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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
Form 10-Q
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
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 former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Common stock $.10 par value per share.
    
Total Shares outstanding November 14, 2002
  
16,016,930
 

Table of Contents
LYDALL, INC.
INDEX
 
              
Page No.
Part I.
   
Financial Information
     
    
Item 1.    
        
            
3
            
4-5
            
6
            
7-10
    
Item 2.
      
11-16
    
Item 3.    
   
 
   
16
    
Item 4.    
      
16-17
Part II.
   
Other Information
     
    
Item 1.    
   
 
   
17
    
Item 6.
      
17
 
   
18
 
 
   
19-20
 
  
21

Table of Contents
PART I.    FINANCIAL INFORMATION
Item 1.    Financial Statements
 
LYDALL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands)
 
    
September 30,
2002
     
December 31,
2001
  
ASSETS
   
 
(Unaudited)
 
   
 
 
(Restated
See Note 6)
 
 
Current assets:
                  
Cash and cash equivalents
   
$
1,384
 
   
$
955
 
Accounts receivable, net
   
 
44,853
 
   
 
35,458
 
Inventories:
                  
Finished goods
   
 
11,501
 
   
 
10,408
 
Work in process
   
 
11,221
 
   
 
8,135
 
Raw materials and supplies
   
 
9,208
 
   
 
9,799
 
LIFO reserve
   
 
(483
)
   
 
(483
)
    
  
Total inventories
   
 
31,447
 
   
 
27,859
 
Income taxes receivable
   
 
—  
 
   
 
611
 
Prepaid expenses
   
 
2,647
 
   
 
2,363
 
Net investment in discontinued operations
   
 
1,044
 
   
 
1,165
 
Assets held for sale
   
 
314
 
   
 
1,515
 
Deferred tax assets
   
 
2,200
 
   
 
2,014
 
    
  
Total current assets
   
 
83,889
 
   
 
71,940
 
Property, plant and equipment, at cost
   
 
152,036
 
   
 
138,976
 
Accumulated depreciation
   
 
(70,024
)
   
 
(61,187
)
    
  
    
 
82,012
 
   
 
77,789
 
Other assets, net
   
 
39,182
 
   
 
37,788
 
    
  
Total assets
   
$
205,083
 
   
$
187,517
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Current portion of long-term debt
   
$
9,111
 
   
$
9,473
 
Accounts payable
   
 
14,745
 
   
 
15,295
 
Accrued taxes
   
 
2,778
 
   
 
792
 
Accrued payroll and other compensation
   
 
7,323
 
   
 
3,144
 
Other accrued liabilities
   
 
6,312
 
   
 
6,929
 
    
  
Total current liabilities
   
 
40,269
 
   
 
35,633
 
Long-term debt
   
 
19,676
 
   
 
18,210
 
Deferred tax liabilities
   
 
6,808
 
   
 
6,818
 
Other long-term liabilities
   
 
7,579
 
   
 
8,273
 
Commitments and contingencies
                  
Stockholders’ equity:
                  
Preferred stock
   
 
—  
 
   
 
—  
 
Common stock
   
 
2,211
 
   
 
2,208
 
Capital in excess of par value
   
 
41,846
 
   
 
41,439
 
Retained earnings
   
 
154,917
 
   
 
144,631
 
Accumulated other comprehensive loss
   
 
(6,581
)
   
 
(8,053
)
    
  
    
 
192,393
 
   
 
180,225
 
Treasury stock, at cost
   
 
(61,642
)
   
 
(61,642
)
    
  
Total stockholders’ equity
   
 
130,751
 
   
 
118,583
 
    
  
Total liabilities and stockholders’ equity
   
$
205,083
 
   
$
187,517
 
    
  
 
See accompanying Notes to Consolidated Condensed Financial Statements.

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Table of Contents
LYDALL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands Except Per-Share Data)
 
 
    
Three Months Ended September 30,
  
    
2002
     
2001
  
           
(Restated See Note 6)
  
    
(Unaudited)
  
Net sales
   
$
62,721
 
   
$
53,478
 
Cost of sales
   
 
46,505
 
   
 
39,087
 
    
  
Gross margin
   
 
16,216
 
   
 
14,391
 
Selling, product development and administrative expenses
   
 
11,458
 
   
 
11,168
 
    
  
Operating income
   
 
4,758
 
   
 
3,223
 
Other (income) expense:
                  
Investment income
   
 
(14
)
   
 
(66
)
Interest expense
   
 
246
 
   
 
241
 
Foreign currency transaction gains, net
   
 
(84
)
   
 
(26
)
Other, net
   
 
20
 
   
 
90
 
    
  
    
 
168
 
   
 
239
 
    
  
Income before income taxes
   
 
4,590
 
   
 
2,984
 
Income tax expense
   
 
1,324
 
   
 
682
 
    
  
Net income
   
$
3,266
 
   
$
2,302
 
    
  
Basic earnings per common share
   
$
.20
 
   
$
.14
 
Diluted earnings per common share
   
$
.20
 
   
$
.14
 
               
Weighted average common shares outstanding
   
 
16,011
 
   
 
15,917
 
Weighted average common shares and equivalents outstanding
   
 
16,335
 
   
 
16,024
 
               
Net income
   
$
3,266
 
   
$
2,302
 
Other comprehensive (loss) income, before tax:
                  
Foreign currency translation adjustments
   
 
(82
)
   
 
737
 
Change in fair value of derivative instrument
   
 
(68
)
   
 
(140
)
    
  
Other comprehensive (loss) income, before tax
   
 
(150
)
   
 
597
 
Income tax benefit (expense) related to other comprehensive (loss) income
   
 
53
 
   
 
(209
)
    
  
Other comprehensive (loss) income, net of tax
   
 
(97
)
   
 
388
 
    
  
Comprehensive income
   
$
3,169
 
   
$
2,690
 
    
  
 
See accompanying Notes to Consolidated Condensed Financial Statements.

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LYDALL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In Thousands Except Per-Share Data)
 
    
Nine Months Ended
September 30,
  
    
2002
     
2001
  
           
(Restated See Note 6)
  
    
(Unaudited)
  
Net sales
   
$
188,665
 
   
$
170,683
 
Cost of sales
   
 
137,357
 
   
 
123,509
 
    
  
Gross margin
   
 
51,308
 
   
 
47,174
 
Selling, product development and administrative expenses
   
 
35,451
 
   
 
36,272
 
Impairment and restructuring charges
   
 
—  
 
   
 
3,389
 
    
  
Operating income
   
 
15,857
 
   
 
7,513
 
Other (income) expense:
                  
Investment income
   
 
(38
)
   
 
(157
)
Interest expense
   
 
631
 
   
 
817
 
Foreign currency transaction (gains) losses, net
   
 
(138
)
   
 
172
 
Other, net
   
 
(4
)
   
 
133
 
    
  
    
 
451
 
   
 
965
 
    
  
Income from continuing operations before income taxes
   
 
15,406
 
   
 
6,548
 
Income tax expense
   
 
5,121
 
   
 
1,834
 
    
  
Income from continuing operations
   
 
10,285
 
   
 
4,714
 
Discontinued operations:
                  
Loss from operations of discontinued segments, net of tax benefit of $181
   
 
—  
 
   
 
(308
)
Gain on disposal of discontinued segments, net of tax expense of $400
   
 
—  
 
   
 
684
 
    
  
Income from discontinued operations
   
 
—  
 
   
 
376
 
    
  
Net income
   
$
10,285
 
   
$
5,090
 
    
  
Basic earnings per common share:
                  
Continuing operations
   
$
.64
 
   
$
.30
 
Discontinued operations
   
 
—  
 
   
 
.02
 
    
  
Net income
   
$
.64
 
   
$
.32
 
Diluted earnings per common share:
                  
Continuing operations
   
$
.63
 
   
$
.29
 
Discontinued operations
   
 
—  
 
   
 
.02
 
    
  
Net income
   
$
.63
 
   
$
.31
 
               
Weighted average common shares outstanding
   
 
15,997
 
   
 
15,890
 
Weighted average common shares and equivalents outstanding
   
 
16,329
 
   
 
16,042
 
               
Net income
   
$
10,285
 
   
$
5,090
 
                   
Other comprehensive income (loss), before tax:
                  
Foreign currency translation adjustments
   
 
2,325
 
   
 
28
 
Change in fair value of derivative instrument
   
 
(60
)
   
 
(282
)
    
  
Other comprehensive income (loss), before tax
   
 
2,265
 
   
 
(254
)
Income tax (expense) benefit related to other comprehensive income (loss)
   
 
(793
)
   
 
89
 
    
  
Other comprehensive income (loss), net of tax
   
 
1,472
 
   
 
(165
)
Cumulative effect of change in accounting principle, net of tax
   
 
—  
 
   
 
201
 
    
  
Comprehensive income
   
$
11,757
 
   
$
5,126
 
    
  
 
See accompanying Notes to Consolidated Condensed Financial Statements.

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Table of Contents
LYDALL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
           
(Restated See Note 6)
  
    
(Unaudited)
  
Cash flows from operating activities:
                  
Net income
   
$
10,285
 
   
$
5,090
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Depreciation
   
 
7,814
 
   
 
7,395
 
Amortization
   
 
315
 
   
 
1,161
 
Gain on disposal of discontinued segments
   
 
—  
 
   
 
(1,289
)
Impairment and restructuring charges
   
 
—  
 
   
 
3,389
 
Foreign currency transaction (gains) losses
   
 
(138
)
   
 
172
 
Changes in operating assets and liabilities, excluding effects from acquisitions:
                  
Accounts receivable
   
 
(9,459
)
   
 
4,099
 
Income taxes receivable
   
 
611
 
   
 
2,583
 
Inventories
   
 
(2,800
)
   
 
(2,055
)
Prepaid expenses and other assets
   
 
(514
)
   
 
(1,911
)
Accounts payable
   
 
50
 
   
 
(5,445
)
Accrued taxes
   
 
1,882
 
   
 
685
 
Accrued payroll and other compensation
   
 
4,084
 
   
 
(4,306
)
Deferred income taxes
   
 
(322
)
   
 
(1,037
)
Other long-term liabilities
   
 
(825
)
   
 
169
 
Other accrued liabilities
   
 
(671
)
   
 
(2,308
)
    
  
Total adjustments
   
 
27
 
   
 
1,302
 
    
  
Net cash provided by operating activities
   
 
10,312
 
   
 
6,392
 
    
  
Cash flows from investing activities:
                  
Acquisitions, net
   
 
(1,035
)
   
 
—  
 
Proceeds from post-closing net equity adjustment
   
 
—  
 
   
 
1,357
 
Proceeds from disposal of discontinued segments
   
 
122
 
   
 
14,321
 
Proceeds from assets held for sale
   
 
1,002
 
   
 
956
 
Additions of property, plant and equipment
   
 
(10,147
)
   
 
(7,954
)
    
  
Net cash (used for) provided by investing activities
   
 
(10,058
)
   
 
8,680
 
    
  
Cash flows from financing activities:
                  
Long-term debt proceeds
   
 
79,433
 
   
 
16,660
 
Long-term debt payments
   
 
(79,710
)
   
 
(31,793
)
Issuance of common stock
   
 
410
 
   
 
528
 
    
  
Net cash provided by (used for) financing activities
   
 
133
 
   
 
(14,605
)
    
  
Effect of exchange rate changes on cash
   
 
42
 
   
 
(65
)
    
  
Increase in cash and cash equivalents
   
 
429
 
   
 
402
 
Cash and cash equivalents at beginning of period
   
 
955
 
   
 
2,220
 
    
  
Cash and cash equivalents at end of period
   
$
1,384
 
   
$
2,622
 
    
  
Supplemental Schedule of Cash Flow Information
                  
Cash paid during the period for:
                  
Interest
   
$
668
 
   
$
676
 
Income taxes
   
 
2,841
 
   
 
1,063
 
 
 
See accompanying Notes to Consolidated Condensed Financial Statements.

6

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 fairly 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, 2001 audited financial statements, as restated, 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, 2001.
 
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.
 
 
    
Quarter Ended
September 30, 2002
     
Quarter Ended
September 30, 2001
  
    
(Unaudited)
     
(Unaudited)
  
                     
(Restated
See Note 6)
  
    
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
   
$
3,266
   
16,011
   
$
.20
 
   
$
2,302
   
15,917
   
$
.14
 
Effect of dilutive stock options
   
 
—  
   
324
   
 
—  
 
   
 
—  
   
107
   
 
—  
 
    
  
  
  
  
  
Diluted earnings per share
   
$
3,266
   
16,335
   
$
.20
 
   
$
2,302
   
16,024
   
$
.14
 
    
  
  
  
  
  
                                   
    
Nine Months Ended
September 30, 2002
     
Nine Months Ended
September 30, 2001
  
    
(Unaudited)
     
(Unaudited)
  
                     
(Restated
See Note 6)
  
    
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
   
$
10,285
   
15,997
   
$
.64
 
   
$
4,714
   
15,890
   
$
.30
 
Effect of dilutive stock options
   
 
—  
   
332
   
 
(.01
)
   
 
—  
   
152
   
 
(.01
)
    
  
  
  
  
  
Diluted earnings per share
   
$
10,285
   
16,329
   
$
.63
 
   
$
4,714
   
16,042
   
$
.29
 
    
  
  
  
  
  
                                   
    
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
   
$
10,285
   
15,997
   
$
.64
 
   
$
5,090
   
15,890
   
$
.32
 
Effect of dilutive stock options
   
 
—  
   
332
   
 
(.01
)
   
 
—  
   
152
   
 
(.01
)
    
  
  
  
  
  
Diluted earnings per share
   
$
10,285
   
16,329
   
$
.63
 
   
$
5,090
   
16,042
   
$
.31
 
    
  
  
  
  
  
 
 
3.
 
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (FAS 142). Effective July 1, 2001, the Company adopted the provisions of FAS 142 requiring that goodwill and certain other intangible assets with indefinite lives recorded as a result of business combinations completed after June 30, 2001 not be

7

Table of Contents

LYDALL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)

 
amortized. Effective January 1, 2002, additional provisions of FAS 142, which require that goodwill recorded from business combinations completed on or before June 30, 2001, and certain other intangible assets deemed to have indefinite lives no longer be amortized, were adopted by the Company. Goodwill and other intangible assets with indefinite lives are subject to annual impairment tests. The Company completed its initial impairment test for such assets recorded as of January 1, 2002 and determined that no impairment exists. The Company will perform its annual impairment test for such assets as required by FAS 142 in the fourth quarter of each fiscal year. There can be no assurance that goodwill impairment will not occur in the future.
 
The following table reconciles the reported results for the quarter and nine months ended September 30, 2001 to the adjusted results for the same period had FAS 142 been adopted on January 1, 2001:
 
In thousands except per-share data
     
Quarter Ended
September 30, 2001
       
Nine Months Ended
September 30, 2001
  
      
(Unaudited)
  
Reported net income
     
$
2,302
 
     
$
5,090
 
Goodwill amortization
     
 
313
 
     
 
939
 
Tax effect of deductible goodwill
     
 
(102
)
     
 
(304
)
      
    
Adjusted net income
     
$
2,513
 
     
$
5,725
 
      
    
Basic earnings per share:
                      
Reported net income
     
$
.14
 
     
$
.32
 
Goodwill amortization, net of tax
     
 
.01
 
     
 
.04
 
      
    
Adjusted net income
     
$
.15
 
     
$
.36
 
      
    
Diluted earnings per share:
                      
Reported net income
     
$
.14
 
     
$
.31
 
Goodwill amortization, net of tax
     
 
.01
 
     
 
.04
 
      
    
Adjusted net income
     
$
.15
 
     
$
.35
 
      
    
 
4.
 
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146). This statement provides guidance on significant issues associated with the recognition, measurement and reporting of costs associated with exit and disposal activities and is effective for exit and disposal activities that are initiated after December 31, 2002. The adoption of this standard may impact the timing and recognition of future exit and disposal activities.

8

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 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 Annual Report on Form 10-K for the year ended December 31, 2001. The table below presents net sales and operating income (loss) by segment for the quarter and nine months ended September 30, 2002 and 2001:
 
In thousands
Quarter Ended
   
Thermal/ Acoustical
   
Filtration/ Separation
   
Other Products and Services
     
Reconciling Items
     
Consolidated Totals
September 30, 2002
                                       
Net sales
   
$
36,078
   
$
19,186
   
 $
7,967
 
   
($
510
)
   
$
62,721
Operating income
   
$
4,476
   
$
3,257
   
 $
697
 
   
($
3,672
)
   
$
4,758
    
  
  
  
  
September 30, 2001 (Restated See Note 6)
                                       
Net sales
   
$
30,233
   
$
15,850
   
 $
7,794
 
   
($
399
)
   
$
53,478
Operating income
   
$
3,826
   
$
2,139
   
 $
784
 
   
($
3,526
)
   
$
3,223
    
  
  
  
  
In thousands
Nine Months Ended
   
Thermal/ Acoustical
   
Filtration/ Separation
   
Other Products and Services
     
Reconciling Items
     
Consolidated Totals
September 30, 2002
                                       
Net sales
   
$
109,794
   
$
55,777
   
 $
24,502
 
   
($
  1,408
)
   
$
188,665
Operating income
   
$
  16,478
   
$
  8,895
   
 $
2,121
 
   
($
11,637
)
   
$
  15,857
    
  
  
  
  
September 30, 2001 (Restated See Note 6)
                                       
Net sales
   
$
  95,683
   
$
51,056
   
 $
25,593
 
   
($
  1,649
)
   
$
170,683
Operating income (loss)
   
$
  13,795
   
$
  5,367
   
($
874
)
   
($
10,775
)
   
$
    7,513
    
  
  
  
  
 
The operating loss for Other Products and Services for the nine months ended September 30, 2001 includes pre-tax impairment and restructuring charges of $3.4 million related to the closing of its fiberboard operation.
 
6.
 
On November 6, 2002, Lydall executives became aware of a possible accounting irregularity at the Company’s Columbus, Ohio automotive operation. A full investigation was initiated immediately and completed on November 16, 2002. The investigation identified that certain Columbus employees, acting in collusion, had circumvented the local internal control system by delaying accounting recognition of expenses and, accordingly, caused misstatements of previously reported earnings. The effect of the irregularities, which began in the first quarter of 2001, was to overstate 2001 net income by approximately $0.5 million or about $.03 per share. There was no impact on 2001 net sales. The impact on the first, second and third quarters ended March 31, June 30 and September 30, 2001 was to reduce net income by $0.1 million, $0.3 million and $0.1 million, respectively. The three and nine months ended September 30, 2001 results have been restated within this Quarterly Report on Form 10-Q.
 
The impact on the first and second quarters of 2002 was de minimis. In completing the reporting of the three and nine months ended September 30, 2002 financial results, the Company recorded the current year impact of approximately $0.1 million after tax related to the accounting irregularity. In addition, the Company recorded a reduction of approximately $0.1 million after tax in the 2002 EVA bonus accrual resulting from this matter. There was no net impact on net income or earnings per share as a result of these entries. However, the amounts of certain captions on the balance sheet as of September 30, 2002, the statements of income and cash flows for the period ended September 30, 2002 and segment information disclosed in Note 5 differ from those previously reported in the Company’s press release on October 22, 2002.

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The effects of the adjustments on the operating results for the three and nine months ended September 30, 2001 previously reported in the Company’s Quarterly Report on Form 10-Q filed on November 14, 2001 are as follows:
 
    
Three Months Ended September 30, 2001
   
Nine Months Ended September 30, 2001
    
As Previously Reported
   
Restated
   
As Previously Reported
   
Restated
    
(Unaudited)
   
(Unaudited)
Net sales
   
$
53,478
   
$
53,478
   
$
170,683
   
$
170,683
Gross margin
   
 
14,470
   
 
14,391
   
 
47,870
   
 
47,174
Operating income
   
 
3,302
   
 
3,223
   
 
8,209
   
 
7,513
Income from continuing operations
   
 
2,353
   
 
2,302
   
 
5,166
   
 
4,714
Net income
   
 
2,353
   
 
2,302
   
 
5,542
   
 
5,090
Basic earnings per share:
                            
Continuing operations
   
$
0.15
   
$
0.14
   
$
0.33
   
$
0.30
Discontinued operations
   
 
—  
   
 
—  
   
 
0.02
   
 
0.02
Net income
   
 
0.15
   
 
0.14
   
 
0.35
   
 
0.32
Diluted earnings per share:
                            
Continuing operations
   
 $
0.15
   
 $
0.14
   
$
0.32
   
$
0.29
Discontinued operations
   
 
—  
   
 
—  
   
 
0.02
   
 
0.02
Net income
   
 
0.15
   
 
0.14
   
 
0.34
   
 
0.31
 
The effects of the adjustments on the balance sheets as of September 30, 2001 previously reported in the Company’s Quarterly Report on Form 10-Q filed on November 14, 2001 and December 31, 2001 previously reported in the Company’s Annual Report on Form 10-K filed on March 21, 2002 are as follows:
 
    
September 30, 2001
   
December 31, 2001
    
As Previously Reported
   
Restated
   
As Previously Reported
   
Restated
    
(Unaudited)
     
Total inventories
   
$
23,900
   
$
23,911
   
$
27,757
   
$
27,859
Deferred tax assets
   
 
7,723
   
 
7,967
   
 
1,770
   
 
2,014
Total current assets
   
 
77,042
   
 
77,297
   
 
71,594
   
 
71,940
Total assets
   
 
176,262
   
 
176,517
   
 
187,171
   
 
187,517
Accounts payable
   
 
12,442
   
 
13,149
   
 
14,497
   
 
15,295
Total current liabilities
   
 
34,178
   
 
34,885
   
 
34,835
   
 
35,633
Shareholders’ equity
   
 
117,859
   
 
117,407
   
 
119,035
   
 
118,583
 
The effects of the adjustments had no impact on net cash provided by operating activities.

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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 6).
 
Results of Operations
 
Net Sales
 
The Company recorded net sales of $62.7 million in the third quarter of 2002 compared to $53.5 million for the same quarter of 2001, an increase of $9.2 million or 17.3 percent. Foreign currency translation increased net sales 2.6 percent for the period. The increase in net sales was generated through increased sales in the automotive businesses related to new platforms and products both in North America and in Europe, improved sales performance in the Vital Fluids’ bioprocessing, blood management and OEM businesses, improved air and liquid filtration sales, increases in building materials sales and the incremental sales added by the Ossipee operation.
 
For the nine months ended September 30, 2002 net sales were $188.7 million, an increase of $18.0 million or 10.5 percent, from $170.7 million for the first nine months of 2001. Foreign currency translation had a minimal impact for the nine-month period. This increase was primarily attributable to the overall continued strong performance of the automotive businesses, increased sales generated in the air and liquid filtration markets, continued improved performance of the Vital Fluids’ bioprocessing and blood management businesses, increased building materials sales and the addition of net sales from the Ossipee operation. These increases were partially offset by the reduction in net sales related to the fiberboard operation that was sold at the beginning of the second quarter of 2001.
 
Gross Margin
 
For the quarter and nine months ended September 30, 2002, gross margin was $16.2 million and $51.3 million compared to $14.4 million and $47.2 million for the same periods of 2001, respectively. Increased sales volume for the Company’s automotive, air filtration and building materials products, as well as improved sales volumes and margins in the Vital Fluids’ businesses, positively impacted gross margin for the quarter and nine months ended September 30, 2002. However, start-up activities at the Lydall Newport News Distribution Center and sales mix changes in other thermal products for the quarter and year-to-date periods partially offset these improvements. Gross margin, as a percentage of net sales, for the third quarter of 2002 was 25.9 percent compared to 26.9 percent for the third quarter of 2001 and 27.2 percent and 27.6 percent for the nine months ended September 30, 2002 and 2001, respectively. The reduction in gross margin on a percentage basis was primarily a result of the start-up activities at the Lydall Newport News Distribution Center and sales mix changes in other thermal products.
 
Selling, Product Development and Administrative Expenses
 
For the quarter and nine months ended September 30, 2002, selling, product development and administrative expenses were $11.5 million and $35.5 million compared to $11.2 million and $36.3 million for the same periods of 2001, respectively. Selling, product development and administrative expenses were 18.3 percent of net sales for the quarter ended September 30, 2002, compared to 20.9 percent in the third quarter of 2001; and 18.8 percent for the first nine months of 2002, compared to 21.3 percent for the first nine months of 2001. The quarter and nine months ended September 30, 2001 amounts include approximately $.3 million and $.9 million, respectively, of goodwill amortization expense. In accordance with FAS 142, goodwill is no longer amortized. The increased expense in the third quarter of 2002, as compared to the third quarter of 2001, was primarily related to increased bonuses accrued for in accordance with the Company’s Economic Value Added (EVA) program, which resulted from the Company’s improved performance, and increased pension costs. After adjusting for goodwill amortization in 2001, the increased expense for the nine months ended September 30, 2002, as compared to the first nine months of 2001, was primarily attributable to increased EVA bonus and pension expense, which were substantially offset by management’s continued focus on controlling and reducing discretionary administrative expenses, targeted reductions in headcount and minimized usage of external consulting.

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Impairment and Restructuring Charges
 
There were no impairment or restructuring charges recorded during the quarter or nine months ended September 30, 2002.
 
During the nine months ended September 30, 2001, the Company recorded a pre-tax charge of $3.4 million, or $.13 per share after-tax, for closing costs, severance benefits and impairment of fiberboard operation assets held for sale. On April 2, 2001, the Company sold certain assets of this operation for approximately $1.9 million and announced that the operation would be closed.
 
Other Income/Expense
 
For the quarter ended September 30, 2002, other expense was $.2 million and primarily included interest expense of $.3 million, offset by $.1 million of foreign exchange transaction gains. For the quarter ended September 30, 2001, other expense of $.2 million was primarily interest expense.
 
For the nine-month period ended September 30, 2002, other expense was $.5 million and primarily consisted of interest expense of $.6 million, offset by foreign currency transaction gains of $.1 million. For the nine-month period ended September 30, 2001 other expense was $1.0 million and consisted primarily of interest expense of $.8 million and foreign currency transaction losses of $.2 million.
 
Income Taxes
 
The income tax rate for the third quarter ended September 30, 2002 was 28.8 percent, compared to 22.9 percent for the third quarter of 2001. The third quarter of 2002 and 2001 each included discrete tax benefits of $.3 million. The benefit recorded in the third quarter of 2002 related primarily to a larger than expected benefit on export transactions as well as certain tax credits identified and recognized during the period. The benefit recorded in the prior year related primarily to the settlement of certain tax audits during the third quarter of 2001. After recording these adjustments, the effective tax rate through the nine months ended September 30, 2002 and 2001 was 33.2 percent and 28.0 percent, respectively. Without the effect of these discrete benefits, the effective tax rate would have been 35.1 percent and 33.0 percent for the nine months ended September 30, 2002 and 2001, respectively.
 
Segment Results
 
Thermal/Acoustical
 
Thermal/Acoustical net sales increased $5.8 million or 19.3 percent and $14.1 million or 14.7 percent for the third quarter and nine months ended September 30, 2002, respectively, compared to the same periods of 2001. Foreign currency translation increased net sales 2.7 percent in the third quarter and had a minimal impact for the nine-month period of 2002. The increases in net sales continued to be generated from significantly stronger automotive sales from new platforms and products in North America and Europe; including, incremental platform and content gains for deep-drawn aluminum single wall and multi-layer all metal shields (AMS™) and continued increases in sales of ZeroClearance® products, the addition of net sales from the Ossipee operation and increases in building materials sales.
 
Thermal/Acoustical operating income for the third quarter increased $.7 million or 17.0 percent compared to the same quarter of 2001. Operating income for the first nine months of 2002 increased $2.7 million or 19.4 percent over the same period of 2001. Foreign currency translation increased operating income 2.2 percent in the third quarter and had a minimal impact for the nine-month period of 2002. The overall increase in operating income related to increased gross margin from the automotive and building materials businesses, which resulted from increased sales volume.
 
Filtration/Separation
 
Filtration/Separation net sales for the third quarter of 2002 increased $3.3 million or 21.0 percent from the same period of 2001. Net sales for the first nine months of 2002 increased $4.7 million or 9.2 percent compared to the first nine months of 2001. Foreign currency translation increased net sales 3.0 percent in the third quarter and had a minimal impact for the nine-month period of 2002. The significant gains in net

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sales in the third quarter of 2002 resulted from improved sales performance throughout the Vital Fluids’ businesses, strong sales contributions from new product and market share gains in European air filtration sales and improved domestic air and liquid filtration sales performance compared to the same period of 2001. Continued strong air filtration sales performance in Europe, increased liquid filtration sales, including activated carbon filtration media, stronger Vital Fluids’ bioprocessing and blood management sales and increased domestic air filtration sales related to new products all contributed to the year-to-date sales growth compared to 2001.
 
Filtration/Separation operating income increased $1.1 million, or 52.3 percent for the third quarter of 2002 and $3.5 million, or 65.7 percent for the nine-month period ended September 30, 2002 compared to the same periods of 2001. Operating margins also showed continued improvement during the quarter and nine months ended September 30, 2002, increasing to 17.0 percent and 15.9 percent, respectively, from 13.5 percent and 10.5 percent for the comparable periods of 2001. These increases were primarily related to improved results in the Vital Fluids’ businesses where stronger sales and manufacturing enhancements generated substantial improvement in gross margin, and strong sales performance in European air filtration markets. Additionally, the Filtration/Separation segment continued to show improvement in selling, product development and administrative expenses related to administrative cost reductions.
 
Other Products and Services
 
Other Products and Services net sales increased $.2 million, or 2.2 percent and decreased $1.1 million, or 4.3 percent for the quarter and nine months ended September 30, 2002, respectively, compared to the same periods in 2001. The increase in third quarter net sales related to increased transport sales, offset by lower sales of specialty products that continue to struggle in the current economy. The decrease in net sales for the nine-month period was substantially related to the absence of net sales from the closed fiberboard operation that contributed $1.2 million in net sales in 2001.
 
Other Products and Services operating income decreased $.1 million, or 11.1 percent for the quarter ended September 30, 2002 when compared to the quarter ended September 30, 2001. For the nine months ended September 30, 2002 operating income decreased $.4 million compared to the same period in 2001, after adjusting for pre-tax impairment and restructuring charges of $3.4 million related to the closing of its fiberboard operation. The decrease for the quarter ended September 30, 2002 primarily related to lower sales volumes of specialty products compared to the third quarter of 2001. For the nine months ended September 30, 2002, the decrease in operating income was substantially related to Lydall Newport News Distribution Center start-up costs.
 
Outlook
 
We believe Lydall’s thermal/acoustical and filtration/separation businesses are healthy and expect them to grow, primarily through the introduction of new products and penetration of new markets. Lydall has garnered new automotive business in 2002 and has received approvals for several future platforms. Demand for the Company’s bioprocessing products is expected to increase. Lydall intends to leverage its market position in the air and liquid filtration markets by expanding the Company’s technology base and range of products.
 
In 2001, the Company sold certain assets of its fiberboard operation and recorded a $3.4 million charge for estimated impairment and restructuring charges related to the closing of that business. Since closing the operation, the Company has been and will continue to aggressively market the operation’s assets and has sold certain of these assets, including inventory, the building and other fixed assets. As of September 30, 2002, assets with a net book value of $.3 million remained. On December 31, 2002, ownership of the remaining unsold portion of such assets will transfer to the purchaser of the building for no additional consideration. At this time, the Company can not reasonably estimate the amount of assets that will be sold prior to December 31, 2002.

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Liquidity and Capital Resources
 
At September 30, 2002, cash and cash equivalents were approximately $1.4 million compared to $1.0 million at December 31, 2001. Working capital at September 30, 2002 was $43.6 million compared to $36.3 million at December 31, 2001. The increase in working capital was primarily due to higher receivables related to the improved sales performance of the Company as compared to 2001.
 
Capital expenditures were $10.1 million for the first nine months of 2002 compared to $8.0 million for the same period of 2001 as the Company continues to invest in its core operations in line with expected demand for the Company’s products.
 
The funded status of the Company’s defined benefit pension plans is dependent upon many factors, including returns on invested assets. Recent declines in the value of equity securities have negatively impacted the value of the plans’ assets; and consequently have had a negative impact on the funded status of the plans. The minimum contribution the Company must make to the Company’s pension plans for the 2002 plan year is approximately $3.1 million. Of this amount $1.5 million has already been contributed and the remaining $1.6 million must be contributed no later than September 15, 2003. Additionally, due to the current year declines in the value of equity securities and a decrease in prevailing interest rate yields, the Company may be required to record an additional minimum pension liability through an after tax charge to equity upon final measurement of the plans’ funded status during the fourth quarter of 2002.
 
As of September 30, 2002, the Company had unused borrowing capacity of approximately $38.2 million under various credit facilities. Management believes that the Company’s cash and cash equivalents, operating cash flow and unused borrowing capacity at September 30, 2002 are sufficient to meet current and anticipated requirements for the foreseeable future.
 
Critical Accounting Policies
 
The preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect: the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting periods. Note 1 of the “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 describes the significant accounting policies used in the preparation of the consolidated financial statements. The Company’s management is required to make judgments and estimates about the effect of matters that are inherently uncertain. Actual results could differ from management’s estimates. The most significant areas involving management judgments and estimates are described below.
 
Intangible Assets and Goodwill
 
In accordance with accounting principles generally accepted in the United States of America, the Company accounts for its business acquisitions under the purchase method whereby the assets and liabilities of acquired businesses are recorded at their estimated fair values at the dates of acquisition. Goodwill represents the costs in excess of fair values assigned to the underlying net assets of acquired businesses. The Company has goodwill recorded, net of accumulated amortization of $30.9 million and $29.8 million at September 30, 2002 and December 31, 2001, respectively.
 
Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (FAS 142) requires that goodwill and other intangible assets determined to have indefinite lives are not amortized, but rather are subject to annual impairment tests in accordance with the specific guidance and criteria described in the standard. The identification and measurement of goodwill impairment involves the estimation of the fair value of reporting units (as defined in FAS 142), including the related goodwill. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows as well as other factors.

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Future cash flows can be affected by numerous factors including changes in economic, industry or market conditions, changes in the underlying business or products of the reporting unit, changes in competition and changes in technology. Any changes in key assumptions about the business and its prospects, changes in any of the factors discussed above or any other factors could effect the fair value of one or more of the reporting units resulting in an impairment charge. Such a charge could have a material adverse effect on the Company’s reported financial condition and results of operations. Although no goodwill impairment has been recorded to date, there can be no assurance that future goodwill impairments will not occur.
 
Pensions
 
The Company accounts for its defined benefit pension plans in accordance with Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions,” (FAS 87) which requires that amounts recognized in financial statements be determined on an actuarial basis. The determination of such amounts is made in consultation with the Company’s outside actuaries based on information and assumptions provided by the Company. A substantial portion of the Company’s pension amounts relate to its defined benefit plans in the United States.
 
A significant element in determining the Company’s pension expense is the expected return on plan assets. In 2002, the Company assumed that the expected long-term rate of return on plan assets will be 9.25%. The assumed long-term rate of return on assets is applied to the value of plan assets and this produces the expected return on plan assets that is included in the determination of pension expense. The difference between this expected return and the actual return on plan assets is deferred, within certain parameters, as discussed below. The Company continually assesses its assumed long-term rate of return and will adjust such rate as deemed appropriate.
 
At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year. In estimating this rate, the Company looks to rates of return on high-quality, corporate debt instruments. At December 31, 2001, the Company determined this rate to be 7.25%, a decrease of 25 basis points from the rate used at December 31, 2000. Increases or decreases in the discount rate result in decreases and increases, respectively, in the projected benefit obligation. The net effect of changes in the discount rate are deferred within certain parameters, as discussed below.
 
FAS 87 requires that gains or losses (as defined in FAS 87) be deferred unless the unrecognized net gain or loss at the end of a year exceeds a “corridor” (as defined in FAS 87). If the deferred gain or loss exceeds the corridor at the end of the year, then the amount in excess of the corridor is amortized over a period equal to the average remaining service period of active employees expected to receive benefits. As of December 31, 2001, the Company’s net deferred loss exceeded the corridor. Consequently, pension expense for 2002 includes amortization of a portion of the deferred loss in excess of the corridor. The amount of amortization in future years will be dependent on changes in the components of the deferred loss amount, particularly actual return on plan assets in relation to the estimated return on plan assets, as well as future increases or decreases in the discount rate.
 
For the year ended December 31, 2001, the Company recognized pension expense of $1.1 million. Pension expense for 2002 is expected to be approximately $1.5 million of which $1.2 million has been recorded as of September 30, 2002.
 
Income Taxes
 
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (FAS 109) which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. FAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized.

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Deferred tax assets, net of valuation allowance, related to future tax benefits arising from deductible temporary differences and tax carryforwards are $10.1 million at September 30, 2002 and $9.8 million at December 31, 2001. Management believes that the Company’s earnings during the periods when the temporary differences become deductible will be sufficient to realize the related net future income tax benefits. For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely, a valuation allowance has been provided.
 
In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the Company would reduce such amounts through a charge to income in the period that such determination was made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance and record an increase to income in the period that such determination was made.
 
Recently Adopted Accounting Standards
 
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146). This statement provides guidance on significant issues associated with the recognition, measurement and reporting of costs associated with exit and disposal activities and is effective for exit and disposal activities that are initiated after December 31, 2002. The adoption of this standard may impact the timing and recognition of future exit and disposal activities.
 
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 that are detailed in Note 12 and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.
 
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, 2001.
 
Item 4.    Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
The Company’s management, including the Company’s President and Chief Executive Officer and Executive Vice President – Finance and Administration, Chief Financial Officer, have conducted an

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evaluation within the past 90 days of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the President and Chief Executive Officer and Executive Vice President – Finance and Administration, Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that all material information required to be filed in this quarterly report has been made known to them on a timely basis and that it has been properly recorded, processed, summarized and reported, as required.
 
Changes in Internal Controls
 
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its last evaluation. During the evaluation, no significant deficiencies or material weaknesses were identified.
 
PART II.    OTHER INFORMATION
 
Item 1.    Legal Proceedings
 
For a discussion of previously reported matters, please refer to Part II, Item 1, of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
 
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 reference.
3.2
   
Bylaws 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 reference.
99.3
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
99.4
   
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 quarter or nine months ended September 30, 2002.

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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 19, 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 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;
 
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a.
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b.
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c.
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
 
a.
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b.
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
         
November 19, 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 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;
 
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a.
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b.
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c.
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
 
 
a.
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b.
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
November 19, 2002
          
/S/    WALTER A. RUSCHMEYER
               
Walter A. Ruschmeyer
Executive Vice President - Finance
and Administration, Chief Financial Officer

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Table of Contents
 
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 reference.
3.2
   
Bylaws 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 reference.
99.3
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
99.4
   
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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