- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
---------------------
Form 10-K
ANNUAL REPORT
/X/[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 19992000
OR
/ /[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from to Commission File Number: 1-7665
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
LYDALL, INC.
(Exact name of registrant as specified in its charter)
DELAWAREDelaware 06-0865505
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
Organization)
ONE COLONIAL ROAD, MANCHESTER, CONNECTICUTOne Colonial Road, Manchester,
Connecticut 06045-0151
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (860) 646-1233
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:-------------------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- - -------------------------------------------------- --------------------------------------------------Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.10 par value New York Stock Exchange
-----------------------------------------------
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/[X] No / /[_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/[_]
On March 24, 2000,12, 2001, the aggregate market value of the Registrant's voting stock
held by nonaffiliates was $119,909,456.$174,964,088.
On March 24, 2000,12, 2001, there were 15,753,77615,865,137 shares of Common Stock outstanding,
exclusive of treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive Proxy
Statement to be distributed in connection with the Registrant's Annual Meeting
of Stockholders to be held on May 10, 2000.9, 2001.
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
INDEX TO ANNUAL REPORT ON FORM-------------------------------------------------------------------------------
Index to Annual Report on Form 10-K
YEAR ENDED DECEMBERYear Ended December 31, 19992000
PAGE
--------Page
----
PART I
Item 1. Business....................................................Business...................................................... 1
Item 2. Properties.................................................. 5Properties.................................................... 4
Item 3. Legal Proceedings........................................... 6Proceedings............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders......... 6Holders........... 5
Executive Officers and Other Significant Employees of the
Registrant.................................................. 6Registrant.................................................... 5
PART II
Item 5.
Market for Registrant's Common Equity and Related Stockholder
Matters......................................... 7Item 5. Matters....................................................... 6
Item 6. Selected Financial Data..................................... 8Data....................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations................................... 9Operations ........................................ 8
Item 7a. Quantitative and Qualitative Disclosure about Market Risk... 20Risk..... 15
Item 8. Financial Statements and Supplementary Data................. 20Data................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure.................................... 20Disclosure.......................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 21Registrant............ 16
Item 11. Executive Compensation...................................... 21
Item 12.Compensation........................................ 16
Security Ownership of Certain Beneficial Owners and
Management.................................................. 21Item 12. Management.................................................... 16
Item 13. Certain Relationships and Related Transactions.............. 21Transactions................ 16
The information called for by itemsItems 10, 11, 12, and 13, to the extent not
included in this document, is incorporated herein by reference to such
information to be included under the captions "Election of Directors," "Common Stock
Ownership of Management," "Directors' Compensation," and "Executive
Compensation," in the Company's definitive Proxy Statement which is expected to
be filed byon March 30, 2000.23,
2001.
PART IV
Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 22
Signatures.................................................. 25Item 14. 8-K........................................................... 17
Signatures.................................................... 21
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- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
PART I
ITEMItem 1. BUSINESS
Lydall, Inc. and its subsidiaries (hereafterare hereafter referred to as "Lydall","Lydall," the
"Company","Company," or the "Registrant") are manufacturers"Registrant." Lydall is a manufacturer of engineered
products for demanding specialty applications.
The Company develops and manufactures engineered specialty papers in both roll and
sheet form; fabricatedform and fabricates automotive heat shields, thermal and acoustical
barriers;barriers, and certain medical filtration and bioprocessing components.
Lydall's specialty papers are supplied to other manufacturers for conversion
or incorporation into finished products. The Company's fabricated products are
sold to original equipment manufacturers and tier-one suppliers. Lydall uses
wet-laid and dry-laid nonwoven manufacturing processes incorporating a broad
spectrum of fibers, materials, binders, and resins, and a variety of value-added
systems to produce a range of high-performance materials and products.
The Company serves a number of market niches. Lydall's products are primarily
sold directly to the customer through an internal sales force and distributed
throughby common carrier, ocean cargo, or the Company's distribution operation.
Within each market niche there are typically several competitors. The Company
competes through high-quality products, technology, and customer service.
Lydall has a number of domestic and foreign competitors, for its products, most of whom are
either privately owned or divisions of largelarger companies, making it difficult
to determine the Company's market share.share of markets served.
In 1999, the Company defined theits core businesses as thermal/acoustical and
filtration/separation
segments as its core businesses and stated its long-term strategy to concentrate
primarily on these segments.businesses. In accordance with this strategic focus, Lydall
intendsstated its intention to divest businesses outside of these markets with the
exception of Lydall Transport, Ltd., which provides total logistics packages
as well as individual trucking and warehousing solutions. In August 2000,
Lydall structured its organization into primarily two groups to concentrate on
the thermal/acoustical and filtration/separation markets.
Segments
Lydall's products fall into fourtwo reportable segments:segments are Thermal/Acoustical Filtration/Separation, Paperboard and
Wovens.Filtration/Separation. All other products are aggregated in Other Products and
Services. During the fourth quarter of 1999,In February 2001, Lydall announced the discontinuation of the
Wovens segment, the sale of which was
completed on February 29, 2000. Also, in the fourth quarter, the Company renamed
two of its segments to reflect the range of products included. Heat-Management
was renamedPaperboard Segment.
Thermal/Acoustical and Filtration was renamed
Filtration/Separation. Financial reporting classifications and presentations
were not affected by these name changes.
SEGMENTS
THERMAL/ACOUSTICAL
Lydall's thermal and acoustical barriers, heat shields, and insulating
products include a range of fiber-based materials, fiber-and-metal
combinations, and all-metal products that protect and insulate within
temperature environments ranging from -459 DEG.-459(degrees) F (-237 DEG.(-237(degrees) C) up to
+3000 DEG.+3000(degrees) F (+1649 DEG.1649(degrees) C).
At the highest temperature requirements, Lytherm-Registered Trademark- specialty
papersThe LyTherm(R) family of thermal products, including ManninGlas(R) products,
are usedemployed in a variety of industrial thermal applications. They are
employed as linings for industrial ovens, kilns, furnaces, and in glass and
metal manufacturing.
At mid-range temperatures, Manninglas-Registered Trademark- specialty papers are
employedmanufacturing as well as in consumer appliances as well asand heating,
ventilation, and air-conditioning ductwork.systems.
Lydall's automotive heat shields and thermal and acoustical barriers include
organic and inorganic fiber composites, fiber-and-metal combinations, and all-metalall-
metal components which are used as thermal barriers in medium- and light-duty trucks, vans, sport-utility vehicles, and
cars. The Company holds patents on many of these
- - --------------------------------------------------------------------------------
products, which are employed
both inside and outside of vehicles to insulatevehicle passenger and engine
- -------------------------------------------------------------------------------
compartments and around such components as exhaust systems, gas tanks, luggage compartments, heat
and air-conditioning ducts, batteries, and electronic components, and engine
compartments. Acoustical barrier and trim products for automotive applications
are also included in this segment.components.
At the very coldest temperatures (approaching absolute zero), Cryotherm-Registered Trademark-CryoTherm(R)
cryogenic materials, composed of 100-percent inorganic fibers, are used for
super-insulating applications. These applications include tanker trucks that
transport liquid gases, stationary and portable cryogenic storage vessels, gas
tanks for vehicles fueled by liquid natural gas, and supercolliders.
Thermal/Acoustical segmentSegment sales, before elimination of inter-segment sales,
represented 5361 percent of the Company's totalnet sales in 2000, 62 percent in 1999
and 3645 percent in both 19981998.
Filtration/Separation
The Filtration/Separation Segment includes industrial air and 1997, respectively. Sales of
thermal/acousticalliquid
filtration products, increased 107 percentvital fluids management systems sold to medical and
biopharmaceutical markets, and separation and energy related products.
LydAir(R) high-efficiency air-filtration media range in 1999 from 1998 levels. The
acquisition of Gerhardi & Cie. GmbH & Co. Kg ("Gerhardi"), a German-based
automotive supplier, on December 30, 1998, accounted for the majority of this
growth.
FILTRATION/SEPARATION
The Company manufactures Lydair-Registered Trademark- high-efficiency, glass
microfiber air filtration media for rigid frame applications. Lydall
manufactures six filtration classes of Lydair-Registered Trademark- media in
over 100 grades with filtering efficiencies
from 10 percent at 0.3-micron particle size to 99.999999 percent at 0.1-micron
particle size. Lydair-Registered Trademark- filtration mediaThese products are used in air filters, which are
capital goods rather than consumablescommercial heating, ventilating and
last approximately five years. Lydall
also supplies media for pre-filtersair-conditioning systems, clean-room applications, and intermediary filters in air-handling
systems that are replaced more frequently. The Company's HEPA filtration media
are also used in home air purification systems.consumer air-purifying
units.
Lydall also produces liquid filtration media, whichsold under the LyPore(R)
trademark, that are used primarily in high-efficiency hydraulic oil and lubrication oil
elements for off-road vehicles, trucks, and heavy equipment. These productsequipment and in industrial
and residential water purification.
The Company's vital fluids management systems are sold under the
Lypore-Registered Trademark- trademark.by its wholly owned
subsidiary, Charter Medical, Ltd. fabricates("Charter"). Charter's medical filter
components are employed in blood filtration devices, such as cardiotomy
reservoirs which filter the blood supply
of open-heart surgery patients during operations, and autotransfusion filters
used to filterfilters. Charter also designs and manufactures
BioPak(TM) sterile containers for use in biopharmaceutical processing, and
specialty blood collected from patients before surgery or from injured
patients. Charter Medical also manufactures proprietary medical devices for
biotech and pharmaceutical packaging, blood bank and transfusion services, and
neonatal intensive care.cell therapy products.
Sales from the Filtration/Separation Segment, before elimination of inter-
segment sales, represented 1926 percent of totalnet sales in 19992000 compared with 25 percent in 1998, and 24 percent in 1997. Overall
sales of filtration/separation products increased 521
percent in 1999, from 1998.
PAPERBOARD
The Paperboard segment includes commodity paper products which are employed
primarily in materials-handling and packaging applications.
Lydall produces slipsheets, separator sheets, and protective sheets.
Ly-Pak-Registered Trademark- slipsheets are used to ship a growing number of
products such as food, pharmaceuticals, and chemicals.
Ly-Pak-Registered Trademark- slipsheet systems are a substitute for wooden
pallets, providing significant cost and space reductions for the customer.
Ly-Pak-Registered Trademark- separator sheets are supplied to the glass and
plastic bottle industry and are manufactured to meet industry specifications for
bulk
2
- - --------------------------------------------------------------------------------
palletizing. Ly-Pak-Registered Trademark- protective sheets are used as pallet
pads, protective top caps, and stabilizing sheets. These products are
custom-made from plies of virgin kraft linerboard and laminated with a special
moisture-resistant adhesive.
Paperboard sales represented 14 percent of total sales in 1999 compared with
1831 percent in 1998 and 17 percent in 1997. Sales of these products increased by
6 percent in 1999.
WOVENS
During the fourth quarter of 1999, the Company announced the discontinuation of
this segment, the sale of which was completed on February 29, 2000. The Wovens
segment included specialty woven composites used in advanced structural
materials sold to the aerospace, marine, and sporting goods industries.
The results of the Wovens segment have been excluded from continuing operations
for the years ended December 31, 1999, 1998, and 1997. See Note 5 in "Notes to
Consolidated Financial Statements."
OTHER PRODUCTS AND SERVICES1998.
Other Products and Services
includesThe largest component of Other Products and Services is Lydall Transport,
Ltd., a provider of total logistics packages as well as individual trucking
and warehousing solutions. Other Products and Services also include pencil
slats made from recycled newsprint and cardboard, electrical insulation,
severalassorted specialty products, and battery separators made in Europe, and the Company's distribution and warehouse
services. It also includes fiberboard composites manufactured at Lydall's
Composite Materials, Hoosick Falls Operation and sold in sheet form to
fabricatorsseparators. Sales of high-performance gaskets. The Hoosick Falls Operation wasa gasket
manufacturer sold on January 28, 2000.2000 are also included through the date of
sale.
Other Products and Services sales, before elimination of inter-segment sales,
were 1615 percent of the Company's totalnet sales in 1999,2000 compared with 2118 percent in
1998,1999 and 2326 percent in 1997.
31998.
Paperboard
In February 2001, the Company announced the discontinuation of this segment,
which consisted primarily of the Southern Products and Lydall & Foulds
Divisions. On February 1, 2001, Lydall announced that the Lydall & Foulds
Division would cease operations, and on February 5, 2001, the Southern
Products Division was sold.
The results of the Paperboard Segment have been excluded from continuing
operations for all years presented. See Note 5 in "Notes to Consolidated
Financial Statements."
2
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GENERAL BUSINESS INFORMATION-------------------------------------------------------------------------------
General Business Information
Lydall holds a number of patents, trademarks, and licenses. While no single
patent, trademark or license by itself is critical to the success of Lydall,
together these intangible assets are of considerable value to the Company.
No significant portion of Lydall's business is seasonal. Lydall maintains
levels of inventory and grants credit terms whichthat are normal within the
industries it serves. The Company uses a wide range of raw materials in the
manufacturing of its products and was able to obtain the raw materials needed during 1999.products. The majority of raw materials used by Lydall
are available from a variety of suppliers who can be substituted if necessary.
Sales to the automotive market represented 4651 percent of Lydall's total net
sales in 19992000 compared with 2653 percent and 2732 percent in 19981999 and 1997,1998,
respectively. Lydall sells to both original equipment manufacturers and tier-one suppliers for
usetier-
one suppliers. Its products are used in a variety of models and applications.
Sales to Ford Motor Co. were $36.8$34.1 million, or 1213 percent of Lydall's totalnet
sales in 1999.2000. No other single customer accounted for more than 10 percent of
totalnet sales in 1999.2000.
Lydall invested $8.3 million in 2000, $7.6 million in 1999, and $8.7 million
in both 1998 and 1997 to develop new products and manufacturing processes and to improve
existing products. Most of Lydall's investment in research and development is
application specific; very little is pure research. There were no significant
customer-sponsored research and development activities during the past three
years.
Lydall's backlog was $26.3 million at December 31, 2000, $48.5 million at
December 31, 1999, and $29.5 million at December 31, 1998, and $18.8 million at December 31, 1997.1998. Backlog at February
29, 200028, 2001 was $50.8$27.5 million. The large increasepurchase of the Gerhardi operations at the end
of 1998 and the subsequent sale of two of those operations in the third
quarter of 2000 caused the majority of the fluctuations in backlog at December 31,the end
of 1999 is related to Gerhardi orders that mainly will be filled in
the first nine months of 2000.and 2000 when compared with previous years. There are nominimal seasonal
aspects to thisLydall's backlog.
No material portion of Lydall's business is subject to renegotiationrenegotiations of
profits or termination of contracts or subcontracts at the election of any
governmental body.
Lydall believes that its plants and equipment are in substantial compliance
with applicable federal, state and local provisions that have been enacted or
adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment. Additional measures
to maintain compliance with presently enacted laws and regulations are not
expected to have a substantial adverse effect on the capital expenditures,
earnings, or competitive position of the Company. For information relating to
certain environmental proceedings involving the Company, please refer to Note
14 in "Notes to Consolidated Financial Statements."
As of February 29, 2000,28, 2001, Lydall had 1,914 employees. Fouremployed 1,288 people. Five unions under
contracts expiring at various points through March 2005 represented
approximately 122111 of the Company's domestic employees. Lydall considers its
employee relationships to be satisfactory and theredid not have not been any actual or
threatened work stoppages due to union-related activities.activities in 2000. All
employees at the Company's facility in France are covered under a National
Collective Bargaining Agreement. Hourly and certain salaried employees at the
Company's German operationsoperation are also covered under a National Collective
Bargaining Agreement.
Foreign and export sales were 3937 percent of total net sales in 2000, 42
percent in 1999, and 18 percent in 1998 and 20 percent in 1997.1998. Export sales are concentrated
primarily in Europe, the Far East, Mexico, and Canada and aggregated $35.5were $27.7 million,
$30.4$25.4 million, and $34.6$22.0 million in 2000, 1999, and 1998,
and 1997,3
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respectively. Foreign sales were $67.8 million, $89.1 million, $10.8 million, and $11.2$10.8
million for the years ended December 31, 2000, 1999, 1998, and 1997,1998, respectively.
Foreign operations 4
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incurred after-tax losses of $19.8 million (including the
loss from disposition of two unprofitable German operations of $19.3 million),
$1.2 million, and $1.0 million (including the recognition of an impairment
loss of $941 thousand), and $348 thousand,$.9 million) for the years ended December 31, 2000, 1999, 1998 and 1997,1998,
respectively. Total foreign assets were $43.9 million at December 31, 2000
compared with $65.0 million at December 31, 1999 compared withand $73.4 million at December
31, 1998 and $16.4 million at December 31, 1997.1998.
There are no anticipated operating risks related to foreign investment law,
expropriation, inflation effects, or availability of material, labor, and
energy. The Company's foreign and domestic operations limit foreign currency and foreign
exchange transaction risksrisk by completing transactions primarily in their functional
currencies.
ITEMcurrencies whenever possible and through the use of foreign currency forward
exchange contracts.
Item 2. PROPERTIES
The principal properties of the Company are situated at the following
locations and have the following characteristics:
Approximate Area
Land Buildings
Location General Description (Acres) (Sq.Feet)
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- - ----------------------------------------------------------------------------------------------------------
1 Rochester, New Hampshire Specialty Papers Manufacturing 18.0 158,000
2 Green Island, New York Specialty Papers Manufacturing 5.4 275,000
3 Saint-Rivalain, France Specialty Papers Manufacturing 14.3 156,000
4 Hamptonville, North Carolina Thermal/Acoustical Products Fabricating and 35.0 85,000122,000
and Manufacturing
5 Columbus, Ohio Thermal/Acoustical Products Fabricating 9.0 80,000
6 St. Johnsbury, Vermont Thermal/Acoustical Products Fabricating 10.0 43,00017.0 86,000
7 Ludenscheid, Germany Thermal/Acoustical Products Fabricating and 2.9 118,000
Manufacturing
8 Ibbenburen, Germany Thermal/Acoustical Products Fabricating and 9.9 180,000
Manufacturing
9 Meinerzhagen, Germany Thermal/Acoustical Products Fabricating and 3.8 86,000
Manufacturing
108 Lakewood, New Jersey Biomedical Products Fabricating -- 20,000
119 Winston-Salem, North Biomedical Products Fabricating and Manufacturing -- 29,000
North Carolina 12Manufacturing
10 Covington, Tennessee Composite Materials Manufacturing 26.0 155,000
13 Richmond, Virginia Laminated Paperboard Manufacturing 5.0 104,000
14 Jacksonville, Florida Laminated Paperboard Manufacturing -- 52,000
1511 Manchester, Connecticut Paperboard Manufacturing 11.6 70,000
1612 Manchester, Connecticut Warehouse and Office Facility 9.1 120,000
1713 Manchester, Connecticut Corporate Office 4.5 20,000
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Properties numbered 5, 6, 10, 11, 138 and 149 are being leased; all others are owned. For
information regarding obligations for lease rentals and owned
property,obligations see Note 4 in "Notes to Consolidated
Financial Statements." Lydall considers its properties to be suitable and
adequate for its present needs. The properties are being fully utilized.utilized,
except for numbers 11 and 12, which were used by the Lydall & Foulds Division
of the discontinued Paperboard Segment. In addition to the properties listed
above, the Company has several additional leases for sales offices and
warehouses in the United States, Europe, and Japan.
5
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ITEMItem 3. LEGAL PROCEEDINGS
No significant legal proceedings were settled in the fourth quarter of 1999.2000.
See Note 14 in "Notes to Consolidated Financial Statements" for additional
information on legal proceedings.
ITEM4
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES OF THE REGISTRANT:2000.
Executive Officers and Other Significant Employees of the Registrant:
The executive officers and other significant employees of Lydall, Inc.,the Registrant,
together with the offices presently held by them, their business experience
since January 1, 1995,1996, and their ages as of March 12, 2001, the record date of
the Company's 2001 Annual Meeting, are as follows:
Other Business
Name Age Title Experience Since 19951996
- ------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------Roger M. Widmann 61 Chairman of the Board Principal of Tanner and
Co. Inc., Senior Managing
Director, Corporate Finance
of Chemical Securities, Inc.
Christopher R. Skomorowski 4647 President and Chief Executive Division President of
Skomorowski Officer (since 1998), Director Lydall Westex
(1994-1995, 1998-1999)(1998-present, 1994-1995)
Walter A. Ruschmeyer 4950 Executive Vice President- Interim Vice President of
Finance and Administration, Finance and Treasurer,
Lydall,
and Chief Financial Officer Lydall, Inc., Partner in Bushavior,
(since March 2000) Bushavior, Controller of
Carrier Corporation
Raymond S. 39 Group President-Lydall Division President Lydall
Grupinski, Jr. Thermal/Acoustical Group Westex, Director of
(since August 2000) Operations of Lydall Westex
Division and General Manager
of Lydall Westex Columbus
Operation
Kevin G. Lynch 48 Group President-Lydall Division President Lydall
Filtration/Separation Group Manning, Vice President of
(since August 2000) Sales and Marketing of
Lydall Technical Papers
Bill W. Franks, Jr. 42 Division President-Lydall Vice President and
Transport, Ltd. General Manager of
(since August 2000) Lydall Logistics
and Lydall & Foulds
Management
Thomas P. Smith 43 Vice President-Controller Assistant Controller of
(since May 2000) Carrier Corporation
James P. Carolan 57 Executive58 Vice President N/A
(since 1998),President-E-Commerce Division President of
(since 1983)September 2000), Lydall Technical Papers
Director (1994-1995, 1996-1998)
Carole F. Butenas 5758 Vice President-Investor Relations N/A
Relations
(since 1991),
Director (1995-1996)
Mary A. Tremblay 3940 General Counsel and Secretary N/A
(since 1991)
Raymond J. Lanzi 61 DivisionRichard H. Kopp 56 Chief Information Officer President of The Havens
(since N/A
1979)April 2000) Group, Inc., Director (1993-1994)
Bill W. Franks, Jr. 41 Division President
(sinceof Havens System
Solutions, LLC
Mona G. Estey 46 Vice President and General
1997) Manager, Lydall Logistics
Management
Raymond S. Grupinski, Jr. 38 Division President (sincePresident-Human Resources Director of Operations, Lydall
1998) Westex and General Manager of
Lydall Westex-Columbus
Operation
Kevin G. Lynch 47 Division PresidentHuman
(since Vice President of Sales and
1998) Marketing at Lydall Technical
PapersApril 2000) Resources
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65
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PART II
ITEMItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORYPrice Range of Common Stock and Dividend History
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol LDL. Shares totaling 9,316,6007,514,500 and 7,507,0009,316,600 were traded during 19992000
and 1998,1999, respectively. The table below shows the range of reported sale
prices on the New York Stock Exchange Composite Tape for the Company's Common
Stock for the periods indicated. As of March 13, 2000,12, 2001, the record date of the
Company's 20002001 Annual Meeting, 1,5161,608 stockholders of record held
15,699,77615,865,137 shares of Lydall's Common Stock, $.10 par value. As of the record
date, there were no shares outstanding of the Company's Preferred Stock, $1.00
par value.
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High Low Close
- - ------------------------------------------------------
----------------------------------------------------------------------------------------------------
2000
First Quarter $8.94 $6.31 $8.75
Second Quarter 11.25 7.81 10.63
Third Quarter 13.00 10.31 11.44
Fourth Quarter 12.06 8.06 8.69
1999
FIRST QUARTERFirst Quarter $12.88 $7.75 $8.31
SECOND QUARTERSecond Quarter 12.50 8.31 11.50
THIRD QUARTERThird Quarter 12.88 9.81 10.31
FOURTH QUARTERFourth Quarter 10.38 5.25 6.63
1998
First Quarter $20.81 $17.06 $18.06
Second Quarter 18.94 14.44 14.56
Third Quarter 14.75 10.25 10.25
Fourth Quarter 13.31 9.25 11.88
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TheDuring 2000, the Company did not pay a cash dividend on its Common Stock and
does not anticipate doing so for the foreseeable future. Cash will be
reinvested in core businesses.
76
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ITEM-------------------------------------------------------------------------------
Item 6. SELECTED FINANCIAL DATA
FIVE-YEAR STATISTICAL REVIEWFive-Year Statistical Review
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$-------------------------------------------------------------------------------
In thousands except per-shareper-
share amounts 2000 1999 1998 1997 1996
1995
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RESULTS FROM CONTINUING
OPERATIONS
Net sales $318,505 $224,286 $234,447 $252,652 $252,128
IncomeFinancial results from
continuing
operations
12,952 9,825 22,380 24,736 22,438Net sales $261,118 $274,984 $183,236 $193,520 $211,003
(Loss) income from
continuing operations (3,616) 11,089 7,233 18,841 20,180
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Common stock per-share data
Diluted (loss) income from
continuing operations ($ .23) $ .70 $ .45 $ 1.09 $ 1.12
Diluted net (loss) income ( .15) .68 .26 1.27 1.38
- -------------------------------------------------------------------------------------------------------
COMMON STOCK PER-SHARE DATA
Continuing operations (diluted) $ .82 $ .61 $ 1.29 $ 1.38 $ 1.23
Common stockholders' equity 7.34 6.96 7.04 6.89 5.88
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FINANCIAL POSITION-------------------------------------------------------------------------------
Financial position
Total assets $194,964 $220,236 $226,848 $160,124 $182,119
$158,072
Working capital (deficit) 54,550 64,630 (9,090) 39,203 53,358 52,730
Current ratio 2.28 .91 2.39 2.24 2.77
Long-term debt, net of
current maturities 24,927 38,334 -- 2,100 5,050
7,750
Total stockholders' equity 111,753 115,236 109,225 113,030 117,844
101,811
Debt to total capitalization 28.2% 33.4% 4.3% 12.9% 9.4%
- - -------------------------------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT-------------------------------------------------------------------------------
Property, plant, and
equipment
Net property, plant, and
equipment $80,556$ 74,420 $ 80,556 $107,836 $68,860 $62,038 $60,074$ 68,860 $ 62,038
Capital additions from acquisitions -- 32,065 -- 500 --
Other capital additionsexpenditures 19,767 16,773 17,657 17,104 10,893
12,006
Capital divestment, net 303 679 685 894 632
Depreciation 9,925 11,946 8,844 7,993 7,824
7,122
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Performance and other ratios
Gross margin 26.29% 24.87% 31.55% 34.87% 33.70%
Operating margin 7.27% 6.45% 6.15% 14.37% 15.19%
Current ratio 2.32 2.28 .91 2.39 2.24
Debt to total capitalization 22.3% 28.2% 33.4% 4.3% 12.9%
- -------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS AND OTHER ITEMS
Return on average assets 5.9% 5.4% 14.3% 15.2% 15.2%
Return on average common
stockholders' equity 11.5% 8.8% 19.4% 22.5% 25.2%
Return on sales 4.1% 4.4% 9.6% 9.8% 8.9%
Days of inventory on hand 34 34 30 29 33
Days of receivables outstanding 43 50 48 46 49
Number of employees at year-end 2,047 1,330 1,225 1,268 1,227
- - -------------------------------------------------------------------------------------------------------
SHARES AND STOCKHOLDERS
Weighted average common stock and
equivalents 15,784,000 16,163,000 17,319,000 17,988,000 18,197,000
Common stock outstanding at year-end 15,699,776 15,693,860 16,065,473 17,092,011 17,320,252
Stockholders at year-end 1,516 1,603 1,653 1,855 1,918
Market price per share of common
stock--
Highest close $ 12.81 $ 20.13 $ 25.75 $ 25.87 $ 28.50
Lowest close $ 5.81 $ 9.25 $ 18.50 $ 19.75 $ 14.75
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Share figures adjusted to reflect a two-for-one stock split in 1995.
1998 financial position items incorporate the assets and liabilities of Gerhardi
which was acquired on December 30, 1998. The 1998 balances of Gerhardi are not
included in calculations in the Performance Ratios and Other Items section
above.
The results of operations of the discontinued Paperboard and Wovens segmentSegments
have been excluded from the selected financial data schedule for all
applicable periods. Paperboard and Wovens segmentSegment balance sheet items have
been excluded from calculations inof the Performance Ratios"Performance and Other Itemsother ratios" section
for 1996 through 1999.
8all periods presented, except for the current ratio.
7
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ITEM 7.MANAGEMENT'S-------------------------------------------------------------------------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
For the year ended December 31, 2000, the Company generated $261.1 million in
net sales compared with $275.0 million for the year ended December 31, 1999.
The following discussion reflectsdivestment of a gasket business and two German operations during the discontinuation of the Wovens segment.
Thus, the results of operations of the Wovens segment have been excluded for all
periods discussed.
SALES
OVERVIEW
In 1999, sales from continuing operations increased 42 percent to
$318.5 million.
- Acquisitions contributedyear
eliminated sales of $84.3 million.
- Internal marketing actions resulted in a net increase in sales of
$14.0 million.
- External forces accounted for a net decrease of $4.1 million.$10.1 million and $18.1 million, respectively. In
1998,addition, the acquisition of a manufacturer of medical and pharmaceutical
products and an automotive heat-shield operation contributed sales of
$11.4 million. Internal marketing actions plus external market forces produced a
combined negativeunfavorable impact of $21.5 million.
During 1997, internal and external forces combinedforeign currency translation reduced sales
by $12.3 million in 2000. Growth within the Company's core businesses of
$26.6 million partially offset the decrease in net sales. Sales of high-
efficiency air-filtration media strengthened, sales to the automotive
thermal/acoustical market were bolstered by new-product launches, and Lydall
Transport, Ltd. sales also improved.
In 1999, net sales increased by $91.7 million, a net
$18.3 million.
ACQUISITIONS
Lydall isolates the impact of acquisitions for three years, after which time it
considers such operations to be fully integrated. The Company made no
acquisitions in 1999. However, three acquisitions made in 1998 were the primary
drivers of sales growth in 1999.50.1 percent increase over
1998. The acquisition of Gerhardi, included in the Thermal/Acoustical segment, had no
impact on sales or resultsSegment,
accounted for $75.3 million of operationsthe increase. An additional $9.0 million of the
increase was generated by other acquisitions made in 1998. In 1999, Gerhardi contributed
sales totaling $75.3 million. Acquiring Gerhardi increased international sales
and fulfilled the Company's goal of having a thermal manufacturing presence in
Europe. Gerhardi's heat-shield business directly complements Lydall's domestic
automotive business and opens growth opportunities both in the U. S. and Europe.
The injection-molding and chrome-plating operations of Gerhardi, however, are
not central to Lydall's long-term strategic focus. Accordingly, in the fourth
quarter of 1999, the Company announced its intention to divest the two non-core
operations. These two operations generated sales of approximately $50 million in
1999. The Company expects to sell these businesses in 2000.
Two other 1998 acquisitions--a medical device business, part of the
Filtration/Separation segment, and a domestic automotive heat-shield operation,
included in the Thermal/Acoustical segment--added incremental sales of
$9.0 million in 1999 and $11.4 million in 1998.
9
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INTERNAL MARKETING ACTIONS
During 1999, sales increased by a net $14.0 million due to internal marketing
actions. Lydall defines product introductions, net of product discontinuances,
market-share changes, and selling price changes as internal marketing actions.
Internal marketing actions caused a net increase in sales of $700 thousand in
1998 and a net decrease of $13.1 million in 1997.
Sales from 1999 product introductions of $13.7 million represented a 54-percent
increase over 1998 new-product sales of $8.9 million. This compares with
incremental new-product sales of $2.4 million in 1997. 1999 growth was primarily
attributable to automotive applications; specifically, the development of Zero
Clearance-TM- high-performance, self-adhesive underbody shields, innovative
Polyshield-TM- components, the acoustical barrier, dBLyte-TM-, and a large
thermal/acoustical shield introduced on the latest Lincoln LS and Jaguar S-type
models. New-product
introductions, also occurred in the Filtration/Separation
segment, including both air filtration and biomedical fluid processing products.
Product discontinuances amounted to $6.6 million in 1999 compared with
$3.1 million in 1998 and $6.1 million in 1997. As with product introductions,
most product discontinuances related to automotive products under the
Thermal/Acoustical segment. The 1999 and 1998 reductions were primarily
attributable to the replacement of existing products by new products. In 1997,
Lydall exited certain low-margin non-core products, while discontinuing a
flame-barrier material sold to the office-panel market.
Market-share changes in 1999 caused a net sales increase of $8.9 million. A
healthy market expansion overseas by the materials-handling business of the
Paperboard segment was offset by losses of boxboard market share within that
same segment. The Filtration/Separation segment achieved market-share increases,
particularly in Europe and Asia, and the Company's distribution services
operation captured market share.
In 1998, changes in market share caused sales to decrease by $4.2 million. This
decrease was primarily due to lower Asian demand for filtration media employed
in high-efficiency air-filtration applications and from losses to lower cost
competitors in the mature electrical insulation market.
In 1997, net market-share losses of $1.4 million occurred primarily in the Thermal/Acoustical segment related toSegment, net of product
discontinuances, contributed another $7.1 million in net sales for 1999.
Gross Margin
Gross margin for the automotive market.
Pricesyear ended December 31, 2000 was 26.3 percent compared
with 24.9 percent for the year ended December 31, 1999. Gross margin in 2000
was unfavorably impacted by the two unprofitable German operations sold at the
end of the third quarter of 2000.
Gross margin for 1999 declined by a net $2.0 million duringsignificantly from the 1998 level of 31.5
percent. The increased sales volume resulting from the acquisition of Gerhardi
in 1999 and $900 thousand overgenerated gross margins significantly below the course of 1998.Company's average. In
both years,addition, the Company experienced pricing weakness was feltpressures in theits Thermal/Acoustical
and Filtration/Separation segments,Segments, specifically related to non-automotive
thermal barriers and air filterair-filtration media. Pricing adjustments associated with
long-term contractual commitments also affected certain automotive products.
In 1998, the Paperboard segment recorded price increases of
approximately $1.7 million.
In 1997, pricing caused a drop in sales of $8.0 million. Price changes in 1997
were concentrated in the Paperboard segment. Selling, prices of Lydall's
materials-handling products in this segment are somewhat dependent on the
pricing of linerboard, its primary raw material.
EXTERNAL MARKET FORCES
Lydall defines external forces as the effects of economicProduct Development, and market changes
beyond the influence of management, including the effects of market decay,
pricing pressures, and foreign exchange. During 1999, external forces
10
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reduced sales by a net $4.1 million. Economic growth and market-share gains made
in the Filtration/Separation segment were offset by market changes, such as the
design-out of certain products in the Thermal/Acoustical segment. Competitive
pricing environments, particularly in the Paperboard segment, also countered
economic and market-share growth during the year.
In 1998, external market forces caused a deterioration in sales of
$22.2 million. A weak air-filtration market, declining use of pyrotechnic airbag
inflator systems that employ Lydall's materials, and a number of automotive
thermal barrier design changes were the major contributors to this decline.
In 1997, external forces reduced sales by $5.2 million. Positive economic forces
and market growth substantially offset the effects of market decay and other
negative market changes during the year. Currency exchange rates, which have a
nominal effect in most years, resulted in a $2.2 million reduction in sales in
1997.
- - --------------------------------------------------------------------------------
CHANGES IN SALES
- - ---------------------------------------------------------------------
$ millions 1999 1998 1997
- - ---------------------------------------------------------------------
Prior year's net sales $224.3 $234.4 $252.7
.....................................................................
Acquisitions 84.3 11.4 --
Internal marketing actions 14.0 .7 (13.1)
External market forces (4.1) (22.2) (5.2)
.....................................................................
Total change 94.2 (10.1) (18.3)
.....................................................................
Current year's net sales $318.5 $224.3 $234.4
- - ---------------------------------------------------------------------
GROSS MARGIN
OVERVIEW
Gross margin increased to $75.5 million during 1999, but declined as a percent
of sales to 23.7 percent.
- Acquisitions added gross margin of $9.9 million.
- The increased volume had a positive impact of $2.2 million.
- Net pricing actions eroded gross margin by $1.2 million.
- Cost reductions improved gross margin by $1.0 million.
In 1999, margins were lowered by cost overruns associated with process redesigns
and new process implementations necessitated by the introduction of a record
number of new automotive products. The Company improved manufacturing
efficiencies during the year and put procedures in place to facilitate smoother,
more cost efficient new-product launches in the future.
Gross margin in 1998 was $65.9 million, or 29.4 percent of sales. Acquisitions
produced incremental margin improvements in 1998, but lower sales volume, and
the combined effect of price decreases in relation to net cost increases acted
to reduce margins. The shutdown and consolidation of automotive thermal
operations in North
11
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Carolina and additional overhead to support the operations of Charter
Medical, Ltd. as a stand-alone facility lowered margins. Cost-reduction programs
during the year contributed positively to overall gross-margin performance.
In 1997, gross margin was $76.9 million, or 32.8 percent of sales. Gross margin
was negatively impacted by lower sales volume and the net effects of price
decreases that were only partially offset by cost decreases from vendors.
ACQUISITIONS
Gerhardi increased Lydall's total 1999 sales by approximately 34 percent, but
diluted total gross margin as a percent of total sales. During the year,
Gerhardi improved its margins while making management changes, relocating and
consolidating metal heat-shield production, and successfully completing an
extensive expansion of the Meinerzhagen plant.
CharterMed, Inc., now Charter Medical in New Jersey, and Engineered Thermal
Systems, Incorporated, now the St. Johnsbury Operation of Lydall Westex, were
successfully integrated into the Company over the course of 1999. Margins at the
New Jersey Operation showed marked improvement despite the distraction of
construction during the year of a manufacturing clean room devoted to
pharmaceutical processing products. The St. Johnsbury Operation improved its
margin performance, added new business, and began construction of a larger
manufacturing plant to accommodate sales growth and to support its focus on
large, complex shields. Lydall looks forward to both these acquisitions
continuing to grow and contributing positively to company-wide margin
improvements in 2000.
In 1998, Charter Medical in New Jersey and the St. Johnsbury Operation combined
to produce $3.2 million of incremental gross margin. Since Gerhardi was acquired
on December 30, 1998, it had no effect on Lydall's 1998 consolidated operating
results.
Gross margin was not affected by acquisitions in 1997.
EFFECTS OF CHANGES IN SALES VOLUME
In 1999, gross margin was depressed by increased sales volume resulting from the
acquisition of Gerhardi, whose margins were significantly below the Company's
average. Also, gains in gross margin from increased sales of Lydall's core
businesses and benefits of cost-reduction efforts during the year were
diminished by pricing pressures.
Lower sales volume produced a $9.7 million decline in gross margin in 1998,
accounting for approximately 90 percent of the total margin decline for the
year. Positive contributions from new products and market growth in several
product lines were recorded in 1998. However, the combined negative effects from
design-outs of automotive heat-management products, market decay, market-share
losses, effects of the Asian economy, and a poor market for filtration products
worldwide overwhelmed these positives.
The same dynamics that affected gross margin in 1998 reduced gross margin in
1997 by $5.2 million. The loss of operating leverage due to design-outs and
product discontinuation offset the benefits of economic and market growth.
12
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PRICE CHANGES IN RELATION TO COST INCREASES
Net pricing actions eroded gross margin by $1.2 million in 1999. In both 1999
and 1998, the Thermal/Acoustical and Filtration/Separation segments faced
pricing pressures as described under "Sales" in this Item 7. The pricing
environments for the Paperboard segment, although somewhat more stable than in
the two previous years, remained extremely competitive in 1999.
A primary focus of the Company's cost-reduction campaign in 1999 was in the area
of raw material costs. Savings achieved through these initiatives partly
alleviated pricing pressures experienced during the year.
In 1998, prices declined overall by $900 thousand. Vendor costs rose by an
estimated $2.0 million which created a combined negative impact on gross margin
of $2.9 million. The largest impact occurred in the Thermal/Acoustical segment
for products sold to non-automotive thermal applications. The materials-handling
and automotive thermal-barrier businesses also experienced some margin erosion
due to pricing pressures.
During 1997, pricing actions reduced gross margin by $3.5 million. The largest
part of this reduction emanated from the Paperboard segment related to
materials-handling products. Price concessions were evident in Lydall's
Thermal/Acoustical and Filtration/Separation segments as well.
COST REDUCTIONS
Over the last three years, Lydall has focused a great deal of effort on a
company-wide cost-reduction program. A large portion of the savings realized in
1999 was reinvested in the development of the core businesses of thermal/
acoustical and filtration/separation and in other initiatives such as Lydall's
Economic Value-Added (EVA) Program. The net impact of these actions on gross
margin was a positive $1.0 million.
The Company has consistently driven down manufacturing costs over the years
through a combination of management actions and capital improvements. The
positive impact on gross margin of these actions in 1998 was $2.5 million
compared with savings of $2.4 million in 1997.
OTHER EFFECTS
Other effects normally include fluctuations in inventory, depreciation expense,
and other adjustments. These factors reduced gross margin by $2.3 million in
1999.
In 1998, the above factors reduced margins by approximately $2.0 million. Lydall
also closed a facility in North Carolina and wrote off an outdated production
line and related support equipment in France. In addition, the Company set up a
new legal entity and relocated the medical business from within an automotive
thermal/ acoustical operation to a separate facility. The total impact of other
effects on 1998 gross margin was $4.1 million.
In 1997, other effects had a positive impact on gross margin of $1.1 million.
13
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- - --------------------------------------------------------------------------------
CHANGES IN GROSS MARGIN
- - --------------------------------------------------------------------------------
$ millions 1999 1998 1997
- - --------------------------------------------------------------------------------
Prior year's gross margin $65.9 $76.9 $82.1
................................................................................
Acquisitions 9.9 3.2 --
Effects of changes in sales volume 2.2 (9.7) (5.2)
Price increases in relation to cost changes (1.2) (2.9) (3.5)
Cost reductions 1.0 2.5 2.4
Other effects (2.3) (4.1) 1.1
................................................................................
Total change 9.6 (11.0) (5.2)
Current year's gross margin $75.5 $65.9 $76.9
................................................................................
As a percent of net sales 23.7 29.4 32.8
- - --------------------------------------------------------------------------------
PRETAX INCOME FROM CONTINUING OPERATIONS
OVERVIEW
The Company earned $19.2 million of pretax income from continuing operations in
1999. The net impact of acquisitions was slightly positive in 1999, however,
pricing pressures, especially in paperboard markets, lowered pretax income.
Pretax income from continuing operations declined to $14.5 million in 1998 from
$35.2 million in 1997.
ACQUISITIONS
In 1999, Gerhardi incurred an operating loss of $600 thousand. As disclosed
under "Sales" in this Item 7, Lydall intends to sell the unprofitable
injection-molding and chrome-plating operations of Gerhardi in 2000. Charter
Medical in New Jersey and the St. Johnsbury Operation contributed an incremental
$1.1 million of operating profit. There was no acquisition effect on pretax
income in 1998 and 1997.
OPERATIONS
Pretax income from continuing operations in 1999, other than acquisitions,
equaled $18.6 million compared with $14.5 million in 1998. As discussed in the
"Gross Margin" section of Item 7, there were many factors that impacted
operating results in 1999. Gains from increased sales volume and operating
efficiencies were countered by delays associated with new-product launches at
domestic automotive operations, pricing pressures in the filtration markets, and
competitive conditions in the Paperboard segment.
14
- - --------------------------------------------------------------------------------Administrative Expenses
Selling, product development, and administrative expenses were approximately
$1.0 million or 1.9 percent lower in 2000 than in 1999. As a percentage of
sales, these costs increased slightly to 19.0 percent in 2000 from 18.4
percent in 1999.
Selling, product development, and administrative expenses increased by $6.0
million, or 13.5 percent, in 1999 compared to 1998. Incremental selling,
product development, and administrative expenses totaling $9.4 million were
incurred primarily related to the acquisition of Gerhardi. The Company reduced
selling, product development, and administrative expenses at other operations
during 1999 by $3.4 million.
Other Income and Expense
For the year by $5.1ended December 31, 2000, other expense amounted to $25.0 million.
This compares withThe two major components of this amount were a $29.7 million loss on the
disposition of two German operations and an increase in 1998offsetting gain of $3.7$6.1 million includingon
the pretax costsale of the severance agreementgasket business.
8
- -------------------------------------------------------------------------------
Interest expense was $1.2 million for the
Company's former chairman and chief executive officer and selected impairment
charges.
INVESTMENTS AND FINANCING
Nonoperating investments and financing costs combined to reduce pretax income by
$600 thousand2000 compared with $2.6 million in 1999.
InvestmentThe reduction in interest expense resulted from lower outstanding debt levels
and foreign exchange transaction income rosethe capitalization of interest associated with plant expansions and
capital additions for new product platforms.
For 1999, other expense amounted to $1.5 million and consisted primarily of
interest expense of $2.6 million, offset by a net $1.2 million. The majority of this increase resulted from a foreign exchange transaction
gain due toof $1.4 million resulting from the appreciation of the dollar in relation
to the Euro. The gain related toEuro on a portion of the Gerhardi purchase price funded
from domestic credit lines denominatedEuro-denominated term loan. Interest expense in Euro. Also, during 1999 interest
expense
increased by $1.8 million as a result ofthe Company maintained higher debt levels
associated with the three acquisitions made in 1998.
Nonoperating investmentsOther expense in 1998 amounted to $890 thousand and financing costs combinedconsisted primarily of
interest expense of $820 thousand and investment losses of $287 thousand,
partially offset by foreign currency transaction gains and miscellaneous
income.
Income Taxes
The effective tax for the year ended December 31, 2000 was a benefit of 39.5
percent compared with a provision of 31.8 percent in 1999. The 2000 tax rate
reflects a tax benefit on the consolidated loss for the year and additional
benefits derived from exempt Foreign Sales Corporation income and state income
tax credits.
The effective tax rate increased 1.5 percent in 1999 compared to 1998. The
increase is mainly a result of exempt Foreign Sales Corporation income,
permanent book to tax differences, and credits representing a smaller
proportionate share of taxable income in 1999.
SEGMENT RESULTS
Thermal/Acoustical
Thermal/Acoustical sales for the year ended December 31, 2000 were $158.5
million, a decrease pretaxof $10.8 million, or 6.4 percent, from 1999. Operating
income for the year ended December 31, 2000 was $16.8 million compared with
$13.1 million in 1999, an increase of $3.7 million, or 28.3 percent.
The disposition of two unprofitable German operations at the end of the third
quarter 2000, and the unfavorable impact of foreign exchange translation
reduced sales by $2.7$18.1 million and $8.4 million, respectively, for 2000
compared with 1999. Net sales, adjusted for the disposition of the German
operations and the impact of unfavorable fluctuations in foreign currency
exchange rates, increased by approximately $15.7 million, or 13.4 percent, for
the year ended 2000 compared with 1999. The introduction of new automotive
products supported sales growth, while industrial thermal/acoustical product
sales were relatively flat in 2000 due to the rise in interest rates and the
slowdown in the economy.
Thermal/Acoustical sales for 1999 were $169.3 million compared with $81.8
million for 1998, an increase of $87.5 million. Operating income increased by
$.8 million, or 6.8 percent, for 1999 compared with 1998. The acquisition of
Gerhardi accounted for $75.3 million of the increase in sales. Also in 1999,
the Company introduced several new automotive thermal/acoustical products.
Product discontinuances, mostly related to the automotive thermal/acoustical
market, somewhat offset the gains from new-product introductions.
Filtration/Separation
Sales for the Filtration/Separation Segment were $67.9 million for the year
ended December 31, 2000. This compares to sales of $59.0 million for 1999, an
increase of $8.9 million, or 15.1 percent. Operating income for the year ended
December 31, 2000 totaled $10.2 million compared with $8.5 million in 1999, an
increase of $1.7 million, or 20.6 percent.
9
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This segment benefited from increased sales of high-efficiency air filtration
media to the Far East and domestic markets and increased sales volume to the
consumer products market. Strong sales of synthetic filtration media also
contributed to the increase.
Biomedical and pharmaceutical processing products achieved record sales for
the year as additional customers qualified the Company's BioPak(TM)
bioprocessing containers and the Company's blood and cell therapy products
continued to gain market share.
In 1999, sales increased by $3.1 million, or 5.5 percent, from $55.9 million
in 1998. Investment balancesOperating income increased by $.9 million, or 11.8 percent. The
majority of the growth stemmed from the Company's biomedical and
pharmaceutical processing products. Also, sales of high-efficiency air
filtration media to the Far East and Europe improved from 1998 sales levels as
the Company gained market share.
Other Products and Services
Sales of Other Products and Services decreased by $11.7 million, or 23.2
percent, in 2000 to $38.8 million. Operating income was $3.8 million in 2000
compared to $7.3 million in 1999.
The decreases in sales and operating income resulted primarily from the sale
of the gasket operation in the first quarter of 2000. Excluding the gasket
business, sales and operating income were much$1.6 million and $2.2 million lower
asin 2000 than in 1999 mainly due to declining pencil-board sales.
Sales in 1999 were $50.5 million compared with $47.5 million in 1998. The
increase of $3.0 million, or 6.3 percent, stemmed primarily from market-share
gains by Lydall funded a
major capital program, repurchased common stock,Transport, Ltd. Operating income for 1999 increased $3.7
million from $3.6 million in 1998. Operating income in 1998 included an
impairment charge of $.8 million related to fixed assets. After adjusting for
the impairment charge, operating income increased $2.9 million primarily due
to the market-share gains achieved by Lydall Transport, Ltd. and made three acquisitions.cost
reduction efforts in the Company's non-core operations.
Paperboard
In 1997, investmentsFebruary 2001, the Company announced the discontinuation of this segment,
which consisted primarily of the Southern Products and financing costs produced $700 thousandLydall & Foulds
Divisions. On February 1, 2001, Lydall announced that the Lydall & Foulds
Division would cease operations. On February 5, 2001, the Southern Products
Division was sold.
The results of additional
pretax income. Cash flow during 1997 wasthe Paperboard Segment have been excluded from continuing
operations for all years presented. See Note 5 in excess of operating and financing
requirements resulting in higher investment income.
CHANGES IN PRETAX INCOME FROM CONTINUING OPERATIONS
- - --------------------------------------------------------------------------------------------
$ millions 1999 1998 1997
- - --------------------------------------------------------------------------------------------
Prior year's pretax income from continuing operations $14.5 $35.2 $39.9
............................................................................................
Acquisitions--change in:
Gross margin 9.9 3.2 --
Selling, product development, and administrative
expenses (9.4) (3.2) --
............................................................................................
Total change from acquisitions .5 -- --
............................................................................................
Operations--change in:
Gross margin (.3) (14.2) (5.2)
Selling, product development, and administrative
expenses 5.1 (3.7) (0.6)
Other income/expense -- (0.1) 0.4
............................................................................................
Total change from operations 4.8 (18.0) (5.4)
Nonoperating investments and financing--change in:
Investment and foreign exchange transaction gain (loss) 1.2 (2.3) 0.6
Interest expense (1.8) (0.4) 0.1
............................................................................................
Total change from nonoperating investments and financing (.6) (2.7) 0.7
............................................................................................
Total change 4.7 (20.7) (4.7)
............................................................................................
Current year's pretax income from continuing operations $19.2 $14.5 $35.2
- - --------------------------------------------------------------------------------------------
15
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FORWARD-LOOKING STATEMENTS"Notes to Consolidated
Financial Statements."
Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. In general, any
statements contained in this report that are not statements of historical fact
may be deemed to be forward-looking statements within the meaning of Section
21E. Without limiting the generality of the foregoing, the words "believes,"
"anticipates," "plans," "expects," and other similar expressions are intended
to identify forward-looking statements. Investors should be aware that such
forward-looking statements are intended to provide management's current
expectations for the future operating and financial performance of the Company
based on assumptions believed to be valid at the currenttime. Thus, such expectations of
management and
are inherently subject to a number of risks and
10
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uncertainties that could cause the actual results of the Company to differ
materially from those reflected in the forward-looking statements. In addition to
general economic conditions and market trends, some of the important factors
which could cause actual results to differ materially from those projected
include, but are not limited to, the following:
A MAJOR DOWNTURN OF THEMajor Downturn of the U.S. AND EUROPEAN AUTOMOTIVE MARKET.or European Automotive Markets. Although Lydall's
automotive sales are not solely contingent on the strength of the automotive
market, a significant downturn of the U.S. andor European automotive industryindustries
could have a substantial impact on Lydall's results. The Company can also be
affected when automotive manufacturers discontinue production of specific
models that contain Lydall's products. On the other hand, Lydall benefits from
the introduction of new models.models that contain the Company's products.
Approximately 4651 percent of Lydall's total sales in 19992000 were to the
automotive market. Lydall's primary automotive products are thermal and acoustical
barriers and heat shields employed both inside and outsideunder the body of vehicles.
The Company also produces acoustical barrier products.
Most of Lydall's products are supplied to meet unique, niche applications.
ThereLydall may have a number of components on a particular vehicle. Also,
applications range across all types of vehicles from sport-utility models to
trucks and vans to cars. Thus, there is no direct correlation between the
number of Lydall parts on a vehicleproducts sold and the number of unitsvehicles being built as with tires or steering wheels for example.by
automotive manufacturers. Slight fluctuations in automotive production have
relatively little effect on Lydall's business; however, a major downward shift
could prevent Lydall from achieving its projected results.
RAW-MATERIAL PRICING AND SUPPLY.Raw-Material Pricing and Supply. Raw-material pricing and supply issues affect
all of Lydall's businesses and can influence results in the short term. Pricing
fluctuations, however, particularly impact the Company's materials-handling
business. These products are made from laminated virgin kraft paperboard, also
known as linerboard. The materials-handling business is unique for Lydall
because the selling price of Lydall's products move in relation to pricing of
linerboard, its primary raw material. Thus, significant changes in the pricing
of linerboard directly affect this portion of Lydall's business.
The
Thermal/Acoustical segmentSegment uses aluminum in the manufacturing of most
automotive heat-shields.heat shields. The heat shields are sold under long-term agreements
with established fixed sales prices. The volatilityVolatility in aluminum prices over the
agreement periods could impact Thermal/Acoustical segmentSegment profitability.
NEW-PRODUCT INTRODUCTIONS.New-Product Introductions. Improved performance and growth is partially linked
to new-product introductions planned for the future. The timing and degree of
success of new-product programs could impact Lydall's projected results.
The CompanyLydall does not undertake to update any forward-looking statement made in this
report or that may from time to time be made by or on behalf of the Company.
LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
Lydall completed 19992000 with $45.2$32.0 million of indebtedness outstanding under its
various credit facilities.facilities, incurred primarily to fund acquisitions made during
the past three years. The indebtedness is related to the three strategic acquisitions
completed in 1998. The 19992000 year-end balance represents a decrease of 16
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$9.5$13.2
million, or 17 percent. Operating cash flow in 1999 increased by
1929.1 percent, from 1998 to $35.6 million.the prior year. Debt was reduced in 2000
despite a $19.8 million capital investment program. Proceeds received from
operations divested during the year contributed substantially toward overall
debt reduction in 2000. Capital expenditures in 1999 and capital investments
of1998 totaled $16.8
million were made in 1999.and $17.7 million, respectively. The Company funded a similar leveldid not purchase any of
capital expendituresits Common Stock in 1998 and 1997.2000. Purchases of Common Stock totaled $.8 million in
1999 totaled
$800 thousand compared with purchases in 1998 and 1997 totaling $10.3 million in 1998. Operating cash flow (earnings before interest,
taxes, depreciation and $27.4amortization, and non-recurring transactions) in 2000
decreased by 10.3 percent to $32.0 million respectively.
CASH FLOW OVERVIEWfrom 1999.
Cash Flow Overview
Cash flow from operating activities in 19992000 was $20.6$17.3 million compared with
$20.3$20.7 million in 1999 and $21.1 million in 1998. In 1997,The decrease in cash from operating activities equaled
$24.5 million. The positiveflow was
primarily attributable to changes in working capital items and aggregate cash
flows associated with the gasket business divested in 1999 were derived from operating
earnings before deducting non-cash charges from depreciation, amortization, and
loss on disposalthe first quarter of
the Wovens segment.2000.
11
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Cash used for investing activities equaled $5.4 million in 2000 consisting
primarily of capital expenditures of $19.8 million partially offset by
proceeds from the divestment of businesses totaling $13.9 million. Investing
activities in 1999 wasused $17.1 million mostlyin cash primarily for capital
expenditures. In 1998, investing activities utilized $60.0 million in cash. Of
this amount, $46.4 million related to acquisitions and $17.7 million to
capital expenditures. Investment activityProceeds of $3.9 million from the sale of investments in
1999 was down from $60.01998 partially offset these expenditures.
In 2000, financing activities used $10.6 million compared with $4.6 million in
1998, as no acquisitions were completed in 1999. Investing activities in 1997
totaled $16.2Lydall used proceeds from divested operations during the year to
accelerate the payment of its long-term debt. For the year, debt was reduced
by $11.3 million primarily capital expenditure related.before the effect of foreign exchange. Financing activities
used $4.5$4.6 million in 1999. Payments and proceeds related1999 to short- and long-term borrowings were $208.5 million and $201.7 million,
respectively in 1999.reduce indebtedness. In 1998, Lydall generated
$33.0$32.2 million in cash from financing activities. Net proceeds from bank credit
lines wereof $44.6 million whilewere used to fund acquisitions during the largest useyear and to
purchase $10.3 million of cash was the purchase of common stock for
$10.3 million. In 1997, financing activities resulted in net cash outflows of
$37.5 million, including debt repayments totaling $12.5 million and common stock
purchases of $27.4 million.
WORKING CAPITAL PRODUCTIVITYLydall Common Stock.
Working Capital Productivity
Lydall measures working capital productivity, or working capital turnover, to
assess short-term utilization of operating resources. Working capital turnover
is defined as net sales divided by the quarterly average of receivables and
inventory, less accounts payable. Turnover declined by 9 percentin 2000 equaled the same level
achieved in 1999, to 5.6
times from 6.2 timesor 5.4 times. Working capital turnover in 1998 was 5.9
times. Working capital turnover in 2000 and 7.3 times in 1997. Overall performance1999 was negatively impactedaffected by
the Gerhardi acquisitionacquisition. Management expects working capital productivity will
improve in 2001 as a result of better inventory and Charter Medical in New
Jersey, both acquired in 1998. Excluding the aforementioned operations,
significant progress with inventory management was achieved throughout the
Company, offset by increased levels of accounts receivable
management and lower accounts
payable. Management's goal is to improve turnover to historical ratesthe sale of the two non-core German operations in 2000.
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$ millions 1999 1998 1997
- - -------------------------------------------------------------------------------------------------
Net sales $318.5 $224.3 $234.4
Average working capital 56.7 36.2 32.3
Working capital productivity 5.6 6.2 7.3
Percent change from previous year (9) (15) (12)
- - -------------------------------------------------------------------------------------------------
FUTURE CASH REQUIREMENTSFuture Cash Requirements
Cash requirements for 20002001 will include the funding of ongoing operations,
capital expenditures, and acquisitions. In 1998, Lydall suspended purchases of Common
Stock except to offset shares granted under the Company's stock option award
program, choosing to focus on cash requirements for existing operations and
acquisitions.acquisitions, if completed. The 20002001 capital budget
is $14.7$17.0 million, down from actual expenditures of $19.8 million in 2000 and
more in line with 1999 and 1998 ofexpenditures totaling $16.8 million and $17.7 million, respectively.million.
Management expects to finance capital expenditures and working capital needs
from cash provided by operating activities in 2000.2001. Acquisitions, if
completed, would be financed under the credit facility described under "Credit
Arrangements" below.
17
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CREDIT ARRANGEMENTSbelow, or other forms of debt financing, as deemed appropriate.
Currently, the Company has no plans to repurchase its Common Stock except to
offset shares granted under Lydall's stock option award program, as deemed
appropriate.
Credit Arrangements
Lydall, Inc. and certain subsidiaries entered into a $69 million credit facility on July
14,199914, 1999 with a group of five banking institutions. The entireAt December 31, 2000, the
facility iswas comprised of a $50 million domestic revolving credit facility,
renewed every three years, of which $10.1 million was outstanding, and a Euro-denominated five-yearEuro-
denominated term loan, with an outstanding balance of $13.9 million, which is
an obligation of one of Lydall's German subsidiary. The current credit facility replaces annually
renewed domestic unsecured credit lines totaling $70 million.subsidiaries. The interest rate on the
revolving credit facility is based on various money-market rates selected by
the Company at the time of borrowing. The credit facility carries an annual
facility fee, as well as a commitment fee on the unused portion of the
facility. The Company is required to maintain certain financial ratios and
other financial conditions as part of the credit agreement.facility. The agreementfacility also
prohibits the Company
12
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from incurring certain indebtedness, restricts asset sales and capital
expenditures, and limits certain investments and dividends to the extent such
activity affects thereduces financial ratios.ratios below agreed upon levels.
Certain domestic and foreign subsidiaries of the Company maintain additional lines of
credit totaling $11.5$11.1 million, as of which $8.0 million was outstanding at
December 31, 1999.2000. These credit facilities incur interest at rates ranging
from 2.33.6 percent to LIBOR plus
25.9 percent.
Management believes that current credit arrangements provide amplesufficient
capacity to meet working capital requirements and to fund future capital
expenditures.
CAPITAL STRUCTURECapital Structure
At the end of 2000, total indebtedness was $32.0 million, or 22.3 percent of
Lydall's long-term financial strategy calls for the prudent use of debt
financing. Substantialtotal capital structure. Cash from operating activities in
conjunction with substantial debt financing in combination with cash from operating
activitiessources are available to complete
strategic acquisitions in Lydall's core thermal/acoustical and filtration/separationbusiness markets. At the end of 1999, total
indebtedness was $45.2 million, representing 28 percent of Lydall's total
capital structure.
The Company continually explores its core markets for suitable acquisitions.
Based on a 40-percent debt-to-total-capitalization ratio and maintaining
investment grade credit quality,Given appropriate acquisition opportunities, the Company could borrow upwould consider
increasing its debt to $50 million to
fund acquisitions. Management has indicated a willingness to exceed the
40 percent debt-to-total-capitalization ratio to complete a compelling strategic
acquisition.
YEAR 2000
Lydall began a comprehensive information technology upgrade program (Lydall
2000) in 1995. Lydall 2000 addressed information technologytotal capitalization percentage above current levels.
Other Key Financial Items
Cash and non-information
technology systems, and also included an assessment of the status of third
parties. The project went beyond accommodating century-dating issues and
included the implementation of systems to improve product quality, process
efficiencies, and productivity.
As of December 31, 1999, the Company had satisfactorily completed the Lydall
2000 initiative, which included testing major systems in a simulated environment
on and around sensitive Year 2000 dates. Date-sensitive components of machinery
and equipment had been reviewed and remediation of any non-compliant parts was
completed. The Company also examined information from all major customers and
suppliers and did not identify any significant Year 2000 concerns.
As of the date of this report, the Company has not experienced any material
interruptions resulting from Year 2000 date processing. While the possibility of
issues arising from Year 2000 date processing still exists, the impact is likely
to be immaterial. The Company will continue to monitor for Year 2000 problems
during the first half of 2000 to ensure that any potential problems are
minimized.
18
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OTHER KEY FINANCIAL ITEMS
CASH AND CASH EQUIVALENTS.cash equivalents. Cash and cash equivalents decreasedincreased to $2.2 million
as of December 31, 2000 compared to $1.2 million as of December 31, 1999.
Receivables. Receivables, net of the allowance for doubtful accounts, were
$40.0 million at the end of 1999 from $2.32000 compared to $45.5 million in 1998.
RECEIVABLES. Receivables1999. Trade
receivables (including receivables of operations whose assets are classified
as held for sale, receivables classified as long-term, and net of receivables
related to discontinued operations) were $47.1$40.1 million inand $37.9 million for
2000 and 1999, and $48.6 million in 1998,
of whichrespectively. Days sales outstanding for trade receivables were
$44.7 million and $46.8 million for 1999 and
1998, respectively. Days of sales outstanding54 days in trade receivables were 432000 compared to 42 days in 1999 and 50 in 1998. Foreign and export sales were approximately 39 percent of
total sales in 1999, 18 percent in 1998, and 20 percent in 1997. These sales are
concentrated primarily in Europe, the Far East, Mexico and Canada.
INVENTORIES.1999.
Inventories. Inventories were $29.1$21.5 million at December 31, 1999,2000, net of a
LIFO reservesreserve of $.6 million compared to $20.5 million, net of a $1.6 million
LIFO reserve at December 31, 1999. The decrease in the LIFO reserve is
primarily due to the reclassification of net assets related to the
discontinued Paperboard Segment, which accounted for $.8 million of the
decrease, and $28.9the reclassification of assets held for sale, which accounted
for $.2 million of the decrease.
Working capital. Working capital decreased to $54.6 million at December 31,
1998 net of LIFO
reserves of $1.2 million.
WORKING CAPITAL. Working capital increased2000 compared to $64.6 million onat December 31, 1999 from a deficit of $9.1 million on December 31, 1998.1999. The ratio of current
assets to current liabilities in 2000 increased to 2.32 from 2.28 from 0.91.in 1999. The
majorityincrease is primarily related to the discontinuation of the working capital improvement resulted from reclassificationPaperboard Segment
as the net assets of certain long-term
assets and liabilities to current assets and related liabilities held for sale.
In addition, a portion of debtthis segment were classified as current assets at
December 31, 1998 is
classified as long-term at December 31, 1999 based on the Company's new credit
arrangement entered into in July 1999.
CAPITAL ASSET EXPENDITURES.2000.
Capital asset expenditures. Capital asset expenditures were $19.8 million in
2000, $16.8 million in 1999 and $17.7 million in 1998, and $17.1 million in 1997. Depreciation was
$11.9 million in 1999, $8.8 million in 1998, and $8.0 million in 1997.1998. The Company's 2000 Capital Plan callscapital
budget for commitments of $14.7 million. Expenditures
in 2000 are2001 is $17.0 million, which is expected to be financed from
existingoperating cash balances or cash
generated from operations.
DEBT TO TOTAL CAPITALIZATION.flows.
Debt to total capitalization. Debt to total capitalization has decreased to
2822.3 percent in 2000 compared to 28.2 percent in 1999 from 33 percent in 1998.
COMMON STOCKHOLDERS' EQUITY.as Lydall reduced its
level of outstanding debt.
13
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Common stockholders' equity. Common stockholders' equity increaseddecreased to $111.8
million at December 31, 2000 from $115.2 million at December 31, 1999, from $109.2 million at December 31, 1998.1999. On a
per-share basis, common stockholders' equity increaseddecreased to $7.04 at December
31, 2000 from $7.34 at December 31, 1999 from $6.96 at December 31, 1998.
DIVIDEND POLICY.1999.
Dividend policy. The Company does not pay a cash dividend on its Common Stock
and does not anticipate doing so in the foreseeable future. Cash will be
reinvested into core businesses.
RESEARCH AND DEVELOPMENT.Research and development. Research and development investments were $8.3
million in 2000, $7.6 million in 1999, and $8.7 million in both 1998 and 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS1998.
Recently issued accounting standards. See Note 1 in the "Notes to Consolidated
Financial Statements."
1914
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ITEM 7A.-------------------------------------------------------------------------------
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Lydall is exposed to market risk related to changes in foreign currency
exchange rates and interest rates.
FOREIGN CURRENCY RISKForeign Currency Risk
Lydall has sales and manufacturing activities in foreign countries. As a
result, financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in the foreign
markets in which the Company distributes its products. The Company's primary
currency exposure is with the Euro.Euro, and to a lesser degree, with the Japanese
Yen.
Lydall's foreign and domestic operations limit foreign currency exchange
transaction risk by completing transactions primarily in their local currencies.currencies whenever
possible. In addition, Lydall periodically enters into foreign currency
forward exchange contracts to mitigate exposure to foreign currency
volatility. At December 31, 2000 and 1999, the Company had no foreign currency
forward exchange contracts outstanding. Lydall utilizes bank loans and other
debt instruments throughout its operations. To mitigate foreign currency risk,
such debt is taken outdenominated primarily in underlyingthe local currenciescurrency of its subsidiaries.
Lydall uses foreign currency forward contracts to mitigate exposure to foreign
currency volatility. At December 31, 1999, the Company had no foreign currency
forward contracts outstanding. Lydall had a forward contract outstanding at
December 31, 1998 to mitigate the exposure to foreign currency volatility in the
December 30, 1998 acquisition of a German subsidiary. The contract, for a
contractual amount equivalent to $17 million at a contract rate of 1.6733,
limited Lydall's exposure to both favorable and unfavorable currency
fluctuations and settled in January 1999 at a minimal gain.
INTEREST RATE RISKrespective
operation.
Interest Rate Risk
The Company's interest rate exposure is most sensitive to fluctuations in
United States and European interest rates, which primarily impactsimpact interest
paid on debt. At December 31, 19992000, the Company had $26.6$13.7 million outstanding
on various lines of credit with variable interest rates. The weighted average
interest rate paid on this debt was 6.5 percent in 2000 and 5.4 percent in 1999. The
Company also had $17.7$13.9 million outstanding on a 5-yearfive-year term loan with a
variable interest rate. In July of 1999, Lydall entered into an interest rate
swap agreement to convert the base rate component of the interest rate on the
term loan to a fixed rate of 3.45 percent to take advantage of favorable long-termlong-
term borrowing rates in Europe. Including the effect of the swap, the weighted
average interest rate on the long-term debt was 4.3 percent for the year ended
December 31, 2000 compared to 4.7 percent.
ITEMpercent for 1999.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this itemItem is contained under Item 14 Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.
ITEMItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Company's independent accountants on
accounting and financial disclosure matters.
2015
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PART III
ITEMItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of Lydall and disclosure of late filings
required by Section 16 of the Exchange Act are incorporated by reference to
the definitive Proxy Statement of Lydall to be filed with the Securities and
Exchange Commission (the "Commission") relating to its Annual Meeting of
Stockholders to be held on May 10, 2000.9, 2001. Information regarding the executive
officers and other significant employees of the Company is contained on page 65
of this report.
ITEMItem 11. EXECUTIVE COMPENSATION
Information regarding the compensation of Lydall's directors and executive
officers is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 10, 2000,9, 2001, including the Compensation and Stock
Option Committee Report to Stockholders, found on pages 1315 through 17,19, and the
comparative performance graph located on page 18,20, therein.
ITEMItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding beneficial ownership of the Common Stock by certain
beneficial owners and by certain senior management of the Company is
incorporated by reference to the definitive Proxy Statement of Lydall to be filed
with the Commission relating to its Annual Meeting of Stockholders to be held
on May 10, 2000.
ITEM9, 2001.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
management is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 10, 2000.
219, 2001.
16
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PART IV
ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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Page
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PAGE
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A)a)1, FINANCIAL STATEMENTS:Financial Statements:
Statement of Management Responsibility F-1
Report of Independent Accountants F-2
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
for the three years ended December 31, 2000, 1999, and 1998 F-3
Consolidated Balance Sheets at December 31, 2000 and 1999 and 1998 F-5F-4
Consolidated Statements of Changes in Stockholders' Equity for the three years
ended December 31, 2000, 1999, and 1998 F-6
Consolidated Statements of Cash Flows for the three years ended December 31,
2000, 1999, and 1998 F-7
Notes to Consolidated Financial Statements F-8
A)a)2, FINANCIAL STATEMENT SCHEDULES:Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts for the three years ended
December 31, 2000, 1999, and 1998 S-1
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable, or are presented in the "Notes to
Consolidated Financial Statements," and therefore have been omitted.
2217
- - --------------------------------------------------------------------------------
A)a)3, EXHIBITS INCLUDED HEREIN OR INCORPORATED BY REFERENCE:Exhibits Included Herein or Incorporated by Reference:
3.1 Certificate of Incorporation of the Registrant filed herewith.
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 this reference).
4.1 Certain long-term debt instruments, each representing indebtedness in
an amount equal to less than 10 percent of the Registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form 10-K.Form10-K. The Registrant will file these instruments with the
Commission upon request.
10.1* Amended and restated, Lydall, Inc. 1982 Stock Incentive Compensation
Plan, amended through May 14, 1991 (filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K dated March 26, 1992 and
incorporated herein by this reference).
10.2* Lydall, Inc. Senior Management Annual Incentive Compensation
Plan (filed as Exhibit 3.5 to the Registrant's Registration
Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
10.3* Lydall, Inc. Management Annual Incentive Compensation Plan
(filed as Exhibit 3.6 to the Registrant's Registration
Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
10.4* Agreement and General Release with Leonard R. Jaskol dated December 2,
1998 (filed as Exhibitexhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated May 17, 1999, and incorporated herein by this
reference.)
10.5* Employment Agreement with John E. Hanley dated March 10,
1995 (filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q dated May 9, 1995, and incorporated
herein by this reference).
10.6* Employment Agreement with Elliott F. Whitely dated
March 10, 1995 (filed as Exhibit 10.3 to the Registrant's
Quarterly report on Form 10-Q dated May 9, 1995, and
incorporated herein by this reference).
10.7* Employment10.3* Agreement with Raymond J. Lanzi dated March 10, 1995 (filed as Exhibit
10.5 to the Registrant's Quarterly report on Form 10-Q dated May 9,
1995, and incorporated herein by this reference).
10.8*10.4* Employment Agreement with Carole F. Butenas dated March 1, 2000 filed herewith.
10.9*(filed
as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.5* Employment Agreement with Mona G. Estey dated March 1, 2000 filed herewith.
10.10*(filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K dated March
30, 2000, and incorporated herein by this reference).
10.6* Employment Agreement with Mary A. Tremblay dated March 1, 2000 filed herewith.
10.11*(filed
as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.7* Lydall, Inc. Board of Directors Deferred Compensation Plan effective
January 1, 1991 (filed as Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K dated March 26, 1991, and incorporated herein by
this reference).
10.12*10.8* Lydall, Inc. Supplemental Executive Retirement Plan effective January
1, 1994 (filed as Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K dated March 27, 1996, and incorporated herein by this
reference).
10.13*10.9* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May
14, 1992, amended through May 11, 1994,March 10, 1999, filed herewith.
10.10* Employment Agreement with James P. Carolan dated March 1, 2000, filed
herewith.
10.11* Employment Agreement with Christopher R. Skomorowski dated March 1,
2000 (filed as Exhibit 4.310.15 to the Registrant's Registration
StatementAnnual Report on Form
S-810-K dated April 17, 1998, Reg. No.
[33-93768],March 30, 2000, and incorporated herein by this reference).
10.14*10.12* Employment Agreement with James P. CarolanWalter A. Ruschmeyer dated February 1, 1999March 16, 2000
(filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
dated March 18, 1999,30, 2000, and incorporated herein by this reference).
10.13* Employment Agreement with Kevin G. Lynch dated March 1, 2000 (filed as
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
18
- --------------------------------------------------------------------------------
10.14* Employment Agreement with Raymond S. Grupinski dated March 1, 2000
(filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K
dated March 30, 2000, and incorporated herein by this reference).
10.15* Employment Agreement with Christopher R. SkomorowskiBill W. Franks, Jr. dated March 1, 2000
filed herewith.
23
- - --------------------------------------------------------------------------------
10.16* Employment Agreement with Walter A. Ruschmeyer(filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
dated March 16,30, 2000, filed herewith.
10.17* Employment Agreement with Kevin G. Lynch dated March 1,
2000, filed herewith.
10.18*and incorporated herein by this reference).
10.16* Employment Agreement with Lisa Krallis-Nixon dated March 1, 2000 filed herewith.
10.19* Employment(filed
as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.17* Agreement with Raymond S. GrupinskiThomas P. Smith dated MarchMay 1, 2000, filed herewith.
10.20* Employment10.18* Agreement with Bill W. Franks, Jr.Richard H. Kopp dated MarchApril 1, 2000, filed herewith.
10.2110.19 Asset Purchase Agreement between CharterMed, Inc. and Charter Medical
Ltd. (filed as Exhibit 10.20 to the Registrant's Annual Report on Form
10-K dated March 16, 1998, and incorporated herein by this reference).
10.2210.20 Asset Purchase Agreement between Lydall Central, Inc. and Engineered
Thermal Systems, Inc. (filed as Exhibit 10.1 to the Registrant's
Quarterly report on Form 10-Q dated May 7, 1998, and incorporated
herein by this reference).
10.2310.21 Purchase and Sale Agreement (English Translation) signed as of December
30, 1998 by and between HOHENSTAUFEN EINHUNDERTSTE.
Vermogensverwaltungs GmbH, a wholly owned subsidiary of Lydall, Inc.
and Gerhardi & Cie. GmbhGmbH & Co. KG related to the purchase of all the
outstanding shares of Gerhardi & Cie. GmbH & Co. KG (filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K filed January 14,
1999).
10.2410.22 Credit Agreement dated July 14, 1999 between Lydall, Inc. and certain
subsidiaries and Chase Manhattan Bank, as Administrative Agent, and
Fleet National Bank, as Documentation Agent (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q dated August 11, 1999,
and incorporated herein by this reference).
10.23 Agreement and General Release with John E. Hanley dated February 2,
2000 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated May 12, 2000, and incorporated herein by this
reference).
10.24 Amendment dated August 10, 2000 to Credit Agreement dated July 14, 1999
between Lydall, Inc. and certain subsidiaries and Chase Manhattan Bank,
as Administrative Agent, and Fleet National Bank, as Documentation
Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated August 14, 2000, and incorporated herein by this
reference).
10.25 Spin-off and Transfer Agreement (English translation) between Lydall
Gerhardi GmbH and Co. KG and Gerhardi Kunststofftechnik GmbH dated
September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.1
to the Registrant's Current Report on Form 8-K filed October 16, 2000,
and incorporated herein by this reference).
10.26 Purchase and Transfer Agreement (English translation) between Lydall
Gerhardi GmbH and Co. KG and the management buyout group as set forth
in the agreement, dated September 29, 2000, effective September 30,
2000 (filed as Exhibit 2.2 to the Registrant's Current Report on Form
8-K filed October 16, 2000, and incorporated herein by this reference).
10.27 Asset Purchase and Sale Agreement between Lydall Eastern, Inc. and
Ludlow Building Products, Inc., dated February 5, 2001, filed herewith.
10.28* Amendment dated August 1, 2000 to the Employment Agreement with Mona G.
Estey dated March 1, 2000, filed herewith.
19
- --------------------------------------------------------------------------------
10.29* Amendment dated August 1, 2000 to the Employment Agreement with Mary A.
Tremblay dated March 1, 2000, filed herewith.
10.30* Amendment dated August 1, 2000 to the Employment Agreement with
Christopher R. Skomorowski dated March 1, 2000, filed herewith.
10.31* Amendment dated August 1, 2000 to the Employment Agreement with Walter
A. Ruschmeyer dated March 16, 2000, filed herewith.
10.32* Amendment dated August 1, 2000 to the Employment Agreement with James
P. Carolan dated March 1, 2000, filed herewith.
10.33* Amendment dated August 1, 2000 to the Employment Agreement with Kevin
G. Lynch dated March 1, 2000, filed herewith.
10.34* Amendment dated August 1, 2000 to the Employment Agreement with Raymond
S. Grupinski dated March 1, 2000, filed herewith.
10.35* Amendment dated August 1, 2000, to the Employment Agreement with Bill
W. Franks, Jr. dated March 1, 2000, filed herewith.
10.36* Amendment dated August 1, 2000 to the Employment Agreement with Lisa
Krallia-Nixon dated March 1, 2000, filed herewith.
21.1 List of subsidiaries of the Registrant, (filed as Exhibit
21.1 to the Registrant's Annual Report on Form 10-K dated
March 27, 1996, and incorporated here by reference).filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
24.1 Power of Attorney, dated February 18, 2000,27, 2001, authorizing Christopher R.
Skomorowski and/or Walter A. Ruschmeyer to sign this report on behalf
of each member of the Board of Directors indicated therein, filed
herewith.
27.1 Financial Data Schedule,99.1 Press release dated October 2, 2000 titled "Lydall Completes Sale of
Chrome-Plating and Injection-Molding Operations in Germany" (filed as
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed
herewith.October 16, 2000, and incorporated herein by this reference).
* Management contract or compensatory plan.
B) REPORTS ON FORMb) Reports on Form 8-K:
The Company did not file any reportsOn October 16, 2000, a report on Form 8-K during(File No. 1-7665) was filed
to disclose a disposition of assets under Item 2, Acquisition or
Disposition of Assets, pursuant to Section 13 or 15(d) of the
three monthsSecurities and Exchange Act of 1934. This report contained a Pro Forma
Consolidated Condensed Balance Sheet as of June 30, 2000, a Pro Forma
Consolidated Condensed Statement of Net Income for the year ended
December 31, 1999.1999, and a Pro Forma Consolidated Condensed Statement of
Net Income for the six months ended June 30, 2000.
2420
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Lydall, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LYDALL, INC.
Date March 30, 2000 By /s/ CHRISTOPHER R. SKOMOROWSKI
-------------------------------------------
Christopher R. Skomorowski
President and Chief Executive Officer
Lydall, Inc.
Date March 21, 2001 By: /s/ Thomas P. Smith
----------------------------------
Thomas P. Smith
Vice President-Controller
(On behalf of the Registrant and
asPrincipal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Lydall,
Inc. in the capacities and on the dates indicated.
SIGNATURE TITLE DATESignature Title Date
--------- ----- ----
/s/ CHRISTOPHERChristopher R. SKOMOROWSKISkomorowski President, and Chief March 21, 2001
______________________________________ Executive - - ------------------------------------------------ Officer March 30, 2000
Christopher R. Skomorowski
/s/ WALTER A. RUSCHMEYER Vice President-Finance and Chief
- - ------------------------------------------------ Financial Officer and March 30, 2000
Walter A. Ruschmeyer Principal Accounting Officer
/s/ WALTER A. RUSCHMEYER
- - ------------------------------------------------Executive Vice President-
______________________________________ Finance and March 21, 2001
Walter A. Ruschmeyer Administration, and Chief
Financial Officer
/s/ Walter A. Ruschmeyer
______________________________________ March 30, 200021, 2001
Walter A. Ruschmeyer
Attorney-in-fact for:
Christopher R. Skomorowski Director
Lee A. Asseo Director
Samuel P. Cooley Director (constituting in excess of a majority
W. Leslie Duffy Director of the full Board of Directors)
David Freeman Director
Suzanne Hammett Director
Robert E. Director
McGill, III
Director
Elliott F. Director
Whitely Director
Roger M. Widmann Director
Albert E. Wolf Director
(constituting in excess of a majority
of the full Board of Directors)
2521
- - --------------------------------------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY-------------------------------------------------------------------------------
Statement of Management Responsibility
The consolidated financial statements of Lydall, Inc. and its subsidiaries
have been prepared in accordance with accounting principles generally accepted
accounting principles.in the United States of America. The integrity and objectivity of these
statements, including the effect of certain estimates and judgements, is the
responsibility of management.
Lydall's management has established and maintains a system ofan internal accounting controlscontrol
structure that is designed to provide reasonable assurance that Company assets
are safeguarded, transactions are executed in accordance with management's
authorization, and that the Company's financial records may be relied upon for
the purpose of preparing financial statements. That system is continuously
monitored and assessed by direct management review and by the Company's
internal auditor. Management has concluded that the system of internal accounting controlscontrol structure
was effective throughout the year ended December 31, 1999.2000.
Each year, Lydall's Board of Directors appoints independent accountants who
audit the Company's financial statements in accordance with auditing standards
generally accepted auditing standards.in the United States of America. Their audit includes a
review of the Company's internal accounting
controls and tests of selected transactions.control structure with respect to financial
reporting.
The Audit Review Committee of the Board of Directors, which consists of
directors who are neither officers nor employees of the Company, meets
regularly with management, the independent accountants and the internal
auditor to review financial reporting, internal accounting control and
auditing matters. The Committee has direct and private access to both internal
and external auditors.
Christopher A. Skomorowski Walter A. Ruschmeyer
President and Chief Executive Officer Executive Vice President-FinanceChristopher R. Skomorowski
Walter A. Ruschmeyer
President, and Chief Executive Officer Executive Vice President--Finance
and
Administration, and Chief Financial
Officer
F-1
- - --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS-------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and
Stockholders of Lydall, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 2217 present fairly, in all material
respects, the financial position of Lydall, Inc. and its subsidiaries at
December 31, 19992000 and 1998,1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 19992000 in
conformity with accounting principles generally accepted in the United States.States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 2217 presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These
financial statements and the financial statement schedule are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 29, 200015, 2001
F-2
-
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In thousands except per-share data For the years
ended December 31, 2000 1999 1998
1997
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NET SALES $318,505 $224,286 $234,447Net sales $261,118 $274,984 $183,236
Cost of sales 242,985 158,370 157,517
...............................................................................................192,472 206,600 125,424
..............................................................................
Gross margin 75,520 65,916 76,93068,646 68,384 57,812
Selling, product development, and administrative
expenses 54,827 48,588 43,52549,663 50,643 44,600
Impairment loss -- -- 1,948
--
.............................................................................................................................................................................
Operating income 20,693 15,380 33,40518,983 17,741 11,264
Other (income) expense:
Investment (income) loss (185) (46) 284 (1,986)287
Interest expense 1,223 2,612 820
262Loss on sale of operations 23,579 -- --
Foreign currency transaction loss (gain) loss331 (961) (87)
60
Other (134) (127) (143)
...............................................................................................
1,471 890 (1,807)
...............................................................................................
Income16 (128) (132)
..............................................................................
24,964 1,477 888
..............................................................................
(Loss) income from continuing operations before
income taxes 19,222 14,490 35,212(5,981) 16,264 10,376
Income tax (benefit) expense 6,270 4,665 12,832
- - -----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 12,952 9,825 22,380
...............................................................................................(2,365) 5,175 3,143
..............................................................................
(Loss) income from continuing operations (3,616) 11,089 7,233
..............................................................................
Discontinued operations:
LossIncome (loss) from operations of the Paperboard
and Wovens segment,Segments, net of tax benefitexpense
(benefit) of $215, $3,483$660, $880, and $290,($1,961),
respectively (347) (5,623) (469)
Loss1,124 1,516 (3,031)
Gain (loss) on disposal of the Wovens segment,Segment,
including
provision for operating losses during the phase-outphase-
out period, net of tax benefitexpense (benefit) of $1,133$44
and ($1,133), respectively 71 (1,830) --
--
...............................................................................................
LOSS FROM DISCONTINUED OPERATIONS (2,177) (5,623) (469)
...............................................................................................
NET INCOME..............................................................................
Income (loss) from discontinued operations 1,195 (314) (3,031)
..............................................................................
Net (loss) income ($ 2,421) $ 10,775 $ 4,202
$ 21,911
...............................................................................................
BASIC EARNINGS (LOSS) PER COMMON SHARE- ---------------------------------------------------------------------------------
Basic (loss) earnings per common share
Continuing operations ($ .23) $ .82.70 $ .62 $ 1.34.46
Discontinued operations (.14) (.35) (.03).08 (.02) (.19)
Net (loss) income ($ .15) $ .68 $ .27 $ 1.31
Weighted average common stock outstanding 15,778 15,715 15,847
16,692
...............................................................................................
DILUTED EARNINGS (LOSS) PER COMMON SHARE- ---------------------------------------------------------------------------------
Diluted (loss) earnings per common share
Continuing operations ($ .23) $ .82.70 $ .61 $ 1.29.45
Discontinued operations (.14) (.35).08 (.02) (.19)
Net (loss) income ($ .15) $ .68 $ .26 $ 1.27
Weighted average common stock and equivalents
outstanding 15,778 15,784 16,163
17,319
...............................................................................................
NET INCOME- ---------------------------------------------------------------------------------
Net (loss) income ($ 2,421) $ 10,775 $ 4,202
$ 21,911
...............................................................................................
Other comprehensive income (loss): income:
Foreign currency translation adjustments, net of (1,933) (5,295) 637
$1,029, $2,563, $(180), and $772,($180), in tax effect,
respectively
(5,295) 637 (1,349)
Unrealized gain (loss)loss on securities:
Unrealized holding gains (losses)losses arising during period, -- -- (366)
net of $0, $103 and $(317) in tax effect
respectively -- (366) 553
Less: reclassification adjustment for gains (losses)losses -- -- (344)
included in net income
-- (344) 608
...............................................................................................
Net unrealized..............................................................................
Unrealized loss on securities, net of $0, $6 and
$31 in tax
effect respectively-- -- (22) (55)
Minimum pension liability adjustment, net of
$(422)$167, ($422), $281, and $121$281 in tax effect,
respectively (285) 784 (522)
(224)
.............................................................................................................................................................................
Other comprehensive (loss) income, (loss), net of tax (2,218) (4,511) 93
(1,628)
...............................................................................................
COMPREHENSIVE INCOME..............................................................................
Comprehensive (loss) income ($ 4,639) $ 6,264 $ 4,295
$ 20,283
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- - -----------------------------------------------------------------------------------
------------------------------------------------------------------------------
In thousands except share data December 31, 2000 1999
1998
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:Assets
Current assets:
Cash and cash equivalents $ 1,1542,220 $ 2,2541,154
Accounts receivable (less allowance for doubtful
receivables of $644 in 2000 and $1,511 in 1999 and $1,504 in 1998)1999) 39,993 45,517 48,609
Inventories:
Finished goods 9,933 8,529 10,303
Work in process 5,820 5,044 8,859
Raw materials and supplies 6,272 8,576 11,003
LIFO reserve (555) (1,619)
(1,216)
..............................................................................................................................................................
Total inventories 21,470 20,530 28,949
Taxes receivable 2,705 4,022 2,256
Prepaid expenses 1,632 1,895 1,966
Net investment in discontinued operations (Note 5) 14,285 2,125 --
Assets held for sale (Note 6) 6,200 35,183 --
Deferred tax assets 7,290 4,807
6,785
..............................................................................................................................................................
Total current assets 95,795 115,233
90,819
...................................................................................
PROPERTY, PLANT, AND EQUIPMENT,...........................................................................
Property, plant, and equipment, at cost:
Land 1,295 1,410 2,729
Buildings and improvements 23,247 24,779 30,764
Machinery and equipment 74,041 91,761 111,157
Office equipment 20,370 22,471
16,865
Vehicles 537 943 1,310
Assets in progress 7,221 5,464
9,660
..............................................................................................................................................................
126,711 146,828 172,485
Less accumulated depreciation (52,291) (66,272)
(64,649)
..............................................................................................................................................................
74,420 80,556
107,836
OTHER NONCURRENT ASSETS:Other noncurrent assets:
Goodwill, at cost (net of accumulated amortization of
$5,830
in 2000 and $4,652 and $4,463 in 1999 and 1998, respectively, and an
impairment loss of $6,519 recognized in 1998)1999) 18,069 19,444 23,380
Other assets, at cost (net of accumulated amortization of
$6,237 in 2000 and $6,038 in 1999 and $7,922 in 1998)1999) 6,680 5,003
4,813
..............................................................................................................................................................
24,749 24,447
28,193
...................................................................................
TOTAL ASSETS...........................................................................
Total assets $194,964 $220,236
$226,848
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
- - --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (CONTINUED)
- - -----------------------------------------------------------------------------------
------------------------------------------------------------------------------
In thousands except share data December 31, 2000 1999
1998
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:Liabilities and stockholders' equity
Current liabilities:
Cash overdraft $ 2,5642,502 $ --2,564
Current portion of long-term debt 7,101 6,849 2,340
Short-term borrowings -- 52,324
Accounts payable 16,652 18,438 22,530
Accrued taxes 844 920 1,411
Accrued payroll and other compensation 7,244 4,021 5,810
Liabilities related to assets held for sale (Note 6) 421 6,945 --
Other accrued liabilities 6,481 10,866
15,494
..............................................................................................................................................................
Total current liabilities 41,245 50,603
99,909
..............................................................................................................................................................
Long-term debt 24,927 38,334 --
Deferred tax liabilities 11,183 11,306 10,726
Other long-term liabilities 5,856 4,757 6,988
Commitments and contingencies STOCKHOLDERS' EQUITY:(Notes 4 and 14)
Stockholders' equity:
Preferred stock -- --
Common stock, par value $.10 per share, authorized
30,000,000 shares, issued 21,962,275 shares in 2000 and
21,797,164 shares in 1999 and
21,714,301 shares in 19982,196 2,180 2,171
Capital in excess of par value 40,335 39,195 38,697
Retained earnings 137,664 140,085 129,310
Accumulated other comprehensive loss (6,800) (4,582)
(71)
..............................................................................................................................................................
173,395 176,878 170,107
Less cost of 6,097,388 shares of common stock in treasury
in 2000 and 1999 and 6,020,441 shares in 1998 (61,642) (60,882)
...................................................................................(61,642)
...........................................................................
Total stockholders' equity 111,753 115,236
109,225
...................................................................................
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...........................................................................
Total liabilities and stockholders' equity $194,964 $220,236
$226,848
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Accumulated
Capital Accumulated in Other Cost of Total
Preferred Common Excess of Retained Comprehensive Stock in Stockholders'
In thousands Stock Stock Par Value Earnings (Loss) Income (Loss) Treasury Equity
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARYBalance at January 1,
1997 $-- $2,112 $34,235 $103,1971998 $ 1,464 $(23,164) $117,844-- $2,143 $36,510 $125,108 ($164) ($50,567) $113,030
Stock options exercised 31 2,275 2,306
Purchase of treasury shares (27,403) (27,403)
Net income 21,911 21,911
Other comprehensive loss (1,628) (1,628)
........................................................................................................................
BALANCE AT DECEMBER 31, 1997 -- 2,143 36,510 125,108 (164) (50,567) 113,03027 1,439 1,466
Stock options exercised 28 2,187 2,215issued to
Directors 1 103 104
Tax benefit from stock-
based compensation 645 645
Purchase of treasury
shares (10,315) (10,315)
Net income 4,202 4,202
Other comprehensive
income 93 93
........................................................................................................................
BALANCE AT DECEMBER..................................................................................................
Balance at December 31,
1998 -- 2,171 38,697 129,310 (71) (60,882) 109,225
Stock options exercised 9 498 5077 377 384
Stock issued to
Directors 2 119 121
Tax benefit from stock-
based compensation 2 2
Purchase of treasury
shares (760) (760)
Net income 10,775 10,775
Other comprehensive loss (4,511) (4,511)
........................................................................................................................
BALANCE AT DECEMBER..................................................................................................
Balance at December 31,
1999 $-- $2,180 $39,195 $140,085 $(4,582) $(61,642) $115,236-- 2,180 39,195 140,085 (4,582) (61,642) 115,236
Stock options exercised 15 815 830
Stock issued to
Directors 1 155 156
Tax benefit from stock-
based compensation 170 170
Net loss (2,421) (2,421)
Other comprehensive loss (2,218) (2,218)
..................................................................................................
Balance at December 31,
2000 $ -- $2,196 $40,335 $137,664 ($6,800) ($61,642) $111,753
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - --------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
1997
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:Cash flows from operating activities:
Net Income(loss) income ($ 2,421) $ 10,775 $ 4,202
$ 21,911
........................................................................................................................................................................
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 9,925 11,946 8,844
7,993
Amortization 1,554 1,775 2,052
1,569
Loss(Gain) loss on disposal of Wovens segmentSegment (71) 1,830 --
Loss on sale of operations, net 23,579 -- --
Impairment loss -- -- 8,467
Gain on sale of investments (136) -- --
Gain on receipt of common stock from
demutualization of insurance companies (393) -- --
Loss on disposition of property, plant and
equipment, net 294 303 403 685
Foreign currency transaction loss (gain) loss331 (961) (87)
60Stock-based compensation 156 121 104
Changes in operating assets and liabilities,
excluding effects from acquisitions:
Accounts receivable (6,306) 100 2,132
1,221
Taxes receivable (1,766) (224) (2,032)2,820 (1,764) 421
Inventories (3,740) (1,527) 333 (1,140)
Prepaid expenses and other assets (1,654) (1,292) 5
(1,708)
Accounts payable 1,819 (2,798) (895)
(2,049)
Accrued taxes (321) (348) 343 (249)
Accrued payroll and other accrued liabilities (5,193) (469) (2,294) (2,452)
Deferred income taxes (3,232) 3,954 (5,600) 818
Other long-term liabilities 246 (904) 2,651
(158)
........................................................................................................................................................................
Total adjustments 9,843 16,130 2,558
............................................................................................
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,618 20,332 24,469
............................................................................................
CASH FLOWS FROM INVESTING ACTIVITIES:19,678 9,966 16,879
............................................................................
Net cash provided by operating activities 17,257 20,741 21,081
............................................................................
Cash flows from investing activities:
Acquisitions -- (281) (46,447) (78)
Additions of property, plant and equipment (19,767) (16,773) (17,657)
(17,104)Proceeds from sale of the Wovens Segment 1,819 -- --
Proceeds from the sale of operations 12,037 -- --
Proceeds from the sale of property, plant and
equipment -- -- 276 --
Sale of investments, net 529 -- 3,851
1,013
............................................................................................
NET CASH USED FOR INVESTING ACTIVITIES............................................................................
Net cash used for investing activities (5,382) (17,054) (59,977)
(16,169)
............................................................................................
CASH FLOWS FROM FINANCING ACTIVITIES:............................................................................
Cash flows from financing activities:
Cash overdraft (62) 2,564 -- --
Long-term debt payments (164,410) (75,444) (3,484) (4,450)
Long-term debt proceeds 153,077 108,840 -- --
Proceeds from short-term borrowings -- 92,902 110,820 --
Payments of short-term borrowings -- (133,087) (66,245)
--
Notes payable -- -- (8,000)
Issuance of commonProceeds from stock 507 2,215 2,306option exercises 830 384 1,466
Acquisition of common stock -- (760) (10,315)
(27,403)
............................................................................................
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (4,478) 32,991 (37,547)
............................................................................................
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................................................
Net cash (used for) provided by financing
activities (10,565) (4,601) 32,242
............................................................................
Effect of exchange rate changes on cash (244) (186) 17
(88)
............................................................................................
Decrease............................................................................
Increase (decrease) in cash and cash
equivalents 1,066 (1,100) (6,637) (29,335)
Cash and cash equivalents at beginning of year 1,154 2,254 8,891
38,226
............................................................................................
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................................................
Cash and cash equivalents at end of year $ 2,220 $ 1,154 $ 2,254
$ 8,891
- -------------------------------------------------------------------------------
Supplemental Schedule of Cash Flow Information
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 1,606 $ 2,689 $ 734
$ 687
Income taxes 1,042 5,016 6,231 14,678
Noncash transactions:
Amounts payable for acquired operations -- -- 240 16
Additional minimum pension liability 452 1,206 999 591
Unrealized losses on available-for-sale
securities -- -- (22) (55)
Liabilities assumed with acquisitions -- 26,496 -- Net cash provided by operating activities includes changes in certain assets and
liabilities which have been reclassified as "Net Investment in Discontinued Operations,"
"Assets Held for Sale," and "Liabilities Related to Assets Held for Sale" in the
Consolidated Balance Sheet.
- - --------------------------------------------------------------------------------------------26,496
Net cash provided by operating activities includes changes in certain assets
and liabilities which have been reclassified as "Net Investment in
Discontinued Operations," "Assets Held for Sale," and "Liabilities Related to
Assets Held for Sale" in the Consolidated Balance Sheets.
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION.Significant Accounting Policies
Principles of consolidation. The consolidated financial statements include the
accounts of Lydall, Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES.Use of estimates. The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted accounting principlesin the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the financial statement dates, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS.Cash and cash equivalents. Cash and cash equivalents include cash on hand and
highly liquid investments with a maturityoriginal maturities of three months or less at
the date of purchase.
CONCENTRATION OF RISK.Concentration of risk. Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments, and trade receivables. The Company places
its cash, cash equivalents, and short-term investments in high-quality
financial institutions and instruments. Concentrations of credit risk with
respect to trade receivables are limited by the large number of customers
comprising the Company's customer base and their dispersion across many
different industries and geographies. The Company performs ongoing credit
evaluations of its customers' financial condition and generally does not
require collateral. Sales to the automotive market were 4651 percent of the
Company's 1999 total2000 net sales compared with 2653 percent in 19981999 and 2732 percent in
1997.1998. Sales to Ford Motor Co. represented 1213 percent, 1513 percent, and 19
percent of Lydall's totalnet sales in 2000, 1999, 1998, and 1997,1998, respectively. No other
single customer accounted for more than 10 percent of totalnet sales in 2000, 1999,
1998, or 1997.1998. As of December 31, 1999,2000, the Company had no other significant
concentrations of risk.
INVENTORIES.Inventories. Approximately 44 percent in 2000 and 37 percent in 1999 and 33 percent in 1998 of
the
inventories have beenwere valued on a last-in, first-out (LIFO) method, and the
balance, on a first-in, first-out (FIFO) method at the lower of cost or
market.
DEPRECIATION AND AMORTIZATION.Property, plant, and equipment and depreciation. Property, plant, and
equipment are depreciated over their estimated useful lives using the
straight-line method for financial statement purposes. Leasehold improvements
are depreciated on a straight-line basis over the term of the lease or the
life of the asset, whichever is shorter.
Useful lives by asset category are as follows:
- - ----------------------------------------------------------------------------------------------------------------
Category Useful Life
- - ----------------------------------------------------------------------------------------------------------------
Buildings and improvements 10-35 years
Machinery and equipment 5-25 years
Office equipment 2-8 years
Vehicles 3-6 years
- - ----------------------------------------------------------------------------------------------------------------
INTANGIBLES.For the year ended December 31, 2000, the Company capitalized $.4 million in
interest expense. The Company capitalized $.1 million of interest expense in
both 1999 and 1998.
F-8
- -------------------------------------------------------------------------------
Pre-production design and development costs. The Company recognizes expenses
related to pre-production design and development costs as incurred, unless
reimbursement of such costs is contractually guaranteed by the customer, in
which case, revenue and expense are recognized upon customer acceptance. At
December 31, 2000, $2.2 million in tooling costs were categorized as work-in-
process inventory. The Company also capitalizes costs to produce customer
owned tooling related to long-term supply arrangements. At December 31, 2000,
$.4 million was capitalized as other long-term assets, and is being amortized
over periods not exceeding three years.
Intangibles. Goodwill represents costs in excess of fair values assigned to
the underlying net assets of acquired companies. Goodwill and other
intangibles are being amortized on a straight-line basis primarily over periods not
exceeding 25 years.
F-8
- - --------------------------------------------------------------------------------
VALUATION OF LONG-LIVED ASSETS.Valuation of long-lived assets. The Company periodically evaluates the
recoverability of long-lived assets, including goodwill and other intangible
assets. At the timeShould such evaluations indicate that
therelated future undiscounted cash flows are not sufficient to recover the
carrying value of the asset, the asset is adjusted to fair value. Fair value
is determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Based on thesesuch evaluations, certain
machinery and goodwill were adjusted to fair value in 1998.
REVENUE RECOGNITION.Revenue recognition. Lydall recognizes revenuesrevenue when the productearnings process is
shipped.
RESEARCH AND DEVELOPMENT.complete and the risks and rewards of ownership have transferred to the
customer.
Research and development. Costs are charged to expense as incurred.
EARNINGS PER SHARE.Earnings per share. Basic earnings per common share are based onequal to net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are based onequal to net income divided by
the weighted average number of common shares outstanding during the period,
including the effect of stock options and stock awards and warrants whereif such effect is
dilutive.
INCOME TAXES.Income taxes. The provision for income taxes is based upon income reported in
the accompanying financial statements. Deferred income taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes. In accordance with SFASStatement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," these deferred taxes are measured by
applying currently enacted tax laws.
TRANSLATION OF FOREIGN CURRENCIES.Translation of foreign currencies. Assets and liabilities of foreign
subsidiaries are translated at exchange rates prevailing on the balance sheet
date; revenuesdate. Revenues and expenses are translated at average exchange rates
prevailing during the period except for individually significant transactions,
which are translated at the prevailing rate on the date of the transaction; and elementstransaction.
Elements of stockholders' equity are translated at historical rates. Any
resulting gains or losses are reported in Other Comprehensive Income.
RECLASSIFICATION OF FINANCIAL INFORMATION.Reclassification of financial information. Certain prior year components of
the financial statements have been reclassified to be consistent with current
year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS. The Company will adoptRecently issued accounting standards. In June 1998, the Financial Accounting
Standards Board's Emerging Issues Task Force Issue No. 99-5,
"Accounting for Pre-production Costs Related to Long-Term Supply Arrangements"
("EITF No. 99-5"), which is effective prospectively for fiscal years beginning
after December 31, 1999. EITF No. 99-5 provides guidance on accounting for
design and development costs for products sold under long-term supply
arrangements and costs incurred for molds, dies and other tools that will be
used in producing products under long-term supply agreements. The Company has
elected to implement this consensus prospectively. The accounting treatment
proposed by EITF 99-5 is not expected to have a material impact on the
consolidated financial position or results of operations of the Company.Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"),(FAS 133). FAS
133, as amended, became effective January 1, 2001 for fiscal years
beginning after June 15, 2000, will be adopted by the Company when effective.
SFAS 133 establishes accounting and reporting standards forrequires
that all derivative instruments including certain derivatives embedded in other contracts,be recorded on the balance sheet at their fair
value. The adoption of this standard and for
hedging activities. It requires that an entity recognize allrelated transition adjustments will
not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
F-9
- - --------------------------------------------------------------------------------
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The effect of adopting SFAS 133 is still being
assessed.-------------------------------------------------------------------------------
2. FINANCIAL INSTRUMENTSFinancial Instruments
The Company held no investment instruments at December 31, 1999 and 1998. No
gains2000 or losses1999. Gains
of $136 thousand from the sale of securities were realized in 2000. No gains
or losses were realized in 1999. Gains and losses of $1.1 million and $1.5
million, respectively, were realized on sales of securities in both 1998 and 1997, and
losses of $1.5 million and $136 thousand during 1998 and 1997, respectively.1998. For the
purpose of computing realized gains and losses, cost is determined on a
specific identification basis.
The Company utilizes letters of credit in the ordinary course of business and
to satisfy self-insurance security deposit requirements. Outstanding letters
of credit were $1.3$2.7 million and $2.4$1.3 million as of December 31, 19992000 and 1998,1999,
respectively. The Company does not expect any material losses to result from
these off-balance-sheet instruments as performance is not expected to be
required.
The carrying amount of debt outstanding at December 31, 2000 and 1999
and 1998
approximates current fair market value.
3. LONG-TERM DEBT AND CREDIT ARRANGEMENTSLong-term Debt and Credit Arrangements
On July 14, 1999, Lydall, Inc. and certain subsidiaries entered into a $69 million credit
facility with a group of five banking institutions. A
Euro-denominated term loan of approximately $19 million bears interest based on
Euro LIBOR plus a percentage based on negotiated ratios. A balance of
$17.7 million is outstanding atAt December 31, 1999 and2000, the
facility is held in the namecomprised of Lydall's German subsidiary. The remaininga $50 million is adomestic revolving credit facility, which is
renewed every three years, onof which approximately $18$10.1 million was outstanding, and a Euro-
denominated term loan, with an outstanding balance of $13.9 million, which is
outstanding at December 31, 1999.an obligation of one of Lydall's German subsidiaries. The interest rate on the
revolving credit facility is based on various money market rate optionsmoney-market rates selected by
the Company at the time of borrowing. The Euro-denominated term loan bears
interest equal to Euro LIBOR plus a percentage based on negotiated ratios. The
bank credit agreement carries an annual facility fee on the total revolving
credit and a commitment fee on the unused amount of the facility.
The credit agreementfacility, as amended, requires the Company to maintain certain financial
ratios and other financial conditions. The agreementfacility also prohibits the Company
from incurring certain additional indebtedness, restricts asset sales and
capital expenditures, and limits certain investments and dividends to the
extent such activity affectsactivities would reduce financial ratios below agreed upon levels.
At June 30, 2000, a financial covenant of the financial ratios.Company's main credit facility
dated July 14, 1999, was not met as a result of the capital expenditures
required to support the significant amount of new automotive business which
began to phase in during the latter half of 2000. A waiver of such non-
compliance was obtained. In addition, effective August 10, 2000, the Company
and its lenders amended certain covenants and conditions of the credit
facility. The amendment provides increased flexibility to the Company with
regard to strategic and operational financing needs. As of and during the year
ended December 31, 1999,2000,
the Company was in compliance with all loan covenants and conditions.
Certain foreign subsidiaries of the Company maintain additional lines of
credit totaling $11.1 million of which $8.0 million was outstanding as of
December 31, 2000. These credit facilities incur interest at rates ranging
from 3.6 percent to 5.9 percent.
Total long-term debt maturitiesmaturing in 2000, 2001, 2002, 2003, and 2004 are $6.8is $7.1 million,
$3.9$18.4 million, $27.0$4.3 million, $4.8 million and
$2.4$2.2 million, respectively.
In July of 1999, the Company entered into an interest rate swap agreement to
convert the base rate component of the interest rate on the Euro-denominated
term loan to a fixed rate of 3.45 percent.
Certain domestic and foreign subsidiaries of the Company maintain additional
lines of credit totaling $11.5 million of which $8.6 million is outstanding as
of December 31, 1999. These credit facilities incur interest at rates ranging
from 2.3 percent to LIBOR plus 2 percent.F-10
- -------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------
In thousands December
31 2000 1999
1998
- - ---------------------------------------------------------------------------------------------------------------------------
Credit Agreement
revolving credit
facility,
effective rate 7.48%
due 2002 $10,130 $18,025
Credit Agreement term
loan,
effective rate 7.43% due 2002,
collateralized by common stock of the Company $18,025 $ --
Credit Agreement term loan, effective rate 4.7%4.3%
due quarterly,
collateralized
by German subsidiary
stock 13,947 17,697 --
Deutsche Bank, line of
credit,
effective rate 2.3-4.2%3.6--
5.9%, due 2006,
collateralized by
real estate and equipmentcertain fixed assets
in
Meinerzhagen, Germany 7,951 8,560 --
IKB Deutsche
Industriebank of
Dusseldorf term loan,
4.5%effective
interest rate 4.5%,
due semiannnually -- 901
--
Note Purchase Agreement, 7.25% paid in full in 1999 -- 2,100
Note Payable, 5.37% paid in full in 1999 -- 240
........................................................................................................................
32,028 45,183 2,340
Less portion due within
one year (7,101) (6,849)
(2,340)
........................................................................................................................
$24,927 $38,334
$ --
- - ---------------------------------------------------------------------------------------------------------------------------
4. LONG-TERM OPERATING LEASESLong-term Operating Leases
Lydall has operating leases whichthat resulted in an expense of $2.5 million in
2000, $3.0 million in 1999, and $2.6 million in 1998, and $1.9 million in 1997.1998. These contracts include
vehicle, building, other office equipment, vehicle, and machinery leases, which require
payment of property taxes, insurance, repairs, and other operating costs.
Future net lease commitments under noncancelable operating leases are:
- -------------------------------------------------------------------------
In thousands
2000 2001 2002 2003 2004 THEREAFTER TOTAL2005 Thereafter Total
- -------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
Net lease payments $2,588 $2,312 $1,770 $1,546 $1,160 $786 $10,162$2,361 $2,171 $1,919 $1,720 $1,599 $1,255 $11,025
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5. ACQUISITIONS AND DISPOSITIONS
ACQUISITIONSAcquisitions and Dispositions
Acquisitions
On December 30, 1998, a subsidiary of the Company acquired for cash all of the
outstanding shares of Gerhardi & Cie GmbH & Co. KG ("Gerhardi"), a privately
held German manufacturer of automotive components. Under the terms of the
agreement, and in consideration for Gerhardi's outstanding shares, the
Company's subsidiary paid to Gerhardi a negotiated purchase price of $30.7
million and assumed Gerhardi's existing liabilities, net of cash, of
approximately $26.5 million. The purchase price is subject to a post-closing
net equity adjustment as defined in the agreement. This adjustment could
result in a decrease in the purchase price and will be reflected in the
Company's financial statements once the amount is determined. Lydall, Inc.
funded this acquisition through an interim borrowing on existing lines of
credit and subsequently refinanced the majority of the borrowing with a Euro-denominatedEuro-
denominated term loan. This acquisition was accounted for under the purchase
method of accounting. The fair value of assets acquired exceeded the cost of
acquisition and as a result, the Company reduced the appraised value of long-termlong-
term assets by $8.8 million. The results of Gerhardi have been included in the
Company's consolidated results since the date of acquisition.
On April 18, 1998, a subsidiary of Lydall acquired Engineered Thermal
Systems, Inc. ("ETSI"), a producer of automotive
thermal and acoustical components for $9.2 million,million. The acquisition was
accounted for under the purchase method. The acquisition, which operates as the St. Johnsbury Operation of Lydall Westex,
complements the Company's extensive automotive thermal barrier business. The
results of the St. Johnsbury Operationthis operation have
been included in the Company's consolidated results since the date of
acquisition.
F-10F-11
- - --------------------------------------------------------------------------------
Early in-------------------------------------------------------------------------------
In January of 1998, a Lydall subsidiary funded the capitalization of Charter
Medical Ltd. On February 6, 1998, this separate corporate entityCharter Medical Ltd. acquired
CharterMed, Inc., a privately
held company, located in Lakewood, New Jersey,Charter Med Inc., for $6.6 million in cash and a note for $720
thousand, whichthousand. The note was paid in 1999. The acquisition was accounted for under
the purchase method. Charter Medical is a
growing and profitable manufacturer of proprietary medical devices serving
applications such as biotech and pharmaceutical packaging, blood bank and
transfusion services and neonatal intensive care. The results of the Charter
Medical Operation since the date of acquisitionoperation have been included in the
Company's consolidated results.
DISPOSITIONSresults since the date of acquisition.
Dispositions
In February 2001, the Company's Board of Directors adopted a plan to
discontinue the operations of the Paperboard Segment, consisting principally
of the Southern Products and Lydall & Foulds Divisions. Accordingly, the
operating results of this Segment have been segregated from continuing
operations and reported as discontinued operations for all years presented.
Sales from the Paperboard Segment were $42.6 million, $43.5 million, and
$41.0 million for the years ended December 31, 2000, 1999, and 1998,
respectively.
On February 1, 2001, the Company announced that the Lydall & Foulds Division
would cease operations. Additionally, on February 5, 2001, the Company
announced the sale of the Southern Products Division for $15 million in cash.
The Company expects that a gain will result from the disposition of the
Segment, which will be recognized in the first quarter of 2001. Paperboard
Segment net assets to be disposed of, consisting primarily of accounts
receivable, inventory, property, plant and equipment, certain intangibles and
accounts payable, with an estimated net realizable value of $14.3 million,
have been classified in the Consolidated Balance Sheet at December 31, 2000 as
"Net Investment in Discontinued Operations."
Effective September 30, 2000, the Company sold substantially all of the assets
and certain liabilities of its chrome-plating and injection-molding operations
of Lydall Gerhardi GmbH and Co. KG to Gerhardi Kunststofftechnik GmbH. The
pre-tax loss on the sale amounted to $29.7 million, or $1.22 per share after-
tax. At December 31, 1999, the assets and liabilities related to these
operations were $28.8 million and $6.1 million and were included as part of
"Assets Held for Sale" and "Liabilities Related to Assets Held for Sale,"
respectively.
On January 28, 2000, the Company sold substantially all of the assets, net of
certain liabilities, of the Composite Materials, Hoosick Falls Operation for
approximately $12.0 million in cash, plus $660 thousand of liabilities
assumed, resulting in a pre-tax gain of $6.1 million, or $.24 per diluted
share after-tax. For the years ended December 31, 2000, 1999, and 1998, sales
and income (loss) from operations of the Hoosick Falls Operation included in
income from continuing operations were $.6 million, $10.7 million, and $10.3
million and ($10 thousand), $1.1 million, and $.5 million, respectively. At
December 31, 1999, the assets and liabilities of this operation were $6.4
million and $.8 million, respectively, and were included as part of "Assets
Held for Sale" and "Liabilities Related to Assets Held for Sale."
In November 1999, the Company's Board of Directors adopted a plan to
discontinue the operations of the Wovens segment.Segment. Accordingly, the operating
results have been segregated from continuing operations and reported as
discontinued operations. RevenuesSales from the Wovens segmentSegment were $3.9 $5.7, and $9.8$5.7
million for the years ended December 31, 1999 and 1998, and 1997, respectively. DuringIn 1999,
the Company recorded an estimated net loss on disposal of $1.8 million, or
$.12 cents per common share, associated with the disposition of this segment.
The estimated net loss includes the estimated costs to dispose and operating
losses during the phase-out period of approximately $400 thousand.Segment. Wovens
segmentSegment net assets to be disposed of, consisting primarily of inventory,
property, plant and equipment, and certain intangibles with a totalan estimated net
realizable value of $2.1 million, have beenwere classified in the Consolidated Balance
Sheet at December 31, 1999 as "Net Investment in Discontinued Operations."
TheF-12
- -------------------------------------------------------------------------------
On February 29, 2000, the Company completed the salesold fixed assets, leasehold improvements,
inventory, and certain intangibles of the Wovens segment on February 29,Segment for $1.8 million. The
realized loss was not significantly different from the loss recognized as of
December 31, 1999.
6. Assets and Related Liabilities Held for Sale
In November 2000, see
Note 16.
6. ASSETS AND RELATED LIABILITIES HELD FOR SALE
In October of 1999, the Company'sLydall's Board of Directors formalized a plan to selldispose of
certain assets and related liabilities of the Composite Materials, Hoosick Falls Operation, which was mainlyCompany. As a componentresult, assets of
Other Products and Services for segment reporting purposes. Assets of
$6.4$6.2 million and related liabilities of $800 thousand$.4 million have been reclassified as
"Assets Held for Sale" and "Liabilities Related to Assets Held for Sale" in
the Consolidated Balance Sheet at December 31, 1999.2000. For the years ended
December 31, 2000, 1999, 1998 and 1997,1998, sales and income (loss) from operations
of the
Hoosick Falls Operation were $10.7 million, $10.3 million, and $12.1 million,
and $1.1 million, $500 thousand, and $900 thousand, respectively. The sale of
the Hoosick Falls Operation was completed on January 28, 2000. See Note 16 for
further details on the sale.
Assets Held for Sale at December 31, 1999 also include $28.8 million for the
chrome-plating and injection-molding operations of Gerhardi, the disposition of
which was approved by the Company's Board of Directors in December 1999. The
liabilities related to the chrome-plating and injection-molding assets held for
sale were $6.1 million at December 31, 1999 and are included in "Liabilities
Related to Assets Held for Sale." The results of these operations for 1999 are
included in the Thermal/Acoustical segment. The Company is in the process of
negotiating the sale of these operations and expects to complete the sale during
2000. No impairment charge was recognized in relation to these assets held for
sale, which are reported in the Consolidated Balance Sheet at their carrying
values.were $6.5 million, $11.0 million, and $11.4 million
and ($.2 million), $.8 million, and $.4 million, respectively.
7. CAPITAL STOCK
PREFERRED STOCK--TheCapital Stock
Preferred Stock. The Company has a class of Serial Preferred Stock with a par
value of $1. None of the 500,000 authorized shares has been issued.
COMMON STOCK--AtCommon Stock. At the end of 1999, 1,5162000, 1,615 Lydall stockholders of record held
15,699,77615,864,887 shares of Common Stock. Approximately 4 percent of the Company's
Common Stock was owned by Lydall'sLydall officers and directors and their immediate
families. Other Lydall employees, their families, and Lydall associates owned
an additional 1210 percent either directly or through participation in the
Company's
Employee Stock OwnershipLydall, Inc., 401(k) Plan Trust.
STOCKHOLDER REPURCHASE RIGHTS PLAN--InStockholder Rights Plan. In the second quarter of 1999, the Company's Board of
Directors adopted a Share RepurchaseStockholder Rights Plan by granting a dividend of one
preferred share purchase right for each common share to stockholders of record
at the close of business on June 30, 1999. Under certain conditions, each
right entitles the holder to purchase one-thousandth of a Series A Junior
Participating Preferred Share. The rights cannot be exercised or transferred
apart from the related common shares unless a person or group acquires 10
percent or more of the Company's outstanding common shares. The rights will
expire May 15, 2009 if they are not redeemed.
F-13
- -------------------------------------------------------------------------------
The following table provides a reconciliation of the income (loss) amounts and
shares used to determine basic and diluted earnings (loss) per share.
- -------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------For the Year Ended 2000 For the Year Ended 1999 For the Year Ended 1998
--------------------------- --------------------------- ---------------------------
Loss Income Income
from from from
Continuing Per-Share Continuing Per-Share Continuing Per-Share
Operations Shares Amount Operations Shares Amount Operations Shares Amount
---------- ------ --------- ---------- ------ --------- ---------- ------ ---------
FOR THE YEAR ENDEDBasic (loss) earnings
per share ($3,616) 15,778 ($.23) $11,089 15,715 $.70 $7,233 15,847 $.46
Effect of dilutive stock
options -- -- -- -- 69 (.00) -- 316 (.01)
............................................................................................................
Diluted (loss) earnings
per share ($3,616) 15,778 ($.23) $11,089 15,784 $.70 $7,233 16,163 $.45
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
For the Year Ended 2000 For the Year Ended 1999 For the Year Ended 1998
For the Year Ended 1997
--------------------------------- --------------------------------- ---------------------------------
INCOME Income Income
FROM from from
CONTINUING PER-SHARE Continuing--------------------------- --------------------------- ---------------------------
Per-Share Continuing Per-Share OPERATIONS SHARES AMOUNT OperationsPer-Share
Net Loss Shares Amount OperationsNet Income Shares Amount --------------------------------- --------------------------------- ---------------------------------
Basic earnings per
share $12,952 15,715 $ .82 $ 9,825 15,847 $ .62 $22,380 16,692 $1.34
Effect of dilutive
stock options -- 69 (.00) -- 316 (.01) -- 627 (.05)
..................................................................................................................................
Diluted earnings per
share $12,952 15,784 $ .82 $ 9,825 16,163 $ .61 $22,380 17,319 $1.29
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------Net Income Shares Amount
---------- ------ --------- ---------- ------ --------- ---------- ------ ---------
FOR THE YEAR ENDED 1999 For the Year Ended 1998 For the Year Ended 1997
--------------------------------- --------------------------------- ---------------------------------
NET PER-SHARE Net Per-Share Net Per-Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
--------------------------------- --------------------------------- ---------------------------------
Basic (loss) earnings
per share ($2,421) 15,778 ($.15) $10,775 15,715 $ .68 $ 4,202$.68 $4,202 15,847 $ .27 $21,911 16,692 $1.31$.27
Effect of dilutive stock
options -- -- -- -- 69 (.00) -- 316 (.01)
-- 627 (.04)
..............................................................................................................................................................................................................................................
Diluted (loss) earnings
per share ($2,421) 15,778 ($.15) $10,775 15,784 $ .68 $ 4,202$.68 $4,202 16,163 $ .26 $21,911 17,319 $1.27$.26
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Options to purchase 974,467, 593,700, and 297,9461,640,917 shares of Lydall Common Stock were not included inexcluded from
the 2000 computation of diluted earnings per share because the effect would be
antidilutive. Options to purchase 974,467 and 593,700 shares of Lydall Common
Stock were excluded from the 1999 1998 and 19971998 computation of diluted earnings per
share because the average exercise price was greater than the average market
price of the common shares at the end of each respective year.
F-11
- - --------------------------------------------------------------------------------
8. STOCK OPTION PLANSStock Option Plans
At December 31, 1999,2000, the Company hadmaintained two stock option plans under which employees
and directors had options to purchase Lydall Common Stock. Under these
plans--theeach plan --
the 1982 Stock Incentive Compensation Plan and the 1992 Stock Incentive
Compensation Plan--optionsPlan -- options are granted at fair market value on the grant
date and expire ten years after the grant date. In most cases, options vest at
a rate of 25 percent per year starting with the first anniversary of the
award. A few incentive stock option (ISO) awards have an extended vesting
period because IRS regulations, with regard to ISO awards, caplimit the total
dollar amount that can vest in one year for an individual atto $100,000. The
F-12
- - --------------------------------------------------------------------------------
1982 Plan has expired; therefore, no further options can be granted under this
Plan. The 1992 Plan provides for automatic acceleration of vesting in the
event of a change in control of the Company. The Plan also provides for the
use of shares of Lydall Common Stock in lieu of cash to exercise options if
the shares are held for more than six months and if the Compensation and Stock
Option Committee of the Board of Directors approves this form of exercise.
At January 1, 1997, the Company had three stock option plans under which
employees and directors had options or warrants to purchase Lydall Common Stock.
The 1984 Outside Directors' Warrant Plan was terminated in 1992. At the
beginning of 1997, there were warrants for 30,330 shares outstanding under the
Plan. All of these warrants were exercised during 1997.F-14
- -------------------------------------------------------------------------------
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees",Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the Company's
three stock option plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation",Stock-
Based Compensation," the Company's net income (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated below:
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
In thousands except per-share
data
For the years ended December 31, 2000 1999 1998
1997
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income As reported ($2,421) $10,775 $ 4,202 $21,911$4,202
Pro forma ( 3,657) 9,556 3,228
21,170
Basic (loss) earnings per share As reported ($ .15) $ .68 $ .27
$ 1.31
Pro forma ( .23) .61 .20
1.27
Diluted (loss) earnings per share As reported ($ .15) $ .68 $ .26
$ 1.27
Pro forma ( .23) .61 .20
1.22
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
The fair value of each option granted is estimated for the above disclosure on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 2000, 1999, 1998 and
1997,1998, respectively: zero dividend yield for all years; expected volatility of
47 percent, 50 percent, 40 percent and 2740 percent; risk-free interest rates of 5.3
percent, 6.7 percent, 4.7 percent and 5.84.7 percent; and an expected eight-year life infor
2000 and 1999 and a six-year life for 1998 and 1997.
F-13
- - --------------------------------------------------------------------------------
A1998.
The following is a summary of the status of the Company's stock option plans
as of December 31, 2000, 1999, 1998, and 1997,1998, and changes during the years ended on those dates is
presented below:then
ended:
- - ------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
In thousands except per-share data 2000 1999 1998
1997
- ---------------------------------- ------------------------ ------------------------ ------
Weighted-Average Weighted-Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares
- ---------------------------------------- --------------------------- ------------------------------------------------------------- ------ WEIGHTED-AVERAGE Weighted-Average
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES
- - ---------------------------------------- --------------------------- ------------------------------------------- ------ ---------------- ------
Outstanding at beginning
of year 1,329 $13.96 1,263 $14.38 1,592
$13.14 1,772
Granted 556 8.77 243 10.88 21
15.86 156
Exercised (150) 5.62 (68) 5.64 (274)
5.35 (303)
Forfeited (94) 14.17 (109) 17.16 (76)
21.28 (33)
.....................................................................................................................................................................................................
Outstanding at end of
year 1,641 $12.95 1,329 $13.96 1,263
$14.38 1,592
.....................................................................................................................................................................................................
Options exercisable at
year-end 921 1,002 1,037 1,156
Shares reserved for
grants 678 1,140 1,274 1,219
Weighted-average fair
value per option
granted during the year $ 5.24 $ 6.16 $ 7.37
$ 7.85
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In 1997,For 1998, the optionweighted-average exercise price for options outstanding at the
beginning and end of outstanding shares ranged from $1.85 to $26.00 per
share.the year was $13.14 and $14.38, respectively. Options
with weight-average exercise prices of $1.85 to $16.75$15.86, $5.35, and $21.28 were granted,
exercised, and forfeited in 1997.1998, respectively.
F-15
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1999:2000:
- ---------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/00 Contractual Life Exercise Price at 12/31/00 Exercise Price
---------------- ----------- ---------------- ---------------- ----------- ----------------
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Number Weighted-Average Number
Outstanding Remaining Exercisable
Range of at Contractual Weighted-Average at Weighted-Average
Exercise Prices 12/31/99 Life Exercise Price 12/31/99 Exercise Price$ 6.50 -- $10.08 795,950 7.2 $ 8.98 266,389 $ 9.26
10.38 -- 11.75 332,777 6.0 10.74 178,828 10.57
13.13 -- 19.81 300,606 5.2 17.77 264,690 17.60
22.63 -- 26.00 211,584 5.3 24.49 211,584 24.49
...........................................................................................
$ 6.50 -- $26.00 1,640,917 6.3 $12.95 921,491 $15.41
- - ----------------------- --------------------------------------------- ---------------------------
$ 4.21 - $ 6.51 103,100 .7 $4.34 100,500 $ 4.34
8.21 - 11.75 676,977 4.7 10.06 459,417 9.64
13.13 - 19.81 321,881 6.0 17.77 248,171 17.34
22.63 - 26.00 227,134 6.1 24.50 194,093 24.68
.....................................................................................................
$ 4.21 - $26.00 1,329,092 4.9 $13.96 1,002,181 $13.93
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
F-14
- - --------------------------------------------------------------------------------
9. EMPLOYER-SPONSORED BENEFIT PLANS
TheEmployer-Sponsored Benefit Plans
As of December 31, 2000 the Company contributed to fourmaintains three defined benefit pension
plans which cover substantially all domestic Lydall employees. In connection
with the sale of the Hoosick Falls Operation, the Company transferred one
defined benefit plan to the purchaser. The pension plans are noncontributory,
and benefits are based on either years of service or eligible compensation
paid while a participant is in a plan. The Company's funding policy is to fund
not less than the ERISA minimum funding standard nor more than the maximum
amount which can be deducted for federal income tax purposes.
The following items are the components of net periodic benefit cost for
pension benefits:
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
In thousands For the years ended December 31, 2000 1999 1998
1997
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Service cost $ 1,412 $ 1,184 $ 1,065993 $1,412 $1,184
Interest cost 1,710 1,717 1,530 1,392
Expected return on assets (1,997) (1,814) (1,623) (1,434)
Amortization of:
Transition asset (103)(100) (103) (103)
Prior service cost 11 19 12
9
Actuarial (gain) loss (5) 186 81 77
Special termination benefit and curtailment charges -- -- 85
--
............................................................................................
Total net........................................................................
Net periodic benefit cost $ 1,417 $ 1,166 $ 1,006612 $1,417 $1,166
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
At December 31, 1999, there were no plans with an accumulated benefit obligation
in excess of plan assets.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $24.0 million, $20.9 million, and
$20.2 million, respectively, as of December 31, 2000 and $25.8 million, $21.4
million, and $19.5 million, respectively, as of December 31, 1998.
At December 31, 1999, there were no plans with an accumulated benefit
obligation in excess of plan assets.
F-16
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Plan assets include investments in bonds and equity securities. The Company
determines the assumed discount rate, expected long-term rate of return on
plan assets, and annual compensation increase rate for each year. The
following presents the assumptions and a summary of funded status for all
plans:
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 1999
1998
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
Weighted average assumptionassumption:
Discount rate 7.50% 7.75% 6.50%
Expected return on plan assets 9.25% 9.25%
Rate of compensation increase 5.00% 5.00%
- ------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
In thousands December 31, 2000 1999
1998
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation:benefit obligation:
Net benefit obligation at beginning of year $22,093 $25,827 $20,250
Service cost 993 1,412 1,184
Interest cost 1,710 1,717 1,530
Plan amendments (62) 30
198
Actuarial loss (gain) loss668 (5,842)
3,299
CurtailmentsDivestitures (373) -- (62)
Special termination benefits -- 79
Gross benefits paid (1,045) (1,051)
(651)
................................................................................................................................................
Net benefit obligation at end of year $23,984 $22,093
$25,827
- ------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
In thousands December 31, 2000 1999
1998
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
Change in Plan Assets:plan assets:
Fair value of plan assets at beginning of year $22,300 $19,456 $16,929
Actual return on plan assets (691) 3,253 1,836
Employer contributions -- 642
1,342Divestitures (373) --
Gross benefits paid (1,045) (1,051)
(651)
................................................................................................................................................
Fair value of plan assets at end of year 20,191 $22,300
$19,456
................................................................................................................................................
Funded status at end of year ($3,793) $ 207 $(6,371)
Unrecognized net actuarial loss (gain) loss1,959 (1,337) 6,130
Unrecognized prior service cost 258 384 373
Unrecognized net transition asset (216) (322)
(425)
................................................................................................................................................
Net amount recognized $(1,068) $ (293)
.................................................................................($1,792) ($ 1,068)
...............................................................
Amounts recognized in the statements of financial positionconsolidated balance
sheets consist of:
Prepaid benefit cost $ 663512 $ 573663
Accrued benefit liability (2,304) (1,731) (866)
Additional minimum liability (873) -- (1,698)
Intangible assets 421 -- 492
Accumulated other comprehensive income 452 --
1,206
................................................................................................................................................
Net amount recognized $(1,068) $ (293)($1,792) ($ 1,068)
- - ---------------------------------------------------------------------------------------------------------------------------------------------------
F-17
- - --------------------------------------------------------------------------------
The Company also sponsors a Stock Purchase Plan Profit Sharing Plan, and a 401(k) Plan.
Contributions are determined under various formulas. Employer contributions to
these plans amounted to $1.1 million in 2000, $1.7 million in 1999, and $1.9
million in 1998,1998.
F-17
- -------------------------------------------------------------------------------
10. Postemployment, Postretirement, and $2.1 million in 1997.
10. POSTEMPLOYMENT, POSTRETIREMENT, AND DEFERRED COMPENSATIONDeferred Compensation
Lydall provides health care and life insurance benefits to certain groups of
retired and hourly employees. The actuarially determinedamount of expense ofreflected in the Company's
results from operations for these benefits was less than $100 thousand for
each of the last three years.
The Company provides deferred compensation to a small number of former
employees and has a deferred compensation plan, which was frozen as of
December 31, 1996, that provides the Company's outside directors and the
former Chairman with compensation upon their retirement from service with the
Board. In addition, the Company provides a Supplemental Executive Retirement
Plan ("SERP") whichthat provides supplemental income payments after retirement to
senior executives. The total net deferred compensation expense related to these
three plans was $257 thousand in 2000, $327 thousand in 1999, and $564
thousand in 1998, and $234 thousand1998.
11. Impairment Loss
No impairment losses were recorded in 1997.
11. IMPAIRMENT LOSS2000 or in 1999.
In 1998, the Company recognized $8.5 million in pretax impairment losses on
certain long-lived assets. The largest portion of the loss, $6.5 million,
represented impaired goodwill ofrelated to the Wovens segmentSegment, which is reported
in discontinued operations for all years presented.operations. The remaining impairment losses related to fiber
processing equipment at the Axohm operationOperation and equipment at the Manning, Green Island
operation.
No impairment losses were recorded in 1999 and 1997.Operation.
12. SEGMENT INFORMATIONSegment Information
Lydall's reportable segments are: Thermal/Acoustical Filtration/Separation,
Paperboard and
Wovens.Filtration/Separation. All other products are aggregated in Other Products and
Services. In February 2001, the Company announced the discontinuation of the
Paperboard Segment. The Segment consisted primarily of the Company's Southern
Products and Lydall & Foulds Divisions. On February 1, 2001, the Company
announced the closure of its Lydall & Foulds Division. In addition, on
February 5, 2001 the Company sold the Southern Products Division. The results
of the Paperboard Segment have been excluded from continuing operations for
all years presented.
During the fourth quarter of 1999, the Company renamed twoannounced the discontinuation
of its segmentsthe Wovens Segment, the sale of which was completed on February 29, 2000.
The Wovens Segment included specialty woven composites used in advanced
structural materials sold to reflect the rangeaerospace, marine, and sporting goods
industries. The results of products included. Heat-Management was renamed
Thermal/Acoustical, and
F-18
- - --------------------------------------------------------------------------------
Filtration was renamed Filtration/Separation. Financial reporting
classifications and presentations were not affected by these name changes.the Wovens Segment have been excluded from
continuing operations for all years presented.
Lydall evaluates performance and allocates resources based on sales and
operating income, net of a corporate charge.income. Sales by segment reported below include intercompany
transactions. Operating income is calculated using specific cost
identification for most items, with some allocation of overhead, based on
sales volume. THERMAL/ACOUSTICAL
TheIn 2000, the Company removed its corporate charge from the
calculation of operating income and, as a result, reclassified the 1999 and
1998 operating income amounts to conform to the current year presentation.
Thermal/Acoustical segment includes
Lydall's thermal and acoustical barriers, manufactured fromheat shields, and insulating
products include a range of fiberfiber-based materials, fiber-and-metal
combinations, and metal materialsall-metal products that protect and insulate within
temperature environments ranging from -459 DEG.F (-237 DEG.C)-459(degrees) F (-237(degrees) C) to
+3000 DEG.F+3000(degrees) F (+1649 DEG.C)1649(degrees) C).
FILTRATION/SEPARATION
The Company'sF-18
- -------------------------------------------------------------------------------
Filtration/Separation
segmentThe Filtration/Separation Segment includes Lydall'sindustrial air and liquid
filtration mediaproducts, vital fluids management systems sold to medical and
biomedical fluid managementbiopharmaceutical markets, and separation and energy-related products.
Lydall's
high-efficiency air filtration glass microfiber media are employed inOther Products and Services
The largest component of Other Products and Services is Lydall Transport,
Ltd., a whole
seriesprovider of filters in air-handling systems. Liquid filtration applications range
from water purification to hydraulic lubricating oil filters. Bio-medical
products include blood filtration media and devicestotal logistics packages as well as biotechindividual trucking
and pharmaceutical processing containers.
PAPERBOARD
The Paperboard segment includes commodity paper products which are employed
primarily in materials-handling and packaging applications.
WOVENS
During the fourth quarter of 1999, the Company announced the discontinuation of
this segment, the sale of which was completed on February 29, 2000. The Wovens
segment included specialty woven composites used in advanced structural
materials sold to the aerospace, marine, and sporting goods industries.
The results of the Wovens segment have been excluded from continuing operations
for the years ended December 31, 1999, 1998, and 1997.
OTHER PRODUCTS AND SERVICESwarehousing solutions. Other Products and Services also includes pencil
slats made from recycled newsprint and cardboard, electrical insulation,
severalassorted specialty products, and battery separators made in Europe, and the Company's distribution and warehouse
services. It also includes fiberboard composites manufactured at Lydall's
Composite Materials, Hoosick Falls Operation and sold in sheet form to
fabricatorsseparators. Sales of high-performance gaskets. The Hoosick Falls Operation wasa gasket
manufacturer sold on January 28, 2000.2000 are also included through the date of
sale.
The table below presents sales and operating income by segment as used by the
chief operating decision-maker of Lydall (the Operating Committee led by the
President and CEO) for the years ended December 31, 2000, 1999, 1998, and 1997.
F-19
- - --------------------------------------------------------------------------------1998.
- -----------------------------------------------------------------------------
Other
In thousands Other
for the years Thermal/ Filtration/ Products Reconciling Consolidated
for the years ended Acoustical Separation Paperboard & Services Items Totals
- -----------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
DECEMBERDecember 31, 2000
Sales $158,472 $67,913 $38,799 ($ 4,066) $261,118
Operating income $ 16,768 $10,210 $ 3,826 ($11,821) $ 18,983
............................................................................
December 31, 1999
SALESSales $169,283 $58,994 $43,521 $50,489 ($3,782) $318,505
OPERATING INCOME$274,984
Operating income $ 8,91613,065 $ 6,5468,466 $ 1,2847,347 ($11,137) $ 6,561 ($2,614) $ 20,693
.....................................................................................................................17,741
............................................................................
December 31, 1998
Sales $ 81,831 $55,935 $41,050 $47,506 $(2,036) $224,286($ 2,036) $183,236
Operating income $ 8,12112,230 $ 5,0297,573 $ 2,1253,613 ($12,152) $ 2,345 $(2,240) $ 15,380
.....................................................................................................................
December 31, 1997
Sales $ 84,483 $57,238 $40,927 $54,594 $(2,795) $234,447
Operating income $ 15,785 $ 9,045 $ 4,290 $ 5,349 $(1,064) $ 33,40511,264
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
A reconciliation of total segment sales to total consolidated net sales and of total
segment operating income to total consolidated operating income for the years ended
December 31, 2000, 1999, 1998, and 19971998 is as follows:
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
1997
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
SALESSales
Total segment sales $322,287 $226,322 $237,242$265,184 $278,766 $185,272
Elimination of intersegment sales (4,066) (3,782) (2,036)
(2,795)
...................................................................................................................................................................
Consolidated net sales $318,505 $224,286 $234,447$261,118 $274,984 $183,236
- - -----------------------------------------------------------------------------------------------
OPERATING INCOME------------------------------------------------------------------------
Operating Income
Total segment operating income $ 23,30730,804 $ 17,62028,878 $ 34,469
Corporate expenses (2,457) (2,027) (1,082)23,416
Elimination of intersegment income (loss) (157) (213) 18
...............................................................................................and corporate
expenses (11,821) (11,137) (12,152)
....................................................................
Consolidated operating income $ 20,69318,983 $ 15,38017,741 $ 33,40511,264
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Asset information by reportable segment is not reported since the chief
operating decision-maker does not use such information internally.
F-19
- -------------------------------------------------------------------------------
Net sales and long-lived assets information by geographic area as of and for
the years ended December 31, 2000, 1999, 1998, and 19971998 is as follows:
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Sales Long-Lived Assets
- - ------------------------------------------------------------------------ --------------------------------
In thousands 1999 1998 1997 1999 1998 1997----------------------------------------- -------------------------
In thousands 2000 1999 1998 2000 1999 1998
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
United States $229,400 $213,465 $223,280$193,339 $185,879 $172,415 $79,659 $ 87,901 $ 97,537
$82,893
France 11,498 13,809 10,821 11,1677,518 8,244 8,983
9,794
Germany 56,281 75,296 -- --11,992 8,858 29,509
--
.............................................................................................................................................................................
Total $318,505 $224,286 $234,447$261,118 $274,984 $183,236 $99,169 $105,003 $136,029
$92,687
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Foreign sales are based on the country in which the sales originate, i.e.,
where the legal entity is domiciled.
Lydall has a major customer, Ford Motor Co., which accounted for sales of
$34.1 million, $36.8 million, and $35.0 million in 2000, 1999, and $47.2 million in 1999, 1998, and 1997,
respectively. These sales are reported in the Thermal/Acoustical segment.
F-20
- - --------------------------------------------------------------------------------Segment.
13. INCOME TAXESIncome Taxes
The (benefit) provision (benefit) for income taxes from continuing operations consists
of the following:
- - --------------------------------------------------------------------------------------------
--------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
1997
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------
Current
Federal $3,479 $ 6,432 $10,397$5,495 $2,163 $2,622
State 546 1,256 1,8641,117 428 739
Foreign (2,769) 289 (187)
341
......................................................................................................................................................
Total current $4,314 $ 7,501 $12,602
............................................................................................$3,843 $2,880 $3,174
..........................................................
Deferred
Federal $2,548 $(1,739) $ 1372,329 $2,859 $ 731
State (191) (489) 108(778) (163) (154)
Foreign (7,759) (401) (608)
(15)
......................................................................................................................................................
Total deferred $1,956 $(2,836) $ 230
............................................................................................
Provision($6,208) $2,295 ($31)
..........................................................
(Benefit)/provision for income taxes $6,270 $ 4,665 $12,832($2,365) $5,175 $3,143
- - ----------------------------------------------------------------------------------------------------------------------------------------------------------
The following is a reconciliation of the difference between the actual
provision for income taxes from continuing operations and the provision
computed by applying the federal statutory tax rate on earnings.
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
1997
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Statutory federal income tax rates (35.0%) 35.0% 35.0%
35.0%
.........................................................................................................................................................................
State income taxes, net of federal tax deduction 2.5 4.6 3.98.5 2.6 5.6
Exempt FSC and foreign trade income (5.0) (5.0) (1.0)(14.0) (5.7) (6.8)
Tax exempt income (.4)-- (.5) (.1)
(.8)
Other .5 (2.3) (.7)
.........................................................................................................1.0 .4 (3.4)
................................................................
Effective income tax rates 32.6% 32.2% 36.4%(39.5%) 31.8% 30.3%
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
F-21F-20
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
The following is a schedule of the net current deferred tax assets and long-termlong-
term deferred tax liabilities accounts by tax jurisdiction as of December 31:
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2000 1999
1998
------------------------------- ------------------------------
LONG-TERM------------------------------------- -------------------------------------
Current Long-term CURRENT DEFERRED DEFERRED TAX Current Deferred Deferred TaxLong-term
DeferredTax DeferredTax DeferredTax DeferredTax
In thousands TAX ASSETS LIABILITIES Tax Assets Assets/Liabilities Assets/Liabilities Assets/Liabilities Assets/Liabilities
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal ($ 220) ($ 9,308) $3,758 $ 7,657 $3,794 $ 4,594($ 7,657)
State 140 (741) 744 1,822 2,476 3,694(1,822)
Foreign 7,370 (1,134) 305 1,827 515 2,438
........................................................................................................(1,827)
........................................................................................
Total $7,290 ($11,183) $4,807 $11,306 $6,785 $10,726($11,306)
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
In thousands 2000 1999
1998
- - ----------------------------------------------------------------------------------------------------------------------------------
Deferred Tax Assetstax assets
Accounts receivable $ 294 $ 598
$ 634
Inventories 745 1,032 1,202
Other accrued expenses 1,407 2,960 3,337
Intangible assets -- 2,574 475
Retirement accounts 2,546 1,939
1,394Tax credits 406 --
Net operating losses 22,576 2,170 --
Discontinued operations -- 1,133 --
Other, net 278 1,155
116
.................................................................................................................................
Total deferred tax assets 28,252 13,561 7,158
Deferred tax liabilities
Property, plant and equipment 15,365 17,538 11,099
Assets held for sale 1,017 418
Discontinued operations 1,111 --
...................................................................................Intangible assets 770 --
..............................................
Total deferred tax liabilities 18,263 17,956 11,099
Valuation reserve 13,882 2,104
--
.................................................................................................................................
Net deferred tax liabilities $ 3,893 $ 6,499
$ 3,941
- - ----------------------------------------------------------------------------------------------------------------------------------
The Internal Revenue Service is currently examining the Company's federal
income tax return for 1996.1997. Lydall's management believes any potential
issuesadjustments resulting from this examination will not be immaterialsignificant to the
consolidated financial position, or the results of operations, or cash flows of the
Company.
F-21
- -------------------------------------------------------------------------------
14. COMMITMENTS AND CONTINGENCIESCommitments and Contingencies
On or about March 10, 1986, the United States Environmental Protection Agency
("EPA") notified a former subsidiary of the Company that it and other entities
may be potentially responsible in connection with the release of hazardous
substances at a landfill and property located adjacent to a landfill located
in Michigan City, Indiana. Lydall has received no further communication from the
EPA in the 13 years following that notice. The preliminary
F-22
- - -------------------------------------------------------------------------------- indication, based on the Site
Steering Committee's volumetric analysis, is that the alleged contribution to
the waste volume at the site, of the plant once owned by a former subsidiary,
is approximately 0.434 percent of the total volume. The portion of the 0.434
percent specifically attributable to the former subsidiary by the current
operator of the plant is approximately 0.286 percent. The EPA completed its
Record of Decision for the site and estimated the total cost of remediation to
be between $17 million and $22 million. Based on the alleged volumetric
contribution of its former subsidiary to the site, and on the EPA's estimated
remediation costs, Lydall's alleged total exposure would be less than $100
thousand, which has been accrued.
There are over 800 potentially responsible parties ("prp"PRPs") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80 percent
of the total waste volume at the site. These prp'sPRPs include Fortune 500
companies, public utilities, and the State of Indiana. The Company believes
that, in general, these parties are financially solvent and should be able to
meet their obligations at the site. The Company has reviewed Dun & Bradstreet
reports on several of these prp's,PRPs, and based on these financial reports, does
not believe Lydall will have any material additional volume attributed to it
for reparation of this site due to insolvency of other prp's.PRPs.
In June 1995, the Company and its former subsidiary were sued in the Northern
District of Indiana by the insurer of the current operator of the former
subsidiary's plant seeking contribution. In October 1997, the insurer made a
settlement demand of $150,591 to the Company in exchange for a release of the
Company's liability at the site and indemnification from the current operator
against site-related claims. The Company executed a settlement agreement with
the insurer and current operator for a full site release; however, the current
operator subsequently backed out of the agreement. In June, 1998, a
Stipulation for Dismissal signed by all parties was filed to end current
litigation until total liability at the site could be defined.
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position,
results of operations or cash flows.
By letter dated July 13, 1998, Lydall Eastern, Inc., a subsidiary of Lydall,
Inc. ("Lydall Eastern") was identified as a "potentially responsible party" by
the EPA in connection with the claimed release or threat of release of
hazardous substances at a site known as the Rogers Fibre Mill in Buxton, Maine
(the "site"). Lydall Eastern merged with the owner and operator of a
fiberboard mill at the site whose ownership dated back to approximately 1912.
Lydall Eastern ceased operation at the site in 1980. In 1982, Lydall Eastern
conveyed its interest in the site.
The EPA is spendingspent public funds to investigate and take action with respect to the
site. The EPA likely will seek to recover the funds it has spent and will
spend, at the site from
potentially responsible parties, including Lydall Eastern. Lydall Eastern has
received a "Request for Information" from the EPA dated September 25, 2000,
and has responded. At this time, it is not possible to predict what future
liability or costs might be incurred by Lydall Eastern in connection with the
site.
In the normal course of business Lydall enters into long-term supply
agreements with customers. Losses, if any, on these agreements are provided
for when anticipated.
F-23F-22
- - ---------------------------------------------------------------------------------------------------------------------------------------------------------------
15. COMPREHENSIVE INCOMEComprehensive Income
The following tables disclosetable discloses the balance by classification within accumulated
other comprehensive income (loss).loss.
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Minimum Accumulated
Foreign Unrealized Pension Other
Currency Gain Gain/(Loss) Liability Comprehensive
In thousands Adjustment on Securities Adjustment Income (Loss)Loss
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
BEGINNING BALANCE JANUARYBeginning Balance January 1,
2000 ($4,582) $ -- $ -- ($4,582)
Change Year-to-Date ( 1,933) -- (285) ( 2,218)
..............................................................................
Ending Balance December 31,
2000 ($6,515) $ -- ($285) ($6,800)
- -------------------------------------------------------------------------------
Beginning Balance January 1,
1999 $713 $-- $(784) $(71)
CHANGE YEAR-TO-DATE (5,295)$ 713 $ -- ($784) ($ 71)
Change Year-to-Date ( 5,295) -- 784 (4,511)
..................................................................................................................
ENDING BALANCE DECEMBER( 4,511)
..............................................................................
Ending Balance December 31,
1999 $(4,582) $-- $-- $(4,582)($4,582) $ -- $ -- ($4,582)
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Beginning Balance January 1,
1998 $76 $22 $(262) $(164)$ 76 $ 22 ($262) ($ 164)
Change Year-to-Date 637 (22) (522)( 22) ( 522) 93
................................................................................................................................................................................................
Ending Balance December 31,
1998 $713 $-- $(784) $(71)$ 713 $ -- ($784) ($ 71)
- - ------------------------------------------------------------------------------------------------------------------
Beginning Balance January 1, 1997 $1,425 $77 $(38) $1,464
Change Year-to-Date (1,349) (55) (224) (1,628)
..................................................................................................................
Ending Balance December 31, 1997 $76 $22 $(262) $(164)
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
16. SUBSEQUENT EVENTS
On January 28, 2000, the Company sold substantially all of the assets, net of
certain liabilities of the Composite Materials, Hoosick Falls Operation for
$12.0 million subject to post-closing adjustments. The sale resulted in a gain
of approximately $3.7 million, or $.24 per share, which will be reflected in the
Company's results in the first quarter of 2000. The sale of this Operation is
part of the Company's restructuring plan to concentrate on the design and
manufacture of thermal and acoustical products and specialty filtration and
separation materials.
On February 29, 2000, the Company sold fixed assets, leasehold improvements,
inventory and certain intangibles of the Wovens segment for $1.8 million. The
realized loss was not significantly different from the loss recognized as of
December 31, 1999.
F-24
- - --------------------------------------------------------------------------------
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)Quarterly Financial Information (Unaudited)
The following table summarizes quarterly financial information for 2000 and
1999, and
1998.restated to reflect the discontinuation of the Paperboard Segment. In
management's opinion, all adjustments necessary to present fairly the
information for such quarters have been reflected below:
- ----------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
1(st)1st Quarter 2(nd)2nd Quarter 3(rd)3rd Quarter 4(th)4th Quarter
- - ---------------------------------------------------------------------------------------------------------------------
In thousands
EXCEPT PER-SHARE DATAExcept per-share data 2000 1999 19982000 1999 19982000 1999 19982000 1999
1998
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Sales $69,733 $71,519 $68,265 $72,782 $ 82,934 $54,452 $ 83,054 $57,841 $ 75,786 $55,170 $ 76,731 $56,82365,966 $64,843 $57,154 $65,840
Gross margin 19,127 15,994 20,295 17,668 19,128 16,404 16,970 15,85017,598 16,733 17,588 18,393 17,312 17,449 16,149 15,809
Income (loss) from
continuing operations 4,181 3,735 3,717 4,133 3,353 3,413 1,701 (1,456)
Loss6,519 3,357 2,814 3,065 ( 15,967) 3,017 3,018 1,651
Gain (loss) from
discontinued operations (99) (186) (112) (282) (105) (259) (1,861) (4,896)286 725 372 540 241 232 296 ( 1,811)
Net income (loss) $ 6,805 $ 4,082 $ 3,5493,186 $ 3,605 ($ 15,726) $ 3,8513,249 $ 3,248 $ 3,154 $ (160) $(6,352)
.....................................................................................................................3,314 ($ 160)
...........................................................................................
Basic EPS
Continuing operations $ 0.27 $ 0.23 $ 0.24 $ 0.260.42 $ 0.21 $ 0.220.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11
$ (0.10)
Discontinued operations (0.01) (0.01) (0.01) (0.02) (0.01) (0.02) (0.12) (0.31)0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12)
Net income (loss) $ 0.260.43 $ 0.22 $ 0.23 $ 0.240.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ (0.01) $ (0.41)
- - ---------------------------------------------------------------------------------------------------------------------0.21 ($ 0.01)
...........................................................................................
Diluted EPS
Continuing operations $ 0.27 $ 0.23 $ 0.24 $ 0.250.42 $ 0.21 $ 0.210.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11
$ (0.10)
Discontinued operations (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.12) (0.31)0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12)
Net income (loss) $ 0.260.43 $ 0.22 $ 0.23 $ 0.240.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ (0.01) $ (0.41)0.21 ($ 0.01)
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The sum of EPSearnings per share for the four quarters in 2000 and 1999 and 1998 dodoes not
agree toequal the EPSearnings per share as reported in the Consolidated Statements of
Income (Loss) and Comprehensive Income (Loss) for the entire year due to
rounding.
F-25F-23
- - --------------------------------------------------------------------------------
SCHEDULESchedule II
LYDALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
AND 1997
- --------------------------------------------------------------------------------------------
Additions
- ---------------------------------- --------------------- ----------------------------------
Charged To
Charged To Other
Balance At Costs and Accounts Deductions Balance At
$ thousands January 1, Expenses Describe Describe December 31,
- ------------------------------------------------------------------------------------------------------------------------------------------- ---------- ---------- ---------- ---------- ------------
ADDITIONS
----------------------
CHARGED
TO ---------------------------2000
Allowance for doubtful
receivables $1,511 $358 $(36)/2/ ($1,189)/1/,/6/,/7/ $ 644
LIFO reserve 1,619 209 -- ( 1,273)/3/,/7/ 555
Inventory obsolescence
reserve 641 309 -- ( 657)/4/,/6/ 293
- - ------------------------------------------------------------ CHARGED TO OTHER BALANCE AT
BALANCE AT COSTS AND ACCOUNTS DEDUCTIONS DECEMBER
$ thousands JANUARY 1, EXPENSES DESCRIBE DESCRIBE 31,
- - ------------------------------------------------------------ ---------------------- -----------------------------------------------------------------------------------------------------------------------
1999
ALLOWANCE FOR DOUBTFUL RECEIVABLES $ 1,504 $ 364 $ 553 (5) $ (910)(1) $ 1,511Allowance for doubtful
receivables $1,504 $364 $553/5/ ($ 910)/1/ $1,511
LIFO RESERVEreserve 1,216 428 -- (25)(3)( 25)/3/ 1,619
INVENTORY OBSOLESCENCE RESERVEInventory obsolescence
reserve 649 375 (22)(2) (361)(4)/2/ ( 361)/4/ 641
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1998
Allowance for doubtful
receivables $ 1,381 $ 556$1,381 $556 $ -- $ (433)(1) $ 1,504($ 433)/1/ $1,504
LIFO reserve 1,172 173 -- (129)(3)( 129)/3/ 1,216
Inventory obsolescence
reserve 577 511 10 (2) (449)(4)10/2/ ( 449)/4/ 649
- - ---------------------------------------------------------------------------------------------------------------------
1997
Allowance for doubtful receivables $ 1,727 $ 258 $ -- $ (604)(1) $ 1,381
LIFO reserve 1,740 -- -- (568)(3) 1,172
Inventory obsolescence reserve 519 254 (13)(2) (183)(4) 577
- - -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) Uncollected/1 /Uncollected receivables written off and adjustments to allowance.
(2) Record/2 /Recorded foreign currency translation adjustments.
(3) Adjustment/3 /Adjustment of LIFO reserve for changes in inventory levels.
(4) Write-offlevels and cost.
/4 /Write-off of obsolete inventory and adjustment to reserve level.
(5) Allowance/5 /Allowance for uncollected receivables recorded on Gerhardi's completed
opening balance sheet.
/6 /Elimination of allowance for uncollectible receivables and inventory
reserve due to disposition of operations.
/7 /Reduction due to the reclassification of the reserve to "Net Investment in
Discontinued Operations" and "Assets Held for Sale."
S-1
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
3.1 Certificate of Incorporation of the Registrant filed herewith.
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 this reference).
4.1 Certain long-term debt instruments, each representing indebtedness in
an amount equal to less than 10 percent of the Registrant's total
consolidated assets, have not been filed as exhibits to this Annual
Report on Form10-K. The Registrant will file these instruments with the
Commission upon request.
10.1* Amended and restated, Lydall, Inc. 1982 Stock Incentive Compensation
Plan, amended through May 14, 1991 (filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K dated March 26, 1992 and
incorporated herein by this reference).
10.2* Agreement and General Release with Leonard R. Jaskol dated December 2,
1998 (filed as exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated May 17, 1999, and incorporated herein by this
reference).
10.3* Agreement with Raymond J. Lanzi dated March 10, 1995 (filed as Exhibit
10.5 to the Registrant's Quarterly report on Form 10-Q dated May 9,
1995, and incorporated herein by this reference).
10.4* Employment Agreement with Carole F. Butenas dated March 1, 2000 (filed
as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.5* Employment Agreement with Mona G. Estey dated March 1, 2000 (filed as
Exhibit 10.9 to the Registrant's Annual Report on Form 10-K dated March
30, 2000, and incorporated herein by this reference).
10.6* Employment Agreement with Mary A. Tremblay dated March 1, 2000 (filed
as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.7* Lydall, Inc. Board of Directors Deferred Compensation Plan effective
January 1, 1991 (filed as Exhibit 10.17 to the Registrant's Annual
Report on Form 10-K dated March 26, 1991, and incorporated herein by
this reference).
10.8* Lydall, Inc. Supplemental Executive Retirement Plan effective January
1, 1994 (filed as Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K dated March 27, 1996, and incorporated herein by this
reference).
10.9* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May
14, 1992, amended through March 10, 1999, filed herewith.
10.10* Employment Agreement with James P. Carolan dated March 1, 2000, filed
herewith.
10.11* Employment Agreement with Christopher R. Skomorowski dated March 1,
2000 (filed as Exhibit 10.15 to the Registrant's Annual Report on Form
10-K dated March 30, 2000, and incorporated herein by this reference).
10.12* Employment Agreement with Walter A. Ruschmeyer dated March 16, 2000
(filed as Exhibit 10.16 to the Registrant's Annual Report on Form 10-K
dated March 30, 2000, and incorporated herein by this reference).
10.13* Employment Agreement with Kevin G. Lynch dated March 1, 2000 (filed as
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
Exhibit
No. Description
- ------- -----------
10.14* Employment Agreement with Raymond S. Grupinski dated March 1, 2000
(filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K
dated March 30, 2000, and incorporated herein by this reference).
10.15* Employment Agreement with Bill W. Franks, Jr. dated March 1, 2000
(filed as Exhibit 10.20 to the Registrant's Annual Report on Form 10-K
dated March 30, 2000, and incorporated herein by this reference).
10.16* Employment Agreement with Lisa Krallis-Nixon dated March 1, 2000 (filed
as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K dated
March 30, 2000, and incorporated herein by this reference).
10.17* Agreement with Thomas P. Smith dated May 1, 2000, filed herewith.
10.18* Agreement with Richard H. Kopp dated April 1, 2000, filed herewith.
10.19 Asset Purchase Agreement between CharterMed, Inc. and Charter Medical
Ltd. (filed as Exhibit 10.20 to the Registrant's Annual Report on Form
10-K dated March 16, 1998, and incorporated herein by this reference).
10.20 Asset Purchase Agreement between Lydall Central, Inc. and Engineered
Thermal Systems, Inc. (filed as Exhibit 10.1 to the Registrant's
Quarterly report on Form 10-Q dated May 7, 1998, and incorporated
herein by this reference).
10.21 Purchase and Sale Agreement (English Translation) signed as of December
30, 1998 by and between HOHENSTAUFEN EINHUNDERTSTE.
Vermogensverwaltungs GmbH, a wholly owned subsidiary of Lydall, Inc.
and Gerhardi & Cie. GmbH & Co. KG related to the purchase of all the
outstanding shares of Gerhardi & Cie. GmbH & Co. KG (filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K filed January 14,
1999).
10.22 Credit Agreement dated July 14, 1999 between Lydall, Inc. and certain
subsidiaries and Chase Manhattan Bank, as Administrative Agent, and
Fleet National Bank, as Documentation Agent (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q dated August 11, 1999,
and incorporated herein by this reference).
10.23 Agreement and General Release with John E. Hanley dated February 2,
2000 (filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated May 12, 2000, and incorporated herein by this
reference).
10.24 Amendment dated August 10, 2000 to Credit Agreement dated July 14, 1999
between Lydall, Inc. and certain subsidiaries and Chase Manhattan Bank,
as Administrative Agent, and Fleet National Bank, as Documentation
Agent (filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q dated August 14, 2000, and incorporated herein by this
reference).
10.25 Spin-off and Transfer Agreement (English translation) between Lydall
Gerhardi GmbH and Co. KG and Gerhardi Kunststofftechnik GmbH dated
September 29, 2000, effective September 30, 2000 (filed as Exhibit 2.1
to the Registrant's Current Report on Form 8-K filed October 16, 2000,
and incorporated herein by this reference).
10.26 Purchase and Transfer Agreement (English translation) between Lydall
Gerhardi GmbH and Co. KG and the management buyout group as set forth
in the agreement, dated September 29, 2000, effective September 30,
2000 (filed as Exhibit 2.2 to the Registrant's Current Report on Form
8-K filed October 16, 2000, and incorporated herein by this reference).
10.27 Asset Purchase and Sale Agreement between Lydall Eastern, Inc. and
Ludlow Building Products, Inc., dated February 5, 2001, filed herewith.
10.28* Amendment dated August 1, 2000 to the Employment Agreement with Mona G.
Estey dated March 1, 2000, filed herewith.
Exhibit
No. Description
- ------- -----------
10.29* Amendment dated August 1, 2000 to the Employment Agreement with Mary A.
Tremblay dated March 1, 2000, filed herewith.
10.30* Amendment dated August 1, 2000 to the Employment Agreement with
Christopher R. Skomorowski dated March 1, 2000, filed herewith.
10.31* Amendment dated August 1, 2000 to the Employment Agreement with Walter
A. Ruschmeyer dated March 16, 2000, filed herewith.
10.32* Amendment dated August 1, 2000 to the Employment Agreement with James
P. Carolan dated March 1, 2000, filed herewith.
10.33* Amendment dated August 1, 2000 to the Employment Agreement with Kevin
G. Lynch dated March 1, 2000, filed herewith.
10.34* Amendment dated August 1, 2000 to the Employment Agreement with Raymond
S. Grupinski dated March 1, 2000, filed herewith.
10.35* Amendment dated August 1, 2000, to the Employment Agreement with Bill
W. Franks, Jr. dated March 1, 2000, filed herewith.
10.36* Amendment dated August 1, 2000 to the Employment Agreement with Lisa
Krallia-Nixon dated March 1, 2000, filed herewith.
21.1 List of subsidiaries of the Registrant, filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP, filed herewith.
24.1 Power of Attorney, dated February 27, 2001, authorizing Christopher R.
Skomorowski and/or Walter A. Ruschmeyer to sign this report on behalf
of each member of the Board of Directors indicated therein, filed
herewith.
99.1 Press release dated October 2, 2000 titled "Lydall Completes Sale of
Chrome-Plating and Injection-Molding Operations in Germany" (filed as
Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed
October 16, 2000, and incorporated herein by this reference).
* Management contract or compensatory plan.