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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
[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, 2000
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
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LYDALL, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0865505
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
One Colonial Road, Manchester,
Connecticut 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:
Title of each class Name of each exchange on which registered
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Common Stock, $.10 par value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate 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. [_]
On March 12, 2001, the aggregate market value of the Registrant's voting stock
held by nonaffiliates was $174,964,088.
On March 12, 2001, there were 15,865,137 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 9, 2001.
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Index to Annual Report on Form 10-K
Year Ended December 31, 2000
Page
----
PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders........... 5
Executive Officers and Other Significant Employees of the
Registrant.................................................... 5
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters....................................................... 6
Item 6. Selected Financial Data....................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations ........................................ 8
Item 7a. Quantitative and Qualitative Disclosure about Market Risk..... 15
Item 8. Financial Statements and Supplementary Data................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure.......................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant............ 16
Item 11. Executive Compensation........................................ 16
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 16
Item 13. Certain Relationships and Related Transactions................ 16
The information called for by Items 10, 11, 12, and 13, to the extent not
included in this document, is incorporated herein by reference to such
information included under the captions "Election of Directors," "Common Stock
Ownership of Management," "Directors' Compensation," and "Executive
Compensation," in the Company's definitive Proxy Statement filed on March 23,
2001.
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
Item 14. 8-K........................................................... 17
Signatures.................................................... 21
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PART I
Item 1. BUSINESS
Lydall, Inc. and its subsidiaries are hereafter referred to as "Lydall," the
"Company," or the "Registrant." Lydall is a manufacturer of engineered
products for demanding specialty applications.
The Company develops and manufactures engineered specialty papers in roll and
sheet form and fabricates automotive heat shields, thermal and acoustical
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, 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
by 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, most of whom are
either privately owned or divisions of larger companies, making it difficult
to determine the Company's share of markets served.
In 1999, the Company defined its core businesses as thermal/acoustical and
filtration/separation and stated its long-term strategy to concentrate
primarily on these businesses. In accordance with this strategic focus, Lydall
stated 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 two reportable segments are Thermal/Acoustical and
Filtration/Separation. All other products are aggregated in Other Products and
Services. In February 2001, Lydall announced the discontinuation of the
Paperboard Segment.
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(degrees) F (-237(degrees) C) to
+3000(degrees) F (+1649(degrees) C).
The LyTherm(R) family of thermal products, including ManninGlas(R) products,
are employed in a variety of industrial thermal applications. They are
employed as linings for industrial ovens, kilns, furnaces, and in glass and
metal manufacturing as well as in consumer appliances and heating,
ventilation, and air-conditioning systems.
Lydall's automotive heat shields and thermal and acoustical barriers include
organic and inorganic fiber composites, fiber-and-metal combinations, and all-
metal components which are used in trucks, vans, sport-utility vehicles, and
cars. The Company holds patents on many of these products, which are employed
both inside and outside of vehicle passenger and engine
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compartments and around such components as exhaust systems, gas tanks, heat
and air-conditioning ducts, batteries, and electronic components.
At the very coldest temperatures (approaching absolute zero), 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 Segment sales, before elimination of inter-segment sales,
represented 61 percent of the Company's net sales in 2000, 62 percent in 1999
and 45 percent in 1998.
Filtration/Separation
The Filtration/Separation Segment includes industrial air and liquid
filtration products, vital fluids management systems sold to medical and
biopharmaceutical markets, and separation and energy related products.
LydAir(R) high-efficiency air-filtration media range in filtering efficiencies
from 10 percent at 0.3-micron particle size to 99.999999 percent at 0.1-micron
particle size. These products are used in commercial heating, ventilating and
air-conditioning systems, clean-room applications, and consumer air-purifying
units.
Lydall also produces liquid filtration media, sold under the LyPore(R)
trademark, that are used in high-efficiency hydraulic oil and lubrication oil
elements for off-road vehicles, trucks, and heavy equipment and in industrial
and residential water purification.
The Company's vital fluids management systems are sold by its wholly owned
subsidiary, Charter Medical, Ltd. ("Charter"). Charter's medical filter
components are employed in blood filtration devices, such as cardiotomy
reservoirs and autotransfusion filters. Charter also designs and manufactures
BioPak(TM) sterile containers for use in biopharmaceutical processing, and
specialty blood and cell therapy products.
Sales from the Filtration/Separation Segment, before elimination of inter-
segment sales, represented 26 percent of net sales in 2000 compared with 21
percent in 1999, and 31 percent in 1998.
Other Products and Services
The 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,
assorted specialty products, and battery separators. Sales of a gasket
manufacturer sold on January 28, 2000 are also included through the date of
sale.
Other Products and Services sales, before elimination of inter-segment sales,
were 15 percent of the Company's net sales in 2000 compared with 18 percent in
1999 and 26 percent in 1998.
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."
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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 that are normal within the
industries it serves. The Company uses a wide range of raw materials in the
manufacturing of its 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 51 percent of Lydall's total net
sales in 2000 compared with 53 percent and 32 percent in 1999 and 1998,
respectively. Lydall sells to both original equipment manufacturers and tier-
one suppliers. Its products are used in a variety of models and applications.
Sales to Ford Motor Co. were $34.1 million, or 13 percent of Lydall's net
sales in 2000. No other single customer accounted for more than 10 percent of
net sales in 2000.
Lydall invested $8.3 million in 2000, $7.6 million in 1999, and $8.7 million
in 1998 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. Backlog at February
28, 2001 was $27.5 million. The purchase 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 the end
of 1999 and 2000 when compared with previous years. There are minimal seasonal
aspects to Lydall's backlog.
No material portion of Lydall's business is subject to renegotiations 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 28, 2001, Lydall employed 1,288 people. Five unions under
contracts expiring at various points through March 2005 represented
approximately 111 of the Company's domestic employees. Lydall considers its
employee relationships to be satisfactory and did not have any actual or
threatened work stoppages due to union-related 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 operation are also covered under a National Collective
Bargaining Agreement.
Foreign and export sales were 37 percent of total net sales in 2000, 42
percent in 1999, and 18 percent in 1998. Export sales are concentrated
primarily in Europe, the Far East, Mexico, and Canada and were $27.7 million,
$25.4 million, and $22.0 million in 2000, 1999, and 1998,
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respectively. Foreign sales were $67.8 million, $89.1 million, and $10.8
million for the years ended December 31, 2000, 1999, and 1998, respectively.
Foreign operations 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 $.9 million) for the years ended December 31, 2000, 1999, and 1998,
respectively. Total foreign assets were $43.9 million at December 31, 2000
compared with $65.0 million at December 31, 1999 and $73.4 million at December
31, 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
exchange transaction risk by completing transactions in their functional
currencies 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 35.0 122,000
and Manufacturing
5 Columbus, Ohio Thermal/Acoustical Products Fabricating 9.0 80,000
6 St. Johnsbury, Vermont Thermal/Acoustical Products Fabricating 17.0 86,000
7 Meinerzhagen, Germany Thermal/Acoustical Products Fabricating 3.8 86,000
8 Lakewood, New Jersey Biomedical Products Fabricating -- 20,000
9 Winston-Salem, Biomedical Products Fabricating and -- 29,000
North Carolina Manufacturing
10 Covington, Tennessee Composite Materials Manufacturing 26.0 155,000
11 Manchester, Connecticut Paperboard Manufacturing 11.6 70,000
12 Manchester, Connecticut Warehouse and Office Facility 9.1 120,000
13 Manchester, Connecticut Corporate Office 4.5 20,000
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Properties numbered 5, 6, 8 and 9 are leased; all others are owned. For
information regarding lease 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,
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.
Item 3. LEGAL PROCEEDINGS
No significant legal proceedings were settled in the fourth quarter of 2000.
See Note 14 in "Notes to Consolidated Financial Statements" for additional
information on legal proceedings.
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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 2000.
Executive Officers and Other Significant Employees of the Registrant:
The executive officers and other significant employees of the Registrant,
together with the offices presently held by them, their business experience
since January 1, 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 1996
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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. 47 President and Chief Executive Division President of
Skomorowski Officer (since 1998), Director Lydall Westex
(1998-present, 1994-1995)
Walter A. Ruschmeyer 50 Executive Vice President- Interim Vice President of
Finance and Administration, Finance and Treasurer,
and Chief Financial Officer Lydall, Inc., Partner in
(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 58 Vice President-E-Commerce Division President of
(since September 2000), Lydall Technical Papers
Director (1994-1995, 1996-1998)
Carole F. Butenas 58 Vice President-Investor Relations N/A
(since 1991),
Director (1995-1996)
Mary A. Tremblay 40 General Counsel and Secretary N/A
(since 1991)
Richard H. Kopp 56 Chief Information Officer President of The Havens
(since April 2000) Group, Inc., President
of Havens System
Solutions, LLC
Mona G. Estey 46 Vice President-Human Resources Director of Human
(since April 2000) Resources
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price 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 7,514,500 and 9,316,600 were traded during 2000
and 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 12, 2001, the record date of the
Company's 2001 Annual Meeting, 1,608 stockholders of record held
15,865,137 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
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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 Quarter $12.88 $7.75 $8.31
Second Quarter 12.50 8.31 11.50
Third Quarter 12.88 9.81 10.31
Fourth Quarter 10.38 5.25 6.63
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During 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.
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Item 6. SELECTED FINANCIAL DATA
Five-Year Statistical Review
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In thousands except per-
share amounts 2000 1999 1998 1997 1996
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Financial results from
continuing
operations
Net 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
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Financial position
Total assets $194,964 $220,236 $226,848 $160,124 $182,119
Working capital (deficit) 54,550 64,630 (9,090) 39,203 53,358
Long-term debt, net of
current maturities 24,927 38,334 -- 2,100 5,050
Total stockholders' equity 111,753 115,236 109,225 113,030 117,844
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Property, plant, and
equipment
Net property, plant, and
equipment $ 74,420 $ 80,556 $107,836 $ 68,860 $ 62,038
Capital expenditures 19,767 16,773 17,657 17,104 10,893
Depreciation 9,925 11,946 8,844 7,993 7,824
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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%
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The results of operations of the discontinued Paperboard and Wovens Segments
have been excluded from the selected financial data schedule for all
applicable periods. Paperboard and Wovens Segment balance sheet items have
been excluded from calculations of the "Performance and other ratios" section
for all periods presented, except for the current ratio.
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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 divestment of a gasket business and two German operations during the year
eliminated sales of $10.1 million and $18.1 million, respectively. In
addition, the unfavorable impact of foreign 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 50.1 percent increase over
1998. The acquisition of Gerhardi, included in the Thermal/Acoustical Segment,
accounted for $75.3 million of the increase. An additional $9.0 million of the
increase was generated by other acquisitions made in 1998. New-product
introductions, primarily in the Thermal/Acoustical Segment, net of product
discontinuances, contributed another $7.1 million in net sales for 1999.
Gross Margin
Gross margin for the year 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 significantly from the 1998 level of 31.5
percent. The increased sales volume resulting from the acquisition of Gerhardi
in 1999 generated gross margins significantly below the Company's average. In
addition, the Company experienced pricing pressures in its Thermal/Acoustical
and Filtration/Separation Segments, specifically related to non-automotive
thermal barriers and air-filtration media. Pricing adjustments associated with
long-term contractual commitments also affected certain automotive products.
Selling, Product Development, and 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 ended December 31, 2000, other expense amounted to $25.0 million.
The two major components of this amount were a $29.7 million loss on the
disposition of two German operations and an offsetting gain of $6.1 million on
the sale of the gasket business.
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Interest expense was $1.2 million for 2000 compared with $2.6 million in 1999.
The reduction in interest expense resulted from lower outstanding debt levels
and the 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 foreign exchange transaction
gain of $1.4 million resulting from the appreciation of the dollar in relation
to the Euro on a Euro-denominated term loan. Interest expense in 1999
increased by $1.8 million as the Company maintained higher debt levels
associated with the three acquisitions made in 1998.
Other expense in 1998 amounted to $890 thousand and consisted 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 of $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 $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.
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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. Operating 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 $1.6 million and $2.2 million lower
in 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 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 cost
reduction efforts in the Company's non-core operations.
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. 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."
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 time. Thus, such expectations
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 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 the U.S. 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. or European automotive industries
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 that contain the Company's products.
Approximately 51 percent of Lydall's total sales in 2000 were to the
automotive market. Lydall's automotive products are thermal and acoustical
barriers and heat shields employed both inside and under the body of vehicles.
Most of Lydall's products are supplied to meet unique, niche applications.
Lydall 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 products sold and the number of vehicles being built 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 issues affect
all of Lydall's businesses and can influence results in the short term. The
Thermal/Acoustical Segment uses aluminum in the manufacturing of most
automotive heat shields. The heat shields are sold under long-term agreements
with established fixed sales prices. Volatility in aluminum prices over the
agreement periods could impact Thermal/Acoustical Segment profitability.
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.
Lydall 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 Resources
Lydall completed 2000 with $32.0 million of indebtedness outstanding under its
various credit facilities, incurred primarily to fund acquisitions made during
the past three years. The 2000 year-end balance represents a decrease of $13.2
million, or 29.1 percent, from 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 1998 totaled $16.8
million and $17.7 million, respectively. The Company did not purchase any of
its Common Stock in 2000. Purchases of Common Stock totaled $.8 million in
1999 and $10.3 million in 1998. Operating cash flow (earnings before interest,
taxes, depreciation and amortization, and non-recurring transactions) in 2000
decreased by 10.3 percent to $32.0 million from 1999.
Cash Flow Overview
Cash flow from operating activities in 2000 was $17.3 million compared with
$20.7 million in 1999 and $21.1 million in 1998. The decrease in cash flow was
primarily attributable to changes in working capital items and aggregate cash
flows associated with the gasket business divested in the first quarter of
2000.
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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 used $17.1 million in 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. Proceeds of $3.9 million from the sale of investments in
1998 partially offset these expenditures.
In 2000, financing activities used $10.6 million compared with $4.6 million in
1999. Lydall 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 before the effect of foreign exchange. Financing activities
used $4.6 million in 1999 to reduce indebtedness. In 1998, Lydall generated
$32.2 million in cash from financing activities. Net proceeds from bank credit
lines of $44.6 million were used to fund acquisitions during the year and to
purchase $10.3 million of Lydall 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 in 2000 equaled the same level
achieved in 1999, or 5.4 times. Working capital turnover in 1998 was 5.9
times. Working capital turnover in 2000 and 1999 was negatively affected by
the Gerhardi acquisition. Management expects working capital productivity will
improve in 2001 as a result of better inventory and accounts receivable
management and the sale of the two non-core German operations in 2000.
Future Cash Requirements
Cash requirements for 2001 will include the funding of ongoing operations,
capital expenditures, and acquisitions, if completed. The 2001 capital budget
is $17.0 million, down from actual expenditures of $19.8 million in 2000 and
more in line with 1999 expenditures totaling $16.8 million.
Management expects to finance capital expenditures and working capital needs
from cash provided by operating activities in 2001. Acquisitions, if
completed, would be financed under the credit facility described under "Credit
Arrangements" below, 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 credit facility on July
14, 1999 with a group of five banking institutions. At December 31, 2000, the
facility was comprised of a $50 million domestic revolving credit facility,
renewed every three years, of which $10.1 million was outstanding, and a Euro-
denominated term loan, with an outstanding balance of $13.9 million, which is
an obligation of one of Lydall's German 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 facility. The facility also
prohibits the Company
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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 reduces financial ratios below agreed upon levels.
Certain foreign subsidiaries of the Company maintain additional lines of
credit totaling $11.1 million, of which $8.0 million was outstanding at
December 31, 2000. These credit facilities incur interest at rates ranging
from 3.6 percent to 5.9 percent.
Management believes that current credit arrangements provide sufficient
capacity to meet working capital requirements and fund future capital
expenditures.
Capital Structure
At the end of 2000, total indebtedness was $32.0 million, or 22.3 percent of
Lydall's total capital structure. Cash from operating activities in
conjunction with substantial debt financing sources are available to complete
strategic acquisitions in Lydall's core business markets.
The Company continually explores its core markets for suitable acquisitions.
Given appropriate acquisition opportunities, the Company would consider
increasing its debt to total capitalization percentage above current levels.
Other Key Financial Items
Cash and cash equivalents. Cash and cash equivalents increased 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 2000 compared to $45.5 million in 1999. 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 $40.1 million and $37.9 million for
2000 and 1999, respectively. Days sales outstanding for trade receivables were
54 days in 2000 compared to 42 days in 1999.
Inventories. Inventories were $21.5 million at December 31, 2000, net of a
LIFO reserve 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 the 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,
2000 compared to $64.6 million at December 31, 1999. The ratio of current
assets to current liabilities in 2000 increased to 2.32 from 2.28 in 1999. The
increase is primarily related to the discontinuation of the Paperboard Segment
as the net assets of this segment were classified as current assets at
December 31, 2000.
Capital asset expenditures. Capital asset expenditures were $19.8 million in
2000, $16.8 million in 1999 and $17.7 million in 1998. The Company's capital
budget for 2001 is $17.0 million, which is expected to be financed from
operating cash flows.
Debt to total capitalization. Debt to total capitalization has decreased to
22.3 percent in 2000 compared to 28.2 percent in 1999 as Lydall reduced its
level of outstanding debt.
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Common stockholders' equity. Common stockholders' equity decreased to $111.8
million at December 31, 2000 from $115.2 million at December 31, 1999. On a
per-share basis, common stockholders' equity decreased to $7.04 at December
31, 2000 from $7.34 at December 31, 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 investments were $8.3
million in 2000, $7.6 million in 1999, and $8.7 million in 1998.
Recently issued accounting standards. See Note 1 in the "Notes to Consolidated
Financial Statements."
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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 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, and to a lesser degree, with the Japanese
Yen.
Lydall's foreign and domestic operations limit foreign currency exchange
transaction risk by completing transactions in their local 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 denominated primarily in the local currency of the respective
operation.
Interest Rate Risk
The Company's interest rate exposure is most sensitive to fluctuations in
United States and European interest rates, which primarily impact interest
paid on debt. At December 31, 2000, the Company had $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 in 1999. The
Company also had $13.9 million outstanding on a five-year term loan with a
variable interest rate. In July 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-
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 for 1999.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is contained under Item 14 Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.
Item 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.
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PART III
Item 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 filed with the Securities and
Exchange Commission (the "Commission") relating to its Annual Meeting of
Stockholders to be held on May 9, 2001. Information regarding the executive
officers and other significant employees of the Company is contained on page 5
of this report.
Item 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 filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 9, 2001, including the Compensation and Stock
Option Committee Report to Stockholders, found on pages 15 through 19, and the
comparative performance graph located on page 20, therein.
Item 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 filed
with the Commission relating to its Annual Meeting of Stockholders to be held
on May 9, 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 filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 9, 2001.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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Page
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a)1, 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 years ended December 31, 2000, 1999, and 1998 F-3
Consolidated Balance Sheets at December 31, 2000 and 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998 F-6
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998 F-7
Notes to Consolidated Financial Statements F-8
a)2, Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts for the 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.
17
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a)3, 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 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).
18
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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.
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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.
b) Reports on Form 8-K:
On October 16, 2000, a report on Form 8-K (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
Securities 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, and a Pro Forma Consolidated Condensed Statement of
Net Income for the six months ended June 30, 2000.
20
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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 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 Date
--------- ----- ----
/s/ Christopher R. Skomorowski President, and Chief March 21, 2001
______________________________________ Executive Officer
Christopher R. Skomorowski
/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 21, 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
Elliott F. Director
Whitely
Roger M. Widmann Director
Albert E. Wolf Director
21
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Statement of Management Responsibility
The consolidated financial statements of Lydall, Inc. and its subsidiaries
have been prepared in accordance with accounting principles generally accepted
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 an internal control
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 internal control structure
was effective throughout the year ended December 31, 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 in the United States of America. Their audit includes a
review of the Company's internal 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 R. Skomorowski
Walter A. Ruschmeyer
President, and Chief Executive Officer Executive Vice President--Finance
and
Administration, and Chief Financial
Officer
F-1
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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 17 present fairly, in all material
respects, the financial position of Lydall, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2) on page 17 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.
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 15, 2001
F-2
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
- ---------------------------------------------------------------------------------
In thousands except per-share data For the years
ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------------------
Net sales $261,118 $274,984 $183,236
Cost of sales 192,472 206,600 125,424
..............................................................................
Gross margin 68,646 68,384 57,812
Selling, product development, and administrative
expenses 49,663 50,643 44,600
Impairment loss -- -- 1,948
..............................................................................
Operating income 18,983 17,741 11,264
Other expense:
Investment (income) loss (185) (46) 287
Interest expense 1,223 2,612 820
Loss on sale of operations 23,579 -- --
Foreign currency transaction loss (gain) 331 (961) (87)
Other 16 (128) (132)
..............................................................................
24,964 1,477 888
..............................................................................
(Loss) income from continuing operations before
income taxes (5,981) 16,264 10,376
Income tax (benefit) expense (2,365) 5,175 3,143
..............................................................................
(Loss) income from continuing operations (3,616) 11,089 7,233
..............................................................................
Discontinued operations:
Income (loss) from operations of the Paperboard
and Wovens Segments, net of tax expense
(benefit) of $660, $880, and ($1,961),
respectively 1,124 1,516 (3,031)
Gain (loss) on disposal of the Wovens Segment,
including
provision for operating losses during the phase-
out period, net of tax expense (benefit) of $44
and ($1,133), respectively 71 (1,830) --
..............................................................................
Income (loss) from discontinued operations 1,195 (314) (3,031)
..............................................................................
Net (loss) income ($ 2,421) $ 10,775 $ 4,202
- ---------------------------------------------------------------------------------
Basic (loss) earnings per common share
Continuing operations ($ .23) $ .70 $ .46
Discontinued operations .08 (.02) (.19)
Net (loss) income ($ .15) $ .68 $ .27
Weighted average common stock outstanding 15,778 15,715 15,847
- ---------------------------------------------------------------------------------
Diluted (loss) earnings per common share
Continuing operations ($ .23) $ .70 $ .45
Discontinued operations .08 (.02) (.19)
Net (loss) income ($ .15) $ .68 $ .26
Weighted average common stock and equivalents
outstanding 15,778 15,784 16,163
- ---------------------------------------------------------------------------------
Net (loss) income ($ 2,421) $ 10,775 $ 4,202
Other comprehensive (loss) income:
Foreign currency translation adjustments, net of (1,933) (5,295) 637
$1,029, $2,563, and ($180), in tax effect,
respectively
Unrealized loss on securities:
Unrealized holding losses arising during period, -- -- (366)
net of $103 in tax effect
Less: reclassification adjustment for losses -- -- (344)
included in net income
..............................................................................
Unrealized loss on securities, net of $6 in tax
effect -- -- (22)
Minimum pension liability adjustment, net of
$167, ($422), and $281 in tax effect,
respectively (285) 784 (522)
..............................................................................
Other comprehensive (loss) income, net of tax (2,218) (4,511) 93
..............................................................................
Comprehensive (loss) income ($ 4,639) $ 6,264 $ 4,295
- ---------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,220 $ 1,154
Accounts receivable (less allowance for doubtful
receivables of $644 in 2000 and $1,511 in 1999) 39,993 45,517
Inventories:
Finished goods 9,933 8,529
Work in process 5,820 5,044
Raw materials and supplies 6,272 8,576
LIFO reserve (555) (1,619)
...........................................................................
Total inventories 21,470 20,530
Taxes receivable 2,705 4,022
Prepaid expenses 1,632 1,895
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
...........................................................................
Total current assets 95,795 115,233
...........................................................................
Property, plant, and equipment, at cost:
Land 1,295 1,410
Buildings and improvements 23,247 24,779
Machinery and equipment 74,041 91,761
Office equipment 20,370 22,471
Vehicles 537 943
Assets in progress 7,221 5,464
...........................................................................
126,711 146,828
Less accumulated depreciation (52,291) (66,272)
...........................................................................
74,420 80,556
Other noncurrent assets:
Goodwill, at cost (net of accumulated amortization of
$5,830
in 2000 and $4,652 in 1999) 18,069 19,444
Other assets, at cost (net of accumulated amortization of
$6,237 in 2000 and $6,038 in 1999) 6,680 5,003
...........................................................................
24,749 24,447
...........................................................................
Total assets $194,964 $220,236
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Cash overdraft $ 2,502 $ 2,564
Current portion of long-term debt 7,101 6,849
Accounts payable 16,652 18,438
Accrued taxes 844 920
Accrued payroll and other compensation 7,244 4,021
Liabilities related to assets held for sale (Note 6) 421 6,945
Other accrued liabilities 6,481 10,866
...........................................................................
Total current liabilities 41,245 50,603
...........................................................................
Long-term debt 24,927 38,334
Deferred tax liabilities 11,183 11,306
Other long-term liabilities 5,856 4,757
Commitments and contingencies (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 2,196 2,180
Capital in excess of par value 40,335 39,195
Retained earnings 137,664 140,085
Accumulated other comprehensive loss (6,800) (4,582)
...........................................................................
173,395 176,878
Less cost of 6,097,388 shares of common stock in treasury
in 2000 and 1999 (61,642) (61,642)
...........................................................................
Total stockholders' equity 111,753 115,236
...........................................................................
Total liabilities and stockholders' equity $194,964 $220,236
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------
Accumulated
Capital in Other Cost of Total
Preferred Common Excess of Retained Comprehensive Stock in Stockholders'
In thousands Stock Stock Par Value Earnings (Loss) Income Treasury Equity
- ------------------------------------------------------------------------------------------------------
Balance at January 1,
1998 $ -- $2,143 $36,510 $125,108 ($164) ($50,567) $113,030
Stock options exercised 27 1,439 1,466
Stock issued 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 31,
1998 -- 2,171 38,697 129,310 (71) (60,882) 109,225
Stock options exercised 7 377 384
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 31,
1999 -- 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) $111,753
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income ($ 2,421) $ 10,775 $ 4,202
............................................................................
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 9,925 11,946 8,844
Amortization 1,554 1,775 2,052
(Gain) loss on disposal of Wovens Segment (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
Foreign currency transaction loss (gain) 331 (961) (87)
Stock-based compensation 156 121 104
Changes in operating assets and liabilities,
excluding effects from acquisitions:
Accounts receivable (6,306) 100 2,132
Taxes receivable 2,820 (1,764) 421
Inventories (3,740) (1,527) 333
Prepaid expenses and other assets (1,654) (1,292) 5
Accounts payable 1,819 (2,798) (895)
Accrued taxes (321) (348) 343
Accrued payroll and other accrued liabilities (5,193) (469) (2,294)
Deferred income taxes (3,232) 3,954 (5,600)
Other long-term liabilities 246 (904) 2,651
............................................................................
Total adjustments 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)
Additions of property, plant and equipment (19,767) (16,773) (17,657)
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
............................................................................
Net cash used for investing activities (5,382) (17,054) (59,977)
............................................................................
Cash flows from financing activities:
Cash overdraft (62) 2,564 --
Long-term debt payments (164,410) (75,444) (3,484)
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)
Proceeds from stock option exercises 830 384 1,466
Acquisition of common stock -- (760) (10,315)
............................................................................
Net cash (used for) provided by financing
activities (10,565) (4,601) 32,242
............................................................................
Effect of exchange rate changes on cash (244) (186) 17
............................................................................
Increase (decrease) in cash and cash
equivalents 1,066 (1,100) (6,637)
Cash and cash equivalents at beginning of year 1,154 2,254 8,891
............................................................................
Cash and cash equivalents at end of year $ 2,220 $ 1,154 $ 2,254
- -------------------------------------------------------------------------------
Supplemental Schedule of Cash Flow Information
- -------------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 1,606 $ 2,689 $ 734
Income taxes 1,042 5,016 6,231
Noncash transactions:
Amounts payable for acquired operations -- -- 240
Additional minimum pension liability 452 1,206 999
Unrealized losses on available-for-sale
securities -- -- (22)
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 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. 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. The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, 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 include cash on hand and
highly liquid investments with original maturities of three months or less at
the date of purchase.
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 51 percent of the
Company's 2000 net sales compared with 53 percent in 1999 and 32 percent in
1998. Sales to Ford Motor Co. represented 13 percent, 13 percent, and 19
percent of Lydall's net sales in 2000, 1999, and 1998, respectively. No other
single customer accounted for more than 10 percent of net sales in 2000, 1999,
or 1998. As of December 31, 2000, the Company had no other significant
concentrations of risk.
Inventories. Approximately 44 percent in 2000 and 37 percent in 1999 of
inventories were 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.
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
- ---------------------------------------
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 over periods not
exceeding 25 years.
Valuation of long-lived assets. The Company periodically evaluates the
recoverability of long-lived assets. Should such evaluations indicate that
related 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 such evaluations, certain
machinery and goodwill were adjusted to fair value in 1998.
Revenue recognition. Lydall recognizes revenue when the earnings process is
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. Basic earnings per common share are equal to net income
divided by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are equal 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 if such effect is
dilutive.
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 Statement 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. Assets and liabilities of foreign
subsidiaries are translated at exchange rates prevailing on the balance sheet
date. 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.
Elements of stockholders' equity are translated at historical rates. Any
resulting gains or losses are reported in Other Comprehensive Income.
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. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," (FAS 133). FAS
133, as amended, became effective January 1, 2001 for the Company and requires
that all derivative instruments be recorded on the balance sheet at their fair
value. The adoption of this standard and related transition adjustments will
not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
F-9
- -------------------------------------------------------------------------------
2. Financial Instruments
The Company held no investment instruments at December 31, 2000 or 1999. 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 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 $2.7 million and $1.3 million as of December 31, 2000 and 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
approximates fair value.
3. Long-term Debt and Credit Arrangements
On July 14, 1999, Lydall, Inc. and certain subsidiaries entered into a credit
facility with a group of five banking institutions. At December 31, 2000, the
facility is comprised of a $50 million domestic revolving credit facility,
renewed every three years, of which $10.1 million was outstanding, and a Euro-
denominated term loan, with an outstanding balance of $13.9 million, which is
an obligation of one of Lydall's German 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 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 facility, as amended, requires the Company to maintain certain financial
ratios and other financial conditions. The facility 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 activities would reduce financial ratios below agreed upon levels.
At June 30, 2000, a financial covenant of the 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 December 31, 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 maturing in 2001, 2002, 2003, and 2004 is $7.1 million,
$18.4 million, $4.3 million, $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.
F-10
- -------------------------------------------------------------------------------
In thousands December
31 2000 1999
- ------------------------------------------
Credit Agreement
revolving credit
facility,
effective rate 7.48%
due 2002 $10,130 $18,025
Credit Agreement term
loan,
effective rate 4.3%
due quarterly,
collateralized
by German subsidiary
stock 13,947 17,697
Deutsche Bank, line of
credit,
effective rate 3.6--
5.9%, due 2006,
collateralized by
certain fixed assets
in
Meinerzhagen, Germany 7,951 8,560
IKB Deutsche
Industriebank of
Dusseldorf term loan,
effective
interest rate 4.5%,
due semiannnually -- 901
.......................................
32,028 45,183
Less portion due within
one year (7,101) (6,849)
.......................................
$24,927 $38,334
- ------------------------------------------
4. Long-term Operating Leases
Lydall has operating leases that resulted in an expense of $2.5 million in
2000, $3.0 million in 1999, and $2.6 million in 1998. These contracts include
building, 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 2001 2002 2003 2004 2005 Thereafter Total
- -------------------------------------------------------------------------
Net lease payments $2,361 $2,171 $1,919 $1,720 $1,599 $1,255 $11,025
- -------------------------------------------------------------------------
5. Acquisitions 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-
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-
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 a producer of automotive
thermal and acoustical components for $9.2 million. The acquisition was
accounted for under the purchase method. The results of this operation have
been included in the Company's consolidated results since the date of
acquisition.
F-11
- -------------------------------------------------------------------------------
In January of 1998, a Lydall subsidiary funded the capitalization of Charter
Medical Ltd. On February 6, 1998, Charter Medical Ltd. acquired a privately
held company, Charter Med Inc., for $6.6 million in cash and a note for $720
thousand. The note was paid in 1999. The acquisition was accounted for under
the purchase method. The results of the operation have been included in the
Company's consolidated results 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. Accordingly, the operating
results have been segregated from continuing operations and reported as
discontinued operations. Sales from the Wovens Segment were $3.9 and $5.7
million for the years ended December 31, 1999 and 1998, respectively. In 1999,
the Company recorded an estimated net loss on disposal of $1.8 million, or
$.12 per share, associated with the disposition of this Segment. Wovens
Segment net assets to be disposed of, consisting primarily of inventory,
property, plant and equipment, and certain intangibles with an estimated net
realizable value of $2.1 million, were classified in the Consolidated Balance
Sheet at December 31, 1999 as "Net Investment in Discontinued Operations."
F-12
- -------------------------------------------------------------------------------
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.
6. Assets and Related Liabilities Held for Sale
In November 2000, Lydall's Board of Directors formalized a plan to dispose of
certain assets and related liabilities of the Company. As a result, assets of
$6.2 million and related liabilities of $.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, 2000. For the years ended
December 31, 2000, 1999, and 1998, sales and income (loss) from operations
related to these assets 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. 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. At the end of 2000, 1,615 Lydall stockholders of record held
15,864,887 shares of Common Stock. Approximately 4 percent of the Company's
Common Stock was owned by Lydall officers and directors and their immediate
families. Other Lydall employees, their families, and Lydall associates owned
an additional 10 percent either directly or through participation in the
Lydall, Inc., 401(k) Plan Trust.
Stockholder Rights Plan. In the second quarter of 1999, the Company's Board of
Directors adopted a Stockholder 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
---------- ------ --------- ---------- ------ --------- ---------- ------ ---------
Basic (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
--------------------------- --------------------------- ---------------------------
Per-Share Per-Share Per-Share
Net Loss Shares Amount Net Income Shares Amount Net Income Shares Amount
---------- ------ --------- ---------- ------ --------- ---------- ------ ---------
Basic (loss) earnings
per share ($2,421) 15,778 ($.15) $10,775 15,715 $.68 $4,202 15,847 $.27
Effect of dilutive stock
options -- -- -- -- 69 (.00) -- 316 (.01)
............................................................................................................
Diluted (loss) earnings
per share ($2,421) 15,778 ($.15) $10,775 15,784 $.68 $4,202 16,163 $.26
- -------------------------------------------------------------------------------------------------------------
Options to purchase 1,640,917 shares of Lydall Common Stock were excluded 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 and 1998 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.
8. Stock Option Plans
At December 31, 2000, the Company maintained two plans under which employees
and directors had options to purchase Lydall Common Stock. Under each plan --
the 1982 Stock Incentive Compensation Plan and the 1992 Stock Incentive
Compensation Plan -- 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, limit the total
dollar amount that can vest in one year for an individual to $100,000. The
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.
F-14
- -------------------------------------------------------------------------------
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized. Had compensation cost
for the Company's 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," 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
- ----------------------------------------------------------------------
Net (loss) income As reported ($2,421) $10,775 $4,202
Pro forma ( 3,657) 9,556 3,228
Basic (loss) earnings per share As reported ($ .15) $ .68 $ .27
Pro forma ( .23) .61 .20
Diluted (loss) earnings per share As reported ($ .15) $ .68 $ .26
Pro forma ( .23) .61 .20
- ----------------------------------------------------------------------
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, and
1998, respectively: zero dividend yield for all years; expected volatility of
47 percent, 50 percent, and 40 percent; risk-free interest rates of 5.3
percent, 6.7 percent, and 4.7 percent; and an expected eight-year life for
2000 and 1999 and a six-year life for 1998.
The following is a summary of the status of the Company's stock option plans
as of December 31, 2000, 1999, and 1998, and changes during the years then
ended:
- ---------------------------------------------------------------------------------------------
In thousands except per-share data 2000 1999 1998
- ---------------------------------- ------------------------ ------------------------ ------
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
Granted 556 8.77 243 10.88 21
Exercised (150) 5.62 (68) 5.64 (274)
Forfeited (94) 14.17 (109) 17.16 (76)
.........................................................................................
Outstanding at end of
year 1,641 $12.95 1,329 $13.96 1,263
.........................................................................................
Options exercisable at
year-end 921 1,002 1,037
Shares reserved for
grants 678 1,140 1,274
Weighted-average fair
value per option
granted during the year $ 5.24 $ 6.16 $ 7.37
- ---------------------------------------------------------------------------------------------
For 1998, the weighted-average exercise price for options outstanding at the
beginning and end of the year was $13.14 and $14.38, respectively. Options
with weight-average exercise prices of $15.86, $5.35, and $21.28 were granted,
exercised, and forfeited in 1998, respectively.
F-15
- -------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 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
---------------- ----------- ---------------- ---------------- ----------- ----------------
$ 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
- ---------------------------------------------------------------------------------------------
9. Employer-Sponsored Benefit Plans
As of December 31, 2000 the Company maintains 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
- ----------------------------------------------------------------------------
Service cost $ 993 $1,412 $1,184
Interest cost 1,710 1,717 1,530
Expected return on assets (1,997) (1,814) (1,623)
Amortization of:
Transition asset (100) (103) (103)
Prior service cost 11 19 12
Actuarial (gain) loss (5) 186 81
Special termination benefit and curtailment charges -- -- 85
........................................................................
Net periodic benefit cost $ 612 $1,417 $1,166
- ----------------------------------------------------------------------------
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
- ------------------------------------------------------------------
Weighted average assumption:
Discount rate 7.50% 7.75%
Expected return on plan assets 9.25% 9.25%
Rate of compensation increase 5.00% 5.00%
- ------------------------------------------------------------------
- ------------------------------------------------------------------
In thousands December 31, 2000 1999
- ------------------------------------------------------------------
Change in benefit obligation:
Net benefit obligation at beginning of year $22,093 $25,827
Service cost 993 1,412
Interest cost 1,710 1,717
Plan amendments (62) 30
Actuarial loss (gain) 668 (5,842)
Divestitures (373) --
Gross benefits paid (1,045) (1,051)
...............................................................
Net benefit obligation at end of year $23,984 $22,093
- ------------------------------------------------------------------
- ------------------------------------------------------------------
In thousands December 31, 2000 1999
- ------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $22,300 $19,456
Actual return on plan assets (691) 3,253
Employer contributions -- 642
Divestitures (373) --
Gross benefits paid (1,045) (1,051)
...............................................................
Fair value of plan assets at end of year 20,191 $22,300
...............................................................
Funded status at end of year ($3,793) $ 207
Unrecognized net actuarial loss (gain) 1,959 (1,337)
Unrecognized prior service cost 258 384
Unrecognized net transition asset (216) (322)
...............................................................
Net amount recognized ($1,792) ($ 1,068)
...............................................................
Amounts recognized in the consolidated balance
sheets consist of:
Prepaid benefit cost $ 512 $ 663
Accrued benefit liability (2,304) (1,731)
Additional minimum liability (873) --
Intangible assets 421 --
Accumulated other comprehensive income 452 --
...............................................................
Net amount recognized ($1,792) ($ 1,068)
- ------------------------------------------------------------------
The Company also sponsors a Stock Purchase 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.
F-17
- -------------------------------------------------------------------------------
10. Postemployment, Postretirement, and Deferred Compensation
Lydall provides health care and life insurance benefits to certain groups of
retired and hourly employees. The amount of expense reflected 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") that provides supplemental income payments after retirement to
senior executives. The net deferred compensation expense related to these
three plans was $257 thousand in 2000, $327 thousand in 1999, and $564
thousand in 1998.
11. Impairment Loss
No impairment losses were recorded in 2000 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 related to the Wovens Segment, which is reported
in discontinued operations. The remaining impairment losses related to fiber
processing equipment at the Axohm Operation and equipment at the Green Island
Operation.
12. Segment Information
Lydall's reportable segments are: Thermal/Acoustical and
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 announced the discontinuation
of the 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 the aerospace, marine, and sporting goods
industries. The results of 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. 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. In 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
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(degrees) F (-237(degrees) C) to
+3000(degrees) F (+1649(degrees) C).
F-18
- -------------------------------------------------------------------------------
Filtration/Separation
The Filtration/Separation Segment includes industrial air and liquid
filtration products, vital fluids management systems sold to medical and
biopharmaceutical markets, and separation and energy-related products.
Other Products and Services
The 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 includes pencil
slats made from recycled newsprint and cardboard, electrical insulation,
assorted specialty products, and battery separators. Sales of a gasket
manufacturer sold on January 28, 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, and 1998.
- -----------------------------------------------------------------------------
In thousands Other
for the years Thermal/ Filtration/ Products Reconciling Consolidated
ended Acoustical Separation & Services Items Totals
- -----------------------------------------------------------------------------
December 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
Sales $169,283 $58,994 $50,489 ($ 3,782) $274,984
Operating income $ 13,065 $ 8,466 $ 7,347 ($11,137) $ 17,741
............................................................................
December 31, 1998
Sales $ 81,831 $55,935 $47,506 ($ 2,036) $183,236
Operating income $ 12,230 $ 7,573 $ 3,613 ($12,152) $ 11,264
- -----------------------------------------------------------------------------
A reconciliation of total segment sales to consolidated net sales and of total
segment operating income to consolidated operating income for the years ended
December 31, 2000, 1999, and 1998 is as follows:
- ------------------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------
Sales
Total segment sales $265,184 $278,766 $185,272
Elimination of intersegment sales (4,066) (3,782) (2,036)
....................................................................
Consolidated net sales $261,118 $274,984 $183,236
- ------------------------------------------------------------------------
Operating Income
Total segment operating income $ 30,804 $ 28,878 $ 23,416
Elimination of intersegment and corporate
expenses (11,821) (11,137) (12,152)
....................................................................
Consolidated operating income $ 18,983 $ 17,741 $ 11,264
- ------------------------------------------------------------------------
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, and 1998 is as follows:
- -------------------------------------------------------------------
Net Sales Long-Lived Assets
- ----------------------------------------- -------------------------
In thousands 2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------
United States $193,339 $185,879 $172,415 $79,659 $ 87,901 $ 97,537
France 11,498 13,809 10,821 7,518 8,244 8,983
Germany 56,281 75,296 -- 11,992 8,858 29,509
..................................................................
Total $261,118 $274,984 $183,236 $99,169 $105,003 $136,029
- -------------------------------------------------------------------
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 1998,
respectively. These sales are reported in the Thermal/Acoustical Segment.
13. Income Taxes
The (benefit) provision for income taxes from continuing operations consists
of the following:
- --------------------------------------------------------------
In thousands
For the years ended December 31, 2000 1999 1998
- --------------------------------------------------------------
Current
Federal $5,495 $2,163 $2,622
State 1,117 428 739
Foreign (2,769) 289 (187)
..........................................................
Total current $3,843 $2,880 $3,174
..........................................................
Deferred
Federal $ 2,329 $2,859 $ 731
State (778) (163) (154)
Foreign (7,759) (401) (608)
..........................................................
Total deferred ($6,208) $2,295 ($31)
..........................................................
(Benefit)/provision for income taxes ($2,365) $5,175 $3,143
- --------------------------------------------------------------
The following is a reconciliation of the difference between the actual
provision for income taxes from continuing operations and the provision
computed by applying the federal statutory tax rate on earnings.
- ---------------------------------------------------------------------
For the years ended December 31, 2000 1999 1998
- ---------------------------------------------------------------------
Statutory federal income tax rates (35.0%) 35.0% 35.0%
................................................................
State income taxes, net of federal tax deduction 8.5 2.6 5.6
Exempt FSC and foreign income (14.0) (5.7) (6.8)
Tax exempt income -- (.5) (.1)
Other 1.0 .4 (3.4)
................................................................
Effective income tax rates (39.5%) 31.8% 30.3%
- ---------------------------------------------------------------------
F-20
- -------------------------------------------------------------------------------
The following is a schedule of the net current deferred tax assets and long-
term deferred tax liabilities by tax jurisdiction as of December 31:
- -----------------------------------------------------------------------------------------
2000 1999
------------------------------------- -------------------------------------
Current Long-term Current Long-term
DeferredTax DeferredTax DeferredTax DeferredTax
In thousands Assets/Liabilities Assets/Liabilities Assets/Liabilities Assets/Liabilities
- -----------------------------------------------------------------------------------------
Federal ($ 220) ($ 9,308) $3,758 ($ 7,657)
State 140 (741) 744 (1,822)
Foreign 7,370 (1,134) 305 (1,827)
........................................................................................
Total $7,290 ($11,183) $4,807 ($11,306)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------
In thousands 2000 1999
- -----------------------------------------------
Deferred tax assets
Accounts receivable $ 294 $ 598
Inventories 745 1,032
Other accrued expenses 1,407 2,960
Intangible assets -- 2,574
Retirement accounts 2,546 1,939
Tax credits 406 --
Net operating losses 22,576 2,170
Discontinued operations -- 1,133
Other, net 278 1,155
..............................................
Total deferred tax assets 28,252 13,561
Deferred tax liabilities
Property, plant and equipment 15,365 17,538
Assets held for sale 1,017 418
Discontinued operations 1,111 --
Intangible assets 770 --
..............................................
Total deferred tax liabilities 18,263 17,956
Valuation reserve 13,882 2,104
..............................................
Net deferred tax liabilities $ 3,893 $ 6,499
- -----------------------------------------------
The Internal Revenue Service is currently examining the Company's federal
income tax return for 1997. Lydall's management believes any potential
adjustments resulting from this examination will not be significant to the
consolidated financial position, results of operations, or cash flows of the
Company.
F-21
- -------------------------------------------------------------------------------
14. Commitments 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. The preliminary 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 ("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 PRPs 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 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 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 spent public funds to investigate and take action with respect to the
site. The EPA likely will seek to recover the funds it spent 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-22
- -------------------------------------------------------------------------------
15. Comprehensive Income
The following table discloses the balance by classification within accumulated
other comprehensive loss.
- -------------------------------------------------------------------------------
Minimum Accumulated
Foreign Unrealized Pension Other
Currency Gain/(Loss) Liability Comprehensive
In thousands Adjustment on Securities Adjustment Loss
- -------------------------------------------------------------------------------
Beginning 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) -- 784 ( 4,511)
..............................................................................
Ending Balance December 31,
1999 ($4,582) $ -- $ -- ($4,582)
- -------------------------------------------------------------------------------
Beginning Balance January 1,
1998 $ 76 $ 22 ($262) ($ 164)
Change Year-to-Date 637 ( 22) ( 522) 93
..............................................................................
Ending Balance December 31,
1998 $ 713 $ -- ($784) ($ 71)
- -------------------------------------------------------------------------------
16. Quarterly Financial Information (Unaudited)
The following table summarizes quarterly financial information for 2000 and
1999, 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:
- ----------------------------------------------------------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
In thousands
Except per-share data 2000 1999 2000 1999 2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------
Net Sales $69,733 $71,519 $68,265 $72,782 $ 65,966 $64,843 $57,154 $65,840
Gross margin 17,598 16,733 17,588 18,393 17,312 17,449 16,149 15,809
Income (loss) from
continuing operations 6,519 3,357 2,814 3,065 ( 15,967) 3,017 3,018 1,651
Gain (loss) from
discontinued operations 286 725 372 540 241 232 296 ( 1,811)
Net income (loss) $ 6,805 $ 4,082 $ 3,186 $ 3,605 ($ 15,726) $ 3,249 $ 3,314 ($ 160)
...........................................................................................
Basic EPS
Continuing operations $ 0.42 $ 0.21 $ 0.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11
Discontinued operations 0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12)
Net income (loss) $ 0.43 $ 0.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ 0.21 ($ 0.01)
...........................................................................................
Diluted EPS
Continuing operations $ 0.42 $ 0.21 $ 0.18 $ 0.20 ($ 1.01) $ 0.19 $ 0.19 $ 0.11
Discontinued operations 0.01 0.05 0.02 0.03 0.02 0.01 0.02 ( 0.12)
Net income (loss) $ 0.43 $ 0.26 $ 0.20 $ 0.23 ($ 0.99) $ 0.20 $ 0.21 ($ 0.01)
- ----------------------------------------------------------------------------------------------
The sum of earnings per share for the four quarters in 2000 and 1999 does not
equal the earnings per share as reported in the Consolidated Statements of
Income (Loss) and Comprehensive Income (Loss) for the entire year due to
rounding.
F-23
- --------------------------------------------------------------------------------
Schedule II
LYDALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
- --------------------------------------------------------------------------------------------
Additions
- ---------------------------------- --------------------- ----------------------------------
Charged To
Charged To Other
Balance At Costs and Accounts Deductions Balance At
$ thousands January 1, Expenses Describe Describe December 31,
- ---------------------- ---------- ---------- ---------- ---------- ------------
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
- --------------------------------------------------------------------------------------------
1999
Allowance for doubtful
receivables $1,504 $364 $553/5/ ($ 910)/1/ $1,511
LIFO reserve 1,216 428 -- ( 25)/3/ 1,619
Inventory obsolescence
reserve 649 375 (22)/2/ ( 361)/4/ 641
- --------------------------------------------------------------------------------------------
1998
Allowance for doubtful
receivables $1,381 $556 $ -- ($ 433)/1/ $1,504
LIFO reserve 1,172 173 -- ( 129)/3/ 1,216
Inventory obsolescence
reserve 577 511 10/2/ ( 449)/4/ 649
- --------------------------------------------------------------------------------------------
/1 /Uncollected receivables written off and adjustments to allowance.
/2 /Recorded foreign currency translation adjustments.
/3 /Adjustment of LIFO reserve for changes in inventory levels and cost.
/4 /Write-off of obsolete inventory and adjustment to reserve level.
/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.