Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report that relate to the Company's beliefs or expectations as to future events are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Company intends any such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Although the Company believes that the assumptions upon which such forward-looking statements are based are reasonable within the bounds of its knowledge of its industry, business and operations, it can give no assurance the assumptions will prove to have been correct and undue reliance should not be placed on such statements. Important factors that could cause actual results to differ materially and adversely from the Company's expectations and beliefs include, among other things, the strength of the United States economy in general and specifically market conditions for the consumer products industry; the level of demand for the Company's services; unfavorable foreign exchange fluctuations; changes in or weak consumer confidence and consumer spending; loss of key management and operational personnel; the ability of the Company to implement its business strategy 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; the ability of the Company 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; the stability of state, federal and foreign tax laws; the ability of the Company to identify and capitalize on industry trends and technological advances in the imaging industry; 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; unanticipated costs or difficulties associated with integrating acquired operations; the stability of political conditions in foreign countries in which the Company has production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update publicly any of these statements in light of future events.

Business Overview

Schawk, Inc., and its subsidiaries ("Schawk" or the "Company") provide strategic, creative and executional graphic services and solutions to clients in the consumer products packaging, retail, pharmaceutical and advertising markets. In so doing, the Company helps its clients develop, deploy and promote their brands and products through its comprehensive offering of integrated strategic, creative and executional services across print and digital mediums. The Company, headquartered in Des Plaines, Illinois, has been in operation since 1953 and is incorporated under the laws of the State of Delaware.

The Company is one of the world's largest independent business service providers in the graphics industry. The Company currently delivers these services through more than 155 locations in 26 countries across North and South America, Europe, Asia and Australia. By leveraging its global comprehensive portfolio of strategic, creative and executional capabilities, the Company believes it helps companies of all sizes create compelling and consistent brand experiences that strengthen consumers' affinity for these brands. The Company does this by helping its clients "activate" their brands worldwide.

The Company believes that it is positioned to deliver its offering in a category that is unique to its competition. This category, brand point management, reflects Schawk's ability to provide integrated strategic, creative and executional services globally across the four primary points in which its clients' brands touch consumers: at home, on the go, at the store and on the shelf. "At Home" includes brand touchpoints such as direct mail, catalogs, advertising, circulars, and the internet. "On the Go" includes brand touchpoints such as outdoor advertising, mobile/cellular and the internet. "In the Store" includes brand touchpoints such as point-of-sale displays, in-store merchandising and interactive displays. "On the Shelf" focuses on packaging as a key brand touchpoint.

The Company's strategic services are delivered primarily through its branding and design capabilities, performed under its Anthem Worldwide ("Anthem") and Brandimage brands. These services include brand analysis and articulation, design strategy and design. These services help clients revitalize existing brands and bring new products to market that respond to changing consumer desires and trends. Anthem's services also help certain retailers optimize their brand portfolios, helping them create fewer, smarter and potentially more profitable brands. The impact of changes to design and brand strategy can potentially exert a significant impact on a company's brand, category, market share, equity and sales. Strategic services also represent some of Schawk's highest value, highest margin services.

The Company's creative services are delivered through Anthem and Brandimage, and through various sub-specialty capabilities whose services include digital photography, 3D imaging, creative retouching, CGI (computer generated images), packaging mock-ups/sales samples, brand compliance, retail marketing (catalogs, circulars, point-of-sale displays), interactive media, large-format printing, and digital promotion and advertising. These services support the creation, adaptation and maintenance of brand imagery used across brand touchpoints - including packaging, advertising, marketing and sales promotion materials - offline in printed materials and online in visual media such as the internet, mobile/cellular, interactive displays and television. The Company believes that creative services, since they often represent the creation of clients' original intellectual property, present a high-margin growth opportunity for Schawk.

The Company's executional services are delivered primarily through its legacy premedia business, which at this time continues to account for the most significant portion of its revenues. Premedia products such as color proofs, production artwork, digital files and flexographic, lithographic and gravure image carriers are supported by color management and print management services that the Company believes provides a vital interface between the creative design and production processes. The Company believes this ensures the production of consistent, high quality brand/graphic images on a global scale at the speed required by clients to remain competitive in today's markets on global, regional and local scales. Increasingly, the Company has been offering executional services in the growing digital space, in order to meet growing client demand to market their brands on the internet and via mobile and interactive technologies. Additionally, the Company's graphic lifecycle content management software and services facilitates the organization, management, application and re-use of proprietary brand assets. The Company believes that products such as BLUE™ confer the benefits of brand consistency, accuracy and speed to market for its clients.

As the only truly global supplier of integrated strategic, creative and executional graphics capabilities, Schawk helps clients meet their growing need for consistency across brand touchpoints from a single coordinated contact. A high level of consistency can impact clients' businesses in potentially significant ways such as the retention and growth of the equity in their brands and improved consumer recognition, familiarity and affinity. The latter has the potential to help clients improve sales and market share of their brands. Additionally, through its global systems, the Company provides processes that reduce opportunities for third parties to counterfeit its clients' brands, which is an issue in both mature and developing regions. The Company also believes that its integrated and comprehensive capabilities provide clients with the potential for long-term cost-reductions across their graphic workflows.

Organization

The Company is organized on a geographic basis, in three operating and reportable segments: Americas, Europe and Asia Pacific. The Company's Americas segment includes all of the Company's operations located in North and South America, including its operations in the United States, Canada, Mexico and Brazil, its U.S. branding and design capabilities and its U.S. digital solutions business. The Company's Europe segment includes all operations located in Europe, including its European branding and design capabilities and its digital solutions business in London. The Company's Asia Pacific segment includes all operations in Asia and Australia, including its Asia Pacific branding and design capabilities.

Financial Overview

Net sales increased $2.9 million or 2.6 percent in the second quarter of 2012 to $116.3 million from $113.3 million in the second quarter of 2011. The sales increase in the second quarter of 2012 compared to the prior year's quarter reflects an increase in consumer products packaging accounts sales, offset by a decrease in promotional activity from the Company's advertising and retail and entertainment accounts. Sales attributable to acquisitions for the quarter ended June 30, 2012 were $8.1 million, or 7.0 percent of total sales. Excluding the impact of acquisitions, revenue would have decreased by $5.2 million or 4.6 percent. Sales in the current quarter compared to the prior year's quarter were negatively impacted by changes in foreign currency translation rates of approximately $1.7 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries. Net sales increased in all segments in the second quarter of 2012 compared to the prior year's quarter. The Americas segment increased by $1.0 million, or 1.1 percent, the Europe segment by $3.5 million, or 19.5 percent and the Asia Pacific segment by $1.6 million, or 17.9 percent. The Company's inventories, composed principally of the cost of unbilled client services, decreased $3.3 million at June 30, 2012 compared to March 31, 2012.

Gross profit decreased by $1.7 million or 4.2 percent in the second quarter of 2012 to $39.8 million from $41.6 million in the second quarter of 2011. The decline in gross profit in the current quarter compared to the prior year's quarter is principally due to increases in employee-related costs associated with the expansion of client service offerings. Gross profit in the Americas operating segment decreased by $3.0 million or 9.5 percent. Gross profit in the Europe operating segment increased by $1.4 million or 25.2 percent and decreased in the Asia Pacific operating segment by $0.2 million or 4.3 percent.

The Company recorded an operating loss of $1.1 million in the second quarter of 2012 compared to an operating profit of $7.0 million in the second quarter of 2011, a decrease of $8.1 million. The decline in operating income in the current quarter compared to the prior year's quarter is due in part to the lower gross profit in the second quarter of 2012 compared to the second quarter of 2011 as well as the following items: Selling, general and administrative expenses increased $4.4 million, or 14.7 percent, in the second quarter of 2012 to $34.0 million from $29.7 million in the second quarter of 2011. Excluding an $0.8 million credit to income in the prior year, the increase in selling, general and administrative expenses in the second quarter of 2012, compared to the second quarter of 2011, is principally due to increases in employee-related costs associated with the expansion of client service offerings. Business and systems integration expenses related to the Company's information technology and business process improvement initiative increased $2.1 million to $4.3 million in the second quarter of 2012 from $2.1 million in the second quarter of 2011. Acquisition integration and restructuring expenses, related to the Company's cost reduction and capacity utilization initiatives, were $2.5 million in the second quarter of 2012 compared to $0.7 million in the second quarter of 2011. The Company recorded a net loss of $0.1 million on foreign exchange exposures in the second quarter of 2012 as compared to $0.2 million in the second quarter of 2011.

The Company recorded an income tax benefit of $0.5 million in the second quarter of 2012 compared to an income tax expense of $1.8 million in the second quarter of 2011. The effective tax rate was 23.9 percent for the second quarter of 2012 compared to an effective tax rate of 31.4 percent in the second quarter of 2011.

In the second quarter of 2012, the Company recorded a net loss of $1.5 million, or $0.06 per diluted share, as compared to net income of $4.0 million, or $0.15 per diluted share, in the second quarter of 2011. The decrease in profitability, period-over-period, is principally due to the previously indicated increases in employee related costs associated with the expansion of client service offerings, expenses related to the Company's information technology and business process improvement initiative and the ongoing acquisition integration and restructuring efforts.

Cost Reduction and Capacity Utilization Actions

Beginning in 2008, and continuing to-date, the Company incurred restructuring costs for employee terminations, obligations for future lease payments, fixed asset impairments, and other associated costs as part of its previously announced plan to reduce costs through a consolidation and realignment of its work force and facilities. The total expense recorded for the six-month periods ended June 30, 2012 and June 30, 2011 was $3.6 million and $1.1 million, respectively, and is presented as Acquisition integration and restructuring expense in the Consolidated Statements of Comprehensive Income. See Note 12 - Acquisition Integration and Restructuring in Part I, Item 1 for additional information.

The expense for each of the years 2008 through 2011 and for the first six months of 2012, and the cumulative expense since the cost reduction program's inception, was recorded in the following operating segments:

                                                                      Asia
(in millions)                         Americas        Europe        Pacific        Corporate        Total

Six months ended June 30, 2012       $      3.3     $      0.3     $       --     $        --     $     3.6
Year ended December 31, 2011                0.8            0.6             --             0.1           1.5
Year ended December 31, 2010                1.3            0.5             --             0.5           2.3
Year ended December 31, 2009                3.6            1.4            1.0             0.4           6.4
Year ended December 31, 2008                5.7            3.6            0.2             0.9          10.4

Cumulative since program inception   $     14.7     $      6.4     $      1.2     $       1.9     $    24.2

The Company is exploring various additional cost reduction actions that could be taken, particularly in the Americas segment, if revenue does not improve.

Results of Operations

Consolidated

The following table sets forth certain amounts, ratios and relationships
calculated from the Consolidated Statements of Comprehensive Income for the
three-month periods ended:

                                           Three Months Ended            2012 vs. 2011
                                                June 30,              Increase (Decrease)
                                                                           $           %
                                           2012          2011           Change       Change

Net Sales                                $ 116,262     $ 113,329     $      2,933       2.6    %
Cost of sales                               76,433        71,751            4,682       6.5    %
Gross profit                                39,829        41,578           (1,749 )    (4.2 )  %
Gross profit percentage                       34.3   %      36.7   %

Selling, general and administrative
expenses                                    34,033        29,659            4,374      14.7    %
Business and systems integration
expenses                                     4,292         2,149            2,143      99.7    %
Multiemployer pension withdrawal expense        --         1,846           (1,846 )      nm
Acquisition integration and
restructuring expenses                       2,472           691            1,781        nm
Foreign exchange loss                           90           207             (117 )   (56.5 )  %
Operating income (loss)                     (1,058 )       7,026           (8,084 )      nm
Operating margin percentage                   (0.9 ) %       6.2   %

Other income (expense):
Interest income                                  9            21              (12 )   (57.1 )  %
Interest expense                              (917 )      (1,273 )            356     (28.0 )  %

Income (loss) before income taxes           (1,966 )       5,774           (7,740 )      nm
Income tax provision (benefit)                (470 )       1,812           (2,282 )      nm

Net income (loss)                        $  (1,496 )   $   3,962     $     (5,458 )      nm

Effective income tax rate                     23.9   %      31.4   %

Expressed as a percentage of Net Sales:

Gross margin                                  34.3   %      36.7   %         (240 )      bp
Selling, general and administrative
expenses                                      29.3   %      26.2   %          310        bp
Business and systems integration
expenses                                       3.7   %       1.9   %          180        bp
Multiemployer pension withdrawal expense        --   %       1.6   %         (160 )      bp
Acquisition integration and
restructuring expenses                         2.1   %       0.6   %          150        bp
Foreign exchange loss                          0.1   %       0.2   %          (10 )      bp
Operating margin                              (0.9 ) %       6.2   %         (710 )      bp

bp = basis points
nm = not meaningful

Net sales in the second quarter of 2012 were $116.3 million compared to $113.3 million in the second quarter of 2011, an increase of $2.9 million, or 2.6 percent. The sales increase in the second quarter of 2012 compared to the prior year's quarter reflects an increase in consumer products packaging accounts sales, offset by a decrease in promotional activity from the Company's advertising and retail and entertainment accounts. Sales attributable to acquisitions for the quarter ended June 30, 2012 were $8.1 million, or 7.0 percent of total sales. Excluding acquisitions, revenue would have decreased by $5.2 million or 4.6 percent. Sales in the current quarter compared to the prior year's quarter were negatively impacted by changes in foreign currency translation rates of approximately $1.7 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company's non-U.S. subsidiaries. Net sales increased in all segments in the second quarter of 2012 compared to the prior year's quarter. The Americas segment increased by $1.0 million, or 1.1 percent, the Europe segment by $3.5 million, or 19.5 percent and the Asia Pacific segment by $1.6 million, or 17.9 percent.

Consumer products packaging accounts sales in the second quarter of 2012 were $92.4 million, or 79.5 percent of total sales, as compared to $86.8 million, or 76.6 percent of total sales, in the same period of the prior year, representing an increase of 6.5 percent. Advertising and retail accounts sales of $18.2 million in the second quarter of 2012, or 15.6 percent of total sales, decreased 6.0 percent from $19.3 million in the second quarter of 2011. Entertainment account sales of $5.7 million in the second quarter of 2012, or 4.9 percent of total sales, decreased 21.7 percent from $7.2 million in the second quarter of 2011. During the second quarter of 2012, the Company continued to see measured progress with its largest client segment, consumer packaged goods accounts, with their continued product and brand innovation activity in the areas of strategy and design. However, new product introductions and packaging changes were slower than anticipated for the quarter as consumer packaged goods clients continue to exercise caution based on economic uncertainties and higher commodity prices.

Gross profit was $39.8 million, or 34.3 percent, of sales in the second quarter of 2012, a decrease of $1.7 million, or 4.2 percent, from $41.6 million, or 36.7 percent of sales, in the second quarter of 2011. The decline in gross profit in the current quarter compared to the prior year's quarter is principally due to increases in employee-related costs associated with the expansion of client service offerings.

The Company recorded an operating loss of $1.1 million in the second quarter of 2012 compared to an operating profit of $7.0 million in the second quarter of 2011, a decrease of $8.1 million. The operating loss percentage was 0.9 percent for the second quarter of 2012, compared to a 6.2 percent operating income percentage in the second quarter of 2011. The decline in operating income in the current quarter compared to the prior year's quarter is due in part to the decrease in gross profit in the second quarter of 2012 compared to the second quarter of 2011 as well as to the items discussed below.

Selling, general and administrative expenses increased $4.4 million, or 14.7 percent, in the second quarter of 2012 to $34.0 million from $29.7 million in the second quarter of 2011. Included in selling, general and administrative expenses for the second quarter of 2011 is a credit to income of approximately $0.8 million for the settlement of a lawsuit to enforce a non-compete agreement with the former owner of a business acquired by the Company. Excluding this credit to income in the prior year, the increase in selling, general and administrative expenses in the second quarter of 2012, compared to the second quarter of 2011, is principally due to increases in employee-related costs associated with the expansion of client service offerings.

Business and systems integration expenses related to the Company's information technology and business process improvement initiative increased $2.1 million to $4.3 million in the second quarter of 2012 from $2.1 million in the second quarter of 2011. During the second quarter of 2011, the Company recorded an estimated multiemployer pension withdrawal expense of $1.8 million related to its decision to terminate participation in the San Francisco Lithographers Pension Trust. Acquisition integration and restructuring expenses, related to the Company's cost reduction and capacity utilization initiatives, were $2.5 million in the second quarter of 2012 compared to $0.7 million in the second quarter of 2011. The Company recorded a net loss of $0.1 million on foreign exchange exposures in the second quarter of 2012 compared to a net loss of $0.2 million in the second quarter of 2011. The Company's foreign exchange exposure includes unrealized losses related primarily to currency exposure from intercompany debt obligations of the Company's non-U.S. subsidiaries. In order to mitigate foreign exchange rate exposure, the Company entered into several forward contracts, designated as fair value hedges, which resulted in expense for the second quarter of 2012 of $0.3 million, compared to expense of $0.2 million from hedging activities for the second quarter of 2011. In May 2012, the Company discontinued its foreign currency hedging program using forward contracts.

Interest expense in the second quarter of 2012 was $0.9 million compared to $1.3 million in the second quarter of 2011, a decrease of $0.4 million, or 28.0 percent. The decrease in interest expense is principally due to lower interest rates resulting from the Company's 2012 credit facility refinancing.

The Company recorded an income tax benefit of $0.5 million in the second quarter of 2012 compared to an income tax expense of $1.8 million in the second quarter of 2011. The effective tax rate was 23.9 percent for the second quarter of 2012 compared to an effective tax rate of 31.4 percent in the second quarter of 2011. The lower rate on the income tax benefit in the second quarter of 2012, as compared to the income tax provision in the second quarter of 2011, is primarily due to changes in the mix of domestic and foreign earnings offset by rate impacts of discrete expenses applied to the current quarter loss.

In the second quarter of 2012, the Company recorded a net loss of $1.5 million, as compared to net income of $4.0 million for the second quarter of 2011. The decrease in profitability, period-over-period, is principally due to the previously indicated increases in employee related costs associated with the expansion of client service offerings, expenses related to the Company's information technology and business process improvement initiative and the ongoing acquisition integration and restructuring efforts.

Other Information

Depreciation and amortization expense was $4.8 million for the second quarter of 2012 as compared to $4.5 million for the same period of 2011.

Capital expenditures in the second quarter of 2012 were $5.3 million compared to $6.1 million in the same period of 2011. The capital expenditures in both periods are primarily related to the Company's information technology and business process improvement initiatives.

The following table sets forth certain amounts, ratios and relationships calculated from the Consolidated Statements of Comprehensive Income for the six-month periods ended:

                                            Six Months Ended             2012 vs. 2011
                                                June 30,              Increase (Decrease)
                                                                           $           %
                                           2012          2011           Change       Change

Net Sales                                $ 229,012     $ 220,563     $      8,449       3.8    %
Cost of sales                              152,117       140,233           11,884       8.5    %
Gross profit                                76,895        80,330           (3,435 )    (4.3 )  %
Gross profit percentage                       33.6   %      36.4   %

Selling, general and administrative
expenses                                    67,961        60,691            7,270      12.0    %
Business and systems integration
expenses                                     7,462         3,388            4,074        nm
Multiemployer pension withdrawal expense        --         1,846           (1,846 )      nm
Acquisition integration and
restructuring expenses                       3,556         1,122            2,434        nm
Foreign exchange loss                          560           708             (148 )   (20.9 )  %
. . .