Lydall, Inc. and its subsidiaries are hereafter collectively referred to as “Lydall,” the “Company” or the “Registrant.” Lydall and its subsidiaries’ names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Lydall and its subsidiaries.

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:

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

Company’s profitability; challenges encountered by the Company in the integration of the Texel and Gutsche acquisitions, including execution of restructuring programs; challenges encountered in the combination of the former Thermal/Acoustical Fibers and Thermal/Acoustical Metals business segments; 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 Lydall’s Annual Report on Form 10-K for the year ended December 31, 2016.2017. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

Non-cash capital expenditures of $3.6$2.0 million and $4.2$4.3 million were included in accounts payable at SeptemberJune 30, 20172018 and 2016,2017, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

 

Lydall, Inc. and its subsidiaries (the “Company” or “Lydall”) design and manufacture specialty engineered nonwoven filtration media, industrial thermal insulating solutions, and thermal and acoustical barriers for filtration/separation and heat abatement and sound dampening applications.

The accompanying Condensed Consolidated Financial Statements include the accounts of Lydall, Inc. and its subsidiaries. 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”). The operating results of Texel and Gutsche have been included in the Consolidated Statements of Operations beginning on their respective dates of acquisition. As part of the acquisition of Texel, the Company acquired a fifty percent interest in a joint venture, Afitex Texel Geosynthetiques Inc., which is accounted for under the equity method of accounting. The year-end Condensed Consolidated Balance Sheet was derived from the December 31, 20162017 audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.U.S. GAAP. Management believes that all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows for the periods reported, have been included. For further information, refer to the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.

 

In May 2014, the FASBFinancial Accounting Standards Board ("FASB") issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”." The objectiveamended guidance establishes a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and will supersede most of this standard update is to remove inconsistent practices with regard tothe existing revenue recognition between US GAAPguidance, including industry-specific guidance.

The amended guidance clarifies that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the amended guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and IFRS. The standard intends to improve comparability of(5) recognize revenue recognition practices across entities, industries, jurisdictions and capital markets. ASU 2014-09when (or as) the entity satisfies a performance obligation. ASC 606 is effective for the Company’s interim and annual reporting periods beginning January 1, 2018, and is to be adopted using either a full retrospective or modified retrospective transition method with early adoption permitted for annual periods beginning after December 15, 2016. method. 

The Company anticipates adopting ASU 2014-09 underadopted the amended guidance and all related amendments using the modified retrospective transition method, withapproach on January 1, 2018, at which time it became effective for the Company.  The Company recognized the cumulative effect of initially adopting thisapplying the new revenue standard recognized through retained earnings atto all contracts that were not completed on the date of adoption.

At the adoption date, the cumulative impact of revenue arisingthat would have been recognized over time, was $19.6 million. The impact was primarily driven by tooling net sales of $16.3 million from customer contracts with customers, including significant judgments and estimates used when applyingwithin the guidance.

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall" (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities". This ASU revises an enforceable right to payment will likely require the Company to recognize revenueentity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain revenue streams prior tofair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the product being shipped to the customer. The Company anticipates the transition to the new standard will result in changes to revenue recognition practices, including areas described above, but the Company will be unable to quantify that impact until the second phasefair value of the project has been completed.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments", which provides guidance on eight specific cash flow classification issues. Prior to this ASU, GAAP did not include specific guidance on these eight cash flow classification issues. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements.statements and disclosures.

In FebruaryOctober 2016, the FASB issued ASU No. 2016-02, "Leases2016-16, “Income Taxes (Topic 842)".740): Intra-Entity Transfers of Assets Other Than Inventory” as part of the Board’s initiative to reduce complexity in accounting standards. This ASU eliminates an exception in ASC 740, which prohibits the immediate recognition of income tax consequences of intra-entity asset transfers other than inventory. This ASU requires entities that lease assets with lease terms of more than 12 months to recognize right-of-use assetsthe immediate current and lease liabilities created by those leases on their balance sheets. This ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertaintydeferred income tax effects of cash flows arising from leases.intra-entity asset transfers. This ASU is effective for fiscal years beginning after December 15, 2018,2017, with early adoption permitted. The Company is currently evaluating the method and impact the adoption of this ASU 2016-02 willdid not have any impact on the Company’s consolidated financial statements and disclosures.

In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting". This ASU requires an entity to apply modification accounting in Topic 718 when there are changes to the terms or conditions of a share-based payment award, unless the fair value, vesting conditions, and classification of the modified award are the same as the original award immediately before the original award is modified. This ASU iswas effective for fiscal years beginning after December 15, 2017, with early adoption permitted.2017. The Company is currently evaluating the method and impact the adoption of this ASU 2017-09 willdid not have any impact on the Company’s consolidated financial statements and disclosures.

In August 2017,February 2016, the FASB issued ASU No. 2017-12, "Derivatives and Hedging2016-02, "Leases (Topic 815): Targeted Improvements to Account for Hedging Activities"842)". This ASU provides various improvements revolving around the financial reportingrequires entities that lease assets with lease terms of hedging relationships that will require an entitymore than 12 months to amend the presentationrecognize right-of-use assets and disclosure of hedging activities to better portray the economic results of an entity's risk management activities in its financial statements.lease liabilities created by those leases on their balance sheets. This ASU will also require an entity withnew qualitative and quantitative disclosures to help investors and other financial statement

ForThe Company accounts for revenue in accordance with ASC 606, Revenue from Contracts from Customers. These revenues are generated from the quarter ended September 30, 2017, Gutsche reported net salesdesign and operating incomemanufacture of $13.9 millionspecialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and $1.2 million, respectively. Operating incomeacoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue recognition policies require the quarter ended September 30, 2017 included $0.1 millionCompany to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when control of purchase accounting inventory fair value step-up adjustmentsproducts passes to the Company’s customers which can be either at a point in costtime or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of sales upon the saleCompany’s products and revenue is generally recognized over time when control of inventory. There were no sales or operating income for Gutschethe Company’s products transfers to customers during the quarter ended September 30, 2016 asmanufacturing process (see description below). The Company analyzes several factors, including but not limited to, the acquisition occurred on December 31, 2016.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.

ForThe Company accounts for revenue from contracts with customers when there is approval and commitment from both parties, the nine months ended September 30, 2017, Gutsche reported netrights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is primarily derived from customer purchase orders, master sales agreements, and operating incomenegotiated contracts, all of $37.2 millionwhich represent contracts with customers.

The Company next identifies the performance obligations in the contract. A performance obligation is a promise to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue standard and $2.1 million, respectively. Operating incometherefore determines when and how revenue is recognized. The Company determines the performance obligations at contract inception based on the goods that are promised in a contract with a customer. Typical performance obligations include automotive parts, automotive tooling, rolled good media and filter bags.

In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost of sales upon the sale of inventoryat completion is complex, subject to many variables and $0.1 million of restructuring expenses.requires significant judgment.

On July 7, 2016, the Company completed an acquisitionThe selection of the nonwovenmethod to measure progress towards completion requires judgment and coating materials businesses primarily operating under Texel from ADS, a Canadianis based corporation. The Texel operations manufacture nonwoven needle punch materials and predominantly serveon the geosynthetic, liquid filtration, and other industrial markets.nature of the products to be provided. The Company acquired one hundred percentgenerally uses the cost-to-cost measure of Texelprogress for $102.7 million in cash, including a post-closing working capital adjustment. The purchase price was financed with a combinationcontracts because it best depicts the transfer of cashcontrol to the customer which occurs as costs are incurred on hand and $85.0 millioncontracts. Under the cost-to-cost measure of borrowings fromprogress, the Company’s amended $175 million credit facility. As partextent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the acquisition, the Company acquired a fifty percent interest in a joint venture, Afitex Texel Geosynthetiques, Inc., with a fair value of $0.6 million. The joint venture is accounted for under the equity method of accounting. The operating results of the Texel businessperformance obligation. Revenues are reported within the Technical Nonwovens segment.recorded proportionally as costs are incurred.

For tooling revenue recognized over time, the quarter ended September 30, 2017, Texel reportedCompany makes significant judgments which includes, but not limited to, estimated costs to completion, costs incurred to date, and assesses risks related to changes in estimates of revenues and costs. In doing so, management must make assumptions regarding the work required to fulfill the performance obligations, which is dependent upon the execution by the Company's subcontractors, among other variables and contract requirements.

Changes in estimates for revenue recognized over time are recorded by the Company in the period they become known. Changes are recognized on a cumulative catch-up basis in net sales, costs of sales, and operating incomeincome. The cumulative catch up adjustment recognizes in the current period the cumulative effect of $26.5 millionchanges in estimates on current and $3.2 million, respectively. For the quarter ended September 30, 2016, Texel reported net sales and operating income of $23.2 million and $1.7 million, respectively. Operating income for the quarter ended September 30, 2016 included $1.6 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory.prior periods.

The cumulative effect of the changes made to the Company’s Condensed Consolidated Statement of Operations for the adoption of ASC 606 for the quarter and ninesix months ended SeptemberJune 30, 20172018 were as follows:

Included in work in process is gross tooling inventory of $17.0$7.7 million and $10.3$20.2 million at SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. Tooling inventory, net of progress billings, was $15.4 million and $9.4$18.5 million at September 30, 2017 and December 31, 2016, respectively.2017. Effective January 1, 2018 the Company adopted ASC 606, Revenue from Contracts from Customers, under the modified retrospective transition method. The adoption of ASC 606 resulted in the reclassification of progress billings to contract liabilities. See Note 2, Revenue from Contracts with Customers, for further discussion of contract liabilities.

 

Goodwill:

The Company tests its goodwill for impairment annually in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value may exceed its fair value.

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 included in “Other intangible assets, net” in the Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20172018 and December 31, 2016:2017:

On July 7, 2016, the Company amended its $100 million senior secured revolving credit facility (“Amended Credit Facility”) which increased the available borrowing from $100 million to $175 million, added a fourth lender and extended the maturity date to July 7, 2021. The Amended Credit Facility is secured by substantially all of the assets of the Company. Under the terms of the Amended Credit Facility, the lenders are providing a $175 million revolving credit facility to the Company, under which the lenders may make revolving loans and issue letters of credit to or for the benefit of the Company and its subsidiaries. The Company may request the Amended Credit Facility be increased by an aggregate amount not to exceed $50 million through an accordion feature, subject to specified conditions set forth in the Amended Credit Facility.

 

In April 2017, the Company entered into a three-year interest rate swap agreement transacted with a bank which converts the interest on the first notional $60.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Facility from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduces quarterly by $5.0 million through March 31, 2020. The Company is accounting for the interest rate swap agreement as a cash flow hedge. Effectiveness of this derivative agreement is assessed quarterly by ensuring that the critical terms of the swap continue to match the critical terms of the hedged debt.

 

The carrying value of the Company’s $175 million Amended Credit Facility approximates fair value given the variable rate nature of the debt. The fair values of the Company’s long-term debt are determined using discounted cash flows based upon the Company’s estimated current interest cost for similar type borrowings or current market value, which falls under Level 2 of the fair value hierarchy. The carrying values of the long-term debt approximate fair market value.

 

The weighted average interest rate on long-term debt was 2.1%2.8% for the ninesix months ended SeptemberJune 30, 20172018 and 1.4%2.2% for the year ended December 31, 2016.2017.

The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program. The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and Europe, which impact interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company may enterenters into interest rate swap agreements to manage interest rate risk. These instruments are designated as cash flow hedges and are recorded at fair value using Level 2 observable market inputs.

Derivative instruments are recognized as either assets or liabilities on the balance sheet in either current or non-current other assets or other accrued liabilities or other long-term liabilities depending upon maturity and commitment. 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 or to manage commodity exposures.purposes.

 

In April 2017, the Company entered into a three-year interest rate swap agreement transacted with a bank which converts the interest on the first notional $60.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit

The following table sets forth the fair value amounts of derivative instruments held by the Company:

The following table sets forth the income (loss), recorded in accumulated other comprehensive income (loss), net of tax, for the quarters and ninesix months ended SeptemberJune 30, 20172018 and 20162017 for derivatives held by the Company and designated as hedging instruments:

As of SeptemberJune 30, 2017,2018, the Company’s equity compensation plans consisted of the 2003 Stock Incentive Compensation Plan (the “2003 Plan”) and the 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, approved by shareholders on April 27, 2012, authorizes 1.75 million shares of common stock for awards. The 2012 Plan also authorizes an additional 1.2 million shares of common stock to the extent awards granted under prior stock plans that were outstanding as of April 27, 2012 are forfeited. The 2012 Plan provides for the following types of awards: options, restricted stock, restricted stock units and other stock-based awards.

The Company incurred equity compensation expense of $1.0$1.4 million and $1.1 million for each of the quarters ended SeptemberJune 30, 2018 and June 30, 2017, respectively, and September 30, 2016, and $3.2$2.6 million and $3.1$2.3 million for the ninesix months ended SeptemberJune 30, 20172018 and SeptemberJune 30, 2016,2017, respectively, for the Plans, including restricted stock awards. No equity compensation costs were capitalized as part of inventory.

The following table is a summary of outstanding and exercisable options as of SeptemberJune 30, 2017:2018:

 

There were no stock options granted or exercised during the quarter ended June 30, 2018. There were 11,180 stock options granted and 6,17027,041 stock options exercised during the quarter ended September 30, 2017 and no stock options granted and 34,634 stock options exercised during the ninesix months ended SeptemberJune 30, 2017.2018. The amount of cash received from the exercise of stock options was $0.1$0.7 million during the quarter ended September 30, 2017 and $0.4 million during the ninesix months ended SeptemberJune 30, 2017.2018. The intrinsic value of stock options exercised was $0.2$0.7 million with a tax benefit of $0.1 million during the quarter ended September 30, 2017 and the intrinsic value of stock options exercised was $1.4 million with a tax benefit of $0.4 million during the ninesix months ended SeptemberJune 30, 2017.2018.

There were no stock options granted and 18,86316,300 stock options exercised during the quarter ended SeptemberJune 30, 20162017 and 18,300no stock options granted and 46,50228,464 stock options exercised during the ninesix months ended SeptemberJune 30, 2016.2017. The amount of cash received from the exercise of stock options was $0.2 million during the quarter ended SeptemberJune 30, 20162017 and $0.6$0.3 million during the ninesix months ended SeptemberJune 30, 2016.2017. The intrinsic value of stock options exercised was $0.7 million with a tax benefit of $0.2$0.1 million during the quarter ended SeptemberJune 30, 20162017 and the intrinsic value of stock options exercised was $1.3$1.2 million with a tax benefit of $0.3 million during the ninesix months ended SeptemberJune 30, 2016.2017.

At SeptemberJune 30, 2017,2018, the total unrecognized compensation cost related to non-vested stock option awards was approximately $1.8$2.9 million, with a weighted average expected amortization period of 2.62.8 years.

Restricted stock includes both performance-based and time-based awards. There were no time-based restricted stock shares granted during the quarter ended June 30, 2018 and nine8,106 time-based restricted stock shares granted during the six months ended June 30, 2018. There were no performance-based restricted shares granted during the quarter ended June 30, 2018 and 15,190 performance-based restricted shares granted during the six months ended June 30, 2018. There were no performance-based restricted shares that vested during the quarter ended June 30, 2018 and 48,035 performance-based restricted shares that vested during six months ended June 30, 2018, in accordance with plan provisions. There were no time-based restricted shares that vested during the quarter ended June 30, 2018 and 5,164 time-based restricted shares that vested during six months ended June 30, 2018.

There were no time-based restricted stock shares granted during the quarter and six month period ended SeptemberJune 30, 2017. There were no performance-based restricted shares granted during the quarter ended SeptemberJune 30, 2017 and 18,100 performance-based restricted shares granted for the nine months ended September 30, 2017. There were no performance-based restricted shares that vested during the quarter ended September 30, 2017 and 108,600 performance-based restricted shares that vested during the nine months ended September 30, 2017 in accordance with plan provisions. There were 6,000 time-based restricted shares that vested during the quarter ended September 30, 2017 and 15,288 time-based restricted shares that vested during the nine months ended September 30, 2017.

At SeptemberJune 30, 2017,2018, there were 187,620187,902 unvested restricted stock awards with total unrecognized compensation cost related to these awards of $3.7$4.8 million with a weighted average expected amortization period of 1.82.0 years. Compensation expense for performance based awards is recorded based on the service period and management’s assessment of the probability of achieving the performance goals.

During the ninesix months ended SeptemberJune 30, 2017,2018, the Company purchased 44,35218,561 shares of common stock valued at $2.6$0.8 million, through withholding, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, in which the Company withholds that number of shares having fair value equal to each recipient’s minimum tax withholding due.

 

The Company’s effective tax rate was 24.2%13.7% and 29.7%28.7% for the quarters ended SeptemberJune 30, 2018 and 2017, respectively, and 2016,15% and 24.0% and 31.5%23.9% for the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, respectively. The difference in the Company’s effective tax rate for the quarter ended September 30, 2017 compared to the quarter ended September 30, 2016 was primarily related to a net tax benefit of $1.4 million from the completion of a tax audit in the third quarter of 2017, partially offset by $0.4 million of tax expense related to a repatriation of foreign cash back into the United States. The difference in the Company's effective tax rate for the ninequarter ended June 30, 2018 compared to June 30, 2017 was due to the reduction of the U.S. corporate tax rate from 35% to 21% under the Tax Reform Act, tax benefits of $0.4 million related to additional tax deductible pension contributions and the geographical mix of earnings. The difference in the Company's effective tax rate for the six months ended SeptemberJune 30, 20172018 compared to the nine months ended SeptemberJune 30, 20162017 was primarily related to the reduction of the U.S. corporate tax benefitsrate from stock compensation of $1.7 million for35% to 21% under the nine months ended September 30, 2017 compared to $0.4 million forTax Reform act and the nine months ended September 30, 2016, the net tax benefit of $1.4 million in the third quarter of 2017 related to the completion of a tax audit and a more favorablegeographical mix of income in lower taxed jurisdictions during the nine months ended September 30, 2017.earnings.

The Company’s effective tax rates in future periods could be affected by earnings being higher or lower in countries where tax rates differ from the United States federal tax rate, the relative impact of permanent tax adjustments on higher or lower earnings from domestic operations, changes in net deferred tax asset valuation allowances, stock vesting, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of tax projects and audits.

For the quarters and ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, basic earnings per share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted shares are excluded from this calculation but are included in the diluted earnings per share calculation using the treasury stock method as long as their effect is not antidilutive.

The following table provides a reconciliation of weighted-average shares used to determine basic and diluted earnings per share:

 

For each of the quarters ended SeptemberJune 30, 20172018 and 2016,2017, stock options for 162,830 shares and 38,280 shares of Common Stock were not considered in computing diluted earnings per common share because they were antidilutive.

For each of the six months ended June 30, 2018 and 91,9002017, stock options for 149,940 shares and 38,280 shares of Common Stock were not considered in computing diluted earnings per common share because they were antidilutive.

As of SeptemberJune 30, 2017,2018, the Company’s reportable segments are Performance Materials, Technical Nonwovens, Thermal/and Thermal Acoustical Metals, and Thermal/Acoustical Fibers.Solutions.

Prior period segment amounts throughout the balanceNotes to the Condensed Consolidated Financial Statements have been recast to reflect the results of the year these two segments will continue to operate independently asnew segment structure. The recast of historical business segment information had no impact on the Company defines the future global structure and strategies of the combined businesses and expects to commence the reporting of the two businesses as a single consolidated operating segment effective January 1, 2018.financial results.

The Performance Materials segment includes filtration media solutions primarily for air, fluid power, and industrial applications (“Filtration”), thermal insulation solutions for building products, appliances, and energy and industrial markets (“Thermal Insulation”) and air and liquid life science applications (“Life Sciences Filtration”). Filtration products include LydAir® MG (Micro-Glass) Air Filtration Media, LydAir® MB (Melt Blown) Air Filtration Media, LydAir® SC (Synthetic Composite) Air Filtration Media, and Arioso™ Membrane Composite Media. These products constitute the critical media component of clean-air systems for applications in clean-space, commercial, industrial and residential HVAC, power generation, and industrial processes. Lydall has leveraged its extensive technical expertise and applications knowledge into a suite of media products covering the vast liquid filtration landscape across the engine and industrial fields. The LyPore® Liquid Filtration Media series address a variety of application needs in fluid power including hydraulic filters, air-water and air-oil coalescing, industrial fluid processes and diesel fuel filtration.

Thermal Insulation products are high performance nonwoven veils, papers, mats and specialty composites for the building products, appliance, and energy and industrial markets. The Manniglas® Thermal Insulation brand is diverse in its product application ranging from high temperature seals and gaskets in ovens and ranges to specialty veils for HVAC and cavity wall insulation. The appLY® Mat Needled Glass Mats have been developed to expandLytherm® Insulation Media product brand services Lydall’s high temperature technology portfolio, for broad application into the appliance market and supplements the Lytherm® Insulation Media product brand, traditionally utilized in the industrial market for kilns and furnaces used in metal processing. Lydall’s Cryotherm® Super-Insulating Media, CRS-Wrap®

Super-Insulating Media and Cryo-Lite™ Cryogenic Insulation products are industry standards for state-of-the-art cryogenic insulation designs used by manufacturers of cryogenic equipment for liquid gas storage, piping, and transportation.

Life Sciences Filtration is comprised of products which have been designed to meet the stringent requirements of critical applications including biopharmaceutical pre-filtration and clarification, lateral flow diagnostic and analytical testing, respiratory protection, potable water filtration and high purity process filtration such as that found in food and beverage and medical applications. Lydall also offers ultra-high molecular weight polyethylene membranes under the Solupor® trade name. These specialty microporous membranes are utilized in various markets and applications including air and liquid filtration and transdermal drug delivery. Solupor® membranes incorporate a unique combination of high mechanical strength, chemical inertness, gamma stability and very high porosity making them ideal for many applications.

The Technical Nonwovens segment primarily produces needle punch nonwoven solutions for myriad industries and applications. Products are manufactured and sold globally under the leading brands of Lydall Industrial Filtration, Southern Felt, Gutsche, and Texel. Industrial Filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications. Nonwoven filter media is the most effective solution to satisfy increasing emission control regulations in a wide range of industries, including power, cement, steel, asphalt, incineration, mining, food, and pharmaceutical. Advanced Materials products include nonwoven rolled-good media used in commercial applications and predominantly serves the

Technical Nonwovens segment products include air and liquid filtration media sold under the brand names Fiberlox® high performance filtration felts, Checkstatic™ conductive filtration felts, Microfelt® high efficiency filtration felts, Pleatlox® pleatable filtration felts, Ultratech™ PTFE filtration felts, Powertech® and Powerlox® power generation filtration felts, Microcap® high efficiency liquid filtration felts, Duotech membrane composite filtration felts, along with our porotex® family of high temperature filtration felts including microvel® and optivel® products. Technical Nonwovens Advanced Materials products are sold under the brand names Thermofit® thermo-formable products, Ecoduo® recycled content materials, Duotex® floor protection products, and Versaflex® composite molding materials. Technical Nonwovens also offers extensive finishing and coating capabilities which provide custom engineered properties tailored to meet the most demanding applications. The business leverages a wide range of fiber types and extensive technical capabilities to provide products that meet our customers’ needs across a variety of applications providing both high performance and durability.

The Thermal/Thermal Acoustical MetalsSolutions segment offers a full range of innovative engineered products tailored for the transportation sectorand industrial sectors to thermally shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of powertrainnoise, vibration and road noise. Lydallharshness (NVH). Within the transportation sector, Lydall’s products are found in the interior (dash insulators, cabin flooring), underbody (tunnel,(wheel well, aerodynamic belly pan, fuel tank, rear muffler,exhaust, tunnel, spare tire) and underhood (outerunder hood (engine compartment, outer dash, powertrain, catalytic converter, turbo charger, manifolds) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

Thermal/Thermal Acoustical MetalsSolutions segment products are formed on production lines capableoffer thermal and acoustical insulating solutions comprised of organic and inorganic fiber composites that provide weight reduction, superior noise suppression and increased durability over conventional designs, as well as products that efficiently combiningcombine multiple layers of metal and thermal - acoustical insulation media to provide an engineered thermal and acoustical shielding solution for an array of application areas in the global automotiveareas. Lydall’s dBCore® is a lightweight acoustical composite that emphasizes absorption principles over heavy-mass type systems. Lydall’s dBLyte® is a high-performance acoustical barrier with sound absorption and truck markets. Theblocking properties and can be used throughout a vehicle’s interior to minimize intrusive noise from an engine compartment and road. Lydall’s ZeroClearance® is an innovative thermal solution that utilizes an adhesive backing for attachment and is used to protect vehicle components from excessive heat. Lydall’s flux® product family in Thermal/Acoustical Metals includes several patented or IP-rich products that address applications which include: Direct Exhaust Mount heat shields, which are assembled to high temperature components like catalytic converters, turbochargers or exhaust manifolds using aluminized and stainless steel and high performance and high temperature heat insulating materials; Powertrain heat shields that absorb noise at the source and do not contribute to the engine's noise budget; and durable, thermally robust solutions for temperature sensitive plastic components such as fuel tanks that are in proximity to high temperature heat sources.