false2021Q10000060977December 31LYDALL INC /DE/P5YEQUITY COMPENSATION PLANS
As of March 31, 2021, the Company’s equity compensation plans consisted of the 2003 Stock Incentive Compensation Plan (the “2003 Plan”), and the Amended and Restated 2012 Stock Incentive Plan, (the “2012 Plan” and together with the 2003 Plan, the “Plans”) under which incentive and non-qualified stock options and time and performance based restricted shares have been granted to employees and directors from authorized but unissued shares of common stock or treasury shares. The 2003 Plan is not active, but continues to govern all outstanding awards granted under the plan until the awards themselves are exercised or terminate in accordance with their terms. The 2012 Plan, amended and approved by stockholders on April 24, 2020, authorizes 3.0 million shares of common stock for awards. The 2012 Plan also authorized an additional 19,720 shares of common stock to the extent awards granted under prior stock plans that were outstanding as of April 24, 2020 are forfeited. The 2012 Plan provides for the following types of awards: options, restricted stock, restricted stock units and other stock-based awards. During the fourth quarter of 2019, additional shares of common stock were issued pursuant to separate inducement share agreements with two individuals as material inducement to their employment with the Company (the "Inducement Grants"). The Inducement Grants awarded stock options and restricted stock to the two individuals. Amounts shown below are inclusive of the Plans and the Inducement Grants.
The Company accounts for the expense of all share-based compensation by measuring the awards at fair value on the date of grant. The Company recognizes expense on a straight-line basis over the vesting period for awards that have cliff vesting, and on a graded vesting basis for time-restricted awards that have graded vesting. Options issued by the Company under its stock option plans have a term of ten years and generally vest ratably over a period of three to four years. Stock options issued under the current plan must have an exercise price that may not be less than the fair market value of the Company’s common stock on the date of grant.
Time-restricted stock awards are expensed over the vesting period of the award, which is typically two to three years. The number of performance-restricted shares that ultimately vest depends upon achievement of certain targets over a performance period, as more fully described under "Performance-Restricted Shares" below. Performance-restricted awards with a market condition are expensed over the performance period, which is typically three years. The Company estimates the grant date value of performance awards with a market condition using a Monte Carlo simulation model on the date of grant. Compensation expense for performance-restricted awards with a performance condition is recorded based upon the service period and management's assessment of the probability of achieving performance goals. The Company accounts for forfeitures as they occur. The Plans provide for automatic acceleration of vesting in the event of a change in control of the Company.
The Company incurred equity compensation expense of $1.0 million and $0.9 million for the three-month period ended March 31, 2021 and 2020, respectively, for the Plans, including restricted stock awards. The Company also incurred equity compensation expense of $0.2 million and $0.2 million for the three-month period ended March 31, 2021 and 2020, respectively, for stock awards granted to Directors. No equity compensation costs were capitalized as part of inventory.
Stock Options
The following table is a summary of outstanding and exercisable options for the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| In thousands except per share amounts | | | | | | | | Shares | | Weighted-Average
Exercise Price | | |
| Stock Options outstanding at the beginning of the period | | | | | | | | 488 | | | $ | 22.03 | | | |
| Granted | | | | | | | | 6 | | | $ | 32.19 | | | |
| Exercised | | | | | | | | (28) | | | $ | 22.99 | | | |
| Forfeited or Expired | | | | | | | | (5) | | | $ | 43.43 | | | |
| Stock Options outstanding at March 31, 2021 | | | | | | | | 461 | | | $ | 21.85 | | | |
| | | | | | | | | | | | |
| Exercisable at March 31, 2021 | | | | | | | | 166 | | | $ | 27.33 | | | |
| Unvested at March 31, 2021 | | | | | | | | 295 | | | $ | 18.78 | | | |
There was $0.7 million and less than $0.1 million of cash received from exercise of stock options during three-month periods ended March 31, 2021 and 2020, respectively The intrinsic value of stock options exercised was $0.3 million with a tax benefit of less than $0.1 million and less than $0.1 million with a tax benefit of less than $0.1 million during the three-month periods ended March 31, 2021 and 2020, respectively.
At March 31, 2021, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.7 million, with a weighted average expected amortization period of 2.3 years.
Restricted Stock
Restricted stock includes both performance-based and time-based awards. The following is a summary of the Company's unvested time-based restricted shares for the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | | | | | | |
| In thousands | | Shares | | | | | | | |
| Unvested at the beginning of the period | | 177 | | | | | | | | |
| Granted | | 173 | | | | | | | | |
| Vested | | (21) | | | | | | | | |
| Forfeited or Expired | | (4) | | | | | | | | |
| Unvested at March 31, 2021 | | 325 | | | | | | | | |
The following is a summary of the Company's unvested performance-based restricted shares for the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | | | | | |
| In thousands | | Shares | | | | | | |
| Unvested at the beginning of the period | | 142 | | | | | | | |
| Granted | | 64 | | | | | | | |
| Vested | | — | | | | | | | |
| Forfeited or Expired | | (8) | | | | | | | |
| Unvested at March 31, 2021 | | 198 | | | | | | | |
The following table is a summary of outstanding and exercisable options for the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| In thousands except per share amounts | | | | | | | | Shares | | Weighted-Average
Exercise Price | | |
| Stock Options outstanding at the beginning of the period | | | | | | | | 488 | | | $ | 22.03 | | | |
| Granted | | | | | | | | 6 | | | $ | 32.19 | | | |
| Exercised | | | | | | | | (28) | | | $ | 22.99 | | | |
| Forfeited or Expired | | | | | | | | (5) | | | $ | 43.43 | | | |
| Stock Options outstanding at March 31, 2021 | | | | | | | | 461 | | | $ | 21.85 | | | |
| | | | | | | | | | | | |
| Exercisable at March 31, 2021 | | | | | | | | 166 | | | $ | 27.33 | | | |
| Unvested at March 31, 2021 | | | | | | | | 295 | | | $ | 18.78 | | | |
| | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | | | | | | |
| In thousands | | Shares | | | | | | | |
| Unvested at the beginning of the period | | 177 | | | | | | | | |
| Granted | | 173 | | | | | | | | |
| Vested | | (21) | | | | | | | | |
| Forfeited or Expired | | (4) | | | | | | | | |
| Unvested at March 31, 2021 | | 325 | | | | | | | | |
The following is a summary of the Company's unvested performance-based restricted shares for the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | | | | | |
| In thousands | | Shares | | | | | | |
| Unvested at the beginning of the period | | 142 | | | | | | | |
| Granted | | 64 | | | | | | | |
| Vested | | — | | | | | | | |
| Forfeited or Expired | | (8) | | | | | | | |
| Unvested at March 31, 2021 | | 198 | | | | | | | |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-7665
Lydall, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | | | | |
| Delaware | | 06-0865505 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | | | | | |
| One Colonial Road | , | Manchester | , | Connecticut | | 06042 |
| (Address of principal executive offices) | | (zip code) |
(860) 646-1233
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.01 par value | LDL | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐ Smaller reporting company ☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| | | | | |
| Total Shares outstanding April 15, 2021 | 18,018,995 | |
LYDALL, INC.
TABLE OF CONTENTS
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Number |
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| Part I |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Part II |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 5. | | |
| Item 6. | | |
| Signatures | | |
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
| | | | | | | | | | | | | | | |
| | | For the Three Months Ended
|
| | | | | March 31, 2021 | | March 31, 2020 |
| Net sales | | | | | $ | 227,099 | | | $ | 200,527 | |
| Cost of sales | | | | | 178,550 | | | 161,959 | |
| Gross profit | | | | | 48,549 | | | 38,568 | |
| Selling, product development and administrative expenses | | | | | 35,633 | | | 33,027 | |
| Impairment of goodwill and other long-lived assets | | | | | — | | | 61,109 | |
| Restructuring expenses | | | | | 777 | | | — | |
| Operating income (loss) | | | | | 12,139 | | | (55,568) | |
| (Gain) loss on the sale of a business | | | | | 698 | | | — | |
| Employee benefit plans settlement expenses | | | | | — | | | 385 | |
| Interest expense | | | | | 3,448 | | | 2,857 | |
| Other (income) expense, net | | | | | 86 | | | (418) | |
| Income (loss) before income taxes | | | | | 7,907 | | | (58,392) | |
| Income tax expense (benefit) | | | | | 2,821 | | | (2,015) | |
| (Income) loss from equity method investment | | | | | (8) | | | 44 | |
| Net income (loss) | | | | | $ | 5,094 | | | $ | (56,421) | |
| Earnings (loss) per share: | | | | | | | |
| Basic | | | | | $ | 0.29 | | | $ | (3.25) | |
| Diluted | | | | | $ | 0.28 | | | $ | (3.25) | |
| Weighted average number of common shares outstanding: | | | | | | | |
| Basic | | | | | 17,545 | | | 17,336 | |
| Diluted | | | | | 17,888 | | | 17,336 | |
See accompanying notes to condensed consolidated financial statements.
LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)
| | | | | | | | | | | | | | | |
| | | For the Three Months Ended
|
| | | | | March 31, 2021 | | March 31, 2020 |
| Net income (loss) | | | | | $ | 5,094 | | | $ | (56,421) | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Foreign currency translation adjustments | | | | | (3,014) | | | (9,957) | |
Pension liability adjustment, net of taxes of $0.1 million and $0.1 million, respectively | | | | | 365 | | | 331 | |
Unrealized gain (loss) on hedging activities, net of taxes of $0.9 million and $0.1 million, respectively | | | | | 3,018 | | | 446 | |
| Other comprehensive income (loss) | | | | | 369 | | | (9,180) | |
| Total comprehensive income (loss) | | | | | $ | 5,463 | | | $ | (65,601) | |
See accompanying notes to condensed consolidated financial statements.
LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts) (Unaudited)
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Assets | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 88,717 | | | $ | 102,176 | |
Accounts receivable, net of allowance for doubtful accounts of $2,313 and $2,402, respectively | 135,464 | | | 116,947 | |
| Contract assets | 25,959 | | | 32,403 | |
| Inventories | 81,448 | | | 78,996 | |
| Taxes receivable | 10,031 | | | 6,652 | |
| Prepaid expenses | 4,937 | | | 4,870 | |
| Other current assets | 7,922 | | | 7,348 | |
| Total current assets | 354,478 | | | 349,392 | |
| Property, plant and equipment, at cost | 505,573 | | | 506,509 | |
| Accumulated depreciation | (295,557) | | | (291,996) | |
| Property, plant and equipment, net | 210,016 | | | 214,513 | |
| Operating lease right-of-use assets | 26,163 | | | 22,243 | |
| Goodwill | 87,195 | | | 87,595 | |
| Other intangible assets, net | 90,796 | | | 95,121 | |
| Other assets, net | 6,729 | | | 6,598 | |
| Total assets | $ | 775,377 | | | $ | 775,462 | |
| Liabilities and Stockholders' Equity | | | |
| Current liabilities: | | | |
| Current portion of long-term debt | $ | 9,789 | | | $ | 9,789 | |
| | | |
| Accounts payable | 113,416 | | | 101,905 | |
| Accrued payroll and other compensation | 22,114 | | | 24,589 | |
| Accrued taxes | 8,339 | | | 8,214 | |
| | | |
| Derivative liabilities | 7,966 | | | 11,996 | |
| Restructuring liabilities | 2,042 | | | 9,431 | |
| Other accrued liabilities | 22,733 | | | 21,705 | |
| Total current liabilities | 186,399 | | | 187,629 | |
| Long-term debt | 251,202 | | | 260,649 | |
| Long-term operating lease liabilities | 21,220 | | | 17,947 | |
| Deferred tax liabilities | 31,411 | | | 27,174 | |
| Benefit plan liabilities | 17,930 | | | 21,691 | |
| Other long-term liabilities | 2,665 | | | 2,676 | |
| | | |
| Commitments and Contingencies (Note 15) | | | |
| Stockholders' equity: | | | |
Preferred stock, $0.01 per share par value, 500 shares authorized (none issued or outstanding) | — | | | — | |
Common stock, $0.01 per share par value, 30,000 shares authorized (25,741 and 25,555 shares issued, respectively) | 257 | | | 256 | |
| Capital in excess of par value | 101,361 | | | 99,770 | |
| Retained earnings | 271,998 | | | 266,904 | |
| Accumulated other comprehensive income (loss) | (17,973) | | | (18,342) | |
Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost | (91,093) | | | (90,892) | |
| Total stockholders’ equity | 264,550 | | | 257,696 | |
| Total liabilities and stockholders’ equity | $ | 775,377 | | | $ | 775,462 | |
See accompanying notes to condensed consolidated financial statements.
LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
| | | | | | | | | | | |
| For the Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
| Cash flows from operating activities: | | | |
| Net income (loss) | $ | 5,094 | | | $ | (56,421) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| | | |
| Depreciation and amortization | 11,366 | | | 12,152 | |
| Amortization of debt issuance costs | 134 | | | 78 | |
| Impairment of goodwill and long-lived assets | — | | | 61,109 | |
| Deferred income taxes | 3,224 | | | (2,896) | |
| (Gain) loss on the sale of a business | 698 | | | — | |
| Employee benefit plans settlement expenses | — | | | 385 | |
| Stock-based compensation | 1,125 | | | 914 | |
| | | |
| (Gain) loss on disposition of property, plant and equipment | — | | | 20 | |
| (Gain) loss from equity method investment | (8) | | | 44 | |
| Other, net | (106) | | | — | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (21,817) | | | (7,800) | |
| Contract assets | 6,298 | | | 1,313 | |
| Inventories | (3,127) | | | (2,026) | |
| Income taxes (receivable) payable | (3,424) | | | (546) | |
| Prepaid expenses and other assets | (1,053) | | | 526 | |
| Accounts payable | 11,456 | | | 21,127 | |
| Accrued payroll and other compensation | (2,185) | | | (68) | |
| | | |
| Deferred revenue | 21 | | | — | |
| Accrued taxes payable | 245 | | | (1,447) | |
| | | |
| Benefit plan liabilities | (3,517) | | | (450) | |
| Other, net | (4,204) | | | 727 | |
| Net cash provided by (used for) operating activities | 220 | | | 26,741 | |
| Cash flows from investing activities: | | | |
| Capital expenditures | (8,119) | | | (9,157) | |
| Collections of finance receivables | 1,379 | | | 1,658 | |
| Payments from divestitures | (2,715) | | | — | |
| | | |
| | | |
| Net cash provided by (used for) investing activities | (9,455) | | | (7,499) | |
| Cash flows from financing activities: | | | |
| Proceeds from borrowings | — | | | 20,000 | |
| Debt repayments | (9,499) | | | (4,500) | |
| Proceeds from servicing receivables | 4,557 | | | 2,852 | |
| Common stock issued | 642 | | | 31 | |
| Common stock repurchased | (201) | | | (8) | |
| Net cash provided by (used for) financing activities | (4,501) | | | 18,375 | |
| Effect of exchange rate changes on cash | 277 | | | (1,121) | |
| Increase (decrease) in cash and cash equivalents | (13,459) | | | 36,496 | |
| Cash and cash equivalents at beginning of period | 102,176 | | | 51,331 | |
| Cash and cash equivalents at end of period | $ | 88,717 | | | $ | 87,827 | |
See accompanying notes to condensed consolidated financial statements.
LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include the accounts of Lydall, Inc. and its subsidiaries (collectively, “Lydall”, "the Company”, “we”, and “our”). All financial information is unaudited for the interim periods reported. All significant intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The year-end Condensed Consolidated Balance Sheet amounts have been derived from the audited financial statements for the year ended December 31, 2020, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the condensed consolidated financial information reflects all adjustments necessary for a fair statement of the Company’s consolidated financial position, results of operations, and cash flows for the interim periods reported, but do not include all the disclosures required by U.S. GAAP. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Additional Cash Flow Information
Non-cash investing activities include non-cash capital expenditures of $1.6 million and $2.3 million that were included in Accounts payable on the Company's Condensed Consolidated Statements of Cash Flows at March 31, 2021 and 2020, respectively.
Risks and Uncertainties
Worldwide economic cycles, political changes, and the COVID-19 pandemic affect the markets that the Company’s businesses serve, affect demand for the Company's products, and could impact profitability. Among other factors, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, changes in international trade agreements, swings in consumer confidence and spending, and unstable economic growth, disruptions to the global automotive supply chain, and fluctuations in unemployment rates have caused economic instability and can have a negative impact on the Company’s results of operations, financial condition, and liquidity.
Transfers of Financial Assets
The Company accounts for transfers of financial assets as sold when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company's continuing involvement with the assets transferred. Gains or losses and any expenditures stemming from the transfers are included in Other (income) expense, net on the Company's Condensed Consolidated Statements of Operations. Assets obtained and liabilities incurred in connection with transfers reported as sold are initially recognized on the Company's Condensed Consolidated Balance Sheets at fair value.
The Company maintains arrangements with banking institutions to sell trade accounts receivable balances for select customers. Under the programs, the Company has no risk of loss due to credit default and is charged a fee based on the nominal value of receivables sold and the time between the sale of the trade accounts receivables to banking institutions and collection from the customer. Under one of the programs, the Company services the trade receivables after the sale to the bank and receives 90.0% of the trade receivables in cash at the time of sale and the remaining 10.0% in cash, net of fees, when the customer pays. Total trade accounts receivable balances sold under both arrangements were $34.1 million and $32.7 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total cash received was $31.2 million and $30.2 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total fees incurred were $0.1 million and $0.1 million during the three-month periods ended March 31, 2021 and 2020, respectively.
The Company's senior secured revolving credit agreement permits the Company to sell trade accounts receivable balances to approved third parties in connection with Receivable Purchases Agreements, or other similar agreements. At any given time, outstanding trade accounts receivable balances sold cannot exceed $10.0 million for a certain approved customer and $50.0 million in aggregate for any other approved group of customers.
2. RECENT ACCOUNTING STANDARDS
Recent Accounting Standards Adopted
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The new standard is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740, and by clarifying and amending existing guidance in other areas of the same topic. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU upon issuance and there was no material impact to the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.
In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." The amendments in this update are intended to reduce diversity in practice and increase comparability of the accounting for interaction of equity securities, investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU upon issuance and notes that it did not have a material impact on the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update are elective, and provide optional expedients and exceptions in accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01 to provide additional clarity around Topic 848. Specifically, certain provisions of Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance in this update is effective for transactions entered into between March 12, 2020 and December 31, 2022. The Company adopted this ASU upon issuance and there was no material impact to the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.
In October 2020, the FASB issued ASU 2020-10, "Codification Improvements." The amendments in this update are intended to clarify the location of certain disclosure guidance within the ASC, as well as clarify certain guidance in cases where the original guidance may have been unclear. These amendments do not change U.S. GAAP. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this ASU upon issuance and notes no impact to the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.
Recent Accounting Standards Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)." The amendments in this update are intended to simplify the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company does not expect the adoption of this update to have a material impact on its Consolidated Financial Statements and disclosures.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company accounts for revenue in accordance with ASC 606, "Revenue from Contracts with Customers". Revenues are generated from the design and manufacture of specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when the control of products passes to the Company’s customers which can be either at a point in time or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of the Company’s products and revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process. The Company analyzes several factors, including, but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition. Unfulfilled performance obligations are generally expected to be satisfied within one year.
Contract Assets and Liabilities
The Company’s contract assets primarily include unbilled amounts typically resulting from sales under contracts when the over time method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. These unbilled accounts receivable in contract assets are transferred to accounts receivable upon invoicing, typically when the right to payment becomes unconditional, in which case payment is due based only upon the passage of time.
The Company’s contract liabilities primarily relate to billings and advance payments received from customers and deferred revenue. These contract liabilities represent the Company’s obligation to transfer its products to its customers for which the Company has received, or is owed, consideration from its customers. Contract liabilities are included in Other accrued liabilities in the Company's Condensed Consolidated Balance Sheets.
Contract assets and liabilities consisted of the following:
| | | | | | | | | | | | | | | | | | | | | |
| In thousands | | | At March 31, 2021 | | At December 31, 2020 | | Dollar Change |
| Contract assets | | | $ | 25,959 | | | $ | 32,403 | | | $ | (6,444) | |
| Contract liabilities | | | $ | 3,786 | | | $ | 3,686 | | | $ | 100 | |
The $6.4 million decrease in contract assets from December 31, 2020 to March 31, 2021 was primarily due to timing of tooling billings to customers and to a lesser extent, the billings on last-time buys of membrane-based filtration media initiated in December 2020 in the Company's Netherlands facility.
The $0.1 million increase in contract liabilities from December 31, 2020 to March 31, 2021 was primarily due to an increase in customer deposits, offset by $1.4 million of revenue recognized in the first three months of 2021 related to contract liabilities at December 31, 2020.
Disaggregated Revenue
The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing, and uncertainty of the Company's revenues and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three-month periods ended March 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, 2021 | | For the Three Months Ended March 31, 2020 |
| In thousands | | North America | | Europe | | Asia | | Total Net Sales | | North America | | Europe | | Asia | | Total Net Sales |
| | | | | | | | | | | | | | | | |
| Performance Materials | | $ | 58,874 | | | $ | 16,924 | | | $ | 3,535 | | | $ | 79,333 | | | $ | 45,917 | | | $ | 17,275 | | | $ | 2,028 | | | $ | 65,220 | |
| Technical Nonwovens | | 35,838 | | | 16,899 | | | 8,938 | | | 61,675 | | | 35,731 | | | 16,938 | | | 4,734 | | | 57,403 | |
| Thermal Acoustical Solutions | | 60,653 | | | 26,113 | | | 4,278 | | | 91,044 | | | 57,101 | | | 23,540 | | | 3,120 | | | 83,761 | |
| Eliminations and Other | | (4,678) | | | (275) | | | — | | | (4,953) | | | (5,677) | | | (180) | | | — | | | (5,857) | |
| Total net sales | | $ | 150,687 | | | $ | 59,661 | | | $ | 16,751 | | | $ | 227,099 | | | $ | 133,072 | | | $ | 57,573 | | | $ | 9,882 | | | $ | 200,527 | |
4. INVENTORIES
Inventories as of March 31, 2021 and December 31, 2020 were as follows:
| | | | | | | | | | | | | | |
| In thousands | | At March 31, 2021 | | At December 31, 2020 |
| Raw materials | | $ | 37,116 | | | $ | 32,258 | |
| Work in process | | 16,504 | | | 17,087 | |
| Finished goods | | 27,828 | | | 29,651 | |
| | | | |
| | | | |
| Total inventories | | $ | 81,448 | | | $ | 78,996 | |
Work in process includes net tooling inventory of $3.2 million and $2.8 million at March 31, 2021 and December 31, 2020, respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The Company performs an assessment of its goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value may exceed its fair value. There were no such events or changes in circumstances during the three-month period ended March 31, 2021.
The following table sets forth the change in carrying value of goodwill for each reportable segment and for the Company as of March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | Performance Materials | | Technical Nonwovens | | Thermal Acoustical Solutions | | Total |
| Gross balance at December 31, 2020 | | $ | 143,659 | | | $ | 55,607 | | | $ | 12,160 | | | $ | 211,426 | |
| Accumulated impairment | | (111,671) | | | — | | | (12,160) | | | (123,831) | |
| Net balance at December 31, 2020 | | 31,988 | | | 55,607 | | | — | | | 87,595 | |
| | | | | | | | |
| Foreign currency translation | | (23) | | | (377) | | | — | | | (400) | |
| Net balance at March 31, 2021 | | $ | 31,965 | | | $ | 55,230 | | | $ | — | | | $ | 87,195 | |
Other Intangible Assets
The table below presents the gross carrying amount and, as applicable, the accumulated amortization of the Company’s acquired intangible assets, other than goodwill, as of March 31, 2021 and December 31, 2020. These amounts are included in Other intangible assets, net on the Company's Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | At March 31, 2021 | | At December 31, 2020 |
| In thousands | | Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Amortized intangible assets | | | | | | | | | | |
| Customer Relationships | | 10 - 14 years | | $ | 143,184 | | | $ | (53,970) | | | $ | 143,479 | | | $ | (50,076) | |
| Patents | | 28 years | | 650 | | | (619) | | | 650 | | | (616) | |
| Technology | | 15 years | | 2,500 | | | (1,185) | | | 2,500 | | | (1,144) | |
| Trade Names | | 3 - 5 years | | 7,446 | | | (7,210) | | | 7,495 | | | (7,167) | |
| License Agreements | | 10 years | | — | | | — | | | 185 | | | (185) | |
| Other | | 7 - 15 years | | 459 | | | (459) | | | 467 | | | (467) | |
| Total other intangible assets | | | | $ | 154,239 | | | $ | (63,443) | | | $ | 154,776 | | | $ | (59,655) | |
Estimated amortization expense for total intangible assets is expected to be $16.5 million, $14.5 million, $12.8 million, $11.4 million, $9.8 million and $30.1 million, for each of the years ending December 31, 2021 through 2025 and thereafter, respectively.
6. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
The long-term debt payable under the Company’s amended and restated 2018 senior secured revolving credit agreement (as amended to-date, the "2018 Amended Credit Agreement") at March 31, 2021 and December 31, 2020 consisted of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | Effective Rate | | Maturity | | At March 31, 2021 | | At December 31, 2020 |
| Revolver loan | | 4.25 | % | | 8/31/2023 | | $ | 127,500 | | | $ | 134,500 | |
| Term loan, net of debt issuance costs | | 4.25 | % | | 8/31/2023 | | 133,491 | | | 135,938 | |
| | | | | | | | |
| | | | | | | 260,991 | | | 270,438 | |
| Less portion due within one year | | | | | | (9,789) | | | (9,789) | |
| Total long-term debt, net of debt issuance costs | | | | | | $ | 251,202 | | | $ | 260,649 | |
The weighted average interest rate on long-term debt was 5.1% and 4.4%, for the three-month periods ending March 31, 2021 and 2020, respectively.
Total amortization expense of debt issuance costs was $0.1 million and $0.1 million for the three-month periods ending March 31, 2021 and 2020, respectively.
At March 31, 2021, the Company had amounts available for borrowing of $40.7 million under the 2018 Amended Credit Agreement, net of $127.5 million outstanding under the revolver facility and standby letters of credit outstanding of $1.8 million.
In addition to the amounts outstanding under the 2018 Amended Credit Agreement, the Company has various foreign credit facilities totaling approximately $10.8 million. At March 31, 2021 and December 31, 2020, the Company's foreign subsidiaries had $1.2 million and $1.4 million, respectively, in standby letters of credit outstanding under these foreign credit facilities.
The Company has entered into an interest rate swap to convert a portion of the Company's borrowings from a variable rate to a fixed rate. See Note 7, "Derivatives," in these Notes to Condensed Consolidated Financial Statements for additional information.
On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders, increasing total borrowings from $314.0 million to $346.0 million. The 2021 senior secured revolving credit agreement has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currencies loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million (the revolving facility and the term loan facility are collectively referred to as the “2021 Credit Facility”). The 2021 Credit Facility includes an accordion feature permitting the Company to request an increase of up to $150.0 million in the aggregate. The proceeds of the 2021 Credit Facility will be used to (a) refinance indebtedness and commitments outstanding under the existing 2018 Amended Credit Agreement, (b) pay fees and expenses incurred in connection with the 2021 Credit Facility, and (c) provide ongoing working capital and for other general corporate purposes. The 2021 Credit Facility matures on April 26, 2026.
The term loan facility requires quarterly payments of principal at the rate of $2.2 million, with the remaining balance due in the final quarter of the 2021 Credit Facility’s term. The Company is permitted to prepay amounts outstanding under the 2021 Credit Facility, in whole or in part, at any time without premium or penalty, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments.
The Lenders have been granted a security interest in substantially all of Lydall Inc.'s and its domestic subsidiaries’ personal property and other assets (including intellectual property), including a pledge of 65% of the Company’s equity interest in certain foreign subsidiaries and 100% of the Company’s equity interest in its domestic subsidiaries, as collateral for the Company’s obligations under the 2021 Credit Facility.
Under the 2021 Credit Facility, interest is charged on borrowings, at the Company’s option, of either: (i) LIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Margin, or (ii) for U.S. denominated loans the Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the one month
LIBOR (adjusted daily) plus 1.00%, plus the Applicable Margin. The Applicable Margin is 2.00% per annum in the case of LIBOR and alternative currency loans and letters of credit and 1.00% per annum in the case of Base Rate loans for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the Applicable Margin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit Facility), which ranges from 1.25% to 2.50% per annum for LIBOR and alternative currency loans and letters of credit, and ranges from 0.25% to 1.50% per annum for Base Rate loans. The Company will pay a quarterly commitment fee of 0.275% per annum on the unused portion of the revolving facility for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the quarterly commitment fee ranges from 0.20% to 0.30% per annum.
The 2021 Credit Facility contains customary affirmative and negative covenants, including covenants limiting the Company and its subsidiaries to, among other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from business conducted by the Company, transact with affiliates, make restricted payments, and sell assets.
The 2021 Credit Facility contains financial covenants required of the Company and its subsidiaries. The Company is required to meet certain quarterly financial covenants, including:
i.A Minimum Consolidated Fixed Charge Coverage Ratio, which requires that at the end of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed maintenance capital expenditures, restricted payments and taxes paid, each as defined in the 2021 Credit Facility, may not be less than 1.25 to 1.00; and
ii. A Consolidated Net Leverage Ratio, which requires that at the end of each fiscal quarter the ratio of consolidated funded indebtedness minus consolidated domestic cash to consolidated EBITDA, as defined in the 2021 Credit Facility, not be greater than 4.50:1.00 through the period ended December 31, 2021, stepping down to 4.00:1.00 through the period ending June 30, 2022, and 3.50:1.00 beginning with the period starting July 1, 2022 and thereafter.
Each of the financial ratios referred to above are calculated on a consolidated trailing twelve-month basis. The 2021 Credit Facility, permits the Company to exclude certain non-cash charges and certain restructuring and other expenses, as defined by the 2021 Credit Facility, from EBITDA in the calculation of the Company's financial covenants.
The Company was in compliance with all covenants set forth in the 2018 Amended Credit Agreement as of and for the quarter ended March 31, 2021, and in the 2021 Credit Facility as of the date hereof, and the Company does not anticipate noncompliance in the foreseeable future.
7. DERIVATIVES
The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates and foreign currency rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.
Interest Rate Hedging
The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and Europe, which impacts interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are recorded at fair value. See Note 8, "Fair Value Measurements," in these Notes to Condensed Consolidated Financial Statements for additional information.
In November 2018, the Company entered into a five-year interest rate swap agreement with a bank to convert the interest on a notional $139.0 million of the Company's borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount decreases quarterly by fluctuating amounts through August 2023. Prior to May 11, 2020, the Company's interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continued to match the critical terms of the hedged debt in order to report gains or losses on the derivative instrument in other comprehensive income. An amendment to the Company's Amended Credit Agreement on May 11, 2020 included, among other modifications, the establishment of a floor on the base and Eurocurrency rate of 1%. As a result, the Company determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement was no longer effective. The Company also concluded that the hedged forecasted transaction (the
occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020, any fair value gains or losses on the derivative agreement are recorded as interest expense on the Company's Condensed Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, will be amortized into earnings (loss) through August 31, 2023, the maturity date of the hedged debt. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at March 31, 2021 was $3.3 million, net of tax. The amount reclassified out of other comprehensive income into Interest expense on the Company's Condensed Consolidated Statement of Operations for the three-month period ended March 31, 2021 was $0.6 million, net of tax. The Company expects $2.0 million, net of tax, to be reclassified from Accumulated Other Comprehensive Income over the next twelve months.
Net Investment Hedges
The Company’s operations are subject to certain risks, including foreign currency exchange rate fluctuations. From time to time, the Company enters into cross-currency swaps designated as hedges, which are recorded at fair value (see Note 8, "Fair Value Measurements," in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the U.S. dollar.
In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75.0 million U.S. dollar equivalent). These swaps hedge a portion of the Company's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential. Also, settlement of the notional €22.6 million ($25.0 million U.S. dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022, and August 2023. The Company assesses hedge effectiveness of the cross-currency swaps quarterly by ensuring the critical terms of the swaps continue to match the critical terms of the designated net investment. The Company elected to assess effectiveness using the spot method, and as a result, records the interest rate differential monthly on the Company's Condensed Consolidated Statements of Operations.
Derivative instruments are recognized as either assets or liabilities depending on maturity. These amounts are included in Other current assets and Derivative liabilities on the Company's Condensed Consolidated Balance Sheets. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the hedge transaction affects earnings. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. The Company does not use derivatives for speculative or trading purposes.
The following table sets forth the fair value amounts of derivative instruments held by the Company presented on the Condensed Consolidated Balance Sheets as Derivative liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At March 31, 2021 | | At December 31, 2020 |
| In thousands | | Asset Derivatives | | Liability Derivatives | | Asset Derivatives | | Liability Derivatives |
| Interest rate contracts | | $ | — | | | $ | 4,154 | | | $ | — | | | $ | 5,063 | |
| Cross-currency swaps | | — | | | 3,812 | | | — | | | 6,933 | |
| Total derivatives | | $ | — | | | $ | 7,966 | | | $ | — | | | $ | 11,996 | |
The following table sets forth the income (loss) recorded in accumulated other comprehensive income (loss), net of tax, for the three-month periods ended March 31, 2021 and 2020 for derivatives held by the Company and designated as hedging instruments:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
| Cash flow hedges: | | | | | | | | |
| Interest rate contracts | | $ | 618 | | | $ | (2,173) | | | | | |
| Cross-currency swaps | | 2,400 | | | 2,619 | | | | | |
| Total derivatives | | $ | 3,018 | | | $ | 446 | | | | | |
8. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
•Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
The following table presents the carrying value and fair value of financial instruments that are not carried at fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At March 31, 2021 | | At December 31, 2020 |
| In thousands | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| Debt | | $ | 261,500 | | | $ | 262,394 | | | $ | 271,000 | | | $ | 272,792 | |
The fair values of the Company’s long-term debt outstanding were computed based on discounted future cash flows (observable inputs), as applicable, which falls under Level 2 of the fair value hierarchy. Differences from carrying values are attributable to interest rate changes subsequent to when the transactions occurred.
The fair values of cash and cash equivalents, accounts receivable, net and accounts payable approximate their carrying amounts due to the short-term maturities of these instruments.
Recurring Fair Value Measures
The Company holds derivative instruments for interest rate swap contracts and cross-currency swaps that are measured using observable market inputs such as forward rates and its counterparties' credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy. At March 31, 2021 and December 31, 2020, these derivative instruments were included in Derivative liabilities on the Company's Condensed Consolidated Balance Sheets. Based on the Company's continued ability to trade and enter into interest rate swaps and cross-currency swaps, the Company considers the markets for their fair value instruments to be open.
9. STOCK REPURCHASES
During the three-month period ended March 31, 2021, the Company purchased 5,646 shares of common stock valued at $0.2 million to satisfy payroll tax withholding obligations, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, in which the Company withholds the number of shares having fair value equal to each recipient’s minimum payroll tax withholding obligation.
On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company. The ability to repurchase the Company’s common stock will continue until the Board of Directors reaches a determination to discontinue share repurchases. The timing and actual amount of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, and capital availability, among other factors.
10. EMPLOYER SPONSORED BENEFIT PLANS
The Company maintains one domestic pension plan: the Retirement Income Plan for Employees of Interface Performance Materials, Inc. ("IPM Pension Plan"). During the three-month period ended March 31, 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension Plan") through lump sum distributions to
participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. This purchase, funded with pension assets, resulted in a pre-tax settlement loss of $0.4 million in the three-month period ended March 31, 2020, related to the recognition of accumulated deferred actuarial losses. The settlement loss and expenses were included as non-operating expense on the Condensed Consolidated Statements of Operations.
The IPM Pension Plan covers a portion of Interface's union and non-union employees. The plan is closed to new employees and benefits are no longer accruing for the majority of participants. The Company expects to make contributions of approximately $0.7 million to the IPM Pension Plan during 2021. Contributions of $0.2 million were made during the three-month period ended March 31, 2021. Contributions of $0.4 million were made during the three-month period ended March 31, 2020, inclusive of contributions made to the ISS Pension Plan.
The following is a summary of the components of net periodic benefit cost for the domestic defined benefit pension plans for
the three-month periods ended March 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
| Components of employer benefit cost | | | | | | | | |
| Service cost | | $ | 29 | | | $ | 40 | | | | | |
| Interest cost | | 304 | | | 430 | | | | | |
| Expected return on assets | | (589) | | | (533) | | | | | |
| Amortization of actuarial loss | | 4 | | | 2 | | | | | |
| Net periodic benefit cost (income) | | $ | (252) | | | $ | (61) | | | | | |
| Settlement loss | | — | | | 385 | | | | | |
| Total employer benefit plan cost | | $ | (252) | | | $ | 324 | | | | | |
The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in other income.
11. RESTRUCTURING
During the third quarter of 2020, the Company’s Performance Materials segment undertook actions to discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America and consolidated certain product lines and began exiting underperforming facilities in Europe. These restructuring activities, which are projected to conclude in 2021, are expected to reduce operating costs, increase production efficiency, and enhance the Company’s flexibility by better aligning its manufacturing operations with the segment's customer base. Accordingly, the Company expects to record total pre-tax expenses of approximately $18.0 million, primarily related to severance and employee retention expenses in connection with these restructuring activities, of which approximately $12.3 million is expected to result in cash expenditures. The Company incurred a total of $16.7 million through March 31, 2021, of which approximately $5.7 million were non-cash expenditures, which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory.
The Company undertook actions to consolidate global production facilities for sealing & advanced solutions products from five facilities to four, which would have resulted in the closure a facility in Germany. In the first quarter of 2021, the Company entered into an agreement to sell the German facility, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.2 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the business, the Company recorded a pre-tax loss of $0.7 million. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.
In the first quarter of 2021, the Company recorded pre-tax restructuring charges of $0.8 million primarily consisting of severance costs and legal expenses.
The following table summarizes the total restructuring charges by cost type:
| | | | | | | | | | | | | | | | | | | | | |
| In thousands | | Severance and Related Expenses | | | Legal and Administrative Expenses | | Facility Exit and Asset Write-Off Expenses |
| Expense incurred during quarter ended: | | | | | | | |
| March 31, 2021 | | $ | 777 | | | | $ | — | | | $ | — | |
| Total pre-tax expense incurred | | $ | 777 | | | | $ | — | | | $ | — | |
The following table summarizes the change in the accrued liability balance for the restructuring actions:
| | | | | | | | |
| In thousands | | Total |
| Balance as of December 31, 2020 | | $ | 9,431 | |
| Pre-tax restructuring expenses, excluding asset write-off expenses | | 777 | |
| Cash paid | | (821) | |
| Accrued liability included with the sale of the German facility | | (7,311) | |
| Currency translation adjustments | | (34) | |
| Balance as of March 31, 2021 | | $ | 2,042 | |
The above accrued liability balances were included in Restructuring liabilities on the Company’s Condensed Consolidated Balance Sheets.
12. INCOME TAXES
For the three-month period ended March 31, 2021, the Company's effective tax rate was 35.7% compared to an effective tax rate of 3.5% for the three-month period ended March 31, 2020. For the three-month period ended March 31, 2021, the rate was negatively impacted by $0.5 million due to a change in assertion on unremitted foreign earnings, $0.4 million related to foreign earnings taxed at higher rates, and $0.2 million of valuation allowance activity. For the three-month period ended March 31, 2020, the Company had a pre-tax loss primarily resulting from an impairment charge of $61.1 million. The impairment charge significantly impacted the Company's effective tax rate as $48.7 million of the impairment charge related to non-deductible goodwill, resulting in a lower effective tax rate for the first quarter of 2020 when the Company was in a pre-tax loss position. Additionally, the effective rate, for the first quarter of 2020, was negatively impacted by valuation allowance activity of $0.3 million.
The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, Canada, China, France, Germany, Hong Kong, India, the Netherlands, and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal examinations for years before 2017, state and local examinations for years before 2016, and non-U.S. income tax examinations for years before 2013.
The Company’s effective tax rates in future periods could be affected by an increase or decrease in earnings in countries where tax rates differ from the United States federal tax rate, the relative impact of permanent tax adjustments on earnings from domestic operations, changes in net deferred tax asset valuation allowances, including valuation allowances on loss carryforwards in which no tax benefit can be recognized, stock vesting, pension plan terminations, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of ongoing tax planning strategies and audits.
13. EARNINGS (LOSS) PER SHARE
For the three-month periods ended March 31, 2021 and 2020, basic earnings per share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted share awards, including awards subject to certain performance criteria, are excluded from the basic earnings per share calculation, but are included in the diluted earnings per share calculation using the treasury stock method in periods of net income, as long as their effect is not antidilutive. All potential shares of common stock from unexercised stock options and unvested restricted share awards are antidilutive in periods of net loss.
The following table provides a reconciliation of weighted-average shares used to determine basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
| Net income (loss) | | $ | 5,094 | | | $ | (56,421) | | | | | |
| | | | | | | | |
| Basic weighted-average common shares outstanding | | 17,545 | | | 17,336 | | | | | |
| Effect of dilutive options and restricted stock awards | | 343 | | | — | | | | | |
| Diluted weighted-average common shares outstanding | | 17,888 | | | 17,336 | | | | | |
| | | | | | | | |
| Earnings (loss) per share: | | | | | | | | |
| Basic | | $ | 0.29 | | | $ | (3.25) | | | | | |
| Diluted | | $ | 0.28 | | | $ | (3.25) | | | | | |
For the three-month periods ended March 31, 2021 and 2020, there were 129,209 and 736,141 shares excluded from the computation of diluted earnings per share, respectively. For the three-month period ended March 31, 2021, these included antidilutive stock options, antidilutive unvested restricted share awards for which requisite service has not yet been rendered, and antidilutive unvested performance share awards with contingently issuable shares. For the three-month period ended March 31, 2020, all outstanding, unvested awards were excluded from the calculation of diluted earnings per share because the Company had net loss during the period. These included all stock options, as well as unvested restricted share awards for which requisite service has not yet been rendered, and certain unvested performance share awards with contingently issuable shares.
A description of the Company's stock options and restricted share awards is included in Note, 13, "Equity Compensation Plans", in the Notes to Consolidated Financial Statements in Part II, Item 8 - Financial Statements and Supplemental Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
14. SEGMENT INFORMATION
The Company is organized based on the nature of its products and is composed of three reportable segments each overseen by a segment manager. These segments are reflective of how the Company's Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purpose of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments. As of March 31, 2021, the operating segments were Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.
Performance Materials Segment
The Performance Materials segment is a worldwide leader in delivering innovative specialty filtration, sealing, and advanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions for a variety of applications in the global air and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture, and construction end markets; and, (3) advanced materials that include highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.
Technical Nonwovens Segment
The Technical Nonwovens segment is a global leader in engineered nonwoven materials for industrial filtration applications and advanced materials products. The primary industrial filtration markets include air pollution and emissions control, power generation, and liquid filtration solutions. Advanced materials products include geotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications, and highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel. Specifically, the segment’s offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier 1 and Tier 2 suppliers as well as the Company's Thermal Acoustical Solutions segment.
Thermal Acoustical Solutions Segment
The Thermal Acoustical Solutions segment designs, manufactures, and distributes a full range of innovative engineered products tailored for the transportation and industrial sectors. These products shield sensitive components from high temperature environments, assist in the reduction of harmful emissions and reduce noise and vibration. Within the transportation sector, the Company's products are found in the interior, underbody, and underhood of cars, trucks, SUVs, heavy duty trucks, and recreational vehicles.
Segment Results
Net sales by business segment is as follows:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
Performance Materials Segment (1),(2): | | | | | | | | |
| Filtration Products | | $ | 34,346 | | | $ | 25,887 | | | | | |
| Sealing and Advanced Solutions Products | | 44,987 | | | 39,333 | | | | | |
| Performance Materials Segment net sales | | 79,333 | | | 65,220 | | | | | |
| | | | | | | | |
| Technical Nonwovens Segment: | | | | | | | | |
| Industrial Filtration Products | | 36,401 | | | 31,369 | | | | | |
Advanced Materials Products (2) | | 25,274 | | | 26,034 | | | | | |
| Technical Nonwovens Segment net sales | | 61,675 | | | 57,403 | | | | | |
| | | | | | | | |
| Thermal Acoustical Solutions Segment: | | | | | | | | |
| Parts | | 86,494 | | | 77,321 | | | | | |
| Tooling | | 4,550 | | | 6,440 | | | | | |
| Thermal Acoustical Solutions Segment net sales | | 91,044 | | | 83,761 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Eliminations and Other (2) | | (4,953) | | | (5,857) | | | | | |
| Consolidated Net Sales | | $ | 227,099 | | | $ | 200,527 | | | | | |
Operating income (loss) by business segment is as follows:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
Performance Materials (1),(3) | | $ | 15,296 | | | $ | (56,941) | | | | | |
Technical Nonwovens (4) | | 5,104 | | | 3,813 | | | | | |
| Thermal Acoustical Solutions | | 1,674 | | | 5,628 | | | | | |
| | | | | | | | |
| Corporate Office Expenses | | (9,935) | | | (8,068) | | | | | |
| Consolidated Operating Income (Loss) | | $ | 12,139 | | | $ | (55,568) | | | | | |
(1)The Performance Materials segment includes the results of the facility in German that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:
•Technical Nonwovens segment intercompany sales of $3.9 million and $5.0 million to the Thermal Acoustical Solutions segment for the three-month periods ended March 31, 2021 and 2020, respectively.
•Performance Materials segment intercompany sales of $1.0 million and $0.9 million to the Thermal Acoustical Solutions segment for the three-month periods ended March 31, 2021 and 2020, respectively.
(3)Included in the operating results within the Performance Materials segment are the following:
•$61.1 million of impairment charges related to goodwill and other long-lived assets for the three-month period ended March 31, 2020.
•$3.0 million and $4.0 million of intangible assets amortization for the three-month periods ended March 31, 2021 and 2020, respectively.
(4)Included in the Technical Nonwovens segment is the following:
• $1.1 million and $1.2 million of intangible assets amortization for the three-month periods ended March 31, 2021 and 2020, respectively.
15. COMMITMENTS AND CONTINGENCIES
Environmental Remediation
In the fourth quarter of 2016, as part of a groundwater discharging permitting process, water samples collected from wells and process water basins at the Company’s Rochester New Hampshire manufacturing facility, within the Performance Materials segment, showed concentrations of Per and Polyfluorinated Substances (“PFAS”) in excess of state ambient groundwater quality standards. In January 2017, the Company received a notification from the State of New Hampshire Department of Environmental Services (“NHDES”) naming Lydall Performance Materials, Inc. a responsible party with respect to the discharge of regulated contaminants and, as such, is required to take action to investigate and remediate the impacts in accordance with standards established by the NHDES. The Company conducted a site investigation, the scope of which was reviewed by the NHDES, in order to assess the extent of potential soil and groundwater contamination and develop a remedial action. Based on input received from NHDES in March 2017 with regard to the scope of the site investigation, the Company recorded $0.2 million of expense. In 2018, the Company received a response from the NHDES to the site investigation report outlining proposed remedial actions. The Company recorded an additional $0.1 million of expense in 2018 associated with the expected costs to remediate the impacts of the discharge of regulated contaminants in accordance with standards established by the NHDES. During 2018, the environmental liability was fully reduced reflecting payments made to vendors. Additionally, the Company incurred $0.2 million of capital expenditures in 2018, in relation to the lining of the Company's fresh water lagoons. During a building expansion in 2020, additional areas of concern were identified during excavation activities. An interim remedial action plan that includes additional site characterization activities was submitted to the NHDES in March 2021. No comments from the NHDES have been received. As of March 31, 2021, the Company has no amounts accrued for these environmental remediation activities. The Company cannot be sure that costs will not exceed the current estimates until this matter is closed with the NHDES, nor that any future corrective action at this location would not have a material effect on the Company’s financial condition, results of operations, or cash flows.
In December 2018, the New York State Department of Environmental Conservation (“NYDEC”) informed the Company that the newly acquired Interface site located at Hoosick Falls, NY will be the subject of an investigation into the possibility of it being an inactive hazardous disposable waste site. The letter specifically references PFAS that have been detected in a nearby water supply, soil and/or surface water. Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source. The NYDEC approved a site characterization plan in December 2019. Additional site characterization activities were completed in the fourth quarter of 2020. Results of the site characterization will be submitted in the second quarter of 2021. As of March 31, 2021, the Company has less than $0.1 million accrued for these environmental remediation activities. The Company does not know the scope or extent of any additional future obligations, if any, that may arise from the site investigation and therefore is unable to estimate the cost of any corrective action. Accordingly, the Company cannot assure that the costs of any future corrective at this location would not have a material effect on the Company's financial condition, results of operations, or cash flows.
Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly impact any estimates of environmental remediation costs.
Asset Retirement Obligations
The Company accounts for asset retirement obligations by recognizing the fair value of the related liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be determined. At March 31, 2021, the Company had combined asset retirement obligations of $0.8 million, which are associated with the estimated costs to remove/remediate asbestos materials from various locations. The initial measurement of the asset retirement obligations was recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the related property and equipment, which is being depreciated using a systematic and rational method similar to the approach used for the associated property and equipment. The Company also has an asset retirement obligation with an offset to goodwill as the estimated costs were derived from known required remediation obligations as of the acquisition date of Interface Performance Materials on August 31, 2018. The Company has been performing ongoing remediation activity, which offsets the liability associated with the respective asset retirement obligations.
16. STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in stockholders' equity for the three-month periods ended March 31, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
| Beginning Balance | | $ | 257,696 | | | $ | 318,420 | | | | | |
| Comprehensive income (loss) | | 5,463 | | | (65,601) | | | | | |
| Stock repurchased | | (201) | | | (8) | | | | | |
| Stock issued under employee plans | | 642 | | | 31 | | | | | |
| Stock-based compensation expense | | 950 | | | 735 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Ending Balance | | $ | 264,550 | | | $ | 253,577 | | | | | |
The components of accumulated other comprehensive income (loss) are shown below:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
| Foreign currency translation: | | | | | | | | |
| Beginning balance | | $ | (3,514) | | | $ | (18,022) | | | | | |
| Net gain (loss) on foreign currency translation | | (4,048) | | | (9,957) | | | | | |
Amounts reclassified from accumulated other comprehensive income (loss) (1) | | 1,034 | | | — | | | | | |
| Other comprehensive income (loss), net of tax | | (3,014) | | | (9,957) | | | | | |
| Ending balance | | (6,528) | | | (27,979) | | | | | |
| | | | | | | | |
| Pension and other postretirement benefit plans: | | | | | | | | |
| Beginning balance | | (5,608) | | | (3,080) | | | | | |
Amounts reclassified from accumulated other comprehensive income (loss) (2) | | 365 | | | 331 | | | | | |
| Other comprehensive income (loss), net of tax | | 365 | | | 331 | | | | | |
| Ending balance | | (5,243) | | | (2,749) | | | | | |
| | | | | | | | |
| Unrealized loss on derivative instruments: | | | | | | | | |
| Beginning balance | | (9,220) | | | (4,877) | | | | | |
Net gain (loss) on derivative instruments (3) | | 2,400 | | | 446 | | | | | |
Amounts reclassified from accumulated other comprehensive income (loss) (4) | | 618 | | | — | | | | | |
| Other comprehensive income (loss), net of tax | | 3,018 | | | 446 | | | | | |
| Ending balance | | (6,202) | | | (4,431) | | | | | |
| | | | | | | | |
| Total accumulated other comprehensive income (loss) | | $ | (17,973) | | | $ | (35,159) | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)For the three-month period ended March 31, 2021, the amount represents the recognition of the accumulated loss on foreign currency translation relating to the divestiture of the German Facility in the Performance Materials segment, net of tax impact of $0.2 million. This is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.
(2)For the three-month period ended March 31, 2021, the amount primarily represents the recognition of the accumulated loss on the defined pension plan relating to the divestiture of the German Facility in the Performance Materials segment. This amount was $0.4 million, net of tax impact of $0.1 million, and is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations. For the three-month period ended March 31, 2020, the amount primarily represents the settlement of the ISS Pension Plan. This amount was $0.4 million, net of tax impact of $0.1 million. The amounts for the three-month periods ended March 31, 2021 and 2020 also include routine amortization of actuarial gains and losses in net periodic benefit cost of less than $0.1 million, net of tax impact of less than $0.1 million.
(3)Amount represents unrealized gains (losses) on the fair value of hedging activities, net of tax impact of $0.7 million and $0.1 million for the three-month periods ended March 31, 2021 and 2020, respectively.
(4)Amounts represents the impact of de-designation of the interest rate swap agreement, net of tax impact of $0.2 million, for the three-month period ended March 31, 2021.
17. SUBSEQUENT EVENTS
On April 20, 2021, the Company's Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company. See Note 9, "Stock Repurchases," in these Notes to Condensed Consolidated Financial Statements for additional information.
On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank, N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders. See Note 6, "Long-term Debt and Financing Arrangements," in these Notes to Condensed Consolidated Financial Statements for additional information.
| | | | | |
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-looking statements in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are not guarantees of future performance and involve risks and uncertainties that could cause actual results to materially differ from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Part I, Item IA - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of these risks and uncertainties.
OVERVIEW AND OUTLOOK
Business
Lydall, Inc. and its subsidiaries (collectively, “Lydall”, "the Company”, “we”, and “our”) design, manufacture, and market specialty filtration and advanced materials solutions that contribute to a cleaner, quieter, and safer world. The Company operates in a variety of attractive end markets supported by global megatrends such as the demand for indoor air quality and lower emissions, near sourcing of supply chains, and vehicle electrification redefining safety and sound. Lydall solves our customers' problems culminating in demanding applications, including: high performance air and liquid specialty filtration, molecular filtration, engineered fiber based sealing solutions, specialty insulation including high temperature and ultra-low temperature (cryogenic) insulation, needle punch nonwoven materials for industrial, geosynthetic, medical and other specialty applications; and thermal management and acoustical products and solutions to assist in the reduction of noise, vibration, and harshness. The Company principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.
The Performance Materials segment is a worldwide leader in delivering innovative specialty filtration, sealing and advanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions for a variety of applications in the global air and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture and construction end markets; and, (3) advanced materials that include highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.
The Technical Nonwovens segment is a global leader in engineered nonwoven materials for industrial filtration applications and advanced materials products. The primary industrial filtration markets include air pollution and emissions control, power generation, and liquid filtration solutions. Advanced materials products include geotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications, and highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel. Specifically, the segment’s offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier 1 and Tier 2 suppliers as well as the Company's Thermal Acoustical Solutions segment.
The Thermal Acoustical Solutions segment offers a full range of innovative engineered products tailored for the transportation and industrial sectors to shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise, vibration, and harshness (NVH).
Recent Developments
In early 2020, the World Health Organization (“WHO”) characterized COVID-19 as a pandemic. In an effort to contain COVID-19 and slow its spread, governments throughout the world, including global and regional markets served by the Company, enacted various measures, including orders to close "non-essential" businesses, isolate residents in their places of residence, and practice social distancing. These actions and the global health crisis caused by COVID-19 has, and may continue to, adversely impact global business activity and our financial performance. Despite the recent administration of vaccines, the outbreak continues to have an adverse impact on parts of our business including cases of absenteeism and certain supply chain challenges. The Company has implemented changes to help ensure the safety and health of all its employees and continues to assess and update its business continuity plans in the context of this pandemic. The Company will continue its efforts to maintain a safe and healthy work environment, including and continuing to allow remote working arrangements where it is appropriate.
Stronger demand in the auto and industrial markets is causing higher commodity prices for aluminum, aluminized steel, polypropylene, and microfiber glass. Supply chain issues, including transportation and logistics problems, are causing periodic
supply chain disruptions, and in selected cases, material shortages in various markets served by the Company. Although the Company does not foresee a material adverse impact on the Company’s financial performance for the remainder of 2021, given the dynamic nature of this situation, we cannot estimate with certainty the future impacts from higher commodity prices and the COVID-19 pandemic on our financial condition, results of operations or cash flows.
Performance Materials Developments
COVID-19
The Performance Materials segment did not experience significant business disruption as a result of the COVID-19 pandemic during the first quarter of 2021. The segment’s facilities remain open in all regions in which the segment operates.
Market Trends
Demand for the Performance Materials segment’s filtration and sealing and advance solutions products continue to be strong, however, the segment is experiencing supply chain challenges for key raw materials, primarily impacting sealings products. In addition, the segment is seeing significant commodity price increases for polypropylene and other fibers used in its filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass through most of the higher costs in customer pricing.
Other
As previously disclosed, the Performance Materials segment undertook actions to exit underperforming facilities in Europe. In March 2021, the Company entered into an agreement to sell its German facility. The sale was completed in March 2021 and, as a result, the Company recorded a loss in the amount of $0.7 million. See Note 11, “Restructuring,” in the Notes to Condensed Consolidated Financial Statements for additional information.
Technical Nonwovens Developments
COVID-19
The Technical Nonwovens segment did not experience significant business disruptions as a result of the COVID-19 pandemic during the first quarter of 2021. The segment’s facilities remain open in all regions in which the segment operates. A small number of suppliers have issued force majeure notifications, however, the impact on the segment’s financial results have not been material.
Market Trends
Demand for the Technical Nonwovens segment’s geosynthetic, medical and filtration products are strong. The segment has experienced lower demand in North America for nonwoven products used in automotive applications as global semiconductor chip shortages impact the automotive industry's customers. However, the Company does not expect these issues to have a material adverse impact on the Company’s financial performance in 2021. In addition, the segment is seeing significant commodity price increases for polypropylene used in geosynthetic and filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass through the higher costs in customer pricing.
Thermal Acoustical Solutions Developments
COVID-19
As previously disclosed, the Thermal Acoustical Solutions segment’s North Carolina facility experienced labor shortages and operational inefficiencies directly related to COVID-19 in 2020. The segment has seen a decline in COVID-19 related illnesses during the first quarter of 2021 and, as a result, labor and overtime costs have begun to decline compared to the higher costs incurred in 2020. The segment’s facilities remain open in all regions in which the segment operates.
Market Trends
Customer demand continues to be strong for the Thermal Acoustical Solutions segment, however, customer orders from month to month have been volatile as certain automotive OEM customers temporarily slow or halt production of certain vehicle
models due to material supply shortages. Consistent with the Company’s other segments, the Thermal Acoustical Solutions segment is experiencing higher commodity pricing, specifically for aluminum, aluminized steel, and polyester fiber. The segment is able to pass through the higher commodity costs for certain customers; however, commodity price increases could have a moderate adverse impact on the segment’s financial performance in 2021 to the extent these costs cannot be passed on to customers.
FIRST QUARTER 2021 HIGHLIGHTS
Below are financial performance highlights for the three-month period ended March 31, 2021 compared to the three-month period ended March 31, 2020:
The chart below reflects the change in consolidated net sales by segment:
Consolidated net sales were $227.1 million in the first quarter of 2021, compared to $200.5 million in the first quarter of 2020, an increase of $26.6 million, or 13.3%, driven by $14.1 million in higher sales in the Company's Performance Materials segment, resulting from higher demand in filtration products for face mask media in response to the COVID-19 pandemic combined with strong demand in sealing markets. In addition, the Thermal Acoustical Solutions segment saw continued strength in the automotive market led by higher parts sales of $9.2 million, partially offset by lower tooling sales, and the Technical Nonwovens segment experienced an increase in sales driven by higher demand in industrial filtration markets. The change in consolidated net sales is summarized in the following chart:
(1)Parts volume and pricing change includes a $0.6 million decrease in net sales from the German facility sold on March 11, 2021 between comparable periods in the first quarters of 2021 and 2020.
Consolidated operating income was $12.1 million for the three-month period ended March 31, 2021 compared to an operating loss of $(55.6) million in the corresponding period in 2020. Operating income for the three-month period ended March 31, 2020 was adversely impacted by goodwill and other long-lived asset impairment charges in the Performance Materials segment of $61.1 million. After adjusting for the impairment charges, operating income increased $6.6 million primarily due to an increase in operating income of $11.1 million in the Performance Materials segment, driven by favorable product mix from continued demand for face mask media and stronger demand in the sealing and cryogenics markets. Operating income for the Technical Nonwovens segment increased $1.3 million primarily due to the absence of a $0.9 million inventory charge included in the first quarter of 2020 related to a flood in one of its European facilities. Offsetting these increases was a $4.0 million decrease in operating income in the Thermal Acoustical Solutions segment primarily due to higher labor and outsourcing costs as a result of workforce shortages related to COVID-19.
The chart below reflects the change in consolidated operating income by segment:
Consolidated net income was $5.1 million, or $0.28 per diluted share, for the three-month period ended March 31, 2021 compared to a net loss of $(56.4) million, or $(3.25) per diluted share, in the corresponding period in 2020.
CONSOLIDATED RESULTS OF OPERATIONS
All of the following tabular comparisons are for the three-month periods ended March 31, 2021 and 2020, unless otherwise indicated.
Net Sales
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Net sales | | $ | 227,099 | | | $ | 200,527 | | | | | | | |
| $ change | | 26,572 | | | (17,498) | | | | | | | |
| % change | | 13.3 | % | | (8.0) | % | | | | | | |
Net sales for the three-month period ended March 31, 2021 increased by $26.6 million, or 13.3%, compared to the first quarter of 2020. This increase was primarily driven by an increase in Performance Materials segment sales of $14.1 million, or 7.0% of consolidated net sales, related to higher net sales in the air filtration market in response to the COVID-19 pandemic combined with strong demand for advanced solutions and sealing products. In addition, Thermal Acoustical Solutions net sales increased $7.3 million, or 3.6% of consolidated net sales, as a result of stronger automotive demand. In the first quarter of 2020, the COVID-19 pandemic had a significant adverse impact on the Thermal Acoustical segment's sales. The Technical Nonwovens segment net sales increased $4.3 million, or 2.1% of consolidated net sales, driven primarily by a large increase in China sales due to the absence of the facility ramp-downs that heavily impacted the Company's China operations in the first quarter of 2020. Foreign currency translation favorably impacted net sales by $7.5 million, or 3.8% of consolidated net sales.
Cost of Sales
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Cost of sales | | $ | 178,550 | | | $ | 161,959 | | | | | | | |
| $ change | | 16,591 | | | (14,010) | | | | | | | |
| % change | | 10.2 | % | | (8.0) | % | | | | | | |
Cost of sales for the three-month period ended March 31, 2021 increased by $16.6 million, or 10.2%, compared to the corresponding period in 2020. The increase was primarily driven by higher sales volume across all three segments. The Company's Performance Materials segment experienced an increase in sales volume as a result of the higher demand for air filtration and sealing products in response to the COVID-19 pandemic and an increase in labor costs, principally in the Thermal Acoustical Solutions segment, as a result COVID-19-related work force shortages in the early part of 2021. These increases were partially offset by favorable product mix in the Performance Materials segment. Foreign currency translation increased cost of sales by $6.2 million, or 3.8%, in the first quarter of 2021 compared to the first quarter of 2020.
Gross Profit
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Gross profit | | $ | 48,549 | | | $ | 38,568 | | | | | | | |
| $ change | | 9,981 | | | (3,488) | | | | | | | |
| % change | | 25.9 | % | | (8.3) | % | | | | | | |
| % of net sales | | 21.4 | % | | 19.2 | % | | | | | | |
Gross margin for the three-month period ended March 31, 2021 increased 220 basis points compared to the corresponding period in 2020. The Performance Materials segment favorably impacted consolidated gross margin by approximately 390 basis points, primarily due to favorable product mix, driven by higher demand for face mask media in response to the COVID-19 pandemic and higher sealing and advanced solutions sales. Lower fixed costs driven by the 2020 restructuring activities also contributed to the Performance Materials segment's gross margin improvement. The Technical Nonwovens segment favorably impacted consolidated gross margin by approximately 20 basis points due to the absence of a $0.9 million inventory charge in the first quarter of 2020 related to a flood in one of its European facilities. The Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 190 basis points, primarily driven by the higher labor costs noted above.
Selling, Product Development and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Selling, product development and administrative expenses | | $ | 35,633 | | | $ | 33,027 | | | | | | | |
| $ change | | 2,606 | | | 21 | | | | | | | |
| % change | | 7.9 | % | | 0.1 | % | | | | | | |
| % of net sales | | 15.7 | % | | 16.5 | % | | | | | | |
Selling, product development and administrative expenses for the three-month period ended March 31, 2021 increased $2.6 million, but decreased 80 basis points as a percentage of consolidated net sales, compared to the corresponding period in 2020. The increase in selling, product development and administrative expenses were driven by higher compensation-related expenses of $2.8 million, higher consulting costs of $2.1 million, and an increase in other general administrative costs of $0.6 million. These increases were partially offset by lower corporate strategic initiatives expenses of $1.8 million, and a decrease in intangible assets amortization expense of $1.1 million.
Impairment of Goodwill and Other Long-Lived Assets
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Impairment of goodwill and other long-lived assets | | $ | — | | | $ | 61,109 | | | | | | | |
The Company recorded a goodwill impairment charge of $48.7 million in the Performance Materials segment during the three-month period ended March 30, 2020 due to lower demand in automotive and other end markets as a result of the COVID-19 pandemic. In addition, as a result of the COVID 19 pandemic and the Company's action plan to address the associated risks, the Company accelerated certain strategic actions. One such action was a review of an underperforming European plant within the Performance Materials segment. As a result of a strategic shift regarding this plant, the Company performed an impairment assessment on the long-lived assets of the plant, which resulted in a long-lived asset impairment charge of $12.4 million during the three-month period ended March 31, 2020.
Restructuring Expenses
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Restructuring expenses | | $ | 777 | | | $ | — | | | | | | | |
In the first quarter of 2021, the Company recorded pre-tax restructuring charges of $0.8 million primarily consisting of severance costs and legal expenses.
(Gain) Loss On The Sale Of A Businesses
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| (Gain) loss on the sale of a business | | $ | 698 | | | $ | — | | | | | | | |
In the first quarter of 2021, the Company entered into an agreement to sell a facility in Germany, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.2 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the business, the Company recorded a pre-tax loss of $0.7 million. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.
Employee Benefit Plans Settlement Expenses
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Employee benefit plans settlement expenses | | $ | — | | | $ | 385 | | | | | | | |
In the first quarter of 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan through lump sum distributions to participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. The settlement, funded with pension plan assets, resulted in a non-cash settlement expense of $0.4 million in the first quarter of 2020 related to the recognition of accumulated deferred actuarial losses.
Interest Expense
| | | | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Interest expense | | $ | 3,448 | | | $ | 2,857 | | | | | | | |
| Weighted average interest rate during the year | | 5.1 | % | | 4.4 | % | | | | | | |
The increase in interest expense for the three-month period ended March 31, 2021 compared to the corresponding period in 2020 was primarily due to higher interest rates related to the amendment of the 2018 Amended Credit Agreement in the second quarter of 2020, partially offset by reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro related to the net investment hedge the company entered into in 2019.
Other Income and Expense
| | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | | | |
| Other expense (income), net | | $ | 86 | | | $ | (418) | | | | | | | |
Other expense (income), net, was unfavorable for the three-month period ended March 31, 2021 compared to the corresponding 2020 period primarily due to foreign currency losses recognized on the revaluation of cash, trade payables and receivables and intercompany loans denominated in currencies other than the functional currencies of the Company's subsidiaries.
Effective Income Tax Rate
| | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2021 | | 2020 |
| Effective income tax rate | | 35.7 | % | | 3.5 | % |
For the three-month period ended March 31, 2021, the Company's effective tax rate was 35.7% compared to an effective tax rate of 3.5% for the three-month period ended March 31, 2020. For the three-month period ended March 31, 2021, the rate was negatively impacted by $0.5 million due to a change in assertion on unremitted foreign earnings, $0.4 million related to foreign earnings taxed at higher rates, and $0.2 million of valuation allowance activity. For the three-month period ended March 31, 2020, the Company had a pre-tax loss primarily resulting from an impairment charge of $61.1 million. The impairment charge significantly impacted the Company's effective tax rate as $48.7 million of the impairment charge related to non-deductible goodwill, resulting in a lower effective tax rate for the first quarter of 2020 when the Company was in a pre-tax loss position. Additionally, the effective rate, for the first quarter of 2020, was negatively impacted by valuation allowance activity of $0.3 million.
SEGMENT RESULTS
The following tables present segment net sales and operating income (loss) for the primary product categories for the three-month periods ended March 31, 2021 and 2020.
Net sales by segment:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
Performance Materials Segment (1),(2): | | | | | | | | |
| Filtration Products | | $ | 34,346 | | | $ | 25,887 | | | | | |
| Sealing and Advanced Solutions Products | | 44,987 | | | 39,333 | | | | | |
| Performance Materials Segment net sales | | 79,333 | | | 65,220 | | | | | |
| | | | | | | | |
| Technical Nonwovens Segment: | | | | | | | | |
| Industrial Filtration Products | | 36,401 | | | 31,369 | | | | | |
Advanced Materials Products (2) | | 25,274 | | | 26,034 | | | | | |
| Technical Nonwovens Segment net sales | | 61,675 | | | 57,403 | | | | | |
| | | | | | | | |
| Thermal Acoustical Solutions Segment: | | | | | | | | |
| Parts | | 86,494 | | | 77,321 | | | | | |
| Tooling | | 4,550 | | | 6,440 | | | | | |
| Thermal Acoustical Solutions Segment net sales | | 91,044 | | | 83,761 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Eliminations and Other (2) | | (4,953) | | | (5,857) | | | | | |
| Consolidated Net Sales | | $ | 227,099 | | | $ | 200,527 | | | | | |
Operating income (loss) by segment:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, | | |
| In thousands | | 2021 | | 2020 | | | | |
Performance Materials (1),(3) | | $ | 15,296 | | | $ | (56,941) | | | | | |
Technical Nonwovens (4) | | 5,104 | | | 3,813 | | | | | |
| Thermal Acoustical Solutions | | 1,674 | | | 5,628 | | | | | |
| | | | | | | | |
| Corporate Office Expenses | | (9,935) | | | (8,068) | | | | | |
| Consolidated Operating Income (Loss) | | $ | 12,139 | | | $ | (55,568) | | | | | |
(1)The Performance Materials segment includes the results of the facility in German that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:
•Technical Nonwovens segment intercompany sales of $3.9 million and $5.0 million to the Thermal Acoustical Solutions segment for the three-month periods ended March 31, 2021 and 2020, respectively.
•Performance Materials segment intercompany sales of $1.0 million and $0.9 million to the Thermal Acoustical Solutions segment for the three-month periods ended March 31, 2021 and 2020, respectively.
(3)Included in the operating results within the Performance Materials segment are the following:
•$61.1 million of impairment charges related to goodwill and other long-lived assets for the three-month period ended March 31, 2020.
•$3.0 million and $4.0 million of intangible assets amortization for the three-month periods ended March 31, 2021 and 2020, respectively.
(4)Included in the Technical Nonwovens segment is the following:
•$1.1 million and $1.2 million of intangible assets amortization for the three-month periods ended March 31, 2021 and 2020, respectively.
Performance Materials
Segment net sales increased $14.1 million, or 21.6%, in the first quarter of 2021 compared to the first quarter of 2020. The increase was primarily driven by higher net sales in filtration of $8.5 million due to the demand in the air filtration market for face mask media in response to the COVID-19 pandemic. Additionally, sealing and advanced solutions sales increased $5.7 million driven by strong demand for sealing in agriculture, construction, and transportation end markets, as well as higher demand for cryogenic insulation products. Foreign currency translation positively impacted segment net sales by $1.7 million, or 2.6%.
The Performance Materials segment reported operating income of $15.3 million, or 19.3% of segment sales, in the first quarter of 2021, compared to an operating loss of ($56.9) million in the first quarter of 2020. The increase in operating income of $72.2 million was primarily driven by the absence of goodwill and other long-lived asset impairment charges of $61.1 million recorded in the first quarter of 2020. The increase in operating income of $11.1 million, excluding the first quarter 2020 impairment charges, was driven by an improvement in gross margin of 940 basis points, primarily related to favorable product mix from continued demand for face mask media, higher demand in the sealing and cryogenics markets, and lower fixed costs driven by the 2020 restructuring activities. Selling, product development and general administrative expenses increased $0.1 million, decreasing 340 basis points as a percentage of net sales, due to segment restructuring charges of $0.7 million and higher accrued cash incentive compensation of $0.3 million, which was largely offset by lower intangible amortization costs of $0.9 million.
Technical Nonwovens
Segment net sales increased $4.3 million, or 7.4%, in the first quarter of 2021 compared to the first quarter of 2020. Industrial filtration net sales increased $5.0 million, or 16.0%, driven by a 86% increase in China sales compared to the prior year due to key wins for steel, cement and power projects and the absence of the COVID-19 pandemic related shutdowns experienced in the first quarter of 2020. Advanced materials net sales decreased $0.8 million, or 2.9%, in the first quarter of 2021 compared to the first quarter of 2020, driven primarily by lower domestic demand, partially offset by higher demand in the geosynthetics market in Canada. Foreign currency translation positively impacted segment net sales by $3.2 million, or 5.6%.
The Technical Nonwovens segment reported operating income of $5.1 million, or 8.3% of segment net sales, in the first quarter of 2021, compared to $3.8 million, or 6.6% of net segment sales, in the first quarter of 2020. The increase in operating income of $1.3 million was primarily driven by an improvement in gross margin of 190 basis points, primarily related to the absence of a $0.9 million inventory charge in the first quarter of 2020 related to a flood in one of its European facilities. Selling, product development and general administrative expenses increased $0.6 million, or 20 basis points as a percentage of segment net sales, primarily driven by an increase in salaries expense of $0.7 million.
Thermal Acoustical Solutions
Segment net sales increased $7.3 million, or 8.7%, in the first quarter of 2021 compared to the first quarter of 2020. This increase was primarily due to an increase in parts sales of $9.2 million driven by higher sales across all regions. During the first quarter 2020, sales were adversely impacted by temporary plant shutdowns due to the COVID-19 pandemic. This increase was partially offset by lower tooling sales of $1.9 million in the first quarter of 2021 compared to the first quarter of 2020. Foreign currency translation favorably impacted segment net sales by $2.6 million, or 3.0%.
The Thermal Acoustical Solutions segment operating income was $1.7 million, or 1.8% of segment net sales, in the first quarter of 2021, compared to operating income of $5.6 million, or 6.7% of segment net sales, in the first quarter of 2020. The decrease in operating income of $3.9 million, or 490 basis points, as a percentage of segment net sales, was primarily due to the degradation of gross margin of 430 basis points driven by higher labor and outsourcing costs from work force shortages related to COVID-19 in the early part of 2021. Gross margin was also negatively impacted by higher raw material commodity costs related to an increase in market pricing of aluminum and aluminized steel in the first quarter of 2021. Operating income was further impacted by an increase in selling, product development and administrative expenses of $1.0 million, or 60 basis points as a percentage of segment net sales, driven by higher salaries and recruiting costs of $0.4 million and higher other general administrative costs of $0.6 million.
Corporate Office Expenses
Corporate office expenses for the three-month period ended March 31, 2021 were $9.9 million, compared to $8.1 million in the corresponding period in 2020. The increase of $1.8 million was primarily due to higher consulting costs of $2.0 million, an
increase in employee compensation-related costs of $1.4 million, and increased other general administrative costs of $0.2 million. These increases were partially offset by lower corporate strategic initiatives expenses of $1.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company assesses liquidity in terms of its ability to generate cash to fund operating, investing and financing activities. The Company's principal source of liquidity is operating cash flows and bank borrowings. In addition to operating cash flows, other significant factors that affect the overall management of liquidity include capital expenditures, investments in businesses, strategic transactions, income tax payments, debt service payments, outcomes of commitments and contingencies, foreign currency exchange rates, employee benefit plan funding and factors that might otherwise affect the company's business and operations generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company manages worldwide cash requirements by considering available funds among domestic and foreign subsidiaries.
The Company continues to manage working capital effectively through inventory management and using consigned inventory arrangements where appropriate, taking advantage of early pay discounts when offered by suppliers, and optimizing accounts receivable collections by selling trade accounts receivable balances when appropriate. A select number of larger customers negotiate longer payment terms. These selected customers offer early pay discounts and/or supply chain financing agreements that allows the Company to collect amounts due earlier than the customer negotiated terms, less a discount on the nominal value of the receivable. The Company also entered into arrangements with a banking institution to sell trade accounts receivable balances for selected customers. See “Transfers of Financial Assets” in Note 1, “Basis of Financial Statement Presentation,” in the Notes to Condensed Consolidated Financial Statements for additional information.
Future Cash Requirements
At March 31, 2021, the Company held $88.7 million in cash and cash equivalents, including $23.1 million in the U.S. with the remaining held by foreign subsidiaries and $261.5 million of borrowings outstanding and standby letters of credit outstanding of $1.8 million under the 2018 Amended Credit Agreement.
In addition to the Company’s working capital requirements, one or more of the following items could have a material impact on the Company’s liquidity during the next twelve months (items are not in the order of importance):
•the matters described in Note 15, “Commitments and Contingencies,” in the Notes to Condensed Consolidated Financial Statements;
•capital expenditures, including the strategic investments discussed below;
•investments in businesses and strategic costs and/or transactions;
•restructuring and severance costs (see Note 11, “Restructuring,” in the Notes to Condensed Consolidated Financial Statements);
•income tax payments;
•research and development expenditures;
•costs and payments associated with tooling for new OEM programs;
•debt service payments;
•employer payroll tax payments deferred under the CARES Act;
•foreign currency exchange rates;
•employee benefit plan funding (see Note 10, “Employer Sponsored Benefit Plans,” in the Notes to Condensed Consolidated Financial Statements); and
•repurchase of common stock under the Company's Share Repurchase Program.
The Company expects to contribute approximately $0.7 million to its domestic defined employee benefit plan in 2021.
Strategic Investments
In 2020, the Company approved investments to add capital equipment in North America and Europe to produce fine fiber meltblown filtration media in the Performance Materials segment. In North America, the Company is investing approximately $25.0 million for two production lines in its Rochester, New Hampshire facility. The Company received a $13.5 million grant from the U.S. Government to partially fund this investment. The cumulative capital expenditures incurred for this ongoing project was $8.5 million through March 31, 2021, net of $12.3 million in funding from the U.S. Government.
In Europe, the Company is investing approximately $13.0 million for a production line in its Saint-Rivalain, France facility to meet the European Union demand for face mask and air filtration products. This investment is being partially funded by a grant
from the French Government that provides funding up to 30% of the investment. The cumulative capital expenditures incurred for this ongoing project was $8.0 million through March 31, 2021, net of $3.2 million in funding from the French Government.
Discussion and Analysis of Cash Flows
A summary of the Company's consolidated cash flows is as follows:
| | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| In thousands | March 31, 2021 | | March 31, 2020 | | 2021 vs. 2020 |
| Total cash provided by (used for): | | | | | |
| Operating activities | $ | 220 | | | $ | 26,741 | | | $ | (26,521) | |
| Investing activities | (9,455) | | | (7,499) | | | (1,956) | |
| Financing activities | (4,501) | | | 18,375 | | | (22,876) | |
| | | | | |
Free Cash Flow (1): | | | | | |
| Net cash provided by (used for) operating activities | 220 | | | 26,741 | | | (26,521) | |
| Capital expenditures | (8,119) | | | (9,157) | | | 1,038 | |
| Free cash flow | $ | (7,899) | | | $ | 17,584 | | | $ | (25,483) | |
(1) Free Cash Flow, a non-U.S. GAAP financial measure, is defined as net cash provided by operating activities less capital expenditures, both of which are presented in the Company’s Condensed Consolidated Statements of Cash Flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures for more information regarding Free Cash Flow.
Operating Cash Flows
Net cash provided by operating activities for the three-month period ended March 31, 2021 was $0.2 million compared with net cash provided by operating activities of $26.7 million in the corresponding period in 2020. The $26.5 million decrease is driven primarily by higher accounts receivables, as a result of higher sales volume and lower accounts payables due to the timing of payments for raw material purchases.
Investing Cash Flows
During the three-month periods ended March 31, 2021 and 2020, net cash used for investing activities consisted of capital expenditures of $8.1 million and $9.2 million, respectively. The Company also paid $2.7 million in connection with the sale of a facility in Germany.
Financing Cash Flows
During the three-month period ended March 31, 2021, net cash used for financing activities was $4.5 million compared to net cash provided by financing activities of $18.4 million in the corresponding period in 2020. The Company made debt repayments of $9.5 million and $4.5 million in the first three months of 2021 and 2020, respectively. During the first quarter of 2020, the Company borrowed an incremental $20.0 million under its 2018 Amended Credit Agreement as a precautionary measure in light of the uncertainty caused by the COVID-19 pandemic.
Other Sources and Use of Cash
On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30 million of common stock, par value $0.01 per share, of the Company. The ability to repurchase the Company’s common stock will continue until the Board of Directors reaches a determination to discontinue share repurchases. The timing and actual amount of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, and capital availability, among other factors.
Financing Arrangements
The Company's 2018 Amended Credit Agreement has a revolving commitment of $170 million and a term loan commitment of $144 million.
Interest rates on amounts outstanding under the 2018 Amended Credit Agreement are variable based on LIBOR. The LIBOR benchmark has been the subject of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. These reforms may cause LIBOR to perform differently than in the past, and LIBOR may ultimately cease to exist after 2021. Alternative, benchmark rate(s) may replace LIBOR and could affect the Company's debt securities, derivative instruments, receivables, debt payments and receipts. At this time, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact the Company's contracts that terminate after 2021. There is uncertainty about how applicable law, the courts or the Company will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions. In addition, any changes to benchmark rates may have an uncertain impact on the Company's cost of funds and access to the capital markets, which could impact liquidity, financial position, or results of operations.
Borrowings outstanding and available borrowings are summarized below:
| | | | | | | | | | | |
| In thousands | At March 31, 2021 | | At December 31, 2020 |
| Total borrowings committed: | | | |
| Revolver commitment | $ | 170,000 | | | $ | 170,000 | |
| Term loan commitment | 144,000 | | | 144,000 | |
| Total borrowings committed | 314,000 | | | 314,000 | |
| | | |
| Total borrowings outstanding: | | | |
| Amounts outstanding under the revolver | $ | 127,500 | | | $ | 134,500 | |
| Amounts outstanding under the term loan, excluding debt issuance costs | 134,000 | | | 136,500 | |
| Total borrowings outstanding | 261,500 | | | 271,000 | |
| | | |
| Total borrowings available: | | | |
| Revolver commitment | $ | 170,000 | | | $ | 170,000 | |
| Less amounts outstanding under the revolver | 127,500 | | | 134,500 | |
| Less letters of credit outstanding | 1,776 | | | 1,776 | |
| Available borrowings, net of letters of credit | $ | 40,724 | | | $ | 33,724 | |
| | | |
| Average bank borrowings | $ | 270,894 | | | $ | 283,291 | |
The Company is required to pay a quarterly commitment fee on the unused revolving commitment amount at a rate of 0.375% per annum, based on the unused portion of the revolver commitment. Fees for outstanding letters of credit range from 3.00% to 4.25%.
The Company has an interest rate swap in place to convert a portion of the Company's borrowings from a variable rate to a fixed rate. See Note 7, "Derivatives," in the Notes to Condensed Consolidated Financial Statements for additional information..
On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement increasing total borrowings from $314 million to $346 million. The new 2021 senior secured revolving credit agreement ("2021 Credit Facility") has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currencies loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million.
Interest is charged on borrowings, at the Company’s option, of either: (i) LIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Margin, or (ii) for U.S. denominated loans the Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the one month LIBOR (adjusted daily) plus 1.00%, plus the Applicable Margin. The Applicable Margin is 2.00% per annum in the case of LIBOR and alternative currency loans and letters of credit and 1.00% per annum in the case of Base Rate loans for the first full fiscal quarter following the
closing date of the 2021 Credit Facility. Thereafter, the Applicable Margin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit Facility), which ranges from 1.25% to 2.50% per annum for LIBOR and alternative currency loans and letters of credit, and ranges from 0.25% to 1.50% per annum for Base Rate loans. The Company pays a quarterly commitment fee of 0.275% per annum on the unused portion of the revolving facility for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the quarterly commitment fee ranges from 0.20% to 0.30% per annum.
The 2021 Credit Facility contains customary affirmative and negative covenants, including covenants limiting the Company to, among other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from business conducted by the Company, transact with affiliates, restricted payments, and sell assets. The 2021 Credit Facility also contains customary financial covenants including a minimum consolidated fixed coverage ratio and maximum consolidated net leverage ratios.
The Company was in compliance with all covenants set forth in the 2018 Amended Credit Agreement as of and for the quarter ended March 31, 2021, and in the 2021 Credit Facility as of the date hereof, and the Company does not anticipate noncompliance in the foreseeable future.
For additional information, see Note 6, “Long-Term Debt and Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements.
NON-GAAP FINANCIAL MEASURES
The Company believes that the non-GAAP measure used in this report provide investors with important perspectives into our ongoing business performance. The Company does not intend for the information to be considered in isolation or as a substitute for the related U.S. GAAP measure. Other companies may define the measures differently. The Company defines the Free Cash Flow measure as follows:
Free cash flow is defined as U.S. GAAP “Net cash provided by (used in) operating activities” in a period less “Capital expenditures” in the same period. The Company believes Free Cash Flow provides an important perspective on the Company’s ability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it excludes certain mandatory expenditures such as repayment of maturing debt and other contractual obligations. Free cash flow is one measurement management uses internally to assess overall liquidity.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes outside the ordinary course of business in the Company’s contractual obligations or off-balance sheet arrangements during the first three months of 2021. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the Company’s contractual obligations and off-balance sheet arrangements.
RECENT ACCOUNTING STANDARDS
For information regarding recent changes in accounting standards, see Note 2, “Recent Accounting Standards,” in the Notes to Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING STATEMENTS
Preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and Analysis and the Notes to Consolidated Financial Statements in the Company’s 2020 Annual Report on Form 10-K describe the critical accounting estimates and significant accounting policies used in preparing the Condensed Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates.
There have been no significant changes in the Company’s critical accounting estimates during the three-month period ended March 31, 2021.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current assumptions relating to the Company’s business, the economy and future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs” and other words of similar meaning in connection with the discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Forward-looking statements in this Quarterly Report on Form 10-Q include, among others, statements relating to:
•Expected impact of the coronavirus pandemic ("COVID-19") on the Company's businesses;
•Overall economic, business and political conditions and the effects on the Company’s markets;
•Ability to meet financial covenants in the Company's credit agreement;
•Outlook for the second quarter and full year 2021;
•Ability to improve operational effectiveness;
•Expected vehicle production in the North American, European or Asian markets;
•Growth opportunities in markets served by the Company;
•Expected costs and future savings associated with restructuring or other cost savings programs;
•Expected gross margin, operating margin and working capital improvements from cost control and other improvement programs;
•Future impact of raw material commodity costs;
•Product development and new business opportunities;
•Future strategic transactions, including but not limited to: acquisitions, joint ventures, alliances, licensing agreements and divestitures;
•Pension plan funding;
•Future cash flow and uses of cash;
•Future amounts of stock-based compensation expense;
•Future earnings and other measurements of financial performance;
•Ability to meet cash operating requirements;
•Future levels of indebtedness and capital spending;
•Future impact of the variability of interest rates and foreign currency exchange rates and impacts of hedging instruments;
•Expected future impact of recently issued accounting pronouncements upon adoption;
•Future effective income tax rates and realization of deferred tax assets;
•Estimates of fair values of reporting units and long-lived assets used in assessing goodwill and long-lived assets for possible impairment;
•Future impacts resulting from cyber-security threats and vulnerabilities; and
•The expected outcomes of legal proceedings and other contingencies, including environmental matters.
All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of the Company to differ materially from those reflected in forward-looking statements made in this Quarterly Report on Form 10-Q, as well as in press releases and other statements made from time to time by the Company’s authorized officers. Such risks and uncertainties include, among others, the duration, severity, and impact of COVID-19 or other new pandemics and the measures taken in response thereto, in particular the impact the virus has on the Company's operations and ability to meet customer demands; worldwide economic cycles and political changes and uncertainties that affect the markets which the Company’s businesses serve, which could have an effect on demand for the Company’s products and impact the Company’s profitability; challenges encountered by the Company in the execution of restructuring programs; disruptions in the global credit and financial markets, including diminished liquidity and credit availability; changes in international trade agreements and policies, including tariff regulation and trade restrictions; swings in consumer confidence and spending; unstable economic growth; volatility in foreign currency exchange rates; raw material pricing and supply issues; fluctuations in unemployment rates; retention of key employees; increases in fuel prices; and outcomes of legal proceedings, claims and investigations, as well as other risks and uncertainties identified in Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q, and Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There have been no significant changes in the Company’s exposure to market risk during the first three months of 2021. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for discussion of the Company’s exposure to market risk.
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| Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company’s management, including the Company’s President and Chief Executive Officer (the “CEO”) and the Executive Vice President and Chief Financial Officer and Treasurer (the "CFO"), conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "SEC"), and that such information is accumulated and communicated to management of the Company, with the participation of its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021 at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three-month period ended March 31, 2021 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
General
From time to time, the Company is subject to legal proceedings, claims, investigations and inquiries that arise in the ordinary course of business such as, but not limited to, actions with respect to commercial, intellectual property, employment, personal injury, and environmental matters. The Company believes that it has meritorious defenses against the claims currently asserted against it and intends to defend them vigorously. While the outcome of litigation is inherently uncertain and the Company cannot be sure that it will prevail in any of the cases, subject to the matters referenced in Note 15, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements of this report, the Company is not aware of any matters pending that are expected to have a material adverse effect on the Company’s business, competitive position, financial position, results of operations, capital expenditures or cash flows.
The Company records loss accruals related to matters for which it considers a loss to be both probable and reasonably estimable. Legal expenses are generally expensed when incurred. The Company evaluates, on a quarterly basis, developments in legal proceedings that could affect the amount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. Loss contingencies are subject to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or claims in multiple jurisdictions or jurisdictions in which the relevant laws are complex or unclear; (vii) the extent of potential damages, which are often unspecified or indeterminate; and (viii) the status of settlement discussions, if any, and the settlement postures of the parties. Because of these uncertainties, management has determined that, except as set forth in Note 15, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements of this report, the amount of loss or range of loss that is reasonably possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already accrued), is not reasonably estimable.
Except as set forth in Note 15, "Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements of this report, neither the Company nor any of its subsidiaries is a party, nor is any of its or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company and its subsidiaries.
Environmental Matters
The Company and its subsidiaries are subject to numerous U.S. Federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of various potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past activities of companies we have acquired). While it is not possible to predict the outcome of these proceedings, in the opinion of management, any payments we may be required to make as a result of all such claims in existence at March 31, 2021, will not have a material adverse effect on our business, financial condition and results of operations or cash flows.
Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, the availability of insurance coverage by or contractual environmental risk transfer to third parties, and presently enacted laws and regulations. In future periods, numerous factors could significantly impact any estimates of environmental remediation costs.
See Note 15, "Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements for additional information regarding environmental matters.
Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition and cash flows as set forth under Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. We do not believe there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, but we may disclose changes to such factors or disclose additional factors from time to time in future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position and cash flows.
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| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
The following table provides information about purchases of Common Stock by the Company during the three-month period ended March 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price
Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | | Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program |
| January 1, 2021 - January 31, 2021 | | — | | | $ | — | | | — | | | — | |
| February 1, 2021 - February 28, 2021 | | 664 | | | $ | 32.82 | | | — | | | — | |
| March 1, 2021 - March 31, 2021 | | 4,982 | | | $ | 36.03 | | | — | | | — | |
| | | 5,646 | | | $ | 35.65 | | | — | | | — | |
(1)During the quarter, the Company acquired 5,646 shares of common stock in connection with tax withholding obligations pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans.
(2)On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company.
2021 Credit Facility
On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A, Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A, as Lenders. The principal purpose of the 2021 Amendment was to increase total borrowings from $314 million to $346 million and obtain more favorable borrowing rates. See Note 6, "Long-term Debt and Financing Arrangements," in the Notes to Condensed Consolidated Financial Statements for additional information. A copy of the Amendment is filed herewith as Exhibit 10.1 and incorporated herein by reference. The above description of the 2021 Credit Facility is qualified in its entirety by reference to such exhibit.
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Exhibit
Number | | Description |
| | |
| | |
| | |
| | |
| | | |
| 10.1 | | | Credit Agreement, dated April 26, 2021, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed herewith. |
| | |
| 10.2 | | | |
| | |
| 31.1 | | | |
| | | |
| 31.2 | | | |
| | | |
| 32.1 | | | |
| | | |
| 101.INS | | Inline XBRL Instance Document |
| | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
| | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | LYDALL, INC. |
| | |
| April 27, 2021 | By: | /s/ Randall B. Gonzales |
| | | Randall B. Gonzales
Executive Vice President and Chief Financial Officer and Treasurer
(Principal Financial Officer) |