ITEM 1. BUSINESS
GENERAL
Day International Group, Inc. ("Day" or the "Company") is one of the world's leading producers of precision engineered rubber products, specializing in the design and customization of components used by a broad customer base in the printing and textile industries. Day's printing business ("Printing") is one of the world's largest designers, manufacturers and marketers of high-quality printing blankets for use in the offset printing industry. The Company estimates that in 1996 it held the number one market share in printing blankets in the United States and worldwide with approximately a 37% share and a 26% share in each market, respectively. The Company believes that its textile business ("Textiles") is the largest U.S. manufacturer and marketer of precision engineered rubber cots, aprons and other fabricated rubber components sold to textile yarn spinners worldwide. Based on data complied by the American Textile Manufacturers Institute, the Company estimates that in 1996 its share of the U.S. market for cots and aprons was approximately 62%. The Company has continuously improved its operations through technological innovation and has reported increased sales every year since 1982.
On December 31, 1996, Day acquired certain of the net assets of the David M Company ("David M"), a division of Flint Ink Corporation for $11.3 million. David M manufactures a complete line of printing blankets used in offset printing applications in its Longwood, Florida facility. David M will operate as a division of Day and will continue manufacturing in the Florida facility. The acquisition of David M complements Day's existing markets and product lines. Day intends to maintain David M's brand name and product lines and will continue to utilize David M's existing sales force and distribution network. The acquisition of David M increases Day's share of the domestic and worldwide printing blanket markets to approximately 43% and 30%, respectively.
The printing blanket, a highly engineered product manufactured to narrow tolerances and precise specifications, is composed of multiple layers of fabric, rubber and adhesives which determine performance features and overall quality, including image resolution, consistency, durability and ink and chemical compatibility. Printing blankets accept ink from cylindrical printing plates and transfer it to a broad range of paper stocks and other substrates. The performance characteristics of the printing blanket are critical to the quality of the printing job, as printing blankets are required to perform consistently over a broad range of press speeds and printing pressures with a wide variety of papers and inks. Due to the importance of the printing blanket in determining the overall quality of the printing job, and because the cost of the printing blanket typically represents less than 1% of the cost of the printed page, the price of the blanket is a secondary factor in the end user's purchase decision. The Company has long-standing relationships with a large number of end users, including R.R. Donnelley & Sons Co., World Color Press, Inc., Quebecor Printing Inc. and Treasure Chest Advertising Company, Inc. (Big Flower Press, Inc.). In 1996, Printing contributed approximately 76% of the Company's sales.
Offset printing technology is a printing method that transfers a high-quality image from a plate to a rubber printing blanket and then to paper. Offset technology is utilized primarily in long-run, high-speed applications such as the printing of magazines, annual reports, catalogs, direct mail and newspapers.
The Company also manufactures highly engineered rubber rollers known as cots and flexible belts known as aprons for utilization in yarn spinning machinery. Cots and aprons are used to draw and twist fibers into yarn. Industry reports characterize the U.S. as the largest and most technologically advanced producer of textile products in the world. As a result of technological improvements in automated high-speed spinning frames, customers are demanding cots and aprons of higher quality and greater flexibility to meet their specialized needs and are willing to pay a premium for cots and aprons that meet these standards. The Company is known throughout the world as a leader in technological innovation and quality and is the only domestic manufacturer of a full line of cots and aprons and related products. The Company has long-standing relationships with a large number of customers, including Burlington Industries Inc., Springs Industries, Inc. and fiberglass producers such as PPG Industries Inc. and Owens-Corning Fiberglas Corp. In 1996, Textiles contributed approximately 24% of the Company's sales.
The Company's domestic and international sales forces have developed strong customer relationships and possess technical expertise, which enables them to promote the quality and benefits of the Company's products. In Printing, the Company's sales force calls on end users as well as value-added distributors known as converters who typically purchase rolls of uncut printing blankets from the Company and then cut, finish and package the blankets prior to sale and delivery to dealers or end users. By educating end users as to the superior performance characteristics of the Company's products and by providing exceptional technical service, the Company has been able to create "pull through" demand for its products from end users who typically place orders through converters. In Textiles, the Company's sales force markets its products directly to textile mills in the U.S. and Europe, and the Company utilizes independent sales agents to market its products in Latin America and the Pacific Rim.
Business Strategy
The Company believes that competition in the printing and textile industries is based primarily on quality, performance and service. Accordingly, throughout its businesses, the Company emphasizes superior customer service and technological innovation through state-of-the-art research and development. The
Company's strategy is to strengthen its position as one of the world's leading producers and designers of precision engineered rubber components for the printing and textile industries. Specifically, the Company's strategy centers upon:
Superior Product Performance and Leading Market Share. Due to the superior performance characteristics of its products, the Company believes that it holds the number one domestic and worldwide market position in printing blankets and a leading market position in cots and aprons and other textile components. Accordingly, the Company's products enjoy significant brand name recognition. The Company's strategy has been to utilize its technical expertise to develop high-performance products which command premium prices in the marketplace.
Product Innovation and Proprietary Technology. The Company historically has been at the forefront of technological advances and is committed to maintaining its position as an industry leader through continued product innovation. Over the last several years, a number of developments have been successfully undertaken to improve the surface and compressible layers of the printing blanket, resulting in enhanced image resolution, improved durability and printing consistency. For example, in 1993, the Company and Heidelberg Harris, the world's leading manufacturer of printing presses, introduced a unique tubular printing sleeve for Heidelberg Harris new M-3000 high-speed press. The Company also introduced a complete new line of newspaper printing blankets and lined soft cots.
Customer Service. The Company believes that the effective implementation of its integrated approach to marketing, sales and distribution distinguishes it from its competitors. The Company's Printing sales force works directly with end users to identify those printing blankets which best suit each end user's particular needs. The sales force also works in partnership with end users in formulating solutions to complex printing problems which can only be addressed by a thorough understanding of the chemical interaction between the printing blanket, paper and ink.
Operating Discipline. The Company prides itself on providing high-quality products while maintaining its position as a low-cost producer. The Company plans to further improve its profitability through continued productivity gains developed by process-focused teams at each of its facilities. The Company expects that additional process and manufacturing improvements will continue to lower its costs and to strengthen its competitive position. To encourage productivity improvements, the Company ties a portion of each associate's total compensation to a performance bonus.
Pursuit of Growth Opportunities. The Company is aggressively pursuing growth opportunities in its core businesses as evidenced by its acquisition of David M. The Company also believes that planned product introductions and improvements should enable it to increase its worldwide and domestic market shares. Finally, the Company plans to continue its penetration of international markets, with a particular focus on Europe and the Pacific Rim.
PRINTING
INDUSTRY
In an effort to maintain offset printing's technological advantages, press manufacturers have continually invested in research and development to introduce improved presses that lower printing costs by operating
at faster run speeds, offering enhanced flexibility and reducing setup time. Additionally, many of the advancements made in the pre-press area have complemented this trend. The Heidelberg Harris M-3000 press is an example of the next generation of offset printing presses that increase the maximum web speed to 3,000 feet of paper per minute versus the industry norm of 2,000 feet of paper per minute. Industry reports forecast alternative technologies to provide some short-run print jobs with enhanced quality and increased flexibility, but few rival the print quality, flexibility, price and speed of offset technology.
In addition to lowering costs, offset printers are constantly striving to improve the quality of their printed product. The cost of the printing blanket represents less than 1% of the overall cost of the printed page, but is critical to the quality of the product and the efficiency of the printing press. The factors most critical to the printer are the image resolution, which is achievable with a particular printing blanket, the consistency of the printing output over long printing runs, the number of images which can be printed by the printing blanket over its useful life relative to its cost and the ability of the printing blanket to operate within prescribed parameters utilizing a variety of papers, inks and chemicals.
PRODUCTS
The Company offers a full line of high-quality, name brand printing blankets to both web-fed (continuous roll) and sheet-fed (individual sheet) printers. The Company's printing blankets are used to print newspapers, magazines, business forms, packaging and other printed material. As a result of the superior quality, reliability and value of the Company's printing blankets and the customer service it provides, the Company is able to command premium prices for its products.
The Company's leading printing blankets are the dayGraphica 9500(R), Patriot 3000(R), Discovery 3500(R), Accu-Dot 8500(R) and Newsmaker(TM) lines which produce high-quality images, particularly on high-speed printing presses. Introduced in 1986 and utilizing improved surface characteristics resulting in enhanced print quality, the dayGraphica(R) line still represents a unique technology and is favored in many applications. The Patriot 3000(TM) and the Discovery 3500(R) address customer demands for a more versatile and durable product adaptable to changes in the chemicals used in the printing process and constitute a significant portion of the Company's sales. The Accu-Dot(R) line is a line of general purpose printing blankets. Newsmaker(TM) is a complete line of blankets developed and sold specifically for newspaper printing.
The Company believes that it is one of the leading innovators of product and process technology in the printing blanket industry. The Company maintains high-quality products by integrating ideas from its research and development staff with input from its sales force, printers, distributors and process-focused work teams. Given the exacting specifications such as dot uniformity and fidelity, chemical compatibility, product life and start-up time that a printing blanket must meet, the Company believes that it is well- positioned to continue market penetration as a result of its product development capabilities.
In addition to its traditional line of printing blankets, the Company is one of two global licensees to manufacture tubular, seamless printing sleeves for Heidelberg Harris, the world's leading manufacturer of printing presses. The Heidelberg Harris M-3000 press represents the next generation of high-speed presses with a maximum web speed of 3,000 feet of paper per minute versus the industry norm of 2,000 feet of paper per minute. The Company has the leading share of this market.
Printing also manufactures and sells two lines of specialty products consisting of pre-inked porous rolls for use in business machines, automated bank teller machines, ticket machines and credit card imprinters and cast urethane mats used by the box board corrugating industry as a backing material in cutting operations.
SALES AND DISTRIBUTION
The Company's sales forces call directly on all of the leading end users in their markets and promote the quality and technical features of the Company's products to pressroom foremen, purchasing agents, plant managers and press operators who then order the Company's products from an authorized distributor (converter or dealer).
The Company distributes the majority of its products through domestic and international distributors who buy printing blanket rolls. These distributors cut, fabricate and ship blankets to customer orders, maintain inventory and carry receivables. The sales force works closely with the distributors through joint calling efforts on end users and training programs. The Company believes that it has one of the most effective networks of converters and dealers in the industry.
TEXTILES
INDUSTRY
Yarn spinning machinery uses a combination of rollers (cots) and flexible belts (aprons) to draw and twist fibers into yarn in a process known as drafting. Large spinning mills (mills with over 50,000 spindles) require 200,000 cots and aprons (2 cots and 2 aprons per spindle) to equip the spinning frames. Yarn manufacturers require a wide range of cot and apron sizes and constructions to handle cotton, synthetic and blended fibers. Cots and aprons are differentiated by mill conditions, machine types and original equipment manufacturer ("OEM") specifications. The type and quality of cots and aprons impact yarn quality, while product life and performance is impacted by surface finish, lap resistance and the ability to withstand ozone exposure, fiber chemicals, wear and physical deformation.
The industry has undergone significant changes in recent years with technological improvements in machinery resulting in productivity improvements at the textile mill level. In the U.S., a significant amount of ring spinning and shuttle loom capacity has been replaced by fully automated open-end, air-jet and high-speed spinning frames and looms. Automated high-speed spinning frames produce 40% more yarn per spindle than traditional spinning frames. As more high-quality yarn is produced at higher speeds, the consumption of cots and aprons per position increases correspondingly. As a result of these increasing demands, cots and aprons must be of higher quality and therefore command a premium price compared to traditional ring spinning cots and aprons.
PRODUCTS
As the only domestic manufacturer of a full line of cots and aprons, the Company offers its customers both general purpose and specialty cots and aprons recognized in the marketplace under the DAYtex(R) brand. General purpose cots and aprons include a full line of products designed for "short staple" fibers (such as cotton) and "long staple" fibers (such as wool) while specialty cots and aprons include glass-
forming aprons, carpet cots and drawing cots. The Company provides high-quality, precision engineered products that deliver superior value to its customers.
The Company is currently developing and testing several new products including a high-speed spinning apron. The Company's technology has been used to develop specialty lines of aprons including glass-forming aprons, which are used to make glass fiber from liquid glass, and texturizing aprons, which are used to finish certain types of synthetic threads. Textiles also makes bolsters, "rub" aprons and rubber shrinkage blankets for use in pre-shrinking processes, such as that used for denim, as well as rubber-covered industrial rollers for textile and other industrial applications. In addition, the Company also sells custom rubber compounds to several wire coaters in Europe.
SALES AND DISTRIBUTION
The sales force markets its products directly to end users, primarily textile mills, and OEMs, calling on virtually every textile mill in the U.S. and Europe. The Company believes that its sales professionals differentiate themselves from the competition by their ability to work directly with customers to solve problems on the mill floor, providing the Company with knowledge of industry trends, which in turn creates opportunities for product development.
The Company will continue to capitalize on the shift towards higher value-added, higher-margin products and plans to emphasize its full line of products and U.S. manufacturing presence to domestic textile producers. Internationally, the Company will continue to focus on the Pacific Rim and Latin America through the use of independent sales agents.
RAW MATERIALS
Rubber polymers and woven fabrics are major components in the Company's products. Various woven fabrics, which are combined with rubber and other materials, represented over 40% of all raw materials purchases during 1996 and 1995. Raw material purchases accounted for approximately half of all costs of goods sold for the Company's products during the same period. The Company purchases its raw material requirements from a number of suppliers on a purchase order basis.
TECHNOLOGY
The Company continues to believe that research and development is key to maintaining its leading market position. In 1996, technology expenditures were approximately 2% of the Company's sales.
In addition to its extensive patent and trademark portfolio, the Company also licenses certain intellectual property rights from third parties and owns a wide array of unpatented proprietary technology. In the aggregate, these patents, patent applications, trademarks and licenses are of material importance to the Company's business.
COMPETITION
The Company competes with a number of firms in the printing and textile components industries, with the main factors being quality, performance and service. While the Company competes with a number of
manufacturers of offset printing blankets, its primary competitors are Reeves Industries, Inc. and Polyfibron Technologies, Inc. which, together with the Company, accounted for in excess of 70% of the U.S. market and approximately 60% of the worldwide market in 1996, based on Company estimates. Each of these firms has a comparable worldwide geographic distribution network. The Company also competes against a limited number of smaller manufacturers.
In Textiles, the Company's principal competitor is Armstrong World Industries Inc. The Company also competes with other smaller manufacturers, such as Premtec, Inc., Hokushin Corporation, Yamauchi USA Corp. and Berkol Ag.
INTERNATIONAL OPERATIONS
The Company's principal international manufacturing facility is located in Dundee, Scotland which produces products for both Printing and Textiles. The Company also has a manufacturing facility in Lerma, Mexico that produces Printing products for local use and export to the U.S. The Company also maintains sales and distribution facilities in France, Germany, Hong Kong and Italy.
ENVIRONMENTAL MATTERS
The Company's facilities in the United States are subject to federal, state and local environmental requirements, including those governing discharges to the air and water, the handling and disposal of solid and hazardous wastes, and the remediation of contamination associated with releases of hazardous substances. The Dundee, Scotland facility is subject to United Kingdom and local environmental requirements, as well as the environmental requirements promulgated by the European Community. The Lerma, Mexico facility is subject to Mexican environmental requirements.
The Company believes that it is currently in compliance with environmental requirements except as would not be expected to have a material adverse effect on the Company. Nevertheless, the Company's operations involve the handling of toluene and other hazardous substances and, as is the case with manufacturers in general, if a release of hazardous substances occurs on or from the Company's facilities, the Company may be held liable and may be required to pay the cost of remedying the condition. The amount of any such liability could be material.
The Company has made, and will continue to make, expenditures to comply with current and future environmental requirements. Environmental requirements are becoming increasingly stringent, and therefore the Company's expenditures for environmental compliance may increase in the future.
Solvent air emissions at the Company's Dundee, Scotland facility currently exceed U.K. limits, and the Company will be required to initiate a plan for air controls in 1997 to comply with additional air emission requirements promulgated by the European Community. The Company believes that capital expenditures for such control equipment will be between $0.6 and $0.7 million
ASSOCIATES
Currently, the Company employs approximately 958 associates worldwide, of which approximately 615 are employed in the U.S. The Company's associates in Dundee, Scotland are represented by a labor union
which has entered into a collective bargaining agreement with the Company, which agreement expires in November 1997. The Company's associates in Mexico are covered by a statutory labor agreement. None of the Company's U.S. associates are covered by a collective bargaining agreement. To encourage productivity improvements, a portion of each associate's total compensation is tied to a performance bonus. The Company considers its associate relations to be good.
RISK FACTORS
Current and prospective investors should carefully consider the following factors in addition to the other information set forth in this Report related to investing in the Notes.
LEVERAGE
The Company is highly leveraged. At December 31, 1996, the Company's indebtedness was $152.9 million and its stockholders' equity was $52.7 million. In addition, subject to the restrictions in the Credit Agreement and the Notes, the Company and its subsidiaries may incur additional indebtedness (including additional Senior Indebtedness, as defined in the Notes) from time to time to finance acquisitions or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences to holders of the Notes, including: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development or acquisitions may be limited; and (iii) the Company's level of indebtedness could limit its flexibility in reacting to changes in its industries and economic conditions generally.
The Company's ability to pay principal and interest on the Notes and to satisfy its other debt obligations 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 under the Credit Agreement or a successor facility. The Company anticipates that its operating cash flow, together with borrowing under the Credit Agreement, will be sufficient to meet its operating expenses and to service its debt requirements as they become due. However, the Company may be required to refinance a portion of the principal of the Notes prior to their maturity and, if the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all.
SUBORDINATION OF NOTES
The Notes are subordinated in right of payment to all Senior Indebtedness of the Company. In addition, the Guarantee is subordinated to all Guarantor Senior Indebtedness, including the guarantee of indebtedness under the Credit Agreement. The Notes and the Guarantee are also effectively subordinated to all of the indebtedness of the non-Guarantor subsidiaries of the Guarantor, and such non-Guarantor subsidiaries are not obligated or otherwise required to make funds available, whether through dividends, other distributions or otherwise, to the Guarantor or the Company for repayment of the Notes. In 1996,
the Company's UK subsidiary ("Day U.K") entered into credit facilities with a UK bank that will provide a $1.6 million line of credit and two five year term loans totaling $4.8 million as part of the Credit Agreement. As long as these borrowings are outstanding, Day U.K. will be subject to restrictions on its ability to pay dividends and make other distributions to the Guarantor. See Note D of "Notes to Consolidated Financial Statements" of the Company for the year ended December 31, 1996 and the period June 7, 1995 through December 31, 1995 in Item 8 of this Report.
In addition, in the event of bankruptcy, liquidation or reorganization of the Company or the Guarantor, the assets of the Company and the Guarantor will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Securities then outstanding. The aggregate principal amount of Senior Indebtedness of the Company, as of December 31, 1996, was $52.9 million. Additional Senior Indebtedness may be incurred by the Company from time to time, subject to certain restrictions.
RISK OF CANCELLATION OF GUARANTEE UPON FRAUDULENT CONVEYANCE
The Guarantor guarantees the due and punctual payment of principal of; premium, if any, and interest on the Notes and the performance of the other obligations of the Company under the Notes. The Guarantee is a general unsecured obligation of the Guarantor and is subordinated in right of payment to all Guarantor Senior Indebtedness, including the Guarantor's guarantee of indebtedness under the Credit Agreement.
It is possible that creditors of the Guarantor may challenge the Guarantee as a fraudulent conveyance under relevant federal and state statutes, and, under certain circumstances (including a finding that the Guarantor was insolvent at the time the Guarantee was issued), a court could hold that the obligations of the Guarantor under the Guarantee may be voided or are subordinate to other obligations of the Guarantor. In addition, it is possible that the amount for which the Guarantor is liable under the Guarantee may be limited. The measure of insolvency for purposes of the foregoing may vary depending upon the law of the jurisdiction that is being applied. Generally, however, a company would be considered insolvent if the sum of its debts is greater than all of its property at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts as they become absolute and mature. The Notes provides that the obligations of the Guarantor under the Guarantee will be limited to amounts which will not result in the Guarantee being a fraudulent conveyance under applicable law.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Notes restrict, among other things, the Company's and its subsidiaries' ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness that is subordinate in right of payment to any Senior Indebtedness and senior in right of payment to the Notes, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company. In addition, the Credit Agreement contains other and more restrictive covenants and prohibits the Company and its subsidiaries from prepaying other indebtedness (including the Notes). The Credit Agreement also requires the Company to maintain specified financial ratios and satisfy certain financial condition tests. The Company's ability to meet those financial ratios and tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach
of any of these covenants could result in a default under the Credit Agreement and/or the Notes. Upon the occurrence of an event of default under the Credit Agreement, the lenders could elect to declare all amounts outstanding under the Credit Agreement, together with accrued interest, to be immediately due and payable. If the Company were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the Senior Indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Company, including the Notes. Substantially all the assets of the Company and its domestic subsidiaries are pledged as security under the Credit Agreement.
RISKS OF SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures and markets its products worldwide through several foreign subsidiaries and independent agents. The Company's worldwide operations are subject to the risks normally associated with foreign operations, including, but not limited to, the disruption of markets, changes in export or import laws, restrictions on currency exchanges, and the modification or introduction of other governmental policies with potentially adverse effects.
Approximately 28% of the Company's 1996 sales were derived from products sold outside the U.S. in currencies other than the U.S. dollar. The U.S. dollar value of these revenues varies with currency exchange rate fluctuations, and the Company may be exposed to gains or losses based upon such fluctuations. Significant increases in the value of the U.S. dollar relative to certain foreign currencies could have an adverse effect on the Company's ability to meet interest and principal obligations on its U.S. dollar-denominated debt.
IMPACT OF ENVIRONMENTAL REGULATION
The Company is subject to a broad range of federal, state, local and foreign environmental requirements, including those governing discharges to the air and water, the handling and disposal of solid and/or hazardous wastes and the remediation of contamination associated with releases of hazardous substances. There can be no assurances that the Company will not incur significant costs in the future to comply with such requirements. New rules to be promulgated under the federal Clean Air Act by the year 2000 may require the Company to make capital expenditures. The Company estimates that such capital expenditures could be approximately $2 million in or after the year 2001. The Company's operations involve the handling of toluene and other hazardous substances, and, as is generally the case with manufacturers, if a release of hazardous substances occurs on or from the Company's facilities, the Company may be held liable and may be required to pay the cost of remedying the condition. The amount of any such liability could be material. Pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), and/or similar state laws, the Company was named a potentially responsible party ("PRP") at the Verona Well Field, Michigan site and entered into a consent decree to settle that liability. The Company's former parent was named a PRP at four other waste disposal sites, has settled its liability by consent decree at all four of the sites without liability to the Company. Groundwater contamination exists at the Company's Three Rivers, Michigan facility. The Company's former parent and its parent have agreed to complete the ongoing remedial and corrective actions and/or to indemnify, subject to certain limitations, the Company for the costs associated with these and certain other environmental matters. If both of these parties fail to fulfill their indemnification obligations, the Company may be deemed liable for such costs of environmental remediation and/or penalties, which could be material.
CYCLICAL INDUSTRY CUSTOMER BASE
Many of the end users of the Company's products typically experience cyclical fluctuations in revenues and earnings. Accordingly, there can be no assurance that the Company will not experience declining revenues in the future.
PROSPECT OF TECHNOLOGICAL OBSOLESCENCE
If new technologies that could effectively compete with offset printing in the high-speed, long-run segment of the printing industry are developed and widely adopted, the Company's printing business could be adversely affected. There can be no assurance that demand for offset printing presses will remain strong or will continue to grow in the future. Most alternative printing technologies have the potential to compete with offset printing in the future with respect to some short-run print jobs by providing enhanced quality and increased flexibility.
RISK OF INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control as defined in the Notes (such as, for example, the acquisition of a majority of the outstanding voting stock of the Company by a third party), the Company is required to offer to purchase all outstanding Securities at 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages (as defined in the Notes), if any, to the date of purchase. The source of funds for any such purchase will be the Company's available cash or cash generated from operating or other sources, including borrowing, sales of assets, sales of equity or funds provided by a new controlling person. However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of Notes tendered, or that, if applicable, restrictions in the Credit Agreement will allow the Company to make such required repurchases. The effect of such requirements may make it more difficult or delay attempts by others to obtain control of the Company.
LACK OF ESTABLISHED PUBLIC TRADING MARKET
The Notes are currently owned by a relatively small number of beneficial owners. The Company does not intend to list the Notes on any national securities exchange or to seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The initial purchasers of the Notes currently make a market in the Notes, but they are not obligated to do so and may discontinue such market making at any time. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act. Accordingly, no assurance can be given that an active public or other market will develop for the Notes or as to the liquidity of the trading market for the Notes. If a trading market does not develop or is not maintained, holders of the Notes may experience difficulty in reselling the Notes or may be unable to sell them at all. If a market for the Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the Notes, future trading prices of such securities will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the Notes may trade at a discount from their principal amount.
DEPENDENCE ON GOODWILL AND INTANGIBLE ASSETS
At December 31, 1996, approximately 61% of the total assets of the Company are goodwill and intangible assets. As a result, in the event of a liquidation or insolvency of the Company, available funds may not be sufficient to repay indebtedness, including the Notes.
ITEM 2.
ITEM 2. PROPERTIES
The Company operates five state-of-the-art, strategically located manufacturing facilities in Asheville, North Carolina; Three Rivers, Michigan; Lerma, Mexico; Dundee, Scotland; and the recently acquired Longwood, Florida facility and believes that all of the Company's global sales can be sourced through these facilities. The Company has recently upgraded and consolidated its manufacturing operations, all of which are ISO 9002 certified. The Company also owns or leases warehouse and sales office facilities in the U.S., Europe, Mexico and Hong Kong. The size and location of each of the Company's significant facilities is summarized below:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings arising in the ordinary course of business. None of the matters in which the Company is currently involved, either individually or in the aggregate, is expected to have a material adverse effect on the Company's business, results of operations, cash flows or financial condition.
The Company's former parent and Day International, Inc. are parties to consent decrees with respect to certain environmental matters. See "Environmental Matters" in Item 1 of this Report.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 21, 1997, there were 34 holders of record of shares of common stock, par value $.01 per share, of the Company (the "Common Stock"). Sale or transfer of the Common Stock is subject to the terms of a Stockholders Agreement which all stockholders have signed. There is no established trading market for the Common Stock. The Company has never paid or declared a cash dividend on the Common Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data were derived from, and should be read in conjunction with the historical consolidated financial statements of the Company. The financial data for the years ended December 31, 1992, 1993, 1994, and the 157 days ended June 6, 1995, represent results of operations of the Company prior to the Acquisition ("Predecessor"), and the financial data for the 208 days ended December 31, 1995 and the year ended December 31, 1996, represent the results of operations of the Company subsequent to the Acquisition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes thereto included elsewhere in this Report.
(a) Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes" and SFAS No.106, "Employers' Accounting for postretirement Benefits Other than Pensions." See Note 1 of the notes to Financial Statements.
(b) Includes a bridge commitment fee, which resulted in a non-recurring expense of $1.0 million for the 208 days ended December 31, 1995.
ITEM 7.
ITEM 7. 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.
COMPARISON OF RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1995
Net sales increased to $136.8 million for the year ended December 31, 1996 from $128.5 million for the comparable period in 1995, an increase of $8.3 million or 6.5%. The Company's net sales were adversely impacted by changes in foreign currency translation rates, which amounted to $1.2 million. Printing's sales increased to $103.6 million for the year ended December 31, 1996 from $95.2 million for the comparable period in 1995, an increase of $8.4 million or 8.8%, as a result of increased sales from new products, such as the NewsMaker(TM) series for the newspaper market, higher sales of tubular sleeves and increased demand for the Company's existing products in the U.S., Latin America and the Pacific Rim and a modest price increase. Foreign currency translation rate changes adversely impacted Printing sales by $1.0. Textiles' sales remained relatively constant at $33.2 million for the year ended December 31, 1996 compared to $33.3 million in 1995. Changes in foreign currency translation rates reduced Textiles' sales by $0.2 million. Domestic sales increases offset reduced European sales with export sales to Latin America and the Pacific Rim remaining relatively constant.
Gross profit increased to $52.2 million for the year ended December 31, 1996 from $47.1 million in 1995, an increase of $5.1 million or 10.8%. As a percentage of net sales, gross profit increased to 38.2% for the year ended December 31, 1996 from 36.7% for the comparable period in 1995. Gross profit in 1996 increased by $3.3 million or 6.7% as a result of increased volume and productivity enhancements through process improvements and a modest price increase, offset by changes in foreign currency translation rates, higher costs of material and labor and a shift in sales to markets with typically lower margins. Also, gross profit in 1995 was adversely impacted by $2.3 million for sales of finished goods inventory which were purchased at market values as a result of the Acquisition. SG&A remained virtually constant at $24.6
million for the year ended December 31, 1996 compared with $24.5 million for 1995. Stand alone costs related to the acquisition were $0.5 million higher in 1996 and changes in currency translation rates reduced SG&A costs by $0.2 million in 1996. As a percentage of net sales, SG&A decreased to 18.0% from 19.1%.
Amortization of intangibles increased to $6.5 million for the year ended December 31, 1996 from $6.0 million in 1995, an increase of $0.5 million as a result of purchase accounting from the Acquisition.
Operating income increased to $21.2 million for the year ended December 31, 1996 from $16.6 million for the comparable period in 1995, an increase of $4.6 million or 27.7%, of which $2.3 million relates to the higher costs of goods sold in 1995 resulting from the sale of finished goods inventory which were purchased at market values as a result of the Acquisition. The remaining $2.3 million increase in operating income results from increased sales volumes and productivity enhancements offset by additional amortization and depreciation and stand alone costs primarily as a result of the Acquisition. As a percentage of net sales, operating income increased to 15.5% for the year ended December 31, 1996 from 12.9% for the comparable period in 1995.
Not included in the above table, other (income) expense in 1995 includes a $1.0 million bridge loan fee.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1994
Net sales increased to $128.5 million for the twelve months ended December 31, 1995 from $120.3 million for the comparable period in 1994, an increase of $8.2 million or 6.8%. The Company's net sales were favorably impacted by changes in foreign currency translation rates, which amounted to $1.6 million, or 19.5%, of the increase in revenues. Printing's sales increased to $95.2 million for the twelve months ended December 31, 1995 from $88.9 million for the comparable period in 1994, an increase of $6.3 million or 6.7%, as a result of increased sales from new products, such as the NewsMaker(TM) series for the newspaper market, higher sales of tubular sleeves and increased demand for the Company's existing products in Europe. Also, foreign currency translation rate changes contributed $0.6 million of the increase. Textiles' sales increased to $33.3 million for the twelve months ended December 31, 1995 from $31.4 million for comparable period in 1994, an increase of $1.9 million or 6.1%. Approximately $1.0 million of this increase is related to foreign currency translation rates with the remainder attributable to increased exports to Latin America and the Pacific Rim and further market share gains in Europe.
Gross profit decreased to $47.1 million for the twelve months ended December 31, 1995 from $49.3 million for the comparable period in 1994, a decrease of $2.2 million or 4.5%. As a percentage of net sales, gross profit decreased to 36.7% for the twelve months ended December 31, 1995 from 41.0% for the comparable period in 1994. Gross profit increased by $1.6 million or 3.2% as a result of increased volume and productivity enhancements such as the new continuous spreading and automated cot finishing equipment, offset by changes in foreign currency translation rates, a shift in sales mix and higher material and labor costs. Gross profit was also adversely impacted by $2.3 million for sales of finished goods inventory which were purchased at market values as a result of the Acquisition, and by $1.5 million as a result of higher depreciation, primarily as a result of the Acquisition.
SG&A increased to $24.5 million for the twelve months ended December 31, 1995 from $22.7 million for the comparable period in 1994, an increase of $1.8 million or 7.9%, primarily as a result of higher sales
volumes and stand alone costs of $0.6 million as a result of the Acquisition. The Company's expenses were affected by changes in currency translation rates, which amounted to $0.7 million, or 38.9%, of the increase in SG&A. As a percentage of net sales, SG&A increased to 19.1% from 18.9%.
Amortization of intangibles increased to $6.0 million for the twelve months ended December 31, 1995 from $5.2 million for the comparable period in 1994, an increase of $0.8 million as a result of purchase accounting from the Acquisition.
Operating income decreased to $16.6 million for the twelve months ended December 31, 1995 from $21.3 million for the comparable period in 1994, a decrease of $4.7 million or 22.1%. Operating income decreased by $5.2 million as a result of higher cost of goods sold, additional amortization and depreciation and stand alone costs primarily as a result of the Acquisition. As a percentage of net sales, operating income decreased to 12.9% for the twelve months ended December 31, 1995 from 17.7% for the comparable period in 1994. Operating income, excluding the Acquisition related costs, increased $.5 million or 2.3% to $21.8 million for the twelve months ended December 31, 1995.
RISKS ASSOCIATED WITH FOREIGN 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 net asset exposure, forward foreign exchange contract practices and pricing flexibility. Thus, while changes in foreign currency values do affect earnings, the longer term economic effect of these changes should not have a material adverse effect on the Company's financial condition, results of operations or liquidity. Foreign currency gains and losses, included in other income-net, were a $0.1 million loss in 1996, a $0.3 million gain in 1995 and a $0.1 million gain in 1994.
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 value of these foreign exchange contracts was $1,762,000 and $1,550,000 at December 31, 1996 and December 31, 1995, respectively. These contracts generally expire within three to six months. These contracts are through internationally recognized financial institutions with high credit ratings; however, the Company is exposed to credit-related losses in the event of non-performance by counterparties to the forward contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated funds from its operations and its working capital requirements have not exhibited seasonal fluctuations. Utilizing converters to distribute the majority of its products, the Company is able to maintain relatively minimal levels of working capital as the converters carry large amounts of inventory and finance receivables. Under the Company's US Credit Agreement which expires
in 2002, the Company has a $30 million term loan at December 31, 1996 along with a $47 million revolving line of credit, of which $18.5 million was outstanding at December 31, 1996. Under the Company's UK Credit Agreement which also expires in 2002, the Company has two term loans totaling $4.8 million at December 31, 1996 along with a $1.6 million revolving line of credit, none of which was outstanding at December 31, 1996. In addition, in conjunction with the Acquisition, the Company issued $100 million of Senior Subordinated Notes ("Notes") which become due in 2005. The Company believes it has adequate financing from these facilities along with cash flows from operating activities to support its operations.
Cash Flow From Operating Activities. Cash flows from operations for year ended December 31, 1996 and the year ended December 31, 1995 were $18.1 million and $15.3 million, respectively. Cash flows from operations in 1996 were unfavorably impacted by a $0.2 million working capital increase and $7.5 million of additional cash paid for interest. For the year ended December 31, 1995, cash flows from operations were unfavorably impacted by a $0.8 million working capital increase and $8.0 million of cash paid for interest partially offset by increased depreciation and amortization of $5.2 million, as a result of the Acquisition.
Cash Flows From Investing Activities. The Company's expenditures for plant, property and equipment were $5.2 million in 1996 compared to $3.6 million in 1995 and 1994. The Company believes that historical capital spending levels are sufficient to maintain its leading market position. The Company expects to fund its annual capital expenditures of $4.0 million to $7.0 million over the next several years from cash flow from operations. On December 31, 1996 the Company acquired certain net assets of the David M Company, a division of Flint Ink Corporation, for $11.3 million in cash which was funded out of the Company's existing US Credit Agreement.
Cash Flows From Financing Activities. Concurrent with the Acquisition, the Company entered into a US Credit Agreement with certain banks. The US Credit Agreement has a maximum borrowing capacity of $77 million and is secured by the assets of the Company and its domestic subsidiaries, as well as 65% of the stock of each foreign subsidiary. As of December 31, 1996, the Company had approximately $22.0 million of availability under the US Credit Agreement. The Company does not have any scheduled repayment requirements until 1999. In 1996, the Company entered into a UK Credit Agreement with a UK bank. The UK Credit Agreement provides for two term loans totaling $4.8 million and a $1.6 million line of credit. Scheduled repayments on the term loans are due in quarterly payments of $201 with a final payment of $684 due in 2002. The entire $1.6 million line of credit was available at December 31, 1996. 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.
ENVIRONMENTAL MATTERS
The Company will incur expenditures as a result of environmental laws and regulations. The Company estimates that in 1997 it will spend approximately $1.0 million in capital expenditures for solvent recovery, wastewater treatment, air monitoring and related projects to comply with environmental requirements. Environmental requirements are becoming increasingly stringent, and therefore the Company's expenditures for environmental compliance may increase in the future.
New rules to be promulgated under the 1990 amendments to the federal Clean Air Act governing emissions of hazardous air pollutants may require implementation of additional air emission control measures at the Company's Three Rivers, Michigan and Asheville, North Carolina facilities. Because the applicable requirements are not scheduled to be promulgated until 2000, it is difficult to estimate the costs of any additional controls that might be required with any certainty. The Company currently believes that the total capital expenditures to install additional control equipment at these facilities are not likely to exceed $2 million and would be incurred between 2001 and 2003.
Solvent air emissions at the Company's Dundee, Scotland facility currently exceed U.K. limits, and the Company will be required to initiate a plan for air controls in 1997 to comply with additional air emission requirements promulgated by the European Community. The Company believes that capital expenditures for such control equipment will be between $0.6 million and $0.7 million.
On July 25, 1988, the Michigan Department of Natural Resources ("MDNR") and the Company's former parent, entered into a consent decree with respect to certain conditions of groundwater contamination at and emanating from the Company's Three Rivers, Michigan facility. The Company is not a party to the consent decree. The contamination is believed to be the result of leaks from underground tanks at the facility that were removed in 1984. Pursuant to the consent decree, the Company's former parent installed a groundwater extraction and treatment system at the facility in 1989. The consent order requires that the Company's former parent continue to operate the system until certain cleanup levels have been achieved; such cleanup is currently expected to take seven to ten more years, at a cost of approximately $0.1 million per year. MDNR has recently raised certain concerns regarding the effectiveness of the system. As a result, the Company's former parent may have to make modifications to the system or take further action to identify and address sources of the contamination in onsite soils. As of December 31, 1996, the Company has recorded accruals of approximately $1.1 million to reflect future costs associated with this clean-up and, based on the reports of its independent consultant, the Company believes that such accruals are adequate. The Company has been indemnified with respect to these costs and expects to receive reimbursement after amounts are expended. If however, the Company's former parent fails to fulfill its indemnification obligations, the Company may be deemed liable for these costs and the costs could be material. This risk is mitigated in part, because substantial capital costs have already been expended to install the groundwater extraction and treatment system.
Like many manufacturers, the Company's facilities generate wastes that contain hazardous substances. As a result of the disposal of such wastes prior to the Acquisition, the Company's former parent was named a "potentially responsible party" pursuant to CERCLA and/or similar state laws at the following waste disposal sites: the Seaboard Chemical Corporation Site, North Carolina; the Wayne Reclamation Site, Indiana; the Liquid Disposal, Inc. Site, Michigan; and the Thermo Chem Site, Michigan. Similarly, the Company was named a PRP at the Verona Well Field Site, Michigan. The Company's former parent or the Company entered into consent decrees that settled its liability at these sites, subject to standard reopener provisions as are found in consent decrees under CERCLA. The Company expects that no expenditures will be made by the Company with respect to these matters. The Company's former parent have agreed to retain ongoing responsibility for and indemnify the Company with respect to these waste disposal locations. Claims under this offsite disposal indemnity are not subject to time or dollar limitations. Because the liability scheme under CERCLA is retroactive, the Company may receive notices of potential CBRCLA liability in the future, and such liability could be material.
Subject to certain limitations, the Company's former parent and its parent have agreed to indemnify the Company for certain other environmental compliance and liability issues associated with the Company's business. These matters include certain exceedances of sewer discharge permit limits at the Asheville, North Carolina facility, certain remedial actions previously completed by Day International, Inc. at the Asheville, North Carolina facility, and liabilities associated with an underground toluene tank at the Lerma, Mexico facility which has been removed and disposed of. There can be no assurances the Company's former parent or its parent will have the ability to indemnify the Company for all the environmental conditions for which they have retained responsibility when requested by the Company. If the Company's former parent or its parent are unable to honor their indemnification obligations, the Company would likely be responsible for such matters and the cost of addressing such matters could be material. The Company does not maintain insurance coverage for environmental matters.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Day International Group, Inc.
We have audited the accompanying consolidated balance sheets of Day International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1996 and the period from June 7, 1995 (date of acquisition) through December 31, 1995. Our audit also included the financial statement schedule listed in the Index at Item 14(a)2 for the year ended December 31, 1996 and the period ended December 31, 1995. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Day International Group, Inc. at December 31, 1996 and 1995, and the results of their operations and their cash flows for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 21, 1997 Dayton, Ohio
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM JUNE 7,1995 THROUGH DECEMBER 31,1995 (IN THOUSANDS) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM JUNE 7,1995 THROUGH DECEMBER 31,1995 (DOLLAR AMOUNTS IN THOUSANDS) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM JUNE 7, 1995 THROUGH DECEMBER 31, 1995 (IN THOUSANDS) - -------------------------------------------------------------------------------
See notes to consolidated financial statements.
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM JUNE 7, 1995 THROUGH DECEMBER 31, 1995 (DOLLAR AMOUNTS IN THOUSANDS) - -------------------------------------------------------------------------------
A. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Day International Group, Inc. and subsidiaries ("Day" or "the Company") is a designer and manufacturer of precision engineered rubber components for the printing and textile industries. Day's printing components business is a designer, manufacturer and marketer of high-quality printing blankets used in the offset printing industry. Day's textile components business is a manufacturer and marketer of precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. Sales are made through Day's organization, distributors and representatives.
In connection with the Stock Purchase Agreement dated April 11, 1995, as amended, among Day International Group, Inc., M.A. Hanna Company, and Cadillac Plastics Group, Inc., the Share Purchase Agreement dated April 11, 1995, as amended, among Day International Group, Inc. and Cadillac Plastics Limited, and an Asset Purchase Agreement dated April 11, 1995, as amended, among Day International Group, Inc. and Day International (Canada) Limited (collectively, the "Acquisition Agreement") Day acquired the stock or net assets, as appropriate, from M.A. Manna and its subsidiaries, related to the precision engineered rubber components business, effective June 6, 1995 for $211.8 million in cash (net of cash acquired of $2.5 million). The acquisition has been accounted for as a purchase in accordance with Accounting Principles Board Opinion No.16. The purchase price has been allocated to the net assets acquired based on their fair market values as follows:
The preliminary purchase price allocation for property, plant and equipment at December 31, 1995 was reduced in 1996 by approximately $6.6 million when the final appraisals on the domestic land and buildings were completed.
On December 31, 1996, the Company acquired certain net assets of the David M division of Flint Ink Corporation for $11.3 million in cash. The acquisition has been accounted for as a purchase in accordance with Accounting Principles Board Opinion No.16. Pro form a results of operations have not been presented because the results of this acquisition were not significant.
B. SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLE OF CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all highly liquid investments with an original purchased maturity of three months or less.
INVENTORIES are stated at the lower of cost or market using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over their estimated useful lives. Buildings are depreciated over 25 years and machinery and equipment are depreciated between 5 and 10 years.
LONG-LIVED ASSETS - In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.121, 'Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain intangibles be reviewed for impairment whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. This statement also requires that long-lived assets and certain intangible assets to be disposed of be reported at the lower of their carrying amount or fair value less costs to sell. The adoption of this statement had no impact on the financial statements of the Company.
GOODWILL AND OTHER INTANGIBLES - Goodwill represents the excess of cost over the fair value of the net assets acquired and is being amortized on the straight line basis over 40 years. The Company assesses the recoverability of goodwill and other intangibles by determining whether the amortization of the respective balances over their remaining lives can be recovered through projected undiscounted cash flows.
Deferred financing costs of $6,235 at December 31, 1996 (net of accumulated amortization of$l,567) are being amortized using an effective interest rate method over the lives of the related debt.
Goodwill and other intangibles are being amortized using the straight line method, as follows:
REVENUE RECOGNITION - Day recognizes revenue when the product is shipped. Reserves for product returns, based upon historical experience, are also recognized upon shipment.
FOREIGN CURRENCY TRANSLATION - The functional currency is the local currency of Day's respective international subsidiaries. Accordingly, foreign currency assets and liabilities are translated into U.S. dollars at the period end exchange rates. Foreign currency revenues and expenses are translated at the average exchange rates for the period. Translation gains and losses are recorded in the accumulated translation adjustment account in shareholders' equity. Transaction gains and losses are recorded in the consolidated statement of operations for the period.
CONCENTRATION OF CREDIT RISK - A majority of Day's textile operations U.S. sales are concentrated in the southeastern part of the U.S. Day's printing and textile receivables are from a diverse group of customers in the printing and textile industry and such receivables are generally unsecured. Day maintains a reserve for potential losses.
Certain of Day's international subsidiaries make purchases in foreign currencies. 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. Day has entered into forward foreign exchange contracts to protect itself against such foreign currency movements. The contract value, which approximates market, of these foreign exchange contracts was $1,762 and $1,550 at December 31, 1996 and 1995, respectively.
Day is exposed to credit-related losses in the event of nonperformance by counterparties to the forward contracts. No counterparties are expected to fail to meet their obligations given their credit ratings, therefore Day does not obtain collateral for these instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of the Company's long-term debt which consists of a variable rate Credit Agreement and 11 1/8% Senior Subordinated Debt approximates fair value. The carrying amounts of all other current assets and liabilities as reported in the consolidated balance sheets at December 31, 1996 and 1995, which qualify as financial instruments, approximated fair value.
MANAGEMENT ESTIMATES - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
C. INVENTORIES
Inventories as of December 31, 1996 and 1995 consists of:
D. LONG-TERM AND SUBORDINATED LONG-TERM DEBT
Long-term and subordinated long-term debt as of December 31, 1996 and 1995 consists of:
The US Credit Agreement consists of a $47,000 revolving line of credit and a $30,000 term loan with a group of banks. The revolving line of credit includes a $12,500 letter of credit subfacility ($6,474 of letters of credit were outstanding at December 31, 1996) and a $2,000 swingline loan subfacility. The maximum amounts available under the revolving line of credit are reduced by $7,000 in June 1997, $10,000 in June 1998 and $10,000 in June 1999 adjusted by a factor of excess cash flows, as defined in the Credit Agreement. At December 31, 1996, interest on $10,500 of the revolving line of credit was based on the banks' base rate plus 1.00% (9.25% at December 31, 1996) and interest on $8,000 of the revolving line of credit was based on the LIBOR rate plus 2.25% (7.75% at December31, 1996). At December 31, 1996, $22,026 was available under the Credit Agreement. The Credit Agreement requires a commitment fee of 1/2% a year on the unused portion of the revolving line of credit. The term loan is a seven year loan with quarterly principle payments of $2,500 beginning September, 1999 with the final installment due June 2002. Interest on the term loan is based on the banks' base rate plus 1.50% (9.75% at December 31, 1996) or the LIBOR rate plus 2.75% ( 8.37% at December 31, 1996). At December 31, 1996, interest on the term loan was based on the LIBOR rate. Interest rates on LIBOR borrowings are fixed for one, two, three or six month periods at the Company's discretion. The weighted average interest rate on the Credit Agreement for the year ended December 31, 1996 and 1995 was 8.46% and 8.86%, respectively.
The 11-1/8% Senior Subordinated Notes are due June 1, 2005 with interest payable semi-annually.
The US Credit Agreement and the Senior Subordinated Notes contain various financial and other covenants which place limits on, among other things, asset sales, dividends and distributions of the Company's or its subsidiaries' capital stock, the purchase, redemption, acquisition of capital stock of the Company or its affiliates or any subsidiaries, and the incurrence of certain additional indebtedness. The Company's wholly-owned subsidiary, Day International, Inc., has guaranteed the Credit Agreement and the Senior Subordinated Notes and pledged all its assets, except its investments in its foreign subsidiaries, as collateral on these agreements.
In 1996, the Company's UK subsidiary entered into credit facilities with a UK bank that provides a $1,601 line of credit and two five year term loans totaling $4,821. Interest on the line of credit is at the bank's base rate plus 1% (7.00% at December 31, 1996) payable monthly. Principal payments on the term loans are due in equal quarterly installments of $201 with a final payment of $684 due in May 2002. Interest on the term loans is at either the bank's base rate plus 1% (7.00% at December 31, 1996) or the LIBOR rate plus 1% (6.63% at December 31, 1996) payable monthly. At December 31, 1996, $1,601 was available under the UK Credit Agreement. All borrowings are secured by guarantees from the Company's US subsidiary
and by letters of credit obtained under the overall Credit Agreement. The credit facilities also contain certain financial covenants related to the UK subsidiary.
In conjunction with the acquisition, the Company entered into an agreement that would provide temporary financing in the event the Senior Subordinated Notes were not in place by the closing date. This temporary financing was ultimately not required. As a result, fees and related costs associated with this temporary financing of $1,019 were charged to other expense in the period June 7, 1995 through December 31, 1995.
E. INCOME TAXES
Significant components of deferred tax assets (liabilities) as of December 31, 1996 and 1995 are as follows:
Income tax expense (benefit) consists of the following for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995:
The foreign deferred tax expense primarily results from differences in accounting for fixed assets and from the utilization of net operating loss carryforwards.
The income tax expense (benefit) differs from the statutory rate for the year ended December 31, 1996 and period June 7, 1995 through December 31, 1995 as a result of the following: 1996 1995
Income (loss) before income taxes includes $ 3,571 and $1,510 of income from international operations for the year ended December 31, 1996 and period June 7, 1995 through December 31, 1995, respectively. Day has not provided deferred taxes on the undistributed earnings of foreign subsidiaries because the earnings are deemed permanently reinvested. US net operating loss carryforwards of approximately $3,300 expire through 2011.
F. BUSINESS OPERATIONS
Net sales and income (loss) before income taxes (benefit) for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995 and identifiable assets as of December 31, 1996 and 1995 by geographic area are as follows:
Sales between geographic areas are generally priced to recover cost plus an appropriate mark-up for profit.
G. RELATED PARTY TRANSACTIONS
In accordance with a management services agreement, the Company is required to pay American Industrial Partners, an affiliate of the controlling shareholders of Day, an annual management fee of $800 plus expenses, payable semi-annually. The agreement expires in June, 2005 or if there is a change in control of the Company.
H. STOCKHOLDERS' EQUITY AND STOCK BASED COMPENSATION PLAN
The Company has a stock option plan permitting the grant of up to 3,730 options to purchase common shares to officers and key employees. The options vest nine years from the grant date; however, vesting is accelerated if the Company achieves certain performance objectives and expire ten years from grant date. As of December 31, 1996, 2,605 options have been granted under the plan with an exercise price of $1,000 a share, 2,530 options expire in 2005 and 75 options expire in 2006. The following table summarizes activity in the Company's stock option plan:
The Company measures compensation cost for stock options issued to employees using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." In October 1995, the Financial Accounting Standards Board issued SFAS No.123, "Accounting for Stock-Based Compensation," which the Company was required to adopt in 1996. Pursuant to the new standard, companies are encouraged, but not required, to adopt the fair value method of accounting for stock options and similar equity instruments. Had compensation costs been determined based on the fair value method of SFAS No.123 the Company's net earnings would have been reduced by $214 in 1996 and $107 in 1995.
I. RETIREMENT PLANS
The Company has non-contributory defined benefit plans covering certain associates of its UK and German subsidiaries. Benefits under these plans are based primarily on years of service and qualifying compensation during the final years of employment. Plan assets include marketable equity securities. The Company's funding policy complies with the requirements of local laws and regulations.
Day also sponsors defined contribution plans for certain of its associates, which provide for Company contributions of a specified percentage of each associate's total compensation.
The funded status of the Company's defined benefit plans at December 31, 1996 and 1995 is as follows:
The projected benefit obligation was determined using an assumed discount rate of 7.5% and an assumed long-term rate of increase in compensation of 5%. The assumed long-term rate of return on plan assets is 8.5%.
A summary of the components of net periodic pension cost for the defined benefit plans and for the defined contribution plans for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995 is as follows:
J. OTHER POSTRETIREMENT BENEFITS
Day provides certain contributory health care and life insurance benefits for certain U.S. associates. Those associates may become eligible for these postretirement benefits if they retire on or after age 55 with at least ten years of service.
The status of Day's plan at December 31, 1996 and 1995, which is unfunded, is as follows:
Approximately $57 of accrued postretirement benefit obligation is included in accrued associate related costs at December 31, 1996 and 1995, respectively.
The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost rate trend) is assumed to be 10% and decreasing gradually to 5.25% in 2006 and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate would have increased the accumulated benefit obligation by $766 at December 31, 1996 and the interest and service cost would have been $139 higher for the year ended December 31, 1996.
A discount rate of 7.5% was used in determining the accumulated obligation.
Net periodic postretirement benefit costs include the following components for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995:
K. LEASE COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouses, transportation equipment and office equipment under operating leases with terms of 1 to 10 years. Rental expense for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995 was $811 and $412, respectively. At December 31, 1996, future minimum lease commitments for noncancelable operating leases are:
There are currently no environmental claims against the Company for the costs of environmental remediation measures taken or to be taken. The Company is operating under a consent decree related to its Michigan manufacturing facility for environmental matters which occurred prior to the acquisition. Independent environmental consultants have assessed the environmental matters. Based on this assessment and management's best estimates of the liability associated with these matters, reserves for such liabilities have been established and no insurance recoveries have been anticipated in determining the reserves. The Company's previous parent and its parent, M.A Hanna, have agreed to indemnify the Company for certain costs associated with these matters. At December 31, 1996, a $1,079 indemnification receivable is recorded. Management believes that this receivable is fully realizable. In management's opinion, the aforementioned claims will be resolved without material adverse effect on the operations, financial position or cash flows of the Company.
L. SUPPLEMENTAL CONSOLIDATING INFORMATION
As described in Note A, in April 1995, the Company purchased Day from M.A. Hanna. The acquisition was financed through equity, term and revolving credit facilities and senior subordinated debt (the "Notes"). In connection with the Acquisition, Day International, Inc. ("Day International" or "Guarantor") became a wholly-owned subsidiary of the Company (which has no assets or operations other than its investment in Day international) and 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 are not anticipated to have any credit arrangements senior to the Notes except for the UK Credit Agreement of the UK subsidiary as described in Note D. All of the assets of Day International and its parent, other than the assets of the wholly- owned foreign non guarantor subsidiaries, are pledged as collateral on the Notes. The only intercompany elimination's are the normal intercompany eliminations with regard to intercompany sales and the Company's investment in the wholly owned non guarantor subsidiaries. In 1996, intercompany notes were put in place through a dividend which effectively transfers the interest expense from Day International Group, Inc. to Day International, Inc. The following are the supplemental combined condensed balance sheets as of December 31, 1996 and 1995, the supplemental combined condensed statements of operations and cash flows for the year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995 with the investments in the subsidiaries accounted for using the equity method. Separate complete financial statements of the Guarantor are not presented because management has determined that they are not material to the investors.
Day International Group, Inc. Supplemental Combining Condensed Balance Sheet December 31,1996
Day International Group, Inc. Supplemental Combining Condensed Balance Sheet December 31,1995
Day International Group, Inc. Supplemental Combining Condensed Statement of Operations Year ended December 31,1996
Day International Group, Inc. Supplemental Combining Condensed Statement of Operations Period from June 7,1995 through December 31,1995
Day International Group, Inc. Supplemental Combining Condensed Statement of Cash Flows Year ended December 31, 1996
Day International Group, Inc. Supplemental Combining Condensed Statement of Cash Flows Period from June 7, 1995 through December 31, 1995
INDEPENDENT AUDITORS' REPORT
Board of Directors
Day International, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of Day International, Inc. (a wholly-owned subsidiary of M.A. Hanna Company) and subsidiaries ("Day") as of June 6, 1995, and the related consolidated statements of income and cash flows for the period January 1, 1995, through June 6, 1995. Our audit also included the financial statement schedule listed in the Index at Item 14(a)2 for the period ended June 6, 1995. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Day at June 6, 1995, and the results of their operations and their cash flows for the period January 1, 1995, through June 6, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
August 17, 1995 Dayton, Ohio
DAY INTERNATIONAL, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED BALANCE SHEET JUNE 6, 1995 (IN THOUSANDS) - --------------------------------------------------------------------------------
ASSETS
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
DAY INTERNATIONAL, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995 (IN THOUSANDS) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
DAY INTERNATIONAL, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995 (IN THOUSANDS) - --------------------------------------------------------------------------------
See notes to consolidated financial statements.
DAY INTERNATIONAL, INC. AND SUBSIDIARIES (A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6,1995 - --------------------------------------------------------------------------------
A. NATURE OF OPERATIONS AND BASIS OF PREPARATION
Day International, Inc. and subsidiaries ("Day") is a designer and manufacturer of precision engineered rubber components for the printing and textile industries. Day's printing components business is a designer, manufacturer and marketer of high-quality printing blankets used in the offset printing industry. Day's textile components business is a manufacturer and marketer of precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. Sales are made through Day's organization, distributors and representatives.
The consolidated financial statements of Day have been prepared in connection with the Stock Purchase Agreement dated April 11, 1995, as amended, among Day International Group, Inc., M.A. Hanna Company, and Cadillac Plastics Group, Inc., the Share Purchase Agreement dated April 11, 1995, as amended, between Day International Group, Inc. and Cadillac Plastics Limited, and an Asset Purchase Agreement dated April 11, 1995, as amended, between Day International Group, Inc. and Day International (Canada) Limited (collectively, the "Acquisition Agreement"). Pursuant to the terms of such agreement, M.A. Hanna Company has the right to propose adjustments to the final purchase price. Any adjustments proposed which are not resolved by Day International Group, Inc. and M.A. Hanna Company are to be resolved by the final, conclusive and binding determination of a third party.
The consolidated financial statements of Day include the accounts of Day's U.S. operations; Day International (U.K.) Limited; Day International France, S.A.R.L.; Day International GmbH; Day International de Mexico, S.A. de C.V.; Day International Pty. Limited, and the printing and textile division of Day International (Canada) Limited.
B. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all highly liquid investments with an original purchased maturity of three months or less.
INVENTORIES are stated at the lower of cost or market, cost being determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is computed principally by the straight-line method at rates sufficient to depreciate the cost of the assets over their estimated productive lives. Buildings and machinery and equipment are depreciated over 25 years and between 5 and 10 years, respectively.
GOODWILL AND OTHER INTANGIBLES - Goodwill and other intangibles are being amortized using the straight-line method over 40 years for goodwill and trademarks and 9 years for patents. Accumulated amortization was $40,741,000. The carrying value of goodwill and other intangibles is evaluated if circumstances indicate a possible impairment in value. If undiscounted cash flows over the remaining amortization period indicate that goodwill and other intangibles may not be recoverable, the carrying value of goodwill and other intangibles will be reduced by the estimated shortfall of cash flows on a discounted basis.
INCOME TAXES - The tax provision for Day has been determined on a separate return basis. All income taxes paid and currently payable by Hanna on Day's behalf will be settled through the equity account of Day. Day recognizes taxes on differences between the financial reporting and tax basis of assets and liabilities using presently enacted tax rates and laws and provides for a valuation allowance on deferred assets, if required.
FOREIGN CURRENCY TRANSLATION - The functional currency is the local currency of Day's respective international subsidiaries. Accordingly, foreign currency assets and liabilities are translated into U.S. dollars at the period-end exchange rate. Foreign currency revenues and expenses are translated at the average exchange rate for the period. Equity is translated at historical rates. Foreign currency translation gains and losses are recorded in the accumulated translation adjustment account in equity.
CONCENTRATION OF CREDIT RISK - Approximately 85% of Day's textile operations U.S. sales were concentrated in the southeastern part of the U.S. Day's printing and textile receivables were from a diverse group of customers in the printing and textile industry and such receivables are generally unsecured. Day maintains an allowance for potential losses.
Certain of Day's international subsidiaries make purchases in foreign currencies. As a result, they are subject to transaction exposure that arises from foreign exchange movements between the date that the foreign currency transaction is recorded and the date it is consummated. Day has entered into forward foreign exchange contracts to protect itself against such foreign exchange movements. The contract value of these foreign exchange contracts is $1,479,000 at June 6, 1995.
Day is exposed to credit-related losses in the event of nonperformance by counterparties to the forward contracts. Day usually does not obtain collateral for these instruments.
REVENUE RECOGNITION - Day recognizes revenue and reserves for product returns, based on historical experience, when product is shipped.
CONSOLIDATION - All significant intercompany transactions have been eliminated in consolidation.
C. INCOME TAXES
Significant components of Day's deferred tax assets (liabilities) as of June 6, 1995 are as follows:
For financial reporting purposes, a valuation allowance was recorded to offset the deferred tax asset of $70,000 related to operating loss carryforwards in Italy, which expire between 1995 and 1998. During the period January 1, 1995 through June 6, 1995, the valuation allowance was decreased by $7,000 due to utilization of this operating loss carryforward.
The provision for income taxes consists of the following for the period January 1, 1995 through June 6, 1995.
The provision for income taxes differs from the amount computed by applying U.S. statutory federal income tax rate for the period January 1, 1995 through June 6, 1995, are as follows:
Income before income taxes includes $1,730,000 for the period January 1, 1995 through June 6, 1995 from international operations. Day has not provided deferred taxes on undistributed earnings of foreign subsidiaries because the earnings are deemed permanently reinvested, and the determination of liability is not practicable.
D. BUSINESS OPERATIONS
Net sales and income before income taxes for the period January 1, 1995 through June 6, 1995 and identifiable assets as of June 6, 1995 by geographic area are as follows (in thousands):
Sales between geographic areas are generally priced to recover cost plus an appropriate mark-up for profit.
E. RELATED PARTY TRANSACTIONS
Direct third party expenses incurred by Hanna on behalf of Day, including legal costs and insurance premiums, have been charged to Day based on the fair value of the services performed. No allocation of Hanna's general corporate costs have been reflected in these consolidated financial statements since Day is managed as a stand-alone business, and management believes that any such amounts would not be material to Day's results of operations. While management believes that this is a reasonable method, the amounts that would have been or will be incurred on a separate company basis could differ from the estimated amounts due to economies of scale realized by Day and differences in management techniques and organization.
In 1995, Day purchased compounded rubber products from Hanna affiliates in the amount of $.9 million.
At June 6, 1995, Day International (Canada) Ltd. had a note receivable of $5.9 million from a Hanna affiliate, with an interest rate of 5%, due in December 1995.
F. STOCKHOLDER'S EQUITY
Equity is affected by earnings and cash and non-cash transfers between Day and Hanna. Day cash receipts are transferred into Hanna bank accounts, and Day disbursements are funded from Hanna bank accounts on Day's behalf. Also, certain other transactions between Day and Hanna divisions, such as payroll, income and payroll taxes, fringe benefits, and direct charges for legal and other professional fees, are settled through Day's equity account. Day has historically generated a positive cash flow and Hanna has never charged any interest on its investment in Day. Therefore, in preparation of these consolidated financial statements, no debt or interest charges are reflected. The change in equity reflecting such activity for the period is summarized as follows (in thousands):
The change in accumulated translation adjustment is as follows (in thousands):
G. PENSION
Day has non-contributory defined benefit plans covering certain associates of Day International (U.K.) Limited and Day International GmbH. Benefits for these plans are based primarily on years of service and qualifying compensation during the final years of employment. Plan assets include marketable equity securities. Day's funding policy complies with the requirements of local laws and regulations.
Day also sponsors defined contribution plans for certain of its associates, which provide for company contributions of a specified percentage of each associate's total compensation.
The following sets forth the funded status of Day's defined benefit plans at June 6, 1995 (in thousands):
The projected benefit obligation was determined using an assumed discount rate of 8.25% and an assumed long-term rate of increase in compensation of 5%. The assumed long-term rate of return on plan assets is 8.5%.
A summary of the components of net periodic pension cost for the defined benefit plans and the total contribution charged to expense for the defined contribution plans for the period January 1, 1995 through June 6, 1995 is as follows (in thousands):
H. OTHER POSTRETIREMENT BENEFITS
Day provides certain contributory health care and life insurance benefits for certain U.S. associates. Those associates may become eligible for these postretirement benefits if they retire on or after age 55 with at least ten years of service.
The status of the Day's plan, which is unfunded at June 6, 1995 is as follows (in thousands):
Accrued postretirement benefit obligation of approximately $54,000 is included in the accompanying consolidated balance sheet caption accrued associate related costs.
The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 12.0% and, decreasing gradually to 6.25% in 2007 and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate would have increased the accumulated benefit obligation by $300,000 at June 6, 1995.
A discount rate of 8.25% was used in determining the accumulated obligation.
Net periodic postretirement benefit costs include the following components for the period January 1, 1995 through June 6, 1995 (in thousands):
I. LEASE COMMITMENTS
Rental expense under operating leases for certain warehouses, automobiles and office equipment was $300,000 for the period January 1, 1995 through June 6, 1995. Certain of the Day's leases have options to renew, and there are no significant contingent rentals.
As of June 6, 1995, future minimum lease commitments for noncancelable operating leases are (in thousands):
J. CONTINGENCIES
Claims have been made against Day for the costs of environmental remediation measures taken or to be taken. Day has established total reserves for such liabilities of $1,298,000 which it believes are probable and reasonably estimable. In determination of the reserves, insurance recoveries have not been anticipated. 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 Day.
K. OTHER INCOME - NET
Other income - net includes the following for the period January 1, 1995 through June 6, 1995 (in thousands):
L. SUPPLEMENTAL CONSOLIDATING INFORMATION
As described in Note A, in April 1995, the Company purchased Day from M.A. Hanna. The acquisition was financed through equity, term and revolving credit facilities and senior subordinated debt (the "Notes"). In connection with the Acquisition, Day became a wholly-owned subsidiary of the Company (which has no assets or operations other than its investment in Day) and provided a full and unconditional guarantee of the Notes. The wholly-owned foreign subsidiaries of Day are not guarantors with respect to the Notes and are not anticipated to have any credit arrangements senior to the Notes except for the UK Credit Agreement of the UK subsidiary as described in Note D. All of the assets of Day and its parent, other than the assets of the wholly-owned foreign non guarantor subsidiaries, are pledged as collateral on the Notes. The only intercompany elimination's are the normal intercompany eliminations with regard to intercompany sales and the Company's investment in the wholly owned non guarantor subsidiaries. The following are the supplemental combined condensed balance sheet as of June 6, 1995, the supplemental combined condensed statements of operations and cash flows for the period from January 1, 1995 through June 6, 1995 with the investments in the subsidiaries accounted for using the equity method. Separate complete financial statements of the Guarantor are not presented because management has determined that they are not material to the investors.
Day International, Inc. Supplemental Combining Condensed Balance Sheet June 6, 1995
Day International, Inc. Supplemental Combining Condensed Statement of Income Period January 1, 1995 through June 6,1995
Day International, Inc. Supplemental Combining Condensed Statement of Cash Flows Period January 1, 1995 through June 6,1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Day International, Inc.
In our opinion, the accompanying consolidated statements of income and cash flows present fairly, in all material respects, the results of operations and cash flows of Day International, Inc. (a wholly-owned subsidiary of M.A. Hanna Company) and its subsidiaries (as described in Note 1 to these consolidated financial statements) for the year ended December 31, 1994, in conformity with generally accepted accounting principles, These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan an perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management. And evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Day International, Inc. for any period subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Cleveland, Ohio May 1, 1995
DAY INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF INCOME
The accompanying notes are an integral part of these financial statements.
DAY INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
DAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
l. Basis of Preparation and Significant Accounting Policies
(a) Basis of presentation and nature of operations
Day International, Inc. ("Day") is a designer and manufacturer of precision engineered rubber components for the printing and textile industries. Day's printing components division is a designer, manufacturer and marketer of high-quality printing blankets used in the offset printing industry. Day's textile components division is a manufacturer and marketer of precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. Sales are made through Day's organization, distributors and representatives.
The consolidated financial statements of Day represent a combination of the accounts of Day's U.S. operations; Day International (U.K.) Limited; Day International France S.A.R.L; Day International GmbH; Day International de Mexico, S.A. de C.V.; Day International Pty. Limited and the printing and textile division of Day International (Canada) Limited Collectively, these entities are wholly-owned subsidiaries of M.A. Hanna Company ("Hanna").
All significant intercompany transactions have been eliminated in consolidation.
(b) Significant accounting policies
Inventories
Inventories are states at the lower of cost or market, cost being determined on the first-in, first-out (FIFO) method.
Depreciation
Depreciation is computed principally by the straight-line method at rates sufficient to depreciate the cost of the assets over their estimated productive lives. Buildings and machinery and equipment are depreciated over 25 years and between 5 and 10 years, respectively.
Goodwill and Other Intangibles
Goodwill and other intangibles are being amortized using the straight-line method over 40 years for goodwill and trademarks and nine years for patents and other intangibles.
Income Taxes
The tax provision for Day has been determined on a separate return basis.
Foreign Currency Translation
The functional currency is the local currency of Day's respective international subsidiaries. Foreign currency revenues and expenses are translated at the average exchange rate for the period. Foreign currency translation gains and losses are recorded in the accumulated translation adjustment account.
Revenue Recognition
Day recognizes revenue and reserves for product returns, based upon historical experience, when product is shipped. Sales returns are accounted for as a reduction to sales and an increase in the reserves.
2. SUBSEQUENT EVENT
In April 1995, Hanna announced it had entered into an agreement to sell its printing and textile business to American Industrial partners ("AIP"). The agreement is contingent upon AIP securing financing and regulatory and other approvals. Hanna expects that this transaction will close in June 1995. These financial statements represent Day's historic accounts and do not include any adjustments that may be required by AIP connection with their purchase.
3. INCOME TAXES
The provision for income taxes consists of the following:
Day is included in the consolidated U.S. tax return of Hanna. Consolidated current and deferred income tax expense was allocated to Day as if Day filed tax returns on a separate return basis.
The provision for income taxes differs from the amount computed by applying the U.S. statutory federal income tax rate as follows:
4. BUSINESS SEGMENTS
The Company operates in one business segment - highly engineered, precisely gauged polymer/fabric composite products - due to similarities in the design, manufacturing, sales and management processes for the printing and textile components of the business. Net sales by product line for the year ended December 31, 1994 are as follows:
Net sales and operating income by geographic area for 1994 are as follows:
Interarea sales are generally priced to recover cost plus an appropriate mark-up for profit.
5. RELATED PARTY TRANSACTIONS
Direct expenses incurred by Hanna on behalf of Day, including legal costs and insurance premiums, have been charged to Day based on the fair value of the services performed. No allocation of Hanna's general corporate costs have been reflected in these consolidated financial statements since Day is managed as a stand-alone business , and management believes that any such amounts would not be material to Day's results of operations. While management believes that this is a reasonable method, the amounts that would have been or will be incurred on a separate company basis could differ from the estimated amounts due to economics of scale realized by Day and differences in management techniques and organization.
In 1994, Day purchased compounded rubber products from Hanna affiliates in the amount of $1,162,000.
6. PENSION AND OTHER POSTRETIREMENT BENEFITS
Day has non-contributory defined benefit plans covering certain associates at Day International (U.K.) Limited and Day International GmbH. Benefits for these plans are based primarily on years of service and qualifying compensation during the final years of employment. Plan assets include marketable equity securities. Day's funding policy complies with the requirements of local laws and regulations.
Day also sponsors defined contribution plans for certain of its associates, which provide for company contributions of a specified percentage of each associate's total compensation.
A summary of the components of net periodic pension cost for the defined contribution plans follows:
In addition to providing pension benefits, Day provides certain contributory health care and life insurance benefits for retired U.S. associates. Associates of the U.S. company may become eligible for these postretirement benefits if they retire on or after age 55 with at least ten years of service.
Net periodic postretirement benefit cost includes the following components:
The weighted-average assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 12.0% and decreasing gradually to 6.25% in 2007 and remaining at the level thereafter. A one percentage point increase in the assumed health care cost trend rate would have increased the aggregate service and interest costs components of net periodic postretirement benefit costs for 1994 by $136,000.
7. LEASE COMMITMENTS
Rental expense under operating leases for certain warehouses, transportation equipment and office equipment was $723,000 in 1994. Certain of Day's leases have options to renew, and there are no significant contingent rentals.
At December 31, 1994, future minimum lease commitments for noncancelable operating leases are:
8. CONTINGENCIES
In 1988, Cadillac Plastics Group ("Day's Parent") entered into a consent decree, to which Day was not a party, with the Michigan Department of Natural Resources with respect to certain groundwater contamination conditions at Day's Three Rivers facility. The decree requires Day's Parent to continue to operate a groundwater extraction and treatment system for seven to ten years, at an approximate cost of $100,000 per year. In addition, claims have been made against Day for other environmental matters including being names as one of many "potentially responsible parties" under the "Superfund" statutes. Independent environmental consultants have assessed the environmental matters. Based upon this assessment and management's best estimate of the liability associated with these matters, Day has accrued $1.2 million. In management's opinion, the aforementioned claims will be resolved without a material adverse effect on the results of operations, financial position or cash flows of Day. Day's Parent and Hanna have agreed to indemnify Day for certain of the costs associated with these matters.
9. OTHER INCOME - NET
Other income -- net includes the following:
10. SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS
As described in Note 2, in April 1995, Hanna entered into an agreement to sell the Company to AIP. The acquisition will be financed through equity, term and revolving credit facilities and senior subordinated debt (the "Notes"). In connection with the Acquisition, the Company will have no assets or operations other than its investment in the Company) and will provide a full and unconditional guarantee of the Notes. The wholly-owned foreign subsidiaries of the Company will not be guarantors with respect to the Notes and are not anticipated to have any credit arrangements senior to the Notes except for an anticipated $6 million borrowing by the U.K. subsidiary under the Credit Agreement. All of the assets of Company 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. The following are the supplemental combining statement of income and cash flows for the year ended December 31, 1994. A separate complete financial statement of the Company is not presented because management has determined it is not material to the investors.
Day International, Inc. Supplemental Combining Condensed Statement of Operations For the year ended December 31,1994
Day International, Inc. Supplemental Combining Condensed Statement of Cash Flows Year Ended December 31, 1994
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages (as of March 21, 1997) and a brief account of the business experience of each person who is a director or executive officer of the Company and the Guarantor. Each person holds the same position at the Company and the Guarantor.
Dennis R. Wolters was named President of the Company in June 1990. Previously, he was President of Printing from 1989 to June 1990, Executive Vice President of Printing from 1986 to 1989 and Director of Business Development from 1983 to 1986.
John R. Elia was named Vice President of Operations for Printing in 1995 - Mr. Elia also heads the quality improvement process and was the technical leader on ISO 9000 certification. From 1992 to 1995 he was Vice President of Manufacturing for Printing. Mr. Elia was director of Textile Manufacturing from 1990 until 1992.
David B. Freimuth was named Vice President and Chief Financial Officer in 1995. He was named Controller of the Company in 1987 and since that time he has been responsible for all accounting functions for the domestic and international operations of the Company.
Bumell R. Roberts is the former Chairman and Chief Executive Officer of The Mead Corporation ("Mead"), a paper products company. He was named President of Mead in 1981 and served as Chairman and Chief Executive Officer from 1982 until 1992. From 1992 until 1993, Mr. Roberts served as a director of Mead. Mr. Roberts joined American Industrial Partners ("Partners") in 1993, and is (i) a limited partner of American Industrial Partners, L.P. ("AIP-LP"), the general partner of AIP I, (ii) a limited partner of American Industrial Partners II, L.P. ("AIPII-LP"), the general partner of AIP II, (iii) a stockholder of American Industrial Partners Management Company, Inc. ("AIPMC"), the ultimate general partner of AIP I, and (iv) a stockholder of American Industrial Partners Corporation ("AIPCorp."),
the ultimate general partner of AIP II. Mr. Roberts is also a director of Armco Inc. ("Armco"), Perkin- Elmer Corp., Sweetheart Holdings Inc. ("Sweetheart"), DPL Inc., Universal Protective Packaging, Inc. and Rayonier, Inc.
W. Richard Bingham co-founded Partners and has been a director and officer of the firm since 1989. He is also a general partner and a limited partner of AIP-LP, a limited partner of AIPII-LP, and a stockholder, officer and director of AIPMC and AIP Corp. Prior to co-founding Partners, Mr. Bingham was a Managing Director of Shearson Lehman Brothers Inc. from 1984 until late 1987. Prior to joining Shearson Lehman Brothers, Mr. Bingham was Director of the Corporate Finance Department, member of the Board, and, most recently, head of Mergers and Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he directed investment banking operations at Kuhn Loeb & Company where he was a Partner and member of the Board and Executive Committee. Mr. Bingham is also a director of Sweetheart, Easco Corporation ("Easco") and RBX Corporation ("RBX"). He formerly served on the boards of Avis, Inc., ITT Life Insurance Corporation and Valero Energy Corporation.
Theodore C. Rogers co-founded Partners and has been a director and officer of the firm since 1989. He is also a general partner and a limited partner of AIP-LP, a limited partner of AIPII-LP, and a stockholder, officer and director of AIPMC and AIPCorp. From 1980 to 1987, he served as Chairman, President and Chief Executive Officer of NL Industries, Inc., a petroleum service and chemical company. Mr. Rogers is a former director of Allied Stores Corporation, Allied-Signal Inc., Parsons Corporation, MCorp and Southwest Bancshares Inc. He is currently a director of Easco, Sweetheart, RBX and Derby International.
Lawrence W. Ward, Jr. has been an employee of Partners since 1992. From 1989 to 1992, he was Vice President and Chief Financial Officer of Plantronics, Inc., a telecommunications equipment company, and from 1980 to 1989, he held several investment banking positions at Kidder, Peabody & Co., Incorporated, including Senior Vice President. Mr. Ward is currently a director of Easco and RBX.
Robert L. Purdum retired as Chairman of Armco in 1994. From November 1990 to 1993, Mr. Purdum was Chairman and Chief Executive Officer of Armco. Mr. Purdum has been a director of Partners since joining the firm in 1994 and is a limited partner of AIP-LP and AIPII-LP and a stockholder of AIPMC and AIPCorp. Mr. Purdum is also a director of Holophane Corporation, Berlitz International, Inc. and GMI Engineering & Management Institute, Inc.
Directors do not receive compensation for their services as directors, with the exception of the Chairman of the Board, who receives $100,000 per year.
EMPLOYMENT AGREEMENTS
Mr. Wolters is a party to a three-year employment agreement with Day International, Inc., and various members of management are party to two-year employment agreements with the Guarantor. Each associate who is subject to an employment agreement received a sales fulfillment incentive fee upon the consummation of the Acquisition. Mr. Wolters' incentive fee was two times his base salary, while the other managers' incentive fees were equal to their respective base salaries, in both cases adjusted up or down according to the purchase price of the Acquisition. Subject to certain exceptions, in the event any such executive is terminated by the Guarantor, each employment agreement provides that the executive is entitled to a lump sum equal to the greater of (i) such executive's total base compensation and minimum incentive bonus compensation payable from the date of termination to the last day of the executive's respective employment period or (ii) 150% of the sum of the executive's annual base compensation and minimum annual incentive bonus compensation.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for 1996 for Mr. Wolters and the other executive officers of the Company.
The following table sets forth information concerning the compensation for 1995 for Mr. Wolters and the three other officers of the Company.
The following table sets forth information concerning the options/stock appreciation rights granted in 1995 for Mr. Wolters and the other executive officers of the Company.
(a) The options vest nine years from date of grant, however, vesting is accelerated if the Company achieves certain performance objectives. (b) The grant date present value calculated using Black-Scholes pricing model.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 21, 1997, there were 34 holders of record of shares of Common Stock. The following table sets forth certain information regarding beneficial ownership of Common Stock as of March 21, 1997, assuming the exercise of options exercisable within 60 days of the date hereof, by (i) each person who is known by the Company to be the beneficial owner of more than 5% of the Common Stock, (ii) each of the Company's directors and the named executives in the Summary Compensation Table and (iv) all directors and executive officers as a group. To the knowledge of the Company, each stockholder has sole voting and investment power as to the shares shown unless otherwise noted.
* Represents less than 1% (1) Based upon 51,555.5 shares of Common Stock outstanding. (2) The address of AIP I and AIP II is One Maritime Plaza, Suite 2475, San Francisco, CA 94111. (3) 32,500 of such shares are held of record by AIP I, and 17,500 of such shares are held of record by AIP II. Messrs. Bingham and Rogers are general partners of AIP-LP (the general partner of AIP I) and shareholders of AIPMC (the general partner of AIP-LP) and AIPCorp. (the general partner of AIPII-LP, which in turn is the general partner of AIP II) and therefore share investment and voting power with respect to the securities owned by AIP I and AIP II, but each disclaim beneficial ownership of any shares of Common Stock of the Company. The business address of Mr. Bingham is One Maritime Plaza, Suite 2525, San Francisco, CA 94111, and the business address of Mr. Rogers is 551 Fifth Avenue, Suite 3800, New York, NY 10176.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with a management services agreement, the Company is required to pay American Industrial Partners, an affiliate of the controlling shareholders of Day, an annual management fee of $800,000, plus expenses, payable semi-annually. The agreement expires in June, 2005 or if there is a change in control of the Company.
All stockholders have entered into a Stockholders Agreement which provides for the election of directors and restrictions on the sale or transfer of the common stock of the Company.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and its subsidiaries are incorporated by reference as part of this Report at Item 8 hereof.
DAY INTERNATIONAL GROUP, INC. Year ended December 31, 1996 and the period from June 7, 1995 through December 31, 1995:
Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
DAY INTERNATIONAL, INC. Period from January 1.1995 through June 6, 1995:
Independent Auditors' Report Consolidated Balance Sheet Consolidated Statement of Operations Consolidated Statement of Stockholders' Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements
Year ended December 31, 1994:
Independent Accountants' Report Consolidated Statement of Income Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Year ended December 31 , 1996 and periods ended June 6, 1995 and December 31, 1995: Independent Auditors' Report - At pages 22 and 44 of this Report. Schedule II - Valuation and Qualifying accounts (At page 77 of this Report).
Year ended December 31, 1994: Independent Accountants' Report - At page 78 of this Report. Schedule II - Valuation and Qualifying accounts (At page 79 of this Report).
The information required to be submitted in Schedules I, III, IV and V for Day International Group, Inc. and consolidated subsidiaries has either been shown in the financial statements or notes, or is not applicable or required under Regulation S-X, and, therefore, those schedules have been omitted.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the quarter ended December 31, 1996.
(c) EXHIBITS. SEE INDEX TO EXHIBITS
(d) SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report covering the Company's last fiscal year, and no proxy statement, form of proxy or other proxy soliciting material, has been sent to security holders of the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Day International Group, Inc. has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Day International Group, Inc. (Registrant) Date: March 24, 1997 By: /s/ Dennis R Wolters ------------------------- Dennis R. Wolters President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Day International Group, Inc. and in the capacities and on the dates indicated.
Date: March 24, 1997 By: /s/ Dennis R Wolters ------------------------- Dennis R. Wolters President, Chief Executive Officer and Director (Principal Executive Officer)
Date: March 24, 1997 By: /s/ David B. Freimuth ------------------------- David B. Freimuth Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Date: March 24, 1997 By: /s/ Burnell P. Roberts ------------------------- Burnell P. Roberts Director
Date: March 24, 1997 By: /s/ W. Richard Bingham ------------------------- W. Richard Bingham Director
Date: March 24, 1997 By: /s/ Theodore C. Rogers ------------------------- Theodore C. Rogers Director
Date: March 24, 1997 By: /s/ Lawrence W. Ward, Jr. ------------------------- Lawrence W. Ward, Jr. Director
Date: March 24, 1997 By: /s/ Robert L. Purdum ------------------------- Robert L. Purdum Director
DAY INTERNATIONAL GROUP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
Report of Independent Accountants --------------------------------- on Financial Statement Schedule -------------------------------
To the Board of Directors and Stockholder of Day International, Inc.
Our audit of the consolidated financial statements of Day International, Inc. and its subsidiaries referred to in our report dated May 1, 1995 appearing on page 59 of this Annual Report on Form 10-K also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule of Day International, Inc. and its subsidiaries presents fairly, in all material respects, the information set forth therein as of December 31, 1994 and for the year then ended when read in conjunction with the related consolidated financial statements. We have not audited the consolidated financial statements of Day International, Inc. for any period subsequent to December 31, 1994.
Price Waterhouse LLP
Cleveland, Ohio May 1, 1995
DAY INTERNATIONAL, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
* Incorporated by reference to the Group's Registration Statement on Form S-4 (Reg. No.33-93644).
** Incorporated by reference to the Group's Form 10K for the period ended December 31, 1995.
*** Incorporated by reference to the Group's Form 10Q for the quarterly period ended June 30, 1996.