<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C, 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........................ to ....................
Commission File Number 33-93644
--------
DAY INTERNATIONAL GROUP, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 31-1436 349
- --------------------------- -------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer ID No.)
333 West First Street, Dayton, Ohio 45402-0338
- ------------------------------------------- -------------------
(Address of principal executive offices) (zip code)
(513) 224-4000
- ----------------------------------
(Registrant's telephone number including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of Common Shares of the Company, $0.01 per share par value,
outstanding as of November 8, 1996 was 51,555.
<PAGE> 2
DAY INTERNATIONAL GROUP, INC.
Index
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Part I: Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Income for the quarter
ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Income for the nine months
ended September 30, 1996, the period January 1, 1995 through
June 6, 1995 and the period June 7, 1995 through September 30, 1995 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996, the period January 1, 1995 through
June 6, 1995 and the period June 7, 1995 through September 30, 1995 6
Notes to Condensed Consolidated Financial Statements 7 - 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18 - 21
Part II: Other Information
Item 1 - Legal Proceedings 22
Item 6 - Exhibits and Reports on Form 8-K 22
Signature 22
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 6,743 $ 3,769
Accounts receivable, net of allowance 15,537 15,607
Inventories 15,542 15,237
Prepaid expenses and other current assets 1,016 866
Deferred income taxes 2,223 1,975
--------- ---------
Total current assets 41,061 37,454
Property, plant and equipment, net 45,219 44,496
Goodwill and other intangibles 138,638 145,446
Other assets 2,992 1,427
--------- ---------
Total assets $ 227,910 $ 228,823
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 6,222 $ 5,882
Accrued associate related costs and other expenses 11,941 11,114
Interest payable 4,282 1,212
Current maturities of long-term debt 728 --
--------- ---------
Total current liabilities 23,173 18,208
Long-term and subordinated long-term debt 143,494 151,250
Deferred tax liabilities 2,030 2,202
Other long term liabilities 7,765 7,302
--------- ---------
Total liabilities 176,462 178,962
Commitments and contingencies -- --
Stockholders' equity:
Common stock 1 1
Additional paid in capital 51,534 51,599
Retained earnings (Accumulated deficit) 600 (1,227)
Foreign currency translation adjustment (687) (512)
--------- ---------
Total stockholders' equity 51,448 49,861
--------- ---------
Total liabilities and stockholders' equity $ 227,910 $ 228,823
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Net sales $ 33,959 $ 31,672
Cost of goods sold 20,885 21,629
-------- --------
Gross profit 13,074 10,043
Selling, general and administrative
expenses 5,927 5,656
Amortization of intangibles 1,602 1,745
Management fees 200 200
-------- --------
Operating income 5,345 2,442
Interest expense (including amortization of
deferred financing costs of $250 and $243) 4,036 4,319
Other (income) expense (98) (108)
-------- --------
Income (loss) before income taxes 1,407 (1,769)
Provision (benefit) for income taxes 372 (1,195)
-------- --------
Net Income (loss) $ 1,035 $ (574)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------- -----------
NINE JUNE 7, JANUARY 1,
MONTHS 1995 1995
ENDED THROUGH THROUGH
SEPTEMBER 30, SEPTEMBER 30, JUNE 6,
1996 1995 1995
--------- -------- --------
<S> <C> <C> <C>
Net sales $ 101,080 $ 40,603 $ 55,454
Cost of goods sold 62,542 27,350 33,935
--------- -------- --------
Gross profit 38,538 13,253 21,519
Selling, general and administrative
expenses 18,122 7,154 11,257
Amortization of intangibles 4,744 2,234 2,258
Management fees 660 257 --
--------- -------- --------
Operating income 15,012 3,608 8,004
Interest expense (including amortization of
deferred financing costs of $750 and $304) 12,277 5,475
Other (income) expense (64) 867 (577)
--------- -------- --------
Income before income taxes 2,799 (2,734) 8,581
Provision (benefit) for income taxes 971 (1,195) 3,488
--------- -------- --------
Net Income (loss) $ 1,828 $ (1,539) $ 5,093
========= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------ -----------
NINE JUNE 7, JANUARY 1,
MONTHS 1995 1995
ENDED THROUGH THROUGH
SEPTEMBER 30, SEPTEMBER 30, JUNE 6,
1996 1995 1995
-------- --------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,828 $ (1,539) $ 5,093
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,276 7,442 4,378
Deferred income taxes (250) (1,453) (1,613)
Changes in operating assets and liabilities 2,913 (143) (7,439)
-------- --------- -------
Net cash provided by operating activities 15,767 4,307 419
-------- --------- -------
INVESTING ACTIVITIES
Capital expenditures (3,988) (950) (1,565)
Cash Paid for Day International, Inc. (199,500)
Other (1,587) -- --
-------- --------- -------
Net cash used in investing activities (5,575) (200,450) (1,565)
-------- --------- -------
FINANCING ACTIVITIES
Net payments on revolving credit facility (11,250)
Proceeds from UK credit facility 4,320
Payments on UK credit facility (173)
Sale of common shares 55 51,601
Purchase of common shares (120)
Proceeds from Term Loan 30,000
Net proceeds from revolving credit facility 24,000
Issuance of subordinated debt 100,000
Payment of financing costs (10,121)
Decrease in notes receivable and advances 6,015
Net change in equity -- -- (5,483)
-------- --------- -------
Net cash (used in) provided by financing activities (7,168) 195,480 532
-------- --------- -------
Effects of exchange rates on cash (50) (20) 31
-------- --------- -------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents 2,974 (683) (583)
Cash and cash equivalents at beginning of period 3,769 4,096 5,477
-------- --------- -------
Cash and cash equivalents at end of period $ 6,743 $ 3,413 $ 4,894
======== ========= =======
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
DAY INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
A. BASIS OF PRESENTATION- The balance sheet at December 31, 1995 is condensed
financial information derived from the audited balance sheet. The interim
financial statements are unaudited. The financial statements of Day
International Group, Inc. (the "Successor" or the "Company") and Day
International, Inc. (the "Predecessor" or "Day"), have been prepared in
accordance with generally accepted accounting principles and, in the opinion of
management, reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation in accordance with generally accepted
accounting principles for the periods presented. The results of operations and
cash flows for the interim periods presented are not necessarily indicative of
the results for the full year.
B. ACQUISITION OF DAY INTERNATIONAL, INC. - The Company was formed by American
Industrial Partners Capital Fund, L.P. ("AIP I") and American Industrial
Partners Capital Fund II, L.P. ("AIP II") to purchase Day (the "Acquisition").
On June 6, 1995 the Company acquired Day. The Acquisition was effected pursuant
to a Stock Purchase Agreement, dated April 11, 1995, by and among the Company,
M.A. Hanna Company and Cadillac Plastic Group, Inc. In connection with the
Acquisition, the Company purchased all of the outstanding shares of Day. Prior
to the Acquisition, the Company did not have any significant assets or
liabilities or engage in any other activities other than those indicative to
their formation, the Acquisition and financing related to the Acquisition.
The Company purchased Day for $211.8 million in cash, net of cash acquired of
$2.5 million. In order to obtain funds necessary to effect the Acquisition and
related transactions, and to pay the related fees and expenses of the
Acquisition, (i) AIP I and AIP II and its related investors contributed an
aggregate of $50.4 million to the Company in exchange for all the capital stock
of the Company, (ii) the Company consummated the offerings of 11 1/8% Senior
Subordinated Notes due 2005, in the aggregate amount of $100 million, and (iii)
the Company entered into a Credit Agreement, providing for a $30 million term
loan and a $50 million revolving credit facility, under which approximately
$59.2 million was borrowed upon the consummation of the Acquisition.
Interest on the Subordinated Notes is payable semi-annually. The terms of the
Credit Agreement and the Subordinated Notes include various financial covenants
and other covenants which place limits on, among other things, asset sales,
dividends and distributions on the Company's or any of its subsidiaries capital
stock, the purchase, redemption, acquisition of capital stock of the Company or
its affiliates or any subsidiaries, and the incurrence of certain additional
indebtedness. As of September 30, 1996, the Company was in compliance with all
of the covenants that pertain to the Credit Agreement and the Subordinated
Notes.
The Acquisition of Day has been accounted for as a purchase, applying the
provisions of Accounting Principles Board Opinion No. 16. The total purchase
cost was allocated to Day's assets and liabilities as of June 6, 1995, the
closing date of the Acquisition, based on valuations and other studies. Based on
these estimates, a portion of the excess purchase cost over the historical book
value of the net assets acquired is allocated to certain property, plant and
equipment, employment agreements, computer software and certain other
intangibles having lives of 1 to 40 years, and the remainder, representing
goodwill, is amortized over 40 years.
7
<PAGE> 8
C. INVENTORIES - The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Finished goods $ 8,881 $ 7,661
Work-in-process 4,313 4,732
Raw materials 2,348 2,844
------- -------
Total $15,542 $15,237
======= =======
</TABLE>
D. CONTINGENCIES - Claims have been made against Day for the costs of
environmental remedial measures taken or to be taken. Reserves for such
liabilities have been established and no insurance recoveries have been
anticipated in the determination of the reserves. In management's opinion, the
aforementioned claims will be resolved without material adverse effect on the
results of operations, financial position or cash flows of the Company. The
Company's previous parent and its parent, M.A. Hanna, have agreed to indemnify
the Company for certain of the costs associated with these matters. As a result,
a $1.1 million indemnification receivable has been recorded. Management believes
that this receivable is fully realizable.
E. OTHER ASSETS - In May, 1996, the Company's wholly-owned subsidiary, Day
International, Inc. acquired the stock of San Joaquin Packaging Corporation for
$1.6 million in cash plus the assumption of certain contingent obligations and
subsequently merged San Joaquin into Day International, Inc. The acquisition was
accounted for as a purchase with the purchase price allocated to San Joaquin's
only asset, a non-interest bearing note receivable, due in 1998, with a face
value of $2.0 million (discounted at 11%). Collection under the note is
contingent upon the completion of certain transactions related to the sale of
the assets of San Joaquin, however, management believes that the note will be
fully realized.
F. SUPPLEMENTAL CONSOLIDATING INFORMATION - As described in Note B, in April
1995, the Company purchased Day from M.A. Hanna. The acquisition was financed
through equity, term and revolving credit facilities and senior subordinated
debt (the "Notes"). In connection with the Acquisition, Day became a
wholly-owned subsidiary of the Company (which has no assets or operations other
than its investment in Day) and provided a full and unconditional guarantee of
the Notes. The wholly-owned foreign subsidiaries of Day are not guarantors with
respect to the Notes and are not anticipated to have any credit arrangements
senior to the Notes except for the $4.3 million borrowing by the UK subsidiary
under the Credit Agreement. All of the assets of Day and its parent, other than
the assets of the wholly-owned foreign non guarantor subsidiaries, are pledged
as collateral on the Notes. The only intercompany elimination's are the normal
intercompany eliminations with regard to intercompany sales and the Company's
investment in the wholly owned non guarantor subsidiaries. The following are the
supplemental combined condensed balance sheets as of September 30, 1996 and
December 31, 1995 and the supplemental combined condensed statements of income
for the quarters ended September 30, 1996 and 1995 and the supplemental combined
condensed statements of income and cash flows for the nine months ended
September 30, 1996 and 1995 with the investments in the subsidiaries accounted
for using the equity method. Separate complete financial statements of the
Guarantor are not presented because management has determined that they are not
material to the investors.
8
<PAGE> 9
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash & cash equivalents $ 3,861 $ (401) $ 3,283 $ 6,743
Accounts receivable - net 8,404 7,133 15,537
Inventories 9,818 5,724 15,542
Other assets 23 1,655 1,561 3,239
--------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,884 19,476 17,701 -- 41,061
Intercompany 140,000 1,820 $(141,820) --
Property, plant and equipment - net 36,161 9,058 45,219
Investment in subsidiaries 61,315 18,203 (79,518) --
Intangibles and other assets 134,933 6,697 141,630
--------------------------------------------------------------------------------------
TOTAL ASSETS $205,199 $210,593 $33,456 $(221,338) $227,910
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 77 $ 3,567 $ 2,839 $ (261) $ 6,222
Accrued associate related costs
and other expenses 7,753 4,188 -- 11,941
Interest payable 4,282 4,282
Current maturities of long-term debt -- -- 728 728
--------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,359 11,320 7,755 (261) 23,173
Intercompany 8,705 131,183 1,671 (141,559) --
Long-term and
subordinated long-term debt 140,000 3,494 143,494
Long-term post retirement
benefits and other 6,775 3,020 9,795
Total stockholders' equity 52,135 61,315 17,516 (79,518) 51,448
--------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $205,199 $210,593 $33,456 $(221,338) $227,910
======================================================================================
</TABLE>
9
<PAGE> 10
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
December 31, 1995
<TABLE>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash & cash equivalents $ 403 $ 87 $ 3,279 $ 3,769
Accounts receivable - net 7,651 7,956 15,607
Inventories 9,473 5,764 15,237
Other assets 20 1,761 1,060 2,841
--------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 423 18,972 18,059 -- 37,454
Intercompany 7,697 $ (7,697) --
Property, plant and equipment - net 35,510 8,986 44,496
Investment in subsidiaries 210,684 17,193 (227,877) --
Intangibles and other assets 140,143 6,730 146,873
--------------------------------------------------------------------------------------
TOTAL ASSETS $211,107 $219,515 $33,775 $(235,574) $228,823
======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 77 $ 3,204 $ 2,702 $ (101) $ 5,882
Accrued associate related costs
and other expenses 1,354 7,198 3,774 12,326
--------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,431 10,402 6,476 (101) 18,208
Intercompany 8,053 (8,064) 7,607 (7,596) --
Long-term and
subordinated long-term debt 151,250 151,250
Long-term post retirement
benefits and other 6,493 3,011 9,504
Total stockholders' equity 50,373 210,684 16,681 (227,877) 49,861
--------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $211,107 $219,515 $33,775 $(235,574) $228,823
======================================================================================
</TABLE>
10
<PAGE> 11
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the quarter ended September 30, 1996
<TABLE>
<CAPTION>
DAY DAY
International, International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $25,247 $8,712 $ -- $33,959
Cost of goods sold 14,963 5,922 20,885
------------------------------------------------------------------------------------
Gross profit -- 10,284 2,790 -- 13,074
Selling, general and administrative expenses 39 4,002 1,886 5,927
Amortization of intangibles 1,590 12 1,602
Management fees 200 200
------------------------------------------------------------------------------------
Operating income (loss) (39) 4,492 892 -- 5,345
Other expenses (income):
Equity in earnings of subsidiaries (1,045) (726) 1,771 --
Interest expense -- 3,965 71 4,036
Other (income) expense (22) 4 (80) (98)
------------------------------------------------------------------------------------
Income before income taxes 1,028 1,249 901 (1,771) 1,407
Provision (benefit) for income taxes (7) 204 175 372
------------------------------------------------------------------------------------
Net Income $1,035 $ 1,045 $ 726 $(1,771) $ 1,035
====================================================================================
</TABLE>
11
<PAGE> 12
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the Nine Months ended September 30, 1996
<TABLE>
<CAPTION>
DAY DAY
International, International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $74,956 $26,124 $ -- $101,080
Cost of goods sold 44,947 17,595 62,542
-------------------------------------------------------------------------------------
Gross profit -- 30,009 8,529 -- 38,538
Selling, general and administrative expenses 147 12,158 5,817 18,122
Amortization of intangibles 4,572 172 4,744
Management fees 660 -- 660
-------------------------------------------------------------------------------------
Operating income (loss) (147) 12,619 2,540 -- 15,012
Other expenses (income):
Equity in earnings of subsidiaries (1,881) (1,510) 3,391 --
Interest expense -- 12,187 90 12,277
Other (income) expense (60) (118) 114 (64)
-------------------------------------------------------------------------------------
Income before income taxes 1,794 2,060 2,336 (3,391) 2,799
Provision (benefit) for income taxes (34) 179 826 971
-------------------------------------------------------------------------------------
Net Income $1,828 $ 1,881 $ 1,510 $(3,391) $ 1,828
=====================================================================================
</TABLE>
12
<PAGE> 13
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the three months ended September 30, 1995
<TABLE>
<CAPTION>
DAY DAY
International, International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $23,085 $8,587 $ -- $31,672
Cost of goods sold 15,908 5,721 21,629
-------------------------------------------------------------------------------------
Gross profit -- 7,177 2,866 -- 10,043
Selling, general and administrative expenses (14) 3,672 1,998 5,656
Amortization of intangibles 1,745 -- 1,745
Management fees 200 -- 200
-------------------------------------------------------------------------------------
Operating income (loss) 14 1,560 868 -- 2,442
Other expenses (income):
Equity in earnings of subsidiaries (1,349) (525) 1,874 --
Interest expense 4,047 243 236 (207) 4,319
Other (income) expense (176) -- (139) 207 (108)
-------------------------------------------------------------------------------------
Income (loss) before income taxes (2,508) 1,842 771 (1,874) (1,769)
Provision (benefit) for income taxes (1,934) 493 246 (1,195)
-------------------------------------------------------------------------------------
Net Income $ (574) $ 1,349 $ 525 $(1,874) $ (574)
=====================================================================================
</TABLE>
13
<PAGE> 14
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the period June 7, 1995 through September 30, 1995
<TABLE>
<CAPTION>
DAY DAY
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $29,365 $11,238 $40,603
Cost of goods sold 19,872 7,478 27,350
--------------------------------------------------------------------------------------
Gross profit -- 9,493 3,760 -- 13,253
Selling, general and administrative expenses $ 48 4,752 2,612 7,412
Amortization of intangibles 2,234 -- 2,234
--------------------------------------------------------------------------------------
Operating income (48) 2,507 1,148 -- 3,607
Other expenses (income):
Equity in earnings of subsidiaries (1,486) (775) 2,261 --
Interest expense 5,135 304 237 (201) 5,475
Other (income) expense (223) 999 (110) 201 867
--------------------------------------------------------------------------------------
Income before income taxes (3,474) 1,979 1,021 (2,261) (2,735)
Provision for income taxes (1,934) 493 246 (1,195)
--------------------------------------------------------------------------------------
Net Income $(1,540) $ 1,486 $ 775 $(2,261) $(1,540)
======================================================================================
</TABLE>
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the period January 1, 1995 through June 6, 1995
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $39,690 $24,177 $(8,413) $55,454
Cost of goods sold 23,829 18,519 (8,413) 33,935
-----------------------------------------------------------------
Gross profit 15,861 5,658 -- 21,519
Selling, general and administrative expenses 6,776 4,481 11,257
Amortization of intangibles 2,258 -- 2,258
-----------------------------------------------------------------
Operating income 6,827 1,177 -- 8,004
Other expenses (income):
Equity in earnings of subsidiaries (1,426) 1,426 --
Other (income) expense 110 (687) (577)
-----------------------------------------------------------------
Income before income taxes 8,143 1,864 (1,426) 8,581
Provision for income taxes 3,050 438 3,488
-----------------------------------------------------------------
Net Income $ 5,093 $ 1,426 $(1,426) $ 5,093
=================================================================
</TABLE>
14
<PAGE> 15
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the nine months ended September 30, 1996
<TABLE>
<CAPTION>
DAY DAY
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net Income $ 1,828 $ 1,881 $ 1,510 $(3,391) $ 1,828
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 10,174 1,102 11,276
Equity in earning of subsidiaries (1,881) (1,510) 3,391 --
Changes in operating assets and liabilities 2,925 (1,115) 731 122 2,663
----------------------------------------------------------------------------
Net cash provided by operating activities 2,872 9,430 3,343 122 15,767
Investing Activities:
Capital expenditures (2,861) (1,127) (3,988)
Other (1,273) (632) 318 (1,587)
----------------------------------------------------------------------------
Net cash used in investing activities -- (4,134) (1,759) 318 (5,575)
Financing Activities:
Net payments on revolving credit facility (11,250) (11,250)
Proceeds from UK credit facility -- 4,320 4,320
Payments on UK credit facility (173) (173)
Sale of common shares 55 55
Purchase of common shares (120) (120)
----------------------------------------------------------------------------
Net cash (used in) provided by financing activities (11,315) -- 4,147 -- (7,168)
Intercompany transfers 11,901 (5,784) (5,677) (440) --
Effects of exchange rates on cash (50) (50)
----------------------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 3,458 (488) 4 -- 2,974
Cash and cash equivalents at beginning of period 403 87 3,279 3,769
----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,861 $ (401) $ 3,283 $ -- $ 6,743
============================================================================
</TABLE>
15
<PAGE> 16
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the period June 7, 1995 through September 30, 1995
<TABLE>
<CAPTION>
Day Day
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ (1,540) $ 1,486 $ 775 $(2,261) $ (1,540)
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 7,165 277 7,442
Equity in earnings (loss) of subsidiaries (1,486) (775) 2,261 --
Deferred income taxes and other (1,934) 493 (12) (1,453)
Changes in operating assets and liabilities 4,354 (3,776) (720) -- (142)
-----------------------------------------------------------------------------
Net cash provided by (used in) operating activities (606) 4,593 320 -- 4,307
INVESTING ACTIVITIES:
Cash paid for Day International, Inc. (199,500) (199,500)
Capital expenditures (606) (344) (950)
-----------------------------------------------------------------------------
Net cash used in investing activities (199,500) (606) (344) -- (200,450)
FINANCING ACTIVITIES:
Capital contribution 51,601 51,601
Proceeds from term loan 30,000 30,000
Net proceeds from revolving credit facility 24,000 24,000
Issuance of subordinated debt 100,000 100,000
Payment of financing costs (10,121) (10,121)
-----------------------------------------------------------------------------
Net cash provided by financing activities 195,480 -- -- -- 195,480
Intercompany transfers 5,349 (5,642) 293 -- --
Effects of exchange rates on cash (20) (20)
-----------------------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 723 (1,655) 249 -- (683)
Cash and cash equivalents at beginning of period 958 1,105 2,033 4,096
-----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,681 $ (550) $2,282 $ -- $ 3,413
=============================================================================
</TABLE>
16
<PAGE> 17
Day International, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the period January 1, 1995 through June 6, 1995
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $5,093 $1,426 $(1,426) $5,093
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,021 357 4,378
Equity in earnings of subsidiaries (1,426) -- 1,426 --
Changes in operating assets and liabilities (6,349) (2,703) -- (9,052)
-------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,339 (920) -- 419
Investing Activities:
Capital expenditures (1,213) (352) (1,565)
Other -- --
-------------------------------------------------------------------
Net cash used in investing activities (1,213) (352) -- (1,565)
Financing Activities:
Decrease in notes receivable and advances 5,890 125 6,015
Net change in equity (5,483) (5,483)
-------------------------------------------------------------------
Net cash provided by financing activities 407 125 -- 532
Effects of exchange rates on cash 31 31
-------------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 533 (1,116) -- (583)
Cash and cash equivalents at beginning of period 572 4,905 -- 5,477
-------------------------------------------------------------------
Cash and cash equivalents at end of period $1,105 $3,789 $ -- $4,894
===================================================================
</TABLE>
G. RECLASSIFICATIONS - Certain reclassifications have been made to the 1995
balances in order to conform to the 1996 classifications.
17
<PAGE> 18
DAY INTERNATIONAL GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, cost of goods
sold, gross profit, selling, general and administrative expense ("SG&A"),
amortization of intangibles and operating income in millions of dollars and as a
percentage of net sales.
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
Ended September 30 Ended September 30
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
$ % $ % $ % $ %
------ ----- ----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. 34.0 100.0 31.7 100.0 101.1 100.0 96.1 100.0
Costs of goods sold.................... 20.9 61.5 21.6 68.3 62.6 61.9 61.3 63.8
Gross profit........................... 13.1 38.5 10.0 31.7 38.5 38.1 34.8 36.2
SG&A................................... 5.9 17.3 5.7 18.0 18.1 17.9 18.4 19.1
Amortization of intangibles............ 1.6 4.7 1.7 5.3 4.7 4.7 4.5 4.7
Management Fees........................ 0.2 0.6 0.2 0.7 0.7 0.7 0.3 0.3
Operating income....................... 5.4 15.9 2.4 7.7 15.0 14.8 11.6 12.1
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 Compared to Three Months Ended
September 30, 1995
Net sales increased to $34.0 million for the three months ended September 30,
1996 from $31.7 million for the comparable period in 1995, an increase of $2.3
million or 7.3%. Sales volumes increased by $2.5 million or 7.9% and the effect
of translation decreased sales by $0.3 million or 0.9%. Printing's sales
increased to $25.7 million for the three months ended September 30, 1996 from
$23.8 million for the comparable period in 1995, an increase of $1.9 million or
8.0%. Printing revenues increased $2.1 million or 8.8%, as a result of increased
demand for the Company's existing products and a modest price increase.
Translation decreased Printing's revenue by $0.3 million or 1.3%. Textiles'
sales were $8.3 million for the three months ended September 30, 1996 compared
to $7.9 million for the comparable period in 1995, an increase of $0.4 million
or 5.1%. Textile volumes increased as a result of a slight improvement in the
domestic market. Textile's revenues were not significantly impacted by
translation in the quarter.
Gross profit increased $3.1 million to $13.1 million for the three months ended
September 30, 1996 from $10.0 million for the three months ended September 30,
1995. As a percentage of net sales, gross profit increased to 38.5% for the
three months ended September 30, 1996 from 31.7% for the comparable period in
1995. Gross profit was positively impacted by productivity enhancements and
higher sales
18
<PAGE> 19
volumes. Gross profit increased by $0.9 million as a result of higher sales
volumes and favorable product mix. Lower cost of goods sold increased gross
profit by $0.4 million or 1.3%. Translation increased gross profit $0.1 million
or 1.0%. Gross profit in the three months ended September 30, 1995 decreased by
$1.7 million as a result of selling finished goods inventory which were
purchased at market value as a result of the acquisition.
SG&A increased to $5.9 million for the three months ended September 30, 1996
from $5.7 million for the comparable period in 1995, an increase of $0.2 million
or 3.5%. As a percentage of net sales, SG&A decreased to 17.3% from 18.0%, as a
result of lower distribution and selling expenses mainly on European sales and
cost savings associated with the reorganization of the Canadian branch office.
Amortization of intangibles remained relatively constant at $1.6 million for the
three months ended September 30, 1996 compared to $1.7 million for the three
months ended September 30, 1995.
Operating income increased to $5.4 million for the three months ended September
30, 1996 from $2.4 million for the comparable period in 1995, an increase of
$3.0 million. As a percentage of net sales, operating income increased to 15.9%
for the three months ended September 30, 1996 from 7.7% for the comparable
period in 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Net sales increased to $101.1 million for the nine months ended September 30,
1996 from $96.1 million for the comparable period in 1995, an increase of $5.0
million or 5.2%. Real revenue growth was $6.0 million, or 6.2% reduced by $1.0
million as a result of translation. Printing's sales increased to $76.2 million
for the nine months ended September 30, 1996 from $70.8 million for the
comparable period in 1995, an increase of $5.4 million or 7.6%, as a result of
higher sales of tubular sleeves, increased demand for the Company's existing
products and a modest price increase. Textiles' sales were $24.9 million for the
nine months ended September 30, 1996 compared to $25.2 million for the
comparable period in 1995, a decrease of $0.3 million or 1.2% as a result of
lower European sales to OEM customers coupled with adverse translation impact of
$0.2 million or 0.8%. Sales of other textile products remained steady in
comparison with the prior year.
Gross profit increased $3.7 million to $38.5 million for the nine months ended
September 30, 1996 from $34.8 million for the nine months ended September 30,
1995. As a percentage of net sales, gross profit increased to 38.1% for the nine
months ended September 30, 1996 from 36.2% for the comparable period in 1995.
Gross profit was positively impacted by productivity enhancements and higher
sales volumes, particularly printing products sales. Gross profit increased by
$2.0 million as a result of higher overall sales volumes. Gross profit decreased
$0.4 million due to translation. Gross profit was also impacted by $1.1 million
of higher depreciation and amortization as a result of recognizing the market
value of the assets purchased in the Acquisition. Gross profit in the nine
months ended September 30, 1995 was impacted by $2.3 million as a result of
selling finished goods inventory which were purchased at market value as a
result of the acquisition.
19
<PAGE> 20
SG&A decreased to $18.1 million for the nine months ended September 30, 1996
from $18.4 million for the comparable period in 1995, a decrease of $0.3 million
or 1.6%. In the nine months ended September 30, 1996, additional stand alone
costs added $0.1 million to SG&A. As a percentage of net sales, SG&A decreased
to 17.9% from 19.1%, as a result of lower distribution and selling expenses on
European sales combined with cost savings associated with the reorganization of
the Canadian branch office.
Amortization of intangibles increased to $4.7 million for the nine months
September 30, 1996 from $4.5 million for the comparable period in 1995, an
increase of $0.2 million as a result of purchase accounting from the
Acquisition.
Operating income increased to $15.0 million for the nine months ended September
30, 1996 from $11.6 million for the comparable period in 1995, an increase of
$3.4 million or 29.3%. As a percentage of net sales, operating income increased
to 14.8% for the nine months ended September 30, 1996 from 12.1% for the
comparable period in 1995. The Company's operating income was $1.2 million lower
due to increased depreciation and amortization primarily as a result of the
Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated funds from its operations and its working
capital requirements have not exhibited seasonal fluctuations. Utilizing
converters to distribute the majority of its products, the Company is able to
maintain relatively minimal levels of working capital as the converters carry
large amounts of inventory and finance receivables.
Cash Flows From Operating Activities. Cash flows from operations for the nine
months ended September 30, 1996 and September 30, 1995 were $15.8 million and
$4.7 million, respectively. Cash flows from operations in 1996 were increased by
a $2.9 million decrease in working capital, primarily from an increase in
accrued interest payable. For the nine months ended September 30, 1995, cash
flows from operations were impacted by a $9.0 million increase in working
capital, primarily from payments associated with employee incentives earned in
1994, along with funding of the defined contribution plans and 401k Company
match and increases in inventory balances and accounts receivable offset by a
reduction in prepaid expenses.
Cash Flows From Investing Activities. The Company's expenditures for plant,
property and equipment have been relatively stable at $3.6, $3.5 and $3.7
million for 1995, 1994 and 1993, respectively. The Company believes that
historical capital spending levels are sufficient to maintain its leading market
position. The Company expects to fund its annual capital expenditures of $4.0
million to $6.0 million over the next several years from cash flow from
operations. Capital expenditures for the nine months ended September 30, 1996
were $4.0 million compared to $2.5 million for the nine months ended September
30, 1995.
20
<PAGE> 21
Cash Flows From Financing Activities. Concurrent with the Acquisition, the
Company entered into the Credit Agreement with certain banks. The Credit
Agreement has a maximum borrowing capacity of $77 million and is secured by the
assets of the Company and its domestic subsidiaries, as well as 65% of the stock
of each foreign subsidiary. In conjunction with the Credit Agreement, the
Company entered into an agreement with a UK bank in June 1996 to borrow $5.8
million, of which, $4.2 million was outstanding at September 30, 1996, the
proceeds of which were used to reduce the US line of credit. As of September 30,
1996, the Company had approximately $31.1 million available under the US Credit
Agreement and $1.6 million available under the UK Credit Agreement. The Company
does not have any scheduled repayment requirements until 1999, other than a
quarterly payment of $182 related to the UK Credit Agreement. During the nine
months ended September 30, 1996, the Company made $11.3 million in payments on
the line of credit associated with the US Credit Agreement. The Company believes
that it will generate sufficient cash flow from operations to meet debt service,
working capital and capital expenditure requirements, although no assurance can
be given that it will be able to do so.
21
<PAGE> 22
DAY INTERNATIONAL GROUP, INC.
Part II: Other Information
Item 1. Legal Proceedings - None
Item 6. Exhibits and Reports on Form 8-K
a. No report on Form 8-K was filed during the quarter ended
September 30, 1996.
b. Exhibits:
27 Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Day International Group, Inc.
-----------------------------
(Registrant)
Date: November 12, 1996 /s/ David B. Freimuth
----------------- ----------------------
David B. Freimuth
Vice President and
Chief Financial Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAY
INTERNATIONAL GROUP, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,743
<SECURITIES> 0
<RECEIVABLES> 16,702
<ALLOWANCES> 1,165
<INVENTORY> 15,542
<CURRENT-ASSETS> 41,061
<PP&E> 50,435
<DEPRECIATION> 5,216
<TOTAL-ASSETS> 227,910
<CURRENT-LIABILITIES> 23,173
<BONDS> 143,494
<COMMON> 1
0
0
<OTHER-SE> 51,447
<TOTAL-LIABILITY-AND-EQUITY> 227,910
<SALES> 101,080
<TOTAL-REVENUES> 101,080
<CGS> 62,542
<TOTAL-COSTS> 86,068
<OTHER-EXPENSES> (64)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,277
<INCOME-PRETAX> 2,799
<INCOME-TAX> 971
<INCOME-CONTINUING> 1,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,828
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
