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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 March 31, 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 April 30, 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 Operations                                        |  | 3 
|                               |  |          | 
|                               |  |          |  | Condensed Consolidated Balance Sheets                                                  |  | 4 
|                               |  |          | 
|                               |  |          |  | Condensed Consolidated Statement of Stockholders Equity                               |  | 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. |  | 18
|                               |  |          | 
|                               |  | Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                             |  | 22
|                               |  |          | 
|                               |  | Item 4T. |  | Controls and Procedures                                                                |  | 22
|                               | 
|PART II - OTHER INFORMATION    |  | 23      
|                               |  | Item 1.  |  | Legal Proceedings                                                                      |  | 23
|                               |  |          | 
|                               |  | Item 1A. |  | Risk Factors                                                                           |  | 23
|                               |  |          | 
|                               |  | Item 6.  |  | Exhibits.                                                                              |  | 23
|                               | 
|SIGNATURES                     |  | 25      



2



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PART I

FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands of
dollars)





|                                               |  |                                  |        |                                  |   |         |  
|---------------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | ------- | -
|                                               |  | Three Months EndedMarch 31, 2010 |        | Three Months EndedMarch 31, 2009 |  
|                                               |  |                                 
|NET SALES                                      |  | $                                | 86,287 |                                  | $ | 80,697  |  
|                                               |  |                                 
|COSTS OF OPERATIONS:                           |  |                                  |        |                                  |   |         |  
|Cost of goods sold (exclusive of depreciation) |  |                                  | 50,770 |                                  |   | 51,377  |  
|Selling, general, and administrative expenses  |  |                                  | 13,661 |                                  |   | 12,656  |  
|Depreciation and amortization                  |  |                                  | 5,847  |                                  |   | 5,729   |  
|                                               |  |                                  |        |                                  |   |         |  
|                                               |  |                                 
|INCOME FROM OPERATIONS                         |  |                                  | 16,009 |                                  |   | 10,935  |  
|                                               |  |                                  |        |                                  |   |         |  
|                                               |  |                                 
|NON-OPERATING EXPENSES (INCOME):               |  |                                  |        |                                  |   |         |  
|                                               |  |                                 
|Interest expense, net                          |  |                                  | 6,678  |                                  |   | 8,080   |  
|Gain on debt extinguishment                    |  |                                  |       |                                  |   | (10,500 | )
|Other expense (income), net                    |  |                                  | 566    |                                  |   | (548    | )
|                                               |  |                                  |        |                                  |   |         |  
|INCOME FROM OPERATIONS BEFORE INCOME TAXES     |  |                                  | 8,765  |                                  |   | 13,903  |  
|                                               |  |                                 
|PROVISION FOR INCOME TAXES                     |  |                                  | 3,234  |                                  |   | 5,511   |  
|                                               |  |                                  |        |                                  |   |         |  
|                                               |  |                                 
|NET INCOME                                     |  | $                                | 5,531  |                                  | $ | 8,392   |  
|                                               |  |                                  |        |                                  |   |         |  

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 Balance Sheets

(in thousands of dollars, except share data)





|                                                                                                                       |  |                |         |                   |   |        
|---------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | -------
|                                                                                                                       |  | March 31, 2010 |         | December 31, 2009
|                                                                                                                       |  | (unaudited)    |         |                  
|ASSETS                                                                                                                 |  |                |         |                   |   |        
|Current assets:                                                                                                        |  |                |         |                   |   |        
|Cash and cash equivalents                                                                                              |  | $              | 9,356   |                   | $ | 10,710 
|Receivables from customers, less allowances of $1,339 and $1,204 at March 31, 2010 and December 31, 2009, respectively |  |                | 65,582  |                   |   | 60,855 
|Inventories                                                                                                            |  |                | 11,098  |                   |   | 8,929  
|Deferred income taxes                                                                                                  |  |                | 2,406   |                   |   | 2,550  
|Prepaid expenses and other current assets                                                                              |  |                | 4,289   |                   |   | 4,121  
|                                                                                                                       |  |                |         |                   |   |        
|Total current assets                                                                                                   |  |                | 92,731  |                   |   | 87,165 
|                                                                                                                       |  |               
|Properties, plants and equipment, net                                                                                  |  |                | 42,196  |                   |   | 42,597 
|Goodwill                                                                                                               |  |                | 183,893 |                   |   | 183,139
|Other intangible assets, net                                                                                           |  |                | 166,678 |                   |   | 165,245
|Deferred financing costs, net                                                                                          |  |                | 3,728   |                   |   | 4,120  
|Other assets                                                                                                           |  |                | 1,508   |                   |   | 1,407  
|                                                                                                                       |  |                |         |                   |   |        
|TOTAL ASSETS                                                                                                           |  | $              | 490,734 |                   | $ | 483,673
|                                                                                                                       |  |                |         |                   |   |        
|                                                                                                                       |  |               
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                   |  |                |         |                   |   |        
|                                                                                                                       |  |               
|Current liabilities:                                                                                                   |  |                |         |                   |   |        
|Accounts payable, trade                                                                                                |  | $              | 14,410  |                   | $ | 13,498 
|Accrued compensation                                                                                                   |  |                | 3,307   |                   |   | 6,702  
|Accrued taxes, including taxes on income                                                                               |  |                | 2,038   |                   |   | 2,146  
|Accrued interest                                                                                                       |  |                | 6,586   |                   |   | 1,388  
|Other current liabilities                                                                                              |  |                | 8,747   |                   |   | 10,730 
|Current portion of short-term and long-term obligations                                                                |  |                | 842     |                   |   | 951    
|                                                                                                                       |  |                |         |                   |   |        
|Total current liabilities                                                                                              |  |                | 35,930  |                   |   | 35,415 
|Long-term obligations, net of current portion                                                                          |  |                | 305,342 |                   |   | 307,918
|Non-current liabilities                                                                                                |  |                | 1,209   |                   |   | 1,268  
|Deferred income taxes                                                                                                  |  |                | 23,502  |                   |   | 20,562 
|                                                                                                                       |  |                |         |                   |   |        
|Total liabilities                                                                                                      |  |                | 365,983 |                   |   | 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
|Accumulated other comprehensive income - unrealized translation adjustments, net of tax                                |  |                | 865     |                   |   | 155    
|Retained earnings                                                                                                      |  |                | 16,886  |                   |   | 11,355 
|                                                                                                                       |  |                |         |                   |   |        
|Total stockholders equity                                                                                             |  |                | 124,751 |                   |   | 118,510
|                                                                                                                       |  |                |         |                   |   |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  | $              | 490,734 |                   | $ | 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 Statement of Stockholders Equity

(unaudited)

(in thousands of
dollars)





|                                        |  |                     |       |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        
|--------------------------------------- |  | ------------------- | ----- | ----------- | - | ----------------- |  | ---------------- | ------- | ----------------------------------- | - | ------------------------ |  | - | --- |  | - | -------
|                                        |  | ComprehensiveIncome |       | CommonStock |   | AdditionalCapital |  | RetainedEarnings |         | AccumulatedOtherComprehensiveIncome |   | TotalStockholdersEquity
|                                        |  |                     |       |             |   |                  
|Balance at December 31, 2009            |  |                     |       |             | $ |                  |  | $                | 107,000 |                                     | $ | 11,355                   |  | $ | 155 |  | $ | 118,510
|                                        |  |                     |       |             |   |                  
|Comprehensive income:                   |  |                     |       |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        
|                                        |  |                     |       |             |   |                  
|Net income                              |  | $                   | 5,531 |             |   |                  |  |                  |        |                                     |   | 5,531                    |  |   |    |  |   | 5,531  
|                                        |  |                     |       |             |   |                  
|Cumulative translation adjustments, net |  |                     | 710   |             |   |                  |  |                  |        |                                     |   |                         |  |   | 710 |  |   | 710    
|                                        |  |                     |       |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        
|                                        |  |                     |       |             |   |                  
|Comprehensive income                    |  | $                   | 6,241 |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        
|                                        |  |                     |       |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        
|                                        |  |                     |       |             |   |                  
|Balance at March 31, 2010               |  |                     |       |             | $ |                  |  | $                | 107,000 |                                     | $ | 16,886                   |  | $ | 865 |  | $ | 124,751
|                                        |  |                     |       |             |   |                   |  |                  |         |                                     |   |                          |  |   |     |  |   |        

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)





|                                                      |  |                                  |        |   |                                  |   |         |  
|----------------------------------------------------- |  | -------------------------------- | ------ | - | -------------------------------- | - | ------- | -
|                                                      |  | Three Months EndedMarch 31, 2010 |        |   | Three Months EndedMarch 31, 2009 |  
|                                                      |  |                                 
|CASH FLOWS FROM OPERATING ACTIVITIES                  |  | $                                | 5,224  |   |                                  | $ | 6,978   |  
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |  |                                  |        |   |                                  |   |         |  
|Acquisition of properties, plants and equipment       |  |                                  | (2,233 | ) |                                  |   | (1,860  | )
|Proceeds from sales of equipment                      |  |                                  | 8      |   |                                  |   | 3       |  
|Business acquisitions, net of cash acquired           |  |                                  | (1,609 | ) |                                  |   | (3,106  | )
|                                                      |  |                                  |        |   |                                  |   |         |  
|Net cash used in investing activities                 |  |                                  | (3,834 | ) |                                  |   | (4,963  | )
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|CASH FLOWS FROM FINANCING ACTIVITIES:                 |  |                                  |        |   |                                  |   |         |  
|Borrowings on revolving credit facility               |  |                                  |       |   |                                  |   | 14,903  |  
|Payments on revolving credit facility                 |  |                                  |       |   |                                  |   | (6,000  | )
|Payments to extinguish senior subordinated notes      |  |                                  |       |   |                                  |   | (15,000 | )
|Payments on senior term loan and acquisition facility |  |                                  | (2,624 | ) |                                  |   | (98     | )
|Payments on other long-term debt                      |  |                                  | (103   | ) |                                  |   | (208    | )
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|Net cash used in financing activities                 |  |                                  | (2,727 | ) |                                  |   | (6,403  | )
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|Effect of exchange rate changes on cash               |  |                                  | (17    | ) |                                  |   | (88     | )
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|DECREASE IN CASH AND CASH EQUIVALENTS                 |  |                                  | (1,354 | ) |                                  |   | (4,476  | )
|                                                      |  |                                 
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        |  |                                  | 10,710 |   |                                  |   | 10,766  |  
|                                                      |  |                                  |        |   |                                  |   |         |  
|                                                      |  |                                 
|CASH AND CASH EQUIVALENTS, END OF PERIOD              |  | $                                | 9,356  |   |                                  | $ | 6,290   |  
|                                                      |  |                                  |        |   |                                  |   |         |  

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:



|                |  |               |        |                  |   |      
|--------------- |  | ------------- | ------ | ---------------- | - | -----
|                |  | March 31,2010 |        | December 31,2009
|Raw materials   |  | $             | 2,964  |                  | $ | 2,571
|Work-in-process |  |               | 8,134  |                  |   | 6,358
|                |  |               |        |                  |   |      
|Total           |  | $             | 11,098 |                  | $ | 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 FASB 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. We are currently assessing the potential effect, if any, on our financial statements

In January 2010, the
FASB issued new accounting guidance and reporting standards requiring enhanced disclosures and clarifying existing disclosures for (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and
inputs used, (3) the activity in Level 3 fair value measurements, and (4) transfers between Levels 1, 2, and 3. The guidance is effective for annual reporting periods beginning after December 15, 2009, except for disclosures
concerning the activity for Level 3 fair value measurements that are effective for annual periods beginning after December 15, 2010. The adoption of this guidance did 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:



|                                                  |  |               |         |   |                  |   |         |  
|------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                  |  | March 31,2010 |         |   | December 31,2009 |  
|                                                  |  |              
|Goodwill, cost                                    |  | $             | 183,893 |   |                  | $ | 183,139 |  
|                                                  |  |               |         |   |                  |   |         |  
|                                                  |  |              
|Customer relationships, cost                      |  | $             | 176,301 |   |                  | $ | 176,459 |  
|Customer relationships, accumulated amortization  |  |               | (34,830 | ) |                  |   | (32,659 | )
|                                                  |  |              
|Other intangible assets, cost                     |  |               | 30,906  |   |                  |   | 26,732  |  
|Other intangible assets, accumulated amortization |  |               | (5,699  | ) |                  |   | (5,287  | )
|                                                  |  |               |         |   |                  |   |         |  
|Total                                             |  | $             | 166,678 |   |                  | $ | 165,245 |  
|                                                  |  |               |         |   |                  |   |         |  



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The change in goodwill, customer relationships (cost) and other intangible assets (cost)
during the three months ended March 31, 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 |  |          | 754     |                              |   | (158    | )                             |  |   | 11    
|                                             |  |          |         |                              |   |         |                               |  |   |       
|                                             |  |          |        
|Balance at March 31, 2010                    |  | $        | 183,893 |                              | $ | 176,301 |                               |  | $ | 30,906
|                                             |  |          |         |                              |   |         |                               |  |   |       

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 sales. Such amortization is expected to be $833 annually and was $112 for the quarter ended March 31, 2010.



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

Interest expense, net consists of the following:



|                                               |  |                                  |       |                                  |   |      
|---------------------------------------------- |  | -------------------------------- | ----- | -------------------------------- | - | -----
|                                               |  | Three Months EndedMarch 
31,2010 |       | Three Months EndedMarch 
31,2009
|Interest on senior term loan                   |  | $                                | 698   |                                  | $ | 1,166
|Interest on borrowings on acquisition facility |  |                                  | 278   |                                  |   | 407  
|Interest on senior subordinated notes          |  |                                  | 5,235 |                                  |   | 5,484
|Amortization of deferred financing costs       |  |                                  | 392   |                                  |   | 875  
|Commitment fees on senior credit facility      |  |                                  | 53    |                                  |   | 41   
|Other                                          |  |                                  | 22    |                                  |   | 107  
|                                               |  |                                  |       |                                  |   |      
|Total                                          |  | $                                | 6,678 |                                  | $ | 8,080
|                                               |  |                                  |       |                                  |   |      



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

Fair value is defined as the 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.



9



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##### Table of Contents

The following table shows assets measured at fair value as of March 31, 2010 on the
Companys balance sheet, and the input categories associated with those assets:



|                                     |  |                                   |       |                                                                               |   |      
|------------------------------------ |  | --------------------------------- | ----- | ----------------------------------------------------------------------------- | - | -----
|                                     |  | Total Fair Valueat March 31, 2010 |       | Fair Value Measurementsat
Reporting Date UsingQuoted Prices in Active Markets
|                                     |  |                                  
|Deferred compensation plan
assets(a) |  | $                                 | 1,006 |                                                                               | $ | 1,006



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

The Companys Notes have a carrying value of $174,500 and an
estimated fair value of $182,751 at March 31, 2010. The estimated fair value of the Companys Notes is determined using quoted prices in markets that are not active. The estimated fair value is $182,751 based on the average price of the
Notes either traded or purchased by third parties between March 1, 2010 and April 30, 2010.



|F. | 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.



|G. | Income Taxes
|-- | ------------

The
effective tax rate for the quarter ended March 31, 2010 was 36.9% compared to 39.6% for the quarter ended March 31, 2009. The decrease in the effective tax rate for the quarter was primarily due to the combination of the reduction in the
Canadian statutory tax rate and the global dispersion of income before taxes.

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 March 31, 2010, undistributed earnings of international subsidiaries considered
permanently reinvested were approximately $1,818. 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.



|H. | 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., SGS International, Inc., and SGS Packaging Chile Limitada. The Notes are general unsecured obligations and are guaranteed on a senior
subordinated basis by the Companys domestic subsidiaries and rank secondary to the Companys senior credit facility. Guarantor subsidiaries for the Notes include Southern Graphic Systems, Inc. and Project Dove Holdco, Inc. Non-guarantor
subsidiaries for the Notes include the direct and indirect foreign subsidiaries. The subsidiary guarantors are 100% owned by SGS International, Inc., the guarantees are full and unconditional, and the guarantees are joint and several.



10



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##### Table of Contents

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

Certain reclassifications for intercompany interest related items have been made to the consolidating statement of operations for the
three months ended March 31, 2009 to conform to the presentation for the three months ended March 31, 2010.



11



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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 Balance Sheet

March 31, 2010



|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|------------------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | --------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                                        |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | Consolidated 
Non-GuarantorSubsidiaries |  | Eliminations |         |  | Consolidated
|Assets                                                  |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Current assets                                          |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Cash and cash equivalents                               |  | $              | 145     |                                   | $ | 3,608                                   |  | $            | 5,603   |  | $            |         |   |  | $ | 9,356  
|Receivables from customers, less allowances             |  |                |        |                                   |   | 44,852                                  |  |              | 20,730  |  |              |         |   |  |   | 65,582 
|Intercompany receivables                                |  |                | 415,515 |                                   |   | 143,588                                 |  |              | 7,643   |  |              | (566,746 | ) |  |   |       
|Inventories                                             |  |                |        |                                   |   | 7,719                                   |  |              | 3,379   |  |              |         |   |  |   | 11,098 
|Deferred income taxes                                   |  |                | 479     |                                   |   | 1,829                                   |  |              | 98      |  |              |         |   |  |   | 2,406  
|Prepaid expenses and other current assets               |  |                | 150     |                                   |   | 2,058                                   |  |              | 2,081   |  |              |         |   |  |   | 4,289  
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total current assets                                    |  |                | 416,289 |                                   |   | 203,654                                 |  |              | 39,534  |  |              | (566,746 | ) |  |   | 92,731 
|Investment in subsidiaries                              |  |                | 134,022 |                                   |   | 30,005                                  |  |              | 36,567  |  |              | (200,594 | ) |  |   |       
|Properties, plants and equipment, net                   |  |                |        |                                   |   | 33,845                                  |  |              | 8,351   |  |              |         |   |  |   | 42,196 
|Goodwill                                                |  |                |        |                                   |   | 119,970                                 |  |              | 63,923  |  |              |         |   |  |   | 183,893
|Other intangible assets, net                            |  |                |        |                                   |   | 121,330                                 |  |              | 45,348  |  |              |         |   |  |   | 166,678
|Deferred financing costs, net                           |  |                | 3,728   |                                   |   |                                        |  |              |        |  |              |         |   |  |   | 3,728  
|Other assets                                            |  |                |        |                                   |   | 1,146                                   |  |              | 362     |  |              |         |   |  |   | 1,508  
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total assets                                            |  | $              | 554,039 |                                   | $ | 509,950                                 |  | $            | 194,085 |  | $            | (767,340 | ) |  | $ | 490,734
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Liabilities                                             |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Current liabilities                                     |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Accounts payable, trade                                 |  | $              | 642     |                                   | $ | 9,035                                   |  | $            | 4,733   |  | $            |         |   |  | $ | 14,410 
|Intercompany payables                                   |  |                | 139,733 |                                   |   | 391,894                                 |  |              | 35,119  |  |              | (566,746 | ) |  |   |       
|Accrued compensation                                    |  |                |        |                                   |   | 2,167                                   |  |              | 1,140   |  |              |         |   |  |   | 3,307  
|Accrued taxes, including taxes on income                |  |                |        |                                   |   | 568                                     |  |              | 1,470   |  |              |         |   |  |   | 2,038  
|Accrued interest                                        |  |                | 192     |                                   |   | 6,392                                   |  |              | 2       |  |              |         |   |  |   | 6,586  
|Other current liabilities                               |  |                |        |                                   |   | 6,331                                   |  |              | 2,416   |  |              |         |   |  |   | 8,747  
|Current portion of short-term and long-term obligations |  |                | 388     |                                   |   | 454                                     |  |              |        |  |              |         |   |  |   | 842    
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total current liabilities                               |  |                | 140,955 |                                   |   | 416,841                                 |  |              | 44,880  |  |              | (566,746 | ) |  |   | 35,930 
|Non-current liabilities                                 |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Long-term obligations, net of current portion           |  |                | 287,691 |                                   |   | 61                                      |  |              | 17,590  |  |              |         |   |  |   | 305,342
|Non-current liabilities                                 |  |                |        |                                   |   | 1,030                                   |  |              | 179     |  |              |         |   |  |   | 1,209  
|Deferred income taxes                                   |  |                | 642     |                                   |   | 8,426                                   |  |              | 14,434  |  |              |         |   |  |   | 23,502 
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total liabilities                                       |  |                | 429,288 |                                   |   | 426,358                                 |  |              | 77,083  |  |              | (566,746 | ) |  |   | 365,983
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Contingencies and commitments                           |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Stockholders equity                                    |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Common stock                                            |  |                |        |                                   |   |                                        |  |              |        |  |              |         |   |  |   |       
|Other stockholders equity                              |  |                | 124,751 |                                   |   | 83,592                                  |  |              | 117,002 |  |              | (200,594 | ) |  |   | 124,751
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total stockholders equity                              |  |                | 124,751 |                                   |   | 83,592                                  |  |              | 117,002 |  |              | (200,594 | ) |  |   | 124,751
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|Total liabilities and stockholders equity              |  | $              | 554,039 |                                   | $ | 509,950                                 |  | $            | 194,085 |  | $            | (767,340 | ) |  | $ | 490,734
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        



12



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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 Balance Sheet

December 31, 2009



|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|------------------------------------------------------- |  | -------------- | ------- | --------------------------------- | - | --------------------------------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | -------
|                                                        |  | Parent /Issuer |         | ConsolidatedGuarantorSubsidiaries |   | Consolidated 
Non-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                           |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        
|                                                        |  |                |         |                                   |  
|Stockholders 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
|                                                        |  |                |         |                                   |   |                                         |  |              |         |  |              |          |   |  |   |        



13



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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 Operations

For the Three Months Ended March 31, 2010



|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|--------------------------------------------------------------------------- |  | -------------- | ----- | - | --------------------------------- | - | --------------------------------------- |  | ------------ | ------ |  | ------------ | ------ | - |  | - | ------
|                                                                            |  | Parent /Issuer |       |   | ConsolidatedGuarantorSubsidiaries |   | Consolidated 
Non-GuarantorSubsidiaries |  | Eliminations |        |  | Consolidated
|Net sales:                                                                  |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Sales                                                                       |  | $              |      |   |                                   | $ | 61,180                                  |  | $            | 25,107 |  | $            |       |   |  | $ | 86,287
|Intercompany sales                                                          |  |                |      |   |                                   |   | 749                                     |  |              | 1,213  |  |              | (1,962 | ) |  |   |      
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Total net sales                                                             |  |                |      |   |                                   |   | 61,929                                  |  |              | 26,320 |  |              | (1,962 | ) |  |   | 86,287
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Costs of operations:                                                        |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Cost of goods sold (exclusive of depreciation)                              |  |                |      |   |                                   |   | 36,310                                  |  |              | 16,422 |  |              | (1,962 | ) |  |   | 50,770
|Selling, general and administrative expenses                                |  |                | 542   |   |                                   |   | 8,573                                   |  |              | 4,546  |  |              |       |   |  |   | 13,661
|Depreciation and amortization                                               |  |                |      |   |                                   |   | 4,278                                   |  |              | 1,569  |  |              |       |   |  |   | 5,847 
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Income (loss) from operations                                               |  |                | (542  | ) |                                   |   | 12,768                                  |  |              | 3,783  |  |              |       |   |  |   | 16,009
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Interest expense, net                                                       |  |                | 205   |   |                                   |   | 5,741                                   |  |              | 732    |  |              |       |   |  |   | 6,678 
|Other expense (income), net                                                 |  |                | (178  | ) |                                   |   | 105                                     |  |              | 639    |  |              |       |   |  |   | 566   
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Income (loss) from operations before equity in net income from subsidiaries |  |                | (569  | ) |                                   |   | 6,922                                   |  |              | 2,412  |  |              |       |   |  |   | 8,765 
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Equity in net income of subsidiaries                                        |  |                | 5,396 |   |                                   |   |                                        |  |              |       |  |              | (5,396 | ) |  |   |      
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Income from operations before income taxes                                  |  |                | 4,827 |   |                                   |   | 6,922                                   |  |              | 2,412  |  |              | (5,396 | ) |  |   | 8,765 
|Provision (benefit) for income taxes                                        |  |                | (704  | ) |                                   |   | 2,785                                   |  |              | 1,153  |  |              |       |   |  |   | 3,234 
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       
|Net income                                                                  |  | $              | 5,531 |   |                                   | $ | 4,137                                   |  | $            | 1,259  |  | $            | (5,396 | ) |  | $ | 5,531 
|                                                                            |  |                |       |   |                                   |   |                                         |  |              |        |  |              |        |   |  |   |       



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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 Operations

For the Three Months Ended March 31, 2009



|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|-------------------------------------------------------------------- |  | -------------- | ------- | - | --------------------------------- | - | ------ | --------------------------------------- |  | - | ------------ | - |  | ------------ | ------ | - |  | - | ------- | -
|                                                                     |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | Consolidated 
Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated |       
|Net sales:                                                           |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Sales                                                                |  | $              |        |   |                                   | $ | 60,405 |                                         |  | $ | 20,292       |   |  | $            |       |   |  | $ | 80,697  |  
|Intercompany sales                                                   |  |                |        |   |                                   |   | 280    |                                         |  |   | 948          |   |  |              | (1,228 | ) |  |   |        |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Total net sales                                                      |  |                |        |   |                                   |   | 60,685 |                                         |  |   | 21,240       |   |  |              | (1,228 | ) |  |   | 80,697  |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Costs of operations:                                                 |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Cost of goods sold (exclusive of depreciation)                       |  |                |        |   |                                   |   | 37,489 |                                         |  |   | 15,116       |   |  |              | (1,228 | ) |  |   | 51,377  |  
|Selling, general and administrative expenses                         |  |                | 387     |   |                                   |   | 8,563  |                                         |  |   | 3,706        |   |  |              |       |   |  |   | 12,656  |  
|Depreciation and amortization                                        |  |                |        |   |                                   |   | 4,372  |                                         |  |   | 1,357        |   |  |              |       |   |  |   | 5,729   |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Income (loss) from operations                                        |  |                | (387    | ) |                                   |   | 10,261 |                                         |  |   | 1,061        |   |  |              |       |   |  |   | 10,935  |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Interest expense, net                                                |  |                | 974     |   |                                   |   | 6,337  |                                         |  |   | 769          |   |  |              |       |   |  |   | 8,080   |  
|Gain on debt extinguishment                                          |  |                | (10,500 | ) |                                   |   |       |                                         |  |   |             |   |  |              |       |   |  |   | (10,500 | )
|Other (income) expense, net                                          |  |                | (58     | ) |                                   |   | (32    | )                                       |  |   | (458         | ) |  |              |       |   |  |   | (548    | )
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Income from operations before equity in net income from subsidiaries |  |                | 9,197   |   |                                   |   | 3,956  |                                         |  |   | 750          |   |  |              |       |   |  |   | 13,903  |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Equity in net income of subsidiaries                                 |  |                | 2,522   |   |                                   |   |       |                                         |  |   |             |   |  |              | (2,522 | ) |  |   |        |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Income from operations before income taxes                           |  |                | 11,719  |   |                                   |   | 3,956  |                                         |  |   | 750          |   |  |              | (2,522 | ) |  |   | 13,903  |  
|Provision for income taxes                                           |  |                | 3,327   |   |                                   |   | 1,614  |                                         |  |   | 570          |   |  |              |       |   |  |   | 5,511   |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  
|Net income                                                           |  | $              | 8,392   |   |                                   | $ | 2,342  |                                         |  | $ | 180          |   |  | $            | (2,522 | ) |  | $ | 8,392   |  
|                                                                     |  |                |         |   |                                   |   |        |                                         |  |   |              |   |  |              |        |   |  |   |         |  



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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 Three Months Ended March 31, 2010



|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|----------------------------------------------------- |  | -------------- | ------ | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------ | -
|                                                      |  | Parent /Issuer |        |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|                                                      |  |                |        |   |                                  
|Net cash provided by operations                       |  | $              | 2,060  |   |                                   | $ | 2,308  |                                       |  | $ | 856          |   |              | $ |  |  | $ | 5,224  |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|                                                      |  |                |        |   |                                  
|Investing activities:                                 |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Acquisition of properties, plants and equipment       |  |                |       |   |                                   |   | (1,610 | )                                     |  |   | (623         | ) |              |   |  |  |   | (2,233 | )
|Proceeds from sales of assets                         |  |                |       |   |                                   |   | 8      |                                       |  |   |             |   |              |   |  |  |   | 8      |  
|Business acquisitions, net of cash acquired           |  |                |       |   |                                   |   |       |                                       |  |   | (1,609       | ) |              |   |  |  |   | (1,609 | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Net cash used in investing activities                 |  |                |       |   |                                   |   | (1,602 | )                                     |  |   | (2,232       | ) |              |   |  |  |   | (3,834 | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|                                                      |  |                |        |   |                                  
|Financing activities:                                 |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Payments on senior term loan and acquisition facility |  |                | (2,152 | ) |                                   |   |       |                                       |  |   | (472         | ) |              |   |  |  |   | (2,624 | )
|Payments on other long-term debt                      |  |                |       |   |                                   |   | (103   | )                                     |  |   |             |   |              |   |  |  |   | (103   | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Net cash used in financing activities                 |  |                | (2,152 | ) |                                   |   | (103   | )                                     |  |   | (472         | ) |              |   |  |  |   | (2,727 | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|                                                      |  |                |        |   |                                  
|Effect of exchange rate changes on cash               |  |                |       |   |                                   |   |       |                                       |  |   | (17          | ) |              |   |  |  |   | (17    | )
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Decrease in cash and cash equivalents                 |  |                | (92    | ) |                                   |   | 603    |                                       |  |   | (1,865       | ) |              |   |  |  |   | (1,354 | )
|                                                      |  |                |        |   |                                  
|Cash and cash equivalents, beginning of period        |  |                | 237    |   |                                   |   | 3,005  |                                       |  |   | 7,468        |   |              |   |  |  |   | 10,710 |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  
|Cash and cash equivalents, end of period              |  | $              | 145    |   |                                   | $ | 3,608  |                                       |  | $ | 5,603        |   |              | $ |  |  | $ | 9,356  |  
|                                                      |  |                |        |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |        |  



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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 Three Months Ended March 31, 2009



|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|------------------------------------------------ |  | -------------- | ------- | - | --------------------------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ------------ | - | - |  | - | ------- | -
|                                                 |  | Parent /Issuer |         |   | ConsolidatedGuarantorSubsidiaries |   |        | ConsolidatedNon-GuarantorSubsidiaries |  |   | Eliminations |   | Consolidated |  
|                                                 |  |                |         |   |                                  
|Net cash provided by operations                  |  | $              | 5,823   |   |                                   | $ | 3,821  |                                       |  | $ | (2,666       | ) |              | $ |  |  | $ | 6,978   |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Investing activities:                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Acquisition of properties, plants and equipment  |  |                |        |   |                                   |   | (1,269 | )                                     |  |   | (591         | ) |              |   |  |  |   | (1,860  | )
|Proceeds from sales of assets                    |  |                |        |   |                                   |   |       |                                       |  |   | 3            |   |              |   |  |  |   | 3       |  
|Business acquisitions, net of cash acquired      |  |                |        |   |                                   |   | (3,046 | )                                     |  |   | (60          | ) |              |   |  |  |   | (3,106  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in investing activities            |  |                |        |   |                                   |   | (4,315 | )                                     |  |   | (648         | ) |              |   |  |  |   | (4,963  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Financing activities:                            |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Borrowings on revolving credit facility          |  |                | 14,903  |   |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | 14,903  |  
|Payments on revolving credit facility            |  |                | (6,000  | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (6,000  | )
|Payments to extinguish senior subordinated notes |  |                | (15,000 | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (15,000 | )
|Payments on acquisition facility                 |  |                | (98     | ) |                                   |   |       |                                       |  |   |             |   |              |   |  |  |   | (98     | )
|Payments on other long-term debt                 |  |                |        |   |                                   |   | (200   | )                                     |  |   | (8           | ) |              |   |  |  |   | (208    | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net cash used in financing activities            |  |                | (6,195  | ) |                                   |   | (200   | )                                     |  |   | (8           | ) |              |   |  |  |   | (6,403  | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|                                                 |  |                |         |   |                                  
|Effect of exchange rate changes on cash          |  |                |        |   |                                   |   |       |                                       |  |   | (88          | ) |              |   |  |  |   | (88     | )
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Net change in cash and cash equivalents          |  |                | (372    | ) |                                   |   | (694   | )                                     |  |   | (3,410       | ) |              |   |  |  |   | (4,476  | )
|                                                 |  |                |         |   |                                  
|Cash and cash equivalents, beginning of period   |  |                | 410     |   |                                   |   | 3,382  |                                       |  |   | 6,974        |   |              |   |  |  |   | 10,766  |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  
|Cash and cash equivalents, end of period         |  | $              | 38      |   |                                   | $ | 2,688  |                                       |  | $ | 3,564        |   |              | $ |  |  | $ | 6,290   |  
|                                                 |  |                |         |   |                                   |   |        |                                       |  |   |              |   |              |   |   |  |   |         |  



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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 March 2010, we made optional principal repayments on our senior term loan of $2.5 million. We plan to utilize an estimated $26.0 million to $35.0
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

During
the quarter ended March 31, 2010, we paid $1.5 million and $0.1 million in deferred purchase price payments for acquisitions closed in 2008 and 2006, respectively. As of March 31, 2010, we have $0.2 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 acquisitions during 2010.

Net sales for the quarter ended March 31, 2010 were $86.3 million, a $5.6 million increase
from sales of $80.7 million for the quarter ended March 31, 2009. This increase in sales was driven by a broad-based improvement in sales to our larger customers. In addition, the United States dollar through the first quarter of 2010 was
weaker than the first quarter of 2009, relative to the Canadian dollar, British pound, euro, and Mexican peso, which positively impacted sales by $2.8 million on a combined basis.

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 58.8% for the quarter ended March 31,
2010, compared to 63.7% for the quarter ended March 31, 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 quarter ended March 31, 2010 than for the quarter
ended March 31, 2009. Our operations in the United States and Canada have a lower cost of goods sold percentage than our operations in the United Kingdom.



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##### Table of Contents

RESULTS OF OPERATIONS

The information presented below for the quarters ended March 31, 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 March 31, 2010 compared to quarter ended March 31, 2009



|                                                      |  |                             |        |                             |   |         |         |  |   |                  |   |  |       |   
|----------------------------------------------------- |  | --------------------------- | ------ | --------------------------- | - | ------- | ------- |  | - | ---------------- | - |  | ----- | --
|                                                      |  | Quarter EndedMarch 31, 2010 |        | Quarter EndedMarch 31, 2009 |   |         | $Change |  |   | PercentageChange |  
|                                                      |  | (unaudited)                 |        | (unaudited)                 |   |         |         |  |   |                  |  
|Net sales                                             |  | $                           | 86,287 |                             | $ | 80,697  |         |  | $ | 5,590            |   |  | 6.9   | % 
|Cost of goods sold (exclusive of depreciation)        |  |                             | 50,770 |                             |   | 51,377  |         |  |   | (607             | ) |  | (1.2  | )%
|Selling, general, and administrative expenses         |  |                             | 13,661 |                             |   | 12,656  |         |  |   | 1,005            |   |  | 7.9   | % 
|Depreciation and amortization                         |  |                             | 5,847  |                             |   | 5,729   |         |  |   | 118              |   |  | 2.1   | % 
|                                                      |  |                             |        |                             |   |         |         |  |   |                  |   |  |       |   
|                                                      |  |                             |        |                            
|Income from operations                                |  |                             | 16,009 |                             |   | 10,935  |         |  |   | 5,074            |   |  | 46.4  | % 
|                                                      |  |                             |        |                            
|Interest expense                                      |  |                             | 6,678  |                             |   | 8,080   |         |  |   | (1,402           | ) |  | (17.4 | )%
|Gain on debt extinguishment, net                      |  |                             |       |                             |   | (10,500 | )       |  |   | 10,500           |   |  | nm    |   
|Other expense (income), net                           |  |                             | 566    |                             |   | (548    | )       |  |   | 1,114            |   |  | nm    |   
|                                                      |  |                             |        |                             |   |         |         |  |   |                  |   |  |       |   
|                                                      |  |                             |        |                            
|Income from continuing operations before income taxes |  |                             | 8,765  |                             |   | 13,903  |         |  |   | (5,138           | ) |  | nm    |   
|Provision for income taxes                            |  |                             | 3,234  |                             |   | 5,511   |         |  |   | (2,277           | ) |  | nm    |   
|                                                      |  |                             |        |                             |   |         |         |  |   |                  |   |  |       |   
|                                                      |  |                             |        |                            
|Net income                                            |  | $                           | 5,531  |                             | $ | 8,392   |         |  |   | (2,861           | ) |  | nm    |   
|                                                      |  |                             |        |                             |   |         |         |  |   |                  |   |  |       |   

nm  Percentage change is not meaningful

Net Sales. Sales for the quarter ended March 31, 2010 increased 6.9%, or $5.6 million, to $86.3 million from $80.7 million for the quarter
ended March 31, 2009. This increase in sales was driven by improved sales spread across our major customers in the United States, Canada, and Mexico, and by changes in foreign currency exchange rates. The weakening of the United States dollar,
as compared to the Canadian dollar and British pound, positively impacted sales by $2.2 million and $0.6 million, respectively. The weakening of the United States dollar compared to the euro and Mexican peso positively impacted sales by less than
$0.1 million on a combined basis.

Sales in the United States increased by $0.8 million for the quarter ended March 31, 2010 compared to
the quarter ended March 31, 2009. After excluding the impact of foreign currency fluctuations, sales in Canada and Mexico for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009 increased approximately $1.6
million and $0.3 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. After excluding the impact of foreign
currency fluctuations, sales in the United Kingdom increased by $0.1 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.

Cost of Goods Sold. Cost of goods sold for the quarter ended March 31, 2010 decreased 1.2%, or $0.6 million, to $50.8 million from $51.4
million for the quarter ended March 31, 2009. The decrease in cost of goods sold was due to the realization of the benefits of cost cutting initiatives implemented in prior years, including headcount reductions and plant consolidations. This
decrease occurred in spite of the overall increase in sales and the weakening of the United States dollar. 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
by $1.4 million and $0.5 million, respectively. The weakening of the United States dollar compared to the euro and Mexican peso reduced cost of sales by less than $0.1 million on a combined basis.

Cost of goods sold expressed as a percentage of sales decreased to 58.8% for the quarter ended March 31, 2010 from 63.7% for the quarter ended
March 31, 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



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##### Table of Contents

representing a higher percentage of total Company sales for the quarter ended March 31, 2010 than for the quarter ended March 31, 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 quarter ended March 31, 2010 increased 7.9%, or $1.0 million, to $13.7 million from $12.7 million for the quarter ended March 31, 2009. This increase was primarily due to the incremental
expenses required to drive the organic sales growth, as well as the weakening of the United States dollar as compared to the British pound and Canadian dollar. The impact of foreign currency fluctuations resulted in an increase of selling, general
and administrative expenses of $0.4 million in the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the quarter ended March 31, 2010 increased 2.1%, or $0.1
million, to $5.8 million from $5.7 million for the quarter ended March 31, 2009. This increase is due to the previously discussed weakening of the United States dollar.

Interest Expense. Interest expense for the quarter ended March 31, 2010 decreased 17.4%, or $1.4 million, to $6.7 million from $8.1 million
for the quarter ended March 31, 2009. This decrease was primarily due to lower interest rates on the senior term and acquisition loan facilities during the quarter ended March 31, 2010 than for the quarter ended March 31, 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 4.5% for the quarters ended March 31, 2010 and March 31, 2009, respectively. The
reduction in these interest rates resulted in a reduction of interest expense of $0.5 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 2009. In addition, the repurchase in February 2009 of $25.5 million
in principal of the our 12% senior subordinated notes (Notes) and the optional principal repayments of $14.1 million on the senior term loan facility during the second half of 2009 resulted in a combined reduction in interest expense of
$0.4 million for the quarter ended March 31, 2010 compared to the quarter ended March 31, 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 quarter
ended March 31, 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 $1.1 million to $0.6 million of expense for the quarter ended March 31, 2010 from $0.5 million of income for the quarter ended March 31, 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 March 31, 2010 from the quarter ended March 31, 2009 was primarily due to less favorable
fluctuations in the exchange rates related to the United States dollar, Canadian dollar and British pound during the quarter ended March 31, 2010 than compared to the quarter ended March 31, 2009.

Provision for Income Taxes. The effective tax rate for the quarter ended March 31, 2010 was 36.9%, compared to 39.6% for the quarter ended
March 31, 2009. The decrease in the effective tax rate was due to the combination of the global dispersion of income before taxes and the reduction in the Canadian statutory tax rate.

Liquidity and Capital Resources

At
March 31, 2010, we had $9.4 million in cash and $56.8 million in working capital compared with $10.7 million in cash and $51.8 million in working capital at December 31, 2009. The $1.3 million decrease in cash resulted from the $2.2
million in capital expenditures, $2.7 million in principal repayments of long-term debt, and $1.6 million in net cash paid for acquisitions closed in prior years being partially offset by the $5.2 million in cash provided by operations. The $5.0
million increase in working capital is primarily due to the combination of increases in accounts receivable and inventories and the decrease in accrued compensation. The impacts from these items were partially offset by the increase in accrued
interest.

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 currently plan to obtain a new revolving credit facility during the second half of 2010 that
will provide borrowing availability in the range of $10 million to $20 million. We expect that cash generated from operating activities will be our principal source of liquidity. Although we do not intend to use the Revolver during



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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 in an amount
sufficient to enable us to repay our indebtedness or to fund our other liquidity needs.

We are highly leveraged and our aggregate
indebtedness at March 31, 2010 was $306.2 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 March 31, 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 March 31, 2010 to be 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
March 31, 2010:



|                                    |  |                  |               |     |        |   |            
|----------------------------------- |  | ---------------- | ------------- | --- | ------ | - | -----------
|                                    |  | Required         |               |     | Actual
|Maximum leverage ratio              |  |                  | 5.00          |     |        |   | 3.90       
|Minimum interest coverage ratio     |  |                  | 1.80          |     |        |   | 3.01       
|Maximum annual capital expenditures |  | not to exceed 
$ | 21.1 
million | (1) |        | $ | 2.2 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 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 explore alternatives to our current financing prior to the expiration of the Revolver and 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.

Cash flows

Quarter ended
March 31, 2010 compared to quarter ended March 31, 2009

Cash flows from operating activities.Net cash provided by
operating activities was $5.2 million for the quarter ended March 31, 2010 as compared to $7.0 million for the quarter ended March 31, 2009. The primary reasons for this decrease are the payment of $4.2 million for an exclusive supply
agreement and the timing of cash payments to settle liabilities. These decreases in cash provided by operating activities were partially offset by the $5.1 million increase in income from operations to $16.0 million for the quarter ended
March 31, 2010 from $10.9 million for the quarter ended March 31, 2009, as well as the $1.1 million reduction in cash paid for interest to $1.1 million for the quarter ended March 31, 2010 from $2.2 million for the quarter ended
March 31, 2009.

Cash flows from investing activities. Net cash used for investing activities was $3.8 million for the quarter
ended March 31, 2010 as compared to $5.0 million for the quarter ended March 31, 2009. The decrease in cash used for investing activities is due to a reduction of $1.5 million in net cash paid for acquisitions closed in prior years for the
quarter ended March 31, 2010 compared to the quarter ended March 31, 2009, partially offset by an increase in capital expenditures of $0.4 million.

Cash flows from financing activities.Net cash used in financing activities was $2.7 million for the quarter ended March 31, 2010 as compared
to cash used by financing activities of $6.4 million for the quarter ended March 31, 2009. The primary reason for this fluctuation was the amount of cash available to reduce outstanding debt obligations during each



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quarter. There was less cash available to pay down outstanding debt during the quarter ended March 31, 2010 than the quarter ended March 31, 2009 as a result of the $4.2 million payment
for an exclusive supply agreement made during the quarter ended March 31, 2010.

Contractual Obligations

At March 31, 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 $2.5 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 March 31, 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 March 31, 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 March 31,
2010, at the reasonable assurance level.

A material weakness is a control deficiency, or a combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

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 March 31, 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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As described above, there were changes in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) during the quarter ended March 31, 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
|------- | --------



|               |  |                                                                                                                                                                                                                                                                                                                                                         
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT
NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                             
|               | 
|3.             |  | CERTIFICATE OF INCORPORATION AND BY-LAWS                                                                                                                                                                                                                                                                                                                
|               | 
|3.1            |  | Certificate of Incorporation of the Registrant filed with the Secretary of State of the State of Delaware on November 8, 2005, incorporated by reference to exhibit 3.1 to the
Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                                                                
|               | 
|3.2            |  | By-Laws of the Registrant adopted on November 8, 2005, incorporated by reference to exhibit 3.2 to the Registrants registration statement on Form S-4 filed on
May 5, 2006, File No. 333-133825                                                                                                                                                        
|               | 
|4.             |  | INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES                                                                                                                                                                                                                                                                               
|               | 
|4.1            |  | Certificate of Incorporation. See Exhibit 3.1                                                                                                                                                                                                                                                                                                           
|               | 
|4.2            |  | By-laws. See Exhibit 3.2                                                                                                                                                                                                                                                                                                                                
|               | 
|4.3            |  | Indenture dated as of December 30, 2005, by and between the Registrant and Wells Fargo Bank National Association, as trustee, relating to the 12% Senior Subordinated Notes due
2013, incorporated by reference to exhibit 4.3 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                         
|               | 
|4.4            |  | Form of Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                                                                             
|               | 
|4.5            |  | Form of Regulation S Temporary Global 12% Notes due 2013 (included in Exhibit 4.3)                                                                                                                                                                                                                                                                      
|               | 
|4.6            |  | Supplemental Indenture, dated April 25, 2006, by and among the Registrant, Southern Graphic Systems, Inc., Project Dove Holdco, Inc. and Wells Fargo Bank, N.A., as trustee,
incorporated by reference to exhibit 4.6 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825                                  
|               | 
|4.7            |  | Registration Rights Agreement, dated as of December 30, 2005, by and between the Registrant, certain of its subsidiaries as Guarantors, and UBS Securities LLC and Lehman Brothers
Inc. as Initial Purchasers, incorporated by reference to exhibit 4.7 to the Registrants registration statement on Form S-4 filed on May 5, 2006, File No. 333-133825



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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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: May 10, 2010 |  | By:                     |  | /s/ Henry R. Baughman                            
|                   |  |                         |  | Henry R. Baughman                                
|                   |  |                         |  | President, Chief Executive Officer and Director  
|                   |  |                         |  | (Principal Executive Officer)                    
|                   |  |                        
|Date: May 10, 2010 |  | By:                     |  | /s/ James M. Dahmus                              
|                   |  |                         |  | James M. Dahmus                                  
|                   |  |                         |  | Senior Vice President and Chief Financial Officer
|                   |  |                         |  | (Principal Financial Officer)                    



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