Information included in this Quarterly Report on Form 10-Q contains certain forward-looking statements that involve potential risks and uncertainties. The Company's future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein and those discussed in the Company's Annual Report on Form 10-K for the year ended March 31, 2008. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date thereof. Results for interim periods may not be indicative of annual results.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We continually evaluate our estimates, including, but not limited to, those related to revenue recognition, bad debts, inventories and any related reserves, income taxes, fixed assets, goodwill and intangible assets. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the facts and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies impact the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. Additionally, our senior management has reviewed the critical accounting policies and estimates with the Board of Directors' Audit and Finance Committee. For a more detailed discussion of the application of these and other accounting policies, refer to Note 2 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2008.

Revenue Recognition

The Company recognizes revenue on sales of products when the customer receives title to the goods, which is generally upon shipment or delivery depending on sales terms. Revenues are generally denominated in the currency of the country from which the product is shipped and are net of applicable returns and discounts.

Accounts Receivable

Our customers are primarily major consumer product and wine and spirits companies and container manufacturers. Accounts receivable consist of amounts due from customers in connection with our normal business activities and are carried at sales value less allowance for doubtful accounts. The allowance for doubtful accounts is established to reflect the expected losses of accounts receivable based on past collection history, age and specific individual risks identified. Losses may also depend to some degree on future economic conditions. Although these conditions are unknown to us and may result in additional credit losses, we do not anticipate significant adverse credit circumstances in fiscal 2009. If we are unable to collect all or part of the outstanding receivable balance, there could be a material impact on the Company's operating results and cash flows.

Inventories

Inventories are valued at the lower of cost or market value and are maintained using the FIFO (first-in, first-out) or specific identification method. Excess and obsolete cost reductions are generally established based on inventory age.

Goodwill and Other Acquired Intangible Assets

We test goodwill and other intangible assets for impairment annually and/or whenever events or circumstances make it more likely than not that impairment may have occurred. The impairment test is completed based upon our assessment of the estimated fair value of goodwill and other intangible assets. The annual review for impairment of goodwill requires the use of estimates and assumptions which we believe are appropriate. Application of different estimates and assumptions could have a material impact on the consolidated statements of income.

Impairment of Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that assets might be impaired and the related carrying amounts may not be recoverable. The determination of whether impairment has occurred involves various estimates and assumptions, including the determination of the undiscounted cash flows estimated to be generated by the assets involved in the review. The cash flow estimates are based upon our historical experience, adjusted to reflect estimated future market and operating conditions. Measurement of an impairment loss requires a determination of fair value. We base our estimates of fair values on quoted market prices when available, independent appraisals as appropriate and industry trends or other market knowledge. Changes in the market condition and/or losses of a production line could have a material impact on the consolidated statements of income.

Income Taxes

Income taxes are recorded based on the current year amounts payable or refundable, as well as the consequences of events that give rise to deferred tax assets and liabilities. Deferred tax assets and liabilities result from temporary differences between the tax basis and reported book basis of assets and liabilities and result in taxable or deductible amounts in future years. Our accounting for deferred taxes involves certain estimates and assumptions that we believe are appropriate. Future changes in regulatory tax laws and/or different positions held by taxing authorities may affect the amounts recorded for income taxes.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, which clarified the accounting for tax positions recognized in the financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In accordance with FIN 48, the benefits of tax positions will not be recorded unless it is more likely than not the tax position would be sustained upon challenge by the appropriate tax authorities. Tax benefits that are more likely than not to be sustained are measured at the largest amount of benefit that is cumulatively greater than a 50% likelihood of being realized.

Executive Overview

We provide a complete line of innovative decorative label solutions and offer a wide variety of technical and graphic services to our customers based on their specific needs and requirements. Our customers include a wide range of consumer product companies and we supply labels for many of the world's best known brands and products, including laundry detergent, fabric care, food, beverages, and wine and spirits.

Prior to June 2007, we were organized into two segments within the packaging industry: Decorating Solutions and Packaging Services. The Decorating Solutions segment's primary operations involved the design and printing of labels, while the Packaging Services segment provided promotional packaging, assembling and fulfillment services. On July 2, 2007, we completed the sale of Quick Pak whose operating results were reported as the Packaging Services segment. Accordingly, the results of Quick Pak are now presented as discontinued operations for all periods in the consolidated financial statements and we no longer report any segment results as we now only have one business segment.

In October 2007, we announced the expansion of our manufacturing operations with the purchase of two new presses for a newly acquired manufacturing facility in Batavia, Ohio. Our Troy and Batavia, Ohio plants were consolidated into this new facility to both reduce costs and provide needed capacity for long term growth.

On February 29, 2008, the Company acquired Collotype International Holdings Pty. Ltd. (Collotype) which is headquartered in Adelaide, South Australia. Collotype is the world's leading and highly awarded pressure sensitive wine and spirits label manufacturer and a growing provider of labels in the fast-moving consumer goods marketplace in Australia. Collotype has manufacturing operations in Australia, South Africa and the United States (See Note 9).

Our vision is to be a premier global resource of decorating solutions. We currently serve customers located throughout North, Central and South America, Australia, South Africa and New Zealand. We continue to monitor and analyze new trends in the packaging and consumer products industries to ensure that we are providing appropriate services and products to our customers. Certain factors that influence our business include consumer spending, new product introductions, new packaging technologies and demographics.

Consolidated net revenues of $62,644 for the third quarter of fiscal 2009 increased by $14,377 or 30% compared to $48,267 for the third quarter of the prior year. The significant increase in revenues was due to the Collotype acquisition, which generated $21,891 in revenues for the quarter, partially offset by a $7,514 or 16% reduction in North American organic revenues.

Gross profit for the third quarter increased by $1,739 or 20% compared to the prior year primarily due to the Collotype acquisition.

Interest expense increased by $1,503 during the quarter compared to the prior year. The increase is due to $108,591 of outstanding debt at December 31, 2008 incurred to finance the Collotype acquisition.

Income from continuing operations decreased 19% to $1,606 and diluted earnings per share from continuing operations decreased 32% to 13 cents for the third quarter.

The label markets we serve continue to experience a competitive environment and price pressures. We continually search for ways to reduce our costs through improved production and labor efficiencies, reduced substrate waste, new substrate options and lower substrate pricing.

We have continued to make progress in expanding our customer base and portfolio of products, services and manufacturing locations in order to address issues related to customer concentration.

In January 2009, the Company announced plans to consolidate its heat transfer label (HTL) manufacturing business located in Framingham, Massachusetts into its other existing facilities. The transition will begin immediately with final plant closure within the next several months. In connection with the closure of the Framingham facility, the Company expects to record a total charge of approximately $2,600 during its fourth quarter period ending March 31, 2009, consisting of approximately $1,400 in cash charges for employee severance and other termination benefits related to 62 associates and approximately $1,200 in non-cash charges related to asset impairments (see Note 13).

Results of Operations

Three Months Ended December 31, 2008 compared to the Three Months Ended December 31, 2007:

$ % 2008 2007 Change Change Net Revenues $ 62,644 $ 48,267 $ 14,377 30 %

Revenues for the three months ended December 31, 2008 as compared to the same period of the prior year increased 30% primarily due to the acquisition of Collotype completed in February 2008, which generated $21,891 in revenues for the quarter, partially offset by a $7,514 or 16% reduction in our North American organic revenues. Volume with our largest customer remained significantly below prior year, and to a lesser extent, we also experienced softer sales within our North American regional account base, particularly in the industrial, specialty beverage and home improvement markets.

                                                             $        %
                                   2008        2007       Change    Change
                 Gross Profit    $ 10,275     $ 8,536     $ 1,739       20 %
                 % of Revenues         16 %        18 %

Gross profit increased $1,739 or 20% compared to the prior year due to the Collotype acquisition, partially offset by the impact of lower North American organic revenues. Gross margins declined to 16% this quarter compared to 18% in the prior year quarter due to lower sales volumes and reduced plant fixed cost leverage.

                                                                           $        %
                                                 2008        2007       Change    Change
   Selling, General & Administrative Expenses   $ 5,930     $ 4,764     $ 1,166       24 %
   % of Revenues                                      9 %        10 %

Selling, general and administrative (SG&A) expenses increased $1,166 over the prior year due to comparable expenses from the Collotype acquisition. The Company also incurred $192 of acquisition related expenses in 2008.

Interest Expense and Other (Income) Expense



                                                                $          %
                                            2008     2007    Change      Change
             Interest Expense              $ 1,557   $  54   $ 1,503        N/M
             Other (Income) Expense, net   $    22   $ 778   $  (756 )      N/M

Interest expense increased as compared to the same period of the prior year due to the increase in outstanding debt to finance the Collotype acquisition. We had $108,591 of debt at December 31, 2008 compared to no debt at December 31, 2007.

Other expense decreased by $756 due primarily to a non-cash charge of $957 that was recorded in the prior year quarter as a result of a decrease in the fair value of Australian forward currency contracts that were entered into in connection with the Company's acquisition of Collotype.

$ % 2008 2007 Change Change Income Tax Expense $ 1,160 $ 968 $ 192 20 %

Our effective tax rate increased from 33% in 2007 to 42% in 2008 due to income mix in higher tax jurisdictions.Our expected tax rate for fiscal year 2009 is 36%.

$ % 2008 2007 Change Change Income (loss) from discontinued operations, net of tax $ - $ 152 $ (152 ) N/M

The sale of Quick Pak was completed on July 2, 2007 and therefore, there were no operations during the three months ended December 31, 2007. However, the Company recorded a decrease in state taxes related to the sale which resulted in income of $152.

Nine Months Ended December 31, 2008 compared to the Nine Months Ended December 31, 2007:

$ % 2008 2007 Change Change Net Revenues $ 222,731 $ 152,604 $ 70,127 46 %

Revenues for the nine months ended December 31, 2008 as compared to the same period of the prior year increased 46% primarily due to the Collotype acquisition completed in February 2008, which generated $84,444 in revenues, partially offset by a $14,317 or 9% reduction in North American organic revenues. The reduction in organic revenues was primarily due to lower sales to our largest customer.

                                                             $         %
                                  2008         2007        Change    Change
                Gross Profit    $ 39,932     $ 27,875     $ 12,057       43 %
                % of Revenues         18 %         18 %

Gross profit increased 43% compared to the prior year due to the Collotype acquisition, partially offset by the impact of lower organic revenues and start up costs incurred at our new Batavia, Ohio facility. However, our gross margin was steady at 18% for both periods.

                                                                            $        %
                                                 2008         2007       Change    Change
  Selling, General & Administrative Expenses   $ 21,335     $ 15,040     $ 6,295       42 %
  % of Revenues                                      10 %         10 %

Selling, general and administrative (SG&A) expenses increased $6,295 or 42% due primarily to comparable expenses from the Collotype acquisition. The Company also incurred $192 of acquisition related expenses, $260 in severance costs and an impairment charge of $226 in the 2008 period.

Interest Expense and Other (Income) Expense



                                                                 $          %
                                           2008       2007    Change      Change
            Interest Expense              $ 5,551     $ 177   $ 5,374        N/M
            Other (Income) Expense, net   $  (356 )   $ 392   $  (748 )      N/M

Interest expense increased compared to the same period of the prior year due to the increase in debt incurred to finance the Collotype acquisition. Our average outstanding debt during the nine months ended December 31, 2008 was $120,172 as compared to $2,575 in the prior year. Other expense decreased by $748 due to a non-cash charge of $957 that was recorded in the prior year quarter as a result of a decrease in the fair value of Australian forward currency contracts that were entered into in connection with the Company's acquisition of Collotype.

$ % 2008 2007 Change Change Income Tax Expense $ 4,819 $ 4,483 $ 336 7 %

Our effective tax rate decreased from 37% to 36% during the nine months ended December 31, 2008 due to increased earnings in lower tax jurisdictions. Our expected tax rate for fiscal year 2009 is 36%.

$ % 2008 2007 Change Change Income (loss) from discontinued operations, net of tax $ (170 ) $ 7,022 $ (7,192 ) N/M

The sale of Quick Pak was completed on July 2, 2007 which resulted in an after-tax gain of $6,922. During 2008, we recorded additional income tax expense resulting from the sale of Quick Pak.

Liquidity and Capital Resources

Through the nine months ended December 31, 2008, net cash provided by operating activities was $20,615 as compared to $2,301 in the same period of the prior year. The increase in cash flow is primarily due to cash generated from earnings and a substantial decrease in accounts receivable due to increased collection efforts and lower sales volumes. The increase was partially offset by $7,484 of income tax payments made during the period.

Through the nine months ended December 31, 2008, net cash used in investing activities was $1,363 as compared to net cash provided of $4,046 in the same period of the prior year. Cash provided by investing activities included net proceeds from the sale of the Batavia building and other equipment of $1,726 and refunds of equipment deposits of $6,003, which were offset by capital expenditures of $9,092 related primarily to the expansion of the Company's manufacturing operations. The net cash provided by investing activities in the nine months ended December 31, 2007 was due to $18,912 in proceeds from the sale of Quick Pak, partially offset by capital expenditures of $14,866 related to the expansion of the Company's manufacturing operations.

Through the nine months ended December 31, 2008, net cash used in financing activities was $19,457 as compared to $4,598 in the prior year. During the nine months ended December 31, 2008, net debt payments were $19,170 compared to $5,150 in the prior year.

On February 29, 2008 and in connection with the Collotype acquisition (see Note
9), the Company executed a new five-year $200 million credit agreement with a consortium of bank lenders (Credit Facility). The new Credit Facility contains an election to increase the facility by up to an additional $50 million and the Company terminated its previous $50 million credit facility. The aggregate principal amount of $200 million is available under the Credit Facility through:
(i) a $110 million five-year revolving credit facility ("U.S. Revolving Credit Facility"); (ii) the Australian dollar equivalent of a $40 million five-year revolving credit facility ("Australian Sub-Facility"); and (iii) a $50 million term loan facility ("Term Loan Facility"). The $50 million Term Loan Facility was fully drawn down on February 29, 2008.

The Credit Facility may be used for working capital, capital expenditures and other corporate purposes. Loans under the U.S. Revolving Credit Facility and Term Loan Facility will bear interest at either: (i) the greater of (a) Bank of America's prime rate in effect from time to time; and (b) the federal funds rate in effect from time to time plus 0.5%; or (ii) the applicable London interbank offered rate plus the applicable margin for such loans which ranges from 0.75% to 2.00% based on the Company's leverage ratio at the time of the borrowing. Loans under the Australian Sub-Facility bear interest at the Bank Bill Swap Bid Rate (BBSY) plus the applicable margin for such loans which ranges from 0.75% to 2.00% based on the Company's leverage ratio at the time of the borrowing.

The Credit Facility contains customary representations and warranties as well as customary negative and affirmative covenants which require the Company to maintain the following financial covenants: (i) a minimum consolidated net worth; (ii) a maximum consolidated leverage ratio of 3.75 to 1.00, stepping down to 3.25 to 1.00 from June 30, 2009 to September 30, 2010 and to 3.00 to 1.00 thereafter; and (iii) a minimum consolidated interest charge coverage ratio of 3.50 to 1.00. The Credit Facility contains customary mandatory and optional prepayment provisions, customary events of default, and is secured by the capital stock of subsidiaries, intercompany debt and all of the Company's property and assets.

Available borrowings under the Credit Facility at December 31, 2008 consisted of $56,600 under the U.S. Revolving Credit Facility and $25,387 under the Australian Sub-Facility.

We believe that we have both sufficient short and long term liquidity and financing. We had a working capital position of $9,620 and $18,517 at December 31, 2008 and March 31, 2008, respectively and were in compliance with our loan covenants and current in our principal and interest payments on all debt.

Contractual Obligations

The following table summarizes Multi-Color's contractual obligations as of December 31, 2008:

Aggregated Information about Contractual Obligations and Other Commitments for
Continuing Operations:



                                                                                                         More
                                                                                                        than 5
December 31, 2008                     Total      Year 1     Year 2     Year 3     Year 4     Year 5     years
Total debt                          $ 108,591   $ 10,002   $ 10,001   $ 10,000   $ 10,000   $ 68,588   $     -
Interest on total debt (1)             19,188      5,226      4,940      4,503      3,945        574         -
Rent due under operating leases        26,773      3,943      3,644      3,370      3,118      3,176      9,522
Unconditional purchase
obligations                             1,049      1,049         -          -          -          -          -
Pension and post retirement
obligations                               623         18         13         24         36         64        468
Deferred compensation (2)                 726         74         -          -          -          -         652
Unrecognized tax benefits (3)              -          -          -          -          -          -          -

Total Contractual Cash
Obligations                         $ 156,950   $ 20,312   $ 18,598   $ 17,897   $ 17,099   $ 72,402   $ 10,642

(1) Interest on floating rate debt was estimated using projected forward LIBOR and BBSY rates as of December 31, 2008.

(2) The more than 5 years column includes $652 of deferred compensation obligations for which the timing of such payments are not determinable.

(3) The table excludes $3,488 of liabilities related to unrecognized tax benefits as the timing and extent of such payments are not determinable.