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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended June 30, 2010

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)

Not Applicable

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





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

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

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | 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

As of July 31, 2010 there were 100 shares of the registrants common stock, $0.01 par value, outstanding.









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TABLE OF CONTENTS



|                               |  |                                                                                       |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --
|PART I  FINANCIAL INFORMATION |  | 3                                                                                    
|Item 1.                        |  | Financial Statements                                                                  |  | 3 
|                               |  |                                                                                      
|                               |  | Condensed Consolidated Statements of Income                                           |  | 3 
|                               |  |                                                                                      
|                               |  | Condensed Consolidated Balance Sheets                                                 |  | 5 
|                               |  |                                                                                      
|                               |  | Condensed Consolidated Statements of Cash Flows                                       |  | 6 
|                               |  |                                                                                      
|                               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 7 
|                               |  |                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |  | 21
|                               |  |                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27
|                               |  |                                                                                      
|Item 4T.                       |  | Controls and Procedures                                                               |  | 27
|                               | 
|PART II  OTHER INFORMATION    |  | 28                                                                                   
|Item 1.                        |  | Legal Proceedings                                                                     |  | 28
|                               |  |                                                                                      
|Item 1A.                       |  | Risk Factors                                                                          |  | 28
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits                                                                              |  | 28
|                               |  |                                                                                      
|SIGNATURES                     |  |                                                                                       |  | 30



2



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##### Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(unaudited)

(in thousands of dollars)





|                                               |  |                                 |        |                                 |   |       
|---------------------------------------------- |  | ------------------------------- | ------ | ------------------------------- | - | ------
|                                               |  | Three Months EndedJune 30, 2010 |        | Three Months EndedJune 30, 2009
|                                               |  |                                
|NET SALES                                      |  | $                               | 94,201 |                                 | $ | 80,342
|                                               |  |                                
|COSTS OF OPERATIONS:                           |  |                                 |        |                                 |   |       
|Cost of goods sold (exclusive of depreciation) |  |                                 | 53,526 |                                 |   | 51,258
|Selling, general, and administrative expenses  |  |                                 | 13,752 |                                 |   | 12,638
|Depreciation and amortization                  |  |                                 | 5,837  |                                 |   | 5,918 
|                                               |  |                                 |        |                                 |   |       
|                                               |  |                                
|INCOME FROM OPERATIONS                         |  |                                 | 21,086 |                                 |   | 10,528
|                                               |  |                                 |        |                                 |   |       
|                                               |  |                                
|NON-OPERATING EXPENSES:                        |  |                                 |        |                                 |   |       
|                                               |  |                                
|Interest expense, net                          |  |                                 | 6,711  |                                 |   | 7,364 
|Other expense, net                             |  |                                 | 20     |                                 |   | 991   
|                                               |  |                                 |        |                                 |   |       
|                                               |  |                                
|INCOME BEFORE INCOME TAXES                     |  |                                 | 14,355 |                                 |   | 2,173 
|                                               |  |                                
|PROVISION FOR INCOME TAXES                     |  |                                 | 5,713  |                                 |   | 852   
|                                               |  |                                 |        |                                 |   |       
|                                               |  |                                
|NET INCOME                                     |  | $                               | 8,642  |                                 | $ | 1,321 
|                                               |  |                                 |        |                                 |   |       

The accompanying notes, together with the notes to the Consolidated
Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2009, are an integral part of the financial statements.



3



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(unaudited)

(in thousands of dollars)





|                                               |  |                               |         |                               |   |         |  
|---------------------------------------------- |  | ----------------------------- | ------- | ----------------------------- | - | ------- | -
|                                               |  | Six Months EndedJune 30, 2010 |         | Six Months EndedJune 30, 2009 |  
|                                               |  |                              
|NET SALES                                      |  | $                             | 180,488 |                               | $ | 161,039 |  
|                                               |  |                              
|COSTS OF OPERATIONS:                           |  |                               |         |                               |   |         |  
|Cost of goods sold (exclusive of depreciation) |  |                               | 104,296 |                               |   | 102,635 |  
|Selling, general, and administrative expenses  |  |                               | 27,413  |                               |   | 25,294  |  
|Depreciation and amortization                  |  |                               | 11,684  |                               |   | 11,647  |  
|                                               |  |                               |         |                               |   |         |  
|                                               |  |                              
|INCOME FROM OPERATIONS                         |  |                               | 37,095  |                               |   | 21,463  |  
|                                               |  |                               |         |                               |   |         |  
|                                               |  |                              
|NON-OPERATING EXPENSES (INCOME):               |  |                               |         |                               |   |         |  
|                                               |  |                              
|Interest expense, net                          |  |                               | 13,389  |                               |   | 15,444  |  
|Gain on debt extinguishment                    |  |                               |        |                               |   | (10,500 | )
|Other expense, net                             |  |                               | 586     |                               |   | 443     |  
|                                               |  |                               |         |                               |   |         |  
|                                               |  |                              
|INCOME BEFORE INCOME TAXES                     |  |                               | 23,120  |                               |   | 16,076  |  
|                                               |  |                              
|PROVISION FOR INCOME TAXES                     |  |                               | 8,947   |                               |   | 6,363   |  
|                                               |  |                               |         |                               |   |         |  
|                                               |  |                              
|NET INCOME                                     |  | $                             | 14,173  |                               | $ | 9,713   |  
|                                               |  |                               |         |                               |   |         |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual report on
Form 10-K for the year ended December 31, 2009, are an integral part of the financial statements.



4



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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





|                                                                                                                      |  |               |         |   |                   |   |        
|--------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | -------
|                                                                                                                      |  | June 30, 2010 |         |   | December 31, 2009
|                                                                                                                      |  | (unaudited)   |         |   |                  
|                                                                                                                      |  |              
|ASSETS                                                                                                                |  |               |         |   |                   |   |        
|                                                                                                                      |  |              
|Current assets:                                                                                                       |  |               |         |   |                   |   |        
|Cash and cash equivalents                                                                                             |  | $             | 9,538   |   |                   | $ | 10,710 
|Receivables from customers, less allowances of $1,685 and $1,204 at June 30, 2010 and December 31, 2009, respectively |  |               | 69,282  |   |                   |   | 60,855 
|Inventories                                                                                                           |  |               | 10,317  |   |                   |   | 8,929  
|Deferred income taxes                                                                                                 |  |               | 2,532   |   |                   |   | 2,550  
|Prepaid expenses and other current assets                                                                             |  |               | 4,022   |   |                   |   | 4,121  
|                                                                                                                      |  |               |         |   |                   |   |        
|Total current assets                                                                                                  |  |               | 95,691  |   |                   |   | 87,165 
|                                                                                                                      |  |              
|Properties, plants and equipment, net                                                                                 |  |               | 40,390  |   |                   |   | 42,597 
|Goodwill                                                                                                              |  |               | 181,804 |   |                   |   | 183,139
|Other intangible assets, net                                                                                          |  |               | 162,538 |   |                   |   | 165,245
|Deferred financing costs, net                                                                                         |  |               | 3,294   |   |                   |   | 4,120  
|Other assets                                                                                                          |  |               | 1,396   |   |                   |   | 1,407  
|                                                                                                                      |  |               |         |   |                   |   |        
|TOTAL ASSETS                                                                                                          |  | $             | 485,113 |   |                   | $ | 483,673
|                                                                                                                      |  |               |         |   |                   |   |        
|                                                                                                                      |  |              
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                  |  |               |         |   |                   |   |        
|                                                                                                                      |  |              
|Current liabilities:                                                                                                  |  |               |         |   |                   |   |        
|Accounts payable, trade                                                                                               |  | $             | 11,702  |   |                   | $ | 13,498 
|Accrued compensation                                                                                                  |  |               | 4,733   |   |                   |   | 6,702  
|Accrued taxes, including taxes on income                                                                              |  |               | 2,598   |   |                   |   | 2,146  
|Accrued interest                                                                                                      |  |               | 1,356   |   |                   |   | 1,388  
|Other current liabilities                                                                                             |  |               | 9,111   |   |                   |   | 10,730 
|Current portion of short-term and long-term obligations                                                               |  |               | 616     |   |                   |   | 951    
|                                                                                                                      |  |               |         |   |                   |   |        
|Total current liabilities                                                                                             |  |               | 30,116  |   |                   |   | 35,415 
|                                                                                                                      |  |              
|Long-term obligations, net of current portion                                                                         |  |               | 295,450 |   |                   |   | 307,918
|Non-current liabilities                                                                                               |  |               | 1,052   |   |                   |   | 1,268  
|Deferred income taxes                                                                                                 |  |               | 28,885  |   |                   |   | 20,562 
|                                                                                                                      |  |               |         |   |                   |   |        
|Total liabilities                                                                                                     |  |               | 355,503 |   |                   |   | 365,163
|                                                                                                                      |  |               |         |   |                   |   |        
|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
|Retained earnings                                                                                                     |  |               | 25,528  |   |                   |   | 11,355 
|Accumulated other comprehensive income (loss) - unrealized translation adjustments, net of tax                        |  |               | (2,918  | ) |                   |   | 155    
|                                                                                                                      |  |               |         |   |                   |   |        
|Total stockholders equity                                                                                            |  |               | 129,610 |   |                   |   | 118,510
|                                                                                                                      |  |               |         |   |                   |   |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                            |  | $             | 485,113 |   |                   | $ | 483,673
|                                                                                                                      |  |               |         |   |                   |   |        

The accompanying notes, together with the notes to the Consolidated
Financial Statements included in our annual report on Form 10-K for the year ended December 31, 2009, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands of dollars)





|                                                      |  |                               |         |   |                               |   |         |  
|----------------------------------------------------- |  | ----------------------------- | ------- | - | ----------------------------- | - | ------- | -
|                                                      |  | Six Months EndedJune 30, 2010 |         |   | Six Months EndedJune 30, 2009 |  
|                                                      |  |                              
|CASH FLOWS FROM OPERATING ACTIVITIES                  |  | $                             | 17,822  |   |                               | $ | 13,201  |  
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |  |                               |         |   |                               |   |         |  
|Acquisition of properties, plants and equipment       |  |                               | (4,977  | ) |                               |   | (4,265  | )
|Proceeds from sales of equipment                      |  |                               | 10      |   |                               |   | 7       |  
|Business acquisitions, net of cash acquired           |  |                               | (1,659  | ) |                               |   | (3,619  | )
|                                                      |  |                               |         |   |                               |   |         |  
|Net cash used in investing activities                 |  |                               | (6,626  | ) |                               |   | (7,877  | )
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |  |                               |         |   |                               |   |         |  
|Borrowings on revolving credit facility               |  |                               |        |   |                               |   | 21,609  |  
|Payments on revolving credit facility                 |  |                               |        |   |                               |   | (14,903 | )
|Payments to extinguish senior subordinated notes      |  |                               |        |   |                               |   | (15,000 | )
|Payments on senior term loan and acquisition facility |  |                               | (11,773 | ) |                               |   | (197    | )
|Payments on other long-term debt                      |  |                               | (343    | ) |                               |   | (371    | )
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|Net cash used in financing activities                 |  |                               | (12,116 | ) |                               |   | (8,862  | )
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|Effect of exchange rate changes on cash               |  |                               | (252    | ) |                               |   | 600     |  
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|DECREASE IN CASH AND CASH EQUIVALENTS                 |  |                               | (1,172  | ) |                               |   | (2,938  | )
|                                                      |  |                              
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |  |                               | 10,710  |   |                               |   | 10,766  |  
|                                                      |  |                               |         |   |                               |   |         |  
|                                                      |  |                              
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |  | $                             | 9,538   |   |                               | $ | 7,828   |  
|                                                      |  |                               |         |   |                               |   |         |  

The accompanying notes, together with the notes to the Consolidated Financial Statements included in our annual report on
Form 10-K for the year ended December 31, 2009, are an integral part of the financial statements.



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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



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

General Nature of Business

SGS International, Inc. (the Company), 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 39 locations in the United States, Canada, Mexico, the United Kingdom, the Netherlands, Hong Kong, and the Philippines.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting
principles generally accepted in the United States for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and related footnotes that would normally be required by accounting
principles generally accepted in the United States for complete financial reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the Companys consolidated audited financial statements for the
year ended December 31, 2009 in the Companys Form 10-K filed with the U.S. Securities and Exchange Commission (SEC). The December 31, 2009 balance sheet data was derived from audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the United States.

The accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting of a normal and recurring nature) that management considers necessary for a fair statement of financial information for the interim periods. Interim results are not necessarily
indicative of the results that may be expected for the remainder of the year ending December 31, 2010.

Principles of
Consolidation

The accompanying condensed 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, SGS Packaging Netherlands B.V., McGurk Studios Limited, Thames McGurk Limited, and SGS Asia
Pacific Limited.

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 products are shipped upon completion. Raw materials inventory and work-in-process inventory are as follows:



|                |  |              |        |                  |   |      
|--------------- |  | ------------ | ------ | ---------------- | - | -----
|                |  | June 30,2010 |        | December 31,2009
|Raw materials   |  | $            | 3,122  |                  | $ | 2,571
|Work-in-process |  |              | 7,195  |                  |   | 6,358
|                |  |              |        |                  |   |      
|Total           |  | $            | 10,317 |                  | $ | 8,929
|                |  |              |        |                  |   |      



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Use of Estimates

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

Recently Issued and Adopted
Accounting Standards

In October 2009, the Financial Accounting Standards Board issued new accounting guidance related to
revenue arrangements with multiple deliverables. The guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which
the transaction consideration is allocated across the individual deliverables, thereby affecting the timing of revenue recognition. Also, the guidance expands the disclosure requirements for revenue arrangements with multiple deliverables. The
guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or
materially modified after the adoption date. The adoption of this guidance will not have a material impact on the Companys consolidated financial statements.



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

Goodwill and other intangible assets consist of the following:



|                                                  |  |              |         |   |                  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                  |  | June 30,2010 |         |   | December 31,2009 |  
|                                                  |  |             
|Goodwill, cost                                    |  | $            | 181,804 |   |                  | $ | 183,139 |  
|                                                  |  |              |         |   |                  |   |         |  
|                                                  |  |             
|Customer relationships, cost                      |  | $            | 174,768 |   |                  | $ | 176,459 |  
|Customer relationships, accumulated amortization  |  |              | (36,738 | ) |                  |   | (32,659 | )
|                                                  |  |             
|Other intangible assets, cost                     |  |              | 30,719  |   |                  |   | 26,732  |  
|Other intangible assets, accumulated amortization |  |              | (6,211  | ) |                  |   | (5,287  | )
|                                                  |  |              |         |   |                  |   |         |  
|Total                                             |  | $            | 162,538 |   |                  | $ | 165,245 |  
|                                                  |  |              |         |   |                  |   |         |  



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The change in goodwill, customer relationships (cost) and other intangible assets (cost)
during the six months ended June 30, 2010 is due to the following:



|                                             |  |          |         |   |                              |   |         |                               |  |   |        |  
|-------------------------------------------- |  | -------- | ------- | - | ---------------------------- | - | ------- | ----------------------------- |  | - | ------ | -
|                                             |  | Goodwill |         |   | Customerrelationships (cost) |   |         | Other intangibleassets (cost) | 
|                                             |  |          |        
|Balance at December 31, 2009                 |  | $        | 183,139 |   |                              | $ | 176,459 |                               |  | $ | 26,732 |  
|                                             |  |          |        
|Payment for exclusive supply agreement       |  |          |        |   |                              |   |        |                               |  |   | 4,163  |  
|                                             |  |          |        
|Changes due to foreign currency fluctuations |  |          | (1,335  | ) |                              |   | (1,691  | )                             |  |   | (176   | )
|                                             |  |          |         |   |                              |   |         |                               |  |   |        |  
|                                             |  |          |        
|Balance at June 30, 2010                     |  | $        | 181,804 |   |                              | $ | 174,768 |                               |  | $ | 30,719 |  
|                                             |  |          |         |   |                              |   |         |                               |  |   |        |  

Amortization of customer relationships and other intangible assets is estimated to be between $10,000 and
$11,000 in total per year from 2010 through 2014.

Amortization of the payment for the exclusive supply agreement is recorded
as a reduction in net sales. Such amortization is expected to be $833 annually and was $208 and $320 for the quarter and six months ended June 30, 2010, respectively.



|C. | Interest Expense, net
|-- | ---------------------

Interest expense, net consists of the following:



|                                               |  |                                 |        |                                 |   |       
|---------------------------------------------- |  | ------------------------------- | ------ | ------------------------------- | - | ------
|                                               |  | Three Months EndedJune 30, 2010 |        | Three Months EndedJune 30, 2009
|Interest on senior term loan                   |  | $                               | 701    |                                 | $ | 1,112 
|Interest on borrowings on acquisition facility |  |                                 | 284    |                                 |   | 397   
|Interest on senior subordinated notes          |  |                                 | 5,235  |                                 |   | 5,351 
|Amortization of deferred financing costs       |  |                                 | 434    |                                 |   | 369   
|Commitment fees on senior credit facility      |  |                                 | 53     |                                 |   | 41    
|Other                                          |  |                                 | 4      |                                 |   | 94    
|                                               |  |                                 |        |                                 |   |       
|Total                                          |  | $                               | 6,711  |                                 | $ | 7,364 
|                                               |  |                                 |        |                                 |   |       
|                                               |  |                                
|                                               |  | Six Months EndedJune 30, 2010   |        | Six Months EndedJune 30, 2009  
|Interest on senior term loan                   |  | $                               | 1,399  |                                 | $ | 2,278 
|Interest on borrowings on acquisition facility |  |                                 | 562    |                                 |   | 804   
|Interest on senior subordinated notes          |  |                                 | 10,470 |                                 |   | 10,835
|Amortization of deferred financing costs       |  |                                 | 826    |                                 |   | 1,244 
|Commitment fees on senior credit facility      |  |                                 | 106    |                                 |   | 82    
|Other                                          |  |                                 | 26     |                                 |   | 201   
|                                               |  |                                 |        |                                 |   |       
|Total                                          |  | $                               | 13,389 |                                 | $ | 15,444
|                                               |  |                                 |        |                                 |   |       



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|D. | Gain on Debt Extinguishment
|-- | ---------------------------

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, resulting in a gain on debt extinguishment of $10,500.



|E. | Comprehensive Income
|-- | --------------------

The
following table sets forth comprehensive income for the quarters and six months ended June 30, 2010 and 2009:



|                                        |  |                                 |        |   |                                 |   |       
|--------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | - | ------
|                                        |  | Three Months EndedJune 30, 2010 |        |   | Three Months EndedJune 30, 2009
|Net income                              |  | $                               | 8,642  |   |                                 | $ | 1,321 
|Cumulative translation adjustments, net |  |                                 | (3,783 | ) |                                 |   | 10,038
|                                        |  |                                 |        |   |                                 |   |       
|Total                                   |  | $                               | 4,859  |   |                                 | $ | 11,359
|                                        |  |                                 |        |   |                                 |   |       
|                                        |  |                                
|                                        |  | Six Months EndedJune 30, 2010   |        |   | Six Months EndedJune 30, 2009  
|Net income                              |  | $                               | 14,173 |   |                                 | $ | 9,713 
|Cumulative translation adjustments, net |  |                                 | (3,073 | ) |                                 |   | 7,791 
|                                        |  |                                 |        |   |                                 |   |       
|Total                                   |  | $                               | 11,100 |   |                                 | $ | 17,504
|                                        |  |                                 |        |   |                                 |   |       



|F. | Fair Value Measurements
|-- | -----------------------

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

The following table shows
assets measured at fair value as of June 30, 2010 on the Companys balance sheet, and the input categories associated with those assets:



|                                     |  |                                  |       |                                                                                |   |      
|------------------------------------ |  | -------------------------------- | ----- | ------------------------------------------------------------------------------ | - | -----
|                                     |  | Total Fair Valueat June 30, 2010 |       | Fair Value Measurementsat Reporting Date UsingQuoted Prices 
in Active Markets
|                                     |  |                                 
|Deferred compensation plan assets(a) |  | $                                | 1,008 |                                                                                | $ | 1,008



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



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The Companys Notes have a carrying value of $174,500 and an estimated fair value of
$178,462 at June 30, 2010. The estimated fair value of the Companys Notes is determined using quoted prices in markets that are not active and is based on the average price of the Notes either traded or purchased by third parties between
June 1, 2010 and July 31, 2010.



|G. | Commitments and Contingencies
|-- | -----------------------------

Various lawsuits, claims and proceedings have been or may be instituted or asserted against entities within the Company. While the amounts
claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by
certain contingencies. However, based on currently available facts and in light of legal and other defenses available to us, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect
on the Companys financial position, results of operations, and liquidity.



|H. | Income Taxes
|-- | ------------

The
effective tax rate for the six months ended June 30, 2010 was 38.7% compared to 39.6% for the six months ended June 30, 2009. The decrease in the effective tax rate was primarily due to the global dispersion of income before taxes, as a
higher percentage of the Companys income before taxes during the six months ended June 30, 2010 was generated by subsidiaries outside the United States than for the six months ended June 30, 2009. The subsidiaries outside the United
States generally have a lower statutory tax rate than the United States.

The effective tax rate for the quarter ended
June 30, 2010 was 39.8% compared to 39.2% for the quarter ended June 30, 2009.

During the second quarter of 2010,
the Company elected to defer the recognition, for tax purposes, of a $10,500 gain on debt extinguishment, which had previously been included as income in the Companys 2009 tax provision calculations. Under this election, income is deferred
until the 5th year after the gain on debt extinguishment, then the income is included ratably over the following 5 years. Making this election resulted in an increase of both deferred tax liabilities and deferred tax assets, in the form of net
operating loss carryforwards, and resulted in an alternative minimum tax (AMT) credit for estimated AMT taxes paid as a result of including the gain in the 2009 tax provision calculations. In early 2011, to avoid withholding taxes on intercompany
interest, the Company plans to make an election regarding certain foreign subsidiaries that will result in the utilization of all unlimited and available United States net operating loss carryforwards in 2011. This will substantially reduce the
amount of deferred tax liabilities and deferred tax assets and will result in the reversal of $1,180 of currently recorded accrued tax expenses.

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 June 30, 2010, undistributed earnings of international subsidiaries considered permanently reinvested were approximately $1,769. 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 is expected to be offset with
foreign tax credits.



|I. | Supplemental Guarantor Information
|-- | ----------------------------------

The Companys debt includes the senior credit facility and the Notes. The U.S. borrowings under the senior credit facility have been
guaranteed by Southern Graphics Inc. (the parent of SGS International, Inc.), Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. The Canadian borrowings under the senior credit facility have been guaranteed by SGS Packaging Europe Holdings
Limited, SGS Packaging Europe Limited, MCG Graphics Limited, Southern Graphic Systems Mexico, S. De R.L. De C.V., The Box Room Limited, SGS Packaging Netherlands, B.V., McGurk Studios Limited, Thames McGurk Limited, SGS Asia Pacific Limited,
Southern Graphic Systems, Inc., Project Dove Holdco, Inc., Project Dove Manitoba, L.P., Southern Graphics Inc., and SGS International, Inc. The Notes are general unsecured obligations and are guaranteed on a senior subordinated basis by the
Companys domestic subsidiaries and rank secondary to the Companys senior credit



11



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##### Table of Contents

facility. Guarantor subsidiaries for the Notes include Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. Non-guarantor subsidiaries for the Notes include the direct and indirect
foreign subsidiaries. The subsidiary guarantors are 100% owned by SGS International, Inc., the guarantees are full and unconditional, and the guarantees are joint and several.

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

Certain
reclassifications for intercompany interest related items have been made to the consolidating statement of operations for the three months ended and six months ended June 30, 2009 to conform to the presentation for the three months ended and
six months ended June 30, 2010.



12



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

June 30, 2010



|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|------------------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                                        |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                                  |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current assets                                          |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                               |  | $              | 38      |                                   | $ | 1,916                                 |  | $            | 7,584   |  | $            |         |   |  | $ | 9,538  
|Receivables from customers, less allowances             |  |                |        |                                   |   | 46,193                                |  |              | 23,089  |  |              |         |   |  |   | 69,282 
|Intercompany receivables                                |  |                | 289,378 |                                   |   | 19,493                                |  |              | 581     |  |              | (309,452 | ) |  |   |       
|Inventories                                             |  |                |        |                                   |   | 7,183                                 |  |              | 3,134   |  |              |         |   |  |   | 10,317 
|Deferred income taxes                                   |  |                | 106     |                                   |   | 2,330                                 |  |              | 96      |  |              |         |   |  |   | 2,532  
|Prepaid expenses and other current assets               |  |                | 108     |                                   |   | 2,129                                 |  |              | 1,785   |  |              |         |   |  |   | 4,022  
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current assets                                    |  |                | 289,630 |                                   |   | 79,244                                |  |              | 36,269  |  |              | (309,452 | ) |  |   | 95,691 
|Investment in subsidiaries                              |  |                | 137,073 |                                   |   | 29,225                                |  |              | 36,567  |  |              | (202,865 | ) |  |   |       
|Properties, plants and equipment, net                   |  |                |        |                                   |   | 32,558                                |  |              | 7,832   |  |              |         |   |  |   | 40,390 
|Goodwill                                                |  |                |        |                                   |   | 119,970                               |  |              | 61,834  |  |              |         |   |  |   | 181,804
|Other intangible assets, net                            |  |                |        |                                   |   | 119,279                               |  |              | 43,259  |  |              |         |   |  |   | 162,538
|Deferred financing costs, net                           |  |                | 3,294   |                                   |   |                                      |  |              |        |  |              |         |   |  |   | 3,294  
|Other assets                                            |  |                |        |                                   |   | 1,138                                 |  |              | 258     |  |              |         |   |  |   | 1,396  
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total assets                                            |  | $              | 429,997 |                                   | $ | 381,414                               |  | $            | 186,019 |  | $            | (512,317 | ) |  | $ | 485,113
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Liabilities                                             |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current liabilities                                     |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                                 |  | $              | 386     |                                   | $ | 7,200                                 |  | $            | 4,116   |  | $            |         |   |  | $ | 11,702 
|Intercompany payables                                   |  |                | 18,883  |                                   |   | 259,609                               |  |              | 30,960  |  |              | (309,452 | ) |  |   |       
|Accrued compensation                                    |  |                |        |                                   |   | 3,699                                 |  |              | 1,034   |  |              |         |   |  |   | 4,733  
|Accrued taxes, including taxes on income                |  |                |        |                                   |   | 612                                   |  |              | 1,986   |  |              |         |   |  |   | 2,598  
|Accrued interest                                        |  |                | 193     |                                   |   | 1,161                                 |  |              | 2       |  |              |         |   |  |   | 1,356  
|Other current liabilities                               |  |                |        |                                   |   | 7,008                                 |  |              | 2,103   |  |              |         |   |  |   | 9,111  
|Current portion of short-term and long-term obligations |  |                | 386     |                                   |   | 230                                   |  |              |        |  |              |         |   |  |   | 616    
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                               |  |                | 19,848  |                                   |   | 279,519                               |  |              | 40,201  |  |              | (309,452 | ) |  |   | 30,116 
|Non-current liabilities                                 |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion           |  |                | 280,143 |                                   |   | 54                                    |  |              | 15,253  |  |              |         |   |  |   | 295,450
|Non-current liabilities                                 |  |                |        |                                   |   | 1,022                                 |  |              | 30      |  |              |         |   |  |   | 1,052  
|Deferred income taxes                                   |  |                | 396     |                                   |   | 12,627                                |  |              | 15,862  |  |              |         |   |  |   | 28,885 
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities                                       |  |                | 300,387 |                                   |   | 293,222                               |  |              | 71,346  |  |              | (309,452 | ) |  |   | 355,503
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Contingencies and commitments                           |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Stockholders equity                                    |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Common stock                                            |  |                |        |                                   |   |                                      |  |              |        |  |              |         |   |  |   |       
|Other stockholders equity                              |  |                | 129,610 |                                   |   | 88,192                                |  |              | 114,673 |  |              | (202,865 | ) |  |   | 129,610
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                              |  |                | 129,610 |                                   |   | 88,192                                |  |              | 114,673 |  |              | (202,865 | ) |  |   | 129,610
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity              |  | $              | 429,997 |                                   | $ | 381,414                               |  | $            | 186,019 |  | $            | (512,317 | ) |  | $ | 485,113
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

December 31, 2009



|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|------------------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | ------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                                        |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                                  |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current assets                                          |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                               |  | $              | 237     |                                   | $ | 3,005                                 |  | $            | 7,468   |  | $            |         |   |  | $ | 10,710 
|Receivables from customers, less allowances             |  |                |        |                                   |   | 39,328                                |  |              | 21,527  |  |              |         |   |  |   | 60,855 
|Intercompany receivables                                |  |                | 415,780 |                                   |   | 140,374                               |  |              | 5,158   |  |              | (561,312 | ) |  |   |       
|Inventories                                             |  |                |        |                                   |   | 6,125                                 |  |              | 2,804   |  |              |         |   |  |   | 8,929  
|Deferred income taxes                                   |  |                |        |                                   |   | 2,453                                 |  |              | 97      |  |              |         |   |  |   | 2,550  
|Prepaid expenses and other current assets               |  |                | 160     |                                   |   | 1,975                                 |  |              | 1,986   |  |              |         |   |  |   | 4,121  
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current assets                                    |  |                | 416,177 |                                   |   | 193,260                               |  |              | 39,040  |  |              | (561,312 | ) |  |   | 87,165 
|Investment in subsidiaries                              |  |                | 127,916 |                                   |   | 30,005                                |  |              |        |  |              | (157,921 | ) |  |   |       
|Properties, plants and equipment, net                   |  |                |        |                                   |   | 34,207                                |  |              | 8,390   |  |              |         |   |  |   | 42,597 
|Goodwill                                                |  |                |        |                                   |   | 121,013                               |  |              | 62,126  |  |              |         |   |  |   | 183,139
|Other intangible assets, net                            |  |                |        |                                   |   | 119,121                               |  |              | 46,124  |  |              |         |   |  |   | 165,245
|Deferred financing costs, net                           |  |                | 4,120   |                                   |   |                                      |  |              |        |  |              |         |   |  |   | 4,120  
|Other assets                                            |  |                |        |                                   |   | 1,094                                 |  |              | 313     |  |              |         |   |  |   | 1,407  
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total assets                                            |  | $              | 548,213 |                                   | $ | 498,700                               |  | $            | 155,993 |  | $            | (719,233 | ) |  | $ | 483,673
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Liabilities                                             |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Current liabilities                                     |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                                 |  | $              | 423     |                                   | $ | 8,514                                 |  | $            | 4,561   |  | $            |         |   |  | $ | 13,498 
|Intercompany payables                                   |  |                | 137,612 |                                   |   | 388,870                               |  |              | 34,830  |  |              | (561,312 | ) |  |   |       
|Accrued compensation                                    |  |                |        |                                   |   | 5,390                                 |  |              | 1,312   |  |              |         |   |  |   | 6,702  
|Accrued taxes, including taxes on income                |  |                |        |                                   |   | 496                                   |  |              | 1,650   |  |              |         |   |  |   | 2,146  
|Accrued interest                                        |  |                | 187     |                                   |   | 1,199                                 |  |              | 2       |  |              |         |   |  |   | 1,388  
|Other current liabilities                               |  |                |        |                                   |   | 6,845                                 |  |              | 3,885   |  |              |         |   |  |   | 10,730 
|Current portion of short-term and long-term obligations |  |                | 388     |                                   |   | 563                                   |  |              |        |  |              |         |   |  |   | 951    
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                               |  |                | 138,610 |                                   |   | 411,877                               |  |              | 46,240  |  |              | (561,312 | ) |  |   | 35,415 
|Non-current liabilities                                 |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion           |  |                | 290,227 |                                   |   | 66                                    |  |              | 17,625  |  |              |         |   |  |   | 307,918
|Non-current liabilities                                 |  |                |        |                                   |   | 988                                   |  |              | 280     |  |              |         |   |  |   | 1,268  
|Deferred income taxes                                   |  |                | 866     |                                   |   | 6,314                                 |  |              | 13,382  |  |              |         |   |  |   | 20,562 
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities                                       |  |                | 429,703 |                                   |   | 419,245                               |  |              | 77,527  |  |              | (561,312 | ) |  |   | 365,163
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Contingencies and commitments                           |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Stockholders equity:                                   |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Common stock                                            |  |                |        |                                   |   |                                      |  |              |        |  |              |         |   |  |   |       
|Other stockholders equity                              |  |                | 118,510 |                                   |   | 79,455                                |  |              | 78,466  |  |              | (157,921 | ) |  |   | 118,510
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                              |  |                | 118,510 |                                   |   | 79,455                                |  |              | 78,466  |  |              | (157,921 | ) |  |   | 118,510
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity              |  | $              | 548,213 |                                   | $ | 498,700                               |  | $            | 155,993 |  | $            | (719,233 | ) |  | $ | 483,673
|                                                        |  |                |         |                                   |   |                                       |  |              |         |  |              |          |   |  |   |        



14



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended June 30, 2010



|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|----------------------------------------------------------- |  | -------------- | ----- | - | --------------------------------- | - | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | ------
|                                                            |  | Parent /Issuer |       |   | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated
|Net sales:                                                  |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Sales                                                       |  | $              |      |   |                                   | $ | 65,907                                |  | $            | 28,294 |  | $            |       |   |  | $ | 94,201
|Intercompany sales                                          |  |                |      |   |                                   |   | 781                                   |  |              | 2,083  |  |              | (2,864 | ) |  |   |      
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Total net sales                                             |  |                |      |   |                                   |   | 66,688                                |  |              | 30,377 |  |              | (2,864 | ) |  |   | 94,201
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Costs of operations:                                        |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Cost of goods sold (exclusive of depreciation)              |  |                |      |   |                                   |   | 38,721                                |  |              | 17,669 |  |              | (2,864 | ) |  |   | 53,526
|Selling, general and administrative expenses                |  |                | 359   |   |                                   |   | 8,886                                 |  |              | 4,507  |  |              |       |   |  |   | 13,752
|Depreciation and amortization                               |  |                |      |   |                                   |   | 4,314                                 |  |              | 1,523  |  |              |       |   |  |   | 5,837 
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Income (loss) from operations                               |  |                | (359  | ) |                                   |   | 14,767                                |  |              | 6,678  |  |              |       |   |  |   | 21,086
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Interest expense, net                                       |  |                | 305   |   |                                   |   | 5,733                                 |  |              | 673    |  |              |       |   |  |   | 6,711 
|Other expense (income), net                                 |  |                | (41   | ) |                                   |   | 13                                    |  |              | 48     |  |              |       |   |  |   | 20    
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Income (loss) before equity in net income from subsidiaries |  |                | (623  | ) |                                   |   | 9,021                                 |  |              | 5,957  |  |              |       |   |  |   | 14,355
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Equity in net income of subsidiaries                        |  |                | 9,392 |   |                                   |   |                                      |  |              |       |  |              | (9,392 | ) |  |   |      
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Income before income taxes                                  |  |                | 8,769 |   |                                   |   | 9,021                                 |  |              | 5,957  |  |              | (9,392 | ) |  |   | 14,355
|Provision for income taxes                                  |  |                | 127   |   |                                   |   | 3,641                                 |  |              | 1,945  |  |              |       |   |  |   | 5,713 
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       
|Net income                                                  |  | $              | 8,642 |   |                                   | $ | 5,380                                 |  | $            | 4,012  |  | $            | (9,392 | ) |  | $ | 8,642 
|                                                            |  |                |       |   |                                   |   |                                       |  |              |        |  |              |        |   |  |   |       



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended June 30, 2009



|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|----------------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | ------
|                                                            |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated
|Net sales:                                                  |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Sales                                                       |  | $              |       |   |                                   | $ | 56,788 |                                       |  | $            | 23,554 |  | $            |       |   |  | $ | 80,342
|Intercompany sales                                          |  |                |       |   |                                   |   | 713    |                                       |  |              | 1,364  |  |              | (2,077 | ) |  |   |      
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Total net sales                                             |  |                |       |   |                                   |   | 57,501 |                                       |  |              | 24,918 |  |              | (2,077 | ) |  |   | 80,342
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Costs of operations:                                        |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Cost of goods sold (exclusive of depreciation)              |  |                |       |   |                                   |   | 36,693 |                                       |  |              | 16,642 |  |              | (2,077 | ) |  |   | 51,258
|Selling, general and administrative expenses                |  |                | 443    |   |                                   |   | 8,059  |                                       |  |              | 4,136  |  |              |       |   |  |   | 12,638
|Depreciation and amortization                               |  |                |       |   |                                   |   | 4,404  |                                       |  |              | 1,514  |  |              |       |   |  |   | 5,918 
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Income (loss) from operations                               |  |                | (443   | ) |                                   |   | 8,345  |                                       |  |              | 2,626  |  |              |       |   |  |   | 10,528
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Interest expense, net                                       |  |                | 323    |   |                                   |   | 6,186  |                                       |  |              | 855    |  |              |       |   |  |   | 7,364 
|Other (income) expense, net                                 |  |                | 543    |   |                                   |   | (285   | )                                     |  |              | 733    |  |              |       |   |  |   | 991   
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Income (loss) before equity in net income from subsidiaries |  |                | (1,309 | ) |                                   |   | 2,444  |                                       |  |              | 1,038  |  |              |       |   |  |   | 2,173 
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Equity in net income of subsidiaries                        |  |                | 1,988  |   |                                   |   |       |                                       |  |              |       |  |              | (1,988 | ) |  |   |      
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Income before income taxes                                  |  |                | 679    |   |                                   |   | 2,444  |                                       |  |              | 1,038  |  |              | (1,988 | ) |  |   | 2,173 
|Provision (benefit) for income taxes                        |  |                | (642   | ) |                                   |   | 1,029  |                                       |  |              | 465    |  |              |       |   |  |   | 852   
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       
|Net income                                                  |  | $              | 1,321  |   |                                   | $ | 1,415  |                                       |  | $            | 573    |  | $            | (1,988 | ) |  | $ | 1,321 
|                                                            |  |                |        |   |                                   |   |        |                                       |  |              |        |  |              |        |   |  |   |       



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Six Months Ended June 30, 2010



|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|----------------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------- | - |  | - | -------
|                                                            |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated
|Net sales:                                                  |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Sales                                                       |  | $              |       |   |                                   | $ | 127,087                               |  | $            | 53,401 |  | $            |        |   |  | $ | 180,488
|Intercompany sales                                          |  |                |       |   |                                   |   | 1,530                                 |  |              | 3,296  |  |              | (4,826  | ) |  |   |       
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Total net sales                                             |  |                |       |   |                                   |   | 128,617                               |  |              | 56,697 |  |              | (4,826  | ) |  |   | 180,488
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Costs of operations:                                        |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Cost of goods sold (exclusive of depreciation)              |  |                |       |   |                                   |   | 75,031                                |  |              | 34,091 |  |              | (4,826  | ) |  |   | 104,296
|Selling, general and administrative expenses                |  |                | 901    |   |                                   |   | 17,459                                |  |              | 9,053  |  |              |        |   |  |   | 27,413 
|Depreciation and amortization                               |  |                |       |   |                                   |   | 8,592                                 |  |              | 3,092  |  |              |        |   |  |   | 11,684 
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Income (loss) from operations                               |  |                | (901   | ) |                                   |   | 27,535                                |  |              | 10,461 |  |              |        |   |  |   | 37,095 
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Interest expense, net                                       |  |                | 510    |   |                                   |   | 11,474                                |  |              | 1,405  |  |              |        |   |  |   | 13,389 
|Other expense (income), net                                 |  |                | (219   | ) |                                   |   | 118                                   |  |              | 687    |  |              |        |   |  |   | 586    
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Income (loss) before equity in net income from subsidiaries |  |                | (1,192 | ) |                                   |   | 15,943                                |  |              | 8,369  |  |              |        |   |  |   | 23,120 
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Equity in net income of subsidiaries                        |  |                | 14,788 |   |                                   |   |                                      |  |              |       |  |              | (14,788 | ) |  |   |       
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Income before income taxes                                  |  |                | 13,596 |   |                                   |   | 15,943                                |  |              | 8,369  |  |              | (14,788 | ) |  |   | 23,120 
|Provision (benefit) for income taxes                        |  |                | (577   | ) |                                   |   | 6,426                                 |  |              | 3,098  |  |              |        |   |  |   | 8,947  
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        
|Net income                                                  |  | $              | 14,173 |   |                                   | $ | 9,517                                 |  | $            | 5,271  |  | $            | (14,788 | ) |  | $ | 14,173 
|                                                            |  |                |        |   |                                   |   |                                       |  |              |        |  |              |         |   |  |   |        



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Six Months Ended June 30, 2009



|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|---------------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------- | ------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | ------- | -
|                                                     |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |         | ConsolidatedNon-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated |       
|Net sales:                                           |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Sales                                                |  | $              |        |   |                                   | $ | 117,193 |                                       |  | $            | 43,846 |  | $            |       |   |  | $ | 161,039 |  
|Intercompany sales                                   |  |                |        |   |                                   |   | 993     |                                       |  |              | 2,312  |  |              | (3,305 | ) |  |   |        |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Total net sales                                      |  |                |        |   |                                   |   | 118,186 |                                       |  |              | 46,158 |  |              | (3,305 | ) |  |   | 161,039 |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Costs of operations:                                 |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Cost of goods sold (exclusive of depreciation)       |  |                |        |   |                                   |   | 74,182  |                                       |  |              | 31,758 |  |              | (3,305 | ) |  |   | 102,635 |  
|Selling, general and administrative expenses         |  |                | 830     |   |                                   |   | 16,622  |                                       |  |              | 7,842  |  |              |       |   |  |   | 25,294  |  
|Depreciation and amortization                        |  |                |        |   |                                   |   | 8,776   |                                       |  |              | 2,871  |  |              |       |   |  |   | 11,647  |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Income (loss) from operations                        |  |                | (830    | ) |                                   |   | 18,606  |                                       |  |              | 3,687  |  |              |       |   |  |   | 21,463  |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Interest expense, net                                |  |                | 1,297   |   |                                   |   | 12,523  |                                       |  |              | 1,624  |  |              |       |   |  |   | 15,444  |  
|Gain on debt extinguishment                          |  |                | (10,500 | ) |                                   |   |        |                                       |  |              |       |  |              |       |   |  |   | (10,500 | )
|Other (income) expense, net                          |  |                | 485     |   |                                   |   | (317    | )                                     |  |              | 275    |  |              |       |   |  |   | 443     |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Income before equity in net income from subsidiaries |  |                | 7,888   |   |                                   |   | 6,400   |                                       |  |              | 1,788  |  |              |       |   |  |   | 16,076  |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Equity in net income of subsidiaries                 |  |                | 4,510   |   |                                   |   |        |                                       |  |              |       |  |              | (4,510 | ) |  |   |        |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Income before income taxes                           |  |                | 12,398  |   |                                   |   | 6,400   |                                       |  |              | 1,788  |  |              | (4,510 | ) |  |   | 16,076  |  
|Provision for income taxes                           |  |                | 2,685   |   |                                   |   | 2,643   |                                       |  |              | 1,035  |  |              |       |   |  |   | 6,363   |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  
|Net income                                           |  | $              | 9,713   |   |                                   | $ | 3,757   |                                       |  | $            | 753    |  | $            | (4,510 | ) |  | $ | 9,713   |  
|                                                     |  |                |         |   |                                   |   |         |                                       |  |              |        |  |              |        |   |  |   |         |  



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SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2010



|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|----------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                      |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Net cash provided by operations                       |  | $              | 9,415  |   |                                   | $ | 2,940  |                                       |  | $ | 5,467        |   |              | $ |  |  | $ | 17,822  |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                      |  |                |        |   |                                  
|Investing activities:                                 |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Acquisition of properties, plants and equipment       |  |                |       |   |                                   |   | (3,695 | )                                     |  |   | (1,282       | ) |              |   |  |  |   | (4,977  | )
|Proceeds from sales of assets                         |  |                |       |   |                                   |   | 9      |                                       |  |   | 1            |   |              |   |  |  |   | 10      |  
|Business acquisitions, net of cash acquired           |  |                |       |   |                                   |   |       |                                       |  |   | (1,659       | ) |              |   |  |  |   | (1,659  | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in investing activities                 |  |                |       |   |                                   |   | (3,686 | )                                     |  |   | (2,940       | ) |              |   |  |  |   | (6,626  | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                      |  |                |        |   |                                  
|Financing activities:                                 |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Payments on senior term loan and acquisition facility |  |                | (9,614 | ) |                                   |   |       |                                       |  |   | (2,159       | ) |              |   |  |  |   | (11,773 | )
|Payments on other long-term debt                      |  |                |       |   |                                   |   | (343   | )                                     |  |   |             |   |              |   |  |  |   | (343    | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in financing activities                 |  |                | (9,614 | ) |                                   |   | (343   | )                                     |  |   | (2,159       | ) |              |   |  |  |   | (12,116 | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                      |  |                |        |   |                                  
|Effect of exchange rate changes on cash               |  |                |       |   |                                   |   |       |                                       |  |   | (252         | ) |              |   |  |  |   | (252    | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Increase (decrease) in cash and cash equivalents      |  |                | (199   | ) |                                   |   | (1,089 | )                                     |  |   | 116          |   |              |   |  |  |   | (1,172  | )
|                                                      |  |                |        |   |                                  
|Cash and cash equivalents, beginning of period        |  |                | 237    |   |                                   |   | 3,005  |                                       |  |   | 7,468        |   |              |   |  |  |   | 10,710  |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period              |  | $              | 38     |   |                                   | $ | 1,916  |                                       |  | $ | 7,584        |   |              | $ |  |  | $ | 9,538   |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



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##### Table of Contents

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2009



|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|------------------------------------------------ |  | -------------- | ------- | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                 |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|Net cash provided by operations                  |  | $              | 8,218   |   |                                   | $ | 5,801  |                                       |  | $ | (818         | ) |              | $ |  |  | $ | 13,201  |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Investing activities:                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Acquisition of properties, plants and equipment  |  |                |        |   |                                   |   | (3,378 | )                                     |  |   | (887         | ) |              |   |  |  |   | (4,265  | )
|Proceeds from sales of assets                    |  |                |        |   |                                   |   | 4      |                                       |  |   | 3            |   |              |   |  |  |   | 7       |  
|Business acquisitions, net of cash acquired      |  |                |        |   |                                   |   | (3,047 | )                                     |  |   | (572         | ) |              |   |  |  |   | (3,619  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in investing activities            |  |                |        |   |                                   |   | (6,421 | )                                     |  |   | (1,456       | ) |              |   |  |  |   | (7,877  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Financing activities:                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Borrowings on revolving credit facility          |  |                | 21,609  |   |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | 21,609  |  
|Payments on revolving credit facility            |  |                | (14,903 | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (14,903 | )
|Payments to extinguish senior subordinated notes |  |                | (15,000 | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (15,000 | )
|Payments on acquisition facility                 |  |                | (197    | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (197    | )
|Payments on other long-term debt                 |  |                |        |   |                                   |   | (353   | )                                     |  |   | (18          | ) |              |   |  |  |   | (371    | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in financing activities            |  |                | (8,491  | ) |                                   |   | (353   | )                                     |  |   | (18          | ) |              |   |  |  |   | (8,862  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Effect of exchange rate changes on cash          |  |                |        |   |                                   |   |       |                                       |  |   | 600          |   |              |   |  |  |   | 600     |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents          |  |                | (273    | ) |                                   |   | (973   | )                                     |  |   | (1,692       | ) |              |   |  |  |   | (2,938  | )
|                                                 |  |                |         |   |                                  
|Cash and cash equivalents, beginning of period   |  |                | 410     |   |                                   |   | 3,382  |                                       |  |   | 6,974        |   |              |   |  |  |   | 10,766  |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period         |  | $              | 137     |   |                                   | $ | 2,409  |                                       |  | $ | 5,282        |   |              | $ |  |  | $ | 7,828   |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



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

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

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

Overview

We are a global leader in the digital imaging industry, offering design-to-print graphic services to the international consumer products packaging market
in North America, Europe 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.

We continue during 2010 to focus on
our strategy of reducing debt levels to strengthen our balance sheet and reduce interest expense. In June 2010, we made optional principal repayments on our senior term loan of $9.1 million. This was in addition to the optional principal repayment
of $2.5 million in March 2010. We plan to utilize an estimated $30.0 million to $40.0 million in excess cash generated from our operations during the remainder of 2010 to make additional optional repayments of principal on our senior term loan. Our
debt reduction strategy, combined with lower interest rates, will continue to generate savings in interest expense and increased cash flow from operations. The outstanding debt on our senior term loans and borrowings on the senior secured
acquisition facility mature on December 30, 2011. We currently plan to refinance our indebtedness associated with the senior secured term loans and acquisition facility prior to the maturity of these debt obligations.

The estimated optional principal repayments are also impacted by our revolving credit facility, which is available through December 30, 2010. We are
currently evaluating our options for a revolving credit facility, which include extending our revolving credit facility for one year, obtaining a new revolving credit facility in connection with a refinancing of our indebtedness associated with the
senior secured term loans and acquisition facility, or increasing our cash balance as a liquidity cushion if we decide to operate without a revolving credit facility for a period of time. If we do not have a new or extended revolving credit facility
in place before December 30, 2010, we would expect to retain approximately $10 million to $15 million in additional cash for liquidity purposes, which would reduce the cash available to make optional principal repayments on our senior term
loan.

During the six months ended June 30, 2010, we paid $1.6 million and $0.1 million in deferred purchase price payments for
acquisitions closed in 2008 and 2006, respectively. As of June 30, 2010, we have $0.1 million remaining to be paid for previously completed acquisitions. We expect the declining level of remaining deferred purchase price payment obligations for
previous acquisitions to enable us to further utilize our future cash flows to fund debt reductions. We do not currently plan on making any significant acquisitions during 2010.

Net sales for the six months ended June 30, 2010 increased 12.1%, or $19.5 million, to $180.5 million from sales of $161.0 million for the six
months ended June 30, 2009. This increase in sales was driven by a broad-based improvement in sales volumes with our larger customers, as well as a $3.8 million increase in sales to our customers in the tobacco industry in response to changes
in labeling requirements imposed by the United States and Canadian governments. We expect the tobacco volumes to return to a more normal level as a significant portion of the volume increases since the fourth quarter of 2009 related to a
June 30 deadline for changes in the United States. In addition, the United States dollar through the first six months of 2010 was weaker than the first six months of 2009, relative to the Canadian dollar and British pound, which positively
impacted sales by $4.5 million on a combined basis.



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We have previously reported that we believe price erosion in the industry, which we estimate at
approximately 2% to 3% annually, is negatively impacting our sales. 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 seek 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 realize profitable organic growth.

Cost of goods sold (exclusive of depreciation) expressed as a percentage of sales for our entire
business was 57.8% for the six months ended June 30, 2010, compared to 63.7% for the six months ended June 30, 2009. This reduction in cost of goods sold as a percentage of sales is due to a combination of factors, including the benefits
of cost cutting initiatives implemented in prior years and leveraging our existing resources on increased sales volumes, as well as sales for our operations in the United States and Canada representing a higher percentage of total Company sales for
the six months ended June 30, 2010 than for the six months ended June 30, 2009. Our operations in the United States and Canada have a lower cost of goods sold percentage than our operations in the United Kingdom.

RESULTS OF OPERATIONS

The information
presented below for the quarters and six months ended June 30, 2010 and 2009 was prepared by management and is unaudited. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating
results for such quarters and as of such dates have been included. (Dollar amounts in the table below are in thousands.)

Quarter ended
June 30, 2010 compared to quarter ended June 30, 2009



|                                               |  |                            |        |                            |   |         |  |   |                  |   |  |       |   
|---------------------------------------------- |  | -------------------------- | ------ | -------------------------- | - | ------- |  | - | ---------------- | - |  | ----- | --
|                                               |  | Quarter EndedJune 30, 2010 |        | Quarter EndedJune 30, 2009 |   | $Change |  |   | PercentageChange |  
|                                               |  | (unaudited)                |        | (unaudited)                |   |         |  |   |                  |  
|Net sales                                      |  | $                          | 94,201 |                            | $ | 80,342  |  | $ | 13,859           |   |  | 17.3  | % 
|                                               |  |                            |        |                           
|Cost of goods sold (exclusive of depreciation) |  |                            | 53,526 |                            |   | 51,258  |  |   | 2,268            |   |  | 4.4   | % 
|Selling, general, and administrative expenses  |  |                            | 13,752 |                            |   | 12,638  |  |   | 1,114            |   |  | 8.8   | % 
|Depreciation and amortization                  |  |                            | 5,837  |                            |   | 5,918   |  |   | (81              | ) |  | (1.4  | %)
|                                               |  |                            |        |                            |   |         |  |   |                  |   |  |       |   
|                                               |  |                            |        |                           
|Income from operations                         |  |                            | 21,086 |                            |   | 10,528  |  |   | 10,558           |   |  | 100.3 | % 
|                                               |  |                            |        |                           
|Interest expense                               |  |                            | 6,711  |                            |   | 7,364   |  |   | (653             | ) |  | (8.9  | %)
|Other expense (income), net                    |  |                            | 20     |                            |   | 991     |  |   | (971             | ) |  | (98.0 | %)
|                                               |  |                            |        |                            |   |         |  |   |                  |   |  |       |   
|                                               |  |                            |        |                           
|Income before income taxes                     |  |                            | 14,355 |                            |   | 2,173   |  |   | 12,182           |   |  | 560.6 | % 
|Provision for income taxes                     |  |                            | 5,713  |                            |   | 852     |  |   | 4,861            |   |  | 570.5 | % 
|                                               |  |                            |        |                            |   |         |  |   |                  |   |  |       |   
|                                               |  |                            |        |                           
|Net income                                     |  | $                          | 8,642  |                            | $ | 1,321   |  |   | 7,321            |   |  | 554.2 | % 
|                                               |  |                            |        |                            |   |         |  |   |                  |   |  |       |   

Net Sales. Sales for the quarter ended June 30, 2010 increased 17.3%, or $13.9 million, to $94.2
million from $80.3 million for the quarter ended June 30, 2009. This increase in sales was driven by improved sales spread across our major customers in the United States, Canada, and Mexico. In addition, sales to our customers in the tobacco
industry increased $1.7 million in response to changes in labeling requirements imposed by the United States and Canadian governments. Also, foreign currency fluctuations for the quarter ended June 30, 2010 compared to the quarter ended
June 30, 2009 impacted sales. The weakening of the United States dollar as compared to the Canadian dollar positively impacted sales by $1.9 million; whereas the United States dollar strengthened in comparison to the British pound and euro,
which negatively impacted sales by $0.3 million on a combined basis.

Sales in the United States increased by $9.1 million for the quarter
ended June 30, 2010 compared to the quarter ended June 30, 2009. After excluding the impact of foreign currency fluctuations, sales in Canada and Mexico for the quarter ended June 30, 2010 compared to the quarter ended June 30,
2009 increased approximately $2.1 million and $0.7 million, respectively. The sales increase for our operations in the United States, Canada, and Mexico was primarily due to organic growth driven by increased sales spread across many of our larger
customers. In addition, sales to our customers in the tobacco industry in the United States and Canada increased by $1.0 million and $0.7 million, respectively, as a result of



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the previously discussed changes in labeling requirements. After excluding the impact of foreign currency fluctuations, sales in Europe increased by $0.2 million for the quarter ended
June 30, 2010 compared to the quarter ended June 30, 2009.

Cost of Goods Sold. Cost of goods sold for the quarter ended
June 30, 2010 increased 4.4%, or $2.3 million, to $53.5 million from $51.3 million for the quarter ended June 30, 2009. The increase in cost of goods sold was due to the significant increase in sales previously discussed, partially offset
by the realization of the benefits of cost cutting initiatives implemented in prior years, including headcount reductions and plant consolidations. In addition, the weakening of the United States dollar as compared to the Canadian dollar resulted in
an increase in cost of goods sold by $1.2 million. The strengthening of the United States dollar in comparison to the British pound and euro reduced cost of sales by $0.2 million on a combined basis.

Cost of goods sold expressed as a percentage of sales decreased to 56.8% for the quarter ended June 30, 2010 from 63.8% for the quarter ended
June 30, 2009. The decrease in cost of goods sold as a percentage of sales is due to a combination of factors, including the benefits of cost cutting initiatives implemented in prior years and leveraging our existing resources on increased
sales volumes, as well as sales for our operations in the United States and Canada representing a higher percentage of total Company sales for the quarter ended June 30, 2010 than for the quarter ended June 30, 2009. Our operations in the
United States and Canada have a lower cost of goods sold percentage than our operations in Europe.

Selling, General and Administrative
Expenses. Selling, general and administrative expenses for the quarter ended June 30, 2010 increased 8.8%, or $1.1 million, to $13.7 million from $12.6 million for the quarter ended June 30, 2009. This increase was primarily due to the
incremental expenses required to drive the organic sales growth and additional expenses as a result of the increased sales level. In addition, the weakening of the United States dollar as compared to the Canadian dollar resulted in an increase in
selling, general and administrative expenses of $0.2 million.

Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the quarter ended June 30, 2010 decreased 1.4%, or $0.1 million, to $5.8 million from $5.9 million for the quarter ended June 30, 2009. This decrease is not significant.

Interest Expense. Interest expense for the quarter ended June 30, 2010 decreased 8.9%, or $0.7 million, to $6.7 million from $7.4 million for
the quarter ended June 30, 2009. This decrease was primarily due to lower interest rates on the senior term and acquisition loan facilities during the quarter ended June 30, 2010 than for the quarter ended June 30, 2009, as well as
the Companys debt reduction strategy. The weighted average interest rates on the senior term and acquisition loan facilities were 2.9% and 4.1% for the quarters ended June 30, 2010 and June 30, 2009, respectively. The reduction in
these interest rates resulted in a reduction of interest expense of $0.4 million for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009. In addition, the combined optional principal repayments of $16.6 million on
the senior term loan facility during the period from September 2009 through March 2010 resulted in a combined reduction in interest expense of $0.3 million for the quarter ended June 30, 2010 compared to the quarter ended June 30, 2009.

Other Expense (Income), net.Other expense (income), net fluctuated by $1.0 million to less than $0.1 million of expense for the
quarter ended June 30, 2010 from $1.0 million of expense for the quarter ended June 30, 2009. Other expense (income), net, primarily consists of realized (gains) losses on foreign exchange. The fluctuation in other expense (income), net
for the quarter ended June 30, 2010 from the quarter ended June 30, 2009 was primarily due to more favorable fluctuations in the exchange rates related to the United States dollar, Canadian dollar and British pound during the quarter ended
June 30, 2010 than during the quarter ended June 30, 2009.

Provision for Income Taxes. The effective tax rate for the
quarter ended June 30, 2010 was 39.8%, compared to 39.2% for the quarter ended June 30, 2009. The increase in the effective tax rate for the quarter was not significant.



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Six months ended June 30, 2010 compared to six months ended June 30, 2009



|                                               |  |                               |         |                               |   |         |         |  |   |                  |   |  |        |   
|---------------------------------------------- |  | ----------------------------- | ------- | ----------------------------- | - | ------- | ------- |  | - | ---------------- | - |  | ------ | --
|                                               |  | Six Months EndedJune 30, 2010 |         | Six Months EndedJune 30, 2009 |   |         | $Change |  |   | PercentageChange |  
|                                               |  | (unaudited)                   |         | (unaudited)                   |   |         |         |  |   |                  |  
|Net sales                                      |  | $                             | 180,488 |                               | $ | 161,039 |         |  | $ | 19,449           |   |  | 12.1   | % 
|                                               |  |                               |         |                              
|Cost of goods sold (exclusive of depreciation) |  |                               | 104,296 |                               |   | 102,635 |         |  |   | 1,661            |   |  | 1.6    | % 
|Selling, general, and administrative expenses  |  |                               | 27,413  |                               |   | 25,294  |         |  |   | 2,119            |   |  | 8.4    | % 
|Depreciation and amortization                  |  |                               | 11,684  |                               |   | 11,647  |         |  |   | 37               |   |  | 0.3    | % 
|                                               |  |                               |         |                               |   |         |         |  |   |                  |   |  |        |   
|                                               |  |                               |         |                              
|Income from operations                         |  |                               | 37,095  |                               |   | 21,463  |         |  |   | 15,632           |   |  | 72.8   | % 
|                                               |  |                               |         |                              
|Interest expense                               |  |                               | 13,389  |                               |   | 15,444  |         |  |   | (2,055           | ) |  | (13.3  | %)
|Gain on debt extinguishment, net               |  |                               |        |                               |   | (10,500 | )       |  |   | 10,500           |   |  | (100.0 | %)
|Other expense (income), net                    |  |                               | 586     |                               |   | 443     |         |  |   | 143              |   |  | 32.3   | % 
|                                               |  |                               |         |                               |   |         |         |  |   |                  |   |  |        |   
|                                               |  |                               |         |                              
|Income before income taxes                     |  |                               | 23,120  |                               |   | 16,076  |         |  |   | 7,044            |   |  | 43.8   | % 
|Provision for income taxes                     |  |                               | 8,947   |                               |   | 6,363   |         |  |   | 2,584            |   |  | 40.6   | % 
|                                               |  |                               |         |                               |   |         |         |  |   |                  |   |  |        |   
|                                               |  |                               |         |                              
|Net income                                     |  | $                             | 14,173  |                               | $ | 9,713   |         |  |   | 4,460            |   |  | 45.9   | % 
|                                               |  |                               |         |                               |   |         |         |  |   |                  |   |  |        |   

Net Sales. Sales for the six months ended June 30, 2010 increased 12.1%, or $19.5 million, to $180.5
million from $161.0 million for the six months ended June 30, 2009. This increase in sales was driven by improved sales spread across our major customers in the United States, Canada, and Mexico. In addition, sales to our customers in the
tobacco industry increased $3.8 million in response to changes in labeling requirements imposed by the United States and Canadian governments. Also, the weakening of the United States dollar, as compared to the Canadian dollar and British pound,
positively impacted sales by $4.1 million and $0.4 million, respectively.

Sales in the United States increased by $9.9 million for the six
months ended June 30, 2010 compared to the six months ended June 30, 2009. After excluding the impact of foreign currency fluctuations, sales in Canada and Mexico for the six months ended June 30, 2010 compared to the six months ended
June 30, 2009 increased approximately $3.7 million and $1.0 million, respectively. The sales increase for our operations in the United States, Canada, and Mexico was organic growth driven by increased sales spread across many of our larger
customers. In addition, sales to our customers in the tobacco industry in the United States and Canada increased by $2.9 million and $0.9 million, respectively, as a result of the previously discussed changes in labeling requirements. After
excluding the impact of foreign currency fluctuations, sales in Europe increased by $0.3 million for the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

Cost of Goods Sold. Cost of goods sold for the six months ended June 30, 2010 increased 1.6%, or $1.7 million, to $104.3 million from $102.6
million for the six months ended June 30, 2009. The increase in cost of goods sold was due to the significant increase in sales previously discussed, partially offset by the realization of the benefits of cost cutting initiatives implemented in
prior years, including headcount reductions and plant consolidations. In addition, the weakening of the United States dollar as compared to the Canadian dollar and British pound resulted in an increase in cost of goods sold of $2.6 million and $0.3
million, respectively.

Cost of goods sold expressed as a percentage of sales decreased to 57.8% for the six months ended June 30, 2010
from 63.7% for the six months ended June 30, 2009. The decrease in cost of goods sold as a percentage of sales is due to a combination of factors, including the benefits of cost cutting initiatives implemented in prior years and leveraging our
existing resources on increased sales volumes, as well as sales for our operations in the United States and Canada representing a higher percentage of total Company sales for the six months ended June 30, 2010 than for the six months ended
June 30, 2009. Our operations in the United States and Canada have a lower cost of goods sold percentage than our operations in the United Kingdom.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2010 increased
8.4%, or $2.1 million, to $27.4 million from $25.3 million for the six months ended June 30, 2009. This increase was primarily due to the incremental expenses required to drive the organic sales growth and additional expenses as a result of the
increased sales level. In addition, the weakening of the United States dollar as compared to the Canadian dollar and British pound resulted in an increase of selling, general and administrative expenses of $0.6 million in the six months ended
June 30, 2010 compared to the six months ended June 30, 2009.



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Depreciation and Amortization Expenses. Depreciation and amortization expenses for the six months
ended June 30, 2010 increased 0.3%, or $0.1 million, to $11.7 million from $11.6 million for the six months ended June 30, 2009. This increase is not significant.

Interest Expense. Interest expense for the six months ended June 30, 2010 decreased 13.3%, or $2.1 million, to $13.4 million from $15.5
million for the six months ended June 30, 2009. This decrease was primarily due to lower interest rates on the senior term and acquisition loan facilities during the six months ended June 30, 2010 than for the six months ended
June 30, 2009, as well as the Companys debt reduction strategy. The weighted average interest rates on the senior term and acquisition loan facilities were 2.9% and 4.2% for the six months ended June 30, 2010 and June 30, 2009,
respectively. The reduction in these interest rates resulted in a reduction of interest expense of $0.9 million for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. In addition, the repurchase in February
2009 of $25.5 million in principal of our 12% senior subordinated notes (Notes) and the optional principal repayments of $16.6 million on the senior term loan facility during the period from September 2009 through March 2010 resulted in
a combined reduction in interest expense of $0.7 million for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The residual decrease in interest expense of $0.5 million is due to accelerating the
amortization of deferred financing fees due to the extinguishment of $25.5 million of Notes.

Gain on Debt Extinguishment.The $10.5
million gain on debt extinguishment in the six months ended June 30, 2009 is due to the repurchase of $25.5 million of Notes for a cash purchase price of $15.0 million.

Other Expense (Income), net.Other expense (income), net fluctuated by $0.2 million to $0.6 million of expense for the six months ended
June 30, 2010 from $0.4 million of expense for the six months ended June 30, 2009. The fluctuation in other expense (income), net for the six months ended June 30, 2010 from the six months ended June 30, 2009 was primarily due to
net losses on disposals of fixed assets of $0.1 million during the six months ended June 30, 2010 compared to net (gains) on disposals of fixed assets of ($0.1 million) during the six months ended June 30, 2009. The remaining components of
other expense (income), net consist of realized foreign exchange losses (gains).

Provision for Income Taxes. The effective tax rate
for the six months ended June 30, 2010 was 38.7%, compared to 39.6% for the six months ended June 30, 2009. The decrease in the effective tax rate was primarily due to the global dispersion of income before taxes, as a higher percentage of
the Companys income before taxes during the six months ended June 30, 2010 was generated by subsidiaries outside the United States than for the six months ended June 30, 2009. The subsidiaries outside the United States generally have
a lower statutory tax rate than the United States.

Liquidity and Capital Resources

At June 30, 2010, we had $9.5 million in cash and $65.6 million in working capital compared with $10.7 million in cash and $51.8 million in working
capital at December 31, 2009. The $1.2 million decrease in cash resulted from the $12.1 million in principal repayments of long-term debt, $5.0 million in capital expenditures, and $1.7 million in net cash paid for acquisitions closed in prior
years being partially offset by the $17.8 million in cash provided by operations. The $13.8 million increase in working capital is primarily due to the combination of increases in accounts receivable and inventories, as well as decreases in accounts
payable, accrued compensation, and other current liabilities.

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. As Lehman has
been unable or unwilling to fund its portion of loans under the Revolver, the amount actually available under the Revolver is $26.08 million. The Revolver is available through December 30, 2010. We are currently evaluating whether to extend the
Revolver, obtain a new revolving credit facility in connection with a refinancing of our indebtedness associated with the senior secured term loans and acquisition facility, or operate without a revolving credit facility for a period of time. If we
decide to operate without a revolving credit facility, we would increase our cash balance as a liquidity cushion. In any event, we expect that cash generated from operating activities will be our principal source of liquidity. Although we do not
currently intend to use the Revolver during 2010, we may elect to use the Revolver on a short-term basis for liquidity purposes. Based on our current level of operations, we believe our cash flow from operations 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 or a new revolving credit
facility in an amount sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.



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##### Table of Contents

We are highly leveraged and our aggregate indebtedness at June 30, 2010 was $296.1 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 currently plan to refinance our indebtedness
associated with the senior secured term loans and borrowings on the senior secured acquisition facility 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 agreement. Our senior secured credit facility also places certain restrictions on our ability to make capital expenditures. As of
June 30, 2010, we were in compliance with all covenants. The combination of our financial performance over the past twelve months and our debt reduction initiatives have resulted in our ratios calculated as of June 30, 2010 being the
lowest leverage ratio and highest interest coverage ratio in the history of SGS International, Inc. Below are the required financial covenant levels and the actual levels as of June 30, 2010:



|                                    |  |                  |               |     |        |   |            
|----------------------------------- |  | ---------------- | ------------- | --- | ------ | - | -----------
|                                    |  | Required         |               |     | Actual
|Maximum leverage ratio              |  |                  | 5.00          |     |        |   | 3.35       
|Minimum interest coverage ratio     |  |                  | 1.80          |     |        |   | 3.49       
|Maximum annual capital expenditures |  | not to exceed 
$ | 21.1 
million | (1) |        | $ | 5.0 million



|(1) | The maximum annual capital expenditures consists of $15.0 million plus $6.1 million of allowed carry over from the fiscal year ended December 31,
2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

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

Income taxes

During the second quarter
of 2010, the Company elected to defer the recognition, for tax purposes, of a $10.5 million gain on debt extinguishment until 2014. Under this election, income is deferred until the 5th year after the gain on debt extinguishment, then the income is
included ratably over the following 5 years. Making this election resulted in an increase of both deferred tax liabilities and deferred tax assets, in the form of net operating loss carryforwards, and resulted in an alternative minimum tax (AMT)
credit for estimated AMT taxes paid on the gain in 2009. In early 2011, to avoid withholding taxes on intercompany interest, the Company plans to make an election regarding certain foreign subsidiaries that will result in the utilization of all
unlimited and available United States net operating loss carryforwards in 2011. This will substantially reduce the amount of deferred tax liabilities and deferred tax assets and will result in the reversal of $1.2 million of currently recorded
accrued tax expenses. Based on the changes mentioned above and on our recent results, we expect that that our cash payments for income taxes will be significantly greater in 2011 than in 2010 and prior years.

Cash flows

Six months ended
June 30, 2010 compared to six months ended June 30, 2009

Cash flows from operating activities.Net cash provided by
operating activities was $17.8 million for the six months ended June 30, 2010 as compared to $13.2 million for the six months ended June 30, 2009. The primary reason for this increase is the $15.6 million increase in income from operations
for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. In addition, cash paid for interest was $12.6 million for the six months ended June 30, 2010 compared to $14.3 million for the six months ended
June 30, 2009. Partially offsetting these increases in cash flows from operating activities were the payment of $4.2 million for an exclusive supply agreement, the timing of cash payments to settle liabilities, and an increase in accounts
receivable.



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Cash flows from investing activities. Net cash used for investing activities was $6.6 million for the
six months ended June 30, 2010 as compared to $7.9 million for the six months ended June 30, 2009. The decrease in cash used for investing activities is due to a reduction of $2.0 million in net cash paid for acquisitions closed in prior
years for the six months ended June 30, 2010 compared to the six months ended June 30, 2009, partially offset by an increase in capital expenditures of $0.7 million.

Cash flows from financing activities.Net cash used in financing activities was $12.1 million for the six months ended June 30,
2010 as compared to cash used by financing activities of $8.9 million for the six months ended June 30, 2009. The primary reason for this fluctuation was the amount of cash available to reduce outstanding debt obligations during each six month
period. There was more cash available to pay down outstanding debt during the six months ended June 30, 2010 than the six months ended June 30, 2009 as a result of cash generated through increased income from operations.

Contractual Obligations

At June 30, 2010, there were no material changes in our December 31, 2009 contractual obligations, except for the reductions in principal
payments on debt due to the optional repayment of $11.6 million on the senior term loan.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Recently Issued Accounting Standards

See Note A to the condensed consolidated financial statements for the impact of recently issued accounting standards.

There have been no other material changes to our critical accounting policies since December 31, 2009.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2010, there were no material changes in our December 31, 2009 market risks relating to interest and foreign exchange rates.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures

The
Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) designed to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms. These include controls and procedures designed to ensure that this information is accumulated and
communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and procedures as of June 30, 2010. Based on this evaluation, the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures were effective as of June 30, 2010, at the reasonable assurance level.

A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material
misstatement of the entitys financial statements will not be prevented, or detected and corrected on a timely basis.

There was one
material weakness discussed in our Annual Report on Form 10-K for the year ended December 31, 2009, which has been remediated as discussed below.

Changes in Internal Control Over Financial Reporting

Based on the evaluation performed as of June 30, 2010, management has concluded that the material weakness previously reported in our Annual Report
on Form 10-K for the year ended December 31, 2009 has been remediated as a result of the following changes in internal control:



| |  |  | Accounting for income taxes for foreign entities. As of December 31, 2009, we did not maintain effective controls over the accuracy of
foreign income taxes. Beginning in the first quarter of 2010, we implemented new processes for calculating and reviewing foreign tax provisions in functional currency. We also developed procedures for a detailed review of foreign deferred tax items
prior to recording of the foreign tax provisions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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There were no other changes in our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) during the six months ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Various lawsuits, claims and proceedings have been or may be instituted or asserted against entities within the Company. While the amounts claimed may be
substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain
contingencies. However, based on currently available facts and in light of legal and other defenses available to us, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the
Companys financial position, results of operations, and liquidity.

Item 1A. Risk Factors

There have been no material changes to the risk factors included in the Registrants Form 10-K for the year ended December 31,
2009.

Item 6. Exhibits



|              |  |                                                                                                                                                                                                                                                                                                                                
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                    
|              | 
|3.            |  | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                                                                                                                                       
|              | 
|3.1           |  | Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on November 8, 2005, incorporated by reference to exhibit 3.1 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                       
|              | 
|3.2           |  | By-Laws of the Registrant adopted on November 8, 2005, incorporated by reference to exhibit 3.2 to the Registrants registration statement on Form S-4 filed on May 5, 2006,
File No. 333-133825                                                                                                                               
|              | 
|4.            |  | INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES                                                                                                                                                                                                                                                      
|              | 
|4.1           |  | Certificate of Incorporation. See Exhibit 3.1                                                                                                                                                                                                                                                                                  
|              | 
|4.2           |  | By-laws. See Exhibit 3.2                                                                                                                                                                                                                                                                                                       
|              | 
|4.3           |  | Indenture dated as of December 30, 2005, by and between the Registrant and Wells Fargo Bank National Association, as trustee, relating to the 12% Senior Subordinated Notes due 2013,
incorporated by reference to exhibit 4.3 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825
|              | 
|4.4           |  | Form of Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                                                    
|              | 
|4.5           |  | Form of Regulation S Temporary Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                             
|              | 
|4.6           |  | Supplemental Indenture, dated April 25, 2006, by and among the Registrant, Southern Graphic Systems, Inc., Project Dove Holdco, Inc. and Wells Fargo Bank, N.A., as trustee,
incorporated by reference to exhibit 4.6 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825         



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|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                                                                                                                                                                                        
|     | 
|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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



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SIGNATURES

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



|                      |  |                         |  |                                                  
|--------------------- |  | ----------------------- |  | -------------------------------------------------
|                      |  | SGS INTERNATIONAL, INC.
|                      |  |                        
|Date: August 12, 2010 |  | By:                     |  | /s/ Henry R. Baughman                            
|                      |  |                         |  | Henry R. Baughman                                
|                      |  |                         |  | President, Chief Executive Officer and Director  
|                      |  |                         |  | (Principal Executive Officer)                    
|                      |  |                        
|Date: August 12, 2010 |  | By:                     |  | /s/ James M. Dahmus                              
|                      |  |                         |  | James M. Dahmus                                  
|                      |  |                         |  | Senior Vice President and Chief Financial Officer
|                      |  |                         |  | (Principal Financial Officer)                    



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