-- Summary of financial position
-- Update on 2008 preliminary financial results
-- Update on cost reduction activities
-- First-quarter 2009 preliminary financial results
-- Outlook regarding amendments to the Company's debt agreements
-- Timing of the annual shareholder meeting
David A. Schawk, president and chief executive officer, commented, "It is
clear that the difficulties that consumer products companies and retailers
faced during 2008 resulted in significant challenges for Schawk as well.
However, as we have done in the past, Schawk used this challenge as an
opportunity to aggressively improve our internal structure, processes and
controls, all of which we expect will have a positive long-term benefit."
Mr. Schawk concluded, "We have made significant progress toward revising
our debt agreements and are working with our lenders to resolve certain
inter-creditor matters. In the meantime, we are confident our financial
position will continue to support our ability to provide world-class
service to our clients. Our market share remains solid, and we continue to
maintain strong relationships with our clients. We are aware of a backlog
of projects with our packaging clients and are cautiously optimistic that
certain of these projects will be initiated in 2009, as clients get more
comfortable with the credit and economic environment and start to focus
more on consumer needs and the competitive landscape."
SUMMARY OF FINANCIAL POSITION
The table below is a preliminary estimate of Schawk's financial position at
March 31, 2009, December 31, 2008, and December 31, 2007.
March December December
(in $ Millions) 31, 2009 31, 2008 31, 2007
----------- ----------- -----------
(Unaudited
and
(Unaudited) (Unaudited) Restated)
Cash $ 27.3 $ 20.2 $ 11.8
=========== =========== ===========
Current assets less current liabilities $ 78.4 $ 74.4 $ 77.3
=========== =========== ===========
Total debt (includes current portion) $ 146.2 $ 135.8 $ 110.4
=========== =========== ===========
Total equity $ 191.6 $ 200.8 $ 300.8
=========== =========== ===========
The decline in equity at December 31, 2008, compared to the prior year
reflects the Company's net loss, driven principally by non-cash asset
impairment charges of $54.6 million coupled with the Company's stock
repurchase of $27.4 million during 2008. The Company also repurchased $4.3
million of stock during the first quarter of 2009, which contributed to a
reduction in total equity at March 31, 2009, as compared to December 31,
2008, but has since discontinued its stock repurchase program.
The above estimate of the Company's financial position at March 31, 2009,
is preliminary and subject to the Company's completion of its substantive
review of its first-quarter financial results, including its quarterly
assessment of any impairments to goodwill.
UPDATE ON PRELIMINARY 2008 FINANCIAL RESULTS
Presently, the Company anticipates it will report net sales of
approximately $494.2 million for the year ended December 31, 2008, a
decrease of approximately 9 percent relative to the comparable prior-year
period. For fiscal 2008, both retail and entertainment clients, which
represent approximately 27 percent and 7 percent of annual revenue,
respectively, declined 15 percent, while packaging clients, which represent
approximately 64 percent of annual revenue, declined almost 7 percent. In
the fourth quarter of 2008, total sales declined almost 23 percent versus
the prior year, with retail clients declining 33 percent, while packaging
clients declined almost 22 percent.
After giving effect to the estimated non-cash goodwill impairment charge
and other items described below, the Company expects to report a full-year
operating loss of approximately $56.6 million versus operating income of
$60.2 million in the comparable prior-year period.
The Company presently anticipates the total amount of the non-cash goodwill
impairment charge to be approximately $48.0 million for the fourth quarter
and full year of 2008. Previously, the Company had provided an estimate of
$20 million to $30 million of goodwill impairment for the fourth quarter
and full year of 2008.
In addition to the goodwill impairment charge, the full-year loss for 2008
is also expected to be negatively impacted by approximately $10.4 million
of restructuring related charges, $4.3 million of foreign currency
transaction losses, $6.8 million in increased professional and consulting
fees related to the Company's internal control remediation and related
matters, $7.3 million in multi-employer pension plan withdrawal expense,
and $6.6 million of impairment charges related to long-lived assets. The
total of these items is $35.4 million (of which $8.3 million is non-cash).
Excluding the aforementioned items, 2008 operating income would have been
approximately $26.8 million. Please refer to the table at the end of this
press release for a reconciliation of Non-GAAP measures.
As the Company has not filed its Form 10-K for 2008, the foregoing
estimates are preliminary and subject to change. Presently, the Company
expects to file its Form 10-K for the year ended December 31, 2008, by not
later than the end of May 2009. The delay in filing was principally
related to the Company finalizing its 2008 goodwill impairment charge as
well as other substantive review issues.
UPDATE ON COST-REDUCTION ACTIVITIES
The $10.4 million restructuring charge in 2008 noted above is anticipated
to result in total annual savings of approximately $21.9 million, with an
estimated $7.4 million in savings realized in 2008. The Company
anticipates additional actions taken and expected to be taken during 2009
will result in restructuring charges of approximately $2.0 to $3.0 million
generating annual savings of $6.0 to $7.0 million beginning in the first
quarter of 2009 (estimated $5.0 to $5.5 million savings in 2009).
Furthermore, the Company has taken other 2009 cost-reduction actions
expected to reduce expenses by approximately $6.0 to $7.0 million for the
year.
PRELIMINARY FIRST QUARTER 2009 FINANCIAL RESULTS
The Company presently anticipates that it will report net sales of
approximately $103.8 million for the quarter ended March 31, 2009, an
approximate 18 percent decrease in net sales relative to the comparable
prior-year period, with retail clients declining 30 percent, packaging
clients declining almost 16 percent and entertainment clients declining 10
percent.
David Schawk added, "Despite the year-over-year decline in quarterly sales,
monthly sales trends have been improving since December 2008."
In addition, the Company expects to report an operating loss of
approximately $3.3 million versus operating income of $6.7 million in the
comparable prior-year period. Included in the loss for the first quarter
of 2009 is an estimated $1.0 million of restructuring charges related to
the additional 2009 cost-reduction actions mentioned previously, as well as
estimated expenses of $2.0 million related to the Company's remediation and
related activities.
The above estimates are preliminary as the Company is conducting a
substantive review of its first-quarter financial results, including its
quarterly assessment of any impairment to goodwill. The Company will file
its Form 10-Q for the quarter ended March 31, 2009, as soon as its internal
review of its financial results and the corresponding review by the
Company's external audit firm is complete.
OUTLOOK REGARDING AMENDMENTS TO DEBT AGREEMENTS
The Company presently is in negotiations with its lenders to provide
financial covenant flexibility under its revolving credit facility and its
note agreements in light of the Company's expectations as to its full-year
2008 operating results and the uncertain and adverse economic conditions in
which it presently operates. Although the Company believes it is in
agreement with its lenders on the principal terms of amendments to its
revolving credit facility and note agreements, negotiations among lenders
concerning inter-creditor issues are ongoing. The timing for resolution of
such inter-creditor issues cannot presently be estimated with certainty.
If the Company fails to secure amendments to its debt agreements, it could
have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has not recently reported EBITDA (Earnings Before Interest,
Taxes, Depreciation or Amortization) or Adjusted EBITDA as financial
measures. Both of these measures are important indicators of performance
under the Company's existing revolving credit facility and are consistent
measurement tools for evaluating the operating activities of the business
from period to period. Adjusted EBITDA for the trailing twelve-month
period ending March 31, 2009, is estimated at $32.3 million as compared to
approximately $42.2 million for the twelve-month period ending December 31,
2008.
EBITDA for the 2009 first quarter was $1.7 million compared to $12.3
million in the first quarter of 2008. Adjusted EBITDA was $2.8 million for
the first quarter, compared to $12.3 million in the first quarter of 2008.
These results for EBITDA and Adjusted EBITDA are preliminary and are
calculated consistent with the schedule presented at the end of this press
release.
A reconciliation of this non-GAAP measure is also provided at the end of
this release.
EXPECTED TIMING OF THE COMPANY SHAREHOLDER MEETING
Typically the Company holds its annual shareholders' meeting during the
third week of May. However, due to the additional time needed to complete
the audit of its full-year 2008 results, the Company currently expects that
it will hold its 2009 annual meeting of shareholders not later than June
30, 2009.
About Schawk, Inc.
Schawk, Inc. (
Reconciliation of Non-GAAP Adjusted Operating Income
Twelve Months Ended
($ in Millions) December 31,
2008 2007
-------------- --------------
(Unaudited) (Unaudited and
Restated)
Operating income/(loss) per GAAP $ (56.6) $ 60.2
Plus: Impairment of goodwill (1) 48.0 -
Plus: Acquisition integration and
restructuring expenses (2) 10.4 -
Plus: Pension withdrawal expense 7.3 -
Plus: Remediation and related expenses 6.8 -
Plus: Impairment of long-lived assets (1) 6.6 1.2
Plus: Foreign exchange (gain)/loss (3) 4.3 (0.2)
Less: Gain on sale of real estate and
other - (1.6)
-------------- --------------
Adjusted operating income (Non-GAAP) $ 26.8 $ 59.6
============== ==============
(1) Represents Non-Cash Expenses
(2) Approximately $0.6 million of full-year 2008 expense is non cash
(3) Approximately $1.1 million of full-year 2008 expense is non cash
Reconciliation of Non-GAAP EBITDA and Adjusted EBITDA
($ in Millions) Preliminary and Unaudited
----------------------------------------------------
3 Months Ended 12 Months Ended Year Ended
March 31 March 31 December 31
---------------- ---------------- ----------------
2009 2008 2009 2008 2008 2007
------- ------- ------- ------- ------- -------
Net Income (loss) $ (2.2) $ 4.3 $ (66.5) $ 28.8 $ (60.0) $ 30.6
Interest expense,
net of interest
income 1.4 1.7 6.2 8.3 6.6 8.9
Income tax expense
(benefit) (2.4) 0.7 (6.3) 17.6 (3.1) 20.7
------- ------- ------- ------- ------- -------
Operating Income (3.3) 6.7 (66.5) 54.7 (56.6) 60.2
Depreciation and
amortization 4.8 5.5 20.0 21.4 20.8 21.4
Impairment of
long-lived assets - - 6.6 1.2 6.6 1.2
Impairment of
goodwill - - 48.0 - 48.0 -
Non-cash
restructuring charge - - 0.6 - 0.6 -
Unrealized FX (gain)
loss (0.2) (0.2) 1.1 (0.2) 1.1 -
Share-based
compensation 0.4 0.3 1.5 1.0 1.4 1.0
------- ------- ------- ------- ------- -------
EBITDA 1.7 12.3 11.4 78.1 22.0 83.7
Permitted add backs
on existing
revolving credit
facility:
(Gain) loss on
sale of equipment - - 0.4 (0.9) 0.4 (0.9)
Permitted
acquisitions - - 2.5 - 2.5 -
Interest income 0.1 0.1 0.3 0.3 0.3 0.3
Non-recurring
restructuring
charge 1.0 - 10.7 - 9.8 -
Non-recurring
pension
withdrawal
expense - - 7.3 - 7.3 -
------- ------- ------- ------- ------- -------
Adjusted EBITDA $ 2.8 $ 12.3 $ 32.6 $ 77.5 $ 42.2 $ 83.2
======= ======= ======= ======= ======= =======
We define EBITDA as earnings before interest, income taxes and depreciation
and amortization. Adjusted EBITDA, as defined in the covenants under the
Company's existing revolving credit facility, is EBITDA as adjusted to
exclude certain items, including items that generally are considered
non-recurring. Both measures are important indicators of performance under
the Company's existing revolving credit facility and provide management
with a consistent measurement tool for evaluating the operating activities
of the Company from period to period. These measures do not 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.
Contact Information: 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