Schawk Reports Losses for Q4, Full Year 2012
DES PLAINES, IL—March 7, 2013—Schawk Inc., a leading provider of brand development and deployment services, enabling companies of all sizes to connect their brands with consumers, reported fourth-quarter and full-year 2012 results. Net loss in the fourth quarter of 2012 was $18.1 million, or a loss of $0.69 per diluted share, versus net income of $5.8 million, or $0.22 per diluted share, in the fourth quarter of 2011. Net loss for the full year of 2012 was $23.4 million, or a loss of $0.90 per diluted share, compared to net income of $20.6 million, or $0.79 per diluted share, for the comparable prior-year period.
Included in the operating and net loss for the fourth quarter and full year of 2012 was an increase in multiemployer pension withdrawal expense of $31.7 million and $29.6 million for the fourth quarter and full year, respectively, related to the company's decision to completely withdraw from its remaining multiemployer pension plan within the United States in part to mitigate potentially greater financial exposure to the company in the future under the significantly underfunded plan. The company presently expects to pay approximately $41.2 million to satisfy its withdrawal liability, which will consist of annual cash payments of approximately $2.1 million over a 20-year period, with the annual cash payments expected to commence on or about May 1, 2014.
Operating loss for the fourth quarter of 2012 was $26.5 million as compared to operating income of $6.5 million for the same quarter last year. For the full year of 2012, operating loss was $30.7 million compared to operating income of $27.3 million in 2011.
On a non-GAAP basis, adjusting for financial impacts relating to the multiemployer pension withdrawal expense and certain other items further detailed in this release, 2012 fourth-quarter adjusted operating income was $8.7 million compared to $6.5 million in the prior-year period. For the full year 2012, adjusted operating income was $24.2 million compared to $36.9 million in 2011.
Adjusted net income was $3.8 million, or $0.15 per diluted share, for the fourth quarter of 2012, which was essentially equal to the prior-year comparable period. For the full year of 2012, adjusted net income was $11.1 million, or $0.43 per diluted share, compared to $20.6 million, or $0.79 per diluted share, during the comparable prior-year period.
"During 2012, our revenue grew nearly six percent globally within our largest client channel, consumer packaged goods," commented CEO David A. Schawk. "That growth was partially offset by declines in promotional activity with our retail and advertising and entertainment account clients, primarily within the Americas segment. Our Europe and Asia Pacific segments continued to expand in 2012. Those two regions benefited from our improved penetration in emerging markets, our investments in expanding our global capabilities, and our clients' actions to consolidate spending with fewer vendors. The performance of the Americas segment in 2012 primarily reflected declines in our retail and advertising and entertainment account clients, which offset the growth we saw with our consumer packaged goods clients."
Schawk added: "We continued to align with our clients' strategies and market trends and invested in the expansion of our technological capabilities. Additionally, we took several steps to further leverage our operations, including our decision to withdraw from our remaining multiemployer pension plan in the United States. Without the expenses for this action and other charges related to further leveraging our operations, the decline in adjusted operating income on a full-year basis is primarily due to our investments to expand into emerging regions and further expand our brand development and deployment capabilities. We are encouraged, however, by the improvement in adjusted operating income during the fourth quarter of 2012, as compared to last year, and believe that it is partly attributable to our improved cost structure. In addition, total debt was reduced by $12.2 million during 2012 and our balance sheet remains strong."
Consolidated Results for the Year Ended December 31, 2012
Consolidated net sales in 2012 were $460.7 million compared to $455.3 million in 2011, an increase of approximately $5.4 million, or 1.2 percent. Year-over-year sales were negatively impacted by changes in foreign currency translation rates of approximately $3.1 million, as the U.S. dollar increased in value relative to the local currencies of certain of the company's non-U.S. subsidiaries.
Consumer packaged goods (CPG) accounts sales during 2012 were $366.6 million, or 79.6 percent of total net sales, compared to $346.2 million in the same period of 2011, an increase of 5.9 percent, primarily due to higher product and brand development activity. Advertising and retail accounts sales in 2012 were $74.0 million, or 16.1 percent of total sales, a decrease of 8.8 percent, from $81.2 million during 2011, primarily driven by continued reductions in client promotional activity. Entertainment accounts sales for the full year of 2012 of $20.1 million, or 4.4 percent of total sales, decreased 28.0 percent, from $27.9 million in 2011, driven by continued declines in print-related promotional activity.
Gross profit was $157.3 million during 2012, a decline of $5.0 million from 2011. Gross profit in 2012 as a percentage of sales decreased to 34.1 percent from 35.6 percent in the prior-year period. The full-year decline in gross profit percent was largely driven by investments in expanding the company's brand development and deployment capabilities.
Selling, general and administrative (SG&A) expenses increased approximately $10.8 million to $132.8 million during 2012 from $122.0 million in 2011. Included in SG&A expense for 2011 was an estimated $3.3 million of income related to the reversal of a contingent consideration payable related to the company's 2010 acquisition of Real Branding. During 2012, the company recorded $0.2 million of income related to the reversal of the remaining contingent consideration payable, thereby resulting in an estimated $3.1 million year-over-year increase to SG&A expenses. The remaining increase in SG&A expenses in 2012 compared to 2011 is principally due to increases in the company's investments in expanding brand development and deployment capabilities, particularly the Brandimage acquisition during 2011.
Multiemployer pension withdrawal expense increased by $29.6 million during 2012 compared to prior year, primarily related to the company's decision to completely withdraw from its remaining multiemployer pension plan in the United States.
Business and systems integration expenses were $12.1 million in 2012, compared to $8.5 million in the prior-year period, relating to the company's ongoing information technology and business process improvement initiative.
Acquisition integration and restructuring expenses increased from $1.5 million in 2011 to $5.4 million in 2012, related to employee terminations and other associated costs which arose from the company's continued focus on consolidating, reducing and re-aligning its work force and operations. The actions taken during 2012 are expected to result in annualized savings of approximately $16.6 million, with approximately $5.5 million realized during 2012.
Long-lived asset impairment expenses in 2012 increased $4.3 million compared to the prior year, principally related to the write down of customer relationship intangible assets at certain locations within the Americas and European segments, coupled with expenses associated with company-owned real estate that was written down to its estimated market value.
The company recorded a $1.8 million loss on foreign exchange exposures in the full year of 2012, compared to a loss of $1.1 million in 2011. Net foreign exchange gains or losses relate primarily to currency exposure from intercompany debt obligations of the company's non-U.S. subsidiaries, net of the impact of gains or losses arising from foreign currency hedges entered into to mitigate the company's foreign exchange exposures.
The company reported an operating loss of $30.7 million in 2012 compared to income of $27.3 million in 2011. The decline year over year was driven by lower gross profit coupled with increased expenses principally related to the multiemployer pension withdrawal, long-lived asset impairment, acquisition integration and restructuring and business and systems integration expenses. Non-GAAP adjusted operating income was $24.2 million for 2012 compared to $36.9 million in the prior-year period.
For the full year of 2012, the company reported a tax benefit of $10.8 million compared to tax expense of $1.5 million during the same period in 2011, due primarily to the company's loss for the full year in 2012.
Net loss in 2012 was $23.4 million, or a loss of $0.90 per diluted share, compared to net income of $20.6 million, or $0.79 per diluted share, in 2011. Non-GAAP adjusted net income was $11.1 million, or $0.43 per diluted share, for 2012 compared to $20.6 million, or $0.79 per diluted share, on a comparable basis for the prior-year period.
Management Adjusted EBITDA Performance
Management adjusted EBITDA for full year 2012 was $46.6 million compared to $60.5 million for the prior-year period.
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 26 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.