-----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, PMeh8HXsaa89KBRbVXkD+1sAOGW+K1CPoB9yjhDhrTq5GPyp903Vr0hJyrFFLeso X5KfhJhjIMTzrOQOhNRLNw== 0000950109-96-003041.txt : 19960515 0000950109-96-003041.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950109-96-003041 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-07665 FILM NUMBER: 96563452 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 QUARTERLY REPORT - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-7665 ---------------- LYDALL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-0865505 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) ONE COLONIAL RD., P.O.B. 151, 06045-0151 MANCHESTER, CONNECTICUT, (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (860) 646-1233 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 8, 1996 17,097,626
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- LYDALL, INC. INDEX
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets......................... 2 Consolidated Condensed Statements of Income................... 3 Consolidated Condensed Statements of Cash Flows............... 4 Notes to Consolidated Condensed Financial Statements.......... 5-6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................. 7-8 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K........................... 8 Signature............................................................ 9
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1996 1995 --------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................. $ 26,423 $ 27,820 Short-term investments................................ 1,977 913 Accounts receivable, net.............................. 35,670 34,202 Inventories: Finished goods...................................... 7,180 6,033 Work in process..................................... 3,716 3,367 Raw materials and supplies.......................... 7,104 7,217 LIFO reserve........................................ (2,518) (2,493) -------- -------- Total inventories..................................... 15,482 14,124 Prepaid expenses...................................... 749 820 Deferred tax assets................................... 4,590 4,590 -------- -------- Total current assets................................ 84,891 82,469 -------- -------- Property, plant and equipment, at cost.................. 106,690 105,467 Less accumulated depreciation........................... (47,268) (45,393) -------- -------- 59,422 60,074 Other assets, at cost, less amortization................ 15,177 15,529 -------- -------- $159,490 $158,072 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt..................... $ 2,826 $ 2,871 Accounts payable...................................... 18,566 14,770 Accrued taxes......................................... 1,021 263 Accrued payroll and other compensation................ 3,326 5,426 Other accrued liabilities............................. 7,613 6,409 -------- -------- Total current liabilities........................... 33,352 29,739 Long-term debt.......................................... 7,250 7,750 Deferred tax liabilities................................ 13,799 14,207 Other long-term liabilities............................. 3,917 4,565 Stockholders' equity: Preferred stock....................................... -- -- Common stock.......................................... 2,097 2,089 Capital in excess of par value........................ 33,145 32,448 Foreign currency translation adjustment............... 1,792 2,091 Pension liability adjustment.......................... (532) (459) Retained earnings..................................... 84,426 78,461 -------- -------- 120,928 114,630 Less: treasury stock, at cost......................... (19,756) (12,819) -------- -------- Total stockholders' equity.......................... 101,172 101,811 -------- -------- $159,490 $158,072 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 2 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------- 1996 1995 --------- --------- (UNAUDITED) Net sales................................................ $ 65,794 $ 62,736 Cost of sales............................................ 45,003 43,510 --------- --------- Gross margin............................................. 20,791 19,226 Selling, product development and administrative expenses. 11,216 10,263 --------- --------- Operating income......................................... 9,575 8,963 Other (income) expense Investment income...................................... (324) (232) Interest expense....................................... 182 264 Other, net............................................. 125 224 --------- --------- (17) 256 --------- --------- Income before income taxes............................... 9,592 8,707 Income tax expense....................................... 3,627 3,401 --------- --------- Net Income............................................... $ 5,965 $ 5,306 ========= ========= Per-share amounts: Net income per share*.................................... $ .33 $ .29 ========= ========= Weighted average common stock and equivalents outstanding*............................................ 18,310 18,144 ========= =========
- -------- * Share information for 1995 was restated to reflect a two-for-one stock split distributed June 21, 1995. See accompanying Notes to Consolidated Condensed Financial Statements. 3 LYDALL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 1996 1995 --------- --------- (UNAUDITED) Cash flows from operating activities: Net income.............................................. $ 5,965 $ 5,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 2,026 1,826 Amortization........................................... 370 382 Changes in operating assets and liabilities: Accounts receivable................................... (1,571) (2,254) Inventories........................................... (1,412) (2,078) Other assets.......................................... 51 526 Accounts payable...................................... 3,855 (884) Accrued taxes......................................... 773 1,690 Accrued payroll and other compensation................ (2,094) (1,492) Deferred income taxes................................. (327) 190 Other long-term liabilities........................... (605) 13 Other accrued liabilities............................. 1,213 1,485 --------- --------- Total adjustments....................................... 2,279 (596) --------- --------- Net cash provided by operating activities................ 8,244 4,710 Cash flows from investing activities: Additions of property, plant & equipment................ (2,078) (2,179) Purchase of investments, net............................ (1,138) (599) Disposals of property, plant & equipment, net........... 363 4 --------- --------- Net cash used for investing activities................... (2,853) (2,774) --------- --------- Cash flows from financing activities: Long-term debt payments................................. (540) (538) Issuance of common stock................................ 705 1,751 Acquisition of common stock............................. (6,937) -- --------- --------- Net cash provided (used for) financing activities........ (6,772) 1,213 --------- --------- Effect of exchange rate changes on cash.................. (16) 29 --------- --------- Increase (decrease) in cash and cash equivalents......... (1,397) 3,178 Cash and cash equivalents at beginning of period......... 27,820 11,684 --------- --------- Cash and cash equivalents at end of period............... $ 26,423 $ 14,862 ========= ========= Supplemental Schedule of Cash Flow Information: Cash paid during the period for: Interest............................................... $ 341 $ 149 Income taxes........................................... 3,268 1,716
See accompanying Notes to Consolidated Condensed Financial Statements. 4 LYDALL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The accompanying consolidated condensed financial statements include the accounts of Lydall, Inc. and its wholly owned subsidiaries. All financial information is unaudited for interim periods reported. All significant intercompany transactions have been eliminated in the consolidated condensed financial statements. Management believes that all adjustments, which include only normal recurring accruals, necessary to present a fair statement of the financial position and results of the periods have been included. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. 2. Earnings per common share are based on the weighted average number of common shares outstanding during the period, including the effect of stock options, stock awards and warrants where such effect would be dilutive. Fully diluted earnings per share are not presented since the dilution is not material. 3. In the mid-1980's, the United States Environmental Protection Agency ("EPA") notified a former subsidiary of the Company that it and other entities may be potentially responsible in connection with the release of hazardous substances at a landfill and property located adjacent to a landfill located in Michigan City, Indiana. The two sites have been combined and are viewed by the EPA as one site. The preliminary indication, based on the Site Steering Committee's volumetric analysis, is that the alleged contribution to the waste volume at the site of the plant once owned by a former subsidiary is approximately 0.434 percent of the total volume. The portion of the 0.434 percent specifically attributable to the former subsidiary by the current operator of the plant is approximately 0.286 percent. There are over 800 potentially responsible parties ("prp") which have been identified by the Site Steering Committee. Of these, 38, not including the Company's former subsidiary, are estimated to have contributed over 80 percent of the total waste volume at the site. These prp's include Fortune 500 companies, public utilities, and the State of Indiana. The Company believes that, in general, these parties are financially solvent and should be able to meet their obligations at the site. The Company has reviewed the financial statements and Dun & Bradstreet reports on several of these prp's, and based on these financial reports, does not believe Lydall will have any material additional volume attributed to it for reparation of this site due to insolvency of other prp's. During the quarter ended September 30, 1994, the Company learned that the EPA had completed its Record of Decision ("ROD") for the Michigan site and has estimated the total cost of remediation to be between $17 million and $22 million. Based on the alleged volumetric contribution of its former subsidiary to the site, and on the EPA's estimated remediation costs, Lydall's alleged total exposure would be less than $100 thousand, which has been accrued. In June 1995, the Company and its former subsidiary were sued in the Northern District of Indiana by the insurer of the current operator of the former subsidiary's plant seeking contribution. No demand has been formally made in this matter, however, the Company believes it has several defenses to the action. Management believes the ultimate disposition of the claim will not have a material adverse effect upon the Company's consolidated financial position or results of operations. 4. On March 19, 1996, patent litigation brought by ATD Corporation ("ATD") against Lydall in the United States District Court for the Eastern District of Michigan Southern Division was concluded with all of ATD's claims for damages being denied. An eight-member jury decided in favor of Lydall in the lawsuit filed by ATD alleging patent infringement of two ATD patents for all-metal insulators by Lydall's all-metal automotive heat shields. ATD had previously filed an amended complaint against Lydall, Inc. alleging that the Company willfully infringed ATD's patents, both literally and under the Doctrine of Equivalents. ATD sought as relief for Lydall's alleged infringement both an injunction and damages. Lydall vigorously contested this action and filed a counterclaim to invalidate ATD's patents. 5 On January 9, 1996, a decision on the parties' cross motions for summary judgment was entered. The Court ruled that Lydall's all-metal shield products did not literally infringe ATD's patents and gave the issue of equivalency, i.e., the degree to which Lydall's products are different from ATD's products, to a jury to decide. The court also gave the issue of validity of ATD's patents to the jury. Shortly before the trial began, the Court ruled that Lydall did not willfully infringe. The trial began on February 21, 1996 and concluded on March 19, 1996. The jury decided in favor of Lydall on the issue of infringement of the patents involved in the suit on all but one claim of one of the two patents. With respect to that claim, the jury had voted seven to one for noninfringement, but because a unanimous vote was required, the judge declared the jury deadlocked. The jury found that key claims which formed the basis of both of ATD's patents to be invalid. In view of the jury's decisions in Lydall's favor, ATD's claim for damages was denied. On April 5, 1996, ATD filed a Motion for Judgment as a Matter of Law or in the alternative for a New Trial. The Company has filed a response, however the court has not yet ruled on that motion. While the outcome of the motion cannot be predicted, counsel for the Company has advised that the motion is without merit. 5. The Company will adopt SFAS 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of," for the year ending December 31, 1996. The Company estimates that the adoption will not have a material effect on the Company's consolidated financial position or results of operations. The Company will adopt the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," for the year ending December 31, 1996. As permitted under SFAS 123, the Company has elected not to adopt the fair- value-based method of accounting for its stock-based compensation plans, but will continue to account for such compensation under the provisions of APB Opinion No. 25. The adoption will have no effect on the Company's consolidated financial position or results of operations. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: For the first quarter ended March 31, 1996, sales rose 5 percent to a record $65.8 million compared with $62.7 million for the same quarter last year. Net income in the 1996 first quarter was $6.0 million compared with $5.3 million for the prior year to date quarter--up 12 percent. On a per-share basis, the Company earned a record $.33 in the first quarter of 1996 compared with $.29 in the same period last year--a 14 percent increase. Gross margin in the first quarter 1996 was $20.8 million, or 31.6 percent of sales, and after-tax return on sales was 9.1 percent. For the 1995 first quarter, gross margin was $19.2 million, or 30.6 percent of sales, and after- tax return on sales was 8.5 percent. Margins continued to improve at the Company's two most recent acquisitions and are now at a combined 18.9 percent of sales for the first quarter. Despite a slight slowing of economic growth, demand remained strong in most of Lydall's markets. Revenue growth came from both established and new products, while the effect of price increases was negligible. Demand for Lydair air filtration media employed in the air purification systems of clean rooms around the world continued to be strong. Sales of products sold to the automotive market, particularly battery insulators and all-metal heat shields, also remained robust. Sales of thermal barrier and insulation materials for industrial end-users such as commercial building and architectural components increased as well. Additional production of air filtration media was successfully introduced during the quarter into the Company's facility in France. Lydall also increased penetration and new applications for automotive thermal barriers. The Company was, however, adversely affected by lower sales of more economically sensitive products, a less vibrant market for materials handling products, the strike at certain General Motors plants, and the continuing decline of cellulose battery separator sales to the European automotive aftermarket, an expected technological change. Business conditions have been more difficult this year than last, but an improvement is anticipated as the year progresses. Selling, product development and administrative expenses, including $1.0 million to successfully defend a lawsuit alleging patent infringement, amounted to $11.2 million or 17.0 percent of sales. This compares to first quarter 1995 expenses of $10.3 million which amounted to 16.4 percent of sales. The 1995 figure had slightly larger incentive compensation expenses due to the outstanding results obtained in the first quarter of 1995 in comparison to 1994. The effective tax rate for the Company's domestic operations was 37.8% for the first quarter of 1996, versus 39.3% for the first quarter of 1995. These rates would have been 38.8% and 39.8% in the first quarter of 1996 and 1995, respectively, had the Company not invested cash balances in tax advantaged investments. The tax rate at our Axohm Division in France is 36.6 percent in 1996 compared to 33.3 percent in the first quarter of 1995, but the effect on Lydall's consolidated results was minimal. LIQUIDITY AND CAPITAL RESOURCES: Lydall generated record operating cash flow of $11.8 million in the first quarter of 1996 and had cash, cash equivalents and short-term investments of $28.4 million and working capital of $51.5 million at March 31, 1996. The Company's current ratio decreased slightly to 2.55 at March 31, 1996 compared with 2.77 at the end of 1995, and total debt to total capitalization was 9 percent, the same percentage as at the end of 1995. Capital expenditures of $2.1 million were funded during the quarter by cash from operations out of a capital plan of $13.0 million for the full year. Also, during the quarter, the Company used $6.9 million in cash to purchase 300,000 shares of its common stock from a group of executives at a cost which was $.25 per share off the closing market price on the day of 7 the transaction. The proceeds of the transaction largely covered individual tax and debt obligations which the executives incurred as a result of exercising incentive stock options early in 1995. The purchase of these shares was in accordance with a previously announced stock buyback program which authorizes Lydall to acquire its stock from time to time on the open market and in private transactions as market conditions permit and opportunities arise. During the month of April 1996, the Company repaid $2.2 million in long-term debt, made the semi-annual interest payment, paid quarterly federal and state income taxes and funded pension obligations. These payments were made from accumulated cash and cash from operations. The Company expects to continue to finance its day-to-day operating needs from these same sources. ACCOUNTING STANDARDS: The Company will adopt SFAS 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of," for the year ending December 31, 1996. The Company estimates that the adoption will not have a material effect on the Company's consolidated financial position or results of operations. The Company will adopt the disclosure requirements of SFAS 123, "Accounting for Stock-Based Compensation," for the year ending December 31, 1996. As permitted under SFAS 123, the Company has elected not to adopt the fair-value- based method of accounting for its stock-based compensation plans, but will continue to account for such compensation under the provisions of APB Opinion No. 25. The adoption will have no effect on the Company's consolidated financial position or results of operations. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11.1 --Schedule of Computation of Weighted Average Shares Outstanding, filed herewith. 27.1 --Financial Data Schedule.
(b) Reports on Form 8-K On February 15, 1996, the registrant filed a current report on Form 8-K announcing its earnings for the fourth quarter and year ended December 31, 1995, and that a competitor, ATD Corporation, had filed a patent infringement complaint against the Company. The favorable jury verdict of this case was subsequently filed as part of the Company's Annual Report on Form 10-K filed March 27, 1996. 8 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) By /s/ John E. Hanley ------------------------------------------ JOHN E. HANLEY Vice President-- Finance and Treasurer (Principal Accounting and Financial Officer) May 9, 1996 9 LYDALL, INC. INDEX TO EXHIBITS
EXHIBIT NO. - ------- 11.1 Schedule of Computation of Weighted Average Shares Outstanding. 27.1 Financial Data Schedule.
10 EX-11.1 2 SCHEDULE OF COMPUTATION OF WEIGHTED AVE SHRS OUTST LYDALL, INC. Exhibit 11.1 Schedule of Computation of Weighted Average Shares Outstanding
Three Months Ended March 31, ------------- 1996 1995 ---- ---- (In Thousands) (Unaudited) Primary - ------- Weighted average number of common shares 17,270 17,240 Additional shares assuming conversion of stock options and warrants 1,040 904 ------ ----- Weighted average common shares and equivalents outstanding 18,310 18,144 ====== ====== Fully Diluted - ------------- Weighted average number of common shares 17,270 17,240 Additional shares assuming conversion of stock options and warrants 1,076 909 ------ ----- Weighted average common shares and equivalents outstanding 18,346 18,149 ====== ======
Share information for 1995 was restated to reflect a two-for-one stock split distributed June 21, 1995. 13 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 26,423 1,977 36,910 1,966 15,482 84,891 106,690 47,268 159,490 33,352 10,076 0 0 2,097 99,074 159,490 65,794 65,794 45,003 45,003 (17) 59 182 9,592 3,627 5,965 0 0 0 5,965 .33 .33
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