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Schawk Announces Significant Increases In Operating Income for 1Q

Press release from the issuing company

DES PLAINES, Ill., April 23 -- Schawk, Inc., North America's leading provider of digital imaging graphics services to the consumer products industry, reported that it had first quarter earnings of $0.13 per share, fully diluted, a significant increase compared to $0.07 per share, fully diluted, in the prior year first quarter. Schawk reported net sales of $42.8 million for first quarter 2002 compared to net sales of $46.0 million in first quarter 2001. Net income of $2.7 million in the first quarter of 2002 compared with $1.4 million in the prior year first quarter, a 93% increase. Operating income in the first quarter of 2002 increased by 46% to $5.1 million from $3.5 million in the prior year first quarter. Operating margin increased 55% to 11.8% from 7.6% in the same period in the prior year. As previously disclosed, on January 1, 2002, the company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets ("SFAS 142"), which eliminates the amortization of goodwill. If SFAS 142 had been in place on January 1, 2001, pro forma first quarter 2001 net income would have been $1.8 million, or $0.08 per fully diluted share and the first quarter 2002 increases in operating income, operating margin and net income would have been 28%, 26% and 50%, respectively. David A. Schawk, president and chief executive officer commented, "As noted last quarter, the benefits of our restructuring programs are positively impacting our operating income and the bottom line. Lower labor costs and lower borrowing levels and interest rates were the principal drivers to Schawk's improved profitability. Despite the higher profitability in the quarter, we were disappointed with the level of sales, which were down 7.3% from the prior year first quarter. Substantially all of the decline in revenues was from the ad agency portion of our business, which represents 30% of our total business. This business is suffering from one of the weakest ad markets in the last 20 years. There is no clear indication as to when this part of the business will improve. On the packaging side of the business, the demand has improved, with most larger clients generating good volume after holding back in 2001 because of mergers and other issues. However, our smaller accounts, in general, are less active with re-designs and new promotions." Mr. Schawk continued, "During the first quarter, we continued productivity and service-based initiatives to give the company and its clients long-term benefits in speed, responsiveness and efficiency. We continue to work on strategies to reduce costs and leverage our strengths." First Quarter Results Revenues were down $3.1 million or 7.3% versus the prior year first quarter. As noted above, the ad agency part of the business was the cause of the lower revenues versus the prior year. On the packaging side, the Company's top 20 accounts actually increased 12.5% versus a year ago. The increase is attributable in part to the release of new promotions and brandingfrom companies that were holding back in 2001 while they went through mergers with other consumer products companies. The company's blended gross margin was 41.0% in the first quarter of 2002 versus 40.2% in the prior year first quarter. The cost reduction programs and restructurings that the company implemented over the past two years are helping the company improve its gross margin, despite a drop in revenues. The cost reductions were permanent in nature, including staffing reductions and plant closings. Operating income increased $1.6 million to $5.1 million. A $1.6 million decrease in selling, general and administrative expenses (SG&A) was the biggest contributor to the higher operating income in the first quarter of 2002. Lower general and administrative expenses as a result of previous restructurings and lower selling commissions as a result of lower sales were the reasons that SG&A costs were down versus the prior year. Operating margins before restructuring charges increased to 11.8% from 8.2% in the prior year first quarter on the same basis. Interest expense of $747,000 in the first quarter of 2002 was $486,000, or 39.4% less than the prior year first quarter interest expense of $1.2 million. The decrease in interest expense was from a combination of lower interest rates and lower average debt balances versus the prior year first quarter. Mr. Schawk concluded, "While our ad agency business caused our revenues to decrease, our key large packaging accounts came through in the quarter helping us to deliver a solid quarter in a very tough recessionary environment. We expect the ad agency business to continue to be down versus the prior year throughout 2002. However, our cost reductions and an improvement in our large consumer products packaging business accounts gives us encouragement for year over year improvements in sales and earnings in those areas." Schawk, Inc., headquartered in suburban Chicago, is a leading supplier of digitized high resolution color graphic services, brand consulting and design and an array of digitally based workflow solutions, all aimed at bringing enhanced value to its clients. Schawk provides these advanced services for the food, beverage, and consumer products packaging, point of sale, and advertising markets.

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