SGS International, Inc. - FORM 10-Q

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EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - SGS International, Inc.	dex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - SGS International, Inc.	dex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - SGS International, Inc.	dex311.htm

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, 2011

¨	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):

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 29, 2011 there were 100 shares of the registrant’s common stock, $0.01 par value, outstanding.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Income	3

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II – OTHER INFORMATION		22
Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 6.	Exhibits	22

SIGNATURES		25

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(unaudited)

(in thousands of dollars)


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010

NET SALES	$	91,639	$	86,287

COSTS OF OPERATIONS:
Cost of goods sold (exclusive of depreciation)		54,463		50,770
Selling, general, and administrative expenses		15,035		13,661
Depreciation and amortization		5,748		5,847


INCOME FROM OPERATIONS		16,393		16,009


NON-OPERATING EXPENSES:

Interest expense, net		6,578		6,678
Other expense, net		289		566


INCOME BEFORE INCOME TAXES		9,526		8,765

PROVISION FOR INCOME TAXES		1,967		3,234


NET INCOME	$	7,559	$	5,531

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

SGS International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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


	March 31, 2011		December 31, 2010
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	12,466	$	9,513
Receivables from customers, less allowances of $1,621 and $1,563 at March 31, 2011 and December 31, 2010, respectively		70,502		65,153
Inventories		10,676		9,753
Deferred income taxes		3,119		1,300
Prepaid expenses and other current assets		3,711		3,283

Total current assets		100,474		89,002

Properties, plants and equipment, net		44,925		44,195
Goodwill		187,158		185,067
Other intangible assets, net		159,467		159,578
Deferred financing costs, net		3,222		3,535
Other assets		2,212		1,842


TOTAL ASSETS	$	497,458	$	483,219


LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities:
Accounts payable, trade	$	12,819	$	16,519
Accrued expenses		17,610		19,341
Accrued income taxes		1,820		199
Accrued interest		6,117		884
Current portion of long-term obligations		5,141		5,139

Total current liabilities		43,507		42,082

Long-term obligations, net of current portion		260,604		261,413
Non-current liabilities		3,194		2,814
Deferred income taxes		36,961		34,858

Total liabilities		344,266		341,167

Commitments and contingencies

Stockholder’s equity:
Common stock, $.01 par value, 1,000 shares authorized and 100 shares outstanding		—		—
Additional capital		107,000		107,000
Accumulated other comprehensive income - unrealized translation adjustments, net of tax		6,060		2,479
Retained earnings		40,132		32,573

Total stockholder’s equity		153,192		142,052

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	497,458	$	483,219

SGS International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands of dollars)


	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010

CASH FLOWS FROM OPERATING ACTIVITIES	$	9,019		$	5,224


CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties, plants and equipment		(3,871	)		(2,233	)
Proceeds from sales of equipment		8			8
Business acquisitions, net of cash acquired		(1,123	)		(1,609	)

Net cash used in investing activities		(4,986	)		(3,834	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on senior term loan and acquisition facility		(1,251	)		(2,624	)
Payments on other long-term debt		(32	)		(103	)


Net cash used in financing activities		(1,283	)		(2,727	)


Effect of exchange rate changes on cash		203			(17	)


NET CHANGE IN CASH AND CASH EQUIVALENTS		2,953			(1,354	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,513			10,710


CASH AND CASH EQUIVALENTS, END OF PERIOD	$	12,466		$	9,356

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

A.	Summary of Significant Accounting Policies

General Nature of Business

SGS International, Inc. (“the Company” or “the Registrant”), headquartered in Louisville, Kentucky, operates in one operating business segment, pre-press graphic services. The Company provides a variety of services that include the preparatory steps that precede the actual printing of an image onto packaging material. The Company supplies photographic images, digital images, flexographic printing plates and rotogravure cylinders for the packaging printing industry. The Company has 38 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, 2010 in the Company’s Form 10-K filed with the U.S. Securities and Exchange Commission (SEC). The December 31, 2010 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, 2011.

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, 2011		December 31, 2010
Raw materials	$	3,002	$	3,180
Work-in-process		7,674		6,573

Total	$	10,676	$	9,753

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.

B.	Goodwill and Other Intangible Assets

Goodwill and other intangible assets consist of the following:


	March 31, 2011			December 31, 2010

Goodwill, cost	$	187,158		$	185,067


Customer relationships, cost	$	180,538		$	177,616
Customer relationships, accumulated amortization		(44,268	)		(41,654	)

Other intangible assets, cost		30,978			31,008
Other intangible assets, accumulated amortization		(7,781	)		(7,392	)

Total	$	159,467		$	159,578

The change in goodwill, customer relationships (cost) and other intangible assets (cost) during the three months ended March 31, 2011 is due to the following:


	Goodwill		Customer relationships (cost)		Other intangible assets (cost)

Balance at December 31, 2010	$	185,067	$	177,616	$	31,008

Acquisition		111		1,266		—

Changes due to foreign currency fluctuations		1,980		1,656		(30	)


Balance at March 31, 2011	$	187,158	$	180,538	$	30,978

Amortization of customer relationships and other intangible assets is estimated to be between $10,000 and $11,000 in total per year from 2011 through 2015.

Amortization of the payment for the exclusive supply agreement entered into during the three months ended March 31, 2011 is recorded as a reduction in net sales. Such amortization is expected to be $833 annually, and amounted to $208 and $112 for the quarters ended March 31, 2011 and March 31, 2010, respectively.

C.	Interest Expense, net

Interest expense, net consists of the following:


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Interest on senior term loan	$	625	$	698
Interest on borrowings on acquisition facility		300		278
Interest on senior subordinated notes		5,235		5,235
Amortization of deferred financing costs		313		392
Commitment fees on senior credit facility		100		53
Other		5		22

Total	$	6,578	$	6,678

D.	Comprehensive Income

The following table sets forth comprehensive income for the three months ended March 31, 2011 and 2010:


	Three Months Ended March 31, 2011		Three Months Ended March 31, 2010
Net income	$	7,559	$	5,531
Cumulative translation adjustments, net		3,581		710

Total	$	11,140	$	6,241

E.	Fair Value Measurements

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

The following table shows assets measured at fair value as of March 31, 2011 on the Company’s balance sheet, and the input categories associated with those assets:


	Total Fair Value at March 31, 2011		Fair Value Measurements at Reporting Date Using Quoted Prices in Active Markets

Deferred compensation plan assets ^(a)	$	1,734	$	1,734

^(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 $179,750 at March 31, 2011. The estimated fair value of the Company’s Notes is determined using quoted prices in markets that are not active and is based on the average price of the Notes either traded or purchased by third parties between March 1, 2011 and April 29, 2011.

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

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, 2011 was 20.6% compared to 36.9% for the quarter ended March 31, 2010. The significant decrease in the effective tax rate was due to an income tax benefit of approximately $1,600 recorded during the quarter ended March 31, 2011 associated with the reversal of withholding taxes on intercompany interest accrued but unpaid. This is discussed in more detail below.

On December 15, 2008 the United States and Canada exchanged instruments of ratification to place in force the Fifth Protocol of the U.S.-Canada Tax Treaty (Fifth Protocol). Included in the Fifth Protocol were provisions that affected certain hybrid entities that receive or pay cross border payments. The hybrid provisions in the Fifth Protocol became effective January 1, 2010. To minimize the overall tax impact of the Fifth Protocol, SGS filed an election to essentially repatriate $23,342 of intercompany interest back to the United States for tax purposes and reduce the withholding tax rate on all future intercompany interest, including amounts previously accrued but unpaid from 25% to 0%. As of December 31, 2010, the Company recorded income tax expense and a corresponding net deferred tax liability and associated withholding tax expenses totaling $1,594 on intercompany interest accrued but unpaid. Due to the rate change from the tax election, this tax expense was reversed in the quarter ended March 31, 2011 when the election the Company filed became effective.

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, 2011, undistributed earnings of international subsidiaries considered permanently reinvested were approximately $7,094. 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.

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

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

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

March 31, 2011


	Parent / Issuer		Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	172	$	5,162	$	7,132	$	—		$	12,466
Receivables from customers, less allowances		—		44,819		25,683		—			70,502
Intercompany receivables		246,841		682		85		(247,608	)		—
Inventories		—		7,235		3,441		—			10,676
Income taxes receivable		2,854		5,392		—		(8,246	)		—
Deferred income taxes		—		3,049		70		—			3,119
Prepaid expenses and other current assets		94		2,075		1,542		—			3,711

Total current assets		249,961		68,414		37,953		(255,854	)		100,474
Investment in subsidiaries		161,575		29,021		36,567		(227,163	)		—
Properties, plants and equipment, net		—		35,912		9,013		—			44,925
Goodwill		—		120,081		67,077		—			187,158
Other intangible assets, net		—		114,753		44,714		—			159,467
Deferred financing costs, net		3,222		—		—		—			3,222
Other assets		—		1,866		346		—			2,212

Total assets	$	414,758	$	370,047	$	195,670	$	(483,017	)	$	497,458


Liabilities
Current liabilities
Accounts payable, trade	$	601	$	7,666	$	4,552	$	—		$	12,819
Intercompany payables		—		217,125		30,483		(247,608	)		—
Accrued expenses		25		11,940		5,645		—			17,610
Accrued income taxes		—		—		10,066		(8,246	)		1,820
Accrued interest		3		6,113		1		—			6,117
Current portion of long-term obligations		4,554		50		537		—			5,141

Total current liabilities		5,183		242,894		51,284		(255,854	)		43,507
Non-current liabilities
Long-term obligations, net of current portion		252,590		76		7,938		—			260,604
Non-current liabilities		—		3,194		—		—			3,194
Deferred income taxes		3,580		25,114		8,267		—			36,961

Total liabilities		261,353		271,278		67,489		(255,854	)		344,266


Contingencies and commitments

Stockholder’s equity
Common stock		—		—		—		—			—
Other stockholder’s equity		153,405		98,769		128,181		(227,163	)		153,192

Total stockholder’s equity		153,405		98,769		128,181		(227,163	)		153,192

Total liabilities and stockholder’s equity	$	414,758	$	370,047	$	195,670	$	(483,017	)	$	497,458

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Balance Sheet

December 31, 2010


	Parent / Issuer		Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	154	$	4,160	$	5,199		$	—		$	9,513
Receivables from customers, less allowances		—		42,896		22,257			—			65,153
Intercompany receivables		245,954		445		2,810			(249,209	)		—
Inventories		—		6,850		2,903			—			9,753
Deferred income taxes		4,777		5,667		(9,144	)		—			1,300
Prepaid expenses and other current assets		80		1,969		1,234			—			3,283

Total current assets		250,965		61,987		25,259			(249,209	)		89,002
Investment in subsidiaries		151,585		29,226		—			(180,811	)		—
Properties, plants and equipment, net		—		35,572		8,623			—			44,195
Goodwill		—		119,970		65,097			—			185,067
Other intangible assets, net		—		115,552		44,026			—			159,578
Deferred financing costs, net		3,535		—		—			—			3,535
Other assets		—		1,494		348			—			1,842

Total assets	$	406,085	$	363,801	$	143,353		$	(430,020	)	$	483,219


Liabilities
Current liabilities
Accounts payable, trade	$	554	$	11,261	$	4,704		$	—		$	16,519
Intercompany payables		—		219,458		29,751			(249,209	)		—
Accrued expenses		99		13,920		5,322			—			19,341
Accrued income taxes		—		—		199			—			199
Accrued interest		5		878		1			—			884
Current portion of long-term obligations		4,626		50		463			—			5,139

Total current liabilities		5,284		245,567		40,440			(249,209	)		42,082
Non-current liabilities
Long-term obligations, net of current portion		253,445		86		7,882			—			261,413
Non-current liabilities		—		2,814		—			—			2,814
Deferred income taxes		5,304		20,148		9,406			—			34,858

Total liabilities		264,033		268,615		57,728			(249,209	)		341,167


Contingencies and commitments

Stockholder’s equity:
Common stock		—		—		—			—			—
Other stockholder’s equity		142,052		95,186		85,625			(180,811	)		142,052

Total stockholder’s equity		142,052		95,186		85,625			(180,811	)		142,052

Total liabilities and stockholder’s equity	$	406,085	$	363,801	$	143,353		$	(430,020	)	$	483,219

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended March 31, 2011


	Parent / Issuer			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales:
Sales	$	—		$	64,134		$	27,505		$	—		$	91,639
Intercompany sales		—			556			1,608			(2,164	)		—

Total net sales		—			64,690			29,113			(2,164	)		91,639

Costs of operations:
Cost of goods sold (exclusive of depreciation)		—			38,505			18,122			(2,164	)		54,463
Selling, general and administrative expenses		327			9,782			4,926			—			15,035
Depreciation and amortization		—			4,235			1,513			—			5,748

Income (loss) from operations		(327	)		12,168			4,552			—			16,393

Interest expense, net		201			5,704			673			—			6,578
Other expense (income), net		162			(17	)		144			—			289

Income (loss) before equity in net income from subsidiaries		(690	)		6,481			3,735			—			9,526

Equity in net income of subsidiaries		8,448			—			—			(8,448	)		—

Income before income taxes		7,758			6,481			3,735			(8,448	)		9,526
Provision for income taxes		199			2,692			(924	)		—			1,967

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

SGS International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited - continued)

(in thousands of dollars)

Supplemental Condensed Consolidating Statement of Income

For the Three Months Ended March 31, 2010


	Parent / Issuer			Consolidated Guarantor Subsidiaries		Consolidated Non-Guarantor Subsidiaries		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 (income) expense, net		(178	)		105		639		—			566

Income (loss) 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 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 (loss)	$	5,531		$	4,137	$	1,259	$	(5,396	)	$	5,531

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, 2011


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

Net cash provided by operations	$	1,175		$	5,261		$	2,583		$	—	$	9,019


Investing activities:
Acquisition of properties, plants and equipment		—			(3,122	)		(749	)		—		(3,871	)
Proceeds from sales of equipment		—			—			8			—		8
Business acquisitions, net of cash acquired		—			(1,123	)		—			—		(1,123	)

Net cash used in investing activities		—			(4,245	)		(741	)		—		(4,986	)


Financing activities:
Payments on senior term loan and acquisition facility		(1,157	)		—			(94	)		—		(1,251	)
Payments on other long-term debt		—			(14	)		(18	)		—		(32	)

Net cash used in financing activities		(1,157	)		(14	)		(112	)		—		(1,283	)


Effect of exchange rate changes on cash		—			—			203			—		203

Increase (decrease) in cash and cash equivalents		18			1,002			1,933			—		2,953

Cash and cash equivalents, beginning of period		154			4,160			5,199			—		9,513

Cash and cash equivalents, end of period	$	172		$	5,162		$	7,132		$	—	$	12,466

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			Consolidated Guarantor Subsidiaries			Consolidated Non-Guarantor Subsidiaries			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 equipment		—			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	)

Net change 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

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.

Net sales for the quarter ended March 31, 2011 increased 6.2%, or $5.3 million, to $91.6 million from sales of $86.3 million for the quarter ended March 31, 2010. This increase in sales was driven by volume growth across our customer base, most notably with large consumer packaged goods companies (CPGs). This increase was spread across our global operations. In addition, foreign currency fluctuations, most notably the weakening of the United States dollar compared to the Canadian dollar, positively impacted sales by $1.1 million.

Income from operations increased to $16.4 million, or 17.9% of sales, for the quarter ended March 31, 2011 compared to $16.0 million, or 18.6% of sales, for the quarter ended March 31, 2010. This slight increase in income from operations was due to the previously discussed sales increase, while cost of goods sold (exclusive of depreciation) expressed as a percentage of sales for our entire business was relatively flat at 59.4% for the quarter ended March 31, 2011, compared to 58.8% for the quarter ended March 31, 2010. The positive impact from the sales increase was partially offset by increased expenses associated with our sales and marketing efforts. We have increased our investment in selling and marketing activities in order to stimulate further organic sales growth. The chart below provides cost of goods sold (exclusive of depreciation), selling and marketing expenses, and general and administrative expenses, each expressed as a percentage of sales.


	Quarter Ended			Quarter Ended
	March 31, 2011			March 31, 2010
Net sales	$	91,639		$	86,287

Cost of goods sold (exclusive of depreciation)		54,463			50,770

Cost of goods sold (exclusive of depreciation), as a percentage of net sales		59.4	%		58.8	%


Selling and marketing expenses		10,620			9,010
General and administrative expenses		4,415			4,651

Total selling, general, and administrative expenses		15,035			13,661

Selling and marketing expenses, as a percentage of net sales		11.6	%		10.4	%


General and administrative expenses, as a percentage of net sales		4.8	%		5.4	%

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. 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. We have attempted to mitigate the negative impact of price concessions on our net income by putting in place effective cost control measures, among other things.

In February 2011, we acquired the assets of a digital print company in Dallas, Texas that include label printers and other equipment associated with digital printing. This acquisition will broaden our digital printing capabilities and product offerings. We now have a larger capacity to offer our customers short run reproduction services and sales samples or packaging mock-ups (product packaging samples that may or may not be filled with actual product). Since such services are generally requested more by our customers’ marketing departments than their procurement departments with whom we typically have the most contact, this expanded service offering allows us to develop additional relationships within our customers’ operations to better understand their needs and help deliver the most consistent and cost-effective solutions.

In April 2011, we acquired the assets of a Canadian provider of packaging and retail graphics services. This acquisition will enable us to obtain additional sales volumes and expand our customer base. We are also currently evaluating additional acquisition opportunities.

During the quarter ended March 31, 2011, our operations generated cash flows of $9.0 million compared to cash generated from operations of $5.2 million for the quarter ended March 31, 2010. The cash generated from operations for the quarter ended March 31, 2010 included a use of cash of $4.2 million for the purchase of an exclusive supply agreement. We plan to use the cash generated from our operations to either fund future acquisitions or to strengthen our balance sheet through principal repayments on our outstanding long-term debt obligations.

RESULTS OF OPERATIONS

The information presented below for the quarters ended March 31, 2011 and March 31, 2010 was prepared by management and is unaudited. In the opinion of management, all adjustments necessary for a fair statement of our financial position and operating results for such quarters and as of such dates have been included. (Dollar amounts in the table below are in thousands.)

Quarter ended March 31, 2011 compared to quarter ended March 31, 2010


	Quarter Ended		Quarter Ended		$			Percentage
	March 31, 2011		March 31, 2010		Change			Change
	(unaudited)		(unaudited)
Net sales	$	91,639	$	86,287	$	5,352			6.2	%

Cost of goods sold (exclusive of depreciation)		54,463		50,770		3,693			7.3	%
Selling, general, and administrative expenses		15,035		13,661		1,374			10.1	%
Depreciation and amortization		5,748		5,847		(99	)		(1.7	%)


Income from operations		16,393		16,009		384			2.4	%


Interest expense		6,578		6,678		(100	)		(1.5	%)
Other expense, net		289		566		(277	)		(48.9	%)


Income before income taxes		9,526		8,765		761			8.7	%
Provision for income taxes		1,967		3,234		(1,267	)		(39.2	%)


Net income	$	7,559	$	5,531	$	2,028			36.7	%

Net Sales. Sales for the quarter ended March 31, 2011 increased 6.2%, or $5.3 million, to $91.6 million from $86.3 million for the quarter ended March 31, 2010. This increase in sales was driven primarily by volume growth across our customer base, most notably with large CPGs. In addition, sales were positively impacted by fluctuations 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 $0.9 million and $0.2 million, respectively.

Sales in the United States increased by $3.0 million for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010 and included incremental sales of $0.2 million associated with the acquisition in Dallas. After excluding the impact of foreign currency fluctuations, sales in Canada and Europe for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010 increased approximately $0.1 million and $1.0 million, respectively. The residual sales increase was generated by our operations in Mexico and Asia. These sales increases were primarily due to organic growth driven by increased sales spread across many of our larger CPG customers.

Cost of Goods Sold. Cost of goods sold for the quarter ended March 31, 2011 increased 7.3%, or $3.7 million, to $54.5 million from $50.8 million for the quarter ended March 31, 2010. The increase in cost of goods sold was due to the increase in sales previously discussed. The weakening of the United States dollar as compared to the Canadian dollar and British pound resulted in increases in cost of goods sold of $0.5 million and $0.1 million, respectively. Cost of goods sold expressed as a percentage of sales remained relatively flat at 59.4% for the quarter ended March 31, 2011 compared to 58.8% for the quarter ended March 31, 2010.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the quarter ended March 31, 2011 increased 10.1%, or $1.4 million, to $15.0 million from $13.7 million for the quarter ended March 31, 2010. This increase was due to investments in selling and marketing expenses in order to stimulate future organic sales growth.

Depreciation and Amortization Expenses. Depreciation and amortization expenses for the quarter ended March 31, 2011 decreased only 1.7%, or $0.1 million, to $5.7 million from $5.8 million for the quarter ended March 31, 2010.

Interest Expense. Interest expense for the quarter ended March 31, 2011 decreased 1.5%, or $0.1 million, to $6.6 million from $6.7 million for the quarter ended March 31, 2010. This minor decrease resulted from the interest savings associated with the Company’s debt reduction efforts during fiscal 2010 essentially being offset by an increase in interest rates. The combined principal repayments of $42.4 million on the senior term loan and acquisition facilities during fiscal 2010 resulted in a combined reduction in interest expense of $0.3 million for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010. These interest expense savings were offset by a $0.3 million increase in interest expense stemming from an increase in interest rates on the senior term loan and acquisitions facilities due to our refinancing in the fourth quarter of 2010. The weighted average interest rates on the senior term and acquisition loan facilities were 4.0% and 2.9% for the quarters ended March 31, 2011 and March 31, 2010, respectively.

Other Expense (Income), net. Other expense (income), net fluctuated by $0.3 million to $0.3 million of expense for the quarter ended March 31, 2011 from $0.6 million of expense for the quarter ended March 31, 2010. 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, 2011 from the quarter ended March 31, 2010 was primarily due to slightly more favorable fluctuations in the exchange rates related to the United States dollar, Canadian dollar and British pound during the quarter ended March 31, 2011 than during the quarter ended March 31, 2010.

Provision for Income Taxes. The effective tax rate for the quarter ended March 31, 2011 was 20.6%, compared to 36.9% for the quarter ended March 31, 2010. The significant decrease in the effective tax rate was due to an income tax benefit of $1.6 million recorded during the quarter ended March 31, 2011 associated with the reversal of withholding taxes on intercompany interest accrued but unpaid. This reversal is the result of the Company’s election to repatriate intercompany interest income back to the United States for tax purposes and a corresponding reduction of the withholding tax rate from 25% to 0% on the intercompany interest accrued but unpaid. After adjusting for the impact of the $1.6 million tax benefit, the effective tax rate for the quarter ended March 31,2011 is not significantly different from the rate for the quarter ended March 31, 2010.

Liquidity and Capital Resources

At March 31, 2011, we had $12.5 million in cash and $57.0 million in working capital compared with $9.5 million in cash and $46.9 million in working capital at December 31, 2010. The $3.0 million increase in cash resulted from $9.0 million in cash provided by operations, partially offset by the $1.3 million in principal repayments of long-term debt, $3.9 million in capital expenditures, and $1.1 million in net cash paid for acquisitions. The $10.1 million increase in working capital is primarily due to the combination of increases in cash, accounts receivable and inventories, as well as decreases in accounts payable and accrued expenses, partially offset by the increase in accrued interest.

Our revolving credit facility (the “Revolver”) under our senior secured credit facility provides for $40.0 million of borrowing availability. The Revolver is available through September 30, 2013. We expect that cash generated from operating activities and availability under the $40.0 million Revolver will be our principal sources of liquidity. Based on our current level of operations, we believe our cash flow from operations and availability under the Revolver will be adequate to meet our liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under our Revolver in an amount sufficient to enable us to repay our indebtedness, or to fund our other liquidity needs.

We are highly leveraged and our aggregate indebtedness at March 31, 2011 was $265.7 million. In 2013, our debt service requirements will substantially increase as a result of the September 30, 2013 maturity of the loans under the Amended and Restated Credit Agreement and the December 15, 2013 maturity of the 12% Senior Subordinated Notes (“Notes”). Our ability to operate our business, service our debt requirements and reduce our total debt will depend upon our future operating performance.

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 Amended and Restated Credit Agreement. Our senior secured credit facility also places certain restrictions on our ability to make capital expenditures. As of March 31, 2011, we were in compliance with all covenants. Below are the required financial covenant levels and the actual levels as of March 31, 2011:


	Required			Actual
Maximum leverage ratio		5.00			2.93
Minimum interest coverage ratio		1.80			3.64
Maximum annual capital expenditures	not to exceed $	18.1 million	⁽¹⁾	$	3.9 million

⁽¹⁾	The maximum annual capital expenditures consists of $15.0 million plus $3.1 million of allowed carry over from the fiscal year ended December 31, 2010.

We believe that our financing arrangements provide us with sufficient financial flexibility to fund our operations, debt service requirements and other committed obligations. Our ability to access additional capital in the long-term depends on the availability of capital markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. From time-to-time, we review our long-term financing and capital structure. We may periodically explore alternatives to our current financing prior to the maturity of the Amended and Restated Credit Agreement and

Notes. These alternatives may include the issuance of additional long-term debt, refinancing our credit facility and other restructurings or financings. In addition, we may from time to time seek to retire our outstanding Notes in open market purchases, privately negotiated transactions, through calling the Notes or otherwise. These repurchases, if any, will depend on prevailing market conditions based on our liquidity requirements, contractual restrictions and other factors. The amount of repurchases of our Notes may be material and may involve significant amounts of cash and/or financing availability.

Income taxes

Based on the changes noted in Note G “Income Taxes” included in the condensed consolidated financial statements and on our recent results, we expect that that our cash payments for income taxes will be significantly greater in 2011 than in 2010 and prior years.

Cash flows

Quarter ended March 31, 2011 compared to quarter ended March 31, 2010

Cash flows from operating activities. Net cash provided by operating activities was $9.0 million for the quarter ended March 31, 2011 as compared to $5.2 million for the quarter ended March 31, 2010. The primary reason for this increase is the quarter ended March 31, 2010 included a use of cash of $4.2 million for the purchase of an exclusive supply agreement.

Cash flows from investing activities. Net cash used for investing activities was $5.0 million for the quarter ended March 31, 2011 as compared to $3.8 million for the quarter ended March 31, 2010. The increase in cash used for investing activities is due to an increase in capital expenditures of $1.6 million, partially offset by a reduction of $0.5 million in net cash paid for acquisitions for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010.

Cash flows from financing activities. Net cash used in financing activities was $1.3 million for the quarter ended March 31, 2011 as compared to cash used in financing activities of $2.7 million for the quarter ended March 31, 2010. The primary reason for this decrease is the Company’s decision not to make additional principal repayments on long-term obligations during the quarter ended March 31, 2011. The decision not to make additional principal repayments on long-term obligations was primarily the result of the cash requirements associated with the recent acquisitions in Dallas and Canada.

Contractual Obligations

At March 31, 2011, there were no material changes in our December 31, 2010 contractual obligations.

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, 2010.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in 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, 2011. 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, 2011, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

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

Except as discussed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three months ended March 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

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

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

4.14		Amendment Agreement, dated as of October 25, 2010, to the Credit Agreement dated as of December 30, 2005, by and among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern-Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”), the guarantors from time to time party thereto, the lending institutions from time to time party thereto, UBS Securities LLC and Lehman Brothers Inc., as joint lead arrangers, UBS Securities LLC, as syndication agent, CIT Lending Services Corporation, as documentation agent, UBS Loan Finance LLC, as swingline lender, UBS AG, Stamford Branch, as issuing bank, as US administrative agent, as US collateral agent and as Canadian collateral agent, and PNC Bank, National Association, as Successor to National City Bank, as Canadian administrative agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825



4.15		Amended and Restated Credit Agreement dated as of October 25, 2010, among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern – Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”, and together with Canadian Borrower, the “Borrowers”), certain affiliates of the Borrowers as guarantors, the Lenders thereto, UBS Securities LLC and Fifth Third Bank, as joint lead arrangers, UBS Securities LLC, as syndication agent, JPMorgan Chase Bank, N.A., as documentation agent, UBS Loan Finance LLC, as swingline lender, and UBS AG, Stamford Branch, as issuing bank, as US administrative agent, as Canadian administrative agent, as US collateral agent and as Canadian collateral agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825

4.16		Omnibus Acknowledgement, Reaffirmation and Amendment to Security Documents made as of October 25, 2010, by and among Southern Graphic Systems - Canada, Co./Systemes Graphiques Southern – Canada, Co. (“Canadian Borrower”), SGS International, Inc. (“US Borrower”), the Guarantors party thereto and UBS AG, Stamford Branch, as US administrative agent, as US collateral agent, as Canadian administrative agent and as Canadian collateral agent, incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825

4.17		Supplemental Debenture [not dated] between SGS Packaging Europe Holdings Limited, SGS Packaging Europe Limited, MCG Graphics Limited and UBS, AG, Stamford Branch, incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K dated October 25, 2010, filed October 29, 2010, File No. 333-133825

31.		CERTIFICATIONS

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

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

32.		CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

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

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 11, 2011	By:	/s/ Henry R. Baughman
		Henry R. Baughman President, Chief Executive Officer and Director
		(Principal Executive Officer)

Date: May 11, 2011	By:	/s/ James M. Dahmus
		James M. Dahmus
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

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