<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 June 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 (I.R.S. Employer ID No.)
of incorporation or organization)
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)
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 July 31, 1997 was 51,655.5
<PAGE> 2
Day International Group, Inc.
Index
<TABLE>
<CAPTION>
Pages
-----
Part I: Financial Information
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the quarter
ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the six months
ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 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>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
--------- ------------
<S> <C> <C>
Cash and cash equivalents $ 6,516 $ 5,433
Accounts receivable, net of allowance 21,573 17,171
Inventories 16,148 16,355
Prepaid expenses and other current assets 1,294 3,630
Deferred income taxes 3,291 3,389
--------- ---------
Total current assets 48,822 45,978
Property, plant and equipment, net 45,160 45,289
Goodwill and other intangibles 140,596 145,018
Other assets 1,470 1,601
--------- ---------
Total assets $ 236,048 $ 237,886
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 7,488 $ 7,453
Accrued associate - related costs and other expenses 14,659 14,004
Interest payable 1,053 1,068
Current maturities of long-term debt 781 803
--------- ---------
Total current liabilities 23,981 23,328
Long-term and subordinated long-term debt 146,624 152,116
Deferred tax liabilities 3,521 3,513
Other long term liabilities 6,373 6,195
Commitments and contingencies - -
--------- ---------
Total liabilities 180,499 185,152
Stockholders' equity:
Common stock 1 1
Additional paid in capital 51,651 51,531
Retained earnings 5,234 1,780
Foreign currency translation adjustment (1,337) (578)
--------- ---------
Total stockholders' equity 55,549 52,734
--------- ---------
Total liabilities and stockholders' equity $ 236,048 $ 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 June 30, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 40,147 $ 33,299
Costs of goods sold 24,882 20,197
-------- --------
Gross profit 15,265 13,102
Selling, general and administrative
expenses 7,122 6,443
Amortization of intangibles 709 1,601
Management fees 230 260
-------- --------
Operating income 7,204 4,798
Interest expense (including amortization of
deferred financing costs of $241 - 1997 and $250 - 1996) 4,062 4,113
Other (income) expense 105 (61)
-------- --------
Income before income taxes 3,037 746
Provision for income taxes 1,158 335
-------- --------
Net income $ 1,879 $ 411
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 79,628 $ 67,121
Costs of goods sold 49,406 41,657
-------- --------
Gross profit 30,222 25,464
Selling, general and administrative
expenses 14,164 12,195
Amortization of intangibles 1,923 3,142
Management fees 460 460
-------- --------
Operating income 13,675 9,667
Interest expense (including amortization of
deferred financing costs of $483 - 1997 and $500 - 1996) 8,161 8,242
Other (income) expense (21) 34
-------- --------
Income before income taxes 5,535 1,391
Provision for income taxes 2,081 599
-------- --------
Net income $ 3,454 $ 792
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
DAY INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,454 $ 792
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,561 7,477
Changes in operating assets and liabilities (3,242) (1,556)
------- -------
Net cash provided by operating activities 6,773 6,713
------- -------
INVESTING ACTIVITIES
Capital expenditures (2,752) (2,628)
Other 2,619 (1,555)
------- -------
Net cash used in investing activities (133) (4,183)
------- -------
FINANCING ACTIVITIES
Net payments on revolving credit facility (5,385) (7,250)
Proceeds from UK credit facility - 4,320
------- -------
Net cash used in financing activities (5,385) (2,930)
------- -------
Effects of exchange rates on cash (172) (78)
------- -------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents 1,083 (478)
Cash and cash equivalents at beginning of period 5,433 3,769
------- -------
Cash and cash equivalents at end of period $ 6,516 $ 3,291
======= =======
</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>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Finished goods $ 9,008 $ 9,118
Work-in-process 4,125 4,115
Raw materials 3,015 3,122
------- -------
Total $16,148 $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 $3.9 million borrowing by the UK subsidiary, as of June 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 combined condensed balance sheets as of June 30, 1997 and December
31, 1996 and the
7
<PAGE> 8
supplemental combined condensed statements of income for the three and six month
periods ended June 30, 1997 and 1996 and cash flows for the six months ended
June 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
June 30, 1997
<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 $ 3,237 $ (219) $ 3,498 $ 6,516
Accounts receivable - net 120 12,961 8,492 21,573
Inventories 10,952 5,196 16,148
Other assets - 3,201 1,384 4,585
------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,357 26,895 18,570 - 48,822
Intercompany 143,500 583 $(144,083) -
Property, plant and equipment - net 35,786 9,374 45,160
Investment in subsidiaries 65,865 20,879 (86,744) -
Intangibles and other assets 136,817 5,249 142,066
------------------------------------------------------------------------
TOTAL ASSETS $ 212,722 $ 220,960 $ 33,193 $(230,827) $ 236,048
========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ - $ 4,951 $ 3,209 $ (672) $ 7,488
Accrued associate related costs
and other expenses 5 10,240 4,414 - 14,659
Interest payable 951 102 1,053
Current maturities of long-term debt - - 781 781
------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 956 15,191 8,506 (672) 23,981
Intercompany 11,380 131,534 497 (143,411) -
Long-term and
Subordinated long-term debt 143,500 3,124 146,624
Long-term post retirement
benefits and other 7,172 2,722 9,894
Total stockholders' equity 56,886 67,063 18,344 (86,744) 55,549
------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 212,722 $ 220,960 $ 33,193 $(230,827) $ 236,048
========================================================================
</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. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<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 June 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 $ - $ 30,234 $ 15,643 $ (5,730) $ 40,147
Cost of goods sold 18,232 12,380 (5,730) 24,882
--------------------------------------------------------------------
Gross profit - 12,002 3,263 - 15,265
Selling, general and administrative expenses 17 5,140 1,965 7,122
Amortization of intangibles 697 12 709
Management fees 230 230
--------------------------------------------------------------------
Operating income (loss) (17) 5,935 1,286 - 7,204
Other expenses (income):
Equity in earnings of subsidiaries (1,882) (760) 2,642 -
Interest expense - 3,957 105 4,062
Other (income) expense (12) 137 (20) 105
--------------------------------------------------------------------
Income (loss) before income taxes 1,877 2,601 1,201 (2,642) 3,037
Provision (benefit) for income taxes (2) 719 441 1,158
--------------------------------------------------------------------
Net Income (loss) $ 1,879 $ 1,882 $ 760 $ (2,642) $ 1,879
====================================================================
</TABLE>
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the quarter ended June 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 $ - $ 24,754 $ 8,545 $ - $ 33,299
Cost of goods sold 14,519 5,678 20,197
--------------------------------------------------------------------
Gross profit - 10,235 2,867 - 13,102
Selling, general and administrative expenses 43 4,476 1,924 6,443
Amortization of intangibles 1,589 12 1,601
Management fees 260 260
--------------------------------------------------------------------
Operating income (loss) (43) 3,910 931 - 4,798
Other expenses (income):
Equity in earnings of subsidiaries 1,940 (472) (1,468) -
Interest expense (3,879) 7,973 19 4,113
Other (income) expense (19) (108) 66 (61)
--------------------------------------------------------------------
Income (loss) before income taxes 1,915 (3,483) 846 1,468 746
Provision (benefit) for income taxes 1,504 (1,543) 374 335
--------------------------------------------------------------------
Net Income (loss) $ 411 $ (1,940) $ 472 $ 1,468 $ 411
====================================================================
</TABLE>
10
<PAGE> 11
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the Six Months ended June 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 $ - $ 60,598 $ 30,021 $(10,991) $ 79,628
Cost of goods sold 36,896 23,501 (10,991) 49,406
--------------------------------------------------------------------
Gross profit - 23,702 6,520 - 30,222
Selling, general and administrative expenses 27 10,242 3,895 14,164
Amortization of intangibles 1,900 23 1,923
Management fees 460 - 460
--------------------------------------------------------------------
Operating income (loss) (27) 11,100 2,602 - 13,675
Other expenses (income):
Equity in earnings of subsidiaries (3,454) (1,534) 4,988 -
Interest expense - 7,957 204 8,161
Other (income) expense (27) (6) 12 (21)
--------------------------------------------------------------------
Income before income taxes 3,454 4,683 2,386 (4,988) 5,535
Provision (benefit) for income taxes - 1,229 852 2,081
--------------------------------------------------------------------
Net Income $ 3,454 $ 3,454 $ 1,534 $ (4,988) $ 3,454
====================================================================
</TABLE>
Day International Group, Inc.
Supplemental Combining Condensed Statement of Income
For the Six Months ended June 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 $ - $ 49,709 $ 17,412 $ - $ 67,121
Cost of goods sold 29,984 11,673 41,657
--------------------------------------------------------------------
Gross profit - 19,725 5,739 - 25,464
Selling, general and administrative expenses 108 8,156 3,931 12,195
Amortization of intangibles 2,982 160 3,142
Management fees 460 - 460
--------------------------------------------------------------------
Operating income (loss) (108) 8,127 1,648 - 9,667
Other expenses (income):
Equity in earnings of subsidiaries (835) (784) 1,619 -
Interest expense - 8,223 19 8,242
Other (income) expense (38) (122) 194 34
--------------------------------------------------------------------
Income before income taxes 765 810 1,435 (1,619) 1,391
Provision (benefit) for income taxes (27) (25) 651 599
--------------------------------------------------------------------
Net Income $ 792 $ 835 $ 784 $ (1,619) $ 792
====================================================================
</TABLE>
11
<PAGE> 12
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the six months ended June 30, 1997
<TABLE>
<CAPTION>
DAY DAY
International International, Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- --------------- ------------ ------------ ------------
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net Income $ 3,454 $ 3,454 $ 1,534 $(4,988) $ 3,454
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,772 789 6,561
Equity in earning of subsidiaries (3,454) (1,534) 4,988 -
Changes in operating assets and liabilities (112) (3,299) 386 (217) (3,242)
----------------------------------------------------------------
Net cash provided by (used in) operating activities (112) 4,393 2,709 (217) 6,773
Investing Activities:
Capital expenditures (1,606) (1,146) (2,752)
Other 2,619 - - 2,619
----------------------------------------------------------------
Net cash (used in) provided by investing activities - 1,013 (1,146) - (133)
Financing Activities:
Net payments on revolving credit facility (5,000) (385) (5,385)
----------------------------------------------------------------
Net cash used in financing activities (5,000) - (385) - (5,385)
Intercompany transfers 5,593 (4,927) (883) 217 -
Effects of exchange rates on cash (172) (172)
----------------------------------------------------------------
Cash and Cash Equivalents:
Net increase in cash and cash equivalents 481 479 123 - 1,083
Cash and cash equivalents at beginning of period 2,756 (698) 3,375 5,433
----------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,237 $ (219) $ 3,498 $ - $ 6,516
================================================================
</TABLE>
12
<PAGE> 13
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
For the six months ended June 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 $ 792 $ 835 $ 784 $(1,619) $ 792
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,748 729 7,477
Equity in earning of subsidiaries (835) (784) 1,619 -
Changes in operating assets and liabilities 1 (1,983) (227) 653 (1,556)
---------------------------------------------------------------
Net cash provided by (used in) operating activities (42) 4,816 1,286 653 6,713
Investing Activities:
Capital expenditures (2,040) (588) (2,628)
Other (1,273) (633) 351 (1,555)
---------------------------------------------------------------
Net cash used in investing activities - (3,313) (1,221) 351 (4,183)
Financing Activities:
Proceeds from UK credit facility - 4,320 4,320
Net payments on revolving credit facility (7,250) (7,250)
---------------------------------------------------------------
Net cash (used in) provided by financing activities (7,250) - 4,320 - (2,930)
Intercompany transfers 7,880 (1,690) (5,186) (1,004) -
Effects of exchange rates on cash (78) (78)
---------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 588 (187) (879) - (478)
Cash and cash equivalents at beginning of period 403 87 3,279 3,769
---------------------------------------------------------------
Cash and cash equivalents at end of period $ 991 $ (100) $ 2,400 $ - $ 3,291
===============================================================
</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 Six Months
------------ ----------
Ended June 30 Ended June 30
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
$ % $ % $ % $ %
---- ----- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ 40.1 100.0 33.3 100.0 79.6 100.0 67.1 100.0
Costs of goods sold...................... 24.9 62.1 20.2 60.7 49.4 62.1 41.7 62.1
Gross profit............................. 15.2 37.9 13.1 39.3 30.2 37.9 25.4 37.9
SG&A..................................... 7.1 17.7 6.4 19.3 14.2 17.8 12.2 18.2
Amortization of intangibles.............. 0.7 1.7 1.6 4.8 1.9 2.4 3.1 4.7
Management Fees.......................... 0.2 0.5 0.3 0.8 0.5 0.6 0.5 0.7
Operating income......................... 7.2 18.0 4.8 14.4 13.7 17.2 9.7 14.4
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net sales increased to $40.1 million for the three months ended June 30, 1997
from $33.3 million for the comparable period in 1996, an increase of $6.8
million or 20.4%. Sales volumes increased by $7.3 million or 21.9% offset by the
effect of foreign currency translation of $0.5 million or 1.5%. Printing's sales
increased to $31.1 million for the three months ended June 30, 1997 from $25.0
million for the comparable period in 1996, an increase of $6.1 million or 24.4%.
Printing sales increased $6.6 million or 26.4%, of which, $4.4 million or 17.6%
relates to the acquisition of David M on December 31, 1996. The remaining
increase of $2.2 million or 8.8% was a result of modest price increases, higher
sales of tubular sleeves and increased demand for the Company's existing
products in Europe and the Far East offset by lower sales into Japan. Foreign
currency translation reduced Printing's revenue by $0.5 million or 2.0%.
Textiles' sales were $9.0 million for the three months ended June 30, 1997
compared to $8.3 million for the comparable period in 1996, a increase of $0.7
million or 8.4% as a result of higher demand for the Company's existing products
in both the domestic and European markets. Foreign currency translation had no
significant impact on Textile's sales this quarter.
14
<PAGE> 15
Gross profit increased $2.1 million to $15.2 million for the three months ended
June 30, 1997 from $13.1 million for the three months ended June 30, 1996. The
acquisition of David M contributed $1.3 million of the increase. As a percentage
of net sales, gross profit decreased to 37.9% for the three months ended June
30, 1997 from 39.3% 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 remained relatively constant at 39.2% for the quarter ended
June 30, 1997.
SG&A increased to $7.1 million for the three months ended June 30, 1997 from
$6.4 million for the comparable period in 1996, an increase of $0.7 million or
10.9%. In the quarter ended June 30, 1997, the acquisition of David M accounted
for $0.8 million of SG&A expenditures and foreign currency translation increased
SG&A by $0.1 million. As a percentage of net sales, SG&A decreased to 17.7% from
19.3%, mainly as a result of improved cost controls in Europe.
Amortization of intangibles decreased to $0.7 million for the three months June
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 $7.2 million for the three months ended June 30,
1997 from $4.8 million for the comparable period in 1996, an increase of $2.4
million or 50.0%. As a percentage of net sales, operating income increased to
18.0% for the three months ended June 30, 1997 from 14.4% for the comparable
period in 1996.
The effective tax rate for the second quarter of 1997 was 38.1% compared to
44.9% for the second quarter of 1996. The lower effective tax in 1997 is mainly
a result of changes in the locations where European profits were generated with
more of the profits being generated in markets with lower tax rates.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net sales increased to $79.6 million for the six months ended June 30, 1997 from
$67.1 million for the comparable period in 1996, an increase of $12.5 million or
18.6%, of which, $9.0 million or 13.4% relates to the acquisition of David M on
December 31, 1996. For the six months ended June 30, 1997, excluding the effect
of the David M acquisition, sales were $4.1 million or 6.1% higher offset by the
impact of foreign currency translation which reduced sales by $0.6 million.
Printing's sales increased to $62.2 million for the six months ended June 30,
1997 from $50.6 million for the comparable period in 1996, an increase of $11.6
million or 22.9%. Excluding the effect of the David M acquisition, Printing
sales increased $2.6 million or 5.1%, 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 Mexico. Textiles' sales were $17.5 million for
the six months ended June 30, 1997 compared to $16.6 million for the comparable
period in 1996; an increase of $0.9 million or 5.4% as a result of increased
sales in all markets.
15
<PAGE> 16
Gross profit increased $4.8 million to $30.2 million for the six months ended
June 30, 1997 from $25.4 million for the six months ended June 30, 1996. The
acquisition of David M accounted for $2.8 million of this increase. As a
percentage of net sales, gross profit remained constant at 37.9% for the six
months ended June 30, 1997 and 1996. Excluding David M, gross profit as a
percentage of sales increased to 38.8% for the six months ended June 30, 1997.
Gross profit was positively impacted by productivity enhancements and higher
sales volumes, particularly printing products sales. Gross profit decreased $0.1
million due to foreign currency translation.
SG&A increased to $14.2 million for the six months ended June 30, 1997 from
$12.2 million for the comparable period in 1996, an increase of $2.0 million or
16.4% of which, David M accounted for $1.6 million or 13.1%. As a percentage of
net sales, SG&A decreased to 17.8% from 18.2%, mainly as a result of SG&A
expenses in Europe remaining flat combined with a 14.0% increase in European
sales.
Amortization of intangibles decreased to $1.9 million for the six months June
30, 1997 from $3.1 million for the comparable period in 1996, a decrease of $1.2
million as a result of certain employment agreements becoming fully amortized in
the first six months of 1997.
Operating income increased to $13.7 million for the six months ended June 30,
1997 from $9.7 million for the comparable period in 1996, an increase of $4.0
million or 41.2%. As a percentage of net sales, operating income increased to
17.2% for the six months ended June 30, 1997 from 14.4% for the comparable
period in 1996.
The effective tax rate for the first six months of 1997 was 37.6% compared to
43.1% for the first six months of 1996. The lower effective tax in 1997 is
mainly a result of changes in the locations where European profits were
generated with more of the 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.
Cash Flows From Operating Activities. Cash flows from operations for the six
months ended June 30, 1997 and June 30, 1996 were $6.8 million and $6.7 million,
respectively. Cash flows from operations in 1997 were reduced by a $3.2 million
increase in working capital, primarily from increased receivable balances offset
by increased accrued liabilities. Cash flows from
16
<PAGE> 17
operations in 1996 were reduced by a $1.6 million increase in working capital,
primarily from increased receivable balances offset by a small reduction in
inventory balances and increased accrued liabilities.
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 six months ended June 30, 1997 were
$2.8 million compared to $2.6 million for the six months ended June 30, 1996.
During the six months ended June 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, $3.9 million was outstanding at June 30,
1997, the proceeds of which were used to reduce the US line of credit. As of
June 30, 1997, the Company had approximately $23.8 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 $0.2 million a quarter due on the UK Credit Agreement. During the six
months ended June 30, 1997 and 1996, the Company made $5.0 million and $7.3
million, respectively, in payments on the line of credit associated with the US
Credit Agreement and $0.4 million in payments on the UK Credit Agreement during
the six months ended June 30, 1997. 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. The $1.1 million net increase in cash for the six months
ended June 30, 1997 occurred mainly as a result of limitations on when payments
could be made on the US line of credit. Subsequent to the end of the quarter,
this excess cash was used to pay down on the US line of credit.
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 June 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: July 31, 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 10Q FOR THE QUARTER ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,516
<SECURITIES> 0
<RECEIVABLES> 21,573
<ALLOWANCES> 0
<INVENTORY> 16,148
<CURRENT-ASSETS> 48,822
<PP&E> 45,160
<DEPRECIATION> 0
<TOTAL-ASSETS> 236,048
<CURRENT-LIABILITIES> 23,981
<BONDS> 146,624
<COMMON> 1
0
0
<OTHER-SE> 55,548
<TOTAL-LIABILITY-AND-EQUITY> 236,048
<SALES> 79,628
<TOTAL-REVENUES> 79,628
<CGS> 49,406
<TOTAL-COSTS> 65,953
<OTHER-EXPENSES> (21)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,161
<INCOME-PRETAX> 5,535
<INCOME-TAX> 2,081
<INCOME-CONTINUING> 3,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 3,454
<EPS-PRIMARY> 0
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