Acquisitions and Divestitures

12 Months Ended

Dec. 31, 2019

On August 31, 2018, the Company completed the acquisition of Interface Performance Materials ("Interface"), based in Lancaster, Pennsylvania. A globally-recognized leader in the delivery of engineered sealing solutions, the Interface operations manufacture wet-laid gasket and specialty materials primarily serving OEM and Tier I manufacturers in the agriculture, construction, earthmoving, industrial, and automotive segments. The transaction strengthens the Company's position as an industry-leading global provider of filtration materials and expands the Company's end markets into attractive adjacencies. The Company acquired one hundred percent of Interface for $268.4 million, net of cash acquired of $5.2 million. In the second quarter of 2019, the Company finalized the post closing adjustment leading to a decrease in purchase price of $1.4 million and resulting in a final purchase price of $267.0 million. The purchase price was financed with a combination of cash on hand and $261.4 million of borrowings from the Company's amended $450 million credit facility. The operating results of the Interface businesses have been included in the Consolidated Statements of Operations since August 31, 2018, the date of acquisition, and are reported within the Performance Materials reporting segment.

During the year ended December 31, 2018, the Company incurred $3.4 million of transaction costs, related to the acquisition of Interface. These transaction costs include legal fees and other professional services fees to complete the transaction. These expenses have been recognized in the Company's Condensed Consolidated Statements of Operations as selling, product development and administrative expenses.

The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the date of the acquisition:



In thousands
Accounts receivable	$	25,182
Inventories	17,013
Prepaid expenses and other current assets	2,382
Property, plant and equipment	40,902
Goodwill (Note 6)	129,749
Other intangible assets (Note 6)	106,900
Other assets	308
Total assets acquired, net of cash acquired	$	322,436

Current liabilities	(11,319		)
Deferred tax liabilities (Note 16)	(24,081		)
Benefit plan liabilities (Note 12)	(19,002		)
Other long-term liabilities	(1,031		)
Total liabilities assumed	(55,433		)
Total purchase price, net of cash acquired	$	267,003

The following table reflects the unaudited pro forma operating results of the Company for the years ended December 31, 2019, 2018 and 2017, which gives effect to the acquisition of Interface as if it had occurred on January 1, 2017. The pro forma information includes the historical financial results of the Company and Interface. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2017, nor are they intended to be indicative of results that may occur in the future. The pro forma information does not include the effects of any synergies related to the acquisition.



	For The Years Ended December 31,
	(Actual)			(Unaudited Pro Forma)		(Unaudited Pro Forma)
In thousands	2019			2018		2017
Net Sales	$	837,398		$	888,355	$	840,040
Net Income	$	(70,513	)	$	37,537	$	36,773

Earnings per share:
Basic	$	(4.08	)	$	2.18	$	2.16
Diluted	$	(4.08	)	$	2.17	$	2.12

Included in net income during the year ended December 31, 2019 was $64.2 million of impairment charges in the Performance Materials segment, $12.3 million of intangible assets amortization expense related to acquired Interface intangible assets and $9.8 million of interest expense primarily to finance the Interface acquisition.

Pro forma adjustments during the year ended December 31, 2018 increased net income by $7.1 million. Included in net income for the year ended December 31, 2018 was $10.2 million of intangible assets amortization expense and $3.5 million of interest expense associated with borrowings under the Company's Amended Credit Agreement. Net income was adjusted to exclude items such as corporate strategic initiatives expenses, Interface management fee expenses and tax valuation allowance expenses.

Pro forma adjustments during the year ended December 31, 2017 reduced net income by $13.8 million. Included in net income for the year ended December 31, 2017 was $9.2 million of intangible assets amortization expense and $7.1 million of interest expense associated with borrowings under the Company's Amended Credit Agreement. Net income was adjusted to exclude items such as Interface management fee expenses and tax valuation allowance expenses.

On July 12, 2018, the Company acquired certain assets and assumed certain liabilities of the Precision Filtration division of Precision Custom Coatings ("PCC") based in Totowa, NJ. Precision Filtration is a producer of high-quality, air filtration media principally serving the commercial and residential HVAC markets with a range of low efficiency through high-performing air filtration media. The Company acquired the assets and liabilities of PCC for $1.6 million in cash with additional cash payments of up to $1.6 million to be made based on the achievement of certain future financial targets through 2022. The estimate of contingent consideration to be earned was revalued to fair value at December 31, 2019. PCC had a minimal impact on the Company's sales and operating income from the date of the acquisition in 2018 and the year ended December 31, 2019.

Divestiture

On May 9, 2019, the Company sold its Texel Geosol, Inc. ("Geosol") business, a subsidiary of the Company's Texel Technical Materials, Inc. ("Texel") business, for a cash purchase price of $3.0 million. Under the terms of the arrangement, $0.4 million of the total purchase price will be withheld and paid to the Company in three annual payments of approximately $0.1 million. The disposition was completed pursuant to a Sale Agreement, dated May 9, 2019, by and between the Company, and the third-party buyer. The Company recognized a pre-tax gain on the sale of $1.5 million, reported as non-operating income in the second quarter of 2019. Net of income taxes, the Company reported a gain on sale of $1.3 million in the second quarter of 2019.

The Company did not report Geosol as a discontinued operation as it was not considered a strategic shift in Lydall's business. Accordingly, the operating results of Geosol are included in the operating results of the Company through the sale date and in comparable periods.