-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ru/30UqV5BBvUm/SIPkGmQRnAVINuBIrsnhNBmj9H8bXPDwaT888q9UKW5SIa6aN s1itUSGD5o7oBAsIMfk8Ig== 0000950152-07-002943.txt : 20070402 0000950152-07-002943.hdr.sgml : 20070402 20070402173157 ACCESSION NUMBER: 0000950152-07-002943 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070402 DATE AS OF CHANGE: 20070402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAY INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0000946991 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 311436349 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-93644 FILM NUMBER: 07740785 BUSINESS ADDRESS: STREET 1: 130 WEST SECOND ST CITY: DAYTON STATE: OH ZIP: 45402 BUSINESS PHONE: 9372244000 MAIL ADDRESS: STREET 1: PO BOX 338 CITY: DAYTON STATE: OH ZIP: 45401 10-K 1 l24223ae10vk.htm DAY INTERNATIONAL GROUP, INC. 10-K Day International Group, Inc. 10-K
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year ended December 31, 2006
Commission File No. 333-51839
DAY INTERNATIONAL GROUP, INC.
130 West Second Street
Dayton, Ohio 45402
(937) 224-4000
State of Incorporation: Delaware
IRS Employer Identification No.: 31-1436349
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer þ
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o   No þ
         
At the close of business on March 1, 2007:
        
Number of shares of common stock outstanding
     24,823  
Aggregate market value of the Company’s voting and non-voting common stock held by non-affiliates
   $ 0  
DOCUMENTS INCORPORATED BY REFERENCE – None
 
 

 

Table of Contents

Except as otherwise stated or unless the context otherwise requires, references to the “Company” or “Day” include Day International Group, Inc., a Delaware corporation that is the Registrant, and each of its subsidiaries. The Company’s address is P.O. Box 338, 130 West Second Street, Dayton, Ohio 45401-0338, and its telephone number is (937) 224-4000. The Company’s periodic reports filed with the Securities and Exchange Commission (“SEC”) are available at the SEC’s website (www.sec.gov).
Except as otherwise stated, the information contained in this report is given as of December 31, 2006, the end of the Company’s latest fiscal year.
Safe Harbor Statement; Industry Data
This Annual Report contains forward-looking statements within the meaning of the Securities Act of 1933. These are subject to certain risks and uncertainties, including those identified below, which could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. The words “believe,” “anticipate,” “expect,” “intend,” “will likely result,” “will continue,” and similar expressions identify forward-looking statements.
Factors that could cause actual results to differ materially from the forward-looking statements include but are not limited to (i) the effect of leverage, including the limitations imposed by the Company’s various debt instruments; (ii) risks related to significant operations in international countries, including the translation of operating results to the U.S. dollar; (iii) the timely development and market acceptance of new products; (iv) the effect of competitive products and pricing; (v) the effect of changing general and industry specific economic conditions; (vi) the effect of environmental regulations; and (vii) the potential for technology obsolescence.
While made in good faith and with a reasonable basis based on information currently available to the Company’s management, there is no assurance that any such forward-looking statements will be achieved or accomplished. The Company is under no obligation to update any forward-looking statements to the extent it becomes aware that they are not achieved or likely to be achieved for any reason.
Market data used throughout this report was obtained from internal company surveys and industry publications. Industry publications generally indicate that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. The Company has not independently verified any of such market data. Similarly, internal company surveys, while believed by the Company to be reliable, have not been verified by any independent sources.

2

TABLE OF CONTENTS

PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Part IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Signatures
INDEX TO EXHIBITS
EX-10.20
EX-21
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Table of Contents

PART I
ITEM 1. BUSINESS
Company Background
The Company is one of the world’s leading producers of precision-engineered products, specializing in the design and customization of consumable image-transfer products for the graphic arts (printing) industry. The Company consists of the Transfer Media division, the Chemical Products division and the Flexographic Products division. The Transfer Media division is the world’s largest designer, manufacturer and marketer of high-quality printing blankets and sleeves for use in offset printing and a leading designer and manufacturer of consumable sleeves for digital press applications. The Company estimates that in 2006 it had the number one market share in offset-printing blankets and sleeves in North America and worldwide. The Chemical Products division is a leading worldwide supplier of pressroom chemicals to the printing industry. The Flexographic Products division is one of the world’s largest manufacturers and marketers of sleeves for use in flexographic printing.
As a result of the acquisition of Network Distribution International (“NDI”) on November 24, 2003, the Company is the largest converter of offset blankets in the United States and is a leading distributor of a broad range of pressroom chemicals and various ancillary products used in the pressroom. On October 12, 2006, the Company completed its acquisition of the stock of Duco Holdings Limited (“Duco International”). Duco International, headquartered in the UK, is a printing blanket manufacturer with facilities in Slough and Swindon, England. The Company’s global distribution covers five continents with its most significant presence outside North America in Europe, Asia Pacific and India.
Prior to June 30, 2006, the Company operated a Textile Products segment that manufactured and marketed precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. On June 30, 2006, Day sold 100% of its Textile Products Group to certain affiliates of Saurer, AG.
Affiliates of GSC Group and Cowen Investments I, LLC own substantially all of the common stock of the Company, with the Company’s management holding the balance of the common stock.
See the Notes to the Consolidated Financial Statements for more information on business segments and geographic areas.
Company Description
The Company specializes in selling consumable products to the graphic arts (printing) industry, primarily those used in offset printing. Offset is the primary printing process for long-run, high-speed applications, such as the printing of magazines, annual reports, catalogs, direct mail and newspapers. Flexographic and digital printing processes are currently used primarily in short-run, lower speed applications, such as for printing brochures and packaging material. The Company believes that applications for image transfer products within flexographic and digital printing processes will increase significantly and that advances in digital technologies will complement offset printing processes and will provide additional opportunities for consumable products. The Company manufactures certain consumables for the digital printing market and, in conjunction with the original equipment manufacturers (“OEMs”), continues to develop additional products such as blankets, sleeves and belts

3

Table of Contents

for new printing machine technologies. Due to the large number of offset printing presses installed and the relative cost-effectiveness of the offset printing process, management expects that the offset process will continue to be the method of choice for long high-quality low-cost runs. Products designed for use in offset printing generate the majority of the sales of Image Transfer.
Transfer Media
Offset printing blankets are highly engineered products manufactured to narrow tolerances and precise specifications. They are composed of multiple layers of fabric, rubber and adhesives that determine performance features of the printing press and overall quality of the printing job. Offset printing sleeves are highly engineered “tubular” blankets that operate at speeds 20% to 30% faster than those of standard presses. Blankets and sleeves accept ink from cylindrical printing plates and transfer it to a broad range of paper stocks and other substrates. Blankets and sleeves are a major determinant of the quality of the image resolution and consistency of the printed material, as they are required to perform consistently over a broad range of press speeds and printing pressures with a wide variety of papers, inks and other chemicals. Blankets and sleeves are consumable and are replaced at regular intervals depending on the process used and printing requirements. Due to the importance of blankets and sleeves in determining the overall quality of the printing job, and because their cost typically represents less than 1% of the cost of the printed page, price is only one of the factors in the end-user’s purchase decision.
Chemical Products
Chemical Products manufactures over 100 different pressroom chemicals, which can be classified into the following categories: (i) roller and blanket washes, which are used to remove ink and glaze from the surface of the rollers and blankets on the printing press; (ii) fountain solutions, which are used to prevent ink from migrating to non-print areas of the printing plate; (iii) anti-setoff powders, which are used by sheet fed and letter press printers to prevent ink from transferring from the top of one sheet to the bottom of the next; (iv) lithographic chemicals and specialties; (v) silicones, which are used in heatset web offset to provide support in certain printing processes; and (vi) coatings. Chemical Products’ products can be grouped into standard and custom products. Product lines are formulated to meet specific customer requirements. For example, high volume printing operations, such as major daily newspapers and commercial heatset web, often require custom fountain solutions.
Flexographic Products
The Company manufactures products for flexographic printing including fiberglass-based plate mounting sleeves, bridge mandrels, sleeves for coating applications, ready-to-image products and various support products. The Company’s traditional flexographic sleeves are constructed with a unique compressible technology that allows for greater flexibility in the printing of packaging materials, such as plastic or cardboard. In addition, the compressible sleeve offers the flexographic printer significant time and cost improvements over the traditional method of affixing a photopolymer plate to the metal cylinder.
Products
The Company manufactures a full line of high-quality, name brand printing blankets and sleeves to both web-fed (continuous roll) and sheet-fed (individual sheet) offset printers under the “Day,” “David M,” “Duco”, and “IPT” brands. In addition, through NDI, it offers certain name-brand blankets produced by competitors. The Company’s printing blankets and sleeves are used to print magazines, advertising

4

Table of Contents

material, business forms, packaging, newspapers and other printed material. As a result of the superior quality, reliability and value of the Company’s printing blankets and sleeves and its customer service, the Company is able to command premium prices for its products.
The Company’s leading printing blankets are the 9500 dayGraphica®, 4000 dayGraphica®, 3000 Patriot®, Durazone®, 3610 dayGraphica®, 8500 AccuDot®, QuantaLith® Gold and QuantaLith® Blue lines, which produce high-quality images, particularly on high-speed printing presses. The Company is the sole manufacturer of tubular, seamless printing sleeves for use on Goss International Corporation’s (formerly Heidelberg Web Systems) “gapless” web offset presses.
The Company produces consumable products for digital printing presses. Sales of these products are expected to grow as digital printing presses that utilize these products are sold. The Company is evaluating the production of other prototypes for new short-run color printing processes in conjunction with leading OEMs.
Transfer Media also manufactures and sells two lines of specialty products consisting of (i) pre-inked porous rolls for use in business machines, automated bank teller machines, ticket machines and credit card imprinters and (ii) cast urethane mats used by the box board corrugating industry as a backing material in cutting operations. The Company also sells printing accessories such as cylinder packing papers and aluminum bars for mounting blankets onto press cylinders. In addition, the Company sells custom rubber compounds for wire coating in Europe.
Chemical Products has developed products that speed wash-up, color changes and blanket and roller maintenance. All are formulated to reduce downtime and improve productivity. Roller and blanket washes are used to remove ink and glaze from the surface of the rollers and blankets on the printing press. Chemical Products makes over 25 washes, grouped into five different categories: premium, environmental, general purpose, fast drying and specialty. Chemical Products is a market leader in the area of environmentally friendly washes.
Chemical Products has created a family of fountain solutions, which are used to prevent ink from migrating to non-print areas of the printing plate, to cover all requirements from high-speed web printing presses down to small offset duplicating printing presses. The fountain solutions and fountain additives are adjusted for water condition and properly balanced and fortified to improve print quality and press productivity. Chemical Products has created a line of alcohol-free fountain solutions formulated to eliminate the use of isopropyl alcohol from the process, thus improving the pressroom environment.
Antisetoff powders are used extensively by sheetfed, offset and letterpress printers to prevent ink from transferring from the top of one sheet to the bottom of the next. Chemical Products offers an extensive range of silicone and conventional antisetoff powders to meet all industry requirements.
Lithographic chemicals and specialties include a wide range of products (including deglazers, additives, plate cleaners, aerosols) formulated to meet the evolving needs of the printing industry.
Silicones are used in heatset web offset printing to provide slip to the sheet as it passes over the former board. Chemical Products offers an extensive line of conventional silicones, as well as new technology silicones. The company also sells pre-press chemistry, defoamers and graffiti cleaners in Europe.

5

Table of Contents

Flexographic Products manufactures a wide array of sleeves used in the flexographic printing process under the Rotec name. Rotec gained industry prominence in 1993 with the introduction of the compressible sleeve, a product innovation enabling flexographic printers to achieve higher levels of print quality. The base technology for the flexographic sleeve has the potential for use in other printing segments as well (e.g., gravure and offset), which may expand the market segments for sleeve technology. The Company has entered into an exclusive agreement with E. I. du Pont de Nemours and Company to develop and manufacture an “in-the-round” sleeve under the Cyrel® brand name for flexographic presses. The Company manufactures sleeves with a seamless photopolymer plate using DuPont’s proprietary Cyrel photopolymer technology.
Sales and Distribution
The Company has adopted an integrated approach to product development, marketing, sales and distribution. The Company’s sales professionals, located throughout the world, develop and cultivate strong customer relationships and possess superior technical expertise. In certain regions, independent sales representatives and distributors complement the Company’s sales force.
The Company’s sales force calls directly on end-users and promotes the quality and technical features of the Company’s products to pressroom foremen, purchasing agents, plant managers and press operators. Depending on the market and product, the end-users can then order directly from the Company or through authorized converters or dealers. Image Transfer distributes a majority of its products through its own converting operation (NDI) as well as through a large network of independent converters, who buy and cut printing blanket rolls to customized orders and dealers and sub-dealers who buy finished products, store inventory and hold receivables. Converters are value-added dealers who typically purchase rolls of uncut printing blankets from the Company and then cut, finish and package the blankets for sale to dealers or end-users. The Company believes that it has one of the most effective networks of converters and dealers in the industry. While the Company distributes a substantial portion of its products directly to end-users, the sales force supports and works closely with independent converters and dealers through joint calling efforts on end-users and training programs. In addition, sales and technical associates work directly with large end-users to identify the printing blankets and sleeves that best suit a printer’s particular needs and to formulate solutions to complex printing problems. NDI distributes products manufactured by the Company, as well as other blanket manufacturers.
Raw Materials
Rubber polymers are a key component in most of the products of Transfer Media. The Chemical Products division purchases approximately 200 different raw materials from a variety of key national suppliers, and holds supply agreements with many of them. However, no single supplier accounts for more than 10% of total raw material costs. The largest raw material component for Chemical Products is petroleum distillates, such as aliphatics and aromatics. Raw material purchases accounted for approximately 50% of cost of goods sold for the Company’s products during 2006, 2005 and 2004. Various fabrics and rubber represented approximately 30% of all raw materials purchased in each of 2006, 2005 and 2004. The Company has developed contingency plans to address supply line disruptions, including identifying alternative sources and maintaining a safety stock of critical raw materials.
The Company is exposed to fluctuations in petroleum prices on certain raw material costs and historically has been able to pass on price increases to customers.

6

Table of Contents

The Company purchases its raw material requirements from a number of suppliers on a purchase order basis, and the Company believes that there are sufficient sources of supply for the foreseeable future.
Research and Development
The research and development staff is focused on current product and process improvement efforts, as well as development of new consumables for future Image Transfer processes. The Company’s active patents have been important to its existing product line, and increased emphasis is being placed on new product technologies. Active efforts to obtain additional patents are underway on a variety of technologies, including certain process patents.
In addition to its extensive patent and trademark portfolio, the Company has a variety of working agreements with key partners. These agreements and other efforts with original equipment manufacturers may stimulate proprietary processes and additional patent applications. In 2004, Heidelberger Druckmaschinen AG sold their web offset press business to Goss International Corporation and their 50%-ownership in Nexpress Solutions LLC to Eastman Kodak Co. The Company has long-standing relationships with both of these companies and expects these relationships to continue.
Competition
The Company competes with a number of manufacturers in the graphics arts industry, with the main competitive factors being quality, performance, service and price. The Company competes with a number of manufacturers of offset printing blankets, including Reeves International, Incorporated (“Reeves”) acquired by Trellburg in 2006, Polyfibron Technologies, Inc. (“Polyfibron”), a subsidiary of MacDermid, and Kinyosha Printing Company, Ltd. Chemical Products competes with a number of manufacturers of pressroom chemicals, of which the principal competitors are Anchor Chemical Company, Rycoline, Inc. (acquired by Sun Chemical Corporation in 2004) and Printers’ Service (PRISCO). In the United States, NDI competes with several distributors, many of which are customers of the Company. Rotec’s principal competitors are Rossini S.p.A., Polywest Kunststofftechnik, and Axcyl Inc., a subsidiary of Polyfibron.
Some of the Company’s competitors may have greater financial and other resources than the Company and may consequently have more operating flexibility and a greater ability to expand production capacity and increase research and development expenditures.
International Operations
The Company’s principal international manufacturing facilities are located in Dundee, Scotland, Slough and Swindon, England (Transfer Media), Ahaus, Germany (Flexographic Products), Manchester, England (Chemical Products). In addition, the Company maintains facilities in Australia, Brazil, Czech Republic, China/Hong Kong, France, Germany, Italy, Malaysia, Mexico and Russia. The Company manufactures and markets its products worldwide through several international subsidiaries and independent agents.
Approximately 58% of the Company’s 2006 sales were derived from products sold to customers outside the United States, compared to 55% in 2005 and 52% in 2004. The U.S. dollar value of these revenues varies with currency exchange rate fluctuations, and the Company may be exposed to gains or losses

7

Table of Contents

based upon such fluctuations. The Company periodically enters into forward foreign exchange contracts to protect it against a portion of foreign exchange movements.
Environmental Matters
The Company’s facilities in the United States are subject to federal, state and local environmental laws and regulations, 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. International facilities are subject to their respective countries’ federal and local environmental requirements, as well as the environmental requirements promulgated by the European Union, where applicable. 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.
Based on environmental assessments conducted by independent environmental consultants, the Company believes that its operations are currently in compliance with environmental laws and regulations, except as would not be expected to have a material adverse effect on the Company. The Company’s operations involve the handling of toluene and other hazardous substances, and if a release of hazardous substances occurs on or from the Company’s facilities, the Company may be required to pay the cost of remedying any condition caused by such release, the amount of which could be material.
On July 11, 2002, the United States Environmental Protection Agency issued the proposed Maximum Achievable Control Technology (“MACT”) standard for the Printing source category. This MACT standard is applicable to sources located at the Company’s U.S. operations. The MACT requirements were placed into effect on March 15, 2003. The primary effect of this rule was to require implementation of additional air emission monitoring systems at the Company’s U.S. facilities. These rules required certain modifications to the plant facilities that totaled approximately $3.5 million for U.S. operations.
Associates
The Company currently employs approximately 1,372 full-time associates worldwide, of which approximately 694 are employed in the United States and Canada. The Company’s associates in Dundee, Scotland are represented by a labor union. In January 2007, the labor union in Dundee entered into a new three-year collective bargaining agreement with the Company, expiring on December 31, 2009. 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 employee relations to be good.

8

Table of Contents

ITEM 1A. RISK FACTORS
The risks described below are not the only risks facing our company. Additional risks not currently known or that we currently deem immaterial also may impair our business operations. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods because of the following factors, as well as other variables affecting our operating results.
Substantial Leverage and Debt Service Obligations: Our indebtedness could adversely affect our financial health, limit our ability to grow and compete and prevent us from fulfilling our obligations under our indebtedness.
We are highly leveraged. At December 31, 2006, our aggregate indebtedness is approximately $360 million, and the aggregate liquidation preference of our Exchangeable Preferred Stock is $55 million. In comparison our outstanding indebtedness as of December 31, 2005 was $399 million, with $49 million outstanding under the Exchangeable Preferred Stock.
The level of our indebtedness could have important consequences to holders of the Company’s securities. For example, it could:
  •   require us to dedicate a substantial portion of our cash flow from operations to payments on the debt, limiting available cash for other purposes, such as funding working capital, capital expenditures, dividends, research and development efforts and other general corporate purposes;
 
  •   limit our ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development or acquisitions;
 
  •   increase the amount of our interest expense, because certain of our borrowings are at variable rates of interest, which, if interest rates increase, would result in higher interest expense;
 
  •   increase our vulnerability to general adverse economic and industry conditions;
 
  •   limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
 
  •   restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities; and
 
  •   place us at a competitive disadvantage compared to our competitors that have less indebtedness.
Failing to comply with our debt covenants could result in an event of default which, if not cured or waived, could cause our lenders to initiate action to seek immediate repayment of our outstanding indebtedness. In these circumstances, we may not be able to refinance our indebtedness with other lenders and would not have the funds available to repay our indebtedness. Additionally, the operating and financial restrictions and covenants in our debt instruments, such as the credit agreement relating to the credit facility, may limit our ability to finance future operations or capital needs or engage in other business activities. These restrictions could place us at a disadvantage relative to competitors not subject to such limitations.

9

Table of Contents

Risks Associated with our Exchangeable Preferred Stock: Various restrictions in the New Credit Agreements limit our ability to pay cash dividends.
We have outstanding $55 million liquidation preference of 121/4% Senior Exchangeable Preferred Stock at December 31, 2006. All dividends are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. Although unpaid dividends through December 5, 2005 were paid, various restrictions in the New Credit Agreements limit our ability to pay cash dividends in the future. We do not anticipate that the restrictions on payment of cash dividends will change in the near term to allow future cash dividends to be paid.
Risks Associated with International Operations: Our substantial international operations subject us to risks inherent in non-U.S. activities, including political uncertainty, import and export limitations, exchange controls, unfavorable economic conditions outside of the United States, and currency fluctuations.
We manufacture and market our products worldwide. Our substantial worldwide operations are subject to risks inherent in international operations, including the following:
  •   agreements may be difficult to enforce and receivables difficult to collect through a foreign country’s legal system;
 
  •   foreign customers may have longer payment cycles;
 
  •   foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade or investment, including currency exchange controls;
 
  •   intellectual property rights may be more difficult to enforce in foreign countries;
 
  •   fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided by us in foreign markets where payment for our products and services is made in the local currency;
 
  •   general economic conditions in the countries in which we operate could have an adverse effect on our earnings from operations in those countries;
 
  •   our business and profitability in a particular country could be affected by political or economic repercussions on a domestic, country-specific or global level from terrorist activities and the response to such activities;
 
  •   unexpected adverse changes in foreign laws or regulatory requirements may occur, including with respect to export duties and quotas;
 
  •   compliance with a variety of foreign laws and regulations may be difficult;
 
  •   overlap of different tax structures may subject us to additional taxes; and
 
  •   significant increases in the value of the US dollar relative to foreign currencies could have an adverse effect on our ability to meet interest and principal obligations on US dollar-denominated debt.
We believe that the political and economic stability of the countries in which our largest international operations are located, the stand-alone nature of the operations, our limited net asset exposure, our forward foreign exchange contract practices and pricing flexibility help to mitigate risks related to our international operations. We also have approximately $68 million of our outstanding indebtedness denominated in Euros at December 31, 2006. We cannot be sure that any of the foregoing factors will not have a material adverse effect on our business, financial condition and results of operations.

10

Table of Contents

We are exposed to fluctuations in foreign exchange rates, which may adversely affect our operating results and net income.
Approximately 58% of our 2006 sales were derived from products sold outside the United States. The U.S. dollar value of these revenues varies with currency exchange rate fluctuations, and we may be exposed to gains or losses based upon these fluctuations.
Certain of our international subsidiaries make purchases and sales in designated currencies other than the U.S. dollar. 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. In addition, we have intercompany loans outstanding with certain international subsidiaries in their local currencies, exposing us to the effect of changes in exchange rates at loan issue and loan repayment dates.
We periodically enter into forward foreign exchange contracts to protect against foreign currency exchange movements. We have Euro-denominated debt to protect investments in Europe from fluctuations in the euro compared with the U.S. dollar. These strategies may not completely protect us from losses from these fluctuations.
Interest Rate Risks: We are subject to market risk from exposure to changes in the interest rates based on our financing activities.
We utilize a mix of debt maturities along with both fixed- and variable-rate debt to manage our exposure to changes in interest rates and to minimize interest expense. During 2005, we entered into an interest rate swap to swap a portion of our variable rate debt to fixed rates. During 2006 the Company unwound approximately $93 million of the swaps resulting in a cash gain of $5.9 million. In March 2007, The Company unwound the remaining swap and replaced it with an interest rate cap resulting in a cash gain of $0.6 million. We do not expect changes in interest rates to have a material effect on income or cash flows in 2007, although there can be no assurance that interest rates will not materially change.
Commodity Risks: Increases in costs or reductions in supplies of specialty and commodity products used in our manufacturing process could materially and adversely affect our operating results.
Rubber polymers and fabrics are key components in most of the products manufactured by the Company. We are exposed to changes in the costs of these components. Chemicals Products is exposed to changes in the cost of certain petroleum-based components. The largest raw material component in Chemical Products’ products is petroleum distillates. The availability and prices of raw materials may be subject to curtailment or change due to, among other things:
  •   new laws or regulations;
 
  •   suppliers’ allocations to other purchasers;
 
  •   interruptions in production by suppliers;
 
  •   changes in exchange rates; and
 
  •   worldwide price levels.
Our results of operations could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly. When commodity prices increase, we have historically passed on increases to our customers to maintain our profit margins. Conversely, when commodity prices decline, we generally lower sales prices to meet

11

Table of Contents

competitive pressures. We may not be able to raise sales prices to offset significantly higher costs in the future
Impact of Significant Competition: The competitive pressures we face could harm our sales and gross profit.
We encounter competition from varied competitors in all areas of our business, and our competitors may target our key markets. We compete primarily on the basis of quality, technology, performance, price, reliability, brand, reputation, distribution, range of products and services, and service and support levels. If our products, services, support and cost structure do not enable us to compete successfully based on any of those criteria, our operations, financial results and prospects could be harmed. Because our business model is based on providing innovative and high quality products, we may spend a proportionately greater amount on research and development than our competitors. Some of our competitors may have greater financial and other resources and consequently have more operating flexibility and a greater ability to expand production capacity and increase research and development expenditures.
Environmental Matters: Environmental and health and safety liabilities and requirements could require us to incur material costs.
We are subject to a broad range of Federal, state, local, and foreign environmental laws and regulations, 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.
We have incurred, and will continue to incur, significant costs and capital expenditures in complying with these laws and regulations. We could incur significant additional costs, including cleanup costs, fines and sanctions and third-party claims, as a result of past or future violations of or liabilities under environmental laws.
The nature of our operations and products, including the raw materials we handle, exposes us to the risk of liabilities or claims with respect to environmental cleanup and other matters, including those in connection with the disposal of hazardous materials. Our operations involve the handling of toluene and other hazardous substances. If a release of hazardous substances occurs on or from one of our facilities, we may be required to pay the cost of remediating the condition caused by the release, which could be material. The ultimate costs and timing of environmental liabilities are difficult to predict. Liability under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis, meaning that one liable party could be held responsible for all costs at a site, regardless of fault or the legality of the original disposal.
In addition, future events, such as changes in or more rigorous enforcement of environmental laws could require us to make additional expenditures, modify or curtail our operations and/or install pollution control equipment.
We believe that our operations are in compliance with environmental requirements. However, there can be no assurances that environmental requirements will not change in the future or that we will not incur significant costs in the future to comply with such requirements.

12

Table of Contents

Impact of Technological Change: We may be unable to respond effectively to technological changes in our industry, which could reduce the demand for our products and adversely affect our results of operations.
It is generally expected that the demand for flexographic and digital printing processes will grow rapidly and that they will be used for an increasing amount of printing jobs. If these other technologies develop so that they compete effectively with offset printing in the high-speed, long-run segment of the printing industry, and such technologies are widely adopted, the business of Image Transfer could be adversely affected.
Currently, nearly all of the Company’s sales are generated by product designed for use on offset, flexographic and digital presses. Our future business success will depend upon our ability to maintain and enhance our technological capabilities, develop and market products and applications that meet changing customer needs and successfully anticipate or respond to technological changes on a cost-effective and timely basis. Our inability to anticipate, respond to or utilize changing technologies could have an adverse effect on our business, financial condition or results of operations.
Recently enacted changes in the securities laws and regulations are likely to increase our costs.
The Sarbanes-Oxley Act of 2002 required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that Act, the Securities and Exchange Commission and the major stock exchanges have promulgated new rules on a variety of subjects. Compliance with these new rules has increased our legal and financial and accounting costs, and we expect these increased costs to continue indefinitely. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors or qualified executive officers.
Due to inherent limitations, there can be no assurance that our system of disclosure and internal controls and procedures will be successful in preventing all errors or fraud, or in informing management of all material information in a timely manner.
Our management, including our chief executive officer and chief financial officer, does not believe that our disclosure controls and internal controls and procedures can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system reflects that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur simply because of error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in

13

Table of Contents

conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
There are inherent uncertainties involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with US GAAP. Any changes in estimates, judgments and assumptions could have a material adverse effect on our business, financial position and results of operations.
The consolidated and condensed consolidated financial statements included in the periodic reports we file with the Securities and Exchange Commission are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in accordance with U.S. GAAP involves making estimates, judgments and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenues, expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes could result in corresponding changes to the amounts of assets, liabilities, revenues, expenses and income. Any such changes could have a material adverse effect on our financial position and results of operations.
Dependence on Key Personnel: We may be adversely affected if we lose the services of any member of our senior management team.
The success of our Company depends in large part on senior management and our ability to attract and retain other highly qualified management personnel. The loss of any member of the senior management team could have an adverse affect on us, depending on our ability to locate a suitable replacement either within or from outside Day International, in a timely and cost-effective manner. There can be no assurance that we will be successful in hiring or retaining key personnel.
Our production facilities are subject to operating hazards, the occurrence of which could have an adverse effect on our business, financial condition or results of operations and business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
We are dependent on the continued operation of our production facilities. These production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products, including pipeline leaks and ruptures, explosions, power shortages, telecommunications failures, water shortages, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, and environmental hazards, such as spills, discharges or releases of toxic or hazardous substances and gases, storage tank leaks and remediation complications.
Our worldwide operations could be subject to natural disasters, fires, inclement weather, earthquakes, tsunamis, floods, typhoons, other extreme weather conditions, medical epidemics and other natural or manmade disasters, for which we may not be insured or fully insured.
These hazards can cause personal injury and loss of life, severe damage to, or destruction of, property and equipment and environmental contamination and other environmental damage and could have an adverse effect on our business, financial condition or results of operations.

14

Table of Contents

We are exposed to intangible asset risk.
We have recorded intangible assets, including goodwill, in connection with business acquisitions. We are required to perform goodwill impairment tests at least on an annual basis and whenever events or circumstances indicate that the carrying value may not be recoverable from estimated future cash flows. As a result of our annual and other periodic evaluations, we may determine that the intangible asset values need to be written down to their fair values, which could result in material charges that could be adverse to our operating results and financial position.
Prolonged downturns of our customers’ industries and general economic uncertainty could adversely affect our sales and operating profit.
Our sales and operating profit depend significantly on general economic conditions and the demand for our products and services in the markets in which we compete. Economic weakness and constrained spending, as well as diminishing markets in many of our customers’ industries, may result in the future in decreased sales, gross margin, earnings or growth rates and problems with our ability to collect customer receivables. In addition, customer financial difficulties could result in increases in bad debt write-offs and additions to reserves in our receivables portfolio. Economic downturns could result in restructuring actions and associated expenses. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments. Delays or reductions in spending could have a material adverse effect on demand for our products and services, and consequently our results of operations.
We rely on patents, trademarks, and confidentiality agreements to protect our intellectual property. Our future performance and growth could be adversely affected if we fail to protect our intellectual property rights.
Our active patents have been important to our existing product line, and increased emphasis is being placed on new product technologies. Active efforts to obtain additional patents are underway on a variety of technologies, including certain process patents. Protection of our proprietary processes, methods and compounds and other technology is important to our business. Failure to protect our existing intellectual property rights may result in the loss of valuable technologies or having to pay other companies for infringing on their intellectual property rights. Some of our technologies are not covered by any patent or patent application, and we cannot assure you that any of our patents will not be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, we cannot assure you that any pending patent application filed by us will result in an issued patent, or if patents are issued to us, that those patents will provide meaningful protection against competitors or against competitive technologies. In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in some foreign countries.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

15

Table of Contents

ITEM 2. PROPERTIES
As noted below, the Company operates state-of-the-art, manufacturing facilities strategically located throughout the world. The Company believes that it has sufficient capacity at its manufacturing facilities to meet its production needs for the foreseeable future, and further believes that all its sales worldwide can be sourced through these facilities. A majority of the Company’s manufacturing facilities are ISO certified. The Company’s significant facilities are listed below:
                 
    Size   Owned/
Location   (Sq. Ft.)   Leased
Manufacturing:
                
Addison, Illinois
     38,600     Owned
Batavia, Illinois
     110,000     Leased
Asheville, North Carolina
     240,600     Owned
Houston, Texas
     64,000     Owned
Three Rivers, Michigan
     58,000     Owned
West Chester, Ohio (sold 12/31/06)
     14,500     Closed 2/25/06
Ahaus, Germany
     36,200     Owned
Chrastava, Czech Republic
     9,300     Owned
Dundee, Scotland
     184,300     Owned
Foshan, China
     19,000     Leased
Kuala Lumpur, Malaysia
     8,300     Leased
Manchester, England
     66,000     Owned
Melbourne, Australia
     28,700     Owned
Parana, Brazil
     10,800     Leased
Slough, England
     55,000     Leased
Swindon, England
     19,000     Leased
Warehouse/Converting:
                
Cleveland, Ohio
     37,800     Leased
Covington, Georgia
     8,100     Leased
Eagan, Minnesota
     10,500     Leased
Hanover, Massachusetts
     20,000     Leased
Little Elm, Texas
     16,200     Leased
City of Industry, California
     25,900     Leased
Nashville, Tennessee
     5,000     Leased
Rockland, Massachusetts
     26,700     Leased
Rochdale, England
     5,800     Leased
Lerma, Mexico
     15,900     Owned
Moscow, Russia
     1,000     Leased
Paris, France
     23,400     Leased
Reutlingen, Germany
     19,400     Leased
Swindon, England
     13,000     Leased
Sales Office:
                
Dayton, Ohio*
     13,800     Leased
Albavilla, Italy
     400     Leased
Hong Kong, China
     8,000     Leased
Tokyo, Japan
     600     Leased
 
*   Includes Corporate Office

16

Table of Contents

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 or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of March 1, 2007, there were 21 holders of record of shares of Common Stock. Sale or transfer of the Common Stock is subject to the terms of a Stockholders Agreement that 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. The New Credit Agreements limit the Company’s ability to make dividends, distributions and other restricted payments on the Common Stock.

17

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary financial data of the Company for each of the five fiscal years in the period ended December 31, 2006.
                                         
    2006   2005   2004   2003    
    (a)(c)   (a)   (a)   (a) (b)   2002
    (Dollars in thousands)
Statement of Operations Data:
                                        
Net sales
   $ 348,134     $ 310,242     $ 305,447     $ 231,611     $ 211,015  
Gross profit
     131,509       116,984       112,759       87,389       80,179  
Operating profit
     55,976       47,222       43,546       35,344       32,349  
Income (loss) from continuing operations before cumulative effect of change in accounting principle
     2,092       (9,884 )     (15,662 )     (12,097 )     2,192  
Cumulative effect of change in accounting principle
                                     616  
Net income of discontinued operations
     21,534       3,694       5,639       5,724       6,990  
Net income (loss)
     23,626       (6,190 )     (10,021 )     (6,373 )     9,798  
Net income (loss) available to common shareholders
     23,626       (6,190 )     (10,021 )     (16,041 )     (7,493 )
Other Financial Data:
                                        
Capital expenditures
   $ 10,921     $ 7,478     $ 10,433     $ 6,874     $ 8,264  
Depreciation
     10,708       10,782       10,501       9,309       8,197  
Amortization
     1,876       4,124       4,984       6,303       6,332  
Balance Sheet Data (at end of period):
                                        
Fixed assets, net of accumulated depreciation
   $ 72,843     $ 57,999     $ 61,674     $ 61,556     $ 60,228  
Total assets
     407,307       385,562       329,977       323,930       281,331  
Long-term and subordinated long-term debt (including current maturities)
     360,437       399,307       252,390       279,820       252,145  
Redeemable preferred stock
     55,342       48,657       169,805       146,649       126,646  
Stockholders’ equity (deficit)
     (113,635 )     (151,254 )     (136,018 )     (127,724 )     (119,450 )
 
(a)   Effective July 1, 2003, the Company adopted SFAS No. 150 and recorded dividends on the redeemable preferred stock as interest expense subsequent to adoption. Preferred stock dividends included in interest expense were $6,685 in 2006, $24,813 in 2005, $23,156 in 2004 and $10,336 for the period from July 1, 2003 through December 31, 2003.
 
(b)   The Company acquired NDI as of November 24, 2003. The statement of operations data includes the results of this acquisition from the date of acquisition.
 
(c)   The Company acquired Duco International as of October 12, 2006. The statement of operations data includes the results of this acquisition from the date of acquisition.

18

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following should be read in conjunction with “Selected Financial Data” and “Financial Statements and Supplementary Data” and notes thereto included elsewhere in this report.
     On October 12, 2006, Duco International was acquired. Its results of operations are included in the Company’s consolidated results of operations for the period subsequent to the acquisition. Accordingly, the results of operations for historical as well as future periods may not be comparable to prior periods.
                                                 
    Year Ended     Year Ended     Year Ended  
    December 31, 2006     December 31, 2005     December 31, 2004  
                    (Dollars in millions)                  
Net sales
   $ 348.1       100.0 %   $ 310.2       100.0 %   $ 305.4       100.0 %
Cost of goods sold
     216.6       62.2       193.2       62.3       192.6       63.1  
 
                                    
Gross profit
     131.5       37.8       117.0       37.7       112.8       36.9  
SG&A
     74.5       21.4       68.7       22.1       68.2       22.3  
Management fees and expenses
     1.0       0.3       1.0       0.3       1.0       0.3  
 
                                    
Operating profit
   $ 56.0       16.1 %   $ 47.3       15.3 %   $ 43.6       14.3 %
 
                                    
Comparison of Results of Operations
Year Ended December 31, 2006, compared to Year Ended December 31, 2005
Net sales increased $37.9 million (12.2%) to $348.1 million, primarily as a result of increased sales volume in Europe of $11.4 million, the effect of price increases in selected product lines, and the acquisition of Duco International, which added $7.4 million to sales. European and U.S. sales volumes also increased from growth of chemical products and transfer media products in Germany and flexographic products. Foreign currency rate changes used to translate international sales into U.S. dollars contributed $2.1 million to the increase in sales.
Gross profit increased $14.5 million (12.4%) to $131.5 million, primarily as a result of the increase in sales. The Duco acquisition added $2.8 million to gross profit. As a percentage of net sales, gross profit increased to 37.8% for 2006, compared to 37.7% for 2005.
Selling, general and administrative expense (“SG&A”) increased $5.8 million (8.4%) to $74.5 million, primarily as a result of the Duco acquisition and the increase in sales. As a percentage of net sales, SG&A decreased slightly to 21.4% from 22.1%. Included in SG&A is $1.0 million for consulting fees paid to three NDI former shareholders (the consulting agreement expired in 2006).
Operating profit increased $8.7 million (18.4%) to $56.0 million. As a percentage of net sales, operating profit increased to 16.1% for 2006, from 15.3% for 2005.
Other (income) expense was $7.2 million and $(0.5) million for 2006 and 2005. The other (income) expense is primarily due to foreign currency transaction (gains) losses incurred in the normal course of international subsidiaries conducting business in other than their functional currencies as well as a result of intercompany financing arrangements. Other (income)/expense includes losses of $7.0 million, in 2006,

19

Table of Contents

and gains of $3.1 million, in 2005, on the mark-to-market of the euro-denominated portion of the Term Loan. Also, included in other income is a $1.1 million gain on expired stock options.
Interest expense on long-term debt was $29.6 million and $31.2 million for 2006 and 2005. During the nine months ended September 30, 2006 the company unwound approximately $93.0 million of interest rate swaps resulting in a gain of $6.0 million. During the second quarter of 2006, the Company made a determination that the forecasted transaction for which the Company entered into interest rate swaps were probable of not occurring. As a result, the Company recognized into earnings the amount recorded in accumulated other comprehensive income. This gain is included in interest expense on long-term debt. Offsetting this gain is the increase in interest from the increased long term debt balances as a result of the December 2005 recapitalization, which replaced a large portion of preferred stock with long-term debt.
The effective tax rate on continuing operations was 82.5% and 11,593.02% in 2006 and 2005. The effective tax rate is affected by the non-deductible preferred stock dividends reflected as interest expense. Due to the redemption of the preferred stock in December 2005, the effective tax rate for December 31, 2006 is significantly lower.
During 2006 the Company completed sales of the Kompac and Textile Divisions. The results of the sale are classified in discontinued operations in the statement of operations and the condensed balance sheets. See Note R for financial information regarding the sale.
Year Ended December 31, 2005, compared to Year Ended December 31, 2004
Net sales increased $4.8 million (1.6%) to $310.2 million, primarily as a result of increased sales volume, and the effect of price increases in selected product lines.
Gross profit increased $4.2 million (3.6%) to $117.0 million. As a percentage of net sales, gross profit increased to 37.7% for 2005, compared to 36.9% for 2004. The improvement in gross profit as a percentage of sales is a result of improved manufacturing performances.
Selling, general and administrative expense (“SG&A”) increased $0.6 million (0.8%) to $68.7 million. As a percentage of net sales, SG&A decreased slightly to 22.1% from 22.3%. Included in SG&A is $1.0 million for consulting fees paid to three NDI former shareholders (the consulting agreement expired in 2006), and $0.7 million for the loss for the settlement of the U.K. pension plan that was suspended during 2004.
Operating profit increased $3.7 million (8.4%) to $47.2 million. As a percentage of net sales, operating profit increased to 15.3% for 2005, from 14.3% for 2004.
Other (income) expense was $(8.4) million and $(0.5) million for 2005 and 2004. The other (income) expense is primarily due to foreign currency transaction (gains) losses incurred in the normal course of international subsidiaries conducting business in other than their functional currencies as well as a result of intercompany financing arrangements. Other (income) expense includes a gain of $3.1 million in 2005 on the mark-to-market of the Euro Term Loan.

20

Table of Contents

The effective tax rate on continuing operations was 11,593.02% and (1,370.8%) in 2005 and 2004. The effective tax rate is affected by the non-deductible preferred stock dividends reflected as interest expense.
In 2004, the American Jobs Creation Act of 2004 (the “Jobs Act”) was enacted. The Jobs Act provides a deduction with respect to U.S. manufacturing activities, allows for tax-favored repatriation of offshore earnings and makes numerous changes to various tax rules. The Company’s ability to take advantage of certain provisions of the Jobs Act is limited because of the U.S. net operating loss carryforward position of the Company and because of various restrictions in the Company’s debt agreements. For these reasons, the Company does not believe that the Jobs Act will have a material effect on the Company’s tax expense or cash flows.
Risks Associated with International Operations
Certain of the Company’s international subsidiaries make purchases and sales in designated currencies other than their functional currency. 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. In addition, the Company has intercompany loans outstanding with certain international subsidiaries in their local currencies, exposing it to the effect of changes in exchange rates at loan issue and loan repayment dates. The Company periodically enters into forward foreign exchange contracts to protect it against such foreign exchange movements. The contract value of these foreign exchange contracts was $11.4 million and $14.2 million at December 31, 2006 and 2005. These contracts generally have terms of three to twelve months. At December 31, 2006 and 2005, the Company had outstanding €51.3 million ($67.7 million) and €59.6 million ($70.4 million) of term loans issued under the Senior Secured Credit Facility. The Company has issued euro-denominated debt in order to protect the Company’s investments in Europe from fluctuations in the euro compared to the U.S. dollar. Foreign currency gains (losses), included in other (expense) income, were $(8.4) million in 2006, $2.4 million in 2005 and $0.1 million in 2004. Based on the Company’s overall foreign currency exchange rate exposure at December 31, 2006, a 10% adverse change in foreign currency exchange rates would result in a hypothetical estimated loss in earnings of approximately $4.0 million. If the forward contracts and the euro-denominated term loan were aggregated with the Company’s other exposures, a 10% adverse change in foreign currency exchange rates would result in a hypothetical estimated loss in earnings of $0.8 million.
Interest Rate Exposure
The Company is subject to market risk from exposure to changes in the interest rates based on its financing activities. The Company utilizes a mix of debt maturities along with both fixed- and variable-rate debt to manage its exposure to changes in interest rates and to minimize interest expense. During 2005, the Company entered into $240 million and €45 million interest rate swaps to swap a portion of the Company’s variable rate debt to fixed rates. The swaps expire in December 2013 and 2012, respectively. During 2006 the Company unwound approximately $93 million of the swaps resulting in a cash gain of $6.0 million. In March 2007, The Company unwound the remaining swap and replaced it with an interest rate cap resulting in a cash gain of $0.6 million. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2007, although there can be no assurance that interest rates will not materially change.

21

Table of Contents

Commodity Exposure
Rubber polymers and fabrics are key components in most of the Image Transfer Media products. The Company is exposed to changes in the costs of these components. Chemical Products is exposed to changes in the cost of certain petroleum-based components. The largest raw material component in Chemical Products’ products is petroleum distillates, such as aliphatics and aromatics. When commodity prices increase, the Company has historically passed on increases to its customers to maintain its profit margins. Conversely, when commodity prices decline, the Company generally lowers its sales prices to meet competitive pressures. Because the Company has historically been able to raise sales prices to offset higher costs, management believes that a 10% change in the cost of its components could have a short-term effect until sales price increases take effect, but overall would not have a material effect on income or cash flows for a fiscal year.
Liquidity and Capital Resources
The Company has historically generated sufficient funds from its operations to fund its working capital and capital expenditure requirements.
The Company’s expenditures for plant, property and equipment were $10.9 million in 2006, $7.5 million in 2005 and $10.4 million in 2004. The Company believes that capital expenditures of $9.0 million to $12.0 million annually over the next several years will be sufficient to maintain its leading market position. The Company expects to fund these capital expenditures using cash flow from operations.
The Company will be required, subject to certain conditions, to redeem all of the Exchangeable Preferred Stock or the Exchange Debentures, as the case may be, on March 15, 2010. The Company may, at its option, redeem the Exchangeable Preferred Stock, in whole or in part, for cash, at 100.0%, together with all accumulated and unpaid dividends to the date of redemption. Upon the occurrence of a change in control, the Company would be required to make an offer within 30 days to purchase the Exchangeable Preferred Stock for cash, at a price equal to 101% of the liquidation preference or aggregate principal amount (as the case may be) thereof, together with, all accumulated and unpaid dividends to the date of purchase.
The Company does not have transactions, arrangements or relationships with special-purpose entities and the Company does not have any off-balance-sheet debt except as disclosed in the notes to the consolidated financial statements.
In 2001, the Company suspended its U.K. pension plan and settled the remaining obligation in 2005. The settlement required an additional contribution of approximately $2.9 million and resulted in a pre-tax settlement loss of approximately $0.7 million in 2005.
Environmental Expenditures
The Company has made, and will continue to make, expenditures to comply with current and future requirements of environmental laws and regulations. The Company estimates that in 2006 it spent $3.2 million in capital expenditures and related expense projects to comply with environmental requirements.
On July 11, 2002, the United States Environmental Protection Agency issued the proposed Maximum Achievable Control Technology (“MACT”) standard for the Printing source category. This MACT

22

Table of Contents

standard is applicable to sources located at the Company’s U.S. operations. The MACT requirements were placed into effect on March 15, 2003. The primary effect of this rule was to require implementation of additional air emission monitoring systems at the Company’s U.S. facilities. These rules required certain modifications to the plant facilities that totaled approximately $3.5 million for U.S. operations. Capital expenditures relating to environmental matters are anticipated to be approximately $0.2 million in 2007.
Based on environmental assessments conducted by independent environmental consultants, the Company believes that its operations are currently in compliance with environmental laws and regulations, except as would not be expected to have a material adverse effect on the Company. However, there can be no assurances that environmental requirements will not change in the future or that the Company will not incur significant costs in the future to comply with such requirements. In addition, the Company’s operations involve the handling of solvents and other hazardous substances, and if a release of hazardous substances occurs on or from the Company’s facilities, the Company may be required to pay the cost of remedying any condition caused by such release, the amount of which could be material.
Critical Accounting Policies
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. The more significant estimates include: accounts receivable allowances, inventory valuation, recoverability of long-lived assets, retirement and other postretirement benefits, and the realization of deferred tax assets. We use the following methods and assumptions in determining our estimates:
Accounts Receivable Allowances–Reserves for product returns are calculated based upon historical experience. Allowances for doubtful accounts are determined by applying historical experience with consideration given to the condition of the economy and evaluation of specific accounts. Other allowances are calculated based on negotiated agreements with customers.
Inventory Valuation– Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Reserves for obsolete and slow-moving inventory are determined based on the lower of cost or market method. Market value is determined based on management’s estimate of selling price less selling costs.
Recoverability of Long-lived Assets–Recoverability of goodwill is tested at least annually in accordance with SFAS No. 142 using the present value of estimated future cash flows. Other long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144 by determining whether the amortization of the assets over their remaining lives can be recovered through projected undiscounted cash flows. Future cash flows are forecasted based on management’s estimates of future events and could be materially different from actual cash flows.
Retirement and Other Postretirement Benefits–Retirement and other postretirement benefit costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets,

23

Table of Contents

mortality rates and other factors. In accordance with accounting principles generally accepted in the United States, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect the Company’s retirement and other postretirement obligations and future expense. See Notes M and N to the Consolidated Financial Statements for further detail on the assumptions used.
Realization of Deferred Tax Assets–Realization of net operating loss carryforwards and other deferred tax assets is determined in accordance with the appropriate accounting guidance in SFAS No. 109. Realization of the deferred tax assets is periodically evaluated using expected future reversals of existing temporary differences, future taxable income resulting principally from the characterization of cash flow from international subsidiaries as dividends taxable in the United States and the effects of lower interest expense from lower outstanding debt levels as debt service requirements are met.
For further information regarding our accounting policies, see Note B to the Consolidated Financial Statements.
Contractual Obligations
The Company enters into various contractual obligations throughout the year. Presented below are the contractual obligations of the Company as of December 31, 2006, and the time period in which payments under the obligations are due. Disclosures related to long-term debt, capital lease obligations and operating lease obligations are included in the footnotes to the consolidated financial statements of the Company. Disclosures regarding the amounts due under purchase obligations for capital expenditures are also included below. A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the company and that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations related to normal and recurring purchase orders are not included, as the Company does not enter into long-term agreements that would represent purchase obligations. Any short-term purchase order that might meet the definition of purchase obligation is only entered into for a reasonable period of time for quantities to be used within normal operating conditions.
                                         
            Less than     2 - 3     4 - 5     After  
    Total     one year     years     years     five years  
    (Dollars in thousands)  
Contractual Obligation:
                                        
Long-term debt
   $ 357,896     $ 3,599     $ 7,199     $ 7,199     $ 339,899  
Redeemable preferred stock
     55,342               55,342                  
Capital lease obligation
     2,541       808       1,049       331       354  
Operating leases
     11,048       3,127       3,736       2,065       2,119  
 
                              
Total
   $ 426,827     $ 7,534     $ 67,326     $ 9,595     $ 342,372  
 
                              

24

Table of Contents

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See information in Item 7 under Risks Associated with International Operations, Interest Rate Risks and Commodity Risks.

25

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
         
    Page
Report of Independent Registered Public Accounting Firm
     27  
 
        
Consolidated Balance Sheets as of December 31, 2006 and 2005
     28  
 
        
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
     30  
 
        
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004
     31  
 
        
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
     32  
 
        
Notes to Consolidated Financial Statements
     33  

26

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Day International Group, Inc.:
We have audited the accompanying consolidated balance sheets of Day International Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audits provide a reasonable basis for our opinion.
As discussed in Note A in Notes to the Consolidated Financial Statements, at January 1, 2006, Day International Group, Inc. changed its method of accounting for stock options with the adoption of Statement of Financial Accounting Standard No. 123(R), “Accounting for Stock-Based Compensation.”
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Day International Group, Inc. and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.
ERNST & YOUNG LLP
Dayton, Ohio
March 30, 2007

27

Table of Contents

DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(Amounts in thousands, except share and per share amounts)
                 
ASSETS   2006     2005  
CURRENT ASSETS:
                
Cash and cash equivalents
   $ 574     $ 9,595  
Accounts receivable:
                
Trade (less allowance for doubtful accounts)(Note C)
     54,047       40,771  
Other
     1,760       698  
Inventories (Note D)
     51,534       41,119  
Prepaid expenses and other current assets
     7,823       3,583  
Deferred tax assets (Note I)
     15,334       18,445  
Assets of discontinued operations (Note R)
             15,438  
 
            
 
                
Total current assets
     131,072       129,649  
 
                
PROPERTY, PLANT AND EQUIPMENT:
                
Land
     4,360       4,098  
Buildings and improvements
     28,632       26,770  
Machinery and equipment
     103,320       77,845  
Construction in progress
     4,081       3,727  
 
            
 
     140,393       110,842  
Less accumulated depreciation
     (67,550 )     (54,441 )
 
            
 
     72,843       56,895  
 
                
OTHER ASSETS:
                
Goodwill (Note E)
     163,294       136,988  
Intangible assets (Note E)
     14,361       17,904  
Deferred tax assets (Note I)
     14,427       11,144  
Other assets
     11,310       8,181  
Assets of discontinued operations (Note R)
             23,697  
 
            
 
     203,392       197,914  
 
            
 
                
TOTAL ASSETS
   $ 407,307     $ 385,562  
 
            
The accompanying notes are an integral part of the consolidated financial statements.

28

Table of Contents

                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)   2006     2005  
CURRENT LIABILITIES:
                
Accounts payable
   $ 20,832     $ 6,744  
Accrued associate-related costs
     14,262       10,988  
Other accrued expenses
     5,407       5,824  
Income taxes payable
     3,447       489  
Interest payable
     8,619       2,560  
Current maturities of long-term debt and capital lease (Note F)
     4,407       12,604  
 
            
Liabilities of discontinued operations (Note R)
             6,460  
 
            
 
                
Total current liabilities
     56,974       45,669  
 
                
LONG-TERM AND SUBORDINATED LONG-TERM DEBT (Note F)
     356,030       386,702  
DEFERRED TAX LIABILITIES (Note I)
     27,772       24,168  
OTHER LONG-TERM LIABILITIES (Notes L, M and N)
     24,824       23,213  
REDEEMABLE PREFERRED STOCK (Note G)
     55,342       48,657  
Liabilities of discontinued operations (Note R)
             8,407  
 
                
STOCKHOLDERS’ EQUITY (DEFICIT) (Note L):
                
Common Shares, $.01 per share par value, 100,000 shares authorized, 24,823 and 24,823 shares issued and outstanding
     1       1  
Additional paid-in capital
     1,375          
Contra-equity associated with the assumption of majority shareholder’s bridge loan
     (68,673 )     (68,673 )
Accumulated deficit
     (57,765 )     (81,391 )
Accumulated other comprehensive income (loss) (Note H)
     11,427       (1,191 )
 
            
Total stockholders’ equity (deficit)
     (113,635 )     (151,254 )
 
            
 
                
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
   $ 407,307     $ 385,562  
 
            
The accompanying notes are an integral part of the consolidated financial statements.

29

Table of Contents

DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
                         
    2006     2005     2004  
NET SALES
   $ 348,134     $ 310,242     $ 305,447  
 
                        
COST OF GOODS SOLD
     216,625       193,258       192,688  
 
                  
 
                        
GROSS PROFIT
     131,509       116,984       112,759  
 
                        
SELLING, GENERAL AND ADMINISTRATIVE
     74,500       68,732       68,181  
AMORTIZATION OF INTANGIBLES
     33       30       32  
MANAGEMENT FEES (Note K)
     1,000       1,000       1,000  
 
                  
 
                        
OPERATING PROFIT
     55,976       47,222       43,546  
 
                        
OTHER EXPENSES (INCOME):
                        
Interest expense:
                        
Long-term debt (including amortization of deferred financing costs and discount of $1,826, $1,826, and $1,775, in 2006, 2005 and 2004 and loss on extinguishment of debt of $8,378 in 2005, and gain on interest rate swap of $5,981)
     29,579       31,222       21,985  
Redeemable preferred stock (including amortization of discount and issuance costs of $127, $185, and $188 in 2006, 2005 and 2004) (Note G)
     6,685       24,813       23,156  
Gain on expired stock options
     (1,105 )     (6,640 )      
Other expense (income)—net
     8,853       (2,259 )     (504 )
 
                  
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
     11,964       86       (1,091 )
 
                        
INCOME TAX EXPENSE (Note I)
     9,872       9,970       14,569  
 
                  
 
                        
INCOME (LOSS) FROM CONTINUING OPERATIONS
     2,092       (9,884 )     (15,660 )
 
                        
DISCONTINUED OPERATIONS:
                        
INCOME FROM DISCONTINUED OPERATIONS (Including net gain on disposal of $19,102 in 2006)
     21,846       6,259       9,470  
INCOME TAX EXPENSE
     312       2,565       3,831  
 
                  
INCOME FROM DISCONTINUED OPERATIONS
     21,534       3,694       5,639  
 
                        
NET INCOME (LOSS)
   $ 23,626     $ (6,190 )   $ (10,021 )
 
                  
The accompanying notes are an integral part of the consolidated financial statements.

30

Table of Contents

DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollar amounts in thousands)
                                                         
                                                    Accumulated  
                                    Other     Additional     Comprehensive  
    Common Shares     Contra     Accumulated     Comprehensive     paid-in     Income  
    Shares     Amount     Equity     Deficit     Income (Loss)     Capital     (Loss)  
December 31, 2003
     23,298     $ 1     $ (68,772 )   $ (65,180 )             $ 6,277  
 
                                                        
Net loss
                             (10,021 )               $ (10,021 )
Stock option exercise
     25               99                                  
Minimum pension liability adjustment (net of tax of $406)
                                     (193 )             (193 )
Foreign currency translation adjustment
                                     1,577               1,577  
Unrealized loss on cash flow hedges (net of tax of $157)
                                     194               194  
 
                                          
 
                                                        
December 31, 2004
     23,323       1       (68,673 )     (75,201 )     7,855         $ (8,393 )
 
                                                      
 
                                                        
Net loss
                             (6,190 )               $ (6,190 )
Class C Common Shares issued
     1,500                                                  
Minimum pension liability adjustment (net of tax of $282)
                                     (190 )             (190 )
Foreign currency translation adjustment
                                     (7,696 )             (7,696 )
Unrealized loss on cash flow hedges (net of tax of $741)
                                     (1,160 )             (1,160 )
 
                                          
 
                                                        
December 31, 2005
     24,823       1       (68,673 )     (81,391 )     (1,191 )       $ (15,236 )
 
                                                      
 
                                                        
Net income
                             23,626                   $ 23,626  
Minimum pension liability adjustment (net of tax of $1,046)
                                     1,504               1,504  
Foreign currency translation adjustment
                                     9,484               9,484  
Stock Options Issued
                                             1,375          
Unrealized gain on cash flow hedges (net of tax of $1,041)
                                     1,630               1,630  
 
                                          
 
                                                        
December 31, 2006
     24,823     $ 1     $ (68,673 )   $ (57,765 )   $ 11,427     $ 1,375   $ 36,244  
 
                                          
The accompanying notes are an integral part of the consolidated financial statements.

31

Table of Contents

DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
                         
    2006     2005     2004  
CASH FLOWS FROM OPERATING ACTIVITIES:
                        
Net income (loss)
   $ 23,626     $ (6,190 )   $ (10,021 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                        
Depreciation
     10,708       10,782       10,501  
Amortization of goodwill and intangibles
     1,876       4,124       4,984  
Gain on the sale of discontinued operations
     (19,102 )                
Gain on unwinding the interest rate swap
     (5,981 )                
Interest expense:
                        
Redeemable preferred stock dividends
     6,685       24,813       23,156  
Loss on extinguishment of debt
             8,378          
Deferred income taxes
     8,268       3,436       9,105  
Foreign currency loss (gain)
     8,663       (5,986 )     (1,690 )
Undistributed earnings of investees
     (815 )     (609 )     (325 )
Non-cash loss related to stock options
     270       (6,640 )        
Non-cash (gain) loss on disposal of fixed assets
     (198 )     (34 )     (28 )
Change in assets and liabilities:
                        
Accounts receivable
     (7,613 )     1,261       (5,816 )
Inventories
     (4,750 )     (3,129 )     (146 )
Prepaid expenses and other current assets
     (2,699 )     (938 )     684  
Accounts payable and accrued expenses
     16,386       (1,662 )     9,313  
 
                  
Net cash provided by operating activities
     30,324       27,606       39,717  
 
                        
CASH FLOWS FROM INVESTING ACTIVITIES:
                        
Cash paid for acquisitions
     (37,063 )     (379 )     (1,346 )
Capital expenditures
     (10,921 )     (7,478 )     (10,433 )
Proceeds from sale of discontinued operations
     50,081                  
Proceeds from sale of property
     1,337               2,085  
 
                  
Net cash (used in) provided by investing activities
     3,434       (7,857 )     (9,694 )
 
                        
CASH FLOWS FROM FINANCING ACTIVITIES:
                        
Proceeds from exercise of stock options
                     25  
Proceeds from issuance of debt
             390,000          
Redemption of preferred shares
             (149,518 )        
Payment of deferred financing fees
             (10,506 )     (633 )
Proceeds from unwinding interest rate swap
     5,981                  
Payments on long-term debt
     (48,511 )     (239,938 )     (30,057 )
Net (payments on) proceeds from revolving credit facility
             (1,025       575  
 
                  
Net cash used in financing activities
     (42,530 )     (10,987 )     (30,090 )
 
                        
EFFECT OF EXCHANGE RATE CHANGES ON CASH
     (249 )     (164 )     184  
 
                  
 
                        
CASH AND CASH EQUIVALENTS:
                        
Net (decrease) increase in cash and cash equivalents
     (9,021 )     8,598       117  
Cash and cash equivalents at beginning of period
     9,595       843       726  
 
                  
Cash and cash equivalents at end of period
   $ 574     $ 9,441     $ 843  
 
                  
The accompanying notes are an integral part of the consolidated financial statements.

32

Table of Contents

DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(Dollar amounts in thousands)
A. NATURE OF OPERATIONS, BASIS OF PRESENTATION
Day International Group, Inc. and subsidiaries is one of the world’s leading producers and distributors of precision-engineered products, specializing in the design and customization of consumable image-transfer products for the graphic arts (printing) industry. The Company designs, manufactures and distributes high-quality printing blankets, sleeves, and pressroom chemicals used primarily in the offset, flexographic and digital printing industries. Sales are made through Day’s sales organization, distributors and representatives.
On November 24, 2003, the Company acquired Network Distribution International (“NDI”). The total purchase price for NDI was $32,203, paid in cash. NDI is a converter of offset blankets and reseller of ancillary consumable products to the printing industry, primarily in the United States. NDI supplies printers with a broad range of printing blankets, pressroom chemicals, supplies and equipment. Results of operations of NDI are included in the Company’s consolidated results of operations for the period subsequent to the acquisition.
Prior to June 30, 2006, the Company operated a Textile Products segment that manufactured and marketed precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. On June 30, 2006, Day sold 100% of its Textile Products Group to certain affiliates of Saurer, HG.
On October 12, 2006, the Company completed its acquisition of the stock of Duco Holdings Limited (“Duco International”) for £17.1 million in cash. Duco International, headquartered in the UK, is a printing blanket manufacturer with facilities in Slough and Swindon, England. Duco’s global distribution covers five continents with its most significant presence in Europe, Asia Pacific and India. Results of operations of Duco are included in the Company’s consolidated results of operations for the period subsequent to the acquisition.
B. SIGNIFICANT ACCOUNTING PRINCIPLES
Principles of Consolidation–The consolidated financial statements include the accounts of the Company and its 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–Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Reserves for obsolete and slow-moving inventory are determined based on the lower of cost or market method. Market value is determined based on management’s estimate of selling price less selling costs.
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 and improvements are depreciated over 10 to 40 years and machinery and equipment are depreciated over 5 to 10 years.
Goodwill and Other Intangibles–Goodwill represents the excess of cost over the fair value of the net assets acquired and is evaluated at least annually for impairment based on the requirements as proscribed in Statement of Financial Accounting Standards (“SFAS”) No. 142. Other long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144 by determining whether the amortization of the assets over their remaining lives can be recovered through projected undiscounted cash flows.

33

Table of Contents

Deferred financing costs are being amortized using an effective interest rate method over the lives of the related debt. Intangibles are being amortized using the straight-line method.
Stock-Based Compensation– Prior to January 1, 2006, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company applied the intrinsic value method of recognition and measurement under Accounting Principles Board Opinion No. 25 to its stock options and warrants. No compensation expense related to employee stock options or warrants issued to directors was reflected in net income (loss).
On January 1, 2006, the Company adopted SFAS No. 123(R) using the modified prospective method as defined in SFAS No. 123(R), requiring us to recognize compensation expense related to the fair value of all previously unvested stock options and restricted stock, and has not restated results of prior periods. Under this method, the stock-based compensation expense includes: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123; and (b) compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123 (R). Under SFAS 123(R), we elected to recognize the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Benefits of tax deductions in excess of recognized compensation expense will now be reported as a financing cash flow, rather than an operating cash flow as prescribed under the prior accounting rules. Further, upon adoption of SFAS 123(R), the Company started to apply an estimated forfeiture rate to the unvested awards when computing the stock compensation related expenses
Pro forma amounts are included below to illustrate the effect on net income for the years ended December 31, 2006 and December 31, 2005, as if we had applied the fair value recognition provisions of SFAS 123(R) to our options at that time.
                 
    2005     2004  
Net loss–as reported
   $ (6,190 )   $ (10,021 )
Less–stock-based compensation expense determined using fair value based method in SFAS No. 123
     (736 )     (719 )
 
            
Pro forma net loss
   $ (6,926 )   $ (10,740 )
 
            
Revenue Recognition–Day recognizes revenue when product is shipped, except for product shipped on consignment. Revenue for consignment sales is recognized when the customer uses the product. Reserves for product returns, based upon historical experience, and other allowances, calculated based on negotiated agreements with customers, are recognized at the time of the recording of the sale. Allowances for doubtful accounts are determined by applying historical experience with consideration given to the condition of the economy and evaluation of specific accounts and are recorded in selling, general and administrative costs.
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 accumulated other comprehensive income (loss). Transaction gains and losses are recorded in other expense (income) in the consolidated statements of operations.

34

Table of Contents

Concentration of Credit Risk–The Company’s receivables are from a diverse group of customers in the printing industry and such receivables are generally unsecured. No single customer accounts for more than 10% of net sales.
Foreign Exchange Contracts–The Company and its international subsidiaries make purchases and sales in foreign currencies and are subject to transaction exposures that arise from foreign exchange rate movements between the date that the foreign currency transaction is recorded and the date it is consummated. In addition, the Company has intercompany loans outstanding with certain international subsidiaries in their local currencies, exposing it to the effect of changes in exchange rates at loan issue and loan repayment dates. Day periodically enters into forward foreign exchange contracts, with terms generally of 3 to 12 months, to protect itself against such foreign currency movements. These contracts are recorded at fair value with the change in fair value recorded as other expense (income) as an offset to the (income) expense recognized from the remeasurement of the hedged foreign-currency denominated asset or liability. Hedges of forecasted transactions are recorded as cash flow hedges in other comprehensive income and are reclassified to earnings when the hedged transaction is completed. The contract value of foreign exchange contracts was $11,455 and $14,202 at December 31, 2006 and 2005. The fair value of these contracts is a receivable of $171 and a payable of $57 at December 31, 2006 and 2005. Day is exposed to credit-related losses in the event of nonperformance by counterparties to the forward contracts. The counterparties are expected to meet their obligations given their credit ratings; therefore, Day does not obtain collateral for these instruments.
Interest Rate Swap Agreement– The Company is a party to interest rate swaps, one for €27,000 and one for $151,000. The swaps are used to swap a majority of the Company’s variable rate debt to fixed rates. The swaps expire in December 2012 and December 2013, respectively. The Company has accounted for the swaps as a cash flow hedge and recognizes the gain or loss related to future periods in other comprehensive income (loss). In 2006, management of the Company determined that the forecasted transaction with which the interest rate swaps relate were not probable of occurring. As such, a portion of the interest rate swaps were unwound with a gain of $6.0 million, recorded in other expense (income) on the consolidated statement of operations. In March 2007, The Company unwound the remaining swap and replaced it with an interest rate cap resulting in a cash gain of $0.6 million.
Fair Value of Financial Instruments–The carrying value of the Company’s variable rate new credit facilities approximate fair value. The fair value of the 121/4% Exchangeable Preferred Stock at December 31, 2006 could not be determined as the securities are closely held and are not actively traded. See Note G for further information about the Convertible Preferred Stock. The fair value of the interest rate swaps was a receivable of $893 at December 31, 2006 and payable of $1,696 at December 31, 2005 based on quoted market prices. The fair market value and carrying amount of the 91/2% Senior Subordinated Debt was $8,584 at December 31, 2005, based on quoted market prices. The fair market value and carrying amount of the 91/2% Senior Subordinated Debt was $115,700 at December 31, 2004, based on quoted market prices. At December 31, 2006 and 2005, the carrying amounts of all other assets and liabilities that qualify as financial instruments approximated their fair value.
Research and Development–Research and development costs are expensed as incurred.

35

Table of Contents

Distribution–Distribution costs of $14,194, $12,421, and $10,934 for the years ended December 31, 2006, 2005 and 2004 are included in selling, general and administrative costs.
Advertising–Advertising costs are expensed as incurred.
Management Estimates–The preparation of the financial statements in conformity with accounting principles generally accepted in the United States 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. ACCOUNTS RECEIVABLE
Changes in the allowance for doubtful accounts for the years ended December 31, 2006, 2005 and 2004 consist of:
                         
    2006     2005     2004  
Balance at beginning of year
   $ 2,692     $ 3,269     $ 2,982  
Provision for doubtful accounts
     (388 )     (45 )     961  
Write-off of uncollectible accounts
     (467 )     (350 )     (808 )
Acquisitions
     22                  
Currency translation
     721       (182 )     134  
 
                  
Balance at end of year
   $ 2,580     $ 2,692     $ 3,269  
 
                  
D. INVENTORIES
Inventories as of December 31, 2006 and 2005 consist of:
                 
    2006     2005  
Finished goods
   $ 22,678     $ 20,139  
Work in process
     6,160       3,235  
Raw materials
     22,696       17,745  
 
            
 
   $ 51,534     $ 41,119  
 
            
E. GOODWILL AND INTANGIBLE ASSETS
The following is detail of goodwill for the years ended December 31, 2006, 2005 and 2004:
         
Balance at December 31, 2003
   $ 137,356  
Acquisitions
     269  
Purchase adjustments
     (361 )
Foreign currency exchange
     956  
 
      
Balance at December 31, 2004
     138,220  
Acquisitions
     425  
Foreign currency exchange
     (1,657 )
 
      
Balance at December 31, 2005
     136,988  
Acquisitions
     23,092  
Purchase adjustments
     1,606  
Foreign currency exchange
     1,608  
 
      
Balance at December 31, 2006
   $ 163,294  
 
      

36

Table of Contents

The following is detail of intangible assets as of December 31, 2006 and 2005:
                     
                    Weighted-
                    Average
    2006     2005     Life
Intangible Assets:
                    
Gross Carrying Amount:
                    
Deferred financing costs
   $ 10,962     $ 11,058     9 years
Printing technology
     27,946       27,946     11 years
Unpatented technology
     8,322       8,322     20 years
Other
     585       585     5 years
 
                
Total intangibles
     47,815       47,911     14 years
 
                    
Accumulated Amortization:
                    
Deferred financing costs
     (1,971 )     (128 )    
Printing technology
     (26,494 )     (25,480 )    
Unpatented technology
     (4,522 )     (4,131 )    
Other
     (468 )     (268 )    
 
                
Total accumulated amortization
     (33,455 )     (30,007 )    
 
                
 
                    
Net book value
   $ 14,361     $ 17,904      
 
                
Estimated amortization expense for the next five years is as follows: $3,268 in 2007, $2,686 in 2008, $2,238 in 2009, $2,238 in 2010 and $2,085 in 2011.
F. LONG-TERM AND SUBORDINATED LONG-TERM DEBT
Long-term and subordinated long-term debt as of December 31, 2006 and 2005 consist of:
                 
    2006     2005  
New Credit Agreements:
                
First Lien Credit and Guaranty Agreement
                
U.S. term loan
   $ 176,611       204,488  
Euro term loan (face amount of €59,466)
     67,722       70,407  
Second Lien Credit and Guaranty Agreement Term loan
     113,563       114,712  
91/2% Senior Subordinated Notes (face amount $8,450)
             8,584  
Capital lease obligation (Note P)
     2,541       1,115  
 
            
 
     360,437       399,306  
Less–Current maturities of long-term debt and capital lease
     (4,407 )     (12,604 )
 
            
 
   $ 356,030     $ 386,702  
 
            
In December 2005, the Company and certain of its subsidiaries completed a comprehensive refinancing (the “Refinancing”) of the debt and redeemable preferred equity of the Company when it incurred $415 million of senior secured indebtedness pursuant to $300 million of senior secured first lien credit facilities and $115 million of senior secured second lien credit facilities. The Company has agreed to secure all of its debt obligations by granting to Collateral Agent a first priority lien on substantially all of

37

Table of Contents

its assets, including a pledge of all of the capital stock of each of its domestic subsidiaries and 65% of all the Capital Stock of each of its Foreign Subsidiaries
The proceeds of the debt financing were used to repay $96.2 million and €16.3 million to satisfy the Company’s obligations under its existing Senior Secured Credit Facility, and to purchase $106.6 million in outstanding principal amount of the 91/2% Notes (plus accrued and unpaid interest) for $110.8 million pursuant to a tender offer, the Company provided notice of redemption of the remaining $8.5 million in principal amount of Notes, which were redeemed on January 5, 2006. In connection with the refinancing the Company recognized a loss of $8.4 million on early extinguishment of debt.
The Company also paid all accrued and unpaid cash dividends on the 121/4% Senior Exchangeable Preferred Stock (“Exchangeable Preferred Stock”) totaling $24.8 million and redeemed 15,204 shares of the Exchangeable Preferred Stock, or approximately 24% of the total outstanding shares of Exchangeable Preferred Stock, for an amount equal to $15.5 million, and redeemed all of the 18% Convertible Cumulative Preferred Stock (“Convertible Preferred”) in exchange for an aggregate payment of $106.5 million and the issuance of 1,500 shares of newly issued Class C Non-Voting Common Stock of the Company.
CREDIT AGREEMENTS
In 2005, the Company and certain of its subsidiaries entered into $415 million of new credit facilities consisting of $300 million of senior secured first lien credit facilities (the “First Lien Credit and Guaranty Agreement”) and $115 million of senior secured second lien credit facilities (the “Second Lien Credit and Guaranty Agreement”); and together with the First Lien Credit and Guaranty Agreement, the “New Credit Agreements”). Net proceeds from the New Credit Agreements were used to finance the Refinancing.
The First Lien Credit and Guaranty Agreement provided for a $205 million U.S. term loan, a Euro term loan equal to the Euro equivalent of $70 million, and a $25 million revolving loan. The U.S. term loan and the Euro term loan are repaid in consecutive quarterly installments of 0.25% of the original aggregate principal amount, if not sooner paid in full, with the balance paid on the seventh anniversary of the closing date.
At December 31, 2006, interest on the U.S. term loan and the Euro term loan were based on the U.S. & Euro LIBOR rates plus 2.50% (7.86% and 6.22% respectively) and interest on the revolving loan was based on the base rate plus 2.50% (10.75%). Interest rates on LIBOR borrowings are fixed for one, two, three or six month periods at the Company’s discretion.
The Second Lien Credit and Guaranty Agreement provided for a $115 million term loan. The term loan are repaid in consecutive quarterly installments of 0.25% of the original aggregate principal amount, if not sooner paid in full, with the balance paid on the eighth anniversary of the closing date.
At December 31, 2006, interest on the $115 million term loan was based on the LIBOR rate plus 7.25% (12.61%). 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 New Credit Agreements (and the repaid Senior Secured Credit Facility) for the years ended December 31, 2006, 2005, and 2004 was 8.76%, 6.99%, and 5.91%.

38

Table of Contents

At December 31, 2006, $20,875 was available under the revolving loan. The revolving loan included a $10 million letter of credit sublimit ($4.1 million of letters of credit were outstanding at December 31, 2006) and a $5 million swing line loan sublimit. The First Lien Credit and Guaranty Agreement requires a commitment fee of 0.5% a year on the unused portion of the revolving loan.
The Credit Agreements, among other things, limit the Company’s ability to incur additional indebtedness, liens, or negative pledges with respect to assets, make dividends, distributions and other restricted payments on junior securities, make certain investments in other persons or instruments, sell, lease, exchange, transfer or otherwise dispose of assets, enter into sale-leaseback transactions, enter into certain transactions with shareholders or affiliates or change the nature of the Company’s business.
The Credit Agreements also contain financial covenants, which, among other things, require the Company to maintain certain interest coverage ratios with respect to earnings and interest and to maintain certain leverage ratios with respect to earnings and debt and which limit the amount of capital expenditures.
The Credit Agreements also contain typical events of default (subject to certain threshold amounts and grace periods). If an event of default occurs and is continuing, the Company may be required to repay the obligations under the Credit Agreements prior to their stated maturity, and the commitments under the Credit Agreements may be terminated.
91/2% SENIOR SUBORDINATED NOTES
For the years ended December 31, 2006 and 2005, the Company had outstanding $0 and $8,450 face amount of 91/2% Senior Subordinated Notes due March 15, 2008 (the “Notes”). As part of the Refinancing, the Company purchased $106,550 million in outstanding principal amount of the Notes (plus accrued and unpaid interest) for $110,800 million pursuant to a tender offer, and provided notice of redemption of the remaining $8,450 million in principal amount of Notes, which were redeemed on January 5, 2006.
Principal payments on long-term debt for the next five years are payable as follows: $4,407 in 2007, $4,253 in 2008, $3,995 in 2009, $3,760 in 2010, and $59,111 in 2011.
G. REDEEMABLE PREFERRED STOCK
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement requires that the Company’s redeemable preferred stock be recorded in the same manner as long-term debt. The Company adopted the statement as of July 1, 2003. Therefore, since the third quarter of 2003, the Company has reflected the redeemable preferred stock as a liability and accrued dividends as interest expense. The adoption of this statement had no effect on the cash flows of the Company, net loss available to common shareholders, or the Company’s compliance with its debt covenants.

39

Table of Contents

121/4% SENIOR EXCHANGEABLE PREFERRED STOCK
The Company had outstanding $55,342 and $48,657 liquidation preference of 121/4% Senior Exchangeable Preferred Stock (“Exchangeable Preferred Stock”) at December 31, 2006 and 2005. As part of the Refinancing, the Company paid all accrued and unpaid dividends on the Exchangeable Preferred Stock through December 5, 2005, in an amount equal to $24,872, and redeemed 15,204 shares, or 24% of the total outstanding shares of Exchangeable Preferred Stock, for an amount equal to $15,514.
All dividends are payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year. On and before March 15, 2003, the Company paid dividends in additional fully-paid and non-assessable shares of Exchangeable Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends. After March 15, 2003, dividends were required to be paid in cash and if not paid for four consecutive quarters, then the holders of the Exchangeable Preferred Stock would have the right to elect two members to the Board of Directors until the dividends in arrears were paid. During the fourth quarter of 2004, the Exchangeable Preferred Stockholders elected two members to the Board of Directors. Although the Company paid its accrued, unpaid dividends through December 5, 2005, various restrictions in the New Credit Agreements limit the Company’s ability to pay cash dividends. The Company does not anticipate that the restrictions on payment of cash dividends will change in the near term to allow future dividends to be paid.
On May 10, 2006, the Company amended the Certificate of Designation of the Powers, Preferences and Relative Participating, Optional and Special Rights of the 12 1/4% Senior Exchangeable Preferred Stock due 2010 (the “Exchangeable Preferred Stock”) and Qualifications, Limitations and Restrictions Thereof to allow dividends to be paid, at the Company’s option, either in cash or by the issuance of additional fully paid and non-assessable shares of Exchangeable Preferred Stock (including fractional shares). The Company then determined to pay all unpaid dividends in arrears for the periods ending on December 15, 2005 and March 15, 2006 for the Exchangeable Preferred Stock by issuing a dividend of .034132 shares of authorized but unissued Exchangeable Preferred Stock for each share of Exchangeable Preferred Stock issued, outstanding and held of record by such holder as of the close of business on the May 10, 2006 and the date of payment was May 12, 2006. Dividends in arrears are $563 and $414 as of December 31, 2006 and 2005, respectively and are included in the Exchangeable Preferred Stock balance.
18% CONVERTIBLE CUMULATIVE PREFERRED STOCK
On December 5, 2005, all of the 18% Convertible Cumulative Preferred Stock were repaid, including all interest due on the Notes. At December 31, 2004, the Company had outstanding $91,382 liquidation preference of 18% Convertible Preferred with a mandatory redemption date of June 30, 2010. As part of the Refinancing, the Company redeemed all of the Convertible Preferred in exchange for an aggregate payment of $106,550 million and the issuance of 1,500 shares of newly issued Class C Non-Voting Common Stock of the Company. Also as part of the Refinancing, Neil Moszkowski resigned from the Board of Directors of the Company. Mr. Moszkowski was elected by the holders of the Convertible Preferred to serve on the Board of Directors in 2003.
The Convertible Preferred ranked junior to the Company’s 121/4% Senior Exchangeable Preferred Stock and senior to any subsequently issued preferred stock. All dividends on the Convertible Preferred were payable quarterly in arrears on March 30, June 30, September 30 and December 30 of each year.

40

Table of Contents

Holders of the Convertible Preferred were entitled to receive an annual dividend rate of 18% plus approximately 24% of the aggregate value of each dividend (if any) declared and paid on the Company’s common stock. If not paid quarterly in cash, annually, accumulated and unpaid dividends were added to the basis of the stock.
H. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss) as of December 31, 2006 and 2005, consists of:
                 
    2006     2005  
Foreign currency translation adjustments
   $ 10,810     $ 1,327  
Minimum pension liabilities
     102       (1,403 )
Unrealized gain on cash flow hedges
     515       (1,115 )
 
            
 
   $ 11,427     $ (1,191 )
 
            
I. INCOME TAXES
Significant components of deferred tax assets (liabilities) as of December 31, 2006 and 2005 are as follows:
                 
    2006     2005  
Deferred tax assets:
                
Accounts receivable reserves
   $ 1,327     $ 1,289  
Inventory reserves
     1,391       1,108  
Other reserves
     2,573       3,604  
AMT credit and Foreign Tax credit carryforward
     5,708       1,201  
Net operating loss carryforwards
     10,887       16,746  
Stock option compensation
     469       411  
Pension benefits
     351       1,778  
Unrealized foreign exchange losses
     2,042       —  
Other postretirement benefits
     5,013       4,140  
 
            
Total deferred tax assets
     29,761       29,589  
 
                
Deferred tax liabilities:
                
Unrealized Foreign Exchange Gain
     —       (592 )
Depreciation
     (5,845 )     (5,591 )
Amortization
     (21,927 )     (17,786 )
 
            
Total deferred tax liabilities
     (27,772 )     (24,168 )
 
            
Net deferred tax assets
   $ 1,989     $ 5,421  
 
            
 
                
Included in the balance sheets:
                
Current assets
   $ 15,334     $ 18,445  
Noncurrent assets
     14,427       11,144  
Noncurrent liability
     (27,772 )     (24,168 )
 
            
Net deferred tax assets
   $ 1,989     $ 5,421  
 
            
Income tax expense consists of the following for the years ended December 31, 2006, 2005 and 2004:

41

Table of Contents

                         
    2006     2005     2004  
Current:
                        
United States:
                        
Federal alternative minimum
   $ 383     $       $ 500  
State and local
     132       293       351  
International
     8,488       7,301       8,904  
 
                  
 
     9,003       7,594       9,755  
Deferred
     3,268       3,918       8,396  
 
                  
 
     12,271       11,512       18,151  
Allocated to discontinued operations
     (312 )     (2,565 )     (3,831 )
Allocation to other comprehensive income
     (2,087 )     1,023       249  
 
                  
 
   $ 9,872     $ 9,970     $ 14,569  
 
                  
The income tax expense differs from the United States statutory rate for the years ended December 31, 2006, 2005 and 2004, as a result of the following:
                         
    2006     2005     2004  
Tax provision (benefit) at the United States federal statutory rate
   $ 4,187     $ 29     $ (371 )
International tax rate differential
     (2,194 )     (301 )     (24 )
State and local taxes, net of federal income tax effect
     37       604       582  
Foreign source income taxable in the United States
     5,183       721       6,421  
Non-deductible preferred stock dividends included in net loss
     2,340       8,582       7,873  
Non-deductible expenses
     256       181       187  
Other
     63       154       (99 )
 
                  
 
   $ 9,872     $ 9,970     $ 14,569  
 
                  
Income (loss) from continuing operations before income taxes includes $18,745, $14,000, and $12,390 of income from international operations for the years ended December 31, 2006, 2005 and 2004. Day has not provided for deferred taxes on the undistributed earnings of international subsidiaries because the earnings are deemed permanently reinvested. Undistributed earnings of Day’s international subsidiaries amounted to approximately $42,799 as of December 31, 2006. The unrecognized deferred tax liability on these earnings has not been calculated due to the complexities associated with the hypothetical calculation. It is anticipated that Day will continue to annually remit a substantial portion of prospective earnings of certain international subsidiaries in the form of taxable dividends. The U.S. tax consequences of those dividends will be recorded when such dividends are paid. Since the Company intends to remit earnings from its international subsidiaries only on a prospective basis, the APB No. 23 exception will continue to apply to the international subsidiaries earnings accumulated through December 31, 2006 and for earnings that the Company does not expect to remit as dividends. The Company has United States net operating loss carryforwards of $21,856 expiring from 2019 through 2025 to be used in future periods. The Company has $1,073 of United States Alternative Minimum Tax credits which have an unlimited carryforward period. Additionally, the Company has $4,635 of United States Foreign Tax Credit carryforwards which begin expiring in 2015.
J. BUSINESS SEGMENTS
The Company produces precision-engineered products, specializing in the design and customization of consumable image-transfer products for the graphic arts (printing) industry. The Image Transfer segment designs, manufactures and markets high-quality printing blankets and sleeves and pressroom chemicals used primarily in the offset, flexographic and digital printing industries. Prior to June 30, 2006, the Textile Products segment manufactured and marketed precision engineered rubber cots and aprons sold to textile yarn spinners and other engineered rubber products sold to diverse markets. On May 9, 2006, Day signed

42

Table of Contents

a purchase contract to sell 100% of its Textile Products Group to certain affiliates of Saurer, AG. On June 30, 2006 the sale was completed (See Note R). As a result, since June 30, 2006, the Company has been operating only one business segment.
Net sales for the years ended December 31, 2006, 2005 and 2004, and long-lived assets as of December 31, 2005, 2004 and 2003, by geographic area are as follows:
                         
    2006     2005     2004  
Net sales:
                        
United States
   $ 170,971     $ 158,805     $ 165,152  
 
                        
Germany
     52,539       46,995       42,020  
United Kingdom
     61,308       47,081       44,523  
Other international
     88,225       76,173       72,291  
 
                  
Total International
     202,072       170,249       158,834  
 
                        
Inter-area
     (24,909 )     (18,812 )     (18,539 )
 
                  
 
   $ 348,134     $ 310,242     $ 305,447  
 
                  
 
                        
Long-lived assets:
                        
United States
   $ 159,641     $ 154,046     $ 153,541  
 
                        
Germany
     29,594       25,544       26,344  
United Kingdom
     49,144       21,656       23,784  
Other international
     12,119       11,645       11,917  
 
                  
Total international
     90,857       58,867       62,045  
 
                  
 
   $ 250,498     $ 212,891     $ 215,385  
 
                  
Sales between geographic areas are generally priced to recover cost plus an appropriate mark-up for profit.
K. RELATED PARTY TRANSACTIONS
In accordance with a management services agreement, the Company is required to pay GSC Group and Cowen Investments I, LLC, the controlling shareholders of Day, an annual management fee of $1,000 plus expenses, payable semi-annually.
L. STOCKHOLDERS’ EQUITY AND STOCK BASED COMPENSATION PLAN
1998 Stock Option Plan
The 1998 Stock Option Plan provides incentives to officers and other key employees of the Company that serve to align their interests with those of stockholders. Under the 1998 Stock Option Plan, the Board is authorized to award four different types of non-qualified stock options: (i) service options, (ii) performance options, (iii) super performance options and (iv) exit options. Under the 1998 Stock Option Plan, unless otherwise provided by the Board, service options vest and become exercisable in five equal annual installments on each of the first five anniversaries of the date of grant; performance and super performance options vest and become exercisable in annual installments based on the achievement of annual EBITDA targets of the Company; and exit options vest and become exercisable based upon the internal rate of return of GSC Partners realized in connection with the disposition of its investment in the Company. Regardless of the satisfaction of any performance goals, performance options, super

43

Table of Contents

performance options and exit options fully vest and become exercisable on the ninth anniversary of the date of grant.
Initially, 7,885 shares of the Company’s voting common stock were authorized for issuance under the 1998 Stock Option Plan. In the event of certain changes in the Company’s capital structure affecting the common stock, the Board of Directors may make appropriate adjustments in the number of shares then covered by options and, where applicable, the exercise price of options under the 1998 Stock Option Plan.
As of December 31, 2006, 7,437 options have been granted (of which 1,257 are exercisable) under the 1998 Stock Option Plan with an exercise price of $4,030. These options expire as follows: 5,987 expire in 2008 and 1,450 expire in 2012.
2006 Stock Option Plan
In August 2006, the Board approved a new 2006 Stock Option Plan. Under the 2006 Stock Option Plan, unless otherwise provided by the Board, the options vest and become exercisable in four equal annual installments, on each of the first four anniversaries of the date of grant. The vesting is accelerated upon an approved sale under the stockholders Agreement. The 2006 Stock Option Plan also allows appropriate adjustments as provided under the 1998 Stock Option Plan. As of December 31, 2006 1,775 options have been granted under the plan with an exercise price of $2,500. The options, vested and unvested, which have not expired or been exercised previously, will expire in August 2016. The fair value of each option award at the grant date was estimated using the Black-Scholes multiple option pricing model with the following weighted average assumptions; expected life of options - 10 years, risk free interest rate - 4.0%; expected stock price volatility - .05%; expected dividend yield - 0%. Compensation expense of $1,375 was recorded in 2006.
Compensation expense had been recorded under the previous plan and the remaining balance is included in equity under additional paid in capital. The balance in additional paid in capital at December 31, 2006 is $1,375.
Day Stock Option Plan
Effective June 2006, the Company granted 2,727.5 Restricted Stock Units (“RSU’s”) to certain employees that previously held options granted under the Day International Group, Inc. Stock Option Plan (the “Day Option Plan”). 2,417.5 of the RSU’s have a face value of $1,000 per RSU and 310 RSU’s have a face value if $1,200 per RSU. The RSU’s vest upon a liquidity event (including a change of control of Day) provided that the liquidity event occurs before the seventh anniversary of the effective date of the RSU Plan. Thus, no amount has been charged to expense in 2006. The fair value of the RSU’s at December 31, 2006 is $2.0 million. All outstanding options under the Day Option Plan were terminated.
The following table summarizes activity in the Company’s stock option plans:
                                                 
    2006     2005     2004  
            Weighted             Weighted             Weighted  
            Average             Average             Average  
            Exercise             Exercise             Exercise  
    Shares     Price     Shares     Price     Shares     Price  
Outstanding at beginning of year
     7,822     $ 3,223       10,165     $ 3,223       10,290     $ 1,970  
Exercised
                                     (25 )     1,000  
Granted
     1,775                                          
Forfeited
     (385 )     1,000       (2,343 )     1,000       (100 )     4,030  
 
                                          
Outstanding at end of year
     9,212       3,889       7,822       3,889       10,165       3,223  
 
                                          
Exercisable at end of year
     1,553       3,414       1,642       3,414       3,985       1,995  
 
                                          

44

Table of Contents

Warrants to purchase up to 74 shares of Common Stock at a price of $4,030 per share were granted in 1998 to one of the Board members as compensation for services as a director. In 2000, additional warrants to purchase up to 74 shares of Common Stock at a price of $4,030 per share were granted to each of two Board members for their services. The warrants are fully vested as of December 31, 2002.
M. RETIREMENT PLANS
The Company has defined benefit plans covering certain associates of its international subsidiaries. Benefits under these plans are based primarily on years of service and qualifying compensation during the final years of employment. Day uses a December 31 measurement date for the plans.
The pension plan in the United Kingdom had plan assets consisting of U.K. government bonds. The Company’s funding policy complies with the requirements of local laws and regulations. During 2001, the Company froze the benefits under the U.K. pension plan and settled a portion of the obligation in 2003 by transferring the benefits of active associates to a defined contribution plan. The Company purchased annuity contracts in early 2005 to settle the remaining obligations under the plan.
Day also sponsors defined contribution plans for certain associates, which provide for Company contributions of a specified percentage of each associate’s total compensation. Certain of these plans include a profit-sharing component that varies depending on the achievement of certain objectives.
The funded status of the Company’s defined benefit plans at December 31, 2006 and 2005, is as follows:
                 
    2006     2005  
Change in benefit obligation:
                
Benefit obligation at beginning of year
   $ 9,841     $ 19,490  
Service cost
     111       366  
Interest cost
     59       399  
Actuarial (gains) losses
     (41 )     1,264  
Benefits paid
     (75 )     (91 )
Transfers
     —       (10,361 )
Plan Curtailment
     (8,172 )     —  
Foreign currency exchange
     (3 )     (1,226 )
 
            
Benefit obligation at end of year
 1,720     9,841  
 
            
 
                
Change in plan assets:
                
Fair value of plan assets at the beginning of the year
     —       7,534  
Actual return on plan assets
     —       —  
Employer contribution
     —       91  
Benefits paid
     —       (91 )
Transfers
     —       (7,534 )
 
            
Fair value of plan assets at end of year
     0       0  
 
            
 
                
Funded status
   (1,720 )     (9,841 )
Unrecognized net actuarial (gain) loss
     226     2,554  
Additional minimum liability–included in accumulated other comprehensive income (loss)
     174     (2,377 )
 
            
(Accrued) pension costs
   $ (1,320 )   $ (9,664 )
 
            

45

Table of Contents

                 
    2006     2005  
Included in the balance sheets:
                
Other long-term liabilities
     (1,320 )     (9,664 )
 
            
(Accrued) pension costs
   $ (1,320 )   $ (9,664 )
 
            
 
                
Accumulated benefit obligation
   $ 1,320     $ 9,664  
 
            
Weighted-average assumptions:
                
Discount rate
     4.25 %     4.25 %
 
            
Long-term rate of increase in compensation
     2.00 %     2.86 %
 
            
Long-term rate of return on plan assets
     0 %     0 %
 
            
Post-retirement pension increase (cost-of-living adjustment)
     1.50 %     1.00 %
 
            
The plan assets at December 31, 2004, consisted of U.K. government bonds. The Company had assumed a long-term rate of return of 4.50% based on the expected interest rates to be earned on the bonds. In accordance with U.K. regulations, the Company had been required to invest in the bonds upon the decision to terminate the U.K. pension plan. The Company contributed approximately $2,900 to the U.K. pension plan in 2005 to purchase annuity contracts and settle all plan obligations. The Company also recognized a loss upon settlement of approximately $700 in 2005.
A summary of the components of net periodic pension cost for the defined benefit plans and for the defined contribution plans for the years ended December 31, 2006, 2005 and 2004, is as follows:
                         
    2006     2005     2004  
Defined benefit plans:
                        
Service cost
   $ 111     $ 366     $ 390  
Interest cost
     59       399       787  
Expected return on plan assets
                     (341 )
Actuarial loss recognized
     2       34       888  
 
                  
Net periodic pension cost
     172       799       1,724  
Defined contribution plans
     2,837       3,171       3,335  
 
                  
Total pension expense
   $ 3,009     $ 3,970     $ 5,059  
 
                  
Weighted-average assumptions:
                        
Discount rate
     4.25 %     4.50 %     5.25 %
 
                  
Compensation increase
     2.00 %     2.86 %     3.00 %
 
                  
Long-term rate of return on plan assets
     0.00 %     0.00 %     5.00 %
 
                  
Future benefit payments for each of the next five years and for the five years thereafter are expected to be paid as follows: $10 in 2007, $10 in 2008, $10 in 2009, $10 in 2010, $10 in 2011 and $50 in total for 2012 through 2016. The Company’s remaining pension plans are unfunded, thus the Company contributes to the plans to fund current benefit payments.
N. OTHER POSTRETIREMENT BENEFITS
Day provides certain contributory postretirement health care and life insurance benefits for certain U.S. associates. During 2003, the Company amended the plan so that participants become eligible for postretirement benefits if they retire on or after age 55, with at least ten years of service after attaining age 45 and to increase the retirees’ share of benefit costs. The amendments made to the plan decreased the pension benefit obligation by $4,258, which will be amortized into income over 12 years. Day uses a December 31 measurement date for the plan.
The status of Day’s unfunded plan at December 31, 2006 and 2005, is as follows:

46

Table of Contents

                 
    2006     2005  
Change in benefit obligation:
                
Benefit obligation at beginning of year
   $ 15,988     $ 15,744  
Service cost
     1,250       1,321  
Interest cost
     947       1,013  
Participant contributions
     322       388  
Actuarial (gains) losses
     (3,908 )     (1,714 )
Curtailment
     (793 )        
Benefits paid
     (652 )     (764 )
 
            
Benefit obligation at end of year
     13,154       15,988  
 
                
Unrecognized prior service gain
     2,578       3,746  
Unrecognized net actuarial gain (loss)
     667       (4,183 )
 
            
Accrued postretirement benefit obligation
   $ 16,399     $ 15,551  
 
            
Discount rate used in determining the benefit obligation at year end
     5.95 %     6.0 %
 
            
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 9.0% and decreasing 1.0% per year to an ultimate trend rate of 5.0% in 2011 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 $1,924 at December 31, 2006, and the interest and service cost would have been $378 higher for the year ended December 31, 2006. A one percentage point decrease in the assumed health care cost trend rate would have decreased the accumulated benefit obligation by $1,596 at December 31, 2006, and the interest and service cost would have been $305 lower for the year ended December 31, 2006.
Future benefit payments, net of participant contributions, for each of the next five years and for the five years thereafter are expected to be paid as follows: $391 in 2007, $425 in 2008, $484 in 2009, $546 in 2010, $607 in 2011 and $4,361 in total for 2012 through 2016. The Company’s postretirement plan is unfunded, thus, the Company contributes to the plan to fund current benefit payments, net of participant contributions. The Company’s contributions to the plan for the years ended December 31, 2006 and 2005 was $330 and $375.
Net periodic postretirement benefit costs include the following components for the years ended December 31, 2006, 2005 and 2004:
                         
    2006     2005     2004  
Service cost
   $ 1,250     $ 1,321     $ 1,101  
Interest cost
     947       1,013       849  
Prior service gain recognized
     (786 )     (834 )     (641 )
Actuarial loss recognized
     149       449       234  
 
                  
Net periodic postretirement benefit costs
   $ 1,560     $ 1,949     $ 1,543  
 
                  
Discount rate used in determining the interest cost
     6.0 %     5.75 %     6.25 %
 
                  
On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act expands Medicare primarily by adding a prescription drug benefit for Medicare-eligible individuals beginning in 2006, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. The Company believes that the plan, as currently designed, is not

47

Table of Contents

actuarially equivalent to Medicare Part D and thus would not qualify for the federal subsidy under the Act. As a result, the Company believes that the effect of the legislation will not be material to the results of operations or financial position of the Company.
O. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases a building in Germany under a capital lease and certain other property in the United Kingdom. Property under this capital lease is included in property, plant and equipment at December 31, 2006 and 2005, as follows:
                 
    2006     2005  
Land and buildings
   $ 1,786     $ 1,596  
Machinery & Equipment
    5,445          
Accumulated depreciation
     (2,797 )     (494 )
 
            
 
   $ 4,434     $ 1,102  
 
            
The Company also leases certain buildings, transportation equipment and office equipment under operating leases with terms of 1 to 10 years. Rental expense for the years ended December 31, 2006, 2005 and 2004 was $2,748, $2,416, and $3,413. The following is a schedule by year of future annual minimum lease payments under non-cancelable leases as of December 31, 2006:
                 
    Capital     Operating  
    Lease     Leases  
2007
   $ 956     $ 3,128  
2008
     744       2,079  
2009
     447       1,657  
2010
     196       1,165  
2011
     196       900  
Thereafter
     376       2,119  
 
            
 
   $ 2,915     $ 11,048  
 
              
Amount representing interest
     (374 )        
 
              
Present value of minimum lease payments (including current portion of $807)
   $ 2,541          
 
              
CONTINGENCIES
There are currently no environmental claims against the Company for the costs of environmental remediation measures taken or to be taken. 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 or financial condition.
P. SUPPLEMENTAL CASH FLOW DISCLOSURES
                         
    2006     2005     2004  
CASH PAID FOR:
                        
Income taxes
   $ 9,194     $ 8,335     $ 9,938  
 
                  
Interest
   $ 28,361     $ 17,616     $ 20,230  
 
                  

48

Table of Contents

Q. RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of SFAS No. 87, 88, 106 and 132(R).” This statement requires an employer to (a) recognize in its statement of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a plan in the year in which the changes occur. For non-public entities these requirements are effective for fiscal years ending after June 15, 2007. The Company is currently evaluating the effects that SFAS No. 158 will have on its financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This new standard provides guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS No. 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. The provisions of SFAS No. 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the effects that SFAS No. 157 will have on its financial statements.
On July 14, 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,” an Interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes guidance to address inconsistencies among entities with the measurement and recognition in accounting for income tax positions for financial statement purposes. Specifically, FIN 48 addresses the timing of the recognition of income tax benefits. FIN 48 requires the financial statement recognition of an income tax benefit when the company determines that it is more-likely-than-not that the tax position will be ultimately sustained. FIN 48 is effective for fiscal years beginning after December 15, 2006. Upon adoption of FIN 48, the cumulative effect will be reported as an adjustment to the opening balance of retained earnings at January 1, 2007. Day adopted FIN 48 effective January 1, 2007. Day’s tax accounting policy, prior to the adoption of FIN 48, was to recognize uncertain tax positions taken on its income tax return only if the likelihood in prevailing was probable. FIN 48 establishes a recognition standard of more likely than not, which is below the Company’s previously recognition tax policy of probable. Therefore, Day will record an adjustment to increase its beginning retained earnings effective January 1, 2007 of up to $5 million for tax benefits not previously recognized under historical practice, which is subject to revision as management completes its analysis.
R. DISCONTINUED OPERATIONS
On June 30, 2006, Day completed the sale of its Textile Products Group to certain affiliates of Saurer, AG for $48.8 million, plus the assumption of certain long term liabilities, resulting in a gain on disposal of $22.4 million (subject to a working capital adjustment). Goodwill in the amount of $5.2 million was written off. The Textile Products Group is a leading supplier of consumable, precision-engineered rubber cots (rollers), aprons (flexible belts), compressive shrinkage belts and other fabricated rubber products for the yarn spinning and glass-fiber-forming industries with

49

Table of Contents

sales of approximately $45 million in 2005. It employs approximately 270 full-time associates in its production facilities located in Münster, Germany and Greenville, SC, USA and its sales offices in Italy, Turkey and Hong Kong. Proceeds from the sale were used to repay long-term debt or invested in growth opportunities within the image transfer business. The following table represents the revenue and pretax income as reported in discontinued operations for the years ended December 31, 2006 and 2005, and the carrying amounts of the major classes of assets and liabilities of the Textile Division as of December 31, 2005.
                         
    2006   2005   2004
Net sales
   $ 25,448     $ 45,473     $ 49,034  
Pre-tax income
     26,055       6,612       7,182  
Major classes of assets & liabilities:
         
    December 31, 2005  
Cash
   $ 28  
Accounts receivable
     4,420  
Inventories
     8,000  
Other current assets
     80  
 
      
Total current assets
     12,528  
     
Property, plant and equipment
     9,948  
Intangible assets (net of amortization)
     8,487  
Other long term assets
     5,050  
 
      
Total long term assets
     23,485  
 
      
     
TOTAL ASSETS
   $ 36,013  
 
      
 
        
Accounts payable
   $ 1,080  
Other current liabilities
     3,290  
 
      
Total current liabilities
     4,370  
     
Other long term liabilities
     8,407  
 
      
     
TOTAL LIABILITIES
   $ 12,777  
 
      
On May 31, 2006, the Company completed the sale of the Kompac Division to its management team, for $1.5 million resulting in a loss on the sale of $3.4 million (subject to a working capital adjustment). Cash received was $0.6 million and the Company issued notes receivable of $1.1 million. Subsequent to June 30, 2006 payments of $0.3 million have been made on the notes. The Kompac Division manufactures and globally distributes automatic dampening systems and related products. As part of the sale agreement, the Company has agreed to provide certain transitional support to the Kompac Division in order to ensure a smooth change in ownership. The following table represents the revenue and pretax income (loss) as reported in discontinued operations for the years ended December 31, 2006 and 2005, and the carrying amounts of the major classes of assets and liabilities of the Kompac Division as of December 31, 2005.
                         
    2006   2005   2004
Net sales
   $ 3,072     $ 7,544     $ 8,225  
Pre-tax income (loss)
     (4,209 )     (353 )     2,288  

50

Table of Contents

Major classes of assets & liabilities:
         
    December 31, 2005  
Cash
   $ (181 )
Accounts receivable
     1,035  
Inventories
     2,031  
Other current assets
     25  
 
      
Total current assets
     2,910  
Property, plant and equipment
     134  
Intangible assets (net of amortization)
     —  
Other long term assets
     78  
 
      
Total long term assets
     212  
 
      
TOTAL ASSETS
   $ 3,122  
 
      
 
        
Accounts payable
   $ 246  
Other current liabilities
     1,844  
Other long term liabilities
     —  
 
      
TOTAL LIABILITIES
   $ 2,090  
 
      
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
ITEM 9A. CONTROLS AND PROCEDURES
The Company has established disclosure controls and procedures to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. Management has completed its review of the Company’s financial reports and, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, management concluded that as of December 31, 2006 the Company’s disclosure controls and procedures were effective.
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2006 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following are the names, ages and a brief account of the business experience for the last five years of each person who is a director or executive officer of the Company as of March 1, 2007.

51

Table of Contents

             
Name   Age   Position
William C. Ferguson
    76     Chairman of the Board
 
            
Sean W. Brophy
    38     Director
 
            
Carl J. Crosetto
    58     Director
 
            
Matthew C. Kaufman
    36     Director
 
            
Philip Raygorodetsky
    33     Director
 
            
Duncan P. Varty
    62     Director
 
            
Christopher A. White
    41     Director
 
            
Dennis R. Wolters
    60     Chief Executive Officer, President and Director
 
            
             
Name   Age   Position
Dwaine R. Brooks
    64     Vice President, Human Resources
 
            
David B. Freimuth
    54     Group Vice President and General Manager, Textiles and Flexographic Products since January 2004; prior to that Senior Vice President, General Manager, Textile Products
 
            
Dermot J. Healy
    52     Managing Director, Europe
 
            
Thomas J. Koenig
    46     Vice President and Chief Financial Officer and Assistant Secretary
 
            
Stephen P. Noe
    50     Group Vice President and General Manager, Image Transfer Group since November 2003; prior to that Senior Vice President, General Manager, Transfer Media since July 2001; prior to that Senior Vice President, Marketing & Sales, Transfer Media since January 2001
 
            
Brent A. Stephen
    55     Managing Director, Pacific Rim since January 2003; prior to that Vice President and Sales Manager, Australia
William C. Ferguson has been a director since 1998. He retired as Chairman and Chief Executive Officer of NYNEX in 1995, a position he had held since 1989. Mr. Ferguson is a member of the Advisory Board of GSC Group.
Sean W. Brophy has been a director since 2004. He is a Managing Director and founder of Labrador Capital since 2001. Prior to founding Labrador Capital, Mr. Brophy was a Principal and member of the General Partner of Celerity Partners, Inc. Mr. Brophy is a member of the board of directors of Vista Cove Senior Living, Inc., Vista Cove Rancho Mirage, LLC, Robert Brandt & Co., and Rancho Cove Partners, LLC.

52

Table of Contents

Carl J. Crosetto has been a director since 2000. He retired as President of Bowne & Co., Inc. in December 2003 after 30 years service with Bowne. In January 2004, Mr. Crosetto joined GSC Group, as a Senior Advisor and is now a Managing Director. Mr. Crosetto is a member of the board of directors of Bowne & Co., Inc. and SpeedFlex Asia Limited.
Matthew C. Kaufman has been a director since 2000. He is a Senior Managing Director with GSC Group, which he joined in 1999. He is Chairman of the board of directors of Aeromat Holding, Inc. and a member of the board of directors of Atlantic Express Transportation Group, Burke Industries, Inc., Dukes Place holdings Limited, Safety-Kleen Corp., and Worldtex, Inc.
Philip Raygorodetsky has been a director since 2003. He is a Managing Director with GSC Group, which he joined in 1999. Mr. Raygorodetsky is a member of the board of directors of Aeromet Holdings, Inc., Worldtex, Inc. and Wrightline, LLC.
Duncan P. Varty is a newly elected director in 2006. Mr. Varty worked at Bowne & Co., Inc. in 1999 as Senior Vice President-Operations, and then served as the President of Bowne’s Financial Printing operations until he retired in 2002.
Christopher A. White has been a director since 2003. He is the Chief of Staff and Chief Administrative Officer of Cowen Investments I, LLC. Previously, Mr. White worked as a Director of SG Capital partners, LLC and in the Equity Capital Markets group of SG Cowen from 1999 to 2003. He is a member of the board of directors of Achillion Pharmaceuticals, Inc., Coleman Floor Company, Ricerca Bioscience LLC and RNB Communications, Inc.
Messrs. Brophy and Crosetto were elected by the holders of the 121/4% Senior Exchangeable Preferred Stock due 2010 (the “Exchangeable Preferred Stock”). In accordance with the terms of the Certificate of Designation of the Exchangeable Preferred Stock the holders of the Exchangeable Preferred Stock, voting as one class, are allowed to elect two directors, if the dividends on the Exchangeable Preferred Stock are in arrears and unpaid (and in the case of dividends payable after March 15, 2003, are not paid in cash) for four consecutive quarterly periods. As long as the dividends are in arrears, the holders of the Exchangeable Preferred Stock have the right to elect two directors to the Board of Directors until the dividends in arrears have been paid. In December 2005, the Company paid all dividends in arrears in conjunction with the new Credit Agreement. However, since the new Credit Agreement restricts the payment of dividends on the Exchangeable Preferred Stock in the future, the Company has asked Messrs. Brophy and Crosetto to remain as directors.
In conjunction with the repurchase of the Jr. Preferred Shares in December 2005, Mr. Neal Moszkowski resigned as a director of the Company.
Audit Committee Financial Expert
The Company’s Board of Directors has determined that Mr. Ferguson is an independent audit committee financial expert in accordance with Item 407(d)(5) of Regulation S-K.

53

Table of Contents

Code of Ethics
The Company has adopted a Code of Ethics for all associates, including the chief executive officer, chief financial officer, controller and treasurer, addressing business ethics and conflicts of interest. A copy of the Code of Ethics will be provided free of charge upon request of the Chief Financial Officer at P.O. Box 338, 130 West Second Street, Dayton, Ohio 45401-0338, or (937) 224-4000.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
     The objectives of our executive compensation program are to fairly compensate executives for their contributions, link annual cash incentive awards to individual and corporate performance, and provide long-term incentives to create shareholder value.
Elements of Executive Compensation
     The elements of our executive compensation program are discussed below.
     Base Salary. Base salaries of our executives are set at levels moderately below market mid-point compared to similar companies in terms of industry, sales, international operations and public company status. We benchmark base salaries and annual incentive bonus target awards using compensation market data compiled by human resources and compensation consulting firms such as Wyatt Watson. Salaries are reviewed annually and periodically adjusted to reflect market rates as well as significant changes in individual responsibilities and significant corporate events such as acquisitions.
     Annual Incentive Bonus Plan. Our Executive — Pay for Performance Plan, or E-PFP, is designed to reward executives for achievement of individual and corporate performance objectives. An annual target cash award is made for each executive which has both individual and corporate objectives components. Corporate objectives include EBITDA of business units for which the executive is primarily responsible and world-wide company EBITDA. Component award payouts can range from 0% to 200% of target awards based upon achievement of plan targets. Executives responsible for individual business units also have a sales incentive component for sales in excess of plan target. Actual plan awards are determined and paid in the following year. Annual EBITDA targets are challenging but achievable.
     When combined with individual and company performance at 100% of plan target, total annual cash compensation of our executives is intended to be at the mid-point of the benchmark. Total 2006 executive cash compensation at target was increased 4.5% on average over 2005 target levels.
     E-PFP payouts are normally based on strict adherence to the formula for corporate performance components, with a more subjective determination for the individual objectives component. Our Board of Directors retains discretion to increase or decrease annual incentive payouts relative to attainment of performance objectives and has done so in the past to reflect extraordinary or one-time events.

54

Table of Contents

     Equity Awards. Equity-based awards to executives provide a long-term incentive to create shareholder value. Historically equity awards were made under The Day International, Inc. 1998 Stock Option Plan and The Day International, Inc. Stock Option Plan.
     Under the 1998 Plan, our Board of Directors is authorized to award four types of non-qualified stock options: (1) service options, (2) performance options, (3) super performance options and (4) exit options. Service options vest in annual installments, performance and super performance options vest based on achievement of annual EBITDA targets, and exit options vest based upon the internal rate of return to our major shareholder upon a sale of its interest in the company. All options granted under the Day Option Plan vested in 1998.
     In 2006, our Board of Directors adopted a Restricted Stock Unit Plan and granted restricted stock units, or RSUs, to employees who previously held options granted under the Day Option Plan. All options outstanding under the Day Option Plan were cancelled. The RSUs vest on a liquidity event, provided the liquidity event occurs before the seventh anniversary of the effective date of the Restricted Stock Unit Plan. RSUs were granted at specified base values. RSU awards enable participants to realize equity value potential above base value upon a sale of the company, while deferring income taxes prior to the time of the sale.
     In 2006, our Board of Directors adopted a new 2006 Stock Option Plan and granted options to selected executive officers and directors. The options vest in four equal annual installments or sooner upon an approved of sale of the company. The 2006 Stock Option Plan is intended to replace the 1998 Plan without adversely impacting individuals holding options under the 1998 Plan. If a participant exercises any options under the 2006 Plan, all options granted to the participant under the 1998 Plan are forfeited, and vice versa.
     Other Compensation. We provide tax-qualified and non-qualified deferred compensation plans for our executives and associates which permit elective deferrals of salary and bonus, matching contributions under the 401(k) plan and make-up contributions under the Supplemental Plan. We provide one executive with a U.K. individual pension plan. We provide our executives car allowances and other benefits.
Option Grant Practices
     All stock options have been granted at an exercise price equal to the fair market value of our common stock on the date of grant as determined by our Board of Directors, as our common stock is not publicly traded. Option grants are made at times approved by our Board of Directors. The number of options granted to each employee is determined by the Board based upon the recommendation of our CEO based principally upon the individual’s ability to impact corporate performance and, to a lesser degree, the individual’s position.
Role of Executive Officers in Determining Executive Compensation
     Our Board of Directors determines the compensation paid to our CEO and, based on the recommendations and performance evaluations of our CEO, determines the compensation paid to our other named executive officers.

55

Table of Contents

Change in Control Payments
     The accelerated vesting of unvested stock options and RSUs under our stock option and restricted stock plans upon a change in control permits participants to realize the full value of long-term equity awards if the company is sold.
Compensation Committee Report
     The Board of Directors of Day International Group, Inc. has reviewed and discussed the Compensation Discussion and Analysis with management. Based on that review and discussion, the Board recommended that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for 2006.
     
William C. Ferguson, Chairman
  Philip Raygorodetsky
Sean W. Brophy
  Christopher A. White
Carl J. Crosetto
  Dennis R. Wolters
Matthew C. Kaufman
  Duncan P. Varty
Summary Compensation Table
     The following table sets forth the compensation of our Chief Executive Officer, Chief Financial Officer and our other three most highly compensated executive officers for 2006.
                                                 
                            Non-Equity        
                    Option   Incentive Plan   All Other    
            Salary   Awards(1)   Compensation(2)   Compensation   Total
Name and Principal Position   Year   ($)   ($)   ($)   ($)   ($)
Dennis R. Wolters
     2006       400,000       549,945       226,875       61,955 (3)     1,238,775  
President and Chief
Executive Officer
                                                
 
                                                
David B. Freimuth
     2006       229,500       162,229       63,934       29,918 (4)     485,581  
Group Vice President and
General Manager, Textiles
and Flexographic Products
                                                
 
                                                
Dermot J. Healy
     2006       263,719       74,093       82,378       77,402 (5)     497,592  
Managing Director, Europe
                                                
 
                                                
Thomas J. Koenig
     2006       210,000       46,578       55,238       26,326 (6)     338,142  
Vice President and Chief
Financial Officer
                                                
 
                                                
Stephen P. Noe
     2006       247,750       48,924       69,949       28,602 (7)     395,225  
Group Vice President and
General Manager, Image
Transfer
                                                

56

Table of Contents

 
Note:   All amounts shown for non-U.S. named executive officers were paid in U.K. pounds and converted to U.S. dollars at the average exchange rate for the year.
 
(1)   Represents the dollar amount recognized for financial statement reporting purposes for the fiscal year with respect to option and restricted stock unit (RSU) awards in accordance with the modified prospective application method under SFAS No. 123(R) without regard to estimates for forfeitures related to service-based vesting conditions. During 2006, 385 options and RSUs with a weighted average exercise price of $1,161 were cancelled or expired. For information regarding our valuation of option and RSU awards, see Note L to our consolidated financial statements in Item 8.
 
(2)   Represents cash incentive awards earned under our Executive — Pay for Performance Plan.
 
(3)   Represents company contributions to the Day 401(k) and Profit Sharing Plan ($14,050), company contributions to the Day International, Inc. Supplemental Savings and Retirement Plan ($26,650), premiums for group term life insurance ($8,161), automobile allowance ($6,673), tax and financial planning ($4,147), and club dues ($2,004).
 
(4)   Represents company contributions to the Day 401(k) and Profit Sharing Plan ($14,050), company contributions to the Day International, Inc. Supplemental Savings and Retirement Plan ($6,939), premiums for group term life insurance ($1,402), and automobile allowance ($7,527).
 
(5)   Represents company contributions to a U.K. individual retirement plan ($58,973), and automobile allowance ($18,429).
 
(6)   Represents company contributions to the Day 401(k) and Profit Sharing Plan ($14,050), company contributions to the Day International, Inc. Supplemental Savings and Retirement Plan ($3,646), premiums for group term life insurance ($749), and automobile allowance ($7,881).
 
(7)   Represents company contributions to the Day 401(k) and Profit Sharing Plan ($14,050), company contributions to the Day International, Inc. Supplemental Savings and Retirement Plan ($8,850), premiums for group term life insurance ($1,542), and automobile allowance ($4,160).
Employment Agreements
     Messrs. Wolters, Freimuth, Healy, Koenig and Noe each have an employment agreement with Day International, Inc. that provides for an annual base salary, an annual incentive bonus if we perform at annual plan target, and benefits and perquisites. The employment agreements with Messrs. Wolters and Freimuth automatically renew annually for one year terms unless either party gives notice of non-renewal. The employment agreements with Messrs. Healy, Koenig and Noe are terminable at-will. The agreements contain confidentiality, non-competition and non-solicitation provisions. Benefits payable under the employments agreements upon termination of the executive’s employment are described under “Potential Payments Upon Termination or Change in Control.”

57

Table of Contents

Grants of Plan-Based Awards
     The following table sets forth information concerning grants of awards to named executive officers under cash incentive plans and equity-based plans in 2006.
                                                         
                                    All Other            
                                    Option            
                                    Awards:           Grant
            Estimated Future Payouts Under   Number of   Exercise or   Date Fair
            Non-Equity   Securities   Base Price of   Value of
            Incentive Plan Awards(1)   Underlying   Option   Option
    Grant   Threshold   Target   Maximum   Options   Awards   Awards(4)
Name   Date   ($)   ($)   ($)   (#)   ($/sh)   ($)
Dennis R. Wolters
             82,500       330,000       660,000                          
 
     6/26/06                               1,200 (2)     1,000       899,522  
 
     8/9/06                               280 (3)     2,500       404,911  
 
                                                        
David B. Freimuth
             29,525       118,100       236,200                          
 
     6/26/06                               200 (2)     1,000       149,920  
 
     6/26/06                               110 (2)     1,200       82,456  
 
     8/9/06                               310 (3)     2,500       136,676  
 
                                                        
Dermot J. Healy
                     [£44,700]                                  
 
     6/26/06                               200 (2)     1,200       149,920  
 
     8/9/06                               200 (3)     2,500       89,952  
 
                                                        
Thomas J. Koenig
             17,850       71,400       142,800                          
 
     8/9/06                               185 (3)     2,500       138,676  
 
                                                        
Stephen P. Noe
             29,813       119,250       238,500                          
 
     8/9/06                               215 (3)     2,500       161,164  
 
(1)   Awards under the Executive — Pay for Performance Plan. Threshold, target and maximum represent 25%, 100% and 200% of target plan award, respectively.
 
(2)   Restricted stock units awarded under the 2006 Day International Group, Inc. Restricted Stock Unit Plan.
 
(3)   Stock options granted under the Day International Group, Inc. 2006 Stock Option Plan.
 
(4)   Represents the grant date fair market value of each option award computed in accordance with SFAS No. 123(R), including the incremental fair value as of June 26, 2006 of the RSUs that replaced outstanding options under the Day Option Plan.
Executive — Pay for Performance Plan Awards
     Under the Executive — Pay for Performance Plan, an annual target cash award is made for each participant consisting of individual and corporate objectives components. For 2006, individual objectives accounted for 30% and corporate objectives accounted for 70% of target awards. Individual objectives consist of approximately five to seven pre-approved objectives per year. Corporate objectives consist of world-wide company EBITDA for our CEO and CFO and both business unit and world-wide company EBITDA for our other named executives. Component award payouts can range from 0% to 200% of target award based upon achievement of plan targets. For 2006, EBITDA component awards payout at 0% at 85% of EBITDA target, increasing to 100% of target award at 100% of EBITDA target

58

Table of Contents

and to 200% at 110% of EBITDA target. Executives receive a greater incremental percentage of target award for performance above, than below, 100% of plan target. Executives responsible for individual business units also have a sales objective component equal to 1% of sales above plan target. Award payouts are determined after calendar year end and normally paid by March 31. Awards are earned only if the executive is employed during the entire calendar year unless employment terminates due to retirement, permanent layoff, permanent disability or death.
Restricted Stock Unit Awards
     On June 26, 2006, we granted restricted stock units, or RSUs, to employees who previously held options granted under the Day International Group, Inc. Stock Option Plan, or Day Option Plan. The RSUs vest on a liquidity event (defined as a change in control, an underwritten public offering or a sale notice under the Stockholders Agreement) provided that the liquidity event occurs before the seventh anniversary of the grant date. Upon the occurrence of a liquidity event before such seventh anniversary, of the effective date of the Restricted Stock Unit Plan, participants who are employed by us will receive for each RSU held either shares of Class A voting common stock having a fair market value equal to, or in the discretion of our Board of Directors cash equal to, the difference between the fair market value of a share of common stock and the base value of the RSU. Participants whose employment terminates without cause or as a result of retirement, disability or death will retain specified percentages of their RSU awards. All RSUs are forfeited if a liquidity event does not occur before June 26, 2013.
     All outstanding options under the Day Option Plan were terminated. As of June 26, 2006, there had been 75 options outstanding under the Day Option Plan with an exercise price of $1,000 per share expiring in 2006 and 310 options outstanding with an exercise price of $1,200 per share expiring in 2007.
Stock Option Grants
     On August 9, 2006, we granted options to purchase shares of our Class A voting common stock to selected executive officers and directors under a new 2006 Stock Option Plan. The options were granted at an exercise price of $2,500 per share, representing the fair market value of our voting common stock on the date of grant as determined by our Board of Directors, as our common stock is not publicly traded. The options vest and become exercisable in four equal annual installments on the first four anniversaries of the grant date and expire ten years from the grant date. Unvested options vest and become exercisable in full upon a sale of Day International Group, Inc. to an independent third party approved by Greenwich IV, LLC, our major shareholder. If a participant exercises any options granted under the 2006 Plan, all options granted to the participant under our 1998 Stock Option Plan are forfeited. Conversely, if a participant exercises any options granted under the 1998 Plan, all options granted to the participant under the 2006 Plan are forfeited.
Outstanding Equity Awards at Fiscal 2006 Year-End
     The following table sets forth information concerning unexercised options and restricted stock units outstanding for each named executive officer at the end of 2006.

59

Table of Contents

                                 
    Option Awards
    Number of   Number of        
    Securities   Securities        
    Underlying   Underlying        
    Unexercised   Unexercised        
    Options or RSUs   Options or RSUs   Option Exercise or    
    (#)   (#)   Base Price   Option or RSU
Name   Exercisable   Unexercisable   ($)   Expiration Date
Dennis R. Wolters
     450       2,400 (1)     4,030       1/16/07  
 
     —       200 (2)     4,030       5/29/12  
 
     —       1,200 (3)     1,000       6/26/13  
 
     —       280 (4)     2,500       8/9/16  
 
                                
David B. Freimuth
     124       656 (1)     4,030       1/16/07  
 
     —       75 (2)     4,030       5/29/12  
 
     —       200 (3)     1,000       6/26/13  
 
     —       110 (3)     1,200       6/26/13  
 
     —       310 (4)     2,500       8/9/16  
 
                                
Dermot J. Healy
     53       282 (1)     4,030       1/16/07  
 
     —       40 (2)     4,030       5/29/12  
 
     —       200 (3)     1,200       6/26/13  
 
     —       120 (4)     2,500       8/9/16  
 
                                
Thomas J. Koenig
     9       51 (1)     4,030       1/16/07  
 
     60       135 (2)     4,030       5/29/12  
 
     —       185 (4)     2,500       8/9/16  
 
                                
Stephen P. Noe
     100       200 (2)     4,030       5/29/12  
 
     —       215 (4)     2,500       8/9/16  
 
(1)   Performance options, super performance options and exit options granted under the 1998 Stock Option Plan.
 
(2)   Performance options granted under the 1998 Stock Option Plan. Performance options vest and become exercisable in annual installments based upon achievement of annual EBITDA targets.
 
(3)   Restricted stock units which vest on a liquidity event occurring prior to June 26, 2013.
 
(4)   Options vest in four equal annual installments on the first four anniversaries of the grant date. The grant date was August 9, 2006.
Individual Retirement Plan
     We provide Dermot J. Healy, our Managing Director, Europe, with a tax-qualified defined contribution individual retirement plan under U.K. pension law known as a “money purchase scheme.” We fund this plan at a base contribution rate of £28,000 per year plus the compounded U.K. inflation rate until Mr. Healy’s retirement at normal retirement age. The money purchase scheme is a self-directed retirement account and permits participant contributions. Our contributions to the plan for 2006 are reported in the Summary Compensation Table.
Nonqualified Deferred Compensation

60

Table of Contents

     The following table sets forth information concerning each nonqualified defined contribution plan or other nonqualified deferred compensation plan with respect to our named executive officers.
                                         
    Executive                           Aggregate
    Contributions in   Registrant   Aggregate   Aggregate   Balance at Last
    Last Fiscal   Contributions in   Earnings in Last   Withdraws/   Fiscal Year
    Year(1)   Last Fiscal Year(1)   Fiscal Year   Distributions   End(2)
Name   ($)   ($)   ($)   ($)   ($)
Dennis R. Wolters
     12,000       26,650       16,819       —       182,709  
 
                                        
David B. Freimuth
     29,343       6,939       11,459       —       201,398  
 
                                        
Dermot J. Healy
     —       —       —       —       —  
 
                                        
Thomas J. Koenig
     6,300       3,646       3,140       —       53,316  
 
                                        
Stephen P. Noe
     24,775       8,850       9,698       —       189,634  
 
(1)   All amounts in these columns are reported as compensation for 2006 in the Summary Compensation Table.
 
(2)   The following amounts in this column were reported as compensation to the named executive officer in the Summary Compensation Table for previous years: Mr. Wolters $15,848, Mr. Freimuth $2,575, Mr. Koenig $1,786 and Mr. Noe $5,246.
     The Day International, Inc. Supplemental Savings and Retirement Plan permits a select group of executives to defer up to 25% of base salary and 50% of bonus compensation annually to the Plan. The Plan also provides for company contributions to participants’ accounts to make-up reduced company contributions on participants’ behalf to the Day International, Inc. 401(k) Savings and Retirement Plan, which can occur when a participant’s elective deferrals under the Supplemental Plan reduces the company discretionary contribution on his behalf to the 401(k) Plan or the participant’s compensation exceeds the limit for the company discretionary contribution to the 401(k) Plan. Participants’ accounts accrue earnings based on different investment funds selected by the participant. Investment options may be changed twice a year. Benefits are paid upon death, disability or termination of employment in a lump sum or annual installments over five years as chosen by the participant. Amounts deferred or credited under the Supplemental Plan are unfunded obligations of the company and subject to the same risks as other general obligations of the company.
Potential Payments Upon Termination or Change in Control
     Set forth below is information concerning amounts and benefits that would become payable under existing agreements, plans and arrangements to our named executive officers upon a termination of employment or a change in control of the company. These benefits are in addition to benefits available generally to all salaried employees.
     Employment Agreements. If the employment of Mr. Wolters or Mr. Freimuth is terminated without cause, whether actually or constructively, if there is a reduction in his benefits package following a change in control, or if the executive is terminated due to a disability, the executive is entitled to receive accrued salary to the date of termination, accrued and unused vacation, pro-rata incentive bonus for the

61

Table of Contents

year of termination assuming 100% of plan target was met, a lump sum equal to one times base salary and the annual incentive bonus as if 100% of plan target was met, and continuation of all benefits and perquisites for one year following termination. If the employment of Mr. Healy, Mr. Koenig or Mr. Noe is terminated without cause, the executive is entitled to receive accrued salary to the date of termination and a lump sum equal to one times base salary and annual incentive bonus as if 100% of plan target was met. If employment is terminated due to disability, Messrs. Healy, Koenig and Noe are entitled to receive accrued salary to the date of termination and pro-rata incentive bonus for the year of termination based on actual performance.
     The following table shows the estimated amounts payable to named executive officers assuming the executive’s employment had terminated on December 31, 2006.
         
    Aggregate Cash Payments  
    Upon Termination  
Name   Without Cause or Disability  
Dennis R. Wolters
   $ 730,000
 
        
David B. Freimuth
     374,600
 
        
Dermot J. Healy
     187,800
 
        
Thomas J. Koenig
     281,400
 
        
Stephen P. Noe
     367,000
     All employment agreements contain confidentiality, non-competition and non-solicitation provisions. Mr. Wolters and Mr. Freimuth are released from their non-competition obligation and certain non-solicitation provisions if their employment is terminated without cause.
     If the executive’s employment terminates due to death, the executive’s estate is entitled to accrued salary through the date of death, pro-rata incentive bonus for the year of termination, and the executive’s life insurance benefit. We provide group term life insurance for the named executives in the following amounts: Mr. Wolters $500,000, Mr. Freimuth $465,703, Mr. Healy $352,448, Mr. Koenig $352,800 and Mr. Noe $486,250.
     Equity Awards. Exit options granted under the 1998 Stock Option Plan vest based on the return to our major shareholder upon a sale of its interest. Restricted stock units (RSUs) granted under the 2006 Restricted Stock Plan vest and become exercisable upon a change in control. Unvested stock options granted under the 2006 Stock Option Plan automatically become 100% vested upon an approved sale of Day International, Inc. Assuming a change in control occurred on December 31, 2006, the following executive officers would hold accelerated options and RSUs with the following values:
         
    Aggregate Value of Accelerated
Name   Option and RSU Awards(1)
Dennis R. Wolters
   $ 7,250,849  
 
        
David B. Freimuth
     1,965,289  
 
        
Dermot J. Healy
     895,476  
 
        
Thomas J. Koenig
     —  
 
        
Stephen P. Noe
     —  

62

Table of Contents

 
(1)   Based on the spread between the exercise price or base price of the option or RSU and the fair market value of our common stock on December 31, 2006 as determined by our Board of Directors.
     Nonqualified Deferred Compensation and Retirement Plans. Our named executive officers participate in a nonqualified deferred compensation plan that permits the deferral of salary and bonus and provides for company make-up contributions. Amounts shown in the last column of the Nonqualified Deferred Compensation Table reflect the executive’s aggregate balance under the plan at December 31, 2006 which would become payable to the executive upon a termination of employment for any reason. Mr. Healy participates in a U.K. individual retirement plan described under Individual Retirement Plan.
Director Compensation for 2006
     The following table sets forth information concerning the compensation of our non-employee directors for 2006.
                         
    Fees Earned or   Option    
    Paid in Cash   Awards(1)   Total
Name   ($)   ($)   ($)
William C. Ferguson
     100,000       5,856       105,856  
 
                        
Sean W. Brophy
     25,000       —       25,000  
 
                        
Carl J. Crosetto
     —       —       —  
 
                        
Matthew C. Kaufman
     —       —       —  
 
                        
Philip Raygorodetsky
     —       —       —  
 
                        
Christopher A. White
     —       —       —  
 
                        
Duncan P. Varty
     25,000       1,952       26,952  
 
(1)   Represents the dollar amount recognized for financial statement reporting purposes for the fiscal year with respect to option awards in accordance with the modified prospective application method under SFAS No. 123(R) without regard to estimates for forfeitures related to service-based vesting conditions. For information regarding our valuation of option awards, see Note L to our consolidated financial statements in Item 8.
 
    The grant date fair value of each option award computed in accordance with SFAS No. 123(R) for each non-employee director is as follows: Mr. Ferguson $56,220 and Mr. Varty $18,740.
 
    The aggregate number of options outstanding for each non-employee director at December 31, 2006 was as follows: Mr. Ferguson 75 and Mr. Varty 25.

63

Table of Contents

Director Compensation Arrangements
     As compensation for services as director, in 1998 Mr. Ferguson received warrants to purchase up to 74 shares of our common stock at $4,030 per share expiring 2009. In 2000 Mr. Ferguson and Mr. Crosetto each received warrants to purchase up to 74 shares of our common stock at $4,030 per share expiring in 2010. All warrants are fully vested.
     In 2006, Messrs. Ferguson and Varty were granted options to purchase 75 and 25 shares of our common stock, respectively, at an exercise price of $2,500 per share vesting in four equal annual installments on each of the first four anniversaries of the grant date and expiring August 9, 2016.
     Mr. Ferguson receives an annual retainer of $100,000 for his services as Chairman of the Board. Mr. Brophy and Mr. Varty each receive an annual retainer of $25,000 for their services as a director. None of our other directors receive any cash compensation for their services as directors.
Compensation Committee Interlocks and Insider Participation
     Since we do not have a compensation committee, our Board of Directors determines executive compensation. Mr. Ferguson serves on the Advisory Board of GSC Group. Mr. Crosetto is a Managing Director of GSC Group. Mr. Kaufman is a Senior Managing Director of GSC Group. Mr. Raygorodetsky is a Managing Director of GSC Group. Mr. White is a Director of Cowen Investments I, LLC. GSC Group and Cowen Investments I, LLC, our controlling shareholders, provide business, financial and management advisory services to the company for an annual total fee of $1.0 million, plus expenses. We also have agreed to indemnify GSC Group and Cowen Investments I, LLC against certain liabilities. Mr. Wolters is our President and CEO. No other executive officers participated in Board deliberations regarding executive compensation in 2006.

64

Table of Contents

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
                         
                    Number of  
                    securities  
                    remaining  
                    available for  
    Number of             future issuance  
    securities to be             under equity  
    issued upon     Weighted-average     compensation  
    exercise of     exercise price of     plans (excluding  
    outstanding     outstanding     securities  
    options, warrants     options, warrants     reflected in  
    and rights     and rights     column (a))  
    (a)     (b)     (c)  
Equity compensation plans approved by security holders
     —     $ —       —  
 
                        
Equity compensation plans not approved by security holders (1)
     9,434       3,742       448  
 
                  
 
                        
Total
     9,434     $ 3,742       448  
 
                  
 
(1)   These plans consist of the Day Stock Option Plan, the 1998 Stock Option Plan and warrants issued to individual directors as compensation for services performed. These plans were approved by shareholders holding a majority of the Class A Voting Common Stock through their representation on the Board of Directors. See Note L to the Consolidated Financial Statements for detailed descriptions of these plans.
Security Ownership
The following table sets forth certain information regarding the beneficial ownership of the Company’s Common Stock, including options to acquire Common Stock, by (i) each person (or group of affiliated persons) known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each Director, (iii) the Company’s Chief Executive Officer and the Company’s other named executive officers (as determined in accordance with the rules of the Commission), and (iv) all of the Company’s executive officers and Directors as a group. Except as indicated in the footnotes to this table, the Company believes that the persons named in this table have sole voting and investment power with respect to all the shares of stock indicated.

65

Table of Contents

                 
    No. of Shares        
    of Stock     % of  
Name of Beneficial Owner   (a)(b)     Stock  
Common Stock:
                
Dennis R. Wolters
     808       3.0  
David B. Freimuth
     262       1.0  
Dermot J. Healy
     78       0.3  
Thomas J. Koenig
     107       0.4  
Stephen P. Noe
     144       0.5  
Sean W. Brophy
     —       —  
Carl J. Crosetto (c)
     74       0.3  
William C. Ferguson
     148       0.6  
Matthew C. Kaufman (c)
     —       —  
Philip Raygorodetsky (c)
     —       —  
Christopher A. White (d)
     —       —  
Duncan P. Varty
     5       0.0  
All Directors and Executive Officers as a Group (14 persons)
     1,712       6.4  
Unione Italiana
     195       0.7  
Towerbrook
     974       3.0  
Cowen Investments I, LLC (d)
     3,865       14.5  
1221 Avenue of the Americas
New York, NY 10020
                
Greenwich IV, LLC (c)
     19,156       72.0  
GSC Partners
500 Campus Drive, Suite 220
Florham Park, NJ 07932
                
 
(a)   Beneficial ownership is determined in accordance with the rules of the Commission and includes general voting power and/or investment power with respect to securities. The table includes shares of Common Stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this report. As of the date of this report, the number of such shares is 1,574.3. Exercisable options included in the number of shares above include 508 shares for Mr. Wolters, 162 shares for Mr. Freimuth, 78 shares for Mr. Healy, 93 shares for Mr. Koenig, 145 shares for Mr. Noe and 1,050 shares for all directors and executive officers as a group. The shares listed for Mr. Crosetto and Mr. Ferguson represent vested warrants to purchase shares of Common Stock.
 
(b)   Cowen Investments owns shares of Class B Non-Voting Common Stock. Class C Non Voting Shares are owned by Quantum Industrial Partners, SFM Domestic Investments, TRV Employees Fund, The Travelers Insurance Company, The Travelers Life & Annuity Company, Unione Italiana, Towerbrook, Cowen Investments and GSC Partners. All other shares are shares of Class A Voting Common Stock.
 
(c)   Greenwich IV, LLC is an affiliate of GSC Group. Messrs. Crosetto, Kaufman and Raygorodetsky may be deemed to have indirect beneficial ownership of the 19,156 shares of Common Stock beneficially owned by Greenwich IV, LLC by virtue of their affiliation with GSC Group. Each of Messrs. Crosetto, Kaufman and Raygorodetsky disclaim any such beneficial ownership.

66

Table of Contents

(d)   Mr. White may be deemed to have indirect beneficial ownership of the 3,865 shares of Common Stock by virtue of his affiliation with Cowen Investments. Mr. White disclaims any such beneficial ownership.
Stockholders Agreement
The Stockholders Agreement provides for the number of directors of the Board of Directors of the Company to be such number as designated by GSC Group and for the composition of the Board of Directors of the Company to consist of four individuals designated by GSC Group and, for so long as Cowen Investments I, LLC holds 5% of the outstanding Common Stock, one individual designated by Cowen Investments I, LLC.
In the Stockholders Agreement, the Management Stockholders have agreed, except under certain circumstances, not to transfer shares of Common Stock, or options to acquire Common Stock, prior to the later to occur of (i) the fifth anniversary of the date of the Stockholders Agreement and (ii) the consummation of a public offering. In addition, under the Stockholders Agreement, if a Management Stockholder’s employment is terminated, the Company shall have the right to purchase all or part of the shares of the Common Stock owned by such Management Stockholder and the vested options to acquire Common Stock owned by such Management Stockholder, at prices calculated in accordance with, and subject to certain other terms and conditions set forth in, the terms of the Stockholders Agreement.
The Stockholders Agreement creates certain conventional “drag” and “tag” rights with respect to the shares of the Common Stock owned by the Management Stockholders. The Stockholders Agreement also provides that at any time after the Acquisition Closing Date, GSC Group shall have the right to require the Company to effect up to two registrations of their Common Stock on Form S-1 under the Securities Act and, if available, unlimited registrations on Form S-2 or S-3 under the Securities Act; from and after a public offering, Cowen Investments I, LLC shall have the right to require the Company to effect up to two registrations of the Common Stock on Form S-3 under the Securities Act and that the Company shall pay all registration expenses in connection with each registration of shares of the Common Stock pursuant to the Stockholders Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We have engaged GSC Group and Cowen Investments I, LLC, pursuant to the Management Agreement, to provide us with certain business, financial and managerial advisory services, including developing and implementing corporate and business strategy and providing other consulting and advisory services. The Management Agreement provides for an annual fee of $1.0 million and contains indemnification and expense reimbursement provisions that are customary for management agreements of this type. The Management Agreement will continue in full force and effect, and will terminate upon, the earlier of (i) January 18, 2008, and (ii) the date on which the affiliates of GSC Group no longer, directly or indirectly, own any shares of capital stock of the Company, and may be earlier terminated by GSC Group, in its sole discretion.
Review and Approval of Transactions with Related Persons

67

Table of Contents

     Our code of ethics for associates, including executive officers, prohibits associates from accepting any compensation from, being employed by, or holding a financial interest in, any outside concern that does or seeks to do business with us, other than for small investments in publicly-held companies. Investments in privately-held organizations with which we do or might do business must be reported to management.
     We review all financial transactions, arrangements or relationships between the company and our directors, executive officers, their immediate family members and our significant shareholders to determine the materiality of the related person’s interest, whether it creates a conflict of interest, and whether it is on terms comparable to arm’s length dealings with an unrelated party or otherwise fair to us. Our internal auditing staff is responsible for developing controls and processes for identifying related party transactions. Our CEO is normally responsible for reviewing and approving related party transactions, unless he determines the size, significance or other aspects of the transaction require review and approval by our Board of Directors.
Director Independence
     Messrs. Ferguson, Brophy and Varty are independent under New York Stock Exchange corporate governance listing standards. We are not a listed issuer on the NYSE but have used the NYSE definition of independence for purposes of this determination. We do not have separately designated audit, nominating or compensation committees and our Board of Directors performs the functions normally performed by such committees. Messrs. Crosetto, Kaufman, Raygorodetsky and White, by virtue of their positions with GSC Group and Cowen Investments I, LLC, respectively, our controlling shareholders, and Mr. Wolters our CEO, are not independent under the NYSE independence standards for audit, nominating and compensation committee members.
     We are a “controlled company” under the NYSE corporate governance listing standards as more than 50% of our voting power is held by Greenwich IV, LLC, an affiliate of GSC Group. A controlled company is not required to comply with the NYSE’s requirements that a majority of the board of directors be independent or that the nominating and compensation committees be composed entirely of independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees
The following table presents fees for professional services rendered by Ernst & Young LLP for the years ended December 31, 2006 and 2005.
                 
    2006     2005  
Audit fees
   $ 494     $ 527  
Audit-related fees
     33       3  
Tax fees
     316       435  
 
            
Total
   $ 843     $ 965  
 
            

68

Table of Contents

Audit fees consist of fees billed or agreed to be billed for services related to the audit of the Company’s consolidated annual financial statements and reviews of the interim consolidated financial statements and services that are normally provided by Ernst & Young LLP in connection with statutory and regulatory filings.
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit and not reported under “Audit fees.” This category includes services related to audits of employee benefit plans and consultations in connection with acquisitions.
Tax fees consist of fees billed or agreed to be billed for services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and international tax compliance, acquisitions and international tax planning.
Policy on Pre-Approval of Services of the Independent Auditor
The Board of Directors’ policy is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The Board has delegated pre-approval authority to the Chief Executive Officer for de minimis services when expedition of services is necessary, with follow-up with the Board of Directors at their next meeting. The independent auditors and management are required to periodically report to the full Board of Directors regarding the extent of services provided by the independent auditors.
Part IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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.
Years ended December 31, 2006, 2005 and 2004:
     Report of Independent Registered Public Accounting Firm
     Consolidated Balance Sheets
     Consolidated Statements of Operations
     Consolidated Statements of Stockholders’ Equity (Deficit)
     Consolidated Statements of Cash Flows
     Notes to Consolidated Financial Statements

69

Table of Contents

(a)(2) Financial Statement Schedules
The information required to be submitted in the Financial Statement Schedules 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; therefore, those schedules have been omitted.
(b) Exhibits
See Index to Exhibits

70

Table of Contents

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 30, 2007
  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 30, 2007
  By:   /s/ Dennis R Wolters
 
    
    Dennis R. Wolters    
    President, Chief Executive Officer and    
    Director (Principal Executive Officer)    
 
            
Date: March 30, 2007
  By:   /s/ Thomas J. Koenig
 
    
    Thomas J. Koenig    
    Vice President and Chief Financial Officer    
    (Principal Financial Officer and Principal    
    Accounting Officer)    
 
            
Date: March 30, 2007
  By:   /s/ William C. Ferguson
 
    
    William C. Ferguson    
    Director    
 
            
Date: March 30, 2007
  By:   /s/ Sean W. Brophy
 
    
    Sean W. Brophy    
    Director    

71

Table of Contents

             
Date: March 30, 2007
  By:   /s/ Carl J. Crosetto
 
    
    Carl J. Crosetto    
    Director    
 
            
Date: March 30, 2007
  By:   /s/ Matthew C. Kaufman
 
    
    Matthew C. Kaufman    
    Director    
 
            
Date: March 30, 2007
  By:   /s/ Philip Raygorodetsky
 
    
    Philip Raygorodetsky    
    Director    
 
            
Date: March 30, 2007
  By:   /s/ Christopher A. White
 
    
    Christopher A. White    
    Director    
 
            
Date: March 30, 2007
  By:   /s/ Duncan P. Varty
 
    
    Duncan P. Varty    
    Director    

72

Table of Contents

INDEX TO EXHIBITS
(1) Underwriting Agreements
  1.1   Purchase Agreement, dated as of March 13, 1998 between the Company and Societe Generale Securities Corporation (incorporated by reference to Exhibit 1.1 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
(3) Articles of Incorporation and By-Laws
  3.1   Certificate of Incorporation of Day International Group, Inc. (“Group”), as amended (incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the year ended December 31, 2003)
 
  3.2   Certificate of Amendment to the Certificate of Incorporation of Day International Group, Inc., dated as of December 2, 2005 (incorporated by reference to Exhibit 3.1 to Form 8-K dated December 8, 2005)
 
  3.3   By-Laws of Group, as amended (incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K for the year ended December 31, 2003)
(4) Instruments Defining Rights of Security Holders, including Indentures
  4.1   Registration Rights Agreement, dated as of March 18, 1998, by and between the Company and Societe Generale Securities Corporation (incorporated by reference to Exhibit 4.4 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
  4.2   Certificate of Designation, dated March 18, 1998, of Powers, Preferences and Relative, Participating, Optional and other Special Rights of 121/4% Senior Exchangeable Preferred Stock due 2010 and Qualifications, Limitations and Restrictions thereof (the “Exchangeable Preferred Stock”) (incorporated by reference to Exhibit 4.5.1 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
  4.3   Form of Global Certificate for the Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.5.2 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
  4.4   Certificate of Amendment to the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof, dated as of December 2, 2005 (incorporated by reference to Exhibit 3.3 to Form 8-K dated December 8, 2005)
 
  4.5   Certificate of Amendment to the Certificate of Designation of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Exchangeable Preferred Stock and Qualifications, Limitations and Restrictions Thereof, dated as of May 10, 2006 (incorporated by reference to Exhibit 3.1 to Form 8-K dated May 11, 2006)

73

Table of Contents

  4.6   Amended and Restated Stockholders Agreement, dated as of October 19, 1999, among the Company and certain of its stockholders (incorporated by reference to Exhibit 4.5 to the Form 8-K dated October 28, 1999)
 
  4.7   Amendment to the Amended and Restated Stockholders Agreement, dated as of December 2, 2005, among Day International Group, Inc. and the stockholders thereto (incorporated by reference to Exhibit 4.2 to Form 8-K dated December 8, 2005)
(10) Material Contracts
  10.1   Credit and Guaranty Agreement, dated as of December 5, 2005, among Day International Group, Inc., Day International, Inc., certain subsidiaries of Day International, Inc., various lenders party thereto and Goldman Sachs Credit Partners L.P. as administrative and collateral agent (incorporated by reference to Exhibit 10.1 to Form 8-K dated December 8, 2005)
 
  10.2   Deed of Trust, dated January 15, 1998, with respect to the North Carolina property (incorporated by reference to Exhibit 4.12 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839)); as amended October 19, 1999 (incorporated by reference to Exhibit 10.6.1 to the Form 8-K dated September 22, 2003); as further amended June 29, 2001 (incorporated by reference to Exhibit 10.6.2 to the Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated by reference to Exhibit 10.6.3 to the Form 8-K dated September 22, 2003) as modified December 5, 2005.
 
  10.3   Mortgage and Security Agreement Dated January 16, 1998, with respect to the Michigan Property (incorporated by reference to Exhibit 4.13 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839)); as amended October 19, 1999 (incorporated by reference to Exhibit 10.7.1 to the Form 8-K dated September 22, 2003); as further amended June 29, 2001 (incorporated by reference to Exhibit 10.7.2 to the Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated by reference to Exhibit 10.7.3 to the Form 8-K dated September 22, 2003) as modified
 
  10.4   Mortgage Agreement, dated October 19, 1999, with respect to the South Carolina property (incorporated by reference to Exhibit 10.5.1 to the Form 8-K dated September 22, 2003); as amended June 29, 2001 (incorporated by reference to Exhibit 10.5.2 to the Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated by reference to Exhibit 10.5.3 to the Form 8-K dated September 22, 2003)
 
  10.5   Deed of Trust, dated October 19, 1999, with respect to the Texas property (incorporated by reference to Exhibit 10.8.1 to the Form 8-K dated September 22, 2003); as modified September 16, 2003 (incorporated by reference to Exhibit 10.8.2 to the Form 8-K dated September 22, 2003) as modified
 
  10.6   Mortgage Agreement, dated October 19, 1999, with respect to the Illinois property (incorporated by reference to Exhibit 10.9.1 to the Form 8-K dated September 22, 2003); as amended June 29, 2001 (incorporated by reference to Exhibit 10.9.2 to the Form 8-K dated September 22, 2003); and as modified September 16, 2003 (incorporated by reference to Exhibit 10.9.3 to the Form 8-K dated September 22, 2003) as modified
 
  10.9   Stock Purchase Agreement, dated as of December 18, 1997, by and among Greenwich IV, LLC, GSD Acquisition Corp. and the Stockholders of Day International Group, Inc.

74

Table of Contents

      parties thereto (incorporated by reference to Exhibit 2.1 to the Form 8-K dated January 16, 1998); as amended on January 16, 1998 (incorporated by reference to Exhibit 2.2 to the Form 8-K dated January 16, 1998)
     
10.10*
  Consulting Agreement between the Company and GSC Partners (incorporated by reference to Exhibit 10.5.1 to the Amendment No. 2 to Registration Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))
 
    
10.11*
  Indemnification Agreement between the Company and GSC Partners (incorporated by reference to Exhibit 10.5.2 to the Amendment No. 2 to Registration Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))
 
    
10.12*
  Consulting Agreement between the Company and SG Capital Partners Limited (incorporated by reference to Exhibit 10.5.3 to the Amendment No. 2 to Registration Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))
 
    
10.13*
  Indemnification Agreement between the Company and SG Capital Partners Limited (incorporated by reference to Exhibit 10.5.4 to the Amendment No. 2 to Registration Statement on Form S-4/A filed on June 22, 1998 (Reg. No. 333-51839))
 
    
10.14 
  Purchase Agreement between Armstrong World Industries, Inc. and Armstrong World Industries GmbH, as Sellers and Day International, Inc., as Buyer (incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999)
 
    
10.15 
  Purchase Agreement by and among Day International Group, Inc., Day International, Inc., Day Germany Holdings GmbH, Saurer AG, Saurer GmbH & Co. KG, Aktiengesellschaft Adolph Saurer and Accotex Inc. (formerly ATPG International, Inc.), dated as of May 9, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K dated October 17, 2006)
 
    
10.16 
  Purchase Agreement by and among Day International Group, Inc. and Duco International dated October 11, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K dated October 17, 2006)
 
    
10.17*
  Stock warrant to purchase shares of Common Stock of the Company, dated as of January 18, 1998, issued to Mr. William C. Ferguson (incorporated by reference to Exhibit 10.30 to the Annual Report on Form 10-K for the year ended December 31, 1998)
 
    
10.18*
  Stock warrant to purchase shares of Common Stock of the Company, dated as of January 27, 2000, issued to Mr. William C. Ferguson (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the year ended December 31, 2000)
 
    
10.19*
  Stock warrant to purchase shares of Common Stock of the Company, dated as of January 18, 2000, issued to Mr. Carl J. Crosetto (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the year ended December 31, 2000)

75

Table of Contents

     
10.18*
  Employment Agreement, dated January 16, 1998, between the Guarantor and Mr. Dennis R. Wolters (incorporated by reference to Exhibit 10.4 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
    
10.19*
  Employment Agreement, dated January 16, 1998, between Day International, Inc. and Mr. David B. Freimuth (incorporated by reference to Exhibit 10.5 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
    
10.20*
  Form of Executive Employment Agreement between Day International, Inc. and each of Dermot J. Healy (dated September 9, 2005), Thomas J. Koenig (dated August 31, 2005) and Stephen P. Noe (dated October 27, 2005)
 
    
10.21*
  Day International Group, Inc. Stock Option Plan, dated as of July 6, 1995 (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K for the period ended December 31, 1995); as amended on September 19, 1996 (incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K for the year ended December 31, 1996); and as further amended on January 16, 1998 (incorporated by reference to Exhibit 10.2.3 to the Amendment No. 1 to Registration Statement on Form S-4/A filed on May 8, 1998 (Reg. No. 333-51839))
 
    
10.22*
  Day International, Inc. Supplemental Savings and Retirement Plan, dated as of March 1, 2001 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2001)
 
    
10.23*
  Day International Group, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006)
 
    
10.24*
  2006 Day International Group, Inc. Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006)
(21) Subsidiaries of the Registrant
(31) Rule 13a-14(a)/15d-14(a) Certifications
  31.1   Chief Executive Officer Certification
 
  31.2   Chief Financial Officer Certification
(32) Section 1350 Certifications
  32.1   Chief Executive Officer Certification
 
  32.2   Chief Financial Officer Certification
 
*   - Management contract or compensatory plan or arrangement

76

EX-10.20 2 l24223aexv10w20.htm EX-10.20 EX-10.20
 

Exhibit 10.20
EXECUTIVE EMPLOYMENT AGREEMENT
     This Executive Employment Agreement (“Agreement”) is made as of ___, 2005, between DAY INTERNATIONAL, INC., a Delaware corporation (“Company”) and Thomas J. Koenig (“Executive”).
     1. Background Facts. The Company is a subsidiary of Day International Group, Inc. (“Parent”). The Executive is currently employed by the Company as its Vice President & CFO. The Board of Directors of the Company and the Parent want the Executive to continue serving the Company, to compensate the Executive for this service, and to establish certain rights of the Executive.
     2. Term of this Agreement. The Executive’s employment under this Agreement begins on the date hereof, and ends on the Termination Date defined below.
     At all times during the Executive’s employment with the Company, the Executive shall be employed on an at-will basis, thereby enabling the Company or the Executive to terminate the Executive’s employment at any time, with or without cause, including without limitation, as Cause is defined below. If the Company terminates the Executive other than for Cause, the Company will provide thirty (30) days’ written notice of termination; provided, however, that the Company, in its sole discretion, may provide thirty (30) days’ salary and benefits in lieu of such notice. Further, the Executive may terminate his employment with the Company upon thirty (30) days’ written notice; provided, however, that the Company, in its sole discretion, may choose to designate all or part of such notice period as non-working notice. For purposes of this Agreement, the date on which the Executive’s employment under this Agreement ends is the “Termination Date.”
     This Agreement terminates when the Executive’s employment terminates, except that the Executive’s obligation to abide by the Confidentiality and Non-Competition provisions set forth in Section 5 below, shall survive the termination of this Agreement.
     3. Services. The Executive shall serve as Vice President & CFO of the Company, and shall have the duties and responsibilities normally carried out by an executive in that capacity, subject to the supervision and control of the President & CEO or another supervisor, designated by the Company’s President. The Executive shall devote his best efforts and all of his normal business time (vacations and other absences permitted under the policies of the Company excepted) to the business of the Company, and will faithfully, diligently, honestly and to the utmost of the Executive’s ability perform all duties and responsibilities as may be designated by his supervisor, or another supervisor designated by the Company’s President from time to time.
     4. Compensation. The Executive shall receive the following compensation:
     (a) A base salary (“Base Compensation”) at the annual rate of $200,000, or at a higher rate as may be determined from time to time by the Company in its sole discretion, payable in installments under the practice followed by the Company for the Executive;

 

 

     (b) Executive — Pay For Performance (“E-PFP”) Compensation if both the Company and the Executive perform at 100 percent of their annual plan targets, which is payable not later than the end of the first calendar quarter of the following year, under the Company E-PFP guidelines then in effect; and
     (c) Employee “Associate” benefits under the policies and practices of the Company for the Executive, as may be amended from time to time.
     5. Confidentiality and Non-Competition by Executive. In the course of the Executive’s employment with the Company, the Executive will continue to have access to confidential business information of the Company and its affiliates (“the Day Group”), including information about customers, and about business strategies, techniques, products, and practices that is not generally known in the industry (“Confidential Information”). The Executive recognizes that the information provided is confidential and provides a business advantage to the Day Group, and that its relationships with its customers are of substantial value to the Day Group. The Executive shall not, at any time during or after his employment hereunder, use or disclose such Confidential Information, except to authorized representatives of the Day Group or the client or as required in the performance of his duties and responsibilities hereunder. The Executive shall return all client and/or Day Group property, such as computers and software, and documents (and any copies including in machine or human-readable form), to the Company when his employment terminates, regardless of the circumstances giving rise to such termination. The Executive shall not be required to keep confidential any information which is or becomes publicly available or is already in his possession (unless obtained from the Day Group or one of its clients). Further, the Executive shall be free to use and employ his general skills, know-how and expertise, and to use, disclose and employ any generalized ideas, concepts, know-how, methods, techniques or skills, including those gained or learned during the course of the performance of any services hereunder, so long as the Executive applies such information without disclosure or use of any Confidential Information.
     In addition to the Company’s providing the Executive access to Confidential Information, the parties anticipate that the Company will continue to make a substantial investment in the Executive. The Executive acknowledges that the Day Group’s business is not only in the United States but worldwide, so that restricting the Executive’s competitive activities worldwide is reasonable. The Executive further acknowledges that the following restrictions are reasonable to protect the Day Group’s legitimate business interests in its business information, its customer relationships, and the Company’s investment in the Executive:
     (a) During the Executive’s employment and for a period of two years thereafter, the Executive will not compete in any way with the business of the Day Group or otherwise engage in any business competitive with or detrimental to the business of the Day Group. This promise not to compete includes, but is not limited to, a promise that the Executive will not engage in any of the following activities:
     (i) the Executive will not work with, for, or have any interest in, any organization that competes with the Day Group;

2

 

     (ii) the Executive will not attempt to persuade any customer, supplier, or potential customer or supplier of the Day Group that they should not do business with the Day Group, should reduce their purchases of the Day Group’s products or services, or should do business with a competitor of the Day Group;
     (iii) the Executive will not sell or aid in the sale of any products or services that are competitive with any services or products of the Day Group to any customer or potential customer of the Day Group; and
     (iv) the Executive will not solicit, encourage or persuade any associate of the Day Group to terminate his or her employment with the Day Group, or to take any action that adversely affects their ability to carry out their employment duties with the Day Group.
     (b) The Executive acknowledges that any breach of the terms of this Agreement by the Executive will cause irreparable harm to the Day Group and that money damages would not be sufficient to provide a fully adequate remedy for such a breach. Therefore, in the event of a breach or threatened breach of any term of this Section 5, the Day Group will be entitled to temporary, preliminary and permanent injunctive relief without any requirement of bond, in addition to any other legal or equitable remedies to which the Day Group may be entitled. If the Executive engages in any breach of Subsection 5(a) prior to the entry of a court order prohibiting such conduct, then the two-year non-compete period under Subsection 5(a) will be extended by the same period of time that Associate engaged in the breach prior to the entry of the court order. The Executive also acknowledges that he is sophisticated in business, and that the restrictions and remedies set forth in this Agreement do not create an undue hardship on him and will not prevent him from earning a livelihood.
     (c) If it shall be found by a court or arbitrator of competent jurisdiction that any such restriction or remedy is unenforceable but would be enforceable if some part thereof were deleted or modified, then such restriction or remedy shall apply with such modification as shall be necessary to make it enforceable to the fullest extent permissible under law.
     6. Payments to the Executive Upon His Resignation or Termination by the Company for Cause. If the Executive resigns from his employment with the Company, the Company will pay the Executive unpaid Base Compensation earned up to the Termination Date, if any, and any unpaid E-PFP Compensation earned under the E-PFP guidelines for the completed calendar year prior to the Termination Date, if any, and the Executive will not be entitled to any further payments of any kind whatsoever.
     If the Executive is terminated by the Company for “Cause” at any time, the Company will pay the Executive unpaid Base Compensation earned up to the Termination Date, if any, and the Executive will not be entitled to any further payments of any kind whatsoever.

3

 

     For purposes of this Agreement, “Cause” means:
     (a) the Executive’s repeated failure to perform substantially Executive’s duties as an associate, including but not limited to the Executive’s repeated failure to comply with the reasonable and lawful directives of the President & CEO or another supervisor designated by the Company’s President;
     (b) the Executive’s commission of a crime that constitutes a felony or is a material violation by the Executive of any federal, state or foreign securities laws;
     (c) the Executive’s commission of another criminal act or act of material dishonesty, disloyalty or misconduct by the Executive (specifically excluding traffic offenses and similar acts) if it is materially injurious to the property, operations, business, or reputation of the Company or any of its affiliates; or
     (d) the breach by the Executive of Section 5 of this Agreement.
     Any such termination for Cause will be accompanied by a written statement of the reasons.
     7. Payment to the Executive Upon Termination by the Company Other Than For Cause. If the Company terminates the Executive’s employment for reasons other than Cause, the Company will pay the Executive a lump sum payment equal to:
     (a) unpaid Base Compensation earned up to the Termination Date;
     (b) unpaid E-PFP Compensation earned under the E-PFP guidelines for the completed calendar year prior to the Termination Date, if any; and
     (c) an amount equal to the Executive’s then current Base Compensation for a twelve-month period plus annualized E-PFP Compensation for the plan year in which the Termination Date occurs, based on 100 percent of annual plan target.
     The Executive will not be entitled to any further payments of any kind whatsoever. Payment under 2((c) above, if any, will be made only if, after the Termination Date, the Executive timely delivers to the Company a Separation Agreement and Release in a form determined by the Company (which will be substantially similar to Exhibit A).
     8. Payment to the Executive Upon Termination Due to Death or Disability. If the Executive’s employment is terminated due to his death or disability, as defined below, the Company shall pay the Executive or his estate, as appropriate:
     (a) unpaid Base Compensation earned up to the Termination Date;
     (b) any unpaid E-PFP Compensation earned under the E-PFP guidelines for the completed calendar year prior to the Termination Date, if any; and

4

 

     (c) pro rata E-PFP Compensation for the year in which the Termination Date occurs, based on the portion of the current E-PFP period up to the Termination Date and based on the actual performance of the Company for the year;
     The Executive shall not be entitled to any further payments of any kind whatsoever. Amounts for (a) and (b) above will be paid promptly after the Termination Date and amounts for (c) above will be paid in accordance with Company policy with respect to the payment of E-PFP Compensation as in effect at the time. For purposes of this Agreement, “disability” means that, due to a physical or mental condition, the Executive is unable to perform his duties under this Agreement for a period of 180 days, whether or not consecutive.
     9. Tax Withholding. The payments and benefits under this Agreement may be compensation and as such may be included in either the Executive’s W-2 earnings statements or 1099 statements. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
     10. Notices. All notices shall be in writing and delivered or mailed by registered or certified mail, return receipt requested, to the following addresses: If to the Company, at its offices at P.O. Box 338, Dayton, Ohio 45401-0338, Attention: President; and if to the Executive, 856 Oaknoll Drive, Springboro, OH 45066, or to such other address as the Company or Executive may provide to the other in writing for such purpose.
     11. Assignment and Successors. This Agreement shall be assignable by the Company to a purchaser in a sale, without the written consent of the Executive. If the sale is of assets, the Company shall be released from all obligations upon assignment and acceptance by the purchaser and the purchaser, as successor, shall thereafter be deemed to be the “Company” for purposes of this Agreement.
     The Executive may not assign, pledge or encumber his interest in this Agreement or any part hereof without the express written consent of the Company, this Agreement being personal to the Executive and the beneficiaries designated by him.
     12. Governing Law. This Agreement shall be governed by and construed under the laws of the state of Ohio.
     13. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way.
     14. Arbitration. All disputes involving “Arbitrable Claims,” as defined below, shall be submitted to binding arbitration in Ohio to a single arbitrator chosen in accordance with the rules of the American Arbitration Association (“AAA”) and conducted in accordance with the AAA’s National Rules for the Resolution of Employment Disputes. “Arbitrable Claims” are disputes arising out of or relating to this Agreement, including its breach, termination or validity, and disputes in any way relating to Executive’s employment or termination of his employment with the Company. By way of example only, this includes claims

5

 

under common law and under local, state and federal statutory authority, such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act, and the Family and Medical Leave Act. The arbitrator’s decision shall be final and binding upon the parties and those who may have derivative claims through the parties, and shall be entitled to enforcement in any court of competent jurisdiction. Unless a controlling law or court decision provides otherwise, the costs and expenses of the arbitrator shall be shared equally by the parties. This arbitration procedure does not prohibit the Company and the Day Group from filing an action in court for injunctive relief for breach or threatened breach of the Executive’s obligations regarding non-competition, confidentiality, or other matters involving the Day Group’s proprietary interests.
     15. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the matters addressed, and all prior negotiations, understandings, representations, and agreements (including, without limitation, any and all prior employment agreements), whether oral or written, of any nature whatsoever, about terms and conditions of employment are merged into and superseded by this Agreement. However, (a) this Agreement contemplates continuation of E-PFP Compensation, but to the extent that any other documents or statements describing the Executive’s E-PFP are inconsistent with this Agreement, this Agreement will control, and (b) this Agreement shall not supersede any Conflicts of Interest Certificate or any Invention Agreement to which the Executive and the Company or any of its affiliates are parties. This Agreement cannot be changed, modified, or terminated unless in writing and signed by the parties.
DAY INTERNATIONAL, INC.
                     
By:
          Date:       , 2005
 
                   
 
  Dennis R. Wolters
President and CEO
                
 
          Date:       , 2005
                 
 
  [Executive]                

6

EX-21 3 l24223aexv21.htm EX-21 EX-21
 

EXHIBIT 21
The active subsidiaries of Day International Group, Inc. are listed below, do business under the name under which they are organized, and are included in the consolidated financial statements of the Company. The names, jurisdiction of incorporation of such subsidiaries, and percentage of voting securities owned by the Company are set forth below.
         
    Jurisdiction in   Percentage of
    Which   Voting
Name of Subsidiary   Incorporated   Securities owned
Day International, Inc.
   Delaware   100%
Varn International, Inc.
   Delaware   100% (1)
Day International Finance, Inc.
   Delaware   100% (1)
Network Distribution International
   Massachusetts   100% (1)
Network Distribution International, Inc.
   Massachusetts   100% (2)
Day International (U.K.) Holdings
   United Kingdom   100% (1)
Day International (U.K.), Ltd.
   United Kingdom   100% (3)
Duco Holdings Ltd.
   United Kingdom   100% (3)
Duco International Ltd.
   United Kingdom   100% (4)
Varn Holdings PLC
   United Kingdom   100% (3)
Varn Products Co., Ltd.
   United Kingdom   100% (5)
Day International France S.A.R.L
   France   100% (1)
Day International de Mexico S.A. de C.V.
   Mexico   100% (1)
Day International Pty. Ltd.
   Australia   100% (1)
Day International Sdn. Bhd.
   Malaysia   100% (1)
Varn International (Canada) Limited
   Canada   100% (1)
Day International Japan, K.K.
   Japan   100% (1)
R T C do Brasil Ltda.
   Brazil     55% (1)
Day Germany Holdings GmbH
   Germany   100% (1)
Day International (BRD) GmbH
   Germany   100% (6)
ZAO Day International
   Germany   100% (7)
Day International Group GmbH
   Russia   75% (6)
Rotec Verwaltungs GmbH
   Germany   100% (8)
Rotec Huelsensysteme GmbH & Co. KG
   Germany   100% (8)
Rotec Czech s.r.o.
   Czech Republic     85% (9)
 
(1)   Subsidiary of Day International, Inc.
(2)   Subsidiary of Network Distribution International
(3)   Subsidiary of Day International (U.K.) Holdings
(4)   Subsidiary of Duco Holdings Ltd.
(5)   Subsidiary of Varn Holdings PLC
(6)   Subsidiary of Day Germany Holdings GmbH
(7)   Subsidiary of Day International (BRD) GmbH
(8)   Subsidiary of Day International Group GmbH
(9)   Subsidiary of Rotec Huelsensysteme GmbH Co. & KG

77

EX-31.1 4 l24223aexv31w1.htm EX-31.1 EX-31.1
 

Exhibit 31.1
Certifications
I, Dennis R. Wolters, certify that:
1.   I have reviewed this annual report on Form 10-K of Day International Group, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date:     April 2, 2007  By:     /s/ Dennis R. Wolters    
    Dennis R. Wolters   
    President and Chief Executive Officer
(Principal Executive Officer) 		  
 

EX-31.2 5 l24223aexv31w2.htm EX-31.2 EX-31.2
 

Exhibit 31.2
Certifications
I, Thomas J. Koenig, certify that:
1.   I have reviewed this annual report on Form 10-K of Day International Group, Inc.;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
  a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
         
     
Date:     April 2, 2007  By:   /s/ Thomas J. Koenig    
    Thomas J. Koenig   
    Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
 		  
 

EX-32.1 6 l24223aexv32w1.htm EX-32.1 EX-32.1
 

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Annual Report of Day International Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dennis R. Wolters, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
     A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ Dennis R. Wolters
 
Dennis R. Wolters
Chief Executive Officer
April 2, 2007

EX-32.2 7 l24223aexv32w2.htm EX-32.2 EX-32.2
 

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     In connection with the Annual Report of Day International Group, Inc. (the “Company”) on Form 10-K for the year ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Koenig, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial position and results of operations of the Company.
     A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ Thomas J. Koenig
 
Thomas J. Koenig
Chief Financial Officer
April 2, 2007

-----END PRIVACY-ENHANCED MESSAGE-----