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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the Year ended December 31, 2004 Commission File No. 333-51839 DAY INTERNATIONAL GROUP, INC. 
 State of Incorporation:Delaware IRS Employer Identification No.:31-1436349 Securities Registered Pursuant to Section 12 (b) of the Act: None Securities Registered Pursuant to Section 12 (g) of the Act: None 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 þ Noo Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o  No
þ At the close of business on March 1, 2005:Number of shares of common stock outstanding
    
    
    23,323Aggregate market value of the Companys voting and non-voting common stock held by non-affiliates
    
    $
    0
 DOCUMENTS INCORPORATED BY REFERENCE  None




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Except as otherwise stated or unless the context otherwise requires, references to the Company or
Day include Day International Group, Inc., a Delaware corporation that is the Registrant, and
each of its subsidiaries. The Companys address is P.O. Box 338, 130 West Second Street, Dayton,
Ohio 45401-0338, and its telephone number is (937) 224-4000. The Companys periodic reports filed
with the Securities and Exchange Commission (SEC) are available at the SECs website
(www.sec.gov). Except as otherwise stated, the information contained in this report is given as of December 31,
2004, the end of the Companys latest fiscal year. Safe Harbor Statement; Industry Data This Annual Report contains forward-looking statements within the meaning of the Securities Act of
1933. These are subject to certain risks and uncertainties, including those identified below, which
could affect the Companys actual results and cause such results to differ materially from those
expressed in forward-looking statements. The words believe, anticipate, expect, intend,
will likely result, will continue, and similar expressions identify forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements
include but are not limited to (i) the effect of leverage, including the limitations imposed by the
Companys various debt instruments; (ii) risks related to significant operations in international
countries, including the translation of operating results to the U.S. dollar; (iii) the timely
development and market acceptance of new products; (iv) the effect of competitive products and
pricing; (v) the effect of changing general and industry specific economic conditions; (vi) the
effect of environmental regulations; and (vii) the potential for technology obsolescence. While made in good faith and with a reasonable basis based on information currently available to
the Companys management, there is no assurance that any such forward-looking statements will be
achieved or accomplished. The Company is under no obligation to update any forward-looking
statements to the extent it becomes aware that they are not achieved or likely to be achieved for
any reason. Market data used throughout this report was obtained from internal company surveys and industry
publications. Industry publications generally indicate that the information contained therein has
been obtained from sources believed to be reliable, but the accuracy and completeness of such
information is not guaranteed. The Company has not independently verified any of such market data.
Similarly, internal company surveys, while believed by the Company to be reliable, have not been
verified by any independent sources. 2




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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPart IVItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSignaturesINDEX TO EXHIBITSExhibit 21 SubsidiariesExhibit 31.1 Certification 302-CEOExhibit 31.2 Certification 302-CFOExhibit 32.1 Certification 906-CEOExhibit 32.2 Certification 906-CFO    Table of Contents  
 PART I 
 ITEM 1. BUSINESS Company Background The Company is one of the worlds leading producers
of precision-engineered products, specializing
in the design and customization of consumable image-transfer products for the graphic arts
(printing) industry and consumable fiber handling products for the textile yarn spinning
industry. The Company
consists of two segments: the Image Transfer segment and the Textile Products segment. The Image
Transfer segment consists of the Transfer Media division, the Chemical Products division and the
Flexographic Products division. The Transfer Media division is the worlds largest designer,
manufacturer and marketer of high-quality printing blankets and sleeves for use in offset printing
and a leading designer and manufacturer of consumable sleeves for digital press applications. The
Company estimates that in 2004 it had the number one market share in offset-printing blankets and
sleeves in North America and worldwide. The Chemical Products division is a leading worldwide
supplier of pressroom chemicals to the printing industry and also manufactures the Kompac brand of
automatic dampening systems for printing presses. The Flexographic Products division is one of the
worlds largest manufacturers and marketers of sleeves for use in flexographic printing.
As a result of the acquisition of Network Distribution International
(NDI) on November 24, 2003, the Image Transfer Segment is the largest converter of offset
blankets in the United States and is a leading distributor of a broad range of pressroom chemicals and
various ancillary products used in the pressroom. The
Textile Products segment is one of the worlds largest manufacturers and marketers of precision
engineered rubber cots, aprons and other fabricated rubber fiber handling components sold to the
yarn spinning and glass-forming industries worldwide. Affiliates of GSC Partners and SG Capital Partners LLC own substantially all of the common stock of
the Company, with the Companys management holding the balance of the common stock. See the Notes to the Consolidated Financial Statements for more information on business segments
and geographic areas. Image Transfer The Image Transfer segment specializes in selling consumable products to the graphic arts
(printing) industry, primarily those used in offset printing. Offset is the primary printing
process for long-run, high-speed applications, such as the printing of magazines, annual reports,
catalogs, direct mail and newspapers. Flexographic and digital printing processes are currently
used primarily in short-run, lower speed applications, such as for printing brochures and packaging
material. The Company believes that applications for image transfer products within flexographic
and digital printing processes will increase significantly and that advances in digital
technologies will complement offset printing processes and will provide additional opportunities
for consumable products. It is generally expected that the demand for these processes will grow
rapidly and that they will be used for an increasing amount of printing jobs. If these other
technologies develop so that they compete effectively with offset printing in the high-speed,
long-run segment of the printing industry, and such technologies are widely adopted, the business
of Image Transfer could be adversely affected. There can be no assurance that the Company 3




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will be able to develop products effectively for these technologies or to maintain its market
leadership if such processes replace offset printing to any significant extent. The Company
manufactures certain consumables for the digital printing market and, in
conjunction with the original equipment manufacturers (OEMs), continues to develop
additional products such as blankets, sleeves and belts for new printing
machine technologies. Due to the large number of offset printing presses installed and the relative
cost-effectiveness of the offset printing process, management expects that the offset process will
continue to be the method of choice for long high-quality low-cost runs. Products designed for use
in offset printing generate the majority of the sales of Image Transfer. Transfer Media Offset printing blankets are highly engineered products manufactured to narrow tolerances and
precise specifications. They are composed of multiple layers of fabric, rubber and adhesives that
determine performance features on the printing press and overall quality of the printing job.
Offset printing sleeves are highly engineered tubular blankets that operate at speeds 20% to 30%
faster than those of standard presses. Blankets and sleeves accept ink from cylindrical printing
plates and transfer it to a broad range of paper stocks and other substrates. Blankets and sleeves
are a major determinant of the quality of the image resolution and consistency of the printed
material, as they are required to perform consistently over a broad range of press speeds and
printing pressures with a wide variety of papers, inks and other chemicals. Blankets and sleeves
are consumable and are replaced at regular intervals depending on the process used and printing
requirements. Due to the importance of blankets and sleeves in determining the overall quality of
the printing job, and because their cost typically represents less than 1% of the cost of the
printed page, price is only one of the factors in the end-users purchase decision. Chemical Products Chemical Products manufactures two categories of products: pressroom chemicals and dampening
systems. Chemical Products manufactures over 100 different pressroom chemicals, which can be
classified into the following categories: (i) roller and blanket washes, which are used to remove
ink and glaze from the surface of the rollers and blankets on the printing press; (ii) fountain
solutions, which are used to prevent ink from migrating to non-print areas of the printing plate;
(iii) anti-setoff powders, which are used by sheet fed and letter press printers to prevent ink
from transferring from the top of one sheet to the bottom of the next; (iv) lithographic chemicals
and specialties; (v) silicones, which are used in heatset web offset to provide support in certain
printing processes; and (vi) coatings. Chemical Products products can be grouped into standard and
custom products. Product lines are formulated to meet specific customer requirements. For example,
high volume printing operations, such as major daily newspapers and commercial heatset web, often
require custom fountain solutions. Flexographic Products The Company manufactures products for flexographic printing including fiberglass-based plate
mounting sleeves, bridge mandrels, sleeves for coating applications, ready-to-image products and
various support products. The Companys traditional flexographic sleeves are constructed with a
unique compressible technology that allows for greater flexibility in the printing of packaging
materials, such as 4




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plastic or cardboard. In addition, the compressible sleeve offers the flexographic printer
significant time and cost improvements over the traditional method of affixing a photopolymer plate
to the metal cylinder. Products The Company manufactures a full line of high-quality, name brand printing blankets and sleeves to
both web-fed (continuous roll) and sheet-fed (individual sheet) offset printers under the Day,
David M, and IPT brands. In addition, through NDI, it offers certain name-brand blankets
produced by competitors. The Companys printing blankets and sleeves are used to print magazines,
advertising material, business forms, packaging, newspapers and other printed material. As a result
of the superior quality, reliability and value of the Companys printing blankets and sleeves and
its customer service, the Company is able to command premium prices for its products. The Companys leading printing blankets are the 9500 dayGraphica®, 4000
dayGraphica®, 3000 Patriot®, Durazone®, 3610
dayGraphica®, 8500 AccuDot®, QuantaLith® Gold and
QuantaLith® Blue lines, which produce high-quality images, particularly on high-speed
printing presses. The Company is the sole manufacturer of tubular, seamless printing sleeves for
use on Goss International Corporations (formerly Heidelberg Web Systems) gapless web offset
presses. The Company produces consumable products for digital printing presses. Sales of these products are
expected to grow as digital printing presses are sold that utilize these products. The Company is
evaluating the production of other prototypes for new short-run color printing processes in
conjunction with leading OEMs. Transfer Media also manufactures and sells two lines of specialty products consisting of (i)
pre-inked porous rolls for use in business machines, automated bank teller machines, ticket
machines and credit card imprinters and (ii) cast urethane mats used by the box board corrugating
industry as a backing material in cutting operations. The Company also sells printing accessories
such as cylinder packing papers and aluminum bars for mounting blankets onto press cylinders. In
addition, the Company sells custom rubber compounds to several wire coaters in Europe. Chemical Products has developed products that speed wash-up, color changes and blanket and roller
maintenance. All are formulated to reduce downtime and improve productivity. Roller and blanket
washes are used to remove ink and glaze from the surface of the rollers and blankets on the
printing press. Chemical Products makes over 25 washes, grouped into five different categories:
premium, environmental, general purpose, fast drying and specialty. Chemical Products is a market
leader in the area of environmentally friendly washes. Chemical Products has created a family of fountain solutions, which are used to prevent ink from
migrating to non-print areas of the printing plate, to cover all requirements from high-speed web
printing presses down to small offset duplicating printing presses. The fountain solutions and
fountain additives are adjusted for water condition and properly balanced and fortified to improve
print quality and press productivity. Chemical Products has created a line of alcohol-free fountain
solutions formulated to eliminate the use of isopropyl alcohol from the process, thus improving the
pressroom environment. 5




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Antisetoff powders are used extensively by sheetfed, offset and letterpress printers to prevent ink
from transferring from the top of one sheet to the bottom of the next. Chemical Products offers an
extensive range of silicone and conventional antisetoff powders to meet all industry requirements. Lithographic chemicals and specialties include a wide range of products (including deglazers,
additives, plate cleaners, aerosols) formulated to meet the evolving needs of the printing
industry. Silicones are used in heatset web offset printing to provide slip to the sheet as it passes over
the former board. Chemical Products offers an extensive line of conventional silicones, as well as
new technology silicones. Chemical Products also manufactures the patented Kompac Dampening System and other mechanical
devices for offset printing presses. Chemical Products manufactures six different Kompac Dampening
Systems models to fit more than eight different presses, both for new and retrofit applications.
Kompac Dampening Systems consume other products manufactured by Chemical Products, such as fountain
solutions. Flexographic Products manufactures a wide array of sleeves used in the flexographic printing
process under the Rotec name. Rotec gained industry prominence in 1993 with the introduction of the
compressible sleeve, a product innovation enabling flexographic printers to achieve higher levels
of print quality. The base technology for the flexographic sleeve has the potential for use in
other printing segments as well (e.g., gravure and offset), which may expand the market segments
for sleeve technology. The Company has entered into an exclusive agreement with E. I. du Pont de
Nemours and Company to develop and manufacture an in-the-round sleeve under the Cyrel®
brand name for flexographic presses. The Company will manufacture sleeves with a seamless
photopolymer plate using DuPonts proprietary Cyrel photopolymer technology. Sales and Distribution Image Transfer has adopted an integrated approach to product development, marketing, sales and
distribution. The Companys sales professionals, located throughout the world, develop and
cultivate strong customer relationships and possess superior technical expertise. In certain
regions, independent sales representatives and distributors complement the Companys sales force. Image Transfers sales force calls directly on end-users and promotes the quality and technical
features of the Companys products to pressroom foremen, purchasing agents, plant managers and
press operators. Depending on the market and product, the end-users can then order directly from
the Company or through authorized converters or dealers. Image Transfer distributes a majority of
its products through its own converting operation (NDI) as well as through a large network of independent
converters, who buy and cut printing blanket rolls to customized orders, and dealers and sub-dealers
who buy finished products, store inventory and hold receivables. Converters are value-added dealers
who typically purchase rolls of uncut printing blankets from the Company and then cut, finish and
package the blankets for sale to dealers or end-users. The Company believes that it has one of the
most effective networks of converters and dealers in the industry. While the Company distributes a
substantial portion of its products directly to end-users, the sales force supports and works
closely with independent converters and dealers through joint calling
efforts on end-users and training programs. In addition, sales and technical associates work
directly with large end-users to identify the printing 6




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blankets and sleeves that best suit a printers particular needs and to formulate solutions to
complex printing problems. NDI distributes products manufactured by the Company, as well as other
blanket manufacturers. Textile Products The Textile Products segment manufactures highly engineered rubber rollers, known as cots, and
flexible belts, known as aprons, for utilization on yarn spinning machinery, which produces yarn
used in the apparel, home furnishing, carpet and industrial fabric industries. In addition, the
Company manufactures consumable aprons used to apply sizing to fiberglass filament during the
glass-forming process. As a result of
continuing technological improvements in automated high-speed spinning frames, customers continue
to demand cots and aprons of higher quality and greater flexibility to meet their specialized needs
and are typically willing to pay a premium for cots and aprons that meet their value equation. The
Company is known as a leader in technological innovation and quality and has the broadest line of
spinning cots and aprons of any global cots and aprons manufacturer. Products The Company offers its customers both general purpose and specialty cots and aprons recognized in
the global marketplace under the DAYtex® and Accotex® brand names, with over
4,000 different SKUs. General-purpose cots and aprons include a full line of products designed for
short staple fibers (such as cotton) and long staple fibers (such as wool), while specialty
cots and aprons include glass-forming aprons, cordless aprons and drawing cots. The Company
provides high-quality, precision-engineered products that deliver superior value to its customers.
As a result, Textile Products has been an industry leader in quality and performance, allowing the
Company to command premium pricing for its products. Because of changes in the spinning process, increasing machine speeds and other rigorous process
demands, spinning industry suppliers are constantly challenged to improve the precision, quality
and consistency of their products. The Company continues to introduce highly engineered cots and
aprons targeted to the texturing, high-speed ring and air-jet spinning markets and to the quickly
growing compact spinning market. Products such as aluminum-lined cots provide improved rigidity and
tolerance and have been widely accepted in the marketplace. Cots and aprons for these applications
face ever-increasing performance and durability demands and DAYtex and Accotex products have been
acknowledged as being technical leaders in these applications. Other products and services include ribbons (take-up roll covering), various other accessories and
reconditioning services. Textile Products product development has allowed the Company to diversify into new markets. The
Companys glass-forming aprons are used to make glass fiber from liquid glass, and texturizing
aprons are used to finish certain types of synthetic filaments. Textile Products also manufactures
and markets rubber shrinkage belts for use in fabric pre-shrinking processes, such as those used
for denim, as well as rubber-covered industrial rollers for textile and other industrial
applications. 7




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Sales and Distribution The Company believes that the quality, technical proficiency and experience of its Textile Products
sales force distinguishes its marketing efforts from those of competitors. Textile Products sales
professionals have extensive knowledge of the spinning and weaving process. The sales force,
located throughout the world (including Europe, China and the United States), markets its products directly to end-users, primarily textile mills,
and original equipment manufacturers. In certain regions, independent sales representatives
complement the Companys sales force. Raw Materials Rubber polymers are a key component in most of the products of Transfer Media and Textile Products.
The Chemical Products division purchases approximately 200 different raw materials from a variety
of key national suppliers, and holds supply agreements with many of them. However, no single
supplier accounts for more than 10% of total raw material costs. The largest raw material component
for Chemical Products is petroleum distillates, such as aliphatics and aromatics. Raw material
purchases accounted for approximately 50% of cost of goods sold for the Companys products during
2004, 2003 and 2002. Various fabrics and rubber represented approximately 30% of all raw materials
purchased in each of 2004, 2003 and 2002. The Company has developed contingency plans to address
supply line disruptions, including identifying alternative sources and maintaining a safety stock
of critical raw materials. The Company is exposed to fluctuations in petroleum prices on certain raw material costs and
historically has been able to pass on price increases to customers. The Company purchases its raw material requirements from a number of suppliers on a purchase order
basis, and the Company believes that there are sufficient sources of supply for the foreseeable
future. Research and Development The research and development staff is focused on current product and process improvement efforts,
as well as development of new consumables for future Image Transfer and Textile Products processes.
The Companys active patents have been important to its existing product line, and increased
emphasis is being placed on new product technologies. Active efforts to obtain additional patents
are underway on a variety of technologies, including certain process patents. In addition to its extensive patent and trademark portfolio, the Company has a variety of working
agreements with key partners in the image transfer business. These agreements and other efforts
with original equipment manufacturers may stimulate proprietary processes and additional patent
applications. In 2004, Heidelberger Druckmaschinen AG sold their web offset press business to Goss
International Corporation and their 50%-ownership in Nexpress Solutions LLC to Eastman Kodak Co.
The Company has long-standing relationships with both of these companies and expects these
relationships to continue. 8




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Competition The Company competes with a number of manufacturers in the image transfer and textile components
industries, with the main competitive factors being quality, performance, service and price. The
Company competes with a number of manufacturers of offset printing blankets, including Reeves
International, Incorporated (Reeves), Polyfibron Technologies, Inc. (Polyfibron), a subsidiary
of MacDermid, and Kinyosha Printing Company, Ltd. Chemical Products competes with a number of
manufacturers of pressroom chemicals, of which the principal competitors are Anchor Chemical
Company, Rycoline, Inc. (acquired by Sun Chemical Corporation in 2004) and Printers Service
(PRISCO). In the United States, NDI competes with several distributors, many of which are customers
of the Company. Rotecs principal competitors are Rossini S.p.A., Polywest Kunststofftechnik, and
Axcyl Inc., a subsidiary of Polyfibron. Accel Graphics, a division of Parmarco Technologies Inc.,
is the only main competitor to the Kompac line. In Textile Products, the Company competes with manufacturers such as Hokushin Corporation, Yamauchi
Corp. and Berkol, a division of Huber+Suhner AG. Some of the Companys competitors may have greater financial and other resources than the Company
and may consequently have more operating flexibility and a greater ability to expand production
capacity and increase research and development expenditures. International Operations The Companys principal international manufacturing facilities are located in Dundee, Scotland
(Transfer Media), Ahaus, Germany (Flexographic Products), Manchester, England (Chemical Products)
and Münster, Germany (Textile Products). In addition, the Company maintains facilities in
Australia, Brazil, Czech Republic, China/Hong Kong, France, Germany, Italy, Malaysia, Mexico and
Russia. The Company manufactures and markets its products worldwide through several international
subsidiaries and independent agents. The Companys worldwide operations are subject to the risks
normally associated with international operations including, but not limited to, the disruption of
markets, changes in export or import laws, restrictions on currency exchanges, and the modification
or introduction of other governmental policies with potentially adverse effects. Approximately 48% of the Companys 2004 sales were derived from products sold to customers outside
the United States. This has decreased from 53% in 2003 and 49% in 2002, primarily as a result of
the acquisition of NDI at the end of 2003 with substantially all of NDIs sales generated in the
United Sates. The U.S. dollar value of these revenues varies with currency exchange rate
fluctuations, and the Company may be exposed to gains or losses based upon such fluctuations.
Significant increases in the value of the U.S. dollar relative to foreign currencies could have an
adverse effect on the Companys ability to meet interest and principal obligations on its U.S.
dollar-denominated debt. The Company periodically enters into forward foreign exchange contracts to
protect it against a portion of such foreign exchange movements. 9




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Environmental Matters The Companys facilities in the United States are subject to federal, state and local environmental
laws and regulations, including those governing discharges to the air and water, the handling and
disposal of solid and hazardous wastes, and the remediation of contamination associated with
releases of hazardous substances. International facilities are subject to their respective
countries federal and local environmental requirements, as well as the environmental requirements
promulgated by the European Union, where applicable. The Company has made, and will continue to
make, expenditures to comply with current and future environmental requirements. Environmental
requirements are becoming increasingly stringent, and therefore the Companys expenditures for
environmental compliance may increase in the future. Based on environmental assessments conducted by independent environmental consultants, the Company
believes that its operations are currently in compliance with environmental laws and regulations,
except as would not be expected to have a material adverse effect on the Company. However, there
can be no assurances that environmental requirements will not change in the future or that the
Company will not incur significant costs in the future to comply with such requirements. In
addition, the Companys operations involve the handling of toluene and other hazardous substances,
and if a release of hazardous substances occurs on or from the Companys facilities, the Company
may be required to pay the cost of remedying any condition caused by such release, the amount of
which could be material. On July 11, 2002, the United States Environmental Protection Agency issued the proposed Maximum
Achievable Control Technology (MACT) standard for the Printing source category. This MACT
standard is applicable to sources located at the Companys U.S. operations. The MACT requirements
were placed into effect on March 15, 2003. The primary effect of this rule will be to require
implementation of additional air emission monitoring systems at the Companys U.S. facilities.
These rules will require certain modifications to the plant facilities over the next two years that
will total approximately $2.0 million for U.S. operations. Associates The Company currently employs approximately 1,470 full-time associates worldwide, of which
approximately 770 are employed in the United States and Canada. The Companys associates in Dundee,
Scotland, and Münster, Germany, are represented by labor unions. In January 2004, the labor union
in Dundee entered into a new three-year collective bargaining agreement with the Company, expiring
on December 31, 2006. The labor union in Münster has entered into collective bargaining agreements
with the Company pertaining to general working conditions and to salaries and wages. The agreement
as to general working conditions expires December 31, 2006, and the agreement as to salaries and
wages expires June 30, 2005. None of the Companys U.S. associates are covered by a collective
bargaining agreement. To encourage productivity improvements, a portion of each associates total
compensation is tied to a performance bonus. The Company considers its employee relations to be
good. 10




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ITEM 2. PROPERTIES As noted below, the Company operates state-of-the-art, manufacturing facilities strategically
located throughout the world. The Company believes that it has sufficient capacity at its
manufacturing facilities to meet its production needs for the foreseeable future, and further
believes that all its sales worldwide can be sourced through these facilities. A majority of the
Companys manufacturing facilities are ISO certified. The Companys significant facilities are
listed below: Size
    
    
    Owned/Location
    
    Segment
    
    
    (Sq. Ft.)
    
    
    LeasedManufacturing:Addison, Illinois
    
    Image Transfer
    
    
    38,600
    
    
    OwnedAsheville, North Carolina
    
    Image Transfer
    
    
    240,600
    
    
    OwnedFairfield, New Jersey
    
    Image Transfer
    
    
    19,900
    
    
    LeasedGreenville, South Carolina
    
    Textile Products
    
    
    85,200
    
    
    OwnedHouston, Texas
    
    Image Transfer
    
    
    64,000
    
    
    OwnedThree Rivers, Michigan
    
    Image Transfer
    
    
    58,000
    
    
    OwnedWest Chester, Ohio
    
    Image Transfer
    
    
    14,500
    
    
    OwnedAhaus, Germany
    
    Image Transfer
    
    
    36,200
    
    
    OwnedChrastava, Czech Republic
    
    Image Transfer
    
    
    9,300
    
    
    OwnedDundee, Scotland
    
    Image Transfer
    
    
    184,300
    
    
    OwnedFoshan, China
    
    Image Transfer
    
    
    19,000
    
    
    LeasedKuala Lumpur, Malaysia
    
    Image Transfer
    
    
    8,300
    
    
    LeasedManchester, England
    
    Image Transfer
    
    
    66,000
    
    
    OwnedMelbourne, Australia
    
    Image Transfer
    
    
    28,700
    
    
    OwnedMünster, Germany
    
    Textile Products
    
    
    79,600
    
    
    LeasedParana, Brazil
    
    Image Transfer
    
    
    10,800
    
    
    LeasedWarehouse/Converting:Cleveland, Ohio
    
    Image Transfer
    
    
    37,800
    
    
    LeasedCovington, Georgia
    
    Image Transfer
    
    
    8,100
    
    
    LeasedEagan, Minnesota
    
    Image Transfer
    
    
    10,500
    
    
    LeasedHanover, Massachusetts
    
    Image Transfer
    
    
    20,000
    
    
    LeasedLittle Elm, Texas
    
    Image Transfer
    
    
    16,200
    
    
    LeasedMonrovia, California
    
    Image Transfer
    
    
    25,900
    
    
    LeasedNashville, Tennessee
    
    Image Transfer
    
    
    5,000
    
    
    LeasedRockland, Massachusetts
    
    Image Transfer
    
    
    26,700
    
    
    LeasedRochdale, England
    
    Image Transfer
    
    
    5,800
    
    
    LeasedLerma, Mexico
    
    Image Transfer
    
    
    15,900
    
    
    OwnedMilan, Italy
    
    Textile Products
    
    
    1,500
    
    
    LeasedMoscow, Russia
    
    Image Transfer
    
    
    1,000
    
    
    LeasedParis, France
    
    Image Transfer
    
    
    23,400
    
    
    LeasedReutlingen, Germany
    
    Image Transfer
    
    
    19,400
    
    
    LeasedSales Office:Dayton, Ohio
    
    Corporate/Image Transfer
    
    
    13,800
    
    
    LeasedAlbavilla, Italy
    
    Image Transfer
    
    
    400
    
    
    LeasedHong Kong, China
    
    Image Transfer
    
    
    8,000
    
    
    LeasedHong Kong, China
    
    Textile Products
    
    
    600
    
    
    LeasedLugano, Switzerland
    
    Image Transfer
    
    
    800
    
    
    LeasedTokyo, Japan
    
    Image Transfer
    
    
    600
    
    
    LeasedWillich, Germany
    
    Image Transfer
    
    
    5,500
    
    
    Leased
 11




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ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in various legal proceedings arising in the ordinary
course of business. None of the matters in which the Company is currently involved, either
individually or in the aggregate, is expected to have a material adverse effect on the Companys
business or financial condition. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of the holders of the 12-1/4% Senior Exchangeable Preferred Stock due 2010 (the
Exchangeable Preferred Stock) was held on October 29, 2004. At the meeting two directors were
elected in accordance with the terms of the Certificate of Designation of the Exchangeable
Preferred Stock that allow for the election of two directors by the holders of Exchangeable
Preferred Stock, voting as one class, if the dividends on the Exchangeable Preferred Stock are in
arrears and unpaid (and in the case of dividends payable after March 15, 2003, are not paid in
cash) for four consecutive quarterly periods. The results of the election are as follows: Votes
    
    
    Votes
    
    
    VotesFor
    
    
    Against
    
    
    WithheldSean W. Brophy
    
    
    41,947
    
    
    
    0
    
    
    
    22,038Carl J. Crosetto
    
    
    41,947
    
    
    
    0
    
    
    
    22,038
 Each of the following directors term of office continued after the meeting: William C. Ferguson,
Matthew C. Kaufman, Neal Moszkowski, Philip Raygorodetsky, Christopher A. White, and Dennis R.
Wolters. 
 PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES As of March 1, 2005, there were 19 holders of record of shares of Common Stock. Sale or transfer of
the Common Stock is subject to the terms of a Stockholders Agreement that all stockholders have
signed. There is no established trading market for the Common Stock. The Company has never paid or
declared a cash dividend on the Common Stock. 12




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ITEM 6. SELECTED FINANCIAL DATA The following table sets forth summary financial data of the Company for each of the five fiscal
years in the period ended December 31, 2004. 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(a)
    
    
    (a)(b)(Dollars in thousands)Statement of Operations Data:Net sales
    
    $
    362,707
    
    
    $
    288,987
    
    
    $
    259,948
    
    
    $
    254,146
    
    
    $
    280,573Gross profit
    
    
    132,674
    
    
    
    105,169
    
    
    
    95,522
    
    
    
    91,159
    
    
    
    109,556Operating profit
    
    
    50,729
    
    
    
    39,860
    
    
    
    38,122
    
    
    
    26,662
    
    
    
    46,514Income (loss) before cumulative effect of change in accounting principle
    
    
    (10,021
    )
    
    
    (6,373
    )
    
    
    9,182
    
    
    
    (5,108
    )
    
    
    6,902Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    616Net income (loss)
    
    
    (10,021
    )
    
    
    (6,373
    )
    
    
    9,798
    
    
    
    (5,108
    )
    
    
    6,902Net loss available to common shareholders
    
    
    (10,021
    )
    
    
    (16,041
    )
    
    
    (7,493
    )
    
    
    (20,066
    )
    
    
    (6,038
    )Other Financial Data:Capital expenditures
    
    $
    10,433
    
    
    $
    6,874
    
    
    $
    8,264
    
    
    $
    12,983
    
    
    $
    10,324Depreciation
    
    
    10,501
    
    
    
    9,309
    
    
    
    8,197
    
    
    
    7,308
    
    
    
    7,319Amortization
    
    
    4,984
    
    
    
    6,303
    
    
    
    6,332
    
    
    
    9,972
    
    
    
    9,932Balance Sheet Data (at end of period):Fixed assets, net of accumulated depreciation
    
    $
    74,735
    
    
    $
    74,167
    
    
    $
    74,319
    
    
    $
    72,216
    
    
    $
    69,484Total assets
    
    
    370,235
    
    
    
    371,540
    
    
    
    319,877
    
    
    
    317,004
    
    
    
    330,492Long-term and subordinated long-term debt (including current maturities)
    
    
    252,390
    
    
    
    279,820
    
    
    
    252,145
    
    
    
    263,831
    
    
    
    268,270Redeemable preferred stock
    
    
    169,805
    
    
    
    146,649
    
    
    
    126,646
    
    
    
    109,354
    
    
    
    94,396Stockholders equity (deficit)
    
    
    (136,018
    )
    
    
    (127,724
    )
    
    
    (119,450
    )
    
    
    (115,918
    )
    
    
    (94,443
    )
  (a)
    Effective July 1, 2003, the Company adopted SFAS No. 150 and recorded dividends on the
redeemable preferred stock as interest expense subsequent to adoption. Preferred stock
dividends included in interest expense were $23,156 in 2004 and $10,336 for the period from
July 1, 2003 through December 31, 2003.(b)
    The Company acquired NDI as of November 24, 2003. The statement of operations data includes
the results of this acquisition from the date of acquisition. 13




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with Selected Financial Data and Financial
Statements and Supplementary Data and notes thereto included elsewhere in this report. On November 24, 2003, Network Distribution International (NDI) was acquired. Its results of
operations are included in the Companys consolidated results of operations for the period
subsequent to the acquisition. Accordingly, the results of operations for historical as well as
future periods may not be comparable to prior periods. Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002(Dollars in millions)Net sales
    
    $
    362.7
    
    
    
    100.0
    %
    
    $
    289.0
    
    
    
    100.0
    %
    
    $
    259.9
    
    
    
    100.0
    %Cost of goods sold
    
    
    230.0
    
    
    
    63.4
    
    
    
    183.8
    
    
    
    63.6
    
    
    
    164.4
    
    
    
    63.3Gross profit
    
    
    132.7
    
    
    
    36.6
    
    
    
    105.2
    
    
    
    36.4
    
    
    
    95.5
    
    
    
    36.7SG&A
    
    
    80.9
    
    
    
    22.3
    
    
    
    63.5
    
    
    
    22.0
    
    
    
    55.5
    
    
    
    21.3Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.0Amortization of intangibles
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.8
    
    
    
    0.3Management fees and expenses
    
    
    1.0
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    0.4Operating profit
    
    $
    50.7
    
    
    
    14.0
    %
    
    $
    39.9
    
    
    
    13.8
    %
    
    $
    38.1
    
    
    
    14.7
    %
 Comparison of Results of Operations Year Ended December 31, 2004, compared to Year Ended December 31, 2003 Net sales increased $73.7 million (25.5%) to $362.7 million, primarily as a result of sales from
businesses acquired in 2003, higher sales volumes in the United States and Europe and favorable
changes in foreign currency rates. Sales in 2004 include $44.4 million of sales from businesses
acquired in 2003. Sales in 2004 were positively affected by increased sales volumes of $9.6 million
in the United States, increased sales volume of $3.1 million in Europe and $13.4 million of
favorable changes in foreign currency rates used to translate international sales into U.S.
dollars. Image Transfers sales increased $73.1 million (30.4%) to $313.7 million. Image Transfers
sales were positively affected by sales from business acquisitions in 2003 of $44.4 million,
increased sales volumes of $9.3 million in the United States, increased sales volumes of $5.4
million in Europe and $10.8 million as a result of the effect of changes in foreign currency rates.
The higher U.S. Image Transfer sales volume was primarily as a result of higher sales volumes in
blankets, offset sleeves, flexographic sleeves and digital products. European sales volume
increased primarily from growth of chemical products in the United Kingdom and Germany, transfer
media products in Germany and flexographic products. Textile Products sales increased $0.6 million
(1.2%) to $49.0 million, primarily as a result of slightly higher sales volume in the United States
of $0.3 million and by favorable foreign currency rate changes of $2.6 million, offset by lower
sales volume in Europe of $2.3 million. European Textile Products sales volumes were lower in 2004
compared to 2003, primarily as a result of lower demand from original equipment manufacturers
(OEMs), in line with the OEMs own reduced level of business activity. OEM sales in 2004 continued
at a relatively strong level, but were not at the unusually high level of 2003. Lower demand from
textile mills in Europe also contributed to the shortfall. 14




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Gross profit increased $27.5 million (26.2%) to $132.7 million. Foreign currency rate changes
increased gross profit by $5.2 million. As a percentage of net sales, gross profit increased to
36.6% for 2004, compared to 36.4% for 2003. The improvement in gross profit as a percentage of
sales is a result of improved manufacturing performances offset by the effect of the NDI
acquisition in 2003, as that business historically had lower gross profit percentages than Days
other businesses. Selling, general and administrative expense (SG&A) increased $17.4 million (27.4%) to $80.9
million, primarily as a result of SG&A associated with businesses acquired of $8.9 million and
changes in foreign currency rates. Changes in foreign currency rates increased SG&A costs by $2.8
million compared to 2003. SG&A costs also increased as a result of higher insurance costs and
higher selling and distribution costs resulting from higher sales levels. As a percentage of net
sales, SG&A increased slightly to 22.3% from 22.0%. Operating profit increased $10.9 million (27.3%) to $50.7 million. As a percentage of net sales,
operating profit increased to 14.0% for 2004, from 13.8% for 2003. Image Transfers operating
profit increased $8.6 million (20.6%) to $50.3 million, primarily as a result of higher sales
volumes. As a percentage of net sales, Image Transfers operating profit decreased to 16.0% for
2004, from 16.7% in 2003. The decline in operating margin as a percentage of sales is a result of
substantially lower operating margins on NDIs distribution business than Days historical margins
on manufactured products offset by improved manufacturing performances. Textile Products operating
profit increased $2.4 million (55.6%) to $6.6 million. As a percentage of net sales, Textile
Products operating profit increased to 13.5% for 2004, from 8.8% in 2003. Lower selling and
administrative costs in the United States and improved manufacturing performance in Europe
favorably affected Textile Products operating profit in 2004 compared to 2003. Other (income) expense was $(2.8) million and $3.0 million for 2004 and 2003. The other (income)
expense is primarily due to foreign currency transaction (gains) losses incurred in the normal
course of international subsidiaries conducting business in other than their functional currencies
as well as a result of intercompany financing arrangements. Other (income) expense includes a loss
of $1.8 million in 2004 on the mark-to-market of the euro-denominated Tranche A Term Loan and a
gain of $0.4 million on the sale of fixed assets. Other expense in 2003 included a loss of $3.2
million on the mark-to-market of the euro-denominated Tranche A Term Loan, a loss of $1.1 million
from the sale of the South African business, and a gain of $0.9 million from the sale of excess
land in Mauldin, South Carolina. The effective tax rate was 219.6% in 2004. The Company recorded income tax expense on a loss before
income taxes in 2003. The effective tax rate is affected by the adoption of SFAS No. 150 and the
non-deductible preferred stock dividends now reflected as interest expense. The effective tax rate
in 2004 is further affected by foreign-sourced dividends and income taxable in the United States
and non-deductible expenses. In 2004, the American Jobs Creation Act of 2004(the Jobs Act) was enacted. The Jobs Act provides
a deduction with respect to U.S. manufacturing activities, allows for tax-favored repatriation of
offshore earnings and makes numerous changes to various tax rules. The Companys ability to take
advantage of certain provisions of the Jobs Act is limited because of the U.S. net operating loss
carryforward position of the Company and because of various restrictions in the Companys debt
agreements. For these 15




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reasons, the Company does not believe that the Jobs Act will have a material effect on the
Companys tax expense or cash flows over the next several years. In 2004, the FASB issued SFAS No. 123 (Revised), Share-based Payments. This Statement establishes
standards for the accounting for transactions in which an entity exchanges its equity instruments
for goods or services. This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This Statement eliminates the
alternative to use APB Opinion 25s intrinsic value method of accounting that was provided in
Statement 123 as originally issued. Under APB Opinion 25, issuing stock options to employees
generally resulted in recognition of no compensation cost. This Statement requires entities to
recognize the cost of employee services received in exchange for awards of equity instruments based
on the grant-date fair value of those awards. This statement will have no effect on the cash flows
of the Company, or the Companys compliance with its debt covenants. Net income (loss) after the
adoption will be affected by the stock option expense that was previously only disclosed. The
Company has elected to adopt this Statement effective January 1, 2005. Pre-tax stock option expense is estimated to be $1.2 million for the year ending December 31, 2005. In 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This statement established standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. This statement requires that the Companys redeemable preferred stock be
recorded in the same manner as long-term debt. The Company adopted the statement as of July 1,
2003. Therefore, since the third quarter of 2003, the Company has reflected the redeemable
preferred stock as long-term debt and accrued dividends are shown as interest expense. The adoption
of this statement had no effect on the net loss available to common shareholders, cash flows of the
Company or the Companys compliance with its debt covenants. Year Ended December 31, 2003, compared to Year Ended December 31, 2002 Net sales increased $29.0 million (11.2%) to $289.0 million, primarily as a result of favorable
changes in foreign currency rates and higher sales volumes in Europe. Sales in 2003 include $6.6
million of incremental sales subsequent to the date of acquisitions. Sales in 2003 were positively
affected by $17.0 million of favorable changes in foreign currency rates used to translate
international sales into U.S. dollars and increased sales volumes of $2.3 million in the United
States and $4.0 million in Europe. Image Transfers sales increased $28.9 million (13.7%) to $240.5
million. Image Transfers sales were positively affected by sales from business acquisitions in
2003 of $6.6 million, $12.2 million as a result of the effect of changes in foreign currency rates
and increased sales volumes of $5.9 million in the United States and $5.0 million in Europe. The
higher U.S. Image Transfer sales volume was primarily as a result of higher sales volumes across
substantially all product lines. Europe sales volume increased primarily from market share gains in
the chemical products business in the United Kingdom and Germany. Textile Products sales increased
$0.1 million (0.2%) to $48.4 million. Foreign currency rate changes positively affected Textile
Products sales by $4.7 million. Textile Products sales decreased as a result of decreased volume
of $3.6 million in the United States and $1.0 million in Europe and export markets. The lower U.S.
Textile Products sales volume is primarily due to reduced demand in the U.S. textile industry as a
result of weak consumer demand for textile and apparel products coupled with increased imports of
low cost goods from Asia and South America. The ongoing restructuring of the U.S. textile
manufacturing industry has resulted in further consolidation and closure of yarn spinning 16




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mills as well as weaving facilities. Weak sales have forced textile manufacturers to cut expenses
and reduce inventories, which have had a direct effect on reducing Textile Products sales. Gross profit increased $9.6 million (10.1%) to $105.2 million. Foreign currency rate changes
increased gross profit by $6.0 million. As a percentage of net sales, gross profit decreased
slightly to 36.4% for the year ended December 31, 2003, from 36.7% for the comparable period in
2002. Selling, general & administrative expenses increased $8.0 million (14.5%) to $63.5 million
primarily as a result of foreign currency rate changes. As a percentage of net sales, SG&A
increased to 22.0% from 21.3% for the comparable period in 2002. Changes in foreign currency rates
increased SG&A costs by $3.5 million in 2003. SG&A costs also increased as a result of higher
insurance costs and higher selling and distribution costs from higher sales levels, as well as SG&A
costs related to businesses acquired in 2003. A pre-tax charge of $0.5 million was recorded in the first quarter of 2001 for severance and
termination costs to relocate the Textile Products operations from its Asheville, North Carolina,
facility to its Greenville, South Carolina, facility. During the first quarter of 2002, the Company
reversed $0.1 million of the reserve. Additionally, pre-tax charges of $0.3 million have been
recorded in 2002 for relocation of machinery and equipment and write-off of abandoned assets. As of
December 31, 2002, the relocation plan was complete. During the fourth quarter of 2001, the Company ceased operations at its Transfer Media facility in
Longwood, Florida. A pre-tax charge of $3.0 million was recorded in 2001 for severance costs for 55
associates, write-off of abandoned assets and costs related to closing the facility. During the
second quarter of 2002, final severance payments were paid to all associates and the remaining
reserve of $0.1 million for severance costs was reversed. Operating profit increased $1.7 million to $39.9 million. As a percentage of net sales, operating
profit was 13.8% for the year ended December 31, 2003, compared to 14.7% in 2002. Image Transfers
operating profit increased $4.2 million (11.2%) to $41.7 million, primarily as a result of higher
sales volumes. As a percentage of net sales, Image Transfers operating profit decreased to 17.4%
for the year ended December 31, 2003, compared to 17.7% in 2002, primarily as a result of higher
development costs for new products. Textile Products operating profit decreased $2.2 million
(34.5%) to $4.3 million. As a percentage of net sales, Textile Products operating profit was 8.8%
for the year ended December 31, 2003, compared to 13.5% in 2002. Textile Products operating profit
was adversely affected by under absorbed fixed overhead costs resulting from lower U.S. production
volumes and by costs related to write-off of non-productive equipment. Other expense was $3.0 million in 2003, compared to other income of $1.9 million in 2002. The other
(income) expense is primarily due to foreign currency transaction (gains) losses incurred in the
normal course of international subsidiaries conducting business in other than their functional
currencies as well as a result of intercompany financing arrangements. Other expense in 2003
includes a loss of $3.2 million on the mark-to-market of the euro-denominated Tranche A Term Loan,
a loss of $1.1 million from the sale of the South African business and a gain of $0.9 million from
the sale of excess land in Mauldin, South Carolina. 17




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The Company recorded income tax expense on a loss before income taxes in 2003. The effective tax
rate for 2003 is affected by the adoption of SFAS No. 150 and the non-deductible preferred stock
dividends now reflected as interest expense. The effective tax rate is further affected by
foreign-sourced dividends and income taxable in the United States and non-deductible expenses. The
effective tax rate for 2002 was 40.0%. As of January 1, 2002, the Company adopted SFAS Nos. 141, Business Combinationsand 142, Goodwill
and Other Intangible Assetsand ceased recording amortization of goodwill of approximately $3.7
million per year and recognized pre-tax income of $1.0 million for the cumulative effect of the
change in accounting principle for the amount of the unamortized deferred credit related to the
excess over cost arising from the acquisition of the textile products operations of Armstrong World
Industries, Inc. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This statement established standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. This statement requires that the Companys redeemable preferred stock be
recorded in the same manner as long-term debt. The Company adopted the statement as of July 1,
2003. Therefore, since the third quarter of 2003, the Company has reflected the redeemable
preferred stock as long-term debt and accrued dividends are shown as interest expense. The adoption
of this statement had no effect on the net loss available to common shareholders, cash flows of the
Company or the Companys compliance with its debt covenants. Risks Associated with International Operations The Company conducts a significant amount of business and has operating and sales facilities in
countries outside the United States. As a result, the Company is subject to business risks inherent
in non-U.S. activities, including political uncertainty, import and export limitations, exchange
controls and currency fluctuations. The Company believes risks related to its international
operations are mitigated due to the political and economic stability of the countries in which its
largest international operations are located, the stand-alone nature of the operations, the
Companys limited net asset exposure, forward foreign exchange contract practices and pricing
flexibility. Thus, while changes in foreign currency values do affect earnings, the longer-term
economic effect of these changes should not have a material adverse effect on the Companys
financial condition, results of operations or liquidity. Certain of the Companys international subsidiaries make purchases and sales in designated
currencies other than their functional currency. As a result, they are subject to transaction
exposures that arise from foreign exchange movements between the date that the foreign currency
transaction is recorded and the date it is consummated. In addition, the Company has intercompany
loans outstanding with certain international subsidiaries in their local currencies, exposing it to
the effect of changes in exchange rates at loan issue and loan repayment dates. The Company
periodically enters into forward foreign exchange contracts to protect it against such foreign
exchange movements. The contract value of these foreign exchange contracts was $9.5 million and
$15.9 million at December 31, 2004 and 2003. These contracts generally have terms of three to
twelve months. At December 31, 2004 and 2003, the Company had outstanding 20.4 million and
25.8 million of term loans issued under the Senior Secured Credit Facility. The Company has
issued euro-denominated debt in order to protect the Companys investments in Europe from
fluctuations in the euro compared to the U.S. dollar. Foreign currency gains (losses), 18




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included in other (expense) income-net, were $2.5 million in 2004, $(2.6) million in 2003 and $1.3
million in 2002. Based on the Companys overall foreign currency exchange rate exposure at December
31, 2004, a 10% adverse change in foreign currency exchange rates would result in a hypothetical
estimated loss in earnings of approximately $2.9 million. If the forward contracts and the
euro-denominated Tranche A Term Loan were aggregated with the Companys other exposures, a 10%
adverse change in foreign currency exchange rates would result in a hypothetical estimated loss in
earnings of $0.7 million. Interest Rate Risks The Company is subject to market risk from exposure to changes in the interest rates based on its
financing activities. The Company utilizes a mix of debt maturities along with both fixed- and
variable-rate debt to manage its exposure to changes in interest rates and to minimize interest
expense. During 2003, the Company entered into a $25 million interest rate swap to swap a portion
of the Companys variable rate debt to fixed rates. The swap expires in September 2006. The Company
does not expect changes in interest rates to have a material effect on income or cash flows in
2005, although there can be no assurance that interest rates will not materially change. Commodity Risks Rubber polymers and fabrics are key components in most of the Transfer Media and Textile products.
The Company is exposed to changes in the costs of these components. Chemical Products is exposed to
changes in the cost of certain petroleum-based components. The largest raw material component in
Pressroom Chemicals products is petroleum distillates, such as aliphatics and aromatics. When
commodity prices increase, the Company has historically passed on increases to its customers to
maintain its profit margins. Conversely, when commodity prices decline, the Company generally
lowers its sales prices to meet competitive pressures. Because the Company has historically been
able to raise sales prices to offset higher costs, management believes that a 10% change in the
cost of its components could have a short-term effect until sales price increases take effect, but
overall would not have a material effect on income or cash flows for a fiscal year. Liquidity and Capital Resources The Company has historically generated sufficient funds from its operations to fund its working
capital and capital expenditure requirements. The Companys expenditures for plant, property and equipment were $10.4 million in 2004, $6.9
million in 2003 and $8.3 million in 2002. The Company believes that capital expenditures of $9.0
million to $12.0 million annually over the next several years will be sufficient to maintain its
leading market position. The Company expects to fund these capital expenditures from cash flow from
operations. The Company is highly leveraged. At December 31, 2004, the Companys aggregate indebtedness is
$252.4 million and the aggregate liquidation preferences of the Exchangeable Preferred Stock is
$79.4 million and the Convertible Preferred Stock is $91.4 million. The Exchangeable Preferred
Stock may be exchanged for Exchange Debentures subject to certain conditions. See Note G of the
Notes to the Consolidated Financial Statements. 19




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The Senior Secured Credit Facility is repayable as follows: $4.5 million in 2005, $6.7 million in
2006, $10.8 million in 2007, $35.8 million in 2008 and $79.2 million in 2009. Prepayments on the
Term Loans are applied pro rata to all maturities. If the Company
does not refinance the 9 1/2% Senior
Subordinated Notes prior to September 15, 2007, then any amounts outstanding under the Senior
Credit Facility will be immediately due and payable. The Senior Secured Credit Facility is secured
by the assets of the Company and its domestic subsidiaries, as well as 65% of the stock of each
international subsidiary. As of December 31, 2004, the Company had $18.9 million available under
the Revolving Credit Facility. The level of the Companys indebtedness could have important consequences including: (i) a
substantial portion of the Companys cash flow from operations must be dedicated to debt service
and will not be available for other purposes; (ii) the Companys ability to obtain additional debt
or other financing in the future for working capital, capital expenditures, research and
development or acquisitions may be limited; (iii) the Companys level of indebtedness could limit
its flexibility in reacting to changes in its industries and economic conditions generally. The Companys ability to pay principal and interest on its debt obligations and dividends on the
Exchangeable Preferred Stock and the Convertible Preferred Stock will depend upon its future
operating performance, which will be affected by prevailing economic conditions and financial,
business and other factors, certain of which are beyond its control, as well as the availability of
revolving credit borrowings under the Revolving Credit Facility or a successor facility. The
Company anticipates that its operating cash flow, together with borrowings under the Revolving
Credit Facility, will be sufficient to meet its operating expenses and capital expenditures and to
service its debt requirements as they become due. However, there can be no assurance that the
Companys cash flow, availability under the Revolving Credit Facility and other capital resources
will be sufficient for payment of principal and interest on its indebtedness, for the payment of
periodic cash dividends on the Exchangeable Preferred Stock or the Convertible Preferred Stock, for
any redemption of the Exchangeable Preferred Stock or the Convertible Preferred Stock for cash, or
if the Exchange Debentures have been issued, the payment of principal of or cash interest on the
Exchange Debentures. If the Companys cash flow, availability under the Revolving Credit Facility
and other capital resources are insufficient to fund the Companys debt service obligations, the
Company may be forced to reduce or delay capital expenditures, to sell assets, to restructure or
refinance its indebtedness, or to seek additional equity capital. There can be no assurance that
any of such measures could be implemented on satisfactory terms, or if implemented, would be
successful or would permit the Company to meet its debt service obligations. The Senior Secured Credit Facility, the 2008 Indenture and the certificates of designation for the
Preferred Stocks contain a number of significant covenants that restrict the operations of the
Company. For example, under the Senior Secured Credit Facility, the Company is required to comply
with specified financial ratios and tests, including minimum fixed charges coverage ratio, maximum
leverage ratio, senior leverage ratio and interest coverage ratio. There can be no assurance that
the Company will be able to comply with any such covenants or restrictions in the future. The
Companys ability to comply with such covenants and restrictions may be affected by events beyond
its control, including prevailing economic, financial and industry conditions. The breach of any
such covenants or restrictions could result in a default under the Senior Secured Credit Facility
and/or the 2008 Indenture that would permit the lenders to declare all amounts outstanding to be
immediately due and payable, together with accrued and unpaid interest, and the commitments of the
lenders under the Revolving Credit Facility to make further extensions of credit could be
terminated. 20




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The occurrence of certain events that would constitute a Change of Control may result in a default,
or otherwise require repayment of indebtedness, under the Senior Secured Credit Facility and the
2008 Indenture, and redemption of the Exchangeable Preferred Stock and the Convertible Preferred
Stock or, in the case of the Exchange Debentures, repayment of indebtedness under the Exchange
Debentures. In addition, the Senior Secured Credit Facility prohibits the repayment of indebtedness
under the 2008 Indenture by the Company in such an event, unless and until such time as the
indebtedness under the Senior Secured Credit Facility is repaid in full. The Companys failure to
make such repayments in such instances would result in a default under the Senior Secured Credit
Facility. The inability to repay the indebtedness under the Senior Secured Credit Facility, if
accelerated, would also constitute an event of default under the 2008 Indenture, which could have
materially adverse consequences to the Company and to the holders of the Notes under the 2008
Indenture. Future indebtedness of the Company may also contain restrictions or repayment
requirements with respect to certain events or transactions that could constitute a Change of
Control. In the event of a Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Senior Secured Credit Facility or the
2008 Indenture, the Exchangeable Preferred Stock or the Exchange Debentures, as the case may be, or
with respect to the Convertible Preferred Stock. The Company does not have transactions, arrangements or relationships with special-purpose entities
and the Company does not have any off-balance-sheet debt except as disclosed in the notes to the
consolidated financial statements. In 2001 the Company suspended its U.K. pension plan and intends to settle the remaining obligation
in 2005. As of December 31, 2004, the settlement will require an additional contribution of
approximately $2.9 million and will result in a pre-tax settlement loss of approximately $0.7
million. These amounts are subject to change as a result of the final determination of the amount
of the obligation and the value of the plan assets at the date of the settlement. Environmental Expenditures The Company has made, and will continue to make, expenditures to comply with current and future
requirements of environmental laws and regulations. The Company estimates that in 2004, 2003 and
2002 it spent $0.1 million, $0.1 million and $0.2 million in capital expenditures for solvent
recovery, wastewater treatment, air monitoring and related projects to comply with environmental
requirements. On July 11, 2002, the United States Environmental Protection Agency issued the proposed Maximum
Achievable Control Technology (MACT) standard for the Printing source category. This MACT
standard is applicable to sources located at the Companys U.S. operations. The MACT requirements
were placed into effect on March 15, 2003. The primary effect of this rule will be to require
implementation of additional air emission monitoring systems at the Companys U.S. facilities.
These rules will require certain modifications to the plant facilities over the next two years that
will total approximately $2.0 million for U.S. operations. Capital expenditures relating to
environmental matters are anticipated to be approximately $1 million in 2005. Based on environmental assessments conducted by independent environmental consultants, the Company
believes that its operations are currently in compliance with environmental laws and regulations,
except as would not be expected to have a material adverse effect on the Company. 21




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However, there can be no assurances that environmental requirements will not change in the future
or that the Company will not incur significant costs in the future to comply with such
requirements. In addition, the Companys operations involve the handling of solvents and other
hazardous substances, and if a release of hazardous substances occurs on or from the Companys
facilities, the Company may be required to pay the cost of remedying any condition caused by such
release, the amount of which could be material. Critical Accounting Policies The preparation of the financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The more significant estimates
include: accounts receivable allowances, inventory valuation, recoverability of long-lived assets,
retirement and other postretirement benefits, and the realization of deferred tax assets. We use
the following methods and assumptions in determining our estimates: Accounts Receivable AllowancesReserves for product returns are calculated based upon historical
experience. Allowances for doubtful accounts are determined by applying historical experience with
consideration given to the condition of the economy and evaluation of specific accounts. Other
allowances are calculated based on negotiated agreements with customers. Inventory Valuation Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method. Reserves for obsolete and slow-moving inventory are determined based on
the lower of cost or market method. Market value is determined based on managements estimate of
selling price less selling costs. Recoverability of Long-lived AssetsRecoverability of goodwill is tested at least annually in
accordance with SFAS No. 142 using the present value of estimated future cash flows. Other
long-lived assets are reviewed for impairment annually or whenever events or circumstances indicate
that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144 by
determining whether the amortization of the assets over their remaining lives can be recovered
through projected undiscounted cash flows. Future cash flows are forecasted based on managements
estimates of future events and could be materially different from actual cash flows. Retirement and Other Postretirement BenefitsRetirement and other postretirement benefit costs and
obligations are dependent on assumptions used in calculating such amounts. These assumptions
include discount rates, health care cost trend rates, benefits earned, interest cost, expected
return on plan assets, mortality rates and other factors. In accordance with accounting principles
generally accepted in the United States, actual results that differ from the assumptions are
accumulated and amortized over future periods and, therefore, generally affect recognized expense
and the recorded obligation in future periods. While management believes that the assumptions used
are appropriate, differences in actual experience or changes in assumptions may affect the
Companys retirement and other postretirement obligations and
future expense. See Notes M and N to the
Consolidated Financial Statements for further detail on the assumptions used. 22




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Realization of Deferred Tax AssetsRealization of net operating loss carryforwards and other
deferred tax assets is determined in accordance with the appropriate accounting guidance in SFAS
No. 109. Realization of the deferred tax assets is periodically evaluated using expected future
reversals of existing temporary differences, future taxable income resulting principally from the
characterization of cash flow from international subsidiaries as dividends taxable in the United
States and the effects of lower interest expense from lower outstanding debt levels as debt service
requirements are met. For further information
regarding our accounting policies, see Note B to
the Consolidated Financial Statements. Contractual Obligations The Company enters into various contractual obligations throughout the year. Presented below are
the contractual obligations of the Company as of December 31, 2004, and the time period in which
payments under the obligations are due. Disclosures related to long-term debt, capital lease
obligations and operating lease obligations are included in the footnotes to the consolidated
financial statements of the company. Disclosures regarding the amounts due under purchase
obligations for capital expenditures are also included below. A purchase obligation is defined as
an agreement to purchase goods or services that is enforceable and legally binding on the company
and that specifies all significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the transaction.
Purchase obligations related to normal and recurring purchase orders are not included, as the
Company does not enter into long-term agreements that would represent purchase obligations. Any
short-term purchase order that might meet the definition of purchase obligation is only entered
into for a reasonable period of time for quantities to be used within normal operating conditions. Less than
    
    
    2 - 3
    
    
    4 - 5
    
    
    AfterTotal
    
    
    one year
    
    
    years
    
    
    years
    
    
    five years(Dollars in thousands)Contractual Obligation:Long-term debt
    
    $
    251,951
    
    
    $
    4,452
    
    
    $
    17,477
    
    
    $
    230,022
    
    
    $
    0Redeemable preferred stock
    
    
    170,814
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    170,814Capital lease obligation
    
    
    1,396
    
    
    
    124
    
    
    
    270
    
    
    
    302
    
    
    
    700Operating leases
    
    
    4,819
    
    
    
    2,436
    
    
    
    1,292
    
    
    
    752
    
    
    
    339Purchase obligations for capital
expenditures
    
    
    426
    
    
    
    426
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    429,406
    
    
    $
    7,438
    
    
    $
    19,039
    
    
    $
    231,076
    
    
    $
    171,853
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See information in Item 7. 23




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm
    
    25Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    26Consolidated Statements of Operations for the years ended December 31,
2004, 2003 and 2002
    
    28Consolidated Statements of Stockholders Equity (Deficit) for the
years ended December 31, 2004, 2003 and 2002
    
    29Consolidated Statements of Cash Flows for the years ended December 31,
2004, 2003 and 2002
    
    30Notes
to Consolidated Financial Statements
    
    31
 24




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of
Day International Group, Inc.: We have audited the accompanying consolidated balance sheets of Day International Group, Inc. and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations, stockholders equity (deficit) and cash flows for each of the three years in the period
ended December 31, 2004. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Day International Group, Inc. and subsidiaries as
of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles. As discussed in Note E, in 2002 the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards Nos. 141, Business Combinationsand
142, Goodwill and Other Intangible Assets. As discussed in Note G, in 2003 the Company changed its method of accounting for redeemable
preferred stock in accordance with Statement of Financial Accounting Standards No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. ERNST & YOUNG LLP Dayton, Ohio
March 24, 2005 25




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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(Amounts in thousands, except share and per share amounts) 2004
    
    
    2003ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    843
    
    
    $
    726Accounts receivable:Trade (less allowance for doubtful accounts)(Note C)
    
    
    50,451
    
    
    
    42,809Other
    
    
    1,516
    
    
    
    1,878Inventories (Note D)
    
    
    50,334
    
    
    
    48,652Prepaid expenses and other current assets
    
    
    6,204
    
    
    
    6,082Deferred tax assets (Note I)
    
    
    11,608
    
    
    
    6,799Total current assets
    
    
    120,956
    
    
    
    106,946PROPERTY, PLANT AND EQUIPMENT:Land
    
    
    4,479
    
    
    
    4,084Buildings and improvements
    
    
    30,655
    
    
    
    28,328Machinery and equipment
    
    
    96,093
    
    
    
    86,978Construction in progress
    
    
    5,100
    
    
    
    4,306136,327
    
    
    
    123,696Less accumulated depreciation
    
    
    (61,592
    )
    
    
    (49,529
    )74,735
    
    
    
    74,167OTHER ASSETS:Goodwill (Note E)
    
    
    143,444
    
    
    
    142,580Intangible assets (Note E)
    
    
    18,842
    
    
    
    23,223Deferred tax assets (Note I)
    
    
    298
    
    
    
    12,039Other assets
    
    
    11,960
    
    
    
    12,585174,544
    
    
    
    190,427TOTAL ASSETS
    
    $
    370,235
    
    
    $
    371,540
 The accompanying notes are an integral part of the consolidated financial statements. 26




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##### Table of Contents



2004
    
    
    2003LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    $
    11,020
    
    
    $
    7,563Accrued associate-related costs
    
    
    12,672
    
    
    
    12,004Other accrued expenses
    
    
    14,204
    
    
    
    11,739Income taxes payable
    
    
    3,381
    
    
    
    2,449Interest payable
    
    
    3,209
    
    
    
    3,229Current maturities of long-term debt and capital lease (Note F)
    
    
    4,576
    
    
    
    3,489Total current liabilities
    
    
    49,062
    
    
    
    40,473LONG-TERM AND SUBORDINATED LONG-TERM
DEBT (Note F)
    
    
    247,814
    
    
    
    276,331DEFERRED TAX LIABILITIES (Note I)
    
    
    3,294
    
    
    
    3,087OTHER LONG-TERM LIABILITIES (Notes L, M and N)
    
    
    36,278
    
    
    
    32,724REDEEMABLE PREFERRED STOCK (Note G)
    
    
    169,805
    
    
    
    146,649STOCKHOLDERS EQUITY (DEFICIT) (Note L):Common Shares, $.01 per share par value, 100,000
shares authorized, 23,323 and 23,298 shares issued and outstanding
    
    
    1
    
    
    
    1Contra-equity associated with the assumption of
majority shareholders bridge loan
    
    
    (68,673
    )
    
    
    (68,772
    )Retained earnings (deficit)
    
    
    (75,201
    )
    
    
    (65,180
    )Accumulated other comprehensive income (loss) (Note H)
    
    
    7,855
    
    
    
    6,227Total stockholders equity (deficit)
    
    
    (136,018
    )
    
    
    (127,724
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    370,235
    
    
    $
    371,540
 The accompanying notes are an integral part of the consolidated financial statements. 27




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands) 2004
    
    
    2003
    
    
    2002NET SALES
    
    $
    362,707
    
    
    $
    288,987
    
    
    $
    259,948COST OF GOODS SOLD
    
    
    230,033
    
    
    
    183,818
    
    
    
    164,426GROSS PROFIT
    
    
    132,674
    
    
    
    105,169
    
    
    
    95,522SELLING, GENERAL AND ADMINISTRATIVE
    
    
    80,911
    
    
    
    63,493
    
    
    
    55,472RESTRUCTURING COSTS (Note O)
    
    
    
    
    
    
    
    
    
    
    118AMORTIZATION OF INTANGIBLES
    
    
    34
    
    
    
    816
    
    
    
    810MANAGEMENT FEES (Note K)
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000OPERATING PROFIT
    
    
    50,729
    
    
    
    39,860
    
    
    
    38,122OTHER EXPENSES:Interest expense:Long-term debt (including amortization of deferred
financing costs and discount of $1,775, $2,313 and
$2,347 in 2004, 2003 and 2002 and loss on
extinguishment of debt of $2,783 in 2003)
    
    
    21,985
    
    
    
    28,655
    
    
    
    26,759Redeemable preferred stock (including amortization
of discount and issuance costs of $188 and $94 in
2004 and 2003) (Note G)
    
    
    23,156
    
    
    
    10,336Other expense (income)net
    
    
    (2,791
    )
    
    
    3,042
    
    
    
    (1,869
    )INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
    
    
    8,379
    
    
    
    (2,173
    )
    
    
    13,232INCOME TAXES (Note I)
    
    
    18,400
    
    
    
    4,200
    
    
    
    4,050INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE
    
    
    (10,021
    )
    
    
    (6,373
    )
    
    
    9,182CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET
OF TAX BENEFIT OF $394) (Note E)
    
    
    
    
    
    
    
    
    
    
    616NET INCOME (LOSS)
    
    
    (10,021
    )
    
    
    (6,373
    )
    
    
    9,798PREFERRED STOCK DIVIDENDS (Note G)
    
    
    
    
    
    
    (9,574
    )
    
    
    (17,103
    )AMORTIZATION OF PREFERRED STOCK DISCOUNT AND ISSUANCE
COSTS
    
    
    
    
    
    
    (94
    )
    
    
    (188
    )NET (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
    
    $
    (10,021
    )
    
    $
    (16,041
    )
    
    $
    (7,493
    )
 The accompanying notes are an integral part of the consolidated financial statements. 28




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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollar amounts in thousands) AccumulatedRetained
    
    
    Other
    
    
    ComprehensiveCommon Shares
    
    
    Contra
    
    
    Earnings
    
    
    Comprehensive
    
    
    IncomeShares
    
    
    Amount
    
    
    Equity
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    (Loss)December 31, 2001
    
    
    23,298
    
    
    $
    1
    
    
    $
    (68,772
    )
    
    $
    (41,646
    )
    
    $
    (5,501
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,798
    
    
    
    
    
    
    $
    9,798Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,103
    )Amortization of preferred
stock discount and
issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (188
    )Minimum pension liability
adjustment (net of tax of $43)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,046
    
    
    
    4,046Unrealized loss on cash flow
hedges (net of tax of $13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )December 31, 2002
    
    
    23,298
    
    
    
    1
    
    
    
    (68,772
    )
    
    
    (49,139
    )
    
    
    (1,540
    )
    
    $
    13,759Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,373
    )
    
    
    
    
    
    $
    (6,373
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,574
    )Amortization of preferred
stock discount and
issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )Minimum pension liability
adjustment (net of tax of $238)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178
    
    
    
    178Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,797
    
    
    
    7,797Unrealized loss on cash flow
hedges (net of tax of $134)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )
    
    
    (208
    )December 31, 2003
    
    
    23,298
    
    
    
    1
    
    
    
    (68,772
    )
    
    
    (65,180
    )
    
    
    6,227
    
    
    $
    1,394Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,021
    )
    
    
    
    
    
    $
    (10,021
    )Stock option exercise
    
    
    25
    
    
    
    
    
    
    
    99Minimum pension liability
adjustment (net of tax of $406)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    (193
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,577
    
    
    
    1,577Unrealized gain on cash flow
hedges (net of tax of $157)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244
    
    
    
    244December 31, 2004
    
    
    23,323
    
    
    $
    1
    
    
    $
    (68,673
    )
    
    $
    (75,201
    )
    
    $
    7,855
    
    
    $
    (8,393
    )
 The accompanying notes are an integral part of the consolidated financial statements. 29




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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands) 2004
    
    
    2003
    
    
    2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (10,021
    )
    
    $
    (6,373
    )
    
    $
    9,798Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (616
    )Depreciation
    
    
    10,501
    
    
    
    9,309
    
    
    
    8,197Amortization of goodwill and intangibles
    
    
    4,984
    
    
    
    6,303
    
    
    
    6,332Interest expense:Redeemable preferred stock dividends
    
    
    23,156
    
    
    
    10,336Loss on extinguishment of debt
    
    
    
    
    
    
    2,783Deferred income taxes
    
    
    9,105
    
    
    
    (2,183
    )
    
    
    (1,834
    )Foreign currency (gain) loss
    
    
    (1,690
    )
    
    
    2,666
    
    
    
    (1,273
    )Undistributed earnings of investee
    
    
    (325
    )
    
    
    
    
    
    
    (306
    )Non-cash loss on disposal of fixed assets
    
    
    (28
    )
    
    
    930
    
    
    
    465Change in assets and liabilities:Accounts receivable
    
    
    (5,816
    )
    
    
    2,693
    
    
    
    (1,737
    )Inventories
    
    
    (146
    )
    
    
    (3,367
    )
    
    
    1,092Prepaid expenses and other current assets
    
    
    684
    
    
    
    (963
    )
    
    
    2,663Accounts payable and accrued expenses
    
    
    9,313
    
    
    
    (3,144
    )
    
    
    (2,489
    )Net cash provided by operating activities
    
    
    39,717
    
    
    
    18,990
    
    
    
    20,292CASH FLOWS FROM INVESTING ACTIVITIES:Cash paid for acquisitions
    
    
    (1,346
    )
    
    
    (33,407
    )Capital expenditures
    
    
    (10,433
    )
    
    
    (6,874
    )
    
    
    (8,264
    )Proceeds from sale of property
    
    
    2,085
    
    
    
    2,447Net cash used in investing activities
    
    
    (9,694
    )
    
    
    (37,834
    )
    
    

    (8,264
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    25Proceeds from issuance of debt
    
    
    
    
    
    
    163,950Payment of deferred financing fees
    
    
    (633
    )
    
    
    (4,117
    )Payments on long-term debt
    
    
    (30,057
    )
    
    
    (136,797
    )
    
    
    (12,726
    )Net (payments on) proceeds from revolving credit facility
    
    
    575
    
    
    
    (4,500
    )
    
    
    800Net cash provided by (used in) financing activities
    
    
    (30,090
    )
    
    
    18,536
    
    
    
    (11,926
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    184
    
    
    
    38
    
    
    
    285CASH AND CASH EQUIVALENTS:Net increase (decrease) in cash and cash equivalents
    
    
    117
    
    
    
    (270
    )
    
    
    387Cash and cash equivalents at beginning of period
    
    
    726
    
    
    
    996
    
    
    
    609Cash and cash equivalents at end of period
    
    $
    843
    
    
    $
    726
    
    
    $
    996
 The accompanying notes are an integral part of the consolidated financial statements. 30




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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(Dollar amounts in thousands) A. NATURE OF OPERATIONS, BASIS OF PRESENTATION Day International Group, Inc. and subsidiaries is one of the worlds leading producers and
distributors of precision-engineered products, specializing in the design and customization of
consumable image-transfer products for the graphic arts (printing) industry and consumable fiber
handling products for the textile industry. The Image Transfer segment designs, manufactures and
distributes high-quality printing blankets, sleeves, pressroom chemicals and automatic dampening
systems used primarily in the offset, flexographic and digital printing industries. The Textile
Products segment manufactures and markets precision engineered rubber cots and aprons sold to
textile yarn spinners and other engineered rubber products sold to diverse markets. Sales are made
through Days sales organization, distributors and representatives. On November 24, 2003, the Company acquired Network Distribution International (NDI). The total
purchase price for NDI was $32,203, paid in cash. NDI is a converter of offset blankets and
reseller of ancillary consumable products to the printing industry, primarily in the United States.
NDI supplies printers with a broad range of printing blankets, pressroom chemicals, supplies and
equipment. Results of operations of NDI are included in the Companys consolidated results of
operations for the period subsequent to the acquisition. B.
SIGNIFICANT ACCOUNTING PRINCIPLES Principles of ConsolidationThe consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and balances have been
eliminated. Cash and Cash EquivalentsCash and cash equivalents include all highly liquid investments with an
original purchased maturity of three months or less. InventoriesInventories are stated at the lower of cost or market using the first-in, first-out
(FIFO) method. Reserves for obsolete and slow-moving inventory are determined based on the lower of
cost or market method. Market value is determined based on managements estimate of selling price
less selling costs. Property, Plant and EquipmentProperty, plant and equipment are stated at cost. Depreciation is
computed using the straight-line method over their estimated useful lives. Buildings and
improvements are depreciated over 10 to 40 years and machinery and equipment are depreciated over 5
to 10 years. Goodwill and Other IntangiblesGoodwill represents the excess of cost over the fair value of the
net assets acquired and is evaluated for impairment based on the requirements as proscribed in
Statement of Financial Accounting Standards (SFAS) No. 142. The Company assesses the
recoverability of other long-lived assets, including other intangibles, by determining whether the
amortization of the respective balances over their remaining lives can be recovered through
projected undiscounted cash flows. 31




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Deferred financing costs are being amortized using an effective interest rate method over the lives
of the related debt. Intangibles are being amortized using the straight-line method. Stock-Based CompensationAs permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company applies the intrinsic value method of recognition and measurement under Accounting
Principles Board Opinion No. 25 to its stock options and warrants. No compensation expense related
to employee stock options or warrants issued to directors is reflected in net income (loss). The
following table illustrates the effect on net income (loss) if compensation cost for stock options
and warrants had been determined based on their fair values at the grant date, consistent with the
method prescribed by SFAS No. 123: 2004
    
    
    2003
    
    
    2002Net income (loss)as reported
    
    $
    (10,021
    )
    
    $
    (6,373
    )
    
    $
    9,798Lessstock-based compensation expense
determined using fair value based
method in SFAS No. 123
    
    
    (719
    )
    
    
    (764
    )
    
    
    (1,263
    )Pro forma net income (loss)
    
    $
    (10,740
    )
    
    $
    (7,137
    )
    
    $
    8,535
 Revenue RecognitionDay recognizes revenue when product is shipped, except for product shipped on
consignment. Revenue for consignment sales is recognized when the customer uses the product.
Reserves for product returns, based upon historical experience, and other allowances, calculated
based on negotiated agreements with customers, are recognized at the time of the recording of the
sale. Allowances for doubtful accounts are determined by applying historical experience with
consideration given to the condition of the economy and evaluation of specific accounts and are
recorded in selling, general and administrative costs. Foreign Currency TranslationThe functional currency is the local currency of Days respective
international subsidiaries. Accordingly, foreign currency assets and liabilities are translated
into U.S. dollars at the period end exchange rates. Foreign currency revenues and expenses are
translated at the average exchange rates for the period. Translation gains and losses are recorded
in accumulated other comprehensive income (loss). Transaction gains and losses are recorded in
other expense (income) in the consolidated statements of operations. Concentration of Credit RiskThe Companys receivables are from a diverse group of customers in the
printing and textile industries and such receivables are generally unsecured. No single customer
accounts for more than 10% of net sales. Foreign Exchange ContractsThe Company and its international subsidiaries make purchases and sales
in foreign currencies and are subject to transaction exposures that arise from foreign exchange
rate movements between the date that the foreign currency transaction is recorded and the date it
is consummated. In addition, the Company has intercompany loans outstanding with certain
international subsidiaries in their local currencies, exposing it to the effect of changes in
exchange rates at loan issue and loan repayment dates. Day periodically enters into forward foreign
exchange contracts, with terms generally of 3 to 12 months, to protect itself against such foreign
currency movements. These contracts are recorded at fair value with the change in fair value
recorded as other expense (income) as an offset to the (income) expense recognized from the
remeasurement of the hedged foreign-currency denominated asset or liability. Hedges of forecasted
transactions are recorded as cash flow hedges and are reclassified to earnings when the hedged
transaction is completed. The contract value of foreign exchange contracts was 32




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$9,476 and $15,865 at December 31, 2004 and 2003. The fair value of these contracts is a payable of
$219 and $736 at December 31, 2004 and 2003. Day is exposed to credit-related losses in the event
of nonperformance by counterparties to the forward contracts. The counterparties are expected to
meet their obligations given their credit ratings; therefore Day does not obtain collateral for
these instruments. Interest Rate Swap Agreement The Company is a party to a $25,000 interest rate swap used to swap a
portion of the Companys variable rate debt to fixed rates. The swap expires in September 2006. The
Company has accounted for this swap as a cash flow hedge and recognizes the gain or loss related to
future periods in other comprehensive income (loss). Fair Value of Financial InstrumentsThe carrying value of the Companys variable rate Credit
Agreement approximates fair value. The fair market value and carrying amount of the 91/2% Senior
Subordinated Debt was $115,700 and $114,866 at December 31, 2004, based on quoted market prices.
The fair market value and carrying amount of the 91/2% Senior Subordinated Debt was $108,100 and
$114,825 at December 31, 2003, based on quoted market prices. The fair value of the 121/4%
Exchangeable Preferred Stock was $38,400 and $31,700 at December 31, 2004 and 2003, based on quoted
market prices. The fair value of the 18% Convertible Preferred Stock could not be determined as the
securities are closely held and are not actively traded. See Note G for further information about
the Convertible Preferred Stock. The fair value of the interest rate swap was a receivable of $195
at December 31, 2004, and a payable of $284 at December 31, 2003 based on quoted market prices. At
December 31, 2004 and 2003, the carrying amounts of all other assets and liabilities that qualify
as financial instruments approximated their fair value. Research and DevelopmentResearch and development costs are expensed as incurred. DistributionDistribution costs of $11,503, $9,617 and $8,241 for the years ended December 31,
2004, 2003 and 2002 are included in selling, general and administrative costs. AdvertisingAdvertising costs are expensed as incurred. Management EstimatesThe preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates. C. ACCOUNTS RECEIVABLE Changes in the allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002
consist of: 2004
    
    
    2003
    
    
    2002Balance at beginning of year
    
    $
    3,407
    
    
    $
    2,735
    
    
    $
    1,949Provision for doubtful accounts
    
    
    961
    
    
    
    369
    
    
    
    782Acquisition
    
    
    
    
    
    
    368Write-off of uncollectible accounts
    
    
    (808
    )
    
    
    (352
    )
    
    
    (163
    )Currency translation
    
    
    134
    
    
    
    287
    
    
    
    167Balance at end of year
    
    $
    3,694
    
    
    $
    3,407
    
    
    $
    2,735
 33




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D. INVENTORIES Inventories as of December 31, 2004 and 2003 consists of: 2004
    
    
    2003Finished goods
    
    $
    24,384
    
    
    $
    24,917Work in process
    
    
    5,193
    
    
    
    5,453Raw materials
    
    
    20,757
    
    
    
    18,282$
    50,334
    
    
    $
    48,652
 E. GOODWILL AND INTANGIBLE ASSETS In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS Nos. 141, Business
Combinationsand 142, Goodwill and Other Intangible Assets. These statements prohibit amortization
of goodwill for periods beginning after December 15, 2001. Instead an annual review of the
recoverability of goodwill and intangible assets is required. As of January 1, 2002, the Company
adopted these statements and recognized pre-tax income of $1,010 for the cumulative effect of the
change in accounting principle for the amount of the unamortized deferred credit related to the
excess over cost arising from the acquisition of the textile products operations of Armstrong World
Industries, Inc. (TPO) in 1999. The following is detail of goodwill for the years ended December 31, 2004, 2003 and 2002: Image
    
    
    TextileTransfer
    
    
    Products
    
    
    TotalBalance at December 31, 2001
    
    $
    120,110
    
    
    $
    5,224
    
    
    $
    125,334Purchase adjustment
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Foreign currency exchange
    
    
    1,764
    
    
    
    
    
    
    
    1,764Balance at December 31, 2002
    
    
    121,856
    
    
    
    5,224
    
    
    
    127,080Acquisitions
    
    
    13,817
    
    
    
    
    
    
    
    13,817Foreign currency exchange
    
    
    1,683
    
    
    
    
    
    
    
    1,683Balance at December 31, 2003
    
    
    137,356
    
    
    
    5,224
    
    
    
    142,580Acquisitions
    
    
    269
    
    
    
    
    
    
    
    269Purchase adjustments
    
    
    (361
    )
    
    
    
    
    
    
    (361
    )Foreign currency exchange
    
    
    956
    
    
    
    
    
    
    
    956Balance at December 31, 2004
    
    $
    138,220
    
    
    $
    5,224
    
    
    $
    143,444
 34




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The following is detail of intangible assets as of December 31, 2004 and 2003: Weighted-Average2004
    
    
    2003
    
    
    LifeIntangible Assets:Gross Carrying Amount:Deferred financing costs
    
    $
    15,710
    
    
    $
    15,077
    
    
    9 yearsPrinting technology
    
    
    27,946
    

    
    
    27,946
    
    
    11 yearsTextile compound formulas
    
    
    5,247
    
    
    
    5,247
    
    
    31 yearsUnpatented technology
    
    
    9,529
    
    
    
    9,529
    
    
    20 yearsOther
    
    
    613
    
    
    
    730
    
    
    5 yearsTotal intangibles
    
    
    59,045
    
    
    
    58,529
    
    
    14 yearsAccumulated Amortization:Deferred financing costs
    
    
    (9,507
    )
    
    
    (7,948
    )Printing technology
    
    
    (23,827
    )
    
    
    (21,336
    )Textile compound formulas
    
    
    (1,638
    )
    
    
    (1,467
    )Unpatented technology
    
    
    (4,909
    )
    
    
    (4,397
    )Other
    
    
    (322
    )
    
    
    (158
    )Total accumulated amortization
    
    
    (40,203
    )
    
    
    (35,306
    )Net book value
    
    $
    18,842
    
    
    $
    23,223
 Estimated amortization expense for the next five years is as follows: $4,010 in 2005, $3,217 in
2006, $3,217 in 2007, $1,965 in 2008 and $1,017 in 2009. F. LONG-TERM AND SUBORDINATED LONG-TERM DEBT Long-term and subordinated long-term debt as of December 31, 2004 and 2003 consists of: 2004
    
    
    2003Senior Secured Credit Facility:Tranche A term loan (face amount of 20,406 and 25,827)
    
    $
    27,584
    
    
    $
    32,488Tranche B term loan (face amount of $102,375)
    
    
    
    
    
    
    101,376Tranche C term loan (face amount of $29,250)
    
    
    
    
    
    
    29,250Tranche D term loan (face amount of $108,343)
    
    
    107,519Revolving line of credit
    
    
    1,025
    
    
    
    4509 1/2% Senior Subordinated Notes (face amount of $115,000)
    
    
    114,866
    
    
    
    114,825Capital lease obligation (Note P)
    
    
    1,396
    
    
    
    1,411Other
    
    
    
    
    
    
    20252,390
    
    
    
    279,820LessCurrent maturities of long-term debt and capital lease
    
    
    (4,576
    )
    
    
    (3,489
    )$
    247,814
    
    
    $
    276,331
 SENIOR SECURED CREDIT FACILITY In 2004, the Company issued $126,473 of Tranche D Term Loans under the $185,000 Senior Secured
Credit Facility to refinance the previously outstanding Tranche B and Tranche C Term Loans. The
Tranche D Term Loans have terms identical to the refinanced Tranche B and Tranche C Term Loans,
except that interest rates have been lowered 100 basis points and are now based on the banks base
rate plus 2.50% or the LIBOR rate plus 3.50%. No change in the final maturity date was made. In 35




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accordance with EITF 96-19, Debtors Accounting for a Modification or Exchange of Debt Instruments,
there was not a substantial difference between the debt instruments, thus no extinguishment of debt
is recognized. Remaining unamortized deferred financing fees and debt discount from the Tranche B
and C Term Loans have been added to the financing fees paid to the debtors and will be amortized
over the term of the Tranche D Term Loan. The Second Amended and Restated $185,000 Senior Secured Credit Agreement consists of a $20,000
5-year Revolving Credit Facility, a Tranche A 26,577 ($30,000 equivalent at issuance) 5-year Term
Loan and a Tranche D $126,473 6-year Term Loan. The Revolving Credit Facility includes a $10,000
letter of credit subfacility ($125 of letters of credit were outstanding at December 31, 2004 to
support a letter of credit for purchase commitments) and a $2,000 swing line loan subfacility. The
Tranche D Term Loan expires September 16, 2009, and the Tranche A Term Loan and the Revolving
Credit Facility expire September 16, 2008. If the Company does not refinance the 91/2% Senior
Subordinated Notes by September 15, 2007, then any amounts outstanding under the Senior Credit
Facility will be immediately due and payable. At December 31, 2004, interest on the Tranche A Term Loan was based on the banks LIBOR rate plus
3.50% (5.62%); interest on the Tranche D Term Loan was based on the banks LIBOR rate plus 3.50%
(5.66%); and interest on the revolving line of credit was based on the banks base rate plus 2.50%
(7.75%). Interest rates on LIBOR borrowings are fixed for one, two, three or six month periods at
the Companys discretion. The weighted average interest rate on the Senior Secured Credit Facility
(and the old Senior Secured Credit Facility) for the years ended December 31, 2004, 2003 and 2002
was 5.91%, 5.50% and 5.37%. At December 31, 2004, $18,850 was available under the Senior Secured Credit Facility. The Senior
Secured Credit Facility requires a commitment fee of 0.5% a year on the unused portion of the
revolving line of credit. The Senior Secured Credit Facility contains various financial covenants,
including minimum fixed charges coverage ratio, maximum leverage ratio, maximum senior debt ratio
and interest coverage ratio, and other covenants which place limits on, among other things, asset
sales, dividends and distributions of the Companys or its subsidiaries capital stock, the
purchase, redemption, acquisition of capital stock of the Company or its affiliates or any
subsidiaries, and the incurrence of certain additional indebtedness. No violations of these
covenants occurred during the year ended December 31, 2004. In 2003, the Company issued $165,000 of senior secured debt under the $185,000 Senior Secured
Credit Facility to refinance its $100,000 11 1/8% Senior Notes, repay its then outstanding $24,850
term loan and $10,750 revolving credit facility and to finance the acquisition of NDI. The Company
redeemed the 11 1/8% Senior Notes at a call price of $101,236. In the third quarter of 2003, the
Company recorded a loss of $542 on the write-off of the remaining deferred financing fees related
to the existing credit agreement and recorded an additional loss of $2,241 in the fourth quarter of
2003 on the remaining deferred financing fees related to the 11 1/8% Senior Notes and the call
premium. 9 1/2% SENIOR SUBORDINATED NOTES The Company has outstanding
$115,000 face amount of 9 1/2% Senior Subordinated Notes due March 15,
2008 (the Notes). The Notes are subordinate to the Senior Secured Credit Facility. 36




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Interest on the Notes is payable semi-annually. The Notes contain various financial and other
covenants which place limits on, among other things, asset sales, dividends and distributions of
the Companys or its subsidiaries capital stock, the purchase, redemption, acquisition of capital
stock of the Company or its affiliates or any subsidiaries, and the incurrence of certain
additional indebtedness. Upon a change in control, the Notes can be put back to the Company at 101%
of their face value. The Company may, at its option, redeem the Notes, in whole or in part, for cash, at 103.167% until
March 14, 2005, 101.583% thereafter until March 14, 2006 and 100.0% thereafter, together with all
accrued and unpaid interest to the date of redemption. The Companys wholly-owned subsidiary, Day International, Inc., and the other United States
subsidiaries have guaranteed the Senior Secured Credit Facility and the Notes. The Senior Secured
Credit Facility is secured by the assets of the Company and its United States subsidiaries, as well
as 65% of the stock of each international subsidiary. Principal payments on long-term debt for the next five years are payable as follows: $4,576 in
2005, $6,819 in 2006, $10,927 in 2007, $150,973 in 2008 and $79,352 in 2009. G. REDEEMABLE PREFERRED STOCK In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This statement established standards for how an
issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. This statement requires that the Companys redeemable preferred stock be
recorded in the same manner as long-term debt. The Company adopted the statement as of July 1,
2003. Therefore, since the third quarter of 2003, the Company has reflected the redeemable
preferred stock as a liability and accrued dividends as interest expense. The adoption of this
statement had no effect on the cash flows of the Company, net loss available to common shareholders
or the Companys compliance with its debt covenants. 12
1/4% SENIOR EXCHANGEABLE PREFERRED STOCK The Company has outstanding
$79,432 and $70,404 liquidation preference of 12 1/4% Senior Exchangeable
Preferred Stock (Exchangeable Preferred Stock) at December 31, 2004 and 2003. All dividends are
payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. On
and before March 15, 2003, the Company paid dividends in additional fully-paid and non-assessable
shares of Exchangeable Preferred Stock having an aggregate liquidation preference equal to the
amount of such dividends. After March 15, 2003, dividends must be paid in cash and if not paid for
four consecutive quarters, then the holders of the Exchangeable Preferred Stock have the right to
elect two directors to the Board of Directors until the dividends in arrears have been paid. During
the fourth quarter of 2004, the Exchangeable Preferred Stockholders elected two directors to the
Board of Directors. Certain restrictions in the Companys Senior Secured Credit Agreement and Notes
limit the ability to pay cash dividends. The Company has not paid dividends after March 15, 2003
and does not anticipate that the restrictions on payment of cash dividends will change in the near
term to allow the dividends to be paid. Dividends-in-arrears are $15,043 as of December 31, 2004
and are included in the redeemable preferred stock balance. On any scheduled dividend payment date,
the Company may, at its 37




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option, but subject to certain conditions, exchange all of the shares of the Exchangeable Preferred
Stock for the Companys 12 1/4% Subordinated Exchange Debentures Due 2010 (the Exchange Debentures). The Company will be required, subject to certain conditions, to redeem all of the Exchangeable
Preferred Stock or the Exchange Debentures as the case may be, on March 15, 2010. The Company may,
at its option, redeem the Exchangeable Preferred Stock or the Exchange Debentures, in whole or in
part, for cash, at 104.083% thereafter until March 14, 2005, 102.042% thereafter until March 14,
2006 and 100.0% thereafter, together with, in the case of the Exchangeable Preferred Stock, all
accumulated and unpaid dividends to the date of redemption, or in the case of the Exchange
Debentures, all accrued and unpaid interest to the date of redemption. Upon the occurrence of a
change in control, the Company would be required to make an offer to purchase the Exchangeable
Preferred Stock or the Exchange Debentures, for cash, at a price equal to 101% of the liquidation
preference or aggregate principal amount (as the case may be) thereof, together with, in the case
of the Exchangeable Preferred Stock, all accumulated and unpaid dividends to the date of purchase,
or in the case of the Exchange Debentures, all accrued and unpaid interest to the date of purchase. 18% CONVERTIBLE CUMULATIVE PREFERRED STOCK At December 31, 2004 and 2003, the Company has outstanding $91,382 and $77,442 liquidation
preference of 18% Convertible Cumulative Preferred Stock (Preference Stock) with a mandatory
redemption date of June 30, 2010. The Preference Stock ranks
junior to the Companys 12 1/4% Senior
Exchangeable Preferred Stock and ranks senior to any subsequently issued preferred stock. All
dividends are payable quarterly in arrears on March 30, June 30, September 30 and December 30 of
each year. Holders of the Preference Stock are entitled to receive an annual dividend rate of 18%
plus approximately 24% of the aggregate value of each dividend (if any) declared and paid on the
Companys common stock. If not paid quarterly in cash, annually, accumulated and unpaid dividends
are to be added to the basis of the stock. The Company may redeem any or all of the shares of the Preference Stock for consideration equal to
the Base Redemption Amount. The Base Redemption Amount is an amount equal to up to 1,500 shares of
Common Stock issuable upon the exercise of future warrants plus the greater of the liquidation
preference of the Preference Stock or the value of 7,348.7 shares of the Companys Common Stock, as
adjusted for dilutive issuances. Upon the occurrence of a change of control and subject to the Holders of all of the Companys
Senior Securities having exercised their right to be prepaid and/or to put their securities to the
Company upon such Change of Control, each Holder of Preference Stock may require the Company to
redeem, on or after the 92nd day after the prepayment or redemption of the Companys Senior
Securities in whole, all or any part of such Holders Preference Stock at 102% of the redemption
price of such securities. The redemption price of the Preference Stock is the Base Redemption
Amount described above. If, on any Redemption Date which occurs after an initial public offering of the Companys Common
Stock, the value of the Preference Stock as converted into Common Stock exceeds the liquidation
preference of the Preference Stock, the Company may elect, in lieu of paying cash on the redemption
of such Preference Stock, to convert some or all of the Preference Stock into 7,348.7 shares of the
Companys Common Stock, as adjusted for dilutive issuances, subject to certain limitations. 38




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H. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The components of accumulated other comprehensive income (loss) as of December 31, 2004 and 2003,
consists of: 2004
    
    
    2003Foreign currency translation adjustments
    
    $
    9,023
    
    
    $
    7,446Minimum pension liabilities
    
    
    (1,213
    )
    
    
    (1,020
    )Unrealized gain on cash flow hedges
    
    
    45
    
    
    
    (199
    )$
    7,855
    
    
    $
    6,227
 I. INCOME TAXES Significant components of deferred tax assets (liabilities) as of December 31, 2004 and 2003, are
as follows: 2004
    
    
    2003Deferred tax assets:Accounts receivable reserves
    
    $
    1,332
    
    
    $
    1,251Inventory reserves
    
    
    1,344
    
    
    
    1,350Other reserves
    
    
    3,880
    
    
    
    3,252AMT credit carryforward
    
    
    627
    
    
    
    127Net operating loss carryforwards
    
    
    15,242
    
    
    
    23,168Stock option compensation
    
    
    3,131
    
    
    
    3,160Pension benefits
    
    
    1,521
    
    
    
    933Unrealized foreign exchange losses
    
    
    518
    
    
    
    1,149Other postretirement benefits
    
    
    3,686
    
    
    
    3,342Total deferred tax assets
    
    
    31,281
    
    
    
    37,732Deferred tax liabilities:Depreciation
    
    
    (7,845
    )
    
    
    (8,832
    )Amortization
    
    
    (14,824
    )
    
    
    (13,149
    )Total deferred tax liabilities
    
    
    (22,669
    )
    
    
    (21,981
    )Net deferred tax assets
    
    $
    8,612
    
    
    $
    15,751Included in the balance sheets:Current assets
    
    $
    11,608
    
    
    $
    6,799Noncurrent assets
    
    
    298
    
    
    
    12,039Noncurrent liability
    
    
    (3,294
    )
    
    
    (3,087
    )Net deferred tax assets
    
    $
    8,612
    
    
    $
    15,751
 39




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##### Table of Contents



Income tax expense consists of the following for the years ended December 31, 2003, 2002 and 2001: 2004
    
    
    2003
    
    
    2002Current:United States:Federal alternative minimum
    
    $
    500
    
    
    $
    
    
    
    $State and local
    
    
    351
    
    
    
    451
    
    
    
    218International
    
    
    8,904
    
    
    
    5,739
    
    
    
    5,8609,755
    
    
    
    6,190
    
    
    
    6,078Deferred
    
    
    8,396
    
    
    
    (2,117
    )
    
    
    (1,634
    )18,151
    
    
    
    4,073
    
    
    
    4,444Allocation to other comprehensive income
    
    
    249
    
    
    
    127Allocation to cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (394
    )$
    18,400
    
    
    $
    4,200
    
    
    $
    4,050
 The income tax expense differs from the United States statutory rate for the years ended December
31, 2004, 2003 and 2002, as a result of the following: 2004
    
    
    2003
    
    
    2002Tax provision (benefit) at the United States federal statutory rate
    
    $
    2,849
    
    
    $
    (739
    )
    
    $
    4,499International tax rate differential
    
    
    541
    
    
    
    302
    
    
    
    (434
    )State and local taxes, net of federal
income tax effect
    
    
    627
    
    
    
    363
    
    
    
    759Foreign source income taxable in the United States
    
    
    6,421
    
    
    
    369
    
    
    
    (1,374
    )Non-deductible preferred stock dividends included in net loss
    
    
    7,873
    
    
    
    3,514Non-deductible expenses
    
    
    187
    
    
    
    138
    
    
    
    136Other
    
    
    (98
    )
    
    
    253
    
    
    
    464$
    18,400
    
    
    $
    4,200
    
    
    $
    4,050
 During 2002, it was determined that the Companys foreign source income taxable in the United
States for 2001 was less than previously estimated. The effect of this change in estimate was to
decrease the 2002 income tax expense by $1,930. Income (loss) before income taxes includes $20,466, $16,464 and $16,131 of income from
international operations for the years ended December 31, 2004, 2003 and 2002. Day has not provided
for deferred taxes on the undistributed earnings of international subsidiaries because the earnings
are deemed permanently reinvested. Undistributed earnings of Days foreign subsidiaries amounted to
approximately $35,000 as of December 31, 2004. The unrecognized deferred tax liability on these
earnings has not been calculated due to the complexities associated with the hypothetical
calculation. It is anticipated that Day will continue to annually
remit a substantial portion of prospective earnings of certain
international subsidiaries in the form of taxable dividends. The U.S.
tax consequences of those dividends will be recorded when such
dividends are paid. Since the Company intends to remit earnings from
its international subsidiaries only on a prospective basis, the APB
No. 23 exception will continue to apply to the international
subsidiaries earnings accumulated through December 31, 2003 and
for earnings that the Company does not expect to remit as dividends. The
Company has United States net operating loss carryforwards of $41,593 expiring from 2019 through
2023 to be used in future periods. 40




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##### Table of Contents



J. BUSINESS SEGMENTS The Company produces precision-engineered products, specializing in the design and customization of
consumable image-transfer products for the graphic arts (printing) industry and consumable fiber
handling products for the textile industry. The Image Transfer segment designs, manufactures and
markets high-quality printing blankets and sleeves, pressroom chemicals and automatic dampening
systems used primarily in the offset, flexographic and digital printing industries. The Textile
Products segment manufactures and markets precision engineered rubber cots and aprons sold to
textile yarn spinners and other engineered rubber products sold to diverse markets. The accounting policies of the segments are the same as those described in Note BSignificant
Accounting Policies. Segment performance is evaluated based on operating profit results compared to
the annual operating plan. Intersegment sales and transfers are not material. The Company manages the two segments as separate strategic business units. They are managed
separately because each business unit requires different manufacturing processes, technology and
marketing strategies. 2004
    
    
    2003
    
    
    2002Third party sales:Image Transfer
    
    $
    313,672
    
    
    $
    240,539
    
    
    $
    211,598Textile Products
    
    
    49,035
    
    
    
    48,448
    
    
    
    48,350Total
    
    $
    362,707
    
    
    $
    288,987
    
    
    $
    259,948Segment operating profit:Image Transfer
    
    $
    50,325
    
    
    $
    41,737
    
    
    $
    37,524Textile Products
    
    
    6,634
    
    
    
    4,263
    
    
    
    6,508Total
    
    $
    56,959
    
    
    $
    46,000
    
    
    $
    44,032Depreciation and amortization:Image Transfer
    
    $
    7,338
    
    
    $
    6,913
    
    
    $
    6,229Textile Products
    
    
    1,712
    
    
    
    1,813
    
    
    
    1,674Total
    
    $
    9,050
    
    
    $
    8,726
    
    
    $
    7,903Assets:Image Transfer
    
    $
    157,305
    
    
    $
    147,827
    
    
    $
    113,420Textile Products
    
    
    30,222
    
    
    
    29,300
    
    
    
    29,925Total
    
    $
    187,527
    
    
    $
    177,127
    
    
    $
    143,345Capital expenditures:Image Transfer
    
    $
    8,163
    
    
    $
    6,253
    
    
    $
    6,571Textile Products
    
    
    2,270
    
    
    
    621
    
    
    
    1,693Total
    
    $
    10,433
    
    
    $
    6,874
    
    
    $
    8,264
 41




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##### Table of Contents



The following is a reconciliation of the items reported above to the amounts reported in the
consolidated financial statements: 2004
    
    
    2003
    
    
    2002Operating profit:Segment operating profit
    
    $
    56,959
    
    
    $
    46,000
    
    
    $
    44,032APB #16 depreciation and amortization
    
    
    (4,626
    )
    
    
    (3,757
    )
    
    
    (3,468
    )Non-allocated corporate expenses
    
    
    (570
    )
    
    
    (567
    )
    
    
    (514
    )Restructuring costs
    
    
    
    
    
    
    
    
    
    
    (118
    )Amortization of intangibles
    
    
    (34
    )
    
    
    (816
    )
    
    
    (810
    )Management fees
    
    
    (1,000
    )
    
    
    (1,000
    )
    
    
    (1,000
    )Total operating profit
    
    $
    50,729
    
    
    $
    39,860
    
    
    $
    38,122Depreciation and amortization:Segment depreciation and amortization
    
    $
    9,050
    
    
    $
    8,726
    
    
    $
    7,903Amortization of intangibles
    
    
    34
    
    
    
    816
    
    
    
    810APB #16 depreciation and amortization
    
    
    4,626
    
    
    
    3,757
    
    
    
    3,468Amortization of deferred financing fees
    
    
    1,775
    
    
    
    2,313
    
    
    
    2,348Total depreciation and amortization
    
    $
    15,485
    
    
    $
    15,612
    
    
    $
    14,529Assets:Segment assets
    
    $
    187,527
    
    
    $
    177,127
    
    
    $
    143,345APB #16 Adjustment
    
    
    5,120
    
    
    
    6,523
    
    
    
    7,073Goodwill and other intangibles
    
    
    162,286
    
    
    
    165,803
    
    
    
    153,776Deferred tax assets
    
    
    11,906
    
    
    
    18,838
    
    
    
    15,198Cash and other assets
    
    
    3,396
    
    
    
    3,249
    
    
    
    485Total assets
    
    $
    370,235
    
    
    $
    371,540
    
    
    $
    319,877
 Net sales for the years ended December 31, 2004, 2003 and 2002, and long-lived assets as of
December 31, 2004, 2003 and 2002, by geographic area are as follows: 2004
    
    
    2003
    
    
    2002Net sales:United States
    
    $
    187,850
    
    
    $
    136,495
    
    
    $
    132,338Germany
    
    
    82,138
    
    
    
    71,855
    
    
    
    61,648United Kingdom
    
    
    44,597
    
    
    
    37,051
    
    
    
    32,989Other international
    
    
    72,291
    
    
    
    64,517
    
    
    
    50,831Total international
    
    
    199,026
    
    
    
    173,423
    
    
    
    145,468Interarea
    
    
    (24,169
    )
    
    
    (20,931
    )
    
    
    (17,858
    )$
    362,707
    
    
    $
    288,987
    
    
    $
    259,948Long-lived assets:United States
    
    $
    169,032
    
    
    $
    174,762
    
    
    $
    167,874Germany
    
    
    32,288
    
    
    
    28,407
    
    
    
    24,390United Kingdom
    
    
    23,784
    
    
    
    23,928
    
    
    
    23,542Other international
    
    
    11,917
    
    
    
    12,873
    
    
    
    12,289Total international
    
    
    67,989
    
    
    
    65,208
    
    
    
    60,221$
    237,021
    
    
    $
    239,970
    
    
    $
    228,095
 Sales between geographic areas are generally priced to recover cost plus an appropriate mark-up for
profit. 42




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##### Table of Contents



K. RELATED PARTY TRANSACTIONS In accordance with a management services agreement, the Company is required to pay GSC Partners and
SGCP, the controlling shareholders of Day, an annual management fee of $1,000 plus expenses,
payable semi-annually. L. STOCKHOLDERS EQUITY AND STOCK BASED COMPENSATION PLAN 1998 Stock Option Plan The 1998 Stock Option Plan provides incentives to officers and other key employees of the Company
that serve to align their interests with those of stockholders. Under the 1998 Stock Option Plan,
the Board is authorized to award four different types of non-qualified stock options: (i) service
options, (ii) performance options, (iii) super performance options and (iv) exit options. Under the
1998 Stock Option Plan, unless otherwise provided by the Board, service options vest and become
exercisable in five equal annual installments on each of the first five anniversaries of the date
of grant; performance and super performance options vest and become exercisable in annual
installments based on the achievement of annual EBITDA targets of the Company; and exit options
vest and become exercisable based upon the internal rate of return of GSC Partners realized in
connection with the disposition of its investment in the Company. Regardless of the satisfaction of
any performance goals, performance options, super performance options and exit options fully vest
and become exercisable on the ninth anniversary of the date of grant. Initially, 7,885 shares of the Companys voting common stock were authorized for issuance under the
1998 Stock Option Plan. In the event of certain changes in the Companys capital structure
affecting the common stock, the Board of Directors may make appropriate adjustments in the number
of shares then covered by options and, where applicable, the exercise price of options under the
1998 Stock Option Plan. As of December 31, 2004, 7,437 options have been granted (of which 1,257 are exercisable) under the
1998 Stock Option Plan with an exercise price of $4,030. These options expire as follows: 5,987
expire in 2007 and 1,450 expire in 2012. Day Stock Option Plan Certain employees hold options that were previously granted under the Day International Group, Inc.
Stock Option Plan (the Day Option Plan). In 1998 all options granted under the Day Option Plan
became fully vested and the Day Option Plan was amended to provide that no further options may be
awarded under that plan. As a result, compensation expense associated with these options was
recorded in 1998 and the remaining balance of $7,720 and $7,821 is included in other long-term
liabilities at December 31, 2004 and 2003. As of December 31, 2004, 2,417.5 options have been
granted under the Day Option Plan with an exercise price of $1,000 a share and 310 options have
been granted with an exercise price of $1,200 a share. The options expire as follows: 2,342.5
expire in 2005; 75 expire in 2006; and 310 expire in 2007. 43




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##### Table of Contents



The following table summarizes activity in the Companys stock option plans: 2004
    
    
    2003
    
    
    2002Exercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    10,290
    
    
    $
    1,970
    
    
    
    10,480
    
    
    $
    3,237
    
    
    
    9,754
    
    
    $
    3,151Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    4,030Exercised
    
    
    (25
    )
    
    
    1,000Forfeited
    
    
    (100
    )
    
    
    4,030
    
    
    
    (190
    )
    
    
    3,871
    
    
    
    (374
    )
    
    
    3,949Outstanding at end of year
    
    
    10,165
    
    
    
    3,223
    
    
    
    10,290
    
    
    
    3,226
    
    
    
    10,480
    
    
    
    3,237Exercisable at end of year
    
    
    3,985
    
    
    
    1,995
    
    
    
    3,973
    
    
    
    1,970
    
    
    
    3,762
    
    
    
    1,821Weighted-average fair value
of options granted during
the year using the Black-Scholes
options-pricing model
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,446Weighted-average assumptions used for grants:Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    %Expected life of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9 yearsRisk-free interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    %
 Warrants to purchase up to 74 shares of Common Stock at a price of $4,030 per share were granted in
1998 to one of the Board members as compensation for services as a director. In 2000, additional
warrants to purchase up to 74 shares of Common Stock at a price of $4,030 per share were granted to
each of two Board members for their services. The warrants are fully vested as of December 31,
2002. M. RETIREMENT PLANS The Company has defined benefit plans covering certain associates of its international
subsidiaries. Benefits under these plans are based primarily on years of service and qualifying
compensation during the final years of employment. Day uses a December 31 measurement date for the
plans. The pension plan in the United Kingdom has plan assets consisting of U.K. government bonds. The
Companys funding policy complies with the requirements of local laws and regulations. During 2001,
the Company froze the benefits under the U.K. pension plan and settled a portion of the obligation
in 2003 by transferring the benefits of active associates to a defined contribution plan. The
Company purchased annuity contracts in early 2005 to settle the remaining obligations under the
plan. In conjunction with the TPO acquisition in 1999, the Company entered into a Promise to Pay
agreement with Armstrong World Industries GmbH (Armstrong) for the unfunded pension obligation of
TPOs Germany subsidiary in which Armstrong agreed to pay the portion of any pension obligations
that the associates earned prior to the date of the acquisition. At December 31, 2004, the present
value of the estimated portion of the pension obligation that is Armstrongs responsibility is
$4,412. The plan is closed to new participants subsequent to the date of the TPO acquisition. Day also sponsors defined contribution plans for certain associates, which provide for Company
contributions of a specified percentage of each associates total compensation. Certain of these
plans include a profit-sharing component that varies depending on the achievement of certain
objectives. 44




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##### Table of Contents



The funded status of the Companys defined benefit plans at December 31, 2004 and 2003, is as
follows: 2004
    
    
    2003Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    15,672
    
    
    $
    15,044Service cost
    
    
    390
    
    
    
    325Interest cost
    
    
    787
    
    
    
    696Actuarial (gains) losses
    
    
    2,043
    
    
    
    458Benefits paid
    
    
    (685
    )
    
    
    (2,857
    )Foreign currency exchange
    
    
    1,283
    
    
    
    2,006Benefit obligation at end of year
    
    
    19,490
    
    
    
    15,672Change in plan assets:Fair value of plan assets at the beginning of the year
    
    
    7,036
    
    
    
    8,164Actual return on plan assets
    
    
    632
    
    
    
    134Employer contribution
    
    
    63
    
    
    
    872Benefits paid
    
    
    (685
    )
    
    
    (2,857
    )Foreign currency exchange
    
    
    488
    
    
    
    723Fair value of plan assets at end of year
    
    
    7,534
    
    
    
    7,036Funded status
    
    
    (11,956
    )
    
    
    (8,636
    )Unrecognized net actuarial (gain) loss
    
    
    2,443
    
    
    
    2,014Additional minimum liabilityincluded in accumulated other
comprehensive income (loss)
    
    
    (1,906
    )
    
    
    (1,680
    )(Accrued) pension costs
    
    $
    (11,419
    )
    
    $
    (8,302
    )Included in the balance sheets:Other accrued expensescurrent liability
    
    $
    (2,826
    )
    
    $
    (1,332
    )Other long-term liabilities
    
    
    (8,593
    )
    
    
    (6,970
    )(Accrued) pension costs
    
    $
    (11,419
    )
    
    $
    (8,302
    )Accumulated benefit obligation
    
    $
    18,953
    
    
    $
    15,338Weighted-average assumptions:Discount rate
    
    
    4.50
    %
    
    
    5.25
    %Long-term rate of increase in compensation
    
    
    2.80
    %
    
    
    3.00
    %Long-term rate of return on plan assets
    
    
    4.50
    %
    
    
    5.00
    %Post-retirement pension increase (cost-of-living adjustment)
    
    
    1.90
    %
    
    
    2.00
    %
 The plan assets at December 31, 2004 and 2003, consist of U.K. government bonds. The Company has
assumed a long-term rate of return of 4.50% and 5.00% based on the expected interest rates to be
earned on the bonds. In accordance with U.K. regulations, the Company has been required to invest
in the bonds upon the decision to terminate the U.K. pension plan. The Company expects to
contribute approximately $2,900 to the U.K. pension plan in 2005 to purchase annuity contracts and
settle all plan obligations. The Company will recognize a loss upon settlement of approximately
$700 in 2005. 45




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##### Table of Contents



A summary of the components of net periodic pension cost for the defined benefit plans and for the
defined contribution plans for the years ended December 31, 2004, 2003 and 2002, is as follows: 2004
    
    
    2003
    
    
    2002Defined benefit plans:Service cost
    
    $
    390
    
    
    $
    325
    
    
    $
    274Interest cost
    
    
    787
    
    
    
    696
    
    
    
    749Expected return on plan assets
    
    
    (341
    )
    
    
    (329
    )
    
    
    (601
    )Actuarial loss recognized
    
    
    888
    
    
    
    678
    
    
    
    1,456Net periodic pension cost
    
    
    1,724
    
    
    
    1,370
    
    
    
    1,878Defined contribution plans
    
    
    3,335
    
    
    
    2,594
    
    
    
    2,232Total pension expense
    
    $
    5,059
    
    
    $
    3,964
    
    
    $
    4,110Weighted-average assumptions:Discount rate
    
    
    5.25
    %
    
    
    5.00
    %
    
    
    6.00
    %Compensation increase
    
    
    3.00
    %
    
    
    2.50
    %
    
    
    4.50
    %Long-term rate of return on plan assets
    
    
    5.00
    %
    
    
    4.50
    %
    
    
    8.00
    %
 Future benefit payments for each of the next five years and for the five years thereafter are
expected to be paid as follows: $102 in 2005, $130 in 2006, $148 in 2007, $175 in 2008, $194 in
2009 and $1,330 in total for 2010 through 2014. The above amounts exclude any benefit payments to
be paid to participants in the U.K. pension plan. The Companys remaining pension plans are
unfunded, thus the Company contributes to the plans to fund current benefit payments. N. OTHER POSTRETIREMENT BENEFITS Day provides certain contributory postretirement health care and life insurance benefits for
certain U.S. associates. During 2003, the Company amended the plan so that participants become
eligible for postretirement benefits if they retire on or after age 55, with at least ten years of
service after attaining age 45 and to increase the retirees share of benefit costs. The amendments
made to the plan decreased the pension benefit obligation by $4,258, which will be amortized into
income over 12 years. Day uses a December 31 measurement date for the plan. The status of Days unfunded plan at December 31, 2004 and 2003, is as follows: 2004
    
    
    2003Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    12,640
    
    
    $
    12,280Service cost
    
    
    1,101
    
    
    
    829Interest cost
    
    
    849
    
    
    
    885Participant contributions
    
    
    229
    
    
    
    329Plan amendment
    
    
    
    
    
    
    (4,258
    )Acquisition
    
    
    
    
    
    
    1,139Actuarial (gains) losses
    
    
    1,721
    
    
    
    2,239Benefits paid
    
    
    (796
    )
    
    
    (803
    )Benefit obligation at end of year
    
    
    15,744
    
    
    
    12,640Unrecognized prior service gain
    
    
    4,580
    
    
    
    4,052Unrecognized net actuarial gain (loss)
    
    
    (6,346
    )
    
    
    (3,690
    )Accrued postretirement benefit obligation
    
    $
    13,978
    
    
    $
    13,002Discount rate used in determining the benefit obligation at year end
    
    
    6.00
    %
    
    
    6.25
    %
 46




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##### Table of Contents



The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e.,
health care cost trend rate) is assumed to be 11.0% and decreasing 1.0% per year to an ultimate
trend rate of 5.0% in 2011 and remaining at that level thereafter. A one percentage point increase
in the assumed health care cost trend rate would have increased the accumulated benefit obligation
by $2,365 at December 31, 2004, and the interest and service cost would have been $417 higher for
the year ended December 31, 2004. A one percentage point decrease in the assumed health care cost
trend rate would have decreased the accumulated benefit obligation by $1,957 at December 31, 2004,
and the interest and service cost would have been $342 lower for the year ended December 31, 2004. Future benefit payments, net of participant contributions, for each of the next five years and for
the five years thereafter are expected to be paid as follows: $375 in 2005, $440 in 2006, $498 in
2007, $562 in 2008, $650 in 2009 and $4,895 in total for 2010 through 2014. The Companys
postretirement plan is unfunded, thus the Company contributes to the plan to fund current benefit
payments, net of participant contributions. The Companys contributions to the plan for the years
ended December 31, 2004 and 2003 was $567 and $474. Net periodic postretirement benefit costs include the following components for the years ended
December 31, 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Service cost
    
    $
    1,101
    
    
    $
    829
    
    
    $
    711Interest cost
    
    
    849
    
    
    
    885
    
    
    
    805Prior service gain recognized
    
    
    (641
    )
    
    
    (206
    )Actuarial loss recognized
    
    
    234
    
    
    
    263Net periodic postretirement benefit costs
    
    $
    1,543
    
    
    $
    1,771
    
    
    $
    1,516Discount rate used in determining the interest cost
    
    
    6.25
    %
    
    
    7.00
    %
    
    
    7.25
    %
 On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003(the Act). The Act expands Medicare primarily by adding a prescription
drug benefit for Medicare-eligible individuals beginning in 2006, as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially
equivalent to the Medicare benefit. The Company believes that the plan, as currently designed, is
not actuarially equivalent to Medicare Part D and thus would not qualify for the federal subsidy
under the Act. As a result the Company believes that the effect of the legislation will not be
material to the results of operations or financial position of the Company. O. RESTRUCTURING COSTS As announced in the first quarter of 2001, the Company has consolidated its U.S. Textile Products
operations into its Greenville, South Carolina, facility. The relocation was completed in early
2002. A pre-tax charge of $933 was recorded in 2001 for relocation of machinery and equipment and
severance and termination costs for 59 associates. During the first quarter of 2002, the Company
incurred additional relocation costs of $109, recorded a charge of $157 for write-off of fixed
assets and recorded a reversal of $103 of the reserve for severance costs. As of September 30,
2002, final severance payments had been paid to 49 associates. During the fourth quarter of 2001, the Company ceased operations at its Transfer Media facility in
Longwood, Florida. A pre-tax charge of $3,010 was recorded in 2001 for severance costs
for 55 associates, 47




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write-off of abandoned assets and costs related to closing the facility. As of
September 30, 2002, final severance payments had been paid to all associates and the remaining
reserve of $45 for severance costs was reversed in the second quarter of 2002. In 2003, the Company
sold the land and building and recognized a gain from the sale that is included in other (income)
expensenet. Also during the fourth quarter of 2001, the Company completed plans to relocate its Chemical
Products German sales office into other existing facilities and the U.S. sales and administrative
functions from Oakland, New Jersey to other U.S. locations. A pre-tax charge of $988 was recorded
for severance costs for 21 associates, costs for closing the offices and loss on the sale of fixed
assets. As of December 31, 2002, final severance payments had been paid to 21 associates. Below is a summary of the restructuring charges in 2002: Image
    
    
    TextileTransfer
    
    
    Products
    
    
    TotalReversal of reserve for severance cost
    
    $
    (45
    )
    
    $
    (103
    )
    
    $
    (148
    )Relocation and other costs incurred
    
    
    
    
    
    
    109
    
    
    
    109Write-off of assets
    
    
    
    
    
    
    157
    
    
    
    157Total
    
    $
    (45
    )
    
    $
    163
    
    
    $
    118
 Below is a summary of the amounts charged against the reserves for severance and facility shutdown
in 2002: Image
    
    
    TextileTransfer
    
    
    ProductsBalance at December 31, 2001
    
    $
    1,508
    
    
    $
    392Reversal of reserve
    
    
    (45
    )
    
    
    (103
    )Charges against the reserve for:Severance costs
    
    
    (851
    )
    
    
    (289
    )Facility shutdown
    
    
    (612
    )Balance at December 31, 2002
    
    $
    
    
    
    $
 As of December 31, 2002, all restructuring programs had been completed. P. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS The Company leases a building in Germany under a capital lease. Property under this capital lease
is included in property, plant and equipment at December 31, 2004 and 2003, as follows: 2004
    
    
    2003Land and buildings
    
    $
    1,822
    

    
    $
    1,696Accumulated depreciation
    
    
    (423
    )
    
    
    (263
    )$
    1,399
    
    
    $
    1,433
 The Company also leases certain buildings, transportation equipment and office equipment under
operating leases with terms of 1 to 10 years. Rental expense for the years ended December 31, 2004,
2003 48




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##### Table of Contents



and 2002 was $3,413, $2,438 and $2,326. The following is a schedule by year of future annual
minimum lease payments under non-cancelable leases as of December 31, 2004: Capital
    
    
    OperatingLease
    
    
    Leases2005
    
    $
    201
    
    
    $
    3,1812006
    
    
    201
    
    
    
    2,4362007
    
    
    201
    
    
    
    1,2922008
    
    
    201
    
    
    
    7522009
    
    
    201
    
    
    
    574Thereafter
    
    
    803
    
    
    
    3391,808
    
    
    $
    8,574Amount representing interest
    
    
    (412
    )Present value of minimum lease payments (including current
portion of $124)
    
    $
    1,396
 CONTINGENCIES There are currently no environmental claims against the Company for the costs of environmental
remediation measures taken or to be taken. From time to time, the Company is involved in various
legal proceedings arising in the ordinary course of business. None of the matters in which the
Company is currently involved, either individually or in the aggregate, is expected to have a
material adverse effect on the Companys business or financial condition. Q. SUPPLEMENTAL CASH FLOW DISCLOSURES 2004
    
    
    2003
    
    
    2002NON-CASH TRANSACTIONS:Preferred stock dividends paid in kind
    
    
    
    
    
    $
    1,901
    
    
    $
    7,057CASH PAID FOR:Income taxes
    
    $
    9,938
    
    
    $
    8,427
    
    
    $
    9,549Interest
    
    $
    20,230
    
    
    $
    25,762
    
    
    $
    24,833
 R. RECENTLY ISSUED ACCOUNTING STANDARDS In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, Inventory Costs.
This Statement amends ARB No. 43, Chapter 4 to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material. In addition, this Statement
requires that allocation of fixed production overheads to the costs of conversion be based on the
normal capacity of the production facilities. The adoption of this Statement has no effect on the
Company as the Companys current accounting complies with the guidance. In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised),
Share-based Payment. This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. This Statement focuses
primarily on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. This Statement eliminates the alternative to use APB Opinion 25s
intrinsic value method of accounting that was provided in Statement 123 as originally issued. Under
APB Opinion 25, issuing stock options to employees generally resulted in recognition of no
compensation cost. This Statement 49




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##### Table of Contents



requires entities to recognize the cost of employee services
received in exchange for awards of equity instruments based on the grant-date fair value of those
awards. This statement will have no effect on the cash flows of the Company, or the Companys
compliance with its debt covenants. Net income (loss) after the adoption will be affected by the
stock option expense that was previously only disclosed. The Company has elected to adopt this
Statement effective January 1, 2005. Pre-tax stock option expense is estimated to be $1,225 for the
year ending December 31, 2005. S. SUPPLEMENTAL CONSOLIDATING INFORMATION The Company has outstanding
$115,000 of 9 1/2% Senior Subordinated Notes (the Notes). Day
International, Inc. (Day International or Guarantor) is a wholly-owned subsidiary of the
Company (which has no assets or operations other than its investment in Day International). Day
International and its wholly-owned United States subsidiaries have provided a full and
unconditional guarantee of the Notes. The wholly-owned international subsidiaries of Day
International are not guarantors with respect to the Notes and do not have any credit arrangements
senior to the Notes. All of the assets of Day and Day International, other than the assets of the
wholly-owned international non-guarantor subsidiaries, are pledged as collateral on the Notes. The
only intercompany eliminations are the normal intercompany eliminations with regard to intercompany
sales and the Companys investment in the wholly-owned non-guarantor subsidiaries. Intercompany
notes are in place that effectively transfers the interest expense from Day to Day International,
Inc. The following are the supplemental consolidating condensed balance sheets as of December 31,
2004 and 2003, the supplemental consolidating condensed
statements of operations and cash flows for the years ended December 31, 2004, 2003 and 2002, with
the investments in the subsidiaries accounted for using the equity method. Separate complete
financial statements of the Guarantor are not presented because management has determined that they
are not material to the investors. 50




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 2004 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    (130
    )
    
    $
    130
    
    
    $
    843
    
    
    $
    
    
    
    $
    843Accounts receivable net
    
    
    
    
    
    
    22,771
    
    
    
    29,196
    
    
    
    
    
    
    
    51,967Inventories
    
    
    
    
    
    
    29,264
    
    
    
    21,070
    
    
    
    
    
    
    
    50,334Other assets
    
    
    
    
    
    
    11,815
    
    
    
    5,997
    
    
    
    
    
    
    
    17,812TOTAL CURRENT ASSETS
    
    
    (130
    )
    
    
    63,980
    
    
    
    57,106
    
    
    
    
    
    
    
    120,956Intercompany
    
    
    250,993
    
    
    
    3,997
    
    
    
    555
    
    
    
    (255,545
    )Property, plant and equipmentnet
    
    
    
    
    
    
    42,674
    
    
    
    32,061
    
    
    
    
    
    
    
    74,735Investment in subsidiaries
    
    
    (22,174
    )
    
    
    66,005
    
    
    
    (12,535
    )
    
    
    (31,296
    )Intangible and other assets
    
    
    
    
    
    
    154,984
    
    
    
    19,560
    
    
    
    
    
    
    
    174,544TOTAL ASSETS
    
    $
    228,689
    
    
    $
    331,640
    
    
    $
    96,747
    
    
    $
    (286,841
    )
    
    $
    370,235LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT)Accounts payable
    
    $
    
    
    
    $
    3,814
    
    
    $
    7,206
    
    
    $
    
    
    
    $
    11,020Current maturities of long-term debt
    
    
    4,452
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    4,576Accrued associate related costs and
other expenses
    
    
    3,209
    
    
    
    13,096
    
    
    
    17,161
    
    
    
    
    
    
    
    33,466TOTAL CURRENT LIABILITIES
    
    
    7,661
    
    
    
    16,910
    
    
    
    24,491
    
    
    
    
    
    
    
    49,062Intercompany
    
    
    (59,301
    )
    
    
    300,853
    
    
    
    (10,119
    )
    
    
    (231,433
    )Long-term and subordinated long-term debt
    
    
    246,542
    
    
    
    
    
    
    
    1,272
    
    
    
    
    
    
    
    247,814Other long-term liabilities
    
    
    
    
    
    
    28,354
    
    
    
    11,218
    
    
    
    
    
    
    
    39,572Redeemable preferred stock
    
    
    169,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,805Total stockholders equity (deficit)
    
    
    (136,018
    )
    
    
    (14,477
    )
    
    
    69,885
    
    
    
    (55,408
    )
    
    
    (136,018
    )TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    228,689
    
    
    $
    331,640
    
    
    $
    96,747
    
    
    $
    (286,841
    )
    
    $
    370,235
 51




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 2003 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    742
    
    
    $
    (742
    )
    
    $
    726
    
    
    $
    
    
    
    $
    726Accounts receivable net
    
    
    
    
    
    
    22,280
    
    
    
    22,407
    
    
    
    
    
    
    
    44,687Inventories
    
    
    
    
    
    
    28,104
    
    
    
    20,548
    
    
    
    
    
    
    
    48,652Other assets
    
    
    
    
    
    
    7,186
    
    
    
    5,695
    
    
    
    
    
    
    
    12,881TOTAL CURRENT ASSETS
    
    
    742
    
    
    
    56,828
    
    
    
    49,376
    
    
    
    
    
    
    
    106,946Intercompany
    
    
    278,389
    
    
    
    (811
    )
    
    
    1,012
    
    
    
    (278,590
    )Property, plant and equipmentnet
    
    
    
    
    
    
    44,329
    
    
    
    29,838
    
    
    
    
    
    
    
    74,167Investment in subsidiaries
    
    
    (35,348
    )
    
    
    44,173
    
    
    
    (3,682
    )
    
    
    (5,143
    )Intangible and other assets
    
    
    
    
    
    
    169,969
    
    
    
    20,458
    
    
    
    
    
    
    
    190,427TOTAL ASSETS
    
    $
    243,783
    
    
    $
    314,488
    
    
    $
    97,002
    
    
    $
    (283,733
    )
    
    $
    371,540LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT)Accounts payable
    
    $
    
    
    
    $
    3,415
    
    
    $
    4,148
    
    
    $
    
    
    
    $
    7,563Current maturities of long-term debt
    
    
    3,376
    
    
    
    4
    
    
    
    109
    
    
    
    
    
    
    
    3,489Accrued associate related costs and
other expenses
    
    
    3,229
    
    
    
    13,171
    
    
    
    13,021
    
    
    
    
    
    
    
    29,421TOTAL CURRENT LIABILITIES
    
    
    6,605
    
    
    
    16,590
    
    
    
    17,278
    
    
    
    
    
    
    
    40,473Intercompany
    
    
    (56,760
    )
    
    
    330,798
    
    
    
    (16,552
    )
    
    
    (257,486
    )Long-term and subordinated long-term
debt
    
    
    275,013
    
    
    
    16
    
    
    
    1,302
    
    
    
    
    
    
    
    276,331Other long-term liabilities
    
    
    
    
    
    
    24,111
    
    
    
    11,700
    
    
    
    
    
    
    
    35,811Redeemable preferred stock
    
    
    146,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,649Total stockholders equity (deficit)
    
    
    (127,724
    )
    
    
    (57,027
    )
    
    
    83,274
    
    
    
    (26,247
    )
    
    
    (127,724
    )TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT)
    
    $
    243,783
    
    
    $
    314,488
    
    
    $
    97,002
    
    
    $
    (283,733
    )
    
    $
    371,540
 52




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    215,389
    
    
    $
    147,318
    
    
    $
    
    
    
    $
    362,707Cost of goods sold
    
    
    
    
    
    
    137,046
    
    
    
    92,987
    
    
    
    
    
    
    
    230,033Gross profit
    
    
    
    
    
    
    78,343
    
    
    
    54,331
    
    
    
    
    
    
    
    132,674Selling, general and administrative
    
    
    76
    
    
    
    49,886
    
    
    
    30,949
    
    
    
    
    
    
    
    80,911Amortization of intangibles
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Management fees
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Operating profit
    
    
    (76
    )
    
    
    27,423
    
    
    
    23,382
    
    
    
    
    
    
    
    50,729Other expenses (income):Equity in (earnings) of subsidiaries
    
    
    (13,173
    )
    
    
    (12,966
    )
    
    
    
    
    
    
    26,139Interest expense
    
    
    23,156
    
    
    
    21,965
    
    
    
    20
    
    
    
    
    
    
    
    45,141Other (income) expense
    
    
    (13
    )
    
    
    (5,674
    )
    
    
    2,896
    
    
    
    
    
    
    
    (2,791
    )Income (loss) before income taxes
    
    
    (10,046
    )
    
    
    24,098
    
    
    
    20,466
    
    
    
    (26,139
    )
    
    
    8,379Income taxes (benefit)
    
    
    (25
    )
    
    
    10,925
    
    
    
    7,500
    
    
    
    
    
    
    
    18,400Net income (loss)
    
    $
    (10,021
    )
    
    $
    13,173
    
    
    $
    12,966
    
    
    $
    (26,139
    )
    
    $
    (10,021
    )
 53




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    155,652
    
    
    $
    133,335
    
    
    $
    
    
    
    $
    288,987Cost of goods sold
    
    
    
    
    
    
    97,907
    
    
    
    85,911
    
    
    
    
    
    
    
    183,818Gross profit
    
    
    
    
    
    
    57,745
    
    
    
    47,424
    
    
    
    
    
    
    
    105,169Selling, general and administrative
    
    
    69
    
    
    
    35,712
    
    
    
    27,712
    
    
    
    
    
    
    
    63,493Amortization of intangibles
    
    
    
    
    
    
    816
    
    
    
    
    
    
    
    
    
    
    
    816Management fees
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Operating profit
    
    
    (69
    )
    
    
    20,217
    
    
    
    19,712
    
    
    
    
    
    
    
    39,860Other expenses (income):Equity in (earnings) of subsidiaries
    
    
    (3,962
    )
    
    
    (10,564
    )
    
    
    
    
    
    
    14,526Interest expense
    
    
    10,336
    
    
    
    28,552
    
    
    
    103
    
    
    
    
    
    
    
    38,991Other (income) expense
    
    
    (71
    )
    
    
    (32
    )
    
    
    3,145
    
    
    
    
    
    
    
    3,042Income (loss) before income taxes
    
    
    (6,372
    )
    
    
    2,261
    
    
    
    16,464
    
    
    
    (14,526
    )
    
    
    (2,173
    )Income taxes (benefit)
    
    
    1
    
    
    
    (1,701
    )
    
    
    5,900
    
    
    
    
    
    
    
    4,200Net income (loss)
    
    $
    (6,373
    )
    
    $
    3,962
    
    
    $
    10,564
    
    
    $
    (14,526
    )
    
    $
    (6,373
    )
 54




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    148,853
    
    
    $
    111,095
    
    
    $
    
    
    
    $
    259,948Cost of goods sold
    
    
    
    
    
    
    94,335
    
    
    
    70,091
    
    
    
    
    
    
    
    164,426Gross profit
    
    
    
    
    
    
    54,518
    
    
    
    41,004
    
    
    
    
    
    
    
    95,522Selling, general and administrative
    
    
    60
    
    
    
    32,029
    
    
    
    23,383
    
    
    
    
    
    
    
    55,472Restructuring costs
    
    
    
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    118Amortization of intangibles
    
    
    
    
    
    
    810
    
    
    
    
    
    
    
    
    
    
    
    810Management fees
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Operating profit
    
    
    (60
    )
    
    
    20,561
    
    
    
    17,621
    
    
    
    
    
    
    
    38,122Other expenses (income):Equity in (earnings) of subsidiaries
    
    
    (9,833
    )
    
    
    (11,747
    )
    
    
    
    
    
    
    21,580Interest expense
    
    
    
    
    
    
    26,719
    
    
    
    40
    
    
    
    
    
    
    
    26,759Other (income) expense
    
    
    (3
    )
    
    
    (3,316
    )
    
    
    1,450
    
    
    
    
    
    
    
    (1,869
    )Income before income taxes
    
    
    9,776
    
    
    
    8,905
    
    
    
    16,131
    
    
    
    (21,580
    )
    
    
    13,232Income taxes (benefit)
    
    
    (22
    )
    
    
    (928
    )
    
    
    5,000
    
    
    
    
    
    
    
    4,050Income before cumulative effect of
change in accounting principles
    
    
    9,798
    
    
    
    9,833
    
    
    
    11,131
    
    
    
    (21,580
    )
    
    
    9,182Cumulative effect of change in
accounting principles
    
    
    
    
    
    
    
    
    
    
    616
    
    
    
    
    
    
    
    616Net income
    
    $
    9,798
    
    
    $
    9,833
    
    
    $
    11,747
    
    
    $
    (21,580
    )
    
    $
    9,798
 55




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows from Operating Activities:Net income (loss)
    
    $
    (10,021
    )
    
    $
    13,173
    
    
    $
    12,966
    
    
    $
    (26,139
    )
    
    $
    (10,021
    )Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:Depreciation and amortization
    
    
    
    
    
    
    11,192
    
    
    
    4,293
    
    
    
    
    
    
    
    15,485Interest expenseredeemable preferred
stock dividends
    
    
    23,156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,156Equity in (earnings) loss of subsidiaries
    
    
    (13,173
    )
    
    
    (12,966
    )
    
    
    
    
    
    
    26,139Deferred income taxes
    
    
    
    
    
    
    10,975
    
    
    
    (1,870
    )
    
    
    
    
    
    
    9,105Foreign currency (gain) loss
    
    
    
    
    
    
    (3,362
    )
    
    
    1,672
    
    
    
    
    
    
    
    (1,690
    )Undistributed earnings of investee
    
    
    
    
    
    
    (325
    )
    
    
    
    
    
    
    
    
    
    
    (325
    )(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    366
    
    
    
    (394
    )
    
    
    
    
    
    
    (28
    )Changes in operating assets and liabilities
    
    
    (21
    )
    
    
    2,705
    
    
    
    1,351
    
    
    
    
    
    
    
    4,035Net cash provided by operating
activities
    
    
    (59
    )
    
    
    21,758
    
    
    
    18,018
    
    
    
    
    
    
    
    39,717Cash Flows from Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Capital expenditures
    
    
    
    
    
    
    (5,078
    )
    
    
    (5,355
    )
    
    
    
    
    
    
    (10,433
    )Proceeds from sale of property
    
    
    
    
    
    
    675
    
    
    
    1,410
    
    
    
    
    
    
    
    2,085Net cash used in investing activities
    
    
    
    
    
    
    (5,749
    )
    
    
    (3,945
    )
    
    
    
    
    
    
    (9,694
    )Cash Flows from Financing Activities:Proceeds from exercise of stock options
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Payment of deferred financing fees
    
    
    
    
    
    
    (633
    )
    
    
    
    
    
    
    
    
    
    
    (633
    )Payments on long-term debt
    
    
    (29,927
    )
    
    
    (16
    )
    
    
    (114
    )
    
    
    
    
    
    
    (30,057
    )Net payments on revolving credit facility
    
    
    575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    575Net cash provided by (used in)
financing activities
    
    
    (29,327
    )
    
    
    (649
    )
    
    
    (114
    )
    
    
    
    
    
    
    (30,090
    )Intercompany transfers and dividends
    
    
    28,514
    
    
    
    (14,488
    )
    
    
    (14,026
    )Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    184
    
    
    
    
    
    
    
    184Net increase (decrease) in cash and cash
equivalents
    
    
    (872
    )
    
    
    872
    
    
    
    117
    
    
    
    
    
    
    
    117Cash and cash equivalents at beginning of
period
    
    
    742
    
    
    
    (742
    )
    
    
    726
    
    
    
    
    
    
    
    726Cash and cash equivalents at end of period
    
    $
    (130
    )
    
    $
    130
    
    
    $
    843
    
    
    $
    
    
    
    $
    843
 56




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows from Operating Activities:Net income (loss)
    
    $
    (6,373
    )
    
    $
    3,962
    
    
    $
    10,564
    
    
    $
    (14,526
    )
    
    $
    (6,373
    )Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:Depreciation and amortization
    
    
    
    
    
    
    12,160
    
    
    
    3,452
    
    
    
    
    
    
    
    15,612Interest expense:Redeemable preferred stock dividends
    
    
    10,336
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,336Loss on extinguishment of debt
    
    
    1,236
    
    
    
    1,547
    
    
    
    
    
    
    
    
    
    
    
    2,783Equity in (earnings) loss of subsidiaries
    
    
    (3,962
    )
    
    
    (10,564
    )
    
    
    
    
    
    
    14,526Deferred income taxes
    
    
    
    
    
    
    (2,011
    )
    
    
    (172
    )
    
    
    
    
    
    
    (2,183
    )Foreign currency (gain) loss
    
    
    
    
    
    
    2,863
    
    
    
    (197
    )
    
    
    
    
    
    
    2,666Loss on disposal of fixed assets
    
    
    
    
    
    
    271
    
    
    
    659
    
    
    
    
    
    
    
    930Changes in operating assets and liabilities
    
    
    (967
    )
    
    
    (1,007
    )
    
    
    (2,807
    )
    
    
    
    
    
    
    (4,781
    )Net cash provided by operating
activities
    
    
    270
    
    
    
    7,221
    
    
    
    11,499
    
    
    
    
    
    
    
    18,990Cash Flows from Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (33,407
    )
    
    
    
    
    
    
    
    
    
    
    (33,407
    )Capital expenditures
    
    
    
    
    
    
    (3,550
    )
    
    
    (3,324
    )
    
    
    
    
    
    
    (6,874
    )Proceeds from sale of property
    
    
    
    
    
    
    2,447
    
    
    
    
    
    
    
    
    
    
    
    2,447Net cash used in investing activities
    
    
    
    
    
    
    (34,510
    )
    
    
    (3,324
    )
    
    
    
    
    
    
    (37,834
    )Cash Flows from Financing Activities:Proceeds from issuance of debt
    
    
    163,950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,950Payment of deferred financing fees
    
    
    
    
    
    
    (4,117
    )
    
    
    
    
    
    
    
    
    
    
    (4,117
    )Payments on long-term debt
    
    
    (136,704
    )
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    (136,797
    )Net payments on revolving credit facility
    
    
    (4,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Net cash provided by (used in)
financing activities
    
    
    22,746
    
    
    
    (4,117
    )
    
    
    (93
    )
    
    
    
    
    
    
    18,536Intercompany transfers and dividends
    
    
    (22,770
    )
    
    
    31,160
    
    
    
    (8,390
    )Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    38Net increase (decrease) in cash and cash
equivalents
    
    
    246
    
    
    
    (246
    )
    
    
    (270
    )
    
    
    
    
    
    
    (270
    )Cash and cash equivalents at beginning of
period
    
    
    496
    
    
    
    (496
    )
    
    
    996
    
    
    
    
    
    
    
    996Cash and cash equivalents at end of period
    
    $
    742
    
    
    $
    (742
    )
    
    $
    726
    
    
    $
    
    
    
    $
    726
 57




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows from Operating Activities:Net income
    
    $
    9,798
    
    
    $
    9,833
    
    
    $
    11,747
    
    
    $
    (21,580
    )
    
    $
    9,798Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    (616
    )
    
    
    
    
    
    
    (616
    )Depreciation and amortization
    
    
    
    
    
    
    12,057
    
    
    
    2,472
    
    
    
    
    
    
    
    14,529Equity in (earnings) loss of subsidiaries
    
    
    (9,833
    )
    
    
    (11,747
    )
    
    
    
    
    
    
    21,580Deferred income taxes and other
    
    
    
    
    
    
    (679
    )
    
    
    (1,155
    )
    
    
    
    
    
    
    (1,834
    )Foreign currency (gain) loss
    
    
    
    
    
    
    (2,344
    )
    
    
    1,071
    
    
    
    
    
    
    
    (1,273
    )Undistributed earnings of investee
    
    
    
    
    
    
    (306
    )
    
    
    
    
    
    
    
    
    
    
    (306
    )Loss on disposal of fixed assets
    
    
    
    
    
    
    157
    
    
    
    308
    
    
    
    
    
    
    
    465Changes in operating assets and
liabilities
    
    
    (316
    )
    
    
    4,277
    
    
    
    (4,432
    )
    
    
    
    
    
    
    (471
    )Net cash provided by (used in)
operating activities
    
    
    (351
    )
    
    
    11,248
    
    
    
    9,395
    
    
    
    
    
    
    
    20,292Cash Flows from Investing Activities:Capital expenditures
    
    
    
    
    
    
    (5,199
    )
    
    
    (3,065
    )
    
    
    
    
    
    
    (8,264
    )Net cash (used in) investing
activities
    
    
    
    
    
    
    (5,199
    )
    
    
    (3,065
    )
    
    
    
    
    
    
    (8,264
    )Cash Flows from Financing Activities:Payment of long-term debt
    
    
    (12,600
    )
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (12,726
    )Net borrowings on revolving credit
facility
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    800Net cash (used in) financing
activities
    
    
    (11,800
    )
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (11,926
    )Intercompany transfers and dividends
    
    
    11,945
    
    
    
    (5,843
    )
    
    
    (6,102
    )Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    285Net increase (decrease) in cash and cash
equivalents
    
    
    (206
    )
    
    
    206
    
    
    
    387
    
    
    
    
    
    
    
    387Cash and cash equivalents at beginning
of period
    
    
    702
    
    
    
    (702
    )
    
    
    609
    
    
    
    
    
    
    
    609Cash and cash equivalents at end of
period
    
    $
    496
    
    
    $
    (496
    )
    
    $
    996
    
    
    $
    
    
    
    $
    996
 58




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 
 ITEM 9A. CONTROLS AND PROCEDURES The Company maintains a system of internal accounting controls designed to provide reasonable
assurance that transactions are properly recorded and summarized so that reliable financial records
and reports can be prepared and assets safeguarded. In addition, a system of disclosure controls is
maintained to ensure that information required to be disclosed is recorded, processed, summarized
and reported in a timely manner to management responsible for the preparation and reporting of the
Companys financial information. Management, with the participation of the Companys Chief Executive Officer and Chief Financial
Officer, assesses the internal control and disclosure control systems as being effective as they
encompass material matters for the three months ended December 31, 2004. To the best of
managements knowledge, there were no changes in the internal control and disclosure control
systems during the quarter ended December 31, 2004, that would materially affect the control
systems. 
 ITEM 9B. OTHER INFORMATION None 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following are the names, ages and a brief account of the business experience for the last five
years of each person who is a director or executive officer of the Company as of March 1, 2005. Name
    
    Age
    
    PositionWilliam C. Ferguson
    
    
    74
    
    
    Chairman of the BoardSean W. Brophy
    
    
    36
    
    
    DirectorCarl J. Crosetto
    
    
    56
    
    
    DirectorMatthew C. Kaufman
    
    
    34
    
    
    DirectorNeal Moszkowski
    
    
    39
    
    
    DirectorPhilip Raygorodetsky
    
    
    31
    
    
    DirectorChristopher A. White
    
    
    40
    
    
    DirectorDennis R. Wolters
    
    
    58
    
    
    Chief Executive Officer, President and Director
 59




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##### Table of Contents



Name
    
    Age
    
    PositionDwaine R. Brooks
    
    
    62
    
    
    Vice President, Human ResourcesDavid B. Freimuth
    
    
    52
    
    
    Group Vice President and General Manager, Textiles and Flexographic Products since January 2004;
prior to that Senior Vice President, General Manager, Textile ProductsDermot J. Healy
    
    
    50
    
    
    Managing Director, EuropeThomas J. Koenig
    
    
    44
    
    
    Vice President and Chief Financial Officer and Assistant SecretaryStephen P. Noe
    
    
    48
    
    
    Group Vice President and General Manager, Image Transfer Group since November 2003; prior to that
Senior Vice President, General Manager, Transfer Media since July 2001; prior to that Senior Vice
President, Marketing & Sales, Transfer Media since January 2001; prior to that Principal at CSC
Consulting in the Emerging Markets Practice since July 2000; prior to that Business Director at
FMC CorporationBrent A. Stephen
    
    
    53
    
    
    Managing Director, Pacific Rim since January 2003; prior to that Vice President and Sales
Manager, Australia
 William C. Ferguson has been a director since 1998. He retired as Chairman and Chief Executive
Officer of NYNEX in 1995, a position he had held since 1989. Mr. Ferguson is a member of the
Advisory Board of GSC Partners. Sean W. Brophy has been a director since 2004. He is a Managing Director and founder of Labrador
Capital since 2001. Prior to founding Labrador Capital, Mr. Brophy was a Principal and member of
the General Partner of Celerity Partners, Inc. Mr. Brophy is a member of the board of directors of
Vista Cove Senior Living, Inc., Vista Cove Rancho Mirage, LLC and Rancho Cove Partners, LLC. Carl J. Crosetto has been a director since 2000. He retired as President of Bowne & Co., Inc. in
December 2003 after 30 years service with Bowne. In January 2004, Mr. Crosetto joined GSC Partners
as a Senior Advisor and is now a Managing Director. Mr. Crosetto is a member of the board of
directors of Bowne & Co., Inc. and SpeedFlex Asia Limited. Matthew C. Kaufman has been a director since 2000. He is a Managing Director with GSC Partners,
which he joined in 1997. He is Chairman of the board of directors of Pacific Aerospace &
Electronics, Inc. and a member of the board of directors of Atlantic Express Transportation Group,
Burke Industries, Inc., etalk Corporation, Safety-Kleen Corp., Waddington North America, Inc. and
Worldtex, Inc. Neal Moszkowski has been a director since 2003. He is a Managing Director and Co-Head of Soros
Private Equity Partners, LLC, where he has been since 1998. Mr. Moszkowski is Chairman of the board
of directors of Wellcare Group, Inc. and a member of the board of directors of Bluefly, Inc.,
Integra LifeSciences Holdings Corporation and JetBlue Airways Corporation. 60




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##### Table of Contents



Philip Raygorodetsky has been a director since 2003. He is a Vice President with GSC Partners,
which he joined in 1997. Mr. Raygorodetsky is a member of the board of directors of Pacific
Aerospace & Electronics, Inc., Worldtex, Inc. and Wrightline, LLC. Christopher A. White has been a director since 2003. He is a Director of SG Capital Partners LLC.
Previously, Mr. White worked in the Equity Capital Markets groups of SG Cowen from 1999 to 2003. He
is a member of the board of directors of Achillion Pharmaceuticals, Inc., Coleman Floor Company,
Ricerca Bioscience LLC and RNB Communications, Inc. Messrs. Brophy and
Crosetto were elected by the holders of the 12 1/4% Senior Exchangeable
Preferred Stock due 2010 (the Exchangeable Preferred Stock). In accordance with the terms of the
Certificate of Designation of the Exchangeable Preferred Stock the holders of the Exchangeable
Preferred Stock, voting as one class, are allowed to elect two directors, if the dividends on the
Exchangeable Preferred Stock are in arrears and unpaid (and in the case of dividends payable after
March 15, 2003, are not paid in cash) for four consecutive quarterly periods. As long as the
dividends are in arrears, the holders of the Exchangeable Preferred Stock have the right to elect
two directors to the Board of Directors until the dividends in arrears have been paid. Director Compensation As compensation for his services as director, in 1998, Mr. Ferguson received warrants to purchase
up to 74 shares of Common Stock at a price of $4,030 per share. On January 18, 2000, Mr. Ferguson
received additional warrants to purchase up to 74 shares of Common Stock at a price of $4,030 per
share. As compensation for his services as director, Mr. Crosetto also received warrants to
purchase up to 74 shares of Common Stock at a price of $4,030 per share on January 18, 2000. As of
December 31, 2002, the warrants are fully vested. Beginning in 2003, Mr. Ferguson receives an
annual retainer of $100,000 for his services as Chairman of the Board. None of the other directors
receive any compensation for their services as directors. Audit Committee Financial Expert The Companys Board of Directors has determined that Mr. Ferguson is an independent audit committee
financial expert in accordance with Item 401(h) of Regulation S-K. Code of Ethics The Company has adopted a Code of Ethics for all associates, including the chief executive officer,
chief financial officer, controller and treasurer, addressing business ethics and conflicts of
interest. A copy of the Code of Ethics will be provided free of charge upon request of the Chief
Financial Officer at P.O. Box 338, 130 West Second Street, Dayton, Ohio 45401-0338, or (937)
224-4000. 61




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning the compensation for 2004, 2003 and 2002 for
Mr. Wolters and the four other most highly compensated executive officers of the Company at the end
of 2004. All amounts for non-U.S. executive officers are converted to U.S. dollars at the average
exchange rate for each year. Long TermCompensationAwardsAnnual
    
    
    SecuritiesName and
    
    
    
    
    
    Compensation
    
    
    Underlying
    
    
    All OtherPrincipal Position
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Options(#)
    
    
    CompensationDennis R. Wolters,
    
    
    2004
    
    
    $
    351,200
    
    
    $
    250,000
    
    
    
    0
    
    
    $
    46,736
    (a)President and Chief
    
    
    2003
    
    
    
    270,000
    
    
    
    140,000
    
    
    
    0
    
    
    
    31,312Executive Officer
    
    
    2002
    
    
    
    260,000
    
    
    
    27,050
    
    
    
    200
    
    
    
    22,674David B. Freimuth, Group
    
    
    2004
    
    
    
    210,364
    
    
    
    59,000
    
    
    
    0
    
    
    
    16,124
    (b)Vice President and General
    
    
    2003
    
    
    
    170,800
    
    
    
    55,000
    
    
    
    0
    
    
    
    15,384Manager, Textiles and
    
    
    2002
    
    
    
    165,000
    
    
    
    0
    
    
    
    0
    
    
    
    15,558Flexographic ProductsDermot J. Healy,
    
    
    2004
    
    
    
    236,824
    
    
    
    89,615
    
    
    
    0
    
    
    
    64,004
    (c)Managing Director,
    
    
    2003
    
    
    
    188,037
    
    
    
    67,330
    
    
    
    0
    
    
    
    58,811Europe
    
    
    2002
    
    
    
    165,363
    
    
    
    6,554
    
    
    
    40
    
    
    
    46,645Thomas J. Koenig,
    
    
    2004
    
    
    
    190,640
    
    
    
    59,000
    
    
    
    0
    
    
    
    17,349
    (d)Vice President and
    
    
    2003
    
    
    
    159,000
    
    
    
    40,000
    
    
    
    0
    
    
    
    16,047Chief Financial Officer
    
    
    2002
    
    
    
    151,000
    
    
    
    0
    
    
    
    195
    
    
    
    10,847Stephen P. Noe, Group Vice
    
    
    2004
    
    
    
    222,162
    
    
    
    114,000
    
    
    
    0
    
    
    
    23,137
    (e)President and General
    
    
    2003
    
    
    
    181,100
    
    
    
    62,000
    
    
    
    0
    
    
    
    18,134Manager, Image Transfer
    
    
    2002
    
    
    
    175,000
    
    
    
    20,000
    
    
    
    300
    
    
    
    14,066
  (a)
    Represents company contributions to the Day 401(k) and Profit Sharing Plan ($13,900),
company contributions to the Day International, Inc. Supplemental Savings and Retirement Plan
($14,385), premiums for group term life insurance ($2,890), investment advisory services
($8,971) and automobile allowance ($6,590).(b)
    Represents company contributions to the Day 401(k) and Profit Sharing Plan ($10,664), company
contributions to the Day International, Inc. Supplemental Savings and Retirement Plan
($1,767), premiums for group term life insurance ($605) and automobile allowance ($3,088).(c)
    Represents company contributions to an UK benefit plan ($46,283) and automobile allowance
($17,721).(d)
    Represents company contributions to the Day 401(k) and Profit Sharing Plan ($12,316), company
contributions to the Day International, Inc. Supplemental Savings and Retirement Plan ($327),
premiums for group term life insurance ($240) and automobile allowance ($4,466). 62




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(e)
    Represents company contributions to the Day 401(k) and Profit Sharing Plan ($13,761), company
contributions to the Day International, Inc. Supplemental Savings and Retirement Plan
($2,952), premiums for group term life insurance ($515) and automobile allowance ($5,909). FY-End Option/SAR Values Numberof Securities
    
    
    Value ofUnderlying
    
    
    UnexercisedUnexercised
    
    
    In-the-MoneyOptions/SARs
    
    
    Options/SARsat FY-End(#)
    
    
    at FY-End($)Exercisable/
    
    
    Exercisable/Unexer-
    
    
    Unexer-Name
    
    cisable
    
    
    cisable(1)Dennis R. Wolters
    
    
    1,650/
    
    
    $
    3,636,000/2,600
    
    
    $
    0David B. Freimuth
    
    
    434/
    
    
    $
    939,309/731
    
    
    $
    0Dermot J. Healy
    
    
    253/
    
    
    $
    606,000/322
    
    
    $
    0Thomas J. Koenig
    
    
    69/
    
    
    $
    0/186
    
    
    $
    0Stephen P. Noe
    
    
    100/
    
    
    $
    0/200
    
    
    $
    0
  (1)
    Based upon estimated fair market value of the shares less the exercise price. Employment Agreements Each of Messrs. Wolters and Freimuth is a party to an employment agreement with the Company,
subject to annual renewals unless notice of non-renewal is given. Under the employment agreements,
each of Messrs. Wolters and Freimuth receives annual base salaries of $200,000 and $105,000
(subject to increase by the Board of Directors), and an incentive bonus at 100% of plan target in
an amount equal to at least $200,000 and $55,000. The agreements also contain certain
non-competition and non-solicitation provisions. Subject to certain exceptions, in the event that
the executive is actually or constructively terminated under the employment agreement by the
Company without cause, each employment agreement provides that the executive is entitled to receive
the following compensation: (i) accrued salary, (ii) pro-rata incentive bonus for the year of
termination, assuming that 100% of the annual plan target was met, (iii) a lump sum equal to one
times base salary and annual incentive bonus target and (iv) continuation of benefits and
perquisites for one year following termination. 63




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Compensation Committee Interlocks Since the Company does not have a compensation committee, the Board of Directors determines
executive compensation. Mr. Ferguson serves on the Advisory Board of GSC Partners. Mr. Kaufman is a
Managing Director of GSC Partners. Mr. Raygorodetsky is a Vice President of GSC Partners. Mr.
Crosetto is a Managing Director of GSC Partners. Mr. White is a Director of SG Capital Partners LLC
(SGCP). GSC Partners and SGCP, the Companys controlling shareholders, provide business,
financial and management advisory services to the Company for an annual total fee of $1.0 million,
plus expenses. The Company also indemnifies GSC Partners and SGCP from and against certain
liabilities. Mr. Moszkowski is a Managing Director with Soros Private Equity Partners (SPEP).
SPEP and its affiliates are the majority shareholders of the Companys Convertible Cumulative
Preferred Stock. The Company also indemnifies SPEP from and against certain liabilities. Mr.
Wolters is the President and Chief Executive Officer of the Company. No other officers of the
Company participated in Board deliberations regarding executive compensation in 2004. 64




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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS Equity Compensation Plan Information Number ofsecuritiesremainingavailable forNumber of
    
    
    
    
    
    
    future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensationexercise of
    
    
    exercise price of
    
    
    plans (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected inand rights
    
    
    and rights
    
    
    column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security holders
    
    
    
    
    
    $
    
    
    
    
    Equity compensation plans not approved by security holders (1)
    
    
    10,387
    
    
    
    3,240
    
    
    
    448Total
    
    
    10,387
    
    
    $
    3,240
    
    
    
    448
 (1) These plans consist of the Day Stock Option Plan, the 1998 Stock Option Plan and warrants
issued to individual directors as compensation for services performed. These plans were approved by
shareholders holding a majority of the Class A Voting Common Stock through their representation on
the Board of Directors. See Note L to the Consolidated Financial Statements for detailed
descriptions of these plans. Security Ownership The following table sets forth certain information regarding the beneficial ownership of the
Companys Common Stock, including options to acquire Common Stock, by (i) each person (or group of
affiliated persons) known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each Director, (iii) the Companys Chief Executive Officer and the
Companys other named executive officers (as determined in accordance with the rules of the
Commission), and (iv) all of the Companys executive officers and Directors as a group. Except as
indicated in the footnotes to this table, the Company believes that the persons named in this table
have sole voting and investment power with respect to all the shares of stock indicated. 65




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No. of Sharesof Stock
    
    
    % ofName of Beneficial Owner
    
    (a)(b)
    
    
    StockCommon Stock:Dennis R. Wolters
    
    
    1,950
    
    
    
    7.1David B. Freimuth
    
    
    534
    
    
    
    1.9Dermot J. Healy
    
    
    253
    
    
    
    0.9Thomas J. Koenig
    
    
    69
    
    
    
    0.3Stephen P. Noe
    
    
    100
    
    
    
    0.4Sean W. Brophy
    
    
    
    
    
    
    Carl J. Crosetto (c)
    
    
    74
    
    
    
    0.3William C. Ferguson
    
    
    148
    
    
    
    0.5Matthew C. Kaufman (c)
    
    
    
    
    
    
    Neal Moszkowski
    
    
    
    
    
    
    Philip Raygorodetsky (c)
    
    
    
    
    
    
    Christopher A. White (d)
    
    
    
    
    
    
    All Directors and Executive Officers as a Group (14 persons)
    
    
    3,308.5
    
    
    
    .0SG Capital Partners LLC (d)
    
    
    3,777.5
    
    
    
    13.721 Avenue
of the Americas
New York, NY 110020Greenwich IV, LLC (c)
    
    
    18,9
    
    
    
    68.8GSC Partners  E. 49th,
Suite 3200
New York, NY 1001712 1/4% Senior Exchangeable Preferred Stock:GSC Recovery II, L.P. (e)
    
    
    20,206
    
    
    
    31.618% Convertible Cumulative Preferred Stock:SG Capital Partners LLC (d)
    
    
    2,248
    
    
    
    5.8GSC Partners (f)
    
    
    11,252
    
    
    
    29.2Quantum Industrial Partners LDC (g)
    
    
    24,625
    
    
    
    64.01221 Avenue
of the AmericasNew York, NY 10020
  (a)
    Beneficial ownership is determined in accordance with the rules of the Commission and
includes general voting power and/or investment power with respect to securities. The table
includes shares of Common Stock subject to options and warrants currently exercisable or
exercisable within 60 days of the date of this report. As of the date of this report, the
number of such shares is 4,206.5. Exercisable options included in the number of shares above
include 1,650 shares for Mr. Wolters, 434 shares for Mr. Freimuth, 253 shares for Mr. Healy,
69 shares for Mr. Koenig, 100 shares for Mr. Noe and 2,868.5 shares for all directors and
executive officers as a group. The shares listed for Mr. Crosetto and Mr. Ferguson represent
vested warrants to purchase shares of Common Stock.(b)
    SGCP owns shares of Class B Non-Voting Common Stock. All other shares are shares of Class A
Voting Common Stock.(c)
    Greenwich IV, LLC is an affiliate of GSC Partners. Messrs. Crosetto, Kaufman and
Raygorodetsky may be deemed to have indirect beneficial ownership of the 18,912 shares of
Common Stock beneficially owned by Greenwich IV, LLC by virtue of their affiliation with GSC
Partners. Each of Messrs. Crosetto, Kaufman and Raygorodetsky disclaim any such beneficial
ownership. 66




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(d)
    Mr. White may be deemed to have indirect beneficial ownership of the 3,777.5 shares of Common
Stock and the 2,248 shares of 18% Convertible Cumulative Preferred Stock beneficially owned by
SG Capital Partners LLC by virtue of his affiliation with SG Capital Partners LLC. Mr. White
disclaims any such beneficial ownership.(e)
    GSC Recovery II, L.P. is an affiliate of GSC Partners. Messrs.
Crosetto, Kaufman and Raygorodetsky may be deemed to have indirect beneficial ownership of the
20,206 shares of Senior Exchangeable Preferred Stock Beneficially owned by GSC Recovery II, L.P. by virtue of their affiliation with GSC
Partners. Each of Messrs. Crosetto, Kaufman and Raygorodetsky disclaim any such beneficial
ownership. The Senior Exchangeable Preferred Stock has no voting rights other than the right to
elect two directors as long as dividends are in arrears and unpaid for four consecutive
quarterly periods.(f)
    Various affiliates of GSC Partners beneficially own 11,252 shares of 18% Convertible
Cumulative Preferred Stock. Messrs. Crosetto, Kaufman and Raygorodetsky may be deemed to have
indirect beneficial ownership of the 11,252 shares of 18% Convertible Cumulative Preferred
Stock by virtue of their affiliation with GSC Partners. Each of Messrs. Crosetto, Kaufman and
Raygorodetsky disclaim any such beneficial ownership.(g)
    Quantum Industrial Partners LDC is an affiliate of Soros Private Equity Partners (SPEP).
Mr. Moszkowski may be deemed to have indirect beneficial ownership of the 24,625 shares of 18%
Convertible Cumulative Preferred Stock beneficially owned by Quantum Industrial Partners LDC
by virtue of his affiliation with SPEP. Mr. Moszkowski disclaims any such beneficial
ownership. Stockholders Agreement The Stockholders Agreement provides for the number of directors of the Board of Directors of the
Company to be such number as designated by GSC Partners and for the composition of the Board of
Directors of the Company to consist of four individuals designated by GSC Partners and, for so long
as SGCP holds 5% of the outstanding Common Stock, one individual designated by SGCP. In the Stockholders Agreement, the Management Stockholders have agreed, except under certain
circumstances, not to transfer shares of Common Stock, or options to acquire Common Stock, prior to
the later to occur of (i) the fifth anniversary of the date of the Stockholders Agreement and (ii)
the consummation of a public offering. In addition, under the Stockholders Agreement, if a
Management Stockholders employment is terminated, the Company shall have the right to purchase all
or part of the shares of the Common Stock owned by such Management Stockholder and the vested
options to acquire Common Stock owned by such Management Stockholder, at prices calculated in
accordance with, and subject to certain other terms and conditions set forth in, the terms of the
Stockholders Agreement. The Stockholders Agreement creates certain conventional drag and tag rights with respect to the
shares of the Common Stock owned by the Management Stockholders. The Stockholders Agreement also
provides that at any time after the Acquisition Closing Date, GSC Partners shall have the right to
require 67




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the Company to effect up to two registrations of their Common Stock on Form S-1 under the
Securities Act and, if available, unlimited registrations on Form S-2 or S-3 under the Securities
Act; from and after a public offering, SGCP shall have the right to require the Company to effect
up to two registrations of the Common Stock on Form S-3 under the Securities Act and that the
Company shall pay all registration expenses in connection with each registration of shares of the
Common Stock pursuant to the Stockholders Agreement. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has engaged GSC Partners and SGCP, pursuant to the Management Agreement, to provide it
with certain business, financial and managerial advisory services, including developing and
implementing corporate and business strategy and providing other consulting and advisory services.
The Management Agreement provides for an annual fee of $1.0 million and contains indemnification
and expense reimbursement provisions that are customary for management agreements of this type. The
Management Agreement will continue in full force and effect, and shall terminate upon, the earlier
to occur of (i) January 18, 2008, and (ii) the date on which the affiliates of GSC Partners no
longer, directly or indirectly, own any shares of capital stock of the Company, and may be earlier
terminated by GSC Partners, in its sole discretion. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees The following table presents fees for professional services rendered by Ernst & Young LLP for the
years ended December 31, 2004 and 2003. 2004
    
    
    2003Audit fees
    
    $
    423
    
    
    $
    347Audit-related fees
    
    
    30
    
    
    
    51Tax fees
    
    
    346
    
    
    
    217Total
    
    $
    799
    
    
    $
    615
  Audit fees consist of fees billed or agreed to be billed for services related to the audit of the
Companys consolidated annual financial statements and reviews of the interim consolidated
financial statements and services that are normally provided by Ernst & Young LLP in connection
with statutory and regulatory filings.Audit-related fees consist of fees billed for assurance and related services that are reasonably
related to the performance of the audit and not reported under Audit fees. This category includes
services related to audits of employee benefit plans and consultations in connection with
acquisitions.Tax fees consist of fees billed or agreed to be billed for services rendered for tax compliance,
tax advice and tax planning. These services include assistance regarding federal, state and
international tax compliance, acquisitions and international tax planning. 68




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Policy on Pre-Approval of Services of the Independent Auditor The Board of Directors policy is to pre-approve all audit and non-audit services provided by the
independent auditors. These services may include audit services, audit-related services, tax
services and other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services. The Board has
delegated pre-approval authority to the Chief Executive Officer for de minimis services when
expedition of services is necessary, with follow-up with the Board of Directors at their next
meeting. The independent auditors and management are required to periodically report to the full
Board of Directors regarding the extent of services provided by the independent auditors. 
 Part IV 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The following consolidated financial statements of the Company and its subsidiaries are
incorporated by reference as part of this Report at Item 8 hereof. Day International Group, Inc.Years ended December 31, 2004, 2003 and 2002:Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Stockholders Equity (Deficit)Consolidated Statements of Cash FlowsNotes to Consolidated Financial Statements
 (a)(2) Financial Statement Schedules The information required to be submitted in the Financial Statement
Schedules for Day International Group, Inc. and consolidated
subsidiaries has either been shown in the financial statements or
notes, or is not applicable or required under Regulation S-X;
therefore, those schedules have been omitted. (b) Exhibits See Index to Exhibits 69




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Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Day
International Group, Inc. has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized. Day International Group, Inc.(Registrant)Date: March 24, 2005
    
    By:
    
    /s/ Dennis R WoltersDennis R. WoltersPresident and Chief Executive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of Day International Group, Inc. and in the capacities and
on the dates indicated. Date: March 24, 2005
    
    By:
    
    /s/ Dennis R WoltersDennis R. WoltersPresident, Chief Executive Officer andDirector (Principal Executive Officer)Date: March 24, 2005
    
    By:
    
    /s/ Thomas J. KoenigThomas J. KoenigVice President and Chief Financial Officer(Principal Financial Officer and PrincipalAccounting Officer)Date: March 24, 2005
    
    By:
    
    /s/ William C. FergusonWilliam C. FergusonDirectorDate: March 24, 2005
    
    By:
    
    /s/ Sean W. BrophySean W. BrophyDirector
 70




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##### Table of Contents



Date: March 24, 2005
    
    By:
    
    /s/ Carl J. CrosettoCarl J. CrosettoDirectorDate: March 24, 2005
    
    By:
    
    /s/ Matthew C. KaufmanMatthew C. KaufmanDirectorDate: March 24, 2005
    
    By:
    
    /s/ Neal MoszkowskiNeal MoszkowskiDirectorDate: March 24, 2005
    
    By:
    
    /s/ Philip RaygorodetskyPhilip RaygorodetskyDirectorDate: March 24, 2005
    
    By:
    
    /s/ Christopher A. WhiteChristopher A. WhiteDirector
 71




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INDEX TO EXHIBITS (1) Underwriting Agreements  1.1
    Purchase Agreement, dated as of March 13, 1998 between the Company and Societe
Generale Securities Corporation (incorporated by reference to Exhibit 1.1 to the
Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No.
333-51839)) (3) Articles of Incorporation and By-Laws  3.1
    Certificate of Incorporation of Day International Group, Inc. (Group), as
amended (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for
the year ended December 31, 2003)3.2
    By-Laws of Group, as amended (incorporated by reference to Exhibit 3.2 to the
Annual Report on Form 10-K for the year ended December 31, 2003) (4) Instruments Defining Rights of Security Holders, including Indentures  4.1
    Indenture (the Subordinated Indenture) dated as of March 18, 1998, among Day
International Group, Inc., Day International, Inc. and the Bank of New York
(incorporated by reference to Exhibit 4.3.1 to the Amendment No. 1 to Registration
Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))4.2
    Supplemental Indenture, dated as of October 19, 1999 among The Bank of New York
and the several Guarantors party thereto (incorporated by reference to Exhibit 4.2 to
the Form 8-K dated October 28, 1999)4.3
    Form of Global Notes (incorporated by reference to Exhibit 4.3.2 to the
Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No.
333-51839))4.4
    Registration Rights Agreement, dated as of March 18, 1998, by and between the
Company and Societe Generale Securities Corporation (incorporated by reference to
Exhibit 4.4 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May
8, 1998 (Reg. No. 333-51839))4.5
    Certificate of Designation, dated March 18, 1998, of Powers, Preferences and
Relative, Participating, Optional and other Special Rights of 12 1/4% Senior
Exchangeable Preferred Stock due 2010 and Qualifications, Limitations and Restrictions
thereof (the Exchangeable Preferred Stock) (incorporated by reference to Exhibit
4.5.1 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8,
1998 (Reg. No. 333-51839))4.6
    Form of Global Certificate for the Exchangeable Preferred Stock (incorporated
by reference to Exhibit 4.5.2 to the Amendment No. 1 to Registration Statement on Form
S-4/A filed on May 8, 1998 (Reg. No. 333-51839))4.7
    Exchange Debenture Indenture, dated as of March 18, 1998, among Day
International Group, Inc., Day International, Inc. and the Bank of New York as Trustee
(incorporated by reference to Exhibit 4.6 to the Amendment No. 1 to Registration
Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))4.8
    Certificate of Designation for the Companys 18% Convertible Cumulative
Preference 72




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Stock due 2010, filed with the Secretary of State of the State of Delaware on October
15, 1999 (incorporated by reference to Exhibit 4.1 to the Form 8-K dated October 28,
1999)4.9
    Preference Stock Purchase Agreement, dated as of October 19, 1999, among the
Company and the several Investors party thereto (incorporated by reference to Exhibit
4.4 to the Form 8-K dated October 28, 1999)4.10
    Amended and Restated Stockholders Agreement, dated as of October 19, 1999,
among the Company and certain of its stockholders (incorporated by reference to Exhibit
4.5 to the Form 8-K dated October 28, 1999) (10) Material Contracts  10.1
    Second Amended and Restated Senior Secured Credit Agreement, dated as of
September 16, 2003, among the Company, Lehman Commercial Paper Inc., as administrative
agent, and others (incorporated by reference to Exhibit 10.1 to the Form 8-K dated
September 22, 2003); as amended November 24, 2003 (incorporated by reference to Exhibit
10.1 to the Form 8-K dated December 4, 2003); as further amended June 2, 2004
(incorporated by reference to Exhibit 10.1 to the Form 8-K dated June 4, 2004)10.2
    Second Amended and Restated Guarantee and Collateral Agreement, dated as of
September 16, 2003, made by the Company in favor of Lehman Commercial Paper Inc., as
administrative agent, for the benefit of the Lenders under the Senior Secured Credit
Agreement (incorporated by reference to Exhibit 10.2 to the Form 8-K dated September
22, 2003)10.3
    Second Amended and Restated Patent and Trademark Security Agreement, dated as
of September 16, 2003, made by the Company in favor of Lehman Commercial Paper Inc., as
administrative agent, for the benefit of the Lenders under the Senior Secured Credit
Agreement (incorporated by reference to Exhibit 10.3 to the Form 8-K dated September
22, 2003)10.4
    Deed of Trust, dated January 15, 1998, with respect to the North Carolina
property (incorporated by reference to Exhibit 4.12 to the Amendment No. 1 to
Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839)); as
amended October 19, 1999 (incorporated by reference to Exhibit 10.6.1 to the Form 8-K
dated September 22, 2003); as further amended June 29, 2001 (incorporated by reference
to Exhibit 10.6.2 to the Form 8-K dated September 22, 2003); and as modified September
16, 2003 (incorporated by reference to Exhibit 10.6.3 to the Form 8-K dated September
22, 2003)10.5
    Mortgage and Security Agreement Dated January 16, 1998, with respect to the
Michigan Property (incorporated by reference to Exhibit 4.13 to the Amendment No. 1 to
Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839)); as
amended October 19, 1999 (incorporated by reference to Exhibit 10.7.1 to the Form 8-K
dated September 22, 2003); as further amended June 29, 2001 (incorporated by reference
to Exhibit 10.7.2 to the Form 8-K dated September 22, 2003); and as modified September
16, 2003 (incorporated by reference to Exhibit 10.7.3 to the Form 8-K dated September
22, 2003)10.6
    Mortgage Agreement, dated October 19, 1999, with respect to the South Carolina
property (incorporated by reference to Exhibit 10.5.1 to the Form 8-K dated September
22, 2003); as amended June 29, 2001 (incorporated by reference to Exhibit 10.5.2 to the
Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated 73




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by reference to Exhibit 10.5.3 to the Form 8-K dated September 22, 2003)10.7
    Deed of Trust, dated October 19, 1999, with respect to the Texas property
(incorporated by reference to Exhibit 10.8.1 to the Form 8-K dated September 22, 2003);
as modified September 16, 2003 (incorporated by reference to Exhibit 10.8.2 to the Form
8-K dated September 22, 2003)10.8
    Mortgage Agreement, dated October 19, 1999, with respect to the Illinois
property (incorporated by reference to Exhibit 10.9.1 to the Form 8-K dated September
22, 2003); as amended June 29, 2001 (incorporated by reference to Exhibit 10.9.2 to the
Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated by
reference to Exhibit 10.9.3 to the Form 8-K dated September 22, 2003)10.9
    Stock Purchase Agreement, dated as of December 18, 1997, by and among Greenwich
IV, LLC, GSD Acquisition Corp. and the Stockholders of Day International Group, Inc.
parties thereto (incorporated by reference to Exhibit 2.1 to the Form 8-K dated January
16, 1998); as amended on January 16, 1998 (incorporated by reference to Exhibit 2.2 to
the Form 8-K dated January 16, 1998)10.10*
    Consulting Agreement between the Company and GSC Partners (incorporated by reference
to Exhibit 10.5.1 to the Amendment No. 2 to Registration Statement on Form S-4/A filed
on June 22, 1998 (Reg. No. 333-51839))10.11*
    Indemnification Agreement between the Company and GSC Partners (incorporated by
reference to Exhibit 10.5.2 to the Amendment No. 2 to Registration Statement on Form
S-4/A filed on June 22, 1998 (Reg. No. 333-51839))10.12*
    Consulting Agreement between the Company and SG Capital Partners Limited
(incorporated by reference to Exhibit 10.5.3 to the Amendment No. 2 to Registration
Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))10.13*
    Indemnification Agreement between the Company and SG Capital Partners Limited
(incorporated by reference to Exhibit 10.5.4 to the Amendment No. 2 to Registration
Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))10.14
    Purchase Agreement between Armstrong World Industries, Inc. and Armstrong
World Industries GmbH, as Sellers and Day International, Inc., as Buyer (incorporated
by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 199910.15*
    Stock warrant to purchase shares of Common Stock of the Company, dated as of January
18, 1998, issued to Mr. William C. Ferguson (incorporated by reference to Exhibit 10.30
to the Annual Report on Form 10-K for the year ended December 31, 1998)10.16*
    Stock warrant to purchase shares of Common Stock of the Company, dated as of January
27, 2000, issued to Mr. William C. Ferguson (incorporated by reference to Exhibit 10.37
to the Annual Report on Form 10-K for the year ended December 31, 2000)10.17*
    Stock warrant to purchase shares of Common Stock of the Company, dated as of January
18, 2000, issued to Mr. Carl J. Crosetto (incorporated by reference to Exhibit 10.38 to
the Annual Report on Form 10-K for the year ended December 31, 2000) 74




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##### Table of Contents



10.18*
    Employment Agreement, dated January 16, 1998, between the Guarantor and Mr. Dennis R.
Wolters (incorporated by reference to Exhibit 10.4 to the Amendment No. 1 to
Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))10.19*
    Employment Agreement, dated January 16, 1998, between Day International, Inc. and Mr.
David B. Freimuth (incorporated by reference to Exhibit 10.5 to the Amendment No. 1 to
Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))10.20*
    Day International Group, Inc. Stock Option Plan, dated as of July 6, 1995
(incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K for the
period ended December 31, 1995); as amended on September 19, 1996 (incorporated by
reference to Exhibit 10.17 to the Annual Report on Form 10-K for the year ended
December 31, 1996); and as further amended on January 16, 1998 (incorporated by
reference to Exhibit 10.2.3 to the Amendment No. 1 to Registration Statement on Form
S-4/A filed on May 8, 1998 (Reg. No. 333-51839))10.21*
    Day International, Inc. Supplemental Savings and Retirement Plan, dated as of March
1, 2001 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001) (21) Subsidiaries of the Registrant (31) Rule 13a-14(a)/15d-14(a) Certifications  31.1
    Chief Executive Officer Certification31.2
    Chief Financial Officer Certification (32) Section 1350 Certifications  32.1
    Chief Executive Officer Certification32.2
    Chief Financial Officer Certification * - Management contract or compensatory plan or arrangement 75