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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 MARCH 31, 2000
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)
<TABLE>
<CAPTION>
DELAWARE 06-0865505
<S> <C>
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
</TABLE>
ONE COLONIAL ROAD, P.O.B. 151, MANCHESTER, CONNECTICUT, 06045-0151
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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 /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 May 12, 2000 15,797,776
</TABLE>
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<PAGE>
LYDALL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C> <C>
Part I. Financial Information
Item 1. Financial Statements........................................
Consolidated Condensed Balance Sheets....................... 3
Consolidated Condensed Statements of Net Income and
Comprehensive Income........................................ 4
Consolidated Condensed Statements of Cash Flows............. 5
Notes to Consolidated Condensed Financial Statements........ 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9-10
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 11
Signature............................................................. 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 1,809 $ 1,154
Short-term investments.................................... 318 --
Accounts receivable, net.................................. 46,989 45,517
Inventories:
Finished goods.......................................... 8,058 8,529
Work in progress........................................ 5,671 5,044
Raw materials........................................... 8,074 8,576
LIFO reserve............................................ (1,577) (1,619)
-------- --------
Total inventories......................................... 20,226 20,530
Taxes receivable.......................................... 1,066 4,022
Prepaid expenses.......................................... 1,771 1,895
Net investment in discontinued operations................. -- 2,125
Assets held for sale...................................... 31,573 35,183
Deferred tax assets....................................... 2,553 4,807
-------- --------
Total current assets.................................... 106,305 115,233
Property, plant and equipment, at cost...................... 140,967 146,828
Less: accumulated depreciation.............................. (63,339) (66,272)
-------- --------
77,628 80,556
Other assets, at cost, less amortization.................... 24,269 24,447
-------- --------
Total assets.............................................. $208,202 $220,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft............................................ $ 1,577 $ 2,564
Current portion of long-term debt......................... 8,228 6,849
Accounts payable.......................................... 21,444 18,438
Accrued taxes............................................. 1,279 920
Accrued payroll and other compensation.................... 4,804 4,021
Liabilities related to assets held for sale............... 6,400 6,945
Other accrued liabilities................................. 6,406 10,866
-------- --------
Total current liabilities............................... 50,138 50,603
Long-term debt.............................................. 19,911 38,334
Deferred tax liabilities.................................... 11,909 11,306
Other long-term liabilities................................. 4,822 4,757
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock........................................... -- --
Common stock.............................................. 2,185 2,180
Capital in excess of par value............................ 39,426 39,195
Retained earnings......................................... 146,890 140,085
Accumulated other comprehensive income.................... (5,437) (4,582)
-------- --------
183,064 176,878
Less: treasury stock, at cost............................. (61,642) (61,642)
-------- --------
Total stockholders' equity.............................. 121,422 115,236
-------- --------
Total liabilities and stockholders' equity.................. $208,202 $220,236
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET INCOME
AND COMPREHENSIVE INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... $80,155 $82,934
Cost of sales............................................... 61,080 63,807
------- -------
Gross margin................................................ 19,075 19,127
Selling, product development, and administrative expenses... 14,210 13,228
------- -------
Operating income............................................ 4,865 5,899
Other (income) expense:
Investment income......................................... (16) (6)
Interest expense.......................................... 490 721
Foreign currency transaction (gain) loss.................. 76 (1,327)
Gain from sale of operations.............................. (6,065) 0
Other..................................................... (312) 215
------- -------
(5,827) (397)
------- -------
Income from continuing operations
before income taxes......................................... 10,692 6,296
Income tax expense.......................................... 3,958 2,115
------- -------
Income from continuing operations........................... 6,734 4,181
------- -------
Discontinued operations:
Loss from operations of the Wovens segment, net of tax
benefit of $0 and $62, respectively..................... -- (99)
Gain on disposal of the Wovens segment, net of tax expense
of $44 and $0, respectively............................. 71 --
------- -------
Gain (loss) from discontinued operations.................... 71 (99)
------- -------
NET INCOME.................................................. $ 6,805 $ 4,082
======= =======
Basic earnings (loss) per common share:
Continuing operations..................................... $ 0.43 $ 0.27
Discontinued operations................................... 0.00 (0.01)
Net Income................................................ $ 0.43 $ 0.26
Diluted earnings (loss) per common share:
Continuing operations..................................... $ 0.43 $ 0.27
Discontinued operations................................... 0.00 (0.01)
Net Income................................................ $ 0.43 $ 0.26
Weighted average common stock outstanding................... 15,706 15,716
Weighted average common stock and equivalents outstanding... 15,740 15,797
NET INCOME.................................................. $ 6,805 $ 4,082
Other comprehensive income before tax:
Foreign currency translation adjustments.................. (1,330) (4,459)
Unrealized gain on securities............................. 19 --
------- -------
Other comprehensive loss, before tax........................ (1,311) (4,459)
Income tax benefit related to items of other comprehensive
loss...................................................... 456 1,498
------- -------
Other comprehensive loss, net of tax........................ (855) (2,961)
------- -------
Comprehensive income........................................ $ 5,950 $ 1,121
======= =======
</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>
THREE MONTHS
ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................. $ 6,805 $ 4,082
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 2,614 2,887
Amortization............................................ 388 441
Gain on disposal of Wovens Segment...................... (71) --
Gain on sale of the Hoosick Falls Operation............. (6,065) --
Loss on disposition of property, plant and equipment.... 20 26
Foreign currency transaction loss (gain)................ 76 (1,327)
Gain on receipt of common stock from demutualization of
insurance company...................................... (299) --
Changes in operating assets and liabilities excluding
effects from acquisitions:
Accounts receivable................................... (3,120) (3,332)
Taxes receivable...................................... 2,956 2,256
Inventories........................................... 870 1,209
Other assets.......................................... 158 54
Accounts payable...................................... 3,268 (723)
Accrued taxes......................................... 1,186 247
Accrued payroll and other compensation................ 4,053 713
Deferred income taxes................................. 1,464 (637)
Other long-term liabilities........................... 84 (41)
Other accrued liabilities............................. (6,961) (383)
-------- --------
Total adjustments....................................... 621 1,390
-------- --------
Net cash provided by operating activities................... 7,426 5,472
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of Wovens Segment.................. 1,819 --
Proceeds from sales of the Hoosick Falls Operation........ 12,037 --
Additions of property, plant, and equipment............... (4,193) (4,050)
-------- --------
Net cash provided by (used for) investing activities........ 9,663 (4,050)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft............................................ (987) --
Long-term debt payment.................................... (70,777) --
Long-term debt proceeds................................... 55,134 --
Proceeds from short-term borrowings....................... -- 18,385
Payment of short-term borrowings.......................... -- (19,925)
Issuance of common stock.................................. 236 262
Acquisition of common stock............................... -- (56)
-------- --------
Net cash used for financing activities...................... (16,394) (1,334)
-------- --------
Effect of exchange rate changes on cash..................... (40) (209)
-------- --------
Increase (decrease) in cash and cash equivalents............ 655 (121)
Cash and cash equivalents at beginning of period............ 1,154 2,254
-------- --------
Cash and cash equivalents at end of period.................. $ 1,809 $ 2,133
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 459 $ 568
Income taxes.............................................. 56 151
Non-cash transactions:
Unrealized gains/losses on available-for-sale
securities.............................................. 19 --
</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. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.
2. Basic earnings per common share are based on income from continuing
operations and net income divided by the weighted average number of common
shares outstanding during the period. Diluted earnings per common share are
based on income from continuing operations and net income divided by the
weighted average number of common shares outstanding during the period,
including the effect of stock options, where such effect is dilutive.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
MARCH 31, 2000 MARCH 31, 1999
---------------------------------- ----------------------------------
INCOME FROM INCOME FROM
CONTINUING CONTINUING
OPERATIONS SHARES PER-SHARE OPERATIONS SHARES PER-SHARE
($000'S) (000'S) AMOUNT ($000'S) (000'S) AMOUNT
----------- -------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share..................... $6,734 15,706 $0.43 $4,181 15,716 $0.27
Effect of dilutive securities stock
options.................................... 34 -- 81 --
------ ------ ----- ------ ------ -----
Diluted earnings per share................... $6,734 15,740 $0.43 $4,181 15,797 $0.27
====== ====== ===== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------------------- -------------------------------
NET NET
INCOME SHARES PER-SHARE INCOME SHARES PER-SHARE
($000'S) (000'S) AMOUNT ($000'S) (000'S) AMOUNT
-------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share............................ $6,805 15,706 $0.43 $4,082 15,716 $0.26
Effect of dilutive securities stock options......... 34 -- 81 --
------ ------ ----- ------ ------ -----
Diluted earnings per share.......................... $6,805 15,740 $0.43 $4,082 15,797 $0.26
====== ====== ===== ====== ====== =====
</TABLE>
3. On January 28, 2000, the Company sold substantially all of the assets, net
of certain liabilities, of the Composite Materials, Hoosick Falls Operation
for approximately $12.0 million in cash, plus $660 thousand of liabilities
assumed resulting in a pretax gain of $6.1 million, or $.24 per diluted
share after-tax. For the quarters ended March 31, 2000 and March 31, 1999,
sales and income (loss) from operations of the Hoosick Falls Operation
included in income from continuing operations were $591 thousand and
$2.5 million and ($10 thousand) and $110 thousand, respectively. Assets of
$6.4 million and related liabilities of $800 thousand were classified as
"Assets held for sale" and "Liabilities related to assets held for sale" in
the Consolidated Condensed Balance Sheet at December 31, 1999.
In November 1999, the Company's Board of Directors adopted a plan to
discontinue the operations of the Wovens segment. Losses from operations of
the Wovens Segment for 1999 included results through November 30, 1999. The
Company recorded an estimated loss on
6
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LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
disposition of the Wovens segment of $1.8 million at December 31, 1999. On
February 29, 2000 the Company sold certain assets of the segment for
approximately $1.8 million in cash. The $71 thousand gain on disposal
recorded for the quarter ended March 31, 2000 reflects final adjustments to
the Company's 1999 estimated loss on disposal.
During the first quarter of 2000, the Company's Board of Directors
formalized a plan to sell certain assets and liabilities of the Company. As
a result, assets of $5.0 million and related liabilities of $700 thousand
have been reclassified as "Assets Held for Sale" and "Liabilities Related to
Assets Held for Sale" in the Condensed Consolidated Balance Sheet at
March 31, 2000.
4. 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 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. The EPA
has completed its Record of Decision for the 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.
There are over 800 potentially responsible parties ("prp") that 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.
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. In October 1997, the insurer
made a settlement demand of $150,591 to the Company in exchange for a
release of the Company's liability at the site and indemnification from the
current operator against site-related claims. The Company executed a
settlement agreement with the insurer and current operator for a full site
release; however, the current operator subsequently backed out of the
agreement. In June 1998, a stipulation for dismissal signed by all parties
was filed to end current litigation until the total liability at the site is
defined.
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, or cash flows.
By letter dated July 13, 1998, Lydall Eastern, Inc., a subsidiary of
Lydall, Inc. ("Lydall Eastern"), was identified as a "potentially
responsible party" by the EPA in connection with the claimed release or
threat of release of hazardous substances at a site known as the Rogers
Fibre Mill in Buxton, Maine (the "site"). Lydall Eastern merged with the
owner and operator of a fiberboard mill at the site whose ownership dated
back to approximately 1912. Lydall Eastern ceased operation at the site in
1980. In 1982, Lydall Eastern conveyed its interest in the site.
7
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LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The EPA has spent public funds to investigate and take action with respect
to the site. The EPA likely will seek to recover the funds it has spent, and
will spend, at the site from potentially responsible parties, including
Lydall Eastern. At this time, it is not possible to predict what future
liability or costs might be incurred by Lydall Eastern in connection with
the site.
5. Lydall's reportable segments are: Thermal/Acoustical, Filtration/Separation
and Paperboard. All other products and services are aggregated in Other
Products and Services. During the fourth quarter of 1999, the Company
announced the discontinuance of the Wovens segment. For a full description
of each segment, refer to the "Notes to Consolidated Financial Statements"
reported in the Company's 1999 Annual Report on Form 10-K. The table below
presents revenues and operating income by segment for the three months ended
March 31, 2000 and 1999. In 2000 the Company removed its corporate charge
from the calculation of operating income and, as a result, reclassified the
1999 operating income amounts to conform to the current year presentation.
<TABLE>
<CAPTION>
IN THOUSANDS THERMAL/ FILTRATION/ OTHER PRODUCTS RECONCILING CONSOLIDATED
FOR THE THREE MONTHS ENDED ACOUSTICAL SEPARATION PAPERBOARD & SERVICES ITEMS TOTALS
- -------------------------- ---------- ----------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000
Sales........................... $44,231 $16,221 $10,422 $10,271 $ (990) $80,155
Operating income................ $ 4,283 $ 2,422 $ 341 $ 878 $(3,059) $ 4,865
------- ------- ------- ------- ------- -------
March 31, 1999
Sales........................... $44,811 $14,678 $11,415 $12,884 $ (854) $82,934
Operating income................ $ 3,333 $ 2,191 $ 1,305 $ 1,363 $(2,293) $ 5,899
------- ------- ------- ------- ------- -------
</TABLE>
6. The Company's projected effective tax rate for the year ended December 31,
2000 is 34.75 percent. The effective tax rate for the quarter ended
March 31, 2000 approximated 37 percent as the gain on the sale of the
Hoosick Falls Operation generated an income tax provision greater than
34.75 percent due to the state income tax rate applicable to this gain.
7. The Company adopted the Financial Accounting Standards Board's Emerging
Issues Task Force Issue No. 99-5, "Accounting for Pre-production Costs
Related to Long-term Supply Arrangements" ("EITF No. 99-5") on January 1,
2000. EITF No. 99-5 provides guidance on accounting for design and
development costs for products sold under long-term supply arrangements. The
adoption of this consensus did not have a material impact on the
consolidated financial position, results of operations or cash flows of the
Company.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133"), effective for
fiscal years beginning after June 15, 2000, will be adopted by the Company
when effective. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded
in other contracts, and for hedging activities. It requires that entities
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The effect of adopting
SFAS 133 is still being assessed.
8
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED MARCH 31, 2000 1999
- -------------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES................................................... $80,155 100.0% $82,934 100.0%
Cost of sales............................................. 61,080 76.2 63,807 76.9
------- ----- ------- -----
GROSS MARGIN................................................ 19,075 23.8 19,127 23.1
Selling, product development and administrative
expenses................................................ 14,210 17.7 13,228 16.0
------- ----- ------- -----
Operating income............................................ 4,685 6.1 5,899 7.1
Other (income) expense.................................... (5,827) (7.2) (397) (0.5)
------- ----- ------- -----
Income from continuing operations before income taxes....... 10,692 13.3 6,296 7.6
Income tax expense........................................ 3,958 4.9 2,115 2.6
------- ----- ------- -----
INCOME FROM CONTINUING OPERATIONS........................... $ 6,734 8.4% $ 4,181 5.0%
</TABLE>
NET SALES
Sales of the Filtration/Separation segment increased $1.5 million, or
11.0 percent. Sales of high-efficiency air filtration media increased during the
quarter as demand continues to strengthen in the Far East and in the domestic
consumer products market. In addition, sales of medical and bioprocessing
products were well ahead of the same period last year as several new customers
completed their product qualifications of the Company's flexible biopak
containers.
Sales of the Thermal/Acoustical segment decreased by $580 thousand, or
1.3 percent, from the same period last year. Increases in domestic sales were
offset by European sales that were adversely impacted by a declining Euro
relative to the U.S. dollar. Domestic sales growth was driven by increases in
industrial products sold outside of the automotive market as the Company
continued to gain market share. Automotive sales, which increased slightly
during the quarter, are expected to increase over the second half of the year as
new products are launched.
Paperboard segment sales decreased $993 thousand, or 8.7 percent, from the
same period last year due to a slow down in demand. Other products and services
sales decreased $2.6 million, or 20.3 percent, from the same period last year
primarily due to the sale of the Hoosick Falls Operation.
GROSS MARGIN
As a percentage of sales, gross margin increased from 23.1 percent to
23.8 percent. Gross margin was impacted by several factors during the quarter.
The improved margins primarily resulted from increased sales of
Thermal/Acoustical industrial products and Filtration/Separation medical and
bioprocessing products, and better than expected tooling margins in Germany.
These margins were partially offset by increased raw material prices in the
Paperboard segment.
SELLING, PRODUCT DEVELOPMENT AND ADMINISTRATIVE EXPENSES
Selling, product development and administrative expenses were $14.2 million
in the first quarter of 2000, an increase of $982 thousand over the same period
in the prior year. As a percentage of sales, these costs increased from
16.0 percent in the first quarter of 1999 to 17.7 percent in 2000 due to the
higher spending as well as lower sales primarily due to the disposition of the
Hoosick Falls Operation.
9
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
OTHER (INCOME) EXPENSE
Other (income) expense increased by $5.4 million to $5.8 million in the
first quarter of 2000 compared to the first quarter of 1999.
The sale of the Hoosick Falls Operation added $6.1 million to other income
during the quarter. Interest expense for the quarter decreased $231 thousand, or
32 percent, to $490 thousand, as proceeds from the sales of the Wovens segment
and the Hoosick Falls Operation were used to pay down outstanding debt.
In the first quarter of 1999, the Company recorded a foreign currency
transaction gain of $1.5 million offset by interest expense of $721 thousand.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flow (earnings before interest, taxes, depreciation and
amortization) decreased by 13 percent to $8.1 million, net of the gain from the
sale of the Hoosick Falls Operation. At March 31, 2000 cash and equivalents were
$1.8 million compared with $1.2 million at December 31, 1999.
Working capital at March 31, 2000 was $56.2 million compared to
$64.6 million at the end of 1999. The decrease in working capital is due to the
sales of the Wovens segment and the Hoosick Falls Operation. The decrease was
partially offset by the receipt of $318 thousand of common stock from the
demutualization of the John Hancock insurance company and the reclassification
of certain long-term assets to current assets and related liabilities held for
sale.
As of March 31, 2000, the Company had unused borrowing capacity of
approximately $48.4 million available under various credit facilities.
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133"), effective for
fiscal years beginning after June 15, 2000, will be adopted by the Company when
effective. SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivatives embedded in other
contracts, and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The effect of adopting SFAS 133 is still being
assessed.
FORWARD-LOOKING INFORMATION
In the interest of more meaningful disclosure, Lydall and its management
make statements regarding the future outlook of the Company. The Company's
actual results could differ materially from those set forth in forward-looking
statements. Certain factors that might cause such a difference include risks and
uncertainties detailed in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section in the Company's 1999 Annual Report
on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in market risks from those disclosed
in Item 7a. of Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's 1999 Annual Report on Form 10-K.
10
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10.1--Agreement and General Release with John E. Hanley dated
February 2, 2000
27.1--Financial Data Schedule, filed herewith
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
March 31, 2000.
11
<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.
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LYDALL, INC.
(Registrant)
May 12, 2000 By /s/ THOMAS P. SMITH
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Thomas P. Smith
VICE PRESIDENT--CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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LYDALL, INC.
INDEX TO EXHIBITS
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EXHIBIT NO.
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10.1 Agreement and General Release with John E. Hanley dated
February 2, 2000.
27.1 Financial Data Schedule.
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EXHIBIT 10.1
February 2, 2000
John E. Hanley
34 Joel Drive
Hebron, CT 06248
Dear John:
This letter states Lydall, Inc.'s ("Lydall") proposal to extend special
separation benefits to you in exchange for your execution of a release of
possible claims against Lydall. You would be entitled to the special benefits
after the attached Termination, Voluntary Release and Waiver of Rights Agreement
("Release") (see Exhibit A) has been negotiated between you and Lydall and is
executed and effective. The special benefits will be retroactive to February 1,
2000 (the day following your last day of active employment with Lydall) and any
payments will begin no later than seven (7) days after you have executed the
Release. This offer to extend special separation benefits is conditioned on your
execution of the Release.
From the date of this letter until your termination date of January 31, 2000,
you will report and take direction from the Acting Interim CFO.
In reviewing this proposal, you should be aware that Lydall's offer to extend
special separation benefits to you in consideration for your execution of a
Release does not involve an exchange or forfeiture of any benefits to which you
are presently or otherwise entitled, nor are you being asked to release any
rights arising out of future events. To the contrary, Lydall's extension of this
offer is contingent upon your execution of a mutually acceptable Release wherein
you agree to waive certain rights expressly set forth therein relating to your
past employment relationship with Lydall. Lydall encourages you to review the
attached Release, with your attorney if you choose, and to discuss any questions
or modifications you propose with Lydall. You should note that should you decide
to sign the Release, you are entitled to revoke it within seven (7) calendar
days after executing it, and the Release does not become effective or
enforceable until the revocation period has expired.
An immediate response to Lydall's separation benefit proposal is not required. A
reasonable period for your deliberation and review will be provided before a
final decision must be made. If, however, no communication at all is received by
the undersigned within twenty-one (21) days of your receipt of this
correspondence, your silence will constitute a rejection of this offer,
whereupon Lydall's proposal to extend the separation benefits discussed herein
shall be withdrawn.
The following special Separation Benefits Section is a summary of benefits
offered to you ONLY if you should sign the Termination, Voluntary Release and
Waiver of Rights Agreement.
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SEVERANCE PERIOD
You will receive your current base compensation, less applicable taxes and
deductions for a severance period of twelve (12) months beginning February 1,
2000 contingent upon the successful divestment of the Fort Washington facility.
Also, Lydall agrees to convert your Incentive Stock Options (ISO) to
Non-Qualified Options effective February 1, 2000 for a period of one-year ending
on January 31, 2001.
If the Fort Washington facility is not divested by January 31, 2000, you will
receive your current base compensation, less applicable taxes and deductions for
a severance period of ten (10) months beginning February 1, 2000. Under this
circumstance, you will not be extended the opportunity to convert your ISO to
Non-Qualified Options.
HEALTH COVERAGE
Lydall agrees to pay your medical and/or dental coverage under COBRA through the
earlier of; the end of your severance period, or until such time as you are
first afforded the opportunity to secure health care coverage provided through a
subsequent employer. You may extend coverage beyond that date at your expense if
you exercised your rights under COBRA (see "Health Coverage" under "Other
Benefits") and continue to qualify for COBRA coverage.
USE OF COMPANY CAR
You can continue use of the company car through January 31, 2000, or until you
have obtained employment, whichever is earlier. The monthly payments for your
options will continue to be deducted, but when the car is returned Lydall will
pay the balance owed for those options. Lydall agrees to pay you a car allowance
in the amount of $500.00/month through the end of your severance period.
EXECUTIVE LIFE AND DISABILITY INSURANCE
Lydall agrees to continue to pay your executive life and disability premiums
until the end of your severance period.
OTHER BENEFITS
All other benefits you have held as an employee will end as of your termination
date, January 29, 2000 according to the terms of the Plan Documents. Your
Personnel Department will contact you with specific information.
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It is our hope that this correspondence conveys clearly the special separation
benefits Lydall is proposing to extend to you in consideration for your
execution of a mutually acceptable Release. Acceptance of this proposal is your
own choice and is not required, but purely voluntary on your part.
If you have any questions regarding any aspect of this correspondence, or wish
to discuss these benefits or their possible modification further, please contact
me at your earliest convenience.
Sincerely,
Christopher R. Skomorowski
President and CEO
_____________________________________________ Date: ___________________
Signature - Employee (Receipt of Letter)
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EXHIBIT A
TERMINATION, VOLUNTARY RELEASE AND
WAIVER OF RIGHTS AGREEMENT
I, John E. Hanley, unqualifiedly accept and agree to the relinquishment
of my title, responsibilities and obligations as an employee and specifically as
Vice President, Finance and Treasurer of Lydall, Inc. ("Lydall"), and
concurrently and unconditionally agree to sever my relationship as an employee
of Lydall effective January 31, 2000, in consideration for the voluntary payment
to me by Lydall of the monetary amount set forth in the attached cover letter
which is made a part hereof. I hereby accept the proposal as negotiated in the
attached cover letter.
1. In exchange for the consideration described in the attached cover
letter, which I understand that Lydall is not otherwise obligated to provide to
me, I voluntarily agree to waive and forego any claims that I may have against
Lydall and to release Lydall and their respective affiliates, subsidiaries, past
and present officers, directors, employees, representatives, agents, successors
and assigns (hereinafter collectively referred to as "Releasees") from any
obligations any of them may owe to me, accepting the aforestated consideration
as full settlement of any monies or obligations owed to me by Releasees that may
have arisen at any time under and out of my employment relationship with Lydall,
except as specifically provided below in the following paragraph number 2.
2. I do not waive, nor has Lydall asked me to waive, any rights arising
exclusively under the Fair Labor Standards Act, except as such waiver may
henceforth be made in a manner provided by law. I do not waive, nor has Lydall
asked me to waive, any vested benefits that I may have or that I may have
derived from the course of my prior employment with Lydall. I understand that
such vested benefits will be subject to and administered in accordance with the
established and usual terms governing same. I do not waive any rights which may
in the future arise exclusively from a substantial breach by Lydall of a
material obligation of Lydall expressly undertaken in consideration of my
entering into this Termination, Voluntary Release and Waiver of Rights
Agreement.
3. I agree to release, remise and forever discharge, and by these
presents do, for myself, my heirs, executors and administrators, release, remise
and forever discharge Lydall, its past and present and future parent and
affiliate corporations and its past and present and future divisions,
subsidiaries and related companies and their successors and assigns and Lydall's
directors, officers, employees, agents and representatives, personally and as
directors, officers, employees, agents and representatives of and from all
manner of action and actions, causes and causes of action, sums of money,
covenants, contracts, controversies, agreements, promises, damages, claims and
demands whatsoever, in law or in equity, which I ever had, may have had, now
have or which my heirs, executors or administrators hereinafter can, shall or
may
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have as a result of my employment with or termination of employment with
Lydall, whether known or unknown, asserted or unasserted, suspected or
unsuspected, which I may have as a result of any act which has occurred at
any time up to and including the date of my execution of this Termination,
Voluntary Release and Waiver of Rights Agreement, including, without
limitation, any and all claims arising under the Agreement between Lydall,
Inc. and myself dated March 10, 1995 and any claims, demands and causes of
action under federal or state law, including without limitation, any rights
to bring any demands, complaints, causes of action, claims and charges under
the Federal Age Discrimination in Employment Act, 29 U.S.C. Sections 621-634,
including the Older Workers' Benefit Protection Act 29 U.S.C. Section
626(f)(1), Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e-2000e-17, the Civil Rights Act of 1991, the Connecticut Fair
Employment Practices Act, Conn. Gen. Stat. Sections 46a-60-46a-62 (1995), the
Americans With Disabilities Act, 42 U.S.C. Sections 12101-12213, the Employee
Retirement Income Security Act ("ERISA"), the Fair Labor Standards Act, the
Equal Pay Act of 1963, Executive Order 11246, and the right to bring demands,
complaints, causes of action, claims and charges under any other federal,
state or local law, statute, regulation or decision, including laws that
prohibit discrimination on the basis of sex, age or any claims for invasion
of privacy, infliction of emotional distress, assault, battery or other
common law claims, and any claims, demands or causes of action for injunctive
and declaratory relief, breach of contract, wrongful discharge, compensation
for lost wages and benefits, emotional distress, compensatory and punitive
damages and costs including attorneys' fees, expenses and costs of
litigation, and such other and additional relief as may be appropriate.
THIS MEANS THAT, BY SIGNING THIS AGREEMENT, I WILL HAVE WAIVED ANY
RIGHT I MAY HAVE HAD TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIMS AGAINST LYDALL
AND/OR THE RELEASEES INCLUDING, BUT NOT LIMITED TO, CLAIMS WHICH IN ANY WAY
ARISE FROM OR RELATE TO MY EMPLOYMENT RELATIONSHIP WITH AND/OR CESSATION OF
EMPLOYMENT WITH LYDALL UP TO THE DATE OF THE SIGNING OF THIS AGREEMENT.
4. Nothing in this Agreement shall release, discharge or waive any
rights and obligations created by this Agreement.
5. I further acknowledge that I have been specifically asked by Lydall
to review thoroughly the terms of this agreement and the concurrently executed
cover letter including, especially, the waiver of rights set forth herein, with
an attorney prior to my execution of this agreement. I understand that should I
decide to sign the Termination, Voluntary Release and Waiver of Rights
Agreement, I am entitled to revoke it within seven (7) calendar days after
executing it, and the Termination, Voluntary Release and Waiver of Rights
Agreement does not become effective or enforceable until the revocation period
has expired. I also understand that if I do not communicate a decision to Lydall
within twenty-one (21) calendar days of my receipt of this correspondence, my
silence shall constitute a rejection of this offer, whereupon Lydall's proposal
to extend the separation benefits discussed herein shall be withdrawn. I
acknowledge that I have been given sufficient time to freely consult with an
attorney or counselor of my own choosing and that I knowingly and voluntarily
execute this Termination, Voluntary Release and Waiver of Rights Agreement,
after bargaining over the terms hereof, with knowledge of the
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consequences made clear, and with the genuine intent to release claims without
threats, duress, or coercion on the part of Lydall. I do so understanding and
acknowledging the significance of such waiver.
6. Further, in view of the above-referenced consideration voluntarily
provided to me by Lydall, after due deliberation, I agree to waive any right to
further litigation or claim against any or all of the Releasees except as
specifically provided in paragraph number 2 above. I hereby agree to indemnify
and hold harmless the Releasees and their respective agents or representatives
from and against any and all losses, costs, damages or expenses, including,
without limitation, attorneys fees incurred by said parties, or any of them,
arising out of any breach of this Agreement by me or by any person acting on my
behalf, or the fact that any representation made herein by the undersigned was
false when made.
7. As a material inducement to Lydall to enter into this Termination,
Voluntary Release and Waiver of Rights Agreement, the undersigned understands
and agrees that if he/she should fail to comply with the conditions hereof or to
carry out the agreement set forth herein, all amounts paid to the undersigned
under this Agreement shall immediately be forfeited to Lydall and that the right
or claim to further payments and/or benefits hereunder would likewise be
forfeited.
8. I agree to refrain from directly or indirectly interfering in any
manner with the operations, management or administration of the Releasees and I
further agree that I will not publicly disparage the Releasees, nor will I
discuss in any public forum or in the media any claims that have been made
against the Releasees arising from my employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.
9. Lydall agrees to refrain from publicly disparaging Hanley, nor will
LydalI discuss in any public forum or in the media any claims that have been
made against Hanley arising from his employment relationship with Lydall. For
purposes of this paragraph, "disparage" shall mean any statements, actions or
insinuations, made either directly or through a third party, that would lessen
the standing or stature of an institution or individual in the eyes of an
ordinary citizen.
10. I acknowledge that (a) I may subsequently discover facts in
addition to or different from those that I now know or believe to be true with
respect to the claims described in Paragraph 1 above, and (b) that I may have
sustained or may yet sustain damages, costs or expenses that are presently
unknown and that relate to those claims. I acknowledge, however, that I have
negotiated, agreed upon and entered into this Termination, Voluntary Release and
Waiver of Rights Agreement with full knowledge of these possibilities and agree
that this Agreement shall not be affected in any manner whatsoever if any of
these possibilities come to pass.
11. Except to enforce this Termination, Voluntary Release and Waiver of
Rights Agreement, Lydall and I agree that we will forever forbear from pursuing
any legal proceedings,
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administrative or judicial, and we will not in any other way make or continue to
make any demand or claims against each other with respect to any aspect of my
employment, and cessation of employment, with Lydall occurring at any time up to
and including the date of our execution of this Agreement.
12. I hereby agree that I will not seek reinstatement or reemployment
at Lydall or any of its divisions or subsidiaries, and waive any right to seek
such positions. I further agree that I will not apply for any such position at
any time in the future and that the execution of this Termination, Voluntary
Release and Waiver of Rights Agreement is good and sufficient cause for Lydall
to reject any such applications or to terminate my employment if I obtain any
such future employment.
13. As a further material inducement to Lydall to enter into this
agreement, the undersigned provides as follows:
FIRST. The undersigned represents that he has not filed any complaints
or charges against Lydall, or any of the Releasees relating to the
relinquishment of his former titles and responsibilities at Lydall or the terms
of his former employment with Lydall and that if any agency or court assumes
jurisdiction of any complaint or charge against Lydall or any of the Releasees
on behalf of the undersigned concerning his former employment with Lydall, the
undersigned understands and agrees that he has, by his knowing and willing
execution of this Agreement waived his rights to any form of recovery or relief
against Lydall, or any of the Releasees, including but not limited to,
attorney's fees. Provided, however, that this provision shall not preclude the
undersigned from pursuing appropriate legal relief against Lydall for redress of
a substantial breach of a material obligation of Lydall expressly undertaken in
consideration of the undersigned's entering into this Termination, Voluntary
Release and Waiver of Rights Agreement.
SECOND. The undersigned acknowledges and understands that the
consideration for this release shall not be in any way construed as an admission
by Lydall or any of the Releasees of any improper acts or any improper
employment decisions, and that Lydall, specifically disclaims any liability on
the part of themselves, their agents, employees, representatives, successors or
assigns in this regard.
THIRD. The undersigned acknowledges and agrees that this Termination,
Voluntary Release and Waiver of Rights Agreement shall be binding upon the
undersigned, upon Lydall, and upon our respective administrators,
representatives, executives, successors, heirs and assigns and shall inure to
the benefit of said parties and each of them.
FOURTH. The undersigned represents, understands, and agrees that this
is a voluntary agreement which may not be construed as binding precedent that
can be utilized or asserted by the undersigned or by others acting on his/her
behalf in any manner whatsoever against Lydall or any of the Releasees here, or
elsewhere, in the future. Provided, however, that this provision shall not
preclude the undersigned from utilizing or asserting this agreement to obtain
appropriate relief for redress of a substantial breach of a material obligation
of Lydall expressly
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undertaken in consideration of the undersigned's entering into this Termination,
Voluntary Release and Waiver of Rights Agreement.
FIFTH. The undersigned represents, understands and agrees that this
Termination, Voluntary Release and Waiver of Rights Agreement sets forth the
entire agreement between the parties hereto, and fully supersedes any and all
prior agreements or understandings between the parties pertaining to the subject
matter hereof, EXCEPT for the Employee Agreement previously executed by the
undersigned, the terms of which retain their full force and effect, and which
are in no way limited or curtailed by this Termination, Voluntary Release and
Waiver of Rights Agreement. (A copy of that Employee Agreement is attached
hereto, made a part hereof, and designated as Exhibit B.)
SIXTH. The undersigned represents, understands and agrees that for a
period of two (2) years from the date of termination, he will not directly or
indirectly: (i) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or work for (as an employee,
consultant or independent contractor) or have any material financial interest
in, any business which manufactures and/or sells products competitive with
Lydall's products or products currently in development in any market in which
Lydall has sold or attempted to sell any of its product in the two (2) years
preceding such termination; or (ii) induce or attempt to induce any person who
is an employee of Lydall to terminate his or her employment with Lydall; or
(iii) induce or attempt to induce any person, business or entity which, as of
the date of the termination of his employment, is a supplier of, a purchaser
from, or a contracting party with Lydall to terminate any written or oral
agreement, order or understanding with Lydall.
SEVENTH. MODIFICATION. Neither this Agreement nor the cover letter may
be altered or changed orally, but only by an agreement in writing that has been
properly executed by the party against whom any waiver, change, modification or
discharge is sought.
EIGHTH. SEVERABILITY. All provisions and terms of this Agreement are
severable. The invalidity or unenforceability of any particular provision(s) or
term(s) of this Agreement shall not affect the validity or enforceability of the
other provisions and such other provisions shall be enforceable in law or equity
in all respects as if such particular invalid or unenforceable provision(s) or
term(s) were omitted. Notwithstanding the foregoing, the language of all parts
of this Agreement shall, in all cases, be construed as a whole, according to its
fair meaning, and not strictly for or against any of the parties.
NINTH. CONFIDENTIALITY. Lydall and the undersigned agree to refrain
from disclosing to third parties and to keep strictly confidential all details
of this Agreement and any and all information relating to its negotiation,
except as necessary to each party's accountants or attorneys.
I agree and recognize that by reason of my employment and services to
the Releasees I have had access to certain confidential and proprietary
information relating to the Releasees' business, which may include, but is not
limited to, technical notebook records, technical reports, patent applications,
machine equipment, computer software, models, process and product
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designs including any drawings and descriptions, unwritten knowledge and
"know-how", operating instructions, training manuals, production and development
processes, production or other schedules, customer lists, customer buying
records, product sales records, sales requests, territory listings, market
surveys, plans including marketing plans and long range plans, salary
information, contracts, supplier lists, product costs, policy statements, policy
procedures, policy manuals, flowcharts, computer printouts, computer programs,
software and financial information, reproductions and correspondence, trade
secrets, marketing and sales techniques, strategies and programs, (collectively
referred to as "Confidential Information"). I acknowledge that I will not,
unless expressly authorized in writing by the Releasees, directly or indirectly,
at any time, use any Confidential Information or divulge or disclose any
Confidential Information to any person, firm or corporation, unless such
information is in the public domain through no fault of me or except when
required to do so by a court of law, by any governmental agency having
supervisory authority over the business of Lydall or by any administrative or
legislative body (including a committee thereof) with apparent jurisdiction over
me to divulge, disclose or make accessible such information in which case I will
inform the Releasees in writing promptly of such required disclosure, but in any
event at least two days prior to disclosure. All written Confidential
Information (including, without limitation, in any computer or other electronic
format) which came into my possession during the course of my employment shall
remain the property of the Releasees. I agree that I will return all
Confidential Information of Lydall in my possession no later than the date on
which this Agreement is signed. I further agree to immediately deliver my laptop
computer, including all floppy disks, to Lydall for removal of all computer
programs, files and documents that are Confidential Information of Lydall.
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AFFIRMATION OF RELEASOR
I, John E. Hanley, warrant that this Termination, Voluntary Release and
Waiver of Rights Agreement, the accompanying cover letter executed concurrently
herewith, and the Employee Agreement reflect the entire agreement between me and
Lydall.
I, John E. Hanley, warrant that I am competent to execute this
Termination, Voluntary Release and Waiver of Rights Agreement and that I accept
full responsibility therefor.
I, John E. Hanley, have read this Termination, Voluntary Release and
Waiver of Rights Agreement carefully and I fully understand its terms. I execute
this document voluntarily with full and complete knowledge of its significance.
Executed this__________ day of _____________, 2000, at _______________.
___________________________
John E. Hanley
STATE OF_____________________________ )
) SS:
COUNTY OF____________________________ )
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this_____________day of ____________, 2000, under the pains
and penalties of perjury.
___________________________
, Notary Public
My Commission Expires: _____________________
County of Residence: _______________________
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