##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Quarterly Period ended June 30, 2005
 Commission File No. 33-93644
 DAY INTERNATIONAL GROUP, INC.
 
 State of Incorporation:
    
    DelawareIRS Employer Identification No.:
    
    31-1436349
   þ o
 o þ




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DAY INTERNATIONAL GROUP, INC.
 INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.Controls and Procedures
    
    
    25PART II OTHER INFORMATIONItem 6. Exhibits
    
    
    25Signature
    
    
    25EX-31.1 302 Certification for CEOEX-31.2 302 Certification for CFOEX-32.1 906 Certification for CEOEX-32.2 906 Certification for CFO
  2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2005 AND DECEMBER 31, 2004
(In thousands)
 2005
    
    2004(Unaudited)ASSETSCash and cash equivalents
    
    $
    1,823
    
    
    $
    843Accounts receivable (less allowance for doubtful accounts of $3,319 and $3,815)
    
    
    49,380
    
    
    
    51,967Inventories (Note B)
    
    
    51,529
    
    
    
    50,334Other current assets
    
    
    18,798
    
    
    
    17,812Total current assets
    
    
    121,530
    
    
    
    120,956Property, plant and equipment, net of accumulated depreciation of $65,236 and $61,592
    
    
    70,377
    
    
    
    74,735Goodwill
    
    
    142,472
    
    
    
    143,444Intangible assets, net of accumulated amortization of $42,570 and $40,203
    
    
    16,472
    
    
    
    18,842Other assets
    
    
    11,306
    
    
    
    12,258TOTAL ASSETS
    
    $
    362,157
    
    
    $
    370,235LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    6,254
    
    
    $
    11,020Current maturities of long-term debt
    
    
    4,545
    
    
    
    4,576Other current liabilities
    
    
    27,648
    
    
    
    33,466Total current liabilities
    
    
    38,447
    
    
    
    49,062Long-term and subordinated long-term debt
    
    
    243,156
    
    
    
    247,814Other long-term liabilities
    
    
    41,591
    
    
    
    39,572Redeemable preferred stock (Note D)
    
    
    182,765
    
    
    
    169,805STOCKHOLDERS EQUITY (DEFICIT):Common shares
    
    
    1
    
    
    
    1Contra-equity associated with the assumption of majority shareholders bridge loan
    
    
    (68,673
    )
    
    
    (68,673
    )Retained earnings (deficit)
    
    
    (78,318
    )
    
    
    (75,201
    )Accumulated other comprehensive gain/(loss)
    
    
    3,188
    
    
    
    7,855Total stockholders equity (deficit)
    
    
    (143,803
    )
    
    
    (136,018
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    362,157
    
    
    $
    370,235
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(In thousands)
(Unaudited)
 Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004NET SALES
    
    $
    91,390
    
    
    $
    88,807
    
    
    $
    181,309
    
    
    $
    178,520COST OF GOODS SOLD
    
    
    56,762
    
    
    
    56,692
    
    
    
    113,635
    
    
    
    113,074GROSS PROFIT
    
    
    34,628
    
    
    
    32,115
    
    
    
    67,674
    
    
    
    65,446SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
    
    
    20,087
    
    
    
    19,853
    
    
    
    40,609
    
    
    
    39,953AMORTIZATION OF INTANGIBLES
    
    
    8
    
    
    
    8
    
    
    
    17
    
    
    
    17MANAGEMENT FEES
    
    
    250
    
    
    
    250
    
    
    
    500
    
    
    
    500OPERATING PROFIT
    
    
    14,283
    
    
    
    12,004
    
    
    
    26,548
    
    
    
    24,976OTHER EXPENSES:Interest expense:Long-term debt
(including amortization of deferred
financing costs
and discount of $456, $436, $913,
and $863)
    
    
    5,650
    
    
    
    5,646
    
    
    
    11,117
    
    
    
    11,282Redeemable preferred stock
dividends (including
amortization of
discount and issuance costs of $47,
$47, $94, and $94)
    
    
    6,518
    
    
    
    5,628
    
    
    
    12,946
    
    
    
    11,190Other (income) expense
    
    
    (1,137
    )
    
    
    (663
    )
    
    
    (827
    )
    
    
    (1,541
    )INCOME BEFORE INCOME TAXES
    
    
    3,252
    
    
    
    1,393
    
    
    
    3,312
    
    
    
    4,045INCOME TAX EXPENSE
    
    
    3,800
    
    
    
    3,779
    
    
    
    6,429
    
    
    
    8,446NET INCOME (LOSS)
    
    $
    (548
    )
    
    $
    (2,386
    )
    
    $
    (3,117
    )
    
    $
    (4,401
    )
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(In thousands)
(Unaudited)
 2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (3,117
    )
    
    $
    (4,401
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    7,976
    
    
    
    7,402Interest expenseredeemable preferred stock dividends
    
    
    12,946
    
    
    
    11,190Deferred income taxes
    
    
    3,510
    
    
    
    3,619Equity in earnings of investees
    
    
    (59
    )
    
    
    (148
    )Foreign currency (gain) loss
    
    
    (1,684
    )
    
    
    (907
    )(Gain) loss on disposal of fixed assets
    
    
    (8
    )
    
    
    (128
    )Change in operating assets and liabilities
    
    
    (12,777
    )
    
    
    (3,413
    )Net cash provided by operating activities
    
    
    6,787
    
    
    
    13,214CASH FLOWS FROM INVESTING ACTIVITIES:Cash paid for acquisitions
    
    
    (426
    )
    
    
    (1,346
    )Capital expenditures
    
    
    (3,643
    )
    
    
    (3,126
    )Proceeds from sale of property
    
    
    
    
    
    
    1,410Net cash (used in) investing activities
    
    
    (4,069
    )
    
    
    (3,062
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    
    
    
    
    25Payment of deferred financing costs
    
    
    
    
    
    
    (633
    )Payments on term loans
    
    
    (1,979
    )
    
    
    (8,927
    )Net (payments on) proceeds from revolving credit facility
    
    
    175
    
    
    
    50Net cash provided by (used in) financing activities
    
    
    (1,804
    )
    
    
    (9,485
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    66
    
    
    
    (62
    )Net increase (decrease) in cash and cash equivalents
    
    
    980
    
    
    
    605Cash and cash equivalents at beginning of period
    
    
    843
    
    
    
    726Cash and cash equivalents at end of period
    
    $
    1,823
    
    
    $
    1,331
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DAY INTERNATIONAL GROUP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
 A. BASIS OF PRESENTATION
  B. INVENTORIES
  2005
    
    2004Finished goods
    
    $
    25,514
    
    
    $
    24,384Work in process
    
    
    4,717
    
    
    
    5,193Raw materials
    
    
    21,298
    
    
    
    20,757$
    51,529
    
    
    $
    50,334
 C. LONG-TERM DEBT
 Debtors Accounting for a Modification or Exchange of Debt Instruments
 6




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D. REDEEMABLE PREFERRED STOCK
 1 4
 E. INCOME TAXES
  F. BUSINESS SEGMENTS
    7




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Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Third party sales:Image Transfer
    
    $
    79,702
    
    
    $
    75,963
    
    
    $
    157,515
    
    
    $
    152,966Textile Products
    
    
    11,688
    
    
    
    12,844
    
    
    
    23,794
    
    
    
    25,554Total
    
    $
    91,390
    
    
    $
    88,807
    
    
    $
    181,309
    
    
    $
    178,520Segment operating profit:Image Transfer
    
    $
    14,318
    
    
    $
    11,808
    
    
    $
    26,818
    
    
    $
    24,366Textile Products
    
    
    1,516
    
    
    
    1,601
    
    
    
    2,824
    
    
    
    3,403Total
    
    $
    15,834
    
    
    $
    13,409
    
    
    $
    29,642
    
    
    $
    27,769
  Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Segment operating profit
    
    $
    15,834
    
    
    $
    13,409
    
    
    $
    29,642
    
    
    $
    27,769APB No. 16 depreciation and amortization
    
    
    (1,038
    )
    
    
    (999
    )
    
    
    (2,157
    )
    
    
    (1,998
    )Non-allocated corporate expenses
    
    
    (254
    )
    
    
    (148
    )
    
    
    (420
    )
    
    
    (278
    )Amortization of intangibles
    
    
    (9
    )
    
    
    (8
    )
    
    
    (17
    )
    
    
    (17
    )Management fees
    
    
    (250
    )
    
    
    (250
    )
    
    
    (500
    )
    
    
    (500
    )Total operating profit
    
    $
    14,283
    
    
    $
    12,004
    
    
    $
    26,548
    
    
    $
    24,976
 G. COMPREHENSIVE INCOME (LOSS)
  H. CONTINGENCIES
  8




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I. STOCK-BASED COMPENSATION
 Accounting for
Stock-Based Compensation
 Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Net income (loss)as reported
    
    $
    (548
    )
    
    $
    (2,386
    )
    
    $
    (3,117
    )
    
    $
    (4,401
    )Lessstock-based compensation
expense determined using
fair value based
method in
SFAS No. 123
    
    
    (184
    )
    
    
    (195
    )
    
    
    (370
    )
    
    
    (390
    )Pro forma net income (loss)
    
    $
    (732
    )
    
    $
    (2,581
    )
    
    $
    (3,487
    )
    
    $
    (4,791
    )
 J. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
  Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    104
    
    
    $
    92
    
    
    $
    212
    
    
    $
    187Interest cost
    
    
    101
    
    
    
    192
    
    
    
    206
    
    
    
    389Expected return on plan assets
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (170
    )Actuarial loss recognized
    
    
    13
    
    
    
    9
    
    
    
    26
    
    
    
    19Net periodic pension costs
    
    $
    218
    
    
    $
    209
    
    
    $
    444
    
    
    $
    425
  Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    330
    
    
    $
    275
    
    
    $
    660
    
    
    $
    550Interest cost
    
    
    253
    
    
    
    212
    
    
    
    506
    
    
    
    424Amortization of prior service cost
    
    
    (208
    )
    
    
    (160
    )
    
    
    (417
    )
    
    
    (320
    )Actuarial loss recognized
    
    
    112
    
    
    
    59
    
    
    
    224
    
    
    
    118Net periodic postretirement benefit costs
    
    $
    487
    
    
    $
    386
    
    
    $
    973
    
    
    $
    772
 9




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K. SUPPLEMENTAL CONSOLIDATING INFORMATION
 1 2
 10




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DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
JUNE 30, 2005
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    378
    
    
    $
    
    
    
    $
    1,445
    
    
    $
    
    
    
    $
    1,823Accounts receivablenet
    
    
    
    
    
    
    21,926
    
    
    
    27,454
    
    
    
    
    
    
    
    49,380Inventories
    
    
    
    
    
    
    28,580
    
    
    
    22,949
    
    
    
    
    
    
    
    51,529Other current assets
    
    
    
    
    
    
    12,669
    
    
    
    6,129
    
    
    
    
    
    
    
    18,798TOTAL CURRENT ASSETS
    
    
    378
    
    
    
    63,175
    
    
    
    57,977
    
    
    
    
    
    
    
    121,530Intercompany
    
    
    246,506
    
    
    
    6,582
    
    
    
    7,715
    
    
    
    (260,803
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    40,845
    
    
    
    29,532
    
    
    
    
    
    
    
    70,377Investment in subsidiaries
    
    
    (12,350
    )
    
    
    71,386
    
    
    
    (12,549
    )
    
    
    (46,487
    )
    
    
    Intangible and other assets
    
    
    
    
    
    
    151,896
    
    
    
    18,354
    
    
    
    
    
    
    
    170,250TOTAL ASSETS
    
    $
    234,534
    
    
    $
    333,884
    
    
    $
    101,029
    
    
    $
    (307,290
    )
    
    $
    362,157LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    
    
    
    $
    5,173
    
    
    $
    10,542
    
    
    $
    (9,461
    )
    
    $
    6,254Current maturities of long-term debt
    
    
    4,434
    
    
    
    
    
    
    
    111
    
    
    
    
    
    
    
    4,545Other current liabilities
    
    
    3,296
    
    
    
    9,901
    
    
    
    14,451
    
    
    
    
    
    
    
    27,648TOTAL CURRENT LIABILITIES
    
    
    7,730
    
    
    
    15,074
    
    
    
    25,104
    
    
    
    (9,461
    )
    
    
    38,447Intercompany
    
    
    (54,229
    )
    
    
    296,808
    
    
    
    (7,264
    )
    
    
    (235,315
    )
    
    
    Long-term and subordinated long-term debt
    
    
    242,071
    
    
    
    
    
    
    
    1,085
    
    
    
    
    
    
    
    243,156Other long-term liabilities
    
    
    
    
    
    
    31,322
    
    
    
    10,269
    
    
    
    
    
    
    
    41,591Redeemable preferred stock
    
    
    182,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,765Total stockholders equity (deficit)
    
    
    (143,803
    )
    
    
    (9,320
    )
    
    
    71,835
    
    
    
    (62,515
    )
    
    
    (143,803
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)
    
    $
    234,534
    
    
    $
    333,884
    
    
    $
    101,029
    
    
    $
    (307,209
    )
    
    $
    362,157
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DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 2004
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    (130
    )
    
    $
    130
    
    
    $
    843
    
    
    $
    
    
    
    $
    843Accounts receivablenet
    
    
    
    
    
    
    22,771
    
    
    
    29,196
    
    
    
    
    
    
    
    51,967Inventories
    
    
    
    
    
    
    29,264
    
    
    
    21,070
    
    
    
    
    
    
    
    50,334Other assets
    
    
    
    
    
    
    11,815
    
    
    
    5,997
    
    
    
    
    
    
    
    17,812TOTAL CURRENT ASSETS
    
    
    (130
    )
    
    
    63,980
    
    
    
    57,106
    
    
    
    
    
    
    
    120,956Intercompany
    
    
    250,993
    
    
    
    3,997
    
    
    
    555
    
    
    
    (255,545
    )
    
    
    Property, plant and equipmentnet
    
    
    
    
    
    
    42,674
    
    
    
    32,061
    
    
    
    
    
    
    
    74,735Investment in subsidiaries
    
    
    (22,174
    )
    
    
    66,005
    
    
    
    (12,535
    )
    
    
    (31,296
    )
    
    
    Intangible and other assets
    
    
    
    
    
    
    154,984
    
    
    
    19,560
    
    
    
    
    
    
    
    174,544TOTAL ASSETS
    
    $
    228,689
    
    
    $
    331,640
    
    
    $
    96,747
    
    
    $
    (286,841
    )
    
    $
    370,235LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    
    
    
    $
    3,814
    
    
    $
    7,206
    
    
    $
    
    
    
    $
    11,020Current maturities of long-term debt
    
    
    4,452
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    4,576Other current liabilities
    
    
    3,209
    
    
    
    13,096
    
    
    
    17,161
    
    
    
    
    
    
    
    33,466TOTAL CURRENT LIABILITIES
    
    
    7,661
    
    
    
    16,910
    
    
    
    24,491
    
    
    
    
    
    
    
    49,062Intercompany
    
    
    (59,301
    )
    
    
    300,853
    
    
    
    (10,119
    )
    
    
    (231,433
    )
    
    
    Long-term and subordinated long-term debt
    
    
    246,542
    
    
    
    
    
    
    
    1,272
    
    
    
    
    
    
    
    247,814Other long-term liabilities
    
    
    
    
    
    
    28,354
    
    
    
    11,218
    
    
    
    
    
    
    
    39,572Redeemable preferred stock
    
    
    169,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,805Total stockholders equity (deficit)
    
    
    (136,018
    )
    
    
    (14,477
    )
    
    
    69,885
    
    
    
    (55,408
    )
    
    
    (136,018
    )TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
    
    $
    228,689
    
    
    $
    331,640
    
    
    $
    96,747
    
    
    $
    (286,841
    )
    
    $
    370,235
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DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2005
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    75,955
    
    
    $
    63,480
    
    
    $
    (48,045
    )
    
    $
    91,390Cost of goods sold
    
    
    
    
    
    
    55,629
    
    
    
    49,178
    
    
    
    (48,045
    )
    
    
    56,762Gross profit
    
    
    
    
    
    
    20,326
    
    
    
    14,302
    
    
    
    
    
    
    
    34,628Selling, general and administrative
    
    
    
    
    
    
    11,913
    
    
    
    8,174
    
    
    
    
    
    
    
    20,087Amortization of intangibles
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Management fees
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Operating profit (loss)
    
    
    
    
    
    
    8,155
    
    
    
    6,128
    
    
    
    
    
    
    
    14,283Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (5,967
    )
    
    
    (3,374
    )
    
    
    
    
    
    
    9,341
    
    
    
    Interest expense
    
    
    6,520
    
    
    
    5,590
    
    
    
    58
    
    
    
    
    
    
    
    12,168Other (income) expense
    
    
    (6
    )
    
    
    (1,666
    )
    
    
    535
    
    
    
    
    
    
    
    (1,137
    )Income (loss) before income taxes
    
    
    (547
    )
    
    
    7,605
    
    
    
    5,535
    
    
    
    (9,341
    )
    
    
    3,252Income tax expense (benefit)
    
    
    1
    
    
    
    1,638
    
    
    
    2,161
    
    
    
    
    
    
    
    3,800Net income (loss)
    
    $
    (548
    )
    
    $
    5,967
    
    
    $
    3,374
    
    
    $
    (9,341
    )
    
    $
    (548
    )
 13




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    53,194
    
    
    $
    35,613
    
    
    $
    
    
    
    $
    88,807Cost of goods sold
    
    
    
    
    
    
    33,978
    
    
    
    22,714
    
    
    
    
    
    
    
    56,692Gross profit
    
    
    
    
    
    
    19,216
    
    
    
    12,899
    
    
    
    
    
    
    
    32,115Selling, general and administrative
    
    
    16
    
    
    
    12,514
    
    
    
    7,323
    
    
    
    
    
    
    
    19,853Amortization of intangibles
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    8Management fees
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Operating profit (loss)
    
    
    (16
    )
    
    
    6,444
    
    
    
    5,576
    
    
    
    
    
    
    
    12,004Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (3,251
    )
    
    
    (3,018
    )
    
    
    
    
    
    
    6,269
    
    
    
    Interest expense
    
    
    5,628
    
    
    
    5,635
    
    
    
    11
    
    
    
    
    
    
    
    11,274Other (income) expense
    
    
    (1
    )
    
    
    (1,208
    )
    
    
    546
    
    
    
    
    
    
    
    (663
    )Income (loss) before income taxes
    
    
    (2,392
    )
    
    
    5,035
    
    
    
    5,019
    
    
    
    (6,269
    )
    
    
    1,393Income tax expense (benefit)
    
    
    (6
    )
    
    
    1,784
    
    
    
    2,001
    
    
    
    
    
    
    
    3,779Net income (loss)
    
    $
    (2,386
    )
    
    $
    3,251
    
    
    $
    3,018
    
    
    $
    (6,269
    )
    
    $
    (2,386
    )
 14




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2005
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    126,752
    
    
    $
    102,602
    
    
    $
    (48,045
    )
    
    $
    181,309Cost of goods sold
    
    
    
    
    
    
    87,799
    
    
    
    73,881
    
    
    
    (48,045
    )
    
    
    113,635Gross profit
    
    
    
    
    
    
    38,953
    
    
    
    28,721
    
    
    
    
    
    
    
    67,674Selling, general and administrative
    
    
    
    
    
    
    23,902
    
    
    
    16,707
    
    
    
    
    
    
    
    40,609Amortization of intangibles
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Management fees
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    500Operating profit (loss)
    
    
    
    
    
    
    14,534
    
    
    
    12,014
    
    
    
    
    
    
    
    26,548Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (9,824
    )
    
    
    (6,488
    )
    
    
    
    
    
    
    16,312
    
    
    
    Interest expense
    
    
    12,945
    
    
    
    11,015
    
    
    
    103
    
    
    
    
    
    
    
    24,063Other (income) expense
    
    
    (6
    )
    
    
    (2,342
    )
    
    
    1,521
    
    
    
    
    
    
    
    (827
    )Income (loss) before income taxes
    
    
    (3,115
    )
    
    
    12,349
    
    
    
    10,390
    
    
    
    (16,312
    )
    
    
    3,312Income tax expense (benefit)
    
    
    2
    
    
    
    2,525
    
    
    
    3,902
    
    
    
    
    
    
    
    6,429Net income (loss)
    
    $
    (3,117
    )
    
    $
    9,824
    
    
    $
    6,488
    
    
    $
    (16,312
    )
    
    $
    (3,117
    )
 15




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##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2004
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    106,143
    
    
    $
    72,377
    
    
    $
    
    
    
    $
    178,520Cost of goods sold
    
    
    
    
    
    
    67,454
    
    
    
    45,620
    
    
    
    
    
    
    
    113,074Gross profit
    
    
    
    
    
    
    38,689
    
    
    
    26,757
    
    
    
    
    
    
    
    65,446Selling, general and administrative
    
    
    17
    
    
    
    25,243
    
    
    
    14,693
    
    
    
    
    
    
    
    39,953Amortization of intangibles
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Management fees
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    500Operating profit (loss)
    
    
    (17
    )
    
    
    12,929
    
    
    
    12,064
    
    
    
    
    
    
    
    24,976Other expenses (income):Equity in (earnings) of subsidiaries
    
    
    (6,797
    )
    
    
    (6,362
    )
    
    
    
    
    
    
    13,159
    
    
    
    Interest expense
    
    
    11,190
    
    
    
    11,266
    
    
    
    16
    
    
    
    
    
    
    
    22,472Other (income) expense
    
    
    (4
    )
    
    
    (3,339
    )
    
    
    1,802
    
    
    
    
    
    
    
    (1,541
    )Income (loss) before income taxes
    
    
    (4,406
    )
    
    
    11,364
    
    
    
    10,246
    
    
    
    (13,159
    )
    
    
    4,045Income tax expense (benefit)
    
    
    (5
    )
    
    
    4,567
    
    
    
    3,884
    
    
    
    
    
    
    
    8,446Net income (loss)
    
    $
    (4,401
    )
    
    $
    6,797
    
    
    $
    6,362
    
    
    $
    (13,159
    )
    
    $
    (4,401
    )
 16




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedCash Flows From Operating Activities:Net income (loss)
    
    $
    (3,117
    )
    
    $
    9,824
    
    
    $
    6,488
    
    
    $
    (16,312
    )
    
    $
    (3,117
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    5,771
    
    
    
    2,205
    
    
    
    
    
    
    
    7,976Interest expenseredeemable preferred stock dividends
    
    
    12,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,946Equity in earnings of subsidiaries
    
    
    (9,824
    )
    
    
    (6,488
    )
    
    
    
    
    
    
    16,312
    
    
    
    Deferred income taxes and other
    
    
    
    
    
    
    3,640
    
    
    
    (130
    )
    
    
    
    
    
    
    3,510Equity in earnings of investees
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Foreign currency (gain) loss
    
    
    
    
    
    
    (29
    )
    
    
    (1,655
    )
    
    
    
    
    
    
    (1,684
    )(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Changes in operating assets and liabilities
    
    
    86
    
    
    
    1,223
    
    
    
    (14,086
    )
    
    
    
    
    
    
    (12,777
    )Net cash provided by (used in) operating activities
    
    
    91
    
    
    
    13,882
    
    
    
    (7,186
    )
    
    
    
    
    
    
    6,787Cash Flows From Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (426
    )
    
    
    
    
    
    
    
    
    
    
    (426
    )Capital expenditures
    
    
    
    
    
    
    (1,533
    )
    
    
    (2,110
    )
    
    
    
    
    
    
    (3,643
    )Proceeds from sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) investing activities
    
    
    
    
    
    
    (1,959
    )
    
    
    (2,110
    )
    
    
    
    
    
    
    (4,069
    )Cash Flows From Financing Activities:Proceeds from exercise of stock optionsPayment of deferred financing feesPayments on term loans
    
    
    (1,919
    )
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (1,979
    )Net proceeds from credit facilities
    
    
    175
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175Net cash provided by (used in) financing activities
    
    
    (1,744
    )
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (1,804
    )Intercompany transfers and dividends
    
    
    2,161
    
    
    
    (12,053
    )
    
    
    9,892
    
    
    
    
    
    
    
    Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    66Net increase (decrease) in cash and cash equivalents
    
    
    508
    
    
    
    (130
    )
    
    
    602
    
    
    
    
    
    
    980Cash and cash equivalents at beginning of period
    
    
    (130
    )
    
    
    130
    
    
    
    843
    
    
    
    
    
    
    
    843Cash and cash equivalents at end of period
    
    $
    378
    
    
    $
    
    
    
    $
    1,445
    
    
    $
    
    
    
    $
    1,823
 17




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
 SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004
 DAYInter-
    
    
    
    
    
    Non-national
    
    Guarantor
    
    GuarantorGroup, Inc.
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedCash Flows From Operating Activities:Net income (loss)
    
    $
    (4,401
    )
    
    $
    6,797
    
    
    $
    6,362
    
    
    $
    (13,159
    )
    
    $
    (4,401
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    5,275
    
    
    
    2,127
    
    
    
    
    
    
    
    7,402Interest expenseredeemable preferred stock dividends
    
    
    11,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,190Equity in earnings of subsidiaries
    
    
    (6,797
    )
    
    
    (6,362
    )
    
    
    
    
    
    
    13,159
    
    
    
    Deferred income taxes and other
    
    
    
    
    
    
    4,912
    
    
    
    (1,293
    )
    
    
    
    
    
    
    3,619Equity in earnings of investees
    
    
    
    
    
    
    (148
    )
    
    
    
    
    
    
    
    
    
    
    (148
    )Foreign currency (gain) loss
    
    
    
    
    
    
    (1,602
    )
    
    
    695
    
    
    
    
    
    
    
    (907
    )(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    300
    
    
    
    (428
    )
    
    
    
    
    
    
    (128
    )Changes in operating assets and liabilities
    
    
    4
    
    
    
    (1,192
    )
    
    
    (2,225
    )
    
    
    
    
    
    
    (3,413
    )Net cash provided by (used in) operating activities
    
    
    (4
    )
    
    
    7,980
    
    
    
    5,238
    
    
    
    
    
    
    
    13,214Cash Flows From Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Capital expenditures
    
    
    
    
    
    
    (1,602
    )
    
    
    (1,524
    )
    
    
    
    
    
    
    (3,126
    )Proceeds from sale of property
    
    
    
    
    
    
    
    
    
    
    1,410
    
    
    
    
    
    
    
    1,410Net cash (used in) investing activities
    
    
    
    
    
    
    (2,948
    )
    
    
    (114
    )
    
    
    
    
    
    
    (3,062
    )Cash Flows From Financing Activities:Proceeds from exercise of stock options
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Payment of deferred financing fees
    
    
    
    
    
    
    (633
    )
    
    
    
    
    
    
    
    
    
    
    (633
    )Payments on term loans
    
    
    (8,925
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (8,927
    )Net proceeds from credit facilities
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50Net cash provided by (used in) financing activities
    
    
    (8,850
    )
    
    
    (635
    )
    
    
    
    
    
    
    
    
    
    
    (9,485
    )Intercompany transfers and dividends
    
    
    8,612
    
    
    
    (3,992
    )
    
    
    (4,620
    )
    
    
    
    
    
    
    Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    (62
    )Net increase (decrease) in cash and cash equivalents
    
    
    (242
    )
    
    
    405
    
    
    
    442
    
    
    
    
    
    
    
    605Cash and cash equivalents at beginning of period
    
    
    742
    
    
    
    (742
    )
    
    
    726
    
    
    
    
    
    
    
    726Cash and cash equivalents at end of period
    
    $
    500
    
    
    $
    (337
    )
    
    $
    1,168
    
    
    $
    
    
    
    $
    1,331
 18




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Safe Harbor Statement
    Basis of Presentation
  Three Months
    
    Six Months2005
    
    2004
    
    2005
    
    2004$
    
    %
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %Net sales
    
    
    91.4
    
    
    
    100.0
    
    
    
    88.8
    
    
    
    100.0
    
    
    
    181.3
    
    
    
    100.0
    
    
    
    178.5
    
    
    
    100.0Costs of goods sold
    
    
    56.8
    
    
    
    62.1
    
    
    
    56.7
    
    
    
    63.9
    
    
    
    113.6
    
    
    
    62.7
    
    
    
    113.1
    
    
    
    63.3Gross profit
    
    
    34.6
    
    
    
    37.9
    
    
    
    32.1
    
    
    
    36.1
    
    
    
    67.7
    
    
    
    37.3
    
    
    
    65.4
    
    
    
    36.7Selling, general and administrative expense
    
    
    20.1
    
    
    
    22.0
    
    
    
    19.9
    
    
    
    22.4
    
    
    
    40.6
    
    
    
    22.4
    
    
    
    39.9
    
    
    
    22.4Amortization of intangibles
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Management fees
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.3Operating profit
    
    
    14.3
    
    
    
    15.7
    
    
    
    12.0
    
    
    
    13.5
    
    
    
    26.6
    
    
    
    14.6
    
    
    
    25.0
    
    
    
    14.0
 19




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##### Table of Contents



Comparison of Results of Operations
 Three Months Ended June 30, 2005, Compared with Three Months Ended June 30, 2004
      20




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##### Table of Contents



Six Months Ended June 30, 2005, Compared with Six Months Ended June 30, 2004
     21




---



##### Table of Contents



Liquidity and Capital Resources
     22




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Risks Associated with International Operations
   
 Interest Rate Risks
  23




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##### Table of Contents



Commodity Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
   24




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##### Table of Contents



PART II OTHER INFORMATION
 
 ITEM 6. EXHIBITS
  (31) Rule 13a- 14(a) /15d- 14(a) Certifications
 31.1
    
    Chief Executive Officer Certification31.2
    
    Chief Financial Officer Certification
 (32) Section 1350 Certifications
 32.1
    
    Chief Executive Officer Certification32.2
    
    Chief Financial Officer Certification
 
 Signature
  Day International Group, Inc.
     (Registrant)Date:  August 19, 2005
    /s/ Thomas J. KoenigThomas J. KoenigVice President and
Chief Financial Officer
(Principal Financial Officer) 25