Schawk $3.5-million Error Forces Balance Sheet Restatement
-- Graphic Arts Online, 6/26/2008 3:24:00 PM
DES PLAINES, IL—Schawk, Inc. (NYSE: SGK), the leading provider of brand point management services, enabling companies of all sizes to connect their brands with consumers to create deeper brand affinity, today announced that it will restate its consolidated balance sheet as of December 31, 2007 to reflect changes in the amounts of previously reported goodwill, retained earnings and accumulated comprehensive income due to the effect of an accounting error related to goodwill in its December 31, 2002 financial statements, as further described below. As a result of the pending restatement, the Company's previously issued financial statements for fiscal year ended December 31, 2002 should not be relied upon. The restatement is expected to result in a decrease of goodwill in the amount of $3.5 million as of December 31, 2007, a decrease in accumulated comprehensive income of $1.3 million due to the fluctuation in exchange rates between the Canadian dollar and the U.S. dollar and a decrease in retained earnings of $2.2 million. The accounting error has no effect on net income for any period after fiscal 2002.In May 2008, as part of a strategic review, the Company discovered a potential error in its accounting for the goodwill associated with one of its Canadian operating units, Cactus, which is a large-format print producer acquired by the Company in 1999. For purposes of goodwill testing, this operation had been incorrectly aggregated with the Company's broader Canadian reporting unit at December 31, 2007 and 2006, and with all operating units of the Company for fiscal years 2002 through 2005. At December 31, 2007 and in previous fiscal years, however, Cactus should have been treated as a separate reporting unit because it is a dissimilar business and met the requirements of a separate reporting unit under Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Because Cactus should have been treated as a separate reporting unit, its goodwill should have been tested for impairment on a stand-alone basis.
Treating Cactus as a separate reporting unit, the Company performed a discounted cash flow analysis using historical and projected financial performance of Cactus and determined that the goodwill associated with Cactus was impaired by approximately $2.2 million as of December 31, 2002. The Company performed an analysis to determine if this error was material to the current period or any individual prior period. Based on this analysis, the Company concluded that the error was material to the results of operations for the year ended December 31, 2002, and would have been material to the 2008 income statement.
The Company will present unaudited restated consolidated balance sheet information as of December 31, 2007 when it files its Form 10-Q for the three months ended March 31, 2008 to reflect the aforementioned changes in the amounts of previously reported goodwill, retained earnings and accumulated comprehensive income. The Company does not consider the correction of this error material to any financial statements included in its Form 10-K for the year ended December 31, 2007. As a result, the Company will present the impact of this correction in "Item 6, Selected Financial Data" and to the appropriate financial statements when it files its Form 10-K for the year ended December 31, 2008.
About Schawk, Inc.
Schawk, Inc, is the leading provider of brand point management services, enabling companies of all sizes to connect their brands with consumers to create deeper brand affinity. With a global footprint of more than 60 offices, 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. www.schawk.com
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