Schawk (SGK) 10-Q 2013 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

o                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number 001-09335

SCHAWK, INC.

(Exact name of Registrant as specified in its charter)

Delaware	66-0323724
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1695 South River Road	60018
Des Plaines, Illinois	(Zip Code)
(Address of principal executive office)

847-827-9494

(Registrant’s telephone number, including area code)

Indicate 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ
Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act).

Yes o No þ

The number of shares of the Registrant’s Common Stock outstanding as of October 23, 2013 was 26,203,500.

SCHAWK, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2013

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012		3
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine-months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)		4
	Consolidated Statements of Cash Flows for the nine-months ended September 30, 2013 (unaudited) and September 30, 2012 (unaudited)		5
	Notes to Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.	Controls and Procedures		39
PART II	OTHER INFORMATION
Item 1A.	Risk Factors		39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		39
Item 6.	Exhibits		40
Signatures			41
Exh-31.1	Section 302-Certification of Chief Executive Officer
Exh-31.2	Section 302-Certification of Chief Financial Officer
Exh-32	Section 906-Certification by Chief Executive Officer & Chief Financial Officer

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Schawk, Inc.

Consolidated Balance Sheets

(In thousands, except share amounts)

	September 30, 2013			December 31, 2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,073		$	9,651
Trade accounts receivable, less allowance for doubtful accounts of $2,292 at September 30, 2013 and $2,052 at December 31, 2012		96,672			91,234
Unbilled services		20,412			20,924
Prepaid expenses and other current assets		9,957			10,100
Income tax receivable		3,073			3,032
Deferred income taxes		750			235
Current assets of discontinued operations		--			3,854
Total current assets		135,937			139,030
Property and equipment, less accumulated depreciation of $114,808 at September 30, 2013  and $112,073 at December 31, 2012		59,184			60,583
Goodwill, net		203,846			211,903
Other intangible assets, net:
Customer relationships		25,046			28,781
Other		500			633
Deferred income taxes		3,475			5,983
Other assets		8,080			6,771
Long term assets of discontinued operations		--			5,137
Total assets	$	436,068		$	458,821
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	17,663		$	17,833
Accrued expenses		53,955			56,557
Deferred income taxes		2,650			2,175
Income taxes payable		1,504			609
Current portion of long-term debt		3,328			4,262
Current liabilities of discontinued operations		--			1,134
Total current liabilities		79,100			82,570
Long-term liabilities:
Long-term debt		67,079			78,724
Deferred income taxes		1,840			2,044
Other long-term liabilities		41,597			43,536
Long-term liabilities of discontinued operations		--			1,164
Total long-term liabilities		110,516			125,468
Stockholders’ equity:
Common stock, $0.008 par value, 40,000,000 shares authorized, 31,299,357 and 31,172,666 shares issued at September 30, 2013 and December 31, 2012, respectively; 26,203,793 and 26,113,544 shares outstanding at September 30, 2013 and December 31, 2012, respectively		228			227
Additional paid-in capital		212,470			209,556
Retained earnings		88,438			93,897
Accumulated other comprehensive income, net		10,563			11,859
Treasury stock, at cost, 5,095,564 and 5,059,122 shares of common stock at September 30, 2013 and December 31, 2012, respectively		(65,247	)		(64,756	)
Total stockholders’ equity		246,452			250,783
Total liabilities and stockholders’ equity	$	436,068		$	458,821

The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Schawk, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenues	$	110,692		$	106,009		$	328,360		$	324,156
Operating expenses:
Cost of services (excluding depreciation and amortization)		67,872			65,829			202,547			205,656
Selling, general and administrative expenses (excluding depreciation and amortization)		29,448			29,347			90,214			90,174
Depreciation and amortization		4,782			4,171			13,558			12,971
Business and systems integration expenses		1,992			2,997			6,333			10,459
Acquisition integration and restructuring expenses		674			1,218			1,228			4,696
Foreign exchange loss (gain)		132			(12	)		624			548
Impairment of long-lived assets		--			4,281			502			4,281
Multiemployer pension withdrawal income		--			(203	)		--			(203	)
Operating income (loss)		5,792			(1,619	)		13,354			(4,426	)
Other income (expense):
Interest income		108			57			155			82
Interest expense		(1,073	)		(917	)		(3,303	)		(2,676	)
Income (loss) from continuing operations before income taxes		4,827			(2,479	)		10,206			(7,020	)
Income tax provision (benefit)		1,291			(184	)		2,744			(1,515	)
Income (loss) from continuing operations		3,536			(2,295	)		7,462			(5,505	)
Income (loss) from discontinued operations, net of tax		(3	)		82			(6,608	)		189
Net income (loss)	$	3,533		$	(2,213	)	$	854		$	(5,316	)
Earnings (loss) per share: Basic: Income (loss) from continuing operations	$	0.13		$	(0.09	)	$	0.28		$	(0.21	)
Income (loss) from discontinued operations		--			--			(0.25	)		--
Net loss per common share	$	0.13		$	(0.09	)	$	0.03		$	(0.21	)
Diluted: Income (loss) from continuing operations	$	0.13		$	(0.09	)	$	0.28		$	(0.21	)
Income (loss) from discontinued operations		--			--			(0.25	)		--
Net income (loss) per common share	$	0.13		$	(0.09	)	$	0.03		$	(0.21	)
Weighted average number of common and common equivalent shares outstanding:
Basic		26,335			25,980			26,264			25,876
Diluted		26,407			25,980			26,324			25,876
Dividends per Class A common share	$	0.08		$	0.08		$	0.24		$	0.24
Net income (loss)	$	3,533		$	(2,213	)	$	854		$	(5,316	)
Foreign currency translation adjustments		2,731			2,790			(1,159	)		1,850
Pension liability adjustments		--			--			(137	)		--
Comprehensive income (loss)	$	6,264		$	577		$	(442	)	$	(3,466	)

The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Schawk, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2013 and 2012

(Unaudited)

(In thousands)

	2013			2012
Cash flows from operating activities
Net income (loss)	$	854		$	(5,316	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation		11,149			9,991
Amortization		3,094			4,125
Impairment of long-lived assets		502			4,281
Non-cash restructuring charge		--			246
Amortization of deferred financing fees		195			231
Accretion of discount on multiemployer pension liability		625			--
Loss realized on sale of property and equipment		104			21
Loss realized from sale of business		6,095			--
Stock based compensation expense		1,451			2,665
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable		(7,377	)		6,639
Unbilled services		571			(1,037	)
Prepaid expenses and other current assets		(740	)		1,390
Trade accounts payable, accrued expenses and other liabilities		(4,746	)		(3,170	)
Income taxes payable		1,857			(381	)
Net cash provided by operating activities		13,634			19,685
Cash flows from investing activities
Proceeds from sale of business		8,247			--
Proceeds from sales of property and equipment		348			66
Purchases of property and equipment		(9,874	)		(17,048	)
Net cash used in investing activities		(1,279	)		(16,982	)
Cash flows from financing activities
Issuance of common stock		1,205			1,711
Proceeds from issuance of long-term debt		123,890			174,440
Payments of long-term debt including current portion		(136,309	)		(175,219	)
Payment of deferred financing fees		--			(853	)
Cash dividends		(6,272	)		(6,182	)
Net cash used in financing activities		(17,486	)		(6,103	)
Effect of foreign currency rate changes		553			(106	)
Net decrease in cash and cash equivalents		(4,578	)		(3,506	)
Cash and cash equivalents at beginning of period		9,651			13,732
Cash and cash equivalents at end of period	$	5,073		$	10,226

The Notes to Consolidated Financial Statements are an integral part of these consolidated statements.

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Schawk, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(In thousands, except per share data)

Note 1 – Significant Accounting Policies

The significant accounting policies of Schawk, Inc. (“Schawk” or the “Company”) are included in Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 Form 10-K”). There have been no material changes in the Company’s significant accounting policies since December 31, 2012.

Interim Financial Statements

The unaudited consolidated interim financial statements of the Company have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Certain previously reported immaterial amounts have been reclassified to conform to the current-period presentation. In the opinion of management, all adjustments necessary for a fair presentation for the periods presented have been recorded.

The Company has changed the presentation of certain expense items on the Consolidated Statements of Comprehensive Income (Loss) from the 2012 Form 10-K. The Company previously presented cost of goods sold with a sub-total for gross profit; however, in order to be consistent with how management views the business, production expenses are now presented as cost of services and the gross profit sub-total has been eliminated. In addition, depreciation and amortization is now excluded from and presented separately for both cost of services and selling, general and administrative expenses. Prior periods have been reclassified to conform to the current year presentation.

These financial statements should be read in conjunction with, and have been prepared in conformity with, the accounting principles reflected in the Company’s consolidated financial statements and the notes thereto for the three years ended December 31, 2012, as filed with its 2012 Form 10-K. The results of operations for the three and nine-month periods ended September 30, 2013 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2013.

Recent Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220). The amendments in ASU 2013-02 supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05 and ASU 2011-12 for all public and private organizations. The amendments would require an entity to provide additional information about reclassifications out of accumulated other comprehensive income. The amendments in ASU 2013-02 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted ASU 2013-02 effective January 1, 2013. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740). The amendments in ASU 2013-11 provide guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in ASU 2013-11 are effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company will be adopting ASU 2013-11 effective January 1, 2014. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

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Note 2 – Unbilled Services

The Company’s unbilled services consist primarily of unbilled labor and production overhead, as well as production supplies. Production supplies are stated at the lower of cost or market.

The Company’s unbilled services are primarily valued on the first-in, first-out (FIFO) basis, with the exception of two of the Company’s locations which are valued using the last-in, first-out (LIFO) method. The Company periodically evaluates the realizability of unbilled services and adjusts the carrying value as necessary.

Unbilled services consist of the following:

	September 30,			December 31,
	2013			2012
Unbilled services	$	19,359		$	19,853
Production supplies		1,789			1,737
		21,148			21,590
Less: LIFO reserve		(736	)		(666	)
Total	$	20,412		$	20,924

Note 3 – Earnings (Loss) Per Share

Basic earnings (loss) per share from continuing operations, discontinued operations and from net income (loss) per common share are computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations and net income (loss), respectively, by the weighted average shares outstanding for the period. Diluted earnings (loss) per share from continuing operations, discontinued operations and from net income (loss) per common share are computed by dividing income (loss) from continuing operations, income (loss) from discontinued operations and net income (loss), respectively, by the weighted average number of common shares, including common stock equivalent shares (stock options and stock-settled stock appreciation rights) outstanding for the period.  Certain share-based payment awards which entitle holders to receive non-forfeitable dividends before vesting are considered participating securities and are included in the calculation of basic earnings (loss) per share. There were no reconciling items to net income to arrive at income (loss) available to common stockholders.

The following table details the computation of basic and diluted earnings (loss) per common share:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Income (loss) from continuing operations	$	3,536		$	(2,295	)	$	7,462		$	(5,505	)
Income (loss) from  discontinued operations		(3	)		82			(6,608	)		189
Net income (loss)	$	3,533		$	(2,213	)	$	854		$	(5,316	)
Weighted average shares – Basic		26,335			25,980			26,264			25,876
Effect of dilutive stock options		72			--			60			--
Adjusted weighted average shares and assumed conversions - Diluted		26,407			25,980			26,324			25,876

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	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013		2012			2013			2012
Basic:
Income (loss) from continuing operations	$	0.13	$	(0.09	)	$	0.28		$	(0.21	)
Income (loss) from discontinued operations		--		--			(0.25	)		--
Net income (loss) per common share	$	0.13	$	(0.09	)	$	0.03		$	(0.21	)
Diluted:
Income (loss) from continuing operations	$	0.13	$	(0.09	)	$	0.28		$	(0.21	)
Income (loss) from discontinued operations		--		--			(0.25	)		--
Net income (loss) per common share	$	0.13	$	(0.09	)	$	0.03		$	(0.21	)

Since the Company was in a net loss position for the three and nine-month periods ended September 30, 2012, there was no difference between the number of shares used to calculate basic and diluted loss per share for those periods. There were 122 and 131 potentially dilutive stock options not included in the diluted per share calculation for the three and nine-month periods ended September 30, 2012, respectively, because they would be anti-dilutive. In addition, the following table presents the potentially dilutive outstanding stock options excluded from the computation of diluted earnings per share for each period because they would be anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Anti-dilutive options		1,363		1,531		1,561		1,516
Exercise price range	$	10.02 – 21.08	$	11.71 – 21.08	$	10.02 – 21.08	$	11.71 – 21.08

Note 4 – Comprehensive Income (Loss)

The Company reports certain changes in equity during a period in accordance with current accounting guidance for comprehensive income. Accumulated other comprehensive income, net includes cumulative translation adjustments and pension liability adjustments, net of tax. The components of comprehensive income, net of tax, for the three and nine-month periods ended September 30, 2013 and 2012 are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013			2012
Net income (loss)	$	3,533	$	(2,213	)	$	854		$	(5,316	)
Foreign currency translation adjustments		2,731		2,790			(1,159	)		1,850
Pension liability adjustments		--		--			(137	)		--
Comprehensive income (loss)	$	6,264	$	577		$	(442	)	$	(3,466	)

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Note 5 – Stock Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards using the straight-line expense attribution method. The equity compensation grants made by the Company during the first nine months of 2013, with the exception of non-qualified stock options granted to its outside directors, were in the form of stock-settled stock appreciation rights and restricted stock units, rather than stock options and shares of restricted stock, as had been granted in prior periods.

The Company records compensation expense for employee stock options and stock appreciation rights based on the estimated fair value of the options and stock appreciation rights on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected price volatility, the expected term and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. The following assumptions were used to estimate the fair value of options and stock appreciation rights granted during the nine-month periods ended September 30, 2013 and September 30, 2012, using the Black-Scholes option-pricing model.

	Nine Months  Ended			Nine Months  Ended
	September 30, 2013			September 30, 2012
Expected dividend yield		2.78 - 2.84	%		2.73	%
Expected stock price volatility		54.61 - 56.36	%		53.52 - 57.19	%
Risk-free interest rate		1.26 - 1.68	%		1.24 - 1.33	%
Weighted-average expected life of options		6.47 - 7.59	years		6.21 - 7.70	years
Forfeiture rate		1.00 - 2.50	%		1.00 - 3.00	%

There were no stock-based awards granted during the three-month period ended September 30, 2013. The number of stock appreciation rights, stock options and restricted stock units granted during the nine-month period ended September 30, 2013, was 312. The number of stock options and shares of restricted stock granted during the three and nine-month periods ended September 30, 2012 was 28 and 276, respectively. The total grant date fair value of stock appreciation rights, stock options and restricted stock units granted during the nine-month period ended September 30, 2013, was $2,346. The total fair value of stock options and restricted stock granted during the three and nine-month periods ended September 30, 2012, was $197 and $2,349, respectively As of September 30, 2013 and September 30, 2012, respectively, there was $3,078 and $2,631 of total unrecognized compensation cost related to nonvested stock-based compensation awards outstanding. That cost is expected to be recognized over a weighted average period of approximately two years. Expense recognized for the three and nine-month periods ended September 30, 2013 was $491 and $1,451, respectively. Expense recognized for the three and nine-month periods ended September 30, 2012 was $424 and $2,665, respectively. The higher expense level during the first nine months of 2012 reflected provisions for vesting rights upon retirement.

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Note 6 – Impairment of Long-lived Assets

The Company did not record any charges for impairment of long-lived assets during the three-month period ended September 30, 2013. During the nine-month period ended September 30, 2013, the Company recorded impairment charges of $502, comprised of a second quarter charge of $466 in the Americas operating segment for a customer relationship intangible asset for which future cash flows did not support the carrying value and a first quarter charge of $36 for customer relationship and trade name assets in the Asia Pacific operating segment. The first quarter impairment charge reflected the Company’s decision to close the Seoul, Korea office acquired in its 2011 Brandimage acquisition. The impairment charges are included in Impairment of long-lived assets in the Consolidated Statements of Comprehensive Income (Loss).

During the three and nine-month periods ended September 30, 2012, the Company recorded impairment charges of $4,281, comprised of $3,763 related to impairments of intangible assets and $518 related to an impairment of fixed assets. The intangible asset impairment charges were for customer relationship intangible assets at Company locations being restructured for which projected cash flows did not support the carrying values. The Company recorded the customer relationship impairment charges in the Americas and Europe operating segments in the amounts of $2,350 and $1,413, respectively. The fixed asset impairment charge of $518 related to Company-owned real estate in the Corporate segment which was written down to its estimated market value during the third quarter of 2012. The impairment charges are included in Impairment of long-lived assets in the Consolidated Statements of Comprehensive Income (Loss).

Note 7 – Acquisitions

Lipson Associates, Inc. and Laga, Inc.

Effective October 19, 2011, the Company acquired substantially all of the domestic assets and assumed certain trade account and business related liabilities of Lipson Associates, Inc. and Laga, Inc., as well as the stock of their foreign operations. Lipson Associates, Inc. and Laga, Inc. does business as Brandimage – Desgrippes & Laga (“Brandimage”).

Brandimage is a leading branding and design network specializing in providing services that seek to engage and enhance the brand experience, including brand positioning and strategy, product development and structural design, package design and environmental design. Brandimage has operations in Chicago, Cincinnati, Paris, Brussels, Shanghai and Hong Kong. The net assets and results of operations of Brandimage are included in the Consolidated Financial Statements as of October 19, 2011 in all three of the Company’s operating segments: Americas, Europe and Asia Pacific. The Brandimage business was acquired to enhance the Company’s service offerings related to branding and design and operates in conjunction with Schawk's legacy brand development capabilities, which are performed under its Anthem brand.

The purchase price of $24,562 consisted of $27,011 paid in cash at closing, less $2,449 received in 2012 for a net working capital adjustment. The Company recorded a final purchase price allocation in 2012 based on a fair value appraisal performed by an independent consulting company. The goodwill ascribed to this acquisition consists largely of expected profitability from future services and is deductible for tax purposes.

Exit Reserves from Prior Acquisitions

The Company previously recorded exit reserves related to its acquisitions of Weir Holdings Limited and Seven Worldwide Holdings, Inc., which occurred in 2004 and 2005, respectively. The major expenses included in the exit reserves were employee severance and lease termination expenses. The exit reserve balances related to employee severance were paid in prior years. The exit reserve for lease termination expenses related to a facility with a lease expiring in 2014. During the third quarter of 2013, the Company reached an agreement with the landlord for an early termination of the lease and the remaining reserve balance was reversed. The following table summarizes the reserve activity from December 31, 2012 through September 30, 2013:

		Beginning of						End of
		Period		Adjustments		Payments		Period
First quarter	$	324	$	(31)	$	(21)	$	272
Second quarter	$	272	$	(141)	$	(20)	$	111
Third quarter	$	111	$	(111)	$	--	$	--

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Note 8 – Debt

Debt obligations consist of the following:

	September 30, 2013			December 31, 2012
Revolving credit agreement	$	42,012		$	52,495
Series A senior note payable - Tranche A		1,843			1,843
Series A senior note payable - Tranche B		1,229			2,458
Series F senior note payable		25,000			25,000
Other		323			1,190
		70,407			82,986
Less amounts due in one year or less		(3,328	)		(4,262	)
Total	$	67,079		$	78,724

Credit Facility and Senior Notes

Revolving Credit Facility

Amended and Restated Credit Facility. On January 27, 2012, the Company entered into a Second Amended and Restated Credit Agreement (the “2012 Credit Agreement”), among the Company, certain subsidiary borrowers of the Company, the financial institutions party thereto as lenders, JPMorgan Chase Bank, N.A., on behalf of itself and the other lenders as agent, and PNC Bank, National Association, on behalf of itself and the other lenders as syndication agent, in order to amend and restate the Company’s prior credit agreement that was scheduled to terminate on July 12, 2012.

The 2012 Credit Agreement provides for a five-year unsecured, multicurrency revolving credit facility in the principal amount of $125,000 (the “New Facility”), including a $10,000 swing-line loan subfacility and a $10,000 subfacility for letters of credit. The Company may, at its option and subject to certain conditions, increase the amount of the New Facility by up to $50,000 by obtaining one or more new commitments from new or existing lenders to fund such increase. Loans under the New Facility generally bear interest at a LIBOR or Federal funds rate plus a margin that varies with the Company’s cash flow leverage ratio, in addition to applicable commitment fees, with a maximum rate of LIBOR plus 225 basis points. At closing, the applicable margin on LIBOR-based loans was 175 basis points. The unutilized portion of the New Facility will be used primarily for general corporate purposes, such as working capital and capital expenditures, and, to the extent opportunities arise, acquisitions and investments.

At September 30, 2013, there was $35,500 outstanding under the LIBOR portion of the U.S. facility at an interest rate of approximately 2.14 percent. At the Company’s option, loans under the facility can bear interest at prime plus 1.5 percent. At September 30, 2013, there was $3,600 of prime rate borrowing outstanding at an interest rate of 4.25 percent. The Company’s Canadian subsidiary borrowed under the revolving credit facility in the form of bankers’ acceptance agreements and prime rate borrowings. At September 30, 2013, there was $1,456 outstanding under bankers’ acceptance agreements at an interest rate of approximately 3.30 percent and $243 outstanding under prime rate borrowings at an interest rate of approximately 4.00 percent.

The Company’s UK subsidiary borrowed under the revolving credit facility in the form of LIBOR Sterling loans. At September 30, 2013, there was $807 outstanding under LIBOR Sterling loans at an interest rate of approximately 2.48 percent. The Company’s Luxembourg subsidiary borrowed under the credit facility in the form of Euro LIBOR loans. At September 30, 2013, there was $406 outstanding under the Euro LIBOR loans at an interest rate of approximately 2.06 percent.

The 2012 Credit Agreement contains various customary affirmative and negative covenants and events of default. Under the terms of the 2012 Credit Agreement, the Company is no longer subject to restrictive covenants on permitted capital expenditures. Certain restricted payments, such as regular dividends and stock repurchases, are permitted provided that the Company maintains compliance with its minimum fixed-charge coverage ratio (with respect to regular dividends) and a specified maximum cash-flow leverage ratio (with respect to other permitted restricted payments). Other covenants include, among other things, restrictions on the Company’s and in certain cases its subsidiaries’ ability to incur additional indebtedness; dispose of assets; create or permit liens on assets; make loans, advances or other investments; incur certain guarantee obligations; engage in mergers, consolidations or acquisitions, other than those meeting the requirements of the 2012 Credit Agreement; engage in certain transactions with affiliates; engage in sale/leaseback transactions; and engage in certain hedging arrangements. The 2012 Credit Agreement also requires compliance with specified financial ratios and tests, including a minimum fixed-charge coverage ratio and a maximum cash-flow ratio.

Amendment to the 2012 Credit Agreement.On September 12, 2012, the Company entered into Amendment No. 1 (the “Credit Agreement Amendment”) to the 2012 Credit Agreement. The Credit Agreement Amendment amended the definition of “EBITDA” in the 2012 Credit Agreement to permit the Company, for purposes of calculating EBITDA for financial covenant compliance, to add back certain expenses associated with the Company’s enterprise resource planning system up to certain amounts as specified in the Credit Agreement Amendment.

11

Senior Notes

In 2003 and 2005, the Company entered into two private placements of debt to provide long-term financing in which it issued senior notes pursuant to note purchase agreements, which have since been amended as further discussed below. The senior notes that were outstanding at September 30, 2013 bear interest at rates from 8.90 percent to 8.98 percent. The remaining aggregate balance of the notes, $3,072 is included in Current portion of long-term debt on the September 30, 2013 Consolidated Balance Sheets.

Amended and Restated Private Shelf Agreement. Concurrently with its entry into the 2012 Credit Agreement, on January 27, 2012, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc. (“Prudential”) and certain existing noteholders and note purchasers named therein (the “Private Shelf Agreement”), which provides for a $75,000 private shelf facility for a period of up to three years (the “Private Shelf Facility”). At closing, the Company issued $25,000 aggregate principal amount of its 4.38% Series F Senior Notes due January 27, 2019 (the “Notes”) under the Private Shelf Agreement.

The Private Shelf Agreement contains financial and other covenants that are the same or substantially equivalent to covenants under the 2012 Credit Agreement described above. Notes issued under the Private Shelf Facility may have maturities of up to ten years and are unsecured. Either the Company or Prudential may terminate the unused portion of the Private Shelf Facility prior to its scheduled termination upon 30 days’ written notice. Any future borrowings under the Private Shelf Facility may be used for general corporate purposes, such as working capital and capital expenditures.

Amendment to Note Purchase Agreement. Concurrently with the entry into the Private Shelf Agreement, the Company entered into the Fifth Amendment (the “Fifth Amendment”) to the Note Purchase Agreement, dated as of December 23, 2003, as amended (the “Note Purchase Agreement”), with the noteholders party thereto (the “Mass Mutual Noteholders”). The Fifth Amendment amended certain financial and other covenants in the Note Purchase Agreement so that such financial and other covenants are the same or substantially equivalent to covenants under the 2012 Credit Agreement described above. The Fifth Amendment also amended certain provisions contained in the Note Purchase Agreement to reflect that amounts due under existing senior notes issued to the Mass Mutual Noteholders are no longer secured.

Amendments to Private Shelf Agreement and Note Purchase Agreement. Concurrently with its entry into the Credit Agreement Amendment, the Company entered into (i) the First Amendment (the “First Amendment”) to the Private Shelf Agreement and (ii) the Sixth Amendment (the “Sixth Amendment”) to the Note Purchase Agreement. The First Amendment and the Sixth Amendment amend the respective definitions of “EBITDA” in the Private Shelf Agreement and the Note Purchase Agreement to conform to the amended EBITDA definition contained in the Credit Agreement Amendment.

Debt Covenant Compliance and Noteholders Consent

The Company was in compliance with all covenant obligations under the aforementioned credit and note purchase agreements at September 30, 2013. In connection with its compliance with the covenant obligations as of December 31, 2012, the Company received a consent from its lender group to make a partial or complete withdrawal from the GCC/IBT National Pension Plan, and in connection with such withdrawal the Company recorded, as of December 31, 2012, a withdrawal liability with an estimated present value of $31,683. The lender group agreed to waive any event of default under the credit agreement that might occur as a result of such withdrawal and the incurrence of such withdrawal liability and acknowledged that the withdrawal liability incurred by the Company will not constitute indebtedness. See Note 15 – Multiemployer Pension Plans for more information regarding the withdrawal liability.

Other Debt Arrangements

In October 2011, the Company financed a $649 three-year equipment and software maintenance agreement effective through November 2014. The payments are due in annual installments ending in December 2013. The total balance outstanding for the equipment and software maintenance fees at September 30, 2013 is $216 and is included in Current portion of long-term debt.

In July 2013, the Company’s Belgium subsidiary entered into a financing arrangement for the purchase of production equipment in the amount of $110, with monthly payments over a three year period ending in June 2016. The balance outstanding at September 30, 2013 is $103, of which $37 is included in Current portion of long-term debt and $66 is included in Long-term debt.

The Company also had $3 of various notes payable from its October 2011 acquisition of Brandimage, included in the Current portion of long-term debt on the September 30, 2013 Consolidated Balance Sheets.

Deferred Financing Fees

At September 30, 2013, the Company had $738 of unamortized deferred financing fees related to prior revolving credit facility and note purchase agreement amendments. During the three and nine-month periods ended September 30, 2013, the Company amortized deferred financing fees totaling $66 and $195, respectively. During the three and nine-month periods ended September 30, 2012, the Company amortized deferred financing fees totaling $66 and $231, respectively. These amounts are included in Interest expense on the Consolidated Statements of Comprehensive Income (Loss).

12

Note 9 – Goodwill and Intangible Assets

The Company’s intangible assets not subject to amortization consist entirely of goodwill. Under current accounting guidance, the Company’s goodwill is not amortized throughout the period, but is subject to an annual impairment test. The Company performs an impairment test annually as of October 1, or more frequently if events or changes in business circumstances indicate that the carrying value may not be recoverable.

On July 3, 2013, the Company sold the operating assets, net of certain liabilities, of its large format printing business located in Los Angeles, California. The net assets of the large format printing business were considered to be held for sale as of June 30, 2013 and a portion of the goodwill in the Americas reporting unit was allocated to the business held for sale in the quarter ended June 30, 2013. The amount allocated to the large format printing business was $7,000 and this pretax amount is included in Income (loss) from discontinued operations, net of tax on the Consolidated Statements of Comprehensive Income (Loss) for the nine-month period ended September 30, 2013.

The changes in the carrying amount of goodwill by reportable segment during the three and nine-month periods ended September 30, 2013, were as follows:

	Americas			Europe			Asia Pacific			Total
Cost:
December 31, 2012	$	203,987		$	43,025		$	9,830		$	256,842
Foreign currency translation		(446	)		(2,235	)		(35	)		(2,716	)
March 31, 2013		203,541			40,790			9,795			254,126
Goodwill allocated to business sold		(7,000	)		--			--			(7,000	)
Foreign currency translation		(712	)		174			(787	)		(1,325	)
June 30, 2013		195,829			40,964			9,008			245,801
Foreign currency translation		442			2,262			(31	)		2,673
September 30, 2013	$	196,271		$	43,226		$	8,977		$	248,474
Accumulated impairment:
December 31, 2012	$	(14,540	)	$	(29,129	)	$	(1,270	)	$	(44,939	)
Foreign currency translation		105			1,689			(6	)		1,788
March 31, 2013		(14,435	)		(27,440	)		(1,276	)		(43,151	)
Foreign currency translation		167			(31	)		156			292
June 30, 2013		(14,268	)		(27,471	)		(1,120	)		(42,859	)
Foreign currency translation		(104	)		(1,644	)		(21	)		(1,769	)
September 30, 2013	$	(14,372	)	$	(29,115	)	$	(1,141	)	$	(44,628	)
Net book value:
December 31, 2012	$	189,447		$	13,896		$	8,560		$	211,903
March 31, 2013	$	189,106		$	13,350		$	8,519		$	210,975
June 30, 2013	$	181,561		$	13,493		$	7,888		$	202,942
September 30, 2013	$	181,899		$	14,111		$	7,836		$	203,846

13

The Company’s other intangible assets subject to amortization are as follows:

		September 30, 2013
	Weighted Average Life	Cost		Accumulated Amortization			Net
Customer relationships	13.9 years	$	55,330	$	(30,284	)	$	25,046
Digital images	5.0 years		450		(450	)		--
Developed technologies	3.0 years		712		(712	)		--
Non-compete agreements	3.6 years		848		(806	)		42
Trade names	3.9 years		1,443		(985	)		458
Contract acquisition cost	3.0 years		1,220		(1,220	)		--
	13.1 years	$	60,003	$	(34,457	)	$	25,546

		December 31, 2012
	Weighted Average Life	Cost		Accumulated Amortization			Net
Customer relationships	13.7 years	$	57,343	$	(28,562	)	$	28,781
Digital images	5.0 years		450		(450	)		--
Developed technologies	3.0 years		712		(712	)		--
Non-compete agreements	3.6 years		877		(821	)		56
Trade names	3.9 years		1,469		(892	)		577
Contract acquisition cost	3.0 years		1,220		(1,220	)		--
	13.0 years	$	62,071	$	(32,657	)	$	29,414

Other intangible assets were recorded at fair market value as of the dates of the acquisitions based upon independent third party appraisals. The fair values and useful lives assigned to customer relationship assets are based on the period over which these relationships are expected to contribute directly or indirectly to the future cash flows of the Company. The acquired companies typically have had key long-term relationships with Fortune 500 companies lasting 15 years or more. Because of the custom nature of the work that the Company does, it has been the Company’s experience that clients are reluctant to change suppliers.

See Note 6 – Impairment of Long-lived Assets for more information as to certain impairment charges.

Amortization expense related to the other intangible assets totaled $1,004 and $3,075 for the three and nine-month periods ended September 30, 2013, respectively. Amortization expense related to the other intangible assets totaled $1,340 and $4,097 for the three and nine-month periods ended September 30, 2012, respectively. Amortization expense for each of the next five twelve-month periods beginning October 1, 2013, is expected to be approximately $3,930 for 2014, $3,797 for 2015, $3,728 for 2016, $3,554 for 2017, and $3,437 for 2018.

14

Note 10 – Income Taxes

The Company’s interim period income tax provision is determined as follows:

·   At the end of each fiscal quarter, the Company estimates the income tax that will be provided for the fiscal year.

·   The forecasted annual effective tax rate is applied to the year-to-date ordinary income (loss) at the end of each quarter to compute the year-to-date tax applicable to ordinary income (loss). The term ordinary income (loss) refers to income (loss) from continuing operations, before income taxes, excluding significant, unusual or infrequently occurring items. The tax provision or benefit related to ordinary income (loss) in each quarter is the difference between the most recent year-to-date and the prior quarter-to-date computations.

·   The tax effects of significant, unusual or infrequently occurring items are recognized as discrete items in the interim periods in which the events occur. The impact of changes in tax laws or rates on deferred tax amounts, the effects of changes in judgment about valuation allowances established in prior years, and changes in tax reserves resulting from the finalization of tax audits or reviews are examples of significant, unusual or infrequently occurring items.

The determination of the forecasted annual effective tax rate is based upon a number of significant estimates and judgments, including the forecasted annual income (loss) before income taxes of the Company in each tax jurisdiction in which it operates, the development of tax planning strategies during the year, and the need for a valuation allowance. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews, as well as other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

The following table sets out the tax provision (benefit) for continuing operations and the effective tax rates of the Company:

	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2013			2012			2013			2012
Income (loss) from continuing operations before income taxes	$	4,827		$	(2,479	)	$	10,206		$	(7,020	)
Income tax provision (benefit)	$	1,291		$	(184	)	$	2,744		$	(1,515	)
Effective tax rate		26.7	%		7.4	%		26.9	%		21.6	%

In the third quarter of 2013, the Company recognized a tax provision of $1,291 on income before taxes of $4,827, or an effective tax rate of 26.7 percent as compared to an effective rate of 7.4 percent for the third quarter of 2012. The higher effective tax rate for the third quarter of 2013 is primarily attributable to relatively higher tax rates on increased United States profitability compared to the third quarter of 2012. The increased effective rate is offset by decreases in the reserve for unrecognized tax benefits totaling $239 and other discrete benefits totaling $303.

For the first nine months of 2013, the Company recorded an income tax provision of $2,744 on income before income taxes of $10,206 or an effective tax rate of 26.9 percent, as compared to an effective tax rate of 21.6 percent for the first nine months of 2012. The higher effective tax rate for the first nine months of 2013, as compared to an income tax benefit for the first nine months of 2012, is primarily attributable to relatively higher tax rates on increased United States profitability compared to the first nine months of 2012. The increased effective rate is offset by decreases from the retroactive benefits of U.S. legislation, the net benefit of changes to uncertain tax positions, and other discrete items in the amount of $1,129.

The Company has reserves for unrecognized tax benefits, exclusive of interest and penalties, of $1,745 and $2,093 at September 30, 2013 and December 31, 2012, respectively. The reserve for uncertain tax positions as of September 30, 2013 decreased by $348 primarily due to the effective settlement of previously recorded uncertain tax positions offset by the establishment of an additional uncertain tax position.

15

Note 11 – Segment Reporting

Accounting guidance requires that a public business enterprise report financial information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.

The Company organizes and manages its operations primarily by geographic area and measures profit and loss of its segments based on operating income (loss). The accounting policies used to measure operating income (loss) of the segments are the same as those used to prepare the consolidated financial statements.

The Company’s Americas segment includes all of the Company’s operations located in North and South America, including its operations in the United States, Canada, Mexico and Brazil, its U.S. brand strategy and design business and its U.S. digital solutions business. The Company’s Europe segment includes all operations located in Europe, including its European brand strategy and design business and its digital solutions business in London. The Company’s Asia Pacific segment includes all operations in Asia and Australia, including its Asia Pacific brand strategy and design business. The Company has determined that each of its operating segments is also a reportable segment.

Corporate consists of unallocated general and administrative activities and associated expenses, including executive, legal, finance, information technology, human resources and certain facility costs. In addition, certain costs and employee benefit plans are included in Corporate and not allocated to operating segments.

The Company has disclosed operating income (loss) as the primary measure of segment profitability. This is the measure of profitability used by the Company’s CODM and is most consistent with the presentation of profitability reported within the consolidated financial statements.

The segment revenue disclosure for the three and nine-month periods ended September 30, 2012 has been reclassified to conform to the current presentation of segment revenue as presented for the three and nine-month periods ended September 30, 2013. The Americas segment revenue and intersegment revenue elimination originally reported for the three and nine-month periods ended September 30, 2012 have been reduced by $7,090 and $21,788 respectively, to reflect the elimination of intra-segment revenue within the Americas segment.

Segment information relating to results of operations for continuing operations was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenues:
Americas	$	82,284		$	79,874		$	248,460		$	244,855
Europe		22,155			19,617			61,811			63,206
Asia Pacific		11,559			10,457			32,607			28,887
Intersegment revenue elimination		(5,306	)		(3,939	)		(14,518	)		(12,792	)
Total	$	110,692		$	106,009		$	328,360		$	324,156
Operating segment income (loss):
Americas	$	13,245		$	9,268		$	40,630		$	27,574
Europe		2,059			(1,658	)		2,393			249
Asia Pacific		1,249	��		668			2,973			1,609
Corporate		(10,761	)		(9,897	)		(32,642	)		(33,858	)
Operating income (loss)		5,792			(1,619	)		13,354			(4,426	)
Interest expense, net		(965	)		(860	)		(3,148	)		(2,594	)
Income (loss) from continuing operations before income taxes	$	4,827		$	(2,479	)	$	10,206		$	(7,020	)

16

Note 12 – Acquisition Integration and Restructuring

In 2008, the Company initiated a cost reduction and restructuring plan involving a consolidation and realignment of its workforce and incurred costs for employee terminations, obligations for future lease payments, fixed asset impairments, and other associated costs. The Company continued its cost reduction efforts and incurred additional costs for facility closings and employee termination expenses during the years 2009 through 2012 and through the third quarter of 2013.

The following table summarizes the accruals recorded, adjustments, and the cash payments during the three and nine-month periods ended September 30, 2013, related to cost reduction and restructuring actions initiated during 2008, 2010, 2011, 2012 and 2013.The adjustments are comprised principally of changes to previously recorded expense accruals. The remaining reserve balance of $3,623 is included on the Consolidated Balance Sheets at September 30, 2013 as follows: $2,746 in Accrued expenses and $877 in Other long-term liabilities.

	Employee Terminations			Lease Obligations			Total
Actions Initiated in 2008
Liability balance at December 31, 2012	$	--		$	2,761		$	2,761
Adjustments		--			52			52
Cash payments		--			(203	)		(203	)
Liability balance at March 31, 2013		--			2,610			2,610
Adjustments		--			42			42
Cash payments		--			(293	)		(293	)
Liability balance at June 30, 2013		--			2,359			2,359
Adjustments		--			214			214
Cash payments		--			(212	)		(212	)
Liability balance at September 30, 2013	$	--		$	2,361		$	2,361
Actions Initiated in 2010
Liability balance at December 31, 2012	$	402		$	--		$	402
Adjustments		(8	)		--			(8	)
Cash payments		(394	)		--			(394	)
Liability balance at March 31, 2013		--			--			--
Adjustments		--			--			--
Cash payments		--			--			--
Liability balance at June 30, 2013		--			--			--
Adjustments		--			--			--
Cash payments		--			--			--
Liability balance at September 30, 2013	$	--		$	--		$	--
Actions Initiated in 2011
Liability balance at December 31, 2012	$	15		$	--		$	15
Adjustments		(15	)		--			(15	)
Liability balance at March 31, 2013		--			--			--
Adjustments		--			--			--
Cash payments		--			--			--
Liability balance at June 30, 2013		--			--			--
Adjustments		--			--			--
Cash payments		--			--			--
Liability balance at September 30, 2013	$	--		$	--		$	--

17

	Employee Terminations			Lease Obligations			Total
Actions Initiated in 2012
Liability balance at December 31, 2012	$	1,386		$	1,187		$	2,573
New accruals		6			--			6
Adjustments		(5	)		21			16
Cash payments		(860	)		(239	)		(1,099	)
Liability balance at March 31, 2013		527			969			1,496
Adjustments		(33	)		(14	)		(47	)
Cash payments		(205	)		(235	)		(440	)
Liability balance at June 30, 2013		289			720			1,009
New accruals		69			--			69
Adjustments		4			80			84
Cash payments		(137	)		(118	)		(255	)
Liability balance at September 30, 2013	$	225		$	682		$	907
Actions Initiated in 2013
Liability balance at December 31, 2012	$	--		$	--		$	--
New accruals		214			--			214
Adjustments		(1	)		--			(1	)
Cash payments		(122	)		--			(122	)
Liability balance at March 31, 2013		91			--			91
New accruals		320			--			320
Adjustments		(4	)		--			(4	)
Cash payments		(56	)		--			(56	)
Liability balance at June 30, 2013		351			--			351
New accruals		303			--			303
Adjustments		4			--			4
Cash payments		(303	)		--			(303	)
Liability balance at September 30, 2013	$	355		$	--		$	355

The combined expenses for the cost reduction and restructuring actions initiated in 2008, 2010, 2011, 2012, and 2013 shown above were $674 and $1,249 for the three and nine-month periods ended September 30, 2013. In addition, the Company recorded legal costs of $19 and reversed reserves of $40 related to a facility closure during the nine-month period ended September 30, 2013. The total expenses for the three and nine-month periods ended September 30, 2013 were $674 and $1,228, respectively, and are presented as Acquisition integration and restructuring expense in the Consolidated Statements of Comprehensive Income (Loss).

The expenses for the nine-month periods ended September 30, 2013 and September 30, 2012 and the cumulative expense since the cost reduction program’s inception were recorded in the following segments:

						Asia
		Americas		Europe		Pacific		Corporate		Total
Nine months ended September 30, 2013	$	1,059	$	66	$	102	$	1	$	1,228
Nine months ended September 30, 2012	$	3,835	$	838	$	22	$	1	$	4,696
Cumulative since program inception	$	16,075	$	7,040	$	1,401	$	1,912	$	26,428

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Note 13 – Derivative Financial Instruments

Fair Value Hedge

In order to mitigate foreign exchange rate exposure, the Company entered into several forward contracts during 2012. The forward contracts were designated as fair value hedges at inception. The derivative fair value gains or losses from these fair value hedges are recorded as a component of Foreign exchange loss in the Consolidated Statements of Comprehensive Income (Loss). The forward contracts are measured at fair value on a recurring basis and are classified as Level 2 inputs under the fair value hierarchy established in Note 14 – Fair Value Measurements. In May 2012, the Company discontinued its foreign currency hedging program using forward contracts. There was no effect on earnings for the three and nine-month periods ended September 30, 2013. The effect on earnings of the derivative instruments on the Consolidated Statements of Comprehensive Income (Loss) for the nine-month period ended September 30, 2012 was a loss of $438.

Note 14 – Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The Company uses a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

· Level 1 – Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

· Level 2 – Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments.

· Level 3 – Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

For purposes of financial reporting, the Company has determined that the fair value of such financial instruments as cash and cash equivalents, accounts receivable, accounts payable and long-term debt approximates carrying value at September 30, 2013.

The Company’s multiemployer pension withdrawal liability is categorized as Level 3 within the fair value hierarchy. The fair value of the multiemployer pension withdrawal liability was estimated using a present value analysis as of December 31, 2012. See Note 15 – Multiemployer Pension Withdrawal for more information regarding the multiemployer withdrawal liability.

The following table summarizes the changes in the fair value of the Company’s multiemployer pension withdrawal liability during the first nine months of 2013:

	Fair Value
Liability balance at January 1, 2013	$	31,683
Accretion of present value discount		209
Liability balance at March 31, 2013		31,892
Accretion of present value discount		208
Liability balance at June 30, 2013		32,100
Accretion of present value discount		208
Liability balance at September 30, 2013	$	32,308

The following table summarizes the fair values as of September 30, 2013:

		Level 1		Level 2		Level 3		Total
Other long-term liabilities:
Multiemployer pension withdrawal liability	$	--	$	--	$	32,308	$	32,308

19

Note 15 – Multiemployer Pension Withdrawal

The Company has participated in the Graphic Communications Conference International Brotherhood of Teamsters National Pension Fund (“NPF”), formerly known as the Graphic Communications Conference International Brotherhood of Teamsters Supplemental Retirement and Disability Fund (“SRDF”), pursuant to collective bargaining agreements at eight locations. During the fourth quarter of 2012, the Schawk Board of Directors executed a resolution to authorize management to enter into good faith negotiations with the local bargaining units to effect a complete withdrawal from the NPF. The negotiations with the local bargaining units continued during the first nine months of 2013. The decision to exit the NPF was made in order to mitigate potentially greater financial exposure to the Company in the future under the plan, which is significantly underfunded, and to facilitate the consideration of future changes to the Company’s operations in the United States. A withdrawal liability should be recorded if circumstances that give rise to an obligation become probable and estimable. Management concluded that a complete withdrawal from the NPF was both probable and estimable, subject to the Company’s good faith bargaining obligations. Based on an analysis prepared by an independent actuary, the Company recorded an estimated liability for its withdrawal from the NPF of $31,683 as of December 31, 2012, which is the present value of the estimated future payments required for withdrawal. The payments are expected to total approximately $41,186, payable $2,059 per year over a 20 year period, with the annual cash payments expected to commence on or about May 1, 2014. These payments were discounted at a risk free rate of 2.54 percent. During the three and nine-month periods ended September 30, 2013, the Company accreted $208 and $625 of the present value discount, resulting in an estimated liability balance of $32,308 at September 30, 2013, of which $1,252 is included in Accrued expenses and $31,056 is included in Other long-term liabilities on the Consolidated Balance Sheets as of September 30, 2013. The expense associated with the accretion of the present value discount is reflected in Interest expense on the Consolidated Statements of Comprehensive Income (Loss).

The Company previously participated in the San Francisco Lithographers Pension Trust (“SF LPT”) pursuant to collective bargaining agreements with the Teamsters Local 853. Effective June 30, 2011, the Company decided to terminate participation in the SF LPT and provided notification that it would no longer be making contributions to the plan. The Company’s decision triggered a withdrawal liability. The Company recorded an estimated liability of $1,846 as of June 30, 2011 to reflect this obligation. The Company made a payment of $43 during the second quarter of 2012 and a final payment of $1,600 during the third quarter of 2012 to settle the liability in full. The $203 reduction from the initial liability recorded of $1,846 and the final settlement of $1,643 is recorded as a credit to Multiemployer pension withdrawal expense (income) for the three and nine-month periods ended September 30, 2012 on the Consolidated Statements of Comprehensive Income (Loss).

Note 16 – Sale of Business and Discontinued Operations

On July 3, 2013, the Company completed the sale of various assets comprising its large-format printing business located in Los Angeles, California. The net assets of the large format printing business were considered to be held for sale as of June 30, 2013. The large-format printing business was considered to be outside of the Company’s core business and was included in the Americas segment. The aggregate selling price for the business was $10,570, comprised of $8,247 in cash, $2,000 in a secured subordinated note and $323 accrued as a receivable from the buyer for an estimated net working capital adjustment, which is expected to be settled in the fourth quarter of 2013. The results of operations of the business sold are reported as discontinued operations for all periods presented in this quarterly report and the assets and liabilities of the discontinued operation have been segregated in the Consolidated Balance Sheets.

The Company recorded a loss of $6,095 on the sale of the business during the second quarter of 2013, which is included in Income (loss) from discontinued operations on the Company’s Consolidated Statements of Comprehensive Income (Loss). Included in the net loss is a goodwill allocation of $7,000, representing a portion of the Company’s Americas reporting segment goodwill which was allocated to the large-format printing business.

The carrying amounts of the assets and liabilities sold were as follows:

Trade accounts receivable	$	3,988
Unbilled services		986
Prepaid expenses and other current assets		111
Current assets of discontinued operations	$	5,085
Property and equipment, net	$	4,360
Long term assets of discontinued operations	$	4,360
Trade accounts payable	$	205
Accrued expenses		670
Current liabilities of discontinued operations	$	875
Net assets of discontinued operations	$	8,570

20

Operating results for the discontinued operations for the periods presented in this quarterly report are as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
Net revenues	$	--		$	4,829	$	8,772		$	15,694
Operating expenses:
Cost of services (excluding depreciation and amortization)		6			3,388		6,041			10,989
Selling, general and administrative expenses (excluding depreciation and amortization)		(3	)		1,026		1,923			3,429
Depreciation and amortization		--			292		685			912
Acquisition integration and restructuring expenses		--			--		4			78
Loss on sale of business		--			--		6,095			--
Operating income (loss)	$	(3	)	$	123	$	(5,976	)	$	286
Income (loss) before income taxes	$	(3	)	$	123	$	(5,976	)	$	286
Income tax provision		--			41		632			97
Income (loss) from discontinued operations, net of tax	$	(3	)	$	82	$	(6,608	)	$	189

	December 31, 2012
Trade accounts receivable, net	$	2,462
Unbilled services		1,197
Prepaid expenses and other current assets		56
Income tax receivable		139
Current assets of discontinued operations	$	3,854
Property and equipment, net	$	4,908
Other assets		229
Long term assets of discontinued operations	$	5,137
Trade accounts payable	$	304
Accrued expenses		523
Income taxes payable		--
Deferred income taxes		307
Current liabilities of discontinued operations	$	1,134
Deferred income taxes	$	1,164
Long-term liabilities of discontinued operations	$	1,164
Net assets of discontinued operations	$	6,693

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report that relate to the Company’s beliefs or expectations as to future events are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Company intends any such statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Although the Company believes that the assumptions upon which such forward-looking statements are based are reasonable within the bounds of its knowledge of its industry, business and operations, it can give no assurance the assumptions will prove to have been correct and undue reliance should not be placed on such statements. Important factors that could cause actual results to differ materially and adversely from the Company’s expectations and beliefs include, among other things, the strength of the United States economy in general and specifically market conditions for the consumer products industry; the level of demand for the Company’s services; unfavorable foreign exchange fluctuations; changes in or weak consumer confidence and consumer spending; loss of key management and operational personnel; the ability of the Company to implement its business strategy and cost reduction plans and to realize anticipated cost savings; the ability of the Company to comply with the financial covenants contained in its debt agreements and obtain waivers or amendments in the event of non-compliance;the ability of the Company to maintain an effective system of disclosure and internal controls and the discovery of any future control deficiencies or weaknesses, which may require substantial costs and resources to rectify; the stability of state, federal and foreign tax laws; the ability of the Company to identify and capitalize on industry trends and technological advances in the imaging industry; higher than expected costs associated with compliance with legal and regulatory requirements; higher than anticipated costs or lower than anticipated benefits associated with the Company’s ongoing information technology and business process improvement initiative; unanticipated costs or difficulties associated with integrating acquired operations; any impairment charges due to declines in the value of the Company’s fixed and intangible assets, including goodwill; the stability of political conditions in foreign countries in which the Company has production capabilities; terrorist attacks and the U.S. response to such attacks; as well as other factors detailed in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update publicly any of these statements in light of future events.

Business Overview

Schawk, Inc. and its subsidiaries (“Schawk” or the “Company”) provide comprehensive brand development and brand deployment services to clients primarily in the consumer packaged goods, retail and life sciences markets. The Company creates and sells it clients’ brands, produces brand assets and protects brand equities to help clients drive brand performance. The Company currently delivers its services through more than 155 locations in over 20 countries across North and South America, Europe, Asia and Australia. The Company, which markets itself as “SGK”, is headquartered in Des Plaines, Illinois, has been in operation since 1953 and is incorporated under the laws of the State of Delaware.

The Company believes that it is uniquely positioned to deliver brand development and brand deployment services to the marketplace. The Company’s Brand Development group includes Brandimage and Anthem, each of whom creates brand desirability to help clients drive topline growth. The Company’s Brand Deployment group delivers Schawk’s legacy premedia expertise and efficiency to help clients improve their bottom line and is marketed under the Schawk! brand. By offering both brand development and brand deployment services to the marketplace, the Company can help its clients drive better overall brand performance.

Brandimage is a global consultancy comprised of brand equity architects and designers that creates brands that drive brand performance. Brandimage creates brand meaning and brings brands into contact with the consumer. Creating brand meaning refers to the creation of a brand’s story, which is built on a fundamental emotional consumer truth and expressed strategically, visually, verbally and structurally in the form of a singularly distinctive identity system. This service encapsulates the development of the intellectual properties that define a brand as unique, such as its logo, colors, font and graphics. The services offered by Brandimage also include semiotic analysis, design and trend auditing ethnography, equity definition research, meaning perception research, brand positioning, brand meaning/purpose definition, brand architecture, design strategy, innovation strategy and visual positioning.

Anthem is a global creative agency that actively connects brands with consumers by amplifying desirability from package design to brand campaign. Anthem’s services help drive brand performance by creating consumer desire and making emotional connections that inspire action. Anthem activates brands by expressing the brand’s meaning and its visual and verbal identity strategically and consistently across media channels such as packaging, advertising, web, social, mobile and print. The services offered by Anthem also include brand strategy, brand architecture, brand portfolio, design strategy, package design, and research and insights.

Schawk! is a global cross-media production services provider  that produces brand assets and protects brand equities to help make brands more profitable. Leveraging its more than 60 years of industry experience, Schawk! identifies and deploys scalable solutions to address a brand's complex production and delivery needs through proven expertise in workflow, resourcing, color management and imaging. The services offered by Schawk! are focused on packaging, point of purchase/point of sale, digital, catalog, photography, advertising, circulars, direct mail, video, marketing collateral, continuous improvement and outsourcing. The Company also owns and markets BLUE™, a cloud-based software platform that delivers a set of global capabilities to help brand-driven organizations control and manage brand development and brand deployment assets and activities to drive brand performance. The Company also owns and markets ColorDrive, print quality management software that is used to align measured and calibrated visual scores of color throughout the packaging development supply chain process to help brand driven organizations achieve color consistency for their brand colors worldwide.

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Organization

The Company is organized on a geographic basis, in three operating and reportable segments: Americas, Europe and Asia Pacific. The Company’s Americas segment includes all of the Company’s operations located in North and South America, including its operations in the United States, Canada, Mexico and Brazil. The Company’s Europe segment includes all operations located in Europe. The Company’s Asia Pacific segment includes all operations in Asia and Australia.

Discontinued Operations

On July 3, 2013, the Company completed the sale of various assets comprising its large-format printing business located in Los Angeles, California. The net assets of the large format printing business were considered to be held for sale as of June 30, 2013. The large-format printing business was considered to be outside of the Company’s core business and was included in the Americas segment. The aggregate selling price for the business was $10.6 million, comprised of $8.3 million in cash, $2.0 million in a secured subordinated note and $0.3 million accrued as a receivable from the buyer for an estimated net working capital adjustment, which is expected to be settled in the fourth quarter of 2013. The results of operations of the business sold are reported as discontinued operations for all periods presented in this quarterly report and the assets and liabilities of the discontinued operation have been segregated in the Consolidated Balance Sheets.

The Company recorded a loss of $6.1 million on the sale of the business during the second quarter of 2013, which is included in Income (loss) from discontinued operations on the Company’s Consolidated Statements of Comprehensive Income (Loss). Included in the net loss is a goodwill allocation of $7.0 million, representing a portion of the Company’s Americas reporting segment goodwill which was allocated to the large-format printing business.

Financial Overview

Net revenues in the third quarter of 2013 were $110.7 million compared to $106.0 million in the third quarter of 2012, an increase of $4.7 million, or 4.4 percent. The revenue increase in the third quarter of 2013 compared to the prior year’s quarter reflects an increase in revenues from the Company’s consumer products packaging accounts partially offset by a decrease in promotional activity from the Company’s advertising and retail accounts. Revenues in the current quarter compared to the prior year’s quarter were negatively impacted by changes in foreign currency translation rates of approximately $1.0 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries. Net revenues increased in all three segments in the third quarter of 2013 compared to the prior year’s quarter. The Americas segment increased by $2.4 million, or 3.0 percent, the Europe segment increased by $2.5 million, or 12.9 percent, and the Asia Pacific segment increased by $1.1 million, or 10.5 percent, in each case prior to intersegment revenue elimination.

Consumer products packaging accounts revenues in the third quarter of 2013 were $95.8 million, or 86.5 percent of total revenues, as compared to $90.0 million, or 84.9 percent of total revenues, in the same period of the prior year, representing an increase of 6.4 percent. Retail and advertising accounts revenues of $14.9 million in the third quarter of 2013, or 13.5 percent of total revenues, decreased 6.6 percent from $16.0 million in the third quarter of 2012. During the third quarter of 2013, the Company continued to see measured progress in its largest client channel, consumer packaged goods accounts, with their continued product and brand innovation activity in the areas of strategy and design. However, consumer packaged goods clients continue to exercise caution based on economic uncertainties.

Cost of services (excluding depreciation and amortization) was $67.9 million, or 61.3 percent of revenues, in the third quarter of 2013, an increase of $2.0 million, or 3.1 percent, from $65.8 million, or 62.1 percent of revenues, in the third quarter of 2012. The increase in cost of services during the third quarter of 2013 compared to 2012 was mainly due to an increase in labor related expenses.

The Company recorded an operating profit of $5.8 million in the third quarter of 2013 compared to an operating loss of $1.6 million in the third quarter of 2012, an increase of $7.4 million. The operating income percentage was 5.2 percent for the third quarter of 2013, compared to a 1.5 percent operating loss percentage in the third quarter of 2012. The operating income in the current quarter compared to the operating loss in the prior year’s quarter is due primarily to the higher net revenues in the third quarter of 2013 compared to the third quarter of 2012, as well as to reduced business and systems integration expenses, reduced acquisition integration and restructuring expenses and impairment of long-lived assets during the third quarter of 2012 that did not occur in the 2013 period.

23

Selling, general and administrative expenses (excluding depreciation and amortization) increased $0.1 million, or 0.3 percent, in the third quarter of 2013 to $29.4 million from $29.3 million in the third quarter of 2012. Business and systems integration expenses related to the Company’s information technology and business process improvement initiative decreased $1.0 million to $2.0 million in the third quarter of 2013 from $3.0 million in the third quarter of 2012, as the Company’s investment in the system build phase is substantially complete. Acquisition integration and restructuring expenses, related to the Company’s cost reduction and capacity utilization initiatives, decreased by $0.5 million, from $1.2 million in the third quarter of 2012 to $0.7 million in the third quarter of 2013, due to a reduced level of restructuring activities. The Company recorded a net loss of $0.1 million on foreign exchange exposures in the third quarter of 2013 compared to a net gain of less than $0.1 million on foreign exchange exposures in the third quarter of 2012. No impairment of long-lived assets was recorded in third quarter of 2013. The Company recorded $4.3 million of impairment of long-lived assets in the third quarter of 2012, of which $3.8 million related to customer relationship intangible assets at Company locations being restructured where projected cash flows did not support the carrying value of the assets and $0.5 million related to real estate that was written down to its estimated market value. In addition, during the third quarter of 2012, the Company recorded income of $0.2 million related to multiemployer pension withdrawal actions from prior periods.

Interest expense in the third quarter of 2013 was $1.1 million compared to $0.9 million in the third quarter of 2012, an increase of $0.2 million, or 17.0 percent. The increase in interest expense in the third quarter of 2013 compared to the third quarter of 2012 includes $0.2 million of interest related to accretion of the present value discount recorded at year-end 2012 in conjunction with the Company’s estimated multiemployer pension withdrawal liability.

The Company recorded an income tax provision of $1.3 million in the third quarter of 2013 compared to an income tax benefit of $0.2 million in the third quarter of 2012. The effective tax rate was 26.7 percent for the third quarter of 2013 compared to an effective tax rate of 7.4 percent in the third quarter of 2012.

In the third quarter of 2013, the Company recorded income from continuing operations of $3.5 million, or $0.13 per diluted share compared to a loss from continuing operations of $2.3 million, or $0.09 per diluted share in the third quarter of 2012. The increase in profitability, period-over-period, is principally due to the higher net revenue, as well as decreases in business and systems integration expenses and acquisition integration and restructuring expenses as well as impairment of long-lived assets during the third quarter of 2012 that did not occur in the 2013 period.

In the third quarter of 2013, the Company recorded a loss of less than $0.1 million, net of tax, from discontinued operations, compared to $0.1 million of income, net of tax, from discontinued operations in the third quarter of 2012.

Cost Reduction and Capacity Utilization Actions

Beginning in 2008, and continuing to-date, the Company incurred restructuring costs for employee terminations, obligations for future lease payments, fixed asset impairments, and other associated costs as part of its previously announced plan to reduce costs through a consolidation and realignment of its work force and facilities. The total expense recorded for the nine-month periods ended September 30, 2013 and September 30, 2012 was $1.2 million and $4.7 million, respectively, and is presented as Acquisition integration and restructuring expense in the Consolidated Statements of Comprehensive Income (Loss). See Note 12 – Acquisition Integration and Restructuring in Part I, Item 1 for additional information.

The expense for each of the years 2008 through 2012 and for the first nine months of 2013, and the cumulative expense since the cost reduction program’s inception, was recorded in the following operating segments:

					Asia
(in millions)	Americas		Europe		Pacific		Corporate		Total
Nine months ended September 30, 2013	$	1.1	$	--	$	0.1	$	--	$	1.2
Year ended December 31, 2012		4.3		0.9		0.1		--		5.3
Year ended December 31, 2011		0.7		0.6		--		0.1		1.4
Year ended December 31, 2010		1.1		0.5		--		0.5		2.1
Year ended December 31, 2009		3.4		1.4		1.0		0.4		6.2
Year ended December 31, 2008		5.5		3.6		0.2		0.9		10.2
Cumulative since program inception	$	16.1	$	7.0	$	1.4	$	1.9	$	26.4

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

24

Multiemployer pension withdrawal expense

The Company has eight bargaining units in the United States that participate in the GCC/IBT National Pension Plan pursuant to a number of collective bargaining agreements. In December 2012, the Schawk Board of Directors authorized management to enter into good faith negotiations with the local bargaining units to effect a complete withdrawal from the pension plan. The negotiations with the local bargaining units continued during the first nine months of 2013. The decision to exit the plan was made in order to mitigate potentially greater financial exposure to the Company in the future under the plan, which is significantly underfunded, and to facilitate the consideration of future changes to the Company’s operations in the United States. Based on an analysis prepared by an independent actuary, the Company recorded an estimated liability in the fourth quarter of 2012 for its withdrawal from the pension plan of $31.7 million, which is the present value of the estimated future payments required for withdrawal. The payments are expected to total approximately $41.2 million, payable $2.1 million per year over a 20 year period, with the annual cash payments expected to commence on or about May 1, 2014. These payments were discounted at a risk free rate of 2.54 percent. During the third quarter of 2013, the Company accreted $0.2 million of the present value discount, resulting in an estimated liability balance of $32.3 million at September 30, 2013, of which $1.3 million is included in Accrued expenses and $31.0 million is included in Other long-term liabilities on the Consolidated Balance Sheets as of September 30, 2013. The expense associated with the accretion of the present value discount is reflected in Interest expense on the Consolidated Statements of Comprehensive Income (Loss).

25

Results of Operations

Consolidated

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

	Three Months Ended September 30,								2013 vs. 2012 Increase (Decrease)
									$			%
	2013				2012				Change			Change
Net revenues	$	110,692			$	106,009			$	4,683		4.4	%
Operating expenses:
Cost of services (excluding depreciation and
amortization)		67,872				65,829				2,043		3.1	%
Selling, general and administrative expenses (excluding
depreciation and amortization)		29,448				29,347				101		0.3	%
Depreciation and amortization		4,782				4,171				611		14.6	%
Business and systems integration expenses		1,992				2,997				(1,005	)	(33.5	) %
Acquisition integration and restructuring expenses		674				1,218				(544	)	(44.7	) %
Foreign exchange (gain) loss		132				(12	)			144		nm
Impairment of long-lived assets		--				4,281				(4,281	)	nm
Multiemployer pension withdrawal income		--				(203	)			203		nm
Operating income (loss)		5,792				(1,619	)			7,411		nm
Operating margin percentage		5.2		%		(1.5	)	%
Other income (expense):
Interest income		108				57				51		89.5	%
Interest expense		(1,073	)			(917	)			(156	)	17.0	%
Income (loss) from continuing operations before  income taxes		4,827				(2,479	)			7,306		nm
Income tax provision (benefit)		1,291				(184	)			1,475		nm
Effective income tax rate		26.7		%		7.4		%
Income (loss) from continuing operations		3,536				(2,295	)			5,831		nm
Income (loss) from discontinued operations, net of tax		(3	)			82				(85	)	nm
Net income (loss)	$	3,533			$	(2,213	)		$	5,746		nm

Expressed as a percentage of net revenues:
Cost of services	61.3	%	62.1	%	(80	)	bp
Selling, general and administrative expenses	26.6	%	27.7	%	(110	)	bp
Depreciation and amortization	4.3	%	3.9	%	40		bp
Business and systems integration expenses	1.8	%	2.8	%	(100	)	bp
Foreign exchange loss	0.1	%	--	%	10		bp
Impairment of long-lived assets	--	%	4.0	%	(400	)	bp
Acquisition integration and restructuring expenses	0.6	%	1.1	%	(50	)	bp
Multiemployer pension withdrawal expense (income)	--	%	(0.2)	%	20		bp
Operating margin	5.2	%	(1.5)	%	670		bp

bp = basis points

nm = not meaningful

26

Net revenues in the third quarter of 2013 were $110.7 million compared to $106.0 million in the third quarter of 2012, an increase of $4.7 million, or 4.4 percent. The revenue increase in the third quarter of 2013 compared to the prior year’s quarter reflects an increase in revenues from the Company’s consumer products packaging accounts partially offset by a decrease in promotional activity from the Company’s advertising and retail accounts. Revenues in the current quarter compared to the prior year’s quarter were negatively impacted by changes in foreign currency translation rates of approximately $1.0 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries. Net revenues increased in all three segments in the third quarter of 2013 compared to the prior year’s quarter. The Americas segment increased by $2.4 million, or 3.0 percent, the Europe segment increased by $2.5 million, or 12.9 percent and the Asia Pacific segment increased by $1.1 million, or 10.5 percent, in each case prior to intersegment revenue elimination.

Consumer products packaging accounts revenues in the third quarter of 2013 were $95.8 million, or 86.5 percent of total revenues, as compared to $90.0 million, or 84.9 percent of total revenues, in the same period of the prior year, representing an increase of 6.4 percent. Retail and advertising accounts revenues of $14.9 million in the third quarter of 2013, or 13.5 percent of total revenues, decreased 6.6 percent from $16.0 million in the third quarter of 2012. During the third quarter of 2013, the Company continued to see measured progress in its largest client channel, consumer packaged goods accounts, with their continued product and brand innovation activity in the areas of strategy and design. However, consumer packaged goods clients continue to exercise caution based on economic uncertainties.

Cost of services (excluding depreciation and amortization) was $67.9 million, or 61.3 percent of revenues, in the third quarter of 2013, an increase of $2.0 million, or 3.1 percent, from $65.8 million, or 62.1 percent of revenues, in the third quarter of 2012. The increase in cost of services during the third quarter of 2013 compared to 2012 was mainly due to an increase in labor related expenses.

The Company recorded an operating profit of $5.8 million in the third quarter of 2013 compared to an operating loss of $1.6 million in the third quarter of 2012, an increase of $7.4 million. The operating income percentage was 5.2 percent for the third quarter of 2013, compared to a 1.5 percent operating loss percentage in the third quarter of 2012. The operating income in the current quarter compared to the operating loss in the prior year’s quarter is due primarily to the higher net revenues in the third quarter of 2013 compared to the third quarter of 2012, as well as to reduced business and systems integration expenses, reduced acquisition integration and restructuring expenses and impairment of long-lived assets during the third quarter of 2012 that did not occur in the 2013 period.

Selling, general and administrative expenses (excluding depreciation and amortization) increased $0.1 million, or 0.3 percent, in the third quarter of 2013 to $29.4 million from $29.3 million in the third quarter of 2012. Business and systems integration expenses related to the Company’s information technology and business process improvement initiative decreased $1.0 million to $2.0 million in the third quarter of 2013 from $3.0 million in the third quarter of 2012, as the Company’s investment in the system build phase is substantially complete. Acquisition integration and restructuring expenses, related to the Company’s cost reduction and capacity utilization initiatives, decreased by $0.5 million, from $1.2 million in the third quarter of 2012 to $0.7 million in the third quarter of 2013, due to a reduced level of restructuring activities. The Company recorded a net loss of $0.1 million on foreign exchange exposures in the third quarter of 2013 compared to a net gain of less than $0.1 million on foreign exchange exposures in the third quarter of 2012. No impairment of long-lived assets was recorded in third quarter of 2013. The Company recorded $4.3 million of impairment of long-lived assets in the third quarter of 2012, of which $3.8 million related to customer relationship intangible assets at Company locations being restructured where projected cash flows did not support the carrying value of the assets and $0.5 million related to real estate that was written down to its estimated market value. In addition, during the third quarter of 2012, the Company recorded income of $0.2 million related to multiemployer pension withdrawal actions from prior periods.

Interest expense in the third quarter of 2013 was $1.1 million compared to $0.9 million in the third quarter of 2012, an increase of $0.2 million, or 17.0 percent. The increase in interest expense in the third quarter of 2013 compared to the third quarter of 2012 includes $0.2 million of interest related to accretion of the present value discount recorded at year-end 2012 in conjunction with the Company’s estimated multiemployer pension withdrawal liability.

The Company recorded an income tax provision of $1.3 million in the third quarter of 2013 compared to an income tax benefit of $0.2 million in the third quarter of 2012. The effective tax rate was 26.7 percent for the third quarter of 2013 compared to an effective tax rate of 7.4 percent in the third quarter of 2012.

27

In the third quarter of 2013, the Company recorded income from continuing operations of $3.5 million, or $0.13 per diluted share compared to a loss from continuing operations of $2.3 million, or $0.09 per diluted share in the third quarter of 2012. The increase in profitability, period-over-period, is principally due to the higher net revenue, as well as decreases in business and systems integration expenses and acquisition integration and restructuring expenses as well as impairment of long-lived assets during the third quarter of 2012 that did not occur in the 2013 period.

In the third quarter of 2013, the Company recorded a loss of less than $0.1 million, net of tax, from discontinued operations, compared to $0.1 million of income, net of tax, from discontinued operations in the third quarter of 2012.

Other Information

Depreciation and amortization expense related to continuing operations was $4.8 million for the third quarter of 2013 as compared to $4.2 million for the same period of 2012.

Capital expenditures in the third quarter of 2013 were $2.6 million compared to $6.2 million in the same period of 2012. The capital expenditures in both periods are primarily related to the Company’s information technology and business process improvement initiatives.

28

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

	Nine Months Ended September 30,							2013 vs. 2012 Increase (Decrease)
								$			%
	2013			2012				Change			Change
Net revenues	$	328,360		$	324,156			$	4,204		1.3	%
Operating expenses:
Cost of services (excluding depreciation and amortization)		202,547			205,656				(3,109	)	(1.5	) %
Selling, general and administrative expenses (excluding depreciation and amortization)		90,214			90,174				40		--	%
Depreciation and amortization		13,558			12,971				587		4.5	%
Business and systems integration expenses		6,333			10,459				(4,126	)	(39.4	) %
Acquisition integration and restructuring expenses		1,228			4,696				(3,468	)	(73.9	) %
Foreign exchange loss		624			548				76		13.9	%
Impairment of long-lived assets		502			4,281				(3,779	)	(88.3	) %
Multiemployer withdrawal expense income		--			(203	)			203		nm
Operating income (loss)		13,354			(4,426	)			17,780		nm
Operating margin percentage		4.1	%		(1.4	)	%
Other income (expense):
Interest income		155			82				73		89.0	%
Interest expense		(3,303	)		(2,676	)			(627	)	23.4	%
Income (loss) from continuing operations before income taxes		10,206			(7,020	)			17,226		nm
Income tax provision (benefit)		2,744			(1,515	)			4,259		nm
Effective income tax rate		26.9	%		21.6		%
Income (loss) from continuing operations		7,462			(5,505	)			12,967		nm
Income (loss) from discontinued operations, net of tax		(6,608	)		189				(6,797	)	nm
Net income (loss)	$	854		$	(5,316	)		$	6,170		nm
Expressed as a percentage of revenues:
Cost of services		61.7			63.4		%		(170	)	bp
Selling, general and administrative expenses		27.5			27.8		%		(30	)	bp
Depreciation and amortization		4.1			4.0		%		10		bp
Business and systems integration expenses		1.9			3.2		%		(130	)	bp
Acquisition integration and restructuring expenses		0.4			1.4		%		(100	)	bp
Impairment of long-lived assets		0.2			1.3		%		(110	)	bp
Foreign exchange loss		0.2			0.2		%		--		bp
Multiemployer pension withdrawal expense (income)		--			(0.1	)	%		10		bp
Operating margin		4.1			(1.4	)	%		550		bp

bp = basis points

nm = not meaningful

29

Net revenues in the first nine months of 2013 were $328.4 million compared to $324.2 million in the first nine months of 2012, an increase of $4.2 million, or 1.3 percent. The revenue increase in the first nine months of 2013 compared to the prior year’s comparable period reflects an increase in revenues from the Company’s consumer products packaging accounts partially offset by a decrease in promotional activity from the Company’s advertising and retail accounts. Revenues in the first nine months of 2013 compared to the comparable prior year period were negatively impacted by changes in foreign currency translation rates of approximately $1.7 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries. Net revenues increased in the Americas and Asia Pacific segments in the first nine months of 2013 compared to the prior year period, but were offset by a decrease in revenues in the Europe segment. The Americas segment increased by $3.6 million, or 1.5 percent, the Asia Pacific segment increased by $3.7 million, or 12.9 percent and the Europe segment decreased by $1.4 million, or 2.2 percent, in each case prior to intersegment revenue elimination.

Consumer products packaging accounts revenues in the first nine months of 2013 were $285.9 million, or 87.1 percent of total revenues, as compared to $275.3 million, or 84.9 percent of total revenues, in the same period of the prior year, representing an increase of 3.8 percent. Retail and advertising accounts revenues of $42.5 million in the first nine months of 2013, or 12.9 percent of total revenues, decreased 13.0 percent from $48.8 million in the first nine months of 2012. During the first nine months of 2013, the Company continued to see measured progress in its largest client channel, consumer packaged goods accounts, with their continued product and brand innovation activity in the areas of strategy and design. However, consumer packaged goods clients continue to exercise caution based on economic uncertainties.

Cost of services (excluding depreciation and amortization) was $202.5 million, or 61.7 percent of revenues, in the first nine months of 2013, a decrease of $3.1 million, or 1.5 percent, from $205.7 million, or 63.4 percent of revenues, in the first nine months of 2012. The decrease in cost of services during the first nine months of 2013 compared to the first nine months of 2012 was mainly due to a decrease in labor related expenses.

The Company recorded an operating profit of $13.4 million in the first nine months of 2013 compared to an operating loss of $4.4 million in the first nine months of 2012, an increase of $17.8 million. The operating income percentage was 4.1 percent for the first nine months of 2013, compared to a 1.4 percent operating loss percentage in the first nine months of 2012. The change to an operating income in the current period compared to an operating loss in the prior year’s period is due primarily to the higher net revenues and lower cost of services in the first nine months of 2013 compared to the first nine months of 2012, as well as to reduced business and systems integration expenses, reduced acquisition integration and restructuring expenses and lower impairment of long-lived assets.

Selling, general and administrative expenses (excluding depreciation and amortization) was $90.2 million in both the first nine months of 2013 and the first nine months of 2012. Business and systems integration expenses related to the Company’s information technology and business process improvement initiative decreased $4.1 million to $6.3 million in the first nine months of 2013 from $10.5 million in the first nine months of 2012, as the Company’s investment in the system build phase is substantially complete. Acquisition integration and restructuring expenses, related to the Company’s cost reduction and capacity utilization initiatives, decreased by $3.5 million, from $4.7 million in the first nine months of 2012 to $1.2 million in the first nine months of 2013, due to a reduced level of restructuring activities. The Company recorded a net loss of $0.6 million on foreign exchange exposures in the first nine months of 2013 compared to a net loss of $0.5 million on foreign exchange exposures in the first nine months of 2012. In addition, the Company recorded a charge of $0.5 million for impairment of long-lived assets in the first nine months of 2013 primarily for a customer relationship asset in the Americas segment for which projected cash flows did not support the carrying value. The Company recorded $4.3 million of impairment of long-lived assets in the first nine months of 2012, of which $3.8 million related to customer relationship intangible assets at Company locations being restructured where projected cash flows did not support the carrying value of the assets and $0.5 million related to real estate that was written down to its estimated market value. In addition, during the first nine months of 2012, the Company recorded income of $0.2 million related to multiemployer pension withdrawal actions from prior periods.

Interest expense in the first nine months of 2013 was $3.3 million compared to $2.7 million in the first nine months of 2012, an increase of $0.6 million, or 23.4 percent. The increase in interest expense in the first nine months of 2013 compared to the first nine months of 2012 includes $0.6 million of interest related to accretion of the present value discount recorded at year-end 2012 in conjunction with the Company’s estimated multiemployer pension withdrawal liability.

The Company recorded an income tax provision of $2.7 million in the first nine months of 2013 compared to an income tax benefit of $1.5 million in the first nine months of 2012. The effective tax rate was 26.9 percent for the first nine months of 2013 compared to an effective tax rate of 21.6 percent in the first nine months of 2012.

In the first nine months of 2013, the Company recorded income from continuing operations of $7.5 million, or $0.28 per diluted share compared to a loss from continuing operations of $5.5 million, or $0.21 per diluted share in the first nine months of 2012. The increase in profitability, period-over-period, is principally due to the higher net revenue and lower cost of services in the first nine months of 2013 compared to the first nine months of 2012, as well as to reduced business and systems integration expenses, reduced acquisition integration and restructuring expenses and lower impairment of long-lived assets.

30

In the first nine months of 2013, the Company recorded a $6.6 million loss, net of tax, from discontinued operations, or $0.25 per diluted share, compared to $0.2 million of income, net of tax, from discontinued operations in the first nine months of 2012. The loss from discontinued operations in the first nine months of 2013 includes a $6.1 million loss from the sale of assets related to the Company’s large format printing operation.

Other Information

Depreciation and amortization expense related to continuing operations was $13.6 million in the first nine months of 2013, compared to $13.0 million in the first nine months of 2012.

Capital expenditures in the first nine months of 2013 were $9.9 million compared to $17.0 million in the same period of 2012. The capital expenditures in both periods are primarily related to the Company’s information technology and business process improvement initiatives.

Segment Information

Americas

The following table sets forth Americas segment results for the three-month periods ended September 30, 2013 and 2012:

	Three Months Ended September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	82,284		$	79,874		$	2,410		3.0	%
Cost of services	$	52,644		$	51,147		$	1,497		2.9	%
Selling, general and administrative expenses	$	13,644		$	14,309		$	(665	)	(4.6	) %
Acquisition integration and restructuring expenses	$	529		$	640		$	(111	)	(17.3	) %
Impairment of long-lived assets	$	--		$	2,350		$	(2,350	)	nm
Foreign exchange (gain) loss	$	34		$	(39	)	$	73		nm
Depreciation and amortization	$	2,188		$	2,199		$	(11	)	(0.5	) %
Operating income	$	13,245		$	9,268		$	3,977		42.9	%
Operating margin		16.1	%		11.6	%				450	bp
Capital expenditures	$	839		$	1,656		$	(817	)	(49.3	) %
Total assets	$	330,935		$	365,243		$	(34,308	)	(9.4	) %

nm = not meaningful

bp = basis points

Net revenues in the third quarter of 2013 for the Americas segment were $82.3 million compared to $79.9 million in the same period of the prior year, an increase of $2.4 million or 3.0 percent. The revenue increase in the third quarter of 2013 compared to the prior year’s quarter reflects an increase in revenues from the Company’s consumer packaging accounts partially offset by a decrease in advertising and retail accounts. Revenues in the current quarter compared to the prior year’s quarter were negatively impacted by changes in foreign currency translation rates of $0.3 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.

Cost of services in the third quarter of 2013 was $52.6 million, or 64.0 percent of revenues, compared to $51.1million, or 64.0 percent of revenues, in the same period of the prior year, an increase of $1.5 million or 2.9 percent. The increase in cost of revenues was mainly due to an increase in labor related expenses.

Operating income was $13.2 million or 16.1 percent of revenues, in the third quarter of 2013 compared to $9.3 million, or 11.6 percent of revenues, in the third quarter of 2012, an increase of $4.0 million, or 42.9 percent. The increase in operating income is principally due to the increase in net revenues period-over-period as well as an asset impairment charge in the third quarter of 2012 that did not occur in the 2013 period.

31

The following table sets forth Americas segment results for the nine-month periods ended September 30, 2013 and 2012:

	Nine Months Ended September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	248,460		$	244,855		$	3,605		1.5	%
Cost of services	$	157,606		$	160,946		$	(3,340	)	(2.1	) %
Selling, general and administrative expenses	$	41,780		$	43,074		$	(1,294	)	(3.0	) %
Acquisition integration and restructuring expenses	$	1,059		$	3,835		$	(2,776	)	(72.4	) %
Impairment of long-lived assets	$	466		$	2,350		$	(1,884	)	(80.2	) %
Foreign exchange loss	$	--		$	11		$	(11	)	nm
Depreciation and amortization	$	6,919		$	7,065		$	(146	)	(2.1	) %
Operating income	$	40,630		$	27,574		$	13,056		47.3	%
Operating margin		16.4	%		11.3	%				510	bp
Capital expenditures	$	2,949		$	5,342		$	(2,393	)	(44.8	) %
Total assets	$	330,935		$	365,243		$	(34,308	)	(9.4	) %

nm = not meaningful

bp = basis points

Net revenues in the first nine months of 2013 for the Americas segment were $248.5 million compared to $244.9 million in the same period of the prior year, an increase of $3.6 million or 1.5 percent. The revenue increase in the first nine months of 2013 compared to the previous year reflects an increase in revenue from the Company’s consumer product packaging accounts partially offset by a decrease in promotional activity from the Company’s advertising and retail accounts. Revenues in the current quarter compared to the prior year’s quarter were negatively impacted by changes in foreign currency translation rates of $0.3 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.

Cost of services in the first nine months of 2013 was $157.6 million, or 63.4 percent of revenues, compared to $160.9 million, or 65.7 percent of revenues, in the same period of the prior year, a decrease of $3.3 million or 2.1 percent. The reduction in cost of services was mainly due to a decrease in labor related expenses.

Operating income was $40.6 million or 16.4 percent of revenues, in the first nine months of 2013 compared to $27.6 million, or 11.3 percent of revenues, in the first nine months of 2012, an increase of $13.1 million or 47.3 percent. The increase in operating income is principally due to the increase in net revenues period-over-period, as well as decreases in other operating expenses compared to the previous period.

Europe

The following table sets forth Europe segment results for the three-month periods ended September 30, 2013 and 2012:

	Three Months Ended September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	22,155		$	19,617		$	2,538		12.9	%
Cost of services	$	14,095		$	12,949		$	1,146		8.9	%
Selling, general and administrative expenses	$	5,250		$	5,540		$	(290	)	(5.2	) %
Acquisition integration and restructuring expenses	$	1		$	578		$	(577	)	(99.8	) %
Foreign exchange (gain) loss	$	61		$	(1	)	$	62		nm
Impairment of long lived assets	$	--		$	1,413		$	(1,413	)	nm
Depreciation and amortization	$	689		$	796		$	(107	)	(13.4	) %
Operating income (loss)	$	2,059		$	(1,658	)	$	3,717		nm
Operating margin		9.3	%		(8.5	) %				1780	bp
Capital expenditures	$	544		$	528		$	16		3.0	%
Total assets	$	58,274		$	57,533		$	741		1.3	%

nm = not meaningful

bp = basis points

32

Net revenues in the Europe segment in the third quarter of 2013 were $22.2 million compared to $19.6 million in the same period of the prior year, an increase of $2.5 million or 12.9 percent. The revenue increase in the third quarter of 2013 compared to the previous year reflects an increase in promotional activity from the Company’s consumer product packaging accounts. There was no impact on the revenues from foreign currency translation.

The cost of services was $14.1 million, or 63.6 percent of revenues, in the third quarter of 2013 compared to $12.9 million or 66.0 percent of revenues in the third quarter of 2012, an increase of $1.1 million or 8.9 percent. The increase in cost of services during the third quarter of 2013 compared to 2012 was mainly due to a increase in labor related expenses.

The operating income was $2.1 million, or 9.3 percent of revenues, in the third quarter of 2013 compared to an operating loss of $1.7 million or 8.5 percent of revenues in the third quarter of 2012. The increase in operating income was mainly due to increase in revenue as well as an impairment charge in the third quarter of 2012 that did not repeat in the 2013 period.

The following table sets forth Europe segment results for the nine-month periods ended September 30, 2013 and 2012:

	Nine Months Ended September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	61,811		$	63,206		$	(1,395	)	(2.2	) %
Cost of services	$	41,200		$	41,105		$	95		0.2	%
Selling, general and administrative expenses	$	16,058		$	16,962		$	(904	)	(5.3	) %
Acquisition integration and restructuring expenses	$	66		$	838		$	(772	)	(92.1	) %
Impairment of long lived assets	$	--		$	1,413		$	(1,413	)	nm
Foreign exchange loss	$	105		$	206		$	(101	)	(49.0	) %
Depreciation and amortization	$	1,989		$	2,433		$	(444	)	(18.2	) %
Operating income	$	2,393		$	249		$	2,144		nm
Operating margin		3.9	%		0.4	%				350	bp
Capital expenditures	$	1,916		$	1,081		$	835		77.2	%
Total assets	$	58,274		$	57,533		$	741		1.3	%

nm = not meaningful

bp = basis points

Net revenues in the Europe segment in the first nine months of 2013 were $61.8 million compared to $63.2 million in the same period of the prior year, a decrease of $1.4 million or 2.2 percent. New product introductions and packaging changes were slower than anticipated for the first nine months of 2013 as the Company’s European clients continue to exercise caution based on economic uncertainties. Revenues in the first nine months compared to the prior year were negatively impacted by changes in foreign currency translation rates of approximately $0.4 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.

The cost of services was $41.2 million, or 66.7 percent of revenues, in the third quarter of 2013 compared to $41.1 million or 65.0 percent of revenues in the first nine months of 2012, an increase of $0.1 million or 0.2 percent.

The operating income was $2.4 million, or 3.9 percent of revenues, in the first nine months of 2013 compared to an operating income of $0.2 million or 0.4 percent of revenues in the first nine months of 2012, an increase of $2.1 million. The increase in operating income in the current period compared to the prior year’s period is mainly due to a decrease in operating expenses period-over-period, including an impairment charge in the third quarter of 2012 that did not repeat in the 2013 period.

.

33

Asia Pacific

The following table sets forth Asia Pacific segment results for the three-month periods ended September 30, 2013 and 2012:

	Three Months Ended  September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	11,559		$	10,457		$	1,102		10.5	%
Cost of services	$	6,439		$	5,672		$	767		13.5	%
Selling, general and administrative expenses	$	3,392		$	3,625		$	(233	)	(6.4	) %
Acquisition integration and restructuring expenses	$	143		$	--		$	143		nm
Foreign exchange (gain) loss	$	(12	)	$	68		$	(80	)	nm
Depreciation and amortization	$	348		$	424		$	(76	)	(17.9	) %
Operating income	$	1,249		$	668		$	581		87.0	%
Operating margin		10.8	%		6.4	%				440	bp
Capital expenditures	$	217		$	692		$	(475	)	(68.6	) %
Total assets	$	25,236		$	30,187		$	(4,951	)	(16.4	) %

nm = not meaningful

bp = basis points

Net revenues in the Asia Pacific segment in the third quarter of 2013 were $11.6 million compared to $10.5 million in the same period of the prior year, an increase of $1.1 million or 10.5 percent, reflecting an increase in promotional activity from the Company’s packaging accounts. Revenues for the third quarter of 2013, as compared to the third quarter of 2012, were negatively impacted by changes in foreign currency translation rates of approximately $0.6 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.

Cost of services was $6.4 million in the third quarter of 2013, or 55.7 percent of revenues, as compared to $5.7 million, or 54.2 percent of revenues, in the third quarter of 2012, an increase of $0.8 million, or 13.5 percent. The increase in cost of services during the third quarter of 2013 compared to 2012 was mainly due to an increase in labor costs reflecting the Company’s expansion of client service offerings.

Operating income was $1.2 million in the third quarter of 2013, or 10.8 percent of revenues, as compared to $0.7 million, or 6.4 percent of revenues, in the third quarter of 2012, an increase of $0.6 million. The increase in operating income in the current period compared to the prior year’s period is due principally to the increase in net revenues.

The following table sets forth Asia Pacific segment results for the nine-month periods ended September 30, 2013 and 2012:

	Nine Months Ended  September 30,						2013 vs. 2012 Increase (Decrease)
(in thousands)	2013			2012			$			%
Net revenues	$	32,607		$	28,887		$	3,720		12.9	%
Cost of services	$	18,259		$	16,397		$	1,862		11.4	%
Selling, general and administrative expenses	$	10,209		$	9,468		$	741		7.8	%
Acquisition integration and restructuring expenses	$	102		$	22		$	80		nm
Impairment of long-lived assets	$	36		$	--		$	36		nm
Foreign exchange (gain) loss	$	(44	)	$	200		$	(244	)	nm
Depreciation and amortization	$	1,072		$	1,191		$	(119	)	(10.0	) %
Operating income	$	2,973		$	1,609		$	1,364		84.8	%
Operating margin		9.1	%		5.6	%				350	bp
Capital expenditures	$	631		$	1,485		$	(854	)	(57.5	) %
Total assets	$	25,236		$	30,187		$	(4,951	)	(16.4	) %

nm = not meaningful

bp = basis points

34

Net revenues in the Asia Pacific segment in the first nine months of 2013 were $32.6 million compared to $28.9 million in the same period of the prior year, an increase of $3.7 million or 12.9 percent, reflecting an increase in promotional activity from the Company’s packaging accounts. Revenues for the first nine months of 2013, as compared to the prior year, were negatively impacted by changes in foreign currency translation rates of approximately $0.9 million, as the U.S. dollar increased in value relative to the local currencies of certain of the Company’s non-U.S. subsidiaries.

Cost of services was $18.3 million in the first nine months of 2013, or 56.0 percent of revenues, as compared to $16.4 million, or 56.8 percent of revenues, in the first nine months of 2012, an increase of $1.9 million, or 11.4 percent. The increase in cost of services during the first nine months of 2013 compared to 2012 was mainly due to an increase in labor costs reflecting the Company’s expansion of client service offerings.

Operating income was $3.0 million in the first nine months of 2013, or 9.1 percent of revenues, as compared to $1.6 million, or 5.6 percent of revenues, in the first nine months of 2012, an increase of $1.4 million. The increase in operating income in the current period compared to the prior year’s period is due principally to the increase in net revenues.

Liquidity and Capital Resources

The Company’s primary liquidity needs are to fund capital expenditures, support working capital requirements and service indebtedness. The Company’s principal sources of liquidity are cash generated from its operating activities and borrowings under its credit agreement. The Company’s total debt outstanding at September 30, 2013 was $70.4 million compared to $83.0 million at December 31, 2012.

As of September 30, 2013, the Company had $5.1 million in consolidated cash and cash equivalents, compared to $9.7 million at December 31, 2012. The decrease in cash and cash equivalents at September 30, 2013 compared to December 31, 2012 reflects the Company’s efforts to use cash on hand to pay down its revolving credit facility.

Cash provided by operating activities.Cash provided by operating activities was $13.6 million in the first nine months of 2013 compared to cash provided by operating activities of $19.7 million in the first nine months of 2012. The cash provided by operating activities in the 2013 period compared to the 2012 period reflects a $0.9 million net income in the first nine months of 2013 compared to a net loss of $5.3 million for the first nine months of 2012. The cash provided from operations in the 2013 period compared to the 2012 period also reflects less favorable changes in the operating assets and liabilities in the first nine months of 2013 compared to the first nine months of 2012. The period-over-period change in operating assets and liabilities includes a decrease in cash provided by operating activities attributable to an increase in trade accounts receivable of $7.4 million in the 2013 period compared to an increase in cash provided by operating activities attributable to a decrease in trade accounts receivable of $6.6 million in the 2012 period, and includes a decrease in cash provided by operating activities attributable to a decrease in trade accounts payable, accrued expenses and other liabilities of $4.7 million in the first nine months of 2013 compared to a decrease in trade accounts payable, accrued expenses and other liabilities of $3.2 million in the first nine months of 2013.

Depreciation and intangible asset amortization expense in the first nine months of 2013 was $11.1 million and $3.1 million, respectively, as compared to $10.0 million and $4.1 million, respectively, in the first nine months of 2012.

Cash used in investing activities.Cash used in investing activities was $1.3 million in the first nine months of 2013 compared to $17.0 million used in investing activities during the comparable 2012 period. Capital expenditures were $9.9 million in the first nine months of 2013 compared to $17.0 million in the first nine months of 2012. The capital expenditures in both periods principally reflect expenditures related to the Company’s ongoing information technology and business process improvement initiative designed to improve customer service, business effectiveness and internal controls, as well as to reduce operating costs. Over the next five years, assuming no significant business acquisitions, routine capital expenditures are expected to be in the range of $9.0 to $11.0 million annually. Partially offsetting the cash used in investing activities related to capital expenditures during the first nine months of 2013 was $8.2 million received from the sale of the Company’s large format printing operation during the third quarter.

35

Cash used in financing activities.Cash used in financing activities in the first nine months of 2013 was $17.5 million compared to cash used in financing activities of $6.1 million during the first nine months of 2012. The cash used in financing activities in the 2013 period reflects $12.4 million of net payments of debt compared to $0.8 million of net payments of debt during the comparable period of 2012. The Company received proceeds of $1.2 million from the issuance of common stock during the first nine months of 2013 compared to $1.7 million during the first nine months of 2012. The issuance of common stock in both periods is attributable to stock option exercises and issuance of shares pursuant to the Company’s employee stock purchase plan. During the first nine months of 2012, the Company paid $0.9 million for deferred financing fees related to its January 2012 credit facility refinancing and note purchase agreement amendments. Dividend payments on common stock at $0.08 per share quarterly were $6.3 million for the first nine months of 2013 compared to $6.2 million for the first nine months of 2012. Subject to a declaration at the discretion of the Board of Directors, the Company expects to pay a quarterly dividend of $0.08 per share in the fourth quarter of 2013.

Revolving Credit Facility

Amended and Restated Credit Facility. On January 27, 2012, the Company entered into a Second Amended and Restated Credit Agreement (the “2012 Credit Agreement”), among the Company, certain subsidiary borrowers of the Company, the financial institutions party thereto as lenders, JPMorgan Chase Bank, N.A., on behalf of itself and the other lenders as agent, and PNC Bank, National Association, on behalf of itself and the other lenders as syndication agent, in order to amend and restate the Company’s prior credit agreement that was scheduled to terminate on July 12, 2012.

The 2012 Credit Agreement provides for a five-year unsecured, multicurrency revolving credit facility in the principal amount of $125.0 million (the “New Facility”), including a $10.0 million swing-line loan subfacility and a $10.0 million subfacility for letters of credit. The Company may, at its option and subject to certain conditions, increase the amount of the New Facility by up to $50.0 million by obtaining one or more new commitments from new or existing lenders to fund such increase. Loans under the New Facility generally bear interest at a LIBOR or Federal funds rate plus a margin that varies with the Company’s cash flow leverage ratio, in addition to applicable commitment fees, with a maximum rate of LIBOR plus 225 basis points. At closing, the applicable margin on LIBOR-based loans was 175 basis points. The unutilized portion of the New Facility will be used primarily for general corporate purposes, such as working capital and capital expenditures, and, to the extent opportunities arise, acquisitions and investments.

At September 30, 2013, there was $35.5 million outstanding under the LIBOR portion of the U.S. facility at an interest rate of approximately 2.14 percent. At the Company’s option, loans under the facility can bear interest at prime plus 1.5 percent. At September 30, 2013, there was $3.6 million of prime rate borrowing outstanding at an interest rate of 4.25 percent. The Company’s Canadian subsidiary borrowed under the revolving credit facility in the form of bankers’ acceptance agreements and prime rate borrowings. At September 30, 2013, there was $1.5 million outstanding under bankers’ acceptance agreements at an interest rate of approximately 3.30 percent and $0.2 million outstanding under prime rate borrowings at an interest rate of approximately 4.00 percent. The Company’s UK subsidiary borrowed under the revolving credit facility in the form of LIBOR Sterling loans. At September 30, 2013, there was $0.8 million outstanding under LIBOR Sterling loans at an interest rate of approximately 2.48 percent. The Company’s Luxembourg subsidiary borrowed under the credit facility in the form of Euro LIBOR loans. At September 30, 2013, there was $0.4 million outstanding under the Euro LIBOR loans at an interest rate of approximately 2.06 percent.

The 2012 Credit Agreement contains various customary affirmative and negative covenants and events of default. Under the terms of the 2012 Credit Agreement, the Company is no longer subject to restrictive covenants on permitted capital expenditures. Certain restricted payments, such as regular dividends and stock repurchases, are permitted provided that the Company maintains compliance with its minimum fixed-charge coverage ratio (with respect to regular dividends) and a specified maximum cash-flow leverage ratio (with respect to other permitted restricted payments). Other covenants include, among other things, restrictions on the Company’s and in certain cases its subsidiaries’ ability to incur additional indebtedness; dispose of assets; create or permit liens on assets; make loans, advances or other investments; incur certain guarantee obligations; engage in mergers, consolidations or acquisitions, other than those meeting the requirements of the 2012 Credit Agreement; engage in certain transactions with affiliates; engage in sale/leaseback transactions; and engage in certain hedging arrangements. The 2012 Credit Agreement also requires compliance with specified financial ratios and tests, including a minimum fixed-charge coverage ratio and a maximum cash-flow ratio.

Amendment to the 2012 Credit Agreement.On September 12, 2012, the Company entered into Amendment No. 1 (the “Credit Agreement Amendment”) to the 2012 Credit Agreement. The Credit Agreement Amendment amended the definition of “EBITDA” in the 2012 Credit Agreement to permit the Company, for purposes of calculating EBITDA for financial covenant compliance, to add back certain expenses associated with the Company’s enterprise resource planning system up to certain amounts as specified in the Credit Agreement Amendment.

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Senior Notes

In 2003 and 2005, the Company entered into two private placements of debt to provide long-term financing in which it issued senior notes pursuant to note purchase agreements, which have since been amended as further discussed below. The senior notes that were outstanding at September 30, 2013 bear interest at rates from 8.90 percent to 8.98 percent. The remaining aggregate balance of the notes, $3.1 million is included in Current portion of long-term debt on the September 30, 2013 Consolidated Balance Sheets.

Amended and Restated Private Shelf Agreement. Concurrently with its entry into the 2012 Credit Agreement, on January 27, 2012, the Company entered into an Amended and Restated Note Purchase and Private Shelf Agreement with Prudential Investment Management, Inc. (“Prudential”) and certain existing noteholders and note purchasers named therein (the “Private Shelf Agreement”), which provides for a $75.0 million private shelf facility for a period of up to three years (the “Private Shelf Facility”). At closing, the Company issued $25.0 million aggregate principal amount of its 4.38% Series F Senior Notes due January 27, 2019 (the “Notes”) under the Private Shelf Agreement.

The Private Shelf Agreement contains financial and other covenants that are the same or substantially equivalent to covenants under the 2012 Credit Agreement described above. Notes issued under the Private Shelf Facility may have maturities of up to ten years and are unsecured. Either the Company or Prudential may terminate the unused portion of the Private Shelf Facility prior to its scheduled termination upon 30 days’ written notice. Any future borrowings under the Private Shelf Facility may be used for general corporate purposes, such as working capital and capital expenditures.

Amendment to Note Purchase Agreement. Concurrently with the entry into the Private Shelf Agreement, the Company entered into the Fifth Amendment (the “Fifth Amendment”) to the Note Purchase Agreement, dated as of December 23, 2003, as amended (the “Note Purchase Agreement”), with the noteholders party thereto (the “Mass Mutual Noteholders”). The Fifth Amendment amended certain financial and other covenants in the Note Purchase Agreement so that such financial and other covenants are the same or substantially equivalent to covenants under the 2012 Credit Agreement described above. The Fifth Amendment also amended certain provisions contained in the Note Purchase Agreement to reflect that amounts due under existing senior notes issued to the Mass Mutual Noteholders are no longer secured.

Amendments to Private Shelf Agreement and Note Purchase Agreement. Concurrently with its entry into the Credit Agreement Amendment, the Company entered into (i) the First Amendment (the “First Amendment”) to the Private Shelf Agreement and (ii) the Sixth Amendment (the “Sixth Amendment”) to the Note Purchase Agreement. The First Amendment and the Sixth Amendment amend the respective definitions of “EBITDA” in the Private Shelf Agreement and the Note Purchase Agreement to conform to the amended EBITDA definition contained in the Credit Agreement Amendment.

Debt Covenant Compliance and Noteholders Consent

The Company was in compliance with all covenant obligations under the aforementioned credit and note purchase agreements at September 30, 2013. In connection with its compliance with the covenant obligations as of December 31, 2012, the Company received a consent from its lender group to make a partial or complete withdrawal from the GCC/IBT National Pension Plan, and in connection with such withdrawal the Company recorded, as of December 31, 2012, a withdrawal liability with an estimated present value of $31.7 million. The lender group agreed to waive any event of default under the credit agreement that might occur as a result of such withdrawal and the incurrence of such withdrawal liability and acknowledged that the withdrawal liability incurred by the Company will not constitute indebtedness. See Note 15 – Multiemployer Pension Plans for more information regarding the withdrawal liability.

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Other Debt Arrangements

In October 2011, the Company financed a $0.6 million three-year equipment and software maintenance agreement effective through November 2014. The payments are due in annual installments ending in December 2013. The total balance outstanding for the equipment and software maintenance fees at September 30, 2013 is $0.2 million and is included in Current portion of long-term debt.

In July 2013, the Company’s Belgium subsidiary entered into a financing arrangement for the purchase of production equipment in the amount of $0.1 million, with monthly payments over a three year period ending in June 2016. The balance outstanding at September 30, 2013 is $0.1 million, of which less than $0.1 million is included in Current portion of long-term debt and less than $0.1 million is included in Long-term debt.

Off-balance sheet arrangements and contractual obligations

The Company does not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

There were no material changes in the Company’s minimum debt, lease and other material noncancelable commitments as of September 30, 2013 from those reported in the Company’s Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

See Note 1 – Significant Accounting Policies to the Consolidated Financial Statements, included in Part I, Item 1, for information on recent accounting pronouncements.

Critical accounting policies and estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon its 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 the Company to make estimates

and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of its financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the Company’s Form 10-K for the year ended December 31, 2012 for further discussion of the Company’s critical accounting estimates and policies.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A discussion regarding market risk is included in the Company’s Form 10-K for the year ended December 31, 2012. There have been no material changes in information regarding market risk relating to the Company’s business on a consolidated basis since December 31, 2012.

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of September 30, 2013, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective.

(b) Changes in Internal Control Over Financial Reporting

Other than as follows, there have been no changes in our internal controls over financial reporting during the third quarter of fiscal 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting: In connection with the Company’s information technology and business process improvement initiative, the Company is currently implementing a new global Enterprise Resource Planning (“ERP”) system, which will replace multiple legacy financial systems used for job production and invoicing, and which includes upgrades to the Company’s general accounting, financial reporting and human resource systems. The first phase of the new ERP system, consisting principally of an upgrade of the Company’s general accounting, human resources and financial reporting systems, was implemented during 2012. In addition, during the second half of 2012 and the first nine months of 2013, the Company implemented job production and invoicing modules at certain of the Company’s locations. During the remainder of 2013 and in 2014, additional phases of the ERP system are anticipated to be implemented, including the job production and invoicing modules at the remainder of the Company’s locations. As a result of the implementation of the new ERP system, certain of the Company’s internal controls over financial reporting and related processes will be modified or redesigned to conform with and support the new ERP system.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

The Company has included in Part I, Item 1A of its Annual Report on Form 10-K for the year ended December 31, 2012 (the “Annual Report”) descriptions of certain risks and uncertainties that could affect the Company’s business, future performance or financial condition. The risk factors described in the Annual Report (collectively, the “Risk Factors”) could materially adversely affect the Company’s business, financial condition, future results or trading price of the Company’s common stock. In addition to the other information contained in the reports the Company files with the SEC, investors should consider these Risk Factors prior to making an investment decision with respect to the Company’s stock. The risks described in the Risk Factors, however, are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or those that are currently considered to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Company

In November 2010, the Board of Directors of the Company reinstated the Company’s share repurchase program, which authorizes the Company to repurchase from time to time up to two million shares of Schawk Inc. common stock per year, subject to the restricted payment limitations of the Company’s credit facility. The Company did not repurchase any shares of its common stock during either the nine-month period ended September 30, 2013 or the nine-month period ended September 30, 2012. In addition, shares of common stock are occasionally tendered to the Company by certain employee and director stockholders in payment of stock options exercised. During the nine-month periods ended September 30, 2013 and September 30, 2012, 4,333 and 4,391 shares, respectively, of Schawk, Inc. common stock were tendered to the Company in connection with stock option exercises. The Company records the receipt of common stock in payment for stock options exercised as a reduction of common stock issued and outstanding. During the nine-month period ended September 30, 2013, certain officers of the Company tendered 39,739 shares of Schawk Inc. common stock to the Company in satisfaction of tax liabilities associated with retirement-age vesting provisions of their restricted stock awards. The shares tendered had a market value of $0.5 million based on a $13.38 per share closing price on the date the shares were tendered. The receipt of the shares was recorded by the Company as an addition to Treasury Stock and a reduction of a receivable from the Company officers.

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Item 6. Exhibits

3.1	Certificate of Incorporation of Schawk, Inc., as amended. Incorporated herein by reference to Exhibit 4.2 to Registration Statement No. 333-39113.
3.2	By-Laws of Schawk, Inc., as amended. Incorporated herein by reference to Exhibit 3.2 to Form 8-K filed with the SEC on December 18, 2007.
4.1	Specimen Class A Common Stock Certificate. Incorporated herein by reference to Exhibit 4.1 to Registration Statement No. 33-85152.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. *
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. *
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (Unaudited), (ii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited), (iii) Consolidated Statements of Cash Flows (Unaudited) and (iv) Notes to Consolidated Financial Statements.
	* Filed or furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 30th day of October, 2013.

Schawk, Inc.

(Registrant)

By:	/s/ John B. Toher
	John B. Toher
	Vice President and
	Corporate Controller