Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number 1-9335
SCHAWK, INC.
(Exact name of Registrant as specified in its charter)
| |
|
|
|
Delaware
|
|
36-2545354 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| |
1695 River Road
Des Plaines, Illinois
(Address of principal executive office) |
|
60018
(Zip Code) |
(Registrants telephone number, including area code)
847-827-9494
Securities registered pursuant to Section 12(b) of
the Act:
| |
|
|
| Title of Each Class |
|
Name of Exchange on Which Registered |
| |
|
|
|
Class A Common Stock, $.008 par value
|
|
New York Stock Exchange |
Indicate 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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act.) Yes o No þ
The aggregate market value on June 30, 2004 of the voting
stock held by non-affiliates of the registrant was approximately
$73,195,284.
As of March 8, 2005, 25,847,488 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual
shareholders meeting to be held May 17, 2005 are
incorporated by reference into Part III.
SCHAWK INC
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
DECEMBER 31, 2004
2
PART I
General
Schawk, Inc. and its subsidiaries (Schawk or the
Company) operate in one operating business segment,
Digital Imaging Graphics Arts, that serves consumer products
packaging, advertising and promotional markets. The Company has
been in operation since 1953 and is incorporated under the laws
of the State of Delaware.
The Company believes it is the largest independent provider of
digital imaging graphic services to the consumer products
packaging market in the world. The Companys facilities
produce conventional, electronic and desktop color separations,
creative design, art production, electronic retouching,
conventional and digital plate making and digital press proofs
for the three main printing processes used in the graphic arts
industry: lithography, flexography and gravure. The
Companys services also include both digital and analog
image database archival and management as well as 3D imaging for
package design, large format printing, digital photography,
workflow management consulting services, and various related
outsourcing and graphics arts consulting services. These
services require skilled, highly trained technicians applying
various computerized design, manipulation and assembly
techniques. The preparation of production art, digital files,
retouching and image output for printing processes related to
packaging and promotions accounted for over 90% of net sales for
2004 and over 85% for 2003 and 2002. The balance of the
Companys business consists primarily of the preparation of
graphic images for advertising applications.
The Company has particular expertise in preparing color images
for high volume print production runs of consumer products
packaging. The Company functions as a vital interface between
its Fortune 1000 consumer products clients, their creative
designers and their converters or printers in assuring the
production of consistent, high quality packaging materials in
increasingly shorter turnaround and delivery times. The
Companys ability to provide high quality, customized
graphic services quickly makes it a valued player in new product
introduction and promotional activity.
The Company maintains both digital and analog data archives of
product package layouts and designs for many of its clients.
This activity brings value to those clients while improving the
Companys efficiency in accommodating clients rapidly
changing packaging design modifications and product line
extensions. By continuing to provide such high-end, value-added
services, the Company commands a significant share of the market
for graphic services for the food and beverage industry, which
uniquely positions it to benefit from positive industry trends.
The Company believes that its clients have increasingly chosen
to outsource their imaging needs to the Company for reasons
including but not limited to the following Schawk capabilities:
(i) creative design capabilities, (ii) production art
expertise, (iii) high quality customized imaging
capabilities; (iv) rapid turnaround and delivery times;
(v) up-to-date knowledge of the printing press
specifications of converters and printers located throughout the
United States, Canada, Mexico, Europe and Asia; (iv) color
expertise; (vi) digital imaging asset management;
(vii) workflow management; and (viii) ability to
service its clients global graphic requirements through
the Companys North American facilities and international
subsidiaries.
Graphic Services Industry
Graphic Services are the tasks involved in preparing
images and text for reproduction to exact specifications for a
variety of media, including packaging for consumer products,
point-of-sale displays and other promotional and/or advertising
materials. Packaging for consumer products encompasses folding
cartons, boxes, trays, bags, pouches, cans, containers,
packaging labels and wraps. While graphics work represents a
relatively small percentage of overall product packaging and
promotion costs, the visual impact and effectiveness of product
packaging and promotions are largely dependent upon the quality
of graphic imaging work.
3
Graphic services do not entail the actual printing or production
of such packaging materials, but rather include the various
preparatory steps such as art production, digital photography,
retouching, color separation and plate making services.
Color separation generally refers to preparing color
images, text and layout for the printing process. Graphic
services such as color separations were traditionally performed
by skilled craftspeople almost entirely by hand, using what is
known as the conventional method. With the
development of digital technology, graphics firms such as the
Company have become more highly computerized, providing digital
imaging services in which digitized images and text are
manipulated according to client and converter specifications. On
an increasing basis, clients supply material to the Company in a
digitized format on a variety of digitally generated media and
via the Internet. More recently there is a trend toward an
all-digital workflow, from creative design through printing. The
industry is expanding the production of plates directly from a
digital file, hence the term direct to plate
(DTP) or computer to plate (CTP). This process
eliminates the step of preparing photographic film and exposing
the film on a plate. CTP technology is more precise and reduces
the time to produce a printing plate. The Company has CTP units
and has the capacity to service its clients with CTP services,
however, the current trend in the market is for printers and
converters to provide this service as part of a bundled service
to their customers.
The Company believes that the graphic services industry in North
America has over 1,000 market participants, principally
independent color separators, such as the Company, converters,
printers and advertising agencies that perform these services
in-house. The majority of graphic services providers specialize
in publication work that includes textbooks, advertising,
catalogs, newspapers and magazines. The Companys target
markets, however, are high-end packaging for the consumer
products industry, advertising and promotional applications. The
North American market for graphic services for packaging to the
consumer products industry is estimated by the Company to be
approximately $2.0 billion, while the worldwide market is
estimated by the Company to be as high as $6.0 billion. The
consumer products graphic industry is highly fragmented with
hundreds of market participants, only a small number of whom
have annual revenues exceeding $20.0 million. The Company
believes that the number of participants in the North American
graphic services market for the consumer products industry will
diminish due to consolidation and attrition caused by
competitive forces such as accelerating technological
requirements for advanced systems, equipment and highly skilled
personnel and the growing demands of clients for full-service
global capabilities.
The rapid development of lower-cost, faster desktop publishing
software systems has increased the potential for competition in
the graphic services industry by lowering barriers to entry
relating to equipment costs. However, increases in governmental
regulations, demand for faster turnaround times, the need for
global brand consistency and certainty of supply have created
greater barriers to entry.
There is also a more significant barrier to entry that has
always existed hundreds of
technicianyears of expertise in working with
all of the major printers and converters to make sure a package
is printed according to the clients specifications. For
this reason, new start-ups have difficulty competing with the
Company.
The Company focuses on three primary markets: consumer
products packaging, advertising agencies, and promotion. The
food and beverage segment of the consumer products industry has
packaging requirements that are complex and demanding due to
variations in packaging materials, shapes and sizes, custom
colors, varying storage conditions and marketing enhancements.
Product extensions and frequent packaging redesigns have
resulted in an increasing volume of color separation and related
work in the consumer products industry and in particular for the
food and beverage segment. Additional industry trends include:
(i) the shorter turnaround and delivery time requirements
from the creative design phase to final distribution of the
packaged product; (ii) an increasing number of SKUs
competing for shelf space and market share; (iii) the
increasing importance of package appearance and promotions due
to demonstrated point-of-sale consumer purchasing behavior; and
(iv) the increasing requirements for worldwide quality and
consistency in packaging as companies attempt to build global
brand name recognition. Increasingly, the advertising and
promotion markets require coordination of these efforts, with
the initiatives coming from advertising agencies. The
Companys expansion into these markets strengthens and
enhances the overall service offering to the unified marketing
approach of our clients.
4
The advertising portion of the Companys business requires
the Companys personnel to produce final artwork in
extremely short timeframes, often less than 24 hours.
Creative retouching, color correction and composition in
multiple file formats are produced to meet requirements of the
clients and the printers. The Company is a leader in
conventional, computer to plate and digital ad delivery to
publications.
The Companys Growth Strategy
The Companys primary goal is to enhance its leadership
position in the graphic imaging market serving the consumer
products, advertising and promotion markets. Key aspects of the
Companys business strategy to achieve this goal include
the following:
|
|
| |
Organic Growth. Historically the Company has primarily
grown through acquisitions. As market conditions have created
growing opportunities, the Company has realized greater
opportunity for internal growth, and accordingly has increased
its focus on organic growth, turning to its highly skilled sales
force to be the primary growth driver for the Company. |
|
|
|
| |
|
Growth through Acquisitions. The Companys
profitability and ready access to capital have enabled it to
make strategic acquisitions of companies that range in size from
$2 million to $38 million in revenues. In its 51-year
business history, the Company has integrated approximately 50
graphic and imaging businesses into its operations while
streamlining overhead and improving margins in the aggregate.
The acquisitions of consequence since 1999 were: |
|
|
|
| |
|
Blue Mint Associates, a San Francisco based $2 million
in annual revenue brand strategy and creative design firm,
acquired December 1, 2003; |
| |
| |
|
Certain assets and the business of Pixxon, Inc., a
San Francisco based $5 million in annual revenue
prepress business acquired effective December 31, 2003 |
| |
| |
|
Certain assets and the business of a Chicago-based
$10 million in annual revenues prepress division of
Fort Dearborn Company, a leading label printer, effective
January 1, 2004; and |
| |
| |
|
Certain assets and the business of Weir Holdings, Ltd. a
$38 million in revenue European graphic services business
based in Leeds, England with operations in the United Kingdom,
Belgium and Spain. The Weir Holdings acquisition was completed
on December 31, 2004 and the acquired assets and
liabilities are included in the Companys balance sheet as
of December 31, 2004. |
|
|
| |
Subsequent to year end 2004, on January 31, 2005, the
Company acquired Seven Worldwide, Inc. (formerly Applied
Graphics Technologies, Inc.), a $370 million in revenue
graphic services company with operations in 35 locations in the
United States, Europe, Asia and Australia. |
| |
| |
Seven Worldwide, Inc. (Seven) provides graphic
services to companies in the following market segments: Consumer
Goods; Retail; Pharmaceutical; Media & Entertainment;
Publishing; Advertising; and General Goods & Services.
Sevens solutions enable these companies to create,
distribute and manage communications assets, such as advertising
and editorial pages, consumer goods packaging, out-of-home
(point-of-sale, large format) signage and Internet content. |
| |
| |
Sevens mission is to bring both process efficiency and
messaging consistency to marketing execution. Seven has graphic
services capabilities to support clients who use multiple forms
of marketing methods to connect with targeted audiences
worldwide. The Company believes that Sevens solution
approach drives cost savings and streamlines execution as
clients leverage Sevens talent, processes, technology and
infrastructure. |
| |
| |
Sevens graphic services solutions focus on both performing
and coordinating key creative and production
services from planning and design through pre-press
and media fulfillment. |
| |
| |
The Company intends to continue expanding through acquisitions
of well-managed companies with solid market positions, a
reputation for quality work and established client lists. The
Company believes that an emphasis on complementary acquisitions
of companies serving targeted markets will allow it to broaden |
5
|
|
| |
its service offerings and provide single source design, graphic
image database services and workflow management services. |
| |
| |
The Company believes it has greater versatility in meeting the
various requirements of its clients than smaller, less
integrated competitors lacking technical expertise, and that
this versatility will result in greater opportunities for
internal growth as well as enhancing the Companys image as
an attractive purchaser for potential consolidation candidates.
The Company believes that there will continue to be a number of
attractive acquisition candidates in the fragmented and
consolidating industry in which it operates. The Company expects
to strengthen its market position by applying its management and
operational philosophies and practices, which have been
successful in its graphic arts businesses, to newly acquired
businesses. |
|
|
|
| |
|
Capitalizing on Industry Trends; Outsourcing. The Company
has historically attempted to strengthen its market position by
identifying and capitalizing on industry trends. As a
consequence, the Company has been uniquely positioned to benefit
as consumer products companies continue to reduce both their
graphic staffs and total number of suppliers. The Companys
on-site strategy developed as clients outsource imaging
functions in an attempt to cut costs and improve turnaround and
delivery times. The Company intends to expand this effort, as
clients increasingly require on-site service. As of
December 31, 2004, the Company had 44 on-site locations
staffed by over 150 Schawk employees, approximately 8% of its
total workforce. Further, the Company believes that its
commitment to client service and its broad array of premium
service offerings position the Company as a cost effective,
value-added supplier of digital imaging services. As clients
continue to reduce their staffing levels, they are expanding the
number of services required of their graphic services suppliers.
Schawk has an advantage in the marketplace because it has the
full complement of capabilities required by larger consumer
products companies, capabilities that its competitors do not
have. |
| |
| |
|
Capitalizing on Technology Advancements. The Company is
dedicated to keeping abreast of and initiating technological
process developments in its industry. To build upon its
leadership position, the Company actively evaluates systems and
software products of various computer and software manufacturers
and also independently develops software for implementation at
its operating facilities. The Company continually invests in new
technology designed to support its high quality graphic
services. The Company concentrates its efforts on understanding
the systems and equipment available in the marketplace and
creating solutions using off-the-shelf products, customized to
meet a variety of specific client and internal requirements.
None of the Companys technology activities are deemed to
be patentable other than its InterchangeDigital software
development products, which represent approximately one percent
of revenues. |
Management Philosophy
As part of the Companys ongoing strategic planning
process, management of the Company introduced Vision 2020, a
roadmap that the Company will follow into the future. Annualy,
the Chief Executive Officer, David A. Schawk, provides an
overview and update of the strategy to every employee of the
Company and subsidiaries around the world. The overriding
guidelines for the Companys strategy are summarized in a
Vivid Description of what the Company believes in.
The Vivid Description of the Company is as follows:
|
|
| |
The value and breadth of our services and capabilities will be
driven first and foremost by the requirements and satisfaction
of our clients... We will deliver value through ensuring global
brand consistency and the premiere speed-to-market solution to
those clients. By becoming an integrated strategic partner to
our clients, we will demonstrate value and inspire their
unwavering confidence and loyalty... We will become the most
profitable company in our industry and we will reach a dominant
market share globally... We will continue to invest in training
and development so that our employees and their tools will be
the best of the best... The Schawk brand name will be recognized
as the highest value answer to clients brand image
requirements. |
6
The business objectives of the Company support the Vivid
Description of the Company and are as follows:
|
|
|
| |
|
Increase Global Coverage through Acquisitions Worldwide |
| |
| |
|
Redefine Our Source of Revenue and Profit for the future |
| |
| |
|
Invent/ Reinvent Solutions for Our Clients |
| |
| |
|
Increase Organic Growth |
| |
| |
|
Hire and Retain the Best of the Best Employees |
| |
| |
|
Measure Customer Satisfaction and Improve on our performance |
To achieve the Companys business objectives, management
stresses the following:
Client Service. A key component of the Companys
management philosophy has been its commitment to client service.
The Companys offering continues to be increasingly focused
on meeting the changing needs of its clients. This requires a
commitment to working with clients to understand these needs.
The Company believes that this commitment has contributed to the
confidence and loyalty its clients have shown. Because of the
increasingly competitive markets faced by its clients, the
Company must be flexible enough to modify its operations in
order to meet the specialized needs of its clients. The
Companys emphasis on on-site client representatives and
operations helps to address this requirement and has further
solidified existing client relationships.
Employee Training and Investment in Equipment. The
Company believes that its most valuable assets are its employees
because its ability to provide clients with high quality
services and products depends upon their dedication and
expertise. The Company provides extensive and continuous
training to keep its employees abreast of the latest
technological developments and the particular needs of its
clients. Providing its employees with the latest equipment,
software and training are fundamental to the Companys
philosophy.
Technical Expertise. The Company is able to provide its
clients with high quality services and products and quick
response time because of its efficient utilization of
state-of-the-art equipment, software, computer servers, storage
technology, and telecommunication systems. As part of its
commitment to maintain its technological expertise, the Company
has historically worked with software developers to create
software that fully addresses the Companys and its
clients needs. The Company acts as a test site for
numerous hardware and software products. In order to facilitate
the exchange of information among its various facilities, the
Company supports Schawk Technical Advisory Board
(STAB) for the purpose of coordinating the research
and evaluation of new technologies in the graphic arts industry.
This group is recognized for its efforts and its leaders have
been invited to lecture at numerous national and international
symposiums and conferences.
Services
The Company offers comprehensive, high quality digital imaging
graphic services. The Companys facilities produce
conventional, electronic and desktop color separations,
electronic production design, film preparation, plate making and
press proofs for lithography, flexography and gravure.
The Companys services also include both digital and analog
image database archival and management, as well as creative
design, 3-D imaging, art production, large format printing, and
various related outsourcing and graphics arts consulting
services.
The Company provides a series of best practices driven advisory,
implementation and management services including but not limited
to the following: workflow architecture, print management, color
management and printer evaluation.
As part of the strategic planning process at the Company,
Schawks service offerings within the graphic services
umbrella were organized into three core competencies: Brand
Strategy and Creative Design, Graphic Services and Enterprise
Products.
7
Brand Strategy and Creative Design. Under the Anthem
Group brand, Schawk offers brand consulting and creative design
for packaging applications to its Fortune 1000 consumer products
company clients, food and beverage retailers and mass
merchandisers. Anthem Group consists of leading creative design
companies acquired by Schawk since 1998 in Toronto and
San Francisco as well as start-ups in Chicago, New York and
Singapore. Anthem Group represents approximately 5% of the
Companys overall revenues and is the fastest growing
component of Schawks service offerings.
Graphic Services. Under the Schawk brand, Graphic
Services encompasses a number of service offerings including
traditional prepress business as well as high-end digital
photography, color retouching and large format digital printing.
Graphic Service operations are located throughout North America,
Europe and Asia. Graphic Service business represents
approximately 92% of the Companys revenues.
Enterprise Products. The Company develops services in
response to its clients needs. Three services that help
differentiate Schawk from its competitors are digital asset
management, work flow management and online proofing. These
services are available through Schawks InterchangeDigital
subsidiary, a software development company that develops
software solutions for the marketing services departments of
consumer products companies and pharmaceutical companies.
Through its integrated software solution, PaRTS (Production and
Resource Tracking System), InterchangeDigital works with clients
to organize their digital assets, streamline their internal
workflow and improve efficiency. The improved speed to market
allows the consumer products companies to increase the number of
promotions without increasing costs. This is very valuable to
InterchangeDigital clients. The Company also offers digital
three-dimensional modeling of prototypes or existing packages
for its consumer products clients. This service is branded as
Schawk 3-D and is included in the Enterprise Products service
offering. Enterprise Products represent approximately 3% of the
Companys revenues.
To capitalize on market trends, management believes that the
Company must continue to be able to provide clients the ability
to make numerous changes and enhancements with shorter
turnaround times than ever before. Accordingly, the Company has
focused its efforts on improving its response times and
continues to invest in rapidly emerging technology and the
continuing education of its employees. The Company also educates
clients on the opportunities and complexities of
state-of-the-art equipment and software. The Company believes
that its ability to provide quick turnaround and delivery times,
dependability and value-added training and education programs
will continue to give it a competitive advantage in serving
clients who require high volume, high quality product imagery.
Over the course of its 51-year business history, the Company has
developed strong relationships with many of the major converters
and printers in the United States and Canada. As a result, the
Company has extensive knowledge of their equipment, thereby
enabling the Company to increase the overall efficiency of the
printing process. Internal operating procedures and conditions
may vary from printer to printer, affecting the quality of the
color image. In order to minimize the effects of these
variations, the Company makes necessary adjustments to its color
separation work to account for irregularities or idiosyncrasies
in the printing presses of each of its clients converters.
The Company strives to afford its clients total control over
their imaging processes with customized and coordinated services
designed to fit each individual clients particular needs,
all aimed at ensuring that the color quality, accuracy and
consistency of a clients printed matter are maintained.
Acquisitions and Start-Up Operations
The Company has acquired and integrated approximately 50 graphic
and imaging businesses into its operations since 1965.
Throughout its history, the Company has successfully identified
acquisition candidates that represent market niche companies
with Fortune 1000 client lists, excellent client service or
proprietary products and solid management. The Company favors
businesses with management teams that will continue to operate
the businesses as semi-autonomous units. The Company has also
commenced a number of start-up operations over the years when
client servicing requirements or market conditions warranted.
In late 2003, the Company purchased Blue Mint Associates and
certain assets of Pixxon, Inc., both based in
San Francisco, California. In addition, certain assets and
the business of the prepress division of
8
Fort Dearborn Company, in suburban Chicago, were acquired
effective as of January 1, 2004. In 2002 the Company
purchased the remaining 35% of the Laserscan Group. Also in
2002, the Companys Canadian subsidiary acquired certain
assets and assumed certain liabilities of Imaginex, a Toronto
area graphic company. There were no acquisitions in 2000 or 2001.
Schawk Shenzhen, a graphic services consulting office in China
and Anthem New York, a Schawk creative design office, were the
only start-up operations in 2004. There were no start-ups
established in 2003 or 2002. In 2001, the Company established an
Anthem creative design operation in Chicago, Illinois. In 2000,
the Company established a start-up operation in Singapore.
On December 31, 2004, the Company acquired certain assets
and the business of Weir Holdings, Ltd. (known as
Winnetts), a UK based graphic services company with
$38 million in revenues and operations in the UK, Belgium
and Spain. Winnetts is the first operation in Europe for Schawk.
This acquisition will allow us to expand our service offering
over a greater global footprint as the only independent prepress
firm with extensive global operations.
Subsequent to year end 2004, on January 31, 2005, the
Company acquired Seven Worldwide, Inc. (Seven)
(formerly Applied Graphics Technologies, Inc.), a graphic
services company with revenues of $370 million and
operations in the United States, Europe, Asia and Australia. On
a combined basis the Company has pro forma revenues of over
$640 million based on 2004 results of each business.
The Company intends to continue expanding through acquisitions
of well-managed companies with solid market positions and
established client lists. The Company believes that emphasis on
complementary acquisitions of businesses serving targeted
markets will allow it to broaden its product offerings and
provide its clients with a single source for imaging and image
database services. The Company will also continue to analyze and
investigate start-up operations on an ongoing basis.
Research and Development
The Company is dedicated to keeping abreast of and, in a number
of cases, initiating technological process developments in its
industry that have applications for consumer products packaging.
To build upon its leadership position, the Company is actively
involved in system and software technical evaluations of various
computer systems and software manufacturers and also
independently pursues software development for implementation at
its operating facilities. The Company continually invests in new
technology designed to support its high quality graphic
services. The Company concentrates its efforts in understanding
systems and equipment available in the marketplace and creating
solutions using off-the-shelf products customized to meet a
variety of specific client and internal requirements.
PaRTStm
and Schawk 3-D are examples of the Companys commitment to
research and development. Total research and development
spending is not material.
As an integral part of its commitment to research and
development, the Company supports its internal STAB group as it
researches and evaluates new technologies in the graphic arts
and telecommunications industries. STAB meets quarterly to
review new equipment and programs, and then disseminates the
information to the entire Company and to clients as appropriate.
Marketing and Distribution
The Company markets its services nationally and internationally
through seminars, newsletters and training sessions targeted at
existing and potential clients. The Company sells its services
through a group of approximately 150 direct salespersons and 200
client service technicians who call on consumer products
manufacturers, including those in the food and beverage, home
products, pharmaceutical and cosmetics industries and mass
merchant retailers. Both the Companys salespersons and the
Companys client service technicians share responsibility
for marketing the Companys offerings to existing and
potential clients, thereby fostering long-term institutional
relationships with its clients.
In addition to its numerous operations in the United States and
Canada, the Company has operations in Mexico, the United
Kingdom, Belgium, Spain, Japan, Singapore, Malaysia and China.
9
Clients
The Companys clients consist of direct purchasers of
graphic services, including end-use consumer product
manufacturers and mass merchant retailers, converters and
advertising agencies. Many of the Companys clients, a
large percentage of which are Fortune 1000 companies, are
multi-national in scope and often use numerous converters both
domestically and internationally. Because these clients desire
uniformity of color and image quality across a variety of media,
the Company plays a very important role in coordinating their
printing activities by maintaining current equipment
specifications regarding its clients and converters. Management
believes that this role has enabled the Company to establish
closer and more stable relationships with these clients.
Converters also have a great deal of confidence in the quality
of the Companys services and have worked closely with the
Company to reduce the converters required lead-time,
thereby lowering their costs. End-use clients often select and
utilize the Company to ensure better control of their packaging
or other needs and depend upon the Company to act as their agent
to ensure quality management of data along with consistency
among numerous converters and packaging media. The Company has
established 44 on-site locations at or near clients that require
high volume, specialized service. As its art production services
continue to expand, the Company anticipates that it will further
develop its on-site services to its client base.
Many of the Companys clients place orders on a daily and
weekly basis and work closely with the Company year-round as
they frequently redesign product packaging or introduce new
products. While certain promotional activities are seasonal,
such as those relating to summer, back-to-school time and
holidays, shorter technology-driven graphic cycle time has
enabled consumer products manufacturers to tie their promotional
activities to regional and/or current events (such as sporting
events or motion picture releases). This prompts such
manufacturers to redesign their packages more frequently,
resulting in a correspondingly higher number of packaging
redesign assignments. This technology-driven trend toward more
frequent packaging changes has offset previous seasonal
fluctuations in the volume of the Companys business (also
see Seasonality and Cyclicality).
In addition, consumer product manufacturers have a tendency to
single-source their graphic work with respect to a particular
product line so that continuity can be assured in changes to the
product image. As a result, the Company has developed a base of
steady clients in the food and beverage, health and beauty and
home care industries. During 2004 no single client accounted for
more than 7.0% of the Companys net sales, and the 10
largest clients in the aggregate accounted for approximately 43%
of net sales.
Competition
The Companys competition comes primarily from other
independent color separators and converters and printers that
have graphic service capabilities. The Company believes that
approximately one-half of the Companys target market is
served by converters and printers, and the other one-half is
served by independent color separators. Independent color
separators are companies whose business is performing graphic
services for one or more of the principal printing processes.
Since the Company acquired Seven Worldwide, Inc. in January
2005, the Company believes that only three firms, Southern
Graphics Systems, a subsidiary of Alcoa, Mathews International
Corporation and Vertis, Inc. compete with the Company on a
national or international basis in certain markets. The
remaining independent color separators are regional or local
firms that compete in specific markets. To remain competitive,
each firm must maintain client relationships and recognize,
develop and capitalize on state-of-the-art technology and
contend with the increasing demands for speed.
Some converters with graphic service capabilities compete with
the Company by performing such services in connection with
printing work. Independent color separators such as the Company,
however, may offer greater technical capabilities, image quality
control and speed of delivery. In addition, converters often
utilize the services of the Company because of the rigorous
demands being placed on them by clients who are requiring faster
turnaround times. Increasingly, converters are being required to
invest in technology to improve speed in the printing process
and have avoided spending on graphic services technology.
As requirements of speed continue to be critical, along with the
recognition of the importance of focusing on their core
competencies, clients have increasingly recognized that the
Company provides services at a rate and cost that makes
outsourcing more cost effective and efficient.
10
Purchasing and Raw Materials
The Company purchases photographic film and chemicals, storage
media, ink, plate materials and various other supplies and
chemicals on consignment for use in its business. These items
are purchased from a variety of sources and are available from a
number of producers, both foreign and domestic. In 2004,
materials and supplies accounted for $18.3 million or
approximately 13.3% of the Companys cost of sales, and no
shortages are anticipated. Furthermore, as a growing proportion
of the workflow is digital, the already low percentage of
materials in cost of sales will continue to be reduced.
Historically, the Company has negotiated and enjoys significant
volume discounts on materials and supplies from most of its
major suppliers.
Intellectual Property
The Company owns no significant patents. The trademarks
Schawk, and PaRTS and the trade names
Anthem New Jersey, Anthem New York,
Anthem Los Angeles, Anthem
San Francisco, Anthem Toronto,
Anthem Chicago, Anthem Singapore,
Schawk Asia, Schawk Atlanta,
Schawk Cactus, Schawk Canada,
Schawk Cherry Hill, Schawk Chicago,
Schawk Chromart, Schawk Cincinnati 446,
Schawk Cincinnati 447, Schawk Designers
Atelier, Schawk Japan, Schawk
Kalamazoo, Schawk Mexico, Schawk
Milwaukee, Schawk Minneapolis, Schawk
New York, Schawk Penang, Schawk St.
Paul, Schawk Toronto Schawk
Shanghai, Schawk Singapore, Schawk
Stamford, Schawk 3-D, Interchange,
InterchangeDigital, Interchange Digital
Management Services, Laserscan, and
Winnetts are the most significant trademarks and
trade names used by the Company or its subsidiaries.
Employees
As of December 31, 2004 the Company had approximately
1,800 full-time employees. Of this number, approximately
22% are production employees represented by local units of the
Graphic Communications International Union and by local units of
the Communications, Energy & Paperworkers Union of
Canada and the GPMU in the UK. The Companys union
employees are vital to its operations. Collective bargaining
agreements covering the Companys union employees in four
facilities are subject to renegotiations. The Company considers
its relationships with its employees and unions to be good.
Backlog
The Company does not have or keep backlog figures, as projects
or orders are generally in and out of the Companys
facilities within five to seven days. For the approximately
one-half of total revenues that are not under contract, the
Company maintains client relationships by delivering timely
graphic services, providing technology enhancements to make the
process more efficient and bringing extensive experience with
and knowledge of printers and converters.
Seasonality and Cyclicality
The Companys digital imaging graphic business for the
consumer product packaging graphic market is not currently
seasonal because of the number of design changes that are able
to be processed as a result of speed-to-market concepts and
all-digital workflows. Increasingly, as demand for new products
increases, traditional cycles related to timing of major brand
redesign activitiy has gone from a three to four year cycle to a
much shorter cycle. With respect to the advertising markets,
some seasonality exists in that the months of December and
January are typically the slowest months of the year in this
market because advertising agencies and their clients typically
finish their work by mid-December and do not start up again
until mid-January. Advertising spending is generally cyclical as
the consumer economy is cyclical. When consumer spending and GDP
decreases, the amount of ad pages declines. Generally, when ad
pages decline, the Companys advertising business declines.
11
Available Information
The Companys website is www.schawk.com. Investors
can obtain copies of the Companys annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, as soon as
reasonably practicable after the Company has filed such
materials with, or furnished them to, the SEC. The Company will
also furnish a paper copy of such filings free of charge upon
request.
The Company has adopted a code of ethics (the Code of
Ethics), as required by the listing standards of the New
York Stock Exchange and the rules of the SEC. This Code applies
to all of the Companys directors, officers and employees.
The Company has also adopted a charter for its Audit Committee.
The Company has posted the Code of Ethics and the Audit
Committee Charter on its website and will post on its website
any amendments to, or waivers from, its Code of Ethics
applicable to any of the Companys directors or executive
officers. The foregoing information will also be available in
print to any stockholder who requests such information.
The Company owns or leases the following office and operating
facilities:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Lease |
|
|
| |
|
Square | |
|
Owned/ |
|
|
|
Expiration |
|
|
| Location |
|
Feet | |
|
Leased |
|
Purpose |
|
Date |
|
Division |
| |
|
| |
|
|
|
|
|
|
|
|
| |
|
(Approx.) | |
|
|
|
|
|
|
|
|
|
Antwerp, Belgium
|
|
|
39,000 |
|
|
Owned |
|
Operating Facility |
|
N/A |
|
Winnetts Belgium |
| |
|
Bristol, England
|
|
|
7,700 |
|
|
Leased |
|
Operating Facility |
|
September 2014 |
|
Winnetts UK |
| |
|
Cherry Hill, New Jersey
|
|
|
10,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
January 2007 |
|
Schawk Cherry Hill |
| |
|
Chicago, Illinois
|
|
|
15,200 |
|
|
Leased |
|
General Offices, Operating Facility |
|
May 2005 |
|
Anthem Chicago |
| |
|
Cincinnati, Ohio
|
|
|
74,200 |
|
|
Leased |
|
General Offices, Operating Facility |
|
August 2009 |
|
Schawk Cincinnati 446 |
| |
|
Cincinnati, Ohio
|
|
|
12,000 |
|
|
Leased |
|
General Offices Operating Facility |
|
August 2009 |
|
Schawk Cincinnati 447 |
| |
|
Costa Mesa, California
|
|
|
3,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
April 2004 |
|
Anthem Los Angeles |
| |
|
Des Plaines, Illinois
|
|
|
18,200 |
|
|
Owned |
|
Executive Offices |
|
N/A |
|
Corporate Office |
| |
|
Des Plaines, Illinois
|
|
|
55,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
December 2010 |
|
Schawk Chicago |
| |
|
Franklin Park, Illinois
|
|
|
62,000 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Chicago |
| |
|
Hackettstown, New Jersey
|
|
|
3,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
September 2005 |
|
Anthem New Jersey |
| |
|
Kalamazoo, Michigan
|
|
|
67,000 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Kalamazoo |
| |
|
Kobe, Japan
|
|
|
800 |
|
|
Leased |
|
General Offices, Operating Facility |
|
February 2006 |
|
Schawk Japan |
| |
|
Leeds, England
|
|
|
16,200 |
|
|
Leased |
|
General Offices Operating Facility |
|
January 2010 |
|
Winnetts UK |
12
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Lease |
|
|
| |
|
Square | |
|
Owned/ |
|
|
|
Expiration |
|
|
| Location |
|
Feet | |
|
Leased |
|
Purpose |
|
Date |
|
Division |
| |
|
| |
|
|
|
|
|
|
|
|
| |
|
(Approx.) | |
|
|
|
|
|
|
|
|
| |
|
London, England
|
|
|
2,000 |
|
|
Leased |
|
Operating Facility |
|
December 2009 |
|
Winnetts UK |
| |
|
Minneapolis, Minnesota
|
|
|
31,000 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Minneapolis |
| |
|
Mississauga, Ontario Canada
|
|
|
58,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
December 2014 |
|
Schawk Toronto |
| |
|
New Berlin, Wisconsin
|
|
|
43,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
June 2008 |
|
Schawk Milwaukee |
| |
|
New York, New York
|
|
|
31,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
April 2006 |
|
Schawk New York |
| |
|
Penang, Malaysia
|
|
|
34,000 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Imaging |
| |
|
Penang, Malaysia
|
|
|
1,706 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Penang |
| |
|
Penang, Malaysia
|
|
|
2,330 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Laserscan Technology |
| |
|
Queretaro, Mexico
|
|
|
18,000 |
|
|
Owned |
|
General Offices, Operating Facility |
|
N/A |
|
Schawk Mexico |
| |
|
Roseville, Minnesota
|
|
|
28,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
May 2007 |
|
Schawk St. Paul |
| |
|
Salford, England
|
|
|
45,200 |
|
|
Leased |
|
Operating Facility |
|
September 2023 |
|
Winnetts UK |
| |
|
San Francisco, California
|
|
|
8,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
January 2009 |
|
Schawk San Francisco |
| |
|
San Francisco, California
|
|
|
8,100 |
|
|
Leased |
|
General Offices, Operating Facility |
|
September 2008 |
|
Anthem San Francisco |
| |
|
Shanghai, China
|
|
|
19,400 |
|
|
Leased |
|
General Offices, Operating Facility |
|
November 2005 |
|
Schawk Shanghai |
| |
|
Shenzhen, China
|
|
|
1,800 |
|
|
Leased |
|
General Offices Operating Facility |
|
December 2005 |
|
Schawk Shenzhen |
| |
|
Singapore
|
|
|
7,500 |
|
|
Leased |
|
General Offices |
|
December 2004 |
|
Schawk Singapore |
| |
|
Slough, England
|
|
|
3,000 |
|
|
Leased |
|
Operating Facility |
|
January 2010 |
|
Winnetts UK |
| |
|
Smyrna, Georgia
|
|
|
25,200 |
|
|
Leased |
|
General Offices, Operating Facility |
|
October 2008 |
|
Schawk Atlanta |
13
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Lease |
|
|
| |
|
Square | |
|
Owned/ |
|
|
|
Expiration |
|
|
| Location |
|
Feet | |
|
Leased |
|
Purpose |
|
Date |
|
Division |
| |
|
| |
|
|
|
|
|
|
|
|
| |
|
(Approx.) | |
|
|
|
|
|
|
|
|
| |
|
Stamford, Connecticut
|
|
|
20,000 |
|
|
Leased |
|
General Offices, Operating Facility |
|
August 2005 |
|
Schawk Stamford |
| |
|
Toronto, Ontario, Canada
|
|
|
8,292 |
|
|
Leased |
|
General Offices, Operating Facility |
|
January 2005 |
|
Anthem Toronto |
| |
|
Toronto, Ontario, Canada
|
|
|
17,500 |
|
|
Leased |
|
General Offices, Operating Facility |
|
November 2007 |
|
Schawk Cactus |
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
From time to time, the Company has been a party to routine
pending or threatened legal proceedings and arbitrations. The
Company insures some, but not all, of its exposure with respect
to such proceedings. Based upon information presently available,
and in light of legal and other defenses available to the
Company, management does not consider the liability from any
threatened or pending litigation to be material to the Company.
The Company has not experienced any significant environmental
problems.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No items were submitted to a vote of security holders for the
three months ended December 31, 2004.
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS |
Recent Sales of Unregistered Securities
On April 30, 2004, the Company issued and sold
$10 million of its 4.98% Series 2003-A Notes due 2014
to Massachusetts Mutual Life Insurance Company in a transaction
exempt from the registration requirements of the Securities Act
of 1933, as amended. The proceeds of this offering were used to
provide funds for acquisitions.
Stock Prices
The Companys Class A common stock is listed on the
NYSE under the symbol SGK. The Company has
approximately 923 stockholders of record as of March 1,
2005.
Set forth below are the high and low sales prices for the
Companys Class A common stock for each quarterly
period within the two most recent fiscal years.
| |
|
|
|
|
|
|
|
|
| Quarter Ended: |
|
2004 High/Low | |
|
2003 High/Low | |
| |
|
| |
|
| |
|
March 31
|
|
$ |
15.65 - 12.48 |
|
|
$ |
9.90 - 8.99 |
|
|
June 30
|
|
|
14.50 - 12.76 |
|
|
|
10.97 - 9.25 |
|
|
September 30
|
|
|
14.70 - 13.10 |
|
|
|
12.52 - 10.40 |
|
|
December 31
|
|
|
18.90 - 14.43 |
|
|
|
13.95 - 11.95 |
|
14
Dividends Declared Per Class A Common Share
| |
|
|
|
|
|
|
|
|
|
| Quarter Ended: |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
March 31
|
|
$ |
0.0325 |
|
|
$ |
0.0325 |
|
|
June 30
|
|
|
0.0325 |
|
|
|
0.0325 |
|
|
September 30
|
|
|
0.0325 |
|
|
|
0.0325 |
|
|
December 31
|
|
|
0.0325 |
|
|
|
0.0325 |
|
| |
|
|
|
|
|
|
| |
Total
|
|
$ |
0.1300 |
|
|
$ |
0.1300 |
|
| |
|
|
|
|
|
|
Equity Compensation Plan Information
The following table summarizes information as of
December 31, 2004, relating to equity compensation plans of
the Company pursuant to which Common Stock is authorized for
issuance (shares in thousands).
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Securities | |
|
|
|
Number of Securities | |
| |