<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, 2000
[ ] 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 and 333-50839
----------------------
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)
130 West Second Street, Suite 1700, Dayton, Ohio 45402
-------------------------------------------------- -----------
(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 August 7, 2000 was 23,298.
<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 June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6 - 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 - 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signature 21
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
Cash and cash equivalents $ 1,178 $ 508
Accounts receivable (less allowance for doubtful accounts of $2,499 and $2,141) 35,568 35,240
Inventories 35,626 32,831
Other current assets 8,819 6,831
--------- ---------
Total current assets 81,191 75,410
Property, plant and equipment (net of accumulated depreciation of $24,960 and $21,821) 67,438 69,739
Goodwill and other intangible assets (net of accumulated amortization of $37,729 and $32,832) 173,389 178,088
Other assets 8,226 8,267
--------- ---------
TOTAL ASSETS $ 330,244 $ 331,504
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 9,818 $ 8,903
Current maturities of long-term debt 6,537 3,361
Other current liabilities 28,080 29,486
--------- ---------
Total current liabilities 44,435 41,750
Long-term and subordinated long-term debt 269,991 276,469
Other long-term liabilities 20,864 21,257
Commitments and contingencies -- --
--------- ---------
Total liabilities 335,290 339,476
Exchangeable preferred stock 44,516 41,745
STOCKHOLDERS' EQUITY (DEFICIT):
18% convertible cumulative preferred shares 43,186 39,711
Common shares 1 1
Contra-equity associated with the assumption of
majority shareholder's bridge loan (68,772) (68,772)
Retained earnings (deficit) (19,501) (15,542)
Foreign currency translation adjustment (4,476) (5,115)
--------- ---------
Total stockholders' equity (deficit) (49,562) (49,717)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 330,244 $ 331,504
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 70,323 $ 43,536 $ 140,720 $ 86,092
COST OF GOODS SOLD 41,855 27,051 84,996 53,789
--------- --------- --------- ---------
GROSS PROFIT 28,468 16,485 55,724 32,303
SELLING, GENERAL AND ADMINISTRATIVE 15,301 7,323 30,041 15,383
AMORTIZATION OF INTANGIBLES 1,080 903 2,154 1,811
MANAGEMENT FEES 275 276 550 530
--------- --------- --------- ---------
OPERATING PROFIT 11,812 7,983 22,979 14,579
OTHER EXPENSES:
Interest expense (including amortization of
deferred financing cost of $576, $600, $1,152 and $1,200) 7,705 6,862 15,166 13,745
Other (income) expense 2,190 53 4,459 268
--------- --------- --------- ---------
9,895 6,915 19,625 14,013
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,917 1,068 3,354 566
INCOME TAX EXPENSE 398 438 1,067 278
--------- --------- --------- ---------
NET INCOME 1,519 630 2,287 288
PREFERRED STOCK DIVIDENDS (3,104) (1,201) (6,152) (2,391)
AMORTIZATION OF PREFERRED STOCK ISSUANCE COSTS (47) (42) (94) (84)
--------- --------- --------- ---------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (1,632) $ (613) $ (3,959) $ (2,187)
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,287 $ 288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 8,940 7,630
Deferred income taxes (1,996) (851)
Foreign currency loss 3,355
Change in operating assets and liabilities (5,719) (2,870)
------- -------
Net cash provided by operating activities 6,867 4,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,872) (3,310)
------- -------
Net cash used in investing activities (2,872) (3,310)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan (1,250) (646)
Net payments on revolving credit facility (2,000) (2,874)
------- -------
Net cash used in financing activities (3,250) (3,520)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (75) (193)
------- -------
Net increase (decrease) in cash and cash equivalents 670 (2,826)
Cash and cash equivalents at beginning of period 508 4,762
------- -------
Cash and cash equivalents at end of period $ 1,178 $ 1,936
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
NON CASH TRANSACTIONS:
Preferred stock dividends $ 6,152 $ 2,391
======= =======
Amortization of preferred stock discount $ 94 $ 84
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
DAY INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
A. BASIS OF PRESENTATION
The balance sheet as of December 31, 1999, 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 accounting principles generally
accepted in the United States of America 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
Inventories as of June 30, 2000 and December 31, 1999, consists of:
JUNE 30, DEC. 31,
2000 1999
---------- -----------
Finished goods $ 19,326 $ 16,386
Work in process 5,608 6,232
Raw materials 10,692 10,213
---------- -----------
$ 35,626 $ 32,831
========== ===========
C. BUSINESS SEGMENTS
The Company produces precision engineered rubber products, specializing in the
design and customization of consumable image-transfer products for the graphic
arts (printing) industry, fiber handling products for the textile industry and
pressroom chemicals and automatic dampening systems for the printing industry.
Day's Image Transfer business designs, manufactures and markets high-quality
printing blankets and sleeves used in the offset and flexographic printing
industries. Day's Textile Products business manufactures and markets precision
engineered rubber cots and aprons sold to textile yarn spinners and other
engineered rubber products sold to diverse markets. Day's Varn subsidiaries
designs, manufactures and markets pressroom chemicals and automatic dampening
systems used in the printing industry.
Segment performance is evaluated based on operating profit results compared to
the annual operating plan. Intersegment sales and transfers are not material.
The Company manages the three segments as separate strategic business units.
They are managed separately because each business unit requires different
manufacturing processes, technology and marketing strategies.
6
<PAGE> 7
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Third party sales:
Image Transfer $ 39,198 $ 36,231 $ 78,053 $ 71,412
Textile Products 14,378 7,305 29,938 14,680
Varn 16,747 32,729
---------- ----------- ---------- -----------
Total $ 70,323 $ 43,536 $ 140,720 $ 86,092
========== =========== ========== ===========
Segment operating profit:
Image Transfer $ 10,859 $ 9,955 $ 20,929 $ 18,601
Textile Products 2,020 419 4,097 720
Varn 1,678 3,268
---------- ----------- ---------- -----------
Total $ 14,557 $ 10,374 $ 28,294 $ 19,321
========== =========== ========== ===========
</TABLE>
The following is a reconciliation of the segment operating profit reported above
to the amount reported in the consolidated financial statements:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Segment operating profit $ 14,557 $ 10,374 $ 28,294 $ 19,321
APB #16 depreciation and amortization (1,161) (1,022) (2,285) (2,044)
Non-allocated corporate expenses (229) (190) (326) (357)
Amortization of intangibles (1,080) (903) (2,154) (1,811)
Management fees (275) (276) (550) (530)
---------- ----------- ---------- -----------
Total operating profit $ 11,812 $ 7,983 $ 22,979 $ 14,579
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
D. COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net income $ 1,519 $ 630 $ 2,287 $ 288
Foreign currency translation adjustment (253) (910) 639 (2,758)
---------- ----------- ---------- -----------
Comprehensive income (loss) $ 1,266 $ (280) $ 2,926 $ (2,470)
========== =========== ========== ===========
</TABLE>
7
<PAGE> 8
E. 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.
In January 2000, the Company received a Notice of Assessment from the Ohio
Department of Taxation for approximately $16.0 million relating to the 1995 Ohio
Franchise Tax. In February 2000, the Company filed a Petition for Reassessment.
In July 2000, the Company received notice that the Ohio Department of Taxation
has agreed to cancel the assessment.
F. SUPPLEMENTAL CONSOLIDATING INFORMATION
The Company has outstanding $100,000, 11-1/8% Senior Notes and $115,000, 9 1/2%
Senior Subordinated Notes (collectively, the "Notes"). The Company has no assets
or operations other than its wholly-owned investment in Day International, Inc.
("Day International" or "Guarantor"). Day International has provided a full and
unconditional guarantee of the Notes. The wholly-owned foreign subsidiaries of
Day International are not guarantors with respect to the Notes and do not have
any credit arrangements senior to the Notes. The only intercompany eliminations
are the normal intercompany eliminations with regard to intercompany sales and
the Company's investment in its wholly-owned subsidiaries. Intercompany notes
are in place which effectively transfer the interest expense from the Company to
Day International. The following are the supplemental combining condensed
balance sheets as of June 30, 2000 and December 31, 1999, and the supplemental
combining condensed statements of operations and cash flows for the three months
and six months ended June 30, 2000 and 1999, 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
JUNE 30, 2000
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 1,316 $ (1,210) $ 1,072 $ $ 1,178
Accounts receivable - net 17,006 18,562 35,568
Inventories 21,812 13,814 35,626
Other current assets 4,279 4,540 8,819
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 1,316 41,887 37,988 81,191
Intercompany 275,179 12,742 (287,921)
Property, plant and equipment, net 47,593 19,845 67,438
Investment in subsidiaries (48,689) 38,028 3,861 6,800
Intangible and other assets 166,425 15,190 181,615
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 227,806 $ 293,933 $ 89,626 $ (281,121) $ 330,244
============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ $ 4,427 $ 5,391 $ $ 9,818
Current maturities of long-term debt 6,506 31 6,537
Other current liabilities 4,704 12,569 10,807 28,080
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 11,210 16,996 16,229 44,435
Intercompany (51,507) 321,121 17,175 (286,789)
Long-term and subordinated long-term
debt 268,674 1,317 269,991
Other long-term liabilities 15,103 5,761 20,864
Exchangeable preferred stock 44,516 44,516
Total stockholders' equity (deficit) (45,087) (59,287) 49,144 5,668 (49,562)
------------- ------------ ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 227,806 $ 293,933 $ 89,626 $ (281,121) $ 330,244
============= ============= ============= ============= =============
</TABLE>
9
<PAGE> 10
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 377 $ (1,773) $ 1,904 $ $ 508
Accounts receivable - net 17,605 17,635 35,240
Inventories 19,879 12,952 32,831
Other current assets 3,775 3,056 6,831
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 377 39,486 35,547 75,410
Intercompany 278,408 (278,408)
Property, plant and equipment, net 48,763 20,976 69,739
Investment in subsidiaries (50,978) 35,395 15,583
Intangible and other assets 166,306 20,049 186,355
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 227,807 $ 289,950 $ 76,572 $ (262,825) $ 331,504
============= ============= ============= ============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ $ 5,762 $ 3,141 $ $ 8,903
Current maturities of long-term debt 3,297 64 3,361
Other current liabilities 4,631 13,159 11,696 29,486
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 7,928 18,921 14,901 41,750
Intercompany (52,374) 315,700 14,295 (277,621)
Long-term and subordinated long-term
debt 275,111 1,358 276,469
Other long-term liabilities 14,704 6,553 21,257
Exchangeable preferred stock 41,745 41,745
Total stockholders' equity (deficit) (44,603) (59,375) 39,465 14,796 (49,717)
------------- ------------ ------------- ------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 227,807 $ 289,950 $ 76,572 $ (262,825) $ 331,504
============= ============= ============= ============= =============
</TABLE>
10
<PAGE> 11
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ $ 44,262 $ 26,061 $ $ 70,323
Cost of goods sold 26,877 14,978 41,855
------------- ------------- ------------- ------------- -------------
Gross profit 17,385 11,083 28,468
Selling, general and administrative 7 9,799 5,495 15,301
Amortization of intangibles 1,002 78 1,080
Management fees 275 275
------------- ------------- ------------- ------------- -------------
Operating profit (7) 6,309 5,510 11,812
Other (income) expense:
Equity in (earnings) of subsidiaries (1,522) (2,183) 3,705
Interest expense 7,700 5 7,705
Other (income) expense (2) (395) 2,587 2,190
------------- ------------- ------------- ------------- -------------
Income before income taxes 1,517 1,187 2,918 (3,705) 1,917
Income taxes (benefit) (2) (335) 735 398
------------- ------------- ------------- ------------- -------------
Net income $ 1,519 $ 1,522 $ 2,183 $ (3,705) $ 1,519
============= ============= ============= ============= =============
</TABLE>
11
<PAGE> 12
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ $ 30,699 $ 12,837 $ $ 43,536
Cost of goods sold 18,142 8,909 27,051
------------- ------------- ------------- ------------- -------------
Gross profit 12,557 3,928 16,485
Selling, general and administrative 2 5,031 2,290 7,323
Amortization of intangibles 822 81 903
Management fees 276 276
------------- ------------- ------------- ------------- -------------
Operating profit (2) 6,428 1,557 7,983
Other (income) expense:
Equity in (earnings) of subsidiaries (629) (883) 1,512
Interest expense 6,862 6,862
Other (income) expense (3) (18) 74 53
------------- ------------- ------------- ------------- -------------
Income before income taxes 630 467 1,483 (1,512) 1,068
Income taxes (benefit) (162) 600 438
------------- ------------- ------------- ------------- -------------
Net income $ 630 $ 629 $ 883 $ (1,512) $ 630
============= ============= ============= ============= =============
</TABLE>
12
<PAGE> 13
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ $ 87,576 $ 53,144 $ $ 140,720
Cost of goods sold 53,312 31,684 84,996
------------- ------------- ------------- ------------- -------------
Gross profit 34,264 21,460 55,724
Selling, general and administrative 7 19,111 10,923 30,041
Amortization of intangibles 2,006 148 2,154
Management fees 550 550
------------- ------------- ------------- ------------- -------------
Operating profit (7) 12,597 10,389 22,979
Other (income) expense:
Equity in (earnings) of subsidiaries (2,289) (4,683) 6,972
Interest expense 1 15,160 5 15,166
Other (income) expense (5) 1,389 3,075 4,459
------------- ------------- ------------- ------------- -------------
Income before income taxes 2,286 731 7,309 (6,972) 3,354
Income taxes (benefit) (1) (1,558) 2,626 1,067
------------- ------------- ------------- ------------- -------------
Net income $ 2,287 $ 2,289 $ 4,683 $ (6,972) $ 2,287
============= ============= ============= ============= =============
</TABLE>
13
<PAGE> 14
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ $ 60,678 $ 25,414 $ $ 86,092
Cost of goods sold 36,364 17,425 53,789
------------- ------------- ------------- ------------- -------------
Gross profit 24,314 7,989 32,303
Selling, general and administrative 11 10,666 4,706 15,383
Amortization of intangibles 1,646 165 1,811
Management fees 530 530
------------- ------------- ------------- ------------- -------------
Operating profit (11) 11,472 3,118 14,579
Other (income) expense:
Equity in (earnings) of subsidiaries (292) (1,720) 2,012
Interest expense 13,745 13,745
Other (income) expense (5) 68 205 268
------------- ------------- ------------- ------------- -------------
Income (loss) before income taxes 286 (621) 2,913 (2,012) 566
Income taxes (benefit) (2) (913) 1,193 278
------------- ------------- ------------- ------------- -------------
Net income $ 288 $ 292 $ 1,720 $ (2,012) $ 288
============== ============= ============= ============= =============
</TABLE>
14
<PAGE> 15
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 2,287 $ 2,289 $ 4,683 $ (6,972) $ 2,287
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,623 1,317 8,940
Equity in (earnings) loss of subsidiaries (2,289) (4,683) 6,972
Deferred income taxes and other (1,455) (541) (1,996)
Foreign currency loss 946 2,409 3,355
Changes in operating assets and liabilities 74 (7,945) 2,152 (5,719)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 72 (3,225) 10,020 6,867
Cash Flows From Investing Activities:
Capital expenditures (2,021) (851) (2,872)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (2,021) (851) (2,872)
Cash Flows From Financing Activities:
Payments on term loan (1,250) (1,250)
Net borrowings on credit facilities (2,000) (2,000)
------------- ------------- ------------- ------------- -------------
Net cash used in financing activities (3,250) (3,250)
Intercompany transfers and dividends 4,117 5,809 (9,926)
Effects of exchange rates on cash (75) (75)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents 939 563 (832) 670
Cash and cash equivalents at
beginning of period 377 (1,773) 1,904 508
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 1,316 $ (1,210) $ 1,072 $ $ 1,178
============= ============= ============= ============= =============
</TABLE>
15
<PAGE> 16
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 288 $ 292 $ 1,720 $ (2,012) $ 288
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,443 1,187 7,630
Equity in (earnings) loss of subsidiaries (292) (1,720) 2,012
Deferred income taxes and other (851) (851)
Changes in operating assets and liabilities 96 (441) (2,281) (244) (2,870)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used in)
operating activities 92 3,723 626 (244) 4,197
Cash Flows From Investing Activities:
Capital expenditures (1,598) (1,712) (3,310)
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (1,598) (1,712) (3,310)
Cash Flows From Financing Activities:
Payments on term loans (646) (646)
Net borrowings on credit facilities (2,874) (2,874)
------------- ------------- ------------- ------------- -------------
Net cash used in financing activities (3,520) (3,520)
Intercompany transfers and dividends 1,293 (1,545) 8 244
Effects of exchange rates on cash (193) (193)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents (2,135) 580 (1,271) (2,826)
Cash and cash equivalents at
beginning of period 3,256 (955) 2,461 4,762
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of period $ 1,121 $ (375) $ 1,190 $ $ 1,936
============= ============= ============= ============= =============
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 1999 and October 19, 1999, the textile products operations of
Armstrong World Industries, Inc. ("TPO") and Varn International ("Varn"),
respectively, were acquired. Accordingly, the results of operations for
historical as well as future periods may not be comparable to prior periods.
BASIS OF PRESENTATION
The following table sets forth selected financial information in millions of
dollars and as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- -------------
$ % $ % $ % $ %
------ ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 70.3 100.0 43.5 100.0 140.7 100.0 86.1 100.0
Costs of goods sold 41.8 59.5 27.0 62.1 85.0 60.4 53.8 62.5
------ ----- ----- ----- ----- ----- ----- -----
Gross profit 28.5 40.5 16.5 37.9 55.7 39.6 32.3 37.5
Selling, general and administrative expense 15.3 21.8 7.3 16.8 30.0 21.4 15.4 17.9
Amortization of intangibles 1.1 1.5 0.9 2.1 2.1 1.5 1.8 2.1
Management fees 0.3 0.4 0.3 0.7 0.6 0.4 0.5 0.6
------ ----- ----- ----- ----- ----- ----- -----
Operating profit 11.8 16.8 8.0 18.4 23.0 16.3 14.6 17.0
====== ===== ===== ===== ===== ==== ===== =====
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net sales increased to $70.3 million for the three months ended June 30, 2000,
from $43.5 million for the comparable period in 1999, an increase of $26.8
million or 61.5%. Image Transfer's sales increased to $39.3 million for the
three months ended June 30, 2000, from $36.2 million for the comparable period
in 1999, an increase of $3.1 million or 8.2%. Image Transfer sales increased as
a result of higher volumes across all markets, offset by a negative impact of
$1.2 million related to foreign currency rate changes compared to the same
period in 1999. Textile Products' sales increased to $14.3 million for the three
months ended June 30, 2000, from $7.3 million for the comparable period in 1999,
an increase of $7.0 million or 96.8%. Textile Products' sales increased
primarily as a result of the purchase of TPO in late 1999. The acquisition of
Varn contributed $16.7 million of net sales in the three months ended June 30,
2000.
Gross profit increased $12.0 million to $28.5 million for the three months ended
June 30, 2000, from $16.5 million for the three months ended June 30, 1999,
primarily as a result of the acquired operations of TPO and Varn in the three
months ended June 30, 2000 and the increase in Image Transfer sales. As a
percentage of net sales, gross profit increased to 40.5% for the three months
ended June 30, 2000, compared to 37.9% for the three months ended June 30, 1999,
primarily as a result of improved margins in the Textile Products business
realized from efficiencies generated in combining TPO with the Company's
existing Textile Products business.
Selling, general and administrative expense ("SG&A") increased to $15.3 million
for the three months ended June 30, 2000, from $7.3 million for the comparable
period in 1999, an increase of $8.0 million or 108.9%. Varn
17
<PAGE> 18
and TPO accounted for the majority of the increase. As a percentage of net
sales, SG&A increased to approximately 21.8% from 16.8%. The increase in SG&A as
a percent of sales is a result of slightly higher selling costs of Varn as
compared to the other segments. Foreign currency rate changes had a minimal
impact on SG&A in the second quarter of 2000 compared to the second quarter of
1999.
Amortization of intangibles increased to $1.1 million for the three months ended
June 30, 2000, from $0.9 million for the comparable period in 1999, an increase
of $0.2 million. The increase is a result of the amortization of intangibles
from the Varn acquisition.
Operating profit increased to $11.8 million for the three months ended June 30,
2000, from $8.0 million, for the comparable period in 1999, an increase of $3.8
million or 48.0%. As a percentage of net sales, operating profit decreased to
16.8% for the three months ended June 30, 2000, from 18.4% for the comparable
period in 1999.
Other expense was $2.2 million for the three months ended June 30, 2000,
compared to $0.1 million for the three months ended June 30, 1999. The increase
was primarily due to foreign currency transaction losses incurred in the normal
course of international subsidiaries doing business in other than their
functional currency as well as a result of intercompany financing arrangements.
The effective tax rate for the second quarter of 2000 was 20.8% compared to
41.0% for the second quarter of 1999. The lower effective tax rate in 2000 was
impacted by tax benefits in countries with higher tax rates.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net sales increased to $140.7 million for the six months ended June 30, 2000,
from $86.1 million for the comparable period in 1999, an increase of $54.6
million or 63.5%. Image Transfer's sales increased to $78.1 million for the six
months ended June 30, 2000, from $71.4 million for the comparable period in
1999, an increase of $6.7 million or 9.3%. Image Transfer sales increased as a
result of higher volumes across all markets, offset by a negative impact of $2.3
million related to foreign currency translation rate changes compared to the
same period in 1999. Textile Products' sales increased to $29.9 million for the
six months ended June 30, 2000, from $14.7 million for the comparable period in
1999, an increase of $15.2 million or 103.9%. Textile Products' sales increased
primarily as a result of the purchase of TPO in late 1999. The acquisition of
Varn contributed $32.7 million of net sales in the six months ended June 30,
2000.
Gross profit increased $23.4 million to $55.7 million for the six months ended
June 30, 2000, from $32.3 million for the six months ended June 30, 1999,
primarily as a result of the acquired operations of TPO and Varn in the six
months ended June 30, 2000 and the increase in Image Transfer sales. As a
percentage of net sales, gross profit increased to 39.6% for the six months
ended June 30, 2000, compared to 37.5% for the six months ended June 30, 1999,
primarily as a result of improved margins in the Textile Products business
realized from efficiencies generated in combining TPO with the Company's
existing Textile Products business.
Selling, general and administrative expense ("SG&A") increased to $30.0 million
for the six months ended June 30, 2000, from $15.4 million for the comparable
period in 1999, an increase of $14.6 million or 95.3%. Varn and TPO accounted
for almost the entire increase. As a percentage of net sales, SG&A increased to
approximately 21.4% from 17.9%. The increase in SG&A as a percent of sales is a
result of higher selling costs of Varn as compared to the other segments.
18
<PAGE> 19
Amortization of intangibles increased to $2.1 million for the six months ended
June 30, 2000, from $1.8 million for the comparable period in 1999, an increase
of $0.3 million. The increase is a result of the amortization of intangibles
from the Varn acquisition.
Operating profit increased to $23.0 million for the six months ended June 30,
2000, from $14.6 million, for the comparable period in 1999, an increase of $8.4
million or 57.6%. As a percentage of net sales, operating profit decreased to
16.3% for the six months ended June 30, 2000, from 17.0% for the comparable
period in 1999.
Other expense was $4.5 million for the six months ended June 30, 2000, compared
to $0.3 million for the six months ended June 30, 1999. The increase was
primarily due to foreign currency transaction losses incurred in the normal
course of international subsidiaries doing business in other than their
functional currency as well as a result of intercompany financing arrangements.
The effective tax rate for the first half of 2000 was 31.8% compared to 49.1%
for the first half of 1999. The lower effective tax rate in 2000 was impacted by
tax benefits in countries with higher tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient funds from its operations to
fund its working capital and capital expenditure requirements. Utilizing
converters and distributors to distribute the majority of its products, the
Company is able to maintain relatively minimal levels of working capital as its
converters and distributors typically carry a greater portion of inventory and
finance receivables of the Company's end users.
Cash Flows From Operating Activities. Cash flows provided by operations for the
six months ended June 30, 2000 and 1999, were $6.9 million and $4.2 million,
respectively.
Cash Flows From Investing Activities. Capital expenditures were $2.9 million and
$3.3 million for the six months ended June 30, 2000 and 1999, respectively.
Capital expenditures are expected to be higher in the second half of 2000 than
in the first half of the year.
Cash Flows From Financing Activities. In the first half of 2000, the Company
repaid $2.0 million on its Revolving Credit Facility. The Company paid $1.3
million on its outstanding term loan in the six months ended June 30, 2000. As
of June 30, 2000, there was $3.5 million outstanding under the Revolving Credit
Facility and the Company had approximately $15.4 million available under the
Revolving Credit Facility (calculated by applying the applicable borrowing
base limitation).
The Company's aggregate indebtedness at June 30, 2000, is approximately $276.5
million and the aggregate liquidation preferences of the Exchangeable Preferred
Stock is $46.1 million and the Convertible Preferred Stock is $43.4 million. The
Company is highly leveraged. The Company's ability to operate its business,
service its debt requirements and reduce its total debt will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings.
See the Company's Annual Report on Form 10-K for a more extensive discussion of
liquidity and capital resources.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company conducts a significant amount of business and has operating and
sales facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located, the stand-alone
nature of the operations, the Company's limited net asset exposure, forward
foreign exchange contract practices and pricing flexibility. Thus, while changes
in foreign currency values do affect earnings, management does not expect the
longer-term economic effect of these changes to have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
Certain of the Company's international subsidiaries make purchases in foreign
currencies, mainly intercompany transactions. As a result, they are subject to
transaction exposures that arise from foreign exchange movements between the
date that the foreign currency transaction is recorded and the date it is
consummated. The Company has entered into forward foreign exchange contracts to
protect it against such foreign exchange movements. The contract amount of these
foreign exchange contracts was approximately $7.8 million at June 30, 2000 and
approximately $0.9 million at December 31, 1999. These contracts generally
expire within three to twelve months. Foreign currency transaction losses,
included in other (income) expense, were $4.5 million in 2000 and $0.3 million
in 1999.
INTEREST RATE RISKS
The Company is subject to market risk from exposure to changes in interest
rates. The Company has the Notes and the Revolving Credit Facility to maintain
the desired level of exposure to risk of interest rate fluctuations and to
minimize interest expense. The Company utilizes a mix of debt maturities along
with both fixed- and variable-rate debt to manage its exposure to changes in
interest rates. The Company does not expect changes in interest rates to have a
material effect on income or cash flows in 2000, although there can be no
assurances that interest rates will not materially change.
COMMODITY RISKS
Rubber polymers and fabrics are key components in most of the Company's Image
Transfer and Textile products. The Company is exposed to changes in the costs of
these components. Varn is exposed to changes in the cost of certain
petroleum-based components. The largest raw material component in Varn's
products is petroleum distillates, such as aliphatics and aromatics. When
commodity prices increase, the Company has historically passed on increases to
its customers to maintain its profit margins. Conversely, when commodity prices
decline, the Company generally lowers its sales prices to meet competitive
pressures. The Company is evaluating the impact of the recent increase in
petroleum prices on its raw material costs and in some markets already has
instituted price increases to offset the impact of these increases. Because the
Company has historically been able to raise sales prices to offset higher costs,
management believes that a 10% change in the cost of its components could have a
short term impact until sales price increases take effect, but overall would not
have a material effect on income or cash flows for a fiscal year.
20
<PAGE> 21
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(27) Financial Data Schedule
b. Reports on Form 8-K
None
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: August 11, 2000 /s/ Thomas J. Koenig
----------------------- -----------------------------------
Thomas J. Koenig
Vice President and
Chief Financial Officer
(Principal Financial Officer)
21
