<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-7665
LYDALL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-0865505
(State or Other Jurisdiction of (IRS Employer
incorporation or Organization) Identification No.)
ONE COLONIAL ROAD, P.O.B. 151,
MANCHESTER, CONNECTICUT, 06045-0151
(Address of principal executive offices) (zip code)
</TABLE>
(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 November 2, 2000 15,836,098
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
LYDALL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
Part I.
Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets....................... 3
Consolidated Condensed Statements of Net Income (Loss) and
Comprehensive Income (Loss)............................... 4-5
Consolidated Condensed Statements of Cash Flows............. 6
Notes to Consolidated Condensed Financial Statements........ 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11-14
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 14
Part II.
Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 15
Signature...................................................................................... 16
</TABLE>
<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,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,262 $ 1,154
Accounts receivable, net.................................. 44,100 45,517
Inventories:
Finished goods.......................................... 8,919 8,529
Work in progress........................................ 8,093 5,044
Raw materials........................................... 8,313 8,576
LIFO reserve............................................ (1,688) (1,619)
-------- --------
Total inventories......................................... 23,637 20,530
Taxes receivable.......................................... 8,831 4,022
Prepaid expenses.......................................... 1,910 1,895
Net investment in discontinued operations................. -- 2,125
Assets held for sale...................................... 5,595 35,183
Deferred tax assets....................................... 2,536 4,807
-------- --------
Total current assets.................................... 89,871 115,233
Property, plant and equipment, at cost...................... 147,022 146,828
Less: accumulated depreciation.............................. (65,627) (66,272)
-------- --------
81,395 80,556
Other assets, at cost, less amortization.................... 24,451 24,447
-------- --------
Total assets.............................................. $195,717 $220,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft............................................ $ 2,055 $ 2,564
Current portion of long-term debt......................... 6,644 6,849
Accounts payable.......................................... 20,704 18,438
Accrued taxes............................................. 975 920
Accrued payroll and other compensation.................... 8,925 4,021
Liabilities related to assets held for sale............... 975 6,945
Other accrued liabilities................................. 10,178 10,866
-------- --------
Total current liabilities............................... 50,456 50,603
Long-term debt.............................................. 21,296 38,334
Deferred tax liabilities.................................... 11,490 11,306
Other long-term liabilities................................. 4,436 4,757
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock........................................... -- --
Common stock.............................................. 2,193 2,180
Capital in excess of par value............................ 40,010 39,195
Retained earnings......................................... 134,350 140,085
Accumulated other comprehensive loss...................... (6,872) (4,582)
-------- --------
169,681 176,878
Less: treasury stock, at cost............................... (61,642) (61,642)
-------- --------
Total stockholders' equity................................ 108,039 115,236
-------- --------
Total liabilities and stockholders' equity.................. $195,717 $220,236
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... $ 77,155 $75,786
Cost of sales............................................... 58,545 56,658
-------- -------
Gross margin................................................ 18,610 19,128
Selling, product development and administrative expenses.... 12,872 13,330
-------- -------
Operating income............................................ 5,738 5,798
Other (income) expense:
Investment income......................................... (5) (18)
Interest expense.......................................... 118 701
Loss on sale of operations................................ 29,529 --
Foreign currency transaction (gain) loss.................. 364 (72)
Other..................................................... (44) 26
-------- -------
29,962 637
-------- -------
(Loss) income from continuing operations before income
taxes..................................................... (24,224) 5,161
Income tax (benefit) expense................................ (8,498) 1,807
-------- -------
(Loss) income from continuing operations.................... (15,726) 3,354
Discontinued operations:
Loss from operations of the Wovens segment, net of tax
benefit of $65.......................................... -- (105)
-------- -------
NET (LOSS) INCOME........................................... $(15,726) $ 3,249
======== =======
Basic earnings (loss) per common share:
Continuing operations..................................... $ (.99) $ .21
Discontinued operations................................... -- (.01)
-------- -------
Net (loss) income......................................... $ (.99) $ .20
Diluted earnings (loss) per common share:
Continuing operations..................................... $ (.99) $ .21
Discontinued operations................................... -- (.01)
-------- -------
Net (loss) income......................................... $ (.99) $ .20
Weighted average common stock outstanding................... 15,809 15,733
Weighted average common stock and equivalents outstanding... 15,809 15,848
Net (loss) income........................................... $(15,726) $ 3,249
Other comprehensive (loss) income, before tax:
Foreign currency translation adjustments.................. (2,118) 292
-------- -------
Other comprehensive (loss) income, before tax............... (2,118) 292
Income tax benefit related to items of other comprehensive
loss...................................................... 736 --
-------- -------
Other comprehensive (loss) income, net of tax............... (1,382) 292
-------- -------
Comprehensive (loss) income................................. $(17,108) $ 3,541
======== =======
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... $236,680 $241,774
Cost of sales............................................... 179,948 183,224
-------- --------
Gross margin................................................ 56,732 58,550
Selling, product development and administrative expenses.... 41,080 40,733
-------- --------
Operating income............................................ 15,652 17,817
Other (income) expense:
Investment income......................................... (163) (33)
Interest expense.......................................... 957 2,010
Foreign currency transaction loss (gain).................. 369 (1,082)
Loss from sale of operations.............................. 23,464 --
Other..................................................... (262) (86)
-------- --------
24,365 809
-------- --------
(Loss) income from continuing operations
before income taxes......................................... (8,713) 17,008
Income tax (benefit) expense................................ (2,907) 5,756
-------- --------
(Loss) income from continuing operations.................... (5,806) 11,252
Discontinued operations:
Loss from operations of the Wovens segment, net of tax
benefit of $131......................................... -- (316)
Gain on disposal of the Wovens segment, net of tax expense
of $44.................................................. 71 --
-------- --------
Gain (loss) from discontinued operations.................... 71 (316)
-------- --------
NET (LOSS) INCOME........................................... $ (5,735) $ 10,936
======== ========
Basic earnings (loss) per common share:
Continuing operations..................................... $ (.36) $ .72
Discontinued operations................................... -- (.02)
-------- --------
Net (loss) income......................................... $ (.36) $ .70
Diluted earnings (loss) per common share:
Continuing operations..................................... $ (.36) $ .71
Discontinued operations................................... -- (.02)
-------- --------
Net (loss) income......................................... $ (.36) $ .69
Weighted average common stock outstanding................... 15,766 15,726
Weighted average common stock and equivalents outstanding... 15,766 15,819
Net (loss) income........................................... $ (5,735) $ 10,936
Other comprehensive loss, before tax:
Foreign currency translation adjustments.................. (3,508) (4,190)
-------- --------
Other comprehensive loss, before tax........................ (3,508) (4,190)
Income tax benefit related to items of other comprehensive
loss...................................................... 1,218 --
-------- --------
Other comprehensive loss, net of tax........................ (2,290) (4,190)
-------- --------
Comprehensive (loss) income................................. $ (8,025) $ 6,746
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (5,735) $ 10,936
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation............................................ 7,718 9,006
Amortization............................................ 1,168 1,336
Gain on disposal of Wovens Segment...................... (71) --
Loss on sale of operations.............................. 23,464 --
Gain on sale of investments............................. (136) --
Loss on disposition of property, plant and equipment.... 373 192
Foreign currency transaction loss (gain)................ 369 (1,082)
Gain on receipt of common stock from demutualization of
insurance companies.................................... (393)
Changes in operating assets and liabilities excluding
effects from acquisitions:
Accounts receivable................................... (6,447) (5,678)
Taxes receivable...................................... (4,490) 2,256
Inventories........................................... (4,364) (877)
Other assets.......................................... (1,581) (1,487)
Accounts payable...................................... 5,207 1,503
Accrued taxes......................................... (43) 471
Accrued payroll and other compensation................ 4,818 1,063
Deferred income taxes................................. 1,509 (968)
Other long-term liabilities........................... (274) 40
Other accrued liabilities............................. (4,226) (1,178)
-------- --------
Total adjustments....................................... 22,601 4,597
-------- --------
Net cash provided by operating activities................... 16,866 15,533
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of Wovens Segment.................. 1,819 --
Proceeds from sales of operations......................... 12,037 --
Proceeds from sales of investments........................ 529 --
Acquisitions.............................................. -- (291)
Additions of property, plant, and equipment............... (15,855) (14,086)
-------- --------
Net cash used for investing activities...................... (1,470) (14,377)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft............................................ (509) 2,689
Long-term debt payments................................... (133,578) (45,102)
Long-term debt proceeds................................... 119,550 82,380
Proceeds from short-term borrowings....................... -- 62,992
Payment of short-term borrowings.......................... -- (102,712)
Issuance of common stock.................................. 828 402
Acquisition of common stock............................... -- (635)
-------- --------
Net cash (used for) provided by financing activities........ (13,709) 14
-------- --------
Effect of exchange rate changes on cash..................... 421 (156)
-------- --------
Increase in cash and cash equivalents....................... 2,108 1,014
Cash and cash equivalents at beginning of period............ 1,154 2,254
-------- --------
Cash and cash equivalents at end of period.................. $ 3,262 $ 3,268
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................................. $ 1,388 $ 1,759
Income taxes.............................................. 900 3,902
Non-cash transactions:
Reclassification of deferred tooling revenue from inventory
to other accrued liabilities.............................. 2,949
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
6
<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 (collectively,
the "Company"). All financial information is unaudited for the 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 operations for the periods presented have been included. The year-end
consolidated 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 (loss) per common share are based on income (loss) from
continuing operations and net income (loss) divided by the weighted average
number of common shares outstanding during the period. Diluted earnings
(loss) per common share are based on income (loss) from continuing
operations and net income (loss) divided by the weighted average number of
common shares outstanding during the period, including the effect of stock
options, where such effect is dilutive. As the Company reported a loss from
continuing operations and a net loss for the quarter and nine months ended
September 30, 2000, no equivalent shares were included in the calculation of
diluted earnings per share for such periods, as the effect is antidilutive.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
(UNAUDITED) (UNAUDITED)
--------------------------------- ----------------------------------
LOSS 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 (loss) earnings per share............ $(15,726) 15,809 $(.99) $3,354 15,733 $.21
Effect of dilutive stock options........... -- -- -- -- 115 --
-------- ------ ----- ------ ------ ----
Diluted (loss)earnings per share........... $(15,726) 15,809 $(.99) $3,354 15,848 $.21
======== ====== ===== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
NET NET
LOSS 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 (loss) earnings per share................ $(15,726) 15,809 $(.99) $3,249 15,733 $.20
Effect of dilutive stock options............... -- -- -- -- 115 --
-------- ------ ----- ------ ------ ----
Diluted (loss) earnings per share.............. $(15,726) 15,809 $(.99) $3,249 15,848 $.20
======== ====== ===== ====== ====== ====
</TABLE>
7
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
(UNAUDITED) (UNAUDITED)
--------------------------------- ----------------------------------
LOSS 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 (loss) earnings per share............ $ (5,806) 15,766 $(.36) $11,252 15,726 $.72
Effect of dilutive stock options........... -- -- -- -- 93 (.01)
-------- ------ ----- ------- ------ ----
Diluted (loss) earnings per share.......... $ (5,806) 15,766 $(.36) $11,252 15,819 $.71
======== ====== ===== ======= ====== ====
</TABLE>
<TABLE>
<CAPTION>
NET NET
LOSS 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 (loss) earnings per share............... $ (5,735) 15,766 $(.36) $10,936 15,726 $ .70
Effect of dilutive stock options.............. -- -- -- -- 93 (.01)
-------- ------ ----- ------- ------ -----
Diluted (loss) earnings per share............. $ (5,735) 15,766 $(.36) $10,936 15,819 $ .69
======== ====== ===== ======= ====== =====
</TABLE>
3. Effective September 30, 2000, the Company sold substantially all of the
assets and certain liabilities of its chrome-plating and injection-molding
operations of Lydall Gerhardi GmbH and Co., KG to Gerhardi Kunststofftechnik
GmbH. The pre-tax loss on the sale amounted to $29.5 million, or $1.21 per
share after-tax for the quarter ended September 30, 2000. At December 31,
1999, the assets and liabilities related to these operations were
$28.8 million and $6.1 million and were classified as "Assets held for sale"
and "Liabilities related to assets held for sale," respectively.
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 quarter ended September 30, 1999, sales and income
from operations of the Hoosick Falls Operation included in income from
continuing operations were $2.7 million and $596 thousand, respectively. For
the nine months ended September 30, 2000 and September 30, 1999, sales and
income (loss) from operations of the Hoosick Falls Operation included in
income (loss) from continuing operations were $591 thousand and
$8.1 million and $(10 thousand) and $1.2 million, respectively. At
December 31, 1999, the assets and liabilities of this operation were
$6.4 million and $800 thousand and were classified as "Assets held for sale"
and "Liabilities related to assets held for sale," respectively.
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 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 was recorded in the quarter ended March 31,
2000 and reflects final adjustments to the Company's 1999 estimated loss on
disposal.
The Company's Board of Directors has formalized plans to dispose of certain
additional assets and liabilities of the Company. As a result, assets of
$5.6 million and related liabilities of $975 thousand have been reclassified
as "Assets held for sale" and "Liabilities related to assets held for sale"
in the Consolidated Condensed Balance Sheet at September 30, 2000.
8
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
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% 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 September 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 September 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, 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 PRP 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.
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. Lydall Eastern has received a "Request for Information" from
the EPA dated September 25, 2000, and is in the process of accumulating the
information for a response. 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
9
<PAGE>
LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
in the Company's 1999 Annual Report on Form 10-K. The table below presents
net sales and operating income by segment for the three and nine months
ended September 30, 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>
THERMAL/ FILTRATION/ OTHER PRODUCTS RECONCILING CONSOLIDATED
FOR THE THREE MONTHS ENDED ACOUSTICAL SEPARATION PAPERBOARD & SERVICES ITEMS TOTALS
-------------------------- ---------- ----------- ---------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Net Sales....................... $41,568 $16,739 $11,189 $ 8,711 $(1,052) $77,155
Operating income................ 4,521 2,640 291 776 (2,490) 5,738
------- ------- ------- ------- ------- -------
September 30, 1999
Net Sales....................... $39,531 $14,566 $10,943 $11,755 $(1,009) $75,786
Operating income................ 4,406 1,759 538 1,764 (2,669) 5,798
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
THERMAL/ FILTRATION/ OTHER PRODUCTS RECONCILING CONSOLIDATED
FOR THE NINE MONTHS ENDED ACOUSTICAL SEPARATION PAPERBOARD & SERVICES ITEMS TOTALS
------------------------- ---------- ----------- ---------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Net Sales...................... $126,707 $50,393 $32,715 $29,940 $(3,075) $236,680
Operating income............... 12,172 7,819 1,123 3,114 (8,576) 15,652
-------- ------- ------- ------- ------- --------
September 30, 1999
Net Sales...................... $129,768 $43,984 $32,630 $38,269 $(2,877) $241,774
Operating income............... 11,227 6,214 2,879 5,162 (7,665) 17,817
-------- ------- ------- ------- ------- --------
</TABLE>
6. Effective August 10, 2000 the Company amended certain covenants and
conditions of its main credit facility dated July 14, 1999. The amendments
provide increased flexibility to the Company with regard to strategic and
operational financing needs. The Company is in compliance with all of the
loan covenants and conditions.
7. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133, as amended, is
currently effective January 1, 2001 for the Company and requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Management believes adoption of this standard and related transition
adjustments will not have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
NET SALES
Lydall, Inc. recorded net sales of $77.2 million in the third quarter of
2000 compared with $75.8 million for the same quarter in 1999, an increase of
$1.4 million (1.8%). The increase is primarily due to increased sales volume in
the Filtration/Separation and Thermal/Acoustical segments. This increase was
partially offset by the unfavorable impact of foreign currency translation,
which reduced sales by $3.5 million in the quarter, and the sale of the Hoosick
Falls Operation in January of 2000.
For the nine months ended September 30, 2000, net sales were
$236.7 million, a decrease of $5.1 million (2.1%) from $241.8 million for the
comparable period of the prior year. The decrease is mainly attributable to the
sale of the Hoosick Falls Operation in January of 2000 and the unfavorable
impact of foreign currency translation. The impact of foreign currency
translation reduced year-to-date reported sales by $9.8 million. Sales of the
Filtration/Separation segment partially offset the decrease as sales of high
efficiency air-filtration media continued to strengthen.
GROSS MARGIN
Gross margin for the third quarter of 2000 was 24.1% compared to 25.2% for
the same quarter of 1999. The decline in gross margin was driven by increased
raw material prices in the Paperboard segment, and the sale of the Hoosick Falls
Operation offset by increased volume of air-filtration media in the
Filtration/Separation segment.
Gross margin for the nine months ended September 30, 2000 was 24.0% compared
to 24.2% for the comparable period of the prior year. This decline resulted from
increased raw material pricing in the Paperboard segment offset by increased
sales volume of thermal/acoustical industrial products and filtration/separation
products.
SELLING, PRODUCT DEVELOPMENT AND ADMINISTRATIVE EXPENSES
For the quarter ended September 30, 2000 selling, product development and
administrative expenses decreased $.5 million (3.4%) from the same period in
1999. As a percentage of net sales, these costs decreased to 16.7% of sales in
the third quarter of 2000 compared with 17.6% in the third quarter of 1999.
Selling, product development and administrative expenses have increased by
$.3 million (.9%) in the first nine months of 2000 compared to the comparable
period of the prior year. As a percentage of net sales, these costs increased to
17.4% of sales from 16.9% for the nine-month periods.
OTHER (INCOME)/EXPENSE
Other expense for the third quarter of 2000 was $30.0 million compared to
$637 thousand for the same period of the prior year. For the third quarter of
2000, other expense consists primarily of a loss of $29.5 million on the
disposition of the chrome-plating and injection-molding operations of Gerhardi,
which were sold on September 30, 2000.
For the nine months ended September 30, 2000 other expense was
$24.4 million compared to $809 thousand for the same period in 1999. For the
nine-month period of 2000, other expense primarily consists of a $29.5 million
loss on disposition of the two Gerhardi operations, offset by a gain of
$6.1 million on the January 2000 sale of the Hoosick Falls Operation. Other
expense in 1999 included a $1.4 million foreign currency transaction gain on a
Euro denominated loan.
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Interest expense was $.1 million and $1.0 million for the three months and
nine months ended September 30, 2000, respectively, compared to $.7 million an
$2.0 million for the comparable periods of 1999. The reduction in interest
expense resulted from lower outstanding debt levels and the capitalization of
interest associated with plant expansions and capital additions for new product
platforms.
INCOME TAXES
The effective tax rate for the nine months ended September 30, 2000 was
33.4% compared to 33.9% for the comparable period in 1999. The decrease is
primarily due the loss on the sale of the Gerhardi operations partially offset
by the gain on the sale of the Hoosick Falls Operation.
SEGMENT RESULTS
THERMAL/ACOUSTICAL
Thermal/Acoustical net sales increased $2.0 million (5.2%) in the third
quarter ended September 30, 2000 compared to the same period in 1999, and
decreased $3.1 million (2.4%) for the nine months ended September 30, 2000
compared to the same period in 1999. The increase in sales for the quarter
resulted from the introduction of new products in the automotive
thermal/acoustical business for new platforms partially offset by the impact of
unfavorable foreign currency translation. The decrease for the nine-month period
is primarily due to the impact of unfavorable foreign currency translation
offset by improved domestic sales of automotive and industrial thermal products.
Thermal/Acoustical operating income increased $.1 million (2.6%) and
$.9 million (8.4%) in the third quarter and nine months ended September 30, 2000
compared to the same periods in 1999. The increase in operating income for the
quarter and nine-month period was primarily due to continued sales strength of
industrial thermal products and improved manufacturing efficiencies at certain
plants.
FILTRATION/SEPARATION
Filtration/Separation net sales increased $2.2 million (14.9%) and
$6.4 million (14.6%) in the third quarter and nine months ended September 30,
2000 compared to the same periods in 1999. Strong sales of synthetic media and
high-efficiency air filtration products drove the majority of the improvement in
both periods. Biomedical and pharmaceutical processing products contributed to
the nine-month increase, but third quarter 2000 sales were consistent with the
comparable period of 1999 as higher sales of the BioPak( TM) bioprocessing
containers were offset by lower sales volume of traditional blood filtration
media.
Filtration/Separation operating income increased $.9 million (50.0%) and
$1.6 million (25.8%) in the third quarter and nine months ended September 30,
2000 compared to the same periods in 1999, primarily as a result of greater
sales volume and manufacturing efficiencies.
PAPERBOARD
Paperboard net sales increased $.2 million (2.2%) and $.1 million (.3%) in
the third quarter and nine months ended September 30, 2000 compared to the same
periods in 1999. The nominal increase for the quarter and nine months is
primarily due to the materials-handling business targeting new business and
increasing foreign net sales.
Paperboard operating income decreased $.2 million (45.9%) and $1.8 million
(61.0%) in the third quarter and nine months ended September 30, 2000 compared
to the same periods in 1999. The decreases are primarily the result of increased
raw materials costs in materials handling products. Mainly due to the
increasingly competitive environment created by consolidation within the market,
the Company has not yet been able to pass these cost increases to its customers.
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OTHER PRODUCTS AND SERVICES
Other Products and Services net sales decreased $3.0 million (25.9%) and
$8.3 million (21.8%) in the third quarter and nine months ended September 30,
2000 compared to the same periods in 1999, mainly as a result of the sale of the
Hoosick Falls Operation and lower pencil board sales. Removing the net sales of
the Hoosick Falls Operation in 1999 for comparative purposes, Other Products and
Services net sales decreased by $.3 million and $.2 million during the third
quarter and nine months ended September 30, 2000 compared to the same period in
1999.
Other Products and Services operating income decreased $1.0 million (56.0%)
and $2.0 million (39.7%) in the third quarter and nine months ended
September 30, 2000 compared to the same periods in 1999. For the quarter and
nine-month periods the decrease is due to the sale of the Hoosick Falls
Operation and lower volume of pencil board sales. Removing the operating income
of the Hoosick Falls Operation for 1999 for comparative purposes, Other Products
and Services operating income decreased by $.4 million and $.9 million during
the third quarter and nine months ended September 30, 2000 compared to the same
period in 1999.
OUTLOOK
The Company anticipates continued double-digit growth of net sales and
operating income of the Filtration/Separation segment and significant growth of
the Thermal/Acoustical segment for the remainder of 2000 and 2001. The remainder
of 2000 should benefit from the continuing strengthening of the air filtration
market, increased sales of the new biopharmaceutical processing products as
commercialization of the product line continues, and significant new
thermal/acoustical automotive business. The Company has previously announced
that on an annual basis, more than $30 million of new automotive business is
currently booked. This new business started to phase in during the third quarter
of 2000. The Company expects approximately $10 million to be added to 2000 sales
with the full impact of this new business augmenting future annual sales. To
accommodate the expected growth of the Thermal/Acoustical segment, the Company
has expanded, and is in the process of expanding, its manufacturing facilities.
As previously announced, the Company completed the divestiture of its two
unprofitable German operations effective September 30, 2000. The profitability
of the operation retained and the elimination of the losses from the divested
operations is expected to have a significant positive impact of the operating
results of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flow (earnings before interest, taxes, depreciation and
amortization), net of the loss on the sale of operations for the third quarter
2000 decreased $1.2 million, or 12.8% to $8.3 million. For the nine months ended
September 30, 2000 operating cash flow, net of the loss on the sales of
operations, was $24.4 million compared to $28.0 million for the same period in
1999. The decrease in operating cash flow for the quarter and nine-month periods
is due to lower operating income, the unfavorable impact of foreign currency
translation and lower depreciation expense. At September 30, 2000, cash and cash
equivalents were $3.3 million compared to $1.2 million at December 31, 1999.
Working capital at September 30, 2000 was $39.4 million compared with
$64.6 million at December 31, 1999. The reduction in working capital is mainly
due to the sale of the Wovens segment and the Hoosick Falls and Gerhardi
operations.
Capital expenditures were $5.6 million and $15.9 million for the third
quarter and nine months ended September 30, 2000 compared with $5.3 million and
$14.1 million for the same periods in 1999.
As previously disclosed, the Company amended certain covenants and
conditions of its main credit facility effective August 10, 2000. The amendments
provide more flexibility to the Company with regard
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to strategic and operational financing needs. As of September 30, 2000, the
Company had unused borrowing capacity of approximately $42.3 million under
various credit facilities. Management believes that the Company's cash and cash
equivalents, operating cash flow, and unused borrowing capacity at
September 30, 2000 are sufficient to meet current and anticipated requirements
for the foreseeable future.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133, as amended, is currently effective
January 1, 2001 for the Company and requires that all derivative instruments be
recorded on the balance sheet at their fair value. Management believes adoption
of this standard and related transition adjustments will not have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
FORWARD-LOOKING INFORMATION
In the interest of more meaningful disclosure, Lydall and its management
make statements regarding the future outlook of the Company which constitute
"forward-looking statements" under the securities laws. These forward looking
statements are intended to provide management's current expectations for the
future operating and financial performance of the company, based on assumptions
currently believed to be valid. Forward looking statements are included under
the "Outlook" section of this Item and elsewhere within this report and are
generally identified through the use of language such as "believe," "expect,"
"estimate," "anticipate" and other words of similar meaning in connection with
discussion of future operating or financial performance.
All forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those expressed or implied in the
forward-looking statements. This Report on Form 10-Q includes information as to
risk factors in the "Notes to Consolidated Condensed Financial Statements" under
Note 4. Additional factors that might cause such a difference include risks and
uncertainties which are detailed in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the Company's 1999
Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
3.1--Certificate of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
3.2-- By-laws of the Registrant (filed as Exhibit 3(ii) to the
Registrant's Quarterly Report on Form 10-Q dated November 12,
1999, and incorporated herein by this reference).
27.1-- Financial Data Schedule, filed herewith
b. Reports on Form 8-K
On October 16, 2000, a report on Form 8-K (File No. 1-7665) was filed
to disclose a disposition of assets under Item 2, Acquisition or
Disposition of Assets, pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934. This report contained a Pro Forma
Consolidated Condensed Balance Sheet as of June 30, 2000, a Pro Forma
Consolidated Condensed Statement of Net Income for the year ended
December 31, 1999 and a Pro Forma Consolidated Condensed Statement of
Net Income for the six months ended June 30, 2000.
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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.
<TABLE>
<S> <C> <C>
LYDALL, INC.
(REGISTRANT)
By: /s/ THOMAS P. SMITH
-----------------------------------------
Thomas P. Smith
VICE PRESIDENT--CONTROLLER
(ON BEHALF OF THE REGISTRANT AND AS
November 8, 2000 PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
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LYDALL, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
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<C> <S>
3.1 Certificate of Incorporation of the Registrant
3.2 By-laws for the Registrant
27.1 Financial Data Schedule
</TABLE>
