Schawk Announces 2011 Second-Quarter Results

DES PLAINES, IL--(Marketwire - Aug 3, 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 second-quarter 2011 results. Net income in the second quarter of 2011 was $4.0 million, or $0.15 per diluted share, versus $15.8 million, or $0.61 per diluted share, in the second quarter of 2010.

On a non-GAAP basis, adjusting for certain financial impacts further detailed in this earnings release, Adjusted net income was $6.9 million, or $0.26 per diluted share, in the second quarter of 2011 compared to $10.4 million, or $0.40 per diluted share, during the prior-year comparable period.

President and Chief Executive Officer David A. Schawk, commented, "Our second quarter 2011 results reflected decreased activity with our advertising and retail clients primarily due to stronger retail promotional activity in the prior-year comparable period. In addition, during the first six months of 2011 some consumer packaged goods clients remained cautious given elevated commodity prices and sustained economic uncertainty domestically and internationally."

Mr. Schawk added, "However, we see opportunities in this challenging economy from three key industry trends: emerging markets, digital markets, and demand for integrated services. During the second quarter, we expanded or reached agreements to expand our business with certain key global clients as they pushed into developing and emerging markets and sought to take advantage of our full portfolio of integrated services, including our digital marketing capabilities which were enhanced through our acquisitions in 2010. This increased client activity is particularly evident in our European segment where sales have increased over 18% for the quarter and over 9% for the first six months of 2011 compared to the prior-year periods. Furthermore, we continue to believe that existing and prospective clients are seeing the value of our integrated service offering and global capabilities, particularly as they look for ways to differentiate themselves from their competition."

Consolidated Results for Second Quarter Ended June 30, 2011
Consolidated net sales in the second quarter of 2011 were $113.3 million compared to $117.8 million in the same period of 2010, a decrease of approximately $4.5 million, or 3.8 percent, principally driven by a decline in Advertising and retail account sales. Included in the quarter-over-quarter sales decline was an increase of $3.3 million in net sales related to 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 second quarter of 2011 were $87.1 million, or 76.8 percent of total sales, compared to $86.4 million in the same period of 2010, an increase of 0.8 percent. The increase over the prior-year quarter was primarily driven by slightly higher product and brand activity by the Company's CPG clients. Advertising and retail accounts sales of $19.0 million, or 16.8 percent of total sales, in the second quarter of 2011 decreased 18.8 percent, from $23.4 million in the prior-year period. Included in the decline in Advertising and retail accounts sales is a $1.3 million decline in revenue related to the previously disclosed loss of a non-core, retail client at the end of the second quarter of 2010 with the balance of the decline driven primarily by lower promotional activity compared to the prior-year period. Entertainment accounts sales declined $0.8 million to $7.2 million, or 6.4 percent of total sales, for the second quarter of 2011 compared to $8.0 million in the same period of 2010.

Gross profit was $41.9 million in the second quarter of 2011, a decrease of $4.9 million from the second quarter of 2010. Second-quarter 2011 gross profit as a percentage of sales decreased to 37.0 percent from 39.7 percent in the 2010 second-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 decreased approximately $0.4 million to $30.0 million in the second quarter of 2011 from $30.4 million in the second quarter of 2010 principally driven by lower revenue year over year.

During the second quarter of 2011, the Company reported business and systems integration expenses of $2.1 million compared to $0.2 million in the prior-year comparable period. As previously disclosed, these expenses relate to the Company's ongoing information technology and business process improvement initiative.

Acquisition integration and restructuring expenses increased from $0.5 million in the second quarter of 2010 to $0.7 million in the second quarter of 2011. The charges in the 2011 second quarter arose from the Company's continued focus on consolidating, reducing and re-aligning its work force and operations and are for employee terminations and other associated costs. These actions are expected to result in annualized savings of approximately $0.9 million, with approximately $0.6 million to be realized during 2011.

Additionally, the Company recorded expense of $1.8 million during the quarter as a result of its decision to terminate participation in a union supplemental retirement and disability fund in California.

The Company reported operating income of $7.0 million in the 2011 second quarter compared to $16.0 million in the second 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 and pension withdrawal expenses.

The Company reported income tax expense of $1.8 million for the second quarter of 2011 compared to an income tax benefit of $1.6 million in the second quarter of 2010. The increase in tax expense over the prior-year period was primarily due to discrete period tax benefits from the release of uncertain tax positions in the second quarter of 2010.

Net income in the second quarter of 2011 was $4.0 million, or $0.15 per diluted share, compared to $15.8 million, or $0.61 per diluted share, in the second quarter of 2010. Excluding the after-tax effects of certain financial impacts detailed within the non-GAAP tables at the end of this earnings release, second-quarter 2011 Adjusted net income was $6.9 million, or $0.26 per diluted share, compared to $10.4 million, or $0.40 per diluted share, on a comparable basis for the prior-year period.

Adjusted EBITDA and Management Adjusted EBITDA Performance
Adjusted EBITDA for the second quarter of 2011 was $12.1 million compared to $21.0 million for the second quarter of 2010. Management adjusted EBITDA for the second quarter of 2011 was $17.0 million compared to $21.4 million for the second quarter of 2010. Please refer to the "Reconciliation of Non-GAAP Adjusted EBITDA and Management Adjusted EBITDA" table attached at the end of this earnings release for a reconciliation of these measures.

Conference Call
Schawk invites you to join its second-quarter 2011 earnings conference call on Thursday, August 4, 2011, at 9:00 a.m. Central time. To participate in the conference call, please dial 800-259-0251or 617-614-3671 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=4159865. If you are unavailable to participate on the live call, a replay will be available through August 11 at 11:59 p.m. Central time. To access the replay, dial 888-286-8010 or 617-801-6888, enter conference ID 49017471, 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=4159865.

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 19 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 earnings 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 earnings 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 expected costs, or unanticipated difficulties associated with, integrating acquired operations; higher than expected costs associated with compliance with legal and regulatory requirements; higher-than-anticipated costs or lower-than-anticipated benefits associated with the Company's ongoing information technology and business process improvement initiative; 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.

Schawk Inc. Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
			Three Months Ended
			June 30,								Increase (Decrease)
			2011				2010				Amount				Percent
Net sales			$	113,329			$	117,840			$	(4,511	)		(3.8	)%
Cost of sales				71,412				71,016				396			0.6	%
Gross profit				41,917				46,824				(4,907	)		(10.5	)%
Selling, general and administrative expenses				29,998				30,420				(422	)		(1.4	)%
Business and systems integration expenses				2,149				184				1,965			nm
Multiemployer pension withdrawal expense				1,846				--				1,846			nm
Acquisition integration and restructuring expenses				691				502				189			37.6	%
Foreign exchange loss (gain)				207				(267	)			474			nm
Operating income				7,026				15,985				(8,959	)		(56.0	)%
Other income (expense)
	Interest income			21				8				13			nm
	Interest expense			(1,273	)			(1,771	)			498			(28.1	)%
Income before income taxes				5,774				14,222				(8,448	)		(59.4	)%
Income tax provision				1,812				(1,583	)			3,395			nm
Net income			$	3,962			$	15,805			$	(11,843	)		(74.9	)%
Earnings per share:
	Basic		$	0.15			$	0.62			$	(0.47	)
	Diluted		$	0.15			$	0.61			$	(0.46	)
Weighted average number of common and common equivalent shares outstanding:
	Basic			25,901				25,400
	Diluted			26,276				25,884
nm = not meaningful

Schawk Inc. Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
			Six Months Ended
			June 30,								Increase (Decrease)
			2011				2010				Amount				Percent
Net sales			$	220,563			$	229,548			$	(8,985	)		(3.9	)%
Cost of sales				139,894				140,849				(955	)		(0.7	)%
Gross profit				80,669				88,699				(8,030	)		(9.1	)%
Selling, general and administrative expenses				61,030				62,944				(1,914	)		(3.0	)%
Business and systems integration expenses				3,388				294				3,094			nm
Multiemployer pension withdrawal expense				1,846				--				1,846			nm
Acquisition integration and restructuring expenses				1,122				721				401			55.6	%
Foreign exchange loss				708				1,550				(842	)		(54.3	)%
Impairment of long-lived assets				--				680				(680	)		nm
Operating income				12,575				22,510				(9,935	)		(44.1	)%
Other income (expense)
	Interest income			39				16				23			nm
	Interest expense			(2,560	)			(3,759	)			1,199			(31.9	)%
Income before income taxes				10,054				18,767				(8,713	)		(46.4	)%
Income tax provision				3,303				442				2,861			nm
Net income			$	6,751			$	18,325			$	(11,574	)		(63.2	)%
Earnings per share:
	Basic		$	0.26			$	0.72			$	(0.46	)
	Diluted		$	0.26			$	0.71			$	(0.45	)
Weighted average number of common and common equivalent shares outstanding:
	Basic			25,859				25,292
	Diluted			26,264				25,731
nm = not meaningful

Schawk, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
			June 30,				December 31,
			2011				2010
			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	10,704			$	36,889
	Trade accounts receivable, less allowance for doubtful accounts of $1,348 at June 30, 2011 and $1,525 at December 31, 2010			88,071				95,207
	Inventories			20,910				18,250
	Prepaid expenses and other current assets			9,220				9,356
	Income tax receivable			3,344				2,943
	Deferred income taxes			476				347
Total current assets				132,725				162,992
Property and equipment, net				51,361				48,684
Goodwill, net				194,473				193,626
Other intangible assets, net:
	Customer relationships			34,944				36,461
	Other			581				817
Deferred income taxes				1,333				868
Other assets				5,746				6,411
Total assets			$	421,163			$	449,859
Liabilities and stockholders' equity
Current liabilities:
	Trade accounts payable		$	17,408			$	21,930
	Accrued expenses			53,370				64,007
	Deferred income taxes			3,263				3,260
	Income taxes			427				1,038
	Current portion of long-term debt			20,757				29,587
Total current liabilities				95,225				119,822
Long-term liabilities:
	Long-term debt			27,920				37,080
	Deferred income taxes			9,242				9,135
	Other long-term liabilities			17,516				19,696
Total long-term liabilities				54,678				65,911
Stockholders' equity:
	Common stock, $0.008 par value, 40,000,000 shares authorized, 30,672,370 and 30,506,252 shares issued at June 30, 2011 and December 31, 2010, respectively, 25,874,822 and 25,761,334 shares outstanding at June 30, 2011 and December 31, 2010, respectively			225				224
	Additional paid-in capital			202,362				200,205
	Retained earnings			115,865				113,258
	Accumulated comprehensive income, net			14,480				11,247
	Treasury stock, at cost, 4,797,548 and 4,744,918 shares of common stock at June 30, 2011 and December 31, 2010, respectively			(61,672	)			(60,808	)
Total stockholders' equity				271,260				264,126
Total liabilities and stockholders' equity			$	421,163			$	449,859

Schawk Inc.
Segment Financial data
(Unaudited)
(In thousands)
		Three Months Ended
		June 30,								Increase (Decrease)
		2011				2010				Amount				Percent
Sales to external clients:
North America		$	96,664			$	104,318			$	(7,654	)		(7.3	)%
Europe			17,743				15,001				2,742			18.3	%
Asia Pacific			8,748				8,240				508			6.2	%
Intercompany sales elimination			(9,826	)			(9,719	)			(107	)		1.1	%
Sales to external clients		$	113,329			$	117,840			$	(4,511	)		(3.8	)%
Operating segment income (loss):
North America		$	13,361			$	19,255			$	(5,894	)		(30.6	)%
Europe			882				815				67			8.2	%
Asia Pacific			1,378				1,776				(398	)		(22.4	)%
Corporate			(8,595	)			(5,861	)			(2,734	)		(46.6	)%
Operating segment income		$	7,026			$	15,985			$	(8,959	)		(56.0	)%

		Six Months Ended
		June 30,								Increase (Decrease)
		2011				2010				Amount				Percent
Sales to external clients:
North America		$	189,049			$	200,636			$	(11,587	)		(5.8	)%
Europe			35,335				32,375				2,960			9.1	%
Asia Pacific			15,401				15,062				339			2.3	%
Intercompany sales elimination			(19,222	)			(18,525	)			(697	)		3.8	%
Sales to external clients		$	220,563			$	229,548			$	(8,985	)		(3.9	)%
Operating segment income (loss):
North America		$	25,447			$	33,279			$	(7,832	)		(23.5	)%
Europe			3,003				1,363				1,640			120.3	%
Asia Pacific			1,408				2,655				(1,247	)		(47.0	)%
Corporate			(17,283	)			(14,787	)			(2,496	)		(16.9	)%
Operating segment income		$	12,575			$	22,510			$	(9,935	)		(44.1	)%

Schawk, Inc.
Reconciliation of Non-GAAP measures to GAAP
(Unaudited)
(In Thousands, Except Share Amounts)
			Three Months Ended June 30,							Six Months Ended June 30,
			2011			2010				2011			2010
Income before income taxes - GAAP			$	5,774		$	14,222			$	10,054		$	18,767
Adjustments:
	Acquisition integration and restructuring expenses			691			502				1,122			721
	Business and systems integration expenses			2,149			184				3,388			294
	Impairment of long-lived assets (1)			--			--				--			680
	Multiemployer pension withdrawal expense			1,846			--				1,846			--
	Foreign currency loss (gain)			207			(267	)			708			1,550
Adjusted income before income tax - non GAAP				10,667			14,641				17,118			22,012
Adjusted income tax provision - non GAAP				3,721			4,227				5,972			7,130
Adjusted net income - non GAAP			$	6,946		$	10,414			$	11,146		$	14,882
Weighted average common and common stock equivalents outstanding - GAAP (diluted)				26,276			25,884				26,264			25,731
Earnings per diluted share - GAAP			$	0.15		$	0.61			$	0.26		$	0.71
Adjustments - net of tax effects:
	Acquisition integration and restructuring expenses			0.02			0.01				0.03			0.02
	Business and systems integration expenses			0.05			0.01				0.08			0.01
	Impairment of long-lived assets			--			--				--			0.02
	Multiemployer pension withdrawal expense			0.04			--				0.04			--
	Foreign currency loss (gain)			--			(0.01	)			0.01			0.04
	Effective settlement of certain income tax audits			--			(0.22	)			--			(0.22	)
Adjusted earnings per diluted share - non GAAP			$	0.26		$	0.40			$	0.42		$	0.58
Income tax provision - GAAP			$	1,812		$	(1,583	)		$	3,303		$	442
Adjustments: (2)
	Acquisition integration and restructuring expenses			257			178				398			259
	Business and systems integration expenses			853			73				1,345			117
	Impairment of long-lived assets			--			--				--			270
	Multiemployer pension withdrawal expense			733			--				733			--
	Foreign currency loss (gain)			66			(71	)			193			412
	Effective settlement of certain income tax audits			--			5,630				--			5,630
Adjusted income tax provision - non GAAP			$	3,721		$	4,227			$	5,972		$	7,130
(1) Please see the Company's discussion related to certain insurance recoveries in its June 30, 2011 Form 10-Q.
(2) Adjustments have been tax-effected at the jurisdictions' statutory rates.

Schawk, Inc.
Reconciliation of Non-GAAP EBITDA and Management Adjusted EBITDA
(Unaudited)
(In Thousands)
		Three Months Ended							Six Months Ended							Trailing 12 Months
		June 30,							June 30,							Ended June 30,
		2011			2010				2011			2010				2011				2010
Net income - GAAP		$	3,962		$	15,805			$	6,751		$	18,325			$	20,846			$	35,350
Interest expense			1,273			1,771				2,560			3,759				6,002				9,067
Income tax expense (benefit)			1,812			(1,583	)			3,303			442				12,845				6,429
Adjusted Income - non GAAP			7,047			15,993				12,614			22,526				39,693				50,846
Depreciation and amortization expense			4,454			4,406				8,782			8,900				17,493				18,045
Impairment of long-lived assets			--			--				--			680				8				1,985
Non-cash restructuring charges			--			--				--			--				--				133
Stock based compensation			599			584				1,070			1,041				1,915				1,899
Adjusted EBITDA - non GAAP			12,100			20,983				22,466			33,147				59,109				72,908
Permitted add backs on debt covenants:
Loss on sale of property and equipment			--			--				--			--				--				71
Proforma effect of acquisitions and asset sales			--			254				--			686				418				686
Acquisition integration and restructuring expenses			159			--				239			--				239				758
Adjusted EBITDA for covenant compliance - non GAAP			12,259			21,237				22,705			33,833				59,766				74,423
Acquisition integration and restructuring expenses			532			502				883			721				2,136				3,970
Business and systems integration expenses			2,149			184				3,388			294				4,658				294
Proforma effect of acquisitions and asset sales			--			(254	)			--			(686	)			(418	)			(686	)
Multiemployer pension plan withdrawal expense			1,846			--				1,846			--				1,646				1,800
Indemnity settlement income			--			--				--			--				--				(4,986	)
Foreign exchange (gain) loss			207			(267	)			708			1,550				1,464				1,454
Remediation and related expenses			--			--				--			--				--				1,138
Management adjusted EBITDA - non GAAP		$	16,993		$	21,402			$	29,530		$	35,712			$	69,252			$	77,407

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.