0001144204-16-124852.txt : 20160922 0001144204-16-124852.hdr.sgml : 20160922 20160922121719 ACCESSION NUMBER: 0001144204-16-124852 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20160707 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160922 DATE AS OF CHANGE: 20160922 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYDALL INC /DE/ CENTRAL INDEX KEY: 0000060977 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 060865505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07665 FILM NUMBER: 161897170 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 8-K/A 1 v449153_8ka.htm FORM 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15 (d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 7, 2016

LYDALL, INC.

(Exact name of registrant as specified in its charter)

Commission file number: 1-7665

Delaware	06-0865505
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

One Colonial Road, Manchester, Connecticut	06042
(Address of principal executive offices)	(zip code)

Registrant’s telephone number, including area code: (860) 646-1233

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

On July 7, 2016, Lydall, Inc. (the “Company”) completed an acquisition of the non-woven and coating materials businesses primarily operating under the Texel brand from ADS, Inc. (“ADS”), a Canadian based corporation (including its shareholders), for $96.3 million in cash, subject to certain customary post-closing adjustments (the “Acquisition”). In addition, at closing the Company paid $6.9 million in cash for an estimated working capital adjustment and acquired cash for an estimated purchase price of $103.2 million. The Acquisition was consummated pursuant to the terms of a Share Purchase Agreement dated July 7, 2016, by and among ADS and Lydall Canada Acquisition Corp., a wholly-owned subsidiary of the Company. The Acquisition was financed with a combination of cash on hand and $85.0 million of borrowings through the Company’s amended $175.0 million credit facility. Subsequently, the Company and ADS agreed to a post-closing adjustment which resulted in a purchase price of $102.7 million.

In the Company’s current report on Form 8-K filed on July 12, 2016 to report the Acquisition (the “Initial Form 8-K”), the Company indicated that the financial statements and pro forma financial information under Item 9.01 would be filed no later than 71 days after the date the Initial Form 8-K reporting the Acquisition was required to be filed. This amendment to the Initial Form 8-K, is to provide the financial statements and pro forma financial information required by Item 9.01 of Form 8-K.

Section 9 - Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits

(a)

Financial Statements of business acquired.

The audited consolidated financial statements of ADS, Inc. for the year ended January 31, 2016 are attached as Exhibit 99.4 to this current report on Form 8-K/A and are incorporated herein by reference.

(b)

Pro Forma financial information.

The unaudited pro forma condensed combined financial information as of and for the six months ended June 30, 2016, and for the year ended December 31, 2015, and the related notes are attached as Exhibit 99.5 to this current report on Form 8-K/A and incorporated herein by reference.

(d)

Exhibits.

The following exhibits are included with this report, as set forth below:

Exhibit		Exhibit
Number		Description

2.1		Share Purchase Agreement, dated July 7, 2016, by and among ADS, Inc. and Lydall Canada Acquisition Corp. (The Company will supplementally furnish any omitted schedules to the Commission upon request.)*
23.1		Consent of Blanchette Vachon s.e.n.c.r.l.
99.1		Press Release, dated July 8, 2016, titled “Lydall Acquires Texel, a Leader in Innovative Technical Materials” (furnished not filed; see Item 2.02).*
99.2		Joinder and Second Amendment and Reaffirmation of Guaranty Agreement, dated July 7, 2016, by and among Lydall, Inc., as borrower, and Bank of America, N.A., as Agent for the Lenders.*
99.3		Investor presentation, dated July 8, 2016 (furnished not filed; see Item 7.01).*
99.4		Audited consolidated financial statements of ADS, Inc. for the year ended January 31, 2016.
99.5		Unaudited pro forma condensed combined financial information as of and for the six months ended June 30, 2016 and for the year ended December 31, 2015 and the related notes.

* Previously filed or furnished

Cautionary Statements

Under the Private Securities Litigation Reform Act of 1995

Any statements contained in this Current Report on Form 8-K/A that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current assumptions relating to the Company’s business, the economy and future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs” and other words of similar meaning in connection with the discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Such risks and uncertainties include, among others, those identified in Part I, Item 1A - Risk Factors of Lydall’s Annual Report on Form 10-K for the year ended December 31, 2015. Accordingly, the Company’s actual results may differ materially from those contemplated by forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. These forward-looking statements speak only as of the date of this Form 8-K/A, and Lydall does not assume any obligation to update or revise any forward-looking statement made in this Form 8-K/A or that may from time to time be made by or on behalf of the Company.

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.

September 22, 2016	By:	/s/ James V. Laughlan
		James V. Laughlan Vice President, Chief Accounting Officer and Treasurer

EXHIBIT INDEX

Exhibit		Exhibit
Number		Description

2.1		Share Purchase Agreement, dated July 7, 2016, by and among ADS, Inc. and Lydall Canada Acquisition Corp. (The Company will supplementally furnish any omitted schedules to the Commission upon request.)*
23.2		Consent of Blanchette Vachon s.e.n.c.r.l.
99.1		Press Release, dated July 8, 2016, titled “Lydall Acquires Texel, a Leader in Innovative Technical Materials” (furnished not filed; see Item 2.02).*
99.2		Joinder and Second Amendment and Reaffirmation of Guaranty Agreement, dated July 7, 2016, by and among Lydall, Inc., as borrower, and Bank of America, N.A., as Agent for the Lenders.*
99.3		Investor presentation, dated July 8, 2016 (furnished not filed; see Item 7.01).*
99.4		Audited consolidated financial statements of ADS, Inc. for the year ended January 31, 2016.
99.5		Unaudited pro forma condensed combined financial information as of and for the six months ended June 30, 2016 and for the year ended December 31, 2015 and the related notes.

* Previously filed or furnished

EX-23.1 2 v449153_ex23-1.htm EXHIBIT 23.1

Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-08886, 333-109500, 333-160511, and 333-181139) of Lydall, Inc. of our report dated September 21, 2016, relating to the financial statements of ADS Inc., which appears in this Current Report on Form 8-K/A of Lydall, Inc.

/s/ Blanchette Vachon s.e.n.c.r.l.
Sainte-Marie, Québec, Canada
September 22,2016

EX-99.4 3 v449153_ex99-4.htm EXHIBIT 99.4

Exhibit 99.4

ADS INC.

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the year ended January 31, 2016 and 2015

ADS INC.

SUMMARY

*INDEPENDENT AUDITOR'S REPORT*	1 - 2

*FINANCIAL STATEMENTS*

Consolidated income	3

Consolidated retained earnings	4

Consolidated contributed surplus	4

Consolidated cash flow	5

Consolidated balance sheet	6 - 7

Notes to the consolidated financial statements	8 - 24

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of

ADS INC.

Saint-Elzéar (Québec)

We have audited the accompanying consolidated financial statements of ADS inc., which comprise the consolidated balance sheet as at January 31, 2016, and the related consolidated statements of income, retained earnings, contributed surplus and cash flows for the year then ended.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Canadian accounting standards for private enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ADS inc. as at January 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with Canadian accounting standards for private enterprises.

Other matter

The accompanying consolidated balance sheet of ADS inc. as at January 31, 2015, and the related consolidated statements of income, retained earnings, contributed surplus and cash flows for the year then ended were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

Sainte-Marie, September 21, 2016

¹ Chartered professional accountant auditor, CA, public accountancy permit No. A119888

ADS INC.
Consolidated income
For the year ended January 31, 2016 and 2015

	January 31,			January 25,
	2016			2015
				(Unaudited)
REVENUES		92,381,271			81,363,554

COST OF SALES		69,393,676			64,551,934

GROSS INCOME		22,987,595			16,811,620

OPERATING EXPENSES
Sales expenses		4,566,637			4,119,103
Administrative expenses		5,211,970			5,040,389
Financial expenses less revenues		1,045,056			1,255,392
Scientific research and experimental development		859,002			631,021

		11,682,665			11,045,905

OPERATING INCOME		11,304,930			5,765,715

OTHER EXPENSE
Impairment loss of goodwill		(150,000	)		-

INCOME BEFORE INCOME TAXES		11,154,930			5,765,715

Current income taxes - note 20		2,250,602			51,331
Future income taxes		843,891			1,634,062

		3,094,493			1,685,393

NET INCOME - note 19	$	8,060,437		$	4,080,322

The accompanying notes to the consolidated financial statements are an integral part of these statements.

ADS INC.
Consolidated retained earnings
For the year ended January 31, 2016 and 2015

	January 31,		January 25,
	2016		2015
			(Unaudited)

BALANCE, BEGINNING OF YEAR		12,514,501		9,556,584

Net income		8,060,437		4,080,322

		20,574,938		13,636,906

Dividends
Classes "A" and "C" shares		1,683,608		1,122,405

BALANCE, END OF YEAR	$	18,891,330	$	12,514,501

ADS INC.
Consolidated contributed surplus
For the year ended January 31, 2016 and 2015

	January 31,		January 25,
	2016		2015
			(Unaudited)

BALANCE, BEGINNING OF YEAR		7,360,531		7,338,031

Stock-related compensation expense - note 16		22,500		22,500

BALANCE, END OF YEAR	$	7,383,031	$	7,360,531

The accompanying notes to the consolidated financial statements are an integral part of these statements.

ADS INC.
Consolidated cash flows
For the year ended January 31, 2016 and 2015

	January 31,			January 25,
	2016			2015
				(Unaudited)

CASH FLOWS FROM: (note 21)

OPERATING ACTIVITIES
Net income		8,060,437			4,080,322
Non-cash items:
Depreciation and amortization		2,070,776			2,081,867
Future income taxes		843,891			1,634,062
Gain on disposal of fixed assets		(6,935	)		(70,469	)
Loss on write-off of intangible assets		-			1,973
Impairment loss of goodwill		150,000			-
Interest capitalized on long-term debt		104,226			125,573
Stock-related compensation expense		22,500			22,500
Tax credits on scientific research and experimental development credited to results and non-cashable in the next year		(156,864	)		(170,773	)
Tax credits on scientific research and experimental development absorbed by current income taxes of the year		1,115,768			-

		12,203,799			7,705,055
Net change in non-cash working capital items		(1,440,334	)		(45,992	)

		10,763,465			7,659,063
INVESTING ACTIVITIES
Acquisition of fixed assets net of financial assistance		(963,661	)		(565,832	)
Acquisition of intangible assets net of financial assistance		(106,935	)		(12,148	)
Cashed notes receivable		4,394			-
Proceeds from disposal of fixed assets		21,046			171,439

		(1,045,156	)		(406,541	)
FINANCING ACTIVITIES
Net change in bank loans		2,097,500			1,020,000
Long-term debt		2,770,769			579,138
Receipts from loans to officers		22,324			24,617
Repayment of long-term debt		(9,904,043	)		(3,697,551	)
Net change in provision for warranties		-			(5,000	)
Dividends paid		(1,683,608	)		(1,122,405	)
Minority interest		130			-
Redemption of class "D" shares		(2,533,333	)		-
Cashed deferred grant		-			105,000

		(9,230,261	)		(3,096,201	)

INCREASE IN CASH AND CASH EQUIVALENTS		488,048			4,156,321

Cash and cash equivalents, beginning of year		1,933,140			(2,223,181	)

CASH AND CASH EQUIVALENTS, END OF YEAR	$	2,421,188		$	1,933,140

The accompanying notes to the consolidated financial statements are an integral part of these statements.

ADS INC.
Consolidated balance sheet
As at January 31, 2016 and 2015

	January 31,		January 25,
	2016		2015
			(Unaudited)
ASSETS

Current assets
Cash		2,421,188		1,933,140
Accounts receivable - note 3		10,760,564		12,268,911
Government assistance receivable		141,136		268,026
Inventories - note 4		19,139,722		13,148,320
Current portion of notes receivable		7,800		-
Prepaid expenses		614,426		383,519
Future income taxes		-		82,216

		33,084,836		28,084,132
Long-term assets
Notes receivable - note 5		117,806		-
Scientific research and experimental development tax credits to recover		463,871		1,422,775
Fixed assets - note 6		23,929,483		24,766,950
Goodwill - note 7		3,870,858		4,020,858
Intangible assets - note 8		633,558		745,102
Future income taxes		88,951		54,186

	$	62,189,363	$	59,094,003

The accompanying notes to the consolidated financial statements are an integral part of these statements.

ADS INC.
Consolidated balance sheet
As at January 31, 2016 and 2015

	January 31,		January 25,
	2016		2015
			(Unaudited)

LIABILITIES

Current liabilities
Bank loans - note 9		3,872,500		1,775,000
Accounts payable - note 10		9,486,128		8,122,804
Income taxes payable		1,101,253		70,354
Deferred revenues		804,007		-
Current portion of long-term debt		1,611,645		1,922,337
Future income taxes		268,054		82,883
Current liabilities before other short-term debt		17,143,587		11,973,378
Long-term debt to be financed in the next year		4,531,250		-
		21,674,837		11,973,378
Long-term liabilities
Long-term debt - note 11		8,674,257		19,759,075
Provision for warranties		10,000		10,000
Deferred grant - note 12		76,295		97,295
Future income taxes		3,609,330		2,998,061
		34,044,719		34,837,809
SHAREHOLDERS' EQUITY

Share capital - note 15		1,870,153		4,381,162

Retained earnings		18,891,330		12,514,501

Contributed surplus		7,383,031		7,360,531

		28,144,514		24,256,194

Minority interest		130		-

		28,144,644		24,256,194

	$	62,189,363	$	59,094,003

The accompanying notes to the consolidated financial statements are an integral part of these statements.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

STATUTE OF INCORPORATION AND NATURE OF ACTIVITIES

The entity, incorporated under the Canada Business Corporations Act, manufactures and develops products in the specialized non-woven materials industrial sector. The entity also specializes in the sales and installation of geosynthetic products.

SIGNIFICANT ACCOUNTING POLICIES

The entity used the Canadian accounting standards for private enterprises when preparing its consolidated financial statements, which include the following significant accounting policies:

Consolidation policies

The consolidated financial statements of the entity include the accounts of its subsidiaries as well as those of its joint venture. The joint venture is accounted for using the proportionate consolidation method. According to this method, the financial statements show, on a line-by-line basis, the entity's pro rata share of each items of assets, liabilities, revenues and expenses and cash flows resulting from operating, investing and financing activities of the joint venture.

NAME	ACTIVITIES	% OF OWNERSHIP

Subsidiaries

Texel Géosol inc.	Sale and installation of geosynthetic products		87	%

Texel USA inc.	Sales force		100	%

ADS Groupe Composites inc.	Inactive		100	%

Joint venture

Afitex Texel Géosynthétiques inc.	Manufacturing and commercialization of technical products in the drainage and retaining structure sector		50	%

Use of estimates

The preparation of consolidated financial statements in accordance with Canadian accounting standards for private enterprises requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities, the related revenues and expenses and the disclosure of contingent assets and liabilities as at the balance sheet date.

Significant estimates include the valuation of the allowance for accounts receivable impairment, the adjustments related to health and security at work retrospective plan, stocks evaluation, the assets’ useful life in order to calculate the depreciation amount and their net recoverable value, income taxes liabilities and tax credits for scientific research and experimental development recoverable. Actual results could differ from those estimates. However, management considers that the estimates used in the preparation of these consolidated financial statements present fairly the entity’s situation.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition

Sales are accounted for when there is persuasive evidence that an arrangement exits, that products are delivered, that there is no uncertainty as to customer acceptance, that the price is fixed or determinable and that collection is reasonably assured.

Operating revenues from installation contracts are accounted for under the percentage of completion method. When a terminal loss on a contract can be reasonably estimated, the total estimated amount of the loss is charged to income for the year.

In the normal course of business, the entity files claims for additional work performed on contracts. The revenues related to these claims are accounted for when customer acceptance has occurred.

Rental revenues, composed of basic annual rent, are recognized when persuasive evidence of an arrangement exists, when rent is fixed or determinable and collection is reasonably assured.

Foreign exchange translation

The entity uses the temporal method for the translation of its accounts denominated in foreign currencies and for the translation of its subsidiary’s financial statements that is considered as a permanent establishment outside Canada. Monetary assets and liabilities are translated at the exchange rate in effect at the balance sheet date. All other assets and liabilities are translated at their historical rates. Revenues and expenses, except for the cost of inventories translated at historical rates, are translated at the average exchange rates for the year. Exchange gains or losses are reflected in the income statement of the year.

Financial instruments

Measurement of financial instruments

The entity measures its financial assets and financial liabilities, other than those issued or assumed in related party transactions, at their fair value.

The entity measures its financial assets and financial liabilities issued or assumed in related party transactions at the carrying amount, unless the transactions are in the normal course of operations or if certain conditions, described in Section 3840, "Related party transactions", are met. They are then measured at the exchange amount, which is the consideration established and agreed to by the related parties.

Later, the entity measures the financial instruments at cost or amortized cost.

Directors and managers that are not shareholders are deemed not to be related parties. Consequently, transactions concluded with them are not deemed to be related party transactions.

Financial assets measured at amortized cost on a straight-line basis include cash, accounts receivable, government assistance receivable, notes receivable and scientific research and experimental development tax credits recoverable.

Financial liabilities measured at amortized cost on a straight line basis include bank loans, accounts payable and long-term debt.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Impairment

Financial assets measured at cost or at amortized cost are tested for impairment when there are indicators of impairment. The amount of the write down, if any, is recognized in net income. The previously recognized impairment loss must be reversed to the extend of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal, if any, is recognized in net income.

Transaction costs

The entity recognizes its transaction costs in net income in the year incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their acquisition, origination, issuance or assumption. These costs are amortized over the expected life of related financial instrument.

Hedge accounting

According to its risk management strategy, the entity uses interest rate swaps in order to reduce the effect of interest rate fluctuations on long-term debt. The entity is not using derivative financial instruments for transactions or speculation purposes.

The entity designs and documents each derivative financial instruments as a cash flow hedge of its debt. The entity determines that derivative financial instruments represent an efficient hedge, as the term to maturity, the notional amount and the reference interest rate of the instruments match the terms of the debt being hedged.

The entity is using interest rate swaps contracts in order to manage the combination of fixed and variable interest rates for a portion of its debt and the corresponding debt cost. The interest rate swaps contracts result in periodic exchanges of interest payments without exchanges of principal amounts on which payments are based upon. The corresponding amounts payable or receivable are recorded as adjustments to accrued interests.

Unrealized gains or losses on interest rate swaps contracts are recorded in the financial statements only when the intended transactions occur.

Inventories

Inventories are measured at the lower of cost and net realizable value, with raw material costs being determined using the average cost method. Costs comprise costs of purchase, less discounts, and other costs incurred in bringing the inventories to their present location and condition. Finished goods are measured using the absorption costing method and include the cost of raw materials, direct labor and manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less any applicable estimated variable selling costs.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

SIGNIFICANT ACCOUNTING POLICIES (continued)

Fixed assets

Fixed assets are accounted for at cost, less any related governmental assistance, and are depreciated, based on their respective useful life, using the straight-line method, according to the periods indicated in note 6.

Spares parts are not depreciated but are recorded as an expense when actually used.

Fixed assets costs include financing costs directly attributable to their construction. Capitalization of financing costs ceases when the related asset is substantially complete and ready for its intended use.

Long lived assets impairment

Fixed assets and intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recorded when the carrying amount of a fixed asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. As at January 31, 2016, no write-down has been accounted for.

Goodwill

Goodwill represents the difference between the purchase price paid in a business combination and the estimated fair value of the purchased identifiable net assets. Goodwill is not amortized. Goodwill is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the reporting unit to which the goodwill is assigned may exceed its fair value. When the impairment test reveals that the carrying amount of the reporting unit to which the goodwill is assigned exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. As at January 31, 2016, an impairment loss has been recorded for an amount of $ 150,000.

Intangible assets

Finite useful life intangible assets are accounted for at cost and are amortized, based on their useful life for the entity, using the straight-line method, according to the periods indicated at note 8. The amortization method and estimated useful life are reviewed annually.

Provision for warranties

In the normal course of business, the entity incurs repair costs in relation to warranties issued on sales and installation of geomembrane products. The entity offers a standard warranty of five years, however, this period may be increased according to customer requirements and can be extended to a maximum of 20 years. The provision is estimated based on past experience and is recorded in liabilities under provision for warranties. The actual amount of repair costs that the entity may have to incur, as well as the moment when these costs will have to be incurred, are not known. It is therefore possible that a change in circumstances would result in a significant change in the recorded amounts.

Deferred grant

Deferred grant related to the natural gas supply is amortized using the straight-line method over the duration of the supply agreement, which is 5 years. The amortization of the deferred grant is recorded as a deduction from the energy expense.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes

The entity records income taxes using the future income taxes method. According to this method, future income tax assets and liabilities arise from taxable or deductible temporary differences between the carrying values of assets or liabilities and their tax basis, using the income tax rates that are expected to apply when the differences are expected to reverse.

Governmental assistance

Governmental assistance is accounted for in the financial statements when there is reasonable assurance that the entity has complied, and will continue to comply, with all of the necessary conditions to obtain the assistance. It is accounted for in reduction of the related assets or related expenses.

Scientific research and experimental development tax credits as well as other tax credits are accounted for when the entity has incurred the eligible expenses, as long as it is reasonably certain that the credits will materialize. They are recorded in reduction of the related expenses.

Costs incurred in the development phase

Costs incurred in the development phase are recorded in income of the year in which they are incurred.

Stock related compensation plan

The entity offers to certain member of management and to certain officers a stock related compensation plan, as described in note 16. Consideration received from participants to the plan on the acquisition of stocks are credited to share capital. Remuneration expenses arising from granted shares are calculated at the fair value on the date of the grant and recorded in net income in the acquisition period of the shares.

ACCOUNTS RECEIVABLE

	January 31,			January 25,
	2016			2015
				(Unaudited)

Trade		10,371,351			12,007,670
Allowance for impairment		(160,376	)		(208,237	)
Holdbacks on contracts		285,266			371,187
Joint venture		2,482			1,496
Sales taxes receivable		261,841			96,795

	$	10,760,564		$	12,268,911

INVENTORIES

	January 31,		January 25,
	2016		2015
			(Unaudited)

Finished goods		12,777,112		7,817,376
Raw materials		6,362,610		5,330,944

	$	19,139,722	$	13,148,320

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

NOTES RECEIVABLE

	January 31,		January 25,
	2016		2015
			(Unaudited)

Notes receivable from officers, without interest, maturing in 2025		125,606		-
Current portion of notes receivable		7,800		-

	$	117,806	$	-

FIXED ASSETS

	Depreciation					Net value
	periods			Accumulated		January 31,		January 25,
	(years)	Cost		depreciation		2016		2015
								(Unaudited)

Land			873,353		-		873,353		873,353
Land improvements	10 years		43,491		3,666		39,825		1,851
Buildings	10 and 30 years		8,874,212		1,374,228		7,499,984		7,728,013
Leasehold improvements	Lease term		545,722		256,319		289,403		347,283
Sign	10 years		8,984		2,955		6,029		6,928
Machinery and production equipment	10, 15 and 20 years		18,316,621		5,225,555		13,091,066		13,912,581
Computer equipment	4 and 10 years		1,074,670		866,715		207,955		261,073
Office furniture	5 and 10 years		286,452		163,007		123,445		155,048
Automotive equipment	5 and 10 years		1,567,688		982,636		585,052		731,928
Spare parts			2,212,039		-		2,212,039		1,931,210
Fixed assets under installation			-		-		-		32,234
Deposit on fixed assets acquisition			61,161		-		61,161		-

			33,864,393		8,875,081		24,989,312		25,981,502

Less: Financial assistance			1,622,287		562,458		1,059,829		1,214,552

		$	32,242,106	$	8,312,623	$	23,929,483	$	24,766,950

During the year, investment tax credits were accounted for as financial assistance in reduction of machinery and production equipments for an amount of $ 15,902 ($ 47,040 in 2015).

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

GOODWILL

Goodwill related to the installation activities of the “outside Quebec” division was subject to an impairment test. Due to a decrease of these activities, an impairment loss of $ 150,000 was recognized.

INTANGIBLE ASSETS

	Amortization					Net value
	periods			Accumulated		January 31,		January 25,
	(years)	Cost		amortization		2016		2015
								(Unaudited)

Softwares	4 to 10 years		1,620,500		1,048,725		571,775		624,421
Technological usage rights	20 years		59,173		23,920		35,253		38,109
Client relationships	7 years		376,459		338,542		37,917		102,917

			2,056,132		1,411,187		644,945		765,447

Less: Financial assistance			35,834		24,447		11,387		20,345

		$	2,020,298	$	1,386,740	$	633,558	$	745,102

BANK LOANS

Bank loans, at prime rate and at prime rate plus 0.50%, for authorized amounts of $ 10,125,000 and US $ 2,100,000, renewable annually, are secured by a movable hypothec without delivery on receivables and inventories, by an immovable hypothec on the universality of movable and immovable property, by a security on inventories under Section 427 of the Bank Act and by a specific guarantee of a shareholder of a joint venturer of $ 225,000. Furthermore, a subsidiary has a temporary operating line of credit up to $ 1,500,000 to finance additional needs for the period of August to November as advances, bearing interest at prime rate plus 0.50% and renewable annually. This temporary operating line of credit is subject to the same guarantees as the bank loans. Receivables and inventories allocated to these guarantees have a book value of $ 29,613,312 and the movable and immovable properties assigned to these guarantees have a book value of $ 24,954,969.

10.

ACCOUNTS PAYABLE

	January 31,		January 25,
	2016		2015
			(Unaudited)

Trade and other accrued liabilities		9,042,015		7,652,741
Holdbacks on contracts		12,724		16,930
Joint venture		-		840
Government remittances		431,389		452,293

	$	9,486,128	$	8,122,804

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

11.

LONG-TERM DEBT

	January 31,		January 25,
	2016		2015
			(Unaudited)

Decreasing revolving credit, prime rate plus 0.125%, for an authorized amount of $ 5,000,000, renegotiable on November 2016, payable by monthly principal installments of $ 52,083, secured by a first rank movable and immovable hypothec on goods with a net book value of $ 24,954,969 *		5,000,000		5,625,000

Decreasing revolving credit, prime rate plus 0.125%, for an authorized amount of $ 6,951,111, renegotiable on January 2018, payable by monthly principal installments of $ 72,407, secured by a first rank movable and immovable hypothec on goods with a book value of $ 24,954,969 **		4,313,148		5,610,056

Decreasing revolving credit, prime rate plus 0.125%, for an authorized amount of $ 4,355,556, renegotiable on January 2020, payable by monthly principal installments of $ 45,370, subject to a pari passu agreement, secured by a first rank movable and immovable hypothec		-		4,488,721

Note payable, institution prime rate minus 1,20%, payable by monthly principal installments of $ 51,100, maturing in 2022, subject to a pari passu agreement, secured by a first rank movable and immovable hypothec on goods with a book value of $ 24,954,969		3,781,400		3,983,321

Note payable, without interest, payable by monthly installments of $ 41,667, maturing in 2018, secured by an immovable hypothec on goods with a book value of $ 8,413,162. (The note payable is discounted to reflect an effective interest of 6.00%. The balance of the undiscounted debt is $ 1,339,021.)		1,195,615		1,446,832

Note payable, without interest, payable by monthly installments of $ 8,333, maturing in 2020. (The note payable is discounted to reflect an effective interest of 6.00%. The balance of the undiscounted debt is $ 416,670.)		367,890		426,788

Note payable, without interest, payable by monthly installments of $ 5,633, maturing in 2017. (The note payable is discounted to reflect an effective interest of 5.00%. The balance of the undiscounted debt is $ 112,680.)		110,880		171,276

Balance to carry forward		14,768,933		21,751,994

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

11.

LONG-TERM DEBT (continued)

	January 31,			January 25,
	2016			2015
				(Unaudited)

Balance carried forward		14,768,933			21,751,994

Note payable, 5,49%, payable by monthly installments of $ 5,633, principal and interests, maturing in 2016, secured by a movable hypothec on the automotive equipment with a net book value of $ 12,352		5,169			17,083

Advances from officers, 12%, no specific repayment terms		130,000			-

Notes payable, repaid during the year		-			34,073

Financing costs		(86,950	)		(121,738	)

		14,817,152			21,681,412
Current portion of long-term debt		1,611,645			1,922,337
Long-term debt to be financed in the next year		4,531,250			-

	$	8,674,257		$	19,759,075

* In this credit, an interest rate swap for an amount of $ 4,903,846, has been settled, bringing the effective rate of this portion of the credit to 3.375% for a period ending in November 2016.

** In this credit, an interest rate swap for an amount of $ 3,569,228 has been settled, bringing the effective rate of this portion of the credit to 3.45% for a period of 5 years ending in January 2018.

	2017			2018			2019			2020		2021
Principal installments		6,177,683			1,195,301			1,033,727			1,546,655		1,498,670
Financing costs amortization		(34,788	)		(34,788	)		(17,374	)		-		-

	$	6,142,895		$	1,160,513		$	1,016,353		$	1,546,655	$	1,498,670

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

11.

LONG-TERM DEBT (continued)

Under the recommendations of Section 1510.13 of the CPA Canada Handbook – Accounting, the loan renegotiable in November 2016 was reclassified as current since the entity has not yet concluded an agreement allowing the refinancing of the debt on a long-term basis. This loan is presented in current liabilities in the balance sheet.

In the event of the refinancing of this debt under the same conditions:

	2017			2018			2019			2020		2021
Principal installments		1,802,683			1,820,301			1,658,727			2,171,655		2,123,670
Financing costs amortization		(34,788	)		(34,788	)		(17,374	)		-		-

	$	1,767,895		$	1,785,513		$	1,641,353		$	2,171,655	$	2,123,670

12.

DEFERRED GRANT

In the preceding year a grant related to a natural gas supply was recorded as a deferred grant for an amount of $ 105,000, of which an amount of $ 76,295 is not amortized on January 31, 2016.

13.

CONTINGENCIES

Given that the elements covered by the guarantees are specific and vary from contract to contract, the entity is not able to proceed to the estimation of the maximum amount of future payments in case of the enforcement of the guarantees.

The entity has signed letters of credit for suppliers amounting to $ 123,992. These letters are guaranteed by cash on hand.

14.

CONTRACTUAL OBLIGATIONS

The entity has signed long-term leases for office equipment, storage and office space. Total future minimum lease payments amounts to $ 1,353,405.

Future minimum payments for the next five years are as follows:

		2017				2018				2019				2020				2021
		$	408,281			$	279,838			$	217,678			$	215,118			$	214,606

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

15.

SHARE CAPITAL

Information on issued share capital:

Class "A" shares, voting, participating, convertible at the holder’s option for class "B" shares on the basis of one class "B" share for one class "A" share if the entity becomes insolvent or ceases to carry on business for more than three months

Class "AA" shares, voting, participating, convertible at the holder’s option for class "B" shares on the basis of one class "B" share for one class "AA" share if the entity becomes insolvent or ceases to carry on business for more than three months

Class "C" shares, voting and participating

	January 31,			January 25,
	2016			2015
				(Unaudited)

Issued and paid:

- class "A" share (4 000 000 in 2015)		-			3,430,660
2,666,667 class "AA" shares(- in 2015)		897,327			-
10,030,066 class "C" shares		980,359			980,359

		1,877,686			4,411,019
Subscription receivable:

Loans to officers, without interest		(7,533	)		(29,857	)

	$	1,870,153		$	4,381,162

During the year, the entity exchanged 4,000,000 class "A" shares for 2,666,667 class "AA" shares with a book value of $ 897,327 and for 1,333,333 class "D" shares with a book value of $ 2,533,333. Subsequently, the entity redeemed 1,333,333 class "D" shares for $ 2,533,333 in cash.

16. STOCK RELATED COMPENSATION PLAN

According to the compensation plan of the entity, members of management and certain officers of the entity and of its subsidiaries (beneficiaries) can be offered to acquire a participation in the equity of the entity up to 1,300,00 class "C" shares. The plan includes conditions for subscription to shares and for the financing of the shares for the beneficiaries.

During the year ended January 31, 2016, an expense of $ 22,500 ($ 22,500 in 2015) was recorded in income related to this compensation plan. The counterpart of this expense was recorded in the contributed surplus.

Pursuant to the compensation plan, 1,050,000 class "C" shares were issued in June 2009 for a consideration of $ 241,500 as loans to officers and 75,000 class "C" shares were issued in March 2014 for a consideration of $ 17,250 as loans to officers. From these, 60,000 shares (75,000 shares in 2015) were not released on January 31, 2016.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

17.

SUBSEQUENT EVENTS

On July 7, 2016, Lydall, Inc., through a wholly-owned subsidiary, has acquired substantially all of the assets of the entity for an amount higher than its book value. It is not possible to determine the financial impact of this transaction.

18.

COMPARATIVE FIGURES

Certain of the prior period’s figures may have been reclassified in conformity with the current period’s financial statement presentation.

19.

INFORMATION ON RESULTS

	January 31,		January 25,
	2016		2015
			(Unaudited)

Elements included in revenues:

Products from manufacturing and distribution of non-woven materials and geosynthetic products	$	85,063,446	$	68,642,576
Products from installation of geosynthetic products	$	7,317,825	$	12,720,978
Depreciation of fixed assets and financial assitance	$	1,831,282	$	1,820,205
Amortization of intangible assets and financial assitance	$	225,706	$	234,579
Amortization of financing fees	$	34,788	$	34,788
Gain on disposal of fixed assets	$	6,935	$	70,469
Loss on radiation of intangible assets	$	-	$	1,973
Depreciation of accounts receivable	$	76,979	$	222,187
Recovery of accounts receivable depreciated	$	115,310	$	83,958
Interest on long-term debt	$	809,530	$	966,437
Interest on bank loans	$	109,079	$	151,480
Scientific research and experimental development tax credits	$	301,451	$	469,365
Interest income	$	4,025	$	4,281
Foreign exchange gain	$	780,531	$	865,929
Government assistance credited to results	$	73,480	$	227,911
Amortization of deferred grant	$	21,000	$	7,705

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

20.

TAXES PAYABLE

	January 31,			January 25,
	2016			2015
				(Unaudited)

Taxes payable on income before taxes		2,361,950			53,134
Taxes recoverable following tax loss carry-backs to previous tax years		(111,348	)		-
Taxes reduction due to tax loss carry-forwards from previous tax years		-			(1,190	)
Taxes recovered following reassessments relating to prior years		-			(613	)

	$	2,250,602		$	51,331

21.

CASH FLOWS

	January 31,			January 25,
	2016			2015
				(Unaudited)

Net change in non-cash working capital items

Accounts receivable		1,508,347			(688,725	)
Income taxes receivable		-			157,279
Government assistance receivable		95,752			(62,931	)
Inventories		(5,991,402	)		(1,737,459	)
Prepaid expenses		(230,907	)		214,009
Accounts payable		1,342,970			2,001,481
Income taxes payable		1,030,899			70,354
Deferred revenues		804,007			-

	$	(1,440,334	)	$	(45,992	)

Cash and cash equivalents

The entity's policy is to present in cash and cash equivalents bank balances, including bank overdrafts when the bank balances fluctuate frequently from being positive to overdrawn.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

21. CASH FLOWS (continued)

	January 31,		January 25,
	2016		2015
			(Unaudited)

Non-cash impact items related to financing and investing activities

Acquisition of fixed assets included in accounts payable at the beginning of the year	$	34,838	$	104,849
Acquisition of fixed assets included in accounts payable at the end of the year	$	47,965	$	34,838
Government assistance credited to fixed assets and uncashed at the beginning of the year	$	47,040	$	668,889
Government assistance credited to fixed assets and uncashed at the end of the year	$	15,902	$	47,040
Acquisition of intangible assets included in accounts payable at the beginning of the year	$	3,618	$	-
Acquisition of intangible assets included in accounts payable at the end of the year	$	10,845	$	3,618
Acquisition of notes receivable offset by advances from officers	$	130,000	$	-

22.

TAX BENEFITS

Amounts from losses to be carried forward and related tax benefits are as follows :

Expiration date	Losses to carry forward Federal		Losses to carry forward Provincial		Tax benefits

2028		14,804		-		1,629
2029		33,919		22,813		5,556
2030		2,697		2,697		513
2032		17,509		17,509		3,326
2034		72,925		72,925		13,856
2036		30,423		30,423		5,781

	$	172,277	$	146,367	$	30,661

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

23.

RELATED PARTY TRANSACTIONS

The following table summarizes the transactions concluded by the entity with related party during the year, not presented separetely elsewhere in the financial statements:

	January 31,		January 25,
	2016		2015
			(Unaudited)

Joint venture
Sales	$	289,248	$	326,421
Rental revenues	$	29,250	$	26,000
Interest revenues	$	-	$	410
Indirect labor revenues	$	27,936	$	31,615
Management fee revenues	$	27,936	$	31,615
Purchases	$	157,064	$	537,191

These transactions occured in the normal course of business and have been measured at the exchange amount.

At the end of the year, amounts receivable presented in note 3 are receivable upon request and result from the above-mentioned transactions.

24.

FINANCIAL INSTRUMENTS

Risks and concentrations

The entity is exposed to various risks through its financial instruments. The following analysis provides a measure of the entity’s risk exposure and concentrations at the balance sheet date.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk arises mainly from accounts receivable. The entity grants credit to its clients in the normal course of business.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

24.

FINANCIAL INSTRUMENTS (continued)

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The entity realizes a portion of its revenues and a portion of its purchases in foreign currencies. Consequently, some financial instruments are exposed to foreign exchange rates fluctuations.

As at January 31, 2016, financial instruments fully or partly denominated in foreign currencies and translated in Canadian dollars are as follows:

	January 31,		January 25,
	2016		2015
			(Unaudited)

Cash (bank overdraft)
Canadian dollars		26,243		(58,717	)
U.S. dollars		2,392,498		1,729,617
Euros		2,447		262,240

	$	2,421,188	$	1,933,140
Accounts receivable
Canadian dollars		4,235,317		6,945,255
U.S. dollars		6,525,247		5,323,656

	$	10,760,564	$	12,268,911
Accounts payable
Canadian dollars		5,104,305		4,596,492
U.S. dollars		3,860,053		2,863,578
Euros		521,770		662,734

	$	9,486,128	$	8,122,804

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The entity is exposed to interest rate risk through its fixed-interest and variable-interest financial instruments. Fixed-interest instruments subject the entity to a fair value risk while the variable-interest instruments subject it to a cash flow risk.

ADS INC.
Notes to the consolidated financial statements
For the year ended January 31, 2016 and 2015

24.

FINANCIAL INSTRUMENTS (continued)

Interest rate swap contracts

The entity is exposes to interest rate risk through certain long-term debts bearing variable interest rates under the form of bankers’ acceptance that are renewable monthly. These debts are exposed to the risk that related future cash flows will fluctuate due to changes in market interest rates. To reduce that risk, interest rate swap contracts were signed in order to exchange payments with variable interest rates for payments with fixed interest rates. The entity has chosen to apply hedge accounting and to designate these swap contracts as cash flow hedges. The net effect of the hedge is that the entity is protected from changes in market interest rates. On January 31, 2016, the entity had concluded interest rate swap contracts for initial amounts of $ 7,500,000 and $ 4,000,000. The entity pays respectively fixed rates of 1.75 and 1.975% and receives CDOR floating interest rate.

The fair value of the interest rate swaps, provided by derivative products dealers, is $ 123,000 on January 31, 2016 ($ 205,000 in 2015) and represents the estimated amount that the entity would have to pay to end the contract at year end.

Due to the use of hedge accounting, the unrealized loss is not recorded to income at year end.

EX-99.5 4 v449153_ex99-5.htm EXHIBIT 99.5

Exhibit 99.5

Lydall, Inc.

Unaudited Pro Forma Condensed Combined Financial Statements

Overview

On July 7, 2016, Lydall, Inc. (the “Company”) completed an acquisition of the non-woven and coating materials businesses primarily operating under the Texel brand (“Texel”) from ADS, Inc. (“ADS”), a Canadian based corporation (including its shareholders), for $96.3 million in cash, subject to certain customary post-closing adjustments (the “Acquisition”). In addition, at closing the Company paid $6.9 million in cash for an estimated working capital adjustment and acquired cash for an estimated purchase price of $103.2 million. The Acquisition was consummated pursuant to the terms of a Share Purchase Agreement dated July 7, 2016, by and among ADS and Lydall Canada Acquisition Corp., a wholly-owned subsidiary of the Company (the “Share Purchase Agreement”). The Acquisition was financed with a combination of cash on hand and $85.0 million of borrowings through the Company’s amended $175.0 million credit facility (“Amended Credit Facility”). Subsequently, the Company and ADS agreed to a post-closing adjustment which resulted in a purchase price of $102.7 million.

The Texel operations are principally based in the province of Quebec, Canada and primarily serve a North American customer base in the manufacture of nonwoven needle punch materials predominantly serving the geosynthetic, liquid filtration, and other industrial segments. Beginning with 2016 third quarter reporting, the acquired businesses are included in Lydall’s Industrial Filtration reporting segment which has been renamed Technical Nonwovens.

The financial periods required to be presented in this Current Report on Form 8-K/A are based on the Company’s fiscal periods. While the Company and ADS had different fiscal year ends, the information of ADS in the pro forma condensed combined statements of operations is within 93 days of the Company’s fiscal year-end in accordance with SEC Regulation S-X 11-02(c)(3).

The unaudited pro forma condensed combined balance sheet (“Pro forma Balance Sheet”) as of June 30, 2016 is presented as if the Acquisition had occurred on June 30, 2016 and is based upon the unaudited condensed consolidated balance sheet of the Company as of June 30, 2016 (as filed with the SEC in its Quarterly Report on Form 10-Q for the period ended June 30, 2016) and the unaudited condensed consolidated balance sheet of ADS as of June 26, 2016.

The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 are presented as if the Acquisition had occurred on January 1, 2015 and are based upon the unaudited condensed consolidated statements of operations of the Company for the six months ended June 30, 2016 (as filed with the SEC in its Quarterly Report on Form 10-Q for the period ended June 30, 2016) and the unaudited condensed consolidated statements of operations of ADS for the six months ended June 26, 2016. The unaudited condensed consolidated statement of operations of ADS for the six months ended June 26, 2016 contains results for the period December 28, 2015 through June 26, 2016.

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2015 are presented as if the Acquisition had occurred on January 1, 2015 and are based upon the audited consolidated statements of operations of the Company for the year ended December 31, 2015 (as filed with the SEC in its Annual Report on Form 10-K for the year ended December 31, 2015) and the audited consolidated statements of operations of ADS for the year ended January 31, 2016 (attached as Exhibit 99.4 in this Current Report on Form 8-K/A). The condensed consolidated statement of operations of ADS for the year ended January 31, 2016 contains results for the period January 26, 2015 through January 31, 2016.

The functional currency of ADS is the Canadian dollar. Therefore, the unaudited condensed consolidated balance sheet of ADS was converted to US Dollars using the currency exchange rate at June 26, 2016. The condensed consolidated statement of operations of ADS for the six months ended June 26, 2016 and twelve months ended January 31, 2016 were converted to US Dollars at the average currency exchange rate for these periods, respectively.

The financial statements of the Company and ADS have been adjusted in the pro forma condensed combined financial statements to give effect to events that are directly attributable to the Acquisition, are factually supportable and expected to have a continuing impact on the combined company. The unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The pro forma condensed combined financial statements are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the Acquisition been completed as of the dates indicated. In addition, the pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company. There were no transactions between Lydall and ADS as of and for the periods presented in the pro forma condensed combined financial statements that would need to be eliminated.

The pro forma condensed combined financial statements have been prepared using the acquisition method of accounting under general accepted accounting principles in the United States (“GAAP”). Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes and should be read in conjunction with the pro forma condensed combined financial statements.

Acquisition accounting is dependent upon certain valuations and other studies that have not yet been finalized. Accordingly, the pro forma adjustments related to the Acquisition are preliminary and have been made solely for the purpose of preparing the pro forma condensed combined financial statements and are based upon preliminary information available at the time of the preparation of this Form 8-K/A. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could have a material impact on the pro forma condensed combined financial statements and the combined company’s future results of operations and financial position.

The pro forma financial statements do not reflect any operating efficiencies or cost savings that the combined company may achieve as a result of the Acquisition and the effects of the foregoing item could, individually or in the aggregate, materially impact the pro forma financial statements.

Lydall, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

	As of June 30, 2016
In thousands of dollars and shares	Lydall, Inc.			ADS, Inc.		Pro Forma Adjustments (Note 5)			Pro Forma Combined

Assets
Current assets:
Cash and cash equivalents	$	82,715		$	2,126	$	(18,590	)(e)(f)(t)	$	66,251
Accounts receivable		92,905			14,014		(158	)(e)		106,761
Inventories		47,057			14,171		2,385	(e)(k)		63,613
Prepaid expenses and other current assets		8,620			875		1,447	(e)(n)(t)		10,942
Total current assets		231,297			31,186		(14,916	)		247,567
Property, plant and equipment, net		118,214			18,219		13,323	(e)(j)(n)(q)(t)		149,756
Goodwill		16,929			2,977		25,099	(h)		45,005
Other intangible assets, net		5,063			458		22,385	(e)(i)(q)		27,906
Investment in joint venture		-			-		615	(e)(p)		615
Other assets, net		1,920			167		1,051	(b)(e)(t)(u)(v)		3,138
Total assets	$	373,423		$	53,007	$	47,557		$	473,987
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	55		$	2,122	$	(2,122	)(c)	$	55
Bank loans		-			4,055		(4,055	)(e)(o)		-
Accounts payable		47,141			7,674		(4,055	)(e)(r)(t)		50,760
Other accrued liabilities		23,199			259		3,803	(d)(m)(r)		27,261
Total current liabilities		70,395			14,110		(6,429	)		78,076
Long-term debt		10,135			13,189		71,811	(a)(c)		95,135
Deferred tax liabilities		10,059			2,497		4,574	(l)(m)(u)		17,130
Benefit plan and other long-term liabilities		16,895			160		933	(s)(t)(v)		17,988
Stockholders’ equity:
Common stock		248			1,444		(1,444	)(g)		248
Capital in excess of par value		79,280			5,686		(5,686	)(g)		79,280
Retained earnings		308,261			15,921		(16,202	)(g)(m)		307,980
Accumulated other comprehensive loss		(35,568	)		-		-			(35,568	)
Treasury stock, at cost		(86,282	)		-		-			(86,282	)
Total stockholders’ equity		265,939			23,051		(23,332	)		265,658
Total liabilities and stockholders’ equity	$	373,423		$	53,007	$	47,557		$	473,987

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.

Lydall, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

	For the six months ended June 30, 2016
In thousands except per share data	Lydall, Inc.			ADS, Inc.		Pro Forma Adjustments (Note 6)			Pro Forma Combined

Net sales	$	266,935		$	35,777	$	625	(g)(h)	$	303,337
Cost of sales		198,568			28,082		885	(f)(g)(h)(i)		227,535
Gross profit		68,367			7,695		(260	)		75,802
Selling, product development and administrative expenses		39,166			4,081		(175	)(d)(f)(h)(j)		43,072
Operating income		29,201			3,614		(85	)		32,730
Interest expense		254			337		415	(a)(b)(c)		1,006
Other (income) expense, net		(666	)		113		273	(i)		(280	)
Income before income taxes		29,613			3,164		(773	)		32,004
Income tax expense		9,631			956		(140	)(e)(h)		10,447
Equity in losses of joint venture		-			-		(20	)(h)		(20	)
Net income	$	19,982		$	2,208	$	(613	)	$	21,577
Earning per share
Basic	$	1.19							$	1.28
Diluted	$	1.17							$	1.27
Weighted average number of common shares outstanding
Basic		16,844								16,844
Diluted		17,036								17,036

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.

Lydall, Inc.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

	For the year ended December 31, 2015
In thousands except per share data	Lydall, Inc.			ADS, Inc.		Pro Forma Adjustments (Note 7)			Pro Forma Combined

Net sales	$	524,505		$	71,275	$	1,085	(g)(h)	$	596,865
Cost of sales		402,008			53,539		2,733	(f)(g)(h)(i)		458,280
Gross profit		122,497			17,736		(1,648	)		138,585
Selling, product development and administrative expenses		70,020			8,281		2,460	(d)(f)(h)		80,761
Operating income		52,477			9,455		(4,108	)		57,824
Gain on sale of business		(18,647	)		-		-			(18,647	)
Interest expense		755			736		768	(a)(b)(c)		2,259
Other (income) expense, net		(654	)		113		(604	)(h)(i)		(1,145	)
Income before income taxes		71,023			8,606		(4,272	)		75,357
Income tax expense		24,764			2,387		(1,286	)(e)(h)		25,865
Equity in losses of joint venture		-			-		(37	)(h)		(37	)
Net income	$	46,259		$	6,219	$	(2,949	)	$	49,529
Earning per share
Basic	$	2.76							$	2.96
Diluted	$	2.71							$	2.90
Weighted average number of common shares outstanding
Basic		16,746								16,746
Diluted		17,084								17,084

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these statements.

Notes to the unaudited pro forma condensed combined financial statements

Note 1 – The Transaction

Note 2 – Basis of Presentation

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting in accordance with generally accepted accounting principles in the United States (GAAP) and were derived based on the financial statements of the Company and ADS and adjusted to give effect to pro forma events that are (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined company's results. Adjustments are described in the accompanying notes to the unaudited pro forma condensed combined financial statements which include assumptions utilized, reclassification adjustments to conform to GAAP and changes in ADS accounting policy to conform to the Company. There were no transactions between Lydall and ADS as of and for the periods presented in the pro forma condensed combined financial statements that would need to be eliminated.

The financial periods required to be presented in this Current Report on Form 8-K/A are based on the Company’s fiscal periods. While the Company and ADS have different fiscal year ends, the information of ADS in the unaudited pro forma condensed combined statements of operations is within 93 days of the Company’s fiscal year-end in accordance with SEC Regulation S-X 11-02(c)(3).

The unaudited pro forma condensed consolidated balance sheet (“Pro Forma Balance Sheet”) as of June 30, 2016 is presented as if the Acquisition had occurred on June 30, 2016. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 and for the year ended December 31, 2015 are presented as if the Acquisition had occurred on January 1, 2015.

The Pro Forma Balance Sheet as of June 30, 2016 is based upon the unaudited condensed consolidated balance sheet of the Company as of June 30, 2016 (as filed with the SEC in its Quarterly Report on Form 10-Q for the period ended June 30, 2016) and the unaudited condensed consolidated balance sheet of ADS as of June 26, 2016.

The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2016 combines the Company’s unaudited condensed consolidated statement of operations for the six months ended June 30, 2016 (as filed with the SEC in its Quarterly Report on Form 10-Q for the period ended June 30, 2016) and ADS unaudited condensed consolidated statement of operations for the six months ended June 26, 2016. The unaudited condensed consolidated statement of operations of ADS for the six months ended June 26, 2016 contains results for the period December 28, 2015 through June 26, 2016.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 combines the Company’s audited statement of operations for the year ended December 31, 2015 (as filed with the SEC in its 2015 Annual Report on Form 10-K) with ADS audited consolidated statement of operations for the year ended January 31, 2016 (attached as Exhibit 99.4 in this Current Report on Form 8-K/A). The condensed consolidated statement of operations of ADS for the year ended January 31, 2016 contains results for the period January 26, 2015 through January 31, 2016.

Under the acquisition method of accounting, the Company measures and recognizes separately from goodwill the fair value as of July 7, 2016 of all identifiable assets acquired and liabilities assumed as part of the Acquisition. For purposes of measuring the fair value of the assets acquired and liabilities assumed, the Company has applied the accounting guidance for fair value measurements in accordance with GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions, including historical and current market data. The preliminary allocation of the purchase price as detailed in Note 4, ("Purchase Price Allocation") in these unaudited pro forma condensed combined financial statements is based upon preliminary estimates and assumptions that are subject to change as the Company’s management finalizes the fair values of the assets acquired and liabilities assumed. The final purchase price allocation may differ from that reflected in the pro forma condensed combined financial statements. The pro forma financial statements reflect an illustrative allocation of the purchase price to the assets and liabilities acquired based on currently available information. The purchase price allocation as of the July 7, 2016 acquisition date and the resulting effect on income from operations and the Company’s balance sheet will differ from the pro forma amounts included herein and will be included in the Company’s Quarterly Report on Form 10-Q for the third quarter ended September 30, 2016. Notwithstanding those items, management believes that the assumptions provide a reasonable basis for presenting all of the significant effects of the Acquisition and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial statements.

Estimated transaction costs have been excluded from the unaudited pro forma condensed combined statement of operations as they reflect non-recurring charges directly related to the Acquisition. However, the transaction costs are reflected in the Pro Forma Balance Sheet as an increase to other current liabilities and a decrease to retained earnings.

The unaudited pro forma condensed combined financial statements do not reflect any revenue enhancements or cost savings (or associated costs to achieve such savings) from operating efficiencies, synergies or other restructuring that could result from the Acquisition.

The unaudited pro forma condensed combined financial statements are presented for informational purposes only and are not intended to reflect the results of operations or the financial position of the combined company that would have resulted had the Acquisition been effective as of and for the periods presented or the results that may be obtained by the combined company in the future.

Note 3 – Reclassifications

Reclassification adjustments have been made in the presentation of ADS amounts to conform to GAAP and to the Company’s presentation. Refer to Note 5(n)(q)(r)(u), Note 6(g)(i), and Note 7(g)(i).

Note 4 – Purchase Price Allocation

Pursuant to the Company’s business combinations accounting policy, the total preliminary purchase price for ADS was allocated to the net tangible and intangible assets based upon their preliminary fair values as set forth below. The excess of the purchase price over the preliminary net tangible and intangible assets was recorded as goodwill. The purchase price was allocated based upon preliminary estimates and assumptions that are subject to change as the Company finalizes the fair values of assets acquired and liabilities assumed. The final purchase price allocation may differ from that reflected in the pro forma condensed combined financial statements.

The following is a preliminary fair value estimate of the assets acquired and the liabilities assumed by the Company in the completed acquisition of ADS as if the acquisition had occurred on June 30, 2016:

	(In thousands)
Cash and cash equivalents	$	1,541
Accounts receivable		13,856
Inventories		16,556
Prepaid expenses and other current assets		2,322
Non-current environmental indemnification receivable		923
Property, plant and equipment, net		31,542
Investment in joint venture		615
Goodwill		28,076
Other intangible assets, net		22,843
Current liabilities		(7,365	)
Long-term environmental remediation liability		(923	)
Deferred tax liabilities		(7,106	)
Other long-term liabilities		(170	)
Total purchase price	$	102,710

Identifiable intangible assets: The estimated fair value of the identifiable intangible assets and the weighted average estimated useful lives (in years) are as follows:

	Estimated Fair Value (In thousands)		Estimated Useful Life
Customer relationships	$	20,766		14
Trade names		2,077		5
Total	$	22,843

Goodwill: Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized.

Investment in Joint Venture: The Company estimated the fair value of its 50% equity interest in Afitex Texel Geosynthetics Inc., (“Afitex”) to be $0.6 million. ADS accounted for this joint venture in their financial statements using a proportionate share consolidation method whereby, on a line-by-line basis for assets, liabilities, revenues and expenses, ADS recorded its pro-rata share of 50%. To conform to GAAP reporting, pro forma adjustments were recorded to report the investment in Afitex under the equity method of accounting on the Pro Forma Balance Sheet as of June 30, 2016 at the estimated fair value. Also, pro forma adjustments were recorded to remove the proportionate share of Afitex amounts from the ADS balance sheet and statement of operations line items and to record the equity in losses of Afitex in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 and the year ended December 31, 2015. Refer to Note 5(e), Note 6(h), and Note 7(h).

Environmental Remediation Liability and Indemnity: The Company has elected to remediate environmental contamination discovered prior to the closing of the Acquisition at a certain property in Quebec, Canada (“the Property”) that was acquired by Lydall. The Company records accruals for environmental costs when such losses are probable and reasonably estimable. While the Company is currently in the process of determining the final scope and timing of the remediation project, it estimates the cost of the remediation project to range between $0.9 million and $1.5 million based on information provided from and the results of investigatory work performed by a third party environmental service firm prior to the closing of the Acquisition. Based upon this range of estimated remediation costs, the Company included in the purchase price allocation table an environmental liability of $0.9 million (which is fully offset as described below) representing the minimum amount in the range as no other amount within the range represents a better estimate at this time.

Pursuant to the Share Purchase Agreement, ADS has agreed to indemnify the Company from all costs and liabilities associated with the contamination and remediation work, including the costs of preparation and approval of the remediation plan and other reports in relation therewith. This indemnity was secured by an environmental escrow account, which was established in the amount of $3.0 million Canadian Dollars ($2.3 million U.S. Dollars). Should the costs and liabilities exceed the environmental escrow amount, the Company also has access to the general indemnity escrow account, which was established in the amount of $14.0 million Canadian Dollars ($10.8 million U.S. Dollars). Based on the foregoing, an indemnification asset of $0.9 million is also recorded in the purchase price allocation table in other assets as the Company believes collection from ADS is probable.

The accrual for remediation costs will be adjusted as further information develops, estimates change and payments to vendors are made for remediation, with an off-setting adjustment to the indemnification asset from ADS if receipt is deemed probable.

Deferred Taxes: Deferred taxes above reflect the deferred tax liability impact of the acquisition on the balance sheet, primarily related to fair value adjustments for acquired inventory, and property, plant and equipment.

Note 5 – Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet

The following pro forma adjustments were applied to the unaudited balance sheets of the Company and ADS at June 30, 2016 to arrive at the unaudited pro forma condensed combined balance sheet (in thousands):

(a)	To record borrowings from the amended credit facility to complete the Acquisition, which bear interest at current LIBOR of 0.48%, plus 1.25% and mature July 2021	$	85,000

(b)	To record additional deferred financing costs associated with the amended credit facility	$	296

(c)	To eliminate long-term debt of ADS settled prior to the Acquisition of which $2,122 is current	$	(15,311	)

(d)	To eliminate accrued interest expense related to the settled long-term debt of ADS	$	(11	)

(e)	To remove the assets and liabilities of Afitex and record as investment in joint venture (See Note 4)

	Cash and cash equivalents	$	6

	Accounts receivable		(158	)

	Inventories		(64	)

	Prepaid expenses and other current assets		(4	)

	Property, plant, and equipment, net		(38	)

	Other intangible assets, net		(26	)

	Other assets, net		(43	)

	Accounts payable		78

	Bank loans		75

	Total		(174	)

	Investment in joint venture		174

		$	0

(f)	To reflect use of existing Lydall cash of $17,710 for the acquisition and payment of deferred financing costs of $296	$	(18,006	)

(g)	To eliminate the equity accounts of ADS	$	(23,051	)

(h)	To eliminate ADS goodwill balance of $2,977 and to record the preliminary estimate for goodwill for the acquisition as disclosed in Note 4 of $28,076	$	25,099

(i)	To eliminate ADS identifiable intangible assets of $20 and to record the preliminary estimate of identifiable intangible assets for the acquisition as disclosed in Note 4 of $22,843. Fair value and estimated useful life of identifiable intangible assets are based on estimates as discussed in Note 4, and are subject to review and finalization by the Company’s management	$	22,823

(j)	To record an adjustment to property, plant and equipment acquired in the Acquisition to report at fair value as disclosed in Note 4	$	14,792

(k)	To record the step-up in fair value of inventory acquired in the Acquisition as disclosed in Note 4	$	2,449

(l)	To record the deferred tax liabilities (based on local jurisdiction tax rates) related to the fair value adjustments recorded for the assets acquired and liabilities assumed, excluding goodwill, as disclosed in Note 4	$	4,638

(m)	To record the estimated transaction related expenses to other accrued liabilities and retained earnings, net of the associated tax benefit of $34	$	315

(n)	To reclass costs of Inventoriable Repair Parts classified as fixed assets by ADS to prepaids and other current assets to conform to GAAP	$	1,815

(o)	To eliminate bank loans of ADS settled prior to the Acquisition	$	(3,980	)

(p)	To record the step-up to fair value of the Investment in Joint Venture (See Note 4)	$	441

(q)	To reclass the net book value of software classified as identifiable intangible assets by ADS to fixed assets to conform to GAAP	$	412

(r)	To reclass accrued liabilities classified as accounts payable by ADS to other accrued liabilities to conform with the Company's presentation	$	3,499

(s)	To record the step up in fair value of non-controlling interest acquired in the acquisition	$	110

(t)	To remove ADS assets and liabilities not acquired by Lydall

	Cash and cash equivalents	$	(592	)

	Prepaid expenses and other current assets	$	(364	)

	Property, plant, and equipment, net	$	(28	)

	Other assets, net	$	(96	)

	Accounts payable	$	478

	Benefit plans and other long-term liabilities	$	100

(u)	To reclass deferred tax assets in other assets of ADS to deferred tax liabilities to conform to GAAP	$	(29	)

(v)	To record environmental indemnification receivable and environmental remediation liability (See Note 4)	$	923

Note 6 – Pro Forma Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months ended June 30, 2016

The following pro forma adjustments were applied to the statements of operations for the Company and ADS for the six months ended June 30, 2016 (in thousands):

(a)	To record interest expense on $85,000 in borrowings to complete the Acquisition, using an interest rate of current LIBOR of 0.48%, plus 1.25%. Interest rates for the Amended Credit Facility are variable and the actual rate of interest can change from the assumed current LIBOR of 0.48% above. A 1/8% variance in the interest rate on the new borrowings would impact interest expense by approximately $53	$	735

(b)	To record amortization of deferred financing costs of $296 and eliminate deferred financing costs of ADS	$	16

(c)	To eliminate ADS interest expense on debt settled prior to Acquisition	$	(337	)

(d)	To record amortization of intangible assets. The amortization of customer relationships and trade names has been calculated based on their respective fair values and amortized over the estimated life as discussed in Note 4	$	1,198

(e)	To record the provision for income taxes. Provision for income taxes associated with pro forma entries is based on the Company’s estimated statutory tax rates	$	(145	)

(f)	To record additional depreciation expense resulting from increased basis of property, plant and equipment acquired and depreciated using straight line basis over the estimated remaining useful lives. $481 of depreciation expense is recorded to cost of sales and $110 to selling, product development and administrative expenses	$	591

(g)	To reclass ADS freight billings to customers from cost of sales to net sales to conform to GAAP	$	813

(h)	To remove the revenues and expenses of Afitex and record the equity in losses of joint venture (See Note 4)

	Net sales	$	(188	)

	Cost of sales		(136	)

	Selling, general, and administrative expenses		(77	)

	Income tax expense		5

	Total		20

	Equity in losses of joint venture		(20	)

		$	0

(i)	To reclass transaction foreign exchange gain/(loss) classified as cost of sales by ADS to other income/expense to conform to GAAP	$	(273	)

(j)	To eliminate Lydall’s transaction expenses associated with the acquisition	$	(1,406	)

Note 7 – Pro Forma Adjustments to the Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 2015

The following pro forma adjustments were applied to the statements of operations for the Company and ADS for the year ended December 31, 2015 (in thousands):

(a)	To record interest expense on $85,000 in borrowings to complete the Acquisition, using an interest rate of current LIBOR of 0.48%, plus 1.25%. Interest rates for the Amended Credit Facility are variable and the actual rate of interest can change from the assumed current LIBOR of 0.48% above. A 1/8% variance in the interest rate on the new borrowings would impact interest expense by approximately $106	$	1,471

(b)	To record amortization of deferred financing costs of $296 and eliminate deferred financing costs of ADS	$	33

(c)	To eliminate ADS interest expense on debt settled prior to Acquisition	$	(736	)

(d)	To record amortization of intangible assets. The amortization of customer relationships and trade names has been calculated based on their respective fair values and amortized over the estimated life as discussed in Note 4	$	2,396

(e)	To record the provision for income taxes. Provision for income taxes associated with pro forma entries is based on the Company’s estimated statutory tax rates	$	(1,295	)

(f)	To record additional depreciation expense resulting from increased basis of property, plant and equipment acquired and depreciated using straight line basis over the estimated remaining useful life. $918 of depreciation expense is recorded to cost of sales and $236 to Selling, product development and administrative expenses	$	1,154

(g)	To reclass ADS freight billings to customers from cost of sales to net sales to conform to GAAP	$	1,624

(h)	To remove the revenues and expenses of Afitex and record the equity in losses of joint venture (See Note 4)

	Net sales	$	(539	)

	Cost of sales		(411	)

	Selling, general, and administrative expenses		(172	)

	Other expense		(2	)

	Income tax expense		9

	Total		37

	Equity in losses of joint venture		(37	)

		$	0

(i)	To reclass transaction foreign exchange gain/(loss) classified as cost of sales by ADS to other income/expense to conform to GAAP	$	602

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