<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7665
----------------
LYDALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0865505
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE COLONIAL ROAD, P. O. BOX 151, 06045-0151
MANCHESTER, CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 646-1233
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common stock $.10 par value per share.
Total shares outstanding August 8, 1995 17,255,356
</TABLE>
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<PAGE>
LYDALL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets............................. 2
Consolidated Condensed Statements of Income....................... 3-4
Consolidated Condensed Statements of Cash Flows................... 5
Notes to Consolidated Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6-8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders......... 8
Item 6. Exhibits and Reports on Form 8-K............................ 8
Signature............................................................. 9
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 16,554 $ 11,684
Short-term investments................................. 3,117 2,904
Accounts receivable, net............................... 35,220 31,825
Inventories:
Finished goods....................................... 7,426 5,423
Work in process...................................... 3,478 2,941
Raw materials and supplies........................... 8,584 6,822
LIFO reserve......................................... (2,103) (1,659)
-------- --------
Total inventories...................................... 17,385 13,527
Prepaid expenses....................................... 845 662
Deferred tax asset..................................... 3,496 3,485
-------- --------
Total current assets................................. 76,617 64,087
-------- --------
Property, plant and equipment, at cost................... 100,253 94,431
Less accumulated depreciation............................ (43,069) (39,660)
-------- --------
57,184 54,771
Other assets, at cost, less amortization................. 16,572 17,755
-------- --------
$150,373 $136,613
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 2,865 $ 2,843
Accounts payable....................................... 17,345 17,032
Accrued payroll and other compensation................. 5,215 5,420
Accrued taxes.......................................... 978 2,196
Other accrued liabilities.............................. 8,422 5,773
-------- --------
Total current liabilities............................ 34,825 33,264
Long-term debt........................................... 7,839 10,607
Deferred tax liabilities................................. 12,442 11,752
Pensions and other long-term liabilities................. 4,954 4,763
Stockholders' equity:
Preferred stock........................................ -- --
Common stock........................................... 2,083 1,013
Capital in excess of par value......................... 32,070 31,419
Retained earnings...................................... 67,201 56,023
Pension liability adjustment........................... (504) (547)
Foreign currency translation adjustment................ 2,282 1,138
-------- --------
103,132 89,046
Less: treasury stock, at cost.......................... (12,819) (12,819)
-------- --------
Total stockholders' equity........................... 90,313 76,227
-------- --------
$150,373 $136,613
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1995 1994
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 65,552 $ 53,556
Cost of sales............................................ 45,528 37,509
--------- ---------
Gross margin............................................. 20,024 16,047
Selling, product development and administrative expenses. 10,456 8,864
--------- ---------
Operating income......................................... 9,568 7,183
Other (income) expense
Investment income...................................... (198) (71)
Interest expense....................................... 191 255
Other, net............................................. (54) 541
--------- ---------
(61) 725
--------- ---------
Income before income taxes............................... 9,629 6,458
Income tax expense....................................... 3,757 2,700
--------- ---------
Net income............................................... $ 5,872 $ 3,758
========= =========
Net income per common and common equivalent share*....... $ .32 $ .21
========= =========
Weighted average common stock and equivalents outstand-
ing*.................................................... 18,293 17,898
========= =========
</TABLE>
- --------
* 1994 restated to reflect a two-for-one stock split distributed June 21, 1995.
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales.................................................... $128,288 $101,672
Cost of sales................................................ 89,038 70,480
-------- --------
Gross margin................................................. 39,250 31,192
Selling, product development and administrative expenses..... 20,719 17,449
-------- --------
Operating income............................................. 18,531 13,743
Other (income) expense
Investment (income), expense............................... (430) 32
Interest expense........................................... 455 515
Other, net................................................. 170 712
-------- --------
195 1,259
-------- --------
Income before income taxes................................... 18,336 12,484
Income tax expense........................................... 7,158 5,198
-------- --------
Net income................................................... $ 11,178 $ 7,286
======== ========
Net income per common and common equivalent share*........... $ .61 $ .41
======== ========
Weighted average common stock and equivalents outstanding*... 18,218 17,841
======== ========
</TABLE>
- --------
* 1994 restated to reflect a two-for-one stock split distributed June 21, 1995.
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1995 1994
------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $11,178 $ 7,286
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 3,687 3,087
Amortization............................................ 763 650
Changes in operating assets and liabilities, excluding
effects from acquisitions:
Accounts receivable................................... (2,992) (3,484)
Inventories........................................... (3,593) (468)
Other assets.......................................... 282 55
Accounts payable...................................... 43 2,975
Accrued taxes......................................... (1,285) (64)
Accrued payroll and other compensation................ (232) (187)
Deferred income taxes................................. 384 407
Other long-term liabilities........................... 65 (215)
Other accrued liabilities............................. 2,614 2,247
------- --------
Total adjustments....................................... (264) 5,003
------- --------
Net cash provided by operating activities................... 10,914 12,289
------- --------
Cash flows from investing activities:
Purchase of assets of Columbus and Jacksonville Opera-
tions.................................................... -- (16,836)
Additions of property, plant & equipment.................. (5,228) (1,708)
Purchase of short-term investments, net................... (208) (1,852)
Disposals of property, plant & equipment, net............. 380 100
------- --------
Net cash used for investing activities...................... (5,056) (20,296)
------- --------
Cash flows from financing activities:
Long-term debt repayments................................. (2,777) (2,260)
Issuance of common stock.................................. 1,721 268
------- --------
Net cash used for financing activities...................... (1,056) (1,992)
------- --------
Effect of exchange rate changes on cash..................... 68 78
------- --------
Increase (decrease) in cash and cash equivalents............ 4,870 (9,921)
Cash and cash equivalents at beginning of period............ 11,684 13,820
------- --------
Cash and cash equivalents at end of period.................. $16,554 $ 3,899
======= ========
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest.................................................. $ 550 $ 489
Income taxes.............................................. 8,007 5,365
Non-cash transactions:
Note issued to purchase assets of Columbus operation...... -- 2,250
Reclassification of short-term investments to long-term,
net...................................................... -- 1,988
Effect on Additional Paid in Capital and Common Stock for
stock split effected in the form of a stock dividend..... 1,041 --
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying consolidated condensed financial statements include the
accounts of Lydall, Inc. and its wholly owned subsidiaries. All financial
information is unaudited for interim periods reported. All significant
intercompany transactions have been eliminated in the consolidated
condensed financial statements. Management believes that all adjustments,
which include only normal recurring accruals, necessary to present a fair
statement of the financial position and results of the periods have been
included. The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles.
2. Earnings per common share are based on the weighted average number of
common shares outstanding during the period, including the effect of stock
options, stock awards and warrants where such effect would be dilutive.
Fully diluted earnings per share are not presented since the dilution is
not material.
3. In the mid-1980's, the United States Environmental Protection Agency
("EPA") notified a former subsidiary of the Company that it and other
entities may be potentially responsible in connection with the release of
hazardous substances at a landfill and property located adjacent to a
landfill located in Michigan City, Indiana. The two sites have been
combined and are viewed by the EPA as one site. The preliminary indication,
based on the Site Steering Committees volumetric analysis, is that the
alleged contribution to the waste volume at the site of the plant once
owned by a former subsidiary is approximately 0.434 percent of the total
volume. The portion of the 0.434 percent specifically attributable to the
former subsidiary by the current operator of the plant is approximately
0.286 percent.
There are over 800 potentially responsible parties ("prp") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80
percent of the total waste volume at the site. These prp's include Fortune
500 companies, public utilities, and the State of Indiana. The Company
believes that, in general, these parties are financially solvent and should
be able to meet their obligations at the site. The Company has reviewed the
financial statements and credit reports on several of these prp's, and based
on these financial reports, does not believe the Company will have any
material additional volume attributed to it for reparation of this site due
to insolvency of other prp's.
During the quarter ended September 30, 1994, the Company learned that the EPA
recently completed its Record of Decision ("ROD") for the Michigan site and
has estimated the total cost of remediation to be between $17 million and $22
million. In June of 1995, the Company and its former subsidiary were sued in
the Northern District of Indiana by another prp seeking contribution. Based
on the alleged contribution of its former subsidiary to the site, the
Company's alleged total exposure of less than $100 thousand has been accrued.
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position
or results of operations.
4. On May 10, 1995, the Board of Directors of Lydall declared a two-for-one
stock split effected in the form of a stock dividend. The record date for
the stock split was May 24, 1995. The distribution of common shares was
made on June 21, 1995. To record the effect of the stock split $1.0 million
was reclassified from Capital in Excess of Par Value to Common Stock. Share
and per share amounts prior to the 1995 stock split have been restated to
reflect the two-for-one stock split.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
For the second quarter ended June 30, 1995, sales were $65.6 million
compared with $53.6 million for the same quarter last year, a 22 percent
increase. Net income was $5.9 million, or $.32 a share compared with $3.8
6
<PAGE>
million, or $.21 a share--a 56 percent increase in net income with a 52
percent increase in earnings per share. After-tax return on sales for the
quarter was a record 9 percent compared with 7 percent for the same period
last year.
Sales for the six months ended June 30, 1995 were $128.3 million compared
with $101.7 million for the same period in 1994--up 26 percent. Net income was
$11.2 million, or $.61 per share, for the six months ended June 30, 1995
compared with net income of $7.3 million, or $.41 per share, for the same
period in 1994--a 53 percent increase in net income, while earnings per share
increased by 49 percent. Return on sales, after tax, for the six months ended
June 30, 1995 was 8.7 percent compared with 7.2 percent for the corresponding
period ended June 30, 1994.
Sales and net income for all of 1995 included results from both the
Jacksonville, Florida and Columbus, Ohio Operations which were acquired during
1994. Results for 1994 included only four months of results from the Columbus
Operation and no results from the Jacksonville Operation, which was acquired
at the end of June.
Gross margins remained relatively constant, between 30 and 31 percent, for
the three months and six months ended June 30, 1995 and 1994.
Lydall continued to do well in all of its markets. International sales
growth, including foreign and exports, continued to outpace overall sales
growth and was up 37 percent in the second quarter compared with the same
quarter last year. The materials-handling business remained strong, both
domestically and overseas. Sales of high-efficiency air filtration media have
also been strong around the world. Lydall's facility in France increased its
production of air filtration media during the period both for consumption in
Europe and for export to the United States. Global capacity is particularly
significant to Lydall in this important market.
Thermal barrier products sold to the automotive market continued to perform
well. Lydall has not experienced any slowdown in automotive sales which are
driven by increasing heat management applications. Also, a significant portion
of the heat-shield business is in sport-utility vehicles, vans, and light-duty
trucks, sales of which are growing steadily. In addition, Lydall's battery
insulating program is on target, and this product is now approved for
virtually every Ford vehicle, including 1996 and 1997 models.
In other thermal areas, growth in industrial applications, particularly
sales of commercial building materials and architectural components was
strong. Demand for cryogenic insulating products also continued at a strong
pace.
Selling, new product development and administrative expenses increased 18.7%
in the first six months of the year versus the same period in 1994. As a
percentage of sales however, these expenses decreased to 16.2% in 1995 from
17.2% in 1994. The Company anticipates that these expenses will remain at the
16 to 17 percent level through the end of the year.
During the second quarter, Lydall received certain tangible and intangible
assets as a result of a mediated settlement between the Company and Baxter
Healthcare. Included in Other Income, the amount of the settlement and details
are confidential under the terms of the agreement. Although this ends the
relationship with Baxter, development of Lydall's leukocyte depletion media
continues. Hemasure, Inc. announced that its LeukoNet Pre-Storage
Leukoreduction Filtration System, which incorporates Lydall's media, has been
cleared for marketing by the U.S. Food and Drug Administration. The Company
does not expect the Hemasure announcement to have a material impact on 1995
results.
The Company's effective tax rate decreased due to several factors including
stronger export sales resulting in a favorable Foreign Sales Corporation
benefit and the settlement of Internal Revenue Service audits.
The Internal Revenue Service is currently examining Lydall's federal income
tax returns for 1990 through 1992. Management believes that the ultimate
resolution of the examinations will not have a material effect upon the
consolidated earnings and financial position of the Company. Tax assessments,
if any, as a result of the examination are expected to be funded by cash
balances or cash generated from operations.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
On June 30, 1995, Lydall closed with $19.7 million in cash, cash equivalents
and short-term investments compared with $14.6 million at December 31, 1994.
During the first six months of 1995, the Company repaid $3.3 million of long
term debt and accrued interest. This payment, along with normal payments for
taxes and capital expenditures, was made with cash generated from operations
and cash on hand. Increased levels of accounts receivable and inventories are
directly attributable to higher sales levels.
Operating cash flow (earnings before taxes, interest expense and investment
income or expense plus depreciation and amortization) was $11.9 million in the
quarter bringing operating cash flow year-to-date to $22.8 million. This
compares to $8.6 million for the quarter and $16.8 million year to date in
1994. The current ratio increased to 2.20 from 1.93; total debt to total
capitalization was .11 versus .15; and debt to equity was .12 versus .18 when
comparing June 30, 1995 with December 31, 1994, respectively.
The Company expects to continue to finance its day to day operating needs
from accumulated cash plus cash from operations.
Lydall continues to actively seek strategic acquisitions and to reinvest in
the Company with the primary focus on the ongoing comprehensive quality
program.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 10, 1995. In
addition to the election of directors, stockholders approved an Amendment to
the Certificate of Incorporation to increase the number of authorized common
stock shares.
The proposals were approved by the stockholders as follows:
<TABLE>
<CAPTION>
WITHHOLD BROKER
FOR AGAINST ABSTAIN AUTHORITY NONVOTES
--------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
1. Approval of amendment to the
Certificate of Incorporation.. 6,111,086 445,426 36,241 -- --
2. Election of Nominees to the
Board of Directors
Lee A. Asseo.................. 6,574,474 -- -- 18,279 --
Paul S. Buddenhagen........... 6,574,474 -- -- 18,279 --
Carole F. Butenas............. 6,574,474 -- -- 18,279 --
Samuel P. Cooley.............. 6,574,474 -- -- 18,279 --
W. Leslie Duffy............... 6,567,447 -- -- 25,306 --
Leonard R. Jaskol............. 6,574,474 -- -- 18,279 --
William P. Lyons.............. 6,568,482 -- -- 24,271 --
William J. Rankin............. 6,574,474 -- -- 18,279 --
Joel Schiavone................ 6,567,155 -- -- 25,598 --
Roger M. Widmann.............. 6,574,474 -- -- 18,279 --
Albert E. Wolf................ 6,568,482 -- -- 24,271 --
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
11.1 --Schedule of Computation of Weighted Average Shares Outstanding
27.1 --Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 1995.
8
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Lydall, Inc. (Registrant)
/s/ John E. Hanley
By __________________________________
JOHN E. HANLEY
Vice President-Finance
and Treasurer
(Principal Financial and
Accounting Officer)
August 8, 1995
9
<PAGE>
LYDALL, INC.
Index to Exhibits
Exhibit
No. Page
- ------- ----
11.1 Schedule of Computation of Weighted Average
Shares Outstanding
<PAGE>
LYDALL, INC.
Exhibit 11.1
Schedule of Computation of Weighted Average Shares Outstanding
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- ---------------
1995 1994 1995 1994
------ ------ ------ --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary
- --------
Weighted average number
of common shares 17,253 16,638 17,246 16,594
Additional shares assuming
conversion of stock
options and warrants 1,040 1,260 972 1,247
------ ------ ------ -----
Weighted average common
shares and equivalents
outstanding 18,293 17,898 18,218 17,841
====== ====== ====== ======
Fully Diluted
-------------
Weighted average number
of common shares 17,253 16,638 17,246 16,594
Additional shares assuming
conversion of stock
options and warrants 1,104 1,260 1,007 1,271
------ ------ ------ ------
Weighted average common
shares and equivalents
outstanding 18,357 17,898 18,253 17,865
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 16,554
<SECURITIES> 3,117
<RECEIVABLES> 36,090
<ALLOWANCES> 1,801
<INVENTORY> 17,385
<CURRENT-ASSETS> 76,617
<PP&E> 100,253
<DEPRECIATION> 43,069
<TOTAL-ASSETS> 150,373
<CURRENT-LIABILITIES> 34,825
<BONDS> 10,704
<COMMON> 2,083
0
0
<OTHER-SE> 88,230
<TOTAL-LIABILITY-AND-EQUITY> 150,373
<SALES> 128,288
<TOTAL-REVENUES> 128,288
<CGS> 89,038
<TOTAL-COSTS> 89,038
<OTHER-EXPENSES> 170
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 455
<INCOME-PRETAX> 18,336
<INCOME-TAX> 7,158
<INCOME-CONTINUING> 11,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,178
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
