<PAGE>
                                  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, 2001

                   COMMISSION FILE NOS. 33-93644 AND 333-51839

                          DAY INTERNATIONAL GROUP, INC.
                             130 West Second Street
                               Dayton, Ohio 45402
                                 (937) 224-4000

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 |X| No | |

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. |X|

At the close of business on March 1, 2002:
      Number of shares of common stock outstanding                     23,298
      Aggregate market value of the Company's voting and non-voting
      common stock held by non-affiliates                             $     0

DOCUMENTS INCORPORATED BY REFERENCE - None
<PAGE>

Except as otherwise stated or unless the context otherwise requires, references
to the "Company" include Day International Group, Inc., a Delaware corporation
which 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.

Except as otherwise stated, the information contained in this report is given as
of December 31, 2001, 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 foreign countries,
including the translation of operating results to the U.S. dollar; (iii) the
timely development and market acceptance of new products; (v) the impact of
competitive products and pricing; (v) the effect of changing general and
industry specific economic conditions; (vi) the impact 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.

                                     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 industry. The Company consists of two
segments: the Image Transfer segment and the Textile Products segment. In 2001
the Company


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combined its former Image Transfer and Varn segments into one business segment.
This was accomplished to focus the senior management of the two separate product
lines on the realization of synergies. The Image Transfer segment consists of
the Transfer Media division and the Pressroom Chemicals 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. The
Company estimates that in 2001 it had the number one market share in
offset-printing blankets and sleeves in North America and worldwide. The Company
is one of the world's largest manufacturers and marketers of sleeves for use in
flexographic printing. The Pressroom Chemicals 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
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 textile yarn spinners 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.

Effective December 31, 1998, the Company acquired Rotec Hulsensysteme GmbH
("Rotec"). Rotec is a world leader in sleeve technology, producing a wide array
of sleeves and rollers used in the flexographic printing process.

On September 30, 1999, the Company acquired the textile products operations of
Armstrong World Industries, Inc. ("TPO"). TPO is a leading manufacturer and
marketer of high-end precision engineered rubber cots and aprons sold to textile
yarn spinners worldwide and was a major competitor of Day's textile division.

On October 19, 1999, the Company acquired Varn International ("Varn" or
"Pressroom Chemicals"). Varn manufactures pressroom chemicals and dampening
systems for the printing industry.

See the Notes to the Consolidated Financial Statements for more information on
business segments.

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, two other 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 will be able to effectively develop products for
these technologies or to maintain its market leadership if such processes
replace offset printing to any significant extent. The Company is developing
blankets, sleeves


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and belts for these new printing machine technologies in conjunction with the
companies working on the printing machine technologies. Due to the large number
of offset printing presses installed in the United States, management expects
that the offset process will continue to be the method of choice for
high-quality, low-cost, long runs, and the majority of the sales of Image
Transfer are generated by products designed for use in offset printing.

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.

Pressroom Chemicals

Pressroom Chemicals manufactures two categories of pressroom products: pressroom
chemicals and dampening systems. Pressroom Chemicals 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; and (v) silicones, which are used in heatset web offset to provide
support in certain printing processes. Pressroom Chemicals' products can be
grouped into standard and custom products. Product lines are formulated to meet
regional requirements. For example, high volume printing operations, such as
major daily newspapers and commercial heatset web, often require custom fountain
solutions.

Products

The Company offers 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 "Freedom" brands. 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(R), 4000
dayGraphica(R), 3000 Patriot(R), 3610 dayGraphica(R), 8500 AccuDot(R),
QuantaLith(R) Gold and QuantaLith(R) Blue lines, which


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produce high-quality images, particularly on high-speed printing presses. The
Freedom brand was introduced in 2001 to address the group of customers who were
looking for an economically priced product where quality was a secondary
consideration. In addition to its traditional line of printing blankets, the
Company is one of four global licensees to manufacture tubular, seamless
printing sleeves for use on Heidelberg Web Press, Inc.'s "gapless" webpresses.

During the latter part of 2001, the Company began producing consumable products
for digital printing presses. Sales of these products are expected to grow over
the next couple of years as digital printing presses are sold that utilize these
products. The Company is also evaluating the production of other prototypes for
new short-run color printing processes.

Transfer Media also 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 flexo 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.

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.

Pressroom Chemicals has developed products that speed wash-up, color changes and
blanket and roller maintenance; all 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. Pressroom
Chemicals makes over 25 washes, grouped into five different categories: premium,
environmental, general purpose, fast drying and specialty. Pressroom Chemicals
is a market leader in the area of environmental washes, which constitutes an
important subcategory of Pressroom Chemicals' overall roller and blanket washes
business.

Pressroom Chemicals 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. Pressroom Chemicals' R&D laboratories have
created a line of alcohol-free fountain solutions formulated to eliminate the
use of isopropyl alcohol from the process thus improving the pressroom
environment.

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. Pressroom Chemicals 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.


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Silicones are used in heatset web offset printing to provide slip to the sheet
as it passes over the former board. Pressroom Chemicals offers an extensive line
of conventional silicones, as well as new technology silicones.

Pressroom Chemicals also manufactures the patented Kompac Dampening System and
other mechanical devices for offset printing presses. Pressroom Chemicals
manufactures six different Kompac Dampening Systems models to fit more than 8
different presses, both for new and retrofit applications. Kompac Dampening
Systems consume other products manufactured by Pressroom Chemicals, such as
fountain solutions.

Sales and Distribution

Image Transfer has adopted an integrated approach to product development,
marketing, sales and distribution. Sales professionals in the United States have
strong customer relationships and superior technical expertise. The
international sales force includes sales professionals in Australia, Canada,
France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, Russia, Scandinavia,
South Africa and the United Kingdom.

Image Transfer's sales force calls directly on all of the leading end-users in
their markets 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 though authorized converters or dealers. Image
Transfer distributes a majority of its products through a large network of
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. The
sales force works closely with converters and dealers, through joint calling
efforts on end-users and training programs. In addition, the sales and technical
associates work directly with large end-users to identify the printing blankets
and sleeves that best suit that printer's particular needs and formulate
solutions to complex printing problems. Sales made to Network Distribution
International, Inc. ("NDI"), a major U.S. converter, accounted for approximately
10% of total net sales in 2001, 12% in 2000 and 11% in 1999. The Company's sales
to NDI are not governed by a written contract between the parties. In the event
that NDI was to significantly reduce or terminate its purchases of blankets and
sleeves from the Company, the Company's financial condition or results of
operations could be adversely affected. The Company has not received any
indication that NDI intends to discontinue or otherwise substantially reduce its
relationship with the Company.

TEXTILE PRODUCTS

The Textile Products segment manufactures highly engineered rubber rollers,
known as cots, and flexible belts, known as aprons, for utilization in yarn
spinning machinery. Industry reports characterize the United States as the most
technologically advanced producer of textile products in the world. As a result
of continuing technological improvements in automated high-speed spinning
frames, customers are demanding cots and aprons of higher quality and greater
flexibility to meet their specialized needs and are willing to pay a premium for
cots and aprons that meet these standards. The Company is known as a leader


                                       6
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in technological innovation and quality and has the broadest line of cots and
aprons and related products of any domestic manufacturer.

Products

With the broadest line of cots and aprons of any domestic manufacturer, the
Company offers its customers both general purpose and specialty cots and aprons
recognized in the marketplace under the DAYtex(R) and Accotex(R) 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, carpet cots 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 textile 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 high-speed ring and air-jet spinning markets. Products such as
aluminum-lined cots provide improved rigidity and tolerance and have been widely
accepted in the marketplace. Although fewer cots are used on these machines, the
cots that are used are replaced more frequently, are more technologically
advanced, are environmentally friendly and command higher prices compared to
traditional ring spinning cots.

Other products and services include ribbons, cot installation presses, various
other accessories and reconditioning services.

Textile Products' product development has allowed the Company to diversify into
new markets. The Company has developed specialty lines of aprons including
glass-forming aprons, which are used to make glass fiber from liquid glass, and
texturizing aprons, which are used to finish certain types of synthetic
filaments. Textile Products also makes bolsters and rubber shrinkage blankets
for use in pre-shrinking processes, such as those used for denim, as well as
rubber-covered industrial rollers for textile and other industrial applications.
In addition, the Company also sells custom rubber compounds to several wire
coaters in Europe.

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 markets its products directly
to end-users, primarily textile mills, and OEMs.


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<PAGE>

RAW MATERIALS

Rubber polymers are a key component in most of the products of Transfer Media
and Textile Products. Various fabrics and rubber represented approximately 30%
of all raw materials purchased in each of 2001, 2000 and 1999. Raw material
purchases accounted for approximately 50% of cost of goods sold for the
Company's products during the same period. The Pressroom Chemicals 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 Pressroom Chemicals is petroleum distillates,
such as aliphatics and aromatics.

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 & 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 OEM companies may stimulate proprietary
processes and additional patent applications.

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. While the Company competes with a number of
manufacturers of offset printing blankets and sleeves, the principal competitors
of Transfer Media are Reeves International, Inc. ("Reeves") and Polyfibron
Technologies, Inc. ("Polyfibron"), a subsidiary of MacDermid. Pressroom
Chemicals competes with a number of manufacturers of pressroom chemicals. The
principle competitors are Anchor Chemical, Rycoline and PRISCO. Accel Graphics,
a division of Parmarco, is the only main competitor to the Kompac line.

In Textile Products, the Company competes with manufacturers such as Premtec,
Inc., Hokushin Corporation, Yamauchi and Berkol AG (Switzerland).

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.


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<PAGE>

INTERNATIONAL OPERATIONS

The Company's principal international manufacturing facilities are located in
Dundee, Scotland (Transfer Media), Ahaus-Ottenstein, Germany (Transfer Media),
Manchester, England (Pressroom Chemicals) and Munster, Germany (Textile
Products). In addition, the Company maintains sales and distribution facilities
in England, France, Germany, Hong Kong, Italy, South Africa, Russia, Malaysia,
Canada, Mexico, China and Australia.

The Company manufactures and markets its products worldwide through several
foreign 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 47% of the Company's 2001 sales were derived from products sold
outside the United States. This has increased from 43% in 2000 and 1999. 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 such foreign exchange movements.

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, except as otherwise stated herein, 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.

New rules to be promulgated under the 1990 amendments to the Federal Clean Air
Act governing emissions of hazardous air pollutants may require implementation
of additional air emission control measures at the Company's U.S. facilities.
The applicable requirements are scheduled to be issued in May


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2002. These rules will require certain modifications to the plant facilities
over the next three years that will total approximately $2.0 million for U.S.
operations. The Company installed certain equipment from 1998 through 2001 to
mitigate future spending requirements resulting from the Clean Air Act.

Cadillac Plastics Group, Inc ("CPG"), the former parent of the Company, and now
known as M.A. Hanna Plastic Group, Inc., and a former subsidiary of M.A. Hanna
Company (now PolyOne Corporation), is a party to a July 25, 1988, Consent Decree
with the Michigan Department of Environmental Quality ("MDEQ") with regard to
contamination at the Company's Three Rivers, Michigan, facility. CPG installed a
groundwater remediation system at the facility in 1989, and was required to
operate such system until certain cleanup levels were achieved. On November 17,
1999, MDEQ approved a study to determine if further degradation of contaminates
will occur if pumping is discontinued and the acquifer returns to an anaerobic
condition. Operations of the groundwater remediation system were suspended on
December 6, 1999, with the approval of MDEQ. Analyses of the study completed in
early 2001 as well as more recent groundwater-monitoring data show that
remaining contamination in groundwater is stable (no significant increases in
concentration). The parties involved continue to monitor groundwater, and are
proceeding with a "natural attenuation" closure program that will consist of
continued groundwater testing and "institutional controls." This new program is
being performed under a December 3, 2001, commitment letter submitted to MDEQ by
M.A. Hanna Plastic Group Inc. As of December 31, 2001, the Company had recorded
accruals of approximately $362,000 to reflect future costs associated with this
cleanup and, based on the reports of its independent consultants, the Company
believes that such accruals are adequate. CPG has indemnified the Company for
such costs and the Company expects to be reimbursed after amounts are expended.
At December 31, 2001, a $359,000 indemnification receivable is recorded.

As a result of the disposal of hazardous substances prior to the acquisition of
the Company by American Industrial Partners in June 1995, CPG was named a
"potentially responsible party" pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") and/or similar state laws at
certain waste disposal sites. CPG or the Company has entered into consent
decrees at most of these sites, subject to standard reopener provisions. The
Company expects that no significant expenditures will be made by the Company
with respect to these matters. CPG has agreed to retain ongoing responsibility
for and indemnify the Company with respect to these waste disposal locations.
However, because liability under CERCLA is retroactive, the Company may receive
notices of potential CERCLA liability in the future, and such liability could be
material.

Subject to certain limitations, PolyOne and CPG have agreed to indemnify the
Company for certain other environmental compliance and liability issues
associated with the Company's business, including certain liabilities associated
with an underground toluene tank at the Lerma, Mexico, facility. If PolyOne and
CPG are unable to honor their indemnification obligations, the Company would
likely be responsible for such matters and the cost of addressing such matters
could be material. The Company has not historically maintained insurance
coverage for environmental matters, but began purchasing insurance coverage in
2000 for environmental matters at the Pressroom Chemicals manufacturing
locations and in 2001 for its other manufacturing locations.


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<PAGE>

ASSOCIATES

The Company currently employs approximately 1,350 full-time associates
worldwide, of which approximately 700 are employed in the United States and
Canada. The Company's associates in Dundee, Scotland, and Munster, Germany are
represented by labor unions. In 2001, the labor union in Dundee renewed its
collective bargaining agreement with the Company. The new agreement now expires
on December 31, 2003. The labor union in Munster 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, 2002, and the agreement as to salaries and wages expires
June 30, 2003. 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.


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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 also owns or leases
warehouse and sales offices in the United States, Europe, Mexico and Hong Kong.
The Company's significant facilities are listed below:

<TABLE>
<CAPTION>
                                                                        OWNED/
           LOCATION                               SIZE (SQ. FT.)        LEASED
           --------                               --------------        ------
<S>                                               <C>                   <C>
Manufacturing:
   Asheville, North Carolina                             240,600          Owned
   Dundee, Scotland                                      101,000          Owned
   Three Rivers, Michigan                                 58,000          Owned
   Greenville, South Carolina                             83,000          Owned
   Fletcher, North Carolina                               19,000         Leased
   Ahaus, Germany                                         36,200          Owned
   Chrastava, Czech Republic                              26,900          Owned
   Oakland, New Jersey                                    34,600         Leased
   Addison, Illinois                                      38,600          Owned
   Houston, Texas                                         64,000          Owned
   West Chester, Ohio                                     14,500         Leased
   Brampton, Ontario                                      23,200          Owned
   Manchester, England (Irlam)                            85,600          Owned
   Melbourne, Australia                                   28,700          Owned
   Kuala Lumpur, Malaysia                                  8,300         Leased
   Johannesburg, South Africa                             12,100          Owned
   Foshan, China                                          19,000         Leased
   Munster, Germany                                      79,600          Leased
Warehouse/Sales Office:
   Dayton, Ohio                                           12,900         Leased
   Elk Grove, Illinois                                     4,500         Leased
   Lerma, Mexico                                          15,900          Owned
   Hong Kong, China                                        3,100         Leased
   Milan, Italy (Trezzano, Rosa)                           1,500         Leased
   Moscow, Russia                                          1,000         Leased
   Nashville, Tennessee                                    5,000         Leased
   Paris, France                                          23,400         Leased
   Reutlingen, Germany                                     7,000         Leased
   Stockport, England                                      5,200          Owned
   Willich, Germany                                       15,200         Leased
</TABLE>


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<PAGE>

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.

CPG and the Company are parties to consent decrees with respect to certain
environmental matters. Hanna and CPG have agreed to retain, be responsible for
and indemnify the Company with respect to these matters. See "Item 1.
Business--Environmental Matters."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

As of March 1, 2002, 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.


                                       13
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth summary financial data of the Company for each of
the five fiscal years, during the period ended December 31, 2001.

<TABLE>
<CAPTION>
                                               2001              2000           1999               1998             1997
                                               ----              ----           ----               ----             ----
                                                                               (a)(b)             (b)(c)
                                                                           (DOLLARS IN THOUSANDS)
<S>                                     <C>               <C>              <C>               <C>              <C>
STATEMENT OF OPERATIONS DATA:
Net sales                               $     254,146     $     280,573    $     198,418     $     173,066    $     166,286
Gross profit                                   91,159           109,556           75,082            62,911           63,251
Operating income                               26,662            46,514           32,861            12,169           30,411
Income (loss) before
  extraordinary items                          (5,108)            6,902            2,251           (12,875)           7,917
Extraordinary losses on early
  extinguishment of debt                                                             857             3,552
Net income (loss)                              (5,108)            6,902            1,394           (16,427)           7,917
OTHER FINANCIAL DATA:
Capital expenditures                    $      12,983     $      10,324    $       5,936     $       7,103    $       5,124
Depreciation                                    7,308             7,319            6,432             5,759            5,238
Amortization                                    9,972             9,932           10,313             7,729            7,827
BALANCE SHEET DATA (AT
  END OF PERIOD):
Fixed assets, net of
  accumulated depreciation              $      72,216     $      69,484    $      69,739     $      50,305    $      44,792
Total assets                                  314,004           327,492          331,504           257,408          225,527
Long-term and subordinated
  long-term debt (including
  current maturities)                         263,831           268,270          279,830           257,515          130,883
Stockholders' equity (deficit)               (115,918)          (94,443)         (89,428)          (80,283)          60,189
</TABLE>

(a)   The Company acquired TPO as of September 30, 1999 and Varn as of October
      19, 1999. The statement of operations data includes the results of these
      acquisitions from the dates of acquisition.

(b)   The Company acquired the stock of Rotec as of December 31, 1998. Balance
      sheet data for 1998 includes the assets and liabilities of Rotec as of
      December 31, 1998. The statement of operations data includes the results
      of Rotec for the period from January 1, 1999.

(c)   Balance sheet data for 1998 reflects the effects of the acquisition of the
      Company by GSC Partners.


                                       14
<PAGE>

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 September 30, 1999 and October 19, 1999, TPO and Varn, were acquired.
Accordingly, the results of operations for periods after these acquisitions may
not be comparable to prior periods.

<TABLE>
<CAPTION>

                                                YEAR ENDED                  YEAR ENDED                     YEAR ENDED
                                            DECEMBER 31, 2001            DECEMBER 31, 2000              DECEMBER 31, 1999
                                            -----------------            -----------------              -----------------
                                                                       (DOLLARS IN MILLIONS)
<S>                                       <C>            <C>           <C>            <C>            <C>             <C>
Net sales                                 $  254.1       100.0%        $  280.6       100.0%        $  198.4         100.0%
Cost of goods sold                           163.0        64.2            171.0        61.0            123.3          62.1
                                          --------       -----         --------       -----         --------         -----
Gross profit                                  91.1        35.8            109.6        39.0             75.1          37.9
SG&A                                          54.1        21.3             57.5        20.5             36.0          18.1
Restructuring costs                            4.9         1.9                                           1.4           0.7
Amortization of intangibles                    4.4         1.7              4.5         1.5              3.8           1.9
Management fees and expenses                   1.0         0.4              1.1         0.4              1.0           0.6
                                          --------       -----         --------       -----         --------         -----
Operating income                          $   26.7        10.5%        $   46.5        16.6%        $   32.9          16.6%
                                          ========       =====         ========       =====         ========         =====
</TABLE>

COMPARISON OF RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net sales decreased $26.4 million (9.4%) to $254.1 million, primarily as a
result of lower sales volume of $26.3 million in the United States and the
Pacific Rim. Sales in 2001 were negatively impacted by $4.2 million as a result
of unfavorable changes in foreign currency rates used to translate international
sales into U.S. dollars partly offset by increased sales volumes of $3.2 million
in Europe. Image Transfer's sales decreased $20.2 million (9.0%) to $202.9
million. Image Transfer's sales were negatively impacted by $3.2 million as a
result of the impact of changes in foreign currency rates. Excluding the impact
of foreign currency rate changes, Image Transfer's sales decreased $17.0 million
(7.6%) from the comparable period in 2000. The decrease is mainly a result of
lower sales in the United States as a result of the weak U.S. printing industry.
Tubular sleeve sales increased as additional presses that utilize this
technology were installed. Textile Products' sales decreased $6.3 million
(10.9%) to $51.3 million. Foreign currency rate changes negatively impacted
Textile Products' sales by $1.0 million. Textile Products' sales decreased as a
result of decreased volume of $7.4 million in the United States, partly offset
by sales volume gains of $2.1 million in Europe and export markets.

Gross profit decreased $18.4 million (16.8%) to $91.1 million. Foreign currency
rate changes reduced gross profit by $1.6 million. As a percentage of net sales,
gross profit decreased to 35.8% for the year ended December 31, 2001, from 39.0%
for the comparable period in 2000, primarily as a result of the lower Image
Transfer sales volume in the United States. In addition, fixed costs such as
research and development costs of new products have increased slightly from last
year resulting in a further decrease on the gross profit percentage.


                                       15
<PAGE>

Selling, general & administrative expenses decreased $3.4 million (5.9%) to
$54.1 million primarily as a result of lower selling costs. As a percentage of
net sales, SG&A increased to 21.3% from 20.5%. Changes in foreign currency rates
reduced SG&A costs by $0.8 million in 2001.

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 will be completed in early 2002. A pre-tax charge of $0.9 million has
been recorded in 2001 for relocation of machinery and equipment and severance
and termination costs for 59 associates in 2001. As of December 31, 2001, 45
associates have been severed. Additional charges of approximately $0.1 million
will be recorded in 2002 as final relocation costs are incurred.

During the fourth quarter of 2001, the Company ceased operations at its Transfer
Media facility in Longwood, Florida. Improvements in productivity at other
Transfer Media facilities will allow these locations to absorb this additional
volume. 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. The Company intends to sell the land and building in 2002.

Also during the fourth quarter of 2001, the Company completed plans to relocate
its Pressroom Chemicals 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 $1.0 million was recorded for severance
costs for 21 associates, costs for closing the offices and loss on the sale of
fixed assets.

Operating income, excluding the restructuring costs in 2001, decreased $14.9
million (32.1%) to $31.6 million. As a percentage of net sales, operating income
(excluding the restructuring costs in 2001) was 12.4% for the year ended
December 31, 2001, compared to 16.6% in 2000. Image Transfer's operating income,
excluding the restructuring costs in 2001, decreased $14.2 million (29.0%) to
$34.9 million, primarily as a result of lower sales volumes. As a percentage of
net sales, Image Transfer's operating income (excluding the restructuring costs
in 2001) decreased to 17.2% for the year ended December 31, 2001, compared to
22.0% in 2000. Textile Products' operating income decreased $1.1 million (13.9%)
to $6.7 million, excluding the restructuring costs in 2001. As a percentage of
net sales, Textile Products' operating income (excluding the restructuring costs
in 2001) was 13.0% for the year ended December 31, 2001, compared to 13.5% in
2000.

Other expense was $0.6 million in 2001, compared to $4.6 million for 2000. The
other expense is primarily due to foreign currency transaction losses incurred
in the normal course of international subsidiaries doing business in other than
their functional currency as well as a result of intercompany financing
arrangements.

The Company recorded income tax expense for 2001 on a loss before taxes. This
effect is a result of foreign sourced dividends and income taxable in the United
States and non-deductible expenses.

YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net sales increased $82.2 million (41.4%) to $280.6 million, primarily as a
result of the sales contributed by the acquisitions of Varn and TPO in late
1999. Sales in 2000 were negatively impacted by $8.1 million as a result of
unfavorable changes in foreign currency rates used to translate international
sales into U.S.


                                       16
<PAGE>

dollars. Image Transfer's sales increased $60.3 million (37.1%) to $223.1
million. The acquisition of Varn in October 1999 contributed $51.0 million of
the sales increase. Image Transfer's sales were negatively impacted by $5.5
million as a result of the impact of changes in foreign currency rates. The rest
of the increase is mainly a result of higher sales in Europe and higher export
sales to Japan and the Far East and Australia. Tubular sleeve sales also
contributed to the increase as additional presses that utilize this technology
were installed. Including Varn for a full year on a pro forma basis, Image
Transfer's sales increased $9.2 million over 1999 full year results, as
discussed above. Textile Products' sales increased $21.8 million (61.1%) to
$57.5 million. The acquisition of TPO on September 30, 1999, accounted for the
majority of the increase. Foreign currency rate changes negatively impacted
Textile Products' sales in 2000 by $1.4 million. Textile Products' sales
increased as a result of increased volume, especially at original equipment
manufacturers, as well as sales to other markets in Europe and the Pacific Rim.

Gross profit increased $34.5 million (45.9%) to $109.6 million. Foreign currency
rate changes reduced gross profit by $2.9 million. The acquisitions of Varn and
TPO contributed the majority of the gross profit increase in 2000. Gross profit
in 1999 was adversely affected by a one-time charge of $0.9 million for sales of
finished goods inventory that were purchased at market values in connection with
the Varn acquisition. As a percentage of net sales, gross profit increased to
39.0% for the year ended December 31, 2000, from 37.9% for the comparable period
in 1999. This increase was primarily as a result of the benefits realized from
the restructuring of the Textile Products' operations after the TPO acquisition.

Selling, general & administrative expenses increased $21.5 million (59.8%) to
$57.5 million. As a percentage of net sales, SG&A increased to 20.5% from 18.1%.
The acquisitions of Varn and TPO accounted for most of this increase. Changes in
foreign currency rates reduced SG&A costs by $2.0 million in 2000.

Amortization of intangibles increased $0.7 million to $4.5 million as a result
of amortization of the goodwill recorded from the Varn acquisition.

Operating income, excluding the restructuring costs in 1999, increased $12.3
million (35.8%) to $46.5 million. As a percentage of net sales, operating income
(excluding the restructuring costs in 1999) was 16.6% for the year ended
December 31, 2000, compared to 17.2% in 1999. Image Transfer's operating income
increased $6.6 million (15.5%) to $49.1 million, primarily as a result of the
acquisition of Varn and higher sales volumes in the Transfer Media division. As
a percentage of net sales, Image Transfer's operating income decreased slightly
to 22.0% for the year ended December 31, 2000, compared to 26.1% in 1999,
primarily as a result of one-time marketing costs incurred in 2000. Including
Varn for a full year on a pro forma basis, Image Transfer's operating earnings
would have increased $5.0 million (11.8%). The decline from above is primarily
as a result of increased costs for petroleum-based raw materials and changes in
foreign currency rates. Textile Products' operating income increased $5.1
million (197.4%) to $7.8 million, excluding the restructuring costs in 1999,
primarily as a result of the TPO acquisition. As a percentage of net sales,
Textile Products' operating income was 13.5% for the year ended December 31,
2000, compared to 7.3% in 1999. The increase was primarily a result of the
benefits realized from the restructuring activities and consolidation of the TPO
activities with the Company's existing activities.

The effective tax rate was 40.3% in 2000 compared to 51.0% in 1999. The high
income tax expense percentage in 1999 compared to the U.S. statutory rate is
mainly the result of certain one-time non-deductible expenses associated with
the Varn and TPO acquisitions in 1999.


                                       17
<PAGE>

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 approximately $9.3 million at December 31,
2001, $2.1 million at December 31, 2000 and $0.9 million at December 31, 1999.
These contracts generally expire within three to twelve months. Foreign currency
losses, included in other (expense) income-net, were $0.9 million in 2001, $5.0
million in 2000 and $0.6 million in 1999. Based on the Company's overall foreign
currency exchange rate exposure at December 31, 2001, including the forward
contracts, a 10% adverse change in foreign currency exchange rates would result
in a hypothetical estimated loss in earnings of approximately $1 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. The Company does
not expect changes in interest rates to have a material effect on income or cash
flows in 2002, 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. Pressroom Chemicals 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


                                       18
<PAGE>

could have a short term impact 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 is
able to maintain relatively low levels of working capital as its converters and
distributors typically carry a greater portion of inventory and finance
receivables of the Company's end users.

The Company's expenditures for plant, property and equipment were $13.0 million
in 2001, $10.3 million in 2000, and $5.9 million in 1999. 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, 2001, the Company's aggregate
indebtedness is approximately $263.8 million and the aggregate liquidation
preference of the Exchangeable Preferred Stock is $55.3 million (which, subject
to certain conditions, may be exchanged for Exchange Debentures). At December
31, 2001, the aggregate liquidation preference of the Convertible Preferred
Stock is $55.6 million.

The Company has a Senior Secured Credit Facility consisting of a $70.0 million
Term Loan (of which $43.7 million was outstanding at December 31, 2001) and a
$20 million Revolving Credit Facility (of which $4.2 million was outstanding at
December 31, 2001). During 2001, the Senior Secured Credit Facility was amended
in order to modify certain financial covenants, including the Consolidated
Leverage Ratio, Consolidated Interest Coverage Ratio and Consolidated Fixed
Charge Coverage Ratio. No changes to the term or amount of the Credit Facility
were made.

The Senior Secured Credit Facility is repayable as follows: $12.5 million in
2002; $12.5 million in 2003; $12.5 million in 2004 and $10.4 million in 2005.
Prepayments on the Term Loan are applied in inverse order of maturity. During
the year ended December 31, 2001, the Company made $2.3 million in payments on
the term loans and paid $2.1 million on the Revolving Credit Facility. 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 foreign subsidiary.
The amounts available under the Revolving Credit Facility are subject to a
borrowing base limitation (defined generally as 80% of eligible domestic
accounts receivable plus the lesser of 50% of eligible domestic inventory or $10
million). As of December 31, 2001, the Company had approximately $15.4 million
available under the Revolving Credit Facility (calculated by applying the
applicable borrowing base limitation).

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.


                                       19
<PAGE>

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 (which is
subject to borrowing base limitations) 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 2005 Indenture, 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 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 other 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 2005 Indenture and/or the 2008 Indenture that would
permit the lenders thereto to declare all amounts outstanding thereunder 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 thereunder could be terminated.

The occurrence of certain of the 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, the 2005 Indenture 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 and the 2005 Indenture prohibit 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
and the 2005 Indenture are 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 and the 2005 Indenture. The inability to repay the indebtedness
under the Senior Secured Credit Facility or the 2005 Indenture, if accelerated,
would also constitute an event of default under the Indenture, which could have
materially adverse consequences to the Company and to the holders of the Notes
under the 2008 Indenture. Future


                                       20
<PAGE>

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, 2005 Indenture 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 2002. As of December 31, 2001, the settlement will
require an additional contribution of approximately $0.4 million and will result
in a pre-tax settlement loss of approximately $1.4 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 2001, 2000 and 1999 it spent approximately $1.2
million, $0.8 million and $1.8 million in capital expenditures for solvent
recovery, wastewater treatment, air monitoring and related projects to comply
with environmental requirements.

New rules to be promulgated under the 1990 amendments to the Federal Clean Air
Act governing emissions of hazardous air pollutants may require implementation
of additional air emission control measures at the Company's U.S. facilities.
The applicable requirements are scheduled to be issued in May 2002. These rules
will require certain modifications to the plant facilities over the next three
years that will total approximately $2.0 million for U.S. operations. The
Company installed certain equipment from 1998 through 2001 to mitigate future
spending requirements resulting from the Clean Air Act. Capital expenditures
relating to environmental matters are anticipated to be less than $1 million in
2002.

Based on environmental assessments conducted by independent environmental
consultants, except as otherwise stated herein, 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 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.


                                       21
<PAGE>

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, recoverability of long-lived
assets, retirement and other postretirement benefits, and reserves for
restructuring. We use the following methods and assumptions in determining our
estimates:

Accounts Receivable Allowances -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.

Recoverability of Long-lived Assets-Determined in accordance with SFAS No. 121
by determining whether the amortization of the assets over their remaining lives
can be recovered through projected undiscounted cash flows.

Retirement and Other Postretirement Benefits-Determined in accordance with SFAS
Nos. 87 and 106 using the assumptions detailed in Notes K and L to the
Consolidated Financial Statements.

Restructuring Reserves-Determined in accordance with the appropriate accounting
guidance in EITF No. 94-3 depending on the facts and circumstances surrounding
the situation.

For further information regarding our accounting policies, see Note B to the
Consolidated Financial Statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See information in Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                       PAGE
                                                                                                                       ----
<S>                                                                                                                 <C>
DAY INTERNATIONAL GROUP, INC.
     Report of Independent Public Accountants..................................................................          23
     Consolidated Balance Sheets as of December 31, 2001 and 2000..............................................     24 - 25
     Consolidated Statements of Operations for the years ended
         December 31, 2001, 2000 and 1999......................................................................          26
     Consolidated Statements of Stockholders' Equity (Deficit)
         for the years ended December 31, 2001, 2000 and 1999..................................................          27
     Consolidated Statements of Cash Flows for the years ended
         December 31, 2001, 2000 and 1999......................................................................     28 - 29
     Notes to Consolidated Financial Statements................................................................     30 - 56
</TABLE>


                                       22
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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. (a Delaware corporation) and subsidiaries as of
December 31, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as 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 financial position of Day International Group, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.


ARTHUR ANDERSEN LLP

Cincinnati, Ohio
March 26, 2002


                                       23
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
           (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      2001             2000
                                                                      ----             ----
<S>                                                               <C>              <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                       $      609       $      922
  Accounts receivable:
    Trade (less allowance for doubtful accounts) (Note C)             27,987           33,605
    Other                                                              1,137            1,896
  Inventories (Note D)                                                34,276           35,600
  Prepaid expenses and other current assets                            4,330            4,771
  Deferred tax assets (Note G)                                         5,144            3,940
                                                                  ----------       ----------

         Total current assets                                         73,483           80,734

PROPERTY, PLANT AND EQUIPMENT:
  Land                                                                 3,542            4,486
  Buildings and improvements                                          21,097           22,479
  Machinery and equipment                                             66,034           60,102
  Construction in progress                                            10,874            7,988
  Assets held for sale (Note M)                                        1,723
                                                                  ----------       ----------
                                                                     103,270           95,055
  Less accumulated depreciation                                      (31,054)         (25,571)
                                                                  ----------       ----------
                                                                      72,216           69,484

OTHER ASSETS:
  Goodwill (Note B)                                                  125,334          130,464
  Intangible assets (Note B)                                          32,554           38,584
  Note receivable (Note N)                                             1,225            1,800
  Deferred tax assets (Note G)                                         5,836            1,896
  Other assets                                                         3,356            4,530
                                                                  ----------       ----------
                                                                     168,305          177,274
                                                                  ----------       ----------

TOTAL ASSETS                                                      $  314,004       $  327,492
                                                                  ==========       ==========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                                      2001             2000
                                                                      ----             ----
<S>                                                               <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
  Accounts payable                                                $    6,688       $    8,160
  Accrued associate-related costs                                      7,442            8,824
  Other accrued expenses                                               7,385           10,250
  Income taxes payable                                                 4,846            3,960
  Interest payable                                                     4,512            4,230
  Current maturities of long-term debt (Note E)                       12,576            2,358
                                                                  ----------       ----------

         Total current liabilities                                    43,449           37,782

LONG-TERM AND SUBORDINATED LONG-TERM DEBT (Note E)                   251,255          265,912
DEFERRED TAX LIABILITIES (Note G)                                      2,595            1,889
OTHER LONG-TERM LIABILITIES (Notes J, K, L and N)                     23,269           21,956
COMMITMENTS AND CONTINGENCIES (Note N)
                                                                  ----------       ----------

         Total liabilities                                           320,568          327,539

REDEEMABLE PREFERRED STOCK (Note F)                                  109,354           94,396

STOCKHOLDERS' EQUITY (DEFICIT)  (Note J):
  Common Shares, $.01 per share par value, 100,000
    shares authorized, 23,298 shares issued and outstanding                1                1
  Contra-equity associated with the assumption of
    majority shareholder's bridge loan                               (68,772)         (68,772)
  Retained earnings (deficit)                                        (41,646)         (21,580)
  Accumulated other comprehensive loss                                (5,501)          (4,092)
                                                                  ----------       ----------
         Total stockholders' equity (deficit)                       (115,918)         (94,443)
                                                                  ----------       ----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)              $  314,004       $  327,492
                                                                  ==========       ==========
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       25
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                2001              2000             1999
                                                                                ----              ----             ----
<S>                                                                        <C>               <C>              <C>
NET SALES                                                                  $     254,146     $     280,573    $     198,418

COST OF GOODS SOLD                                                               162,987           171,017          123,336
                                                                           -------------     -------------    -------------

GROSS PROFIT                                                                      91,159           109,556           75,082

SELLING, GENERAL AND ADMINISTRATIVE                                               54,073            57,472           35,960
RESTRUCTURING COSTS (Note M)                                                       4,931                              1,361
AMORTIZATION OF INTANGIBLES                                                        4,451             4,470            3,821
MANAGEMENT FEES (Note I)                                                           1,042             1,100            1,079
                                                                           -------------     -------------    -------------

OPERATING PROFIT                                                                  26,662            46,514           32,861

OTHER EXPENSES (Note E):
  Interest expense (including amortization
    of deferred financing costs and debt discount of
    $2,347 in 2001 and 2000 and $2,370 in 1999)                                   28,419            30,357           28,085
  Other expense (income)--net                                                        601             4,605              504
                                                                           -------------     -------------    -------------
                                                                                  29,020            34,962           28,589
                                                                           -------------     -------------    -------------
INCOME (LOSS) BEFORE INCOME TAXES
   AND EXTRAORDINARY ITEMS                                                        (2,358)           11,552            4,272

INCOME TAXES (Note G)                                                              2,750             4,650            2,021
                                                                           -------------     -------------    -------------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS                                          (5,108)            6,902            2,251

EXTRAORDINARY LOSSES ON EARLY
  EXTINGUISHMENT OF DEBT (NET OF TAX
  BENEFIT OF $571)                                                                                                      857
                                                                           -------------     -------------    -------------

NET INCOME (LOSS)                                                                 (5,108)            6,902            1,394

PREFERRED STOCK DIVIDENDS (Note F)                                               (14,770)          (12,752)          (6,394)

AMORTIZATION OF PREFERRED STOCK
  DISCOUNT AND ISSUANCE COSTS                                                       (188)             (188)            (172)
                                                                           -------------     -------------    -------------

NET (LOSS) AVAILABLE
  TO COMMON SHAREHOLDERS                                                   $     (20,066)    $      (6,038)   $      (5,172)
                                                                           -------------     -------------    -------------
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       26
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                          (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      ACCUMULATED
                                             COMMON SHARES                             RETAINED          OTHER         COMPREHENSIVE
                                      ------------------------         CONTRA          EARNINGS       COMPREHENSIVE        INCOME
                                      SHARES         AMOUNT            EQUITY          (DEFICIT)      INCOME (LOSS)        (LOSS)
                                      ------      ------------         ------          ---------      -------------     ------------
<S>                                   <C>         <C>              <C>               <C>              <C>               <C>
December 31, 1998                     23,298      $          1     $     (68,772)   $    (10,370)    $      (1,142)

Net income                                                                                 1,394                       $      1,394
Preferred stock dividends                                                                 (6,394)
Amortization of preferred
  stock discount and
  issuance costs                                                                            (172)
Foreign currency
  translation adjustment                                                                                    (3,973)          (3,973)
                                      ------      ------------     -------------    ------------     -------------     ------------

December 31, 1999                     23,298                 1           (68,772)        (15,542)           (5,115)    $     (2,579)
                                                                                                                       ============
Net income                                                                                 6,902                       $      6,902
Preferred stock dividends                                                                (12,752)
Amortization of preferred
  stock discount and
  issuance costs                                                                            (188)
Foreign currency
  translation adjustment                                                                                     1,023            1,023
                                      ------      ------------     -------------    ------------     -------------     ------------

December 31, 2000                     23,298                 1           (68,772)        (21,580)           (4,092)    $      7,925
                                                                                                                       ============
Net loss                                                                                  (5,108)                      $     (5,108)
Preferred stock dividends                                                                (14,770)
Amortization of preferred
  stock discount and
  issuance costs                                                                            (188)
Minimum pension liability
  (net of tax of $568)                                                                                      (1,134)          (1,134)
Foreign currency
  translation adjustment                                                                                      (305)            (305)
Unrealized gain on
  cash flow hedges (net of tax
  of $19)                                                                                                       30               30
                                      ------      ------------     -------------    ------------     -------------     ------------

December 31, 2001                     23,298      $          1     $     (68,772)   $    (41,646)    $      (5,501)    $     (6,517)
                                      ======      ============     =============    ============     =============     ============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       27
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                2001              2000            1999
                                                                                ----              ----            ----
<S>                                                                        <C>               <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                          $      (5,108)    $       6,902    $       1,394
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
  Extraordinary loss on early extinguishment of debt                                                                    871
  Depreciation                                                                     7,308             7,319            6,432
  Amortization of goodwill and intangibles                                         9,972             9,932           10,313
  Deferred income taxes                                                           (2,663)             (728)            (676)
  Foreign currency loss                                                              711             2,425
  Non-cash restructuring charge                                                    2,205
Change in assets and liabilities, net of effect of acquisitions:
  Accounts receivable                                                              5,656              (879)          (1,515)
  Inventories                                                                        793            (3,619)            (981)
  Prepaid expenses and other current assets                                        1,314            (1,490)          (1,782)
  Accounts payable and other accrued expenses                                     (2,562)            4,594            4,605
                                                                           -------------     -------------    -------------
         Net cash provided by operating activities                                17,626            24,456           18,661

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired                                                    (2,329)         (74,039)
Capital expenditures                                                             (12,983)          (10,324)          (5,936)
Proceeds from sale of property                                                                         742
                                                                           -------------     -------------    -------------
         Net cash used in investing activities                                   (12,983)          (11,911)         (79,975)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock                                                                38,264
Net proceeds from issuance of term loans                                                                             24,469
Payment of deferred financing fees                                                  (249)                            (1,639)
Payment of long term debt                                                         (2,262)          (12,462)
Net borrowings (payments) on revolving credit facilities                          (2,150)              800           (3,515)
                                                                           -------------     -------------    -------------
         Net cash provided by (used in) financing activities                      (4,661)          (11,662)          57,579

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             (295)             (469)            (519)
                                                                           -------------     -------------    -------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents                                (313)              414           (4,254)
Cash and cash equivalents at beginning of period                                     922               508            4,762
                                                                           -------------     -------------    -------------
Cash and cash equivalents at end of period                                 $         609     $         922    $         508
                                                                           =============     =============    =============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       28
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              2001              2000            1999
                                                              ----              ----            ----
<S>                                                      <C>               <C>              <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES

NON CASH TRANSACTIONS:
  Preferred stock dividends paid in kind                 $      14,770     $      12,752    $       6,394
                                                         =============     =============    =============
  Amortization of preferred stock discount and
     issuance costs                                      $         188     $         188    $         172
                                                         =============     =============    =============
CASH PAID FOR:
Income taxes                                             $       6,870     $       4,990    $       2,518
                                                         =============     =============    =============
Interest                                                 $      25,790     $      28,411    $      25,420
                                                         =============     =============    =============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       29
<PAGE>

                 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                          (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 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 markets
high-quality printing blankets, sleeves, pressroom chemicals and automatic
dampening systems used primarily in the offset and flexographic 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 September 30, 1999, the Company acquired the textile products operations
("TPO") of Armstrong World Industries, Inc. for $13.5 million in cash. The
acquisition has been accounted for as a purchase in accordance with APB Opinion
No. 16.

On October 19, 1999, the Company completed its acquisition of the stock of Varn
International ("Varn") for $61.8 million in cash, net of cash acquired of $1.2
million. The acquisition has been accounted for as a purchase in accordance with
APB Opinion No. 16.

The acquisitions in 1999 were financed through the private placement of $38.5
million of 18% convertible cumulative preferred stock and by amending and
restating the existing Senior Secured Credit Facility.

B.    SIGNIFICANT ACCOUNTING PRINCIPLES

PRINCIPLES OF CONSOLIDATION-The consolidated financial statements include the
accounts of the Company and its domestic and foreign 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.

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 being amortized on the straight
line basis over 40 years. The Company assesses the


                                       30
<PAGE>

recoverability of goodwill and other intangibles by determining whether the
amortization of the respective balances over their remaining lives can be
recovered through projected undiscounted cash flows.

Deferred financing costs are being amortized using an effective interest rate
method over the lives of the related debt. Goodwill and other intangibles are
being amortized using the straight-line method.

<TABLE>
<CAPTION>
                                                                                                                  WEIGHTED-
                                                                                                                    AVERAGE
                                                                                2001              2000                 LIFE
                                                                                ----              ----                 ----
<S>                                                                        <C>               <C>                  <C>
Goodwill                                                                   $     144,948     $     146,405         40 years
Less accumulated amortization                                                    (19,614)          (15,941)
                                                                           -------------     -------------
                                                                           $     125,334     $     130,464
                                                                           =============     =============

Intangible Assets:
 Gross Carrying Amount:
  Noncompete agreements                                                    $       4,007     $       4,007          5 years
  Deferred financing costs                                                        18,952            18,703          9 years
  Printing technology                                                             27,946            27,946         11 years
  Textile compound formulas                                                        5,247             5,247         31 years
  Unpatented technology                                                            9,529             9,529         20 years
                                                                           -------------     -------------
 Total intangibles                                                         $      65,681     $      65,432         13 years
                                                                           =============     =============

 Accumulated Amortization:
  Noncompete agreements                                                    $      (2,405)    $      (1,603)
  Deferred financing costs                                                        (9,871)           (7,567)
  Printing technology                                                            (16,355)          (13,865)
  Textile compound formulas                                                       (1,124)             (953)
  Unpatented technology                                                           (3,372)           (2,860)
                                                                           -------------     -------------
  Total intangibles                                                        $     (33,127)    $     (26,848)
                                                                           =============     =============
</TABLE>

Estimated amortization expense after the adoption of SFAS No. 142 for the next
five years is as follows: $6,282 in 2002, $6,281 in 2003, $5,480 in 2004, $3,444
in 2005 and $2,023 in 2006.

REVENUE RECOGNITION-Day recognizes revenue when the product is shipped. Reserves
for product returns, based upon historical experience, are also recognized upon
shipment.

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 the 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. One customer accounted for


                                       31
<PAGE>

10%, 12% and 11% of net sales for the years ended December 31, 2001, 2000 and
1999. This customer also accounted for 5% and 4% of receivables at December 31,
2001 and 2000.

FOREIGN EXCHANGE CONTRACTS-The Company's international subsidiaries make
purchases and sales in foreign currencies. 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. 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 generally 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 $9,312 and
$2,071 at December 31, 2001 and 2000. The fair value of these contracts is
immaterial. 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS-The carrying value of the Company's variable
rate Credit Agreement approximates fair value. The fair market value of the 9
1/2% Senior Subordinated Debt and the 11-1/8% Senior Debt was approximately
$169,900 and $196,550 at December 31, 2001 and 2000, based on quoted market
prices. The fair value of the 12 1/4% Exchangeable Preferred Stock was
approximately $12,700 and $33,334 at December 31, 2001 and 2000, 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 F for further information about the Convertible Preferred Stock. At
December 31, 2001 and 2000, 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 $7,973, $6,914 and $4,245 for the years ended
December 31, 2001, 2000 and 1999 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 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. Actual
results could differ from these estimates.

RECLASSIFICATIONS-Certain prior year amounts have been reclassified to conform
to current year presentation.


                                       32
<PAGE>

C.    ACCOUNTS RECEIVABLE

Changes in the allowance for doubtful accounts for the years ended December 31,
2001, 2000 and 1999 consist of:

<TABLE>
<CAPTION>
                                                              2001              2000             1999
                                                              ----              ----             ----
<S>                                                      <C>               <C>              <C>
Balance at beginning of year                             $       2,267     $       2,141    $       1,384
Provision for doubtful accounts                                    280               447              470
Write-off of uncollectible accounts                               (545)             (272)             (55)
Currency translation                                               (53)              (49)             (76)
Acquired                                                                                              418
                                                         -------------     -------------    -------------
Balance at end of year                                   $       1,949     $       2,267    $       2,141
                                                         =============     =============    =============
</TABLE>

D.    INVENTORIES

Inventories as of December 31, 2001 and 2000 consists of:

<TABLE>
<CAPTION>
                                                 2001             2000
                                                 ----             ----
<S>                                         <C>              <C>
Finished goods                              $      19,094    $      19,001
Work in process                                     3,932            6,143
Raw materials                                      11,250           10,456
                                            -------------    -------------
                                            $      34,276    $      35,600
                                            =============    =============
</TABLE>

E.    LONG-TERM AND SUBORDINATED LONG-TERM DEBT

Long-term and subordinated long-term debt as of December 31, 2001 and 2000
consists of:

<TABLE>
<CAPTION>
                                                                               2001             2000
                                                                               ----             ----
<S>                                                                      <C>              <C>
Senior Secured Credit Facility:
         Term loan                                                       $      43,750    $      46,000
         Revolving line of credit                                                4,150            6,300
11-1/8% Senior Notes                                                           100,000          100,000
9 1/2% Senior Subordinated Notes                                               114,742          114,700
Capital lease obligation (Note N)                                                1,189            1,270
                                                                         -------------    -------------
                                                                               263,831          268,270
Less: Current maturities of long-term debt and capital lease                   (12,576)          (2,358)
                                                                         -------------    -------------
                                                                         $     251,255    $     265,912
                                                                         =============    =============
</TABLE>

      SENIOR SECURED CREDIT FACILITY

The Senior Secured Credit Agreement is a $90,000 credit facility consisting of a
five-year $70,000 term loan and a $20,000 revolving line of credit with a group
of banks. The revolving line of credit includes a $10,000 letter of credit
subfacility ($450 of letters of credit were outstanding at December 31, 2001 to
support the Company's share of a loan by the joint venture in China) and a
$1,000 swingline loan


                                       33
<PAGE>

subfacility. During 2001, the Senior Secured Credit Facility was amended in
order to modify certain financial covenants, including the Consolidated Leverage
Ratio, Consolidated Interest Coverage Ratio and Consolidated Fixed Charge
Coverage Ratio. No changes to the term or amount of the Credit Facility were
made. At December 31, 2001, interest on the term loan was based on the bank's
LIBOR rate plus 3.25% (5.53%) and on the revolving line of credit was based on
the banks' base rate plus 2.25% (7.0%). The amounts available under the
Revolving Credit Facility are subject to a borrowing base limitation (defined
generally as 80% of eligible domestic accounts receivable plus the lesser of 50%
of eligible domestic inventory and $10 million). At December 31, 2001, $15,400
was available under the Senior Secured Credit Facility (calculated by applying
the borrowing base test). The Senior Secured Credit Facility requires a
commitment fee of 1/2% a year on the unused portion of the revolving line of
credit. 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 for the year ended December 31, 2001, 2000
and 1999 was 7.30%, 9.71% and 7.94%.

      11-1/8% SENIOR NOTES AND 9 1/2% SENIOR SUBORDINATED NOTES

The company has outstanding $100 million of 11-1/8% Senior Notes due June 1,
2005, and $115.0 million face amount of 9 1/2% Senior Subordinated Notes due
March 15, 2008 (collectively, the "Notes"). The Senior Notes are subordinate to
the Senior Secured Credit Facility. The Senior Subordinated Notes are
subordinate to the Senior Notes.

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's wholly-owned subsidiary, Day International, Inc., has guaranteed
the Senior Secured Credit Facility and the Notes. 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 foreign subsidiary.

Principal payments on long-term debt for the next five years are payable as
follows: $12,576 in 2002, $12,576 in 2003, $12,576 in 2004, $110,432 in 2005 and
$65 in 2006.

F.    REDEEMABLE PREFERRED STOCKS

      12 1/4% SENIOR EXCHANGEABLE PREFERRED STOCK

The Company has outstanding $55.3 million and $49.0 million (face value) of 12
1/4% Exchangeable Preferred Stock at December 31, 2001 and 2000. All dividends
are payable quarterly in arrears on March 15, June 15, September 15 and December
15 of each year. On or before March 15, 2003, the Company may, at its option,
pay dividends in cash or in additional fully-paid and non-assessable shares of
Exchangeable Preferred Stock having an aggregate liquidation preference equal to
the amount of such dividends. Thereafter, dividends may be paid in cash only.
After March 15, 2003, if dividends are not paid in cash 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. On any scheduled dividend payment date, the Company may, at its
option, but subject to certain conditions, exchange all but not less than all of
the shares of the Exchangeable Preferred Stock for the Company's


                                       34
<PAGE>

12 1/4% Subordinated Exchange Debentures Due 2010 (the "Exchange Debentures").
All dividends paid have been in the form of additional fully-paid and
non-assessable shares of Exchangeable Preferred Stock.

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. Except as described below, the Company may not redeem the
Exchangeable Preferred Stock or the Exchange Debentures prior to March 15, 2003.
On or after such date, the Company may, at its option, redeem the Exchangeable
Preferred Stock or the Exchange Debentures, in whole or in part, for cash, at
106.125% in 2003, 104.083% in 2004, 102.042% in 2005 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, 2001 and 2000, the Company has outstanding $55.6 million and
$47.1 million 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. In addition, a representative of one of the
holders of the Preference Stock was elected to the board of directors of the
Company.

At any time and from time to time prior to September 30, 2002, the Company may
redeem shares of the Preference Stock, in whole or in part, at the option of the
Company, for consideration equal to the Base Redemption Amount plus an early
redemption premium which is based upon the liquidation preference of the stock.
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. The Company may
at any time on or after September 30, 2002, redeem any or all of the shares of
the Convertible Preference Stock for consideration equal to the Base Redemption
Amount.

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.


                                       35
<PAGE>

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.

G.    INCOME TAXES

Significant components of deferred tax assets (liabilities) as of December 31,
2001 and 2000, are as follows:

<TABLE>
<CAPTION>
                                                                      2001            2000
                                                                      ----            ----
<S>                                                             <C>              <C>
Domestic:
  Current:
    Accounts receivable reserves                                $       1,166    $         771
    Inventory reserves                                                  1,307            1,086
    Other reserves                                                      2,088            1,287
    AMT credit carryforward                                               345              345
                                                                -------------    -------------
                                                                        4,906            3,489
  Long-term:
    Depreciation                                                       (5,301)          (4,545)
    Amortization                                                       (7,885)          (6,497)
    Net operating loss carryforwards                                   13,441            8,365
    Stock option compensation                                           3,308            3,308
    Other postretirement benefits                                       2,136            1,265
                                                                -------------    -------------
                                                                        5,699            1,896
                                                                -------------    -------------
Total domestic deferred tax assets                                     10,605            5,385
Foreign:
  Current:
    Inventories                                                           (74)             (41)
    Other                                                                 312              492
                                                                -------------    -------------
                                                                          238              451
  Long-term:
    Plant and equipment                                                (2,586)          (1,938)
    Pension benefits                                                      128               49
                                                                -------------    -------------
                                                                       (2,458)          (1,889)
                                                                -------------    -------------
Total foreign deferred tax liabilities                                 (2,220)          (1,438)
                                                                -------------    -------------
Net deferred tax assets (liabilities)                           $       8,385    $       3,947
                                                                =============    =============
</TABLE>


                                       36
<PAGE>

Income tax expense (benefit) consists of the following for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                             2001              2000             1999
                                                             ----              ----             ----
<S>                                                     <C>               <C>              <C>
Current:
  Domestic:
    State and local                                     $        185      $          7     $        143
    Foreign                                                    7,552             4,895            2,492
                                                        ------------      ------------     ------------
                                                               7,737             4,902            2,635
Deferred:
  Domestic:
    Federal                                                   (3,659)             (566)            (187)
    State and local                                             (576)              (91)             (85)
    Foreign                                                     (752)              405             (342)
                                                        ------------      ------------     ------------
                                                              (4,987)             (252)            (614)
                                                        ------------      ------------     ------------
                                                        $      2,750      $      4,650     $      2,021
                                                        ============      ============     ============
</TABLE>

The income tax (benefit) expense differs from the statutory rate for the years
ended December 31, 2001, 2000 and 1999, as a result of the following:

<TABLE>
<CAPTION>
                                                                                  2001             2000            1999
                                                                                  ----             ----            ----
<S>                                                                        <C>               <C>              <C>
Tax provision (benefit) at the federal statutory rate                      $        (801)    $       3,928    $       1,452
Foreign tax rate differential                                                      2,356               261              112
State and local taxes, net of federal
  income tax effect                                                                 (408)             (126)               3
Foreign source income taxable in the United States                                 2,321
Non-deductible expenses                                                              398               375              491
Other                                                                             (1,116)              212              (37)
                                                                           -------------     -------------    -------------
                                                                           $       2,750     $       4,650    $       2,021
                                                                           =============     =============    =============
</TABLE>

Other tax benefit for 2001 in the table above consists primarily of the release
of tax reserves.

Income (loss) before income taxes includes $13,069, $14,441 and $5,996 of income
from international operations for the years ended December 31, 2001, 2000 and
1999. Day has not provided deferred taxes on the undistributed earnings of
foreign subsidiaries because the earnings are deemed permanently reinvested. The
unrecognized deferred tax liability on these earnings is not considered
material. The Company has domestic net operating loss carryforwards of
approximately $40 million expiring from 2006 through 2021.

H.    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 and flexographic printing
industries. The Textile Products segment manufactures


                                       37
<PAGE>

and markets precision engineered rubber cots and aprons sold to textile yarn
spinners and other engineered rubber products sold to diverse markets. In 2001
the Company combined its former Image Transfer and Varn segments into one
business segment. This occurred to focus the senior management of the two
separate product lines on the realization of synergies between the two product
lines.

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.

<TABLE>
<CAPTION>

                                                      2001              2000             1999
                                                      ----              ----             ----
<S>                                             <C>               <C>              <C>
Third party sales:
  Image Transfer                                $     202,892     $     223,068    $     162,726
  Textile Products                                     51,254            57,505           35,692
                                                -------------     -------------    -------------
Total                                           $     254,146     $     280,573    $     198,418
                                                =============     =============    =============

Segment operating profit:
  Image Transfer                                $      30,860     $      49,099    $      42,507
  Textile Products                                      5,741             7,755            1,208
                                                -------------     -------------    -------------
Total                                           $      36,601     $      56,854    $      43,715
                                                =============     =============    =============

Depreciation and amortization:
  Image Transfer                                $       4,951     $       4,616    $       3,923
  Textile Products                                      1,609             1,627            1,316
                                                -------------     -------------    -------------
Total                                           $       6,560     $       6,243    $       5,239
                                                =============     =============    =============

Assets:
  Image Transfer                                $     106,785     $     112,039    $      98,906
  Textile Products                                     30,039            30,380           29,908
                                                -------------     -------------    -------------
Total                                           $     136,824     $     142,419    $     128,814
                                                =============     =============    =============

Capital expenditures:
  Image Transfer                                $       9,171     $       8,547    $       4,832
  Textile Products                                      3,812             1,777            1,104
                                                -------------     -------------    -------------
Total                                           $      12,983     $      10,324    $       5,936
                                                =============     =============    =============
</TABLE>


                                       38
<PAGE>

The following is a reconciliation of the items reported above to the amounts
reported in the consolidated financial statements:

<TABLE>
<CAPTION>
                                                                                 2001              2000             1999
                                                                                 ----              ----             ----
<S>                                                                        <C>               <C>              <C>
Operating profit:
Segment operating profit                                                   $      36,601     $      56,854    $      43,715
APB #16 depreciation and amortization                                             (3,922)           (4,233)          (4,366)
Non-allocated corporate expenses                                                    (524)             (537)            (639)
Amortization of intangibles                                                       (4,451)           (4,470)          (3,821)
Amortization of inventory write-up to fair market value                                                                (949)
Management fees                                                                   (1,042)           (1,100)          (1,079)
                                                                           -------------     -------------    -------------
         Total operating profit                                            $      26,662     $      46,514    $      32,861
                                                                           =============     =============    =============

Depreciation and amortization:
Segment depreciation and amortization                                      $       6,560     $       6,243    $       5,239
Amortization of intangibles                                                        4,451             4,470            3,821
APB #16 depreciation and amortization                                              3,922             4,233            4,366
Amortization of inventory write-up to fair market value                                                                 949
Amortization of deferred financing fees                                            2,347             2,305            2,370
                                                                           -------------     -------------    -------------
         Total depreciation and amortization                               $      17,280     $      17,251    $      16,745
                                                                           =============     =============    =============

Assets:
Segment assets                                                             $     136,824     $     142,419    $     128,814
APB #16 Adjustment                                                                 7,731             8,417           12,635
Goodwill and other intangibles                                                   157,888           169,048          178,088
Deferred tax assets                                                               10,980             5,836            4,964
Cash and other assets at corporate offices                                           581             1,772            7,003
                                                                           -------------     -------------    -------------
         Total assets                                                      $     314,004     $     327,492    $     331,504
                                                                           =============     =============    =============
</TABLE>


                                       39
<PAGE>

Net sales for the years ended December 31, 2001, 2000 and 1999, and long-lived
assets as of December 31, 2001, 2000 and 1999, by geographic area are as
follows:

<TABLE>
<CAPTION>
                                                    2001              2000             1999
                                                    ----              ----             ----
<S>                                           <C>               <C>              <C>
Net sales:
United States                                 $     135,609     $     159,744    $     118,901

Germany                                              61,288            63,343           32,518
United Kingdom                                       25,184            27,508           22,569
Other international                                  47,463            46,356           33,542
                                              -------------     -------------    -------------
         Total international                        133,935           137,207           88,629

Interarea                                           (15,398)          (16,378)          (9,112)
                                              -------------     -------------    -------------
                                              $     254,146     $     280,573    $     198,418
                                              =============     =============    =============

Long-lived assets:
United States                                 $     175,618     $     186,200    $     193,211

Germany                                              20,506            19,294           21,582
United Kingdom                                       22,313            20,997           20,741
Other international                                  11,667            12,041           12,293
                                              -------------     -------------    -------------
         Total international                         54,486            52,332           54,616
                                              -------------     -------------    -------------
                                              $     230,104     $     238,532    $     247,827
                                              =============     =============    =============
</TABLE>

Sales between geographic areas are generally priced to recover cost plus an
appropriate mark-up for profit.

I.    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 $1.0 million plus expenses, payable semi-annually.

J.    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


                                       40
<PAGE>

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, 2001, 6,981 options have been granted (of which 664 are
exercisable) under the 1998 Stock Option Plan with an exercise price of $4,030.
These options expire as follows: 6,281 expire in 2007; 250 expire in 2008; 100
expire in 2009; and 350 expire in 2010.

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 of
$8,585 was recorded in 1998 and is included in other long-term liabilities at
December 31, 2001 and 2000. As of December 31, 2001, 2,462.5 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: 2,387.5 expire in 2005; 75 expire in 2006; and 310
expire in 2007.


                                       41
<PAGE>

The following table summarizes activity in the Company's stock option plans:

<TABLE>
<CAPTION>
                                                      2001                         2000                          1999
                                               --------------------        ----------------------        --------------------
                                                          EXERCISE                      EXERCISE                   EXERCISE
                                               SHARES      PRICE           SHARES        PRICE           SHARES      PRICE
                                               ------    ----------        ------      ----------        ------    ----------
<S>                                            <C>       <C>                <C>        <C>                <C>      <C>
Outstanding at beginning of year                9,404    $    3,143         9,404      $    3,143         9,054    $    3,109
Granted                                           350         4,030           100           4,030           350         4,030
Canceled                                                                     (100)          4,030
                                                -----                       -----                         -----
Outstanding at end of year                      9,754         3,151         9,404           3,143         9,404         3,143
                                                -----                       -----                         -----
Exercisable at end of year                      3,436         1,603         3,176           1,405         2,976         1,223
                                                =====                       =====                         =====
Weighted-average fair value
  of options granted during
  the year using the Black-Scholes
  options-pricing model                                  $    1,446                    $    1,663                  $    1,860
                                                         ==========                    ==========                  ==========
Weighted-average assumptions used for grants:
  Expected dividend yield                                0%                            0%                          0%
  Expected life of options                               9 years                       9 years                     9 years
  Risk-free interest rate                                5%                            6%                          7%
</TABLE>

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. These warrants vest in four equal installments, first on
the grant date and then on each of the first three anniversaries thereof. 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. These warrants vest one-quarter on the grant date and on the first
anniversary of the grant and the remainder on the second anniversary.

The Company measures compensation cost for stock options issued to employees and
warrants issued to directors using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation costs been determined based on the fair value
method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's
net earnings would have been reduced by $945 in 2001, $1,061 in 2000 and $962 in
1999.

K.    RETIREMENT PLANS

The Company has defined benefit plans covering certain associates of its foreign
subsidiaries. Benefits under these plans are based primarily on years of service
and qualifying compensation during the final years of employment. Plan assets
include marketable equity securities. The Company's funding policy complies with
the requirements of local laws and regulations. During 2001, the Company froze
the benefits under the UK Pension plan and settled a portion of the obligation
by transferring the benefits of active associates to a defined contribution
plan.

In conjunction with the TPO acquisition, the Company entered into a Promise to
Pay agreement with Armstrong for the unfunded pension obligation of TPO's
Germany subsidiary in which Armstrong agreed to pay the portion of any pension
obligations which the associates earned prior to the date of the acquisition. At
December 31, 2001, a receivable of $1.3 million has been recorded for the
estimated portion of the pension obligation that is Armstrong's responsibility.


                                       42
<PAGE>

Day also sponsors defined contribution plans for certain associates, which
provide for Company contributions of a specified percentage of each associate's
total compensation.

The funded status of the Company's defined benefit plans at December 31, 2001
and 2000, is as follows:

<TABLE>
<CAPTION>
                                                                        2001             2000
                                                                        ----             ----
<S>                                                               <C>              <C>
Change in benefit obligation:
Benefit obligation at beginning of year                           $      16,545    $      16,170
Service cost                                                                286              689
Interest cost                                                               912              926
Plan participant contributions                                               35              196
Actuarial (gains) losses                                                   (396)             414
Curtailment gain                                                           (703)
Transfer to defined contribution plan                                    (3,733)
Benefits paid                                                              (592)            (664)
Foreign currency exchange impact                                           (439)          (1,186)
                                                                  -------------    -------------
Benefit obligation at end of year                                        11,915           16,545
                                                                  -------------    -------------

Change in plan assets:
Fair value of plan assets at the beginning of the year                   12,193           14,273
Actual return on plan assets                                               (980)            (954)
Employer contribution                                                       873              406
Plan participant contributions                                               35              196
Transfer to defined contribution plan                                    (3,733)
Benefits paid                                                              (592)            (664)
Foreign currency exchange impact                                           (217)          (1,064)
                                                                  -------------    -------------
Fair value of plan assets at end of year                                  7,579           12,193
                                                                  -------------    -------------

Funded status                                                            (4,336)          (4,352)
Unrecognized net actuarial (gain) loss                                    1,952            1,809
Additional minimum liability                                             (1,702)
                                                                  -------------    -------------
(Accrued) pension costs                                           $      (4,086)   $      (2,543)
                                                                  =============    =============
</TABLE>

The projected benefit obligation was determined using an assumed discount rate
of 6.0% in 2001 and 2000, and an assumed long-term rate of increase in
compensation of 4.5% in 2001 and 2000. The assumed long-term rate of return on
plan assets was 8.0% in 2001 and 2000.


                                       43
<PAGE>

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,
2001, 2000 and 1999, is as follows:

<TABLE>
<CAPTION>
                                                              2001              2000             1999
                                                              ----              ----             ----
<S>                                                     <C>               <C>              <C>
Defined benefit plans:
    Service cost                                        $         286     $         689    $         688
    Interest cost                                                 912               926              749
    Expected return on plan assets                               (944)           (1,080)            (890)
    Net amortization                                               14                 8                8
    Settlement loss                                               621
                                                        -------------     -------------    -------------
Net periodic pension cost                                         889               543              555
Defined contribution plans                                      1,457             2,782            1,253
                                                        -------------     -------------    -------------
Total pension expense                                   $       2,346     $       3,325    $       1,808
                                                        =============     =============    =============
</TABLE>

L.    OTHER POSTRETIREMENT BENEFITS

Day provides certain contributory postretirement health care and life insurance
benefits for certain U.S. associates. Those associates may become eligible for
these postretirement benefits if they retire on or after age 55 with at least
ten years of service.

The status of Day's unfunded plan at December 31, 2001 and 2000, is as follows:

<TABLE>
<CAPTION>
                                                                  2001             2000
                                                                  ----             ----
<S>                                                         <C>              <C>
Change in benefit obligation:
Benefit obligation at beginning of year                     $       9,308    $       6,372
Service cost                                                          618              452
Interest cost                                                         746              589
Actuarial (gains) losses                                               44            1,015
Liability recognized - acquisitions                                                  1,058
Benefits paid                                                        (214)            (178)
                                                            -------------    -------------
Benefit obligation at end of year                                  10,502            9,308

Unrecognized net actuarial gain (loss)                               (942)            (923)
                                                            -------------    -------------
Accrued postretirement benefit obligation                   $       9,560    $       8,385
                                                            =============    =============
</TABLE>

The weighted-average assumed rate of increase in the per capita cost of covered
benefits (i.e., health care cost rate trend) is assumed to be 9.5% and
decreasing gradually to 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 $1,712 at December 31,
2001, and the interest and service cost would have been $271 higher for the year
ended December 31, 2001. A one percentage point decrease in the assumed health
care cost trend rate would have decreased the accumulated benefit obligation by
$1,589 at December 31, 2001, and the interest and service cost would have been
$248 lower for the year ended December 31, 2001.

A discount rate of 7.25% and 7.5% was used in determining the accumulated
obligation as of December 31, 2001 and 2000.


                                       44
<PAGE>

Net periodic postretirement benefit costs include the following components for
the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                               2001              2000             1999
                                                               ----              ----             ----
<S>                                                       <C>               <C>              <C>
Service cost                                              $         618     $         452    $         378
Interest cost                                                       746               589              409
Actuarial loss recognized                                             7                                  2
                                                          -------------     -------------    -------------
Net periodic postretirement benefit costs                 $       1,371     $       1,041    $         789
                                                          =============     =============    =============
</TABLE>

M.    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 will be completed in early 2002. A pre-tax charge of $933 has been
recorded in 2001 for relocation of machinery and equipment and severance and
termination costs for 59 associates in 2001. As of December 31, 2001, 45
associates have been severed. Additional charges of approximately $0.1 million
will be recorded in 2002 as final relocation costs are incurred.

During the fourth quarter of 2001, the Company ceased operations at its Transfer
Media facility in Longwood, Florida. Improvements in productivity at other
Transfer Media facilities will allow these locations to absorb this additional
volume. A pre-tax charge of $3,010 was recorded in 2001 for severance costs for
55 associates, write-off of abandoned assets and costs related to closing the
facility. The Company intends to sell the land and building in 2002.

Also during the fourth quarter of 2001, the Company completed plans to relocate
its Pressroom Chemicals 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.

Below is a summary of the restructuring charges in 2001:

<TABLE>
<CAPTION>
                                                    TEXTILE             IMAGE
                                                    PRODUCTS            TRANSFER
                                                    --------            --------
<S>                                                 <C>                 <C>
Severance cost                                      $         500       $         975
Facility shutdown                                                                 769
Relocation and other costs incurred                           433                  49
Write-off of assets                                                             2,205
                                                    -------------       -------------
 Total                                              $         933       $       3,998
                                                    =============       =============
</TABLE>


                                       45
<PAGE>

Below is a summary of the amounts charged against the reserves for severance and
facility shutdown in 2001:

<TABLE>
<CAPTION>
                                                                    TEXTILE          IMAGE
                                                                    PRODUCTS         TRANSFER
                                                                    --------         --------
<S>                                                                 <C>              <C>
Severance and facility shutdown restructuring charge                $         500    $       1,744
Charges against the reserve for:
         Severance costs                                                     (108)             (79)
         Facility shutdown                                                                    (157)
                                                                    -------------    -------------
 Balance at December 31, 2001                                       $         392    $       1,508
                                                                    =============    =============
</TABLE>

As a result of the TPO acquisition, the Company ceased its textile manufacturing
operations in Dundee, Scotland, as of March 31, 2000, and moved the production
to other textile manufacturing facilities. In addition, the Company consolidated
its customer service and sales offices in the U.S., Germany and Italy. As a
result, a pre-tax restructuring charge of $1,361 was recorded in 1999, which was
used as intended in 2000.

N.    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,
2001 and 2000, as follows:

<TABLE>
<CAPTION>
                                                         2001              2000
                                                         ----              ----
<S>                                                 <C>              <C>
Land and buildings                                  $       1,238    $       1,308
Less - Accumulated depreciation                               (84)             (55)
                                                    -------------    -------------
                                                    $       1,154    $       1,253
                                                    =============    =============
</TABLE>

The Company also leases certain warehouses, transportation equipment and office
equipment under operating leases with terms of 1 to 10 years. Rental expense for
the years ended December 31, 2001, 2000 and 1999 was $1,949, $1,873 and $962.
The following is a schedule by year of future annual minimum lease payments
under leases as of December 31, 2001:

<TABLE>
<CAPTION>
                                                                     CAPITAL        OPERATING
                                                                       LEASE           LEASES
                                                                       -----           ------
<S>                                                            <C>              <C>
         2002                                                  $         128    $       1,545
         2003                                                            128              889
         2004                                                            128              553
         2005                                                            128              418
         2006                                                            128              393
         Thereafter                                                      891              864
                                                               -------------    -------------
                                                                       1,531    $       4,662
                                                                                =============
         Less - Amount representing interest                            (342)
                                                               -------------
         Present value of minimum lease
            payments (including current portion of $65)        $       1,189
                                                               =============
</TABLE>


                                       46
<PAGE>

      CONTINGENCIES

There are currently no environmental claims against the Company for the costs of
environmental remediation measures taken or to be taken. The Company is
operating under a consent decree related to its Michigan manufacturing facility
for environmental matters that occurred prior to the acquisition by American
Industrial Partners in 1995. Independent environmental consultants have assessed
the environmental matters. Based on this assessment and management's best
estimates of the liability associated with these matters, reserves for such
liabilities have been established and no insurance recoveries have been
anticipated in determining the reserves. A previous owner, PolyOne, has agreed
to indemnify the Company for certain costs associated with these matters. At
December 31, 2001, a $359 indemnification receivable is recorded. Management
believes that this receivable is fully realizable. In management's opinion, the
aforementioned claims will be resolved without material adverse effect on the
operations, financial position or cash flows of the Company.

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.

O.    RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities," as amended
by SFAS Nos. 137 and 138. Under the Statement, every derivative is recorded in
the balance sheet as either an asset or liability measured at its fair value.
Changes in the derivatives fair value will be recognized currently in earnings
unless specific hedge criteria are met. Day adopted this Statement for its
fiscal 2001 financial statements as of January 1, 2001. The adoption of SFAS No.
133 did not have a material impact on Day's financial condition, results of
operations or cash flows.

In July 2001, the Financial Accounting Standards Board issued SFAS Nos. 141,
"Business Combinations" and 142, "Goodwill and Other Intangible Assets." These
statements will not require amortization of goodwill for periods beginning after
December 15, 2001. Instead an annual review of the recoverability of the
goodwill and intangible assets will be required. These Statements will be
adopted as of January 1, 2002. As of January 1, 2002, the Company will cease
recording amortization of goodwill of approximately $3.7 million per year and
will recognize pre-tax income of $1.0 million for the change in accounting
principle for the amount of the unamortized deferred credit related to the
excess over cost arising from the TPO acquisition. The Company has until June
30, 2002, to complete the initial review of the recoverability of goodwill. If
any impairment of goodwill is indicated, the Company has until December 31,
2002, to recognize the impairment. The Company is still evaluating the Statement
and does not know what impact it will have on the results of operations or
financial position. The Company does not believe that there will be any impact
on cash flows from adopting these Statements.

P.    SUPPLEMENTAL CONSOLIDATING INFORMATION

The Company has outstanding $100,000 of 11-1/8% Senior Notes and $115,000 of
9 1/2% Senior Subordinated Notes (collectively, the "Notes"). Day International,
Inc. ("Day International" or


                                       47
<PAGE>

"Guarantor") is a wholly-owned subsidiary of the Company (which has no assets or
operations other than its investment in Day International). Day International
has provided a full and unconditional guarantee of the Notes. The wholly-owned
foreign 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
foreign 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,
2001 and 2000, the supplemental consolidating condensed statements of operations
and cash flows for the years ended December 31, 2001, 2000 and 1999, 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.


                                       48
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
               SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
                                DECEMBER 31, 2001

<TABLE>
<CAPTION>

                                                      DAY           DAY INTER-
                                                     INTER-          NATIONAL             NON
                                                    NATIONAL           INC.            GUARANTOR
                                                   GROUP, INC.     (GUARANTOR)        SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------     -----------        ------------     ------------     ------------
<S>                                                <C>             <C>                <C>              <C>              <C>
ASSETS
Cash and cash equivalents                          $       702      $      (702)      $       609      $                $       609
Accounts receivable - net                                                12,029            17,095                            29,124
Inventories                                                              20,687            13,589                            34,276
Other assets                                                              5,322             4,152                             9,474
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL CURRENT ASSETS                              702           37,336            35,445                            73,483
Intercompany                                           262,642          (13,228)           13,228         (262,642)
Property, plant and equipment - net                                      48,940            23,276                            72,216
Investment in subsidiaries                             (49,142)          31,138            (5,719)          23,723
Intangible and other assets                                             155,033            13,272                           168,305
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL ASSETS                              $   214,202      $   259,219       $    79,502      $  (238,919)     $   314,004
                                                   ===========      ===========       ===========      ===========      ===========
LIABILITIES AND
  STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable                                   $                $     3,373       $     3,315      $                $     6,688
Current maturities of long-term debt                    12,511                                 65                            12,576
Accrued associate related costs and
  other expenses                                         4,512            7,606            12,067                            24,185
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL CURRENT LIABILITIES                      17,023           10,979            15,447                            43,449
Intercompany                                           (46,388)         307,813            14,862         (276,287)
Long-term and subordinated long-term
  debt                                                 250,131                              1,124                           251,255
Other long-term liabilities                                              17,837             8,027                            25,864
Redeemable preferred stock                             109,354                                                              109,354
Total stockholders' equity (deficit)                  (115,918)         (77,410)           40,042           37,368         (115,918)
                                                   -----------      -----------       -----------      -----------      -----------
TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY (DEFICIT)                   $   214,202      $   259,219       $    79,502      $  (238,919)     $   314,004
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       49
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
               SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
                                DECEMBER 31, 2000

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
ASSETS
Cash and cash equivalents                          $       590      $      (590)      $       922      $                $       922
Accounts receivable -- net                                               17,067            18,434                            35,501
Inventories                                                              22,306            13,294                            35,600
Other assets                                                              3,488             5,223                             8,711
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL CURRENT ASSETS                              590           42,271            37,873                            80,734
Intercompany                                           267,000                                            (267,000)
Property, plant and equipment -- net                                     47,229            22,255                            69,484
Investment in subsidiaries                             (44,062)          31,585            (5,752)          18,229
Intangible and other assets                                             161,489            15,785                           177,274
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL ASSETS                              $   223,528      $   282,574       $    70,161      $  (248,771)     $   327,492
                                                   ===========      ===========       ===========      ===========      ===========
LIABILITIES AND
  STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable                                   $                $     4,135       $     4,025      $                $     8,160
Current maturities of long-term debt                     2,211                                147                             2,358
Accrued associate related costs and
  other expenses                                         4,251           11,830            11,183                            27,264
                                                   -----------      -----------       -----------      -----------      -----------
         TOTAL CURRENT LIABILITIES                       6,462           15,965            15,355                            37,782
Intercompany                                           (47,676)         313,763             9,252         (275,339)
Long-term and subordinated long-term
  debt                                                 264,789                              1,123                           265,912
Other long-term liabilities                                              16,561             7,284                            23,845
Redeemable preferred stock                              94,396                                                               94,396
Total stockholders' equity (deficit)                   (94,443)         (63,715)           37,147           26,568          (94,443)
                                                   -----------      -----------       -----------      -----------      -----------
TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY (DEFICIT)                   $   223,528      $   282,574       $    70,161      $  (248,771)     $   327,492
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       50
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Net sales                                          $                $   151,048       $   103,098      $                $   254,146
Cost of goods sold                                                       97,868            65,119                           162,987
                                                   -----------      -----------       -----------      -----------      -----------
         Gross profit                                                    53,180            37,979                            91,159
Selling, general and administrative                         52           34,120            19,901                            54,073
Restructuring costs                                                       4,554               377                             4,931
Amortization of intangibles                                               4,104               347                             4,451
Management fees                                                           1,042                                               1,042
                                                   -----------      -----------       -----------      -----------      -----------
         Operating income (loss)                           (52)           9,360            17,354                            26,662
Other expenses (income):
  Equity in (earnings) loss of subsidiaries              5,080           (6,269)                             1,189
  Interest expense                                                       28,336                83                            28,419
  Other (income) expense                                    (6)          (3,595)            4,202                               601
                                                   -----------      -----------       -----------      -----------      -----------
         Income (loss) before income taxes              (5,126)          (9,112)           13,069           (1,189)          (2,358)
Income taxes (benefit)                                     (18)          (4,032)            6,800                             2,750
                                                   -----------      -----------       -----------      -----------      -----------

         Net income (loss)                         $    (5,108)     $    (5,080)      $     6,269      $    (1,189)     $    (5,108)
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       51
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 2000

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Net sales                                          $                $   177,361       $   103,212      $                $   280,573
Cost of goods sold                                                      108,356            62,661                           171,017
                                                   -----------      -----------       -----------      -----------      -----------
         Gross profit                                                    69,005            40,551                           109,556
Selling, general and administrative                         36           35,929            21,507                            57,472
Amortization of intangibles                                               3,743               727                             4,470
Management fees                                                           1,100                                               1,100
                                                   -----------      -----------       -----------      -----------      -----------
         Operating income (loss)                           (36)          28,233            18,317                            46,514
Other expenses (income):
  Equity in (earnings) of subsidiaries                  (6,916)          (9,141)                            16,057
  Interest expense                                           1           30,172               184                            30,357
  Other (income) expense                                   (14)             927             3,692                             4,605
                                                   -----------      -----------       -----------      -----------      -----------
         Income before income taxes                      6,893            6,275            14,441          (16,057)          11,552
Income taxes (benefit)                                      (9)            (641)            5,300                             4,650
                                                   -----------      -----------       -----------      -----------      -----------

         Net income                                $     6,902      $     6,916       $     9,141      $   (16,057)     $     6,902
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       52
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Net sales                                          $                $   135,868       $    62,550      $                $   198,418
Cost of goods sold                                                       81,600            41,736                           123,336
                                                   -----------      -----------       -----------      -----------      -----------
         Gross profit                                                    54,268            20,814                            75,082
Selling, general and administrative                         14           23,519            12,427                            35,960
Restructuring costs                                                                         1,361                             1,361
Amortization of intangibles                                               3,776                45                             3,821
Management fees                                                           1,079                                               1,079
                                                   -----------      -----------       -----------      -----------      -----------
         Operating income (loss)                           (14)          25,894             6,981                            32,861
Other expenses (income):
Equity in (earnings) of subsidiaries                    (1,391)          (3,556)                             4,947
Interest expense                                                         28,085                                              28,085
Other (income) expense                                     (18)            (753)            1,275                               504
                                                   -----------      -----------       -----------      -----------      -----------
         Income before income taxes
             and extraordinary items                     1,395            2,118             5,706           (4,947)           4,272
Income taxes (benefit)                                       1             (130)            2,150                             2,021
                                                   -----------      -----------       -----------      -----------      -----------
         Income (loss) before
             extraordinary items                         1,394            2,248             3,556           (4,947)           2,251
Extraordinary losses on early
    extinguishment of debt                                                  857                                                 857
                                                   -----------      -----------       -----------      -----------      -----------
         Net income                                $     1,394      $     1,391       $     3,556      $    (4,947)     $     1,394
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       53
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Operating Activities:
Net income (loss)                                  $    (5,108)     $    (5,080)      $     6,269      $    (1,189)     $    (5,108)
  Adjustments to reconcile net
    income (loss) to net cash provided
    by operating activities:
  Depreciation and amortization                                          14,830             2,450                            17,280
  Equity in (earnings) loss of subsidiaries              5,080           (6,269)                             1,189
  Deferred income taxes and other                                        (4,044)            1,381                            (2,663)
  Foreign currency loss                                                     381               330                               711
  Loss on disposal of fixed assets                                        2,126                79                             2,205
  Changes in operating assets and liabilities              262             (308)            5,247                             5,201
                                                   -----------      -----------       -----------      ------------     ------------
         Net cash provided by
           operating activities                            234            1,636            15,756                            17,626

Investing Activities:
Capital expenditures                                                     (8,952)           (4,031)                          (12,983)
                                                   -----------      -----------       -----------      ------------     ------------
         Net cash used in investing activities                           (8,952)           (4,031)                          (12,983)

Financing Activities:
Payment of deferred financing fees                        (249)                                                                (249)
Payment of long term debt                               (2,250)                               (12)                           (2,262)
Net payments on revolving credit facility               (2,150)                                                              (2,150)
                                                   -----------      -----------       -----------      ------------     ------------
         Net cash (used in)
           financing activities                         (4,649)                               (12)                           (4,661)

Intercompany transfers and dividends                     4,527            7,204           (11,731)
Effects of exchange rates on cash                                                            (295)                             (295)
                                                   -----------      -----------       -----------      ------------     ------------
Net increase (decrease) in cash and
  cash equivalents                                         112             (112)             (313)                             (313)
Cash and cash equivalents at
  beginning of period                                      590             (590)              922                               922
                                                   -----------      -----------       -----------      ------------     ------------

Cash and cash equivalents at end of period         $       702      $      (702)      $       609      $                $       609
                                                   ===========      ===========       ===========      ============     ============
</TABLE>


                                       54
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2000

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Operating Activities:
Net income                                         $     6,902      $     6,916       $     9,141      $   (16,057)     $     6,902
  Adjustments to reconcile net
    income to net cash provided by
    (used in) operating activities:
  Depreciation and amortization                                          14,616             2,635                            17,251
  Equity in (earnings) of subsidiaries                  (6,916)          (9,141)                            16,057
  Deferred income taxes and other                                          (889)              161                              (728)
  Foreign currency loss                                                                     2,425                             2,425
  Changes in operating assets and liabilities             (381)          (8,487)            7,474                            (1,394)
                                                   -----------      -----------       -----------      -----------      -----------
         Net cash provided by (used in)
           operating activities                           (395)           3,015            21,836                            24,456

Investing Activities:
Cash paid for acquisitions                                               (2,329)                                             (2,329)
Capital expenditures                                                     (5,338)           (4,986)                          (10,324)
Other                                                                                         742                               742
                                                   -----------      -----------       -----------      -----------      -----------
         Net cash used in investing activities                           (7,667)           (4,244)                          (11,911)

Financing Activities:
Payments on term loans                                 (12,250)                              (212)                          (12,462)
Net borrowings on revolving credit facility                800                                                                  800
                                                   -----------      -----------       -----------      -----------      -----------
         Net cash provided by (used in)
           financing activities                        (11,450)                              (212)                          (11,662)

Intercompany transfers and dividends                    12,058            5,835           (17,893)
Effects of exchange rates on cash                                                            (469)                             (469)
                                                   -----------      -----------       -----------      -----------      -----------

Net increase (decrease) in cash and
  cash equivalents                                         213            1,183              (982)                              414
Cash and cash equivalents at
  beginning of period                                      377           (1,773)            1,904                               508
                                                   -----------      -----------       -----------      -----------      -----------

Cash and cash equivalents at end of period         $       590      $      (590)      $       922      $                $       922
                                                   ===========      ===========       ===========      ===========      ===========
</TABLE>


                                       55
<PAGE>

                          DAY INTERNATIONAL GROUP, INC.
          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>

                                                      DAY            DAY INTER-
                                                     INTER-           NATIONAL            NON
                                                    NATIONAL            INC.           GUARANTOR
                                                   GROUP, INC.      (GUARANTOR)       SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                   -----------      -----------       ------------     ------------     ------------
<S>                                                <C>              <C>               <C>              <C>              <C>
Operating Activities:
Net income (loss)                                  $     1,394      $     1,391       $      3,556     $     (4,947)    $     1,394
  Adjustments to reconcile net
    income (loss) to net cash provided by
    (used in) operating activities:
  Extraordinary loss on early
     extinguishment of debt                                871                                                                  871
  Depreciation and amortization                                          14,027              2,718                           16,745
  Equity in (earnings) of subsidiaries                  (1,391)          (3,556)                              4,947
  Deferred income taxes and other                                           (65)              (611)                            (676)
  Changes in operating assets and liabilities              296             (421)               452                              327
                                                   -----------      -----------       ------------     ------------     ------------
         Net cash provided by (used in)
           operating activities                          1,170           11,376              6,115                           18,661

Investing Activities:
Cash paid for acquisition                              (74,039)                                                             (74,039)
Capital expenditures                                                     (3,762)            (2,174)                          (5,936)
                                                   -----------      -----------       ------------     ------------     ------------
         Net cash used in investing activities         (74,039)          (3,762)            (2,174)                         (79,975)

Financing Activities:
Proceeds from issuance of convertible
   preferred stock                                      38,264                                                               38,264
Proceeds from issuance of term loans                    24,469                                                               24,469
Payment of deferred financing fees                      (1,639)                                                              (1,639)
Net payments on credit facilities                       (3,515)                                                              (3,515)
                                                   -----------      -----------       ------------     ------------     ------------
         Net cash provided by (used in)
            financing activities                        57,579                                                               57,579

Intercompany transfers and dividends                    12,411           (8,432)            (3,979)
Effects of exchange rates on cash                                                             (519)                            (519)
                                                   -----------      -----------       ------------     ------------     ------------

Net increase (decrease) in cash and
  cash equivalents                                      (2,879)            (818)              (557)                          (4,254)
Cash and cash equivalents at
  beginning of period                                    3,256             (955)             2,461                            4,762
                                                   -----------      -----------       ------------     ------------     ------------

Cash and cash equivalents at end of period         $       377      $    (1,773)      $      1,904     $                $       508
                                                   ===========      ===========       ============     ============     ============
</TABLE>


                                       56
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

Not applicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below are the names, ages and a brief account of the business
experience of each person who is a director or executive officer of the Company.

<TABLE>
<CAPTION>

NAME                                     AGE                       POSITION
----                                     ---                       --------
<S>                                      <C>         <C>
William C. Ferguson                       71         Chairman of the Board
Dennis R. Wolters                         55         Chief Executive Officer, President and Director
Dwaine R. Brooks                          59         Vice President, Human Resources and Assistant Secretary
Mario Busshoff                            30         Senior Vice President and Managing Director, Rotec
David B. Freimuth                         49         Senior Vice President, General Manager, Textile Products
Dermot Healy                              47         Managing Director, Europe
Thomas J. Koenig                          41         Vice President and Chief Financial Officer
Stephen P. Noe                            45         Senior Vice President, General Manager, Transfer Media
Arthur C. Riley                           63         Senior Vice President and Managing Director, Pacific Rim
Arthur H. Rogove                          56         Vice President, Technology
Steven R. Wilson                          49         President, Varn
Carl J. Crosetto                          53         Director
Matthew C. Kaufman                        31         Director
Colin Raymond                             31         Director
</TABLE>

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 also a member of the Advisory Board of GSC Partners.

Dennis R. Wolters has been the Chief Executive Officer of the Company and a
director since 1995. From 1989 through May 1995 he served as President and from
1987 through 1989 he served as Executive Vice President. He joined the company
in 1983.

Dwaine R. Brooks was named Vice President, Human Resources in October 1999.
Previously, he was Director Human Resources for the Company's worldwide
operations.

Mario Busshoff was named Senior Vice President and Managing Director, Rotec in
July 2001. From 1999 through June 2001 he served as Managing Director, Rotec.
Prior to that he was Vice President, Sales, Marketing and Technology for Rotec
Hulsensysteme GmbH.

David B. Freimuth was named Senior Vice President, General Manager, Textile
Products in October 1999. From 1995 through September 1999 he was Vice
President, Chief Financial Officer.


                                       57
<PAGE>

Dermot Healy, Managing Director, European Operations, joined Day in 1996. Mr.
Healy was previously employed by Renold PLC, most recently as Managing Director
of the Milnrow and Bradford operations.

Thomas J. Koenig was named Vice President and Chief Financial Officer in October
1999. From 1995 through September 1999 he was Controller/Director of Accounting.

Stephen P. Noe was named Senior Vice President, General Manager, Transfer Media
in July 2001. From January 2001 through June 2001 he was Senior Vice President,
Marketing & Sales, Transfer Media. Prior to joining Day, he was a Principal at
CSC Consulting in the Emerging Markets Practice and a Business Director at FMC
Corporation.

Arthur C. Riley was named Senior Vice President and Managing Director, Pacific
Rim, in July 2001. Prior to that he was Managing Director, Varn International.

Arthur H. Rogove has been Vice President, Technology Image Transfer since April
2001. Prior to that he was Director of Technology at the Performance Plastics
Division of St. Gobain Corporation (formerly the Furon Corporation) from January
1996 to March 2001.

Steven R. Wilson was named President, Varn International in December 1999. From
1996 through December 1999, Mr. Wilson served as Group Director Worldwide Sales
and Marketing, and Group General Manager of Operations for Associated Spring, a
business unit of Barnes Group, Inc.

Carl J. Crosetto has been a director since 2000. He is President and a member of
the Office of the Chairman of Bowne & Co., Inc. since December 1998. In January
2000, he was appointed to the Board of Directors of Bowne. Prior to December
1998, he served as President of Bowne International. Mr. Crosetto is a member of
the board of directors of SpeedFlex Asia Limited.

Matthew C. Kaufman has been a director since 2000. He is a Managing Director
with GSC Partners. He joined GSC Partners in 1997. Mr. Kaufman was previously
Director of Corporate Finance with NextWave Telecom, Inc. He is also chairman of
the Board of Pacific Aerospace & Electronics, Inc. and a director of Globecom
Interactive Inc., Waddington North America, Inc. and Woods Equipment Company.

Colin F. Raymond has been a director since 2000. He is a Partner with Soros
Private Equity Partners ("SPEP") in New York. He has been with SPEP since May
1999. Prior to joining SPEP, Mr. Raymond was a member of the Merchant Banking
division of Morgan Stanley in New York from 1996 to 1999. Mr. Raymond is a
member of the board of directors for CrossWorlds Software, Inc., C.S. Aviation
Inc., Onvoy, Inc. and PointOne Telecommunications, Inc.

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. The warrants vest in four equal installments, first on the grant date and
then on each of the first three anniversaries thereof. 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. The warrants
vest in one-quarter on the grant date, one-quarter on the first anniversary of
the grant date and the remainder on the second anniversary. None of the other
directors will receive any compensation for their services as directors.


                                       58
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation for 2001,
2000 and 1999 for Mr. Wolters and the four other most highly compensated
executive officers of the Company at the end of 2001.

<TABLE>
<CAPTION>

                                                                                 LONG TERM COMPENSATION
                                                                             ------------------------------
                                                         ANNUAL                AWARDS
                                                      COMPENSATION           SECURITIES
NAME AND                                           -------------------       UNDERLYING         ALL OTHER
PRINCIPAL POSITION                   YEAR          SALARY        BONUS        OPTIONS(#)       COMPENSATION
------------------                   ----          ------        -----       -----------       ------------
<S>                                  <C>          <C>           <C>          <C>               <C>
Dennis R. Wolters,                   2001         $250,000      $207,545              0        $     17,664(a)
 President and                       2000          239,735             0              0               7,798
 Chief Executive                     1999          215,000        80,000              0              26,662
 Officer

Arthur C. Riley,                     2001          234,739       155,628              0              32,281(b)
 Senior Vice President and           2000          233,723       136,503              0              33,219
 Managing Director,                  1999          252,147       145,656              0              33,271
 Pacific Rim

David B. Freimuth,                   2001          160,000       138,106              0              15,571(c)
 Senior Vice President,              2000          150,000             0              0              19,247
 Textile Products                    1999          120,750        22,000              0               5,673

Steven R. Wilson,                    2001          175,000        54,981              0              10,512(d)
 President, Varn                     2000          175,000             0              0              45,685
                                     1999           12,788             0            250                   0

Dermot Healy,                        2001          137,435        75,818              0              39,720(e)
 Managing Director, Europe           2000          131,953             0              0              39,527
                                     1999          140,801        67,853              0              39,193
</TABLE>

(a)   Represents company contributions to the Day 401(k) and Profit Sharing Plan
      ($11,475), premiums for group term life insurance ($3,668) and automobile
      allowance ($2,521).

(b)   Represents company contributions to a UK benefit plan ($14,050) and
      automobile allowance ($18,231).

(c)   Represents company contributions to the Day 401(k) and Profit Sharing Plan
      ($10,912), premiums for group term life insurance ($863) and automobile
      allowance ($3,796).

(d)   Represents company contributions to the Day 401(k) and Profit Sharing Plan
      ($3,506) and premiums for group term life insurance ($626) and automobile
      allowance ($6,380).

(e)   Represents company contributions to a UK benefit plan ($31,404) and
      automobile allowance ($8,316).


                                       59
<PAGE>

                            FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                                     NUMBER
                                                                                  OF SECURITIES          VALUE OF
                                                                                   UNDERLYING           UNEXERCISED
                                                                                   UNEXERCISED         IN-THE-MONEY
                                                                                  OPTIONS/SARS         OPTIONS/SARS
                                                                                  AT FY-END(#)         AT FY-END($)
                                                                                  ------------         ------------
                                                                                  EXERCISABLE/         EXERCISABLE/
                                                                                     UNEXER-              UNEXER-
NAME                                                                                 CISABLE            CISABLE(1)
----                                                                              ------------         ------------
<S>                                                                               <C>                  <C>
Dennis R. Wolters                                                                    1,470/            $  3,636,000/
                                                                                     2,580             $          0

Arthur C. Riley                                                                          0/            $          0/
                                                                                         0             $          0

David B. Freimuth                                                                      384/            $    939,300/
                                                                                       706             $          0

Steven R. Wilson                                                                        16/            $          0/
                                                                                       234             $          0

Dermot Healy                                                                           232/            $    606,000/
                                                                                       303             $          0
</TABLE>

(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, having a term of five years from the closing date of the GSC
Partners' acquisition in 1998, subject to annual renewals thereafter 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) in the event of a termination on or after the first
anniversary of the closing date of the GSC Partners' acquisition but before the
end of the 5-year term of the agreement, a lump sum equal to two times the
executive's base salary and annual incentive bonus target and (b) in the event
of a termination on or after the end of the 5-year term of the agreement, a lump
sum equal to one times base salary and


                                       60
<PAGE>

annual incentive bonus target and (iv) continuation of benefits and perquisites
for one year following termination.

Mr. Wilson is a party to an employment agreement with the Company, having an
expiration date of December 31, 2001. Under his employment agreement, he
receives an annual base salary of $175,000 (subject to increase by the Board of
Directors), and an incentive bonus at 100% of plan target in an amount equal to
at least $100,000. The agreement also contains certain non-competition
provisions. Subject to certain exceptions, in the event that Mr. Wilson is
terminated by the Company without cause, the employment agreement provides that
he 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, and (iii) a lump sum amount equal to one times base
salary and annual incentive bonus target. In addition, Mr. Wilson is a party to
an employment extension agreement with the Company having an expiration date of
March 31, 2002. Under his employment extension agreement, he receives an annual
base salary of $250,000. The extension agreement also contains certain
non-competition provisions.

Mr. Riley is a party to an employment agreement with the Company, having an
expiration date of December 31, 2003. Under his employment agreement, he
receives an annual base salary of (pound)175,000 (subject to increase by the
Board of Directors), and an incentive bonus of up to 30% of the annual base
salary. The agreement also contains certain non-competition provisions. Subject
to certain exceptions, in the event that Mr. Riley is terminated by the Company
without cause, the employment agreement provides that he is entitled to receive
the following compensation: (i) accrued salary, (ii) pro-rata incentive bonus
for the year of termination, and (iii) a lump sum amount equal to one times base
salary.

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. GSC Partners
and SG Capital Partners LLC ("SGCP"), the Company's controlling shareholders,
provide business, financial and management advisory services to the Company for
an annual total fee of $1 million, plus expenses. The Company also indemnifies
GSC Partners and SGCP from and against certain liabilities. Mr. Raymond is a
Partner with Soros Private Equity Partners. 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 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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.


                                       61
<PAGE>

<TABLE>
<CAPTION>
                                                                           NO. OF SHARES OF           % OF
                                                                             COMMON STOCK            COMMON
NAME OF BENEFICIAL OWNER                                                        (a)(b)                STOCK
------------------------                                                        ------                -----
<S>                                                                        <C>                       <C>
Dennis R. Wolters                                                                1,860                 6.9
David B. Freimuth                                                                  509                 1.9
Dermot Healy                                                                       242                 0.9
Steven R. Wilson                                                                    16                 0.1
Arthur C. Riley                                                                     --                  --
Carl J. Crosetto                                                                    74                 0.3
William C. Ferguson                                                                148                 0.6
Matthew C. Kaufman (c)                                                              --                  --
Colin F. Raymond                                                                    --                  --
All Directors and Executive Officers as a Group (9 persons)                      3,093                11.4
SG Capital Partners LLC                                                          3,777.5              13.9
Greenwich IV, LLC (c)                                                           18,912                69.7
</TABLE>

(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 3,504.

(b)   The shares of Common Stock owned by SGCP are 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. Mr. Kaufman 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 his
      affiliation with GSC Partners. Mr. Kaufman disclaims any such beneficial
      ownership.

THE 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, which
initially shall be five, and for the composition of the Board of Directors of
the Company to consist of four individuals designated as 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


                                       62
<PAGE>

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 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.

SGCP owns 3,777.5 shares of Class B Non-Voting Common Stock representing 14.3%
of the outstanding Common Stock (on a fully-diluted basis). Societe Generale was
the Administrative Agent and a lender under the Senior Secured Credit Facility
until May 2001.


                                       63
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(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, 2001, 2000 and 1999:
     Report of Independent Public Accountants
     Consolidated Balance Sheets
     Consolidated Statements of Operations
     Consolidated Statements of Stockholders' Equity (Deficit)
     Consolidated Statements of Cash Flows
     Notes 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)    REPORTS ON FORM 8-K

       None

(c)    EXHIBITS.  See Index to Exhibits

(d)    SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT

       No annual report covering the Company's last fiscal year, and no proxy
       statement, form of proxy or other proxy soliciting material has been
       sent to security holders of the Company.


                                       64
<PAGE>

                                   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 28, 2002                            By: /s/ Dennis R Wolters
                                                Dennis R. Wolters
                                                President 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 28, 2002                            By: /s/ Dennis R Wolters
                                                   -----------------------------
                                                Dennis R. Wolters
                                                President, Chief Executive
                                                Officer and Director
                                                (Principal Executive Officer)

Date: March 28, 2002                            By: /s/ Thomas J. Koenig
                                                   -----------------------------
                                                Thomas J. Koenig
                                                Vice President and Chief
                                                Financial Officer (Principal
                                                Financial Officer and
                                                Principal Accounting Officer)

Date: March 28, 2002                            By: /s/ William C. Ferguson
                                                   -----------------------------
                                                William C. Ferguson
                                                Director

Date: March 28, 2002                            By: /s/ Matthew C. Kaufman
                                                   -----------------------------
                                                Matthew C. Kaufman
                                                Director

Date:                                           By:
                                                   -----------------------------
                                                Colin F. Raymond
                                                Director

Date: March 28, 2002                            By: /s/ Carl J. Crosetto
                                                   -----------------------------
                                                Carl J. Crosetto
                                                Director


                                       65
<PAGE>

INDEX TO EXHIBITS

(3)   ARTICLES OF INCORPORATION AND BY-LAWS

      3.1   Certificate of Incorporation of Day International Group, Inc.
            ("Group") (incorporated by reference to Exhibit 3.1 to the
            Registration Statement on Form S-4 (Reg. No. 33-93644)); as amended
            on October 15, 1999 (incorporated by reference to Exhibit 3.1 to the
            Form 8-K dated October 28, 1999)

      3.2   By-Laws of Group (incorporated by reference to Exhibit 3.2 to the
            Registration Statement on Form S-4 (Reg. No. 33-93644))

      3.3   Certificate of Incorporation of Day International, Inc. (the
            "Guarantor") (incorporated by reference to Exhibit 3.3 to the
            Registration Statement on Form S-4 (Reg. No. 33-93644))

      3.4   By-Laws of the Guarantor (incorporated by reference to Exhibit 3.4
            to the Registration Statement on Form S-4 (Reg. No. 33-93644))

(4)   INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

      4.1   Indenture (the "Indenture") dated June 6, 1995 among Registrant, the
            Guarantor and American Bank National Association (incorporated by
            reference to Exhibit 4.1 to the Registration Statement on Form S-4
            (Reg. No. 33-93644))

      4.2   Registration Rights Agreement dated as of June 6, 1995 among Group,
            the Guarantor, Donaldson, Lufkin & Jenrette Securities Corporation,
            NationsBanc Capital Markets, Inc. (incorporated by reference to
            Exhibit 4.3 to the Registration Statement on Form S-4 (Reg. No.
            33-93644))

      4.3   First Supplemental Indenture, dated March 13, 1998, to the Indenture
            (incorporated by reference to Exhibit 4.2 to the Amendment No. 1 to
            Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No.
            333-51839))

      4.4   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))

      4.5   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))

      4.6   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))

      4.7   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))

      4.8   Certificate of Designation for the Company's 18% Convertible
            Cumulative Preference 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)


                                       66
<PAGE>

      4.8   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))

      4.9   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))

      4.10  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)

      4.11  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)

(10)  MATERIAL CONTRACTS

      10.1  Purchase Agreement dated as of May 25, 1995 among Group, the
            Guarantor (as of June 6, 1995) Donaldson, Lufkin & Jenrette
            Securities Corporation and NationsBanc Capital Markets, Inc.
            (incorporated by reference to Exhibit 4.2 to the Registration
            Statement on Form S-4 (Reg. No. 33-93644))

      10.2  Stock Purchase Agreement dated April 11, 1995 among Group, M.A.
            Hanna Company and Cadillac Plastic Group, Inc., as amended
            (incorporated by reference to Exhibit 4.11 to the Registration
            Statement on Form S-4 (Reg. No. 33-93644))

      10.3  Share Purchase Agreement dated April 11, 1995 between Group and
            Cadillac Plastic Limited, as amended (incorporated by reference to
            Exhibit 4.12 to the Registration Statement on Form S-4 (Reg. No.
            33-93644))

      10.4  Asset Purchase Agreement between Day International (Canada) Limited
            and Group, as amended (incorporated by reference to Exhibit 4.13 to
            the Registration Statement on Form S-4 (Reg. No. 33-93644))

      10.5  Employment Agreement, dated January 16, 1998, between the Guarantor
            and 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)) 10.6 Employment Agreement, dated
            January 16, 1998, between Day International, Inc. and 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))

      10.7  Employment Agreement, dated January 1, 1999, between Varn Products
            (UK) Limited and Arthur C. Riley

      10.8  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))


                                       67
<PAGE>

      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 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))

      10.11 Amended and Restated Credit Agreement, dated as of October 19, 1999,
            among the Company, Societe Generale, as Administrative Agent, and SG
            Cowen Securities Corporation, as Arranger (incorporated by reference
            to Exhibit 10.1 to the Form 8-K dated October 28, 1999)

      10.12 First Amendment to Amended and Restated Credit Agreement, dated as
            of September 21, 2001, among the Company, Banc One Capital Markets,
            as Arranger, and Bank One, NA, as Administrative Agent (incorporated
            by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
            for the quarter ended September 30, 2001)

      10.13 Guarantee and Collateral Agreement, dated January 15, 1998, made by
            the Company and Day International, Inc. in favor of Societe Generale
            as Administrative Agent for the benefit of the Senior Lenders and
            certain other secured parties (incorporated by reference to Exhibit
            4.8 to the Amendment No. 1 to Registration Statement on Form S-4/A
            filed on May 8, 1998 (Reg. No. 333-51839))

      10.14 Patent and Trademark Security Agreement, dated January 15, 1998,
            made by the Company in favor of the Administrative Agent for the
            benefit of the Senior Lenders under the Credit Agreement
            (incorporated by reference to Exhibit 4.9 to the Amendment No. 1 to
            Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No.
            333-51839))

      10.15 Mortgage and Security Agreement Dated January 16, 1998, from Day, as
            Mortgagor, to the Administrative Agent, with respect to the Florida
            Property (incorporated by reference to Exhibit 4.10 to the Amendment
            No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998
            (Reg. No. 333-51839))

      10.16 Mortgage and Security Agreement Dated January 16, 1998, from Day, as
            Mortgagor, to the Administrative Agent, with respect to the South
            Carolina property (incorporated by reference to Exhibit 4.11 to the
            Amendment No. 1 to Registration Statement on Form S-4/A filed on May
            8, 1998 (Reg. No. 333-51839))

      10.17 Deed of Trust, dated January 15, 1998, from Day, as Mortgagor, to
            the Administrative Agent, 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))

      10.18 Mortgage and Security Agreement Dated January 16, 1998, from Day, as
            Mortgagor, to the Administrative Agent, 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))


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      10.19 Share Pledge Agreement dated December 22, 1998 between made by the
            Company and Day International, Inc. in favor of Societe Generale as
            Administrative Agent for the benefit of the Senior Lenders and
            certain other secured parties (incorporated by reference to Exhibit
            10.28 to the Annual Report on Form 10-K for the year ended December
            31, 1998)

      10.20 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))

      10.21 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))

      10.22 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))

      10.23 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))

      10.24 Share Purchase Agreement between Day International, Inc., Mr. Rudolf
            Wilbring, Mr. Helmut Busshoff and Mr. Josef Dunne dated December 23,
            1998 (incorporated by reference to Exhibit 10.26 to the Annual
            Report on Form 10-K for the year ended December 31, 1998)

      10.25 Non Compete Agreement between Day International, Inc., Mr. Rudolf
            Wilbring, Mr. Helmut Busshoff and Mr. Josef Dunne dated December 23,
            1998 (incorporated by reference to Exhibit 10.27 to the Annual
            Report on Form 10-K for the year ended December 31, 1998)

      10.26 Stock warrant to purchase 74 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)

      10.27 Stock warrant to purchase 74 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)

      10.28 Stock warrant to purchase 74 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)

      10.29 Purchase Agreement between Armstrong World Industries, Inc. and
            Armstrong World Industries GmbH, as Sellers and Day International,
            Inc., as Buyer (portions omitted pursuant to a request for
            confidential treatment) (incorporated by reference to Exhibit 2.1 to
            the Quarterly Report on Form 10-Q for the quarterly period ended
            September 30, 1999

      10.30 Stock Purchase Agreement, dated as of August 13, 1999, by and among
            the Company and the stockholders of each of Varnco Holdings Inc.,
            Varn Holdings PLC, Varn Aegis Co. GmbH Hautschutzsysteme, Varn
            Products Co., Inc., JV Tex Realty Corp. and Graph Tech, Inc.
            (incorporated by reference to Exhibit 2.1 to the Form 8-K dated
            October 28, 1999); as amended October 19, 1999 (incorporated by
            reference to Exhibit 2.2 to the Form 8-K dated October 28, 1999)


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      10.31 Subsidiary Guarantee, dated as of October 19, 1999, among Firstar
            Bank, N.A. and the several Guarantors party thereto (incorporated by
            reference to Exhibit 4.3 to the Form 8-K dated October 28, 1999)

      10.32 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)

      10.33 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

(99)  LETTER TO SECURITIES AND EXCHANGE COMMISSION REGARDING AUDIT OF ARTHUR
      ANDERSEN LLP


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