<PAGE>
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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, 1996
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)
(860) 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 XNo
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 7, 1996 17,099,076
</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 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,
1996 1995
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 28,440 $ 27,820
Short-term investments................................. 2,273 913
Accounts receivable, net............................... 36,298 34,202
Inventories:
Finished goods....................................... 7,261 6,033
Work in process...................................... 3,766 3,367
Raw materials and supplies........................... 6,424 7,217
LIFO reserve......................................... (2,518) (2,493)
-------- --------
Total inventories...................................... 14,933 14,124
Prepaid expenses....................................... 1,210 820
Deferred tax assets.................................... 4,584 4,590
-------- --------
Total current assets................................. 87,738 82,469
-------- --------
Property, plant and equipment, at cost................... 108,077 105,467
Less accumulated depreciation............................ (48,561) (45,393)
-------- --------
59,516 60,074
Other assets, at cost, less amortization................. 14,832 15,529
-------- --------
$162,086 $158,072
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...................... $ 3,533 $ 2,871
Accounts payable....................................... 16,419 14,770
Accrued taxes.......................................... 590 263
Accrued payroll and other compensation................. 4,609 5,426
Other accrued liabilities.............................. 6,913 6,409
-------- --------
Total current liabilities............................ 32,064 29,739
Long-term debt........................................... 4,300 7,750
Deferred tax liabilities................................. 13,869 14,207
Other long-term liabilities.............................. 3,950 4,565
Stockholders' equity:
Preferred stock........................................ -- --
Common stock........................................... 2,102 2,089
Capital in excess of par value......................... 33,318 32,448
Foreign currency translation adjustment................ 1,540 2,091
Pension liability adjustment........................... (598) (459)
Retained earnings...................................... 91,297 78,461
-------- --------
127,659 114,630
Less: treasury stock, at cost.......................... (19,756) (12,819)
-------- --------
Total stockholders' equity........................... 107,903 101,811
-------- --------
$162,086 $158,072
======== ========
</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,
--------------------
1996 1995
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net sales................................................ $ 67,669 $ 65,552
Cost of sales............................................ 46,147 45,528
--------- ---------
Gross margin............................................. 21,522 20,024
Selling, product development and administrative expenses. 10,478 10,456
--------- ---------
Operating income......................................... 11,044 9,568
Other (income) expense
Investment income...................................... (275) (198)
Interest expense....................................... 132 191
Other, net............................................. 96 (54)
--------- ---------
(47) (61)
--------- ---------
Income before income taxes............................... 11,091 9,629
Income tax expense....................................... 4,220 3,757
--------- ---------
Net income............................................... $ 6,871 $ 5,872
========= =========
Net income per share..................................... $ .38 $ .32
========= =========
Weighted average common stock and equivalents
outstanding............................................. 18,081 18,293
========= =========
</TABLE>
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,
------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $133,463 $128,288
Cost of sales............................................... 91,150 89,038
-------- --------
Gross margin................................................ 42,313 39,250
Selling, product development and administrative expenses.... 21,694 20,719
-------- --------
Operating income............................................ 20,619 18,531
Other (income) expense
Investment income......................................... (599) (430)
Interest expense.......................................... 314 455
Other, net................................................ 221 170
-------- --------
(64) 195
-------- --------
Income before income taxes.................................. 20,683 18,336
Income tax expense.......................................... 7,847 7,158
-------- --------
Net income.................................................. $ 12,836 $ 11,178
-------- --------
Net income per share........................................ $ .71 $ .61
======== ========
Weighted average common stock and equivalents outstanding... 18,195 18,218
======== ========
</TABLE>
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,
------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 12,836 $ 11,178
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................. 4,039 3,687
Amortization............................................. 713 763
Changes in operating assets and liabilities:
Accounts receivable..................................... (2,307) (2,992)
Inventories............................................. (912) (3,593)
Other assets............................................ (424) 282
Accounts payable........................................ 1,770 43
Accrued taxes........................................... 355 (1,285)
Accrued payroll and other compensation.................. (804) (232)
Deferred income taxes................................... (183) 384
Other long-term liabilities............................. (537) 65
Other accrued liabilities............................... 523 2,614
-------- --------
Total adjustments......................................... 2,233 (264)
-------- --------
Net cash provided by operating activities.................. 15,069 10,914
Cash flows from investing activities:
Additions of property, plant & equipment.................. (4,708) (5,228)
Purchase of investments, net.............................. (1,484) (208)
Disposals of property, plant & equipment, net............. 597 380
-------- --------
Net cash used for investing activities..................... (5,595) (5,056)
-------- --------
Cash flows from financing activities:
Long-term debt payments................................... (2,780) (2,777)
Issuance of common stock.................................. 883 1,721
Acquisition of common stock............................... (6,937) --
-------- --------
Net cash used for financing activities..................... (8,834) (1,056)
-------- --------
Effect of exchange rate changes on cash.................... (20) 68
-------- --------
Increase in cash and cash equivalents...................... 620 4,870
Cash and cash equivalents at beginning of period........... 27,820 11,684
-------- --------
Cash and cash equivalents at end of period................. $ 28,440 $ 16,554
======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest................................................. $ 658 $ 550
Income taxes............................................. 7,485 8,007
Non-cash transactions:
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 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.
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 Dun
& Bradstreet reports on several of these prp's, and based on these
financial reports, does not believe Lydall 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 had 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. Based on the alleged volumetric contribution of its former
subsidiary to the site, and on the EPA's estimated remediation costs,
Lydall's alleged total exposure would be less than $100 thousand, which has
been accrued. In June 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. No demand has been
formally made in this matter, however, the Company believes it has several
defenses to the action.
Management believes the ultimate disposition of the claim will not have a
material adverse effect upon the Company's consolidated financial position
or results of operations.
4. The Company will adopt the disclosure requirements of SFAS 123, "Accounting
for Stock-Based Compensation," for the year ending December 31, 1996. As
permitted under SFAS 123, the Company has elected not to adopt the fair-
value-based method of accounting for its stock-based compensation plans,
but will continue to account for such compensation under the provisions of
APB Opinion No. 25. The adoption will have no effect on the Company's
consolidated financial position or results of operations.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS:
For the second quarter ended June 30, 1996, sales were $67.7 million
compared with $65.6 million for the same quarter last year, a 3 percent
increase. Net income was $6.9 million compared with $5.9 million--up 17
percent. On a per-share basis, the Company earned $.38 in the second quarter
of 1996 compared with $.32 in the same period last year--a 19 percent
increase. Gross margin in the quarter was $21.5 million, or 31.8 percent of
sales, compared with $20.0 million, or 30.5 percent, in the second quarter
1995. After-tax return on sales reached a record 10.2 percent compared with
9.0 percent for the same period last year.
Sales for the six months ended June 30, 1996 were $133.5 million compared
with $128.3 million for the same period in 1995--up 4 percent. Net income was
$12.8 million, or $.71 per share, compared with $11.2 million, or $.61 per
share--a 16 percent increase in earnings per share. Gross margin was $42.3
million, or 31.7 percent of sales, for the six months ended June 30, 1996, and
the after-tax return on sales was 9.6 percent. For the 1995 six-month period,
gross margin was $39.3 million, or 30.6 percent of sales, and the after-tax
return on sales was 8.7 percent.
With sales growth of 3 percent during the second quarter of 1996, Lydall
recorded earnings gains of 17 percent over the second quarter of 1995. The
quality of these gains is reflected by gross margin improvements and a record
after-tax return on sales. The Company benefited from a good product mix in
our thermal and filtration segments, favorable price/cost ratios, and
continued progress with our quality program throughout the organization.
International sales, including sales of our French operation and exports,
were up by 8 percent from the second quarter of 1995 and accounted for 23
percent of total sales compared with 21 percent of total sales for the same
period last year.
Increased sales of non-automotive products as well as new-product
introductions of automotive heat shields were the main drivers of a 19 percent
growth in our thermal barrier businesses. Sales of Lydall's battery insulating
products and all-metal heat shields were particularly strong. Filtration sales
also grew significantly, up 27 percent from the second quarter of 1995. Demand
for our Lydair(R) high-efficiency air filtration media employed in the air
purification systems of clean rooms around the world continued to be strong.
Sales of medical filtration products were also up during the quarter bolstered
by new products such as Leukocyte depletion media. Lower sales of materials
handling products, the anticipated continuation of the shift in technology
away from Lydall's cellulose battery separators supplied to the European
automotive aftermarket, and a decline in some of Lydall's more mature
businesses offset the strength of the Company's thermal and filtration
businesses.
Selling, product development and administrative expenses remained relatively
constant at approximately 16% of sales for the three and six month periods
ended June 30, 1996 and 1995, respectively. The 1995 figures had slightly
larger incentive compensation expenses due to the outstanding results obtained
in 1995 in comparison to 1994. Year to date 1996 figures include higher legal
fees due to the successful defense of a lawsuit alleging patent infringement
which was concluded in March of this year.
The effective tax rate for the Company's domestic operations was 38.1% for
the second quarter of 1996 and 38.0% on a year to date basis. This compares to
39.1% for the second quarter and 39.2% year to date in 1995. These rates would
have been 38.8% in 1996 and 39.8% in 1995 both quarter and year to date had
the Company not invested cash balances in tax advantaged investments. The tax
rate at our Axohm Division in France is 36.6 percent in 1996 and 33.3 percent
in 1995 both quarter and year to date but the effect on Lydall's consolidated
results was minimal.
LIQUIDITY AND CAPITAL RESOURCES:
Lydall generated operating cash flow (EBITDA) of $13.3 million in the second
quarter of 1996 bringing operating cash flow year-to-date to $25.2 million.
The Company had cash, cash equivalents and short-term
7
<PAGE>
investments of $30.7 million and working capital of $55.7 million at June 30,
1996. The current ratio was 2.74 at the end of the second quarter compared
with 2.77 at the end of 1995, and total debt to total capitalization decreased
to 7 percent from 9 percent at the end of 1995.
The Company expects to continue to finance its day to day operating needs
from accumulated cash plus cash from operations. During the month of April
1996, the Company repaid $2.2 million in long-term debt, made the semi-annual
interest payment, paid quarterly federal and state income taxes and funded
pension obligations. These payments were made from accumulated cash and cash
from operations. The Company expects to continue to finance its day-to-day
operating needs from these same sources.
Lydall continues to actively seek strategic acquisitions and has the
financial wherewithal to acquire company's that fit Lydall's defined
technology and product profiles and offer attractive growth opportunities.
ACCOUNTING STANDARDS:
The Company will adopt the disclosure requirements of SFAS 123, "Accounting
for Stock-Based Compensation," for the year ending December 31, 1996. As
permitted under SFAS 123, the Company has elected not to adopt the fair-value-
based method of accounting for its stock-based compensation plans, but will
continue to account for such compensation under the provisions of APB Opinion
No. 25. The adoption will have no effect on the Company's consolidated
financial position or results of operations.
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 15, 1996.
Stockholders elected 11 Directors to serve for one-year terms, until the next
Annual Meeting to be held in 1997.
<TABLE>
<CAPTION>
WITHHOLD BROKER
FOR AGAINST ABSTAIN AUTHORITY NONVOTES
---------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Election of Nominees to the
Board of Directors
Lee A. Asseo.................... 15,729,733 -- -- 89,351 --
Paul S. Buddenhagen............. 15,640,025 -- -- 179,059 --
James P. Carolan................ 15,640,533 -- -- 178,551 --
Samuel P. Cooley................ 15,730,859 -- -- 88,225 --
W. Leslie Duffey................ 15,631,117 -- -- 187,967 --
Leonard R. Jaskol............... 15,638,449 -- -- 180,635 --
William P. Lyons................ 15,726,917 -- -- 92,167 --
Joel Schiavone.................. 15,722,592 -- -- 96,492 --
Elliott F. Whitely.............. 15,637,400 -- -- 181,684 --
Roger M. Widmann................ 15,640,359 -- -- 178,725 --
Albert E. Wolf.................. 15,726,738 -- -- 92,346 --
</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
On June 4, 1996, in connection with the "Safe Harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company filed on Form 8-
K Cautionary Statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in forward-
looking statements of the Company made by or on behalf of the Company.
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, 1996
9
<PAGE>
LYDALL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
------- ----
<C> <S> <C>
11.1 Schedule of Computation of Weighted Average Shares Outstanding... 11
</TABLE>
10
<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,
------------- -------------
1996 1995 1996 1995
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of common shares........... 17,098 17,253 17,184 17,246
Additional shares assuming conversion of stock
options and warrants.............................. 983 1,040 1,011 972
------ ------ ------ ------
Weighted average common shares and equivalents out-
standing.......................................... 18,081 18,293 18,195 18,218
====== ====== ====== ======
FULLY DILUTED
Weighted average number of common shares........... 17,098 17,253 17,184 17,246
Additional shares assuming conversion of stock
options and warrants.............................. 983 1,104 1,030 1,007
------ ------ ------ ------
Weighted average common shares and equivalents out-
standing.......................................... 18,081 18,357 18,214 18,253
====== ====== ====== ======
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 28,440
<SECURITIES> 2,273
<RECEIVABLES> 37,539
<ALLOWANCES> 2,004
<INVENTORY> 14,933
<CURRENT-ASSETS> 87,738
<PP&E> 108,077
<DEPRECIATION> 48,561
<TOTAL-ASSETS> 162,086
<CURRENT-LIABILITIES> 32,064
<BONDS> 7,833
0
0
<COMMON> 2,102
<OTHER-SE> 105,801
<TOTAL-LIABILITY-AND-EQUITY> 162,086
<SALES> 133,463
<TOTAL-REVENUES> 133,463
<CGS> 91,150
<TOTAL-COSTS> 91,150
<OTHER-EXPENSES> (64)
<LOSS-PROVISION> 165
<INTEREST-EXPENSE> 314
<INCOME-PRETAX> 20,683
<INCOME-TAX> 7,847
<INCOME-CONTINUING> 12,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,836
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
