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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K







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

For the fiscal year ended December 31, 2008

OR



| ̈ | 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)





SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

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  x    No   ̈

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

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  | x |  | Smaller reporting company |  |  ̈

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

None of the registrants common stock is held by non-affiliates of the registrant.

As of March 9, 2009 there were 100 shares of the
registrants common stock, $0.01 par value, outstanding.









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TABLE OF CONTENTS



|                     |  |          |  |                                                                                                                  |  |     
|-------------------- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ----
|                     |  |          |  |                                                                                                                  |  | Page
|PART I               |  |          |  |                                                                                                                  |  |     
|                     |  |          | 
|                     |  | Item 1.  |  | Business                                                                                                         |  | 4   
|                     |  | Item 1A. |  | Risk Factors                                                                                                     |  | 14  
|                     |  | Item 1B. |  | Unresolved Staff Comments                                                                                        |  | 19  
|                     |  | Item 2.  |  | Properties                                                                                                       |  | 19  
|                     |  | Item 3.  |  | Legal Proceedings                                                                                                |  | 20  
|                     |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  | 21  
|                     |  |          | 
|PART II              |  |          |  |                                                                                                                  |  | 21  
|                     |  |          | 
|                     |  | Item 5.  |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities |  | 21  
|                     |  | Item 6.  |  | Selected Financial Data                                                                                          |  | 21  
|                     |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 23  
|                     |  | Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 32  
|                     |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                      |  | 32  
|                     |  | Item 9.  |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure                             |  | 32  
|                     |  | Item 9A. |  | Controls and Procedures                                                                                          |  | 32  
|                     |  | Item 9B. |  | Other Information                                                                                                |  | 34  
|                     |  |          | 
|PART III             |  |          |  |                                                                                                                  |  | 34  
|                     |  |          | 
|                     |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                           |  | 34  
|                     |  | Item 11. |  | Executive Compensation                                                                                           |  | 35  
|                     |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 45  
|                     |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 47  
|                     |  | Item 14. |  | Principal Accountant Fees and Services                                                                           |  | 50  
|                     |  |          | 
|PART IV              |  |          |  |                                                                                                                  |  | 51  
|                     |  |          | 
|                     |  | Item 15. |  | Exhibits and Financial Statement Schedule                                                                        |  | 51  
|                     | 
|SIGNATURES           |  | 56      
|                     | 
|FINANCIAL STATEMENTS |  | 51      



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TABLE OF CONTENTS

(continued)



|                                                                                                                                                    |  |     
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                    |  | Page
|EXHIBIT 10.39 AMENDMENT, DATED AS OF MARCH 12, 2009, TO EMPLOYMENT AGREEMENT DATED DECEMBER 
30, 2005 BETWEEN THE REGISTRANT AND HENRY R. BAUGHMAN  |  |     
|                                                                                                                                                    | 
|EXHIBIT 10.40 AMENDMENT, DATED AS OF MARCH 12, 2009, TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 
10, 2006 BETWEEN THE REGISTRANT AND JAMES M. DAHMUS |  |     
|                                                                                                                                                    | 
|EXHIBIT 21.1 SUBSIDIARIES OF SGS INTERNATIONAL, INC.                                                                                                |  |     
|                                                                                                                                                    | 
|EXHIBIT 24.1 POWERS OF ATTORNEY                                                                                                                     |  |     
|                                                                                                                                                    | 
|EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO ANNUAL
REPORTS                              |  |     
|                                                                                                                                                    | 
|EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO ANNUAL
REPORTS                              |  |     
|                                                                                                                                                    | 
|EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
 OF 2002                |  |     



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PART I

This Report on Form 10-K contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which generally can be identified by the use of forward-looking terminology such as may, will, expect,
estimate, anticipate, believe, target, plan, project or continue or the negatives thereof or other variations thereon or similar terminology. These statements appear
in a number of places in this Report on Form 10-K and include statements regarding our intent, belief or current expectations that relate to, among other things, trends affecting our financial condition or results of operations and our business and
strategies. We may make additional written or oral forward-looking statements from time to time in filings with the Securities and Exchange Commission or otherwise. Forward-looking statements speak only as of the date the statement is made. Readers
are cautioned that these forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of
many important factors. Many of these important factors cannot be predicted or quantified and are outside of our control, including competitive factors, industry trends, changes in government regulation, the cost of and our ability to integrate new
acquisitions, and our ability to introduce new products, execute our business plan, retain existing customers and acquire new customers. The accompanying information contained in this Report on Form 10-K, including, without limitation, the
information set forth below under Item 1 regarding the description of our business and under Item 7 concerning Managements Discussion and Analysis of Financial Condition and Results of Operations, identifies additional
important factors that could cause these differences. We do not undertake to publicly update or revise our forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this Report
on Form 10-K will not be realized. All subsequent written and oral forward-looking statements attributable to us or persons acting for or on our behalf are expressly qualified in their entirety by this section.



|Item 1. | Business
|------- | --------

OVERVIEW

SGS International, Inc. (the Registrant) was incorporated in 2005 under the laws of the State of Delaware. In this report, we and
the Company mean the Registrant and its consolidated subsidiaries unless otherwise indicated.

We are a global leader in the
digital imaging and communication industry and offer design-to-print graphic services to the international consumer products packaging market. 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.

HISTORY OF COMPANY

The Registrant was formed by Citigroup Venture Capital Equity Partners, L.P. (now known as Court Square Capital Partners, L.P.) in 2005.
Southern Graphic Systems, Inc. (SGS) was established in 1946 as a single-facility gravure operation in Louisville, Kentucky. SGS and its affiliates were acquired by Reynolds Metals Company in 1957. In 1978, SGS adopted a growth strategy
of strategically locating manufacturing operations based on customers locations and service requirements. SGS opened its first dedicated prepress facility in 1991. In 1994, SGS expanded its geographic scope to include Canada, with the opening
of a gravure facility just outside Toronto. In 1995, SGS entered the growing flexographic market with the acquisition of Wilson Engraving Company. In 1998, SGS further expanded its geographic scope within North America by opening a graphics facility
in Mexico City, Mexico. SGSs ownership changed in 2000 when its parent, Reynolds Metals Company, was acquired by Alcoa Inc. In November 2005, SGS acquired MCG Graphics Limited (MCG), a UK-based provider of prepress graphics and
flexographic image carriers serving customers in the UK and Europe. The Registrant acquired SGS and its affiliated businesses from Alcoa Inc. on December 30, 2005 (the Acquisition). In connection with the Acquisition, the Registrant
offered certain of its 12% senior subordinated notes due 2013 and entered into a new senior secured credit facility. In February 2007, the Company acquired the assets of C.M. Jackson Associates, Inc. (CMJ), a



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packaging graphics firm in the U.S. with an emphasis on store brands. In April 2007, the Company acquired McGurk Studios Limited and Thames
McGurk Limited (collectively McGurk), a UK-based provider of end-to-end digital design, artwork and reprographics for packaging solutions with locations in Hull and London, England, and Hong Kong. In January 2008, the Company acquired
1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flexart Design Inc. (collectively Tri-Ad). Tri-Ad is a Canadian provider of packaging and retail graphics services with locations in
Toronto, Ontario and outside of Montreal, Quebec. In May of 2008, the Company acquired Backwell Design Inc. and Gemini Graphic Imaging Inc. (collectively Backwell). Backwell is a Canadian provider of packaging and retail graphics
services located in London, Ontario. In December of 2008, the Company acquired the assets of Focus Imaging Group LLC, a U.S. based packaging graphics firm with an emphasis on design and reprographics for corrugated materials.

INDUSTRY OVERVIEW

End markets served

We operate in the graphic services industry, which is estimated to be a $30.0 billion global industry. Within this industry, we compete principally in the
value-added packaging market, providing services to consumer products companies and to the converters and printers who serve them. We estimate that the North American market for graphic services for consumer packaging products is approximately $2.0
billion and the global market for these services is approximately $6.0 billion. We focus on a variety of end markets, with food and beverage representing a large portion of our business. Other key end markets include tobacco, personal care,
household products, pet food and pharmaceutical. We estimate that the remainder of the global market in the graphic services industry is comprised of the $9.6 billion advertising and promotion market, where we participate on a limited basis, and the
$14.4 billion other market which includes catalogs, newspapers and magazines, where we do not participate.

OUR SERVICE OFFERINGS

General overview

The packaging
graphic services we provide include the preparatory steps that precede the actual printing of an image onto packaging material. We are one of the very few participants in the industry capable of providing the full range of services from
design-to-print.

Creative services and brand development

The process begins with creative services, where we work with the customer to develop design strategy, conceptualize the marketing campaign and ensure an accurate and consistent brand image and design
packaging that takes advantage of technological improvements in the printing process. Product packaging and graphics play a key role in a consumer products companys marketing efforts and the on-shelf appeal of its products. Our creative
services at this creation and design phase of the process enable our consumer products customers to realize the full potential of synergies between high quality graphics and a brands core value. The creative services we provide include brand
identity, concept, naming and logo development, package design, interactive development, photography, illustration and copywriting.

Prepress graphics
and image carrier services

Our prepress services then convert the creative idea and design into an image suitable for
volume printing, a key step in speeding brands to market. The steps taken in this phase of the process include (i) graphics activities such as production art, composition and typesetting, creative retouching, image assembly, file creation,
color separation and digital/film output, and (ii) image carrier preparation. Our prepress process is key to ensuring that our consumer products customers brands and graphics are reproduced accurately and with uniform color using
different package printing processes and substrates, in a timely and cost-effective manner. While color separation and other prepress services were in the past performed by hand (i.e., the conventional method), our employees today use
MacIntosh computers and software programs such as Barco, ArtPro and Collage to provide digital imaging services. It has become typical for customers to forward designs to us in digital format for image manipulation, layout and assembly. We work
closely with the customer during this process and we offer a wide spectrum of proofing services, including soft proofing, online proofing and digital proofing, to facilitate customer involvement and approval. We provide extensive graphics prepress
services for the flexographic, gravure and lithographic industries.



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At the final step of the prepress process, an image carrier is produced that transfers ink in
the form of the image to the packaging substrate in the printing process. As with prepress graphics, image carrier technology has transitioned from an analog to a digital process. Laser technology in both flexography and gravure has improved
resolution and quality while reducing the cost to produce image carriers. We offer a wide variety of image carriers for the flexographic, gravure and lithographic printing processes.

All the major printing processes have similar steps in the prepress stage, except for image carrier preparation, and are distinguished by the method of
image transfer and the kind of image carrier utilized in the process. We have particular expertise in image carriers and believe we are the clear leader in this important part of the value chain.

Other services

In addition to the packaging graphics
and image carrier production services we provide, our offerings in support of other stages of the value chain are crucial elements of the overall proposition to the customer and necessary to generate the graphics and image carrier business.

The enterprise solutions we offer comprise a secure Web-based suite of enterprise tools that can help automate production art services,
manage digital graphic assets, review graphics online and track the entire production process, all via a standard Web browser. We design and implement systems to manage workflow, and enable clients to host, organize, search and retrieve brand
assets. In addition, we provide process audits and prepress, color management, printing and IT consulting services.

We also have
significant competencies in interactive media and offer short run reproduction service to our clients through our digital printing studio.

PRINTING
MARKETS SERVED

Flexography

Flexography uses an imager carrier (plate) made of rubber, plastic or any other flexible material. The fast-drying inks used in flexography make it ideal for printing on materials like plastics and foils. This method is most suitable for
printing flexible bags, wrappers and similar packaging. The soft photopolymer image carriers are also well-suited for printing on thick, compressible surfaces such as cardboard packaging, or corrugated material. We are a leading flexographic plate
producer in North America with 17 state-of-the art flexographic imaging facilities (15 of which have digital capability). We have two flexographic imaging facilities in the UK, both of which have digital capability. Virtually all of our locations
can provide prepress graphics for the flexography process.

We estimate the North American flexography market at approximately $800
million. We believe this market is growing at approximately 2% to 4% annually, a higher rate of growth than we estimate for the gravure and lithography markets. Flexographic printers continue to add flexographic printing capacity to handle the
growth. Flexographic plates can be manufactured faster and more inexpensively than gravure cylinders, and allow for faster problem resolution and change-outs in the printing process. The quality and speed of flexographic printing has continued to
improve over the years, allowing it to become a cost-effective alternative to the gravure process in many situations.

Gravure

In gravure printing, the image carriers are generally copper coated cylinders that are protected from wear by the application of a thin electroplate of
chromium. Gravure is generally suitable for long runs of high quality printing, such as cartons for cosmetic, pharmaceutical and tobacco packaging. We are the leading packaging gravure producer in North America with nine state-of-the-art gravure
engraving facilities. Virtually all of our locations can provide prepress for the gravure process.

We believe the growth rate in the
gravure packaging market is minimal. While the flexography process has lowered gravures share of the printing market, gravure is, and we believe will continue to be, a viable market. The gravure process can be used for any type of packaging
where flexography can be used, but flexography is not always an alternative to gravure. Gravures characteristics make it the preferred process in certain applications, such as tobacco packaging (where we estimate approximately 90% of the
cartons manufactured in North America use gravure printing), fluorescent and metallic substrates, package converting involving the attachment of another layer



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to the substrate (such as labels), and generally where a long run involving high quality printing is necessary or desirable. The trend in the gravure
printing industry is away from wide-web and toward narrower-web printing, helping to reduce the flexographic processs cost advantage over gravure.

Lithography

Lithographic image carriers range from paper (a lower quality end-product) to aluminum (the best quality
possible). Lithography is typically used for point-of-sale advertisements and labels. We have three lithographic plate facilities offering high quality digital plates. Virtually all of our locations can provide prepress graphics for the lithography
process.

The North American lithography market is the largest of the three markets we serve. Most of our lithography sales are
attributable to prepress graphics rather than image carriers. Lithographic plates typically are produced by the printer as they are low cost and relatively easy to manufacture. The limited number of lithographic plates we produce are for very few of
our customers. The lithography process has more limited applications than flexography and gravure and is not as suited to long runs. However, lithography is generally preferred to gravure for printing on rough substrate surfaces.

COMPETITION

The packaging graphic services industry
for consumer products is highly fragmented with several national firms and hundreds of regional and local participants. Only a small number of the regional and local firms have annual revenue exceeding $20.0 million, most notably Schawk, Inc.,
Matthews International Corporation, Vertis, Inc., and Group360, Inc. To remain competitive, each firm must maintain client relationships and recognize, develop and exploit state-of-the-art technology and contend with the customers increasing
demand for speed-to-market. We believe that most of the firms in the industry are family-owned and lack the scale and service breadth to effectively serve the premier consumer products companies demands for consistent brand graphics, faster
turnaround times, improved speed-to-market and customized services on a national and global basis.

Some converters with graphics service
capabilities compete with us by performing such services in connection with printing work. However, these firms must still match our technical capabilities, image quality control and speed of delivery. Converters often use our services because of
the rigorous demands being placed on them by clients who are requiring faster turnaround times. Increasingly, converters are being required to invest in technology to improve speed in the printing process and many have avoided spending on graphics
technology.

We compete on the basis of offering our clients creative design capabilities, production art expertise, high quality
customized imaging capabilities, rapid turnaround, cost of image carriers and delivery times, up-to-date knowledge of the printing press specifications of converters and printers, color expertise, digital asset management and workflow management. We
have grown from a one-facility gravure cylinder engraver to an integrated strategic partner for our customers with a broad array of services.

INDUSTRY
TRENDS

Our revenues are primarily driven by demand for graphics services from consumer products companies and the printers and
converters that service them. In addition to growth in packaging volume, demand for our services is generated by new product launches, brand portfolio changes that result from either consolidations or divestitures, design refreshing, promotional or
seasonal events (e.g., events such as the Kentucky Derby, Super Bowl, World Series and Olympics), changes in labeling requirements (e.g., government-required tobacco warnings and consumer-driven preferences for heart healthy, low
in carbohydrates, and low in saturated fat products), changes in packaging products and changes in consumer tastes. Other demand drivers include customer consolidation, changes in brand ownership, changes in packaging printers, and
changes in packaging structures, substrates and formats. Key trends within the industry include:

Outsourcing. For many consumer
products companies, prepress graphics and related services do not constitute a core competency and they have increasingly been outsourcing this function as graphics services providers can provide design-to-print services on a more
cost-efficient basis. This trend of outsourcing, while advanced, continues to play a significant role in shaping the industry and has created further opportunities for graphic service providers to expand their offerings and customer base. Further,
by offering design and other creative services to our customers, we become involved in our customers operations at an earlier stage of the graphics process which provides a greater opportunity for downstream sales.



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Supplier consolidation. There has been a significant shift by consumer products companies to
decrease the number of suppliers used while still embracing the model of outsourcing graphics services needs. Historically, consumer products companies would use separate specialists for each step in the graphic services value chain when bringing
products to market. As demands, including cost minimization, speed-to-market and product consistency, from consumer products companies have become increasingly important, the leading graphic services providers have responded by
broadening their product and service offerings. Industry leaders such as us, that have both the scale and capabilities to provide additional services along the value chain, have been the primary beneficiaries of this trend. We believe we have gained
market share recently with important customers by offering full service capabilities. We believe that our complementary digital asset management and consulting services enhance the value proposition to our customers, which further integrates us into
their graphics packaging operations. We believe that the number of participants in the graphics services business presents significant consolidation opportunities. Competitive forces, such as accelerating technological requirements for advanced
systems, equipment and highly-skilled personnel, as well as the growing customer demand for full-service capabilities, continue to create attractive acquisition opportunities for the larger players.

Globalization. We believe that over the last 4 to 5 years several multi-national consumer products companies have decided to globalize their
brands. As these companies begin to globalize their brands, ensuring image consistency and continuity with package designs becomes critical. These companies are increasingly looking to their existing graphic services providers, including us, to
service them globally. In 2005, we expanded outside North America with the acquisition of MCG, adding facilities in Hull, Cambria and London, England, and significantly expanding our ability to serve our multinational customers. In 2006, we
continued our expansion outside North America with the acquisition of The Box Room Limited in the United Kingdom and the acquisition of a business supplying photographic and digital images for the packaging printing industry in the Netherlands.
During 2007, we increased our presence in Europe and expanded into Asia with our acquisition of McGurk. McGurk is a UK-based provider of end-to-end digital design, artwork and reprographics for packaging solutions with locations in Hull and London,
England and Hong Kong. These acquisitions enhance our ability to provide services to our existing multi-national customers and to seek new business from other multi-national companies. We believe we are in an excellent position to leverage our North
American experience in setting up on-site locations, developing custom client workflow solutions and acquiring businesses outside North America. In addition, our secure web-based asset management system houses the brand imagery of many clients. This
secure database is accessible from the internet and contains digital artwork which can be searched and downloaded from anywhere in the world. See Item 1A Risk Factors for a discussion of currency exchange, political, investment and
other risks related to our foreign operations.

Technological advances. New technologies have increased the array of value-added
services that graphic services companies are able to offer their customers. By providing technology solutions, such as automated workflow and digital asset management, we have been able to both increase ancillary revenue and strengthen our customer
relationships. We also deploy state-of-the art laser imaging and workflow technologies at our gravure locations. We believe that by integrating new technology with our customers and standardizing and automating the process related to their prepress
services, we are able to reduce costs and lower the time that it takes them to deliver their products to the marketplace.

Offshoring. Many companies have implemented offshoring initiatives as a method of cost containment. In our industry, companies are able to efficiently transfer prepress graphics and related services to countries with lower labor
costs due to the large amounts of reliable and affordable communication infrastructure available worldwide. We believe that our operations in Hong Kong and Mexico enhance our ability to control costs through offshoring.

Private label or store brands.In recent years, there has been steady growth of private label or store brands within the United States, following
similar trends in Europe, which has a very strong private label market. There is a trend in the industry for retailers to aggressively grow their own store brand within their own retail environment to solidify customer loyalty, as well
as offer more competitive pricing. Selling under their private label offers them an opportunity to do both. Retailers also enjoy a meaningful profitability advantage when their private label products



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are sold to customers. We have undertaken a comprehensive initiative to systematically target private label business opportunities and are benefiting from
these efforts. We currently support the private label initiatives of several companies. Our recent acquisitions of CMJ and McGurk bolster our expertise and capabilities with respect to store brands.

We believe we are able to take advantage of these industry trends due to our strengths in the following areas:

Broad geographic reach with low-cost, strategically positioned footprint

We service our customers at a local level while maintaining quality standards appropriate for a global company. We have 31 locations in North America that are within close proximity to our customers plants. In
addition, in North America we also have multiple on-site locations at our customers facilities and multiple facility-managed locations. We entered the European market through our 2005 acquisition of MCG and continued to expand through
acquisitions in 2006 and 2007. We now have six locations in Europe. In 2007, we entered the Asia market through our acquisition of McGurk, including their Hong Kong operations. Our on-site and facility-managed locations are characterized by the
deployment of our personnel at a customers location and are a component of our customer relations strategy. Additionally, we often provide unique or customized services based on customer specification and seek to deliver our image carriers to
converters and printers as soon as they are produced, requiring our locations to be at or near our customers.

Blue chip customer base with
long-standing relationships

We serve a blue chip client base of consumer products companies including Kraft, Procter & Gamble
and Nestlé, as well as the printers and converters that serve them, including Bemis, Mead Westvaco and Alcan. We have greater than 30-year relationships on average with our top ten customers. Our top ten customers accounted for approximately
32% of our revenues in fiscal 2008. We typically service our customers as sole suppliers on designated brands and service multiple brands at each customer. Additionally, we believe we can leverage our broad geographic footprint and relationships
with global customers to further expand the services and offerings to blue chip customers around the world.

Leading provider of graphic services

We believe we are the second largest domestic provider of digital imaging graphic services to the international consumer products packaging
industry. We utilize the leading graphic technologies and standards and retain the highest quality skilled technicians, thereby allowing us to meet our customers most exacting requirements. We believe our scale allows us to more effectively
manage our cost structure and optimize the efficiencies of our assets. We also believe our leading market position provides a competitive advantage which allows us to retain existing business and compete for new business.

Design-to-print service provider

We offer a full
spectrum of innovative digital solutions to our customers, including brand development, creative design, pre-press, image carriers and print support. We also offer our customers enterprise solutions including workflow management and digital asset
management. Our services support the three main printing processes, which are flexography, gravure and lithography. We believe our customers value our broad service offerings and will increasingly rely on us to provide more of their graphic services
needs.

Stable, large-scale competitor

We believe we are one of a small number of domestic graphic design services providers with revenues in excess of $100.0 million serving global packaging customers. Our size allows us to support our customers at multiple facilities, invest
in and implement the latest technologies and pursue acquisitions. We believe our scale will allow us to continue to operate efficiently and benefit from the increasing importance of packaging in the global consumer branded products market. We also
believe that our services are somewhat resistant to economic cycles as our target end-markets exhibit relative stability, our services are a relatively small portion of our customers overall package cost and packaging and design changes are
often viewed as fixed costs within a customers marketing budget. Nevertheless, our 2008 personnel cost represented approximately 47% of our total costs and expenses and we believe we would be able to quickly react to a reduction in the demand
for our services.



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Expertise in identifying and integrating acquisitions

We have completed 13 acquisitions since the beginning of 2004. We consummated these acquisitions for a variety of reasons, including obtaining additional
scale, acquiring a specific design or technical skill, achieving geographic diversification, strengthening existing customer relationships, forming new customer relationships or acquiring an underutilized asset that could more efficiently perform
existing services within our organization. We have successfully integrated these acquisitions, improving the financial and operational performance of these assets over time by optimizing workflows and implementing best practices.

Highly experienced management team

On average, our
management team has been with us and our predecessors for more than 15 years. Our management has instilled a culture that places an emphasis on cost consciousness, profitable growth and meeting targets. Additionally, our management team has
consistently generated positive cash flow from operations while maintaining our leadership in service and technology trends that shape our industry. Our management team is seasoned in identifying, negotiating and integrating acquisitions.

BUSINESS STRATEGY

Provide additional services on
existing business

We are a leading provider of digital imaging graphic services to the international consumer products packaging
market. Our customers entrust us with their brands by utilizing our services and we value and protect that relationship. We intend to further strengthen our existing relationships by offering more services to existing customers. The graphic work
attributable to a particular product represents a small overall percentage of the packaging cost but is disproportionately important in a packages impact and effectiveness. We believe we have been successful at increasing the amount of
services provided to customers over time by providing consistently high service levels. We also provide our customers complementary services, such as digital asset management and work flow management solutions. We believe our customers view many of
the graphic services functions they perform in-house as non-core and will seek to outsource them to a trusted partner such as us. We intend to aggressively pursue brand development and creative design services with our consumer products customers,
as well as image carrier and print support services with our printer and converter customers. We believe we have the capacity and personnel skills today to allow us to service more of our customers graphic services needs.

Pursue new business opportunities

We intend to
aggressively pursue new business opportunities. We believe our existing customers recognize our superior service levels and are looking to us to provide graphic services on brands that we do not currently service. We also believe we have developed
strong customer recognition and that new customers will be attracted to our suite of service offerings. For example, we continue to experience significant growth in services to providers of private label or store brands and believe they will be an
important customer base in the future as they increase their efforts to develop premium brands to compete with international brands.

Capitalize on
dynamic industry trends

The technological requirements and advanced systems and equipment necessary to meet customer needs continue to
accelerate. The graphic services process is becoming an all-digital workflow from design through printing. These changes require an adaptive organization that has the highly-skilled personnel to understand, implement and utilize this technology.
Given the rapid pace of change in our industry, we believe our customers will continue to outsource their graphic services needs. We also believe we are better positioned to service the needs of graphic services customers than our smaller
competitors.

Focus on reducing debt obligations

Since the beginning of 2006, we have generated more than $20.0 million in cash from operations each year and have utilized a significant portion of this cash for acquisitions. However, our current strategy for the use
of cash provided by operations will be to reduce our outstanding debt. We will consider pursuing attractive acquisition opportunities, but acquisitions will be secondary to reducing debt obligations.



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Effectively integrate acquisitions

Since the beginning of 2006, we have completed 8 acquisitions. With the shift in our strategy to reducing debt, our focus from an acquisition perspective is now to effectively integrate our recent acquisitions to
minimize costs and strengthen customer relationships.

Leverage international presence

We believe many of our customers are in the early stages of implementing brand globalization strategies. These strategies are intended to provide
consistency within their brands, including, for example, packaging, coloring and text setting. We believe these customers may look to fulfill their graphic services needs with a single provider in order to aid in the effort of providing brand
consistency across regions and overseas. We acquired UK-based MCG in 2005, acquired UK-based The Box Room Limited in 2006, acquired a business supplying photographic and digital images for the packaging printing industry in the Netherlands in 2006,
and acquired McGurk, a UK-based provider of end-to-end digital design, artwork and reprographics for packaging solutions with locations in Hull and London, England and Hong Kong in 2007, with the intention of further strengthening our relationship
with several of our top customers and servicing them on a global level.

ACQUISITION HISTORY

The highly fragmented nature of the packaging graphics industry, the desire of consumer products companies to consolidate their supplier base and the
pressure on smaller suppliers to meet consumer products companies increasing demands have presented many opportunities for us to grow through acquisitions. Since 2004, we have completed 13 acquisitions.

The following table summarizes our acquisitions from 2004 through December 2008:



|                                  |  |                    |  |                                  
|--------------------------------- |  | ------------------ |  | ---------------------------------
|Acquisition                       |  | Year ofacquisition |  | Key capabilities                 
|Mozaic Group (51% acquired)       |  | 2004               |  | Creative/Photography/ Interactive
|MacKay (Florence facility)        |  | 2004               |  | Gravure                          
|Smurfit Stone (Dayton operations) |  | 2004               |  | Graphics                         
|LImage Creo                      |  | 2005               |  | Graphics/Flexo                   
|MCG                               |  | 2005               |  | Graphics/Flexo                   
|The Box Room Limited              |  | 2006               |  | Graphics                         
|Lukkein Packaging Department      |  | 2006               |  | Graphics                         
|Synnoflex                         |  | 2006               |  | Graphics/Flexo                   
|C.M. Jackson                      |  | 2007               |  | Creative/Store Brands            
|McGurk                            |  | 2007               |  | Graphics / Flexo                 
|Tri-Ad                            |  | 2008               |  | Graphics / Flexo                 
|Backwell                          |  | 2008               |  | Graphics                         
|Focus Imaging Group LLC           |  | 2008               |  | Graphics / Flexo                 

CUSTOMERS

Our customers consist of end-use consumer packaged goods manufacturers, mass merchant retailers, and the printers and converters that supply them. We serve a significant number of customers with no one customer
accounting for more than 7% of fiscal 2008 revenue. Our ten largest customers accounted for approximately 32% of our revenues in fiscal 2008. Over the course of our 60 year history, we have established close and stable relationships with our
customers. On average, we have enjoyed relationships lasting longer than 30 years with our top ten customers.

While consumer products
companies have continued to outsource their graphics services needs, they are increasingly focused on consolidation of their supplier base. They often single-source their graphics work with respect to a particular product line to assure brand
consistency and quality, improve speed-to-market and procure a



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full range of services. This supplier consolidation trend continues to play a significant role in shaping the graphics services industry and has created
further market opportunities for full-service industry leaders, such as us, to expand our services and customer base and gain market share. Consistent with the supplier consolidation and single sourcing trends, consumer products companies are
increasingly moving towards doing business with their graphic service providers under long-term supply contracts. Historically, this business has been done on a purchase order basis, with services purchased for discrete projects on an as needed
basis. For an industry leader such as us, the move towards written contracts covering ongoing business and multiple projects over a number of years further strengthens our already consistent and stable business relationships and improves
predictability. Roughly half of our revenue currently is generated under long-term contracts with our customers. These contracts typically provide that we are the sole supplier of services related to a product for an initial three to five year
period. However, most of these contracts may be terminated by the customer without cause upon 30 to 90 days notice and do not provide that our customers have to purchase a minimum amount of our services.

Our employees have developed a network of relationships at all levels of the various customer organizations and value chain partners. These relationships
not only facilitate optimal day-to-day operations but also help us to remain abreast of evolving industry trends and anticipate upcoming changes.

Over the last several decades, we have established strong working relationships with various design houses and printers. Our personnel are familiar with the equipment and software at these value chain partners and have developed close
relationships with their counterparts at these organizations. This knowledge and familiarity provide us with a significant competitive advantage in meeting customer demands. In addition, these longstanding relationships help generate repeat
business, both through referrals from the printers and design houses to packaged goods companies, as well as through the selection of us for their discretionary work.

MARKETING AND SALES

We have one team of sales people and client service technicians who call on
consumer packaging companies and a separate team of sales people and print support specialists who call on printers/converters. We assess opportunities in current and adjacent markets to focus on optimizing the marketing and sales effort with regard
to our services portfolio. Category assessment and management is an optimization process that takes place on the level of a cluster of service offerings tailored to a specific category. We assess the percentage of companies in a specific category
market in which we currently enjoy business relationships, versus the percentage where we can focus resources on developing new opportunities and relationships. While we may not have a single source relationship (all branding media) with all the
companies in a specific category, the assessment demonstrates which areas could produce the greatest benefit and where synergies may deliver incremental value.

Our account managers have built strong relationships with internationally renowned companies, such as Kraft, Nestlé and Procter & Gamble, through years of hard work and today these customers rely on us
to provide graphic services for several of their brands. We believe that one key to the longevity and success of these relationships has been our ability to support our account managers with superior execution. Our technical specialists have
strengthened many customer relationships by helping introduce new graphics that differentiate customers products in stores.

RESEARCH AND
DEVELOPMENT

We utilize state-of-the-art information technology to support our service offerings to our customers as well as our
internal operations. Our IT team comprises experts focused on information systems, manufacturing technologies, plant engineering systems, shop floor systems and enterprise solutions.

Our manufacturing technologies team includes a unique and dedicated group of regional technology experts with a focus on research and analysis of new
technologies, standardization of technology and designing/implementing smooth workflows. This group concentrates its efforts on understanding the systems and equipment available in the marketplace and creating solutions using off-the-shelf products,
customized to meet a variety of specific client and internal requirements. This team has become an extension of many of our technology vendors, providing them with valuable feedback that helps improve product quality and capabilities.



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INTELLECTUAL PROPERTY

Our customers own the designs and graphics images that are the subject of our services and own the gravure image carriers used in the printing process. Our only significant intellectual property assets are the names
we operate under: Southern Graphic Systems and SGS in North America, and SGS Europe in the United Kingdom and the Netherlands.

RAW MATERIALS

Our primary raw material purchases include sheet photopolymer for flexographic plates, photographic film,
chemicals, storage media, ink, colorants, plate materials, proofing and various other supplies and chemicals. We purchase our most commonly used raw materials under long-term contracts and are not impacted by short-term movements in raw material
prices. In fiscal 2008, material and supply costs represented approximately 18% of our cost of goods sold.

BUSINESS CYCLES AND SEASONALITY

Our business is not generally seasonal because of the number of design changes that we are able to process as a result of our
speed-to-market and emphasis on digital technology. There may be some decline in December of each year as any holiday-specific design changes have been executed, and there may be similar, more modest slowdowns in conjunction with other holidays.

While the overall economic conditions of the current business cycle could continue to be challenging, we currently do not expect this to
have a significant impact on the Company as we do not serve many of the markets most impacted by the recent economic downturn, including the housing industry, automotive industry, and financial institutions.

BACKLOG

The amount of backlog orders is immaterial
to the Company due to the quick turn-around time of orders customary in the industry.

EMPLOYEES

As of December 31, 2008, we had 1,909 employees, 1,145 of whom are located at United States operating facilities, 91 of whom are United States
corporate employees, 317 of whom are located in Canada, and 20 of whom are located in Mexico. We have an additional 276 employees in the UK, 24 employees in the Netherlands, and 36 employees in Hong Kong. All of our employees in the United States,
Canada, Mexico, the Netherlands, and Hong Kong are non-union. A number of our employees in the UK are members of the Graphical, Paper & Media Union (GPMU), although the GPMU is not a bargaining agent for the employees at our facilities.

ENVIRONMENTAL MATTERS

As with most
manufacturers, our facilities and operations are subject to federal, state, local and foreign environmental laws, regulations and ordinances, including those that:



| |  |  | govern activities or operations that may adversely affect the environment, such as discharges to air and water, as well as handling and disposal practices for solid
and hazardous wastes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seek to protect occupational safety and health; and
| | - |  | ---------------------------------------------------



| |  |  | impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous substances.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

The violation of such laws and regulations can result in substantial civil and criminal fines and penalties. We do not
currently anticipate any material adverse effect on our operations or financial condition as a result of our efforts to comply with, or our liabilities under, these requirements. We will, from time to time, incur costs to attain or maintain
compliance with frequently changing regulatory requirements under environmental law, but do not currently expect any such costs to be material.



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We may be required to obtain or update air permits under state or federal laws at certain of our
facilities. We do not believe we will require any additional pollution reduction or capital improvements, nor do we believe we will be subject to fines or penalties, the costs of which, in the aggregate, are reasonably likely to be material.

Certain of our facilities are known to have low levels of contaminants from hazardous substances. Additional contamination could be
detected at other current or former facilities. In connection with the purchase of SGS from Alcoa Inc. on December 30, 2005, Alcoa Inc. provided an indemnity for certain of these conditions, subject to certain limitations, and based on the
nature of the environmental impacts and such indemnity, we do not believe our liability for these conditions is likely to be material. Although we do not believe that we are currently subject to any material environmental liabilities, the operations
of manufacturing plants entail risks in these areas and there can be no assurance that we will not discover previously unknown environmental non-compliance or contamination.

We have not made any material expenditure during the last three fiscal years in order to comply with environmental laws or regulations. Based on our
experience to date, we believe that the future costs of compliance with existing environmental laws and regulations (and liability for known environmental conditions) are not reasonably likely to have a material adverse effect on our business,
consolidated financial condition, results of operations or liquidity. However, we cannot predict what environmental or health and safety legislation or regulations will be enacted in the future or how existing or future laws or regulations will be
enforced, administered or interpreted, nor can we predict the amount of future expenditures that may be required in order to comply with such environmental or health and safety laws or regulations or to respond to future environmental claims and
liabilities.

GEOGRAPHIC FINANCIAL INFORMATION

The sales and long-lived asset information by geographic area presented within Footnote B in Item 15, Exhibits and Financial Statement Schedules is incorporated herein by reference.

AVAILABLE INFORMATION

A copy of the Companys
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, is available on the Companys website at www.sgsintl.com without charge.



|Item 1A. | Risk Factors
|-------- | ------------

The risks described below are not the
only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. Any of the following risks could materially adversely
affect our business, financial condition or results of operations.

Our indebtedness is substantial, which could adversely affect our financial health
and limit our ability to obtain financing in the future and to react to changes in our business.

As of February 28, 2009, our
total consolidated indebtedness was $331.6 million and we had $14.2 million of additional borrowings available under our revolving credit facility. Our large amount of debt could have important consequences, including, but not limited to, the
following:



| |  |  | it will require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, which will reduce the funds available for working
capital, capital expenditures, acquisitions and other general corporate expenses;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | it could make it more difficult for us to satisfy our obligations under our senior secured credit facility and our senior subordinated notes;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | it could place us at a disadvantage compared to our competitors that have proportionately less debt; and
| | - |  | --------------------------------------------------------------------------------------------------------



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| |  |  | it could limit our ability to borrow additional funds in the future, if needed, because of applicable financial and restrictive covenants of our indebtedness.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Our debt agreements have restrictions that limit our flexibility in operating our business.

Our senior secured credit facility and the indenture under which our senior subordinated notes were issued have a number of significant covenants that,
among other things, restrict our ability to:



| |  |  | incur additional indebtedness;
| | - |  | ------------------------------



| |  |  | issue or sell capital stock;
| | - |  | ----------------------------



| |  |  | sell assets or consolidate or merge with or into other companies;
| | - |  | -----------------------------------------------------------------



| |  |  | pay dividends or repurchase or redeem capital stock;
| | - |  | ----------------------------------------------------



| |  |  | make certain investments;
| | - |  | -------------------------



| |  |  | make loans, incur liens and transfer property; and
| | - |  | --------------------------------------------------



| |  |  | enter into certain types of transactions with our affiliates.
| | - |  | -------------------------------------------------------------

These covenants, as well as our level of indebtedness, could have the effect of limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.

In addition, under the senior secured credit facility, we are required to satisfy and maintain specified financial ratios and tests. Events beyond our
control may affect our ability to comply with those provisions and we may not be able to meet those ratios and tests, which would result in a default under the senior secured credit facility. In the event of a default, the lenders under the senior
secured credit facility could elect to declare all amounts borrowed under the senior secured credit facility, together with accrued interest, to be due and payable and could proceed against the collateral securing that indebtedness. Borrowings under
the senior secured credit facility are senior in right of payment to the senior subordinated notes. If any of our indebtedness were to be accelerated, our assets may not be sufficient to repay in full that indebtedness and the senior subordinated
notes.

We are subject to competitive pressures.

We compete with other providers of graphic related services. The market for such services is highly fragmented, with several national and many regional participants. We face, and will continue to face, competition in
our business from many sources, including national and large regional companies, some of which have greater financial, marketing and other resources than we do. In addition, local and regional firms specializing in particular markets compete on the
basis of established long-term relationships or specialized knowledge of such markets. The introduction of new technologies may create lower barriers to entry that may allow other firms to provide competing services.

There can be no assurance that competitors will not introduce services that achieve greater market acceptance than, or are technologically superior to,
our current service offerings. There is no assurance that we will be able to continue to compete successfully or that competitive pressures will not adversely affect our business, financial condition and results of operations.

Our business is sensitive to general economic conditions. An economic decline or other circumstances that result in reductions in our customers marketing and
advertising budgets could negatively impact our sales volume and revenues and our ability to respond to competition or take advantage of business opportunities.

Our revenues are derived from many customers in a variety of industries and businesses, some of whose spending levels can be cyclical in nature and subject to significant reductions based on changes in, among other
things, general economic conditions. Our operating results may reflect our customers order patterns or the effects of economic downturns on their businesses. In addition, because we conduct our operations in a variety of markets, we are
subject to economic conditions in each of these markets. We are subject to downward price pressures in certain of the markets we serve. Accordingly, general economic downturns, localized downturns, or downward price pressures in markets where we
have operations could have a material adverse effect on our business, results of operations and financial condition.



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Our operations may be subject to quarterly and cyclical fluctuations.

The timing of particular jobs or types of jobs at particular times of year may cause significant fluctuations in the operating results of our various
operations in any given quarter. We are subject to factors that are beyond our control, including changes in interest costs, currency exchange rates and tax rates, costs associated with compliance with legal and regulatory requirements and the
health of the consumer products industry. We also depend, to some extent, on sales to certain industries, such as the food and beverage and tobacco industries. To the extent these industries experience downturns, the results of our operations may be
adversely affected.

We are dependent on certain key customers and are subject to unpredictable order flows.

Our ten largest customers accounted for approximately 32% of our revenues in fiscal 2008. In fiscal 2008, no one customer accounted for more than 7% of
our total revenues. While we seek to build long-term customer relationships, revenues from any particular customer can fluctuate from period to period due to such customers purchasing patterns. Further, our services and related business
activity generally have been characterized by individual assignments from customers on a project-by-project basis, and continued engagements for successive jobs are primarily dependent upon our customers satisfaction with services previously
provided. While technological advances have enabled us to shorten considerably our production cycle to meet our customers increasing speed-to-market demands, we may in turn receive less advance notice from our customers of upcoming projects.
Any termination or significant disruption of our relationships with any of our principal customers could have a material adverse effect on our business, financial condition and results of operations.

We have long-term contracts with certain key customers. The terms of most of our largest contracts are initially between two and five years. However,
most of these contracts may be terminated by the customer without cause upon 30 to 90 days notice. While terms and conditions in our customer contracts vary, in general the contracts do not obligate our customers to purchase any specific
minimum volume or dollar amount of services from us. Any cancellation, deferral or significant reduction in sales to these principal customers or a significant number of smaller customers could have a material adverse effect on our business,
financial condition and results of operations.

We are dependent on certain key suppliers. Any problem or interruption in our supply of primary raw
materials could delay operations and adversely affect our sales.

Our primary raw material purchases include sheet photopolymer for
flexographic plates, photographic film, chemicals, storage media, ink, colorants, plate materials, proofing paper and various other supplies and chemicals. We purchase the majority of our raw materials based on long-term contracts with our key
supplier. Although we believe we could find other suppliers, our continued supply of raw materials is subject to a number of risks, some of which are beyond our control, which could delay operations and adversely affect our sales. In fiscal 2008,
materials and supplies costs accounted for approximately 18% of our cost of goods sold.

We may be unable to effectively integrate acquired businesses.

Since the beginning of 2004, we have completed 13 graphic services acquisitions and we will consider pursuing attractive acquisition
opportunities in the future. While management has experience acquiring companies and integrating their operations into our existing operations, we may not be able to effectively integrate acquired businesses into our existing business.

Future acquisitions could result in the incurrence of debt and contingent liabilities and an increase in amortization expenses related to intangible
assets, which could have a material adverse effect upon our business, financial condition and results of operations. Risks we could face with respect to acquisitions include:



| |  |  | difficulties in the integration of the operations, technologies, products and personnel of the acquired company;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | risks of entering markets in which we have no or limited prior experience;
| | - |  | --------------------------------------------------------------------------



| |  |  | potential loss of employees;
| | - |  | ----------------------------



| |  |  | diversion of managements attention from other business concerns; and
| | - |  | ---------------------------------------------------------------------



| |  |  | expenses of any undisclosed or potential legal liabilities of the acquired company.
| | - |  | -----------------------------------------------------------------------------------



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The risks associated with acquisitions could have a material adverse effect upon our business, financial
condition and results of operations. We cannot assure that we will be successful in consummating future acquisitions on favorable terms or at all.

Our
foreign operations are subject to currency exchange, political, investment and other risks that could hinder us from transferring funds out of a foreign country, delay our debt service payments, cause our operating costs to increase and adversely
affect our results of operations.

We currently have operations in the United States, Mexico, Canada, the United Kingdom, the
Netherlands, and Hong Kong. For the year ended December 31, 2008, total sales from operations outside the United States were approximately $103 million (excluding intercompany sales), which represented approximately 32% of our consolidated net
sales. As a result of our foreign operations, we are subject to certain risks which could disrupt our operations or force us to incur unanticipated costs and have an adverse effect on our ability to make payments on our debt obligations. See the
table under Results of Operations in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations summarizing the concentrations of sales, net income, and long-lived assets by major geographic
region.

Devaluations and fluctuations in currency exchange rates may affect our operating performance by impacting revenues and expenses
outside of the U.S. due to fluctuations in currencies other than the U.S. dollar or where we translate into U.S. dollars for financial reporting purposes the assets and liabilities of our foreign operations conducted in local currencies.

We are subject to various other risks associated with operating in foreign countries, such as the following:



| |  |  | acts of terrorism;
| | - |  | ------------------



| |  |  | changes in government policies and regulations;
| | - |  | -----------------------------------------------



| |  |  | imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | imposition or increase of investment and other restrictions or requirements by foreign governments.
| | - |  | ---------------------------------------------------------------------------------------------------

The loss of key personnel could adversely affect our current operations and our ability to achieve continued growth.

We are highly dependent upon the continued service and performance of our senior management team and other key employees. Although we generally have been
successful in our recruiting efforts, we compete for qualified individuals with companies engaged in our business lines and with other companies. Accordingly, we may be unable to attract and retain suitably qualified individuals, and our failure to
do so could have an adverse effect on our ability to implement our business plan. If, for any reason, these officers or key employees do not remain with us, our operations could be adversely affected until suitable replacements with appropriate
experience can be found.

If we do not keep pace with technological changes, we will not be able to maintain our competitive position.

We believe our ability to develop and exploit emerging technologies has contributed to our success and has demonstrated to our customers the value of
using our services rather than attempting to perform these functions in-house or through lower-cost, reduced-service competitors. We believe our success also has depended in part on our ability to adapt our business as technology advances in our
industry have changed the way graphics projects are produced. These changes include a shift from traditional production of images to offering more consulting and project management services to customers. Accordingly, our ability to grow will depend
upon our ability to keep pace with technological advances and industry evolutions on a continuing basis and to integrate available technologies and provide additional services commensurate with customer needs in a commercially appropriate manner.
Our business may be adversely affected if we were unable to keep pace with relevant technological industry changes or if the technologies that we adopt or services we promote do not receive widespread market acceptance.



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We are subject to strict environmental laws and regulations that may lead to significant, unforeseen expenses.

We are subject to various federal, state, local and foreign environmental laws, regulations and ordinances, including those that:



| |  |  | govern activities or operations that may adversely affect the environment, such as discharges to air and water, as well as handling and disposal practices for solid
and hazardous wastes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | seek to protect occupational safety and health; and
| | - |  | ---------------------------------------------------



| |  |  | impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous substances.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

The violation of such laws and regulations can result in substantial civil and criminal fines and penalties. We may not
be, at all times, in compliance with all such requirements. As is the case with manufacturers in general, we have made and will continue to make capital expenditures to comply with environmental requirements. Although we do not believe that we are
currently subject to any material environmental liabilities, the operation of manufacturing plants entails risks in these areas and there can be no assurance that we will not discover previously unknown environmental non-compliance or contamination.
Noncompliance with or liability for cleanup under the environmental laws applicable to us could have a material adverse effect on our results of operations and financial condition. In addition, changes in environmental laws and regulations, or the
interpretation or enforcement thereof, the discovery of previously unknown contamination or other liabilities relating to our current or former properties and operations, developments in environmental litigation or technological advances could
increase the amount of future expenditures and could have a material adverse effect on our results of operations and financial condition.

We may be
subject to losses that might not be covered in whole or in part by our insurance coverage. These uninsured losses could result in substantial liabilities to us that would negatively impact our financial condition.

We carry comprehensive liability, fire and extended coverage insurance on all of our facilities, and other specialized coverage, including errors and
omissions coverage, with policy specifications and insured limits which we believe to be reasonable for similar properties and purposes. However, there are certain types of risks and losses, such as losses resulting from wars or acts of God, that
generally are not insured because they are either uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could incur significant liabilities, and if such loss affects property we own, we
could lose capital invested in that property or the anticipated future revenues derived from the activities conducted at that property, while remaining liable for any lease or other financial obligations related to the property. In addition to
substantial financial liabilities, an uninsured loss or a loss that exceeds our coverage could adversely affect our ability to replace property or capital equipment that is destroyed or damaged, and our productive capacity may diminish.

Our ability to report our financial results or prevent fraud is dependent on our ability to maintain an effective system of internal controls.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Any inability to provide reliable
financial reports or prevent fraud could harm our business. If we fail to remedy or maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory
scrutiny, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal control could result in financial statements that do not accurately reflect our financial condition.

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, including the senior subordinated notes, and to fund planned capital expenditures,
acquisitions and research and development efforts will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond
our control.



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Based on our current level of operations, we believe our cash flow from operations, available cash and
available borrowings under our senior secured credit facility will be adequate to meet our future liquidity needs for at least the next few years.

There is no assurance, however, that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility in an amount sufficient to enable us to pay our
indebtedness, including the senior subordinated notes, or to fund our other liquidity needs or that there will not be material adverse developments in our business, liquidity or capital requirements. If we are unable to generate sufficient cash flow
from operations in the future to service our indebtedness and to meet our other commitments, we may need to refinance or restructure all or a portion of our indebtedness, sell material assets or operations or obtain additional debt or equity
capital. There is no assurance that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all, or that these actions would enable us to continue to satisfy our capital requirements. In addition,
the terms of our existing or future debt agreements, including the senior subordinated notes and our senior secured credit facility, may limit our ability to pursue any of these alternatives.

With our indebtedness levels, we may still be able to incur substantial additional debt, which could exacerbate the risks associated with our substantial leverage.

We may be able to incur additional debt in the future, including debt that is senior to or equal in right of payment to the senior
subordinated notes. Although the indenture governing the senior subordinated notes and our senior secured credit facility contain restrictions on our ability to incur indebtedness, those restrictions are or will be subject to a number of exceptions.
Additional indebtedness we incur may be senior to or equal in right of payment with the senior subordinated notes. Adding new debt to current debt levels could intensify the related risks that we now face.

Indebtedness under our senior secured credit facility is subject to floating interest rates, which may cause our interest expense to increase.

Changes in economic conditions could result in higher interest rates, thereby increasing our interest expense and reducing our funds available for
operations and other purposes. A 1% increase in market interest rates would result in an annual increase in our interest expense and a decrease in our earnings before income taxes, of approximately $0.9 million. Any borrowings under our senior
secured revolving credit facility would be subject to similar fluctuations.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

Not applicable.



|Item 2. | Properties
|------- | ----------

We began operations in Louisville,
Kentucky and continue to maintain our headquarters there. We have a broad geographic reach through our network of 38 low cost operating facilities located across the United States, Canada, Mexico, the United Kingdom, the Netherlands, and Hong Kong.
Virtually all of these operating facilities provide prepress graphics services; 19 of them engrave flexographic plates; and nine of them engrave gravure cylinders. Due to shipping costs, proximity to the customer is particularly important with
respect to image carriers. While graphic services can be provided at a greater distance from the customer, it is still a competitive advantage to be able to have face-to-face contact with the customer on short notice when necessary or desirable. We
also have relationships with certain regional graphic services providers in Europe, India, and The Philippines.

We also operate on-site at
numerous consumer products company locations and several printer locations. On-site services typically involve packaging graphics services and project management work. We also operate seven facility-managed locations. This work typically involves
engraving of flexographic plates at printers. We have expanded our on-site and facility-managed presence to strengthen customer relationships, improve cost efficiencies, and increase speed and accuracy of the end-services. Image quality, consistency
and response times are becoming increasingly important to our customers and on-site and facility-managed locations help us to better serve our customers needs.

As of March 9, 2009, excluding our headquarters in Louisville, we have 38 operating facility locations.



19



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##### Table of Contents

|                                        |  |       |  |       
|--------------------------------------- |  | ----- |  | ------
|Location                                |  | Owned |  | Leased
|United States                           |  |       |  |       
|Appleton, WI                            |  |       |  | X     
|Atlanta, GA (Gravure)                   |  |       |  | X     
|Atlanta, GA (Flexo)                     |  |       |  | X     
|Battle Creek, MI                        |  |       |  | X     
|Charlotte, NC                           |  |       |  | X     
|Cincinnati, OH                          |  |       |  | X     
|Dallas, TX                              |  |       |  | X     
|Elgin, IL                               |  |       |  | X     
|Florence, KY                            |  | X     |  |       
|Fulton, NY                              |  | X     |  |       
|Greensboro, NC                          |  |       |  | X     
|McBee, SC                               |  |       |  | X     
|Marietta, GA                            |  |       |  | X     
|Milwaukee, WI                           |  |       |  | X     
|Minneapolis, MN                         |  |       |  | X     
|Philadelphia, PA                        |  |       |  | X     
|Ramsey, NJ                              |  |       |  | X     
|Reidsville, NC                          |  |       |  | X     
|Richmond, VA (Creative)                 |  |       |  | X     
|Richmond, VA (Prepress, Flexo, Gravure) |  |       |  | X     
|St. Louis, MO                           |  |       |  | X     
|West Monroe, LA                         |  | X     |  |       
|Winston Salem, NC                       |  |       |  | X     
|Canada                                  |  |       |  |       
|London, Ontario                         |  |       |  | X     
|Mississauga, Ontario (Gravure)          |  |       |  | X     
|Montreal, Quebec (Flexo)                |  |       |  | X     
|Montreal, Quebec (Flexart Design)       |  |       |  | X     
|Toronto, Ontario                        |  |       |  | X     
|Toronto, Ontario                        |  |       |  | X     
|Toronto, Ontario (Evolution Design)     |  |       |  | X     
|Mexico                                  |  |       |  |       
|Mexico City                             |  |       |  | X     
|United Kingdom                          |  |       |  |       
|Hull (MCG Graphics Limited)             |  |       |  | X     
|Hull (SGS Studios)                      |  |       |  | X     
|London (SGS Thames)                     |  |       |  | X     
|London (Design Studio)                  |  |       |  | X     
|Tamworth                                |  |       |  | X     
|The Netherlands                         |  |       |  |       
|Ede                                     |  |       |  | X     
|China                                   |  |       |  |       
|Hong Kong                               |  |       |  | X     



|Item 3. | 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.



20



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##### Table of Contents

|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

No matters were submitted to a vote of the Registrants security holders during the fourth quarter of 2008.

PART II



|Item 5. | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ----------------------------------------------------------------------------------------------------------------

PUBLIC TRADING MARKET

There is no established public
trading market for the Registrants Common Stock.

As of March 9, 2009, there was one holder of record of the Registrants
Common Stock.

DIVIDENDS

The
Registrant has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The instruments governing the Registrants senior credit facility prohibit it from paying dividends
other than (i) dividends to Southern Graphics Inc. (Holdco), the Registrants parent, for out-of-pocket legal, accounting and filing costs and other expenses in the nature of overhead incurred by Holdco in the ordinary course
of its business, (ii) dividends to Holdco to permit Holdco to repurchase or redeem shares of its capital stock held by officers, directors or employees upon their death, disability, retirement, severance or termination of employment, in each
case up to an aggregate of $3,000,000 per year, (iii) payments to Holdco to allow it to pay applicable income taxes, and (iv) dividends to Holdco to enable it to repurchase or redeem its equity interests held by Court Square Capital
Partners, L.P. (CSC, formerly known as Citigroup Venture Capital Equity Partners, L.P.) or one of its related entities if Holdco concurrently issues a commensurate amount of equity interests to Lyon Southern, Inc. or another equity
investor reasonably satisfactory to the administrative agent and the arrangers under such facility. The indenture governing the senior subordinated notes contains additional restrictions on paying dividends. The Registrant currently intends to
retain future earnings to help fund the development and growth of its business and to reduce outstanding indebtedness.

See Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters with respect to information on equity compensation plans.

RECENT SALES OF UNREGISTERED SECURITIES

The Registrant had no sales of unregistered securities in
2008.



|Item 6. | Selected Financial Data
|------- | -----------------------

On December 30, 2005,
Southern Graphic Systems (the Predecessor) was acquired by CSC from Alcoa Inc. As a result, this report reflects the financial position and results of operations of the Predecessor up to the date of acquisition and reflects the financial position
and results of operations of SGS International, Inc. and its subsidiaries (the Successor) after the date of acquisition.

The following
table presents selected consolidated / combined financial information and other data for the periods indicated. The historical statement of operations data and statement of cash flows data for the years ended December 31,
2008, December 31, 2007 and December 31, 2006, and the balance sheet data for December 31, 2008 and December 31, 2007 are derived from our audited consolidated financial statements of the Successor, included elsewhere in
this Form 10-K. The historical statement of operations data and statement of cash flows data for the one-day ended December 31, 2005, and the balance sheet data for December 31, 2006 and December 31, 2005 are derived from our audited
consolidated financial statements of the Successor not contained in this Form 10-K. The historical statement of operations data and statement of cash flows data for the period ended December 30, 2005 and the year ended December 31, 2004,
and the historical balance sheet data for December 31, 2004 are derived from other audited combined financial statements of the Predecessor not contained in this Form 10-K.

The information contained in this table should also be read in conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and accompanying notes thereto included elsewhere in this Form 10-K.



21



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##### Table of Contents

|                                                                |  |                                |       |   |                                |   |             |                                |  |   |                                  |   |  |   |        |                                  |  |  |                                |   |       |   |  |   |       |  
|--------------------------------------------------------------- |  | ------------------------------ | ----- | - | ------------------------------ | - | ----------- | ------------------------------ |  | - | -------------------------------- | - |  | - | ------ | -------------------------------- |  |  | ------------------------------ | - | ----- | - |  | - | ----- | -
|                                                                |  | Successor                      |       |   |                                |   | Predecessor |                               
|                                                                |  | Year endedDecember 31,2008 (1) |       |   | Year endedDecember 31,2007 (1) |   |             | Year endedDecember 31,2006 (1) |  |   | One-DayendedDecember 31,2005 (1) |   |  |   |        | Period endedDecember 30,2005 (1) |  |  | Year endedDecember 31,2004 (1) |  
|                                                                |  |                                |       |   |                                |   |             | (dollars in millions)          |  |   |                                  |   |  |   |        |                                  | 
|Statement of Operations Data:                                   |  |                                |       |   |                                |   |             |                                |  |   |                                  |   |  |   |        |                                  |  |  |                                |   |       |   |  |   |       |  
|Sales                                                           |  | $                              | 323.5 |   |                                | $ | 308.8       |                                |  | $ | 276.3                            |   |  | $ |       |                                  |  |  |                                | $ | 260.3 |   |  | $ | 242.3 |  
|Net sales growth                                                |  |                                | 4.8   | % |                                |   | 11.8        | %                              |  |   | 6.1                              | % |  |   | 0.0    | %                                |  |  |                                |   | 7.4   | % |  |   | 7.0   | %
|Costs of goods sold (exclusive of depreciation)                 |  |                                | 212.3 |   |                                |   | 205.1       |                                |  |   | 180.5                            |   |  |   |       |                                  |  |  |                                |   | 170.9 |   |  |   | 156.1 |  
|Selling, general and administrative expenses                    |  |                                | 49.6  |   |                                |   | 46.6        |                                |  |   | 37.9                             |   |  |   |       |                                  |  |  |                                |   | 32.6  |   |  |   | 31.5  |  
|Depreciation and amortization                                   |  |                                | 28.6  |   |                                |   | 23.7        |                                |  |   | 20.1                             |   |  |   |       |                                  |  |  |                                |   | 16.4  |   |  |   | 15.0  |  
|Income from operations                                          |  |                                | 33.0  |   |                                |   | 33.4        |                                |  |   | 37.8                             |   |  |   |       |                                  |  |  |                                |   | 40.4  |   |  |   | 39.7  |  
|Related party interest expense                                  |  |                                |      |   |                                |   |            |                                |  |   |                                 |   |  |   |       |                                  |  |  |                                |   | 6.4   |   |  |   | 4.8   |  
|Interest expense                                                |  |                                | 36.5  |   |                                |   | 36.9        |                                |  |   | 35.0                             |   |  |   | 0.1    |                                  |  |  |                                |   |      |   |  |   |      |  
|Other expense (income), net                                     |  |                                | (2.1  | ) |                                |   | 0.5         |                                |  |   | 0.2                              |   |  |   |       |                                  |  |  |                                |   | 1.5   |   |  |   |      |  
|Income from (loss on) continuing operations before income taxes |  |                                | (1.4  | ) |                                |   | (4.0        | )                              |  |   | 2.6                              |   |  |   | (0.1   | )                                |  |  |                                |   | 32.5  |   |  |   | 34.9  |  
|Provision (benefit) for income taxes                            |  |                                |      |   |                                |   | (1.2        | )                              |  |   | 1.4                              |   |  |   | (0.1   | )                                |  |  |                                |   | 12.7  |   |  |   | 13.9  |  
|Income from (loss on) continuing operations                     |  |                                | (1.4  | ) |                                |   | (2.8        | )                              |  |   | 1.2                              |   |  |   |       |                                  |  |  |                                |   | 19.8  |   |  |   | 21.0  |  
|Income from (loss on) discontinued operations                   |  |                                |      |   |                                |   | 0.9         |                                |  |   | (0.5                             | ) |  |   |       |                                  |  |  |                                |   | 0.1   |   |  |   | (0.6  | )
|Provision (benefit) for income taxes on discontinued operations |  |                                |      |   |                                |   | 0.2         |                                |  |   | (0.2                             | ) |  |   |       |                                  |  |  |                                |   | 0.1   |   |  |   | (0.2  | )
|Net income (loss)                                               |  |                                | (1.4  | ) |                                |   | (2.1        | )                              |  |   | 0.9                              |   |  |   |       |                                  |  |  |                                |   | 19.8  |   |  |   | 20.6  |  
|Balance Sheet Data:                                             |  |                                |       |   |                                |   |             |                                |  |   |                                  |   |  |   |        |                                  |  |  |                                |   |       |   |  |   |       |  
|Cash and cash equivalents                                       |  |                                | 10.8  |   |                                |   | 34.5        |                                |  |   | 12.7                             |   |  |   | 4.1    |                                  |  |  |                                |   | N/A   |   |  |   | 0.8   |  
|                                                                |  |                                |       |   |                                |   |            
|Working capital                                                 |  |                                | 46.8  |   |                                |   | 71.9        |                                |  |   | 50.7                             |   |  |   | 37.8   |                                  |  |  |                                |   | N/A   |   |  |   | (26.8 | )
|                                                                |  |                                |       |   |                                |   |            
|Adjusted working capital(2)                                     |  |                                | 37.1  |   |                                |   | 39.6        |                                |  |   | 41.6                             |   |  |   | 35.6   |                                  |  |  |                                |   | N/A   |   |  |   | 31.6  |  
|                                                                |  |                                |       |   |                                |   |            
|Properties, plant and equipment, net                            |  |                                | 46.2  |   |                                |   | 53.4        |                                |  |   | 52.4                             |   |  |   | 56.4   |                                  |  |  |                                |   | N/A   |   |  |   | 44.6  |  
|                                                                |  |                                |       |   |                                |   |            
|Total assets                                                    |  |                                | 476.1 |   |                                |   | 530.2       |                                |  |   | 469.5                            |   |  |   | 461.5  |                                  |  |  |                                |   | N/A   |   |  |   | 329.2 |  
|                                                                |  |                                |       |   |                                |   |            
|Total debt(3)                                                   |  |                                | 345.7 |   |                                |   | 363.1       |                                |  |   | 322.0                            |   |  |   | 320.4  |                                  |  |  |                                |   | N/A   |   |  |   | 128.2 |  
|Enterprise capital                                              |  |                                |      |   |                                |   |            |                                |  |   |                                 |   |  |   |       |                                  |  |  |                                |   | N/A   |   |  |   | 139.8 |  
|Stockholders equity                                            |  |                                | 89.5  |   |                                |   | 119.2       |                                |  |   | 110.3                            |   |  |   | 106.9  |                                  |  |  |                                |   | N/A   |   |  |   |      |  
|Statement of Cash Flows Data:                                   |  |                                |       |   |                                |   |             |                                |  |   |                                  |   |  |   |        |                                  |  |  |                                |   |       |   |  |   |       |  
|Net cash provided by operations                                 |  |                                | 27.3  |   |                                |   | 23.8        |                                |  |   | 20.2                             |   |  |   | 0.9    |                                  |  |  |                                |   | 14.6  |   |  |   | 15.0  |  
|Net cash provided by (used in) financing activities             |  |                                | (10.3 | ) |                                |   | 36.4        |                                |  |   | (0.5                             | ) |  |   | 414.5  |                                  |  |  |                                |   | 17.4  |   |  |   | 5.2   |  
|Net cash used for investing activities                          |  |                                | (38.9 | ) |                                |   | (39.7       | )                              |  |   | (11.0                            | ) |  |   | (412.5 | )                                |  |  |                                |   | (28.8 | ) |  |   | (19.3 | )
|Other Financial Data:                                           |  |                                |       |   |                                |   |             |                                |  |   |                                  |   |  |   |        |                                  |  |  |                                |   |       |   |  |   |       |  
|Capital expenditures                                            |  |                                | 12.7  |   |                                |   | 11.1        |                                |  |   | 8.7                              |   |  |   |       |                                  |  |  |                                |   | 13.9  |   |  |   | 5.6   |  
|Business acquisitions, net of cash acquired                     |  |                                | 27.0  |   |                                |   | 29.3        |                                |  |   | 4.4                              |   |  |   | 412.5  |                                  |  |  |                                |   | 15.4  |   |  |   | 13.8  |  



|1 | The selected financial data was impacted by acquisitions. See Item 1 Business for a detailed listing of
acquisitions occurring during the period from 2004 to 2008. Also see Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations for the financial impact of these acquisitions.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Adjusted working capital is defined as current assets (excluding cash and cash equivalents and related party
receivables) less current liabilities (excluding short-term borrowings, current portion of long-term debt and related party payables). However, adjusted working capital is not a recognized measurement under GAAP, and when analyzing our financial
position, investors should use adjusted working capital in addition to, and not as an alternative for working capital, as defined in GAAP. Adjusted working capital is a meaningful measurement to management because the Company is highly leveraged and
any excess cash can be utilized to reduce debt obligations. The following table reconciles working capital to adjusted working capital:
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                      |  |                  |       |   |                  |   |       |                  |  |   |                  |   |  |                  |      |   |  |   |       |  
|------------------------------------- |  | ---------------- | ----- | - | ---------------- | - | ----- | ---------------- |  | - | ---------------- | - |  | ---------------- | ---- | - |  | - | ----- | -
|                                      |  | December 31,2008 |       |   | December 31,2007 |   |       | December 31,2006 |  |   | December 31,2005 |   |  | December 31,2004 |     
|Working capital                       |  | $                | 46.8  |   |                  | $ | 71.9  |                  |  | $ | 50.7             |   |  | $                | 37.8 |   |  | $ | (26.8 | )
|Less cash                             |  |                  | (10.8 | ) |                  |   | (34.5 | )                |  |   | (12.7            | ) |  |                  | (4.1 | ) |  |   | (0.8  | )
|Less related party receivables        |  |                  | 0.0   |   |                  |   | 0.0   |                  |  |   | 0.0              |   |  |                  | 0.0  |   |  |   | (67.8 | )
|Add related party payables3           |  |                  | 0.0   |   |                  |   | 0.0   |                  |  |   | 0.0              |   |  |                  | 0.0  |   |  |   | 34.7  |  
|Add short-term borrowings3            |  |                  | 0.0   |   |                  |   | 0.0   |                  |  |   | 0.0              |   |  |                  | 0.0  |   |  |   | 91.9  |  
|Add current portion of long-term debt |  |                  | 1.1   |   |                  |   | 2.2   |                  |  |   | 3.6              |   |  |                  | 1.9  |   |  |   | 0.4   |  
|                                      |  |                  |       |   |                  |   |       |                  |  |   |                  |   |  |                  |      |   |  |   |       |  
|                                      |  |                  |       |   |                 
|Adjusted working capital              |  | $                | 37.1  |   |                  | $ | 39.6  |                  |  | $ | 41.6             |   |  | $                | 35.6 |   |  | $ | 31.6  |  
|                                      |  |                  |       |   |                  |   |       |                  |  |   |                  |   |  |                  |      |   |  |   |       |  



|3 | Year ended December 31, 2004 include short- and long-term borrowings with related parties, as well as related party
payables.
|- | -----------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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 Form 10-K.

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 and Asia. 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.

During 2008, we continued our
strategy of making tactical acquisitions. We acquired 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flexart Design Inc. (collectively Tri-Ad) in January; Backwell Design Inc. and
Gemini Graphic Imaging Inc. (together with Backwell Design Inc. Backwell) in May; and the assets of Focus Imaging Group LLC in December. Tri-Ad is a Canadian provider of packaging and retail graphics services with locations in Toronto,
Ontario and outside of Montreal, Quebec. Backwell is a Canadian provider of packaging and retail graphics services located in London, Ontario. Focus Imaging Group LLC is a United States provider of packaging and retail graphics services located in
Marietta, Georgia.

We also targeted debt reduction as an area of strategic focus during 2008. In September 2008, we made an optional
principal repayment of $8.2 million on our senior term loan. Our strategy for 2009 is to continue reducing our long-term debt obligations to strengthen our balance sheet and reduce interest expense, as well as integrating our recent acquisitions.

As we successfully grew our business in 2008 through tactical acquisitions, sales increased $14.7 million to $323.5 million for 2008 from
$308.8 million for 2007. The acquisitions completed in 2007 and 2008 contributed incremental sales of $23.1 million for 2008 compared to 2007. These sales were partially offset by a reduction in sales of $5.5 million to our tobacco industry
customers in North America. We believe this decrease in sales to our tobacco industry customers is due to the consolidation of brands within tobacco companies and anticipated changes in labeling requirements from the United States and Canadian
governments that have not yet occurred. Sales to our



23



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##### Table of Contents

customers in the tobacco industry represented less than 5.0% of our sales for 2008. The remaining decrease of $2.9 million in sales from our base business is
attributable to a slow down in sales in Canada and the United Kingdom due to the economic downturn during 2008. While overall economic conditions could continue to be challenging, we currently do not expect this to have a significant impact on the
Company as we do not serve many of the markets most impacted by the downturn, including the housing industry, automotive industry, and financial institutions.

We have previously reported that price erosion in the industry, which we estimate at approximately 2% to 3% annually, is negatively impacting our sales. To date we have attempted to mitigate the negative impact of
price concessions on our sales by putting in place effective cost control measures, among other things. As part of our strategy to combat continuing downward pressure on our pricing, we are seeking business at pricing that we believe is commensurate
with the value we deliver, that will enable us to maintain margins at the levels we have historically achieved, and that will allow us to achieve profitable organic growth. Consistent with that strategy, we have raised prices on our non-contractual
work.

Our effective cost control measures included the consolidation of certain operations during 2007 and 2008 in North America and
Europe, as well as headcount reductions. As a result, cost of goods sold (exclusive of depreciation) as a percentage of sales for our entire business was 65.6% for 2008, compared to 66.4% for 2007. We plan to continue the process of consolidating
certain operations in the future.

During 2008, our operations generated cash flow of $27.3 million, a 15% increase over the prior year.
The majority of this cash was used to fund acquisitions and to strengthen our balance sheet through principal repayments on our long-term debt obligations. We expect that our ability to generate cash from operations will position us to achieve our
financial goals in 2009.

RESULTS OF OPERATIONS

The following table sets forth our results of operations based on the amounts and the percentage relationship of the items listed to net sales for the periods indicated (dollars in thousands).



|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|--------------------------------------------------------------- |  | --------------------------- | ------- | - | --------------------------- | ----- | - | --------------------------- | - | ------- | - |  | ----- | - |  | - | ------- | - |  | ----- | -
|                                                                |  | Year EndedDecember 31, 2008 |         |   | Year EndedDecember 31, 2007 |       |   | Year EndedDecember 31, 2006 |  
|Net sales                                                       |  | $                           | 323,518 |   |                             | 100.0 | % |                             | $ | 308,809 |   |  | 100.0 | % |  | $ | 276,276 |   |  | 100.0 | %
|                                                                |  |                             |         |   |                             |      
|Cost of goods sold (exclusive of depreciation)                  |  |                             | 212,295 |   |                             | 65.6  | % |                             |   | 205,132 |   |  | 66.4  | % |  |   | 180,512 |   |  | 65.3  | %
|Selling, general, and administrative expenses                   |  |                             | 49,599  |   |                             | 15.3  | % |                             |   | 46,555  |   |  | 15.1  | % |  |   | 37,913  |   |  | 13.7  | %
|Depreciation and amortization                                   |  |                             | 28,659  |   |                             | 8.9   | % |                             |   | 23,689  |   |  | 7.7   | % |  |   | 20,061  |   |  | 7.3   | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|                                                                |  |                             |         |   |                             |      
|Income from operations                                          |  |                             | 32,965  |   |                             | 10.2  | % |                             |   | 33,433  |   |  | 10.8  | % |  |   | 37,790  |   |  | 13.7  | %
|                                                                |  |                             |         |   |                             |      
|Interest expense                                                |  |                             | 36,545  |   |                             | 11.3  | % |                             |   | 36,929  |   |  | 12.0  | % |  |   | 35,012  |   |  | 12.7  | %
|Other expense (income), net                                     |  |                             | (2,149  | ) |                             | -0.7  | % |                             |   | 497     |   |  | 0.2   | % |  |   | 225     |   |  | 0.1   | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|                                                                |  |                             |         |   |                             |      
|Income from (loss on) continuing operations before income taxes |  |                             | (1,431  | ) |                             | -0.4  | % |                             |   | (3,993  | ) |  | -1.3  | % |  |   | 2,553   |   |  | 0.9   | %
|Provision (benefit) for income taxes                            |  |                             | 15      |   |                             | 0.0   | % |                             |   | (1,182  | ) |  | -0.4  | % |  |   | 1,345   |   |  | 0.5   | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|Income from (loss on) continuing operations                     |  |                             | (1,446  | ) |                             | -0.4  | % |                             |   | (2,811  | ) |  | -0.9  | % |  |   | 1,208   |   |  | 0.4   | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|                                                                |  |                             |         |   |                             |      
|Income from (loss on) discontinued operations                   |  |                             |        |   |                             | 0.0   | % |                             |   | 842     |   |  | 0.3   | % |  |   | (480    | ) |  | -0.2  | %
|Provision (benefit) for income taxes on discontinued operations |  |                             |        |   |                             | 0.0   | % |                             |   | 170     |   |  | 0.1   | % |  |   | (197    | ) |  | -0.1  | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  
|Net income (loss)                                               |  | $                           | (1,446  | ) |                             | -0.4  | % |                             | $ | (2,139  | ) |  | -0.7  | % |  | $ | 925     |   |  | 0.3   | %
|                                                                |  |                             |         |   |                             |       |   |                             |   |         |   |  |       |   |  |   |         |   |  |       |  



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The following table summarizes the concentrations of sales by major geographic region (dollars in thousands).



|                           |  |                            |         |   |                            |   |         |                            |  |   |         |  
|-------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -------------------------- |  | - | ------- | -
|                           |  | Year EndedDecember 31,2008 |         |   | Year EndedDecember 31,2007 |   |         | Year EndedDecember 31,2006 | 
|United States              |  | $                          | 223,330 |   |                            | $ | 221,426 |                            |  | $ | 216,835 |  
|Canada                     |  |                            | 57,795  |   |                            |   | 42,582  |                            |  |   | 40,853  |  
|United Kingdom             |  |                            | 43,966  |   |                            |   | 44,576  |                            |  |   | 23,867  |  
|Other geographic locations |  |                            | 9,737   |   |                            |   | 6,423   |                            |  |   | 1,881   |  
|Eliminations               |  |                            | (11,310 | ) |                            |   | (6,198  | )                          |  |   | (7,160  | )
|                           |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                           |  |                            |        
|Total                      |  | $                          | 323,518 |   |                            | $ | 308,809 |                            |  | $ | 276,276 |  
|                           |  |                            |         |   |                            |   |         |                            |  |   |         |  

Year ended December 31, 2008 compared to the year ended December 31, 2007

Sales. Sales increased 4.8%, or $14.7 million, to $323.5 million for fiscal 2008 from $308.8 million for fiscal 2007. The acquisition of Tri-Ad in Canada on
January 1, 2008 and the acquisition of Backwell in Canada on May 2, 2008 added sales of $17.5 million and $0.6 million, respectively, for fiscal 2008. The acquisition of McGurk Studios Limited and Thames McGurk Limited (together,
McGurk) in the United Kingdom on April 2, 2007 added incremental sales of $3.6 million and the acquisition of the operations of C.M Jackson Associates, Inc. (CMJ) in the United States on February 28, 2007 added
incremental sales of $1.4 million for fiscal 2008 compared to fiscal 2007.

After excluding the impact of sales generated from acquisitions, sales in the
United States increased by $1.7 million in fiscal 2008 compared to fiscal 2007. This increase was primarily due to volume growth, partially offset by the reduction in sales to our tobacco industry customers, as previously discussed. Sales in the
United States to our tobacco industry customers decreased $3.6 million for fiscal 2008 compared to fiscal 2007. After excluding the impact of sales generated from acquisitions, sales in Canada decreased by $5.3 million for fiscal 2008 compared to
fiscal 2007. The decrease in sales in Canada would have been $7.4 million; however, the weakening of the United States dollar compared to the Canadian dollar positively impacted sales in Canada by $2.1 million. The decrease in sales in Canada
included a reduction in sales to our tobacco industry customers of $1.9 million. The remaining decrease was due to a combination of factors, including transitioning work to the United Kingdom and United States for certain customers, the timing of
orders from a major customer, and the overall economic downturn. After excluding the impact of sales generated from acquisitions, sales in the United Kingdom decreased $5.0 million for fiscal 2008 compared to fiscal 2007. The strengthening of the
United States dollar compared to the British pound negatively impacted sales in the United Kingdom by $2.6 million. The remaining decrease of $2.4 million is primarily due to operations in the United Kingdom being in a period of transition with a
major customer and a slow down in sales associated with a major retail customer.

Cost of Goods Sold. Cost of goods sold for fiscal 2008 increased
3.5%, or $7.2 million, to $212.3 million from $205.1 million for fiscal 2007. The acquisitions previously discussed added incremental costs of goods sold in fiscal 2008 compared to fiscal 2007 of $0.2 million for Backwell, $2.9 million for McGurk,
and $0.8 million for the operations of CMJ. The acquisition of Tri-Ad added estimated incremental cost of goods sold in fiscal 2008 compared to fiscal 2007 of $11.4 million. The incremental amount for Tri-Ad is estimated due to the combination of
legal entities in Canada and the integration of the Tri-Ad operations during the fourth quarter of 2008. Cost of goods sold increased an additional $0.7 million for fiscal 2008 compared to fiscal 2007 due to the fluctuation of the United States
dollar compared to the Canadian dollar and British pound. After excluding the incremental costs associated with acquisitions and the foreign currency impact, the remaining impact was a decrease in cost of goods sold of $8.8 million for fiscal 2008
compared to fiscal 2007. This decrease was primarily due to the overall decrease in sales excluding acquisitions. The decrease in cost of goods sold as a percentage of sales to 65.6% for fiscal 2008 from 66.4% in fiscal 2007 is primarily due to the
realization of benefits from consolidating certain operations during 2007 and 2008.

Selling, General and Administrative Expenses. Selling, general
and administrative expenses for fiscal 2008 increased 6.5%, or $3.0 million, to $49.6 million from $46.6 million for fiscal 2007. The acquisitions previously discussed added estimated incremental expenses in fiscal 2008 compared to fiscal 2007 of
$4.9 million. The remaining decrease in expenses of $1.9 million is primarily due to a reduction in costs associated with potential and other business combinations in fiscal 2008 compared to fiscal 2007, including a reduction in compensation expense
related to the purchase agreement for CMJ from $3.1 million in fiscal 2007 to $1.4 million in fiscal 2008.



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Depreciation and Amortization Expenses. Depreciation and amortization expenses for fiscal 2008 increased 21.0%, or
$5.0 million, to $28.7 million from $23.7 million for fiscal 2007. Depreciation and amortization expense increased $2.4 million due to a change in the remaining useful life for production software that is being replaced. The expense associated
with this production software was $3.5 million for fiscal 2008 compared to $1.1 million for fiscal 2007. In addition, the acquisitions previously discussed added incremental expenses of $1.7 million for fiscal 2008 compared to fiscal 2007. The
remaining increase of $0.9 million was primarily due to depreciation and amortization on assets acquired or placed in service during 2007 and 2008.

Interest Expense. Interest expense for fiscal 2008 decreased 1.0%, or $0.4 million, to $36.5 million from $36.9 million for fiscal 2007. This decrease is primarily due to lower interest rates on the senior secured term loan during
fiscal 2008 than fiscal 2007, partially offset by interest expense on borrowings made on the senior secured acquisition facility during 2007 and an increase in the amortization of deferred financing fees during 2008. Interest expense on the senior
secured term loan was $7.9 million for fiscal 2008 compared to $9.4 for fiscal 2007. Interest expense on borrowings on the senior secured acquisition facility was $2.5 million in fiscal 2008 compared to $1.5 million in fiscal 2007. In addition, the
amortization of deferred financing fees increased $0.5 million to $1.9 million in fiscal 2008 compared to $1.4 million in fiscal 2007. The increase in the amortization of deferred financing fees is primarily due to accelerating the amortization for
the prepayment of principal on the senior term loan and a reduction of available borrowings on the revolving credit facility from $35.0 million to $26.1 million.

Other Expense (Income), net. Other expenses (income), net fluctuated by $2.6 million to $2.1 million of income for fiscal 2008 from $0.5 million of expense for fiscal 2007. Other expense, net, primarily consists of realized gains and
losses on foreign exchange, net of interest income. Realized gains on foreign exchange were $2.4 million in fiscal 2008 compared to realized losses of $1.1 million in fiscal 2007. Interest income decreased to $0.4 million in fiscal 2008 from $0.7
million in fiscal 2007 due to lower interest rates and lower interest bearing balances during fiscal 2008 compared to fiscal 2007.

Provision for taxes
on income. The effective tax rate for fiscal 2008 was negative 1.0%, compared to 29.6% for fiscal 2007. The decrease in the effective tax rate is primarily due to expenses not fully deductible for income tax purposes having a larger impact on
the effective tax rate for fiscal 2008 than for fiscal 2007. This larger impact in fiscal 2008 than fiscal 2007 is due to both an increase in the amount of items not fully deductible combined with a decrease in the loss before income taxes for
fiscal 2008 versus 2007.

Year ended December 31, 2007 compared to the year ended December 31, 2006

Sales. Sales increased 11.8%, or $32.5 million, to $308.8 million for fiscal 2007 from $276.3 million for fiscal 2006. The acquisition of McGurk in the United
Kingdom on April 2, 2007 added sales of $15.9 million for fiscal 2007. The acquisition of the operations of C.M Jackson Associates, Inc. (CMJ) in the United States on February 28, 2007 added sales of $7.1 million for fiscal
2007. The operations of businesses acquired during 2006 generated sales of $6.3 million for fiscal 2007 compared to sales of $1.5 million for fiscal 2006.

In addition, sales for fiscal 2007 included $4.3 million for amounts invoiced to customers for shipping and handling costs. In fiscal 2006, amounts invoiced to customers for shipping and handling costs were netted against the actual cost
incurred and reflected as a reduction in cost of sales.

After excluding the impact of sales generated from acquisitions and the presentation of amounts
invoiced to customers for shipping and handling costs, sales in the United States decreased by $5.5 million in fiscal 2007 compared to 2006. This decrease was due to price erosion in the industry partially offset by volume growth. Sales in Canada
increased by $1.8 million in fiscal 2007 compared to fiscal 2006 primarily as a result of the weakening of the United States dollar compared to the Canadian dollar, which positively impacted sales in Canada by $2.0 million. This increase was
slightly offset by price erosion in the industry. After excluding the impact of sales generated from acquisitions, sales in the United Kingdom increased by $4.7 million in fiscal 2007 compared to fiscal 2006. The weakening of the United States
dollar compared to the British pound positively impacted sales in the United Kingdom by $1.9 million and the remaining increase was primarily due to organic growth.

Cost of Goods Sold. Cost of goods sold for fiscal 2007 increased 13.6%, or $24.6 million, to $205.1 million from $180.5 million for fiscal 2006. The acquisitions previously discussed added estimated incremental
costs of goods



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##### Table of Contents

sold in fiscal 2007 compared to fiscal 2006 of $10.4 for McGurk, $5.6 million for the operations of CMJ, and $4.1 million for businesses acquired during
2006. In addition, cost of goods sold for fiscal 2007 increased by $4.3 million for shipping and handling costs billed to customers that were recorded as a component of net sales in fiscal 2007 but were reflected as a reduction of costs of goods
sold in fiscal 2006. The remaining increase in cost of goods sold was due to the weakening of the United States dollar compared to the Canadian dollar and the British pound. The increase in cost of goods sold as a percentage of sales to 66.4% for
fiscal 2007 from 65.3% in fiscal 2006 is primarily due to the accounting for shipping and handling costs billed to customers and price erosion, as previously discussed.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for fiscal 2007 increased 22.8%, or $8.7 million, to $46.6 million from $37.9 million for fiscal 2006. The acquisitions
previously discussed added estimated incremental expenses in fiscal 2007 compared to fiscal 2006 of $2.0 million for McGurk, $3.8 million for the operations of CMJ, and $0.3 million for businesses acquired during 2006. The CMJ expenses of $3.8
million include $3.1 million of expense payable under the purchase agreement. The remaining increase in expenses is due to expenses associated with potential and other business combinations and severance costs related to consolidating certain
operations in North America. Professional fees associated with potential and other business combinations were $1.2 million in fiscal 2007 compared to $0.3 million in fiscal 2006. Severance costs incurred in connection with consolidating certain
operations were $2.6 million in fiscal 2007 compared to $0.4 million in fiscal 2006.

Depreciation and Amortization Expenses. Depreciation and
amortization expenses for fiscal 2007 increased 18.1%, or 3.6 million, to $23.7 million from $20.1 million for fiscal 2006. The acquisitions previously discussed added expenses in fiscal 2007 compared to fiscal 2006 of $1.4 for McGurk, $0.5
million for the operations of CMJ, and $0.5 million for businesses acquired during 2006. The remaining increase of $1.2 million was primarily due to depreciation and amortization on assets acquired or placed in service during 2006 and 2007.

Interest Expense. Interest expense for fiscal 2007 increased 5.5%, or $1.9 million, to $36.9 million from $35.0 million for fiscal 2006. This
increase was primarily due to interest expense on borrowings made on the senior secured acquisition facility during 2007. Interest expense from borrowings on the senior secured acquisition facility was $1.5 million in fiscal 2007 compared to zero in
fiscal 2006. The remaining increase of $0.4 million was primarily due to higher average interest rates on the senior secured term loan during fiscal 2007 compared to fiscal 2006.

Other Expense, net. Other expenses, net for fiscal 2007 increased by $0.3 million to $0.5 million from $0.2 million for fiscal 2006. Other expense, net, primarily consists of realized gains and losses on
foreign exchange, net of interest income. The fluctuation from fiscal 2007 to fiscal 2006 was not significant.

Provision for taxes on income. The
effective tax rate for fiscal 2007 was 29.6%, compared to 52.7% for fiscal 2006. The decrease in the effective tax rate is primarily due to expenses not fully deductible for income tax purposes having a smaller impact on the effective tax rate for
fiscal 2007 than for fiscal 2006. This smaller impact in fiscal 2007 than fiscal 2006 is due to the loss before income taxes for fiscal 2007 being a larger amount than the income before income taxes for fiscal 2006.

Income from (loss on) discontinued operations. Income from discontinued operations was a gain of $0.8 million in fiscal 2007 compared to a loss of $0.5 million in
fiscal 2006. This fluctuation was primarily due to the gain on divestiture of the controlling interest in Mozaic Group, Ltd. of $0.9 million during fiscal 2007.

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.



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CONTRACTUAL OBLIGATIONS

The following table reflects the contractual obligations and commercial commitments as of December 31, 2008.



|                              |  |                                                 |        |      |   |        |  |      |         |      |   |              |  |       |         |  |   |       |  |   |        
|----------------------------- |  | ----------------------------------------------- | ------ | ---- | - | ------ |  | ---- | ------- | ---- | - | ------------ |  | ----- | ------- |  | - | ----- |  | - | -------
|                              |  | Years ending December 31,(dollars in
thousands)
|                              |  | 2009                                            |        | 2010 |   | 2011   |  | 2012 |         | 2013 |   | 2014andafter |  | Total
|Contractual obligations:      |  |                                                 |        |      |   |        |  |      |         |      |   |              |  |       |         |  |   |       |  |   |        
|Principal payments on debt    |  | $                                               | 392    |      | $ | 390    |  | $    | 143,758 |      | $ | 0            |  | $     | 200,000 |  |   |      |  | $ | 344,540
|Interest payments on debt1    |  |                                                 | 31,904 |      |   | 31,888 |  |      | 31,872  |      |   | 24,000       |  |       | 23,000  |  |   |      |  |   | 142,664
|Capital lease obligations     |  |                                                 | 697    |      |   | 404    |  |      | 37      |      |   | 13           |  |       | 9       |  |   |      |  |   | 1,160  
|Operating lease obligations   |  |                                                 | 6,372  |      |   | 4,899  |  |      | 3,985   |      |   | 2,620        |  |       | 1,628   |  |   | 6,023 |  |   | 25,527 
|Other long-term liabilities   |  |                                                 | 3,627  |      |   | 312    |  |      | 327     |      |   | 204          |  |       |        |  |   |      |  |   | 4,470  
|Management advisory fee       |  |                                                 | 500    |      |   | 500    |  |      | 500     |      |   | 500          |  |       | 500     |  |   | 1,000 |  |   | 3,500  
|                              |  |                                                 |        |      |   |        |  |      |         |      |   |              |  |       |         |  |   |       |  |   |        
|Total contractual obligations |  | $                                               | 43,492 |      | $ | 38,393 |  | $    | 180,479 |      | $ | 27,337       |  | $     | 225,137 |  | $ | 7,023 |  | $ | 521,861
|                              |  |                                                 |        |      |   |        |  |      |         |      |   |              |  |       |         |  |   |       |  |   |        



|1 | The interest payments on debt include interest on $144.5 million of variable rate debt in the senior credit facility.
Interest payments on the senior secured term loan and acquisition facility borrowings are based on LIBOR + 2.5%. The interest payment amounts in the table above on the senior secured term loan were calculated using the interest rates in effect on
December 31, 2008.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2008, we had $10.8 million in cash and $37.1 million in adjusted working capital compared with $34.5 million in cash and $39.6
million in adjusted working capital at December 31, 2007. (See reconciliation of working capital to adjusted working capital at Item 6 Selected Financial Data.) The $23.7 million decrease in cash is primarily due to $27.0
million in net cash paid for acquisitions, $12.7 million in capital expenditures, and $10.2 million in principal repayments of long-term debt, partially offset by $27.3 million in cash provided by operations. The $2.5 million decrease in adjusted
working capital is primarily due to decreases in accounts receivable and prepaid expenses and other current assets, partially offset by the decrease in accounts payable and additional adjusted working capital associated with companies acquired
during the year.

Our revolving credit facility (the Revolver) under our senior secured credit facility provides for $35
million of borrowing availability. Lehman Commercial Paper Inc. (Lehman) has a lending commitment of $8.92 million (or 25.49%) of the total $35 million available under the Revolver. We requested a $1 million loan under the Revolver on
November 19, 2008 and received $745,143 of the requested loan on November 19. The $254,857 shortfall in loan proceeds was due to Lehmans failure to fund its pro rata portion of the loan.

By letter dated December 8, 2008, we notified Lehman that if Lehman wanted to fund its portion of the loan, to do so by December 10, 2008.
Lehman has not provided such funds or responded to our letter.

We conclude that Lehman is unable or unwilling to fund its portion of loans
under the Revolver and that, as a result, the amount actually available under the Revolver is $26.08 million. 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 borrowing availability under the Revolver (excluding the amount of Lehmans commitment) will be adequate to meet our liquidity needs for at least the next
twelve months. However, we cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under the Revolver in an amount sufficient to enable us to repay our indebtedness
or to fund our other liquidity needs.

We are highly leveraged and our aggregate indebtedness at February 28, 2009 was $331.6 million.
In 2011, our debt service requirements will substantially increase as a result of the December 30, 2011 maturity of the senior secured term loans and borrowings on the senior secured acquisition facility. We anticipate that we will refinance
these borrowings prior to the maturity of these debt obligations. Our ability to operate our business, service our debt requirements and reduce our total debt will depend upon our future operating performance.



Our 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 senior secured credit facility agreement. Our senior secured credit facility also places certain restrictions on our ability to make capital
expenditures. As of December 31, 2008 we were in compliance with all covenants. Below are the required financial covenant levels and the actual levels as of December 31, 2008:



|                                    |  |                 |              |        |   |             
|----------------------------------- |  | --------------- | ------------ | ------ | - | ------------
|                                    |  | Required        |              | Actual
|Maximum leverage ratio              |  |                 | 5.50         |        |   | 5.05        
|Minimum interest coverage ratio     |  |                 | 1.70         |        |   | 1.99        
|Maximum annual capital expenditures |  | not to exceed $ | 15.0 million |        | $ | 12.7 million



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We believe that our financing arrangements provide us with sufficient financial flexibility to fund our
operations, debt service requirements and contingent earnout obligations. Our ability to access additional capital in the long-term depends on 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. As a result of our review, we may periodically explore alternatives to our current financing, including the issuance of additional
long-term debt, refinancing our credit facility and other restructurings or financings. In addition, we may from time to time seek to retire our outstanding notes in open market purchases, privately negotiated transactions or otherwise. These
repurchases, if any, will depend on prevailing market conditions based on our liquidity requirements, contractual restrictions and other factors. The amount of repurchases of our notes may be material and may involve significant amounts of cash
and/or financing availability.

In privately negotiated transactions that settled on February 13 and February 18, 2009,
respectively, the Companys wholly-owned subsidiary, Southern Graphic Systems, Inc., acquired SGS International, Inc.s 12% senior subordinated notes maturing on December 15, 2013 (Notes) in an aggregate principal amount
of $25.5 million for a cash purchase price of $15.0 million, together with accrued interest on the Notes. With the cancellation of these repurchased Notes, $174.5 million aggregate principal amount of Notes remain outstanding. The Note repurchases
were financed in part by aggregate borrowings of $14.9 million under the Revolver.

Capital expenditures

Capital expenditures were $12.7 million for fiscal 2008. Capital expenditures for fiscal 2009 are expected to be between $10.0 million and $15.0 million.
Capital expenditures are discretionary and generally made to replace existing assets, support new business or customer initiatives, increase productivity, facilitate cost reductions, or meet regulatory requirements. Our operations typically do not
have large capital requirements.

Income taxes

On December 15, 2008 the United States and Canada exchanged instruments of ratification to place in force the Fifth Protocol of the U.S.-Canada Tax Treaty (Fifth Protocol). Included in the Fifth Protocol were provisions that affected
certain hybrid entities that receive or pay cross border payments. The hybrid provisions in the Fifth Protocol are effective January 1, 2010. The Company believes that certain subsidiaries may be affected by the new provisions and is currently
evaluating strategies to minimize any adverse tax impact from the Fifth Protocol provisions.

Cash flow

Year ended December 31, 2008 compared to the year ended December 31, 2007

Cash flows from operating activities.Net cash provided by operating activities was $27.3 million for fiscal 2008 as compared to $23.8 million for fiscal 2007. The primary reasons for the increase were cash
provided by the operations of acquired businesses and a decrease in prepaid expenses and other current assets from existing operations, partially offset by a decrease in accounts payable and accrued expenses from existing operations.

Cash flows from investing activities. Net cash used in investing activities was $38.9 million for fiscal 2008 as compared to $39.7 million for
fiscal 2007. The decrease in cash used in investing activities is due to a reduction in net cash used in business acquisitions. The net cash used decreased $2.3 million to $27.0 million for acquisitions in fiscal 2008 compared to $29.3 million for
acquisitions in fiscal 2007. This decrease was partially offset by an increase in capital expenditures of $1.6 million to $12.7 million for fiscal 2008 compared to $11.1 million for fiscal 2007.

Cash flows from financing activities.Net cash used in financing activities was $10.3 million for fiscal 2008 as compared to $36.4 million of cash
provided by financing activities for fiscal 2007. The primary reason for this



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##### Table of Contents

fluctuation was borrowings of $40.0 million on the acquisition facility during fiscal 2007 associated with the 2007 acquisitions of CMJs operations and
McGurk and the acquisition of Tri-Ad in January 2008. As of December 31, 2007, the Company has borrowed all of the $40.0 million available under the acquisition facility. In addition, combined principal payments on the long-term obligations
were $10.2 million during fiscal 2008 compared to $3.5 million during fiscal 2007.

Year ended December 31, 2007 compared to the year ended
December 31, 2006

Cash flows from operating activities.Net cash provided by operating activities was $23.8 million for
fiscal 2007 as compared to $20.2 million for fiscal 2006. The primary reason for the increase was that adjusted working capital decreased $2.0 million from December 31, 2006 to December 31, 2007 compared to an increase of $6.0 million from
December 31, 2005 to December 31, 2006. (See reconciliation of working capital to adjusted working capital at Item 6 Selected Financial Data.)

Cash flows from investing activities. Net cash used in investing activities was $39.7 million for fiscal 2007 as compared to $11.0 million for fiscal 2006. The increase in cash used in investing activities is
primarily due to an increase in cash used in business acquisitions. The net cash used in business acquisitions increased $24.9 million to $29.3 million for fiscal 2007 compared to $4.4 million for fiscal 2006. This increase was the result of
our acquisition of the assets of CMJ in February 2007 and our acquisition of McGurk in April 2007. The increase in cash used in investing activities was also partially due to an increase in capital expenditures of $2.4 million to $11.1 million
for fiscal 2007 compared to $8.7 million for fiscal 2006.

Cash flows from financing activities.Net cash provided by financing
activities was $36.4 million for fiscal 2007 as compared to $0.5 million of cash used in financing activities for fiscal 2006. The primary reason for this fluctuation was $40.0 million in borrowings on the acquisition facility in fiscal 2007 to
finance the acquisitions of the assets of CMJ in February 2007, McGurk in April 2007 and Tri-Ad in January 2008. The cash flows from the borrowings on the acquisition facility were partially offset by an increase in payments made on long-term debt
obligations during fiscal 2007 compared to fiscal 2006.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting
period.

On an on-going basis, we evaluate our estimates and assumptions, including those related to 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 the income tax provision. We base our estimates and
assumptions on our historical experience and other relevant factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Reported results would differ under different assumptions or conditions. Actual results may differ from our estimates, and such differences could be material to the consolidated financial statements.

We believe the following critical accounting policies affect our more significant estimates and assumptions used in the preparation of our
consolidated financial statements:

Revenue RecognitionWe recognize revenue when title, ownership, and risk of loss pass to
the customer in accordance with the provisions of Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. Revenues are recorded net of allowances for customer rebates, customer claims and cash discounts. The Company records revenue
in the period when shipped because all of the requirements of SAB No. 104 have been met and the price can be reasonably estimated based on the services performed, historical experience and customer information.

We recognize customer rebates as sales deductions, and they are accrued as earned by the customer based on a systematic allocation of the total estimated
rebates to be paid to the underlying sales that result in progress toward earning the rebate. In addition, we provide for estimated customer claims, which also are recorded as sales deductions and are accrued based on estimated claims. The amount of
future claims can be reasonably estimated based on historical experience and specific notification of pending claims. Also, we record cash discounts as sales deductions. Cash discounts are recorded based on actual discounts given to customers.



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Accounts Receivable and Allowance for Doubtful AccountsTrade accounts receivable are
recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determine the allowance based on specifically
identified probable credit losses and also consider historical write-off experience. In addition, we also maintain allowances for customer claims due to rejected services, billing errors, disputed amounts, etc., which result in credit memos charged
to net sales. Managements estimated allowances are based on historical experience and specific notification of pending claims. In our opinion, these allowances are adequately established and sufficient to cover future collection problems.
However, should business conditions deteriorate and more customers have financial problems, these allowances may be increased, which would negatively impact our results of operations.

Work-in-process InventoryWork-in-process inventories are recorded based on the estimated costs incurred for orders that have not satisfied
the revenue recognition considerations in SAB No. 104. This estimate is based on an itemized listing of unbilled orders, completion percentage for these unbilled orders, an estimated amount to be billed based on historical experience and
customer information, and gross profit margin. Although we believe the current estimated amount for work-in-process inventory is reasonable, variations between the estimated amount to be billed and the actual billings to the customer, variations
between the estimate completion percentage and actual completion percentage, and variations in gross profit margin could materially affect the recorded work-in-process inventory and cost of goods sold, impacting financial condition and results of
operations

Impairment of Goodwill, Other Intangible Assets and Long-Lived AssetsWe have goodwill and other intangible assets,
most notably customer relationships. Goodwill represents the excess of costs over the fair value of net assets of businesses acquired. Customer relationships are amortized on a straight-line basis over the periods benefited, with a weighted average
useful life of approximately 20 years. Intangible assets with finite useful lives are amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of approximately 20 years.

According to SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is subject to an assessment for impairment on a reporting unit
basis by applying a fair-value-based test annually and more frequently if circumstances indicate a possible impairment. We perform the annual test for impairment during the fourth quarter. All other long-lived and intangible assets are reviewed for
impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If a reporting units carrying value exceeds its fair value, and the reporting units carrying value of goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The evaluation of goodwill for
impairment requires us to use significant estimates and assumptions including, but not limited to, projecting future revenue, operating results, and cash flow of the reporting unit. We have one reporting unit. Although we believe the estimates and
assumptions used in the evaluation of goodwill are reasonable, differences between actual and projected revenue, operating results, and cash flows could cause a future impairment of this goodwill. If this were to occur, we would be required to write
down the goodwill, which could have a material negative impact on our results of operations and financial condition.

Accrued Health and
Welfare BenefitsWe are partially self-insured for health and welfare benefits. Our liability is limited by stop-loss insurance coverage provided by a third party. The accrual for health and welfare benefits is the Companys best
estimate of health and welfare costs incurred, but not paid as of the balance sheet date. We estimate our liability for claims incurred by applying a lag factor to our historical claims experience. The validity of the lag factor is evaluated
periodically and revised if necessary. Although we believe the current estimated liabilities for health and welfare claims are reasonable, changes in the lag in reporting claims, changes in claims experience, unusually large claims, and other
factors could materially affect the recorded liabilities and expense, impacting financial condition and results of operations.

Income
Tax ProvisionSignificant judgment is required in developing our income tax provision which is further complicated by the multiple taxing jurisdictions in which we operate. Results of Internal Revenue Service or other jurisdictional audits,
statute closings on prior tax returns, and future tax law changes could have a material impact on our future tax liabilities and provisions, impacting financial condition and results of operations. In



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addition, realization of certain deferred tax assets is dependent upon our ability to generate future taxable income. The Company records a valuation
allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized. While the Company has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination
was made. In addition, the Company applies a more-likely-than-not recognition threshold for all tax uncertainties in accordance with FIN 48. Such uncertainties include any claims by the Internal Revenue Service for income taxes, interest, and
penalties attributable to audits of open tax years.

Recently Issued and Adopted Accounting Standards

See Footnote A to the Financial Statements following Item 15 of this Annual Report on Form 10-K.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

We are exposed to foreign currency exchange rate risk due to our operations in Canada, Mexico, the United Kingdom, the Netherlands, and Hong Kong. Our results of operations can be impacted through foreign currency exchange rate risk
(a) to the balance sheet components (assets and liabilities) and (b) through our foreign denominated revenue and expenses in Canada, Mexico, the United Kingdom, the Netherlands, and Hong Kong. A 10% strengthening in the Canadian dollar
against the U.S. dollar would have decreased fiscal 2008 net income by $0.2 million. A 10% strengthening in the British pound against the U.S. dollar would have increased fiscal 2008 net income by $0.1 million. A 10% strengthening in any of the
other currencies utilized by our subsidiaries, the Mexican peso, the Euro, and the Hong Kong dollar against the U.S. dollar, would not have a material effect on the Companys results of operations.

We do not use derivative financial instruments.

We have $144.5 million of variable rate debt outstanding at December 31, 2008. A 1% increase in the average interest rate would increase future interest expense by $0.9 million annually. To the extent we incur additional debt under our
senior secured revolving credit facility, our exposure to variable rate interest rates will increase.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

See
Financial Statements following Item 15 of this Annual Report on Form 10-K.



|Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

Not applicable.



|Item 9A. | Controls and Procedures
|-------- | -----------------------

Disclosure Controls and Procedures

The Companys management, with participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period
covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective in
ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the rules and forms of the U.S.
Securities and Exchange Commission (SEC), and accumulated and communicated to the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.



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Management Report on Internal Control Over Financial Reporting

We, as management of the Company, are responsible for establishing and maintaining adequate internal control over financial reporting. Pursuant to the
rules and regulations of the SEC, internal control over financial reporting is a process designed by, or under the supervision of, the Companys principal executive and principal financial officers, or persons performing similar functions, and
effected by the Companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and procedures that:



| |  |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management assessed the design and effectiveness of the Companys
internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
 Integrated Framework.

The Company completed its acquisition of the assets of Focus Imaging Group, LLC on December 31, 2008 and
of the outstanding shares of Backwell Design Inc. and Gemini Graphic Imaging Inc. (collectively Backwell) on May 2, 2008. As permitted by the SEC, managements assessment as of December 31, 2008 did not include the
internal control of Focus Imaging Group, LLCs and Backwells operations, which are included in the Companys consolidated financial statements as of December 31, 2008. Focus Imaging Group, LLCs operations constituted $6.1
million of total and net assets as of December 31, 2008. Backwell constituted $3.6 million and $2.7 million of total and net assets, respectively, as of December 31, 2008 and $0.8 million and $0.2 million of revenues and net income,
respectively, for the year then ended.

Based on managements assessment, which excluded an assessment of internal control of the
acquired operations of Focus Imaging Group, LLC and Backwell, management has concluded that the Companys internal control was effective as of December 31, 2008 to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

Report of Independent Registered Public
Accounting Firm on Internal Control Over Financial Reporting

This annual report does not include an attestation report of the
Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only managements report in this annual report.

Changes in internal control over financial reporting

During the quarter ended December 31, 2008, we changed the Companys internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) to include the previously out of scope acquisition of the operations of 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flexart Design Inc. within our
evaluation of control effectiveness. However, as controls were in place for these operations prior to the fourth quarter of 2008, these changes have neither materially affected, nor are they reasonably likely to materially affect, our internal
control over financial reporting.

The Company is in the process of implementing the Order to Cash module in its enterprise resource
planning system for most of its US and Canadian locations. This implementation will result in certain changes to business processes and internal controls impacting financial reporting. Management is taking the necessary steps to monitor and maintain
appropriate internal controls during this period of change. The Company also continues to integrate new acquisitions into corporate processes. No potential internal control changes due to new acquisitions would be considered material to, or are
reasonably likely to materially affect, our internal control over financial reporting.



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Except as discussed above, there have been no changes to the Companys internal control over
financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

Not applicable.

PART III



|Item 10. | Directors, Executive Officers, and Corporate Governance
|-------- | -------------------------------------------------------

The following sets forth certain information with respect to the persons who are members of the Registrants Board of Directors and our executive officers.



|                    |  |      |  |                                                                                           
|------------------- |  | ---- |  | ------------------------------------------------------------------------------------------
|Name                |  | Age* |  | Position                                                                                  
|Henry R. Baughman   |  | 61   |  | President, Chief Executive Officer and Director                                           
|Luca C. Naccarato   |  | 48   |  | Executive Vice President; Chief Executive Officer of Southern Graphic Systems- Canada, Co.
|James M. Dahmus     |  | 52   |  | Senior Vice President, Chief Financial Officer, Treasurer and Assistant Secretary         
|Joseph M. Silvestri |  | 46   |  | Director                                                                                  
|John P. Civantos    |  | 40   |  | Director                                                                                  
|Thomas L. Hammond   |  | 73   |  | Director                                                                                  
|Richard Leong       |  | 36   |  | Director                                                                                  



|* | As of March 31, 2009.
|- | ---------------------

Henry R. Baughman has
been employed by us since 1973. He became President and a director of Southern Graphic Systems, Inc. in 1999. Prior to becoming President he held various senior executive level positions with us. Mr. Baughman is a graduate of Rochester
Institute of Technology. Mr. Baughman became President and Chief Executive Officer of SGS International, Inc. and one of our directors upon completion of the Acquisition in December 2005. As our President, Mr. Baughman leads our strategic
planning, acquisition process, resource units and customer value determination system.

Luca C. Naccarato has been employed by us
since 1993. He became Executive Vice President of Southern Graphic Systems, Inc. in 2000 and of SGS International, Inc. upon completion of the Acquisition in December 2005. He is also the Chief Executive Officer of Southern Graphic Systems-Canada,
Co./Systemes Graphiques Southern-Canada, Co. As our Executive Vice President, Mr. Naccarato is responsible for integrating our new acquisitions, managing our operations, and developing annual growth and business objectives. Prior to joining us,
Mr. Naccarato worked for a mid-sized packaging graphics and gravure supplier near Toronto, Canada.

James M. Dahmushas been employed with us since April 2006. He joined the Company as Chief Financial Officer and was promoted to Senior Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary on May 31, 2007. He served as the senior vice president and chief financial officer of Sunny Delight Beverages Co., an international consumer products company from 2004 until April 2006. From 2003 until 2004, he was the CFO and
Executive VP for ADVO®, the largest direct marketing company in the world with $1.2 billion in revenue. Prior to that, he served in a variety of business leadership roles at Convergys and
Cincinnati Bell beginning in 1995, including President of Asia/Pacific, CFO of the Software Division, and Corporate Controller. Prior to that, he served for 15 years at Procter & Gamble, with 13 of those years in finance and two as a brand
manager of Pringles®. He received his MBA from Northwestern University, and his BA from Penn State University.

Joseph M. Silvestri has been since July 2006 a Managing Partner at Court Square Capital Partners, a private equity firm, and became one of our directors in connection with our formation in November 2005.
Mr. Silvestri



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previously was a Managing Partner of Citigroup Venture Capital (CVC), also a private equity firm, having joined CVC in 1990. Mr. Silvestri
received his B.S. from Pennsylvania State University and his MBA from Columbia Business School. He is a director of MacDermid, Incorporated, Auto Europe Group, Triumph Group and Newmarket, Inc.

John P. Civantos has been since July 2006 a Partner at Court Square Capital Partners, a private equity firm, and became one of our directors in
connection with our formation in November 2005. Mr. Civantos previously was a Partner of CVC, having joined CVC in 2004 after serving for several years with the leveraged buyout firm Hicks, Muse, Tate & Furst. Prior to Hicks, Muse, he
was with Morgan Stanley & Co.

Thomas L. Hammond became one of our directors in December 2005. He was our president from
1978 to 2002, and our Chief Executive Officer from 2000 until 2002, when he retired. He has a BS in mechanical engineering from Purdue and a J.D. from the University of Louisville.

Richard Leong became one of our directors in February 2006. Mr. Leong has served as the Managing Director of Flexo Manufacturing Corporation,
a Philippines-based maker of flexible packaging, since 2004 and served as that companys Executive Vice President from 1996 to 2003. He is also the Chairman of Tigerpack Ltd. (Shanghai), a flexible packaging maker located in China, and
serves as the Chief Investment Advisor to Lyon Capital Partners, a private investment fund. Mr. Leong is also a director of Kirk Engineering Pty Ltd. Mr. Leong received his BS in Economics, with a concentration in Decision Sciences, from
the Wharton School of the University of Pennsylvania.

AUDIT COMMITTEE FINANCIAL EXPERT

Messrs. Silvestri, Civantos and Leong comprise our audit committee (the Audit Committee). The Audit Committee has determined that it does not
have an audit committee financial expert as that term is defined in the Securities and Exchange Commission rules and regulations. However, the Audit Committee believes that its members have demonstrated the capability of analyzing and
evaluating our financial statements and understanding internal controls and procedures for financial reporting.

RECOMMENDATION OF NOMINEES TO THE BOARD
OF DIRECTORS

The Registrant does not have in place procedures by which its security holders may recommend nominees to its Board of
Directors.

CODE OF ETHICS

SGS
International, Inc. has implemented a Code of Ethics which applies to our principal executive officer, principal financial officer, principal accounting officer and controller or persons performing similar functions (covered employees).
The Code of Ethics may be found on our website at http://www.sgsintl.com. We intend to disclose any amendments to or waivers of the Code of Ethics on behalf of our covered employees by posting such information on our website.



|Item 11. | Executive Compensation
|-------- | ----------------------

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

General
Philosophy

The Compensation Committee has responsibility for establishing and monitoring our compensation philosophy. Executive
officers shown in the Summary Compensation Table (each, an Executive) are compensated through a combination of base salary, bonus plan awards, equity-based awards and various other benefits that are designed to be competitive with the
overall compensation paid to executives in comparable companies and to align the Executives interests with the long term interests of the Companys shareholders. Base salaries and annual bonus awards are designed to reward performance.
Our Compensation Committee annually reviews the base salaries and the performance targets for Executive bonus compensation. Executive bonus compensation is designed to be earned based on the achievement of Company-wide performance objectives and
goals, personal performance and the Executives demonstrated adherence to Company values.



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The Company implemented a new salary/compensation administration plan for the 2009 calendar year. The
primary purpose of the 2009 plan is to encourage collaboration among departments, plants and regions within our organization. Additionally, we intend this new plan to help improve overall production and quality while reducing waste and lowering our
costs. The plan covers all salaried and hourly employees who were employed as of January 1, 2009. If the Company achieves 100% of its 2009 global business plan, then all employees will be awarded a 3% salary increase. If the Company achieves
110% or greater of its 2009 business plan, then all employees will be awarded a 5% salary increase. Should the Company achieve at least 90% of its 2009 business plan, then the Company would award all employees a 1% salary increase. In summary, this
plan helps to align our compensation goals with our corporate values of team work and collaboration as well as financial accountability.

Targeted
Overall Compensation

Messrs. Baughman, Naccarato and Dahmus have employment agreements with the Company that set forth their
compensation and terms and conditions of employment. Their compensation levels were initially set by the Company at prevailing levels for comparable positions in similarly sized companies in our industry. The Compensation Committee reviews their
compensation annually.

Compensation Setting Process

The Compensation Committee reviews and approves compensation and awards for the Companys officers at the level of Senior Vice President and above and provides oversight of managements decisions concerning
the compensation of other Company officers. Base salary is designed to be competitive by position in the marketplace, and is set at levels sufficient to attract and retain top management talent. Those salaries are reviewed periodically and
compensation decisions are based on paying our Executives a competitive compensation package as well as rewarding them annually based on their performance. The Compensation Committee determines whether Executives are being offered competitive
compensation packages by analyzing the compensation packages received by executive officers in similar sized companies in similar industries. Comparison components include base salary, group benefits and annual bonus awards.

Base Salary

Base salary compensates each Executive
for the primary responsibilities of his position. Base salaries payable to each Executive with an employment agreement may be increased but may not be decreased.

Base salaries as of December 31, 2008, for Messrs. Baughman, Dahmus and Naccarato were $360,000; $275,000; and $303,188 respectively.

Annual Bonus Compensation

The Company established the Management Incentive Bonus Plan to drive
behaviors and motivate our employees to maximize profit and improve the Companys productivity and cash flow. The bonus plans goal is to provide for commensurate reward for the eligible employees, including Executives, contributing to
those profits and efficiencies.

The Compensation Committee reviews the bonus targets and related goals and objectives annually. For the
2008 plan year we established EBITDA (earnings before interest, taxes, depreciation and amortization) adjusted for one-time restructuring costs (Adjusted EBITDA) and Free Cash Flow as financial performance metrics for all Executives.
EBITDA performance measures our operational cash flow generated. The Compensation Committee believes that EBITDA is an appropriate performance measure for the Company because it allows us to compare our performance against companies within and
across industries. This measure is also of interest to our Companys shareholders and security holders, since EBITDA is essentially the income that a company has free for interest payments and principal repayment. The Compensation Committee
believes that Free Cash Flow is a meaningful performance measure because it closely measures our progress toward achieving our Company objective of reducing debt -related service costs and improving Company net worth.



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The 2008 Adjusted EBITDA target was established at $76.2 million and the Free Cash Flow target was
established at $20 million Each Executive has an individual bonus target expressed as a percentage of base salary. For the 2008 plan year, Adjusted EBITDA was weighted at 80% and Free Cash Flow generated was weighted at 20% of their total management
incentive bonus. Although the Company exceeded its Free Cash Flow target, because it fell short of the Adjusted EBITDA target, none of the Executives received their target bonus for 2008. Adjusted EBITDA and Free Cash Flow are non-GAAP measures. A
reconciliation of Adjusted EBITDA to our financial statements can be found in the footnotes following our Summary Compensation Table below. The Free Cash Flow calculation begins with the Adjusted EBITDA amount and adjusts for certain interest and
taxes, capital spending, changes in working capital, and other items allowed by the Compensation Committee. Due to the detailed nature of this calculation, a reconciliation of this non-GAAP measure to the financial statements provided within is not
practicable.

Messrs. Baughman, Dahmus and Naccarato had target bonus amounts set at 50% of their respective base salary, while their
threshold and maximum bonus opportunities were set at 1% and 100% of their base salaries, respectively. The bonuses for Messrs. Baughman, Naccarato and Dahmus are calculated according to a special performance grid which reflects their status as the
Companys three highest ranking officers. This resulted in each such Executive receiving 59.65% of his target bonus. The resulting bonus payment amounts are shown in the Summary Compensation Table, below, in the column entitled Non-Equity
Incentive Plan Compensation.

Equity Ownership

Our compensation philosophy includes adding an equity based element to our compensation package for senior management. Equity ownership is intended to motivate Executives to make stronger business decisions, improve
financial performance and enhance the long term interests of the Companys stockholders. Each Executive was given the opportunity to, and did, purchase common and preferred stock of Southern Graphics Inc. in 2006. See the discussion under
Equity Investment in Item 13. Also in 2006, Mr. Dahmus was granted options to purchase shares of Southern Graphics Inc. No equity-based awards were granted to Executives in 2008 or 2007. However, the Company may, in its
discretion, grant options under the Stock Incentive Plan to senior management, including Executives, in the future.

Severance Benefits

The Company may terminate an Executives employment without cause at any time. For those who have employment agreements, severance benefits are
outlined in the employment agreements. Severance benefits for Executives not having an employment agreement would be determined by reference to the Companys severance guidelines. The purpose of the severance benefits is to assist the Executive
with his transition into new employment, recognizing that it may take time for that person to find comparable employment elsewhere. Each Executives potential severance is described below under the heading Potential Payments upon
Termination or Change in Control.

Other Benefits

Reflecting the Companys culture of respect and value for all employees, the Company offers salaried employees, including Executives, a group benefits package that is competitive in our industry. Executives may
participate in a group retirement savings plan, various group health and welfare benefit plans and a deferred compensation plan.

The
Retirement Savings Plan is available to all employees including Executives. The plan is funded with both employer and employee contributions. Plan participants may voluntarily contribute from 1% to 16% of their annual pay to the plan on a pre-tax
basis, not to exceed an annual dollar IRS limitation, which was $15,500 in 2008. The plan provides for Company matching contributions of up to 6% of the plan participants pre-tax eligible contributions.

Executives are also eligible to participate in the Deferred Compensation Plan. This plan allows plan participants to continue to contribute a percentage
of their annual pay on a pre-tax basis after they have reached the annual dollar IRS limitation in the Retirement Savings Plan. The plan is funded with both employer and employee contributions. Plan participants may voluntarily contribute from 1% to
16% of their annual pay to the plan on a pre- tax basis. The plan provides for Company matching contributions of up to 6% of the plan participants pre-tax eligible contributions.



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Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this annual report. Based on the review and discussion, the Compensation Committee recommended
to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report.



COMPENSATION COMMITTEEJoseph M. SilvestriJohn P. CivantosThomas L. Hammond


Compensation Summary

The following table summarizes the principal components of compensation for our Chief Executive Officer, Chief Financial Officer and Executive Vice President for our 2006, 2007, and 2008 fiscal years. We refer to
these persons as our named executive officers.

SUMMARY COMPENSATION TABLE



|                                                                     |      |      |   |            |         |          |      |                |      |                 |      |                                             |   |                                                                       |         |                          |      |           |        |        |   |         |        
|-------------------------------------------------------------------- | ---- | ---- | - | ---------- | ------- | -------- | ---- | -------------- | ---- | --------------- | ---- | ------------------------------------------- | - | --------------------------------------------------------------------- | ------- | ------------------------ | ---- | --------- | ------ | ------ | - | ------- | -------
|Name and Principal Position                                          |      | Year |   | Salary ($) |         | Bonus($) |      | StockAwards($) |      | OptionAwards($) |      | Non-EquityIncentive PlanCompensation($) (2) |   | Change inPension ValueandNonqualifiedDeferredCompensationEarnings ($) |         | All otherCompensation($) |      | Total ($)
|(a)                                                                  |      | (b)  |   | (c)        |         | (d)      |      | (e)            |      | (f)             |      | (g)                                         |   | (h)                                                                   |         | (i)                      |      | (j)      
|                                                                     |      |      |   |            |         |          |      |                |     
|Henry R. BaughmanPresident and Chief Executive Officer               |      | 2008 |   | $          | 354,000 |          | None |                | None |                 |      | None                                        |   | $                                                                     | 107,375 |                          | None |           | $      | 44,178 |   | $       | 505,553
|                                                                     | 2007 |      | $ | 332,000    |         | None     |      | None           |      |                 | None |                                             | $ | 167,348                                                               |         | None                     |      | $         | 42,370 |        | $ | 541,718
|                                                                     | 2006 |      | $ | 316,727    |         | None     |      | None           |      |                 | None |                                             | $ | 163,960                                                               |         | None                     |      | $         | 28,030 |        | $ | 508,717
|                                                                     |      |      |   |            |         |          |      |                |     
|James M. DahmusSenior Vice President and Chief Financial Officer (1) |      | 2008 |   | $          | 264,000 |          | None |                | None |                 |      | None                                        |   | $                                                                     | 82,022  |                          | None |           | $      | 31,088 |   | $       | 377,110
|                                                                     | 2007 |      | $ | 228,250    |         | None     |      | None           |      |                 | None |                                             | $ | 115,052                                                               |         | None                     |      | $         | 30,404 |        | $ | 373,706
|                                                                     | 2006 |      | $ | 160,417    |         | None     |      | None           |      | $               | 111  |                                             | $ | 112,723                                                               |         | None                     |      | $         | 15,350 |        | $ | 288,601
|                                                                     |      |      |   |            |         |          |      |                |     
|Luca C. NaccaratoExecutive Vice President                            |      | 2008 |   | $          | 299,578 |          | None |                | None |                 |      | None                                        |   | $                                                                     | 90,430  |                          | None |           | $      | 33,575 |   | $       | 423,583
|                                                                     | 2007 |      | $ | 285,312    |         | None     |      | None           |      |                 | None |                                             | $ | 143,814                                                               |         | None                     |      | $         | 32,718 |        | $ | 461,844
|                                                                     | 2006 |      | $ | 272,944    |         | None     |      | None           |      |                 | None |                                             | $ | 140,903                                                               |         | None                     |      | $         | 19,950 |        | $ | 433,797



|(1) | James Dahmus commenced employment on April 10, 2006.
|--- | ----------------------------------------------------



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##### Table of Contents

|(2) | 2008 ,2007 and 2006 Non-Equity Incentive Plan Compensation based on the actual 2008, 2007 and 2006 Adjusted EBITDA performance of $67.6 million, $66.6 million, and $61.8 million
respectively, and 2008, 2007 and 2006 Free Cash Flow at 120% of target for all years. EBITDA, a measure used by management to measure operating performance, is defined as net income before interest, taxes, depreciation and amortization. We also
exclude the impact of other expense, net, and discontinued operations, net, from the calculation of EBITDA to be consistent with the determination of EBITDA under our senior secured credit facility. Other expense, net, primarily consists of the gain
(loss) on foreign exchange and interest income. Adjusted EBITDA is comprised of EBITDA plus allowed adjustments, which are expenses added back to EBITDA with the approval of the Compensation Committee of our Board of Directors, as administrator of
the Management Incentive Bonus Plan. The following table reconciles net income to Adjusted EBITDA for the years ended December 31, 2008, 2007 and 2006:
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                     |  |                                         |      |   |                                         |   |      |                                         |  |   |     
|------------------------------------ |  | --------------------------------------- | ---- | - | --------------------------------------- | - | ---- | --------------------------------------- |  | - | ----
|                                     |  | Year EndedDecember 31,2008(in
millions) |      |   | Year EndedDecember 31,2007(in
millions) |   |      | Year EndedDecember 31,2006(in
millions)
|Net income (loss)                    |  | $                                       | (1.4 | ) |                                         | $ | (2.1 | )                                       |  | $ | 0.9 
|Depreciation and amortization        |  |                                         | 28.6 |   |                                         |   | 23.7 |                                         |  |   | 20.1
|Interest expense                     |  |                                         | 36.5 |   |                                         |   | 36.9 |                                         |  |   | 35.0
|Other expense (income), net          |  |                                         | (2.1 | ) |                                         |   | 0.5  |                                         |  |   | 0.2 
|Provision (benefit) for income taxes |  |                                         | 0.0  |   |                                         |   | (1.2 | )                                       |  |   | 1.3 
|Discontinued operations, net         |  |                                         | 0.0  |   |                                         |   | (0.7 | )                                       |  |   | 0.4 
|                                     |  |                                         |      |   |                                         |   |      |                                         |  |   |     
|                                     |  |                                         |     
|EBITDA                               |  |                                         | 61.6 |   |                                         |   | 57.1 |                                         |  |   | 57.9
|                                     |  |                                         |     
|Allowed adjustments                  |  |                                         | 6.0  |   |                                         |   | 9.5  |                                         |  |   | 3.9 
|                                     |  |                                         |      |   |                                         |   |      |                                         |  |   |     
|                                     |  |                                         |     
|Adjusted EBITDA                      |  | $                                       | 67.6 |   |                                         | $ | 66.6 |                                         |  | $ | 61.8
|                                     |  |                                         |      |   |                                         |   |      |                                         |  |   |     

ALL OTHER COMPENSATION



|                                                                 |  |      |  |                                                      |        |                                              |   |              |  |           |        |  |   |       
|---------------------------------------------------------------- |  | ---- |  | ---------------------------------------------------- | ------ | -------------------------------------------- | - | ------------ |  | --------- | ------ |  | - | ------
|Name and Principal Position                                      |  | Year |  | CompanyContributionsto RetirementSavings Plan($) (1) |        | ContributionstoNon-QualifiedDef. Comp($) (2) |   | Other ($)(3) |  | Total ($)
|(a)                                                              |  | (b)  |  | (c)                                                  |        | (e)                                          |   | (g)          |  | (j)      
|                                                                 |  |      |  |                                                      |       
|Henry R. BaughmanPresident and Chief Executive Officer           |  | 2008 |  | $                                                    | 5,814  |                                              | $ | 15,841       |  | $         | 22,523 |  | $ | 44,178
|                                                                 |  |      |  |                                                      |       
|James M. DahmusSenior Vice President and Chief Financial Officer |  | 2008 |  | $                                                    | 13,800 |                                              |   | None         |  | $         | 17,288 |  | $ | 31,088
|                                                                 |  |      |  |                                                      |       
|Luca C. NaccaratoExecutive Vice President                        |  | 2008 |  | $                                                    | 5,809  |                                              | $ | 12,166       |  | $         | 15,600 |  | $ | 33,575



|(1) | The Retirement Savings Plan provides for matching contributions not greater than 100% of the participants elective deferrals that do not exceed the first 6% of the plan
participants compensation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Deferred Compensation Plan provides for matching contributions not greater than 100% of the participants elective deferrals that do not exceed the first 6% of the plan
participants compensation.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Other compensation includes auto allowance and unused paid vacation.
|--- | --------------------------------------------------------------------



39



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Employment Agreements

We entered into employment agreements with Messrs. Baughman and Naccarato in connection with the closing of the Acquisition. The term of these employment agreements was initially three years for Mr. Baughman but
was subsequently extended to five years, and is four years for Mr. Naccarato, and will automatically renew in each case for successive one-year periods, unless either party gives written notice to the other not less than ninety days prior to
the end of the original term (or any subsequent term, as the case may be). Each of these agreements was amended on January 25, 2006, to increase Mr. Baughmans base salary from $241,440 to $320,000 and Mr. Naccaratos base
salary from $225,649 to $275,000. The remaining terms of such agreements were not changed by such amendments. Effective April 1, 2007, Mr. Baughmans base salary was increased to $336,000 and Mr. Naccaratos salary was
increased to $288,750. Effective April 1, 2008, Mr. Baughmans base salary was increased to $360,000 and Mr. Naccaratos salary was increased to $303,188. Mr. Baughmans employment agreement was amended on
March 12, 2009 to extend the term through December 31, 2010.

We entered into an employment agreement with Mr. Dahmus on
April 10, 2006. The term of the employment agreement was initially three years, but Mr. Dahmuss employment agreement was amended on March 12, 2009 to extend the term through April 10, 2011. The employment agreement will
automatically renew for successive one-year periods, unless either party gives written notice to the other not less than ninety days prior to the end of the original term (or any subsequent term, as the case may be). Mr. Dahmus base
salary was $220,000 from April 10, 2006 to April 1, 2007, at which time his salary increased to $231,000. Effective April 1, 2008, Mr. Dahmus base salary was increased to $275,000.

Each Executive is entitled to receive the base salary set forth in such Executives employment agreement, which will be reviewed annually throughout
the term. In addition to base salary, the Executives are entitled to participate in our employee benefit plans for senior management. The Executives are also eligible to participate in our senior management bonus plans with annual incentive targets
of up to 50% of base salary.

Each Executives employment will terminate automatically upon his death. We may terminate the
Executives employment for any disability that has continued for a period of ninety days. We may also terminate the Executives employment at any time for cause (as described below) upon written notice. We may also terminate
the Executives employment at any time without cause, upon written notice. The Executive may terminate his employment upon not less than thirty days written notice prior to the effective date of such termination. If the Executive terminates his
employment for good reason (as defined below) it will be deemed to be a termination of the Executives employment without cause by us.

Cause generally means any of the following: (i) gross or willful misconduct; (ii) willful and repeated failure to comply with the directives of our board of directors or any of our supervisory
personnel; (iii) any criminal act or act of dishonesty or willful misconduct or any act of fraud, dishonesty or misappropriation involving us or any of our subsidiaries; (iv) any conviction or plea of guilty or nolo contendere to a felony
or a crime involving dishonesty; (v) breach of the terms of any confidentiality, non-competition, non-solicitation or employment agreement the Executive has with us or any of our subsidiaries; (vi) acts of malfeasance or negligence in a
matter of material importance to us or any of our subsidiaries; (vii) the material failure to perform the duties and responsibilities of the Executives position after written notice and a reasonable opportunity to cure (not to exceed 30
days), (viii) grossly negligent conduct; or (ix) activities materially damaging to us or any of our subsidiaries.

Good
reason generally means, after written notice by the Executive to our board of directors and a reasonable opportunity for us to cure (not to exceed 30 days), any of the following: (i) the Executives base salary is not paid or is
reduced by more than ten percent in the aggregate other than as part of a salary reduction program pursuant to which the base salaries of all executive officers are reduced by the same percentage at the same time and for the same period of time;
(ii) the Executives target incentive payments are reduced; or (iii) the Executives job duties and responsibilities are diminished. The expiration of the term of the employment agreement (including notice of non-renewal) shall
not be considered good reason.



40



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If an Executives employment is terminated for any reason, the Executive shall be entitled to
receive the employee benefits to which he is entitled pursuant to the terms of the relevant employee benefit plans in which the Executive participates. If an Executives employment is terminated because of disability, the Executive shall
receive his normal compensation for the period of disability prior to termination of employment, and then will be entitled to receive a pro rata portion of his bonus payments from the senior management bonus plan. If an Executive is terminated,
other than for cause or by death or disability, or if an Executive terminates employment for good reason, he shall be entitled to (i) receive 50% of his base salary for a twenty-four month period thereafter for Messrs. Baughman and Naccarato
and for the 12 month period thereafter for Mr. Dahmus; (ii) receive a pro rata share of the estimated bonus for the year in which the termination occurs; and (iii) continued participation in the employee welfare benefit plans for the
Executive and his dependents (other than disability and life insurance) for twenty-four months for Messrs. Baughman and Naccarato and twelve months for Mr. Dahmus.

If an Executive is terminated for cause, dies or becomes disabled or voluntarily terminates employment other than for good reason, he shall be entitled to payment only of earned and unpaid base salary to the date of
termination and, in the case of death, payment of earned and unpaid incentive payments.

The employment agreements also provide that,
during the Executives employment and for a period of twenty-four months after the end of the Executives employment with us for Messrs. Baughman and Naccarato and twelve months after the end of the Executives employment for
Mr. Dahmus, referred to below as the non-competition period, the Executive will not (i) compete, directly or indirectly, with us (ii) solicit or hire current and former employees, or (iii) solicit current and former customers. In
consideration of the executives non-competition and non-solicitation agreement with respect to periods after termination of employment, we will pay the Executive an amount equal to 50% of his base salary during the non-competition period if
the Executive was terminated without cause. The expiration of the term of the employment agreement (including notice of non-renewal) shall not be considered a termination without cause. If the Executive breaches any of the non-competition or
non-solicitation restrictions, the Executive will waive and forfeit any and all rights to any further payments under his employment agreement and will repay any severance pay received under such agreement to us.

Plan-Based Awards

Below is a summary of the future
payouts under non-equity incentive plan awards and outstanding option awards:

GRANTS OF PLAN-BASED AWARDS



|                                                                 |  |           |  |                                                                   |       |                                                            |   |                                                        |  |                                                               |         |                                           |      |                                          |      |     |      |     |      |     |      |     |      |  |     
|---------------------------------------------------------------- |  | --------- |  | ----------------------------------------------------------------- | ----- | ---------------------------------------------------------- | - | ------------------------------------------------------ |  | ------------------------------------------------------------- | ------- | ----------------------------------------- | ---- | ---------------------------------------- | ---- | --- | ---- | --- | ---- | --- | ---- | --- | ---- |  | ----
|Name and PrincipalPosition                                       |  | GrantDate |  | Estimated Future PayoutsUnder Non-Equity Incentive PlanAwards 1,2 |       | Estimated Future Payouts UnderEquity Incentive Plan Awards |   | All otherStockAwards:NumberofSharesof Stockor Units(#) |  | All otherOptionAwards:NumberofSecuritiesUnder-lyingOptions(#) |         | Exerciseor BasePrice ofOptionAwards($/Sh) |      | GrantDateFairValueofStockandOptionAwards
|                                                                 |  |           |  | Threshold($)                                                      |       | Target($)                                                  |   | Maximum($)                                             |  | Threshold(#)                                                  |         | Target(#)                                 |      | Maximum(#)                               |      |     |      |     |      |     |      |    
|(a)                                                              |  | (b)       |  | (c)                                                               |       | (d)                                                        |   | (e)                                                    |  | (f)                                                           |         | (g)                                       |      | (h)                                      |      | (i) |      | (j) |      | (k) |      | (l)
|Henry R. BaughmanPresident and Chief Executive Officer           |  | N/A       |  | $                                                                 | 3,600 |                                                            | $ | 180,000                                                |  | $                                                             | 360,000 |                                           | None |                                          | None |     | None |     | None |     | None |     | None |  | None
|James M. DahmusSenior Vice President and Chief Financial Officer |  | N/A       |  | $                                                                 | 2,750 |                                                            | $ | 137,500                                                |  | $                                                             | 275,000 |                                           | None |                                          | None |     | None |     | None |     | None |     | None |  | None
|Luca C. NaccaratoExecutive Vice President                        |  | N/A       |  | $                                                                 | 3,032 |                                                            | $ | 151,594                                                |  | $                                                             | 303,188 |                                           | None |                                          | None |     | None |     | None |     | None |     | None |  | None



|(1) | The Estimated Future Payouts Under Non-Equity Incentive Plan Awards are determined using the Management Incentive Plan previously discussed.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Please see the description in the Compensation Discussion and Analysis above, under the heading Annual Bonus Compensation, for an explanation of each Executives
threshold, target and maximum bonus opportunity.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END



|                                                                     |  |                                                                |  |                                                                  |  |                                                                                       |  |                         |      |                      |           |                                                    |      |                                                       |      |                                                                                           |      |                                                                                                           |     
|-------------------------------------------------------------------- |  | -------------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------- | ---- | -------------------- | --------- | -------------------------------------------------- | ---- | ----------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------- | ----
|Name and Principal Position                                          |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |  | EquityIncentivePlanAwards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions
(#) |  | OptionsExercisePrice($) |      | OptionExpirationDate |           | NumberofSharesor Unitsof StockThatHaveNotVested(#) |      | MarketValueofSharesorUnitsofStockThatHaveNotVested($) |      | EquityIncentivePlanAwards:NumberofUnearnedShares,Units orOtherRightsThatHave
NotVested(#) |      | EquityIncentivePlanAwards:Marketor PayoutValue ofUnearnedShares,units
orOtherRightsThatHave NotVested ($)
|(a)                                                                  |  | (b)                                                            |  | (c)                                                              |  | (d)                                                                                   |  | (e)                     |      | (f)                  |           | (g)                                                |      | (h)                                                   |      | (i)                                                                                       |      | (j)                                                                                                      
|Henry R. BaughmanPresident and Chief Executive Officer               |  | None                                                           |  | None                                                             |  | None                                                                                  |  |                         | None |                      | None      |                                                    | None |                                                       | None |                                                                                           | None |                                                                                                           | None
|James M. Dahmus (1)Senior Vice President and Chief Financial Officer |  | 900                                                            |  | 600                                                              |  | None                                                                                  |  | $                       | 139  |                      | 7-25-2016 |                                                    | None |                                                       | None |                                                                                           | None |                                                                                                           | None
|Luca C. NaccaratoExecutive Vice President                            |  | None                                                           |  | None                                                             |  | None                                                                                  |  |                         | None |                      | None      |                                                    | None |                                                       | None |                                                                                           | None |                                                                                                           | None



|(1) | On July 25, 2006, the Board of Directors of Southern Graphics Inc. adopted the Stock Incentive Plan. Also on July 25, 2006, the Board approved the grant under the Stock
Incentive Plan to James M. Dahmus of options to acquire an aggregate of 1,500 shares of Southern Graphics Inc. Class A common stock, par value $.01 per share. The options granted on July 25, 2006, are non-qualified stock options that will
terminate on July 25, 2016, and have an exercise price that declines (but not below fair market value of the underlying shares on the grant date) through the fifth anniversary of the grant date. The options will become exercisable at the rate
of 20% per year, beginning on December 31, 2006 and ending on December 31, 2010. All outstanding options will vest immediately upon a change in control.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Nonqualified Deferred Compensation

Below is the summary of nonqualified deferred compensation. Executives are eligible to participate in the Deferred Compensation Plan. The plan is unfunded and benefits under the plan are paid from the general assets
of the Company. Executives whose salary deferrals to the Companys qualified plans are limited by Internal Revenue Code limitations may elect to reduce their salary and credit to the plan the excess, if any, of (i) the amount of salary
deferrals that would have been credited pursuant to the Retirement Savings Plan on their behalf for the plan year had the statutory limitations not been applicable over (ii) the amount of salary deferrals actually credited for the year by the
participant to the Retirement Savings Plan. Salary reduction credits under the plan are in the same percentage as most recently elected under the Retirement Savings Plan. For each payroll period for which the Company credits salary to the plan on
behalf of the participant, matching credits are also credited to the plan on behalf of the participant. The matching credits for each payroll period are equal to an amount not greater than 100 percent of that portion of the salary reduction credits
that do not exceed 6% of the participants salary for the payroll period. Effective June 1, 2008, eligible plan participants, including Executives, may defer all or a portion of their awards under the Management Incentive Bonus Plan into
the Deferred Compensation Plan, in 10% increments. There are no employer matching contributions on management incentive compensations awards deferred in the plan. The balance of a plan participants benefit under the plan will be distributed
upon the plan participants termination of employment or death (to the plan participants beneficiary) in a lump sum, unless the participant elects to have the benefit paid in annual installments over a period of not more than ten years.

NONQUALIFIED DEFERRED COMPENSATION



|                                                                 |  |                                     |        |                                          |   |                               |  |   |                                       |   |                                |      |  |   |        
|---------------------------------------------------------------- |  | ----------------------------------- | ------ | ---------------------------------------- | - | ----------------------------- |  | - | ------------------------------------- | - | ------------------------------ | ---- |  | - | -------
|Name and Principal Position                                      |  | ExecutiveContributionsin Last FY($) |        | RegistrantContributionsin Last FY ($)(1) |   | AggregateEarningsin LastFY($) |  |   | AggregateWithdrawals/Distributions($) |   | AggregateBalance atLast FYE($)
|(a)                                                              |  | (b)                                 |        | (c)                                      |   | (d)                           |  |   | (e)                                   |   | (f)                           
|Henry R. BaughmanPresident and Chief Executive Officer           |  | $                                   | 42,248 |                                          | $ | 15,841                        |  | $ | (10,951                               | ) |                                | None |  | $ | 129,224
|James M. DahmusSenior Vice President and Chief Financial Officer |  |                                     | None   |                                          |   | None                          |  |   | None                                  |   |                                | None |  |   | None   
|Luca C. NaccaratoExecutive Vice President                        |  | $                                   | 32,433 |                                          | $ | 12,165                        |  | $ | (22,354                               | ) |                                | None |  | $ | 69,948 



|(1) | Registrant Contributions (column c) are reported as Contributions to Non-Qualified Deferred Compensation in the All Other Compensation Table.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Potential Payments upon Termination or Change in Control

Below is the summary of the estimated termination benefits that would be paid to each named executive officer as of December 31, 2008 in the
various circumstances listed.

TERMINATION BENEFITS



|                                                                     |  |                       |  |                         |         |                    |   |                 |  | 
|-------------------------------------------------------------------- |  | --------------------- |  | ----------------------- | ------- | ------------------ | - | --------------- |  | 
|Name and Principal Position                                          |  | TerminationWith Cause |  | TerminationWithoutCause |         | Death orDisability |   | ChangeInControl
|(a)                                                                  |  | (b)                   |  | (c)                     |         | (d)                |   | (e)            
|Henry R. Baughman (1)President and Chief Executive Officer           |  |                       |  |                         |         |                    |   |                 |  | 
|Cash Payments                                                        |  |                       |  | $                       | 720,000 |                    | $ | 180,000         |  | 
|Health and welfare benefits                                          |  |                       |  | $                       | 21,672  |                    |   |                |  | 
|Total                                                                |  |                       |  | $                       | 741,672 |                    | $ | 180,000         |  | 
|                                                                     |  |                       |  |                        
|James M. Dahmus (2)Senior Vice President and Chief Financial Officer |  |                       |  |                         |         |                    |   |                 |  | 
|Cash Payments                                                        |  |                       |  | $                       | 275,000 |                    | $ | 137,500         |  | 
|Health and welfare benefits                                          |  |                       |  | $                       | 16,368  |                    |   |                |  | 
|Total                                                                |  |                       |  | $                       | 291,368 |                    | $ | 137,500         |  | 
|                                                                     |  |                       |  |                        
|Luca C. Naccarato (3)Executive Vice President                        |  |                       |  |                         |         |                    |   |                 |  | 
|Cash Payments                                                        |  |                       |  | $                       | 606,376 |                    | $ | 151,594         |  | 
|Health and welfare benefits                                          |  |                       |  | $                       | 32,736  |                    |   |                |  | 
|Total                                                                |  |                       |  | $                       | 639,112 |                    | $ | 151,594         |  | 



|(1) | Henry Baughman would be paid a severance in the amount equal to one hundred percent (100%) of his base salary for a period of twenty four (24) months if terminated without
cause. Additionally, Mr. Baughman would be entitled to continued participation in the welfare benefit plans for a period of twenty four (24) months. Finally, Mr. Baughman would be paid an incentive bonus amount equal to the full
target incentive bonus payment for the year terminated prorated by the number of months worked in the year terminated. In case of termination for disability, Mr. Baughman would be entitled only to his target management incentive bonus.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | James Dahmus would be paid a severance in the amount equal to one hundred percent (100%) of his base salary for a period of twelve (12) months if terminated without cause.
Additionally, Mr. Dahmus would be entitled to continued participation in the welfare benefit plans for a period of twelve (12) months. Finally, Mr. Dahmus would be paid an incentive bonus amount equal to the full target incentive
bonus payment for the year terminated prorated by the number of months worked in the year terminated. In case of termination for disability, Mr. Dahmus would be entitled only to his target management incentive bonus.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Luca Naccarato would be paid a severance in the amount equal to one hundred percent (100%) of his base salary for a period of twenty four (24) months if terminated without
cause. Additionally, Mr. Naccarato would be entitled to continued participation in the welfare benefit plans for a period of twenty four (24) months. Finally, Mr. Naccarato would be paid an incentive bonus amount equal to the full
target incentive bonus payment for the year terminated prorated by the number of months worked in the year terminated. In case of termination for disability, Mr. Naccarato would be entitled only to his target management incentive bonus.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Compensation of Directors

Below is the summary of Director Compensation. Directors (other than management directors) are paid $15,000 per year for serving on the Registrants board and are reimbursed for out-of-pocket expenses incurred in
connection with attending the Registrants board of director meetings.

DIRECTOR COMPENSATION



|                            |  |                              |        |                |      |                |      |                                          |      |                                                                           |      |                          |      |           |   |       
|--------------------------- |  | ---------------------------- | ------ | -------------- | ---- | -------------- | ---- | ---------------------------------------- | ---- | ------------------------------------------------------------------------- | ---- | ------------------------ | ---- | --------- | - | ------
|Name and Principal Position |  | FeesEarned orPaid inCash ($) |        | StockAwards($) |      | OptionAward($) |      | Non-EquityIncentive PlanCompensation ($) |      | Change in Pension Valueand Nonqualified DeferredCompensation Earnings ($) |      | All OtherCompensation($) |      | Totals($)
|(a)                         |  | (b)                          |        | (c)            |      | (d)            |      | (e)                                      |      | (f)                                                                       |      | (g)                      |      | (h)      
|Joseph M. Silvestri(1)      |  |                              | None   |                | None |                | None |                                          | None |                                                                           | None |                          | None |           |   | None  
|John P. Civantos(1)         |  |                              | None   |                | None |                | None |                                          | None |                                                                           | None |                          | None |           |   | None  
|Thomas L. Hammond           |  | $                            | 15,000 |                | None |                | None |                                          | None |                                                                           | None |                          | None |           | $ | 15,000
|Richard Leong               |  | $                            | 15,000 |                | None |                | None |                                          | None |                                                                           | None |                          | None |           | $ | 15,000



|(1) | Messrs. Silvestri and Civantos are affiliates of Court Square Advisor LLC, which receives an annual fee from the Company pursuant to an Advisory Agreement. No director
compensation was paid to Mr. Silvestri or Mr. Civantos in 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation Committee Interlocks and Insider Participation

Messrs. Silvestri, Civantos and Hammond comprise our Compensation Committee. Messrs. Silvestri and Civantos are affiliates of Court
Square Advisor LLC, which receives an annual fee of $0.5 million per year plus reasonable out-of-pocket expenses from the Company, pursuant to an Advisory Agreement. See the discussion under Advisory Agreement in Item 13.

Messrs. Silvestri and Civantos were officers of the Registrant before the Acquisition and resigned their positions on December 30,
2005 effective with the Acquisition. Mr. Hammond was the former Chief Executive Officer of Southern Graphic Systems, Inc. from 2000 until 2002, when he retired.

None of our executive officers has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity or insider participation in compensation decisions.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

All of the Registrants outstanding capital stock is held by Southern Graphics Inc. (SGS Holdco). The following table sets forth certain
information regarding the beneficial ownership of SGS Holdco by (i) each person or entity known to us to own more than 5% of any class of the outstanding securities of SGS Holdco, (ii) each member of the Registrants board of
directors and each of our named executive officers and (iii) all members of the



45



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##### Table of Contents

Registrants board of directors and executive officers as a group. The outstanding securities of SGS Holdco consist of approximately 996,674 shares of
common stock and 969,719 shares of preferred stock. To our knowledge, each of such stockholders has sole voting and investment power as to the stock shown unless otherwise noted. Beneficial ownership of the securities listed in the table has been
determined in accordance with the applicable rules and regulations promulgated under the Exchange Act.



|                                                                                                          |  |                                                        |  |         |                 |  |         |  |         |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ |  | ------- | --------------- |  | ------- |  | ------- | -
|                                                                                                          |  | Number and Percent of Shares ofSouthern Graphics Inc.1 | 
|                                                                                                          |  | Common Stock                                           |  |         | Preferred Stock | 
|                                                                                                          |  | Number                                                 |  | Percent |                 |  | Number  |  | Percent |  
|Greater than 5% Stockholders:                                                                             |  |                                                        |  |         |                 |  |         |  |         |  
|Court Square Capital Partners, L.P. Park Avenue Plaza, 55 East 52ndStreet, 34th Floor, New York, NY 10055 |  | 717,468                                                |  | 71.99   | %               |  | 773,271 |  | 79.74   | %
|Lyon Southern                                                                                             |  | 127,358                                                |  | 12.78   | %               |  | 137,264 |  | 14.16   | %
|Named Executive Officers and Directors:                                                                   |  |                                                        |  |         |                 |  |         |  |         |  
|Henry R. Baughman                                                                                         |  | 22,712                                                 |  | 2.28    | %               |  | 229     |  | .02     | %
|James M. Dahmus3                                                                                          |  | 14,461                                                 |  | 1.45    | %               |  | 1,144   |  | .12     | %
|Luca C. Naccarato                                                                                         |  | 22,712                                                 |  | 2.28    | %               |  | 229     |  | .02     | %
|Joseph M. Silvestri2,4,5                                                                                  |  | 733,160                                                |  | 73.56   | %               |  | 790,184 |  | 81.49   | %
|John P. Civantos2, 4                                                                                      |  | 731,760                                                |  | 73.42   | %               |  | 788,674 |  | 81.33   | %
|Thomas L. Hammond                                                                                         |  | 1,698                                                  |  | .17     | %               |  | 1,830   |  | .19     | %
|Richard Leong                                                                                             |  |                                                       |  |        |                 |  |        |  |        |  
|                                                                                                          |  |                                                        |  |        
|All executive officers and directors as a group (8 persons)2,4, 5, 6                                      |  | 795,041                                                |  | 79.77   | %               |  | 793,936 |  | 81.87   | %



|1 | Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person has beneficial ownership of any securities as to which such person, directly or indirectly,
through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power and as to which such person has the right to acquire such voting and/or investment power within 60 days. Percentage of
beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such
person has the right to acquire voting and/or investment power within 60 days.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Includes shares of Common Stock (717,467.988) and Preferred Stock (773,271.028) held by Court Square Capital Partners, L.P., shares of Common Stock (7,400.479) and
Preferred Stock (7,976.069) held by CSC SSB Fund, L.P. and shares of Common Stock (6,593.814) and Preferred Stock (7,106.676) held by CVC Executive Fund LLC.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 | Includes options to acquire 900 shares of Common Stock under the Southern Graphics Inc. Stock Incentive Plan.
|- | -------------------------------------------------------------------------------------------------------------

|4 | Court Square Advisor LLC, an independent company formed by the former managers of CSC, manages and has voting power with
respect to the shares owned by Court Square Capital Partners, L.P., CSC SSB Fund, L.P., and CVC Executive Fund LLC. Messrs. Silvestri and Civantos affiliates of Court Square Advisor LLC, which manages CSCs investment in Southern Graphics Inc.,
and disclaim beneficial ownership of the shares held by CSC, CSC SSB Fund, L.P. and CVC Executive Fund LLC. The address of Mr. Silvestri and Mr. Civantos is c/o Court Square Capital Partners, L.P., Park Avenue Plaza, 55 East 52ndStreet, 34th Floor, New York, NY 10055.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5 | Includes shares of Common Stock held by the Silvestri 2002 Trust. Mr. Silvestri disclaims beneficial ownership of the shares held by the Silvestri 2002 Trust.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|6 | Includes shares purchased by Messrs. Baughman, Dahmus and Naccarato, as well as certain other members of management. See Certain relationships and related party
transactions.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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EQUITY COMPENSATION PLANS

The Registrant has no equity compensation plans under which equity securities of the Registrant are authorized for issuance. The following table provides information relating to the Southern Graphics Inc. Stock
Incentive Plan as of December 31, 2008:



|                                                           |  |                                                                      |  |                                                      |     |                                                                                           |       
|---------------------------------------------------------- |  | -------------------------------------------------------------------- |  | ---------------------------------------------------- | --- | ----------------------------------------------------------------------------------------- | ------
|                                                           |  | Number of securities tobe issued upon
exerciseof outstanding options |  | Weighted-averageexercise price ofoutstanding options |     | Number of securitiesremaining available forfuture issuance under equitycompensation plans
|Equity compensation plans approved by security holders1    |  | 9,100                                                                |  | $                                                    | 145 |                                                                                           | 21,900
|Equity compensation plans not approved by security holders |  |                                                                     |  |                                                      |    |                                                                                           |      
|                                                           |  |                                                                      |  |                                                      |     |                                                                                           |       
|Total                                                      |  | 9,100                                                                |  | $                                                    | 145 |                                                                                           | 21,900
|                                                           |  |                                                                      |  |                                                      |     |                                                                                           |       



|1 | Southern Graphics Inc. is the sole shareholder of the Registrants outstanding common stock. This plan was approved
by the Board of Directors of Southern Graphics Inc.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

EQUITY
INVESTMENT

In connection with the Acquisition, CSC and SGS Holdco entered into a Stockholders Agreement providing for CSCs
investment in SGS Holdco and containing agreements among its stockholders with respect to certain rights and restrictions and with respect to its corporate governance. SGS Holdco contributed the proceeds from the sale of its equity interest to the
Registrant. The following is a summary description of the principal terms of the equity investment provisions of the Stockholders Agreement.

Pursuant to the Stockholders Agreement and a related subscription agreement, CSC and certain employees of CSC purchased 1,000,000 shares of common stock of SGS Holdco for $10.0 million and 970,000 shares of perpetual preferred stock
of SGS Holdco for $97.0 million. Since the closing of the Acquisition and through the end of December 2006, Messrs. Baughman, Dahmus and Naccarato along with other management investors purchased approximately 105,094.32 shares of common stock and
5,493.572 shares of perpetual preferred stock of SGS Holdco, in the aggregate, at the same purchase price per share as CSC. The proceeds from the sale of shares to management investors were used to repurchase an equivalent number of shares of SGS
Holdco from CSC. In transactions in 2007 and January of 2008, SGS Holdco repurchased an aggregate of 10,849.06 shares of its common stock and 915.095 shares of its perpetual preferred stock from three management investors in connection with their
termination of employment with the Company at an aggregate price of $232,220, and sold 7,522.934 of such common shares and 634.544 of such perpetual preferred shares to three new management investors for an aggregate price of $200,550. The common
stock of SGS Holdco purchased by the management investors will vest in five equal annual installments or, in the case of Mr. Baughman, if he retires after three years, he will be fully vested upon retirement. All vesting of such common stock is
subject to the employees continuous employment with us and the terms and conditions of the Stockholders Agreement, including SGS Holdcos repurchase rights upon termination of employment. In addition, Mr. Hammond made an
investment of $200,000 in SGS Holdco. Mr. Hammond purchased approximately 1,700 shares of common stock and 1,830 shares of perpetual preferred stock of SGS Holdco at the same price per share and in the same ratio as CSC. The purchase price for
such shares consisted of $150,000 in cash and the waiver of a $50,000 consulting fee owed to Mr. Hammond from the Registrant. The proceeds were used to repurchase from CSC the same number of shares of common stock and perpetual preferred stock
of SGS Holdco. In other transactions, Lyon Southern, Inc. (Lyon), an affiliate of Richard Leong, purchased approximately 127,000 shares of common stock and 137,000 shares of perpetual preferred stock of SGS Holdco, and other third party
investors purchased approximately 8,500 shares of common stock and 9,150 shares of perpetual preferred stock of SGS Holdco, in each case at the same price per share and in the same ratio as CSC, with the proceeds being used to repurchase from CSC
the same number of shares of common stock and perpetual preferred stock of SGS Holdco. SGS Holdco has the right to redeem the shares of perpetual preferred stock at any time at a price equal to $100 per share plus dividends accrued to the date of
redemption. The following chart sets forth a summary of such stock sales:



|                     |  |                |  |                   |  |                |           
|-------------------- |  | -------------- |  | ----------------- |  | -------------- | ----------
|Name                 |  | Class A Common |  | Series APreferred |  | Purchase Price
|Management Investors |  | 101,768.19     |  | 5,213.021         |  | $              | 1,568,630 
|Thomas Hammond       |  | 1,698.113      |  | 1,830.189         |  | $              | 200,000   
|Lyon Southern        |  | 127,358.491    |  | 137,264.151       |  | $              | 15,000,000
|Others               |  | 8,490.970      |  | 9,150.940         |  | $              | 1,000,000 



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##### Table of Contents

OTHER PROVISIONS OF THE STOCKHOLDERS AGREEMENT

Pursuant to the Stockholders Agreement, the stockholders of SGS Holdco will agree to take all actions so that its Board of Directors is composed of
up to six directors, which so long as SGS Holdco has not consummated a public offering will include SGS Holdcos CEO and up to five individuals designated by CSC. SGS Holdcos board of directors currently consists of Messrs. Silvestri,
Civantos, Baughman, Hammond and Leong.

The Stockholders Agreement contains provisions that, with some exceptions, restrict the
ability of the stockholders to transfer any common stock or preferred stock of SGS Holdco except pursuant to the terms of the Stockholders Agreement. If holders of more than 50% of the common stock of SGS Holdco approve the sale of either the
Company or SGS Holdco, which is known under the Stockholders Agreement as an approved sale, each stockholder has agreed to consent to the sale and, if the sale includes the sale of stock of SGS Holdco, each stockholder has agreed to sell all
of its common stock and preferred stock of SGS Holdco on the terms and conditions approved by holders of a majority of the common stock of SGS Holdco then outstanding. In the event SGS Holdco proposes to issue and sell, other than in a public
offering under a registration statement, any shares of its common stock or any securities containing options or rights to acquire any shares of its common stock or any securities convertible into its common stock to CSC or any of its respective
affiliates, SGS Holdco must first offer to each of the other stockholders a pro rata portion of such shares. These preemptive rights will not be applicable to certain issuances of shares of SGS Holdco, including issuances of common stock of SGS
Holdco upon conversion of shares of one class of common stock into shares of another class. Subject to some limitations (including the ability of CSC to sell to affiliates and to sell a portion of its holdings to other investors) CSC may not sell
any of its shares of common stock without offering the other stockholders of SGS Holdco a pro rata opportunity to participate in the sale.

The related subscription agreement for management investors also provides for additional restrictions on transfer of shares of SGS Holdco by our executive officers and other employees, including the right of SGS Holdco to repurchase shares
upon termination of the stockholders employment prior to December 30, 2010. If the management investor resigns or is terminated without cause, the repurchase price for vested shares of common stock of SGS Holdco will be their fair market
value and the repurchase price for unvested shares will be their cost. If the management investor is terminated for cause, the repurchase price for all shares of common stock of SGS Holdco will be based on the lower of cost or fair market value. The
Stockholders Agreement also provides for a right of first refusal in favor of SGS Holdco in the event a management investor elects to transfer shares of stock of SGS Holdco.

The Stockholders Agreement also provides that in consideration for the opportunity to purchase common stock of SGS Holdco, each management investor
released all claims against us and SGS Holdco (other than claims for compensation and benefits in the ordinary course of business) and agreed for a period of one year after his termination of employment to not (i) compete directly or indirectly
with us, (ii) solicit or hire current and former employees, and (iii) solicit current and former customers.

REGISTRATION RIGHTS AGREEMENT

As part of the Stockholders Agreement, CSC and the other stockholders of SGS Holdco are parties to a registration rights
agreement. Under the registration rights agreement, upon the written request of CSC, SGS Holdco will prepare and file a registration statement with the Securities and Exchange Commission concerning the distribution of all or part of the shares of
SGS Holdco held by CSC or its affiliates and use its best efforts to cause the registration statement to become effective. If at any time SGS Holdco files a registration statement for its common stock pursuant to a request by CSC, or otherwise
(other than a registration statement on Form S-8, Form S-4 or any similar form, a registration statement filed in connection with a share exchange or an offering solely to our



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##### Table of Contents

employees or its existing stockholders, or a registration statement registering a unit offering, which we refer to as a qualified offering), SGS Holdco will
use its best efforts to allow the other parties to the registration rights agreement to have their shares of common stock of SGS Holdco (or a portion of their shares under some circumstances) included in the offering of common stock of SGS Holdco.
Registration expenses of the selling stockholders (other than underwriting fees, brokerage fees and transfer taxes applicable to the shares sold by such stockholders or in some cases the fees and expenses of any accountants or other representatives
retained by a selling stockholder) will be paid by SGS Holdco.

ADVISORY AGREEMENT

In connection with the Acquisition, we entered into an advisory agreement with CVC Management LLC. This agreement was assigned to Court Square Advisor LLC
(CS Advisor) on July 31, 2006. CS Advisor may provide financial, advisory and consulting services to us under the advisory agreement. In exchange for these services, CS Advisor will be entitled to an annual advisory fee of $0.5
million per year plus reasonable out-of-pocket expenses. We have also agreed to pay CS Advisor a transaction fee in connection with the consummation of any acquisition, divestiture or financing with a value in excess of $25,000,000, including any
refinancing, by us or any of our subsidiaries, in an amount equal to 1% of the value of the transaction, plus reasonable out-of-pocket expenses. This advisory agreement has an initial term of ten years from December 30, 2005, subject to
automatic one year extensions thereafter unless terminated by either party upon written notice 90 days prior to the expiration of the initial term or any extension thereof. The advisory agreement automatically terminates on a change of control upon
payment of the relevant transaction fee, and also terminates, upon payment of a fee based on the discounted value of the remaining annual advisory fees, on an initial public offering of SGS Holdcos common stock. There are no minimum levels of
service required to be provided pursuant to the advisory agreement. The advisory agreement includes customary indemnification provisions in favor of CS Advisor. Messrs. Silvestri and Civantos are affiliates of CS Advisor.

RELATED PERSONS POLICIES AND PROCEDURES

Our Board of
Directors is responsible for reviewing and recommending action regarding potential material transactions with any related party. Related parties include any of our directors or executive officers, certain of our stockholders and their immediate
family members. We expect our directors, officers and employees to act and make decisions that are in our best interests and encourage them to avoid situations which present a conflict between our interests and their own personal interests.

To identify related party transactions not otherwise brought to the Boards attention, each year we require our directors, executive
officers and certain stockholders to complete Director and Officer Questionnaires identifying any transactions with us in which the stockholder, officer or director or their family members have an interest. We review related party transactions due
to the potential for a conflict of interest. A conflict of interest occurs when an individuals private interest interferes, or appears to interfere, in any way with our interests.

If a potential conflict is identified the Board of Directors will review and discuss the transaction. At a minimum, we are required to comply with
Section 144 of the Delaware General Corporation Law and therefore we may request that any implicated director recuse himself from the discussions and vote regarding the transaction.

On March 12, 2009, our Board of Directors authorized the Company to purchase prepress graphics services from (and enter into related transactions
with) Flexo Manufacturing Corporation in an aggregate amount not to exceed $250,000 in 2009. Richard Leong is Managing Director of Flexo Manufacturing Corporation. Mr. Leong is one of our directors and Chief Investment Advisor to Lyon Capital
Partners, an affiliate of our shareholder Lyon Southern, Inc.

Joseph Silvestri, one of our directors, has served and continues to serve as
a director of one of our vendors. Investment funds managed by Mr. Silvestris affiliate, Court Square Capital Partners, acquired majority ownership of this vendor in March 2007. The Company purchased products from this vendor for
approximately $1,876,000 in 2008 and $954,000 during the period from April through December 31, 2007. The Company believes that these purchases, which represent less than 0.5% of total revenues of the vendor in both periods, were made on terms
at least as favorable as would have been available from other parties. The Company used, and continues to use, this vendor as an additional source for the type of products purchased. John Civantos, who is also one of our directors, is also an
affiliate of this vendor.



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##### Table of Contents

DIRECTOR INDEPENDENCE



|                       |  |             
|---------------------- |  | ------------
|Director               |  | Independent1
|Henry R. Baughman      |  | No          
|John P. Civantos2,3    |  | Yes         
|Thomas L. Hammond3     |  | Yes         
|Richard Leong2         |  | Yes         
|Joseph M. Silvestri2,3 |  | Yes         



|1 | As defined by NASDAQ Rule 4200(a)(15)
|- | -------------------------------------

|2 | Member of Audit Committee
|- | -------------------------

|3 | Member of Compensation Committee
|- | --------------------------------



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

Aggregate
fees billed to the Company for the fiscal years ending December 31, 2008 and 2007 by the Companys principal accounting firm, BDO Seidman, LLP, were as follows:



|                   |  |      |         |      |   |        
|------------------ |  | ---- | ------- | ---- | - | -------
|                   |  | 2008 |         | 2007
|Audit fees         |  | $    | 662,527 |      | $ | 544,915
|Audit-related fees |  |      | 56,768  |      |   | 23,337 
|Tax fees           |  |      |        |      |   |       
|                   |  |      |         |      |   |        
|Total              |  | $    | 719,295 |      | $ | 568,252
|                   |  |      |         |      |   |        

Audit fees consist of fees billed or agreed to be billed for services relating to the audit of our
Companys annual financial statements and reviews of the interim financial statements. The audit-related fees relate to professional services in connection with potential and other business combinations. The audit-related fees for the fiscal
year ending December 31, 2008 also include professional services in connection with our registration statement filed on Form S-4. The Audit Committee pre-approves both the type of services to be provided by the Companys principal
accounting firm and the estimated fees related to these services. The services provided by BDO Seidman, LLP were pre-approved by the Audit Committee.



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##### Table of Contents

PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

Financial Statements

Our consolidated financial statements are filed on the pages listed below, as part
of Part II, Item 8 of this report:



|                                                                                                                                                  |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                  |  | Page
|Reports of Independent Registered Public Accounting Firms                                                                                         |  | F-1 
|                                                                                                                                                  | 
|Consolidated Balance SheetsDecember 31, 2008 and December 31, 2007                                                                               |  | F-3 
|                                                                                                                                                  | 
|Consolidated Statements of OperationsYears Ended December 31, 2008, December 31, 2007, and December 
31, 2006                                    |  | F-4 
|                                                                                                                                                  | 
|Consolidated Statements of Comprehensive Income and Stockholders EquityYears Ended December 
31, 2008, December 31, 2007, and December 31, 2006 |  | F-5 
|                                                                                                                                                  | 
|Consolidated Statements of Cash FlowsYears Ended December 31, 2008, December 31, 2007, and December 
31, 2006                                    |  | F-6 
|                                                                                                                                                  | 
|Notes to Consolidated Financial Statements                                                                                                        |  | F-7 
|                                                                                                                                                  | 
|Financial Statement Schedule:                                                                                                                     |  |     
|                                                                                                                                                  | 
|IIValuation and Qualifying Accounts                                                                                                              |  | S-1 

Schedules other than those mentioned above have been omitted because they are inapplicable, or not
required, or the information is included in the financial statements or footnotes.

The following Exhibits are filed as part of this report:



|              |  |                                                                                                                                                                                                                                                                                                                                
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                                                                                                                                                    



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | 
|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)                                                                                                                                                                                       
|     | 
|9.   |  | VOTING TRUST AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     | 
|9.1  |  | Stockholder Agreement, dated as of December 30, 2005, among Southern Graphics Inc. (the Registrants parent) and the parties referred to therein, incorporated by reference to exhibit 9.1 to
the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | 
|10.  |  | MATERIAL CONTRACTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     | 
|10.1 |  | Acquisition Agreement dated as of November 11, 2005, by and among the Registrant, RMC Delaware,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | Inc., Southern Graphic Systems-Canada, Ltd., and Alcoa UK Holdings Limited, incorporated by reference to exhibit 10.1 to the Registrants registration statement on Form S-4 filed on May
5, 2006, File No. 333-133825                                                                                                                                                                                                                 
|       | 
|10.2   |  | First Amendment to the Acquisition Agreement dated as of December 30, 2005, by and among the Registrant, Project Dove Holdco, Inc., Southern Graphics Systems-Canada, Co. SGS-UK Holdings
Limited, RMC Delaware, Inc., Southern Graphic Systems-Canada, Ltd., and Alcoa UK Holdings Limited, incorporated by reference to exhibit 10.2 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
|       | 
|10.3   |  | Indenture. See Exhibit 4.3.                                                                                                                                                                                                                                                                                                                                                                                                            
|       | 
|10.4   |  | Supplemental Indenture. See Exhibit 4.6.                                                                                                                                                                                                                                                                                                                                                                                               
|       | 
|10.5   |  | Registration Rights Agreement. See Exhibit 4.7.                                                                                                                                                                                                                                                                                                                                                                                        
|       | 
|10.6   |  | Credit Agreement. See Exhibit 4.8.                                                                                                                                                                                                                                                                                                                                                                                                     
|       | 
|10.7   |  | First Amendment to Credit Agreement. See Exhibit 4.9.                                                                                                                                                                                                                                                                                                                                                                                  
|       | 
|10.8   |  | Security Agreement. See Exhibit 4.10.                                                                                                                                                                                                                                                                                                                                                                                                  
|       | 
|10.9   |  | Canadian Security Agreement. See Exhibit 4.11.                                                                                                                                                                                                                                                                                                                                                                                         
|       | 
|10.10  |  | Debenture. See Exhibit 4.12.                                                                                                                                                                                                                                                                                                                                                                                                           
|       | 
|10.11* |  | Employment Agreement, dated December 30, 2005, between the Registrant and Henry R. Baughman, incorporated by reference to exhibit 10.12 to the Registrants registration statement on Form
S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                               
|       | 
|10.12* |  | Amendment, dated as of January 15, 2006, to Employment Agreement dated December 30, 2005 between the Registrant and Henry R. Baughman, incorporated by reference to exhibit 10.13 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                     
|       | 
|10.13* |  | Supplemental Pension Agreement, dated as of April 6, 1999 between Southern Graphic Systems, Inc. and Henry R. Baughman, incorporated by reference to exhibit 10.14 to the Registrants
registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                    
|       | 
|10.14* |  | Amendment, dated as of August 9, 2006, to Employment Agreement dated December 30, 2005 between the Registrant and Henry R. Baughman, incorporated by reference to exhibit 10.5 to the
Registrants Form 10-Q Report for the quarter ended June 30, 2006, File No. 333-133825                                                                                                                                                           
|       | 
|10.15* |  | Agreement, dated as of August 9, 2006, regarding vesting of management investment, between Southern Graphics Inc. and Henry R. Baughman, incorporated by reference to exhibit 10.7 to the
Registrants Form 10-Q Report for the quarter ended June 30, 2006, File No. 333-133825                                                                                                                                                       
|       | 
|10.16* |  | Employment Agreement, dated December 30, 2005, between the Registrant and Luca C. Naccarato, incorporated by reference to exhibit 10.15 to the Registrants registration statement on Form
S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                               
|       | 
|10.17* |  | Amendment, dated as of January 15, 2006, to Employment Agreement dated December 30, 2005 between the Registrant and Luca C. Naccarato, incorporated by reference to exhibit 10.16 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                     
|       | 
|10.18* |  | Agreement, dated as of June 23, 2003, regarding reimbursement of educational expenses between the Registrant and Luca C. Naccarato, incorporated by reference to exhibit 10.17 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                        
|       | 
|10.19* |  | Amendment, dated as of August 9, 2006, to Employment Agreement dated December 30, 2005 between the Registrant and Luca C. Naccarato, incorporated by reference to exhibit 10.6 to the
Registrants Form 10-Q Report for the quarter ended June 30, 2006, File No. 333-133825                                                                                                                                                           
|       | 
|10.20* |  | Employment Agreement, dated January 27, 2006, between the Registrant and Benjamin F. Harmon, IV, incorporated by reference to exhibit 10.22 to the Registrants registration statement on
Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                           



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.21  |  | Stock Purchase Agreement, dated November 4, 2005, by and among Omnipack PLC, SGS-UK Limited, and Daniel M. Bejarano, incorporated by reference to exhibit 10.28 to the Registrants
registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                          
|       | 
|10.22  |  | Advisory Agreement between the Registrant and Court Square Advisors LLC (as assignee of CVC Management LLC) dated December 30, 2005, incorporated by reference to exhibit 10.29 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                          
|       | 
|10.23  |  | Deed of Lease dated as of April 2005 between 5301 Lewis Road, L.L.C. and Southern Graphic Systems, Inc., incorporated by reference to exhibit 10.30 to the Registrants registration
statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                      
|       | 
|10.24* |  | Stockholder Agreement. See Exhibit 9.1.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       | 
|10.25* |  | Employment Agreement, dated as of April 10, 2006, between the Registrant and James M. Dahmus, incorporated by reference to exhibit 10.32 to the Registrants registration statement on Form
S-4 filed on May 5, 2006, File No. 333-133825                                                                                                                                                                                                                                                 
|       | 
|10.26* |  | Southern Graphic Systems, Inc. Deferred Compensation Plan Effective April 1, 2006, incorporated by reference to exhibit 10.1 to the Registrants Form 10-Q Report for the quarter ended June
30, 2006, File No. 333-133825                                                                                                                                                                                                                                                                
|       | 
|10.27* |  | Southern Graphics Inc. Stock Incentive Plan, incorporated by reference to exhibit 10.2 to the Registrants Form 10-Q Report for the quarter ended June 30, 2006, File No.
333-133825                                                                                                                                                                                                                                                                                                      
|       | 
|10.28* |  | Form of Stock Option Agreement for Southern Graphics Inc. Stock Incentive Plan (included in Exhibit 10.27)                                                                                                                                                                                                                                                                                                                                                                                
|       | 
|10.29* |  | Form of Subscription Agreement for Southern Graphics Inc. Stock Incentive Plan (included in Exhibit 10.27)                                                                                                                                                                                                                                                                                                                                                                                
|       | 
|10.30* |  | SGS International, Inc. Management Incentive Plan - 2006, incorporated by reference to exhibit 10.1 to the Registrants Form 10-Q Report for the quarter ended June 30, 2006, File No.
333-133825                                                                                                                                                                                                                                                                                         
|       | 
|10.31* |  | Undertaking Agreement, dated February 20, 2007, by and between the Registrant and Marriott W. Winchester, Jr., incorporated by reference to exhibit 99.1 to the Registrants Form 8-K dated
February 20, 2007, filed February 26, 2007, File No. 333-133825                                                                                                                                                                                                                               
|       | 
|10.32* |  | Amendment No. 1 dated as of January 2, 2008 to the Undertaking Agreement dated February 20, 2007 between the Registrant and Marriott W. Winchester, Jr., incorporated by reference to exhibit 10.1
to the Registrants Form 8-K dated December 27, 2007, filed January 3, 2008, File No. 333-133825                                                                                                                                                                                       
|       | 
|10.33  |  | Asset Purchase Agreement dated as of February 28, 2007, between C. M. Jackson Associates, Inc. and Southern Graphic Systems, Inc., incorporated by reference to Exhibit 10.32 of the
Registrants Annual Report on Form 10-K for the year ended December 31, 2006, filed April 13, 2007, File No. 333-133825                                                                                                                                                                              
|       | 
|10.34  |  | Share Sale and Purchase Agreement dated April 2, 2007 among (1) McGurk Group Limited, Mr. P.J. Fraine, Ms J.K. Martindale, Ms A.J. Crisp and (2) SGS Packaging Europe Holdings Limited and (3) Mr.
P.E. McGurk, Mr. L. McGurk, Ms. A.L. Austin, Mr. J.R. McCarthy and (4) Mr. P.E. McGurk and (5) the Registrant incorporated by reference to Exhibit 10.3 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
|       | 
|10.35  |  | Share Sale and Purchase Agreement dated April 2, 2007 among (1) Mr. P.E. McGurk, Mr. L. McGurk, Ms. A.L. Austin, Mr. J.R. McCarthy and (2) SGS Packaging Europe Holdings Limited and (3) McGurk
Group Limited, Mr. P.J. Fraine, Ms J.K. Martindale, Ms A.J. Crisp and (4) Mr. P.E. McGurk and (5) the Registrant incorporated by reference to Exhibit 10.4 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



54



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|       |  |                                                                                                                                                                                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.36  |  | Share Purchase Agreement, dated as of January 2, 2008, between Southern Graphic Systems-Canada, Co., Janko Herak, Adrianne Herak, Adrianne Herak Trust and C.J.K. Photo Engravers Limited,
incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K dated December 27, 2007, filed January 3, 2008, File No. 333-133825
|       | 
|10.37* |  | First Amendment of the Southern Graphic Systems, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.37 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2007, filed March 20, 2008, File No. 333-133825                                                                          
|       | 
|10.38* |  | Second Amendment of the Southern Graphic Systems, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K dated February 10, 2009, filed
February 13, 2009, File No. 333-133825                                                                                                      
|       | 
|10.39* |  | Amendment, dated as of March 12, 2009, to Employment Agreement dated December 30, 2005 between the Registrant and Henry R. Baughman                                                                                                                                                                                                  
|       | 
|10.40* |  | Amendment, dated as of March 12, 2009, to Employment Agreement dated as of April 10, 2006 between the Registrant and James M. Dahmus                                                                                                                                                                                                 
|       | 
|21     |  | SUBSIDIARIES                                                                                                                                                                                                                                                                                                                         
|       | 
|21.1   |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                       
|       | 
|24.    |  | POWERS OF ATTORNEY                                                                                                                                                                                                                                                                                                                   
|       | 
|24.1   |  | Powers of Attorney                                                                                                                                                                                                                                                                                                                   
|       | 
|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                                                                                                                                                    



|* | Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.
|- | ----------------------------------------------------------------------------------------------------------------------------------



55



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.



|                     |  |                         |  |                                                
|-------------------- |  | ----------------------- |  | -----------------------------------------------
|Date: March 12, 2009 |  | SGS INTERNATIONAL, INC.
|                     |  |                        
|                     |  | By:                     |  | /s/ HENRY R. BAUGHMAN                          
|                     |  | Name:                   |  | Henry R. Baughman                              
|                     |  | Title:                  |  | President, Chief Executive Officer and Director

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



|                      |  |                                                   |  |                |  |               
|--------------------- |  | ------------------------------------------------- |  | -------------- |  | --------------
|Signature             |  | Title                                             |  | Date          
|                      |  |                                                  
|/s/ HENRY R. BAUGHMAN |  | President, Chief Executive Officer and Director   |  | March 12, 2009
|Henry R. Baughman     |  | (Principal Executive Officer)                     |  |               
|                      |  |                                                  
|/s/ James M. Dahmus   |  | Senior Vice President and Chief Financial Officer |  | March 12, 2009
|James M. Dahmus       |  | (Principal Financial and Accounting Officer)      |  |               
|                      |  |                                                  
|*                     |  | Director                                          |  | March 12, 2009
|Joseph M. Silvestri   |  |                                                   |  |               
|                      |  |                                                  
|*                     |  | Director                                          |  | March 12, 2009
|John P. Civantos      |  |                                                   |  |               
|                      |  |                                                  
|*                     |  | Director                                          |  | March 12, 2009
|Thomas L. Hammond     |  |                                                   |  |               
|                      |  |                                                   | 
|*By:                  |  | /s/ BENJAMIN F. HARMON, IV                        |  |                |  | March 12, 2009
|                      |  | Benjamin F. Harmon, IV                            |  |                |  |               
|                      |  | Attorney-in-Fact                                  |  |                |  |               



56



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Report of Independent Registered Public Accounting Firm

To the Stockholder and Board of Directors of

SGS International, Inc.:

In our opinion, the accompanying consolidated statement of operations, comprehensive income and stockholders equity and cash flows present fairly, in
all material respects, the results of operations and cash flows of SGS International, Inc. and its subsidiaries for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the index under Item 15 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on
our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

April 11, 2007

Except for Note U, for which the date is March 19, 2008

Louisville, Kentucky



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholder

SGS International, Inc.

Louisville, Kentucky

We have audited the accompanying consolidated balance
sheets of SGS International, Inc. and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of operations, comprehensive income and stockholders equity, and cash flows for the years then ended. In
connection with our audits of the financial statements, we have also audited the 2008 and 2007 financial statement schedule listed in the index under Item 15. These financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the financial position of SGS International, Inc. and subsidiaries at December 31, 2008 and 2007, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the 2008 and
2007 financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



|                    
|--------------------
|/s/ BDO Seidman, LLP
|                    
|Nashville, Tennessee
|                    
|March 11, 2009      



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2008 and December 31, 2007

(in thousands of dollars, except share data)







|                                                                                                           |  |                   |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                           |  | December 31, 2008 |         |   | December 31, 2007 |  
|ASSETS                                                                                                     |  |                   |         |   |                   |   |         |  
|Current assets:                                                                                            |  |                   |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                  |  | $                 | 10,766  |   |                   | $ | 34,467  |  
|Receivables from customers, less allowances of $1,327 and $830 at December 31, 2008 and 2007, respectively |  |                   | 56,302  |   |                   |   | 61,142  |  
|Inventories                                                                                                |  |                   | 9,064   |   |                   |   | 7,718   |  
|Deferred income taxes                                                                                      |  |                   | 699     |   |                   |   | 575     |  
|Prepaid expenses and other current assets                                                                  |  |                   | 3,780   |   |                   |   | 11,039  |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total current assets                                                                                       |  |                   | 80,611  |   |                   |   | 114,941 |  
|                                                                                                           |  |                  
|Properties, plants and equipment, net                                                                      |  |                   | 46,186  |   |                   |   | 53,368  |  
|Goodwill                                                                                                   |  |                   | 172,618 |   |                   |   | 175,933 |  
|Other intangible assets, net                                                                               |  |                   | 169,214 |   |                   |   | 176,233 |  
|Deferred financing costs, net                                                                              |  |                   | 7,100   |   |                   |   | 8,848   |  
|Other assets                                                                                               |  |                   | 384     |   |                   |   | 883     |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|TOTAL ASSETS                                                                                               |  | $                 | 476,113 |   |                   | $ | 530,206 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|                                                                                                           |  |                  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                       |  |                   |         |   |                   |   |         |  
|                                                                                                           |  |                  
|Current liabilities:                                                                                       |  |                   |         |   |                   |   |         |  
|Accounts payable, trade                                                                                    |  | $                 | 14,536  |   |                   | $ | 22,346  |  
|Accrued compensation                                                                                       |  |                   | 5,920   |   |                   |   | 7,928   |  
|Accrued taxes, including taxes on income                                                                   |  |                   | 1,501   |   |                   |   | 2,397   |  
|Accrued interest                                                                                           |  |                   | 1,018   |   |                   |   | 1,048   |  
|Other current liabilities                                                                                  |  |                   | 9,792   |   |                   |   | 7,101   |  
|Current portion of short-term and long-term obligations                                                    |  |                   | 1,089   |   |                   |   | 2,226   |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total current liabilities                                                                                  |  |                   | 33,856  |   |                   |   | 43,046  |  
|                                                                                                           |  |                  
|Long-term obligations, net of current portion                                                              |  |                   | 344,611 |   |                   |   | 360,859 |  
|Non-current liabilities                                                                                    |  |                   | 204     |   |                   |   | 1,398   |  
|Deferred income taxes                                                                                      |  |                   | 7,926   |   |                   |   | 5,693   |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total liabilities                                                                                          |  |                   | 386,597 |   |                   |   | 410,996 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|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               |  |                   | (14,739 | ) |                   |   | 13,509  |  
|Accumulated deficit                                                                                        |  |                   | (2,745  | ) |                   |   | (1,299  | )
|                                                                                                           |  |                   |         |   |                   |   |         |  
|Total stockholders equity                                                                                 |  |                   | 89,516  |   |                   |   | 119,210 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                 |  | $                 | 476,113 |   |                   | $ | 530,206 |  
|                                                                                                           |  |                   |         |   |                   |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



F-3



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Consolidated Statements of Operations

Years Ended
December 31, 2008, December 31, 2007, and December 31, 2006

(in thousands of dollars)







|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -------------------------- |  | - | ------- | -
|                                                                                               |  | Year EndedDecember 31,2008 |         |   | Year EndedDecember 31,2007 |   |         | Year EndedDecember 31,2006 | 
|NET SALES                                                                                      |  | $                          | 323,518 |   |                            | $ | 308,809 |                            |  | $ | 276,276 |  
|COSTS OF OPERATIONS:                                                                           |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Cost of goods sold (exclusive of depreciation)                                                 |  |                            | 212,295 |   |                            |   | 205,132 |                            |  |   | 180,512 |  
|Selling, general, and administrative expenses                                                  |  |                            | 49,599  |   |                            |   | 46,555  |                            |  |   | 37,913  |  
|Depreciation and amortization                                                                  |  |                            | 28,659  |   |                            |   | 23,689  |                            |  |   | 20,061  |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|INCOME FROM OPERATIONS                                                                         |  |                            | 32,965  |   |                            |   | 33,433  |                            |  |   | 37,790  |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|NON-OPERATING EXPENSES:                                                                        |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Interest expense                                                                               |  |                            | 36,545  |   |                            |   | 36,929  |                            |  |   | 35,012  |  
|Other expense (income), net                                                                    |  |                            | (2,149  | ) |                            |   | 497     |                            |  |   | 225     |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|INCOME FROM (LOSS ON) CONTINUING OPERATIONS                                                    |  |                            |         |   |                            |   |         |                            |  |   |         |  
|BEFORE INCOME TAXES                                                                            |  |                            | (1,431  | ) |                            |   | (3,993  | )                          |  |   | 2,553   |  
|PROVISION (BENEFIT) FOR INCOME TAXES                                                           |  |                            | 15      |   |                            |   | (1,182  | )                          |  |   | 1,345   |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                                                                                               |  |                            |        
|INCOME FROM (LOSS ON) CONTINUING OPERATIONS                                                    |  |                            | (1,446  | ) |                            |   | (2,811  | )                          |  |   | 1,208   |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|INCOME FROM (LOSS ON) DISCONTINUED OPERATIONS (including gain on disposal of $935 during 2007) |  |                            |        |   |                            |   | 842     |                            |  |   | (480    | )
|PROVISION (BENEFIT) FOR INCOME TAXES ON DISCONTINUED OPERATIONS                                |  |                            |        |   |                            |   | 170     |                            |  |   | (197    | )
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|NET INCOME (LOSS)                                                                              |  | $                          | (1,446  | ) |                            | $ | (2,139  | )                          |  | $ | 925     |  
|                                                                                               |  |                            |         |   |                            |   |         |                            |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



F-4



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income and Stockholders Equity

Years Ended December 31, 2008, December 31, 2007, and December 31, 2006

(in thousands of dollars)







|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|---------------------------------- |  | -------------------------- | ------- | - | ----------- | - | ----------------- |  | ------------------------------------ | ------- |  | ------------------------------------------ | ------ | - | ------------------------ | - | ------- | - |  | - | ------- | -
|                                   |  | ComprehensiveIncome (Loss) |         |   | CommonStock |   | AdditionalCapital |  | RetainedEarnings(AccumulatedDeficit) |         |  | AccumulatedOtherComprehensiveIncome (Loss) |        |   | TotalStockholdersEquity |  
|Balance at December 31, 2005       |  |                            |         |   |             | $ |                  |  | $                                    | 107,000 |  | $                                          | (85    | ) |                          | $ |        |   |  | $ | 106,915 |  
|                                   |  |                            |         |   |             |  
|Comprehensive income:              |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Net income                         |  | $                          | 925     |   |             |   |                  |  |                                      |        |  |                                            | 925    |   |                          |   |        |   |  |   | 925     |  
|Unrealized translation adjustments |  |                            | 2,431   |   |             |   |                  |  |                                      |        |  |                                            |       |   |                          |   | 2,431   |   |  |   | 2,431   |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Comprehensive income               |  | $                          | 3,356   |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Balance at December 31, 2006       |  |                            |         |   |             |   |                  |  |                                      | 107,000 |  |                                            | 840    |   |                          |   | 2,431   |   |  |   | 110,271 |  
|                                   |  |                            |         |   |             |  
|Comprehensive income:              |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Net loss                           |  | $                          | (2,139  | ) |             |   |                  |  |                                      |        |  |                                            | (2,139 | ) |                          |   |        |   |  |   | (2,139  | )
|Unrealized translation adjustments |  |                            | 11,078  |   |             |   |                  |  |                                      |        |  |                                            |       |   |                          |   | 11,078  |   |  |   | 11,078  |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Comprehensive income               |  | $                          | 8,939   |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Balance at December 31, 2007       |  |                            |         |   |             |   |                  |  |                                      | 107,000 |  |                                            | (1,299 | ) |                          |   | 13,509  |   |  |   | 119,210 |  
|                                   |  |                            |         |   |             |  
|Comprehensive loss:                |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Net loss                           |  | $                          | (1,446  | ) |             |   |                  |  |                                      |        |  |                                            | (1,446 | ) |                          |   |        |   |  |   | (1,446  | )
|Unrealized translation adjustments |  |                            | (28,248 | ) |             |   |                  |  |                                      |        |  |                                            |       |   |                          |   | (28,248 | ) |  |   | (28,248 | )
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Comprehensive loss                 |  | $                          | (29,694 | ) |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  
|                                   |  |                            |         |   |             |  
|Balance at December 31, 2008       |  |                            |         |   |             | $ |                  |  | $                                    | 107,000 |  | $                                          | (2,745 | ) |                          | $ | (14,739 | ) |  | $ | 89,516  |  
|                                   |  |                            |         |   |             |   |                   |  |                                      |         |  |                                            |        |   |                          |   |         |   |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended
December 31, 2008, December 31, 2007, and December 31, 2006

(in thousands of dollars)







|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|---------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -------------------------- |  | - | ------- | -
|                                                                                                     |  | Year EndedDecember 31,2008 |         |   | Year EndedDecember 31,2007 |   |         | Year EndedDecember 31,2006 | 
|Cash from Operations                                                                                 |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Net income (loss)                                                                                    |  | $                          | (1,446  | ) |                            | $ | (2,139  | )                          |  | $ | 925     |  
|Adjustments to reconcile net income (loss) to cash from operations:                                  |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Depreciation and amortization                                                                        |  |                            | 28,659  |   |                            |   | 23,761  |                            |  |   | 20,507  |  
|Amortization of deferred financing fees                                                              |  |                            | 1,865   |   |                            |   | 1,393   |                            |  |   | 1,226   |  
|Foreign currency (gain) loss on senior secured term loan                                             |  |                            | (2,955  | ) |                            |   | 215     |                            |  |   | 1,384   |  
|Change in deferred income taxes                                                                      |  |                            | (939    | ) |                            |   | (1,174  | )                          |  |   | 754     |  
|Loss on disposal of assets                                                                           |  |                            | 794     |   |                            |   | 816     |                            |  |   |        |  
|Gain on divestiture of business                                                                      |  |                            |        |   |                            |   | (935    | )                          |  |   |        |  
|Increase (decrease) in cash due to changes in operating assets and liabilities, net of acquisitions: |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Receivables                                                                                          |  |                            | 4,158   |   |                            |   | (804    | )                          |  |   | (277    | )
|Inventories                                                                                          |  |                            | (1,078  | ) |                            |   | (1,254  | )                          |  |   | (1,146  | )
|Prepaid expenses and other current assets                                                            |  |                            | 7,115   |   |                            |   | (2,632  | )                          |  |   | (122    | )
|Accounts payable and accrued expenses                                                                |  |                            | (6,631  | ) |                            |   | 5,833   |                            |  |   | (2,382  | )
|Taxes, including taxes on income                                                                     |  |                            | (826    | ) |                            |   | 89      |                            |  |   | (486    | )
|Noncurrent assets and liabilities                                                                    |  |                            | (1,438  | ) |                            |   | 641     |                            |  |   | (181    | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Cash provided by operations                                                                          |  |                            | 27,278  |   |                            |   | 23,810  |                            |  |   | 20,202  |  
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                                                                                                     |  |                            |        
|Investing Activities                                                                                 |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Capital expenditures                                                                                 |  |                            | (12,731 | ) |                            |   | (11,108 | )                          |  |   | (8,650  | )
|Proceeds from sale of assets                                                                         |  |                            | 766     |   |                            |   |        |                            |  |   | 2,060   |  
|Proceeds from divestiture of business, net of cash divested                                          |  |                            |        |   |                            |   | 628     |                            |  |   |        |  
|Business acquisitions, net of cash acquired                                                          |  |                            | (26,972 | ) |                            |   | (29,262 | )                          |  |   | (4,424  | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Cash used in investing activities                                                                    |  |                            | (38,937 | ) |                            |   | (39,742 | )                          |  |   | (11,014 | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                                                                                                     |  |                            |        
|Financing Activities                                                                                 |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Borrowings on acquisition facility                                                                   |  |                            |        |   |                            |   | 40,000  |                            |  |   |        |  
|Deferred financing fees                                                                              |  |                            | (117    | ) |                            |   | (65     | )                          |  |   | (218    | )
|Net changes in short-term borrowings                                                                 |  |                            |        |   |                            |   |        |                            |  |   | 1,600   |  
|Payments on senior term loan and acquisition facility                                                |  |                            | (9,523  | ) |                            |   | (1,454  | )                          |  |   | (1,202  | )
|Payments on other long-term debt                                                                     |  |                            | (697    | ) |                            |   | (2,060  | )                          |  |   | (672    | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Cash (used in) provided by financing activities                                                      |  |                            | (10,337 | ) |                            |   | 36,421  |                            |  |   | (492    | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                                                                                                     |  |                            |        
|Effect of exchange rate changes on cash                                                              |  |                            | (1,705  | ) |                            |   | 1,320   |                            |  |   | (119    | )
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|                                                                                                     |  |                            |        
|Net change in cash and cash equivalents                                                              |  |                            | (23,701 | ) |                            |   | 21,809  |                            |  |   | 8,577   |  
|                                                                                                     |  |                            |        
|Cash and cash equivalents at beginning of period                                                     |  |                            | 34,467  |   |                            |   | 12,658  |                            |  |   | 4,081   |  
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Cash and cash equivalents at end of period                                                           |  | $                          | 10,766  |   |                            | $ | 34,467  |                            |  | $ | 12,658  |  
|                                                                                                     |  |                            |         |   |                            |   |         |                            |  |   |         |  

The accompanying notes are an integral part of the consolidated financial statements.



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2008, December 31, 2007, and December 31, 2006

(Dollars in thousands,
except per share amounts and where otherwise noted)







|A. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

General Nature of Business

SGS International, Inc. (the Company), 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 38 locations in the United States, Canada, Mexico, the United Kingdom, the Netherlands, and Hong Kong.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of SGS International, Inc., 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 and SGS Packaging Netherlands B.V. These subsidiaries also include Mozaic Group, Ltd. (Mozaic) through February 28, 2007, McGurk Studios Limited and Thames McGurk Limited since April 2, 2007, SGS Asia Pacific Limited
since July 11, 2007, 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flexart Design Inc. from January 1, 2008, and Backwell Design Inc. and Gemini Graphic Imaging Inc. since May 2,
2008.

On October 1, 2008, 1043497 Ontario Limited, Cooper & Williamson, Inc., Tri-Ad Graphic Communications Ltd. and Flexart
Design Inc. were amalgamated as a single company named Tri-Ad Graphic Communications Ltd. Immediately following the amalgamation, Tri-Ad Graphic Communications Ltd. transferred all of its assets and liabilities to Southern Graphic Systems-Canada,
Co. and was subsequently dissolved. On December 31, 2008, Backwell Design Inc. and Gemini Graphic Imaging Inc. transferred all of their assets and liabilities to Southern Graphic Systems-Canada, Co.

On February 28, 2007, the Company sold its controlling interest in Mozaic to a third party. The Company has retained a 10% interest in Mozaic. The
accompanying consolidated balance sheets do not include the accounts of Mozaic, but include our investment in Mozaic recorded at cost, adjusted for impairment. The carrying value of our investment in Mozaic is zero at December 31, 2008 and
December 31, 2007. The historical results of Mozaic are presented as discontinued operations in the accompanying consolidated statement of operations.

The following table represents the major classes of assets and liabilities as of the date of the disposal of Mozaic:



|                        |  |   |      
|----------------------- |  | - | -----
|Current assets          |  | $ | 3,120
|Non-current assets      |  | $ | 812  
|                        | 
|Current liabilities     |  | $ | 4,209
|Non-current liabilities |  | $ | 288  

Below are the amounts of revenue and pre-tax profit (loss) reported from the discontinued
operations of Mozaic. The pre-tax profit of $842 for the year ended December 31, 2007 includes a gain on the sale of Mozaic of $935. Net of this gain on sale, the pre-tax loss is ($93).



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##### Table of Contents

|                      |  |                            |       |                            |   |        |  
|--------------------- |  | -------------------------- | ----- | -------------------------- | - | ------ | -
|                      |  | Year EndedDecember 31,2007 |       | Year EndedDecember 31,2006 |  
|Revenues              |  | $                          | 2,406 |                            | $ | 13,798 |  
|Pre-tax profit (loss) |  | $                          | 842   |                            | $ | (480   | )

Use of Estimates

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and require
management to make certain estimates and assumptions. These assumptions 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.

Cash and Cash Equivalents

Cash and cash equivalents include all short-term, highly liquid investments that are readily convertible to known amounts of cash and have original
maturities of three months or less.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Companys best
estimate of the amount of probable credit losses in our existing accounts receivable. The Company determines the allowance based on specifically identified probable credit losses and historical write-off experience. Account balances are charged off
against the allowance when it is probable the receivable will not be recovered. In addition, the Company maintains allowances for customer claims due to rejected services, billing errors, disputed amounts, and other items, which result in credit
memos charged to net sales. The Company determines the allowance for claims based on historical experience and specific notification of pending claims. The Company does not have any off-balance-sheet credit exposure related to its customers.

Properties, Plants and Equipment

Properties, plants and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets, averaging 20 years for structures,
between 3 and 10 years for machinery and equipment, and 3 years for software. The provision for depreciation also includes depreciation on assets under capital lease arrangements. Properties, plants and equipment are evaluated for impairment when
indicators of impairment exist. Gains or (losses) from the sale of assets of ($795), ($701), and $37 are included in other income for the years ended December 31, 2008, 2007 and 2006, respectively. Repairs and maintenance are charged to expense
as incurred.

Capitalized software costs are included in properties, plants and equipment. We record software development costs in
accordance with the American Institute of Certified Public Accountants Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.Capitalized costs include internal labor costs and
external costs of materials and services during application development. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as incurred.



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##### Table of Contents

Goodwill and Other Intangible Assets

The Company has goodwill and other intangible assets, most notably customer relationships. Goodwill represents the excess of costs over the fair values of
net assets of businesses acquired. Customer relationships are amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of approximately 20 years. Intangible assets with finite useful lives are
amortized generally on a straight-line basis over the periods benefited, with a weighted average useful life of 20 years. Pursuant to Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
(SFAS No. 142) goodwill is not amortized, but instead is tested for impairment at least annually in accordance with the provisions of SFAS No. 142. The Company performs the annual test for impairment during the fourth quarter. The
impairment test compares the carrying amount of the reporting unit to the fair value of the reporting unit. The Company has one reporting unit. The impairment tests in 2008, 2007, and 2006 supported the carrying value of goodwill, and as such, no
write-downs in the carrying value of goodwill were recorded.

Impairments of Other Intangible Assets and Long-Lived Assets

Other intangible assets and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No. 144).Recoverability of assets in accordance with SFAS
No. 144 compares the projected undiscounted future cash flows from use and disposition of assets to the carrying amounts of those assets. When the sum of projected undiscounted cash flows is less than the carrying amount, impairment losses are
recognized. In determining such impairment losses, discounted cash flows are utilized to determine the fair value of the assets being evaluated. The Company has not recorded impairment losses on other intangible assets or long-lived assets in the
consolidated financial statements for 2008, 2007, or 2006.

Deferred Financing Costs

Deferred financing costs reflect costs incurred in connection with obtaining the financing for the Acquisition and the registration of the senior
subordinated notes. Deferred financing costs are primarily amortized (included in interest expense) using the effective interest method, over the life of the related debt. The amortization of deferred financing costs was $1,865, $1,394 and $1,226
for the years ended December 31, 2008, 2007, and 2006, respectively. During 2008, the Company accelerated the amortization of deferred financing costs related to an optional principal repayment on the senior term loan and a reduction of
available borrowings on the revolving credit facility.

Accrued Health and Welfare Benefits

The Company is partially self-insured for health and welfare benefits since April 1, 2006. Our liability is limited by stop-loss insurance coverage
provided by a third party. The accrual for health and welfare benefits is the Companys best estimate of health and welfare costs incurred but not paid as of the balance sheet date. The Company estimates the liability for claims incurred by
applying a lag factor to historical claims experience. As of December 31, 2008 and 2007, the Company had accrued $731 and $677, respectively, within other current liabilities for accrued health and welfare benefits.

Revenue Recognition

The Company
recognizes revenue when title, ownership, and risk of loss pass to the customer in accordance with the provisions of Staff Accounting Bulletin No. 104, Revenue Recognition. Revenues are recorded net of allowances for customer rebates and
cash discounts. The Company records revenue in the period when shipped because all of the requirements of SAB No. 104 have been met and the price can be reasonably estimated based on the services performed, historical experience and customer
information.

The majority of the Companys revenue is from the sale of prepress services and image carriers for the printing industry.
The deliverables for prepress services consist of electronic image files for which the Company recognizes revenue when the electronic file is delivered to the customer. The deliverable for image carriers consists of the engravings on gravure
cylinders and flexographic printing plates for which the Company recognizes revenue when the deliverable is shipped and risk of loss has passed to the customer.



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##### Table of Contents

Inventories and Cost of Goods Sold

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



|                |  |                  |       |                  |   |      
|--------------- |  | ---------------- | ----- | ---------------- | - | -----
|                |  | December 31,2008 |       | December 31,2007
|Raw materials   |  | $                | 2,949 |                  | $ | 2,709
|Work-in-process |  |                  | 6,115 |                  |   | 5,009
|                |  |                  |       |                  |   |      
|                |  | $                | 9,064 |                  | $ | 7,718
|                |  |                  |       |                  |   |      

Rebates

The Company receives rebates from certain vendors. The Company records these rebates as a reduction of cost of goods sold in accordance with Emerging Issues Task Force (EITF) 02-16, Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor. Receivables for vendor rebates are included as a component of prepaid expenses and other current assets.

The Company also grants rebates to certain customers. The Company records these rebates as a reduction of sales in accordance with EITF 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products). Liabilities for customer rebates are included as a component of other current liabilities.

Shipping and Handling Costs

Effective January 1, 2007, the Company included amounts invoiced to customers for shipping and handling costs as a component of net sales. Net sales included $5,254 and $4,321 for amounts invoiced to customers for shipping and handling
costs for the years ended December 31, 2008 and December 31, 2007, respectively. Prior to January 1, 2007, amounts invoiced to customers for shipping and handling costs were netted against the actual cost incurred and reflected as a
reduction in cost of sales. Amounts prior to January 1, 2007 were not material.

Income Taxes

The provision for income taxes is determined using the asset and liability approach of accounting for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents
income taxes paid or payable for the current year, plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Companys assets and liabilities and are adjusted for
changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce the deferred tax assets when it is more likely than not that a tax benefit will not be realized. Amounts payable for non-U.S. income taxes are
reflected in accrued income taxes payable.

In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), the Company recognizes interest and penalties related to uncertain tax positions in income tax expense. There were no such amounts
recognized for the years ended December 31, 2008 or December 31, 2007.

Tax returns filed for the year ended December 31,
2007, the year ended December 31, 2006 and for the one-day ended December 31, 2005 are currently still subject to examination by taxing authorities.



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##### Table of Contents

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which requires the measurement and
recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.

On
July 25, 2006, the Board of Directors of Southern Graphics Inc. (the parent of SGS International, Inc.) adopted the Southern Graphics Inc. Stock Incentive Plan. The total shares available for grant under the Southern Graphics Inc. Stock
Incentive Plan are not to exceed 31,000 shares. Also on July 25, 2006, Southern Graphics Inc. granted options to certain employees of SGS International, Inc. and its subsidiaries to acquire an aggregate of 7,300 shares of Southern Graphics Inc.
Class A Common Stock. On February 20, 2007 Southern Graphics Inc. granted options to an employee of SGS International, Inc. and its subsidiaries to acquire an aggregate of 1,500 shares of Southern Graphics Inc. On January 3, 2008
Southern Graphics Inc. granted options to an employee of SGS International, Inc. and its subsidiaries to acquire an aggregate of 1,500 shares of Southern Graphics Inc.

Stock option features based on the date of original grant are as follows:



|                       |  |                                                                               |  |          |  |                                                                                                
|---------------------- |  | ----------------------------------------------------------------------------- |  | -------- |  | -----------------------------------------------------------------------------------------------
|Date of Original Grant |  | Vesting                                                                       |  | Term     |  | Exercise Price                                                                                 
|July 25, 2006          |  | 20% each year, beginning on December 31, 2006 and ending on December 31, 2010 |  | 10 years |  | $161 at grant date; declines semi-annually until exercise price reaches $113 on July 1, 2010   
|                       |  |                                                                               | 
|February 20, 2007      |  | 20% each year, beginning on March 31, 2008 and ending on February 20, 2012    |  | 10 years |  | $161 at grant date; declines semi-annually until exercise price reaches $113 on August 21, 2011
|                       |  |                                                                               | 
|January 3, 2008        |  | 20% each year, beginning on January 3, 2009 and ending on January 3, 2013     |  | 10 years |  | $161 at grant date; declines semi-annually until exercise price reaches $113 on July 4, 2012   

The options above are the only options granted by Southern Graphics Inc. or SGS International,
Inc., as of December 31, 2008. During the year ended December 31, 2007, a former employee of SGS International, Inc. and its subsidiaries forfeited 1,200 of the options granted on July 25, 2006.

Compensation expense for share-based awards granted is based on the grant date fair value estimated in accordance with the provisions of SFAS 123R and
determined using the straight-line expense attribution method. The fair value of share-based awards is determined using the Black-Scholes option pricing model. The Company recorded less than $0.1 of compensation expense for share-based awards for
the each of the years ended December 31, 2008, 2007 and 2006.

The primary assumptions utilized in the Black-Scholes option pricing
model are as follows:



|                         |  |                              |   |  |                                |   |  |                            |  
|------------------------ |  | ---------------------------- | - |  | ------------------------------ | - |  | -------------------------- | -
|                         |  | Grant Date ofJanuary 3, 2008 |   |  | Grant Date ofFebruary 20, 2007 |   |  | Grant Date ofJuly 25, 2006 |  
|Stock price volatility   |  | 29.8                         | % |  | 28.0                           | % |  | 27.9                       | %
|Dividend yield           |  | 0.0                          | % |  | 0.0                            | % |  | 0.0                        | %
|Risk-free interest rate  |  | 3.9                          | % |  | 4.7                            | % |  | 5.0                        | %
|Expected life of options |  | 10 years                     |   |  | 10 years                       |   |  | 10 years                   |  
|Derived service period   |  | 10 years                     |   |  | 10 years                       |   |  | 10 years                   |  



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##### Table of Contents

The stock price volatility utilized above was determined using historical data for companies in SGS
International, Inc.s industry as there is not an established market for the Companys stock.

The risk-free interest rate
utilized above was based on the rate of United States Treasury Bonds with a remaining term approximately equal to the expected term of the options being valued.

The derived service period of the options was determined using a risk-neutral option pricing simulation model.

The fair value of options granted during the years ended December 31, 2008, 2007 and 2006 was $0.09 per option, $0.07 per option, and $0.07 per option, respectively.

As of December 31, 2008 and 2007, there was $0.1 of total unrecognized compensation cost related to nonvested options outstanding. That cost is
expected to be recognized over 10 years with an annual charge of less than $0.1.

Foreign Currency

The local currency is the functional currency for locations in Canada, Mexico, the United Kingdom, the Netherlands and Hong Kong. In accordance with SFAS
No. 52, Foreign Currency Translation, assets and liabilities of those operations denominated in foreign currencies are translated into U.S. dollars using period-end exchange rates, and income and expenses are translated using average
exchange rates for the reporting period. Gains or losses from the translation are recorded as currency translation adjustment in other comprehensive income. Gains or losses resulting from transactions denominated in foreign currencies are included
in other income or expense, within the consolidated statements of income. In 2008, 2007, and 2006, transaction gains (losses) recognized in the statement of operations due to exchange rate changes were $2,364, ($1,141), and ($1,332), respectively.
We also have certain intercompany loans that are deemed to be permanently reinvested. Transaction gains and losses on these intercompany loans are charged to cumulative translation adjustment in other comprehensive income.

Recently Issued and Adopted Accounting Standards

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations(SFAS 141(R)). SFAS 141(R) requires an acquirer to measure the identifiable
assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS 141(R) is effective for
acquisitions completed in fiscal years beginning after December 15, 2008. The effect the adoption of SFAS 141(R) will have on the Companys financial statements will depend on the nature and size of acquisitions completed after the Company
adopts SFAS 141(R).

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests
in Consolidated Financial StatementsAn Amendment of ARB No. 51, (SFAS 160). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 160 will not have an impact on the Companys consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles(SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. SFAS 162 is effective beginning November 15, 2008. The adoption
of SFAS 162 will not have an impact on the Companys consolidated financial statements.

On January 1, 2008, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115, (SFAS 159). SFAS 159 permits entities to
measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of
SFAS 159 did not have an impact on the Companys consolidated financial statements as the Company did not elect to measure any additional financial assets or financial liabilities at fair value outside the scope of Statement of Financial
Accounting Standards No. 157, Fair Value Measurements(SFAS 157).



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##### Table of Contents

On January 1, 2008, the Company adopted the provisions of SFAS 157, as further discussed in Note O.



|B. | Nature of Operations
|-- | --------------------

The Company operates in a
single reportable segment whose service offerings include package design, prepress, imaging and managing the entire graphics development cycle for customers in a broad spectrum of industries. There were no customers that comprised in excess of 10%
of total revenues in 2008, 2007, or 2006.

The following summarizes the concentrations of sales and long-lived assets by major geographic
region. Sales are attributed to the geographic region based on the point of origin of the sale.



|               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|-------------- |  | -------------------------- | ------- | - | -------------------------- | - | ------- | -------------------------- |  | - | ------- | -
|               |  | Year EndedDecember 31,2008 |         |   | Year EndedDecember 31,2007 |   |         | Year EndedDecember 31,2006 | 
|Net sales      |  |                            |         |   |                            |   |         |                            |  |   |         |  
|United States  |  | $                          | 223,330 |   |                            | $ | 221,426 |                            |  | $ | 216,835 |  
|Canada         |  |                            | 57,795  |   |                            |   | 42,582  |                            |  |   | 40,853  |  
|United Kingdom |  |                            | 43,966  |   |                            |   | 44,576  |                            |  |   | 23,867  |  
|Other          |  |                            | 9,737   |   |                            |   | 6,423   |                            |  |   | 1,881   |  
|Eliminations   |  |                            | (11,310 | ) |                            |   | (6,198  | )                          |  |   | (7,160  | )
|               |  |                            |         |   |                            |   |         |                            |  |   |         |  
|Total sales    |  | $                          | 323,518 |   |                            | $ | 308,809 |                            |  | $ | 276,276 |  
|               |  |                            |         |   |                            |   |         |                            |  |   |         |  



|                        |  |                  |         |                  |   |        
|----------------------- |  | ---------------- | ------- | ---------------- | - | -------
|                        |  | December 31,2008 |         | December 31,2007
|Long-lived assets       |  |                  |         |                  |   |        
|United States           |  | $                | 291,638 |                  | $ | 301,319
|Canada                  |  |                  | 73,315  |                  |   | 71,895 
|United Kingdom          |  |                  | 27,104  |                  |   | 38,014 
|Other                   |  |                  | 3,445   |                  |   | 4,037  
|                        |  |                  |         |                  |   |        
|Total long-lived assets |  | $                | 395,502 |                  | $ | 415,265
|                        |  |                  |         |                  |   |        



|C. | Prepaid Expenses and Other Current Assets
|-- | -----------------------------------------



|                               |  |                  |       |                  |   |       
|------------------------------ |  | ---------------- | ----- | ---------------- | - | ------
|                               |  | December 31,2008 |       | December 31,2007
|Prepaid expenses               |  | $                | 2,017 |                  | $ | 2,060 
|Receivables for vendor rebates |  |                  | 749   |                  |   | 7,597 
|Other                          |  |                  | 1,014 |                  |   | 1,382 
|                               |  |                  |       |                  |   |       
|                               |  | $                | 3,780 |                  | $ | 11,039
|                               |  |                  |       |                  |   |       

The significant decrease in rebates receivable is due to our efforts to renegotiate rebate terms
during 2008 to include such rebates in the net invoiced price. These efforts also resulted in a decreased payable balance in 2008 compared to 2007 as a result of the decreased invoiced price from suppliers.



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##### Table of Contents

|D. | Properties, Plants and Equipment, net
|-- | -------------------------------------



|                              |  |                  |         |   |                  |   |         |  
|----------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                              |  | December 31,2008 |         |   | December 31,2007 |  
|Land                          |  | $                | 941     |   |                  | $ | 941     |  
|Structures                    |  |                  | 8,687   |   |                  |   | 8,778   |  
|Machinery and equipment       |  |                  | 53,692  |   |                  |   | 52,273  |  
|Software                      |  |                  | 16,846  |   |                  |   | 15,123  |  
|                              |  |                  |         |   |                  |   |         |  
|                              |  |                  | 80,166  |   |                  |   | 77,115  |  
|Accumulated depreciation      |  |                  | (39,084 | ) |                  |   | (25,833 | )
|                              |  |                  |         |   |                  |   |         |  
|                              |  |                  | 41,082  |   |                  |   | 51,282  |  
|Construction work-in-progress |  |                  | 5,104   |   |                  |   | 2,086   |  
|                              |  |                  |         |   |                  |   |         |  
|                              |  | $                | 46,186  |   |                  | $ | 53,368  |  
|                              |  |                  |         |   |                  |   |         |  

Depreciation expense on properties, plants, and equipment was $18,429, $14,298, and $11,570, for
the years ended December 31, 2008, 2007 and 2006, respectively.



|E. | Goodwill and Other Intangible Assets
|-- | ------------------------------------



|                                                  |  |                  |         |   |                  |   |         |  
|------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                  |  | December 31,2008 |         |   | December 31,2007 |  
|Goodwill, cost                                    |  | $                | 172,618 |   |                  | $ | 175,933 |  
|                                                  |  |                 
|Customer relationships, cost                      |  |                  | 170,121 |   |                  |   | 168,070 |  
|Customer relationships, accumulated amortization  |  |                  | (23,082 | ) |                  |   | (15,733 | )
|                                                  |  |                 
|Other intangible assets, cost                     |  |                  | 25,961  |   |                  |   | 26,327  |  
|Other intangible assets, accumulated amortization |  |                  | (3,786  | ) |                  |   | (2,431  | )
|                                                  |  |                  |         |   |                  |   |         |  
|                                                  |  | $                | 341,832 |   |                  | $ | 352,166 |  
|                                                  |  |                  |         |   |                  |   |         |  

The change in goodwill during 2008 is due to the following:



|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Goodwill at December 31, 2007                |  | $ | 175,933 |  
|                                             | 
|Acquisitions during 2008                     |  |   | 10,639  |  
|                                             | 
|Changes due to foreign currency fluctuations |  |   | (13,954 | )
|                                             |  |   |         |  
|                                             | 
|Goodwill at December 31, 2008                |  | $ | 172,618 |  
|                                             |  |   |         |  

The change in customer relationships, cost during 2008 is due to the following:



|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Customer relationships at December 31, 2007  |  | $ | 168,070 |  
|                                             | 
|Acquisitions during 2008                     |  |   | 14,389  |  
|                                             | 
|Changes due to foreign currency fluctuations |  |   | (12,338 | )
|                                             |  |   |         |  
|                                             | 
|Customer relationships at December 31, 2008  |  | $ | 170,121 |  
|                                             |  |   |         |  



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##### Table of Contents

The change in other intangible assets, cost during 2008 is due to the following:



|                                             |  |   |        |  
|-------------------------------------------- |  | - | ------ | -
|Other intangible assets at December 31, 2007 |  | $ | 26,327 |  
|                                             | 
|Acquisitions during 2008                     |  |   | 885    |  
|                                             | 
|Changes due to foreign currency fluctuations |  |   | (1,251 | )
|                                             |  |   |        |  
|                                             | 
|Other intangible assets at December 31, 2008 |  | $ | 25,961 |  
|                                             |  |   |        |  

Amortization expense on customer relationships and other intangible assets was $10,230, $9,391,
and $8,491 for the years ended December 31, 2008, 2007 and 2006, respectively.

Amortization of customer relationships and other
intangible assets is estimated to be approximately $8,700 and $1,300, respectively, each year from 2009 through 2013.



|F. | Other Current Liabilities
|-- | -------------------------



|                                        |  |                  |       |                  |   |      
|--------------------------------------- |  | ---------------- | ----- | ---------------- | - | -----
|                                        |  | December 31,2008 |       | December 31,2007
|Payables for customer rebates           |  | $                | 3,087 |                  | $ | 2,997
|Purchase price payable for acquisitions |  |                  | 3,270 |                  |   | 255  
|Accrued health and welfare benefits     |  |                  | 731   |                  |   | 677  
|Customer deposits                       |  |                  | 547   |                  |   | 533  
|Other                                   |  |                  | 2,157 |                  |   | 2,639
|                                        |  |                  |       |                  |   |      
|                                        |  | $                | 9,792 |                  | $ | 7,101
|                                        |  |                  |       |                  |   |      



|G. | Acquisitions
|-- | ------------

The Company has consummated
acquisitions for a variety of reasons, including obtaining additional scale, acquiring a specific design or technical skill, achieving geographic diversification, strengthening existing customer relationships, forming new customer relationships
and/or acquiring an underutilized asset that could more efficiently perform existing services within our organization.

Acquisitions
during the year ended December 31, 2008

Effective January 1, 2008, Southern Graphic Systems-Canada, Co., a wholly owned
subsidiary of SGS International, Inc., acquired the outstanding shares of 1043497 Ontario Limited (1043497) and Cooper & Williamson, Inc. (together with 1043497 and its wholly owned subsidiaries Tri-Ad Graphic Communications
Ltd. and Flexart Design Inc., Tri-Ad) under a Share Purchase Agreement (the SPA), for a cash purchase price of 22.0 million Canadian dollars ($22,319 based on the U.S. dollar/Canadian dollar exchange rate at the time of
acquisition), subject to adjustment as described in the SPA. Tri-Ad is a Canadian provider of packaging and retail graphics services with locations in Toronto, Ontario and outside of Montreal, Quebec. The preliminary purchase price allocation for
the acquisition of Tri-Ad is provided below. We expect there will be additional adjustments to the cash purchase price since we are currently in the process of arbitration with the selling shareholders, in accordance with the dispute resolution
provisions contained in the SPA, regarding the calculation of certain purchase price adjustments. This allocation may change significantly based on final purchase price adjustments.



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##### Table of Contents

|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Purchase price                   |  | $ | 22,319 |  
|Transaction costs                |  |   | 885    |  
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 23,204 |  
|                                 |  |   |        |  
|                                 | 
|Allocation of acquisition price: |  |   |        |  
|Current assets                   |  | $ | 7,778  |  
|Properties, plants and equipment |  |   | 2,475  |  
|Goodwill                         |  |   | 8,873  |  
|Customer relationships           |  |   | 7,085  |  
|Other intangible assets          |  |   | 885    |  
|Liabilities assumed              |  |   | (3,892 | )
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 23,204 |  
|                                 |  |   |        |  

On May 2, 2008, Southern Graphic Systems-Canada, Co. acquired a Canadian provider of
packaging and retail graphics for an aggregate cash consideration of 2.9 million Canadian dollars ($2,901 based on the U.S. dollar/Canadian dollar exchange rate at the time of acquisition). The preliminary purchase price allocation for the
acquisition is provided below, but remains subject to completion of final fair value allocations.



|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Purchase price                   |  | $ | 2,901  |  
|Transaction costs                |  |   | 50     |  
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 2,951  |  
|                                 |  |   |        |  
|                                 | 
|Allocation of acquisition price: |  |   |        |  
|Current assets                   |  | $ | 766    |  
|Properties, plants and equipment |  |   | 58     |  
|Goodwill                         |  |   | 761    |  
|Customer relationships           |  |   | 2,841  |  
|Liabilities assumed              |  |   | (1,475 | )
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 2,951  |  
|                                 |  |   |        |  

On December 31, 2008, Southern Graphic Systems, Inc. acquired substantially all of the assets
of a provider of packaging and retail graphics located in Marietta, Georgia for an aggregate cash consideration of $6,000. The preliminary purchase price allocation for the acquisition is provided below, but remains subject to completion of final
fair value allocations.



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##### Table of Contents

|                                 |  |   |      
|-------------------------------- |  | - | -----
|Purchase price                   |  | $ | 6,000
|Transaction costs                |  |   | 63   
|                                 |  |   |      
|Total cash acquisition price     |  | $ | 6,063
|                                 |  |   |      
|                                 | 
|Allocation of acquisition price: |  |   |      
|Current assets                   |  | $ | 152  
|Properties, plants and equipment |  |   | 445  
|Goodwill                         |  |   | 1,004
|Customer relationships           |  |   | 4,462
|                                 |  |   |      
|Total cash acquisition price     |  | $ | 6,063
|                                 |  |   |      

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

Acquisitions during the year ended December 31, 2007

On February 28, 2007, the Companys subsidiary, Southern Graphic Systems, Inc., entered into an Asset Purchase Agreement (the Purchase
Agreement) with C.M. Jackson Associates, Inc. (CMJ), a supplier of design and creative, production art and pre-press, packaging management, project tracking and digital asset management services with an emphasis on store
brands. Under the Purchase Agreement, the Company acquired substantially all of CMJs assets for an aggregate cash consideration of $16,150 (the CMJ Consideration). In conjunction with this acquisition, the Company borrowed
$8,000 on its acquisition facility. The acquired assets include CMJs leasehold interest in its single facility located in Ramsey, New Jersey. The Company operates the acquired business under the C.M. Jackson Associates, Inc. name.
The Purchase Agreement contains customary representations, warranties, covenants and indemnification provisions. The CMJ Consideration included deferred consideration of $2,500 paid in February 2008 and $2,000 paid in February 2009. The deferred
consideration installments were subject to forfeiture if certain key CMJ employees now employed by the Company terminate their employment before the expiration of their respective employment agreements. An additional amount would have been payable
with the second deferred installment only if the acquired business achieved a specified threshold of earnings before interest, depreciation and amortization. This $4,500 of deferred consideration was recognized as compensation expense of $1,375 and
$3,125 for the years ended December 31, 2008 and 2007, respectively. The purchase price allocation for the acquisition from CMJ is provided below.



|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Purchase price                   |  | $ | 11,650 |  
|Transaction costs                |  |   | 300    |  
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 11,950 |  
|                                 |  |   |        |  
|                                 | 
|Allocation of acquisition price: |  |   |        |  
|Current assets                   |  | $ | 265    |  
|Properties, plants and equipment |  |   | 217    |  
|Goodwill                         |  |   | 2,570  |  
|Customer relationships           |  |   | 7,600  |  
|Other intangible assets          |  |   | 1,600  |  
|Liabilities assumed              |  |   | (302   | )
|                                 |  |   |        |  
|Total cash acquisition price     |  | $ | 11,950 |  
|                                 |  |   |        |  



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##### Table of Contents

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

On April 2, 2007, the Company and SGS Packaging Europe Holdings Limited (Holdings), a wholly owned subsidiary of the Company, entered
into Share Sale and Purchase Agreements (the Agreements) under which Holdings acquired the outstanding shares of McGurk Studios Limited (Studios) and Thames McGurk Limited (Thames and, together with Studios,
McGurk) for an initial aggregate consideration (the Initial McGurk Consideration) of 9,388 pounds sterling (approximately $18,566 based on the U.S. dollar/pound sterling exchange rate on April 2, 2007), subject to
adjustment as described in the Agreements. The Initial McGurk Consideration consisted of a cash payment in the amount of 8,543 pounds sterling (approximately $16,896 based on the April 2, 2007 U.S. dollar/pound sterling exchange rate) and
assumption of McGurks short-term and long-term indebtedness in the amount of 845 pounds sterling (approximately $1,670 based on the April 2, 2007 U.S. dollar/pound sterling exchange rate). On September 4, 2007, 375 pounds sterling
(approximately $742 based on the April 2, 2007 U.S. dollar/pound sterling exchange rate) was paid as additional consideration to McGurk based on the financial results of McGurk. McGurk is a UK-based provider of end-to-end digital design,
artwork and reprographics for packaging solutions with locations in Hull and London, England, and Hong Kong.

On March 30, 2007, in
connection with the financing of the acquisition of McGurk described above, the Company borrowed the sum of $15.0 million under its acquisition facility (the McGurk Borrowing).

The purchase price allocation for this acquisition is provided below. The purchase price allocation for this acquisition is subject to completion of final
fair value allocations.



|                                 |  |   |        |    
|-------------------------------- |  | - | ------ | ---
|Purchase price                   |  | $ | 17,638 | (1)
|Transaction costs                |  |   | 604    |    
|                                 |  |   |        |    
|Total cash acquisition price     |  | $ | 18,242 |    
|                                 |  |   |        |    
|                                 | 
|Allocation of acquisition price: |  |   |        |    
|Current assets                   |  | $ | 5,835  |    
|Properties, plant and equipment  |  |   | 2,845  |    
|Goodwill                         |  |   | 9,125  |    
|Customer relationships           |  |   | 7,792  |    
|Other intangible assets          |  |   | 969    |    
|Liabilities assumed              |  |   | (8,324 | )  
|                                 |  |   |        |    
|Total cash acquisition price     |  | $ | 18,242 |    
|                                 |  |   |        |    

| | 
| | 

| | (1) | The cash acquisition price in the table above consists of the aggregate consideration of $19,308 (9,763 pounds sterling) less debt assumed of $1,670 (845 pounds sterling).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the unaudited pro forma results of operations for the Company for the years ended
December 31, 2007 and 2006. The unaudited pro forma financial information summarizes the results of operations for the periods indicated as if the McGurk acquisition had occurred as of the beginning of each period. The pro forma information
contains the actual combined operating results of the Company and McGurk, with the results prior to the acquisition adjusted to include the pro forma impact of (1) amortization expense associated with the customer relationships and other
intangible assets (calculated using a useful life of 20 years) recorded in connection with the preliminary purchase price allocation, (2) interest expense associated with the McGurk Borrowing of $15,000 at a variable rate of LIBOR plus 2.5%,
and (3) income tax expense at a blended rate of 38.5% in 2007 and 37.9% in 2006.



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##### Table of Contents

Pro forma



|                  |  |                            |         |   |                            |   |        
|----------------- |  | -------------------------- | ------- | - | -------------------------- | - | -------
|                  |  | Year EndedDecember 31,2007 |         |   | Year EndedDecember 31,2006
|Revenues          |  | $                          | 313,548 |   |                            | $ | 295,936
|Net income (loss) |  |                            | (2,134  | ) |                            |   | 1,470  

Acquisitions during the year ended December 31, 2006

During 2006, the Company completed three acquisitions at an aggregate purchase price of $5,403. Each of the acquisitions was funded through cash generated
from operations. On June 30, 2006, SGS Packaging Europe Holdings Limited purchased The Box Room Limited, a supplier of photographic and digital images for the packaging printing industry in the United Kingdom. On August 31, 2006, SGS
Packaging Europe Holdings Limited purchased a business supplying photographic and digital images for the packaging printing industry in the Netherlands through an asset purchase. On December 29, 2006, Southern Graphic Systems-Canada, Co.
purchased Synnoflex Inc., a supplier of photographic and digital images for the packaging printing industry in Canada. The purchase price allocations for these three acquisitions included an aggregate $1,956 for working capital, $788 for properties,
plant, and equipment, $4,186 for customer relationships, $26 for other assets, ($605) for non current liabilities, and ($948) for non current deferred tax liabilities.

Results of operations of the acquired businesses are included in the consolidated statement of operations from the respective dates of the acquisitions. Pro forma results of the Company, assuming all acquisitions had
been made at the beginning of each period presented, would not have been materially different from the results reported.



|H. | Short-Term and Long-Term Obligations
|-- | ------------------------------------



|                                                              |  |                  |         |   |                  |   |         |  
|------------------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                              |  | December 31,2008 |         |   | December 31,2007 |  
|Senior secured term loan                                      |  | $                | 105,171 |   |                  | $ | 121,586 |  
|Borrowings on senior acquisition loan facility                |  |                  | 39,369  |   |                  |   | 39,766  |  
|Senior subordinated notes                                     |  |                  | 200,000 |   |                  |   | 200,000 |  
|Capital lease obligations                                     |  |                  | 1,160   |   |                  |   | 1,733   |  
|                                                              |  |                  |         |   |                  |   |         |  
|                                                              |  |                  | 345,700 |   |                  |   | 363,085 |  
|Less short-term and long-term obligations due within one year |  |                  | (1,089  | ) |                  |   | (2,226  | )
|                                                              |  |                  |         |   |                  |   |         |  
|                                                              |  | $                | 344,611 |   |                  | $ | 360,859 |  
|                                                              |  |                  |         |   |                  |   |         |  

The Company has a $193,700 senior credit facility offered by a syndicate of banks, financial
institutions and other entities led by UBS Securities LLC and Lehman Brothers Inc. consisting of a $118,700 term loan facility, a $35,000 revolving credit facility, and a $40,000 loan facility for acquisitions.

The $105,171 outstanding on the term loan facility at December 31, 2008 is payable at maturity on December 30, 2011. At December 31, 2008,
the balance outstanding on the term loan facility consisted of $80,283 of borrowings denominated in the United States dollar, $17,272 of borrowings denominated in the Canadian dollar, and $7,616 of borrowings denominated in pound sterling.
Borrowings on the term loan facility bear interest at a variable rate of LIBOR plus 2.5%. At December 31, 2008, the weighted average interest rate on the term loan facility was 4.5%.

The senior credit facility requires mandatory prepayment, subject to certain exceptions and limitations, with: 100% of the net cash proceeds from asset
sales by the Registrant or any of its subsidiaries (together, the Company); 100% of the net cash proceeds of issuances of debt or preferred stock by the Company; and 50% of the Companys excess cash flow, as defined in the senior
secured credit facility.

At December 31, 2008 and 2007, no amounts were drawn on the revolving credit facility. The revolving credit
facility (the Revolver) provides for $35,000 of borrowing availability. Lehman Commercial Paper Inc. (Lehman) has a lending commitment of $8,920 (or 25.49%) of the total $35,000 available under the Revolver. The Company
requested a $1,000 loan under the Revolver on November 19, 2008 and received



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##### Table of Contents

$745 of the requested loan on November 19. The $255 shortfall in loan proceeds was due to Lehmans failure to fund its pro rata portion of the
loan. By letter dated December 8, 2008, the Registrant notified Lehman that if Lehman wanted to fund its portion of the loan, to do so by December 10, 2008. Lehman has not provided such funds or responded to the Registrants letter.
We conclude that Lehman is unable or unwilling to fund its portion of loans under the Revolver and that, as a result, the amount actually available under the Revolver is $26,080. Unused portions of the Revolver are charged a fee of 0.5%. Fees
incurred on the unused portion of the Revolver were $168, $175 and $175 for the years ended December 31, 2008, 2007, and 2006, respectively. The Revolver is available through December 30, 2010. Borrowings on the Revolver bear interest at a
variable rate of LIBOR plus 2.5%.

At December 31, 2008 and 2007, $39,369 and $39,766, respectively, were outstanding on the
acquisition loan facility. The outstanding balance on the acquisition loan facility is payable in quarterly installments of approximately $100 through September 2011, with the remaining amount due at maturity on December 30, 2011. The
availability of additional borrowings on the acquisition loan facility expired on December 31, 2007. Fees incurred on the unused portion of the acquisition loan facility were $0, $320 and $600 for the years ended December 31, 2008, 2007
and 2006, respectively. Borrowings on the acquisition loan facility bear interest at a variable rate of LIBOR plus 2.5%. At December 31, 2008, the weighted average interest rate on the acquisition loan facility was 4.1%.

The 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 senior credit facility agreement. The senior credit facility also places certain restrictions on our ability to make capital expenditures. As of December 31, 2008, the Company was in compliance with these covenants.

The Company issued $200.0 million of 12% senior subordinated notes in December 2005. The senior subordinated notes mature on
December 15, 2013 and bear interest at the rate of 12% per year, which is payable semi-annually in arrears on June 15 and December 15 of each year. The senior subordinated notes are general unsecured obligations and are
guaranteed on a senior subordinated basis by certain of the Companys subsidiaries and rank secondary to the Companys senior credit facility. The senior subordinated notes contain restrictive covenants as stated in the indenture
agreement, including limitations on the Companys ability to incur additional debt. See Note S for discussion of the subsequent event related to the senior subordinated notes.

The Company may redeem all or part of the aggregate principal amount of the senior subordinated notes at a redemption price from 106% in 2009 to 100% in
2011 of the principal amount, plus accrued and unpaid interest to the redemption date.

The capital lease obligations relate to vehicles and
computer graphic design and related equipment. Lease payments are due in equal monthly installments and the leases mature at various dates through December 2012.

The amount of long-term debt, including capital lease obligations, maturing in each of the next five years is $1,089 in 2009, $794 in 2010, $143,795 in 2011, $13 in 2012, $200,009 in 2013.



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##### Table of Contents

|I. | Interest Expense
|-- | ----------------

Interest expense consists of the
following:



|                                               |  |                            |        |                            |   |                            |  |   |       
|---------------------------------------------- |  | -------------------------- | ------ | -------------------------- | - | -------------------------- |  | - | ------
|                                               |  | Year EndedDecember 31,2008 |        | Year EndedDecember 31,2007 |   | Year EndedDecember 31,2006
|Interest on senior term loan                   |  | $                          | 7,931  |                            | $ | 9,436                      |  | $ | 8,948 
|Interest on borrowings on acquisition facility |  |                            | 2,475  |                            |   | 1,493                      |  |   |      
|Interest on senior subordinated notes          |  |                            | 24,000 |                            |   | 24,000                     |  |   | 24,000
|Amortization of deferred financing costs       |  |                            | 1,865  |                            |   | 1,394                      |  |   | 1,226 
|Commitment fees on senior credit facility      |  |                            | 248    |                            |   | 577                        |  |   | 775   
|Other                                          |  |                            | 26     |                            |   | 29                         |  |   | 63    
|                                               |  |                            |        |                            |   |                            |  |   |       
|Total                                          |  | $                          | 36,545 |                            | $ | 36,929                     |  | $ | 35,012
|                                               |  |                            |        |                            |   |                            |  |   |       



|J. | Other Expense (Income), net
|-- | ---------------------------

Other expense
(income), net consists of the following:



|                                      |  |                            |        |   |                            |   |       |                            |  |   |       |  
|------------------------------------- |  | -------------------------- | ------ | - | -------------------------- | - | ----- | -------------------------- |  | - | ----- | -
|                                      |  | Year EndedDecember 31,2008 |        |   | Year EndedDecember 31,2007 |   |       | Year EndedDecember 31,2006 | 
|Realized foreign exchange (gain) loss |  | $                          | (2,364 | ) |                            | $ | 1,141 |                            |  | $ | 1,332 |  
|Interest income                       |  |                            | (372   | ) |                            |   | (748  | )                          |  |   | (795  | )
|Other                                 |  |                            | 587    |   |                            |   | 104   |                            |  |   | (312  | )
|                                      |  |                            |        |   |                            |   |       |                            |  |   |       |  
|Total                                 |  | $                          | (2,149 | ) |                            | $ | 497   |                            |  | $ | 225   |  
|                                      |  |                            |        |   |                            |   |       |                            |  |   |       |  



|K. | Related Party Transactions
|-- | --------------------------

The Company incurred
and paid management advisory fees of $500 annually during 2008, 2007 and 2006 to a related party in accordance with the Advisory Agreement between the Company and CVC Management LLC, which was assigned to Court Square Advisor LLC on July 31,
2006. The Company will pay $500 annually in advisory fees through 2015 in accordance with this Advisory Agreement.

In April of 2007, one of
our vendors became a related party when the majority ownership of that vendor was acquired by a third party that could exert significant influence over both the Company and that vendor. Amounts paid to that vendor were approximately $1,876 in 2008
and $954 during the period from April through December 31, 2007. Payable amounts outstanding to this vendor were approximately $305 at December 31, 2008 and $112 at December 31, 2007. Our payable terms with this vendor are consistent
with the terms offered by other vendors in the ordinary course of business and there were no significant changes in terms with this vendor during 2007 or 2008.



|L. | Lease Expense
|-- | -------------

Certain buildings and office space
are under operating lease agreements. Total expense for all leases was $8,887, $7,902, and $7,064 in 2008, 2007, and 2006, respectively. Under long-term leases, minimum annual rentals are $6,372 in 2009, $4,899 in 2010, $3,985 in 2011, $2,620 in
2012, $1,628 in 2013 and $6,023 thereafter.



|M. | Defined Contribution Plans
|-- | --------------------------

Effective
January 1, 2006, the Company adopted the Southern Graphic Systems, Inc. Savings Plan (the Plan), a defined contribution plan under Section 401(k) of the Internal Revenue Code, for the benefit of eligible employees and their
beneficiaries. Employees were eligible to make elective deferral contributions to the Plan beginning on the first day of any payroll period on or following April 1, 2006. The Plan is funded with both employer and employee contributions.
Participants may voluntarily contribute up to 16% of their annual pay into the plan, not to exceed an annual dollar limitation, which was $15,500, $15,500 and $15,000 in 2008, 2007 and 2006, respectively. The Plan provides that, for each payroll
period beginning on or after July 1, 2006, the Company may make matching contributions in an amount to be determined by the Board of



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##### Table of Contents

Directors, which amount for each payroll period shall not be greater than 100% of the participants elective deferrals that do not exceed the first 6%
of the participants compensation for the payroll period. In addition, the Plan provides that, for any Plan year, the Company may make discretionary contributions in an amount to be determined by the Board of Directors as of the last day of the
Plan year on behalf of each participant, subject to certain Internal Revenue Code limitations. Employer contributions to the plan are included in costs of operations and were $3,292, $3,376 and $2,305 in 2008, 2007 and 2006, respectively. There were
no discretionary contributions in 2008, 2007, or 2006.



|N. | Income Taxes
|-- | ------------

The components of income (loss)
before taxes on income (loss) from continuing operations were:



|        |  |                            |        |   |                            |   |        |                            |  |   |      
|------- |  | -------------------------- | ------ | - | -------------------------- | - | ------ | -------------------------- |  | - | -----
|        |  | Year EndedDecember 31,2008 |        |   | Year EndedDecember 31,2007 |   |        | Year EndedDecember 31,2006
|U.S.    |  | $                          | 1,085  |   |                            | $ | (5,255 | )                          |  | $ | 1,060
|Foreign |  |                            | (2,516 | ) |                            |   | 1,262  |                            |  |   | 1,493
|        |  |                            |        |   |                            |   |        |                            |  |   |      
|        |  | $                          | (1,431 | ) |                            | $ | (3,993 | )                          |  | $ | 2,553
|        |  |                            |        |   |                            |   |        |                            |  |   |      

The provision (benefit) for taxes on income (loss) from continuing operations consisted of:



|             |  |                            |        |   |                            |   |        |                            |  |   |      
|------------ |  | -------------------------- | ------ | - | -------------------------- | - | ------ | -------------------------- |  | - | -----
|             |  | Year EndedDecember 31,2008 |        |   | Year EndedDecember 31,2007 |   |        | Year EndedDecember 31,2006
|Current:     |  |                            |        |   |                            |   |        |                            |  |   |      
|U.S. Federal |  | $                          |       |   |                            | $ |       |                            |  | $ |     
|Foreign      |  |                            | 1,007  |   |                            |   | 162    |                            |  |   | 523  
|State        |  |                            |       |   |                            |   |       |                            |  |   |     
|             |  |                            |        |   |                            |   |        |                            |  |   |      
|             |  |                            | 1,007  |   |                            |   | 162    |                            |  |   | 523  
|             |  |                            |        |   |                            |   |        |                            |  |   |      
|Deferred:    |  |                            |        |   |                            |   |        |                            |  |   |      
|U.S. Federal |  |                            | 722    |   |                            |   | (463   | )                          |  |   | 484  
|Foreign      |  |                            | (1,790 | ) |                            |   | (857   | )                          |  |   | 261  
|State        |  |                            | 76     |   |                            |   | (24    | )                          |  |   | 77   
|             |  |                            |        |   |                            |   |        |                            |  |   |      
|             |  |                            | (992   | ) |                            |   | (1,344 | )                          |  |   | 822  
|             |  |                            |        |   |                            |   |        |                            |  |   |      
|             |  | $                          | 15     |   |                            | $ | (1,182 | )                          |  | $ | 1,345
|             |  |                            |        |   |                            |   |        |                            |  |   |      



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##### Table of Contents

The reconciliation between the provision (benefit) for taxes on income (loss) for continuing operations
computed by applying the federal statutory tax rate to income (loss) before taxes on income (loss) from continuing operations and the actual provision is as follows:



|                                 |  |                            |   |  |                            |   |  |                            |  
|-------------------------------- |  | -------------------------- | - |  | -------------------------- | - |  | -------------------------- | -
|                                 |  | Year EndedDecember 31,2008 |   |  | Year EndedDecember 31,2007 |   |  | Year EndedDecember 31,2006 |  
|U.S. federal statutory rate      |  | 35.0                       | % |  | 34.0                       | % |  | 34.0                       | %
|State tax net of federal benefit |  | -3.3                       | % |  | 0.7                        | % |  | 1.0                        | %
|Taxes on foreign income          |  | -4.6                       | % |  | 0.3                        | % |  | -0.9                       | %
|Permanent differences            |  | -23.6                      | % |  | -9.6                       | % |  | 13.2                       | %
|Valuation allowance              |  | -14.5                      | % |  | -6.3                       | % |  | 4.8                        | %
|Rate changes(1)                  |  | 9.9                        | % |  | 10.1                       | % |  | 0.0                        | %
|Other                            |  | 0.0                        | % |  | 0.4                        | % |  | 0.6                        | %
|                                 |  |                            |  
|                                 |  |                            |   |  |                            |   |  |                            |  
|Effective tax rate               |  | -1.1                       | % |  | 29.6                       | % |  | 52.7                       | %
|                                 |  |                            |   |  |                            |   |  |                            |  

| | 
| | 

| | (1) | The impact for the rate changes in 2008 were primarily due to adjusting the net deferred tax assets for a 2.5% decrease
in the tax rates in Canada while the rate changes in 2007 were related to the United Kingdom enacting a tax rate change in July 2007 that reduced the tax rate in the United Kingdom by 2.0% effective April 1, 2008.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The components of net deferred tax assets and liabilities at December 31, 2008 and 2007 were as follows:



|                                                   |  |                  |         |   |                  |   |         |  
|-------------------------------------------------- |  | ---------------- | ------- | - | ---------------- | - | ------- | -
|                                                   |  | December 31,2008 |         |   | December 31,2007 |  
|Deferred Tax Assets:                               |  |                  |         |   |                  |   |         |  
|Employee benefits                                  |  | $                | 65      |   |                  | $ | 261     |  
|Foreign tax credit carryforwards                   |  |                  | 1,919   |   |                  |   | 977     |  
|Foreign currency loss on senior secured term loans |  |                  |        |   |                  |   | 575     |  
|Tax loss carry forwards                            |  |                  | 17,977  |   |                  |   | 11,880  |  
|Reserves for customer receivables                  |  |                  | 453     |   |                  |   | 273     |  
|Unrealized foreign currency translation items      |  |                  | 272     |   |                  |   | 50      |  
|Other                                              |  |                  | 433     |   |                  |   | 61      |  
|Valuation allowance                                |  |                  | (1,117  | ) |                  |   | (706    | )
|                                                   |  |                  |         |   |                  |   |         |  
|Total deferred tax assets                          |  | $                | 20,002  |   |                  | $ | 13,371  |  
|                                                   |  |                  |         |   |                  |   |         |  
|                                                   |  |                 
|Deferred Tax Liabilities:                          |  |                  |         |   |                  |   |         |  
|Depreciation and amortization                      |  | $                | (20,721 | ) |                  | $ | (14,905 | )
|Interest on intercompany notes                     |  |                  | (5,771  | ) |                  |   | (3,423  | )
|Foreign currency gain on senior secured term loan  |  |                  | (535    | ) |                  |   |        |  
|Other                                              |  |                  | (202    | ) |                  |   | (161    | )
|                                                   |  |                  |         |   |                  |   |         |  
|Total deferred tax liabilities                     |  | $                | (27,229 | ) |                  | $ | (18,489 | )
|                                                   |  |                  |         |   |                  |   |         |  

The increase in the deferred tax liability for depreciation and amortization includes $3,407 due
to recording the opening balance sheet related to the acquisitions of Tri-Ad and Backwell in accordance with SFAS No. 142.

The Company
has recorded a valuation allowance against a portion of its foreign tax credit carry forwards because it is more likely than not that this portion of the carry forwards will not be realized.



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##### Table of Contents

The Company has net operating loss carry forwards in various tax jurisdictions at December 31, 2008
as follows:



|               |  |                                               
|-------------- |  | ----------------------------------------------
|United States  |  | $39,279 expiration beginning December 31, 2026
|Canada         |  | $7,811 expiration beginning December 31, 2026 
|United Kingdom |  | $616 with no expiration date                  
|Mexico         |  | $221 expiration beginning December 31, 2016   

The Company believes it will be able to utilize all of the net operating loss carry forwards prior
to their expiration. In the United States, the amortization of goodwill for tax purposes is a major factor generating the net operating loss carry forwards. The amortization of goodwill for tax purposes reduces taxable income by approximately
$15,000 per year which will end on December 31, 2020. This will result in a $15,000 increase in taxable income from 2020 through 2026 which is when the net operating losses begin to expire. We believe that even if we are unable to generate
taxable income prior to 2020, the taxable income increase due to decreased tax amortization is more than enough to fully utilize all net operating losses prior to expiration. Additionally, the Company has recorded a deferred tax liability on $10,332
of interest income in a U.S. controlled foreign corporation that will become taxable income when repatriated. When the company chooses to repatriate this income, the related tax liability will be realized resulting in the utilization of a portion of
the net operating loss carry forwards. We further believe that our recent acquisitions in Canada will generate enough income to utilize our Canadian operating losses. As such, no valuation allowance has been recorded against any of our net operating
loss carryforwards. The Company continuously evaluates the need to record a valuation allowance and will recognize such valuation allowance if it is deemed necessary due to a change in expectations about the ability to realize the full value of the
net operating loss carryforwards.

Due to a change in the ownership of Court Square Capital Partners, L.P. that occurred in June of 2008,
the United States net operating losses are subject to certain annual limitations. This is because certain substantial ownership changes, as defined in Internal Revenue Code Section 382, limit the utilization of the available net operating
losses and tax credit carryforwards (the Section 382 Limitation). The Section 382 Limitation is calculated by multiplying the fair market value of the loss corporation immediately preceding the change of ownership by the long-term,
tax-exempt rate prescribed by the IRS. Because of the change in ownership in June of 2008 and based on the Section 382 Limitation calculation, the Company will be allowed to use approximately $7,400 per year of its United States net operating
losses generated prior to June 2008 until they would otherwise expire. Based on our current taxable income projections, we do not believe this limitation will have any impact on the utilization of our United States net operating loss carryforwards.

The Company has not recorded a deferred tax liability for undistributed earnings of certain international subsidiaries because such
earnings are considered permanently invested in foreign countries. As of December 31, 2008 and 2007, undistributed earnings of international subsidiaries considered permanently reinvested were approximately $1,739 and $1,113, respectively. The
unrecognized deferred tax liability is dependent on many factors, including withholding taxes under current tax treaties and foreign tax credits. Determination of the amount of unrecognized deferred income tax liability related to these earnings is
not practicable. The Company does not consider undistributed earnings from certain other international operations to be permanently reinvested. A portion of the estimated tax liabilities upon repatriation of earnings from these international
operations are expected to be offset with foreign tax credits.

On December 15, 2008 the United States and Canada exchanged instruments
of ratification to place in force the Fifth Protocol of the U.S.-Canada Tax Treaty (Fifth Protocol). Included in the Fifth Protocol were provisions that affected certain hybrid entities that receive or pay cross border payments. The hybrid
provisions in the Fifth Protocol are effective January 1, 2010. The Company believes that certain subsidiaries may be affected by the new provisions and is currently evaluating strategies to minimize any adverse tax impact from the
Fifth Protocol provisions.



|O. | Financial Instruments
|-- | ---------------------

The Company adopted SFAS 157
as of January 1, 2008 as it applies to financial assets and financial liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair
value measurements, but does not require any additional fair value measurements. FASB Staff Position 157-2, Effective Date of FASB Statement No. 157,delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis.



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##### Table of Contents

The table below provides the carrying value and estimated fair value of the Companys financial
instruments as of December 31, 2008. The estimated fair value is determined using quoted prices in markets that are not active. The estimated fair value at December 31, 2008 is determined using the weighted average price of the senior
subordinated notes purchased by Southern Graphics Systems, Inc. on February 13, 2009.



|                          |  |                                          |         |                                             |   |        
|------------------------- |  | ---------------------------------------- | ------- | ------------------------------------------- | - | -------
|                          |  | Total Carrying Valueat December 31, 2008 |         | Fair Value Measurementsat December 31, 2008
|Senior subordinated notes |  | $                                        | 200,000 |                                             | $ | 119,091

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.



|P. | Cash Flow Information
|-- | ---------------------

Cash payments for interest
are as follows:



|         |  |                            |        |                            |   |                            |  |   |       
|-------- |  | -------------------------- | ------ | -------------------------- | - | -------------------------- |  | - | ------
|         |  | Year EndedDecember 31,2008 |        | Year EndedDecember 31,2007 |   | Year EndedDecember 31,2006
|Interest |  | $                          | 34,567 |                            | $ | 35,479                     |  | $ | 32,952

Cash paid for income taxes was not significant for the years ended December 31, 2008, 2007
and 2006.

The effects of certain noncash investing and financing activities were as follows:



|                                                |  |                            |   |                            |   |                            |  |   |    
|----------------------------------------------- |  | -------------------------- | - | -------------------------- | - | -------------------------- |  | - | ---
|                                                |  | Year EndedDecember 31,2008 |   | Year EndedDecember 31,2007 |   | Year EndedDecember 31,2006
|Assets acquired under capital lease obligations |  | $                          |  |                            | $ | 1,512                      |  | $ | 212



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##### Table of Contents

|Q. | Condensed Consolidated Quarterly Financial Information (unaudited)
|-- | ------------------------------------------------------------------

Unaudited summarized financial data by quarter for 2008 and 2007 is presented below.



|                                         |  |                            |        |   |                           |   |        |                                |  |   |                               |   |  |   |        |  
|---------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ------------------------------ |  | - | ----------------------------- | - |  | - | ------ | -
|                                         |  | Quarter EndedMarch 31,2008 |        |   | Quarter EndedJune 30,2008 |   |        | Quarter EndedSeptember 30,2008 |  |   | Quarter EndedDecember 31,2008 |  
|Net sales                                |  | $                          | 83,251 |   |                           | $ | 84,492 |                                |  | $ | 79,256                        |   |  | $ | 76,519 |  
|Income from operations                   |  |                            | 9,861  |   |                           |   | 9,177  |                                |  |   | 7,459                         |   |  |   | 6,468  |  
|Income (loss) from continuing operations |  |                            | (2     | ) |                           |   | 315    |                                |  |   | (318                          | ) |  |   | (1,441 | )
|Income from discontinued operations      |  |                            |       |   |                           |   |       |                                |  |   |                              |   |  |   |       |  
|                                         |  |                            |        |   |                           |   |        |                                |  |   |                               |   |  |   |        |  
|Net income (loss)                        |  | $                          | (2     | ) |                           | $ | 315    |                                |  | $ | (318                          | ) |  | $ | (1,441 | )
|                                         |  |                            |        |   |                           |   |        |                                |  |   |                               |   |  |   |        |  
|                                         |  |                            |        |  
|                                         |  | Quarter EndedMarch 31,2007 |        |   | Quarter EndedJune 30,2007 |   |        | Quarter EndedSeptember 30,2007 |  |   | Quarter EndedDecember 31,2007 |  
|Net sales                                |  | $                          | 75,126 |   |                           | $ | 80,363 |                                |  | $ | 76,482                        |   |  | $ | 76,838 |  
|Income from operations                   |  |                            | 10,829 |   |                           |   | 8,076  |                                |  |   | 7,816                         |   |  |   | 6,712  |  
|Income (loss) from continuing operations |  |                            | 1,337  |   |                           |   | (1,106 | )                              |  |   | (1,343                        | ) |  |   | (1,699 | )
|Income from discontinued operations      |  |                            | 672    |   |                           |   |       |                                |  |   |                              |   |  |   |       |  
|                                         |  |                            |        |   |                           |   |        |                                |  |   |                               |   |  |   |        |  
|Net income (loss)                        |  | $                          | 2,009  |   |                           | $ | (1,106 | )                              |  | $ | (1,343                        | ) |  | $ | (1,699 | )
|                                         |  |                            |        |   |                           |   |        |                                |  |   |                               |   |  |   |        |  



|R. | Contingencies and Commitments
|-- | -----------------------------

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.



|S. | Subsequent Event
|-- | ----------------

In privately negotiated
transactions that settled on February 13 and February 18, 2009, respectively, the Companys wholly-owned subsidiary, Southern Graphic Systems, Inc., acquired SGS International, Inc.s 12% senior subordinated notes maturing on
December 15, 2013 (Notes) in an aggregate principal amount of $25,500 for a cash purchase price of $15,000, together with accrued interest on the Notes. With the cancellation of these repurchased Notes, $174,500 aggregate principal
amount of Notes remain outstanding. The Note repurchases were financed in part by aggregate borrowings of $14,903 under the Revolver.



|T. | Supplemental Guarantor Information
|-- | ----------------------------------

The
Companys debt includes the senior credit facility and the 12% senior subordinated 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 senior subordinated 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 senior subordinated notes include Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. Non- Guarantor subsidiaries for the senior subordinated 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.



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##### Table of Contents

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.



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##### Table of Contents

Supplemental Condensed Consolidating Balance Sheet

December 31, 2008



|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|--------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                              |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current assets                                |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                     |  | $              | 410     |                                   | $ | 3,382                                 |  | $            | 6,974   |  | $            |         |   |  | $ | 10,766 
|Receivables from customers, less allowances   |  |                |        |                                   |   | 38,435                                |  |              | 17,867  |  |              |         |   |  |   | 56,302 
|Intercompany receivables                      |  |                | 391,639 |                                   |   | 91,750                                |  |              | 2,624   |  |              | (486,013 | ) |  |   |       
|Inventories                                   |  |                |        |                                   |   | 6,477                                 |  |              | 2,587   |  |              |         |   |  |   | 9,064  
|Deferred income taxes                         |  |                |        |                                   |   | 581                                   |  |              | 118     |  |              |         |   |  |   | 699    
|Prepaid expenses and other current assets     |  |                | 78      |                                   |   | 2,322                                 |  |              | 1,380   |  |              |         |   |  |   | 3,780  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current assets                          |  |                | 392,127 |                                   |   | 142,947                               |  |              | 31,550  |  |              | (486,013 | ) |  |   | 80,611 
|Investment in subsidiaries                    |  |                | 106,624 |                                   |   | 33,694                                |  |              |        |  |              | (140,318 | ) |  |   |       
|Properties, plants and equipment, net         |  |                |        |                                   |   | 36,916                                |  |              | 9,270   |  |              |         |   |  |   | 46,186 
|Goodwill                                      |  |                |        |                                   |   | 120,966                               |  |              | 51,652  |  |              |         |   |  |   | 172,618
|Other intangible assets, net                  |  |                |        |                                   |   | 126,492                               |  |              | 42,722  |  |              |         |   |  |   | 169,214
|Deferred financing costs, net                 |  |                | 7,100   |                                   |   |                                      |  |              |        |  |              |         |   |  |   | 7,100  
|Deferred income taxes                         |  |                | 1,635   |                                   |   | 1,211                                 |  |              |        |  |              | (2,846   | ) |  |   |       
|Other assets                                  |  |                |        |                                   |   | 164                                   |  |              | 220     |  |              |         |   |  |   | 384    
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total assets                                  |  | $              | 507,486 |                                   | $ | 462,390                               |  | $            | 135,414 |  | $            | (629,177 | ) |  | $ | 476,113
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Liabilities                                   |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current liabilities                           |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                       |  | $              | 562     |                                   | $ | 9,084                                 |  | $            | 4,890   |  | $            |         |   |  | $ | 14,536 
|Intercompany payables                         |  |                | 90,135  |                                   |   | 362,941                               |  |              | 32,937  |  |              | (486,013 | ) |  |   |       
|Accrued compensation                          |  |                |        |                                   |   | 5,238                                 |  |              | 682     |  |              |         |   |  |   | 5,920  
|Accrued taxes, including taxes on income      |  |                |        |                                   |   | 345                                   |  |              | 1,156   |  |              |         |   |  |   | 1,501  
|Accrued interest                              |  |                | 6       |                                   |   | 1,010                                 |  |              | 2       |  |              |         |   |  |   | 1,018  
|Other current liabilities                     |  |                |        |                                   |   | 8,276                                 |  |              | 1,516   |  |              |         |   |  |   | 9,792  
|Current portion of long-term obligations      |  |                | 392     |                                   |   | 674                                   |  |              | 23      |  |              |         |   |  |   | 1,089  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                     |  |                | 91,095  |                                   |   | 387,568                               |  |              | 41,206  |  |              | (486,013 | ) |  |   | 33,856 
|Noncurrent liabilities                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion |  |                | 326,875 |                                   |   | 463                                   |  |              | 17,273  |  |              |         |   |  |   | 344,611
|Noncurrent liabilities                        |  |                |        |                                   |   |                                      |  |              | 204     |  |              |         |   |  |   | 204    
|Deferred income taxes                         |  |                |        |                                   |   |                                      |  |              | 10,772  |  |              | (2,846   | ) |  |   | 7,926  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities                             |  |                | 417,970 |                                   |   | 388,031                               |  |              | 69,455  |  |              | (488,859 | ) |  |   | 386,597
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Contingencies and commitments                 |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Stockholders equity:                         |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Common stock                                  |  |                |        |                                   |   |                                      |  |              |        |  |              |         |   |  |   |       
|Other stockholders equity                    |  |                | 89,516  |                                   |   | 74,359                                |  |              | 65,959  |  |              | (140,318 | ) |  |   | 89,516 
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                    |  |                | 89,516  |                                   |   | 74,359                                |  |              | 65,959  |  |              | (140,318 | ) |  |   | 89,516 
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity    |  | $              | 507,486 |                                   | $ | 462,390                               |  | $            | 135,414 |  | $            | (629,177 | ) |  | $ | 476,113
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        



F-28



---

##### Table of Contents

Supplemental Condensed Consolidating Balance Sheet

December 31, 2007



|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|--------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                              |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current assets                                |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                     |  | $              | 17,515  |                                   | $ | 3,068                                 |  | $            | 13,884  |  | $            |         |   |  | $ | 34,467 
|Receivables from customers, less allowances   |  |                |        |                                   |   | 38,712                                |  |              | 22,430  |  |              |         |   |  |   | 61,142 
|Intercompany receivables                      |  |                | 312,755 |                                   |   | 53,455                                |  |              | 42,209  |  |              | (408,419 | ) |  |   |       
|Inventories                                   |  |                |        |                                   |   | 5,013                                 |  |              | 2,705   |  |              |         |   |  |   | 7,718  
|Deferred income taxes                         |  |                |        |                                   |   | 508                                   |  |              | 67      |  |              |         |   |  |   | 575    
|Prepaid expenses and other current assets     |  |                | 10      |                                   |   | 8,119                                 |  |              | 2,910   |  |              |         |   |  |   | 11,039 
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current assets                          |  |                | 330,280 |                                   |   | 108,875                               |  |              | 84,205  |  |              | (408,419 | ) |  |   | 114,941
|Investment in subsidiaries                    |  |                | 117,232 |                                   |   | 23,001                                |  |              |        |  |              | (140,233 | ) |  |   |       
|Properties, plants and equipment, net         |  |                |        |                                   |   | 43,058                                |  |              | 10,310  |  |              |         |   |  |   | 53,368 
|Goodwill                                      |  |                |        |                                   |   | 119,962                               |  |              | 55,971  |  |              |         |   |  |   | 175,933
|Other intangible assets, net                  |  |                |        |                                   |   | 129,219                               |  |              | 47,014  |  |              |         |   |  |   | 176,233
|Deferred financing costs, net                 |  |                | 8,848   |                                   |   |                                      |  |              |        |  |              |         |   |  |   | 8,848  
|Deferred income taxes                         |  |                | 1,320   |                                   |   | 460                                   |  |              |        |  |              | (1,780   | ) |  |   |       
|Other assets                                  |  |                | 47      |                                   |   | 184                                   |  |              | 652     |  |              |         |   |  |   | 883    
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total assets                                  |  | $              | 457,727 |                                   | $ | 424,759                               |  | $            | 198,152 |  | $            | (550,432 | ) |  | $ | 530,206
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Liabilities                                   |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current liabilities                           |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                       |  | $              | 428     |                                   | $ | 15,389                                |  | $            | 6,529   |  | $            |         |   |  | $ | 22,346 
|Intercompany payables                         |  |                |        |                                   |   | 330,874                               |  |              | 77,545  |  |              | (408,419 | ) |  |   |       
|Accrued compensation                          |  |                |        |                                   |   | 6,185                                 |  |              | 1,743   |  |              |         |   |  |   | 7,928  
|Accrued taxes, including taxes on income      |  |                |        |                                   |   | 273                                   |  |              | 2,124   |  |              |         |   |  |   | 2,397  
|Accrued interest                              |  |                | 23      |                                   |   | 1,018                                 |  |              | 7       |  |              |         |   |  |   | 1,048  
|Other current liabilities                     |  |                |        |                                   |   | 4,438                                 |  |              | 2,663   |  |              |         |   |  |   | 7,101  
|Current portion of long-term obligations      |  |                | 1,401   |                                   |   | 507                                   |  |              | 318     |  |              |         |   |  |   | 2,226  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                     |  |                | 1,852   |                                   |   | 358,684                               |  |              | 90,929  |  |              | (408,419 | ) |  |   | 43,046 
|Noncurrent liabilities                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion |  |                | 336,665 |                                   |   | 1,127                                 |  |              | 23,067  |  |              |         |   |  |   | 360,859
|Noncurrent liabilities                        |  |                |        |                                   |   | 1,042                                 |  |              | 356     |  |              |         |   |  |   | 1,398  
|Deferred income taxes                         |  |                |        |                                   |   |                                      |  |              | 7,473   |  |              | (1,780   | ) |  |   | 5,693  
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities                             |  |                | 338,517 |                                   |   | 360,853                               |  |              | 121,825 |  |              | (410,199 | ) |  |   | 410,996
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Contingencies and commitments                 |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                              |  |                |         |                                   |  
|Stockholders equity:                         |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Common stock                                  |  |                |        |                                   |   |                                      |  |              |        |  |              |         |   |  |   |       
|Other stockholders equity                    |  |                | 119,210 |                                   |   | 63,906                                |  |              | 76,327  |  |              | (140,233 | ) |  |   | 119,210
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                    |  |                | 119,210 |                                   |   | 63,906                                |  |              | 76,327  |  |              | (140,233 | ) |  |   | 119,210
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity    |  | $              | 457,727 |                                   | $ | 424,759                               |  | $            | 198,152 |  | $            | (550,432 | ) |  | $ | 530,206
|                                              |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        



F-29



---

##### Table of Contents

Supplemental Consolidating Statement of Operations

For the Year Ended December 31, 2008



|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|------------------------------------------------------------------ |  | -------------- | ------ | - | --------------------------------- | - | ------- | ------------------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                   |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                          |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Sales                                                              |  | $              |       |   |                                   | $ | 220,742 |                                       |  | $ | 102,776      |   |  | $            |        |   |  | $ | 323,518 |  
|Intercompany sales                                                 |  |                |       |   |                                   |   | 2,587   |                                       |  |   | 8,723        |   |  |              | (11,310 | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Total net sales                                                    |  |                |       |   |                                   |   | 223,329 |                                       |  |   | 111,499      |   |  |              | (11,310 | ) |  |   | 323,518 |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Costs of operations:                                               |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Cost of goods sold (exclusive of depreciation)                     |  |                |       |   |                                   |   | 142,079 |                                       |  |   | 81,526       |   |  |              | (11,310 | ) |  |   | 212,295 |  
|Selling, general and administrative expenses                       |  |                | 1,684  |   |                                   |   | 30,808  |                                       |  |   | 17,107       |   |  |              |        |   |  |   | 49,599  |  
|Depreciation and amortization                                      |  |                |       |   |                                   |   | 21,321  |                                       |  |   | 7,338        |   |  |              |        |   |  |   | 28,659  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Income from (loss on) operations                                   |  |                | (1,684 | ) |                                   |   | 29,121  |                                       |  |   | 5,528        |   |  |              |        |   |  |   | 32,965  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Non-operating expenses:                                            |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Interest expense                                                   |  |                | 7,290  |   |                                   |   | 29,563  |                                       |  |   | (308         | ) |  |              |        |   |  |   | 36,545  |  
|Other expense (income), net                                        |  |                | (6,375 | ) |                                   |   | 622     |                                       |  |   | 3,604        |   |  |              |        |   |  |   | (2,149  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Total non-operating expenses                                       |  |                | 915    |   |                                   |   | 30,185  |                                       |  |   | 3,296        |   |  |              |        |   |  |   | 34,396  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Equity in net income of subsidiaries                               |  |                | 838    |   |                                   |   |        |                                       |  |   |             |   |  |              | (838    | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Income from (loss on) on continuing operations before income taxes |  |                | (1,761 | ) |                                   |   | (1,064  | )                                     |  |   | 2,232        |   |  |              | (838    | ) |  |   | (1,431  | )
|Provision (benefit) for income taxes                               |  |                | (315   | ) |                                   |   | (825    | )                                     |  |   | 1,155        |   |  |              |        |   |  |   | 15      |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Income from (loss on) on continuing operations                     |  |                | (1,446 | ) |                                   |   | (239    | )                                     |  |   | 1,077        |   |  |              | (838    | ) |  |   | (1,446  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Income from (loss on) discontinued operations                      |  |                |       |   |                                   |   |        |                                       |  |   |             |   |  |              |        |   |  |   |        |  
|Provision (benefit) for income taxes on discontinued operations    |  |                |       |   |                                   |   |        |                                       |  |   |             |   |  |              |        |   |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  
|Net income (loss)                                                  |  | $              | (1,446 | ) |                                   | $ | (239    | )                                     |  | $ | 1,077        |   |  | $            | (838    | ) |  | $ | (1,446  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |         |   |  |   |         |  



F-30



---

##### Table of Contents

Supplemental Consolidating Statement of Operations

For the Year Ended December 31, 2007



|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|------------------------------------------------------------------ |  | -------------- | ------ | - | --------------------------------- | - | ------- | ------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                                   |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                          |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Sales                                                              |  | $              |       |   |                                   | $ | 217,611 |                                       |  | $ | 91,198       |   |  | $            |       |   |  | $ | 308,809 |  
|Intercompany sales                                                 |  |                |       |   |                                   |   | 3,522   |                                       |  |   | 2,676        |   |  |              | (6,198 | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total net sales                                                    |  |                |       |   |                                   |   | 221,133 |                                       |  |   | 93,874       |   |  |              | (6,198 | ) |  |   | 308,809 |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Costs of operations:                                               |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Cost of goods sold (exclusive of depreciation)                     |  |                |       |   |                                   |   | 139,951 |                                       |  |   | 71,379       |   |  |              | (6,198 | ) |  |   | 205,132 |  
|Selling, general and administrative expenses                       |  |                | 1,934  |   |                                   |   | 35,896  |                                       |  |   | 8,725        |   |  |              |       |   |  |   | 46,555  |  
|Depreciation and amortization                                      |  |                |       |   |                                   |   | 17,602  |                                       |  |   | 6,087        |   |  |              |       |   |  |   | 23,689  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) operations                                   |  |                | (1,934 | ) |                                   |   | 27,684  |                                       |  |   | 7,683        |   |  |              |       |   |  |   | 33,433  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Non-operating expenses:                                            |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Interest expense                                                   |  |                | 3,463  |   |                                   |   | 30,937  |                                       |  |   | 2,529        |   |  |              |       |   |  |   | 36,929  |  
|Other expense (income), net                                        |  |                | (3,376 | ) |                                   |   | (954    | )                                     |  |   | 4,827        |   |  |              |       |   |  |   | 497     |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total non-operating expenses                                       |  |                | 87     |   |                                   |   | 29,983  |                                       |  |   | 7,356        |   |  |              |       |   |  |   | 37,426  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Equity in net income of subsidiaries                               |  |                | 484    |   |                                   |   |        |                                       |  |   |             |   |  |              | (484   | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) on continuing operations before income taxes |  |                | (1,537 | ) |                                   |   | (2,299  | )                                     |  |   | 327          |   |  |              | (484   | ) |  |   | (3,993  | )
|Provision (benefit) for income taxes                               |  |                | 602    |   |                                   |   | (2,374  | )                                     |  |   | 590          |   |  |              |       |   |  |   | (1,182  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) on continuing operations                     |  |                | (2,139 | ) |                                   |   | 75      |                                       |  |   | (263         | ) |  |              | (484   | ) |  |   | (2,811  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) discontinued operations                      |  |                |       |   |                                   |   |        |                                       |  |   | 842          |   |  |              |       |   |  |   | 842     |  
|Provision (benefit) for income taxes on discontinued operations    |  |                |       |   |                                   |   |        |                                       |  |   | 170          |   |  |              |       |   |  |   | 170     |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Net income (loss)                                                  |  | $              | (2,139 | ) |                                   | $ | 75      |                                       |  | $ | 409          |   |  | $            | (484   | ) |  | $ | (2,139  | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  



F-31



---

##### Table of Contents

Supplemental Consolidating Statement of Operations

For the Year Ended December 31, 2006



|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|------------------------------------------------------------------ |  | -------------- | ------ | - | --------------------------------- | - | ------- | ------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                                   |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |       
|Net sales                                                          |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Sales                                                              |  | $              |       |   |                                   | $ | 212,221 |                                       |  | $ | 64,055       |   |  | $            |       |   |  | $ | 276,276 |  
|Intercompany sales                                                 |  |                |       |   |                                   |   | 3,477   |                                       |  |   | 2,547        |   |  |              | (6,024 | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total net sales                                                    |  |                |       |   |                                   |   | 215,698 |                                       |  |   | 66,602       |   |  |              | (6,024 | ) |  |   | 276,276 |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Costs of operations:                                               |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Cost of goods sold (exclusive of depreciation)                     |  |                |       |   |                                   |   | 135,592 |                                       |  |   | 50,944       |   |  |              | (6,024 | ) |  |   | 180,512 |  
|Selling, general and administrative expenses                       |  |                | 1,872  |   |                                   |   | 31,100  |                                       |  |   | 4,941        |   |  |              |       |   |  |   | 37,913  |  
|Depreciation and amortization                                      |  |                |       |   |                                   |   | 16,037  |                                       |  |   | 4,024        |   |  |              |       |   |  |   | 20,061  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) operations                                   |  |                | (1,872 | ) |                                   |   | 32,969  |                                       |  |   | 6,693        |   |  |              |       |   |  |   | 37,790  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Non-operating expenses:                                            |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Interest expense                                                   |  |                | 1,937  |   |                                   |   | 30,839  |                                       |  |   | 2,236        |   |  |              |       |   |  |   | 35,012  |  
|Other expense (income), net                                        |  |                | 806    |   |                                   |   | (576    | )                                     |  |   | (5           | ) |  |              |       |   |  |   | 225     |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Total non-operating expenses                                       |  |                | 2,743  |   |                                   |   | 30,263  |                                       |  |   | 2,231        |   |  |              |       |   |  |   | 35,237  |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Equity in net income of subsidiaries                               |  |                | 3,765  |   |                                   |   |        |                                       |  |   |             |   |  |              | (3,765 | ) |  |   |        |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) on continuing operations before income taxes |  |                | (850   | ) |                                   |   | 2,706   |                                       |  |   | 4,462        |   |  |              | (3,765 | ) |  |   | 2,553   |  
|Provision (benefit) for income taxes                               |  |                | (1,775 | ) |                                   |   | 1,311   |                                       |  |   | 1,809        |   |  |              |       |   |  |   | 1,345   |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) on continuing operations                     |  |                | 925    |   |                                   |   | 1,395   |                                       |  |   | 2,653        |   |  |              | (3,765 | ) |  |   | 1,208   |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Income from (loss on) discontinued operations                      |  |                |       |   |                                   |   |        |                                       |  |   | (480         | ) |  |              |       |   |  |   | (480    | )
|Provision (benefit) for income taxes on discontinued operations    |  |                |       |   |                                   |   |        |                                       |  |   | (197         | ) |  |              |       |   |  |   | (197    | )
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  
|Net income (loss)                                                  |  | $              | 925    |   |                                   | $ | 1,395   |                                       |  | $ | 2,370        |   |  | $            | (3,765 | ) |  | $ | 925     |  
|                                                                   |  |                |        |   |                                   |   |         |                                       |  |   |              |   |  |              |        |   |  |   |         |  



F-32



---

##### Table of Contents

Supplemental Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2008



|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------- | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash provided by operations                     |  | $              | 6,580   |   |                                   | $ | 11,697  |                                       |  | $ | 9,001        |   |              | $ |  |  | $ | 27,278  |  
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Investing activities:                           |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Capital expenditures                            |  |                |        |   |                                   |   | (8,274  | )                                     |  |   | (4,457       | ) |              |   |  |  |   | (12,731 | )
|Proceeds from sales of assets                   |  |                |        |   |                                   |   | 524     |                                       |  |   | 242          |   |              |   |  |  |   | 766     |  
|Business acquisitions, net of cash acquired     |  |                |        |   |                                   |   | (3,013  | )                                     |  |   | (23,959      | ) |              |   |  |  |   | (26,972 | )
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash used in investing activities               |  |                |        |   |                                   |   | (10,763 | )                                     |  |   | (28,174      | ) |              |   |  |  |   | (38,937 | )
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Financing activities:                           |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Deferred financing fees                         |  |                | (117    | ) |                                   |   |        |                                       |  |   |             |   |              |   |  |  |   | (117    | )
|Payments on senior secured notes                |  |                | (7,843  | ) |                                   |   |        |                                       |  |   | (1,680       | ) |              |   |   |  |   | (9,523  | )
|Payments on other long-term debt                |  |                |        |   |                                   |   | (620    | )                                     |  |   | (77          | ) |              |   |  |  |   | (697    | )
|Intercompany financing                          |  |                | (15,725 | ) |                                   |   |        |                                       |  |   | 15,725       |   |              |   |  |  |   |        |  
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash provided by (used in) financing activities |  |                | (23,685 | ) |                                   |   | (620    | )                                     |  |   | 13,968       |   |              |   |  |  |   | (10,337 | )
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Effect of exchange rate changes on cash         |  |                |        |   |                                   |   |        |                                       |  |   | (1,705       | ) |              |   |  |  |   | (1,705  | )
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents         |  |                | (17,105 | ) |                                   |   | 314     |                                       |  |   | (6,910       | ) |              |   |  |  |   | (23,701 | )
|                                                |  |                |         |   |                                  
|Cash and cash equivalents, beginning of period  |  |                | 17,515  |   |                                   |   | 3,068   |                                       |  |   | 13,884       |   |              |   |  |  |   | 34,467  |  
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period        |  | $              | 410     |   |                                   | $ | 3,382   |                                       |  | $ | 6,974        |   |              | $ |  |  | $ | 10,766  |  
|                                                |  |                |         |   |                                   |   |         |                                       |  |   |              |   |              |   |   |  |   |         |  



F-33



---

##### Table of Contents

Supplemental Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2007



|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash provided by operations                     |  | $              | 5,238   |   |                                   | $ | 8,286  |                                       |  | $ | 10,286       |   |              | $ |  |  | $ | 23,810  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Investing activities:                           |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Capital expenditures                            |  |                |        |   |                                   |   | (8,913 | )                                     |  |   | (2,195       | ) |              |   |  |  |   | (11,108 | )
|Proceeds from sales of assets                   |  |                |        |   |                                   |   | 1,500  |                                       |  |   | (872         | ) |              |   |  |  |   | 628     |  
|Business acquisitions, net of cash acquired     |  |                | (28,520 | ) |                                   |   |       |                                       |  |   | (742         | ) |              |   |  |  |   | (29,262 | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash used in investing activities               |  |                | (28,520 | ) |                                   |   | (7,413 | )                                     |  |   | (3,809       | ) |              |   |  |  |   | (39,742 | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Financing activities:                           |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Deferred financing fees                         |  |                | (65     | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (65     | )
|Net borrowings on acquisition facility          |  |                | 40,000  |   |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | 40,000  |  
|Payments on senior secured notes                |  |                | (1,238  | ) |                                   |   |       |                                       |  |   | (216         | ) |              |   |  |  |   | (1,454  | )
|Payments on other long-term debt                |  |                |        |   |                                   |   | (90    | )                                     |  |   | (1,970       | ) |              |   |  |  |   | (2,060  | )
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash provided by (used in) financing activities |  |                | 38,697  |   |                                   |   | (90    | )                                     |  |   | (2,186       | ) |              |   |  |  |   | 36,421  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |         |   |                                  
|Effect of exchange rate changes on cash         |  |                |        |   |                                   |   |       |                                       |  |   | 1,320        |   |              |   |  |  |   | 1,320   |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents         |  |                | 15,415  |   |                                   |   | 783    |                                       |  |   | 5,611        |   |              |   |  |  |   | 21,809  |  
|                                                |  |                |         |   |                                  
|Cash and cash equivalents, beginning of period  |  |                | 2,100   |   |                                   |   | 2,285  |                                       |  |   | 8,273        |   |              |   |  |  |   | 12,658  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period        |  | $              | 17,515  |   |                                   | $ | 3,068  |                                       |  | $ | 13,884       |   |              | $ |  |  | $ | 34,467  |  
|                                                |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



F-34



---

##### Table of Contents

Supplemental Condensed Consolidating Statement of Cash Flows

For the Year Ended December 31, 2006



|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Cash provided by operations                     |  | $              | 1,309  |   |                                   | $ | 6,809  |                                       |  | $ | 12,084       |   |              | $ |  |  | $ | 20,202  |  
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |        |   |                                  
|Investing activities:                           |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Capital expenditures                            |  |                |       |   |                                   |   | (7,435 | )                                     |  |   | (1,215       | ) |              |   |  |  |   | (8,650  | )
|Proceeds from sales of assets                   |  |                |       |   |                                   |   | 2,060  |                                       |  |   |             |   |              |   |  |  |   | 2,060   |  
|Business acquisitions, net of cash acquired     |  |                |       |   |                                   |   |       |                                       |  |   | (4,424       | ) |              |   |  |  |   | (4,424  | )
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash used in investing activities               |  |                |       |   |                                   |   | (5,375 | )                                     |  |   | (5,639       | ) |              |   |  |  |   | (11,014 | )
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |        |   |                                  
|Financing activities:                           |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Deferred financing fees                         |  |                | (218   | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (218    | )
|Net borrowings on lines of credit               |  |                |       |   |                                   |   |       |                                       |  |   | 1,600        |   |              |   |  |  |   | 1,600   |  
|Payments on senior secured notes                |  |                | (996   | ) |                                   |   |       |                                       |  |   | (206         | ) |              |   |  |  |   | (1,202  | )
|Payments on other long-term debt                |  |                |       |   |                                   |   |       |                                       |  |   | (672         | ) |              |   |  |  |   | (672    | )
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash provided by (used in) financing activities |  |                | (1,214 | ) |                                   |   |       |                                       |  |   | 722          |   |              |   |  |  |   | (492    | )
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                |  |                |        |   |                                  
|Effect of exchange rate changes on cash         |  |                |       |   |                                   |   |       |                                       |  |   | (119         | ) |              |   |  |  |   | (119    | )
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents         |  |                | 95     |   |                                   |   | 1,434  |                                       |  |   | 7,048        |   |              |   |  |  |   | 8,577   |  
|                                                |  |                |        |   |                                  
|Cash and cash equivalents, beginning of period  |  |                | 2,005  |   |                                   |   | 851    |                                       |  |   | 1,225        |   |              |   |  |  |   | 4,081   |  
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period        |  | $              | 2,100  |   |                                   | $ | 2,285  |                                       |  | $ | 8,273        |   |              | $ |  |  | $ | 12,658  |  
|                                                |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



F-35



---

##### Table of Contents

|U. | Revisions
|-- | ---------

On February 28, 2007, the Company
sold its controlling interest in Mozaic to a third party. The historical results of Mozaic are presented as discontinued operations for all years presented in accordance with SFAS 144.

During 2007, the Company identified certain 2006 non-income tax related errors, which resulted in a $432 overstatement of costs of goods sold. We assessed
the materiality of these errors on the 2006 quarters and year ended December 31, 2006, in accordance with the SECs Staff Accounting Bulletin No. 99 (SAB 99) and concluded that these errors were not material to those
periods. However, because the correction of these errors in the 2007 financial statements would be material to 2007 results, in accordance with the SECs Staff Accounting Bulletin No. 108 (SAB 108), the 2006 financial
statements have been revised to correct the immaterial errors within the appropriate prior periods. The revision to the 2006 financial statements resulted in a reduction in cost of goods sold of $432 and an increase in income tax expense of $129.



F-36



---

##### Table of Contents

Schedule IIValuation and Qualifying Accounts



|                                 |  |                              |       |                            |   |                           |  |   |                                  |   |                        |   |     |  |   |      
|-------------------------------- |  | ---------------------------- | ----- | -------------------------- | - | ------------------------- |  | - | -------------------------------- | - | ---------------------- | - | --- |  | - | -----
|                                 |  | BALANCE ATBEGINNINGOF PERIOD |       | ADDITIONSCHARGED TOEXPENSE |   | WRITE-OFFSTO THEALLOWANCE |  |   | CHANGES DUETO PURCHASEACCOUNTING |   | BALANCE ATEND OFPERIOD
|                                 |  | (IN THOUSANDS)              
|ALLOWANCE FOR DOUBTFUL ACCOUNTS  |  |                              |       |                            |   |                           |  |   |                                  |   |                        |   |     |  |   |      
|                                 |  |                              |       |                            |  
|Year ended December 31, 2008     |  | $                            | 830   |                            | $ | 2,321                     |  | $ | (1,853                           | ) |                        | $ | 29  |  | $ | 1,327
|Year ended December 31, 2007     |  |                              | 1,422 |                            |   | 1,236                     |  |   | (1,828                           | ) |                        |   |    |  |   | 830  
|Year ended December 31, 2006     |  |                              | 1,362 |                            |   | 1,340                     |  |   | (1,484                           | ) |                        |   | 204 |  |   | 1,422
|                                 |  |                              |       |                            |  
|DEFERRED TAX VALUATION ALLOWANCE |  |                              |       |                            |   |                           |  |   |                                  |   |                        |   |     |  |   |      
|                                 |  |                              |       |                            |  
|Year ended December 31, 2008     |  | $                            | 706   |                            | $ | 411                       |  | $ |                                 |   |                        | $ |    |  | $ | 1,117
|Year ended December 31, 2007     |  |                              | 297   |                            |   | 409                       |  |   |                                 |   |                        |   |    |  |   | 706  
|Year ended December 31, 2006     |  |                              |      |                            |   | 297                       |  |   |                                 |   |                        |   |    |  |   | 297  



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