Net income for the second quarter of the year decreased by $0.4 million; to $7.6 million in 2012 from $8.0 million in 2011. The decrease was primarily due to an increase in the effective tax rate from 25.6% in 2011 to 35.7% in 2012. The significant increase in the effective tax rate was due to an income tax benefit of $1.2 million recorded during the second quarter of 2011 associated with a revision in the calculation of estimated state tax liabilities expected in the US. This tax benefit was primarily related to aligning our tax accounts with an election made in the first quarter of 2011 and resulted from a reduction in the deferred state tax liability and the associated expense for intercompany interest income repatriated from foreign subsidiaries. The impact of the increase in the effective tax rate was partially offset by higher income from operations and lower interest expense for the second quarter of 2012 compared to the second quarter of 2011. The increase in income from operations resulted from the previously discussed sales increase. The lower interest expense resulted from our voluntary redemption of $15.0 million of our 12% Senior Subordinated Notes in December 2011.

Net income for the first six months of 2012 was down $2.6 million, to $13.0 million in 2012 from $15.6 million in 2011. The decrease was primarily due to an increase in the effective tax rate from 23.3% in 2011 to 35.2% in 2012. The increase in the effective tax rate was primarily due to two factors. The first driver of the change in the effective tax rate is the $1.2 million tax benefit previously discussed for the quarterly increase. The second component of the change in the effective tax rate is the $1.6 million tax benefit recorded during the first six months of 2011 associated with the reversal of withholding taxes on intercompany interest accrued but unpaid. This reversal is the result of the Company's election to repatriate intercompany interest back to the US for tax purposes and a corresponding reduction of the withholding rate from 25% to 0% on the intercompany interest accrued but unpaid.

EBITDA (a non-GAAP measure) increased by $1.7 million, to $25.2 million in the second quarter of 2012 from $23.5 million for the same period in 2011. Included in these EBITDA figures are integration and consolidation costs, acquisition expenses and management fees totaling $1.3 million in the second quarter of 2012 and $1.1 million in the second quarter of 2011. EBITDA for the first six months of 2011 increased $0.6 million to $46.5 million, compared to $45.9 million for the same period in 2011. Included in these EBITDA figures are integration and consolidation costs, acquisition expenses and management fees totaling $2.1 million for the first six months of 2012 and $1.5 million for the first six months of 2011. The reconciliation of this non-GAAP measure to the GAAP measure of net income is as follows:

While EBITDA is a non-GAAP measure, management believes its inclusion enhances the users' overall understanding of the Company's current financial performance and future prospects. This non-GAAP financial information should be considered in addition to, and not as a substitute for, or superior to, results prepared in accordance with GAAP.

Hank Baughman, CEO of SGS, said "During the first half of 2012, our past and ongoing investments in sales, marketing and productive capacity continued to pay off in terms of record revenues. We also made five important acquisitions in 2011 which have helped us by enhancing our capabilities and our customer base. We expect this trend of organic growth and opportunistic acquisitions to continue into future years."

SGS International, Inc. is the parent company of Southern Graphic Systems, Inc., a global leader in the digital imaging and communications industry offering design-to-print graphic services to the international consumer products packaging market.

SGS International, Inc. will hold a teleconference at 10:00 AM EDT on Friday, August 10, 2012. Please dial (1-800-230-1074) in the USA or (1-612-288-0329) internationally to access the call. The conference ID number is 256522.