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8-K - FORM 8-K - SCHAWK INC | f8k_050411.htm |
EXHIBIT 99.1
AT SCHAWK, INC.:
Timothy Allen
Vice President, Finance
Operations and Investor Relations
847-827-9494
Timothy.Allen@schawk.com
|
AT DRESNER CORPORATE SERVICES:
Investors: Philip Kranz
312-780-7240
pkranz@dresnerco.com
|
SCHAWK ANNOUNCES 2011 FIRST-QUARTER RESULTS
Company reports GAAP net income and EPS of $2.8 million and $0.11, respectively
Des Plaines, IL, May 4, 2011—Schawk, Inc. (NYSE: SGK), a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported first-quarter 2011 results. Net income in the first quarter of 2011 was $2.8 million, or $0.11 per diluted share, versus $2.5 million, or $0.10 per diluted share, in the first quarter of 2010.
On a non-GAAP basis, adjusting for financial impacts relating to foreign currency exposure and certain expenses as further detailed in this earnings release, Adjusted net income was $4.2 million, or $0.16 per diluted share, in the first quarter of 2011 compared to $4.5 million, or $0.17 per diluted share, during the prior-year comparable period.
President and Chief Executive Officer David A. Schawk, commented, “Our first quarter 2011 revenue reflected typical first-quarter softness relative to other quarters of the year coupled with continued cautionary spending by our consumer packaged goods clients reflecting their concern over elevated commodity prices. During this period of continued economic uncertainty, we continue to focus on managing our costs effectively and positioning our company for future growth, particularly in developing and emerging regions. In fact, we recently have seen success with certain of our CPG clients as they expand further into these global markets. Furthermore, we remain focused on expanding our diverse service offering across our client base and driving operational excellence throughout our organization.”
Consolidated Results for First Quarter Ended March 31, 2011
Consolidated net sales in the first quarter of 2011 were $107.2 million compared to $111.7 million in the same period of 2010, a decrease of approximately $4.5 million, or 4.0 percent. The quarter-over-quarter sales decline was partially offset by $1.4 million of foreign currency translation gains, as the U.S. dollar declined in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.
Consumer packaged goods (CPG) accounts sales in the first quarter of 2011 were $82.3 million, or 76.8 percent of total sales, compared to $84.4 million in the same period of 2010, a decrease of 2.5 percent. The decrease over the prior-year quarter was primarily driven by decreased
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Schawk Announces First-Quarter 2011 Results
Page 2
product and brand activity by the Company’s CPG clients. Advertising and retail accounts sales of $18.5 million, or 17.3 percent of total sales, in the first quarter of 2011 decreased 11.2 percent, from $20.8 million in the prior-year period. Included in the decline in Advertising and retail accounts sales is a $1.9 million decline in revenue related to the previously disclosed loss of a non-core, retail client during the third quarter of 2010. Entertainment accounts sales for the first quarter of 2011 of $6.4 million, or 6.0 percent of total sales, were essentially comparable to the $6.5 million reported in the same period of 2010.
Gross profit was $38.8 million in the first quarter of 2011, a decrease of $3.1 million from the first quarter of 2010. First-quarter 2011 gross profit as a percentage of sales decreased to 36.1 percent from 37.5 percent in the 2010 first-quarter period. The decline in gross profit percent was largely driven by the reduced operating leverage resulting from the lower period-over-period revenue.
Selling, general and administrative (SG&A) expenses declined approximately $1.5 million to $31.0 million in the first quarter of 2011 from $32.5 million in the first quarter of 2010, principally due to the sublease of certain vacant properties in Europe.
During the first quarter of 2011, the Company reported business and systems integration expenses of $1.2 million compared to $0.1 million in the prior-year comparable period. As previously disclosed, these expenses relate to the Company’s information technology and business process improvement initiative.
The Company recorded a $0.5 million loss on foreign exchange exposures in the first quarter of 2011 compared to a loss of $1.8 million in the comparable prior-year period. The Company’s foreign exchange gains or losses are largely driven by unhedged currency exposure from intercompany debt obligations of the Company’s non-U.S. subsidiaries. Since foreign currency gains or losses primarily relate to intercompany financing activity, the economic impact to the Company is minimal, as these gains or losses are mostly offset by corresponding losses or gains in accumulated comprehensive income, net, included in stockholders’ equity.
There were no expenses related to the impairment of long-lived assets during the first quarter of 2011 compared to $0.7 million in the first quarter of 2010. During the first quarter of 2010, certain equipment sustained water damage and was rendered inoperable at one of the Company’s facilities.
Acquisition integration and restructuring expenses increased from $0.2 million in the first quarter of 2010 to $0.4 million in the first quarter of 2011. The charges in the 2011 first quarter arose from the Company’s continued focus on consolidating, reducing and re-aligning the Company’s work force and operations and are for employee terminations and other associated costs. These actions are expected to result in annualized savings of approximately $1.3 million, with approximately $1.0 million to be realized during 2011.
The Company reported operating income of $5.5 million in the 2011 first quarter compared to $6.5 million in the first quarter of 2010. The decrease in operating income compared to the prior-year period was primarily the result of the decrease in gross margin driven by lower revenue coupled with increased business and systems integration expenses, mitigated somewhat by the
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Schawk Announces First-Quarter 2011 Results
Page 3Company’s previously-discussed cost reduction efforts, lower foreign exchange losses and reduced expenses related to the impairment of long-lived assets.
Net income in the first quarter of 2011 was $2.8 million, or $0.11 per diluted share, compared to $2.5 million, or $0.10 per diluted share, in the first quarter of 2010. Excluding the after-tax effects of certain expenses detailed within the non-GAAP tables at the end of this press release, first-quarter 2011 Adjusted net income was $4.2 million, or $0.16 per diluted share, compared to $4.5 million, or $0.17 per diluted share, on a comparable basis for the prior-year period.
Adjusted EBITDA and Management Adjusted EBITDA Performance
Adjusted EBITDA for the first quarter of 2011 was $10.4 million compared to $12.2 million for the first quarter of 2010. Management adjusted EBITDA for the first quarter of 2011 was $12.5 million compared to $14.3 million for the first quarter of 2010. Please refer to the “Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA” table attached at the end of this press release for a reconciliation of these measures.
Conference Call
Schawk invites you to join its first-quarter 2011 earnings conference call on Thursday, May 5, 2011, at 9:00 a.m. Central time. To participate in the conference call, please dial 866-543-6403 or 617-213-8896 at least five minutes prior to the start time and ask for the Schawk, Inc. conference call, or on the Internet, go to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=3991918. If you are unavailable to participate on the live call, a replay will be available through May 12 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 69938243, and follow the prompts. The replay will also be available on the Internet for 30 days at the following address http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82169&eventID=3991918.
About Schawk, Inc.
Schawk, Inc. is a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers. With a global footprint of operations in 18 countries, Schawk helps companies create compelling and consistent brand experiences by providing integrated strategic, creative and executional services across brand touchpoints. Founded in 1953, Schawk is trusted by many of the world’s leading organizations to help them achieve global brand consistency. For more information about Schawk, visit http://www.schawk.com.
Non-GAAP Financial Measures
In addition to the presentation of Adjusted EBITDA and Management adjusted EBITDA in this release, the Company has presented certain other non-GAAP measures in the attachment entitled “Reconciliation of Non-GAAP measures to GAAP.” Management believes that the presentation of non-GAAP measures provides investors with greater transparency and supplemental data relating to the Company’s financial condition and results of operations and provides more consistent insight into the performance of the Company’s core operations from period to period by showing the effects of certain non-operating items. These non-GAAP measures are reconciled to the closest GAAP measures on the schedules attached to this press release. The non-GAAP measures should not be viewed as alternatives to GAAP and may not be consistent with similar measures provided by other companies.
Safe Harbor Statement
Certain statements in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements are made based upon current expectations and beliefs that are subject to risk and uncertainty. Actual results might differ materially from those contained in the forward-looking statements because of factors, such as, among other things, our ability to maintain an effective system of disclosure and internal controls and the discovery of any future control deficiencies or weaknesses, which may require substantial costs and resources to rectify; higher than
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Schawk Announces First-Quarter 2011 Results
Page 4expected costs, or unanticipated difficulties associated with, integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; the strength of the United States economy in general and, specifically, market conditions for the consumer products industry; the level of demand for Schawk's services; changes in or weak consumer confidence and consumer spending; unfavorable foreign exchange rate fluctuations; loss of key management and operational personnel; our ability to implement our growth strategy, rebranding initiatives and cost reduction plans and to realize anticipated cost savings; the ability of the Company to comply with the financial covenants contained in its debt agreements and obtain waivers or amendments in the event of non-compliance with such covenants; the stability of state, federal and foreign tax laws; our continued ability to identify and exploit industry trends and exploit technological advances in the imaging industry; the stability of political conditions in foreign countries in which we have production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in Schawk, Inc.'s filings with the Securities and Exchange Commission.
The discussion of the Company’s financial results within this earnings release should be read and considered in context of the Company’s most recent annual Form 10-K filing with the Securities and Exchange Commission.
For more information about Schawk, visit its website at http://www.schawk.com.
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Schawk Announces First-Quarter 2011 Results
Page 5
Schawk Inc.
Consolidated Statements of Operations
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||||||||||||||||
(Unaudited)
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||||||||||||||||
(In thousands, except per share amounts)
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||||||||||||||||
Three Months Ended
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||||||||||||||||
March 31,
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Increase (Decrease)
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|||||||||||||||
2011
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2010
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Amount
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Percent
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|||||||||||||
Net sales
|
$ | 107,234 | $ | 111,708 | $ | (4,474 | ) | (4.0 | )% | |||||||
Cost of sales
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68,482 | 69,833 | (1,351 | ) | (1.9 | )% | ||||||||||
Gross profit
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38,752 | 41,875 | (3,123 | ) | (7.5 | )% | ||||||||||
Selling, general and administrative
expenses
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31,032 | 32,524 | (1,492 | ) | (4.6 | )% | ||||||||||
Business and systems integration expenses
|
1,239 | 110 | 1,129 |
nm
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||||||||||||
Foreign exchange loss
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501 | 1,817 | (1,316 | ) | (72.4 | )% | ||||||||||
Acquisition integration and restructuring expenses
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431 | 219 | 212 | 96.8 | % | |||||||||||
Impairment of long-lived assets
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-- | 680 | (680 | ) |
nm
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Operating income
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5,549 | 6,525 | (976 | ) | (15.0 | )% | ||||||||||
Other income (expense)
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||||||||||||||||
Interest income
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18 | 8 | 10 |
nm
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||||||||||||
Interest expense
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(1,287 | ) | (1,988 | ) | 701 | (35.3 | )% | |||||||||
Income before income taxes
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4,280 | 4,545 | (265 | ) | (5.8 | )% | ||||||||||
Income tax provision
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1,491 | 2,025 | (534 | ) | (26.4 | )% | ||||||||||
Net income
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$ | 2,789 | $ | 2,520 | $ | 269 | 10.7 | % | ||||||||
Earnings per share:
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Basic
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$ | 0.11 | $ | 0.10 | $ | 0.01 | ||||||||||
Diluted
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$ | 0.11 | $ | 0.10 | $ | 0.01 | ||||||||||
Weighted average number of common and common equivalent shares outstanding:
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||||||||||||||||
Basic
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25,817 | 25,183 | ||||||||||||||
Diluted
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26,246 | 25,557 | ||||||||||||||
nm = not meaningful
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Schawk Announces First-Quarter 2011 Results
Page 6Schawk, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
March 31,
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December 31,
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|||||||
2011
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2010
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|||||||
(Unaudited)
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||||||||
Assets
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Current assets:
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Cash and cash equivalents
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$ | 11,106 | $ | 36,889 | ||||
Trade accounts receivable, less allowance for doubtful accounts of $1,685 at March 31, 2011 and $1,525 at December 31, 2010
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86,148 | 95,207 | ||||||
Inventories
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20,207 | 18,250 | ||||||
Prepaid expenses and other current assets
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9,707 | 9,356 | ||||||
Income tax receivable
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4,711 | 2,943 | ||||||
Deferred income taxes
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488 | 347 | ||||||
Total current assets
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132,367 | 162,992 | ||||||
Property and equipment, net
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48,821 | 48,684 | ||||||
Goodwill, net
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194,587 | 193,626 | ||||||
Other intangible assets, net:
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Customer relationships
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35,965 | 36,461 | ||||||
Other
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698 | 817 | ||||||
Deferred income taxes
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1,048 | 868 | ||||||
Other assets
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6,181 | 6,411 | ||||||
Total assets
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$ | 419,667 | $ | 449,859 | ||||
Liabilities and stockholders’ equity
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Current liabilities:
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Trade accounts payable
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$ | 15,790 | $ | 21,930 | ||||
Accrued expenses
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59,467 | 64,007 | ||||||
Deferred income taxes
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3,260 | 3,260 | ||||||
Income taxes
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576 | 1,038 | ||||||
Current portion of long-term debt
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21,300 | 29,587 | ||||||
Total current liabilities
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100,393 | 119,822 | ||||||
Long-term liabilities:
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||||||||
Long-term debt
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24,303 | 37,080 | ||||||
Deferred income taxes
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9,242 | 9,135 | ||||||
Other long-term liabilities
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17,245 | 19,696 | ||||||
Total long-term liabilities
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50,790 | 65,911 | ||||||
Stockholders’ equity:
|
||||||||
Common stock, $0.008 par value, 40,000,000 shares authorized, 30,643,442 and 30,506,252 shares issued at March 31, 2011 and December 31, 2010, respectively, 25,899,191 and 25,761,334 shares outstanding at March 31, 2011 and December 31, 2010, respectively
|
225 | 224 | ||||||
Additional paid-in capital
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201,158 | 200,205 | ||||||
Retained earnings
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113,975 | 113,258 | ||||||
Accumulated comprehensive income, net
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13,921 | 11,247 | ||||||
Treasury stock, at cost, 4,744,251 and 4,744,918 shares of common stock at March 31, 2011 and December 31, 2010, respectively
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(60,795 | ) | (60,808 | ) | ||||
Total stockholders’ equity
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268,484 | 264,126 | ||||||
Total liabilities and stockholders’ equity
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$ | 419,667 | $ | 449,859 |
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Schawk Announces First-Quarter 2011 Results
Page 7
Schawk Inc.
Segment Financial Data
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(Unaudited)
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(In thousands)
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Three Months Ended
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March 31,
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Increase (Decrease)
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2011
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2010
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Amount
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Percent
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Sales to external clients:
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||||||||||||||||
North America
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$ | 92,385 | $ | 96,318 | $ | (3,933 | ) | (4.1 | )% | |||||||
Europe
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17,592 | 17,374 | 218 | 1.3 | % | |||||||||||
Asia Pacific
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6,653 | 6,822 | (169 | ) | (2.5 | )% | ||||||||||
Intercompany sales elimination
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(9,396 | ) | (8,806 | ) | (590 | ) | 6.7 | % | ||||||||
Sales to external clients
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$ | 107,234 | $ | 111,708 | $ | (4,474 | ) | (4.0 | )% | |||||||
Operating segment income (loss):
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||||||||||||||||
North America
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$ | 12,086 | $ | 14,024 | $ | (1,938 | ) | (13.8 | )% | |||||||
Europe
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2,121 | 548 | 1,573 |
nm
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Asia Pacific
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30 | 879 | (849 | ) | (96.6 | )% | ||||||||||
Corporate
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(8,688 | ) | (8,926 | ) | 238 | 2.7 | % | |||||||||
Operating segment income
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$ | 5,549 | $ | 6,525 | $ | (976 | ) | (15.0 | )% |
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Schawk Announces First-Quarter 2011 Results
Page 8Schawk, Inc.
Reconciliation of Non-GAAP measures to GAAP
(Unaudited)
(In Thousands, Except Share Amounts)
Three Months Ended
March 31,
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2011
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2010
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Income before income taxes - GAAP
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$ | 4,280 | $ | 4,545 | ||||
Adjustments:
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Acquisition integration and restructuring expenses
|
431 | 219 | ||||||
Business and systems integration expenses
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1,239 | 110 | ||||||
Impairment of long-lived assets
|
-- | 680 | ||||||
Foreign currency loss
|
501 | 1,817 | ||||||
Adjusted income before income tax - non GAAP
|
6,451 | 7,371 | ||||||
Adjusted income tax provision – non GAAP
|
2,211 | 2,904 | ||||||
Adjusted net income – non GAAP
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$ | 4,240 | $ | 4,467 | ||||
Weighted average common and common stock
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||||||||
equivalents outstanding – GAAP (diluted)
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26,246 | 25,557 | ||||||
Earnings per diluted share - GAAP
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$ | 0.11 | $ | 0.10 | ||||
Adjustments – net of tax effects:
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||||||||
Acquisition integration and restructuring expenses
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0.01 | 0.01 | ||||||
Business and systems integration expenses
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0.03 | -- | ||||||
Impairment of long-lived assets
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-- | 0.01 | ||||||
Foreign currency loss
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0.01 | 0.05 | ||||||
Adjusted earnings per diluted share – non GAAP
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$ | 0.16 | $ | 0.17 | ||||
Income tax provision - GAAP
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$ | 1,491 | $ | 2,025 | ||||
Adjustments: (1)
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Acquisition integration and restructuring expenses
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101 | 81 | ||||||
Business and systems integration expenses
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492 | 44 | ||||||
Impairment of long-lived assets
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-- | 270 | ||||||
Foreign currency loss
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127 | 484 | ||||||
Adjusted income tax provision – non GAAP
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$ | 2,211 | $ | 2,904 |
(1) Adjustments have been tax-effected at the jurisdictions’ statutory rates.
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Schawk Announces First-Quarter 2011 Results
Page 9Schawk, Inc.
Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA
(Unaudited)
(In Thousands)
Three Months Ended
|
Twelve Months Ended
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March 31,
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March 31,
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2011
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2010
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2011
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2010
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Net income - GAAP
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$ | 2,789 | $ | 2,520 | $ | 32,689 | $ | 24,313 | ||||||||
Interest expense
|
1,287 | 1,988 | 6,500 | 9,763 | ||||||||||||
Income tax expense
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1,491 | 2,025 | 9,450 | 10,329 | ||||||||||||
Adjusted Income – non GAAP
|
5,567 | 6,533 | 48,639 | 44,405 | ||||||||||||
Depreciation and amortization expense
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4,328 | 4,494 | 17,445 | 18,369 | ||||||||||||
Impairment of long-lived assets
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-- | 680 | 7 | 2,063 | ||||||||||||
Non-cash restructuring charges
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-- | -- | -- | 210 | ||||||||||||
Stock based compensation
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471 | 457 | 1,900 | 1,816 | ||||||||||||
Adjusted EBITDA – non GAAP
|
10,366 | 12,164 | 67,991 | 66,863 | ||||||||||||
Permitted add backs on debt covenants:
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||||||||||||||||
Loss on sale of property and equipment
|
-- | -- | -- | 144 | ||||||||||||
Proforma effect of acquisitions and asset sales
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-- | 432 | 672 | 432 | ||||||||||||
Acquisition integration and restructuring expenses
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80 | -- | 80 | 2,182 | ||||||||||||
Adjusted EBITDA for covenant compliance – non GAAP
|
10,446 | 12,596 | 68,743 | 69,621 | ||||||||||||
Acquisition integration and restructuring expenses
|
351 | 219 | 2,106 | 3,468 | ||||||||||||
Business and systems integration expenses
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1,239 | 110 | 2,693 | 110 | ||||||||||||
Proforma effect of acquisitions and asset sales
|
-- | (432 | ) | (672 | ) | (432 | ) | |||||||||
Multiemployer pension plan withdrawal (income) expense
|
-- | -- | (200 | ) | 1,800 | |||||||||||
Indemnity settlement income
|
-- | -- | -- | (4,986 | ) | |||||||||||
Foreign exchange loss
|
501 | 1,817 | 990 | 1,402 | ||||||||||||
Remediation and related expenses
|
-- | -- | -- | 2,455 | ||||||||||||
Management adjusted EBITDA –non GAAP
|
$ | 12,537 | $ | 14,310 | $ | 73,660 | $ | 73,438 |
Use of Non-GAAP Adjusted EBITDA, Adjusted EBITDA for covenant compliance, and Management adjusted EBITDA
Adjusted EBITDA, as presented within this release, is defined as earnings before interest, income taxes, depreciation and amortization, and other certain non-cash items. Adjusted EBITDA for covenant compliance, as defined in the Company’s current debt agreements, is defined as Adjusted EBITDA excluding certain items, including items that are generally considered non-operating, as permitted under the Company’s current revolving credit facility, and is used by management to gauge its ongoing compliance with the Company’s principal debt covenants, as well as pricing on its revolving credit facility. Management adjusted EBITDA is used to evaluate the core operating activities of the Company from period to period. None of the measures presented above represent cash flows from operations as defined by generally accepted accounting principles, should not be considered as an alternative to net income or cash flow from operations as an indicator of our operating performance, and are not indicative of cash available to fund all cash flow needs. These measures also may be inconsistent with similar measures presented by other companies or EBITDA as defined under guidance from the Securities and Exchange Commission.