
covenants that require the Company to maintain certain levels of net worth and
working capital. The Company maintains an additional $15,000 unsecured demand
line of credit ($660 of which was available at September 30, 2000) and
its consolidated Canadian subsidiary maintains a Cdn $7,500 unsecured demand
line of credit (of which cdn $6,500 was available at September 30, 2000.) Both
of these facilities are due on demand.
At September 30, 2000, outstanding long-term debt of the Company consisted of:
(i) unsecured notes issued pursuant to a Note Purchase Agreement dated August
18, 1995, for $30,000 due in $6,000 annual installments from 2001 through 2005
at an interest rate of 6.98%; and (ii) approximately $39,005 of borrowings under
the Company's credit lines.
During January 2000, the Company liquidated the remainder of its investment
portfolio and received proceeds of $3,602.
Capital expenditures of $8,956 were made during the first nine months of 2000
for building improvements, machinery, equipment and automation to expand
production facilities and improve productivity. Depreciation and amortization
for the first nine months of 2000 totaled $10,894.
During the nine months ended September 30, 2000, the Company sold its Montreal
operations, resulting in sale proceeds of $2,205, of which $1,332 was received
in cash, $665 was received in the form of a note receivable due August 2001 and
the majority of the remaining proceeds was received in the form of stock of the
acquiring company. In addition, during the nine months ended September 30, 2000,
in connection with the restructuring of the Company's Canadian operations, the
Company sold three printing presses, which resulted in cash proceeds of $1,200.
Management believes that the level of working capital is adequate for the
Company's liquidity needs related to normal operations and planned acquisitions
both currently and in the foreseeable future, and that the Company has
sufficient resources to support its growth, either through currently available
cash and investments, cash generated through future operations, or through
borrowings from its banks.
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 of
recent acquisitions. Due to these changes in the mix of revenues, future
seasonal patterns, if any, cannot be accurately predicted at this time.
13
<PAGE> 14
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.
14
<PAGE> 15
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
No Forms 8-K were filed during the third quarter of 2000
(B) Exhibit 27 - Financial Data Schedule
15
<PAGE> 16
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 14th day of November 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 - Finance and Chief Accounting Officer
