SCHAWK INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER 1-9335
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SCHAWK, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-2545354
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1695 RIVER ROAD
DES PLAINES, ILLINOIS 60018
(Address of principal executive office)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 847-827-9494
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Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class: Name of Exchange on Which Registered:

CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.008 PAR VALUE

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Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value on March 7, 2002, of the voting stock held by
non-affiliates of the Registrant was approximately $51,814,277.

The number of shares outstanding of each of the registrant's classes of common
stock as of March 7, 2002, is 21,431,586 shares, Class A Common Stock, $.008 par
value

DOCUMENTS INCORPORATED BY REFERENCE

i

PART I

ITEM 1. BUSINESS

THE COMPANY

Schawk, Inc. and its subsidiaries ("Schawk" or the "Company") operate in
one operating business segment, Digital Imaging Graphics Arts, that serves
consumer products packaging, advertising and promotional markets. The Company is
incorporated under the laws of the State of Delaware.

BUSINESS

GENERAL

The Company is the largest independent provider of digital imaging prepress
services to the consumer products packaging market in the world. The Company's
facilities produce conventional, electronic and desktop color separations,
creative design, art production, electronic retouching, conventional and digital
platemaking and digital press proofs for the three main printing processes used
in the graphic arts industry: lithography, flexography and gravure. The
Company's services also include both digital and analog image database archival
and management as well as 3-D imaging for package design, large format printing,
digital photography, workflow management consulting services and various related
outsourcing and graphics arts consulting services. These services require
skilled, highly trained technicians applying various computerized design,
manipulation and assembly techniques. The preparation of film, digital tape and
press proofs for lithography, flexography and other printing processes related
to packaging accounted for over 70% of net sales during 2001, 2000 and 1999. The
balance of the Company's business consists of the production of similar
advertising and promotional applications.

The Company has particular expertise in preparing color images for high
volume print production runs of consumer products packaging. The Company
functions as a vital interface between its Fortune 1000 consumer products
clients, their creative designers and their converters or printers in assuring
the production of consistent, high quality packaging materials in increasingly
shorter turnaround and delivery times. The Company's ability to provide high
quality, customized prepress services quickly makes it a valued player in new
product introduction and promotional activity.

The Company maintains both digital and analog data archives of product
package layouts and designs as a value-added service which improves the
Company's efficiency in accommodating clients' rapidly changing packaging design
modifications and product line extensions. By continuing to provide such
high-end, value-added services, the Company commands a significant share of the
market for prepress services for the food and beverage industry, which uniquely
positions it to benefit from positive industry trends.

The Company believes that its clients have increasingly chosen to outsource
their imaging needs to the Company because of its: (i) high quality customized
imaging capabilities; (ii) rapid turnaround and delivery times; (iii) up-to-date
knowledge of the printing press specifications of converters and printers
located throughout the United States, Canada, Mexico and Asia; (iv) digital
imaging asset management; (v) workflow management; (vi) art production; and
(vii) ability to service its clients' global prepress requirements through the
Company's North American facilities and international subsidiaries and alliance
partners.

PREPRESS SERVICES INDUSTRY

"Prepress services" are the tasks involved in preparing images and text for
reproduction to exact specifications for a variety of media, including packaging
for consumer products, point-of-sale displays and other promotional materials.
Packaging for consumer products encompasses folding cartons, boxes, trays, cans,
containers, packaging labels and wrap. While prepress work represents a
relatively small percentage of overall product packaging and promotion costs,
the visual impact and effectiveness of product packaging and promotions are
largely dependent upon the quality of prepress work.

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Prepress services do not entail the actual printing or production of such
packaging materials, but rather include the various preparatory steps such as
art production design, digital photography, retouching, color separation and
other platemaking services, for use in lithography, flexography and gravure.
"Color separation" refers to preparing color images, text and layout for the
printing process. Prepress services such as color separation work have
traditionally been performed by skilled craftspeople almost entirely by hand,
using what is known as the "conventional" method. With the development of
digital technology, prepress firms such as Schawk have become totally
computerized, relying instead on digital imaging, in which digitized images and
text are manipulated according to client and converter specifications. On an
increasing basis, clients supply material to the Company in a digitized format
on a variety of media, including tape, floppy disk, CD-ROM and via the Internet.
More recently there is a trend toward an all digital work flow, from creative
design through printing. The most recent innovation is the production of plates
directly from a digital file, hence the term "direct to plate" (DTP) or
"computer to plate" (CTP). This innovation eliminates the step of preparing
photographic film and exposing the film on a plate. This CTP technology is more
precise and reduces the time to produce a printing plate. The Company has
acquired several CTP units and has the capacity to service its clients with CTP
services throughout North America.

The prepress industry in North America has over 1,300 market participants,
principally independent color separators, such as Schawk, converters, printers
and consumer products companies that perform these services in-house. The
majority of prepress providers specialize in high volume, commodity-oriented
publication work that includes textbooks, advertising, catalogs, newspapers and
magazines. The Company's target markets, however, are high-end packaging for the
consumer products industry, advertising and promotional applications. The North
American market for prepress services for packaging to the consumer products
industry is estimated by the Company to range from $1.5 billion to $1.7 billion,
while the worldwide market is estimated by the Company to be as high as $6.0
billion. The consumer products prepress industry is highly fragmented with
hundreds of market participants, only a small number of which have annual
revenues exceeding $30.0 million. The Company believes that the number of
participants in the North American prepress market for the consumer products
industry will diminish due to consolidation and attrition caused by competitive
forces such as accelerating technological requirements for advanced systems,
equipment and highly skilled personnel and the growing demands of clients for
full-service global capabilities.

The rapid development of lower-cost, faster desktop publishing software
systems has increased the potential for competition in the prepress industry by
lowering barriers to entry relating to equipment costs. However, this
development has also resulted in the proliferation of software systems, many of
which have created training issues. Frequent changes in software necessitates
continuous training and education and investment in faster equipment. It has
also created the demand from clients for increasingly faster turnaround and
delivery times. As technology advances in the imaging industry, speed has
become, and continues to be a significant differentiator between the Company and
its competition.

There is also a more significant barrier to entry that has always
existed -- hundreds of "technician-years" of expertise in working with all of
the major printers and convertors to make sure a package is printed according to
the client's specifications. For this reason, new upstarts have difficulty
competing with Schawk.

The Company focuses on three primary markets: consumer product packaging,
advertising agencies, and promotion. The food and beverage segment of the
consumer products industry has packaging requirements that are complex and
demanding due to variations in packaging materials, shapes and sizes, custom
colors, varying storage conditions and marketing enhancements. Product
extensions and frequent packaging redesigns have resulted in an increasing
volume of color separation and related work in the consumer products industry
and in particular for the food and beverage segment. Additional industry trends
include: (i) the shorter turnaround and delivery time requirements from the
creative design phase to final distribution of the packaged product; (ii) an
increasing number of SKUs competing for shelf space and market share; (iii) the
increasing importance of package appearance and promotions due to demonstrated
point-of-sale consumer purchasing behavior; and (iv) the increasing requirements
for worldwide quality and consistency in packaging as companies attempt to build
global brand name recognition. Increasingly, the advertising and promotion
markets require coordination of these efforts, with the initiatives coming from
advertising agencies. The

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Company's expansion into these markets strengthens and enhances the overall
service offering to the unified marketing approach of our clients.

Meeting the requirements of the advertising and promotional business
demands production of work under extremely short timelines, usually in under 24
hours. Creative retouching, color correction and composition in multiple file
formats are produced to meet requirements of the printers. The Company is a
leader in conventional, computer to plate and digital ad delivery to
publications.

THE COMPANY'S GROWTH STRATEGY

The Company's primary goal is to enhance its leadership positions in the
prepress imaging market serving the consumer products, advertising and promotion
markets. Key aspects of the Company's business strategy to achieve this goal
include the following:

- Growth through Acquisitions and Start-up Operations. The Company's
profitability and ready access to capital have enabled it to make
strategic acquisitions of companies that range in size from $2 million to
$20 million in revenues. In its 48-year business history, the Company has
integrated more than 43 prepress and imaging businesses into its
operations while streamlining overhead and improving margins in the
aggregate. The Company acquired 13 businesses from March 1998 to November
1999 with combined annualized revenues in excess of $77 million. These
acquisitions are part of the Company's growth strategy to acquire market
niche companies with Fortune 1000 client lists, excellent client service
or proprietary products and solid management who will continue to operate
the business after the acquisition. The managers of acquired businesses
receive performance incentives to continue to profitably grow the
business. There were no acquisitions by the Company in 2000 or 2001.

The Company intends to continue expanding through acquisitions of
well-managed companies with solid market positions, a reputation for
quality work and established client lists. Schawk believes that an
emphasis on complementary acquisitions of companies serving targeted
markets will allow it to broaden its service offerings and provide single
source prepress and imaging and image database services to its clients.

The Company believes it has greater versatility in meeting the various
requirements of its clients than smaller, less integrated competitors
lacking technical expertise, and that this versatility will result in
greater opportunities for internal growth as well as enhancing the
Company's image as an attractive purchaser for potential consolidation
candidates. Schawk believes that there will continue to be a number of
attractive acquisition candidates in the fragmented and consolidating
industry in which it operates. The Company expects to strengthen its
market position by applying its management and operational philosophies
and practices, which have been successful in its graphic arts businesses,
to newly acquired businesses.

The Company has also had some success in establishing start-up operations
in response to client and market requirements. Schawk intends to continue
this strategy as opportunities warrant. See "Acquisitions and Start-up
Operations."

- Exploitation of Industry Trends; Outsourcing. The Company has
historically attempted to strengthen its market position by identifying
and exploiting industry trends. As a consequence, the Company has been
uniquely positioned to benefit as consumer products companies continue to
reduce both their prepress staffs and total number of suppliers. The
Company's on-site strategy developed as clients outsource imaging
functions in an attempt to cut costs and improve turnaround and delivery
times. The Company intends to expand this effort as clients increasingly
require on-site service. As of December 31, 2001, the Company had 41
on-site locations staffed by over 130 Schawk employees, approximately 9%
of its total workforce. Further, the Company believes that its commitment
to client service and its broad array of premium service offerings
position the Company as a cost effective, value-added supplier of digital
imaging services. As clients continue to cut their staffing levels, they
are expanding the number of services required of their prepress
suppliers. As a result, fewer of the

3

Company's competitors have the full complement of capabilities required
in the marketplace. The Company believes outsourcing trends will
continue.

- Exploitation of Technology Advancements. The Company is dedicated to
keeping abreast of and initiating technological process developments in
its industry. To build upon its leadership position, the Company actively
evaluates systems and software products of various computer and software
manufacturers and also independently develops software for implementation
at its operating facilities. The Company continually invests in new
technology designed to support its high quality prepress services. The
Company concentrates its efforts on understanding the systems and
equipment available in the marketplace and creating solutions using
off-the-shelf products, customized to meet a variety of specific client
and internal requirements.

MANAGEMENT PHILOSOPHY

The Company believes that by adhering to its management philosophy, the
Company has positioned itself to thrive in the future. The strength of the
Company's management philosophy is evidenced by the fact that the Company
increased sales and operating income in its digital imaging business in 18 of
the last 23 years. The Company's management philosophy incorporates the
following key concepts:

Total Quality Management. A cornerstone of the Company's management
philosophy is its emphasis on high quality. The Company is committed to the
principles of "Total Quality Management" ("TQM") and stresses to all employees,
regardless of level, the importance of striving to meet or exceed client
expectations. Historically, the Company has been committed to employee training
and technological improvements to achieve this level of performance. Through the
Company's application of TQM, employees have adopted the necessary commitment to
client service that is essential to quick turnaround and consistent delivery of
high quality services and products. Such increased quality results in decreased
costs to clients and the Company in the long run. The Company views itself as a
service provider to its clients. Understanding the needs of its clients and
customizing its services and products is part of the TQM process that has helped
the Company differentiate itself from the competition. Consequently, the Company
makes the necessary investments to ensure that these services continue to meet
the highest quality standards and needs of its clients. A number of the
Company's operations are, or are soon to be, ISO 9000 and/or ISO 9002 certified.

Client Service. Another key component of the Company's management
philosophy has been its commitment to client service. The Company believes that
this commitment has contributed to the confidence and loyalty its clients have
shown. Because of the increasingly competitive markets faced by its clients, the
Company must be flexible enough to modify its operations in order to meet the
specialized needs of its clients. The Company's emphasis on on-site client
representatives and operations helps to address this requirement and has further
solidified existing client relationships.

Employee Training and Investment in Equipment. The Company believes that
its most valuable assets are its employees because its ability to provide
clients with high quality services and products depends upon their dedication
and expertise. The Company provides extensive and continuous training to keep
its employees abreast of the latest technological developments and the
particular needs of its clients. Providing its employees with the latest
equipment, software and training are fundamental to the Company's philosophy.

Technical Expertise. The Company is able to provide its clients with high
quality services and products and quick response time because of its efficient
utilization of state-of-the-art equipment, software, digital server, storage
technology and telecommunication systems. As part of its commitment to maintain
its technological expertise, the Company has historically worked with software
developers to create software that fully addresses the Company's and its
clients' needs. The Company acts as a test site for numerous hardware and
software products. In order to facilitate the exchange of information among its
various facilities, in 1991, the Company established the Schawk Technical
Advisory Board for the purpose of coordinating the research and evaluation of
new technologies in the graphic arts industry. This group continues to be
recognized for its efforts and has been invited to lecture at numerous national
and international symposiums and conferences.

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SERVICES

The Company offers comprehensive, high quality digital imaging prepress
services. The Company's facilities produce conventional, electronic and desktop
color separations, electronic production design, film preparation, platemaking
and press proofs for lithography, flexography and gravure.

The Company's services also include both digital and analog image database
archival and management, as well as creative design, 3-D imaging, art
production, large format printing, and various related outsourcing and graphics
arts consulting services.

The Company interfaces between consumer products manufacturers and the
creative designers and converters used by those businesses to produce packaging,
such as folding cartons, boxes, trays, cans, containers, packaging labels and
wrap and related point-of-sale and promotional materials. The Company's services
consist principally of the electronic and digital production of art design,
color separations and color proofs to client and converter specifications and
imaging asset management. These services are an intermediate step between
creative artwork and the actual printing of graphic materials. The production of
color separations requires well-trained and highly skilled technicians applying
various digital and analog image manipulation, assembly and color management
techniques in order to preserve the integrity of the original image when
translated into print and to ensure consistency of the printed materials.

The Company specializes in digital imaging prepress services relating to
the packaging and promotional needs of clients in the consumer products industry
and in the advertising and promotion markets. The Company serves Fortune 1000
companies and their advertising agencies to ensure worldwide quality and
consistency in the packaging and related imagery of their products with the wide
array of consumer products in the marketplace. Because there is no consistent
size, shape, color or packaging material, the Company functions as a network of
custom job shops taking advantage of its size for technical expertise while
being able to respond quickly to the varying needs of global clients.

Image quality and consistency and ever-shortening response and delivery
times are becoming increasingly important to consumer products manufacturers as
packaging assumes a greater role in promotion. While prepress work represents a
relatively small percentage of overall packaging costs, the visual impact and
effectiveness of product packaging is largely dependent upon the quality of the
prepress work.

The Company's clients typically outsource their prepress requirements and
assign the Company the responsibility of interfacing with the clients'
designated graphic designers, who design the packaging and the converters or
printers who print and produce the packaging and related materials. The Company
competes on the basis of offering its multi-national client base: (i) high
quality customized imaging; (ii) rapid turnaround and delivery times; (iii)
up-to-date knowledge of the printing press specifications of converters and
printers located throughout the United States and Canada; (iv) digital imaging
asset management; (v) workflow management; (vi) art production; and (vii) the
ability to service its clients' global prepress requirements through the
Company's North American facilities and international subsidiaries and alliance
partners.

As technology has created opportunities for quicker production turnarounds
and deliveries, most of the Company's Fortune 1000 consumer products clients
have capitalized on the opportunity to modify their packaging more frequently in
order to customize their promotional activities on a regional, seasonal or event
related basis. This activity has greatly increased the importance of maintaining
the integrity of the digital and analog image design and text data for each
package variation.

In keeping with this need for greater control and organization, Schawk has
expanded its services into a number of new areas that assist the client with the
overall management of their art processes. Schawk has added production art
services that quickly execute and expand upon new graphics ideas, and assist the
client in speeding their brands to market with fewer errors and higher
efficiency. Additional services are provided through InterchangeDigital, a
wholly-owed Schawk subsidiary. With InterchangeDigital's PaRTS product
(Production and Resource Tracking System), clients are able to maintain a
central archive of approved digital graphics and design templates that can be
used to normalize the production of packaging and collateral graphics on a
global basis. PaRTS also tracks vendor performance, time lines, and other
process critical data. InterchangeDigital delivers a broader range of integrated
services through its products than competing systems
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and in-turn is able to drive a better value proposition for its customers.
Schawk 3D is another group that Schawk has leveraged to provide 3D modeling
capabilities to its customers allowing them to review and deploy new graphics
concepts in a shorter time frame, and to proof concepts and collateral before
actual manufacturing begins. All of Schawk's related services are leveraging new
technologies and solution services that focus on workflow and knowledge
collaboration during the product and concept development cycles. We believe that
this focus is a visible differentiator with would-be competitors and will help
to maintain Schawk's status as a preferred supplier.

Given the increased computerization of the prepress services industry,
highly trained technicians are essential to the quality of the end product.
Requirements of turnaround speed without a reduction in quality are increasing
as clients strive for differentiation and customization of their products and
brands. Schawk has met these requirements by continuously reinvesting in
technology, training its personnel and establishing numerous satellite on-site
operations to complement its main operating facilities.

To capitalize on market trends, management believes that the Company must
continue to be able to provide clients the ability to make numerous changes and
enhancements with shorter turnaround times than ever before. Accordingly, the
Company has focused its efforts on improving its response times and continues to
invest in rapidly emerging technology and the continuing education of its
employees. The Company also educates clients on the opportunities and
complexities of state-of-the-art equipment and software. The Company believes
that its ability to provide quick turnaround and delivery times, dependability
and value-added training and education programs will continue to give it a
competitive advantage in serving clients who require high volume, high quality
product imagery.

The Company's services are distinguished by its ability to complete
prepress services for packaging designs in increasingly compressed time frames
and with high standards of quality. In order to satisfy client requirements, the
Company is frequently required to provide services in as little as 24 hours. The
following core competencies of the Company are described in more detail below:

- Technical Expertise. The Company places an emphasis on investment in
state-of-the-art systems and equipment and the need for continual
training and development of its employees through programs offered at the
Company-owned training center and operating facilities and on-site at
client locations. The Company has had success in elevating its employees'
competency and its clients' standards to levels requiring the superior
technical expertise and capabilities that distinguish the Company's
services.

- On-Site Personnel. The Company has placed over 130 employees on-site at
or near 41 client locations in an effort to further integrate its
prepress services directly with the client operations. This facilitates
faster turnaround and delivery times and fosters stronger client
relationships.

- Strong Relationships with Converters and Printers. As each client
selects its own converter(s) and/or printer(s) the Company coordinates
extensively with the converter to ensure uniformity in color and
appearance of the printed product packages. Each client generally selects
its printing services on a bid basis. By using the Company as its imaging
specialist, the print/read imagery information is not captive at any one
printer or converter. This affords each client consistent image
replication at any printing site because the Company can supply any
printer or converter with film customized for its printing press.
Additionally, this allows the client to reproduce its image consistently
across many printing sources and it also provides the client with
information as to location and cost of its press runs.

Over the course of its 48-year business history, the Company has
developed strong relationships with many of the major converters and
printers in the United States and Canada. As a result, the Company has
extensive knowledge of their equipment, thereby enabling the Company to
increase the overall efficiency of the printing process. Internal
operating procedures and conditions may vary from printer to printer,
affecting the quality of the color image. In order to minimize the
effects of these variations, the Company makes necessary adjustments to
its color separation work to account for irregularities or idiosyncrasies
in the printing presses of each of its clients' converters. The Company
strives to afford its clients total control over their imaging processes
with customized and coordinated services designed to

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fit each individual client's particular needs, all aimed at ensuring that the
color quality, accuracy and consistency of a client's printed matter are
maintained.

- Imaging Asset Management. The Company maintains and manages a database
for its clients' images and package designs. Once an image is in the
Company's database, the client can make frequent regional, seasonal or
event related adjustments to the file image prior to printing. The
Company's ability to quickly manipulate digital images enables its
clients to deliver their products to the market faster. The Company's
capabilities also allow it to send an image for output and printing
virtually anywhere in the world. As more and more multi-national consumer
products companies strengthen their international packaging quality
control to enhance their global brand image, they are requiring a more
consistent worldwide image. In response to this trend, the Company is
playing an increasing role in ensuring that its clients' images are
satisfactory and consistent both domestically and internationally. The
acquisition of 65% of the Laserscan Group in September, 1999 with
operations in China and Malaysia is indicative of Schawk's commitment to
its clients on a world-wide basis.

ACQUISITIONS AND START-UP OPERATIONS

The Company has acquired and integrated more than 43 prepress and imaging
businesses into its operations since the business was founded in 1953.
Throughout its history, the Company has successfully identified acquisition
candidates that represent market niche companies with Fortune 1000 client lists,
excellent client service or proprietary products and solid management. The
Company favors businesses with management teams that will continue to operate
the businesses as autonomous units. The Company has also commenced a number of
start-up operations over the years when client servicing requirements or market
conditions warranted.

There were no acquisitions in 2000 or 2001. During 1999 the Company
completed eight acquisitions: Cactus Imaging Centres in Toronto, Canada; Color
One in Cincinnati, OH; Deluxe Engraving in Cincinnati, OH; Designer's Atelier in
New York, NY; Inter-Process Service in Stamford, CT; The Mackinder Group in New
York, NY; Plewes-Bertouche in Toronto, Canada and Laserscan, with operations in
China, Malaysia, and Thailand. During 1998 the Company completed five
acquisitions: S&M Rotogravure in New Berlin, Wisconsin; Chromart, Inc. in New
York, NY; Horan Imaging Solutions in New York, NY; Design Partners in Toronto,
Canada; and Herzig Somerville, Ltd. In Toronto, Canada.

In 2000, the Company established start-up operations in Stamford,
Connecticut and Singapore. In 1999, the Company established start-up operations
in Kobe, Japan; Ardsley, New York; and Charlotte, North Carolina. In 1998, the
Company established a start-up operations in Queretaro, Mexico. Due to
unfavorable market conditions the start-ups in Ardsley, New York; Charlotte,
North Carolina; and Stamford, Connecticut were shut down in 1999, 2000 and 2001,
respectively.

The Company intends to continue expanding through acquisitions of
well-managed companies with solid market positions and established client lists.
The Company believes that emphasis on complementary acquisitions of businesses
serving targeted markets will allow it to broaden its product offerings and
provide its clients with a single source for imaging and image database
services. The Company will also continue to analyze and investigate start-up
operations on an ongoing basis.

RESEARCH AND DEVELOPMENT

The Company is dedicated to keeping abreast of and, in a number of cases,
initiating technological process developments in its industry that have
applications for packaging. To build upon its leadership position, the Company
is actively involved in system and software technical evaluations of various
computer systems and software manufacturers and also independently pursues
software development for implementation at its operating facilities. The Company
continually invests in new technology designed to support its high quality
prepress services. The Company concentrates its efforts in understanding systems
and equipment available in the marketplace and creating solutions using
off-the-shelf products customized to meet a variety of specific client and
internal requirements. PaRTS(TM) is an example of the Company's commitment to
systems development. Total research and development spending is not material.
7

As an integral part of its commitment to research and development, the
Company has established the Schawk Technical Advisory Board for the purpose of
researching and evaluating new technologies in the graphic arts and
telecommunications industries. The Advisory Board meets formally, at least
quarterly, to review new equipment and programs, then disseminates the
information to the entire Company and to clients as appropriate.

MARKETING AND DISTRIBUTION

The Company markets its services nationally and internationally through
seminars, newsletters and training sessions targeted at existing and potential
clients. The Company sells its services through a group of approximately 150
direct salespersons and 200 client service technicians who call on consumer
products manufacturers, including those in the food and beverage, home products,
pharmaceutical and cosmetics industries and mass merchant retailers. The Company
has adopted a team approach to marketing, reflective of its TQM philosophy. Both
the Company's salespersons and the Company's client service technicians share
responsibility for marketing the Company's offerings to existing and potential
clients, thereby fostering long-term institutional relationships with its
clients.

In addition to its numerous operations in the United States and Canada, the
Company has operations in Queretaro, Mexico, Kobe, Japan, Singapore, Malaysia
and China and a network of global affiliations in Australia, Europe and Asia.

CLIENTS

The Company's clients consist of direct purchasers of color separations,
including end-use consumer product manufacturers and mass merchant retailers,
converters and advertising agencies. Many of the Company's clients, a large
percentage of which are Fortune 1000 companies, are multi-national in scope and
often use numerous converters both domestically and internationally. Because
these clients desire uniformity of color and image quality across a variety of
media, the Company plays a very important role in coordinating their printing
activities by maintaining current equipment specifications regarding its clients
and converters. Management believes that this role has enabled the Company to
establish closer and more stable relationships with these clients. Converters
also have a great deal of confidence in the quality of the Company's services
and have worked closely with the Company to reduce the converters' required
lead-time, thereby lowering their costs. End-use clients often select and
utilize the Company to ensure better control of their packaging or other needs
and depend upon the Company to act as their agent to ensure quality management
of data along with consistency among numerous converters and packaging media.
The Company has established 41 on-site locations at or near clients that require
high volume, specialized service. As its art production services continue to
expand, the Company anticipates that it will further develop its on-site
services to its client base.

Many of the Company's clients place orders on a daily and weekly basis and
work closely with the Company year-round as they frequently redesign product
packaging or introduce new products. While certain promotional activities are
seasonal, such as those relating to summer, back-to-school time and holidays,
shorter technology-driven prepress cycle time has enabled consumer products
manufacturers to tie their promotional activities to regional and/or current
events (such as sporting events or motion picture releases). This prompts such
manufacturers to redesign their packages more frequently, resulting in a
correspondingly higher number of packaging redesign assignments. This
technology-driven trend toward more frequent packaging changes has offset
previous seasonal fluctuations in the volume of the Company's business (also see
"Seasonality and Cyclicality"). In addition, consumer product manufacturers have
a tendency to single-source their prepress work with respect to a particular
product line so that continuity can be assured in changes to the product image.
As a result, the Company has developed a base of steady clients in the food and
beverage industry. During 2001 no single client accounted for more than 5% of
the Company's net sales, and the 10 largest clients in the aggregate accounted
for approximately 30% of net sales.

8

COMPETITION

The Company's competition comes primarily from other independent color
separators and converters and printers that have prepress service capabilities.
Independent color separators are companies whose business is performing prepress
services for one or more of the principal printing processes. The Company
believes that only two firms, Applied Graphics Technologies, Inc., through its
Wace Group subsidiary, and Southern Graphics, a subsidiary of Alcoa, compete
with Schawk on a national basis. The remaining independent color separators are
regional or local firms that compete in specific markets. To remain competitive,
each firm must maintain client relationships and recognize, develop and exploit
state-of-the-art technology and contend with the increasing demands for speed.

Some converters with prepress service capabilities compete with the Company
by performing such services in connection with printing work. Independent color
separators such as the Company, however, may offer greater technical
capabilities, image quality control and speed of delivery. In addition,
converters often utilize the services of the Company because of the rigorous
demands being placed on them by clients who are requiring faster turnaround
times. Increasingly, converters are being required to invest in technology to
improve speed in the printing process and have avoided spending on prepress
technology.

As requirements of speed continue to be critical, along with the
recognition of the importance of focusing on their core competencies, clients
have increasingly recognized that the Company provides services at a rate and
cost that makes outsourcing more cost effective and efficient.

PURCHASING AND RAW MATERIALS

The Company purchases photographic film and chemicals, storage media, ink,
plate materials and various other supplies and chemicals on consignment for use
in its business. These items are purchased from a variety of sources and are
available from a number of producers, both foreign and domestic. Materials and
supplies account for only a small portion of the Company's cost of production,
and no shortages are anticipated. Furthermore, as a growing proportion of the
workflow is digital, the already low percentage of materials in cost of sales
will continue to be reduced. Historically, the Company has negotiated and enjoys
significant volume discounts on materials and supplies from most of its major
suppliers.

INTELLECTUAL PROPERTY

The Company owns no significant patents. The trademarks "Schawk," "CLICk"
"PaRTS" and "Satellite" and the trade names "Anthem New Jersey," "Anthem Los
Angeles," "Anthem Toronto," "Anthem Chicago," "Schawk Asia," "Schawk Atlanta,"
"Schawk Cactus," "Schawk Canada," "Schawk Cherry Hill," "Schawk Chicago,"
"Schawk Chromart," "Schawk Cincinnati," "Schawk Designer's Atelier," "Schawk
Japan," "Schawk Kalamazoo," "Schawk Kuala Lumpur," "Schawk Mexico," "Schawk
Milwaukee," "Schawk Minneapolis," "Schawk New York," "Schawk Penang," "Schawk
St. Paul," "Schawk Toronto" "Schawk Shanghai," "Schawk Stamford," "Interchange,"
"Interchange Digital," "Interchange Digital Management Services", "The Palm
Group," "Laserscan," are the most significant trademarks and trade names used by
the Company or its subsidiaries.

EMPLOYEES

As of December 31, 2001 the Company had approximately 1,400 full-time
employees. Of this number, approximately 30% are production employees
represented by local units of the Graphic Arts International Union and by local
units of the Toronto Typographical Union. The Company's union employees are
vital to its operations. Collective bargaining agreements covering the Company's
union employees in four facilities are subject to renegotiations. The Company
considers its relationships with its employees and unions to be good.

BACKLOG

The Company does not have or keep backlog figures as projects or orders are
generally in and out of the facilities within five to seven days. Generally, the
Company does not have contracts with its clients, but

9

maintains client relationships by delivering timely prepress services, providing
technology enhancements to make the process more efficient and bringing
extensive experience with and knowledge of printers and converters.

SEASONALITY AND CYCLICALITY

The Company's digital imaging prepress business for the consumer product
packaging prepress market is not currently seasonal because of the number of
design changes that are able to be processed as a result of speed-to-market
concepts and all-digital workflows. On the other hand, there is a three to four
year cycle for major design changes that the Company has experienced in the last
seven years resulting in greater volumes in certain years followed by more
modest volumes as only small changes are made before the next major redesign
cycle. With respect to the advertising and promotional markets, some seasonality
exists in that the months of December and January are typically the slowest
months of the year in this market because advertising agencies and their clients
typically finish their work by mid December and don't start up again until mid
January. Advertising and promotion is generally cyclical as the consumer economy
is cyclical. When consumer spending and GDP decreases, ad pages decline.
Generally, when ad pages decline the Company's advertising and promotion
business declines.

ITEM 2. PROPERTIES

The Company owns or leases the following office and operating facilities:

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company has been a party to routine pending or
threatened legal proceedings and arbitrations. The Company insures some, but not
all, of its exposure with respect to such proceedings. Based upon information
presently available, and in light of legal and other defenses available to the
Company, management does not consider the liability from any threatened or
pending litigation to be material to the Company. The Company has not
experienced any significant environmental problems.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No items were submitted to a vote of security holders for the three months
ended December 31, 2001.

11

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

SCHAWK, INC. SUPPLEMENTAL STOCKHOLDER INFORMATION QUARTERLY FINANCIAL DATA

DIVIDENDS DECLARED

STOCK PRICES

The Registrant's stock is listed on the NYSE. The Registrant has
approximately 877 stockholders of record as of March 7, 2002.

12

ITEM 6. SELECTED FINANCIAL DATA

- ---------------
(a) 1998 earnings per share includes $0.27 for the discount on redemption of
preferred stock.

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Statements contained herein that relate to the Company's beliefs or
expectations as to future events relating to, among other things, the
anticipated benefits from restructuring activities, 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 and are subject to
the "Safe Harbor" created thereby. 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 business and operations, it can give
no assurance that the assumptions will prove to have been correct. Important
factors that could cause actual results to differ materially and adversely from
the Company's expectations and beliefs include the level of business activity at
the Company's clients and the ability of the Company to implement its growth
strategy.

13

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship to net sales of selected items in the Company's consolidated income
statement:

2001 COMPARED TO 2000

Net sales. Net sales for 2001 decreased 9.8% to $186.2 million from $206.5
million in 2000. The decrease in revenues was primarily attributable to soft
market conditions and mergers among many of the Company's largest clients. Soft
market conditions that began impacting the Company's results in mid-2000
continued throughout all of 2001. However, prepress for the packaging part of
the business started to pick up in the fourth quarter. Conversely, the prepress
for advertising and promotion part of the business remained soft throughout the
fourth quarter reflecting the lowest level of advertising spending in 20 years.
Nine of the Company's top 20 accounts were involved in mergers in 2000 and 2001.
With respect to the impact of the mergers of many of our top accounts, branding
and marketing decisions were put on hold while corporate branding strategies
were being reviewed and changed. Management of the Company believes that most of
the slowdown in business related to mergers at the Company's clients is over.
Finally, two percentage points of the drop in sales in 2001 was from a strategic
withdrawal from printing in connection with consolidation of facilities in the
Toronto marketplace, which historically were at low margins and not part of the
company's plans for the future.

Cost of sales. Cost of sales for 2001 as a percent of sales was consistent
with the prior year at 59.7% despite the decrease in sales previously described.
Approximately 70% of the Company's costs are labor costs. The Company was able
to reduce costs as a result of previous and current year restructuring efforts
through attrition and layoffs.

Operating income. Operating income decreased 24.4% to $17.4 million in
2001 from $23.0 million in 2000. Operating income was negatively impacted by
lower gross profit due to lower volumes at most of the Company's divisions in
2001. Selling, general and administrative ("SG&A") expenses increased as a
percentage of sales to 29.3% in 2001 from 26.7% for 2000 as a result of spending
on the Company's own branding changes, including logo changes, new identities
for the operating units using the Schawk name to replace the historical names of
acquired companies and increased advertising. Other increases in SG&A are due to
increased depreciation and amortization in SG&A related to new computer
equipment and software purchased in 2000 to upgrade the Company's information
systems to make them consistent throughout the organization and increased
staffing in information systems to carry out the new systems initiatives.

Restructuring and other charges. The Company continued its restructuring
program in 2001 reducing staffing levels by 140 positions and further
consolidating certain operations. Total restructuring charges for 2001 were $1.1
million compared to $3.1 million in the previous year. The Company continues to
evaluate its operations for possible changes including consolidation of certain
locations and changing the staffing levels of other operations to reflect the
volume of business being serviced by such locations. The $1.1 million of
restructuring charges in 2001 consisted of severance costs of $0.8 million and
lease termination and other costs

14

of $0.3 million. The 2000 Restructuring and the 2000 Canadian Restructuring were
completed in 2001 (see 2000 Compared to 1999 discussion).

Other income (expense). Other income (expense) for 2001 resulted in other
expense, net of $4.2 million as compared to $4.9 million in the prior year. The
decreased expense is primarily due to $1.6 million less interest expense in 2001
as compared to 2000. The decreased interest expense resulted from repaying debt
from cash flow and from lower interest rates. Conversely, other expense in 2001
was sixty-three thousand dollars as compared to $0.9 million of other income in
2000. Other income in 2000 consisted primarily of gains from the sale of
printing presses in Canada in the third quarter totaling $0.9 million.

Income before income taxes. Income before income taxes for 2001 decreased
27.6% to $13.1 million from $18.1 in 2000. The pretax income margin for 2001 was
7.1% compared with 8.8% in 2000. The reduction in pretax income margin was
primarily due to lower sales in 2001 as compared to 2000 as described
previously.

Income taxes. Income taxes were at an effective rate of 40.5% and 41.8%
for 2001 and 2000, respectively. The decrease in the effective rate was
primarily due to lower taxes in high tax rate states due to lower profits
attributable to those states in 2001 as compared to 2000.

Net income. Net income decreased 24.6% to $8.0 million for 2001 from $10.6
for 2000 for the reasons previously discussed.

Earnings per share. Both basic and diluted earnings per share decreased to
$0.37 for 2001 from $0.50 in 2000 as a result of the decrease in net income.

2000 COMPARED TO 1999

Net sales. Net sales for 2000 increased 11.7% to $206.5 million from
$184.8 million in 1999. The increase in revenues was all attributable to
revenues from acquisitions in 1999. The market for digital imaging for high-end
consumer product packaging was soft in the second half of 2000. As a result,
lower than anticipated volumes were experienced throughout the last six months
of 2000 at both the Company's historical operations and its acquired businesses.

Cost of sales. Cost of sales for 2000 increased as a percent of sales to
59.7% from 58.5% for 1999 because of higher indirect costs as a percentage of
sales as a result of the reduced sales volumes at the Company's historical
operations.

Operating income. Operating income decreased 3.0% to $23.0 million in 2000
from $23.7 million in 1999. Excluding restructuring and other charges and the
loss at InterchangeDigital, the Company's software start-up, operating income
increased 0.7% to $27.5 million in 2000 from $27.3 million in 1999. Operating
income was negatively impacted by lower gross margin due to lower volumes at
most of the Company's divisions in 2000. Selling, general and administrative
("SG&A") expenses increased as a percentage of sales to 26.7% in 2000 from 25.9%
for 1999 as a result of a full year of SG&A costs at acquired companies. The
acquired companies have higher SG&A costs as a percentage of sales than the
Company's historical operations.

The Company acquired 13 businesses in 1998 and 1999. As part of the
Company's process of integrating these businesses and improving the
profitability of all of its divisions, it continued the process started in 1999
to consolidate certain operations. In 2000, the Company identified certain
operations that were to be combined and/or shut down. In addition, other
locations carried out staffing reductions during 2000. These activities resulted
in $2.3 million dollars of pretax charges in 2000. These restructuring charges
relate to three separate restructuring plans that impacted 2000 results. These
restructurings and the charges related to each are described in the following
paragraph. In addition, in the fourth quarter of 2000, the Company wrote down
the book value of certain assets whose value was impaired. The impairment was
caused by, among other things, replacement with newly acquired technically
advanced hardware and software that provided more efficient throughput,
rendering existing equipment obsolete. This charge was $0.8 million on a pretax
basis.

15

Restructuring. In 1999 the Company carried out a United States
Restructuring Plan "the 1999 Restructuring" (See 1999 Restructuring). As the
Company continued to evaluate its operations in 2000 further restructurings were
undertaken.

2000 Canadian Restructuring. In the third quarter of 2000, the
Company determined that it needed to reduce the number of locations it was
operating in the Toronto marketplace from four to three in order to reduce
costs and better coordinate services for clients. As a result, a
restructuring plan was put into place "the 2000 Canadian Restructuring".
This plan was carried out in July 2000. The restructuring relocated the
Herzig Somerville business into the Batten Graphics location. In connection
with the relocation, the three printing presses at Herzig Somerville were
sold. In addition, a staff reduction occurred to reflect the level of
business at Herzig Somerville at the time of the relocation. Therefore, in
connection with the relocation, 49 positions were eliminated out of a total
staff of 129. The total cost of the restructuring in the third quarter of
2000 was $1.3 million, consisting of $1.0 million of severance costs and
$0.3 million of lease termination costs. The Company realized a gain of
$0.9 million on the sale of the three printing presses.

In addition, in the fourth quarter of 2000, the Company increased its
accruals for shutdown costs at the vacated Herzig Somerville facility and
laid off six additional employees resulting in fourth quarter charges
totaling $0.2 million.

2000 Restructuring. In the fourth quarter of 2000, in response to a
drop in business with many of the Company's top accounts and due to the
need for further layoffs to reduce costs, the Company decided to further
restructure its operations and adopted a 2000 United States Restructuring
Plan "the 2000 Restructuring". The 2000 Restructuring included the closing
of a start-up in North Carolina as well as staffing reductions at a number
of the Company's facilities. The total restructuring charge in the fourth
quarter for the 2000 Restructuring was $0.7 million. In addition, the
Company recorded a charge for asset impairments of $0.8 million related to
equipment that is no longer used in the Company's operations and has been
written down to net realizable value.

1999 Restructuring. In the third quarter of 2000, the Company
reviewed its accruals from the 1999 Restructuring and determined that there
were excess accruals totaling $0.4 million. This amount was added back to
income on the restructuring charge line on the statement of operations in
the third quarter of 2000. The excess accruals related to rent at
facilities that were anticipated to be vacant for several months in 2000.
In fact, the Company occupied these facilities for several more months in
2000 than anticipated therefore, the monthly rental expense was charged to
regular operations and not to the restructuring accrual. As a result there
was excess accrual for rent at certain facilities as of the end of the
third quarter.

In the fourth quarter of 2000, additional charges totaling $0.5
million were added to the 1999 Restructuring accounts. The consolidation of
the New York operations in 1999 resulted in the Company's paying rent at a
vacated facility. The vacated facility is being marketed for sublet but as
of the fourth quarter it was still vacant. As a result, the original
accrual for rent at the site has been increased by $0.3 million, an
estimate of the remaining cost that the Company will be responsible for.

In addition, $0.2 million of charges for additional accruals were
necessary to reflect increased severance costs as compared to the amounts
accrued in 1999.

During 2000, all of the plant closings, consolidations and staffing
reductions that were planned for in the 1999 Restructuring were completed.

Other income (expense). Other income (expense) for 2000 resulted in other
expense, net of $4.9 million as compared to $3.6 million net expense in the
prior year. The increased expense is primarily due to $1.4 million of additional
interest expense in 2000 as compared to 1999. The increased interest expense
resulted from a full year of borrowings related to acquisitions made in 1999.
Interest and dividend income decreased to forty-one thousand dollars in 2000
from $0.6 million in 1999 as the Company liquidated its investment portfolio to
provide funds for acquisitions in 1999.

16

Other income in 2000 consisted primarily of gains from the sale of printing
presses in Canada in the third quarter totaling $0.9 million. Other income of
$0.2 million in 1999 consisted primarily of gains on the sale of investments. In
addition, the Company recognized a loss of $0.5 million on the sale of its
Montreal operations in 2000.

Income before income taxes. Income before income taxes for 2000 decreased
9.5% to $18.1 million from $20.0 in 1999. The pretax income margin for 2000 was
8.8% compared with 10.8% in 1999. The reduction in pretax income margin was
primarily due to increased interest expense in 2000 as compared to 1999 as
described previously.

Income taxes. Income taxes were at an effective rate of 41.8% and 41.1%
for 2000 and 1999, respectively. The increase in the effective rate was
primarily due to the non-recurrence of reductions in certain deferred tax
liabilities in 1999.

Net income. Net income decreased 10.2% to $10.6 million for 2000 from
$11.8 for 1999 for the reasons previously discussed.

Earnings per share. Both basic and diluted earnings per share decreased to
$0.50 for 2000 from $0.55 in 1999 as a result of the decrease in net income.

LIQUIDITY AND CAPITAL RESOURCES

The Company presently finances its business from available cash and from
cash generated from operations. Cash generated from operations in 2001 totaled
$23.2 million. The Company maintains a $65 million unsecured credit facility,
expiring May 2004, of which approximately $31.0 million was available for
borrowings at December 31, 2001. The Company also maintains a $15 million
unsecured demand line of credit to provide financing and working capital
flexibility. At December 31, 2001, approximately $13.3 million was available for
borrowings under the demand line of credit. The company also maintains working
capital demand lines of credit in Canada (US $3.5 million) and Malaysia (US $1.3
million).

Long-term debt and capital lease obligations increased to $52.1 million at
December 31, 2001 from $48.0 million at December 31, 2000. The Company increased
long-term debt through additional borrowings of $4.0 million on its unsecured
credit facility while decreasing the amount outstanding on its demand line of
credit, included in current liabilities, by $11.5 million.

At December 31, 2001, outstanding debt of the Company consisted of: (i)
unsecured notes issued pursuant to a Note Purchase Agreement dated August 18,
1995, for $24.0 million with terms ranging from 2001 through 2005 at an interest
rate of 6.98%; (ii) $34.0 million of borrowings under the Company's unsecured
credit facility; (iii) $1.7 million of borrowings under its unsecured demand
credit line; and (iv) $1.3 million of borrowings under its Malaysian line of
credit.

Management believes that the level of working capital is adequate for the
Company's liquidity needs related to normal operations both currently and in the
foreseeable future, and that the Company has sufficient resources to support its
growth, either through currently available cash, through cash generated from
future operations or through short-term financing.

The Company had capital expenditures in 2001 of $14.4 million, in 2000 of
$15.5 million, and in 1999 of $17.9 million. Capital expenditures made in 2001,
2000 and 1999 were principally for machinery, equipment and computer hardware
and software to improve productivity, and for the purchase of one facility and
building renovations.

The Company had depreciation of $12.0 million in 2001, $12.1 million in
2000, and $10.4 million in 1999. Amortization of goodwill totaled $2.2 million
in 2001, $2.2 in 2000, and $1.9 million in 1999.

In 2001 and 2000, contingent payments representing additional purchase
price on certain acquisitions totaled $0.1 million and $1.1 million,
respectively.

The Company repurchased $1.5 million in Class A Common Stock in 2001 under
a share repurchase program approved by the Board of Directors. No Class A Common
Stock was purchased in 2000.
17

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that effect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies,
see Note 2 in the notes to the consolidated financial statements.

Accounts Receivable. The Company's clients are primarily consumer product
manufacturers, converters and advertising agencies; none of which individually
represent more than 5% of total revenue. Accounts receivable consist primarily
of amounts due to us from our normal business activities. We maintain an
allowance for doubtful accounts to reflect the expected uncollectibility of
accounts receivable based on past collection history and specific risks
identified in the portfolio.

Impairment of Long-Lived Assets. We record impairment losses on long-lived
assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount of those items. Our cash flow
estimates are based on historical results adjusted to reflect our best estimate
of future market and operating conditions. The net carrying value of assets not
recoverable is reduced to fair value. Our estimates of fair value represent our
best estimate based on industry trends and reference to market rates and
transactions.

Goodwill and Other Acquired Intangible Assets. The Company had made
acquisitions in the past that included a significant amount of goodwill and
other intangible assets. Under generally accepted accounting principles in
effect through December 31, 2001, these assets were amortized over their
estimated useful lives, and were tested periodically to determine if they were
recoverable from operating earnings on an undiscounted basis over their useful
lives.

Effective in 2002, goodwill will no longer be amortized but will be subject
to an annual (or under certain circumstances more frequent) impairment test
based on its estimated fair value. Other intangible assets that meet certain
criteria will continue to be amortized over their useful lives and will also be
subject to an impairment test based on estimated fair value. Estimated fair
value is less than values based on undiscounted operating earnings because fair
value estimates include a discount factor in valuing future cash flows. There
are many assumptions and estimates underlying the determination of an impairment
loss. Another estimate using different, but still reasonable, assumptions could
produce a significantly different result. Therefore, impairment losses could be
recorded in the future.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $1,500 ($0.07 per share) per year. During 2002,
the Company will perform the first of the required impairment rests of goodwill
and indefinite lived intangible assets as of January 1, 2002. The Company does
not anticipate any adverse impact on the Company earnings or financial position
as a result of these tests.

IMPACT OF INFLATION

The Company believes that over the past three years inflation has not had a
significant impact on the Company's results of operations.

18

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE EXPOSURE

Based on the Company's variable rate debt outstanding at December 31, 2001,
a 1% change in interest rates would impact interest expense by approximately
$0.4 million. Assuming similar interest rates volatility in the future, a
near-term (12 months) change in interest rates would not materially affect the
Company's consolidated financial position, results of operation or cash flows.

FOREIGN EXCHANGE EXPOSURE

The Company has foreign operations that expose it to translation risk when
the local currency financial statements are translated to U.S. dollars. Since
changes in translation risk are reported as adjustments to stockholders' equity,
a 10% change in the foreign exchange rate would not have material effect on the
Company's financial position, results of operations or cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS COVERED BY
REPORTS OF INDEPENDENT AUDITORS

19

MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING

The management of Schawk, Inc. is responsible for the preparation and
integrity of all financial statements and other information contained in the
Schawk, Inc. Form 10-K Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
necessarily include amounts based on judgments and estimates by management
giving due consideration to materiality. The Company maintains internal control
systems designed to provide reasonable assurance that the Company's financial
records reflect the transactions of the Company and that its assets are
protected from loss or unauthorized use.

The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors, whose report thereon follows. As part of their audit of
the Company's financial statements, Ernst & Young LLP considered the Company's
system of internal control to the extent they deemed necessary to determine the
nature, timing and extent of their audit tests. Management has made available to
Ernst & Young LLP the Company's financial records and related data.

The Audit Committee of the Board of Directors is responsible for reviewing
and evaluating the overall performance of the Company's financial reporting and
accounting practices. The Committee meets periodically and independently with
management and the independent auditors to discuss the Company's internal
accounting controls, auditing and financial reporting matters. The independent
auditors have unrestricted access to the Audit Committee.

/s/ DAVID A. SCHAWK
- ------------------------------------------------------
David A. Schawk
President and Chief Executive Officer
Principal Executive Officer
/s/ JAMES J. PATTERSON
- ------------------------------------------------------
James J. Patterson
Senior Vice President and
Chief Financial Officer
Principal Financial and Accounting Officer

20

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Schawk, Inc.

We have audited the accompanying consolidated balance sheets of Schawk,
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2001. Our audits also include the financial
statement schedule listed in the index at item 14(a). These financial statements
and schedule are the responsibility of Schawk, Inc. management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Schawk, Inc. at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

ERNST & YOUNG LLP

Chicago, Illinois
February 15, 2002

21

SCHAWK, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

See accompanying notes.

22

SCHAWK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes.

23

SCHAWK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes.
24

SCHAWK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS)

See accompanying notes.

25

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

Schawk, Inc. including its subsidiaries (the Company) is a leading provider
of digital imaging prepress services for the consumer products industry in North
America and Asia. The Company focuses on providing these services to
multi-national clients in three primary markets: consumer products packaging,
advertising agencies and promotion.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of all wholly
and majority owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.

REVENUE RECOGNITION

The Company recognizes revenue at the later of delivery of the goods and/or
services to the customer or the acceptance of the goods and/or services by the
customer.

CASH EQUIVALENTS

Cash equivalents include highly liquid debt instruments and time deposits
with an original maturity of three months or less. Cash equivalents are stated
at cost, which approximates market.

INVENTORIES

Inventories are stated at the lower of cost or market. Certain inventories,
which approximate 38% of total inventories in 2001 and 28% in 2000 are
determined on the last in, first out (LIFO) cost basis. The remaining
inventories are determined on the first in, first out (FIFO) cost basis.

PROPERTY AND EQUIPMENT

Property and equipment, including capitalized leases is stated at cost,
less accumulated depreciation and amortization, and is being depreciated and
amortized using the straight-line method over the estimated useful lives of the
assets or the term of the leases, ranging from 3 to 40 years.

EXCESS OF COST OVER NET ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 Business Combinations and No. 142
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of approximately $1,500 ($0.07 per share) per year. During 2002,
the Company will perform the first of the required impairment tests of goodwill
and indefinite lived intangible assets as of January 1, 2002. The Company does
not anticipate any adverse impact on the Company earnings or financial position
as a result of these tests.

26

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOREIGN CURRENCY TRANSLATION

The Company's foreign subsidiaries use the local currency as their
functional currency. Accordingly, foreign currency assets and liabilities are
translated at the rate of exchange existing at year-end and income and expense
amounts are translated at the average of the monthly exchange rates. Adjustments
resulting from the translation of foreign currency financial statements are
included in accumulated comprehensive income (loss) as a component of
stockholders' equity.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets arising from temporary differences
and net operating losses will not be realized.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, for the years
ended December 31, 2001, 2000 and 1999 are as follows:

NOTE 3. RESTRUCTURING

The Company acquired 13 businesses from March 1998 through November 1999.
At the end of 1999, Company management determined that, since the Company had
multiple operations in certain markets, there were opportunities to consolidate
operations. The three markets that were to be consolidated were: New York,
Cincinnati and Chicago. In addition, staffing reductions were carried out in
certain other locations due to lower volumes of business. The Company carried
out a 1999 United States Restructuring ("1999 Restructuring") to accomplish
these objectives and in the fourth quarter of 1999, the Company incurred charges
of $2.2 million, consisting of $1.7 million of lease termination costs and $0.5
million of severance costs included in "Restructuring and other charges" on the
Consolidated Statement of Operations. This restructuring included the planned
shutdown and consolidation of four facilities in the following states: Illinois,
Ohio (two facilities consolidating into one) and New York. The shutdowns and
consolidations were started in December 1999, and were completed by November 15,
2000. With regard to workforce reductions, a total of 50 employees were laid off
at four existing facilities either as part of an early retirement program or as
normal terminations. In addition, the 1999 Restructuring included the layoff of
eleven employees at an operation in Wisconsin due to lower sales volumes.

27

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 2000 there were revisions to estimates based on changes in facts
that were not anticipated when the 1999 Restructuring charges were recorded in
the fourth quarter of 1999. Additional charges recorded in 2000 related to
refining estimates for severance costs amounting to $0.2 million. In addition,
the Company was unable to sublease a vacated facility as planned and as a result
an additional accrual of $0.3 million was recorded in the fourth quarter of 2000
to increase the accrual to the estimated liability as of December 31, 2000.

In addition, the Company did not vacate certain premises as early in 2000
as was anticipated at December 31, 1999. As a result, in the third quarter of
2000, $0.4 million of vacant premises leases accruals were revised and are
included as a reduction of the Restructuring and other charges line on the
Statement of Operations.

In the third quarter of 2000, the Company decided to consolidate its two
prepress operations in Toronto into one facility and reduce staffing
accordingly. This consolidation was the 2000 Canadian Restructuring ("Canadian
Restructuring").

In the fourth quarter of 2000, the Company determined that due to softness
in the market for prepress services for consumer products packaging, additional
staffing reductions were required. In addition a start up facility was shut
down. This restructuring was the 2000 United States Restructuring ("2000
Restructuring").

CANADIAN RESTRUCTURING

In July 2000, Company management in Toronto announced that the Herzig
Somerville operation was moving into Batten Graphics location in Toronto.
Severance costs for 49 employees of $0.8 million and lease termination costs of
$0.5 million were charged to the "Restructuring and other charges" line on the
Statement of Operations. In addition, three printing presses at Herzig
Somerville were sold. The Company recognized a gain on sale of $0.9 million. The
gain is reflected on the other income line in the Statement of Operations.

In the fourth quarter of 2000, there were additional lease termination
costs related to the vacated facility totaling $0.2 million. These costs were
included on the Restructuring and other charges line on the Statement of
Operations.

Effective June 1, 2000, the Company sold its Montreal operations for total
proceeds of $2.3 million, which consisted of $1.4 million cash, $0.2 million in
common stock of the acquirer, and a note receivable of $0.7 million. The Company
recognized a net loss of $0.5 million on the sale, which is included in other on
the Statement of Operations. During 2001, the acquirer encountered financial
difficulties. As a result, a reserve of $0.3 million against the note receivable
was recorded and included in other on the Statement of Operations.

2000 RESTRUCTURING

In the fourth quarter of 2000 the Company carried out the 2000
Restructuring a plan that involved staff reductions and the closing of one small
facility in North Carolina. The staff reductions totaled 20 employees, or 1.4%
of the workforce, and the Company recorded a charge of $0.1 million for
severance costs. The North Carolina plant was closed at a cost of $0.6 million
consisting of: $0.1 million estimate of the cost of canceling the lease for the
premises and $0.5 million of written off leasehold improvements and other costs.
The total of the above items, $0.7 million, is included in the Restructuring and
other charges line on the Statement of Operations.

2001 RESTRUCTURING

In 2001 the company continued the restructuring program that began in 1999.
Severance costs of $0.8 million were recorded as a result of eliminating 140
positions at several facilities. Also, additional expenses were incurred
relating to the closing of an east coast facility as part of the prior year's
restructuring.

28

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

This resulted in expenses of $0.2 million and $0.1 million for additional lease
termination expenses and asset write-offs, respectively. The total of the above
items, $1.1 million, is included in the restructuring and other charges line on
the statement of operations.

During 2001 a total of $1.6 million, representing $0.9 million of severance
costs and $0.7 million for lease termination and other expenses, was charged
against the reserve recorded in 2001 and prior years. The Company had a reserve
for unpaid restructuring expenses of $0.3 million and $0.8 million at December
31, 2001 and December 31, 2000, respectively. At December 31, 2001, $0.1 million
of the reserve was included in Accrued Expenses and $0.2 million was included in
Other Liabilities. At December 31, 2000, $0.5 million was included in Accrued
Expenses and $0.3 million was included in Other Liabilities.

SUMMARY

NOTE 4. IMPAIRMENT OF MACHINERY AND EQUIPMENT

In connection with the 1999 Restructuring and the 2000 Restructuring,
Company management performed detailed reviews of all of the Company's assets to
determine whether any of the assets were impaired.

In the 2000 Restructuring, assets totaling $799 were written down to net
realizable value. The assets involved were primarily computer equipment or
software. The most significant portion of the charge was $192 related to four
high-end graphics systems that have been rendered obsolete by newer more
efficient equipment. The remainder of the charge principally relates to dozens
of individual pieces of equipment or software that have been replaced by newer
versions.

In connection with the 1999 Restructuring, all of the Company's fixed
assets were reviewed to determine whether there were any asset impairments
either in the operations being consolidated or in any other of the Company's
operations. As a result of this review, assets with a net book value of $869
were deemed to be impaired and a charge for that amount was recorded in the
fourth quarter of 1999. All of the assets written down were either equipment or
software. The charge was included as part of "Restructuring and other charges"
on the Statement of Operations. The largest part of the charge related to a
short-run digital press that was purchased in response to the Company's
customers need for short run sales samples and other collateral items. The press
is idle and is held for disposal. The press was written down to net realizable
value of $200 that resulted in a write down of $357. The press was sold at a
price in excess of its net book value in June 2000. The remaining items consist
of equipment which has become obsolete due to technological changes.

No additional asset impairment charges were deemed necessary in 2001.

29

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. ACQUISITIONS

The Company did not make any acquisitions during 2001 or 2000. The amounts
shown on the Consolidated Statement of Cash Flows for the years ended December
31, 2001 and December 31, 2000, $124 and $1,071, respectively, for acquisitions,
net of cash acquired, represent contingent payments related to certain 1999
acquisitions. These amounts were recorded as cost in excess of net assets
acquired in the year in which the contingent payments were made.

NOTE 6. RELATED PARTY TRANSACTIONS

Included in other liabilities at December 31, 2001 was a payable of
approximately $247 to Geneva Waterfront, Inc. which is owned by a stockholder of
the Company. At December 31, 2000 the Company had a payable of approximately
$433 to Geneva Waterfront, Inc..

The Company also leases land and a building from a related party. See Note
13.

NOTE 7. INVENTORIES

Inventories consist of the following:

NOTE 8. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

30

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. ACCRUED EXPENSES

Accrued expenses consist of the following:

NOTE 10. DEBT

Long-term debt consists of the following:

The Series B note bears interest at 6.98% and is payable in annual
installments of $6,000 from 2001 to 2005. The notes may be prepaid in whole or
in part at any time.

The borrowings under the bank credit agreement are unsecured and are at a
floating rate of interest over the Federal Funds or Eurocurrency rates based
upon certain financial ratios. The effective interest rate on these borrowings
was 2.96% at December 31, 2001. The credit agreement is for $65,000 and expires
on May 6, 2004. The Company had approximately $31,000 available to borrow under
this line at December 31, 2001.

Borrowings under the above agreements are subject to certain restrictive
covenants. In addition, the agreements require the Company to maintain certain
net worth and other financial ratio requirements. The fair value of these
obligations approximates carrying value at December 31, 2001 and 2000.

Annual maturities of long-term debt at December 31, 2001 are as follows:

2003........................................................ $ 6,000
2004........................................................ 40,000
2005........................................................ 6,000
-------
$52,000
=======

The Company also has an unsecured $15,000 demand line of credit with a bank
to provide financing and working capital flexibility. Interest is at a floating
rate over LIBOR. At December 31, 2001, the Company had a $1,700 outstanding
under this line of credit. The effective interest rate on these borrowings was
2.5% at December 31, 2001. In addition, the Company maintains working capital
demand lines of credit in Canada and Malaysia with total availability of $3,500
and $1,300 respectively. At December 31, 2001 the Company had no balance
outstanding on the Canadian line and $1,263 outstanding on the Malaysian line.
No balance

31

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

was outstanding on either line at December 31, 2000. These lines of credit are
disclosed as notes payable to banks in the Consolidated Balance Sheet.

NOTE 11. STOCKHOLDERS' EQUITY

Stockholders' equity includes the following:

NOTE 12. INCOME TAXES

The provision (credit) for income taxes is comprised of the following:

32

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Components of deferred income tax assets and liabilities are as follows:

A reconciliation between the provision for income taxes for continuing
operations computed by applying the federal statutory tax rate to income before
incomes taxes and the actual provision is as follows:

The undistributed earnings of foreign subsidiaries were approximately
$5,257 and $4,559 at December 31, 2001 and 2000, respectively. No income taxes
are provided on the undistributed earnings because they are considered
permanently reinvested. The foreign component of income before income taxes was
$928 for 2001, $1,431 for 2000 and $3,808 for 1999.

NOTE 13. LEASES AND COMMITMENTS

The Company leased land and a building in Des Plaines, Illinois from an
unrelated party. This lease was recorded as a capital lease. A related party had
an option to purchase the land and building in January 2000. During 2000, the
purchase option was exercised, the lease with the unrelated party was
terminated, and the Company executed an operating lease at the same monthly
rental amounts as previously with the related party. The Company recorded a gain
of $524 on the termination of the capital lease.

The Company also leased land and a building in Chicago, Illinois from a
related party. This lease was also recorded as a capital lease. During 2000,
this lease was terminated and the Company relocated its operation to another
site. The Company recorded a loss of $152 on the termination of the capital
lease.

The Company also leases various plant facilities and equipment under
noncancellable operating leases that expire at various dates through February
2010. Total rent expense incurred under all operating leases was approximately
$3,548, $2,990, and $2,490, for the years ended December 31, 2001, 2000 and
1999, respectively.

33

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments under leases with terms of one year or more are as
follows at December 31, 2001

The Company has a deferred compensation agreement with the Chairman of the
Board dated June 1, 1983 which was ratified and included in a restated
employment agreement dated October 1, 1994. The agreement provides for deferred
compensation for 10 years equal to 50% of final salary and was modified on March
9, 1998 to determine a fixed salary level for purposes of this calculation. The
Company has a deferred compensation liability equal to $828 at both December 31,
2001 and December 31, 2000. The liability was calculated using the net present
value of ten annual payments at a 6% discount rate assuming, for calculation
purposes only, that payments begin one year from the balance sheet date.

NOTE 14. EMPLOYEE BENEFIT PLANS

The Company has various defined-contribution plans for the benefit of its
employees. The plans provide a 100% match of employee contributions based on a
discretionary percentage determined by management. The matching percentage of
wages (as defined) was 5.0% in 2001 and 2000 and 5.5% in 1999. Contributions to
the plans were $1,825, $1,834 and $1,780 in 2001, 2000 and 1999, respectively.

The Company is required to contribute to certain defined benefit union
pension plans under various labor contracts covering union employees. Pension
expense related to the union plans, which is determined based upon payroll data,
was approximately $1,125, $1,306 and $1,145 in 2001, 2000 and 1999,
respectively.

The Company established an employee stock purchase plan on January 1, 1999
that permits employees to purchase common shares of the Company through payroll
deductions. The Company issues new shares at a discount of 15%, based upon the
lower of the beginning-of-quarter or end-of-quarter closing market price of the
Company stock. The discount is recorded as compensation expense. The number of
shares issued for this plan was 59 in 2001, 78 in 2000 and 53 in 1999. The
discount recorded as compensation expense was $83 in 2001 and $97 in 2000. No
expense was recorded in 1999 as the amount was negligible.

NOTE 15. STOCK/EQUITY OPTION PLANS

The Company has an Equity Option Plan that provides for the granting of
options to purchase up to 3,252 shares of Class A common stock to key employees.
The Company has also adopted an Outside Directors' Formula Stock Option Plan
authorizing unlimited grants of options to purchase shares of Class A common
stock to outside directors. Options granted under these plans have an exercise
price equal to the market price of the underlying stock at the date of grant and
are exercisable for a period of ten years from the date of grant and vest over a
three-year period.

34

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of options outstanding at each of the three years ended December
31, 2001, 2000 and 1999, and other data for the three years then ended under all
option plans is as follows:

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2001:

Options available for grant under the plans were 1,304, 681 and 1,183 at
December 31, 2001, 2000 and 1999, respectively. Options exercisable under the
plans were 1,555, 1,254, and 817 in 2001, 2000 and 1999 respectively. The
weighted-average fair values of options granted during 2001, 2000, and 1999 were
$3.03 per share, $2.98 per share, and $4.01 per share, respectively.

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation (Statement 123)," requires the use
of option-valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the number of shares is fixed and the
exercise price of the Company's employee stock options approximates the market
price of the underlying stock on the date of grant, no compensation is
recognized.

35

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma information regarding net income and earnings per share is
required by Statement 123 as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994, under the fair value method of
that Statement. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the vesting period.

The Company's pro forma information follows:

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option valuation model with the following assumptions:

Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate in management's
opinion, the existing method does not necessarily provide a reliable single
measure of the fair value of its employee stock options.

NOTE 16. EARNINGS PER SHARE

Basic earnings per share and diluted earnings per share are shown on the
face of the statement of operations. Basic earnings per share is computed by
dividing net income by the weighted average shares outstanding for the year.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares and common stock equivalent shares outstanding
(stock options) for the year.

The following table sets forth the computation of basic and diluted
earnings per share:

36

SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options to purchase 338 shares of Class A common stock at exercise prices
ranging from $11-$15 per share were outstanding at December 31, 2001 but were
not included in the computation of diluted earnings per share because the
options were anti-dilutive. The options expire at various dates through December
31, 2011.

Options to purchase 937 shares of Class A common stock at exercise prices
ranging from $8.62-$15 per share were outstanding at December 31, 2000 but were
not included in the computation of diluted earnings per share because the
options were anti-dilutive. The options expire at various dates through December
31, 2010.

NOTE 17. GEOGRAPHIC REPORTING

The Company operates a single business segment, Imaging and Information
Technologies. The Company operates primarily in two geographic areas, the United
States and Canada. Summary financial information for continuing operations by
geographic area for 2001, 2000 and 1999 is as follows:

Long-lived assets are non-current assets that are identified with the
operations in each geographic area.

37

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

The Company has no items to report under item 9 of this Annual Report on
Form 10-K.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors and persons nominated to become directors
and information regarding executive officers of the Registrant is included in
the Proxy Statement for the Annual Meeting of Stockholders to be held Wednesday,
May 15, 2002, and is to be filed with the Securities and Exchange Commission on
or before April 30, 2002 (the "Proxy Statement"), and such information is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this item is included in the Proxy Statement
under the heading "Executive Compensation" and "Proposal 1; Election of
Directors" and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to this item is included in the Proxy Statement
under the heading of "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.

ITEM 13. CERTAIN TRANSACTIONS

Information with respect to this item is included in the Proxy Statement
under the heading of "Certain Transactions" and is incorporated herein by
reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following financial statements are included in Item 8:

1. All financial statements

Reports of independent auditors and independent public accountants

FINANCIAL STATEMENTS:

Consolidated Balance Sheets -- Years Ended December 31, 2001 and
2000

Consolidated Statements of Operations -- Years Ended December 31,
2001, 2000 and 1999

Consolidated Statements of Cash Flows -- Years Ended December 31,
2001, 2000 and 1999

Consolidated Statements of Stockholders' Equity -- Years Ended
December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

2. The following financial schedules for the years 2001, 2000 and 1999
are submitted herewith:

SCHEDULE II -- Valuation and qualifying accounts.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Registrant for the fourth
quarter of 2001 through the filing date of this document.

38

(c) Exhibits

- ---------------
* Represents management contract or compensation plan or arrangement required
to be filed pursuant to Item 14 (c).

** Document attached hereto.

40

SIGNATURES

Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in Cook County,
State of Illinois, on the 15th day of March, 2002.

Schawk, Inc.

By: /s/ CLARENCE W. SCHAWK
------------------------------------
Clarence W. Schawk
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 15th day of March, 2002.

/s/ CLARENCE W. SCHAWK Chairman of the Board and Director
- -----------------------------------------------------
Clarence W. Schawk

/s/ DAVID A. SCHAWK President, Chief Executive Officer, and
- ----------------------------------------------------- Director
David A. Schawk

/s/ A. ALEX SARKISIAN, ESQ. Executive Vice President, Corporate Secretary
- ----------------------------------------------------- and Director
A. Alex Sarkisian, Esq

/s/ JAMES J. PATTERSON Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
James J. Patterson

/s/ JOHN T. MCENROE, ESQ. General Counsel, Assistant Secretary, and
- ----------------------------------------------------- Director
John T. McEnroe, Esq

/s/ LEONARD S. CARONIA Director
- -----------------------------------------------------
Leonard S. Caronia

/s/ JUDITH W. MCCUE, ESQ. Director
- -----------------------------------------------------
Judith W. McCue, Esq

/s/ HOLLIS W. RADEMACHER Director
- -----------------------------------------------------
Hollis W. Rademacher

41

SCHAWK, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS

- ---------------
(1) Uncollectible accounts written off, net of recoveries.

42