Lydall: Earnings News Release For Immediate Release LYDALL, INC. ANNOUNCES RESULTS FOR THIRD QUARTER ENDED SEPTEMBER 30, 1999 MANCHESTER, CT, October 26, 1999 -- LYDALL, INC. (NYSE: LDL) today announced financial results for the third quarter and nine months ended September 30, 1999. With the addition of $16.0 million in sales from Gerhardi, acquired on December 30, 1998, Lydall recorded net sales for the 1999 third quarter of $76.8 million, an increase of 36.0 percent over sales in the comparable quarter last year of $56.5 million. Sales were lowered in the third quarter by an adjustment of $1.9 million related to intercompany sales within Gerhardi which were inadvertently included in our results for the first half of the year. Sales from operations other than Gerhardi increased by 8.0 percent contributing to growth in the quarter. The Company earned $.21 per diluted common share for the third quarter of 1999 compared with $.20 per diluted common share in the same period last year. Net income was $3.2 million, or 4.2 percent of sales, compared with $3.2 million, or 5.6 percent of sales. Gross profit in the 1999 third quarter was $19.1 million, or 24.9 percent of sales, compared with $16.3 million, or 28.9 percent of sales, in the same period last year. Gross margin as a percent of sales improved by 80 basis points over the second quarter of 1999. For the nine months ended September 30, 1999 compared with the same period a year ago, sales increased to $244.4 million from $172.3 million. Net income was $10.9 million compared with $10.6 million, and diluted earnings per share were $.69 compared with $.65 for the first nine months of 1998. Gross profit was $58.5 million, or 23.9 percent of sales for the nine months ended September 30, 1999, and after-tax return on sales was 4.5 percent. Last year for the same period, gross profit was $49.9 million, or 29.0 percent of sales, and after-tax return on sales was 6.1 percent. Lydall's operating cash flow, or EBITDA (earnings before interest and taxes plus depreciation and amortization), increased 20 percent to $9.4 million in the 1999 third quarter compared with the same quarter last year. The nine-month operating cash flow year to date totaled $28.0 million, up 15 percent over the same 1998 period. Commenting on the quarter, Christopher R. Skomorowski, President and Chief Executive Officer, said, "For the most part, results for the third quarter were as we had anticipated. We made solid progress integrating Gerhardi in the quarter. Steps were taken to strengthen our German management team and aggressive process improvements were implemented. We diligently enforced cost-containment efforts throughout the Company while reinvesting in growth initiatives, and continued to concentrate on streamlining our organization to align with our strategic focus. "Lydall's Heat-Management Products segment, which includes all products manufactured at Gerhardi in Germany, represented 51 percent of total sales in the period. In addition to growth from this acquisition, domestic sales of heat-management products grew by 23 percent compared with the corresponding quarter of 1998. Most of this increase was attributable to new automotive thermal/acoustical products. "Gerhardi results were about breakeven, in line with management's expectations of earnings neutral or slightly accretive for the year. Our relatively flat earnings from operations other than Gerhardi can be attributed in large measure to our domestic automotive operations. These operations did not reach their potential as margins continued to be restricted by the reconfiguring and development of manufacturing processes and organizational changes. Although we expected to suffer these growing pains, we underestimated the time some of these efforts would require. While disruptive in the short term, these programs will benefit the long term and support the projected growth of existing business and the influx of new product contracts with start dates in 2000, 2001 and 2002. Our enthusiasm for the Gerhardi acquisition and U. S. heat-management and acoustical shielding opportunities has not waned. In the nine short months we've owned Gerhardi, we've instituted significant improvements that will benefit future growth. "As anticipated, sales of Filtration Products, accounting for 19 percent of total sales in the quarter, were even with the same quarter last year. The global filtration market remains soft. The clean-room business is beginning to strengthen but very slowly, and we are seeing pockets of strength in the industrial HVAC and consumer markets. In addition to stronger markets for high-efficiency air filtration media, Lydall's future growth will come from new products and technologies. Currently, Lydair LB(TM), a new low-boron media, and Lydall's next-generation ASHRAE, a dual-layered filtration product that offers significantly improved dust-holding capacity without sacrificing efficiency, are gaining wide recognition in the market. "The Filtration Products segment also includes a subsidiary-owned medical business, Charter Medical, Ltd. During the quarter, Charter Medical announced the completion and start- up of its new BioProcess Products manufacturing facility in New Jersey. The expansion will be dedicated to the production of Bio-Pak XL(TM) sterile bags and Contour Tank Liners(TM) used in pharmaceutical processing. "Sales of products outside of Lydall's heat-management and filtration concentration represented 30 percent of total sales in the third quarter. Paperboard Products made up about half of these sales, the majority of which were sales of materials handling systems. Sales of materials handling products grew by 12 percent over the comparable quarter last year, offset somewhat by lower boxboard sales." Mr. Skomorowski further commented, "We expect results in the fourth quarter to be similar to those in the third quarter. We're forecasting slightly stronger sales to close out the year with earnings per share of $.20 to $.21 compared with earnings from operations of $.15 a share before restructuring charges in the fourth quarter of 1998." Lydall subsidiaries manufacture technologically advanced, engineered materials for demanding specialty applications primarily servicing filtration and heat-management applications. Stockholders are referred to Lydall's Annual Report and Form 10-K, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Information," which outlines certain risks regarding the Company's forward-looking statements. Such risks include: a major downturn of the automotive market which accounted for approximately 43 percent of Lydall's total third-quarter 1999 sales; a meaningful decrease in the number of clean rooms being built worldwide and growth of the commercial heating, ventilating and air conditioning market; and significant, unforeseen changes in raw material pricing, specifically, virgin fiber used in producing the Company's materials handling slipsheets. Also, the timing and degree of success of new-product programs impact Lydall's projected results. For further details on these risks and other pertinent information on Lydall, copies of the Company's Forms 10-K, 10-Q and 8-K are available on the World Wide Web at Corporate Financials Online (http://www.cfonews.com/ldl) and Lydall's own web site ( www.lydall.com ). Copies of these documents can also be obtained from the Company. Write or call: Carole F. Butenas, Vice President - Investor Relations, at One Colonial Road, Manchester, CT 06040; Tel. 860-646-1233, E-Mail: investor@lydall.com. Summary of Operations In thousands except per-share data (Unaudited) Third Quarter Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Net sales $ 76,834* $ 56,495 $244,434 $172,281 Cost of sales 57,694* 40,166 185,950 122,388 Gross profit 19,140 16,329 58,484 49,893 Selling, product development, and administrative expenses 13,511 11,353 41,178 34,003 Operating income 5,629 4,976 17,306 15,890 Other (income) expense: Investment income (18) (130) (33) (530) Interest expense 701 262 2,010 547 Foreign currency transaction gain (72) (127) (1,082) (91) Other 26 175 (86) 7 637 180 809 (67) Income before income taxes 4,992 4,796 16,497 15,957 Income tax expense 1,743 1,642 5,561 5,403 Net income $ 3,249 $ 3,154 $ 10,936 $ 10,554 Basic earnings per share $0.21 $0.20 $0.70 $0.66 Weighted average shares outstanding 15,733 15,688 15,726 15,908 Diluted earnings per share $ 0.21 $ 0.20 $ 0.69 $ 0.65 Weighted average shares and equivalents outstanding 15,848 15,941 15,819 16,266 *Sales and cost of sales in the third quarter have been reduced by $1.9 million for intercompany sales which related to first and second quarter operations. Financial Position As of As of In thousands except ratio data September 30, December 31, 1999 1998 (Unaudited) Cash, cash equivalents, and Short-term investments $ 3,268 $ 2,254 Working capital 37,919 (9,090) Total debt 50,868 54,664 Stockholders' equity 115,737 109,225 Total capitalization 166,605 163,889 Current ratio 1.65 0.91 Total debt/total capitalization .31 .33 Common Stock Data Third quarter ended September 30, 1999 1998 High $ 12.88 $ 14.75 Low $ 9.81 $ 10.25 Last $ 10.31 $ 10.25 1,594,600 shares of Lydall common stock (LDL) were traded on the New York Stock Exchange during the third quarter of 1999. ### End.