<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 SEPTEMBER 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
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 November 8, 1995 17,289,988
</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..................................... 7-8
Part II. Other Information
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>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 22,417 $ 11,684
Short-term investments............................. 2,993 2,904
Accounts receivable, net........................... 35,769 31,825
Inventories:
Finished goods................................... 6,450 5,423
Work in process.................................. 3,724 2,941
Raw materials and supplies....................... 7,910 6,822
LIFO reserve..................................... (2,420) (1,659)
-------- --------
Total inventories.................................. 15,664 13,527
Prepaid expenses................................... 769 662
Deferred tax asset................................. 3,503 3,485
-------- --------
Total current assets............................. 81,115 64,087
-------- --------
Property, plant and equipment, at cost............... 103,293 94,431
Less accumulated depreciation........................ (44,763) (39,660)
-------- --------
58,530 54,771
Other assets, at cost, less amortization............. 15,733 17,755
-------- --------
$155,378 $136,613
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 2,866 $ 2,843
Accounts payable................................... 17,457 17,032
Accrued payroll and other compensation............. 5,341 5,420
Accrued taxes...................................... 1,538 2,196
Other accrued liabilities.......................... 6,934 5,773
-------- --------
Total current liabilities........................ 34,136 33,264
Long-term debt....................................... 7,794 10,607
Deferred tax liabilities............................. 12,931 11,752
Pensions and other long-term liabilities............. 4,873 4,763
Stockholders' equity:
Preferred stock.................................... -- --
Common stock....................................... 2,084 1,013
Capital in excess of par value..................... 32,156 31,419
Retained earnings.................................. 72,648 56,023
Pension liability adjustment....................... (485) (547)
Foreign currency translation adjustment............ 2,060 1,138
-------- --------
108,463 89,046
Less: treasury stock, at cost...................... (12,819) (12,819)
-------- --------
Total stockholders' equity....................... 95,644 76,227
-------- --------
$155,378 $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
SEPTEMBER 30,
--------------------
1995 1994
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 61,487 $ 54,446
Cost of sales............................................ 42,572 38,058
--------- ---------
Gross margin............................................. 18,915 16,388
Selling, product development and administrative expenses. 9,643 9,329
--------- ---------
Operating income......................................... 9,272 7,059
Other (income) expense
Investment income...................................... (288) (95)
Interest expense....................................... 200 240
Other, net............................................. 123 309
--------- ---------
35 454
--------- ---------
Income before income taxes............................... 9,237 6,605
Income tax expense....................................... 3,790 2,727
--------- ---------
Net income............................................... $ 5,447 $ 3,878
========= =========
Net income per common and common equivalent share*....... $ .30 $ .21
========= =========
Weighted average common stock and equivalents
outstanding*............................................ 18,418 18,057
========= =========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales................. $189,775 $156,118
Cost of sales............. 131,610 108,538
-------- --------
Gross margin.............. 58,165 47,580
Selling, product
development and
administrative expenses.. 30,362 26,778
-------- --------
Operating income.......... 27,803 20,802
Other (income) expense
Investment income....... (718) (63)
Interest expense........ 655 755
Other, net.............. 293 1,021
-------- --------
230 1,713
-------- --------
Income before income
taxes.................... 27,573 19,089
Income tax expense........ 10,948 7,925
-------- --------
Net income................ $ 16,625 $ 11,164
======== ========
Net income per common and
common equivalent share*. $ .91 $ .62
======== ========
Weighted average common
stock and equivalents
outstanding*............. 18,285 17,913
======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1995 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 16,625 $ 11,164
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 5,602 4,752
Amortization............................................. 1,134 1,033
Changes in operating assets and liabilities, excluding
effects from acquisition:
Accounts receivable..................................... (3,585) (6,420)
Inventories............................................. (1,922) (1,512)
Other assets............................................ 378 404
Accounts payable........................................ 191 5,009
Accrued taxes........................................... (715) 130
Accrued payroll and other compensation.................. (102) 774
Deferred income taxes................................... 906 613
Other long-term liabilities............................. 9 (127)
Other accrued liabilities............................... 1,136 3,280
-------- --------
Total adjustments......................................... 3,032 7,936
-------- --------
Net cash provided by operating activities.................. 19,657 19,100
Cash flows from investing activities:
Purchase of assets of Columbus and Jacksonville
Operations............................................... -- (16,843)
Additions of property, plant & equipment.................. (8,726) (5,072)
Disposals of property, plant & equipment, net............. 406 561
(Purchase) Sale of short-term investments, net............ 382 (2,162)
-------- --------
Net cash used for investing activities..................... (7,938) (23,516)
-------- --------
Cash flows from financing activities:
Long-term debt repayments................................. (2,816) (2,691)
Issuance of common stock.................................. 1,808 341
-------- --------
Net cash used for financing activities..................... (1,008) (2,350)
-------- --------
Effect of exchange rate changes on cash.................... 22 135
-------- --------
(Decrease) Increase in cash and cash equivalents........... 10,733 (6,631)
Cash and cash equivalents at beginning of period........... 11,684 13,820
-------- --------
Cash and cash equivalents at end of period................. $ 22,417 $ 7,189
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest................................................. $ 556 $ 536
Income taxes............................................. 10,977 7,437
Non-cash transactions:
Note issued to purchase assets of Columbus operation..... -- 2,250
Reclassification between short-term and long-term
investments, net........................................ 447 1,966
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. Certain prior year information
has been reclassified to conform with the current year presentation format
with no impact on net income or working capital.
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 Committee's 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 of the total waste volume at the site.
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 City
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 the insurer of
the current operator of the former subsidiary's plant, 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the third quarter ended September 30, 1995, sales were $61.5 million
compared with $54.4 million for the same quarter last year, a 13 percent
increase. Net income was $5.4 million compared with $3.9 million--up 40
percent. On a per-share basis, the Company earned $.30 in the third quarter of
1995 compared with $.21 in the same period last year--a 43 percent increase.
Gross margin in the quarter was $18.9 million, or 30.8 percent of sales, and
after-tax return on sales was 8.9 percent. For the 1994 period, gross margin
was $16.4 million, or 30.1 percent of sales, and after-tax return on sales was
7.1 percent.
Sales for the nine months ended September 30, 1995, were $189.8 million
compared with $156.1 million-- up 22 percent. Net income was $16.6 million, or
$.91 per share, compared with $11.2 million, or $.62 per share--a 47 percent
increase in earnings per share. Gross margin was $58.2 million, or 30.6
percent of sales, for the nine months ended September 30, 1995, and the after-
tax return on sales was 8.8 percent. For the 1994 nine-month period, gross
margin was $47.6 million, or 30.5 percent of sales, and the after-tax return
on sales was 7.2 percent.
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 seven months of results from the Columbus
Operation and three months from the Jacksonville Operation.
Selling, new product development and administrative expenses increased 13.4%
in the first nine months of the year versus the same period in 1994. As a
percentage of sales however, these expenses decreased to 16.0% in 1995 from
17.2% in 1994. The Company anticipates that these expenses will remain at
approximately 16 percent through the end of the year.
Despite a slight slowing of economic growth, demand was steady in most of
our markets. International sales, up by 29 percent year-to-date, continued to
outpace the growth of domestic sales during the quarter. We saw solid growth
in our materials-handling slipsheet and thermal barrier businesses. In the
thermal area, sales for automotive and cryogenic applications were
particularly strong.
Sales of high-efficiency air filtration media continued to be robust both
domestically and abroad fueled by the intensity of the semiconductor market.
Capital spending in the industry is the highest it has ever been and is
forecast to stay at these levels through 1997. This, together with the
increasing use of clean rooms in more and more industrial applications, bode
well for future growth of Lydall's air filtration product line.
During the second quarter, Lydall received certain tangible and intangible
assets as a result of a mediated settlement between the Company and Baxter
Healthcare. The amount of the settlement and details are confidential under
the terms of the agreement and are recorded in other income. 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.
During the third quarter 1995, the French government enacted a tax increase
which had the effect of increasing our Axohm Division's tax rate from 33.3
percent to 36.6 percent, effective January 1, 1995. Domestic U.S. rates were
reduced during the year 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 effect of these events resulted in an
estimated ongoing effective rate of approximately 39.0 percent for the
Company.
LIQUIDITY AND CAPITAL RESOURCES:
On September 30, 1995, Lydall closed with $25.4 million in cash, cash
equivalents and short-term investments compared with $14.6 million at December
31, 1994. During the first nine months of 1995, the Company repaid $3.4
million of long term debt and accrued interest. This payment, along with
normal payments
7
<PAGE>
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 $11.4 million in the
quarter bringing operating cash flow year-to-date to $34.2 million. This
compares to $8.8 million for the quarter and $25.6 million year to date in
1994. The current ratio increased to 2.38 from 1.93; total debt to total
capitalization was .10 versus .15; and debt to equity was .11 versus .18 when
comparing September 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
4.1 --Amendment of Incorporation of Lydall, Inc. dated August 14, 1995,
(filed as Exhibit 3.1 to the registrants Annual Report on Form 10K
dated March 28, 1994, and incorporated herein by this reference).
4.2 --Bylaws of Lydall Inc. (filed as Exhibit 3.2 to the registrant's
Registration Statement on Form 8-B dated October 16, 1987 and
incorporated herein by this reference).
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 three months
ended September 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 Accounting and Financial Officer)
November 9, 1995
9
<PAGE>
LYDALL, INC.
Index to Exhibits
Exhibit No. Page No.
- ----------- --------
4.1 Amendment of Incorporation of Lydall, Inc. 14
11.1 Schedule of Computation of Weighted Average Shares Outstanding 16
13
<PAGE>
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "LYDALL, INC.", FILED IN THIS OFFICE ON THE FOURTEENTH DAY OF AUGUST, A.D.
1995, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL APPEARS HERE] /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
2136103 8100 AUTHENTICATION: 7608300
950184123 DATE: 08-15-95
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
LYDALL, INC.
Lydall, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify that:
The amendment to the Corporation's Restated Certificate of Incorporation
set forth in the following resolution approved by the Corporation's Board of
Directors and stockholders was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware:
RESOLVED: That Article 4 of the Restated Certificate of Incorporation
of this Corporation be amended to read as follows, in its entirety:
Article 4. The designation of each class of stock, the authorized
number of shares of each such class, and the par value of each share
thereof, are as follows:
---------------------------------------------------------------------------
Authorized Number
Designation of Shares Par Value
----------- ----------------- ---------
Common Stock 30,000,000 $ .10
Preferred Stock 500,000 $ 1.00
--------------------------------------------------------------------------
IN WITNESS WHEREOF, Lydall, Inc. has caused this Certificate to be signed
and attested by its duly authorized officers this 14th day of August, 1995.
ATTEST: LYDALL, INC.
/s/ Mary Adamowicz By /s/ Carole F. Butenas
- ------------------------------- -------------------------------
Mary Adamowicz Carole F. Butenas
Secretary Vice President
<PAGE>
LYDALL, INC.
Exhibit 11.1
Schedule of Computation of Weighted Average Shares Outstanding
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Primary
- -------
Weighted average number of common
shares 17,259 16,665 17,251 16,617
Additional shares assuming conversion
of stock options and warrants 1,159 1,392 1,034 1,296
------ ------ ------ ------
Weighted average common shares and
equivalents outstanding 18,418 18,057 18,285 17,913
====== ====== ====== ======
Fully Diluted
- -------------
Weighted average number of common
shares 17,259 16,665 17,251 16,617
Additional shares assuming conversion
of stock options and warrants 1,170 1,424 1,061 1,323
------ ------ ------ ------
Weighted average common shares and
equivalents outstanding 18,429 18,089 18,312 17,940
====== ====== ====== ======
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 22,417
<SECURITIES> 2,993
<RECEIVABLES> 36,834
<ALLOWANCES> 1,847
<INVENTORY> 15,664
<CURRENT-ASSETS> 81,115
<PP&E> 103,293
<DEPRECIATION> 44,763
<TOTAL-ASSETS> 155,378
<CURRENT-LIABILITIES> 34,136
<BONDS> 10,660
<COMMON> 2,084
0
0
<OTHER-SE> 93,559
<TOTAL-LIABILITY-AND-EQUITY> 155,378
<SALES> 189,775
<TOTAL-REVENUES> 189,775
<CGS> 131,610
<TOTAL-COSTS> 131,610
<OTHER-EXPENSES> 230
<LOSS-PROVISION> 224
<INTEREST-EXPENSE> 655
<INCOME-PRETAX> 27,573
<INCOME-TAX> 10,948
<INCOME-CONTINUING> 16,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,625
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
