<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, 1997
[ ] 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)
Delaware 31-1436 349
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
333 West First Street, Dayton, Ohio 45402-0338
(Address of principal executive offices) (zip code)
(937) 224-4000
(Registrant's telephone number including area code)
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 October 21, 1997 was 51,655.5
<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, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the quarter
ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the nine months
ended September 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7 - 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 17
Part II: Other Information
Item 1 - Legal Proceedings 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signature 18
</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 1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 664 $ 5,433
Accounts receivable, net of allowance 21,589 17,171
Inventories 15,904 16,355
Prepaid expenses and other current assets 1,687 3,630
Deferred income taxes 3,338 3,389
--------- ---------
Total current assets 43,182 45,978
Property, plant and equipment, net 44,856 45,289
Goodwill and other intangibles 138,868 145,018
Other assets 1,413 1,601
--------- ---------
Total assets $ 228,319 $ 237,886
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 6,602 $ 7,453
Accrued associate - related costs and other expenses 15,926 14,004
Interest payable 3,867 1,068
Current maturities of long-term debt 754 803
--------- ---------
Total current liabilities 27,149 23,328
Long-term and subordinated long-term debt 133,722 152,116
Deferred tax liabilities 3,462 3,513
Other long term liabilities 6,343 6,195
Commitments and contingencies -- --
--------- ---------
Total liabilities 170,676 185,152
Stockholders' equity:
Common stock 1 1
Additional paid in capital 51,651 51,531
Retained earnings 7,513 1,780
Foreign currency translation adjustment (1,522) (578)
--------- ---------
Total stockholders' equity 57,643 52,734
--------- ---------
Total liabilities and stockholders' equity $ 228,319 $ 237,886
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED September 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Net sales $42,406 $ 33,959
Costs of goods sold 26,203 20,885
------- --------
Gross profit 16,203 13,074
Selling, general and administrative
expenses 7,147 5,927
Amortization of intangibles 704 1,602
Management fees 230 200
------- --------
Operating income 8,122 5,345
Interest expense (including amortization of
deferred financing costs of $241 - 1997 and $250 - 1996) 3,972 4,036
Other (income) expense 638 (98)
------- --------
Income before income taxes 3,512 1,407
Provision for income taxes 1,233 372
------- --------
Net income $ 2,279 $ 1,035
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Net sales $122,034 $ 101,080
Costs of goods sold 75,609 62,542
-------- ---------
Gross profit 46,425 38,538
Selling, general and administrative
expenses 21,311 18,122
Amortization of intangibles 2,627 4,744
Management fees 690 660
-------- ---------
Operating income 21,797 15,012
Interest expense (including amortization of
deferred financing costs of $724 - 1997 and $750 - 1996) 12,133 12,277
Other (income) expense 617 (64)
-------- ---------
Income before income taxes 9,047 2,799
Provision for income taxes 3,314 971
-------- ---------
Net income $ 5,733 $ 1,828
======== =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,733 $ 1,828
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 10,027 11,276
Changes in operating assets and liabilities (1,009) 2,663
-------- --------
Net cash provided by operating activities 14,751 15,767
-------- --------
INVESTING ACTIVITIES
Capital expenditures (3,897) (3,988)
Other 2,619 (1,587)
-------- --------
Net cash used in investing activities (1,278) (5,575)
-------- --------
FINANCING ACTIVITIES
Net payments on revolving credit facility (18,206) (11,423)
Sale of common shares 120 55
Purchase of common shares (120)
Proceeds from UK credit facility -- 4,320
-------- --------
Net cash used in financing activities (18,086) (7,168)
-------- --------
Effects of exchange rates on cash (156) (50)
-------- --------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (4,769) 2,974
Cash and cash equivalents at beginning of period 5,433 3,769
-------- --------
Cash and cash equivalents at end of period $ 664 $ 6,743
======== ========
</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 as of December 31, 1996 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 "Company"), 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. INVENTORIES - The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------- -------
<S> <C> <C>
Finished goods $ 8,752 $ 9,118
Work-in-process 4,048 4,115
Raw materials 3,104 3,122
------- -------
Total $15,904 $16,355
======= =======
</TABLE>
C. CONTINGENCIES - Claims have been made against the Company 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
D. SUPPLEMENTAL CONSOLIDATING INFORMATION - In April 1995, the Company purchased
Day International, Inc. ("Day"). 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 $2.0 million borrowing by the UK subsidiary, as of September 30, 1997, 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 eliminations 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 combining condensed balance sheets as of September 30, 1997 and
7
<PAGE> 8
December 31, 1996 and the supplemental combining condensed statements of income
for the three and nine month periods ended September 30, 1997 and 1996 and cash
flows for the nine months ended September 30, 1997 and 1996 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.
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
September 30, 1997
<TABLE>
<CAPTION>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. Subsidiaries Eliminations Consolidated
------------- (Guarantor) ------------- ------------ ------------
-------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash & cash equivalents $ 582 $ (1,597) $ 1,679 $ 664
Accounts receivable - net 12,885 8,704 21,589
Inventories 10,620 5,284 15,904
Other assets -- 3,257 1,768 5,025
-------- --------- ------- --------- --------
TOTAL CURRENT ASSETS 582 25,165 17,435 -- 43,182
Intercompany 132,500 583 $(133,083) --
Property, plant and equipment - net 35,836 9,020 44,856
Investment in subsidiaries 68,148 21,728 (89,876)
Intangibles and other assets 135,027 5,254 140,281
-------- --------- ------- --------- --------
TOTAL ASSETS $201,230 $ 218,339 $31,709 $(222,959) $228,319
======== ========= ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ -- $ 3,565 $ 3,197 $ (160) $ 6,602
Accrued associate related costs
and other expenses 11,262 4,664 -- 15,926
Interest payable 3,748 119 3,867
Current maturities of long-term debt -- -- 754 754
-------- --------- ------- --------- --------
TOTAL CURRENT LIABILITIES 3,748 14,827 8,734 (160) 27,149
Intercompany 5,817 126,773 333 (132,923) --
Long-term and
Subordinated long-term debt 132,500 1,222 133,722
Long-term post retirement
benefits and other 7,144 2,661 9,805
Total stockholders' equity 59,165 69,595 18,759 (89,876) 57,643
-------- --------- ------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $201,230 $ 218,339 $31,709 $(222,959) $228,319
======== ========= ======= ========= ========
</TABLE>
8
<PAGE> 9
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. Subsidiaries Eliminations Consolidated
-------- (Guarantor) -------- ------------ --------
-------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash & cash equivalents $ 2,757 $ (726) $ 3,402 $ 5,433
Accounts receivable - net 9,139 8,032 17,171
Inventories 10,780 5,575 16,355
Other assets 6,118 901 7,019
-------- --------- -------- ------------ --------
TOTAL CURRENT ASSETS 2,757 25,311 17,910 -- 45,978
Intercompany 148,500 583 $ (149,083) --
Property, plant and equipment - net 36,112 9,177 45,289
Investment in subsidiaries 62,410 19,218 (81,628) --
Intangibles and other assets 141,320 5,299 146,619
-------- --------- -------- ------------ --------
TOTAL ASSETS $213,667 $ 222,544 $ 32,386 $ (230,711) $237,886
======== ========= ======== ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ -- $ 4,878 $ 2,919 $ (344) $ 7,453
Accrued associate related costs
and other expenses 10,703 3,301 14,004
Interest payable 1,068 1,068
Current maturities of long-term debt 803 803
-------- --------- -------- ------------ --------
TOTAL CURRENT LIABILITIES
1,068 15,581 7,023 (344) 23,328
Intercompany 10,787 137,536 415 (148,738) --
Long-term and
subordinated long-term debt 148,500 3,616 152,116
Long-term post retirement
benefits and other 6,921 2,787 9,708
Total stockholders' equity 53,312 62,506 18,545 (81,629) 52,734
-------- --------- -------- ------------ --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $213,667 $ 222,544 $ 32,386 $ (230,711) $237,886
======== ========= ======== ============ ========
</TABLE>
9
<PAGE> 10
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the quarter ended September 30, 1997
<TABLE>
<CAPTION>
Day Day
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
------------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 32,144 $10,262 $ -- $42,406
Cost of goods sold 19,089 7,114 -- 26,203
------- -------- ------- ------- -------
Gross profit -- 13,055 3,148 -- 16,203
Selling, general and administrative expenses 12 5,319 1,816 7,147
Amortization of intangibles 693 11 704
Management fees 230 230
------- -------- ------- ------- -------
Operating income (loss) (12) 6,813 1,321 -- 8,122
Other expenses <income>:
Equity in earnings of subsidiaries (2,284) (848) 3,132 --
Interest expense -- 3,893 79 3,972
Other (income) expense (4) 568 74 638
------- -------- ------- ------- -------
Income before income taxes 2,276 3,200 1,168 (3,132) 3,512
Provision (benefit) for income taxes (3) 916 320 1,233
------- -------- ------- ------- -------
Net Income $ 2,279 $ 2,284 $ 848 $(3,132) $ 2,279
======= ======== ======= ======= =======
</TABLE>
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>
10
<PAGE> 11
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the Nine Months ended September 30, 1997
<TABLE>
<CAPTION>
Day Day
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
------------- ---------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 91,814 $30,220 $ -- $122,034
Cost of goods sold 55,057 20,552 -- 75,609
------- -------- ------- -------- --------
Gross profit -- 36,757 9,668 -- 46,425
Selling, general and administrative expenses 39 15,561 5,711 21,311
Amortization of intangibles 2,593 34 2,627
Management fees 690 -- 690
------- -------- ------- -------- --------
Operating income (loss) (39) 17,913 3,923 -- 21,797
Other expenses <income>:
Equity in earnings of subsidiaries (5,738) (2,382) 8,120 --
Interest expense -- 11,850 283 12,133
Other (income) expense (31) 562 86 617
------- -------- ------- -------- --------
Income before income taxes 5,730 7,883 3,554 (8,120) 9,047
Provision (benefit) for income taxes (3) 2,145 1,172 3,314
------- -------- ------- -------- --------
Net Income $ 5,733 $ 5,738 $ 2,382 $ (8,120) $ 5,733
======= ======== ======= ======== ========
</TABLE>
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>
11
<PAGE> 12
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the nine months ended September 30, 1997
<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 $ 5,733 $ 5,738 $ 2,382 $ (8,120) $ 5,733
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,844 1,183 10,027
Equity in earning of subsidiaries (5,738) (2,382) 8,120 --
Changes in operating assets and liabilities 2,681 (3,737) (282) 329 (1,009)
-------- -------- ------- ----------- --------
Net cash provided by operating activities 2,676 8,463 3,283 329 14,751
Investing Activities:
Capital expenditures (2,542) (1,355) (3,897)
Other 2,619 -- -- 2,619
-------- -------- ------- ----------- --------
Net cash (used in) provided by investing activities -- 77 (1,355) -- (1,278)
Financing Activities:
Net payments on revolving credit facility (16,000) (2,206) (18,206)
Sale of common shares 120 120
-------- -------- ------- ----------- --------
Net cash used in financing activities (15,880) -- (2,206) -- (18,086)
Intercompany transfers 11,029 (10,661) (39) (329) --
Dividend 1,250 (1,250)
Effects of exchange rates on cash (156) (156)
-------- -------- ------- ----------- --------
Cash and Cash Equivalents:
Net decrease in cash and cash equivalents (2,175) (871) (1,723) -- (4,769)
Cash and cash equivalents at beginning of period 2,757 (726) 3,402 5,433
-------- -------- ------- ----------- --------
Cash and cash equivalents at end of period $ 582 $ (1,597) $ 1,679 $ -- $ 664
======== ======== ======= =========== ========
</TABLE>
12
<PAGE> 13
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 (1,567)
-----------------------------------------------------------------------------
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>
6. RECENTLY ISSUED ACCOUNTING STANDARD - In June, 1997, the Financial Accounting
Standards Board issued Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which will require new
segment information in public companies' annual financial statements. Public
companies will be required to report financial and descriptive information about
their reportable operating segments - "components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding on how to allocate resources and in
assessing performance."
Day will be required to adopt this standard for its fiscal 1998 financial
statements. There will be no impact on the Company's net income or cash flows
upon adoption of this new standard and the Company has not determined the effect
it will have on the financial statement disclosures.
13
<PAGE> 14
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
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... 42.4 100.0 34.0 100.0 122.0 100.0 101.1 100.0
Costs of goods sold............ 26.2 61.8 20.9 61.5 75.6 62.0 62.5 61.8
Gross profit................... 16.2 38.2 13.1 38.5 46.4 38.0 38.5 38.2
SG&A........................... 7.1 16.7 5.9 17.4 21.3 17.5 18.2 18.0
Amortization of intangibles.... 0.7 1.7 1.6 4.7 2.6 2.1 4.7 4.6
Management Fees................ 0.2 0.5 0.2 0.6 0.7 0.6 0.7 0.7
Operating income............... 8.1 19.1 5.3 15.6 21.8 17.9 15.0 14.8
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Net sales increased to $42.4 million for the three months ended September 30,
1997 from $34.0 million for the comparable period in 1996, an increase of $8.4
million or 24.7%. Sales volumes increased by $9.2 million or 27.1% offset by the
effect of foreign currency translation of $0.8 million or 2.4%. Printing's sales
increased to $34.3 million for the three months ended September 30, 1997 from
$25.6 million for the comparable period in 1996, an increase of $8.7 million or
34.0%. Printing sales volumes increased $9.5 million or 37.1%, of which, $5.0
million or 19.5% relates to the acquisition of David M on December 31, 1996. The
remaining increase of $4.5 million or 17.6% was a result of modest price
increases, higher sales of tubular sleeves and increased demand for the
Company's existing products in the U.S., Europe and the Pacific Rim offset by
lower sales into Latin America. Foreign currency translation reduced Printing's
revenue by $0.8 million or 3.1%. Textiles' sales were $8.1 million for the three
months ended September 30, 1997 compared to $8.3 million for the comparable
period in 1996, a decrease of $0.2 million or 2.4% mainly as a result of lower
sales to the Pacific Rim market. Foreign currency translation had no significant
impact on Textile's sales this quarter.
14
<PAGE> 15
Gross profit increased $3.1 million to $16.2 million for the three months ended
September 30, 1997 from $13.1 million for the three months ended September 30,
1996. The acquisition of David M contributed $1.5 million of the increase. As a
percentage of net sales, gross profit decreased to 38.2% for the three months
ended September 30, 1997 from 38.5% for the comparable period in 1996. Foreign
currency translation reduced gross profit $0.1 million or 0.3%. Excluding the
effects of the David M acquisition and foreign currency translation, gross
profit as a percentage of sales increased slightly to 38.7% for the quarter
ended September 30, 1997.
SG&A increased to $7.1 million for the three months ended September 30, 1997
from $5.9 million for the comparable period in 1996, an increase of $1.2 million
or 20.3%. In the quarter ended September 30, 1997, the acquisition of David M
accounted for $0.8 million of SG&A expenses and foreign currency translation
reduced SG&A by $0.2 million. As a percentage of net sales, SG&A decreased to
16.7% from 17.4%, mainly as a result of improved cost controls in Europe.
Amortization of intangibles decreased to $0.7 million for the three months
September 30, 1997 from $1.6 million for the comparable period in 1996 as a
result of certain employment agreements becoming fully amortized in the first
quarter of 1997.
Operating income increased to $8.1 million for the three months ended September
30, 1997 from $5.3 million for the comparable period in 1996, an increase of
$2.8 million or 52.8%. As a percentage of net sales, operating income increased
to 19.1% for the three months ended September 30, 1997 from 15.6% for the
comparable period in 1996.
The effective tax rate for the third quarter of 1997 was 35.1% compared to 26.4%
for the third quarter of 1996. The effective tax in 1997 and 1996 are lower than
the federal statutory rates, primarily, as a result of low European tax rates as
a result of European profits being generated in markets with lower effective tax
rates.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Net sales increased to $122.0 million for the nine months ended September 30,
1997 from $101.1 million for the comparable period in 1996, an increase of $20.9
million or 20.7%, of which, $14.0 million or 13.8% relates to the acquisition of
David M on December 31, 1996. For the nine months ended September 30, 1997,
excluding the effect of the David M acquisition, sales volumes were $8.6 million
or 8.5% higher offset by the impact of foreign currency translation which
reduced sales by $1.7 million or 1.7%. Printing's sales increased to $96.4
million for the nine months ended September 30, 1997 from $76.2 million for the
comparable period in 1996, an increase of $20.2 million or 26.5%. Excluding the
effect of the David M acquisition, Printing sales increased $6.4 million or
8.4%, as a result of modest price increases, higher sales of tubular sleeves and
increased demand for the Company's existing products, mainly in Europe and
15
<PAGE> 16
Mexico. Textiles' sales were $25.6 million for the nine months ended September
30, 1997 compared to $24.9 million for the comparable period in 1996; an
increase of $0.7 million or 2.8% as a result of increased sales in the U.S.,
Latin America and Europe with slightly lower sales to the Pacific Rim.
Gross profit increased $7.9 million to $46.4 million for the nine months ended
September 30, 1997 from $38.5 million for the nine months ended September 30,
1996. The acquisition of David M accounted for $4.3 million of this increase. As
a percentage of net sales, gross profit remained relatively constant at 38.0%
for the nine months ended September 30, 1997 compared to 38.2% for the nine
months ended September 30, 1996. Excluding David M, gross profit as a percentage
of sales increased to 39.0% for the nine months ended September 30, 1997. Gross
profit was positively impacted by productivity enhancements and higher sales
volumes, particularly printing products sales. Gross profit decreased $0.3
million due to foreign currency translation.
SG&A increased to $21.3 million for the nine months ended September 30, 1997
from $18.2 million for the comparable period in 1996, an increase of $3.1
million or 17.0% of which, David M accounted for $2.4 million or 13.2%. As a
percentage of net sales, SG&A decreased to 17.5% from 18.0%, mainly as a result
of SG&A expenses in Europe remaining relatively constant combined with a 15.6%
increase in European sales.
Amortization of intangibles decreased to $2.6 million for the nine months
September 30, 1997 from $4.7 million for the comparable period in 1996, a
decrease of $2.1 million as a result of certain employment agreements becoming
fully amortized in the first nine months of 1997.
Operating income increased to $21.8 million for the nine months ended September
30, 1997 from $15.0 million for the comparable period in 1996, an increase of
$6.8 million or 45.3%. As a percentage of net sales, operating income increased
to 17.9% for the nine months ended September 30, 1997 from 14.8% for the
comparable period in 1996.
The effective tax rate for the first nine months of 1997 was 36.6% compared to
34.7% for the first nine months of 1996. The effective tax rates in 1997 and
1996 are lower than the federal statutory rates, primarily, as a result of
European profits being generated in markets with lower tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated funds from its operations and its working
capital requirements have not exhibited seasonal fluctuations. Utilizing value
added converters to distribute the majority of its products, the Company is able
to maintain relatively minimal levels of working capital as these converters
typically carry inventory and maintain printers' receivables.
16
<PAGE> 17
Cash Flows From Operating Activities. Cash flows from operations for the nine
months ended September 30, 1997 and September 30, 1996 were $14.8 million and
$15.8 million, respectively. Cash flows from operations in 1997 were reduced by
a $1.0 million increase in working capital, primarily from increased receivable
balances partially offset by increased accrued liabilities. Cash flows from
operations in 1996 were increased by a $2.7 million decrease in working capital,
primarily from increased accrued interest payable.
Cash Flows From Investing Activities. The Company's expenditures for plant,
property and equipment have been relatively stable at $3.5, $3.6, and $5.2
million for 1994, 1995 and 1996, 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 $5.0
million to $7.0 million over the next several years from cash flow from
operations. Capital expenditures for the nine months ended September 30, 1997
were $3.9 million compared to $4.0 million for the nine months ended September
30, 1996. During the nine months ended September 30, 1997, $1.5 million was
received from Flint Ink Corporation as an adjustment to the David M purchase
price and a $1.1 million note receivable was collected.
Cash Flows From Financing Activities. Concurrent with the Acquisition, the
Company entered into the Credit Agreement with certain banks. The Credit
Agreement currently has a maximum borrowing capacity of $72 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 up to $6.2 million, of which, $2.0 million was outstanding at September
30, 1997, the proceeds of which were used to reduce the US line of credit. As of
September 30, 1997, the Company had approximately $36.5 million available under
the US Credit Agreement and $4.2 million available under the UK Credit
Agreement. The Company does not have any scheduled repayment requirements until
1999, other than $0.2 million a quarter due on the UK Credit Agreement. During
the nine months ended September 30, 1997 and 1996, the Company made $16.0
million and $11.3 million, respectively, in payments on the line of credit
associated with the US Credit Agreement and $2.2 million and $0.1 million in
payments on the UK Credit Agreement during the nine months ended September 30,
1997 and 1996, respectively. 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.
American Industrial Partners (AIP), the principle owners of the Company, has
announced its intention to evaluate AIP's strategic alternatives with respect to
its investment in Day. AIP and the Company have engaged Goldman Sachs & Co. to
assist in this process. No assurances can be given as to the terms or timing of
any eventual transactions.
17
<PAGE> 18
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, 1997.
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: October 21, 1997 /s/ David B. Freimuth
---------------- ---------------------
David B. Freimuth
Vice President and
Chief Financial Officer
18
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 644
<SECURITIES> 0
<RECEIVABLES> 21,589
<ALLOWANCES> 0
<INVENTORY> 15,904
<CURRENT-ASSETS> 43,182
<PP&E> 44,856
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,319
<CURRENT-LIABILITIES> 27,149
<BONDS> 133,722
0
0
<COMMON> 1
<OTHER-SE> 57,642
<TOTAL-LIABILITY-AND-EQUITY> 228,319
<SALES> 122,034
<TOTAL-REVENUES> 122,034
<CGS> 75,609
<TOTAL-COSTS> 100,237
<OTHER-EXPENSES> 617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,133
<INCOME-PRETAX> 9,047
<INCOME-TAX> 3,314
<INCOME-CONTINUING> 5,733
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<NET-INCOME> 5,733
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