AMENDMENT NO 1 TO 10-Q/A
Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q/A
Amendment Number 1
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
                                                 EXCHANGE
 
ACT OF 1934
 
  For the quarterly period ended March 31, 2001
 
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
Incorporation or Organization)
  
(I.R.S. Employer
Identification No.)
 
One Colonial Road, Manchester, Connecticut
  
06040
(Address of principal executive offices)
  
(zip code)
 
(860) 646-1233
(Registrant’s telephone number, including area code)
 
 
None
(Former name, former address and frmer 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 November 14, 2002                                                                                              16,016,930
 

Table of Contents
 
LYDALL, INC.
INDEX
 
              
Page
Number
Part I.
   
Financial Information
     
    
This amendment to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 is being filed to revise the consolidated condensed financial statements, as set forth in Note 7 to the Notes to Consolidated Condensed Financial Statements, from those previously filed on May 11, 2001. In this amendment the disclosures have not been updated other than to reflect the adjustments specifically discussed in Note 7 to the Notes to Consolidated Condensed Financial Statements.
     
    
Item 1.
   
Financial Statements
     
            
3
            
4
            
5
            
6-8
    
Item 2.
      
9-11
    
Item 3.
      
11
Part II.
   
Other Information
     
    
Item 6.
      
11-12
  
13
  
14-15
  
16

Table of Contents
 
PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
 
LYDALL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
 
    
March 31,
2001
     
December 31,
2000
  
    
(Unaudited) (Restated See Note 7)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
4,166
 
   
$
2,220
 
Accounts receivable, net
   
 
39,629
 
   
 
39,993
 
Inventories:
                  
Finished goods
   
 
9,778
 
   
 
9,933
 
Work in process
   
 
7,624
 
   
 
5,820
 
Raw materials
   
 
7,646
 
   
 
6,272
 
LIFO reserve
   
 
(555
)
   
 
(555
)
    
  
Total inventories
   
 
24,493
 
   
 
21,470
 
Income taxes receivable
   
 
—  
 
   
 
2,705
 
Prepaid expenses
   
 
1,717
 
   
 
1,632
 
Net investment in discontinued operations
   
 
1,540
 
   
 
14,285
 
Assets held for sale
   
 
4,824
 
   
 
6,200
 
Deferred tax assets
   
 
9,123
 
   
 
7,290
 
    
  
Total current assets
   
 
85,492
 
   
 
95,795
 
Property, plant and equipment, at cost
   
 
127,954
 
   
 
126,711
 
Accumulated depreciation
   
 
(54,435
)
   
 
(52,291
)
    
  
    
 
73,519
 
   
 
74,420
 
Other assets, net
   
 
24,656
 
   
 
24,749
 
    
  
Total assets
   
$
183,667
 
   
$
194,964
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Current portion of long-term debt
   
$
6,391
 
   
$
7,101
 
Accounts payable
   
 
19,500
 
   
 
19,154
 
Accrued taxes
   
 
1,422
 
   
 
844
 
Accrued payroll and other compensation
   
 
3,685
 
   
 
7,244
 
Liabilities related to assets held for sale
   
 
183
 
   
 
421
 
Other accrued liabilities
   
 
7,640
 
   
 
6,481
 
    
  
Total current liabilities
   
 
38,821
 
   
 
41,245
 
Long-term debt
   
 
12,973
 
   
 
24,927
 
Deferred tax liabilities
   
 
12,698
 
   
 
11,183
 
Other long-term liabilities
   
 
6,002
 
   
 
5,856
 
Commitments and contingencies
                  
Stockholders’ equity:
                  
Preferred stock
   
 
—  
 
   
 
—  
 
Common stock
   
 
2,196
 
   
 
2,196
 
Capital in excess of par value
   
 
40,337
 
   
 
40,335
 
Retained earnings
   
 
139,212
 
   
 
137,664
 
Accumulated other comprehensive loss
   
 
(6,930
)
   
 
(6,800
)
    
  
    
 
174,815
 
   
 
173,395
 
Treasury stock, at cost
   
 
(61,642
)
   
 
(61,642
)
    
  
Total stockholders’ equity
   
 
113,173
 
   
 
111,753
 
    
  
Total liabilities and stockholders’ equity
   
$
183,667
 
   
$
194,964
 
    
  
 
See accompanying Notes to Consolidated Condensed Financial Statements.

3

Table of Contents
 
LYDALL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
(In Thousands Except Per-Share Data)
 
    
Three Months Ended
March 31,
  
    
2001
     
2000
  
    
(Unaudited)
  
    
(Restated See Note 7)
         
Net sales
   
$
58,266
 
   
$
69,733
 
Cost of sales
   
 
41,893
 
   
 
52,135
 
    
  
Gross margin
   
 
16,373
 
   
 
17,598
 
Selling, product development and administrative expenses
   
 
13,510
 
   
 
13,074
 
Impairment charge
   
 
760
 
   
 
—  
 
    
  
Operating income
   
 
2,103
 
   
 
4,524
 
Other (income) expense:
                  
Investment income
   
 
(37
)
   
 
(16
)
Interest expense
   
 
333
 
   
 
490
 
Gain on sale of operation
   
 
—  
 
   
 
(6,065
)
Foreign currency transaction losses, net
   
 
148
 
   
 
76
 
Other, net
   
 
33
 
   
 
(312
)
    
  
    
 
477
 
   
 
(5,827
)
    
  
Income from continuing operations before income taxes
   
 
1,626
 
   
 
10,351
 
Income tax expense
   
 
533
 
   
 
3,832
 
    
  
Income from continuing operations
   
 
1,093
 
   
 
6,519
 
    
  
Discontinued operations:
                  
(Loss) income from operations of discontinued segments,
net of tax (benefit) expense of ($181) and $95, respectively
   
 
(308
)
   
 
215
 
Gain on disposal of discontinued segments,
net of tax expense of $448 and $44, respectively
   
 
763
 
   
 
71
 
    
  
Income from discontinued operations
   
 
455
 
   
 
286
 
    
  
Net income
   
$
1,548
 
   
$
6,805
 
    
  
Basic earnings per common share:
                  
Continuing operations
   
$
.07
 
   
$
.42
 
Discontinued operations
   
 
.03
 
   
 
.01
 
    
  
Net income
   
$
.10
 
   
$
.43
 
Diluted earnings per common share:
                  
Continuing operations
   
$
.07
 
   
$
.42
 
Discontinued operations
   
 
.03
 
   
 
.01
 
    
  
Net income
   
$
.10
 
   
$
.43
 
Weighted average common shares outstanding
   
 
15,865
 
   
 
15,706
 
Weighted average common shares and equivalents outstanding
   
 
15,979
 
   
 
15,740
 
Net income
   
$
1,548
 
   
$
6,805
 
Other comprehensive (loss) income, before tax:
                  
Foreign currency translation adjustments
   
 
(384
)
   
 
(1,330
)
Unrealized loss on derivative instruments
   
 
(126
)
   
 
—  
 
Unrealized gain on securities
   
 
—  
 
   
 
19
 
    
  
Other comprehensive loss, before tax
   
 
(510
)
   
 
(1,311
)
Income tax benefit related to items of other comprehensive loss
   
 
179
 
   
 
456
 
    
  
Other comprehensive loss, net of tax
   
 
(331
)
   
 
(855
)
Cumulative effect of change in accounting principle, net of tax
   
 
201
 
   
 
—  
 
    
  
Comprehensive income
   
$
1,418
 
   
$
5,950
 
    
  
 
See accompanying Notes to Consolidated Condensed Financial Statements.

4

Table of Contents
 
LYDALL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
 
    
Three Months Ended
March 31,
  
    
2001
     
2000
  
    
(Unaudited)
  
    
(Restated See Note 7)
         
Cash flows from operating activities:
                  
Net income
   
$
1,548
 
   
$
6,805
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation
   
 
2,540
 
   
 
2,614
 
Amortization
   
 
388
 
   
 
388
 
Gain on disposal of discontinued segments
   
 
(1,289
)
   
 
(71
)
Gain on sale of operation
   
 
—  
 
   
 
(6,065
)
Impairment charge
   
 
760
 
   
 
—  
 
Loss on disposition of property, plant and equipment
   
 
—  
 
   
 
20
 
Foreign currency transaction losses
   
 
148
 
   
 
76
 
Gain on receipt of common stock from demutualization of insurance companies
   
 
—  
 
   
 
(299
)
Changes in operating assets and liabilities:
                  
Accounts receivable
   
 
1,046
 
   
 
(3,120
)
Income taxes receivable
   
 
2,583
 
   
 
2,956
 
Inventories
   
 
(2,937
)
   
 
870
 
Prepaid expenses and other assets
   
 
(257
)
   
 
158
 
Accounts payable
   
 
872
 
   
 
2,281
 
Accrued taxes
   
 
(194
)
   
 
1,186
 
Accrued payroll and other compensation
   
 
(3,541
)
   
 
4,053
 
Deferred income taxes
   
 
(285
)
   
 
1,464
 
Other long-term liabilities
   
 
166
 
   
 
84
 
Other accrued liabilities
   
 
(1,174
)
   
 
(6,961
)
    
  
Total adjustments
   
 
(1,174
)
   
 
(366
)
    
  
Net cash provided by operating activities
   
 
374
 
   
 
6,439
 
    
  
Cash flows from investing activities:
                  
Proceeds from sale of discontinued segments
   
 
15,000
 
   
 
1,819
 
Proceeds from sale of operations
   
 
—  
 
   
 
12,037
 
Additions of property, plant and equipment
   
 
(2,114
)
   
 
(4,193
)
    
  
Net cash provided by investing activities
   
 
12,886
 
   
 
9,663
 
    
  
Cash flows from financing activities:
                  
Long-term debt payments
   
 
(19,041
)
   
 
(70,777
)
Long-term debt proceeds
   
 
7,825
 
   
 
55,134
 
Issuance of common stock
   
 
2
 
   
 
236
 
    
  
Net cash used for financing activities
   
 
(11,214
)
   
 
(15,407
)
    
  
Effect of exchange rate changes on cash
   
 
(100
)
   
 
(40
)
    
  
Increase in cash and cash equivalents
   
 
1,946
 
   
 
655
 
Cash and cash equivalents at beginning of period
   
 
2,220
 
   
 
1,154
 
    
  
Cash and cash equivalents at end of period
   
$
4,166
 
   
$
1,809
 
    
  
Supplemental Schedule of Cash Flow Information
                  
Cash paid during the period for:
                  
Interest
   
$
304
 
   
$
459
 
Income taxes
   
 
363
 
   
 
56
 
Non-cash transactions:
                  
Unrealized gain/losses on available-for-sale securities
   
 
—  
 
   
 
19
 
Fair market value of interest rate swap
   
 
184
 
   
 
—  
 
 
See accompanying Notes to Consolidated Condensed Financial Statements.

5

Table of Contents
 
LYDALL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
1.
 
The accompanying consolidated condensed financial statements include the accounts of Lydall, Inc. and its wholly owned subsidiaries (collectively, the “Company” or the “Registrant”). All financial information is unaudited for the interim periods reported. All significant intercompany transactions have been eliminated in the consolidated condensed financial statements. Management believes that all adjustments, which include only normal recurring adjustments necessary to present the consolidated financial position, results of operations and cash flows for the periods reported, have been included. The year-end consolidated condensed balance sheet was derived from the December 31, 2000 audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
 
2.
 
Basic earnings per common share are based on income from continuing operations and net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are based on income from continuing operations and net income divided by the weighted average number of common shares outstanding during the period, including the effect of stock options, where such effect is dilutive.
 
    
Three Months Ended
March 31, 2001
   
Three Months Ended
March 31, 2000
    
(Unaudited)
   
(Unaudited)
    
(Restated
See Note 7)
               
    
Income
from
Continuing
Operations
($000’s)
   
Average
Shares
(000’s)
   
Per-
Share
Amount
   
Income
from
Continuing
Operations
($000’s)
   
Average
Shares
(000’s)
   
Per-
Share
Amount
Basic earnings per share
   
$
1,093
   
15,865
   
$
.07
   
$
6,519
   
15,706
   
$
.42
Effect of dilutive stock options
   
 
—  
   
114
   
 
—  
   
 
—  
   
34
   
 
—  
    
  
  
  
  
  
Diluted earnings per share
   
$
1,093
   
15,979
   
$
.07
   
$
6,519
   
15,740
   
$
.42
    
  
  
  
  
  
    
Net
Income
($000’s)
   
Average
Shares
(000’s)
   
Per-
Share
Amount
   
Net
Income
($000’s)
   
Average
Shares
(000’s)
   
Per-
Share
Amount
Basic earnings per share
   
$
1,548
   
15,865
   
$
.10
   
$
6,805
   
15,706
   
$
.43
Effect of dilutive stock options
   
 
—  
   
114
   
 
—  
   
 
—  
   
34
   
 
—  
    
  
  
  
  
  
Diluted earnings per share
   
$
1,548
   
15,979
   
$
.10
   
$
6,805
   
15,740
   
$
.43
    
  
  
  
  
  
 
3.
 
In February 2001, the Company’s Board of Directors adopted a plan to discontinue the operations of the Paperboard Segment, consisting principally of the Southern Products and Lydall & Foulds Divisions. Accordingly, the operating results of this segment have been segregated from continuing operations and reported as discontinued operations for all periods presented.
 
On February 1, 2001, the Company announced that the Lydall & Foulds Division would be closed on April 1, 2001. Additionally, on February 5, 2001, the Company sold the Southern Products Division for approximately $15 million in cash, subject to a post closing adjustment. In total, the disposition of the Paperboard Segment resulted in a gain, net of tax, of $.8 million or $.05 per diluted share. The sale of the Southern Products Division resulted in a gain, net of tax, of $3.6 million or $.23 per diluted share. The closing of the Lydall & Foulds Division resulted in a loss, net of tax, of $2.8 million or $.18 per share representing costs incurred from the measurement date through March 31, 2001, severance and other exit costs to be incurred during the phase-out period, and the adjustment to net realizable value for certain current and long-lived assets.
 
 
Paperboard Segment net assets to be disposed of, consisting primarily of accounts receivable, inventory and property, plant and equipment of the Lydall & Foulds Division, with a total net realizable value of $1.5 million, have been classified in the Consolidated Condensed Balance Sheet at March 31, 2001 as “Net investment in discontinued operations.”
 
4.
 
During the quarter ended March 31, 2001, the Company recorded an impairment charge before tax of $.8 million, or $.03 per share after tax, related to assets held for sale owned by its Composite Materials Covington Operation. On April 2, 2001, the Company sold certain assets of this operation for approximately $1.8 million and announced that the operation would be closing. Closing costs and severance benefits will be recorded as a charge in the second quarter of 2001 and are expected to be between $.05 to $.06 per share. The Covington operation generated net sales of $1.6 million and $1.8 million for the first quarter of 2001 and 2000, respectively, and was essentially breakeven for both quarters.

6

Table of Contents
 
LYDALL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 
5.
 
Lydall’s reportable segments are Thermal/Acoustical and Filtration/Separation. All other products and services are aggregated in Other Products and Services. Reconciling Items include Corporate Office operating expenses and intercompany eliminations. For a full description of each segment, refer to the “Notes to Consolidated Financial Statements” reported in the Company’s 2000 Annual Report on Form 10-K. The table below presents net sales and operating income (loss) by segment for the three months ended March 31, 2001 and 2000.
 
In thousands
Three Months Ended
   
Thermal/
Acoustical
   
Filtration/
Separation
   
Other Products
and Services
     
Reconciling
Items
     
Consolidated
Totals
March 31, 2001 (Restated See Note 7)
                                       
Net sales
   
$
32,101
   
$
17,566
   
 $
9,316
 
   
($
717
)
   
$
58,266
Operating income (loss)
   
$
4,397
   
$
1,784
   
($
83
)
   
($
3,995
)
   
$
2,103
    
  
  
  
  
March 31, 2000
                                       
Net sales
   
$
44,231
   
$
16,221
   
 $
10,271
 
   
($
990
)
   
$
69,733
Operating income
   
$
4,283
   
$
2,422
   
 $
878
 
   
($
3,059
)
   
$
4,524
    
  
  
  
  
 
The operating loss for Other Products and Services for the period ended March 31, 2001 includes a pre-tax impairment charge of $.8 million related to the closing of the fiberboard operation.
 
6.
 
On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Statement of Financial Accounting Standards No. 137, “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133” and Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133” (collectively referred to hereafter as “FAS 133”). In accordance with the transition provisions of FAS 133, the Company recorded a $.2 million net-of-tax cumulative-effect adjustment in other comprehensive income as of January 1, 2001 representing the fair value of the interest rate swap designated as a cash flow hedge.
 
At March 31, 2001, the interest rate swap is the Company’s only derivative instrument. The swap is a cash flow hedge utilized to convert the base rate component of the variable interest rate on the Company’s term loan to a fixed rate. In accordance with FAS 133, the swap has been recorded at its fair value as of the balance sheet date. Subsequent changes in the fair value of the swap will be recorded in other comprehensive income to the extent the hedge is effective. The Company formally assesses effectiveness on an ongoing basis. If it is determined that the interest rate swap has ceased to be highly effective as a hedge, the Company will discontinue hedge accounting prospectively and changes in the fair value of the interest rate swap will be reported in current period earnings.
 
7.
 
On November 6, 2002, Lydall executives became aware of possible accounting irregularities at the Company’s Columbus, Ohio automotive operation. An investigation was initiated immediately and identified that certain Columbus employees, acting in collusion, had circumvented the local internal control system by delaying accounting recognition of liabilities and related expenses and, accordingly, caused misstatements of previously reported financial results. As a result, the Company is amending its Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 to restate its financial position, results of operations and cash flows as of and for the three months ended March 31, 2001. The impact of correcting these misstatements was to increase cost of sales by approximately $0.2 million and, consequently, reduce gross margin and operating income by approximately $0.2 million.
 
The effect on the operating results for the three months ended March 31, 2001, previously reported in the Company’s Quarterly Report on Form 10-Q filed on May 11, 2001, is as follows:

7

Table of Contents
LYDALL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
 
    
Three Months Ended
March 31, 2001
    
As Previously
Reported
   
Restated
In thousands except per-share data
   
(Unaudited)
Net sales
   
$
58,266
   
$
58,266
Cost of sales
   
 
41,672
   
 
41,893
Gross margin
   
 
16,594
   
 
16,373
Operating income
   
 
2,324
   
 
2,103
Income from continuing operations before income taxes
   
 
1,847
   
 
1,626
Income tax expense
   
 
610
   
 
533
Income from continuing operations
   
 
1,237
   
 
1,093
Net income
   
 
1,692
   
 
1,548
Basic earnings per share:
              
Continuing operations
   
$
0.08
   
$
0.07
Discontinued operations
   
 
0.03
   
 
0.03
Net income
   
 
0.11
   
 
0.10
Diluted earnings per share:
              
Continuing operations
   
$
0.08
   
$
0.07
Discontinued operations
   
 
0.03
   
 
0.03
Net income
   
 
0.11
   
 
0.10
 
The effect on the balance sheet as of March 31, 2001, previously reported in the Company’s Quarterly Report on Form 10-Q filed on May 11, 2001, is as follows:
 
    
March 31, 2001
    
As Previously
Reported
   
Restated
In thousands
   
(Unaudited)
Total inventories
   
$
24,436
   
$
24,493
Deferred tax assets
   
 
9,046
   
 
9,123
Total current assets
   
 
85,358
   
 
85,492
Total assets
   
 
183,533
   
 
183,667
Accounts payable
   
 
19,222
   
 
19,500
Total current liabilities
   
 
38,543
   
 
38,821
Retained earnings
   
 
139,356
   
 
139,212
Shareholders’ equity
   
 
113,317
   
 
113,173
 
There is no impact on net cash provided by operating activities.

8

Table of Contents
 
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations reflects the Company’s restatement of certain 2001 amounts (see Note 7).
 
Results of Operations
 
Net Sales
 
Lydall, Inc. recorded net sales of $58.3 million in the first quarter of 2001 compared with $69.7 million for the same quarter in 2000, a decrease of $11.5 million (16.4%). The disposition of two unprofitable German operations at the end of the third quarter of 2000 reduced net sales by $13.6 million. After adjusting for the disposition of the German operations, net sales increased for the first quarter of 2001 over 2000 by $2.1 million, primarily due to increased sales volume of the Company’s thermal/acoustical and filtration/separation products.
 
Gross Margin
 
Gross margin for the first quarter of 2001 was 28.1 percent compared to 25.2 percent for the same quarter of 2000. The disposition of the two German operations accounted for a majority of the gross margin improvement as these operations generated gross margins significantly below the Company’s average. In addition, increased sales volume for Lydall’s automotive thermal/acoustical products improved gross margins for the quarter ended March 31, 2001 when compared to the same period in the prior year.
 
Selling, Product Development and Administrative Expenses
 
For the quarter ended March 31, 2001, selling, product development and administrative expenses were $13.5 million compared to $13.1 million for the same period in 2000. The increase in selling, product development and administrative expenses is the result of increased selling expenses primarily associated with the introduction of the Bio-PakTM product line, the restaffing of the corporate finance department, increased payroll taxes associated with incentive compensation paid in the first quarter of 2001 and unfavorable self-insured claims experience. These increases were partially offset by the reduction in selling, product development and administrative expenses due to the divestiture of two German operations.
 
Impairment Charge
 
During the quarter ended March 31, 2001, the Company recorded an impairment charge before tax of $.8 million, or $.03 per share after tax, related to assets held for sale owned by its Composite Materials Covington Operation. On April 2, 2001, the Company sold certain assets of this operation for approximately $1.8 million and announced that the operation would be closing. Closing costs and severance benefits will be recorded as a charge in the second quarter of 2001 and are expected to be between $.05 and $.06 per share.
 
Other (Income) Expense
 
Other expense for the quarter ended March 31, 2001 was $.5 million and consisted primarily of interest expense of $.3 million and foreign currency transaction losses of approximately $.2 million.
 
Other income for the quarter ended March 31, 2000 was $5.8 million and consisted primarily of a gain from the sale of the Hoosick Falls Operation of $6.1 million and a gain of $.3 million from the receipt of common stock due to the demutualization of one of the Company’s insurance carriers. These gains were partially offset by interest expense of $.5 million.
 
Income Taxes
 
The effective tax rate on income from continuing operations for the three months ended March 31, 2001 was 32.8 percent compared to 37.0 percent for the same period in 2000. The decrease is primarily due to the gain on the sale of the Hoosick Falls Operation recorded in the first quarter of 2000 that resulted in an unusually high state effective tax rate when compared to the Company’s historic effective rate.

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Segment Results
 
Thermal/Acoustical
 
Thermal/Acoustical net sales decreased $12.1 million (27.4 %) for the first quarter of 2001 compared to the same period in 2000. Net sales for the first quarter of 2000 include $13.6 million of sales from the two German operations that were divested at the end of the third quarter of 2000. After adjusting prior year net sales for the divested operations, segment net sales increased approximately $1.5 million primarily due to the increased sales volume of the Company’s automotive thermal/acoustical products.
 
Thermal/Acoustical operating income for the first quarter of 2001 increased $.1 million (2.7%) over the same period in 2000 primarily due to increased sales volume. Operating margin increased from 9.7 percent in 2000 to 13.7 percent in 2001 primarily due to the disposition of the two unprofitable German operations and increased sales volumes.
 
Filtration/Separation
 
Filtration/Separation net sales increased $1.3 million (8.3%) for the first quarter ended March 31, 2001 compared to the same period of 2000. Sales of the Company’s bioprocessing products increased as a number of new qualifications for the Company’s Bio-Pak™ customized sterile containers were obtained during the quarter. In addition, demand for the Company’s high-efficiency air filtration media was particularly strong in Europe, and U.S. demand remained strong for the first quarter ended March 31, 2001.
 
Filtration/Separation operating income decreased $.6 million (26.3%) for the first quarter ended March 31, 2001 compared to the same period in 2000. Lower operating income was primarily due to increased raw material costs for air filtration media and increased spending associated with the introduction of the Bio-Pak™ product line.
 
Other Products and Services
 
Other Products and Services net sales decreased $1.0 million (9.3%) for the first quarter of 2001 compared to the same period in 2000. The absence of approximately $.5 million of gasket sales, a business that was sold in the first quarter of 2000, accounted for a portion of the net decrease. Lower demand for the Company’s specialty substrates was partially offset by growth of Lydall Transport, Ltd. The Covington Operation, sold on April 2, 2001, generated net sales of $1.6 million and was essentially breakeven for the first quarter of 2001.
 
Other Products and Services operating income decreased $.2 million (23.0%) for the first quarter ended March 31, 2001, after adjusting for a pre-tax impairment charge of $.8 million related to assets held for sale owned by its Composite Materials Covington Operation, compared to the same period in 2000 primarily due to lower sales volume.
 
Outlook
 
The Company completed its strategic restructuring plan during the first quarter with the sale of non-core businesses and the closing of unprofitable operations. As a result, Lydall has narrowed its strategic focus to its two core businesses—filtration/separation and thermal/acoustical. Lydall will also continue to operate and grow its Lydall Transport, Ltd. subsidiary, a provider of total logistics services and an important service provider to the Company’s other businesses.
 
Lydall’s thermal/acoustical and filtration/separation businesses remain healthy and are expected to strengthen during the second quarter. The Company started several new development efforts for filtration/separation products in the first quarter of 2001, and the automotive portion of the thermal/acoustical business continues to benefit from new-product introductions. Also in April, the Company entered into a strategic alliance with BGF Industries, Inc. By virtue of the agreement, Lydall is the exclusive representative of BGF products for thermal applications in the appliance market. The agreement enhances Lydall’s position as a thermal solutions provider to the consumer appliance market and significantly broadens the Company’s product offering in this area.

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Liquidity and Capital Resources
 
At March 31, 2001, cash and cash equivalents were $4.2 million compared to $2.2 million at December 31, 2000. Working capital at March 31, 2001 was $46.7 million compared with $54.6 million at December 31, 2000. The reduction in working capital is mainly due to the sale of the Southern Products Division of the Paperboard Segment during the first quarter of 2001.
 
Capital expenditures were $2.1 million for the first quarter of 2001 compared with $4.2 million for the same period in 2000 as the Company completed several major capital projects in 2000.
 
As of March 31, 2001, the Company had unused borrowing capacity of approximately $49.7 million under various credit facilities. Management believes that the Company’s cash and cash equivalents, operating cash flow, and unused borrowing capacity at March 31, 2001 are sufficient to meet current and anticipated requirements for the foreseeable future.
 
Accounting Standards
 
On January 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by Statement of Financial Accounting Standards No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133” and Statement of Financial Accounting Standards No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133” (collectively referred to hereafter as “FAS 133”). In accordance with the transition provisions of FAS 133, the Company recorded a $.2 million net-of-tax cumulative-effect adjustment in other comprehensive income as of January 1, 2001 representing the fair value of an interest rate swap previously designated a cash flow hedge.
 
Forward-Looking Information
 
In the interest of more meaningful disclosure, Lydall and its management make statements regarding the future outlook of the Company that constitute “forward-looking statements” under the securities laws. These forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the company, based on assumptions and estimates currently believed to be valid. Forward-looking statements are included under the “Outlook” section of Item 2 and elsewhere within this report and are generally identified through the use of language such as “believe,” “expect,” “estimate,” “anticipate” and other words of similar meaning in connection with discussion of future operating or financial performance.
 
All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Some of the factors that might cause such a difference include risks and uncertainties which are detailed in Note 14 and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2000 Annual Report on Form 10-K.
 
Item 3.    Quantitative and Qualitative Disclosures about Market Risk
 
There have been no significant changes in market risks from those disclosed in Item 7A of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.
 
PART II.    OTHER INFORMATION
Item 6.    Exhibits and Reports on Form 8-K
 
a. Exhibits
 
 
3.1
 
Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K dated March 21, 2001 and incorporated herein by this reference.

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3.2
 
By-laws of the Registrant, filed as Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q dated November 12, 1999 and incorporated herein by this reference.
 
 
10.1
 
Asset Purchase and Sale Agreement between Lydall Filtration/Separation, Inc. and Bennett Fleet (Chambly), Inc., dated April 2, 2001, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q dated May 11, 2001 and incorporated herein by this reference.
 
 
10.2
 
Agreement and General Release with Raymond J. Lanzi dated March 28, 2001, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q dated May 11, 2001 and incorporated herein by this reference.
 
 
99.5
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
 
99.6
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
 
b. Reports on Form 8-K
 
The Company did not file any reports on Form 8-K during the three months ended March 31, 2001.

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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
       
LYDALL, INC.
(Registrant)
   
    November 22, 2002
      
By:
  
/s/    THOMAS P. SMITH        
               
Thomas P. Smith
Vice President—Controller
(On behalf of the Registrant and
as Principal Accounting Officer
 

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CERTIFICATIONS
 
I, Christopher R. Skomorowski, certify that:
 
1.
 
I have reviewed this quarterly report on Form 10-Q/A of Lydall, Inc.;
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
 
 
 
         November 22, 2002
    /S/ CHRISTOPHER R. SKOMOROWSKI    
                    Christopher R. Skomorowski
            President and Chief Executive Officer

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CERTIFICATIONS
 
I, Walter A. Ruschmeyer, certify that:
 
1.
 
I have reviewed this quarterly report on Form 10-Q/A of Lydall, Inc.;
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
 
 
 
         November 22, 2002
    /S/ Walter A. Ruschmeyer    
                    Walter A. Ruschmeyer
        Executive Vice President – Finance
and Administration, Chief Financial Officer

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LYDALL, INC.
Index to Exhibits
 
Exhibit
Number
     
  3.1
   
Certificate of Incorporation of the Registrant, filed as Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K dated March 21, 2001 and incorporated herein by this reference.
  3.2
   
By-laws of the Registrant, filed as Exhibit 3(ii) to the Registrant’s Quarterly Report on Form 10-Q dated November 12, 1999 and incorporated herein by this reference.
10.1
   
Asset Purchase and Sale Agreement between Lydall Filtration/Separation, Inc. and Bennett Fleet (Chambly), Inc., dated April 2, 2001, filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q dated May 11, 2001 and incorporated herein by this reference.
10.2
   
Agreement and General Release with Raymond J. Lanzi dated March 28, 2001, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q dated May 11, 2001 and incorporated herein by this reference.
99.5
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
99.6
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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