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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, 2006
 Commission File No. 333-51839
 DAY INTERNATIONAL GROUP, INC.
        þ o
  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 June 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II OTHER INFORMATIONItem 6. Exhibits
    
    
    18Signature
    
    
    18EX-31.1EX-31.2EX-32.1EX-32.2
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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, 2006 AND DECEMBER 31, 2005
 (In thousands)
 2006
    
    
    2005(Unaudited)ASSETSCash and cash equivalents
    
    $
    32,471
    
    
    $
    9,595Accounts receivable (less allowance for doubtful accounts of $3,471 and $2,927)
    
    
    45,988
    
    
    
    41,468Inventories (Note B)
    
    
    46,543
    
    
    
    41,119Other current assets
    
    
    21,662
    
    
    
    22,028Total current assets
    
    
    146,664
    
    
    
    114,210Property, plant and equipment, net of accumulated depreciation of $59,933 and $53,948
    
    
    61,839
    
    
    
    56,896Goodwill
    
    
    143,065
    
    
    
    144,528Intangible assets, net of accumulated amortization of $34,930 and $33,225
    
    
    19,437
    
    
    
    18,842Other assets
    
    
    10,624
    
    
    
    8,421Assets of discontinued operations (Note J)
    
    
    
    
    
    
    31,760TOTAL ASSETS
    
    $
    381,629
    
    
    $
    374,657LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    7,681
    
    
    $
    6,744Current maturities of long-term debt
    
    
    4,002
    
    
    
    12,604Other current liabilities
    
    
    19,992
    
    
    
    19,860Total current liabilities
    
    
    31,675
    
    
    
    39,208Long-term and subordinated long-term debt
    
    
    366,795
    
    
    
    386,702Other long-term liabilities
    
    
    43,384
    
    
    
    36,477Redeemable preferred stock (Note C)
    
    
    51,749
    
    
    
    48,657Liabilities of discontinued operations (Note J)
    
    
    
    
    
    
    14,867STOCKHOLDERS EQUITY (DEFICIT):Common shares
    
    
    1
    
    
    
    1Contra-equity associated with the assumption of majority shareholders bridge loan
    
    
    (68,673
    )
    
    
    (68,673
    )Retained earnings (deficit)
    
    
    (51,275
    )
    
    
    (81,391
    )Accumulated other comprehensive gain/(loss)
    
    
    7,973
    
    
    
    (1,191
    )Total stockholders equity (deficit)
    
    
    (111,974
    )
    
    
    (151,254
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    381,629
    
    
    $
    374,657
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
 (In thousands)
 (Unaudited)
 Three Months
    
    
    Six Months2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALES
    
    $
    82,086
    
    
    $
    77,658
    
    
    $
    162,492
    
    
    $
    153,327COST OF GOODS SOLD
    
    
    51,775
    
    
    
    47,597
    
    
    
    101,682
    
    
    
    94,911GROSS PROFIT
    
    
    30,311
    
    
    
    30,061
    
    
    
    60,810
    
    
    
    58,416SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
    
    
    17,434
    
    
    
    17,002
    
    
    
    35,493
    
    
    
    34,461AMORTIZATION OF INTANGIBLES
    
    
    8
    
    
    
    8
    
    
    
    17
    
    
    
    17MANAGEMENT FEES
    
    
    250
    
    
    
    250
    
    
    
    500
    
    
    
    500OPERATING PROFIT
    
    
    12,619
    
    
    
    12,801
    
    
    
    24,800
    
    
    
    23,438OTHER EXPENSES:Interest expense:Long-term
debt (including gain on interest rate swap, amortization of deferred
financing costs and discounts of $(5,525), $456, $921, and $913)
    
    
    3,421
    
    
    
    5,650
    
    
    
    11,986
    
    
    
    11,117Redeemable preferred stock dividends
(including amortization of discount and issuance
costs of $33, $47, $64, and $94)
    
    
    1,602
    
    
    
    6,518
    
    
    
    3,092
    
    
    
    12,946Other (income) expense
    
    
    2,715
    
    
    
    (1,058
    )
    
    
    4,653
    
    
    
    (646
    )INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    4,881
    
    
    
    1,691
    
    
    
    5,069
    
    
    
    21INCOME TAX EXPENSE
    
    
    2,509
    
    
    
    3,028
    
    
    
    2,936
    
    
    
    5,082INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    
    2,372
    
    
    
    (1,337
    )
    
    
    2,133
    
    
    
    (5,061
    )DISCONTINUED OPERATIONS (Note J)INCOME FROM DISCONTINUED OPERATIONS (Including gain on
disposal of $29,325, $0, $29,325, $0)
    
    
    30,631
    
    
    
    1,560
    
    
    
    32,238
    
    
    
    3,291INCOME TAX EXPENSE
    
    
    3,499
    
    
    
    771
    
    
    
    4,254
    
    
    
    1,347INCOME FROM DISCONTINUED OPERATIONS
    
    
    27,132
    
    
    
    789
    
    
    
    27,984
    
    
    
    1,944NET INCOME (LOSS)
    
    $
    29,504
    
    
    $
    (548
    )
    
    $
    30,117
    
    
    $
    (3,117
    )
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DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 SIX MONTHS ENDED JUNE 30, 2006 AND 2005
 (In thousands)
 (Unaudited)
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    30,117
    
    
    $
    (3,117
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    6,579
    
    
    
    7,976Loss on the sale of Kompac Division
    
    
    1,352
    
    
    
    Gain on the sale of Textile Division
    
    
    (30,677
    )
    
    
    Gain on unwinding the interest rate swaps
    
    
    (5,981
    )
    
    
    Interest expenseredeemable preferred stock dividends
    
    
    3,092
    
    
    
    12,946Deferred income taxes
    
    
    10,017
    
    
    
    3,510Equity in earnings of investees
    
    
    (267
    )
    
    
    (59
    )Foreign currency loss (gain)
    
    
    5,192
    
    
    
    (1,684
    )(Gain) on disposal of fixed assets
    
    
    
    
    
    
    (8
    )Change in operating assets and liabilities
    
    
    (12,038
    )
    
    
    (12,777
    )Net cash provided by operating activities
    
    
    7,385
    
    
    
    6,787CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from the sale of Kompac Division
    
    
    579
    
    
    
    Proceeds from the sale of Textile Division
    
    
    48,786
    
    
    
    Cash paid for acquisitions
    
    
    (38
    )
    
    
    (426
    )Capital expenditures
    
    
    (6,252
    )
    
    
    (3,643
    )Net cash provided by (used in) investing activities
    
    
    43,075
    
    
    
    (4,069
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds
from unwinding interest rate swap
    
    
    5,981
    
    
    
    Payments on long-term debt
    
    
    (34,342
    )
    
    
    (1,979
    )Net proceeds from revolving credit facility
    
    
    100
    
    
    
    175Net cash (used in) financing activities
    
    
    (28,261
    )
    
    
    (1,804
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    831
    
    
    
    66Net increase in cash and cash equivalents
    
    
    23,030
    
    
    
    980Cash and cash equivalents at beginning of period
    
    
    9,441
    
    
    
    843Cash and cash equivalents at end of period
    
    $
    32,471
    
    
    $
    1,823
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DAY INTERNATIONAL GROUP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (In thousands)
 (Unaudited)
 A. BASIS OF PRESENTATION
  B. INVENTORIES
  2006
    
    
    2005Finished goods
    
    $
    23,753
    
    
    $
    20,139Work in process
    
    
    3,497
    
    
    
    3,235Raw materials
    
    
    19,293
    
    
    
    17,745$
    46,543
    
    
    $
    41,119
 C. EXCHANGEABLE PREFERRED STOCK
 1 4
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1 4
 D. INCOME TAXES
   E. BUSINESS SEGMENTS
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F. COMPREHENSIVE INCOME (LOSS)
  G. CONTINGENCIES
  H. STOCK-BASED COMPENSATION
 1998 Stock Option Plan
   Day Stock Option Plan
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Accounting for Stock-Based Compensation
    Three Months
    
    
    Six Months2005
    
    
    2005Net (loss)as reported
    
    $
    (548
    )
    
    $
    (3,117
    )Lessstock-based compensation expense determined using fair value based method in SFAS No. 123
    
    
    (184
    )
    
    
    (370
    )Pro forma net (loss)
    
    $
    (732
    )
    
    $
    (3,487
    )
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I. RETIREMENT AND OTHER POSTRETIREMENT BENEFITS
  Three Months
    
    
    Six Months2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    28
    
    
    $
    36
    
    
    $
    55
    
    
    $
    74Interest cost
    
    
    15
    
    
    
    15
    
    
    
    29
    
    
    
    30Expected return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss recognized
    
    
    5
    
    
    
    5
    
    
    
    11
    
    
    
    9Net periodic pension costs
    
    $
    48
    
    
    $
    56
    
    
    $
    95
    
    
    $
    113
  Three Months
    
    
    Six Months2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    346
    
    
    $
    330
    
    
    $
    692
    
    
    $
    660Interest cost
    
    
    247
    
    
    
    253
    
    
    
    494
    
    
    
    506Amortization of prior service cost
    
    
    (209
    )
    
    
    (208
    )
    
    
    (418
    )
    
    
    (417
    )Actuarial loss recognized
    
    
    61
    
    
    
    112
    
    
    
    122
    
    
    
    224Net periodic postretirement benefit costs
    
    $
    445
    
    
    $
    487
    
    
    $
    890
    
    
    $
    973
  Medicare Prescription Drug, Improvement and
Modernization Act of 2003
 J. DISCONTINUED OPERATIONS
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Three Months
    
    Six Months2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    13,612
    
    
    $
    11,688
    
    
    $
    25,448
    
    
    $
    23,794Pre-Tax income
    
    
    32,562
    
    
    
    1,594
    
    
    
    34,257
    
    
    
    3,003
  December 31, 2005Cash
    
    $
    28Accounts receivable
    
    
    4,420Inventories
    
    
    8,000Other current assets
    
    
    80Property, plant and equipment
    
    
    9,948Intangible assets (net of amortization)
    
    
    9Other long term assets
    
    
    5,050TOTAL ASSETS
    
    $
    27,535Accounts payable
    
    $
    1,080Other current liabilities
    
    
    3,290Other long term liabilities
    
    
    8,407TOTAL LIABILITIES
    
    $
    12,777
  Three Months
    
    Six Months2006
    
    2005
    
    2006
    
    2005Net sales
    
    $
    1,003
    
    
    $
    2,044
    
    
    $
    3,072
    
    
    $
    4,187Pre-Tax income (loss)
    
    
    (1,931
    )
    
    
    (34
    )
    
    
    (2,019
    )
    
    
    288
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December 31, 2005Cash
    
    $
    (181
    )Accounts receivable
    
    
    1,035Inventories
    
    
    2,031Other current assets
    
    
    25Property, plant and equipment
    
    
    1,237Intangible assets (net of
amortization)
    
    
    Other long term assets
    
    
    78TOTAL ASSETS
    
    $
    4,225Accounts payable
    
    $
    246Other current liabilities
    
    
    1,844Other long term liabilities
    
    
    TOTAL LIABILITIES
    
    $
    2,090
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Safe Harbor Statement
    12




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Basis of Presentation
  Three Months
    
    Six Months2006
    
    2005
    
    2006
    
    2005$
    
    %
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %Net sales
    
    
    82.1
    
    
    
    100.0
    
    
    
    77.7
    
    
    
    100.0
    
    
    
    162.5
    
    
    
    100.0
    
    
    
    153.3
    
    
    
    100.0Costs of goods sold
    
    
    51.8
    
    
    
    63.1
    
    
    
    47.6
    
    
    
    61.3
    
    
    
    101.7
    
    
    
    62.6
    
    
    
    94.9
    
    
    
    61.9Gross profit
    
    
    30.3
    
    
    
    36.9
    
    
    
    30.1
    
    
    
    38.7
    
    
    
    60.8
    
    
    
    37.4
    
    
    
    58.4
    
    
    
    38.1Selling, general and administrative expense
    
    
    17.4
    
    
    
    21.2
    
    
    
    17.0
    
    
    
    21.9
    
    
    
    35.5
    
    
    
    21.8
    
    
    
    34.5
    
    
    
    22.5Management fees
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.3Operating profit
    
    
    12.6
    
    
    
    15.4
    
    
    
    12.8
    
    
    
    16.5
    
    
    
    24.8
    
    
    
    15.3
    
    
    
    23.4
    
    
    
    15.3
 Comparison of Results of Operations
 Three Months Ended June 30, 2006, Compared with Three Months Ended June 30, 2005
      13




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Six Months Ended June 30, 2006, Compared with Six Months Ended June 30, 2005
      14




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Liquidity and Capital Resources
     15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Risks Associated with International Operations
   
 Interest Rate Risks
 
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Commodity Risks
  
 ITEM 4. CONTROLS AND PROCEDURES
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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 14, 2006
    
    /s/ Thomas J. KoenigThomas J. KoenigVice President andChief Financial Officer(Principal Financial Officer)
 18