NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of Lydall, Inc. and its subsidiaries (collectively, “Lydall”, “the Company”, “we”, and “our”). All financial information is unaudited for the interim periods reported. All significant intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The Company's Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The year-end Condensed Consolidated Balance Sheet amounts have been derived from the audited financial statements for the year ended December 31, 2020 but does not include all disclosures required by U.S. GAAP. In the opinion of management, the condensed consolidated financial information reflects all adjustments necessary for a fair statement of the Company’s consolidated financial position, results of operations, and cash flows for the interim periods reported, but do not include all the disclosures required by U.S. GAAP. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Merger Agreement
As previously announced, on June 21, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Unifrax Holding Co. (“Parent”), Outback Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and solely with respect to certain payment obligations of Parent thereunder, Unifrax I LLC (“Unifrax”). Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Unifrax is a global provider of specialty materials focused on thermal management, specialty filtration, battery materials, emission control, and fire protection applications and is backed by Clearlake Capital Group, L.P.
Subject to the terms and conditions of the Merger Agreement, each share of common stock, par value $0.01 per share, of the Company (the “common stock”) (other than shares of common stock held by the Company as treasury stock) issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than dissenting shares) will be converted into the right to receive $62.10 per share in cash, without interest. If the Merger is consummated, the Company’s securities will be de-listed from the New York Stock Exchange (the “NYSE”) and de-registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as practicable following the Effective Time.
The completion of the Merger is subject to customary closing conditions, including, among others, (i) the approval of the Company’s stockholders holding a majority of the outstanding shares of common stock and (ii) the expiration or termination of any waiting period applicable to the consummation of the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, and the expiration of applicable waiting periods or clearances of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the Merger is currently expected to close in the second half of 2021. However, the Company cannot assure completion of the Merger by any particular date, if at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement. The Company’s Condensed Consolidated Financial Statements and related disclosures for the three and six-month periods ended June 30, 2021 and 2020 do not reflect any potential impacts or effects the Merger may have on the Company’s financial statements if the Merger is finalized.
Additional Cash Flow Information
Non-cash investing activities include non-cash capital expenditures of $4.2 million and $2.7 million that were included in Accounts payable at June 30, 2021 and 2020, respectively.
Risks and Uncertainties
Worldwide economic cycles, political changes, and the COVID-19 pandemic affect the markets that the Company’s businesses serve, affect demand for the Company's products, and could impact profitability. Among other factors, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, changes in international trade agreements,
swings in consumer confidence and spending, and unstable economic growth, disruptions to the global automotive supply chain, and fluctuations in unemployment rates have caused economic instability and can have a negative impact on the Company’s results of operations, financial condition, and liquidity.
Transfers of Financial Assets
The Company accounts for transfers of financial assets as sold when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company's continuing involvement with the assets transferred. Gains or losses and any expenditures stemming from the transfers are included in Other (income) expense, net on the Company's Condensed Consolidated Statements of Operations. Assets obtained and liabilities incurred in connection with transfers reported as sold are initially recognized on the Company's Condensed Consolidated Balance Sheets at fair value.
The Company maintains arrangements with banking institutions to sell trade accounts receivable balances for select customers. Under the programs, the Company has no risk of loss due to credit default and is charged a fee based on the nominal value of receivables sold between the time of the sale of the trade accounts receivables to banking institutions and collection of the trade accounts receivables from the customer. Under one of the programs, the Company services the trade receivables after the sale to the bank and receives 90.0% of the trade receivables in cash at the time of sale and the remaining 10.0% in cash, net of fees, when the customer pays. Total activity under both arrangements was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Total trade accounts receivable balances sold
|
$
|
30,961
|
|
|
$
|
10,288
|
|
|
$
|
65,107
|
|
|
$
|
42,974
|
|
|
Total cash received
|
$
|
29,268
|
|
|
$
|
9,374
|
|
|
$
|
60,507
|
|
|
$
|
39,533
|
|
|
Total fees incurred
|
$
|
173
|
|
|
$
|
76
|
|
|
$
|
308
|
|
|
$
|
142
|
|
The Company's senior secured revolving credit agreement permits the Company to sell trade accounts receivable balances to approved third parties in connection with Receivable Purchases Agreements, or other similar agreements. At any given time, outstanding trade accounts receivable balances sold cannot exceed $10.0 million for a certain approved customer and $50.0 million in aggregate for any other approved group of customers.
2. RECENT ACCOUNTING STANDARDS
Recent Accounting Standards Adopted
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The new standard is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740, and by clarifying and amending existing guidance in other areas of the same topic. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU upon issuance and there was no material impact to the Company's Condensed Consolidated Financial Statements and disclosures.
In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)". The amendments in this update were intended to reduce diversity in practice and increase comparability of the accounting for interaction of equity securities, investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this ASU upon issuance and there was no material impact to the Company's Condensed Consolidated Financial Statements and disclosures.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The amendments in this update are elective, and provide optional expedients and exceptions in accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01 to provide additional clarity around Topic 848. Specifically, certain provisions of Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The ASUs can be adopted no later than December 1, 2022 with early adoption permitted. The Company has reviewed the guidance and elected to adopt the use of the expedients permitted, however there have been no modifications
or other changes to the Company’s contracts, hedging relationships or other transactions due to reference rate reform as of June 30, 2021.
In October 2020, the FASB issued ASU 2020-10, "Codification Improvements". The amendments in this update were intended to clarify the location of certain disclosure guidance within the ASC, as well as clarify certain guidance in cases where the original guidance may have been unclear. These amendments do not change U.S. GAAP. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this ASU upon issuance and notes no impact to the Company's Condensed Consolidated Financial Statements and disclosures.
Recent Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)". The amendments in this update were intended to simplify the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company does not expect the adoption of this update to have a material impact on the Company's Condensed Consolidated Financial Statements and disclosures.
3. DIVESTITURE ACTIVITIES
During the third quarter of 2020, the Company undertook actions to consolidate global production facilities for sealing & advanced solutions products, a part of the Company's Performance Materials segment. In the first quarter of 2021, the Company entered into an agreement to sell a German facility, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.3 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the facility, the Company recorded a pre-tax loss of $0.3 million and $1.0 million for the three and six-month periods ended June 30, 2021, respectively. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.
In the second quarter of 2021, the Company reached an agreement to sell an operating facility located in the Netherlands, which is a component of the Company’s Performance Materials segment. The transaction was completed on July 9, 2021. The assets and liabilities sold in connection with the transaction met the criteria for held-for-sale reporting as of June 30, 2021. The Company did not report the transaction as discontinued operations as it was not considered a strategic shift in the Company’s business. The Company expects to record a gain on the sale in the third quarter of 2021. The results of the operating facility are reflected in continuing operations for the three and six-month periods ended June 30, 2021. The assets and liabilities of the operating facility are reported as current “Assets of a business held-for-sale” and current “Liabilities of a business held-for-sale” as of June 30, 2021. The held-for-sale assets and liabilities of the operating facility were as follows:
|
|
|
|
|
|
|
|
In thousands
|
At June 30, 2021
|
|
Accounts receivable, net
|
$
|
912
|
|
|
Inventories
|
18
|
|
|
Taxes receivable
|
35
|
|
|
Prepaid expenses
|
22
|
|
|
Deferred tax assets
|
246
|
|
|
Total assets held-for-sale
|
$
|
1,233
|
|
|
|
|
|
Accounts payable
|
$
|
161
|
|
|
Accrued taxes
|
58
|
|
|
Accrued payroll & other compensation
|
300
|
|
|
Restructuring liabilities
|
1,414
|
|
|
Total liabilities held-for-sale
|
$
|
1,933
|
|
4. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company accounts for revenue in accordance with ASC 606, "Revenue from Contracts with Customers". Revenues are generated from the design and manufacture of specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue
recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when the control of products passes to the Company’s customers which can be either at a point in time or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of the Company’s products and revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process. The Company analyzes several factors, including, but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition. Unfulfilled performance obligations are generally expected to be satisfied within one year.
Contract Assets and Liabilities
The Company’s contract assets primarily include unbilled amounts typically resulting from sales under contracts when the overtime method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. These unbilled accounts receivable in contract assets are transferred to accounts receivable upon invoicing, typically when the right to payment becomes unconditional, in which case payment is due based only upon the passage of time.
The Company’s contract liabilities primarily relate to billings and advance payments received from customers and deferred revenue. These contract liabilities represent the Company’s obligations to transfer its products to its customers for which the Company has received, or is owed, consideration from its customers. Contract liabilities are included in Other accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
Contract assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
|
Dollar Change
|
|
Contract assets
|
|
|
$
|
22,756
|
|
|
$
|
32,403
|
|
|
$
|
(9,647)
|
|
|
Contract liabilities
|
|
|
$
|
3,251
|
|
|
$
|
3,686
|
|
|
$
|
(435)
|
|
The $9.6 million decrease in contract assets from December 31, 2020 to June 30, 2021 was primarily due to timing of tooling billings to customers and, to a lesser extent, the billings on last-time sales of membrane-based filtration media initiated in December 2020 in the Company's Netherlands facility.
The $0.4 million decrease in contract liabilities from December 31, 2020 to June 30, 2021 was primarily due to $2.7 million of revenue recognized in the first six months of 2021 related to contract liabilities at December 31, 2020, offset by an increase in customer deposits.
Disaggregated Revenue
The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing, and uncertainty of the Company's revenues and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three and six-month periods ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2021
|
|
For the Three Months Ended June 30, 2020
|
|
In thousands
|
|
North America
|
|
Europe
|
|
Asia
|
|
Total Net Sales
|
|
North America
|
|
Europe
|
|
Asia
|
|
Total Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials
|
|
$
|
58,195
|
|
|
$
|
15,272
|
|
|
$
|
3,719
|
|
|
$
|
77,186
|
|
|
$
|
40,190
|
|
|
$
|
16,501
|
|
|
$
|
1,782
|
|
|
$
|
58,473
|
|
|
Technical Nonwovens
|
|
46,443
|
|
|
18,077
|
|
|
7,959
|
|
|
72,479
|
|
|
31,236
|
|
|
15,418
|
|
|
5,353
|
|
|
52,007
|
|
|
Thermal Acoustical Solutions
|
|
50,709
|
|
|
22,673
|
|
|
3,476
|
|
|
76,858
|
|
|
22,575
|
|
|
11,424
|
|
|
3,449
|
|
|
37,448
|
|
|
Eliminations and Other
|
|
(4,475)
|
|
|
(304)
|
|
|
—
|
|
|
(4,779)
|
|
|
(1,668)
|
|
|
(100)
|
|
|
—
|
|
|
(1,768)
|
|
|
Total net sales
|
|
$
|
150,872
|
|
|
$
|
55,718
|
|
|
$
|
15,154
|
|
|
$
|
221,744
|
|
|
$
|
92,333
|
|
|
$
|
43,243
|
|
|
$
|
10,584
|
|
|
$
|
146,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2021
|
|
For the Six Months Ended June 30, 2020
|
|
In thousands
|
|
North America
|
|
Europe
|
|
Asia
|
|
Total Net Sales
|
|
North America
|
|
Europe
|
|
Asia
|
|
Total Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Materials
|
|
$
|
117,069
|
|
|
$
|
32,196
|
|
|
$
|
7,254
|
|
|
$
|
156,519
|
|
|
$
|
86,107
|
|
|
$
|
33,776
|
|
|
$
|
3,810
|
|
|
$
|
123,693
|
|
|
Technical Nonwovens
|
|
82,281
|
|
|
34,976
|
|
|
16,897
|
|
|
134,154
|
|
|
66,967
|
|
|
32,356
|
|
|
10,087
|
|
|
109,410
|
|
|
Thermal Acoustical Solutions
|
|
111,362
|
|
|
48,786
|
|
|
7,754
|
|
|
167,902
|
|
|
79,676
|
|
|
34,964
|
|
|
6,569
|
|
|
121,209
|
|
|
Eliminations and Other
|
|
(9,153)
|
|
|
(579)
|
|
|
—
|
|
|
(9,732)
|
|
|
(7,345)
|
|
|
(280)
|
|
|
—
|
|
|
(7,625)
|
|
|
Total net sales
|
|
$
|
301,559
|
|
|
$
|
115,379
|
|
|
$
|
31,905
|
|
|
$
|
448,843
|
|
|
$
|
225,405
|
|
|
$
|
100,816
|
|
|
$
|
20,466
|
|
|
$
|
346,687
|
|
5. INVENTORIES
Inventories as of June 30, 2021 and December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
At June 30, 2021 (1)
|
|
At December 31, 2020
|
|
Raw materials
|
|
$
|
40,805
|
|
|
$
|
32,258
|
|
|
Work in process (2)
|
|
16,093
|
|
|
17,087
|
|
|
Finished goods
|
|
31,328
|
|
|
29,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
88,226
|
|
|
$
|
78,996
|
|
(1)Excludes inventories at the Netherlands operating facility that is classified as held-for-sale. See Note 3, "Divestiture Activities," in these Notes to Condensed Consolidated Financial Statements for additional information.
(2) Work in process includes net tooling inventory of $1.4 million and $2.8 million at June 30, 2021 and December 31, 2020, respectively.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company performs an assessment of its goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value may exceed its fair value. There were no such events or changes in circumstances during the six-month period ended June 30, 2021.
The following table sets forth the change in carrying value of goodwill for each reportable segment and for the Company at June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Performance Materials
|
|
Technical Nonwovens
|
|
Thermal Acoustical Solutions
|
|
Total
|
|
Gross balance at December 31, 2020
|
|
$
|
143,659
|
|
|
$
|
55,607
|
|
|
$
|
12,160
|
|
|
$
|
211,426
|
|
|
Accumulated impairment
|
|
(111,671)
|
|
|
—
|
|
|
(12,160)
|
|
|
(123,831)
|
|
|
Net balance at December 31, 2020
|
|
31,988
|
|
|
55,607
|
|
|
—
|
|
|
87,595
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
(17)
|
|
|
264
|
|
|
—
|
|
|
247
|
|
|
Net balance at June 30, 2021
|
|
$
|
31,971
|
|
|
$
|
55,871
|
|
|
$
|
—
|
|
|
$
|
87,842
|
|
Other Intangible Assets
The table below presents the gross carrying amount and, as applicable, the accumulated amortization of the Company’s acquired intangible assets, other than goodwill, at June 30, 2021 and December 31, 2020. These amounts are included in Other intangible assets, net on the Company's Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
|
In thousands
|
|
Amortization Period
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Amortized intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
10 - 14 years
|
|
$
|
143,650
|
|
|
$
|
(58,187)
|
|
|
$
|
143,479
|
|
|
$
|
(50,076)
|
|
|
Patents
|
|
28 years
|
|
650
|
|
|
(623)
|
|
|
650
|
|
|
(616)
|
|
|
Technology
|
|
15 years
|
|
2,500
|
|
|
(1,227)
|
|
|
2,500
|
|
|
(1,144)
|
|
|
Trade Names
|
|
5 years
|
|
7,495
|
|
|
(7,336)
|
|
|
7,495
|
|
|
(7,167)
|
|
|
License Agreements
|
|
10 years
|
|
—
|
|
|
—
|
|
|
185
|
|
|
(185)
|
|
|
Other
|
|
7 - 15 years
|
|
464
|
|
|
(464)
|
|
|
467
|
|
|
(467)
|
|
|
Total other intangible assets
|
|
|
|
$
|
154,759
|
|
|
$
|
(67,837)
|
|
|
$
|
154,776
|
|
|
$
|
(59,655)
|
|
Estimated amortization expense for total intangible assets is expected to be $16.5 million, $14.5 million, $12.8 million, $11.4 million, $9.8 million, and $30.1 million, for each of the years ending December 31, 2021 through 2025 and thereafter, respectively.
7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
The long-term debt payable at June 30, 2021 and December 31, 2020 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Effective Rate
|
|
Maturity
|
|
At June 30, 2021
|
|
At December 31, 2020
|
|
Revolver loan
|
|
2.10
|
%
|
|
4/26/2026
|
|
$
|
87,210
|
|
|
$
|
134,500
|
|
|
Term loan, net of debt issuance costs
|
|
2.10
|
%
|
|
4/26/2026
|
|
172,876
|
|
|
135,938
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
260,086
|
|
|
270,438
|
|
|
Less current portion due within one year
|
|
|
|
|
|
(8,609)
|
|
|
(9,789)
|
|
|
Total long-term debt, excluding current portion
|
|
|
|
|
|
$
|
251,477
|
|
|
$
|
260,649
|
|
On August 31, 2018, the Company amended and restated its senior secured revolving credit agreement, which was further amended on February 14, 2020, May 11, 2020 and October 14, 2020 (collectively, the “2018 Amended Credit Agreement”). On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders, which increased the Company's total available borrowings from $314.0 million to $346.0 million. This newly executed Credit Agreement has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currency loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million (the revolving facility and the term loan facility are collectively referred to as the “2021 Credit Facility”). The 2021 Credit Facility permits the Company to request an increase of up to $150.0 million in the aggregate. The proceeds of the 2021 Credit Facility were used, and will continue to be used throughout the duration of the term of the 2021 Credit Facility, to (a) refinance indebtedness and commitments outstanding under the existing 2018 Amended Credit Agreement, (b) pay fees and expenses incurred in connection with the 2021 Credit Facility, and (c) provide ongoing working capital and for other general corporate purposes. The 2021 Credit Facility matures on April 26, 2026.
The term loan feature of the 2021 Credit Facility requires quarterly payments of principal at the rate of $2.2 million, with the remaining balance due on the maturity date of the facility. The Company is permitted to prepay amounts outstanding under the 2021 Credit Facility, in whole or in part, at any time without premium or penalty, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments.
At June 30, 2021, the Company had amounts available for borrowing of $81.0 million, net of $87.2 million outstanding under the revolving facility and standby letters of credit outstanding of $1.8 million under the 2021 Credit Facility.
The weighted average interest rate on long-term debt was 4.4% for the six-month period ended June 30, 2021 and 5.3% for the year ended December 31, 2020.
The Company has an interest rate swap converting a portion of the Company's borrowings from a variable rate to a fixed rate. See Note 8, "Derivatives", in these Notes to Condensed Consolidated Financial Statements for additional information.
Total amortization of debt issuance costs was $0.3 million and $0.8 million for the six-month period ended June 30, 2021 and 2020, respectively.
The Lenders have been granted a security interest in substantially all of Lydall Inc.'s and its domestic subsidiaries’ personal property and other assets (including intellectual property), including a pledge of 65% of the Company’s equity interest in foreign subsidiaries and 100% of the Company’s equity interest in its domestic subsidiaries, as collateral for the Company’s obligations under the 2021 Credit Facility.
Under the 2021 Credit Facility, interest is charged on borrowings, at the Company’s option, of either: (i) LIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Margin, or (ii) for U.S. denominated loans, the Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the Eurocurrency Rate plus 1.00%, provided that if the Base Rate shall be less than zero, such rate shall be deemed zero. The Applicable Margin is 2.00% per annum in the case of LIBOR and alternative currency loans and letters of credit and 1.00% per annum in the case of Base Rate loans for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the Applicable Margin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit Facility), which ranges from 1.25% to 2.50% per annum for LIBOR and alternative currency loans and letters of credit, and ranges from 0.25% to 1.50% per annum for Base Rate loans. The Company paid a quarterly commitment fee of 0.275% per annum on the unused portion of the revolving facility for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the quarterly commitment fee ranges from 0.20% to 0.30% per annum based on the Company’s Consolidated Net Leverage Ratio in accordance with the terms of the 2021 Credit Facility.
The 2021 Credit Facility contains customary affirmative and negative covenants, including covenants limiting the Company's and its subsidiaries' ability to, among other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from the business conducted by the Company, transact with affiliates, make restricted payments, and sell assets.
The Company is required to meet certain quarterly financial covenants under the 2021 Credit Facility, including:
i.A Minimum Consolidated Fixed Charge Coverage Ratio, which requires that at the end of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed maintenance capital expenditures, restricted cash payments and taxes paid in cash, each as defined in the 2021 Credit Facility, may not be less than 1.25 to 1.00; and
ii.A Consolidated Net Leverage Ratio, which requires that at the end of each fiscal quarter the ratio of consolidated funded indebtedness minus consolidated domestic cash to consolidated EBITDA (as defined in the 2021 Credit Facility) not be greater than 4.50:1.00 through the period ending September 30, 2021, stepping down to 4.00:1.00 through the period ending March 31, 2022, and 3.50:1.00 thereafter.
Each of the financial ratios referred to above are calculated on a consolidated trailing twelve-month basis. The 2021 Credit Facility permits the Company to exclude certain non-cash charges and certain restructuring and other expenses from EBITDA in the calculation of the Company's financial covenants.
The Company was in compliance with all covenants set forth in the 2021 Credit Facility as of the date hereof, and the Company does not anticipate noncompliance in the foreseeable future.
In addition to the amounts outstanding under the 2021 Credit Facility, the Company has various foreign credit facilities totaling approximately $10.9 million. At June 30, 2021 and December 31, 2020, the Company's foreign subsidiaries had $1.6 million and $1.4 million outstanding, respectively, in standby letters of credit under these foreign credit facilities.
8. DERIVATIVES
The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates and foreign currency rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.
Interest Rate Hedging
The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and in certain countries throughout Europe, which impacts interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are recorded at fair value. See Note 9, "Fair Value Measurements", in these Notes to Condensed Consolidated Financial Statements for additional information.
In November 2018, the Company entered into a five-year interest rate swap agreement with a bank to convert the interest on a notional $139.0 million of the Company's borrowings under its 2018 Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount decreases quarterly by fluctuating amounts through August 2023. Prior to May 11, 2020, the Company's interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continued to match the critical terms of the hedged debt in order to report gains or losses on the derivative instrument in Other Comprehensive Income. An amendment to the Company's 2018 Amended Credit Agreement on May 11, 2020 included, among other modifications, the establishment of a floor on the Base Rate and the Eurocurrency Rate of 1%. As a result, the Company determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement was no longer effective. The Company also concluded that the hedged forecasted transaction (the occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020, any fair value gains or losses on the derivative agreement are recorded as interest expense on the Company's Condensed Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, is being amortized into earnings (loss) through August 31, 2023, the maturity date of the derivative instrument. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at June 30, 2021 was $2.6 million, net of tax. The amount reclassified out of other comprehensive income into Interest expense on the Company's Condensed Consolidated Statement of Operations for the three and six-month periods ended June 30, 2021 was $0.6 million and $1.2 million, net of tax, respectively. The Company expects $1.8 million, net of tax, to be reclassified from Accumulated Other Comprehensive Income over the next twelve months.
Net Investment Hedges
The Company’s operations are subject to certain risks, including foreign currency exchange rate fluctuations. From time to time, the Company enters into cross-currency swaps designated as hedges, which are recorded at fair value (see Note 9, "Fair Value Measurements", in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the U.S. dollar.
In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75.0 million U.S. dollar equivalent). These swaps hedge a portion of the Company's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential. Also, settlement of the notional €22.6 million ($25.0 million U.S. dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022, and August 2023. The Company assesses hedge effectiveness of the cross-currency swaps quarterly by ensuring the critical terms of the swaps continue to match the critical terms of the designated net investment. The Company elected to assess effectiveness using the spot method, and as a result, records the interest rate differential monthly on the Company's Condensed Consolidated Statements of Operations.
Derivative instruments are recorded at fair value and recognized as either assets or liabilities. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the hedge transaction affects earnings. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. The Company does not use derivatives for speculative or trading purposes.
The following table sets forth the fair value amounts of derivative instruments held by the Company presented on the Condensed Consolidated Balance Sheets as Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
|
In thousands
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Interest rate contracts
|
|
$
|
—
|
|
|
$
|
3,430
|
|
|
$
|
—
|
|
|
$
|
5,063
|
|
|
Cross-currency swaps
|
|
—
|
|
|
4,717
|
|
|
—
|
|
|
6,933
|
|
|
Total derivatives
|
|
$
|
—
|
|
|
$
|
8,147
|
|
|
$
|
—
|
|
|
$
|
11,996
|
|
The following table sets forth the activity recorded in accumulated other comprehensive income (loss), net of tax, for the three and six-month periods ended June 30, 2021 and 2020 for derivatives held by the Company and designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
571
|
|
|
$
|
11
|
|
|
$
|
1,189
|
|
|
$
|
(2,162)
|
|
|
Cross-currency swaps
|
|
(696)
|
|
|
(1,093)
|
|
|
1,704
|
|
|
1,526
|
|
|
Total derivatives
|
|
$
|
(125)
|
|
|
$
|
(1,082)
|
|
|
$
|
2,893
|
|
|
$
|
(636)
|
|
9. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The following table presents the carrying value and fair value of financial instruments that are not carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2021
|
|
At December 31, 2020
|
|
In thousands
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Debt
|
|
$
|
261,010
|
|
|
$
|
280,725
|
|
|
$
|
271,000
|
|
|
$
|
272,792
|
|
The fair values of the Company’s long-term debt outstanding were computed based on discounted future cash flows (observable inputs), as applicable, which falls under Level 2 of the fair value hierarchy. Differences from carrying values are attributable to interest rate changes subsequent to when the transactions occurred.
The fair values of cash and cash equivalents, accounts receivable, net and accounts payable approximate their carrying amounts due to the short-term maturities of these instruments.
Recurring Fair Value Measures
The Company holds derivative instruments for interest rate swap contracts and cross-currency swaps that are measured using observable market inputs such as forward rates and its counterparties' credit risks. Based on these inputs, the derivative
instruments are classified within Level 2 of the valuation hierarchy. At June 30, 2021 and December 31, 2020, these derivative instruments were included in Derivative liabilities on the Company's Condensed Consolidated Balance Sheets. Based on the Company's continued ability to trade and enter into interest rate swaps and cross-currency swaps, the Company considers the markets for their fair value instruments to be open.
10. STOCK REPURCHASES
During the six-month period ended June 30, 2021, the Company purchased 5,646 shares of common stock valued at $0.2 million to satisfy payroll tax withholding obligations, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, in which the Company withholds the number of shares having fair value equal to each recipient’s minimum payroll tax withholding obligation.
On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of the Company's common stock, par value $0.01 per share. No shares were repurchased under this program during the three-month period ended June 30, 2021. The Company suspended the Share Repurchase Program due to the pending Merger.
11. EMPLOYER SPONSORED BENEFIT PLANS
The Company maintains one domestic pension plan, the Retirement Income Plan for Employees of Interface Performance Materials, Inc. ("IPM Pension Plan"). During the three-month period ended March 31, 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension Plan") through lump sum distributions to participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. This purchase, funded with pension assets, resulted in a pre-tax settlement loss of $0.4 million in the six-month period ended June 30, 2020, related to the recognition of accumulated deferred actuarial losses. The settlement loss and expenses were included as non-operating expense on the Condensed Consolidated Statements of Operations.
The IPM Pension Plan covers a portion of Interface's union and non-union employees. The plan is closed to new employees and benefits are no longer accruing for the majority of participants. The Company expects to make contributions of approximately $0.7 million to the IPM Pension Plan during 2021. Contributions of $0.2 million and $0.4 million were made during the three and six-month periods ended June 30, 2021. Contributions of $0.4 million were made during the six-month period ended June 30, 2020. There were no contributions made during the three-month period ended June 30, 2020 because the Company took advantage of the deferral in minimum funding contribution due dates as permitted under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").
The following is a summary of the components of net periodic benefit cost for the domestic defined benefit pension plans for
the three and six-month periods ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Components of employer benefit cost
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
29
|
|
|
$
|
40
|
|
|
$
|
58
|
|
|
$
|
80
|
|
|
Interest cost
|
|
304
|
|
|
428
|
|
|
608
|
|
|
857
|
|
|
Expected return on assets
|
|
(589)
|
|
|
(532)
|
|
|
(1,178)
|
|
|
(1,065)
|
|
|
Amortization of actuarial loss
|
|
4
|
|
|
—
|
|
|
8
|
|
|
2
|
|
|
Net periodic benefit cost (income)
|
|
$
|
(252)
|
|
|
$
|
(64)
|
|
|
$
|
(504)
|
|
|
$
|
(126)
|
|
|
Settlement loss
|
|
—
|
|
|
—
|
|
|
—
|
|
|
385
|
|
|
Total employer benefit plan cost
|
|
$
|
(252)
|
|
|
$
|
(64)
|
|
|
$
|
(504)
|
|
|
$
|
259
|
|
The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in Other (income) expense, net on the Condensed Consolidated Statements of Operations.
12. RESTRUCTURING
During the third quarter of 2020, the Company’s Performance Materials segment undertook actions to discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America and consolidated certain product lines. In addition, the Company began exiting underperforming facilities in Europe. These restructuring activities, which will be completed in the third quarter of 2021, are expected to reduce operating costs, increase production efficiency, and enhance the Company’s flexibility by better aligning its manufacturing operations with the segment's customer base. The Company expects to incur total pre-tax expenses of approximately $17.0 million. As a result of these restructuring activities, the Company incurred total pre-tax expenses of $16.9 million through June 30, 2021, of which approximately $11.2 million was related to cash expenditures primarily due to severance and employee retention expenses. Also contributing to total pre-tax expenses was $5.7 million of non-cash expenditures, which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory. See Note 3, "Divestiture Activities", in these Notes to Condensed Consolidated Financial Statements for additional information.
The following table summarizes the total restructuring expenses incurred, by cost type, for the three and six-month periods ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30, 2021
|
|
June 30, 2021
|
|
Severance and Related Expenses
|
$
|
190
|
|
|
$
|
967
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pre-tax expense incurred
|
$
|
190
|
|
|
$
|
967
|
|
The following table summarizes the change in the accrued liability balance for the restructuring actions:
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Total
|
|
Balance as of December 31, 2020
|
|
$
|
9,431
|
|
|
Pre-tax restructuring expenses, excluding asset write-off expenses
|
|
967
|
|
|
Cash paid
|
|
(1,642)
|
|
|
Accrued liability included with the sale of the German facility
|
|
(7,311)
|
|
|
Currency translation adjustments
|
|
5
|
|
|
Accrued liability included in Liabilities of a business held-for-sale
|
|
(1,414)
|
|
|
Balance as of June 30, 2021
|
|
$
|
36
|
|
The above accrued liability balances were included in Restructuring liabilities on the Company’s Condensed Consolidated Balance Sheets.
13. INCOME TAXES
For the three-month period ended June 30, 2021, the Company's effective tax rate was 13.9% compared to an effective tax rate of 9.2% for the three-month period ended June 30, 2020. For the three-month period ended June 30, 2021, the rate was positively impacted by $0.4 million related to accounting method changes and $0.2 million related to foreign earnings taxed at higher rates. These were partially offset by $0.3 million of valuation allowance activity. For the three-month period ended June 30, 2020, the rate was negatively impacted by valuation allowance activity of $0.5 million and a foreign withholding tax liability of $0.4 million, resulting in a lower effective tax rate when in a pre-tax loss position.
For the six-month period ended June 30, 2021, the Company's effective tax rate was 25.8% compared to an effective tax rate of 4.0% for the six-month period ended June 30, 2020. For the six-month period ended June 30, 2021, the rate was negatively impacted by $0.6 million due to a change in assertion on unremitted foreign earnings and $0.5 million of valuation allowance activity. These were partially offset by a benefit of $0.4 million related to accounting method changes. For the six-month period ended June 30, 2020, the Company had a pre-tax loss primarily resulting from impairment charges of $61.1 million. The impairment charges significantly impacted the Company's effective tax rate because $48.7 million of the impairment charges related to non-deductible goodwill, resulting in a low effective tax rate for the six-month period ended June 30, 2020 when in a pre-tax loss position. Additionally, the effective rate was negatively impacted by valuation allowance activity of $0.7 million.
The Company and its United States subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing
authorities, including such major jurisdictions as the United States, Canada, China, France, Germany, Hong Kong, India, the Netherlands, and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal examinations for years before 2017, state and local examinations for years before 2016, and non-U.S. income tax examinations for years before 2013.
The Company’s effective tax rates in future periods could be affected by an increase or decrease in earnings in countries where tax rates differ from the United States federal tax rate, the relative impact of permanent tax adjustments on earnings from domestic operations, changes in net deferred tax asset valuation allowances, including valuation allowances on loss carryforwards in which no tax benefit can be recognized, stock vesting, pension plan terminations, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of ongoing tax planning strategies and audits.
14. EARNINGS (LOSS) PER SHARE
For the three and six-month periods ended June 30, 2021 and 2020, basic earnings per share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted share awards, including awards subject to certain performance criteria, are excluded from the basic earnings per share calculation, but are included in the diluted earnings per share calculation using the treasury stock method in periods of net income, as long as their effect is not antidilutive. All potential shares of common stock from unexercised stock options and unvested restricted share awards are antidilutive in periods of net loss.
The following table provides a reconciliation of weighted-average shares used to determine basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands, except per share amounts
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Net income (loss)
|
|
$
|
5,780
|
|
|
$
|
(5,857)
|
|
|
$
|
10,874
|
|
|
$
|
(62,278)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
17,575
|
|
|
17,372
|
|
|
17,560
|
|
|
17,354
|
|
|
Effect of dilutive options and restricted stock awards
|
|
402
|
|
|
—
|
|
|
363
|
|
|
—
|
|
|
Diluted weighted-average common shares outstanding
|
|
17,977
|
|
|
17,372
|
|
|
17,923
|
|
|
17,354
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
(0.34)
|
|
|
$
|
0.62
|
|
|
$
|
(3.59)
|
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
(0.34)
|
|
|
$
|
0.61
|
|
|
$
|
(3.59)
|
|
For the three and six-month periods ended June 30, 2021, there were 73,464 and 156,709 shares excluded from the computation of diluted earnings per share, respectively. These included antidilutive stock options, antidilutive unvested restricted share awards for which requisite service has not yet been rendered, and antidilutive unvested performance share awards with contingently issuable shares.
For the three and six-month periods ended June 30, 2020, there were 736,944 and 734,756 shares excluded from the computation of diluted earnings per share, respectively. Because the Company had a net loss during the three and six-month periods ended June 30, 2020, the excluded shares included all outstanding, unvested restricted share awards for which requisite service has not yet been rendered, all stock options, and certain unvested performance share awards with contingently issuable shares.
A description of the Company's stock options and restricted share awards is included in Note, 13, "Equity Compensation Plans", in the Notes to Consolidated Financial Statements in Part II, Item 8 - Financial Statements and Supplemental Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
15. SEGMENT INFORMATION
The Company is organized based on the nature of its products and is composed of three reportable segments each overseen by a segment manager. These segments are reflective of how the Company's Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purpose of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments. As of June 30, 2021, the operating segments were Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.
Performance Materials Segment
The Performance Materials segment is a worldwide leader in delivering innovative specialty filtration, sealing, and advanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions for a variety of applications in the global air and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture, and construction end markets; and (3) advanced materials that include highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.
Technical Nonwovens Segment
The Technical Nonwovens segment is a global leader in engineered nonwoven materials for industrial filtration applications and advanced materials products. The primary industrial filtration markets include air pollution and emissions control, power generation, and liquid filtration solutions. Advanced materials products include geotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications; and highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel. Specifically, the segment’s offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier 1 and Tier 2 suppliers as well as the Company's Thermal Acoustical Solutions segment.
Thermal Acoustical Solutions Segment
The Thermal Acoustical Solutions segment designs, manufactures, and distributes a full range of innovative engineered products tailored for the transportation and industrial sectors. These products shield sensitive components from high temperature environments, assist in the reduction of harmful emissions and reduce noise and vibration. Within the transportation sector, the Company's products are found in the interior, underbody, and underhood of cars, trucks, SUVs, heavy duty trucks, and recreational vehicles.
Segment Results
Net sales by business segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Performance Materials Segment (1),(2):
|
|
|
|
|
|
|
|
|
|
Filtration Products
|
|
$
|
34,066
|
|
|
$
|
29,636
|
|
|
$
|
68,412
|
|
|
$
|
55,523
|
|
|
Sealing and Advanced Solutions Products
|
|
43,120
|
|
|
28,837
|
|
|
88,107
|
|
|
68,170
|
|
|
Performance Materials Segment net sales
|
|
77,186
|
|
|
58,473
|
|
|
156,519
|
|
|
123,693
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical Nonwovens Segment:
|
|
|
|
|
|
|
|
|
|
Industrial Filtration Products
|
|
35,411
|
|
|
29,413
|
|
|
71,812
|
|
|
60,782
|
|
|
Advanced Materials Products (2)
|
|
37,068
|
|
|
22,594
|
|
|
62,342
|
|
|
48,628
|
|
|
Technical Nonwovens Segment net sales
|
|
72,479
|
|
|
52,007
|
|
|
134,154
|
|
|
109,410
|
|
|
|
|
|
|
|
|
|
|
|
|
Thermal Acoustical Solutions Segment:
|
|
|
|
|
|
|
|
|
|
Parts
|
|
71,222
|
|
|
32,448
|
|
|
157,716
|
|
|
109,769
|
|
|
Tooling
|
|
5,636
|
|
|
5,000
|
|
|
10,186
|
|
|
11,440
|
|
|
Thermal Acoustical Solutions Segment net sales
|
|
76,858
|
|
|
37,448
|
|
|
167,902
|
|
|
121,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliminations and Other (2)
|
|
(4,779)
|
|
|
(1,768)
|
|
|
(9,732)
|
|
|
(7,625)
|
|
|
Consolidated Net Sales
|
|
$
|
221,744
|
|
|
$
|
146,160
|
|
|
$
|
448,843
|
|
|
$
|
346,687
|
|
Operating income (loss) by business segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Performance Materials (1),(3)
|
|
$
|
14,853
|
|
|
$
|
5,443
|
|
|
$
|
30,149
|
|
|
$
|
(51,498)
|
|
|
Technical Nonwovens (4)
|
|
8,765
|
|
|
6,684
|
|
|
13,869
|
|
|
10,497
|
|
|
Thermal Acoustical Solutions
|
|
(1,500)
|
|
|
(6,285)
|
|
|
174
|
|
|
(657)
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Office Expenses
|
|
(12,704)
|
|
|
(7,588)
|
|
|
(22,639)
|
|
|
(15,656)
|
|
|
Consolidated Operating Income (Loss)
|
|
$
|
9,414
|
|
|
$
|
(1,746)
|
|
|
$
|
21,553
|
|
|
$
|
(57,314)
|
|
(1)For the six-month period ended June 30, 2021, the Performance Materials segment includes the results of the German facility that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:
•Performance Materials segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$1.0 million and $0.3 million for the three-month periods ended June 30, 2021 and 2020, respectively.
◦$2.1 million and $1.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.
•Technical Nonwovens segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$3.6 million and $1.4 million for the three-month periods ended June 30, 2021 and 2020, respectively.
◦$7.5 million and $6.4 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(3)Included in the operating results within the Performance Materials segment are the following:
•Impairment charges of $61.1 million related to goodwill and other long-lived assets for the six-month period ended June 30, 2020.
•Intangible asset amortization as follows:
◦$3.0 million and $4.0 million for the three-month periods ended June 30, 2021 and 2020, respectively.
◦$6.1 million and $7.9 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(4)Included in the Technical Nonwovens segment is intangible assets amortization as follows:
•$1.1 million and $1.2 million for the three-month periods ended June 30, 2021 and 2020, respectively.
•$2.1 million and $2.3 million for the six-month periods ended June 30, 2021 and 2020, respectively.
16. COMMITMENTS AND CONTINGENCIES
Environmental Remediation
In the fourth quarter of 2016, as part of a groundwater discharging permitting process, water samples collected from wells and process water basins at the Company’s Rochester New Hampshire manufacturing facility, within the Performance Materials segment, showed concentrations of Per and Polyfluorinated Substances (“PFAS”) in excess of state ambient groundwater quality standards. In January 2017, the Company received a notification from the State of New Hampshire Department of Environmental Services (“NHDES”) naming Lydall Performance Materials, Inc. a responsible party with respect to the discharge of regulated contaminants and, as such, is required to take action to investigate and remediate the impacts in accordance with standards established by the NHDES. The Company conducted a site investigation, the scope of which was reviewed by the NHDES, in order to assess the extent of potential soil and groundwater contamination and develop a remedial action plan. Based on input received from NHDES in March 2017 with regard to the scope of the site investigation, the Company recorded $0.2 million of expense. In 2018, the Company received a response from the NHDES to the site investigation report outlining proposed remedial actions. The Company recorded an additional $0.1 million of expense in 2018 associated with the expected costs to remediate the impacts of the discharge of regulated contaminants in accordance with standards established by the NHDES. During 2018, the environmental liability was fully reduced, reflecting payments made to vendors. Additionally, the Company incurred $0.2 million of capital expenditures in 2018 due to the lining of the Company's freshwater lagoons. During a building expansion in 2020, additional areas of concern were identified during excavation activities. An interim remedial action plan ("IRAP") that includes additional site characterization activities was submitted to the NHDES in March 2021. In June 2021, additional site characterization activities were initiated following approval of the IRAP by the NHDES. Additionally, as part of the IRAP, excavation and disposal of areas of known PFAS contamination were initiated in July 2021. The Company had $0.3 million accrued for these environmental remediation activities, all of which were recorded in the three-month period ended June 30, 2021. The Company cannot be sure that costs will not exceed the current estimates until this matter is closed with the NHDES, nor that any future corrective action at this location would not have a material effect on the Company’s financial condition, results of operations, or cash flows.
In December 2018, the New York State Department of Environmental Conservation (“NYDEC”) informed the Company that the newly acquired Interface site located at Hoosick Falls, New York will be the subject of an investigation into the possibility
of it being an inactive hazardous disposable waste site. The letter specifically references PFAS that have been detected in a nearby water supply, soil and/or surface water. Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source. The NYDEC approved a site characterization plan in December 2019. Additional site characterization activities were completed in the fourth quarter of 2020. Results of the site characterization will be submitted in 2021. As of June 30, 2021, the Company has less than $0.1 million accrued for these environmental remediation activities. The Company does not know the scope or extent of any additional future obligations, if any, that may arise from the site investigation and, therefore, is unable to estimate the cost of any corrective action. Accordingly, the Company cannot assure that the costs of any future corrective actions at this location would not have a material effect on the Company's financial condition, results of operations, or cash flows.
Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly impact any estimates of environmental remediation costs.
Asset Retirement Obligations
The Company accounts for asset retirement obligations by recognizing the fair value of the related liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be determined. At June 30, 2021, the Company had combined asset retirement obligations of $0.8 million, which are associated with the estimated costs to remove/remediate asbestos materials from various locations. The initial measurement of the asset retirement obligations was recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the related property and equipment, which is being depreciated using a systematic and rational method similar to the approach used for the associated property and equipment. The Company also has an asset retirement obligation with an offset to goodwill as the estimated costs were derived from known required remediation obligations as of the acquisition date of Interface Performance Materials on August 31, 2018. The Company has been performing ongoing remediation activity, which offsets the liability associated with the respective asset retirement obligations.
17. STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in stockholders' equity for the three and six-month periods ended June 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Beginning Balance
|
|
$
|
264,550
|
|
|
$
|
253,577
|
|
|
$
|
257,696
|
|
|
$
|
318,420
|
|
|
Comprehensive income (loss)
|
|
8,737
|
|
|
(1,396)
|
|
|
14,200
|
|
|
(66,997)
|
|
|
Stock repurchased
|
|
—
|
|
|
—
|
|
|
(201)
|
|
|
(8)
|
|
|
Stock issued under employee plans
|
|
151
|
|
|
1
|
|
|
793
|
|
|
32
|
|
|
Stock-based compensation expense
|
|
1,363
|
|
|
720
|
|
|
2,313
|
|
|
1,455
|
|
|
Stock issued to directors
|
|
398
|
|
|
360
|
|
|
398
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
275,199
|
|
|
$
|
253,262
|
|
|
$
|
275,199
|
|
|
$
|
253,262
|
|
The components of accumulated other comprehensive income (loss) are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
In thousands
|
|
June 30, 2021
|
|
June 30, 2020
|
|
June 30, 2021
|
|
June 30, 2020
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
(6,528)
|
|
|
$
|
(27,979)
|
|
|
$
|
(3,514)
|
|
|
$
|
(18,022)
|
|
|
Net gain (loss) on foreign currency translation
|
|
3,060
|
|
|
5,146
|
|
|
(988)
|
|
|
(4,811)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) (1)
|
|
—
|
|
|
—
|
|
|
1,034
|
|
|
—
|
|
|
Other comprehensive income (loss), net of tax
|
|
3,060
|
|
|
5,146
|
|
|
46
|
|
|
(4,811)
|
|
|
Ending balance
|
|
(3,468)
|
|
|
(22,833)
|
|
|
(3,468)
|
|
|
(22,833)
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
(5,243)
|
|
|
(2,749)
|
|
|
(5,608)
|
|
|
(3,080)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) (2)
|
|
22
|
|
|
—
|
|
|
387
|
|
|
331
|
|
|
Other comprehensive income (loss), net of tax
|
|
22
|
|
|
—
|
|
|
387
|
|
|
331
|
|
|
Ending balance
|
|
(5,221)
|
|
|
(2,749)
|
|
|
(5,221)
|
|
|
(2,749)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments:
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
(6,202)
|
|
|
(4,431)
|
|
|
(9,220)
|
|
|
(4,877)
|
|
|
Net gain (loss) on derivative instruments (3)
|
|
(696)
|
|
|
(1,082)
|
|
|
1,704
|
|
|
(636)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) (4)
|
|
571
|
|
|
397
|
|
|
1,189
|
|
|
397
|
|
|
Other comprehensive income (loss), net of tax
|
|
(125)
|
|
|
(685)
|
|
|
2,893
|
|
|
(239)
|
|
|
Ending balance
|
|
(6,327)
|
|
|
(5,116)
|
|
|
(6,327)
|
|
|
(5,116)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(15,016)
|
|
|
$
|
(30,698)
|
|
|
$
|
(15,016)
|
|
|
$
|
(30,698)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)For the six-month period ended June 30, 2021, the amount represents the recognition of the accumulated loss on foreign currency translation relating to the divestiture of the German Facility in the Performance Materials segment, net of tax impact of $0.2 million. This is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.
(2)For the three-month period ended June 30, 2021, the amount represents routine amortization of actuarial gains and losses in net periodic benefit cost, net of tax impact of less than $0.1 million. For the six-month period ended June 30, 2021, the amount primarily represents the recognition of the accumulated loss on the defined pension plan relating to the divestiture of the German Facility in the Performance Materials segment. This amount was $0.4 million, net of tax impact of $0.1 million, and is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations. For the six-month period ended June 30, 2020, the amount primarily represents the settlement of the ISS Pension Plan. This amount was $0.4 million, net of tax impact of $0.1 million. The amounts for the six-month periods ended June 30, 2021 and 2020 also include routine amortization of actuarial gains and losses in net periodic benefit cost of less than $0.1 million, net of tax impact of less than $0.1 million.
(3)Amount represents unrealized gains (losses) on the fair value of hedging activities, net of tax impact of $0.2 million and $0.3 million for the three-month periods ended June 30, 2021 and 2020, respectively and $0.5 million and $0.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(4)Amount represents the impact of de-designation of the interest rate swap agreement, net of tax impact of $0.6 million and $0.1 million for the three-month periods ended June 30, 2021 and 2020, respectively and $0.4 million and $0.1 million for the six-month periods ended June 30, 2021 and 2020, respectively.
18. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance date of these financial statements. No material subsequent events were identified that require disclosure.