SGK Announces 2013 Second-Quarter Results

DES PLAINES, IL--(Marketwired - Jul 31, 2013) - Schawk, Inc. (NYSE: SGK), now marketed as SGK (the "Company"), a leading global brand development, activation and deployment company, reported second-quarter 2013 results. Income from continuing operations in the second quarter of 2013 was $2.6 million, or $0.10 per diluted share, compared to a net loss of $1.6 million, or a loss of $0.06 per diluted share, in the second quarter of 2012.

As previously announced, the Company completed the sale of various assets comprising its large-format printing operations located in Los Angeles, California to The Garvey Group, LLC on July 3, 2013, for an aggregate purchase price of $10.2 million, comprised of approximately $8.2 million in cash and a $2.0 million secured subordinated note, subject to certain post-closing adjustments, plus the assumption of certain liabilities. Accordingly, the Company reported a loss from discontinued operations, net of tax, of $6.7 million for the second quarter of 2013 compared to income of $0.1 million in the prior-year period.

Net revenues were relatively flat during the second quarter of 2013 compared to the prior-year quarter. The Company's largest client channel, consumer packaged goods (CPG), grew 2 percent globally. However, CPG client revenue growth was offset by declines in retail and advertising client revenue.

Operating income for the 2013 second quarter was $5.8 million compared to an operating loss of $1.2 million for the same quarter last year, an increase of $7.0 million. On a non-GAAP basis, adjusting for financial impacts relating to certain items further detailed in this release, second-quarter adjusted operating income was $9.0 million in the 2013 period, an increase of approximately 61 percent, compared to $5.6 million in the prior-year period.

Adjusted income from continuing operations was $4.6 million, or $0.18 per diluted share, for the second quarter of 2013 compared to $2.6 million, or $0.10 per diluted share, during the comparable prior-year period. Please refer to the tables at the end of this press release for a reconciliation of these non-GAAP measures.

Chief Executive Officer David A. Schawk commented, "Our profitability from continuing operations improved significantly during the quarter notwithstanding essentially flat revenue on a year-over-year basis. We saw continued growth with our consumer packaged goods clients within the Americas and Asia Pacific segments during the second quarter. However, declines in our Europe segment, largely driven by the challenging economic environment within that region, offset some of that growth. Our overall CPG growth in the quarter was offset by continued declines in promotional activity by retail and advertising clients, which are all within our Americas segment. Despite the flat revenue growth quarter over quarter, operating income improved in the 2013 second quarter, primarily from the cost reduction and capacity utilization actions implemented last year and through the first half of 2013, offsetting continued strategic investments to better align with client needs and improve opportunities for long-term revenue growth."

Consolidated Results for the Quarter Ended June 30, 2013
Net revenues in the 2013 second quarter were $110.5 million compared to $110.8 million in the same period of 2012, a decline of approximately $0.3 million, or 0.2 percent. Year-over-year revenues were negatively impacted by changes in foreign currency translation rates of approximately $0.4 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries. 

CPG client revenue during the second quarter of 2013 was $96.1 million, or 87.0 percent of total net revenues, compared to $94.2 million in the same period of 2012, an increase of 2.0 percent, primarily due to higher product and brand development and deployment activity. Retail and advertising client revenue in the second quarter of 2013 was $14.4 million, or 13.0 percent of total net revenues, a decrease of 13.1 percent, from $16.5 million during the prior-year quarter, primarily driven by continued reductions in client promotional activity. 

Cost of services (excluding depreciation and amortization) was $66.6 million, or 60.2 percent of net revenues, in the 2013 second quarter, a favorable decrease of $3.6 million, or 5.1 percent, from $70.2 million, or 63.3 percent of net revenues, in the 2012 second quarter. The decrease in cost of services during the second quarter of 2013 compared to 2012 was mainly due to a decrease in labor related expenses driven by the Company's cost reduction and capacity utilization initiatives implemented during 2012 and throughout 2013.

Selling, general and administrative expenses (excluding depreciation and amortization) decreased $0.3 million, or 1.0 percent, in the second quarter of 2013 to $30.2 million from $30.5 million in the second quarter of 2012. The net reduction in expenses was driven by the Company's cost reduction efforts implemented during 2012 and throughout 2013, offsetting investments that the Company has made to improve its opportunities for long-term revenue growth.

Business and systems integration expenses related to the Company's information technology and business process improvement initiative decreased $2.6 million to $1.7 million in the second quarter of 2013 from $4.3 million in the second quarter of 2012, as the Company's investment in system designs matured.

Acquisition integration and restructuring expenses, related to employee terminations and other associated costs arising from the Company's continued focus on consolidating, reducing and re-aligning its work force and operations, decreased from $2.4 million in the second quarter of 2012 to $0.3 million in the second quarter of 2013. The actions taken during the second quarter of 2013 are expected to result in annualized savings of approximately $2.3 million, with approximately $1.2 million to be realized during 2013. Actions taken during the first half of 2013 are expected to result in annualized savings of approximately $3.2 million, with approximately $2.0 million expected to be realized during 2013.

The Company recorded a $0.7 million loss on foreign exchange exposures in the 2013 second quarter, compared to a loss of $0.1 million in the prior-year period. Net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the Company's non-U.S. subsidiaries. 

The Company reported operating income of $5.8 million in the second quarter of 2013 compared to an operating loss of $1.2 million in the prior-year comparable quarter. The year-over-year increase was driven by reductions in cost of services, acquisition integration and restructuring, and business and systems integration expenses. Non-GAAP adjusted operating income was $9.0 million for the second quarter of 2013 compared to $5.6 million in the prior-year comparable period.

For the 2013 second quarter, the Company reported tax expense of $2.1 million compared to a tax benefit of $0.5 million during the same period in 2012. The increase in tax expense over the prior-year period was principally driven by the increase in income from continuing operations coupled with certain discrete tax benefits during the prior-year quarter.

Income from continuing operations in the second quarter of 2013 was $2.6 million, or $0.10 per diluted share, compared to a loss of $1.6 million, or a loss of $0.06 per diluted share, in same period of 2012. Non-GAAP adjusted income from continuing operations was $4.6 million, or $0.18 per diluted share, for the second quarter of 2013 compared to $2.6 million, or $0.10 per diluted share, on a comparable basis for the prior-year period.

Management Adjusted EBITDA Performance
Management adjusted EBITDA for second quarter of 2013 was $14.3 million compared to $10.5 million in the prior-year period. Please refer to the "Reconciliation of Non-GAAP Management Adjusted EBITDA" table attached at the end of this press release for a reconciliation of these measures.

Conference Call
SGK invites you to join its second-quarter 2013 earnings conference call on Thursday, August 1, 2013, at 9:00 a.m. Central time. To participate in the conference call, please dial 877-703-6106 or 857-244-7305 at least five minutes prior to the start time and ask for the Q2 2013 SGK conference call, or on the Internet, go to http://www.media-server.com/m/acs/bcd9e75bed7b52df27bea0518370afa3. If you are unavailable to participate on the live call, a replay will be available through August 8 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 47009821, and follow the prompts. The replay will also be available on the Internet for 30 days at the following http://www.media-server.com/m/acs/bcd9e75bed7b52df27bea0518370afa3.

About SGK
SGK is a leading global brand development, activation and deployment company that drives brand performance. By creating brands, helping sell brands, producing brand assets and protecting brand equities, we help our clients achieve higher brand performance. SGK's global footprint spans more than 20 countries. For more information visit: http://www.sgkinc.com.

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 may differ materially from those contained in the forward-looking statements because of factors, such as those detailed in the Company's filings with the Securities and Exchange Commission. The Company can give no assurance that the assumptions upon which such forward-looking statements are based will prove to have been correct, and undue reliance should not be placed on such statements. The Company assumes no obligation to update publicly any of these statements in light of future events.

For more information about SGK, visit its website at http://www.sgkinc.com.

Schawk, Inc. is now marketed as SGK

Schawk Inc. Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands, except per share amounts)
			Three Months Ended
			June 30,								Increase (Decrease)
			2013				2012				Amount				Percent
Net revenues			$	110,510			$	110,760			$	(250	)		(0.2	)%
Operating expenses:
Cost of services (excluding depreciation and amortization)				66,569				70,151				(3,582	)		(5.1	)%
Selling, general and administrative expenses (excluding depreciation and amortization)				30,245				30,548				(303	)		(1.0	)%
Depreciation and amortization				4,680				4,451				229			5.1	%
Business and systems integration expenses				1,683				4,292				(2,609	)		(60.8	)%
Foreign exchange loss				734				90				644			nm
Impairment of long-lived assets				466				--				466			nm
Acquisition integration and restructuring expenses				311				2,416				(2,105	)		(87.1	)%
Operating income (loss)				5,822				(1,188	)			7,010			nm
Other income (expense)
	Interest income			21				9				12			nm
	Interest expense			(1,135	)			(917	)			(218	)		23.8	%
Income (loss) from continuing operations before income taxes				4,708				(2,096	)			6,804			nm
Income tax provision (benefit)				2,104				(513	)			2,617			nm
Income (loss) from continuing operations				2,604				(1,583	)			4,187			nm
Income (loss) from discontinued operations, net of tax				(6,738	)			87				(6,825	)		nm
Net loss			$	(4,134	)		$	(1,496	)		$	(2,638	)		nm
Diluted Earnings (loss) per share:
	Income (loss) from continuing operations		$	0.10			$	(0.06	)		$	0.16
	Income (loss) from discontinued operations			(0.26	)			--				(0.26	)
	Net loss per common share		$	(0.16	)		$	(0.06	)		$	(0.10	)
Weighted average number of common and common equivalent shares outstanding:				26,354				25,880
	Diluted
Comprehensive loss			$	(5,820	)		$	(4,893	)
nm = not meaningful

Schawk Inc. Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(In thousands, except per share amounts)
			Six Months Ended
			June 30,								Increase (Decrease)
			2013				2012				Amount				Percent
Net revenues			$	217,668			$	218,147			$	(479	)		(0.2	)%
Operating expenses:
Cost of services (excluding depreciation and amortization)				134,675				139,827				(5,152	)		(3.7	)%
Selling, general and administrative expenses (excluding depreciation and amortization)				60,766				60,827				(61	)		(0.1	)%
Depreciation and amortization				8,776				8,800				(24	)		(0.3	)%
Business and systems integration expenses				4,341				7,462				(3,121	)		(41.8	)%
Foreign exchange loss				492				560				(68	)		(12.1	)%
Impairment of long-lived assets				502				--				502			nm
Acquisition integration and restructuring expenses				554				3,478				(2,924	)		(84.1	)%
Operating income (loss)				7,562				(2,807	)			10,369			nm
Other income (expense)
	Interest income			47				25				22			88.0	%
	Interest expense			(2,230	)			(1,759	)			(471	)		26.8	%
Income (loss) from continuing operations before income taxes				5,379				(4,541	)			9,920			nm
Income tax provision (benefit)				1,453				(1,331	)			2,784			nm
Income (loss) from continuing operations				3,926				(3,210	)			7,136			nm
Income (loss) from discontinued operations, net of tax				(6,605	)			107				(6,712	)		nm
Net loss			$	(2,679	)		$	(3,103	)		$	424			(13.7	)%
Dilued Earnings (loss) per share:
	Income (loss) from continuing operations		$	0.15			$	(0.12	)		$	0.27
	Income (loss) from discontinued operations			(0.25	)			--				(0.25	)
	Net loss per common share		$	(0.10	)		$	(0.12	)		$	0.02
Weighted average number of common and common equivalent shares outstanding:
	Diluted			26,288				25,824
Comprehensive loss			$	(6,706	)		$	(4,043	)
nm = not meaningful

Schawk, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
			June 30,				December 31,
			2013				2012
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	4,754			$	9,651
	Trade accounts receivable, less allowance for doubtful accounts of $2,078 at June 30, 2013 and $2,052 at December 31, 2012			95,031				91,234
	Unbilled services			20,831				20,924
	Prepaid expenses and other current assets			10,161				10,100
	Income tax receivable			3,301				3,032
	Deferred income taxes			158				235
	Current assets of discontinued operations			4,996				3,854
Total current assets				139,232				139,030
Property and equipment, net				60,167				60,769
Goodwill, net				202,942				211,903
Other intangible assets, net:
	Customer relationships			25,543				28,781
	Other			535				633
Deferred income taxes				5,504				5,983
Other assets				6,970				6,771
Long term assets of discontinued operations				4,570				4,951
Total assets			$	445,463			$	458,821
Liabilities and stockholders' equity
Current liabilities:
	Trade accounts payable		$	20,740			$	17,833
	Accrued expenses			51,556				56,557
	Deferred income taxes			2,311				2,175
	Income taxes payable			717				609
	Current portion of long-term debt			3,543				4,262
	Current liabilities of discontinued operations			1,614				1,134
Total current liabilities				80,481				82,570
Long-term liabilities:
	Long-term debt			78,543				78,724
	Deferred income taxes			1,842				2,044
	Other long-term liabilities			41,872				43,536
	Long-term liabilities of discontinued operations			1,311				1,164
Total long-term liabilities				123,568				125,468
Stockholders' equity:
	Common stock, $0.008 par value, 40,000,000 shares authorized, 31,278,911 and 31,172,666 shares issued at June 30, 2013 and December 31, 2012, respectively, 26,188,831 and 26,113,544 shares outstanding at June 30, 2013 and December 31, 2012, respectively			228				227
	Additional paid-in capital			211,529				209,556
	Retained earnings			87,010				93,897
	Accumulated comprehensive income, net			7,832				11,859
	Treasury stock, at cost, 5,090,080 and 5,059,122 shares of common stock at June 30, 2013 and December 31, 2012, respectively			(65,185	)			(64,756	)
Total stockholders' equity				241,414				250,783
Total liabilities and stockholders' equity			$	445,463			$	458,821

Schawk Inc. Segment Financial Data
(Unaudited)
(In thousands)
		Three Months Ended
		June 30,								Increase (Decrease)
		2013				2012				Amount				Percent
Net revenues:
Americas		$	83,411			$	83,998			$	(587	)		(0.7	)%
Europe			19,975				21,197				(1,222	)		(5.8	)%
Asia Pacific			11,342				10,310				1,032			10.0	%
Intersegment revenue elimination			(4,218	)			(4,745	)			527			11.1	%
Total		$	110,510			$	110,760			$	(250	)		(0.2	)%
Operating segment income (loss):
Americas		$	15,523			$	10,388			$	5,135			49.4	%
Europe			535				484				51			10.5	%
Asia Pacific			1,377				827				550			66.5	%
Corporate			(11,613	)			(12,887	)			1,274			9.9	%
Operating segment income (loss)		$	5,822			$	(1,188	)		$	7,010			nm
		Six Months Ended
		June 30,								Increase (Decrease)
		2013				2012				Amount				Percent
Net revenues:
Americas		$	166,176			$	164,981			$	1,195			0.7	%
Europe			39,656				43,589				(3,933	)		(9.0	)%
Asia Pacific			21,048				18,430				2,618			14.2	%
Intersegment revenue elimination			(9,212	)			(8,853	)			(359	)		(4.1	)%
Total		$	217,668			$	218,147			$	(479	)		(0.2	)%
Operating segment income (loss):
Americas		$	27,385			$	18,306			$	9,079			49.6	%
Europe			334				1,907				(1,573	)		(82.5	)%
Asia Pacific			1,724				941				783			83.2	%
Corporate			(21,881	)			(23,961	)			2,080			8.7	%
Operating segment income (loss)		$	7,562			$	(2,807	)		$	10,369			nm

Schawk, Inc.
Reconciliation of Non-GAAP Measures to GAAP
(Unaudited)
(In thousands, except per share amounts)
			Three Months Ended							Six Months Ended
			June 30,							June 30,
			2013			2012				2013			2012
Operating income (loss) - GAAP			$	5,822		$	(1,188	)		$	7,562		$	(2,807	)
Adjustments:
	Business and systems integration expenses			1,683			4,292				4,341			7,462
	Foreign currency loss			734			90				492			560
	Impairment of long-lived assets			466			--				502			--
	Acquisition integration and restructuring expenses			311			2,416				554			3,478
Adjusted operating income - non GAAP			$	9,016		$	5,610			$	13,451		$	8,693
Income (loss) from continuing operations - GAAP			$	2,604		$	(1,583	)		$	3,926		$	(3,210	)
Adjustments - net of tax effects (1):
	Business and systems integration expenses			1,039			2,608				2,681			4,534
	Foreign currency loss			513			--				339			359
	Impairment of long-lived assets			288			--				320			--
	Acquisition integration and restructuring expenses			199			1,558				355			2,254
Adjusted income from continuing operations - non GAAP			$	4,643		$	2,583			$	7,621		$	3,937
Earnings (loss) from continuing operations per diluted share - GAAP			$	0.10		$	(0.06	)		$	0.15		$	(0.12	)
Adjustments - net of tax effects (1):
	Business and systems integration expenses			0.04			0.10				0.10			0.17
	Foreign currency loss			0.02			--				0.01			0.01
	Impairment of long-lived assets			0.01			--				0.01			--
	Acquisition integration and restructuring expenses			0.01			0.06				0.02			0.09
Adjusted earnings from continuing operations per diluted share - non GAAP			$	0.18		$	0.10			$	0.29		$	0.15
Weighted average common and common stock equivalents outstanding - GAAP (diluted)				26,354			25,880				26,288			25,824
(1) Adjustments have been tax-effected at the jurisdictions' statutory rates.

Schawk, Inc.
Reconciliation of Non-GAAP Management Adjusted EBITDA
(Unaudited)
(In thousands)
		Three Months Ended								Six Months Ended								Twelve Months Ended
		June 30,								June 30,								June 30,
		2013				2012				2013				2012				2013				2012
Income (loss) from continuing operations - GAAP		$	2,604			$	(1,583	)		$	3,926			$	(3,210	)		$	(16,480	)		$	10,376
Interest expense			1,135				917				2,230				1,759				4,123				4,469
Income tax expense (benefit)			2,104				(513	)			1,453				(1,331	)			(8,089	)			(3,383	)
Depreciation and amortization expense			4,680				4,451				8,776				8,800				17,625				17,366
Impairment of long-lived assets			466				--				502				--				4,783				--
Loss on sale of equipment			--				--				--				--				--				137
Stock based compensation			544				409				960				2,241				1,848				3,269
Adjusted EBITDA - non GAAP			11,533				3,681				17,847				8,259				3,810				32,234
Permitted add backs on debt covenants:
Proforma effect of acquisitions and asset sales			225				444				807				783				1,673				3,519
Acquisition integration and restructuring expenses			--				(38	)			--				27				219				115
Business and systems integration expenses			1,683				4,292				4,341				7,462				8,000				10,000
Multiemployer pension withdrawal expense			--				--				--				--				31,683				--
Adjusted EBITDA for covenant compliance - non GAAP			13,441				8,379				22,995				16,531				45,385				45,868
Acquisition integration and restructuring expenses			311				2,454				554				3,451				2,114				3,711
Business and systems integration expenses			--				--				--				--				1,139				2,558
Proforma effect of acquisitions and asset sales			(225	)			(444	)			(807	)			(783	)			(1,673	)			(3,519	)
Multiemployer pension plan withdrawal expense			--				--				--				--				(203	)			--
Foreign exchange loss			734				90				492				560				1,755				964
Management adjusted EBITDA - non GAAP		$	14,261			$	10,479			$	23,234			$	19,759			$	48,517			$	49,582

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.