-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4NN4xFZaEHD2p1bdOPbMy3XUj5PuE9ZCu/lQ4lhoBz+wgqnDrMfRyUY+GQ7GN3f IflKnjSdmB3t1V40aIQU7Q== 0000912057-00-024016.txt : 20000515 0000912057-00-024016.hdr.sgml : 20000515 ACCESSION NUMBER: 0000912057-00-024016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYDALL INC /DE/ CENTRAL INDEX KEY: 0000060977 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 060865505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07665 FILM NUMBER: 630163 BUSINESS ADDRESS: STREET 1: ONE COLONIAL RD STREET 2: P O BOX 151 CITY: MANCHESTER STATE: CT ZIP: 06045-0151 BUSINESS PHONE: 2036461233 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL BOARD CO DATE OF NAME CHANGE: 19700115 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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)
DELAWARE 06-0865505 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization)
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. Common stock $.10 par value per share Total Shares outstanding May 12, 2000 15,797,776
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LYDALL, INC. INDEX
PAGE NO. -------- 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
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) 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 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME (IN THOUSANDS EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) 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 ======= =======
See accompanying Notes to Consolidated Condensed Financial Statements. 4 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- (UNAUDITED) 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 --
See accompanying Notes to Consolidated Condensed Financial Statements. 5 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.
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 ----------- -------- --------- ----------- -------- --------- 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 ====== ====== ===== ====== ====== =====
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 -------- -------- --------- -------- -------- --------- 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 ====== ====== ===== ====== ====== =====
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 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 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.
IN THOUSANDS THERMAL/ FILTRATION/ OTHER PRODUCTS RECONCILING CONSOLIDATED FOR THE THREE MONTHS ENDED ACOUSTICAL SEPARATION PAPERBOARD & SERVICES ITEMS TOTALS - -------------------------- ---------- ----------- ---------- -------------- ----------- ------------ 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 ------- ------- ------- ------- ------- -------
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 LYDALL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTERS ENDED MARCH 31, 2000 1999 - -------------------------------- --------------- --------------- 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%
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 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 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 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LYDALL, INC. (Registrant) May 12, 2000 By /s/ THOMAS P. SMITH ----------------------------------------- Thomas P. Smith VICE PRESIDENT--CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)
12 LYDALL, INC. INDEX TO EXHIBITS
EXHIBIT NO. - ----------- 10.1 Agreement and General Release with John E. Hanley dated February 2, 2000. 27.1 Financial Data Schedule.
EX-10.1 2 EX-10.1 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. 1 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. 2 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) 3 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 4 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 5 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, 6 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 7 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 8 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. 9 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: _______________________ 10 EX-27.1 3 EX-27.1
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,809 318 48,369 (1,380) 20,226 106,305 140,967 (63,339) 208,202 50,138 28,139 0 0 2,185 119,237 208,202 80,155 80,155 61,080 61,080 14,210 (90) 490 10,692 3,958 6,734 71 0 0 6,805 0.43 0.43
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