OurTable senior secured credit facility contains customary financial and other covenants, including a maximum leverage ratio and a minimum interest coverage ratio, as defined in the Amended and Restated Credit Agreement. Our senior secured credit facility also places certain restrictions on our ability to make capital expenditures. As of September 30, 2011, we were in compliance with all covenants. Below are the required financial covenant levels and the actual levels as of September 30, 2011: Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2011~~2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-133825

SGS INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		20-3939981
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

626 West Main Street, Suite 500 Louisville, Kentucky		40202
(Address of principal executive offices)		(Zip Code)

(502) 637-5443

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ¨ No x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~October~~April 3130, ~~2011~~2012 there were 100 shares of the registrant’s common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		3
PART I - FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	2119
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2723
Item 4.	Controls and Procedures	2823
PART II - OTHER INFORMATION		2825
Item 1.	Legal Proceedings	2825
Item 1A.	Risk Factors	2825
Item 6.	Exhibits.	2925
SIGNATURES		3128

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements

SGS International, Inc. and Subsidiaries

Condensed Consolidated ~~Statements~~Balance ofSheets ~~Income~~

(~~unaudited~~in thousands of dollars, except share and per share data)

(in thousands of dollars)


	March 31, 2012		December 31, 2011
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	7,228	$	12,859
Receivables from customers, less allowances of $1,720 and $1,596 at March 31, 2012 and December 31, 2011, respectively		79,510		71,507
Inventories		13,222		13,719
Deferred income taxes		2,575		2,779
Income taxes receivable		795		2,272
Prepaid expenses and other current assets		3,709		3,965

Total current assets		107,039		107,101

Properties, plants and equipment, net		51,326		48,825
Goodwill		192,626		190,993
Other intangible assets, net		159,995		161,879
Deferred financing costs, net		1,894		2,188
Other assets		2,785		2,509


TOTAL ASSETS	$	515,665	$	513,495


LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Accounts payable, trade	$	16,115	$	20,642
Accrued expenses		18,256		19,812
Accrued income taxes		253		2,283
Accrued interest		5,605		821
Current portion of long-term obligations		17,152		21,139

Total current liabilities		57,381		64,697

Long-term obligations, net of current portion		240,223		241,158
Non-current liabilities		3,285		2,881
Deferred income taxes		42,828		41,393


Total liabilities		343,717		350,129


Commitments and contingencies

Stockholder’s equity:
Common stock, $.01 par value, 1,000 shares authorized and 100 shares issued and outstanding		—		—
Additional paid in capital		107,000		107,000
Accumulated other comprehensive income - unrealized foreign currency translation adjustments, net of tax		4,143		975
Retained earnings		60,805		55,391

Total stockholder’s equity		171,948		163,366


TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	515,665	$	513,495

	Three MonthsEndedSeptember 30,2011			Three MonthsEndedSeptember 30,2010
NET SALES	$	93,314		$	87,282
COSTS OF OPERATIONS:
Cost of goods sold (exclusive of depreciation)		57,873			53,400
Selling, general, and administrative expenses		19,393			12,865
Depreciation and amortization		6,175			5,961
INCOME FROM OPERATIONS		9,873			15,056
NON-OPERATING EXPENSES:
Interest expense, net		6,592			6,569
Other income, net		(387	)		(294	)
INCOME BEFORE INCOME TAXES		3,668			8,781
PROVISION FOR INCOME TAXES		1,087			3,443
NET INCOME	$	2,581		$	5,338

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2011, are an integral part of the consolidated financial statements.

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2010, are an integral part of the financial statements.

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(unaudited)

(in thousands of dollars)

	Nine MonthsEndedSeptember 30,2011			Nine MonthsEndedSeptember 30,2010
	Quarter EndedMarch 31, 2012			Quarter EndedMarch 31, 2011
NET SALES	$	~~284~~99,~~207~~079		$	~~267~~91,~~770~~639
COSTS OF OPERATIONS:
Cost of goods sold (exclusive of depreciation)		172,115			157,696
Cost of goods sold (exclusive of depreciation and amortization)		61,738			54,463
Selling, general, and administrative expenses		5016,~~521~~234			4015,~~278~~035
Depreciation and amortization		176,~~968~~445			175,~~645~~748
INCOME FROM OPERATIONS		4314,~~603~~662			5216,~~151~~393
NON-OPERATING EXPENSES:
Interest expense, net		196,~~796~~158			196,~~958~~578
Other (income) expense, net		(165	)		292
Other expense, net		254			289
INCOME BEFORE INCOME TAXES		238,~~972~~250			319,~~901~~526
PROVISION FOR INCOME TAXES		52,~~818~~837			121,~~390~~967
NET INCOME	$	185,~~154~~413		$	197,~~511~~559

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual report on Form 10-K for the year ended December 31, ~~2010~~2011, are an integral part of the consolidated financial statements.

SGS International, Inc. and Subsidiaries

Condensed Consolidated ~~Balance~~Statements ~~Sheets~~of Comprehensive Income

(~~in thousands of dollars, except share and per share data~~unaudited)

	September 30,2011			December 31,2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,715		$	9,513
Receivables from customers, less allowances of $1,850 and $1,563 at September 30, 2011 and December 31, 2010, respectively		75,031			65,153
Inventories		11,468			9,753
Income taxes receivable		2,222			—
Deferred income taxes		4,303			1,300
Prepaid expenses and other current assets		3,866			3,283
Total current assets		103,605			89,002
Properties, plants and equipment, net		47,104			44,195
Goodwill		189,938			185,067
Other intangible assets, net		164,096			159,578
Deferred financing costs, net		2,600			3,535
Other assets		2,272			1,842
TOTAL ASSETS	$	509,615		$	483,219
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable, trade	$	13,127		$	16,519
Accrued expenses		20,995			19,341
Accrued income taxes		1,266			199
Accrued interest		6,118			884
Current portion of long-term obligations		10,139			5,139
Total current liabilities		51,645			42,082
Long-term obligations, net of current portion		257,326			261,413
Non-current liabilities		3,391			2,814
Deferred income taxes		41,262			34,858
Total liabilities		353,624			341,167
Commitments and contingencies
Stockholder’s equity:
Common stock, $.01 par value, 1,000 shares authorized and 100 shares outstanding		—			—
Additional capital		107,000			107,000
Accumulated other comprehensive income (loss) - unrealized translation adjustments, net of tax		(1,736	)		2,479
Retained earnings		50,727			32,573
Total stockholder’s equity		155,991			142,052
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	509,615		$	483,219

(in thousands of dollars)


	Quarter Ended March 31, 2012		Quarter Ended March 31, 2011

Net Income	$	5,413	$	7,559

Other Comprehensive Income:
Change in Foreign Currency Translation Adjustments, net		3,168		3,581


Comprehensive Income	$	8,581	$	11,140

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands of dollars)

	Nine MonthsEndedSeptember 30,2011			Nine MonthsEndedSeptember 30,2010
	Quarter EndedMarch 31, 2012			Quarter EndedMarch 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES	$	286,~~376~~536		$	389,~~210~~019
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties, plants and equipment		(106,~~566~~842	)		(73,~~043~~871	)
Proceeds from sales of equipment		911			108
Business acquisitions, net of cash acquired		(~~21,779~~250	)		(21,~~047~~123	)
Net cash used in investing activities		(327,~~336~~081	)		(94,~~080~~986	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility		8,000			—
Payments on revolving credit facility		(4,000	)		—
Payments on revolving credit facility		(3,000	)		—
Payments on senior term loan and acquisition facility		(1,251	)		(1,251	)
Payments on senior term loan and acquisition facility		(3,758	)		(11,870	)
Payments on other long-term debt		(30	)		(32	)
Payments on other long-term debt		(95	)		(480	)
Net cash used in financing activities		(5,281	)		(1,283	)
Net cash provided by (used in) financing activities		1,147			(12,350	)
Effect of exchange rate changes on cash		195			203
Effect of exchange rate changes on cash		15			47
NET CHANGE IN CASH AND CASH EQUIVALENTS		(5,631	)		2,953
NET CHANGE IN CASH AND CASH EQUIVALENTS		(2,798	)		16,827
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		12,859			9,513
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,513			10,710
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,228		$	12,466
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,715		$	27,537

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(all amounts in thousands of dollars, unless otherwise stated)

A.	Summary of Significant Accounting Policies

General Nature of Business

SGS International, Inc. (“the Company” or “the Registrant”), headquartered in Louisville, Kentucky, operates in one operating business segment, pre-press graphic services. The Company provides a variety of services that include the preparatory steps that precede the actual printing of an image onto packaging material. The Company supplies photographic images, digital images, flexographic printing plates and rotogravure cylinders for the packaging printing industry. The Company has 3940 locations in the United States, Canada, Mexico, the United Kingdom, the Netherlands, Hong Kong, ~~and~~ the Philippines, and Argentina.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in ~~accordance~~ accordance with accounting principles generally accepted in the United States for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and related footnotes that would normally be required by accounting principles generally accepted in the United States for complete financial reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated audited ~~financial~~ financial statements for the year ended December 31, ~~2010~~2011 in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (SEC). The December 31, ~~2010~~2011 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

The ~~accompanying~~ accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of a normal and recurring nature) that management considers necessary for a fair statement of financial information for the interim periods. Interim results are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, ~~2011~~2012.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of SGS International, Inc., and its wholly owned subsidiaries ~~and companies more than fifty percent owned~~. These subsidiaries include Southern Graphic Systems, Inc., Project Dove Holdco, Inc., Project Dove Manitoba, L.P., Southern Graphic Systems-Canada, Co., Southern Graphic Systems Mexico, S. De R.L. De C.V, SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited, The Box Room Limited, SGS Packaging Netherlands B.V., McGurk Studios Limited, Thames McGurk Limited, and SGS Asia Pacific Limited. These subsidiaries also include SGS Argentina S.R.L. ~~since~~from its inception in July 2011 and SGS International Panama, S. de R.L. from its inception in September 2011.

Inventories and Cost of Goods Sold

Raw materials inventory is ~~valued~~carried at the lower of cost or market with cost determined using the first-in, first-out ~~(“FIFO”)~~ method. Work-in-process inventory is ~~valued~~carried at the lower of cost or net realizable value. There is no finished goods inventory since all products are shipped upon completion. Raw materials inventory and work-in-process inventory are as follows:

	September 30,2011		December 31,2010
	March 31,2012		December 31,2011
Raw materials	$	34,~~065~~498	$	35,~~180~~553
Work-in-process		8,~~403~~724		68,~~573~~166
Total	$	1113,~~468~~222	$	913,~~753~~719

Use of Estimates

The condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and require management to make certain estimates and assumptions. These may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. They may also affect the reported amounts of revenues and expenses during the reporting period. Areas that require significant judgments, estimates and assumptions include revenue recognition, accounts receivable and the allowance for doubtful accounts, work-in-process inventory, impairment of goodwill, other intangible assets and long-lived assets, accrued health and welfare benefits, and tax matters. Management uses historical experience and all available information to make these judgments and actual results could differ from those estimates upon subsequent resolution of some matters.

Recent Accounting Pronouncements

In ~~September~~June 2011, the Financial Accounting Standards Board ~~issued Accounting Standards Update~~ (“~~ASU~~FASB”) issued ASU 2011-0805, “~~Intangibles~~Presentation –of ~~Goodwill~~Comprehensive ~~and Other~~Income.” ASU 2011-0805 ~~allows~~requires ancompanies ~~entity~~ to ~~first~~retrospectively ~~assess~~present ~~qualitative~~comprehensive ~~factors~~income toeither ~~determine~~in ~~whether~~a itsingle iscontinuous ~~necessary~~statement toof ~~perform~~comprehensive ~~the~~income ~~two-step~~or ~~quantitative~~in ~~goodwill~~two ~~impairment~~separate ~~test.~~but ~~Under ASU~~consecutive ~~2011-08~~statements, anand eliminates ~~entity would not be required to calculate~~ the ~~fair~~current ~~value~~option of apresenting ~~reporting~~components ~~unit~~of ~~unless~~comprehensive ~~the~~income ~~entity~~as ~~determines,~~part ~~based~~of onthe astatement ~~qualitative~~of ~~assessment,~~changes ~~that~~in itstockholder’s ~~is more likely than not that its fair value is less than its carrying amount~~equity. The Company adopted ASU 2011-0805 ~~effective~~on ~~October~~January 1, ~~2011~~2012. The adoption of ASU 2011-0805 did not have a material impact on the Company’s results of operations or financial position.

BASU 2011-05 also will require companies to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income; however, these requirements have been deferred under ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ~~Acquisitions~~The eventual adoption of the deferred provisions of ASU 2011-05 is not expected to have a material impact on the Company’s results of operations or financial position.

~~During the nine months ended September 30, 2011, the Company completed four acquisitions with an aggregate estimated purchase price of $24,107~~B. OnGoodwill February 11, 2011, Southern Graphic Systems, Inc. acquired the assets of a digital print company in Dallas, Texas. On April 29, 2011, Southern Graphic Systems-Canada, Co. acquired the assets of a Canadian provider of packaging and ~~retail~~Other ~~graphics~~Intangible services. On June 20, 2011, Southern Graphic Systems, Inc. acquired the assets of a company in Tampa, Florida that provide the Company with expanded capabilities in the areas of metal decorating and image carriers for beverage can printing. On September 16, 2011, Southern Graphic Systems, Inc. acquired the assets of an Ohio-based gravure engraving/imaging business. Assets

~~The~~Goodwill ~~aggregate~~and ~~purchase~~other ~~price~~intangible ~~for~~assets ~~the~~consist ~~acquisitions is estimated since a component~~ of the ~~purchase~~ ~~price~~following: for the Tampa acquisition is contingent upon profit measures not yet finalized. The aggregate purchase price may change significantly depending on the final determination of these profit measures. In addition, the payment of approximately $2,569 of the estimated aggregate purchase price has been deferred until subsequent periods. The deferred purchase price consists of $1,819 presented as accrued expenses and $750 presented as non-current liabilities in the accompanying condensed consolidated balance sheet.

The preliminary purchase price allocation for these acquisitions in aggregate is provided below. This allocation, particularly as it relates to amounts allocated to goodwill and customer relationships, may change significantly based on final purchase price adjustments and completion of valuation analyses.


	March 31, 2012			December 31, 2011

Goodwill, cost	$	192,626		$	190,993


Customer relationships, cost	$	192,561		$	191,240
Customer relationships, accumulated amortization		(53,492	)		(50,736	)

Other intangible assets, cost		30,838			30,710
Other intangible assets, accumulated amortization		(9,912	)		(9,335	)

Total	$	159,995		$	161,879

Allocation of purchase price:
Current assets	$	988
Properties, plants and equipment		2,230
Goodwill		7,064
Customer relationships		14,233
Liabilities assumed		(408	)
Estimated aggregate acquisition price	$	24,107

Results of operations of the acquisitions are included in the condensed consolidated statements of operations from the date of each acquisition. Pro forma results of the Company, assuming the acquisitions had been made at the beginning of each period presented, would not have been materially different from the results reported.

C.The ~~Goodwill~~change in goodwill, customer relationships (cost) and ~~Other~~other ~~Intangible~~intangible ~~Assets~~assets (cost) during the quarter ended March 31, 2012 is due to the following:

Goodwill and other intangible assets consist of the following:


	Goodwill		Customer Relationships (cost)		Other Intangible Assets (cost)

Balance at December 31, 2011	$	190,993	$	191,240	$	30,710

Changes due to foreign currency fluctuations		1,633		1,321		128


Balance at March 31, 2012	$	192,626	$	192,561	$	30,838

	September 30,2011			December 31,2010
Goodwill, cost	$	189,938		$	185,067
Customer relationships, cost	$	190,465		$	177,616
Customer relationships, accumulated amortization		(48,226	)		(41,654	)
Other intangible assets, cost		30,630			31,008
Other intangible assets, accumulated amortization		(8,773	)		(7,392	)
Total	$	164,096		$	159,578

Amortization of customer relationships and other intangible assets is estimated to be between $10,500 and $11,500 in total per year from 2012 through 2016. Additionally, amortization of the payment for an exclusive supply agreement is expected to be $833 annually. This amortization of the exclusive supply agreement is recorded as a reduction in net sales and amounted to $208 for each of the quarters ended March 31, 2012 and 2011, respectively.

~~The~~C. ~~change~~Interest ~~in goodwill~~Expense, ~~customer relationships (cost) and other intangible assets (cost) during the nine months ended September 30, 2011 is due to the following:~~ net

	Goodwill			Customerrelationships(cost)			Otherintangibleassets(cost)
Balance at December 31, 2010	$	185,067		$	177,616		$	31,008
Acquisitions		7,064			14,233			—
Changes due to foreign currency fluctuations		(2,193	)		(1,384	)		(378	)
Balance at September 30, 2011	$	189,938		$	190,465		$	30,630

Interest expense, net consists of the following:

Amortization of customer relationships and other intangible assets is estimated to be between $10,500 and $11,500 in total per year from 2011 through 2015.


	Quarter Ended March 31, 2012		Quarter Ended March 31, 2011
Interest on senior term loan	$	583	$	625
Interest on borrowings on acquisition facility		274		300
Interest on senior subordinated notes		4,785		5,235
Interest on revolving loan facility		127		—
Amortization of deferred financing costs		295		313
Commitment fees on senior credit facility		76		100
Other		18		5

Total	$	6,158	$	6,578

~~Amortization of the payment for an exclusive supply agreement is recorded as a reduction in net sales~~D. ~~Such~~Fair ~~amortization~~Value is expected to be $833 annually, and amounted to $624 and $528 for the nine months ended September 30, 2011 and September 30, 2010, respectively. Amortization of $208 was recorded in each of the quarters ended September 30, 2011 and September 30, 2010. Measurements

Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their values. These categories include (in descending order of priority): Level 1 inputs are observable inputs such as quoted prices in active markets; Level 2 inputs are inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The estimated fair value of the Company’s investments in the non-qualified Southern Graphic Systems, Inc. Deferred Compensation Plan and the related offsetting liability are presented at fair value in the Company’s consolidated balance sheets. Investments in the Southern Graphic Systems, Inc. Deferred Compensation Plan are included in other assets and the offsetting liability is included in non-current liabilities on the Company’s consolidated balance sheets.

D.The ~~Interest~~following ~~Expense~~table shows assets measured at fair value as of March 31, ~~net~~2012 on the Company’s balance sheet, and the input categories associated with those assets:

Interest expense, net consists of the following:


	Total Fair Value at March 31, 2012		Fair Value Measurements at Reporting Date Using Level 1 Quoted Prices in Active Markets

Deferred compensation plan assets ^(a)	$	2,257	$	2,257

	Three MonthsEndedSeptember 30,2011		Three MonthsEndedSeptember 30,2010
Interest on senior term loan	$	603	$	627
Interest on borrowings on acquisition facility		285		286
Interest on senior subordinated notes		5,235		5,235
Interest on revolving loan facility		55		—
Amortization of deferred financing costs		310		355
Commitment fees on senior credit facility		91		53
Other		13		13
Total	$	6,592	$	6,569
	Nine MonthsEndedSeptember 30,2011		Nine MonthsEndedSeptember 30,2010
Interest on senior term loan	$	1,860	$	2,026
Interest on borrowings on acquisition facility		884		848
Interest on senior subordinated notes		15,705		15,705
Interest on revolving loan facility		72		—
Amortization of deferred financing costs		935		1,181
Commitment fees on senior credit facility		289		159
Other		51		39
Total	$	19,796	$	19,958

E. Comprehensive Income (Loss)

The following table sets forth comprehensive income for the quarters and nine months ended September 30, 2011 and 2010:

	Three MonthsEndedSeptember 30,2011			Three MonthsEndedSeptember 30,2010
Net income	$	2,581		$	5,338
Cumulative translation adjustments, net		(8,272	)		3,559
Total	$	(5,691	)	$	8,897
	Nine MonthsEndedSeptember 30,2011			Nine MonthsEndedSeptember 30,2010
Net income	$	18,154		$	19,511
Cumulative translation adjustments, net		(4,215	)		486
Total	$	13,939		$	19,997

F. Fair Value Measurements

prices in active markets; Level 2 inputs are inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The estimated fair value of the Company’s investments in the non-qualified Southern Graphic Systems, Inc. Deferred Compensation Plan and the related offsetting liability are presented at fair value in the Company’s balance sheets. Investments in the Southern Graphic Systems, Inc. Deferred Compensation Plan are included in other assets and the offsetting liability is included in non-current liabilities on the Company’s consolidated balance sheets.

The following table shows assets measured at fair value as of September 30, 2011 on the Company’s balance sheet, and the input categories associated with those assets:

		Total FairValue atSeptember 30,2011				Fair ValueMeasurementsat ReportingDate UsingQuoted Pricesin ActiveMarkets
Deferred compensation plan assets (a)		$	1,778			$	1,778

^(a)	The Company also has an offsetting liability related to the Deferred Compensation Plan, which is not disclosed in the table above as it is not independently measured at fair value.

The Company’s Senior Subordinated Notes ~~have~~(“Notes”) have a carrying value of $~~174~~159,500 and an estimated fair value of $~~175~~160,~~608~~190 at ~~September~~March 3031, ~~2011~~2012. The estimated fair value of the Company’s Notes is determined using quoted prices in markets that are not active and is based on the average price of the Notes either traded or purchased by third parties between ~~September~~March 1, ~~2011~~2012 and ~~October~~April 3130, ~~2011~~2012.

The Company’s capability to repurchase the senior subordinated debt at fair value is limited due to the terms of the Company’s senior secured credit facility.

GE. Commitments and Contingencies

Various lawsuits, claims and proceedings have been or may be instituted or asserted against entities within the Company. While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts and in light of legal and other defenses available to us, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the Company’s financial position, results of operations, and liquidity. As discussed below in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company entered into a confidential settlement of a legal proceeding in the third quarter of 2011.

HF. Income Taxes

The effective tax rate for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012 was 2434.34% compared to 3820.86% for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2010~~2011. The significant ~~decrease~~increase in the effective tax rate was ~~primarily~~ due to ~~two items. First,~~ an income tax benefit of approximately $1,600 ~~was~~ recorded during the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, 2011 associated with the reversal of withholding taxes on intercompany interest accrued but unpaid. This is discussed in more detail below. Furthermore, an additional income tax benefit of approximately $1,200 was recorded during the nine months ended September 30, 2011 related to a revision in the calculation of estimated state tax liabilities expected in the United States. This tax benefit was primarily related to aligning our tax accounts with an election made in the first quarter of 2011 and resulted from a reduction in the deferred state tax liability and the associated expense for intercompany interest income repatriated from foreign subsidiaries. As a result of these items, we currently expect our effective tax rate for the year ended December 31, 2011 to be approximately 27%.

~~The~~On ~~effective~~December 15, ~~tax~~2008, ~~rate~~the ~~for~~United ~~the~~States ~~quarter~~and ~~ended~~Canada ~~September 30,~~exchanged ~~2011~~instruments ~~was~~of 29ratification to place in force the Fifth Protocol of the U.6%S.-Canada ~~compared~~Tax toTreaty 39(Fifth Protocol).2% ~~for~~Included in the ~~quarter~~Fifth ~~ended~~Protocol ~~September 30,~~were ~~2010~~provisions that affected certain hybrid entities that receive or pay cross border payments. ~~This~~The ~~decrease~~hybrid provisions in the Fifth Protocol became effective January 1, 2010. To minimize the overall tax ~~rate~~impact ~~was~~of ~~due~~the Fifth Protocol, SGS filed an election to ~~revised management~~essentially ~~estimates~~repatriate ~~based~~$23,342 of intercompany interest back to the United States for tax purposes and reduce the withholding tax rate on ~~differences~~all ~~between~~future intercompany interest, including amounts ~~recorded~~previously inaccrued ~~our~~but ~~financial~~unpaid ~~statement~~from ~~compared~~25% to ~~our~~0%. ~~final~~As of December 31, 2010, the Company recorded income tax ~~return,~~expense ~~combined~~and ~~with~~a ancorresponding ~~overall~~net ~~lower~~deferred ~~blended~~tax ~~state~~liability and ~~federal~~associated withholding tax expenses totaling approximately $1,600 on intercompany interest accrued but unpaid. Due to the rate change from the tax election, this tax expense was reversed in the ~~United~~first ~~States~~quarter of 2011 when the election the Company filed became effective.

OnThe ~~December 15,~~Company ~~2008~~has ~~the~~not ~~United~~recorded ~~States~~a ~~and~~deferred ~~Canada~~tax ~~exchanged~~liability ~~instruments~~for undistributed earnings of ~~ratification~~certain tointernational ~~place~~subsidiaries because such earnings are considered permanently invested in ~~force~~foreign ~~the~~countries. ~~Fifth~~As ~~Protocol~~of March 31, 2012, undistributed earnings of ~~the U~~international subsidiaries considered permanently reinvested were approximately $13,763.~~S.-Canada~~ ~~Tax~~The ~~Treaty~~unrecognized ~~(Fifth~~deferred ~~Protocol)~~tax liability is dependent on many factors, including withholding taxes under current tax treaties and foreign tax credits. ~~Included~~Determination inof the ~~Fifth~~amount ~~Protocol~~of ~~were~~unrecognized ~~provisions~~deferred ~~that~~income tax liability related to these earnings is not practicable.

1110

~~affected certain hybrid entities that receive or pay cross border payments~~G. ~~The~~Supplemental ~~hybrid~~Guarantor provisions in the Fifth Protocol became effective January 1, 2010. To minimize the overall tax impact of the Fifth Protocol, SGS filed an election to essentially repatriate $23,342 of intercompany interest back to the United States for tax purposes and reduce the withholding tax rate on all future intercompany interest, including amounts previously accrued but unpaid from 25% to 0%. As of December 31, 2010, the Company recorded income tax expense and a corresponding net deferred tax liability and associated withholding tax expenses totaling $1,594 on intercompany interest accrued but unpaid. Due to the rate change from the tax election, this tax expense was reversed in the first quarter of 2011 when the election the Company filed became effective. Information

The Company’s ~~has~~debt ~~not~~includes ~~recorded~~the asenior ~~deferred~~secured ~~tax~~credit ~~liability~~facility ~~for~~and ~~undistributed~~the ~~earnings~~Notes. ofThe ~~certain~~U.S. ~~international~~borrowings ~~subsidiaries~~under ~~because~~the ~~such~~senior ~~earnings~~secured ~~are~~credit ~~considered~~facility ~~permanently~~have ~~invested~~been inguaranteed ~~foreign~~by ~~countries~~Southern Graphics Inc. As(the parent of SGS International, Inc.), Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. The Canadian borrowings under the senior secured credit facility have been guaranteed by SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, ~~September 30~~MCG Graphics Limited, ~~2011~~Southern Graphic Systems Mexico, ~~undistributed~~S. ~~earnings~~De ofR.L. ~~international~~De ~~subsidiaries~~C.V., ~~considered~~The ~~permanently~~Box ~~reinvested~~Room ~~were~~Limited, ~~approximately~~SGS ~~$10~~Packaging Netherlands,~~577~~ B.V., McGurk Studios Limited, Thames McGurk Limited, SGS Asia Pacific Limited, SGS Argentina S.R.L., Southern Graphic Systems, Inc., Project Dove Holdco, Inc., Project Dove Manitoba, L.P., Southern Graphics Inc., and SGS International, Inc. The ~~unrecognized~~Notes ~~deferred~~are ~~tax~~general ~~liability~~unsecured isobligations ~~dependent~~and are guaranteed on ~~many~~a ~~factors,~~senior ~~including~~subordinated ~~withholding~~basis ~~taxes~~by ~~under~~the Company’s domestic ~~current~~subsidiaries ~~tax~~and ~~treaties~~rank secondary to the Company’s senior secured credit facility. Guarantor subsidiaries for the Notes include Southern Graphic Systems, Inc. and ~~foreign~~Project ~~tax~~Dove ~~credits~~Holdco, Inc. ~~Determination~~Non-guarantor ofsubsidiaries for the ~~amount~~Notes ofinclude ~~unrecognized~~the direct ~~deferred~~and ~~income~~indirect ~~tax~~foreign ~~liability~~subsidiaries. ~~related~~The tosubsidiary ~~these~~guarantors ~~earnings~~are is100% ~~not~~owned ~~practicable~~by SGS International, Inc., the guarantees are full and unconditional, and the guarantees are joint and several.

I. Supplemental Guarantor Information

The Company’s debt includes the senior credit facility and the Notes. The U.S. borrowings under the senior credit facility have been guaranteed by Southern Graphics Inc. (the parent of SGS International, Inc.), Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. The Canadian borrowings under the senior credit facility have been guaranteed by SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited, Southern Graphic Systems Mexico, S. De R.L. De C.V., The Box Room Limited, SGS Packaging Netherlands, B.V., McGurk Studios Limited, Thames McGurk Limited, SGS Asia Pacific Limited, Southern Graphic Systems, Inc., Project Dove Holdco, Inc., Project Dove Manitoba, L.P., Southern Graphics Inc., and SGS International, Inc. The Notes are general unsecured obligations and are guaranteed on a senior subordinated basis by the Company’s domestic subsidiaries and rank secondary to the Company’s senior credit facility. Guarantor subsidiaries for the Notes include Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. Non-guarantor subsidiaries for the Notes include the direct and indirect foreign subsidiaries. The subsidiary guarantors are 100% owned by SGS International, Inc., the guarantees are full and unconditional, and the guarantees are joint and several.

Following are condensed consolidating financial statements of the Company. Investments in subsidiaries are either consolidated or accounted for under the equity method of accounting. Intercompany balances and transactions have been eliminated.

~~The~~11 relationships between the provision (benefit) for income taxes and the income before income taxes in the following condensed consolidating income statements for the three months ended and nine months ended September 30, 2011 are impacted by transferring certain previously recognized income tax expense associated with certain intercompany interest income between entities. The previously recognized income tax expense associated with the intercompany interest earned by Project Dove Manitoba, L.P. was transferred 90% to SGS International, Inc. and 10% to Project Dove Holdco, Inc. based on the percentage ownership interest each partner has in Project Dove Manitoba, L.P. As this intercompany interest income is being repatriated from Project Dove Manitoba, L.P. to SGS International, Inc. and Project Dove Holdco, Inc., and based on our election to treat Project Dove Manitoba, L.P. as a flow through entity for tax purposes, the related income tax expense is then transferred to SGS International, Inc. and Project Dove Holdco, Inc.

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

~~September~~March 3031, ~~2011~~2012

	Parent /Issuer		ConsolidatedGuarantorSubsidiaries		~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	8631	$	1,~~560~~171	$	56,~~069~~026	$	—		$	67,~~715~~228
Receivables from customers, less allowances		—		4650,~~643~~782		28,~~388~~728		—			7579,~~031~~510
Intercompany receivables		~~249~~246,~~356~~952		~~630~~2,062		41,~~305~~168		(~~254~~250,~~291~~182	)		—
Inventories		—		89,~~042~~163		34,~~426~~059		—			1113,~~468~~222
Income taxes receivable		—		4,777		43		(2,598	)		2,222
Deferred income taxes		267		2,219		89		—			2,575
Deferred income taxes		319		3,920		64		—			4,303
Income taxes receivable		—		2,727		305		(2,237	)		795
Prepaid expenses and other current assets		47100		2,~~307~~059		1,~~512~~550		—			3,~~866~~709
Total current assets		~~249~~247,~~808~~350		6770,~~879~~183		4241,~~807~~925		(~~256~~252,~~889~~419	)		~~103~~107,~~605~~039
Investment in subsidiaries		~~170~~187,~~064~~433		29,021		~~36,567~~—		(~~235~~216,~~652~~454	)		—
Properties, plants and equipment, net		—		3740,~~904~~490		910,~~200~~836		—			4751,~~104~~326
Goodwill		—		127,~~001~~189		6265,~~937~~437		—			~~189~~192,~~938~~626
Other intangible assets, net		—		~~121~~117,~~965~~811		42,~~131~~184		—			~~164~~159,~~096~~995
Deferred financing costs, net		21,~~600~~894		—		—		—			21,~~600~~894
Other assets		—		12,~~927~~417		~~345~~368		—			2,~~272~~785
Total assets	$	~~422~~436,~~472~~677	$	~~385~~387,~~697~~111	$	~~193~~160,~~987~~750	$	(~~492~~468,~~541~~873	)	$	~~509~~515,~~615~~665
Liabilities
Current liabilities
Accounts payable, trade	$	~~443~~457	$	79,~~980~~582	$	46,~~704~~076	$	—		$	1316,~~127~~115
Intercompany payables		—		~~223~~218,~~802~~071		3032,~~489~~111		(~~254~~250,~~291~~182	)		—
Accrued expenses		—		1412,~~848~~146		6,~~147~~110		—			2018,~~995~~256
Accrued income taxes		2,~~598~~237		—		~~1,266~~253		(2,~~598~~237	)		~~1,266~~253
Accrued interest		511		65,~~112~~592		12		—			65,~~118~~605
Current portion of long-term obligations		916,~~579~~571		4950		~~511~~531		—			1017,~~139~~152
Total current liabilities		1219,~~625~~276		~~252~~245,~~791~~441		4345,~~118~~083		(~~256~~252,~~889~~419	)		5157,~~645~~381
Non-current liabilities
Long-term obligations, net of current portion		~~250~~232,~~068~~917		7150		7,~~187~~256		—			~~257~~240,~~326~~223
Non-current liabilities		—		3,~~391~~285		—		—			3,~~391~~285
Deferred income taxes		3,~~575~~623		2931,~~267~~191		8,~~420~~014		—			4142,~~262~~828
Total liabilities		~~266~~255,~~268~~816		~~285~~279,~~520~~967		5860,~~725~~353		(~~256~~252,~~889~~419	)		~~353~~343,~~624~~717
Contingencies and commitments
Commitments and contingencies
Stockholder’s equity
Common stock		—		—		—		—			—
Other stockholder’s equity		~~156~~180,~~204~~861		~~100~~107,~~177~~144		~~135~~100,~~262~~397		(~~235~~216,~~652~~454	)		~~155~~171,~~991~~948
Total stockholder’s equity		~~156~~180,~~204~~861		~~100~~107,~~177~~144		~~135~~100,~~262~~397		(~~235~~216,~~652~~454	)		~~155~~171,~~991~~948
Total liabilities and stockholder’s equity	$	~~422~~436,~~472~~677	$	~~385~~387,~~697~~111	$	~~193~~160,~~987~~750	$	(~~492~~468,~~541~~873	)	$	~~509~~515,~~615~~665

1312

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

December 31, ~~2010~~2011

	Parent /Issuer		ConsolidatedGuarantorSubsidiaries		~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	~~154~~451	$	4,~~160~~639	$	57,~~199~~769		$	—		$	912,~~513~~859
Receivables from customers, less allowances		—		4245,~~896~~121		2226,~~257~~386			—			6571,~~153~~507
Intercompany receivables		~~245~~252,~~954~~216		~~445~~766		~~2,810~~62			(~~249~~253,~~209~~044	)		—
Inventories		—		69,~~850~~964		23,~~903~~755			—			913,~~753~~719
Deferred income taxes		~~4,777~~133		52,~~667~~507		~~(9,144~~139	)		—			12,~~300~~779
Prepaid expenses and other current assets		80		1,969		1,234			—			3,283
Income taxes receivable		—		4,471		150			(2,349	)		2,272
Total current assets		250,965		61,987		25,259			(249,209	)		89,002
Prepaid expenses and other current assets		126		2,474		1,365			—			3,965
Investment in subsidiaries		151,585		29,226		—			(180,811	)		—
Total current assets		252,926		69,942		39,626			(255,393	)		107,101
Properties, plants and equipment, net		—		35,572		8,623			—			44,195
Investment in subsidiaries		178,484		29,021		—			(207,505	)		—
Goodwill		—		119,970		65,097			—			185,067
Properties, plants and equipment, net		—		39,349		9,476			—			48,825
Other intangible assets, net		—		115,552		44,026			—			159,578
Goodwill		—		127,189		63,804			—			190,993
Deferred financing costs, net		3,535		—		—			—			3,535
Other intangible assets, net		—		120,030		41,849			—			161,879
Other assets		—		1,494		348			—			1,842
Deferred financing costs, net		2,188		—		—			—			2,188
Total assets	$	406,085	$	363,801	$	143,353		$	(430,020	)	$	483,219
Other assets		—		2,145		364			—			2,509
Total assets	$	433,598	$	387,676	$	155,119		$	(462,898	)	$	513,495
Liabilities
Current liabilities
Accounts payable, trade	$	~~554~~491	$	1114,~~261~~512	$	45,~~704~~639		$	—		$	1620,~~519~~642
Intercompany payables		—		~~219~~222,~~458~~578		2930,~~751~~466			(~~249~~253,~~209~~044	)		—
Accrued expenses		99—		13,~~920~~528		56,~~322~~284			—			19,~~341~~812
Accrued income taxes		—2,349		—		~~199~~2,283			—(2,349	)		~~199~~2,283
Accrued interest		512		~~878~~807		12			—			~~884~~821
Current portion of long-term obligations		420,~~626~~571		50		~~463~~518			—			521,139
Total current liabilities		523,~~284~~423		~~245~~251,~~567~~475		4045,~~440~~192			(~~249~~255,~~209~~393	)		4264,~~082~~697
Non-current liabilities
Long-term obligations, net of current portion		~~253~~233,~~445~~897		8658		7,~~882~~203			—			~~261~~241,~~413~~158
Non-current liabilities		—		2,~~814~~881		—			—			2,~~814~~881
Deferred income taxes		53,~~304~~651		2029,~~148~~883		97,~~406~~859			—			3441,~~858~~393
Total liabilities		~~264~~260,~~033~~971		~~268~~284,~~615~~297		5760,~~728~~254			(~~249~~255,~~209~~393	)		~~341~~350,~~167~~129
Contingencies and commitments
Commitments and contingencies
Stockholder’s equity:
Common stock		—		—		—			—			—
Other stockholder’s equity		~~142~~172,~~052~~627		95103,~~186~~379		8594,~~625~~865			(~~180~~207,~~811~~505	)		~~142~~163,~~052~~366
Total stockholder’s equity		~~142~~172,~~052~~627		95103,~~186~~379		8594,~~625~~865			(~~180~~207,~~811~~505	)		~~142~~163,~~052~~366
Total liabilities and stockholder’s equity	$	~~406~~433,~~085~~598	$	~~363~~387,~~801~~676	$	~~143~~155,~~353~~119		$	(~~430~~462,~~020~~898	)	$	~~483~~513,~~219~~495

1413

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the ~~Three~~Quarter ~~Months~~ Ended ~~September~~March 3031, ~~2011~~2012

	Parent /Issuer			ConsolidatedGuarantorSubsidiaries			~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Sales	$	—		$	6570,~~972~~052		$	2729,~~342~~027		$	—		$	9399,~~314~~079
Intercompany sales		—			~~821~~939			21,~~106~~856			(2,~~927~~795	)		—
Total net sales		—			6670,~~793~~991			2930,~~448~~883			(2,~~927~~795	)		9399,~~314~~079
Costs of operations:
Cost of goods sold (exclusive of depreciation)		—			41,224			19,576			(2,927	)		57,873
Cost of goods sold (exclusive of depreciation and amortization)		—			44,058			20,475			(2,795	)		61,738
Selling, general and administrative expenses		~~(704~~462	)		1510,~~008~~717			5,~~089~~055			—			1916,~~393~~234
Depreciation and amortization		—			4,~~620~~718			1,~~555~~727			—			6,~~175~~445
Income from operations		704			5,941			3,228			—			9,873
Income (loss) from operations		(462	)		11,498			3,626			—			14,662
Interest expense, net		~~455~~393			5,~~685~~224			~~452~~541			—			6,~~592~~158
Other expense (income), net		~~(61~~112	)		1(43	)		~~(327~~185	)		—			~~(387~~254	)
Income before equity in net income from subsidiaries		310			255			3,103			—			3,668
Income (loss) before equity in net income from subsidiaries		(967	)		6,317			2,900			—			8,250
Equity in net income of subsidiaries		~~235~~6,129			—			—			(~~235~~6,129	)		—
Income before income taxes		~~545~~5,162			~~255~~6,317			32,~~103~~900			(~~235~~6,129	)		38,~~668~~250
Provision (benefit) for income taxes		(~~2,036~~251	)		2,~~138~~553			~~985~~535			—			12,~~087~~837
Net income (loss)	$	2,581		$	(1,883	)	$	2,118		$	(235	)	$	2,581
Net income	$	5,413		$	3,764		$	2,365		$	(6,129	)	$	5,413

1514

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the ~~Three~~Quarter ~~Months~~ Ended ~~September~~March 3031, ~~2010~~2011

Parent /Issuer

ConsolidatedGuarantorSubsidiaries

~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries

Eliminations

Consolidated

Net sales:

Sales

—

6264,~~218~~134

2527,~~064~~505

—

8791,~~282~~639

Intercompany sales

—

~~710~~556

1,~~530~~608

(2,~~240~~164

)

—

Total net sales

—

6264,~~928~~690

2629,~~594~~113

(2,~~240~~164

)

8791,~~282~~639

Costs of operations:

Cost of goods sold (exclusive of depreciation)

—

3738,~~880~~505

1718,~~760~~122

(2,~~240~~164

)

5354,~~400~~463

Selling, general and administrative expenses

~~453~~327

79,~~838~~782

4,~~574~~926

—

1215,~~865~~035

Depreciation and amortization

—

4,~~292~~235

1,~~669~~513

—

5,~~961~~748

Income (loss) from operations

(~~453~~327

)

12,~~918~~168

24,~~591~~552

—

1516,~~056~~393

Interest expense, net

~~147~~201

5,~~693~~704

~~729~~673

—

6,~~569~~578

Other (income) expense, net

~~145~~162

(~~558~~17

)

~~119~~144

—

~~(294~~289

)

Income (loss) before equity in net income from subsidiaries

(~~745~~690

)

76,~~783~~481

13,~~743~~735

—

89,~~781~~526

Equity in net income of subsidiaries

68,~~145~~448

—

(68,~~145~~448

)

—

Income before income taxes

57,~~400~~758

76,~~783~~481

13,~~743~~735

(68,~~145~~448

)

89,~~781~~526

Provision for income taxes

2,635

746

—

3,443

Provision for (benefit from) income taxes

199

2,692

(924

)

—

1,967

Net income

57,~~338~~559

53,~~148~~789

~~997~~4,659

(68,~~145~~448

)

57,~~338~~559

1615

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Comprehensive Income

For the ~~Nine~~Quarter ~~Months~~ Ended ~~September~~March 3031, ~~2011~~2012

	Parent /Issuer			ConsolidatedGuarantorSubsidiaries			~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Net Income	$	5,413		$	3,764		$	2,365		$	(6,129	)	$	5,413
Sales	$	—		$	199,041		$	85,166		$	—		$	284,207
Other Comprehensive Income:
Intercompany sales		—			2,096			6,011			(8,107	)		—
Change in Foreign Currency Translation Adjustments, net		2,819			—			3,168			(2,819	)		3,168
Total net sales		—			201,137			91,177			(8,107	)		284,207
Comprehensive Income	$	8,232		$	3,764		$	5,533		$	(8,948	)	$	8,581
Costs of operations:
Cost of goods sold (exclusive of depreciation)		—			121,848			58,374			(8,107	)		172,115
Selling, general and administrative expenses		178			34,899			15,444			—			50,521
Depreciation and amortization		—			13,323			4,645			—			17,968
Income (loss) from operations		(178	)		31,067			12,714			—			43,603
Interest expense, net		993			17,101			1,702			—			19,796
Other expense (income), net		80			(144	)		(101	)		—			(165	)
Income (loss) before equity in net income from subsidiaries		(1,251	)		14,110			11,113			—			23,972
Equity in net income of subsidiaries		24,733			—			—			(24,733	)		—
Income before income taxes		23,482			14,110			11,113			(24,733	)		23,972
Provision (benefit) for income taxes		5,328			8,959			(8,469	)		—			5,818
Net income	$	18,154		$	5,151		$	19,582		$	(24,733	)	$	18,154

17Supplemental Condensed Consolidating Statement of Comprehensive Income

For the Quarter Ended March 31, 2011


	Parent / Issuer		Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries		Eliminations			Consolidated

Net Income	$	7,559	$	3,789	$	4,659	$	(8,448	)	$	7,559

Other Comprehensive Income:
Change in Foreign Currency Translation Adjustments, net		3,581		—		3,581		(3,581	)		3,581


Comprehensive Income	$	11,140	$	3,789	$	8,240	$	(12,029	)	$	11,140

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Nine Months Ended September 30, 2010

	Parent /Issuer			ConsolidatedGuarantorSubsidiaries			ConsolidatedNon-GuarantorSubsidiaries		Eliminations			Consolidated
Net sales:
Sales	$	—		$	189,305		$	78,465	$	—		$	267,770
Intercompany sales		—			2,240			4,826		(7,066	)		—
Total net sales		—			191,545			83,291		(7,066	)		267,770
Costs of operations:
Cost of goods sold (exclusive of depreciation)		—			112,911			51,851		(7,066	)		157,696
Selling, general and administrative expenses		1,354			25,297			13,627		—			40,278
Depreciation and amortization		—			12,884			4,761		—			17,645
Income (loss) from operations		(1,354	)		40,453			13,052		—			52,151
Interest expense, net		657			17,167			2,134		—			19,958
Other (income) expense, net		(74	)		(440	)		806		—			292
Income (loss) before equity in net income from subsidiaries		(1,937	)		23,726			10,112		—			31,901
Equity in net income of subsidiaries		20,933			—			—		(20,933	)		—
Income before income taxes		18,996			23,726			10,112		(20,933	)		31,901
Provision (benefit) for income taxes		(515	)		9,061			3,844		—			12,390
Net income	$	19,511		$	14,665		$	6,268	$	(20,933	)	$	19,511

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the ~~Nine~~Quarter ~~Months~~ Ended ~~September~~March 3031, ~~2011~~2012

	Parent /Issuer			ConsolidatedGuarantorSubsidiaries			~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operations	$	(14,~~592~~736	)	$	242,~~998~~592		$	~~4,970~~(792	)	$	—	$	286,~~376~~536
Investing activities:
Acquisition of properties, plants and equipment		—			(75,~~799~~810	)		(21,~~767~~032	)		—		(106,~~566~~842	)
Proceeds from sales of equipment		—			111			8—			—		911
Business acquisitions, net of cash acquired		—			(~~19,761~~250	)		~~(2,018~~—	)		—		(~~21,779~~250	)
Net cash used in investing activities		—			(276,~~559~~049	)		(41,~~777~~032	)		—		(327,~~336~~081	)
Financing activities:
Borrowings on revolving credit facility		8,000			—			—			—		8,000
Payments on revolving credit facility		(4,000	)		—			—			—		(4,000	)
Payments on revolving credit facility		(3,000	)		—			—			—		(3,000	)
Payments on senior term loan and acquisition facility		(1,156	)		—			(95	)		—		(1,251	)
Payments on senior term loan and acquisition facility		(3,476	)		—			(282	)		—		(3,758	)
Payments on other long-term debt		—			(11	)		(19	)		—		(30	)
Payments on other long-term debt		—			(39	)		(56	)		—		(95	)
Net cash used in financing activities		(5,156	)		(11	)		(114	)		—		(5,281	)
Net cash provided by (used in) financing activities		1,524			(39	)		(338	)		—		1,147
Effect of exchange rate changes on cash		—			—			195			—		195
Effect of exchange rate changes on cash		—			—			15			—		15
Decrease in cash and cash equivalents		(420	)		(3,468	)		(1,743	)		—		(5,631	)
Decrease in cash and cash equivalents		(68	)		(2,600	)		(130	)		—		(2,798	)
Cash and cash equivalents, beginning of period		451			4,639			7,769			—		12,859
Cash and cash equivalents, beginning of period		154			4,160			5,199			—		9,513
Cash and cash equivalents, end of period	$	31		$	1,171		$	6,026		$	—	$	7,228
Cash and cash equivalents, end of period	$	86		$	1,560		$	5,069		$	—	$	6,715

1917

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the ~~Nine~~Quarter ~~Months~~ Ended ~~September~~March 3031, ~~2010~~2011

	Parent /Issuer			ConsolidatedGuarantorSubsidiaries			~~ConsolidatedNon~~Consolidated Non-~~GuarantorSubsidiaries~~Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operations	$	201,~~611~~175		$	85,~~856~~261		$	82,~~743~~583		$	—	$	389,~~210~~019
Investing activities:
Acquisition of properties, plants and equipment		—			(53,~~303~~122	)		(~~1,740~~749	)		—		(73,~~043~~871	)
Proceeds from sales of equipment		—			9—			18			—		108
Business acquisitions, net of cash acquired		—			(~~337~~1,123	)		~~(1,710~~—	)		—		(21,~~047~~123	)
Net cash used in investing activities		—			(54,~~631~~245	)		(~~3,449~~741	)		—		(94,~~080~~986	)
Financing activities:
Payments on senior term loan and acquisition facility		(91,~~711~~157	)		—			(~~2,159~~94	)		—		(111,~~870~~251	)
Payments on other long-term debt		—			(~~480~~14	)		—(18	)		—		(~~480~~32	)
Net cash used in financing activities		(91,~~711~~157	)		(~~480~~14	)		(~~2,159~~112	)		—		(121,~~350~~283	)
Effect of exchange rate changes on cash		—			—			47203			—		47203
Net change in cash and cash equivalents		10,900			2,745			3,182			—		16,827
Increase in cash and cash equivalents		18			1,002			1,933			—		2,953
Cash and cash equivalents, beginning of period		~~237~~154			34,~~005~~160			75,~~468~~199			—		109,~~710~~513
Cash and cash equivalents, end of period	$	~~11,137~~172		$	5,~~750~~162		$	107,~~650~~132		$	—	$	2712,~~537~~466

2018

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Item 1, “ Financial Statements” in Part I of this quarterly report on Form 10-Q.

The statements in the discussion and analysis regarding our expectations regarding the performance of our business, our liquidity and capital resources and other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties. Our actual results may differ materially from those contained in or implied by any of these forward-looking statements. You should read the following discussion together with the financial statements and the related notes included elsewhere in this report.

Overview

We are a global leader in the digital imaging industry, offering design-to-print graphic services to the international consumer products packaging market in North America, Europe, Asia, and ~~Asia~~Latin America. Our global service platform and financial capability provide a distinct competitive advantage over the majority of companies in our industry. We offer a full spectrum of innovative digital solutions that streamline the capture, management, execution, and distribution of graphics information. Our brand development, creative design, prepress, image carriers and print support services are utilized in each of the three main printing processes: flexography, gravure and lithography. Our customers, many of which we have served for over 20 years, include large branded consumer products companies, mass merchant retailers and the printers and converters that service them. Our services ensure that our customers are able to obtain or produce consistent, high quality packaging materials often on short turnaround times.

Net sales for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012 increased 68.1%, or $167.4 million, to $~~284~~99.21 million from sales of $~~267~~91.8 7 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2010~~2011. This increase in sales was primarily driven by volume growth across our customer base, most notably with large consumer packaged goods companies (CPGs) in the United States and Europe. In addition, acquired ~~foreign~~businesses generated $3.0 million of incremental sales during the quarter ended March 31, 2012. Foreign currency fluctuations, most notably the ~~weakening~~strengthening of the United States dollar compared to the Canadian dollar and British pound, ~~positively~~partially ~~impacted~~offset these sales ~~by $4~~increases.5 ~~million for~~Foreign ~~the~~currency ~~nine~~fluctuations ~~months~~negatively ~~ended~~impacted ~~September 30,~~sales ~~2011.~~by ~~Furthermore, acquired business generated~~ $40.5 million offor ~~incremental sales during~~ the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012.

InIncome ~~February~~from ~~2011~~operations decreased to $14.7 million, weor ~~acquired~~14.8% of net sales, for the ~~assets~~quarter ended March 31, 2012 compared to $16.4 million, or 17.9% of anet ~~digital~~sales, ~~print~~for ~~company~~the quarter ended March 31, 2011. This reduction in ~~Dallas~~income from operations is largely due to investments in increased capacity to support future revenue growth, ~~Texas~~including ~~that~~increased ~~include~~headcount ~~label~~and ~~printers~~the establishment of a production facility in Pittsburgh, Pennsylvania. We employed 2,396 and ~~other~~2,126 ~~equipment~~individuals ~~associated~~as ~~with~~of ~~digital~~March 31, ~~printing~~2012 and 2011, respectively. ~~This~~We ~~acquisition~~also ~~broadens~~incurred ~~our~~non-recurring ~~digital~~expenses in the quarter ended March 31, 2012 for consulting services to identify strategic markets for future growth ~~printing~~opportunities. ~~capabilities~~In ~~and~~addition, ~~increases~~we expanded our ~~capacity~~investment in selling and marketing activities to ~~offer~~stimulate ~~our~~further ~~customers~~organic ~~short~~sales ~~run~~growth. ~~reproduction~~The ~~services~~chart below provides cost of goods sold (exclusive of depreciation and ~~sales~~amortization), ~~samples~~selling orand ~~packaging~~marketing expenses, ~~mock-ups~~and general and administrative expenses, each expressed as a percentage of sales.

In19 ~~April 2011, we acquired the assets of a Canadian provider of packaging and retail graphics services. This acquisition will enable us to obtain additional sales volumes and expand our customer base.~~

In June 2011, we expanded our service offerings in the area of metal decorating and image carriers for beverage can printing with the acquisition of the assets of a company based in Tampa, Florida. We believe our expanded capabilities will lead to additional opportunities with our existing customers and allow us to further expand our customer base.

In September 2011, we acquired the assets of an Ohio-based gravure engraving/imaging business. This acquisition further strengthens our position as the leading engraver of gravure cylinders in North America.

In October 2011, we acquired a photo studio in Chicago, Illinois, which expands our capabilities within this market. We will continue to pursue attractive acquisition opportunities in the future.

Income from operations decreased to $43.6 million, or 15.3% of sales, for the nine months ended September 30, 2011 compared to $52.2 million, or 19.5% of sales, for the nine months ended September 30, 2010. This reduction in income from operations is due to a combination of factors, including a one-time final confidential settlement of a legal proceeding for an amount under $5.0 million recorded during the nine months ended September 30, 2011. In addition, the first nine months of 2010 was an unusually profitable period as we were operating above capacity and achieving profit margins that were not sustainable in the long-term. As a result, cost of goods sold expressed as a percentage of sales was 58.9% for the nine months ended September 30, 2010, compared to 62.7% for fiscal year 2009 and 65.6% for fiscal 2008. We made investments to increase our capacity, including an increase in headcount to support our higher sales volumes causing our margin to decline from the levels achieved in 2010 to a more sustainable level in 2011. In addition, we expanded our investment in selling and marketing activities to stimulate further organic sales growth. The chart below provides cost of goods sold (exclusive of depreciation), selling and marketing expenses, and general and administrative expenses, each expressed as a percentage of sales.

	QuarterEnded			QuarterEnded
(in thousands of dollars)	QuarterEnded			QuarterEnded
	September 30,2011			September 30,2010
	March 31,2012			March 31,2011
Net sales	$	9399,~~314~~079		$	8791,~~282~~639
Cost of goods sold (exclusive of depreciation)		57,873			53,400
Cost of goods sold (exclusive of depreciation and amortization)		61,738			54,463
Cost of goods sold (exclusive of depreciation), as a percentage of net sales		62.0	%		61.2	%
Cost of goods sold (exclusive of depreciation and amortization), as a percentage of net sales		62.3	%		59.4	%
Selling and marketing expenses		1011,~~201~~114			910,~~196~~620
General and administrative expenses, including litigation settlement expense		9,192			3,669
General and administrative expenses		5,120			4,415
Total selling, general, and administrative expenses		1916,~~393~~234			1215,~~865~~035
Selling and marketing expenses, as a percentage of net sales		1011.92	%		1011.56	%
General and administrative expenses, as a percentage of net sales		95.92	%		4.28	%
	Nine MonthsEnded			Nine MonthsEnded
	September 30,2011			September 30,2010
Net sales	$	284,207		$	267,770
Cost of goods sold (exclusive of depreciation)		172,115			157,696
Cost of goods sold (exclusive of depreciation), as a percentage of net sales		60.6	%		58.9	%
Selling and marketing expenses		31,856			27,409
General and administrative expenses, including litigation settlement expense		18,665			12,869
Total selling, general, and administrative expenses		50,521			40,278
Selling and marketing expenses, as a percentage of net sales		11.2	%		10.2	%
General and administrative expenses, as a percentage of net sales		6.6	%		4.8	%

The increased sales level during the ~~first~~quarter ~~nine~~ended ~~months~~March 31, of2012 ~~2011~~ demonstrates that the benefits of these investments to increase capacity and stimulate additional organic sales growth are ~~now~~ being realized. ~~Excluding the one-time litigation settlement, we believe the profit margins realized during the first nine months of 2011 are a more realistic measure of sustainable profitability.~~

RESULTS OF OPERATIONS

The information presented below for the quarters ~~and nine months~~ ended ~~September~~March 3031, ~~2011~~2012 and ~~September 30,~~2011 ~~2010~~ was prepared by management and is unaudited. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating results for such quarters and as of such dates have been included. (Dollar amounts in the table below are in thousands.)

Quarter ended ~~September~~March 3031, ~~2011~~2012 compared to quarter ended ~~September~~March 3031, ~~2010~~2011

	QuarterEndedSeptember 30,2011			QuarterEndedSeptember 30,2010			$Change			PercentageChange
(in thousands of dollars)	QuarterEnded			QuarterEnded
	(unaudited)			(unaudited)
	March 31,2012			March 31,2011			$ Change			% Change
Net sales	$	9399,~~314~~079		$	8791,~~282~~639		$	67,~~032~~440			68.91	%
Cost of goods sold (exclusive of depreciation)		57,873			53,400			4,473			8.4	%
Cost of goods sold (exclusive of depreciation and amortization)		61,738			54,463		$	7,275			13.4	%
Selling, general, and administrative expenses		1916,~~393~~234			1215,~~865~~035		$	61,~~528~~199			508.70	%
Depreciation and amortization		6,~~175~~446			5,~~961~~748		$	~~214~~698			312.61	%
Income from operations		914,~~873~~661			1516,~~056~~393		$	(51,~~183~~732	)		(3410.46	%)%
Interest expense		6,~~592~~158			6,~~569~~578		$	23(420	)		0(6.4	)%
Other income, net		(387	)		(294	)		(93	)		31.6	%
Other expense, net		253			289		$	(36	)		(12.5	)%
Income before income taxes		3,668			8,781			(5,113	)		(58.2	%)
Income from operations before income taxes		8,250			9,526		$	(1,276	)		(13.4	)%
Provision for income taxes		12,~~087~~837			31,~~443~~967		$	~~(2,356~~870	)		~~(68~~44.42	%)
Net income	$	25,~~581~~413		$	57,~~338~~559		$	(2,~~757~~146	)		(5128.64	%)%

Net Sales. Sales for the quarter ended ~~September~~March 3031, ~~2011~~2012 increased 68.91%, or $67.04 million, to $9399.31 million ~~from~~ from $8791.37 million for the quarter ended ~~September~~March 3031, ~~2010~~2011. This increase in sales was driven largely by volume growth ~~across~~in ~~our~~the ~~customer~~United ~~base~~States and Europe, most notably with large CPGs~~, in the United States and Europe~~. In addition, sales were positively impacted by acquisitions completed in 2011, which contributed $3.0 million in incremental sales for the quarter. Partially offsetting these sales increases were fluctuations in foreign currency exchange rates ~~and acquisitions~~. The ~~weakening~~strengthening of the United States dollar, as compared to the Canadian dollar and British pound, ~~positively~~negatively impacted sales by $1.0.3 million and $0.32 million, respectively. ~~Acquisitions~~ ~~contributed $3.2 million in incremental sales for the quarter.~~

~~Sales~~20 in the United States increased by $3.8 million for the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010 and included incremental sales of $0.3 million and $2.2 million associated with the acquisitions in Dallas and Tampa, respectively. After excluding the impact of foreign currency fluctuations, sales in Europe for the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010 increased approximately $0.6 million. The impact of these sales increases were offset by a reduction in sales in Canada. Excluding the impact of $0.7 million in incremental sales from the acquisition in Canada and foreign currency fluctuations of $1.0 million, sales in Canada decreased $0.7 million. The residual sales increase of $0.3 million was due to our operations in Asia and Mexico.

Cost of Goods Sold. Cost of goods sold for the quarter ended September 30, 2011 increased 8.4%, or $4.5 million, to $57.9 million from $53.4 million for the quarter ended September 30, 2010. The increase in cost of goods sold was due to a combination of the increase in sales, incremental costs of goods sold associated with acquisitions, and the aforementioned investments to increase capacity to support higher sales volumes. In addition, the weakening of the United States dollar as compared to the Canadian dollar, British pound, and other currencies resulted in a combined increase in cost of goods sold of $0.9 million.

Cost of goods sold expressed as a percentage of sales increased to 62.0% for the quarter ended September 30, 2011 compared to 61.2% for the quarter ended September 30, 2010. This increase was primarily due to the investments to increase capacity as previously discussed.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the quarter ended September 30, 2011 increased 50.7%, or $6.5 million, to $19.4 million from $12.9 million for the quarter ended

~~September 30,~~Sales ~~2010.~~in ~~This~~the ~~increase~~United ~~was~~States ~~primarily~~increased ~~due~~by to$5.9 amillion ~~one-time~~for ~~final~~the ~~confidential~~quarter ~~settlement~~ended ofMarch 31, a2012 ~~legal~~compared ~~proceeding~~to the ~~for~~quarter anended ~~amount~~March 31, ~~under~~2011 and included incremental sales of $52.04 million. Inassociated ~~addition,~~with ~~selling~~the ~~and~~businesses ~~marketing expenses~~acquired ~~increased~~in $12011.0 ~~million~~After ~~for~~excluding the ~~quarter~~impact asof aforeign ~~result~~currency offluctuations, ~~investments~~sales toin ~~stimulate~~Europe ~~future~~for ~~organic~~the ~~sales~~quarter ~~growth.~~ended ~~Furthermore~~March 31, 2012 compared to the ~~weakening~~quarter ofended ~~the~~March 31, ~~United~~2011 ~~States~~increased ~~dollar~~approximately as$0.9 ~~compared~~million. toThe ~~the~~impact ~~British~~of ~~pound~~these ~~and~~sales ~~Canadian~~increases ~~dollar~~were ~~resulted~~partially inoffset by a ~~combined increase~~reduction ofin ~~selling,~~sales ~~general~~in ~~and~~Canada. ~~administrative~~Excluding ~~expenses~~the impact of $0.26 million ~~for~~in incremental sales from the ~~quarter~~2011 ~~ended~~acquisition ~~September 30~~in Canada and foreign currency fluctuations, ~~2011~~sales in Canada were essentially flat compared to the ~~quarter~~prior ~~ended~~year. ~~September 30,~~The ~~2010~~residual sales increase was due to our operations in Asia.

~~Depreciation~~Cost ~~and~~of ~~Amortization~~Goods ~~Expenses~~Sold. ~~Depreciation~~Cost ~~and~~of ~~amortization~~goods ~~expenses~~sold for the quarter ended ~~September~~March 3031, ~~2011~~2012 increased 313.64%, or $07.23 million, to $661.28 million from $654.0 5 million for the quarter ended ~~September~~March 3031, ~~2010~~2011. The increase in cost of goods sold was due to a combination of the increase in sales, incremental costs of goods sold associated with acquisitions, and the aforementioned investments to increase capacity to support higher sales volumes. Partially offsetting these increases was the strengthening of the United States dollar as compared to the Canadian dollar, British pound, and other currencies, which resulted in a combined decrease in cost of goods sold of $0.3 million.

~~Interest~~Cost ~~Expense.~~of ~~Interest~~goods ~~expense~~sold ~~for~~expressed ~~both~~as ~~the~~a ~~quarter~~percentage ~~ended~~of ~~September 30,~~net ~~2011~~sales ~~and the~~increased ~~quarter~~to ~~ended September 30, 2010 was $6~~62.63% ~~million.~~for ~~The interest savings associated with~~ the ~~Company’s~~quarter ~~principal repayments on the senior term loan and acquisition facilities during fiscal 2010 and the first half of 2011 were~~ended ~~essentially~~March 31, ~~offset~~2012 bycompared ato ~~slight~~59.4% ~~increase~~for ~~in interest rates on~~ the ~~senior~~quarter ~~term~~ended ~~loan~~March 31, ~~and acquisition facilities~~2011. ~~The~~This increase ~~in interest rates~~ was primarily due to the ~~terms~~investments ~~associated~~to ~~with~~increase ~~refinancing~~capacity ofas ~~our~~previously ~~senior credit facility in the fourth quarter of 2010~~discussed.

~~Other~~Selling, ~~Income~~General and Administrative Expenses. ~~Other~~Selling, ~~income~~general and administrative expenses for the quarter ended March 31, 2012 increased by8.0%, or $0.1.2 million, to $016.42 million offrom ~~income~~$15.0 million for the quarter ended ~~September~~March 3031, 2011. ~~as compared~~This increase was primarily due to ~~$0.3~~our ~~million~~investments ofin ~~income~~selling ~~for~~and ~~the~~marketing ~~quarter~~activities ~~ended~~in ~~September 30~~order to stimulate future organic sales growth, ~~2010.~~as ~~Other~~well ~~income~~as ~~primarily~~non-recurring ~~consists~~expenses offor ~~realized~~consulting ~~(gains)~~services ~~losses~~to identify onstrategic ~~foreign~~markets ~~exchange~~for future growth opportunities.

~~Provision~~Depreciation ~~for~~and ~~Income~~Amortization ~~Taxes~~Expenses. ~~The~~Depreciation ~~effective~~and ~~tax~~amortization expenses ~~rate~~ for the quarter ended ~~September~~March 3031, ~~2011~~2012 ~~was~~increased 2912.61%, ~~compared~~or $0.7 million, to 39$6.2%4 million from $5.7 million for the quarter ended ~~September~~March 3031, ~~2010~~2011. ~~This~~The ~~decrease~~increase ~~in the effective tax rate~~ was due to ~~revised~~the ~~management~~depreciation ~~estimates~~and ~~based~~amortization on ~~differences~~assets ~~between~~placed ~~amounts recorded~~ in ~~our~~service during ~~financial~~2011 ~~statement~~and ~~compared~~the toquarter ~~our~~ended ~~final 2010 tax return~~March 31, ~~combined with an overall lower blended state and federal tax rate in the United States~~2012.

~~Nine~~Interest ~~months~~Expense. Interest expense for the quarter ended ~~September~~March 3031, ~~2011~~2012 decreased ~~compared~~6.4%, or $0.4 million, to ~~nine~~$6.2 ~~months~~million from $6.6 million for the quarter ended ~~September~~March 3031, ~~2010~~2011. The interest savings was due to the Company’s voluntary redemption of $15.0 million of the Company’s 12% Senior Subordinated Notes (“the Notes”) in December 2011.

	Nine MonthsEndedSeptember 30,2011			Nine MonthsEndedSeptember 30,2010		$ Change			PercentageChange
	(unaudited)			(unaudited)
Net sales	$	284,207		$	267,770	$	16,437			6.1	%
Cost of goods sold (exclusive of depreciation)		172,115			157,696		14,419			9.1	%
Selling, general, and administrative expenses		50,521			40,278		10,243			25.4	%
Depreciation and amortization		17,968			17,645		323			1.8	%
Income from operations		43,603			52,151		(8,548	)		(16.4	%)
Interest expense		19,796			19,958		(162	)		(0.8	%)
Other expense (income), net		(165	)		292		(457	)		(156.5	%)
Income before income taxes		23,972			31,901		(7,929	)		(24.9	%)
Provision for income taxes		5,818			12,390		(6,572	)		(53.0	%)
Net income	$	18,154		$	19,511	$	(1,357	)		(7.0	%)

Other Expense, net. Other expense, net remained flat at $0.3 million of expense for the quarters ended March 31, 2012 and March 31, 2011. Other expense, net primarily consists of realized (gains) losses on foreign exchange transactions.

~~Net~~Provision ~~Sales~~for Income Taxes. ~~Sales~~The effective tax rate for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012 ~~increased~~was 634.14%, orcompared ~~$16.4 million,~~ to ~~$284~~20.~~2 million~~6% ~~from $267.8 million~~ for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2010~~2011. ~~This~~The significant increase in ~~sales was driven primarily by volume growth across our customer base, most notably with large CPGs, in~~ the ~~United States and Europe. In addition, sales~~ ~~were~~effective ~~positively~~tax ~~impacted~~rate bywas ~~fluctuations~~due into ~~foreign~~an ~~currency~~income ~~exchange~~tax ~~rates~~benefit ~~and~~of ~~acquisitions~~$1.6 ~~The~~million ~~weakening~~recorded ofduring the ~~United~~quarter ~~States~~ended ~~dollar~~March 31, as2011 ~~compared~~associated towith the ~~Canadian~~reversal ~~dollar and British pound, positively impacted sales by $2.9 million and $1.3 million, respectively. The weakening~~ of ~~the~~withholding ~~United~~taxes ~~States~~on ~~dollar~~intercompany asinterest ~~compared~~accrued tobut ~~other currencies positively impacted sales by an additional $0~~unpaid.3 ~~million. Acquisitions contributed $4.5 million in incremental sales for the period.~~

Sales in the United States increased by $9.7 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 and included incremental sales of $1.0 million and $2.5 million associated with the acquisitions in Dallas and Tampa, respectively. After excluding the impact of foreign currency fluctuations, sales in Europe for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 increased approximately $2.1 million. Excluding the impact of $1.0 million in incremental sales from the acquisition in Canada and

foreign currency fluctuations of $2.9 million, sales in Canada decreased $1.2 million. This decrease was primarily due to the timing of orders in Canada which resulted in particularly strong sales during the first nine months of 2010 when compared to the same period of 2011. The residual sales increase was due to our operations in Asia.

Cost of Goods Sold. Cost of goods sold for the nine months ended September 30, 2011 increased 9.1%, or $14.4 million, to $172.1 million from $157.7 million for the nine months ended September 30, 2010. The increase in cost of goods sold was due to a combination of the increase in sales, incremental costs of goods sold associated with acquisitions, and the aforementioned investments to increase capacity to support higher sales volumes. In addition, the weakening of the United States dollar as compared to the Canadian dollar, British pound, and other currencies resulted in a combined increase in cost of goods sold of $2.7 million.

Cost of goods sold expressed as a percentage of sales increased to 60.6% for the nine months ended September 30, 2011 compared to 58.9% for the nine months ended September 30, 2010. This increase was primarily due to the investments to increase capacity. As previously discussed, the high profit margins for the nine months ended September 30, 2010 were not sustainable and the profit margins realized during the nine months ended September 30, 2011 are more indicative of sustainable profit margins.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2011 increased 25.4%, or $10.2 million, to $50.5 million from $40.3 million for the nine months ended September 30, 2010. This increase was primarily due to the third quarter 2011 settlement of a legal proceeding referred to above, as well as a $4.4 million increase in selling and marketing expenses. This investment in selling and marketing expenses is to stimulate future organic sales growth. In addition, the weakening of the United States dollar as compared to the British pound and Canadian dollar resulted in a combined increase of selling, general and administrative expenses of $0.6 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the nine months ended September 30, 2011 increased 1.8%, or $0.3 million, to $17.9 million from $17.6 million for the nine months ended September 30, 2010.

Interest Expense. Interest expense for the nine months ended September 30, 2011 decreased 0.8%, or $0.2 million, to $19.8 million from $20.0 million for the nine months ended September 30, 2010. This minor decrease resulted from the interest savings associated with the Company’s debt reduction efforts during fiscal 2010 essentially being offset by an increase in interest rates. The principal repayments on the senior term loan and acquisition facilities during fiscal 2010 and the first half of 2011 resulted in a combined reduction in interest expense of $0.9 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. These interest expense savings were partially offset by a $0.7 million increase in interest expense stemming from an increase in interest rates on the senior term loan and acquisition facilities due to the refinancing of our senior credit facility in the fourth quarter of 2010.

Other Expense (Income), net. Other expense (income), net fluctuated by $0.5 million to $0.2 million of income for the nine months ended September 30, 2011 from $0.3 million of expense for the nine months ended September 30, 2010. Other expense (income), net primarily consists of realized (gains) losses on foreign exchange. The fluctuation in other expense (income), net was due to the combined impact of a gain of $0.2 million on the exchange of an investment for fixed assets during the nine months ended September 30, 2011 and slightly more favorable fluctuations in foreign currency exchange rates for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010.

Provision for Income Taxes. The effective tax rate for the nine months ended September 30, 2011 was 24.3%, compared to 38.8% for the nine months ended September 30, 2010. The significant decrease in the effective tax rate was primarily due to two items. First, an income tax benefit of $1.6 million was recorded during the nine months ended September 30, 2011 associated with the reversal of withholding taxes on intercompany interest accrued but unpaid. This reversal is the result of the Company’s election to repatriate intercompany interest back to the United States for tax purposes and a corresponding reduction of the withholding rate from 25% to 0% on the intercompany interest accrued but unpaid. Furthermore, an additional income tax benefit of $1.2 million was recorded during the nine months ended September 30, 2011 related to a revision in the calculation of estimated state tax liabilities expected in the United States. This tax benefit was primarily related to aligning our tax accounts with an election made in the first quarter of 2011 and resulted from a reduction in the deferred state tax liability and the associated expense for intercompany interest income repatriated from foreign subsidiaries.

Liquidity and Capital Resources

At ~~September~~ March 3031, ~~2011~~2012, we had $6.7.2 million in cash and $5249.07 million in working capital compared with $912.59 million in cash and $4642.94 million in working capital at December 31, ~~2010~~2011. The $25.8 6 million decrease in cash primarily resulted from $216.8 million in ~~net cash paid for acquisitions, $10.6 million in~~ capital expenditures, and $35.83 million in principal repayments of long-term debt, partially offset by $286.45 million in cash provided by ~~operations~~ ~~and $5~~operations.0 ~~million in net cash borrowed on the revolving credit facility.~~ The $57.13 million increase in working capital is primarily due to the combination of the increase in accounts receivable and ~~the~~decreases ~~decrease~~ in accounts payable, current portion of long-term debt, accrued income taxes, and accrued expenses. These items were partially offset by ~~increases~~an increase in accrued interest ~~and~~as ~~the~~well ~~current~~as ~~portion~~decreases ofin ~~long-term~~cash, deferred ~~debt~~income taxes, and inventories.

Our revolving credit facility (the “Revolver”) under our senior secured credit facility provides for $40.0 million of borrowing availability. We borrowed $816.0 million on the Revolver in ~~June~~December 2011 in connection with the ~~Tampa~~voluntary ~~acquisition~~redemption of $15.0 million of the Notes and subsequently made ~~principal repayments~~a ofpartial ~~$3.0~~principal ~~million~~repayment ~~and~~of $54.0 million on the Revolver in ~~July~~January ~~2011 and October 2011, respectively~~2012. We had $3528.0 million of ~~additional~~ borrowing availability on the Revolver at ~~September~~March 3031, ~~2011~~2012. The Revolver is available through September 30, 2013. We expect that cash generated from operating activities and ~~availability under the Revolver will be our principal sources of liquidity. Based on our current level of operations, we believe our cash flow from operations and~~ availability under the Revolver will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under our Revolver in an amount sufficient to enable us to repay our indebtedness, or to fund our other liquidity needs.

~~We are~~21 highly leveraged and our aggregate indebtedness at September 30, 2011 was $267.5 million. In 2013, our debt service requirements will substantially increase as a result of the September 30, 2013 maturity of the loans under the Amended and Restated Credit Agreement and the December 15, 2013 maturity of the 12% Senior Subordinated Notes (“Notes”). Our ability to operate our business, service our debt requirements and reduce our total debt will depend upon our future operating performance.

	Required			Actual
Maximum leverage ratio		5.00			3.08
Minimum interest coverage ratio		1.80			3.48
Maximum capital expenditures for fiscal 2011	not to exceed $	18.1 million	(1)	$	10.6 million

availability under the Revolver will be our principal sources of liquidity. Based on our current level of operations, we believe our cash flow from operations and availability under the Revolver will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flows from operations, or that future borrowing will be available to us under our Revolver in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.

~~(1)~~We ~~The~~are ~~maximum~~highly ~~annual~~leveraged ~~capital~~and ~~expenditures~~our aggregate ~~consists~~indebtedness ofat ~~$15.0~~March 31, ~~million~~2012 ~~plus~~was $3257.14 million. In 2013, our debt service requirements will substantially increase as a result of ~~allowed~~the ~~carry~~September 30, ~~over~~2013 ~~from~~maturity of the ~~fiscal~~loans ~~year~~under ~~ended~~the senior secured credit facility and the December 15, 312013 maturity of the Notes. Our ability to operate our business, ~~2010~~service our debt requirements and reduce our total debt will depend upon our future operating performance.

WeOur ~~believe~~senior ~~that~~secured ~~our~~credit ~~financing~~facility ~~arrangements~~contains ~~provide~~customary ~~us with sufficient~~ financial ~~flexibility to fund our operations, debt service requirements~~ and other ~~committed~~covenants, ~~obligations.~~including ~~Our~~a ~~ability~~maximum toleverage ~~access~~ratio ~~additional capital in the long-term depends on the availability of capital markets~~ and ~~pricing~~a onminimum ~~commercially~~interest ~~reasonable~~coverage ~~terms~~ratio, as ~~well~~defined asin ~~our credit profile at~~ the ~~time~~ ~~we are seeking funds. From time-to-time, we review our long-term financing and capital structure. We may periodically explore alternatives to our current financing prior to the maturity of the~~ Amended and Restated Credit Agreement ~~and~~dated ~~Notes. These~~as ~~alternatives may include the issuance~~ of ~~additional~~October 25, ~~long-term~~2010. ~~debt,~~Our ~~refinancing~~senior ~~our~~secured credit facility ~~and~~also ~~other~~places ~~restructurings~~certain orrestrictions ~~financings.~~on Inour ~~addition,~~ability ~~we may from time~~ to ~~time~~make ~~seek~~capital toexpenditures. ~~retire~~As ~~our~~of ~~outstanding Notes in open market purchases~~March 31, ~~privately~~ ~~negotiated transactions~~2012, ~~through~~we ~~calling~~were ~~the~~in ~~Notes~~compliance orwith ~~otherwise.~~all ~~These repurchases, if any, will depend on prevailing market conditions based on our liquidity requirements, contractual restrictions and other factors~~covenants. ~~The~~Below ~~amount~~are ofthe required ~~repurchases~~financial ofcovenant ~~our~~levels ~~Notes may be material~~ and ~~may~~the ~~involve~~actual ~~significant~~levels ~~amounts~~as of ~~cash~~March 31, ~~and/or~~2012: ~~financing availability.~~


	Required			Actual
Maximum leverage ratio		5.00			2.93
Minimum interest coverage ratio		1.80			3.59
Maximum capital expenditures for fiscal 2012	not to exceed $	16.0 million	⁽¹⁾	$	6.8 million

⁽¹⁾	The maximum annual capital expenditures consist of $15.0 million plus $1.0 million of allowed carry over from the fiscal year ended December 31, 2011.

We believe that our financing arrangements provide us with sufficient financial flexibility to fund our operations, debt service requirements and other committed obligations. Our ability to access additional capital in the long-term depends on the availability of capital markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. From time-to-time, we review our long-term financing and capital structure. During 2012, we will explore alternatives to our current financing prior to the maturity of the senior secured credit facility and Notes. These alternatives may include the issuance of additional long-term debt, refinancing our credit facility or other restructurings or financings.

Income taxes

Based on the changes noted in Note HF “Income Taxes” included in the condensed consolidated financial statements and on our recent results, we expect that our cash payments for income taxes will be significantly greater in ~~2011~~2012 than in ~~2010~~2011 and prior years. ~~Cash~~Net cash payments for income taxes are $32.10 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2011~~2012 compared to ~~less than~~ $0.15 million for the ~~nine~~quarter ~~months~~ ended ~~September~~March 3031, ~~2010~~2011.

26Quarter ended March 31, 2012 compared to quarter ended March 31, 2011

Cash flows from operating activities. Net cash provided by operating activities was $6.5 million for the quarter ended March 31, 2012 as compared to $9.0 million for the quarter ended March 31, 2011. The primary reasons for this decrease are a $1.7 million decrease in income from operations for the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011 and $2.0 million in net cash paid for income taxes during the quarter ended March 31, 2012 compared to $0.5 million for the quarter ended March 31, 2011.

Cash flows from investing activities. Net cash used in investing activities was $7.1 million for the quarter ended March 31, 2012 as compared to $5.0 million for the quarter ended March 31, 2011. The increase in cash used in investing activities is due to an increase in capital expenditures of $3.0 million for the quarter ended March 31, 2012 compared to the quarter ended March 31, 2011, partially offset by a decrease in net cash paid for acquisitions of $0.9 million.

Cash flows from financing activities. Net cash used in financing activities was $5.3 million for the quarter ended March 31, 2012 as compared to $1.3 million for the quarter ended March 31, 2011. This increase is the result of $4.0 million of principal repayments made on the Revolver during the quarter ended March 31, 2012.

Nine months ended September 30, 2011 compared to nine months ended September 30, 2010

Cash flows from operating activities. Net cash provided by operating activities was $28.4 million for the nine months ended September 30, 2011 as compared to $38.2 million for the nine months ended September 30, 2010. The primary reasons for this decrease are a $8.5 million decrease in income from operations for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 and $3.1 million in cash paid for income taxes during the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Partially offsetting these items are a $4.2 million use of cash in the nine months ended September 30, 2010 for the purchase of an exclusive supply agreement. The residual decrease in net cash provided by operating activities is primarily due to fluctuations within accounts payable and accrued expenses.

Cash flows from investing activities. Net cash used for investing activities was $32.3 million for the nine months ended September 30, 2011 as compared to $9.1 million for the nine months ended September 30, 2010. The increase in cash used for investing activities is due to an increase in net cash paid for acquisitions of $19.7 million and an increase in capital expenditures of $3.5 million for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010.

Cash flows from financing activities. Net cash provided by financing activities was $1.1 million for the nine months ended September 30, 2011 as compared to cash used in financing activities of $12.4 million for the nine months ended September 30, 2010. This fluctuation is the result of utilizing available cash for acquisitions during the nine months ended September 30, 2011 as opposed to utilizing available cash to make additional principal repayments on long-term obligations during the nine months ended September 30, 2010. In addition, net borrowings of $5.0 million were made on the Revolver during the nine months ended September 30, 2011 in connection with funding acquisitions.

Contractual Obligations

At ~~September~~March 3031, ~~2011~~2012, there were no material changes in our December 31, ~~2010~~2011 contractual obligations, other than the principal repayments made on the Revolver of $84.0 million ~~borrowing~~in onJanuary 2012. Borrowings on the Revolver are included in ~~June~~the ~~2011,~~current ~~which~~portion ~~was~~of ~~subsequently~~long-term ~~repaid~~obligations in ~~installments~~the ofconsolidated balance sheets and totaled $312.0 million ~~and~~as of March 31, 2012. An additional $51.0 million in ~~July~~principal ~~2011~~repayments ~~and~~were ~~October~~made ~~2011,~~on ~~respectively~~the Revolver in April 2012.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Recently Issued Accounting Standards

In ~~September~~June 2011, the Financial Accounting Standards Board ~~issued Accounting Standards Update~~ (“~~ASU~~FASB”) issued ASU 2011-0805, “~~Intangibles~~Presentation –of Comprehensive ~~Goodwill and Other~~Income.” ASU 2011-0805 ~~allows~~requires ancompanies ~~entity~~ to ~~first~~ ~~assess~~retrospectively ~~qualitative~~present ~~factors~~comprehensive toincome ~~determine~~either ~~whether~~in ita issingle ~~necessary~~continuous tostatement ~~perform~~of ~~the~~comprehensive ~~two-step~~income ~~quantitative~~or ~~goodwill~~in ~~impairment~~two ~~test.~~separate ~~Under~~but ~~ASU~~consecutive ~~2011-08~~statements, anand ~~entity~~eliminates ~~would not be required to calculate~~ the ~~fair~~current option ~~value~~ of apresenting ~~reporting~~components ~~unit~~of ~~unless~~comprehensive ~~the~~income ~~entity determines,~~as ~~based~~part onof athe ~~qualitative~~statement ~~assessment,~~of ~~that~~changes itin isstockholder’s ~~more likely than not that its fair value is less than its carrying amount~~equity. The Company adopted ASU 2011-0805 ~~effective~~on ~~October~~January 1, ~~2011~~2012. The adoption of ASU 2011-0805 did not have a material impact on the Company’s results of operations or financial position.

ASU 2011-05 also will require companies to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income; however, these requirements have been deferred under ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The eventual adoption of the deferred provisions of ASU 2011-05 is not expected to have an impact on the Company’s results of operations or financial position.

There have been no recently issued accounting standards expected to have a material impact on our condensed consolidated financial statements.

There have been no ~~other~~ material changes to our critical accounting policies since December 31, ~~2010~~2011.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

At ~~September~~March 3031, ~~2011~~2012, there were no material changes in our December 31, ~~2010~~2011 market risks relating to interest and foreign exchange rates.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September~~March 3031, ~~2011~~2012. Based on this evaluation, which excluded an assessment of internal control of the operations acquired in Tampa, FL in 2011, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of ~~September~~March 3031, ~~2011~~2012, at the reasonable assurance level.

The Company completed the Tampa acquisition effective June 20, 2011. As permitted by the SEC, management’s assessment as of ~~September~~ March 3031, ~~2011~~2012 did not include the internal controls of the Tampa acquisition, which ishas been included in the Company’s consolidated financial statements assince the acquisition date of ~~September~~June 3020, 2011.

Changes in Internal Control Over Financial Reporting

The Company isimplemented in the ~~process of implementing the~~ Order to Cash module in its enterprise resource planning system for most of its U.S. and Canadian locations. in April 2012. This implementation iswas ~~being~~ performed in stages and ~~will~~resulted ~~result~~ in certain changes to business processes and internal controls impacting financial reporting starting in the second quarter of 2012. Management is taking the necessary steps to monitor and maintain appropriate internal controls during this period of change. The Company also continues to integrate recent acquisitions into corporate processes. No potential internal control changes due to recent acquisitions would be considered material to, or are reasonably likely to materially affect, our internal control over financial reporting. The Tampa acquisition is expected to be fully integrated into corporate processes by the end of the second quarter of 2012.

Except as discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the ~~three~~quarter ~~months~~ ended ~~September~~ March 3031, ~~2011~~2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

Various lawsuits, claims and proceedings have been or may be instituted or asserted against entities within the Company. While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on currently available facts and in light of legal and other defenses available to us, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the Company’s financial position, results of operations, and liquidity. As discussed above in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company entered into a confidential settlement of a legal proceeding in the third quarter of 2011.

Item 1A.

Risk Factors

There have been no material changes to the risk factors included in the Registrant’s Form 10-K for the year ended December 31, ~~2010~~2011.

Item 6.

Exhibits

EXHIBITNUMBER		DESCRIPTION
3.		CERTIFICATE OF INCORPORATION AND BY-LAWS
3.1		Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on November 8, 2005, incorporated by reference to exhibit 3.1 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
3.2		By-Laws of the Registrant adopted on November 8, 2005, incorporated by reference to exhibit 3.2 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.		INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.1		Certificate of Incorporation. See Exhibit 3.1
4.2		By-laws. See Exhibit 3.2
4.3		Indenture dated as of December 30, 2005, by and between the Registrant and Wells Fargo Bank National Association, as trustee, relating to the 12% Senior Subordinated Notes due 2013, incorporated by reference to exhibit 4.3 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.4		Form of Global 12% Notes due 2013 (included in Exhibit 4.3)
4.5		Form of Regulation S Temporary Global 12% Notes due 2013 (included in Exhibit 4.3)
4.6		Supplemental Indenture, dated April 25, 2006, by and among the Registrant, Southern Graphic Systems, Inc., Project Dove Holdco, Inc. and Wells Fargo Bank, N.A., as trustee, incorporated by reference to exhibit 4.6 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.7		Registration Rights Agreement, dated as of December 30, 2005, by and between the Registrant, certain of its subsidiaries as Guarantors, and UBS Securities LLC and Lehman Brothers Inc. as Initial Purchasers, incorporated by reference to exhibit 4.7 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.8		Credit Agreement, dated as of December 30, 2005, among the Registrant and Southern Graphic Systems –- Canada, Co., as borrowers, certain of the Registrant’s subsidiaries, as guarantors, UBS Securities LLC and Lehman Brothers Inc., as joint arrangers and joint bookmanagers, UBS AG, Stamford Branch, as issuing bank, US administrative agent, US collateral agent and Canadian collateral agent, Lehman Brothers Inc., as syndication agent, CIT Lending Services Corporation, as documentation agent, National City Bank, as Canadian administrative agent, UBS Loan Finance LLC, as swingline lender, and the lenders referred to therein, incorporated by reference to exhibit 10.7 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.9		First Amendment to Credit Agreement by and among the Registrant and Southern Graphic Systems - Canada, Co., as borrowers, certain affiliates of the borrowers, as guarantors, and the lenders party to the Credit Agreement as described therein, incorporated by reference to exhibit 10.8 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.10		Security Agreement, dated as of December 30, 2005, by the Registrant, as borrower, certain of the Registrant’s subsidiaries, as guarantors, and UBS AG, Stamford Branch, as US collateral agent, incorporated by reference to exhibit 10.9 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.11		Canadian Security Agreement, dated as of December 30, 2005, by certain of the Registrant’s subsidiaries, as pledgors, and UBS AG, Stamford Branch, as Canadian collateral agent, incorporated by reference to exhibit 10.10 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825

2925

4.9		First Amendment to Credit Agreement by and among the Registrant and Southern Graphic Systems - Canada, Co., as borrowers, certain affiliates of the borrowers, as guarantors, and the lenders party to the Credit Agreement as described therein, incorporated by reference to exhibit 10.8 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.10		Security Agreement, dated as of December 30, 2005, by the Registrant, as borrower, certain of the Registrant’s subsidiaries, as guarantors, and UBS AG, Stamford Branch, as US collateral agent, incorporated by reference to exhibit 10.9 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.11		Canadian Security Agreement, dated as of December 30, 2005, by certain of the Registrant’s subsidiaries, as pledgors, and UBS AG, Stamford Branch, as Canadian collateral agent, incorporated by reference to exhibit 10.10 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.12		Debenture dated as of December 30, 2005, from SGS-UK Holdings Limited and others, as chargors, in favour of UBS AG, Stamford Branch, as Canadian collateral agent, incorporated by reference to exhibit 10.11 to the Registrant’s registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
4.13		Limited Waiver and Consent to Credit Agreement dated as of April 11, 2007 among SGS International, Inc. and Southern Graphic Systems –- Canada, Co., as borrowers, certain of the Registrant’s subsidiaries, as guarantors, the lenders signatory thereto, UBS AG, Stamford Branch, as US administrative agent, US collateral agent and Canadian collateral agent, and National City Bank, as Canadian administrative agent, incorporated by reference to Exhibit 4.13 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, filed May 15, 2007, File No. 333-133825
4.14		Amendment Agreement, dated as of October 25, 2010, to the Credit Agreement dated as of December 30, 2005, by and among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern-Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”), the guarantors from time to time party thereto, the lending institutions from time to time party thereto, UBS Securities LLC and Lehman Brothers Inc., as joint lead arrangers, UBS Securities LLC, as syndication agent, CIT Lending Services Corporation, as documentation agent, UBS Loan Finance LLC, as swingline lender, UBS AG, Stamford Branch, as issuing bank, as US administrative agent, as US collateral agent and as Canadian collateral agent, and PNC Bank, National Association, as Successor to National City Bank, as Canadian administrative agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825
4.15		Amended and Restated Credit Agreement dated as of October 25, 2010, among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern –- Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”, and together with Canadian Borrower, the “Borrowers”), certain affiliates of the Borrowers as guarantors, the Lenders thereto, UBS Securities LLC and Fifth Third Bank, as joint lead arrangers, UBS Securities LLC, as syndication agent, JPMorgan Chase Bank, N.A., as documentation agent, UBS Loan Finance LLC, as swingline lender, and UBS AG, Stamford Branch, as issuing bank, as US administrative agent, as Canadian administrative agent, as US collateral agent and as Canadian collateral agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825
4.16		Omnibus Acknowledgement, Reaffirmation and Amendment to Security Documents made as of October 25, 2010, by and among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern –- Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”), the Guarantors party thereto and UBS AG, Stamford Branch, as US administrative agent, as US collateral agent, as Canadian administrative agent and as Canadian collateral agent, incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825
4.17		Supplemental Debenture [not dated] between SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited and UBS, AG, Stamford Branch, incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825
31.		CERTIFICATIONS
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.		CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002
32.1		Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

3026



31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

	SGS INTERNATIONAL, INC.
Date: November 9, 2011	By:	/s/ Henry R. Baughman
Date: May 10, 2012	By:	/s/ Henry R. Baughman
		Henry R. Baughman
		President, Chief Executive Officer and Director
		(Principal Executive Officer)
Date: November 9, 2011	By:	/s/ James M. Dahmus
Date: May 10, 2012	By:	/s/ James M. Dahmus
		James M. Dahmus
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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