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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 Commission File No. 33-93644
 DAY INTERNATIONAL GROUP, INC.
  Delaware
    
    31-1436349(State of jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or other organization)
 130 West Second Street
Dayton, Ohio 45402
 (937) 224-4000
 þ o
 o þ
 o þ




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DAY INTERNATIONAL GROUP, INC.
INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    4Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    26PART II OTHER INFORMATIONItem 6. Exhibits
    
    
    27Signature
    
    
    28Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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PART
I   FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 SEPTEMBER 30, 2005 AND DECEMBER 31, 2004
 (In thousands)
 2005
    
    
    2004(Unaudited)ASSETSCash and cash equivalents
    
    $
    761
    
    
    $
    843Accounts receivable (less allowance for doubtful accounts of $3,380 and $3,694)
    
    
    50,824
    
    
    
    51,967Inventories (Note B)
    
    
    52,177
    
    
    
    50,334Other current assets
    
    
    18,555
    
    
    
    17,812Total current assets
    
    
    122,317
    
    
    
    120,956Property, plant and equipment, net of accumulated depreciation of $66,888 and $61,592
    
    
    69,013
    
    
    
    74,735Goodwill
    
    
    142,392
    
    
    
    143,444Intangible assets, net of accumulated amortization of $43,404 and $40,203
    
    
    15,636
    
    
    
    18,842Other assets
    
    
    11,503
    
    
    
    12,258TOTAL ASSETS
    
    $
    360,861
    
    
    $
    370,235LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    5,300
    
    
    $
    11,020Current maturities of long-term debt
    
    
    4,609
    
    
    
    4,576Other current liabilities
    
    
    25,120
    
    
    
    33,466Total current liabilities
    
    
    35,029
    
    
    
    49,062Long-term and subordinated long-term debt (Note C)
    
    
    237,427
    
    
    
    247,814Other long-term liabilities
    
    
    43,874
    
    
    
    39,572Redeemable preferred stock (Note D)
    
    
    189,359
    
    
    
    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)
    
    
    (79,172
    )
    
    
    (75,201
    )Accumulated other comprehensive gain
    
    
    3,016
    
    
    
    7,855Total stockholders equity (deficit)
    
    
    (144,828
    )
    
    
    (136,018
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    360,861
    
    
    $
    370,235
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
 (In thousands)
 (Unaudited)
 Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004NET SALES
    
    $
    91,854
    
    
    $
    90,494
    
    
    $
    273,163
    
    
    $
    269,014COST OF GOODS SOLD
    
    
    57,906
    
    
    
    57,122
    
    
    
    171,541
    
    
    
    170,196GROSS PROFIT
    
    
    33,948
    
    
    
    33,372
    
    
    
    101,622
    
    
    
    98,818SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
    
    
    19,676
    
    
    
    19,516
    
    
    
    60,286
    
    
    
    59,469AMORTIZATION OF INTANGIBLES
    
    
    9
    
    
    
    9
    
    
    
    26
    
    
    
    26MANAGEMENT FEES
    
    
    250
    
    
    
    250
    
    
    
    750
    
    
    
    750OPERATING PROFIT
    
    
    14,013
    
    
    
    13,597
    
    
    
    40,560
    
    
    
    38,573OTHER EXPENSES:Interest expense:Long-term debt (including amortization of
deferred financing costs and discount of
$456, $456, $1,369, and $1,319)
    
    
    5,452
    
    
    
    5,405
    
    
    
    16,569
    
    
    
    16,687Redeemable preferred stock dividends
(including amortization of discount and
issuance costs of $47, $47, $141, and $141)
    
    
    6,594
    
    
    
    5,696
    
    
    
    19,540
    
    
    
    16,886Other income
    
    
    (1,279
    )
    
    
    (340
    )
    
    
    (2,106
    )
    
    
    (1,881
    )INCOME BEFORE INCOME TAXES
    
    
    3,246
    
    
    
    2,836
    
    
    
    6,557
    
    
    
    6,881INCOME TAX EXPENSE
    
    
    4,230
    
    
    
    4,655
    
    
    
    10,528
    
    
    
    13,101NET (LOSS)
    
    $
    (984
    )
    
    $
    (1,819
    )
    
    $
    (3,971)
    
    
    $
    (6,220
    )
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
 (In thousands)
 (Unaudited)
 2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,971
    )
    
    $
    (6,220
    )Adjustments to reconcile net loss to net cash
provided by operating
activities:Depreciation and amortization
    
    
    11,425
    
    
    
    11,067Interest expenseredeemable preferred stock dividends
    
    
    19,540
    
    
    
    16,886Deferred income taxes
    
    
    5,267
    
    
    
    5,459Equity in earnings of investees
    
    
    (59
    )
    
    
    (192
    )Foreign currency gain
    
    
    (2,937
    )
    
    
    (1,633
    )Gain on disposal of fixed assets
    
    
    (8
    )
    
    
    (61
    )Change in operating assets and liabilities
    
    
    (16,451
    )
    
    
    (2,757
    )Net cash provided by operating activities
    
    
    12,806
    
    
    
    22,549CASH FLOWS FROM INVESTING ACTIVITIES:Cash paid for acquisitions
    
    
    (379
    )
    
    
    (1,346
    )Capital expenditures
    
    
    (5,207
    )
    
    
    (7,053
    )Proceeds from sale of property
    
    
    
    
    
    
    1,410Net cash used in investing activities
    
    
    (5,586
    )
    
    
    (6,989
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from exercise of stock options
    
    
    
    
    
    
    25Payment of deferred financing costs
    
    
    
    
    
    
    (633
    )Payments on term loans
    
    
    (8,943
    )
    
    
    (14,267
    )Net proceeds from revolving credit facility
    
    
    1,575
    
    
    
    1,975Net cash used in financing activities
    
    
    (7,368
    )
    
    
    (12,900
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    66
    
    
    
    (25
    )Net (decrease) increase in cash and cash equivalents
    
    
    (82
    )
    
    
    2,635Cash and cash equivalents at beginning of period
    
    
    843
    
    
    
    726Cash and cash equivalents at end of period
    
    $
    761
    
    
    $
    3,361
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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
    
    $
    25,934
    
    
    $
    24,384Work in process
    
    
    4,611
    
    
    
    5,193Raw materials
    
    
    21,632
    
    
    
    20,757$
    52,177
    
    
    $
    50,334
 C. LONG-TERM DEBT
 Debtors Accounting for a Modification or Exchange of Debt Instruments
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D. REDEEMABLE PREFERRED STOCK
 1 4
 E. INCOME TAXES
  F. BUSINESS SEGMENTS
    7




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Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Third party sales:Image Transfer
    
    $
    80,306
    
    
    $
    78,477
    
    
    $
    237,821
    
    
    $
    231,443Textile Products
    
    
    11,548
    
    
    
    12,017
    
    
    
    35,342
    
    
    
    37,571Total
    
    $
    91,854
    
    
    $
    90,494
    
    
    $
    273,163
    
    
    $
    269,014Segment operating profit:Image Transfer
    
    $
    13,470
    
    
    $
    13,578
    
    
    $
    40,288
    
    
    $
    37,944Textile Products
    
    
    1,961
    
    
    
    1,463
    
    
    
    4,785
    
    
    
    4,866Total
    
    $
    15,431
    
    
    $
    15,041
    
    
    $
    45,073
    
    
    $
    42,810
  Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Segment operating profit
    
    $
    15,431
    
    
    $
    15,041
    
    
    $
    45,073
    
    
    $
    42,810APB No. 16 depreciation and amortization
    
    
    (795
    )
    
    
    (999
    )
    
    
    (2,953
    )
    
    
    (2,997
    )Non-allocated corporate expenses
    
    
    (364
    )
    
    
    (186
    )
    
    
    (784
    )
    
    
    (464
    )Amortization of intangibles
    
    
    (9
    )
    
    
    (9
    )
    
    
    (26
    )
    
    
    (26
    )Management fees
    
    
    (250
    )
    
    
    (250
    )
    
    
    (750
    )
    
    
    (750
    )Total operating profit
    
    $
    14,013
    
    
    $
    13,597
    
    
    $
    40,560
    
    
    $
    38,573
 G. COMPREHENSIVE INCOME (LOSS)
  H. CONTINGENCIES
  8




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I. STOCK-BASED COMPENSATION
 Accounting for
Stock-Based Compensation
 Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)as reported
    
    $
    (984
    )
    
    $
    (1,819
    )
    
    $
    (3,971
    )
    
    $
    (6,220
    )Lessstock-based compensation
expense determined using fair
value based method
in SFAS No. 123 - net of taxes
    
    
    (184
    )
    
    
    (195
    )
    
    
    (551
    )
    
    
    (585
    )Pro forma net income (loss)
    
    $
    (1,168
    )
    
    $
    (2,014
    )
    
    $
    (4,522
    )
    
    $
    (6,805
    )
 J. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
  Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    101
    
    
    $
    93
    
    
    $
    313
    
    
    $
    280Interest cost
    
    
    98
    
    
    
    194
    
    
    
    304
    
    
    
    583Expected return on plan assets
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    (255
    )Actuarial loss recognized
    
    
    12
    
    
    
    9
    
    
    
    38
    
    
    
    28Net periodic pension costs
    
    $
    211
    
    
    $
    211
    
    
    $
    655
    
    
    $
    636
  Three Months
    
    
    Nine Months2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    330
    
    
    $
    275
    
    
    $
    990
    
    
    $
    825Interest cost
    
    
    253
    
    
    
    212
    
    
    
    759
    
    
    
    636Amortization of prior service cost
    
    
    (208
    )
    
    
    (160
    )
    
    
    (625
    )
    
    
    (480
    )Actuarial loss recognized
    
    
    112
    
    
    
    59
    
    
    
    336
    
    
    
    177Net periodic postretirement benefit costs
    
    $
    487
    
    
    $
    386
    
    
    $
    1,460
    
    
    $
    1,158
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K. SUPPLEMENTAL CONSOLIDATING INFORMATION
 1 2
 10




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DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
SEPTEMBER 30, 2005
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCash and cash equivalents
    
    $
    444
    
    
    $
    
    
    
    $
    317
    
    
    $
    
    
    
    $
    761Accounts receivablenet
    
    
    
    
    
    
    23,239
    
    
    
    27,585
    
    
    
    
    
    
    
    50,824Inventories
    
    
    
    
    
    
    29,469
    
    
    
    22,708
    
    
    
    
    
    
    
    52,177Other current assets
    
    
    
    
    
    
    12,675
    
    
    
    5,880
    
    
    
    
    
    
    
    18,555TOTAL CURRENT ASSETS
    
    
    444
    
    
    
    65,383
    
    
    
    56,490
    
    
    
    
    
    
    
    122,317Intercompany
    
    
    240,875
    
    
    
    5,611
    
    
    
    9,172
    
    
    
    (255,658
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    39,871
    
    
    
    29,142
    
    
    
    
    
    
    
    69,013Investment in subsidiaries
    
    
    (19,737
    )
    
    
    65,723
    
    
    
    (12,549
    )
    
    
    (33,437
    )
    
    
    Intangible and other assets
    
    
    
    
    
    
    151,582
    
    
    
    17,949
    
    
    
    
    
    
    
    169,531TOTAL ASSETS
    
    $
    221,582
    
    
    $
    328,170
    
    
    $
    100,204
    
    
    $
    (289,095
    )
    
    $
    360,861LIABILITIES AND
STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    
    
    
    $
    2,253
    
    
    $
    3,047
    
    
    $
    
    
    
    $
    5,300Current maturities of long-term debt
    
    
    4,499
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    4,609Other current liabilities
    
    
    497
    
    
    
    10,732
    
    
    
    13,891
    
    
    
    
    
    
    
    25,120TOTAL CURRENT LIABILITIES
    
    
    4,996
    
    
    
    12,985
    
    
    
    17,048
    
    
    
    
    
    
    
    35,029Intercompany
    
    
    (51,147
    )
    
    
    296,967
    
    
    
    (4,690
    )
    
    
    (241,130
    )
    
    
    Long-term and subordinated long-term debt
    
    
    236,377
    
    
    
    
    
    
    
    1,050
    
    
    
    
    
    
    
    237,427Other long-term liabilities
    
    
    
    
    
    
    33,682
    
    
    
    10,192
    
    
    
    
    
    
    
    43,874Redeemable preferred stock
    
    
    189,359
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    189,359Total stockholders equity (deficit)
    
    
    (158,003
    )
    
    
    (15,464
    )
    
    
    76,604
    
    
    
    (47,965
    )
    
    
    (144,828
    )TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
    
    $
    221,582
    
    
    $
    328,170
    
    
    $
    100,204
    
    
    $
    (289,095
    )
    
    $
    360,861
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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 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    53,985
    
    
    $
    37,869
    
    
    $
    
    
    
    $
    91,854Cost of goods sold
    
    
    
    
    
    
    33,521
    
    
    
    24,385
    
    
    
    
    
    
    
    57,906Gross profit
    
    
    
    
    
    
    20,464
    
    
    
    13,484
    
    
    
    
    
    
    
    33,948Selling, general and administrative
    
    
    77
    
    
    
    12,531
    
    
    
    7,068
    
    
    
    
    
    
    
    19,676Amortization of intangibles
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Management fees
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Operating profit (loss)
    
    
    (77
    )
    
    
    7,674
    
    
    
    6,416
    
    
    
    
    
    
    
    14,013Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (5,786
    )
    
    
    (5,088
    )
    
    
    
    
    
    
    10,874
    
    
    
    Interest expense
    
    
    6,594
    
    
    
    5,394
    
    
    
    58
    
    
    
    
    
    
    
    12,046Other (income) expense
    
    
    (2
    )
    
    
    (846
    )
    
    
    (431
    )
    
    
    
    
    
    
    (1,279
    )Income (loss) before income taxes
    
    
    (883
    )
    
    
    8,214
    
    
    
    6,789
    
    
    
    (10,874
    )
    
    
    3,246Income tax expense (benefit)
    
    
    (29
    )
    
    
    2,554
    
    
    
    1,705
    
    
    
    
    
    
    
    4,230Net income (loss)
    
    $
    (854
    )
    
    $
    5,660
    
    
    $
    5,084
    
    
    $
    (10,874
    )
    
    $
    (984
    )
 13




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    54,128
    
    
    $
    36,366
    
    
    $
    
    
    
    $
    90,494Cost of goods sold
    
    
    
    
    
    
    33,696
    
    
    
    23,426
    
    
    
    
    
    
    
    57,122Gross profit
    
    
    
    
    
    
    20,432
    
    
    
    12,940
    
    
    
    
    
    
    
    33,372Selling, general and administrative
    
    
    58
    
    
    
    12,081
    
    
    
    7,377
    
    
    
    
    
    
    
    19,516Amortization of intangibles
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Management fees
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Operating profit (loss)
    
    
    (58
    )
    
    
    8,092
    
    
    
    5,563
    
    
    
    
    
    
    
    13,597Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (3,910
    )
    
    
    (3,019
    )
    
    
    
    
    
    
    6,269
    
    
    
    Interest expense
    
    
    5,696
    
    
    
    5,407
    
    
    
    (2
    )
    
    
    
    
    
    
    11,101Other (income) expense
    
    
    (3
    )
    
    
    (973
    )
    
    
    636
    
    
    
    
    
    
    
    (340
    )Income (loss) before income taxes
    
    
    (1,841
    )
    
    
    6,677
    
    
    
    4,929
    
    
    
    (6,269
    )
    
    
    2,836Income tax expense (benefit)
    
    
    (22
    )
    
    
    2,767
    
    
    
    1,910
    
    
    
    
    
    
    
    4,655Net income (loss)
    
    $
    (1,819
    )
    
    $
    3,910
    
    
    $
    3,019
    
    
    $
    (6,269
    )
    
    $
    (1,819
    )
 14




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    156,692
    
    
    $
    116,471
    
    
    $
    
    
    
    $
    273,163Cost of goods sold
    
    
    
    
    
    
    97,275
    
    
    
    74,266
    
    
    
    
    
    
    
    171,541Gross profit
    
    
    
    
    
    
    59,417
    
    
    
    42,205
    
    
    
    
    
    
    
    101,622Selling, general and administrative
    
    
    77
    
    
    
    36,438
    
    
    
    23,771
    
    
    
    
    
    
    
    60,286Amortization of intangibles
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Management fees
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    750Operating profit (loss)
    
    
    (77
    )
    
    
    22,203
    
    
    
    18,434
    
    
    
    
    
    
    
    40,650Other expenses (income):Equity in (earnings) loss of subsidiaries
    
    
    (15,610
    )
    
    
    (11,577
    )
    
    
    
    
    
    
    27,187
    
    
    
    Interest expense
    
    
    19,540
    
    
    
    16,409
    
    
    
    160
    
    
    
    
    
    
    
    36,109Other (income) expense
    
    
    (8
    )
    
    
    (3,189
    )
    
    
    1,091
    
    
    
    
    
    
    
    (2,106
    )Income (loss) before income taxes
    
    
    (3,999
    )
    
    
    20,560
    
    
    
    17,183
    
    
    
    (27,187
    )
    
    
    6,557Income tax expense (benefit)
    
    
    (28
    )
    
    
    4,950
    
    
    
    5,606
    
    
    
    
    
    
    
    10,528Net income (loss)
    
    $
    (3,971
    )
    
    $
    15,610
    
    
    $
    11,577
    
    
    $
    (27,187
    )
    
    $
    (3,971
    )
 16




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    160,271
    
    
    $
    108,743
    
    
    $
    
    
    
    $
    269,014Cost of goods sold
    
    
    
    
    
    
    101,150
    
    
    
    69,046
    
    
    
    
    
    
    
    170,196Gross profit
    
    
    
    
    
    
    59,121
    
    
    
    39,697
    
    
    
    
    
    
    
    98,818Selling, general and administrative
    
    
    75
    
    
    
    37,324
    
    
    
    22,070
    
    
    
    
    
    
    
    59,469Amortization of intangibles
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Management fees
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    750Operating profit (loss)
    
    
    (75
    )
    
    
    21,021
    
    
    
    17,627
    
    
    
    
    
    
    
    38,573Other expenses (income):Equity in (earnings) of subsidiaries
    
    
    (10,707
    )
    
    
    (9,381
    )
    
    
    
    
    
    
    20,088
    
    
    
    Interest expense
    
    
    16,886
    
    
    
    16,673
    
    
    
    14
    
    
    
    
    
    
    
    33,573Other (income) expense
    
    
    (7
    )
    
    
    (4,312
    )
    
    
    2,438
    
    
    
    
    
    
    
    (1,881
    )Income (loss) before income taxes
    
    
    (6,247
    )
    
    
    18,041
    
    
    
    15,175
    
    
    
    (20,088
    )
    
    
    6,881Income tax expense (benefit)
    
    
    (27
    )
    
    
    7,334
    
    
    
    5,794
    
    
    
    
    
    
    
    13,101Net income (loss)
    
    $
    (6,220
    )
    
    $
    10,707
    
    
    $
    9,381
    
    
    $
    (20,088
    )
    
    $
    (6,220
    )
 17




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2005
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating Activities:Net income (loss)
    
    $
    (3,971
    )
    
    $
    15,610
    
    
    $
    11,577
    
    
    $
    (27,187
    )
    
    $
    (3,971
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    8,178
    
    
    
    3,247
    
    
    
    
    
    
    
    11,425Interest expenseredeemable preferred stock dividends
    
    
    19,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,540Equity in earnings of subsidiaries
    
    
    (15,610
    )
    
    
    (11,577
    )
    
    
    
    
    
    
    27,187
    
    
    
    Deferred income taxes and other
    
    
    
    
    
    
    5,602
    
    
    
    (335
    )
    
    
    
    
    
    
    5,267Equity in earnings of investees
    
    
    
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    (59
    )Foreign currency (gain) loss
    
    
    
    
    
    
    (29
    )
    
    
    (2,908
    )
    
    
    
    
    
    
    (2,937
    )(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Changes in operating assets and liabilities
    
    
    (2,714
    )
    
    
    3,592
    
    
    
    (17,329
    )
    
    
    
    
    
    
    (16,451
    )Net cash provided by (used in) operating activities
    
    
    (2,755
    )
    
    
    21,317
    
    
    
    (5,756
    )
    
    
    
    
    
    
    12,806Cash Flows From Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (379
    )
    
    
    
    
    
    
    
    
    
    
    (379
    )Capital expenditures
    
    
    
    
    
    
    (2,107
    )
    
    
    (3,100
    )
    
    
    
    
    
    
    (5,207
    )Proceeds from sale of property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) investing activities
    
    
    
    
    
    
    (2,486
    )
    
    
    (3,100
    )
    
    
    
    
    
    
    (5,586
    )Cash Flows From Financing Activities:Payments on term loans
    
    
    (8,846
    )
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    (8,943
    )Net proceeds from credit facilities
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,575Net cash provided by (used in) financing activities
    
    
    (7,271
    )
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    (7,368
    )Intercompany transfers and dividends
    
    
    10,600
    
    
    
    (18,961
    )
    
    
    8,361
    
    
    
    
    
    
    
    Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    66Net increase (decrease) in cash and cash equivalents
    
    
    574
    
    
    
    (130
    )
    
    
    (526
    )
    
    
    
    
    
    
    (82
    )Cash and cash equivalents at beginning of period
    
    
    (130
    )
    
    
    130
    
    
    
    843
    
    
    
    
    
    
    
    843Cash and cash equivalents at end of period
    
    $
    444
    
    
    $
    
    
    
    $
    317
    
    
    $
    
    
    
    $
    761
 18




---



##### Table of Contents



DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004
 DAYInter-
    
    
    
    
    
    
    Non-national
    
    
    Guarantor
    
    
    GuarantorGroup, Inc.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating Activities:Net income (loss)
    
    $
    (6,220
    )
    
    $
    10,707
    
    
    $
    9,381
    
    
    $
    (20,088
    )
    
    $
    (6,220
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    7,931
    
    
    
    3,136
    
    
    
    
    
    
    
    11,067Interest expenseredeemable preferred stock dividends
    
    
    16,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,886Equity in earnings of subsidiaries
    
    
    (10,707
    )
    
    
    (9,381
    )
    
    
    
    
    
    
    20,088
    
    
    
    Deferred income taxes and other
    
    
    
    
    
    
    6,778
    
    
    
    (1,319
    )
    
    
    
    
    
    
    5,459Equity in earnings of investees
    
    
    
    
    
    
    (192
    )
    
    
    
    
    
    
    
    
    
    
    (192
    )Foreign currency (gain) loss
    
    
    
    
    
    
    (2,559
    )
    
    
    926
    
    
    
    
    
    
    
    (1,633
    )(Gain) loss on disposal of fixed assets
    
    
    
    
    
    
    367
    
    
    
    (428
    )
    
    
    
    
    
    
    (61
    )Changes in operating assets and liabilities
    
    
    (2,676
    )
    
    
    (738
    )
    
    
    657
    
    
    
    
    
    
    
    (2,757
    )Net cash provided by (used in) operating activities
    
    
    (2,717
    )
    
    
    12,913
    
    
    
    12,353
    
    
    
    
    
    
    
    22,549Cash Flows From Investing Activities:Cash paid for acquisitions
    
    
    
    
    
    
    (1,346
    )
    
    
    
    
    
    
    
    
    
    
    (1,346
    )Capital expenditures
    
    
    
    
    
    
    (3,955
    )
    
    
    (3,098
    )
    
    
    
    
    
    
    (7,053
    )Proceeds from sale of property
    
    
    
    
    
    
    
    
    
    
    1,410
    
    
    
    
    
    
    
    1,410Net cash (used in) investing activities
    
    
    
    
    
    
    (5,301
    )
    
    
    (1,688
    )
    
    
    
    
    
    
    (6,989
    )Cash Flows From Financing Activities:Proceeds from exercise of stock options
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Payment of deferred financing fees
    
    
    
    
    
    
    (633
    )
    
    
    
    
    
    
    
    
    
    
    (633
    )Payments on term loans
    
    
    (14,264
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (14,267
    )Net proceeds from credit facilities
    
    
    1,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,975Net cash provided by (used in) financing activities
    
    
    (12,264
    )
    
    
    (636
    )
    
    
    
    
    
    
    
    
    
    
    (12,900
    )Intercompany transfers and dividends
    
    
    15,827
    
    
    
    (6,076
    )
    
    
    (9,751
    )
    
    
    
    
    
    
    Effects of exchange rates on cash
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    
    
    
    
    (25
    )Net increase (decrease) in cash and cash equivalents
    
    
    846
    
    
    
    900
    
    
    
    889
    
    
    
    
    
    
    
    2,635Cash and cash equivalents at beginning of period
    
    
    742
    
    
    
    (742
    )
    
    
    726
    
    
    
    
    
    
    
    726Cash and cash equivalents at end of period
    
    $
    1,588
    
    
    $
    158
    
    
    $
    1,615
    
    
    $
    
    
    
    $
    3,361
 19




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##### Table of Contents



L. SUBSEQUENT EVENTS
  1 2
 M. RECENTLY ISSUED ACCOUNTING STANDARDS
 Share-based
Payment
 20




---



##### 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
    
    Nine Months2005
    
    2004
    
    2005
    
    2004$
    
    %
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %Net sales
    
    
    91.9
    
    
    
    100.0
    
    
    
    90.5
    
    
    
    100.0
    
    
    
    273.2
    
    
    
    100.0
    
    
    
    269.0
    
    
    
    100.0Costs of goods sold
    
    
    57.9
    
    
    
    63.0
    
    
    
    57.1
    
    
    
    63.1
    
    
    
    171.5
    
    
    
    62.8
    
    
    
    170.2
    
    
    
    63.3Gross profit
    
    
    34.0
    
    
    
    37.0
    
    
    
    33.4
    
    
    
    36.9
    
    
    
    101.7
    
    
    
    37.2
    
    
    
    98.8
    
    
    
    36.7Selling, general and administrative expense
    
    
    19.7
    
    
    
    21.4
    
    
    
    19.5
    
    
    
    21.6
    
    
    
    60.3
    
    
    
    22.1
    
    
    
    59.4
    
    
    
    22.1Management fees
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.8
    
    
    
    0.3Operating profit
    
    
    14.0
    
    
    
    15.3
    
    
    
    13.6
    
    
    
    15.0
    
    
    
    40.6
    
    
    
    14.8
    
    
    
    38.6
    
    
    
    14.3
 21




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##### Table of Contents



Comparison of Results of Operations
 Three Months Ended September 30, 2005, Compared with Three Months Ended September 30, 2004
      22




---



##### Table of Contents



Nine Months Ended September 30, 2005, Compared with Nine Months Ended September 30, 2004
     23




---



##### Table of Contents



Liquidity and Capital Resources
      24




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Risks Associated with International Operations
   
 25




---



##### Table of Contents



Interest Rate Risks
  Commodity Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
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PART II            OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 (31) Rule 13a-14(a)/15d-14(a) Certifications
 
  (32) Section 1350 Certifications
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Signature
  Day International Group,
Inc.                (Registrant)Date: November 14, 2005
    
    /s/ Thomas J. KoenigThomas J. KoenigVice President andChief Financial Officer(Principal Financial Officer)
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