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, Inc. and its subsidiaries.

CAUTIONARY NOTE CONCERNING 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:

•The impact of the coronavirus pandemic ("COVID-19") on the Company's businesses;

•Overall economic and business conditions and the effects on the Company’s markets;

•Ability to meet financial covenants in the Company's credit agreement;

•Outlook for the fourth quarter and full year ~~2019;~~2020;

•Ability to improve operational ~~effectiveness in the Thermal Acoustical Solutions segment;~~effectiveness;

•Expected vehicle production in the North American, European or Asian markets;

•Growth opportunities in markets served by the Company;

~~Integration and financial performance of the Interface Performance Materials business, which was acquired in the third quarter of 2018;~~

•Expected costs and future savings associated with restructuring, reduction-in-force, 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;

~~Ability to meet financial covenants in the Company's amended revolving credit facility;~~

•Future impact of the variability of interest rates and foreign currency exchange ~~rates;~~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; 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,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; ~~challenges encountered in the integration and financial performance of the acquired Interface Performance Materials business;~~ 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 and successful execution of recently announced CEO transition;~~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~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LYDALL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share ~~Data)~~Amounts)


	Quarter Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018				2020		2019		2020		2019
	(Unaudited)							(Unaudited)						(Unaudited)
Net sales	$	205,274		$	197,886		Net sales	$	207,085	$	205,274	$	553,772	$	644,110
Cost of sales	168,918			162,747			Cost of sales	169,155		168,918		448,856		520,423
Gross profit	36,356			35,139			Gross profit	37,930		36,356		104,916		123,687
Selling, product development and administrative expenses	28,909			25,406			Selling, product development and administrative expenses	32,227		28,909		95,418		94,011
Operating income	7,447			9,733
Pension plan settlement expense	186			—
Impairment of goodwill and other long-lived assets							Impairment of goodwill and other long-lived assets	0		0		61,109		0
Restructuring expenses							Restructuring expenses	14,984		0		14,984		0
Operating (loss) income							Operating (loss) income	(9,281)		7,447		(66,595)		29,676

Employee benefit plans settlement expenses							Employee benefit plans settlement expenses	0		186		385		25,701
Interest expense	3,666			1,505			Interest expense	4,537		3,666		11,870		11,025
Other income, net	(885		)	(40		)
Income before income taxes	4,480			8,268
Income tax expense	1,574			2,076
Other expense (income), net							Other expense (income), net	276		(885)		106		(1,359)
(Loss) income before income taxes							(Loss) income before income taxes	(14,094)		4,480		(78,956)		(5,691)
Income tax (benefit) expense							Income tax (benefit) expense	(2,334)		1,574		(4,944)		(5,519)
Income from equity method investment	(98		)	(64		)	Income from equity method investment	(50)		(98)		(24)		(120)
Net income	$	3,004		$	6,256
Earnings per share:
Net (loss) income							Net (loss) income	$	(11,710)	$	3,004	$	(73,988)	$	(52)
(Loss) earnings per share:							(Loss) earnings per share:
Basic	$	0.17		$	0.36		Basic	$	(0.67)	$	0.17	$	(4.26)	$	0.00
Diluted	$	0.17		$	0.36		Diluted	$	(0.67)	$	0.17	$	(4.26)	$	0.00
Weighted average number of common shares outstanding:							Weighted average number of common shares outstanding:
Basic	17,270			17,216			Basic	17,384		17,270		17,364		17,264
Diluted	17,330			17,349			Diluted	17,384		17,330		17,364		17,264

See accompanying Notes to Condensed Consolidated Financial Statements.

~~LYDALL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(In Thousands Except Per Share Data)~~

Nine Months Ended
September 30,
2019 2018
(Unaudited)
Net sales $ 644,110
$ 575,959
Cost of sales 520,423
465,186
Gross profit 123,687
110,773
Selling, product development and administrative expenses 94,011
74,755
Operating income 29,676
36,018
Pension plan settlement expense 25,701
—
Interest expense 11,025
2,617
Other income, net (1,359 ) (93 )
(Loss) income before income taxes (5,691 ) 33,494
Income tax (benefit) expense (5,519 ) 5,854
Income from equity method investment (120 ) (120 )
Net (loss) income $ (52 ) $ 27,760
Earnings per share:
Basic $ 0.00
$ 1.61
Diluted $ 0.00
$ 1.60
Weighted average number of common shares outstanding:
Basic 17,264
17,189
Diluted 17,264
17,339

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

LYDALL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In Thousands)

Quarter Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(Unaudited) (Unaudited)
Net income (loss) $ 3,004
$ 6,256
$ (52 ) $ 27,760
Other comprehensive loss:
Foreign currency translation adjustments (8,726 ) (658 ) (6,396 ) (9,262 )
Pension liability adjustment, net of tax 21
198
379
595
Unrealized (loss) gain on hedging activities, net of tax (148 ) 14
(2,174 ) 89
Comprehensive (loss) income $ (5,849 ) $ 5,810
$ (8,243 ) $ 19,182


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)
Net (loss) income	$	(11,710)	$	3,004	$	(73,988)	$	(52)
Other comprehensive income (loss):
Foreign currency translation	8,245		(8,726)		3,434		(6,396)
Pension and other postretirement benefit plans, net of tax	(49)		21		282		19,395
Unrealized gain/(loss) on derivative instruments, net of tax	(1,963)		(148)		(2,202)		(2,174)

Comprehensive (loss) income	$	(5,477)	$	(5,849)	$	(72,474)	$	10,773

See accompanying Notes to Condensed Consolidated Financial Statements.

LYDALL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)


	September 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	122,043	$	51,331
Accounts receivable, net of allowance for doubtful accounts of $2,465 and $1,842, respectively	113,258		107,786
Contract assets	27,186		28,245
Inventories	71,167		80,544
Taxes receivable	6,636		3,427
Prepaid expenses	6,117		3,814
Other current assets	8,516		8,450
Total current assets	354,923		283,597
Property, plant and equipment, at cost	491,291		487,371
Accumulated depreciation	(286,713)		(265,729)
Property, plant and equipment, net	204,578		221,642
Operating lease right-of-use assets	21,522		23,116
Goodwill	85,385		133,912
Other intangible assets, net	99,445		115,577
Other assets, net	7,785		8,093
Total assets	$	773,638	$	785,937
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	9,844	$	9,928

Accounts payable	101,785		73,426
Accrued payroll and other compensation	24,806		17,198
Accrued taxes	10,125		5,638

Other accrued liabilities	39,214		23,668
Total current liabilities	185,774		129,858
Long-term debt	273,195		262,713
Long-term operating lease liabilities	17,369		18,424
Deferred tax liabilities	27,016		34,561
Benefit plan liabilities	18,770		18,957
Other long-term liabilities	3,201		3,004

Commitments and Contingencies (Note 16)
Stockholders' equity:
Preferred stock	0		0
Common stock	255		253
Capital in excess of par value	96,536		94,140
Retained earnings	266,641		340,629
Accumulated other comprehensive loss	(24,465)		(25,979)
Treasury stock, at cost	(90,654)		(90,623)
Total stockholders’ equity	248,313		318,420
Total liabilities and stockholders’ equity	$	773,638	$	785,937

September 30,
2019 December 31,
2018
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 48,919
$ 49,237
Accounts receivable, less allowances (2019 - $1,850; 2018 - $1,440) 133,821
144,938
Contract assets 26,804
23,040
Inventories 88,189
84,465
Taxes receivable 2,354
2,912
Prepaid expenses 4,987
4,707
Other current assets 7,743
7,779
Total current assets 312,817
317,078
Property, plant and equipment, at cost 475,395
458,075
Accumulated depreciation (258,733 ) (244,706 )
Net, property, plant and equipment 216,662
213,369
Operating lease right-of-use assets 24,148
—
Goodwill 195,613
196,963
Other intangible assets, net 120,644
136,604
Other assets, net 9,003
8,672
Total assets $ 878,887
$ 872,686
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt $ 9,981
$ 10,172
Accounts payable 84,506
73,265
Accrued payroll and other compensation 17,605
16,621
Deferred revenue 2,630
6,990
Other accrued liabilities 26,072
14,298
Total current liabilities 140,794
121,346
Long-term debt 276,689
314,641
Long-term operating lease liabilities 19,241
—
Deferred tax liabilities 36,125
39,265
Benefit plan liabilities 19,827
22,795
Other long-term liabilities 4,540
5,364

Commitments and Contingencies (Note 16)

Stockholders’ equity:
Preferred stock —
—
Common stock 252
253
Capital in excess of par value 92,720
90,851
Retained earnings 411,090
411,325
Accumulated other comprehensive loss (31,860 ) (42,685 )
Treasury stock, at cost (90,531 ) (90,469 )
Total stockholders’ equity 381,671
369,275
Total liabilities and stockholders’ equity $ 878,887
$ 872,686

See accompanying Notes to Condensed Consolidated Financial Statements.

LYDALL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	For the Nine Months Ended September 30,							For the Nine Months Ended September 30,
	2019			2018				2020		2019
	(Unaudited)							(Unaudited)
Cash flows from operating activities:							Cash flows from operating activities:
Net (loss) income	$	(52	)	$	27,760
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss							Net loss	$	(73,988)	$	(52)
Adjustments to reconcile net loss to net cash provided by operating activities:							Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on divestiture	(1,459		)	—			Gain on divestiture	0		(1,459)
Depreciation and amortization	36,682			22,442			Depreciation and amortization	42,349		36,682
Impairment of goodwill and long-lived assets							Impairment of goodwill and long-lived assets	61,109		0
Deferred income taxes	(12,849		)	340			Deferred income taxes	(6,911)		(12,849)
Pension plan settlement expense	25,701			—

Employee benefit plans settlement expenses							Employee benefit plans settlement expenses	385		25,701
Stock-based compensation	2,073			3,187			Stock-based compensation	2,508		2,073
Inventory step-up amortization	—			1,390
(Gain) loss on disposition of property, plant and equipment	(43		)	100
Other, net							Other, net	47		0
Loss (gain) on disposition of property, plant and equipment							Loss (gain) on disposition of property, plant and equipment	164		(43)
Income from equity method investment	(120		)	(120		)	Income from equity method investment	(24)		(120)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Accounts receivable	10,528			(25,407		)	Accounts receivable	(8,288)		10,528
Contract assets	(4,330		)	(5,443		)	Contract assets	1,269		(4,330)
Inventories	(6,206		)	(12,160		)	Inventories	10,117		(6,206)
Accounts payable	13,427			8,296			Accounts payable	28,391		13,427
Accrued payroll and other compensation	4,935			(1,406		)	Accrued payroll and other compensation	7,192		4,935

Accrued taxes	1,810			981			Accrued taxes	4,558		1,810

Other, net	(7,133		)	(5,462		)	Other, net	5,735		(7,133)
Net cash provided by operating activities	62,964			14,498			Net cash provided by operating activities	74,613		62,964
Cash flows from investing activities:							Cash flows from investing activities:
Capital expenditures	(27,236		)	(20,091		)	Capital expenditures	(20,540)		(27,236)
Collections of finance receivables							Collections of finance receivables	4,257		0
Proceeds from divestiture	2,298			—			Proceeds from divestiture	0		2,298
Proceeds from the sale of property, plant and equipment	297			282			Proceeds from the sale of property, plant and equipment	14		297
Business acquisitions, net of cash acquired	869			(269,972		)	Business acquisitions, net of cash acquired	0		869
Net cash used for investing activities	(23,772		)	(289,781		)	Net cash used for investing activities	(16,269)		(23,772)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from borrowings	—			338,000			Proceeds from borrowings	20,000		0
Debt repayments	(38,185		)	(76,794		)	Debt repayments	(9,500)		(38,185)
Debt issuance cost repayments	—			(538		)
Proceeds from servicing receivables							Proceeds from servicing receivables	207		0
Common stock issued	5			846			Common stock issued	32		5
Common stock repurchased	(50		)	(956		)	Common stock repurchased	(31)		(50)
Net cash (used for) provided by financing activities	(38,230		)	260,558
Net cash provided by (used for) financing activities							Net cash provided by (used for) financing activities	10,708		(38,230)
Effect of exchange rate changes on cash	(1,280		)	(1,076		)	Effect of exchange rate changes on cash	1,660		(1,280)
Decrease in cash and cash equivalents	(318		)	(15,801		)
Increase (decrease) in cash and cash equivalents							Increase (decrease) in cash and cash equivalents	70,712		(318)
Cash and cash equivalents at beginning of period	49,237			59,875			Cash and cash equivalents at beginning of period	51,331		49,237
Cash and cash equivalents at end of period	$	48,919		$	44,074		Cash and cash equivalents at end of period	$	122,043	$	48,919

Non-cash capital expenditures of ~~$3.8~~$4.8 million and ~~$6.1~~$3.8 million were included in accounts payable at September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

See accompanying Notes to Condensed Consolidated Financial Statements.

~~LYDALL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

In thousands of dollars and shares Common Stock Shares Common Stock Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Balance at June 30, 2019 25,235
253
92,297
408,086
(23,007 ) (90,524 ) 387,105
Net income

3,004

3,004
Other comprehensive loss, net of tax

(8,853 )
(8,853 )
Stock repurchased

(7 ) (7 )
Stock issued (canceled) under employee plans (12 ) (1 ) 6

5
Stock-based compensation expense

417

417
Balance at September 30, 2019 25,223
252
92,720
411,090
(31,860 ) (90,531 ) 381,671

In thousands of dollars and shares Common Stock Shares Common Stock Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Balance at December 31, 2018 25,254
253
90,851
411,325
(42,685 ) (90,469 ) 369,275
Net loss (52 ) (52 )
Other comprehensive income, net of tax 10,825
10,825
Stock repurchased (62 ) (62 )
Stock issued (canceled) under employee plans (43 ) (1 ) 6
5
Stock-based compensation expense 1,611
1,611
Stock issued to directors 12
252
252
Adoption of ASC 606 (1) (183 ) (183 )
Balance at September 30, 2019 25,223
252
92,720
411,090
(31,860 ) (90,531 ) 381,671

~~(1) During the quarter ended March 31, 2019, the Company recorded an adjustment reducing retained earnings and contract assets by $0.2 million to correct an error in the adoption of ASC 606.~~

~~LYDALL, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONT'D)~~

~~(Unaudited)~~

In thousands of dollars and shares Common Stock Shares Common Stock Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Balance at June 30, 2018 25,070
251
91,177
397,885
(28,280 ) (90,318 ) 370,715
Net income 6,256
6,256
Other comprehensive loss, net of tax (446 ) (446 )
Stock repurchased (133 ) (133 )
Stock issued under employee plans 31
181
181
Stock-based compensation expense 476
476
Stock issued to directors 3
—
Balance at September 30, 2018 25,104
251
91,834
404,141
(28,726 ) (90,451 ) 377,049

In thousands of dollars and shares Common Stock Shares Common Stock Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Stockholders' Equity
Balance at December 31, 2017 25,018
250
88,006
374,783
(20,148 ) (89,495 ) 353,396
Net Income 27,760
27,760
Other comprehensive loss, net of tax (8,578 ) (8,578 )
Stock repurchased (956 ) (956 )
Stock issued under employee plans 83
1
847
848
Stock-based compensation expense 2,847
2,847
Stock issued to directors 3
134
134
Adoption of ASC 606 1,598
1,598
Balance at September 30, 2018 25,104
251
91,834
404,141
(28,726 ) (90,451 ) 377,049

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

LYDALL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Financial Statement Presentation

Description of Business

Lydall, Inc. and its subsidiaries ~~(the~~(collectively, 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.

~~On August 31, 2018,~~Recent Developments: COVID-19

The impact of the novel strain of the coronavirus (“COVID-19”) has grown throughout the world, including in all global and regional markets served by the Company. During 2020, governmental authorities implemented numerous measures attempting to contain and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines, social distancing orders, shelter in place orders, and shutdowns of non-essential activities. The Company’s manufacturing facilities are located in areas that have been affected by the pandemic and shutdowns. Certain Company facilities in the United States, Europe, and Asia carried out shutdowns as a result of government-imposed restrictions or in conjunction with customer plant closures during the first quarter. The Company’s Asia facilities resumed operations in late February and other facilities ramped back up moderately, in line with customer demand, during the second quarter. In the third quarter, the Company ~~acquired an engineered sealing materials business operating under Interface~~has seen a stronger recovery in the Performance Materials ~~("Interface"), based in Lancaster, Pennsylvania for $267.0 million, net of cash acquired of $5.2 million. A globally-recognized leader~~segment, specifically in the ~~delivery of engineered sealing solutions, the Interface operations manufacture wet-laid gasket~~Filtration business, and ~~specialty materials primarily serving OEM and Tier I manufacturers~~ in the ~~agriculture, construction, earthmoving, industrial,~~Thermal Acoustical Solutions and ~~automotive segments. The acquired business is included~~Technical Nonwovens segments as discussed below.

Performance Materials (“PM”) Developments

Performance Materials sales were down 4.6% in the first half of 2020 from the comparative period in 2019 with incremental demand for specialty filtration media products more than offset by softer demand in the Sealing and Advanced Solutions business.PM’s Filtration sales continued to be very strong in the third quarter, up approximately 37.8% from the comparative period in the prior year, led by continued demand for fine fiber meltblown media used in personal protective equipment such as N95 respirators and surgical and medical masks. This demand is expected to moderate into the fourth quarter and expected to be down slightly on a sequential basis due to normal seasonality. Weaker demand in automotive, agricultural, and construction equipment markets resulted in a sales decline of approximately 1.7% in the Sealing and Advanced Solutions business in the third quarter of 2020 from the comparative period in 2019.

As a result of continued strong demand for filtration products, the Company approved investments to add 2 production lines in Performance Materials’ Rochester facility for the production of fine fiber meltblown filtration media used in the N95 respirator and surgical and medical masks.In addition, the Company has an agreement with the U.S. Government that provides partial funding of the investments in the production lines and funding for other technical resources.

In the third quarter of 2020, the Company announced an investment in a new fine fiber meltblown production line in its French facility to support the European Union face mask production and air filter production in the fight against COVID-19. The Company has a tentative agreement with the French Government to partially fund a portion of this investment.

In the third quarter, the Company initiated actions to close underperforming operating locations in Europe and discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America. These actions are part of the Company's ~~Performance~~ongoing assessment of underperforming assets and focus of resources on the significant investments to expand fine fiber meltblown production.These actions are expected to be completed in 2021 and projected to improve overall segment margin performance beginning in 2021. For additional information, see Note 12, "Restructuring".

Technical Nonwovens (“TNW”) Developments

During the first half of 2020, TNW experienced slowdowns in all geographic locations; predominantly in its facilities in South Carolina, the United Kingdom, and China. TNW’s Texel business in Canada, however, is a leading supplier of nonwoven products used in the production of healthcare applications including medical wipes, pads, and gowns. In response to the COVID-19 pandemic, the Company re-prioritized its manufacturing capabilities in North America and Europe to focus on serving customers for these products.

TNW’s sales in the first half of 2020 declined 18.8% from the comparable period in 2019 on generally slower demand in industrial end markets globally. In the third quarter of 2020, sales increased 12.5% on a sequential basis from the previous quarter but decreased 8.5% compared to the prior year quarter. Softer industrial end markets and lower sales into automotive applications resulted in the year-over-year sales declines in the quarter. Third quarter 2020 sales were down 10.0% in Industrial Filtration and 6.8% in Advanced Materials businesses from the same period in the previous year.

Thermal Acoustical Solutions (“TAS”) Developments

As previously disclosed, the Company ramped-down its TAS operations in North Carolina in the United States, as well as in France and Germany, coinciding with the shutdown of its major automotive customers' facilities in those regions beginning in late March 2020. During the first half of 2020, TAS sales decreased 35.4% from prior year, heavily impacted by customer shutdowns during March, April, and May. TAS began to ramp-up production in mid-second quarter of 2020 in North America and Europe as customers began to re-open their plants in these regions. During the third quarter 2020, part sales were down 0.8% from the previous year as TAS continued to see stronger demand in North America and Europe with sales increasing significantly compared to second quarter 2020.

As customer demand increased in North America, the Company began to experience an increase of COVID-19 cases, particularly at its North American operation, resulting in workforce shortages and other operational inefficiencies causing higher overtime, outsourcing costs, and logistics costs. In addition, recent recoveries in the manufacturing industries are causing higher commodity pricing in North America. In late third quarter 2020, as a result of labor shortages and operational inefficiencies directly related to COVID-19, TAS was unable to manufacture parts timely, resulting in customer production line stoppages. In early October 2020, due to the unforeseen and unforeseeable nature of the COVID-19 pandemic, which is out of the Company’s control, the Company invoked force majeure or commercial impracticability as legal excuse for delayed performance of contracts and defense to any claim that may be asserted by customers.A recent resurgence of cases in that same facility has caused the Company to expand its declaration of force majeure or commercial impracticability to other impacted customers. The Company has taken various actions to resolve these issues and expects TAS to continue to incur incremental costs in the fourth quarter of 2020.

Liquidity and Cash Preservation

The Company continued to experience working capital cash flow improvements through September 30, 2020, generating $74.6 million in cash from operating ~~segment.~~activities. As the Company continues to ramp-up production and invest in new fine fiber meltblown production equipment to meet customer demand, the Company expects cash outflows to support working capital requirements and capital projects.

During the first nine months of 2020, the Company took significant measures to reduce its overall cash expenditures, including the furlough or lay-off of hourly/salary plant workers and select furloughs of corporate and other salaried employees, deferred company contributions to its pension plans and matching contributions under the Company's 401(k) defined contribution plan, reduction of purchase obligations for raw materials, and reduction/delay of non-critical capital spending. As a result, the Company reduced its monthly cash expenditures. The Company may elect to continue certain actions if the COVID-19 pandemic continues.

In addition, the Company has taken advantage of specific benefits, including wage recovery provided by social programs in Europe and China and deferred domestic employer tax in the U.S. through the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. Through September 30, 2020, the Company benefited from $2.0 million in social cost reimbursements predominately in Europe and China. The Company may pursue, wherever it qualifies, governmental assistance and take advantage of governmental programs. The Company cannot guarantee, however, that it will qualify for, or receive, any additional assistance that it pursues.

As noted above, the Company reached an agreement with the U.S. Government in June 2020 that provides funding to cover a portion of the cost to install 2 new production lines for the production of meltblown material for N95 respirators, surgical and medical masks, and for other technical resources. The Company will receive monthly payments in accordance with the agreement to fund up to $13.5 million. Additionally, the Company has a tentative agreement with the French Government to fund up to 30% of the Company’s investment in its facility in France supporting the European Union face mask production and air filter production.

its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants. The Company was in compliance with those modified financial covenants as of and for the three-month period ended September 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

Through September of 2020, the Company generated $74.6 million of net cash provided by operations and had cash on hand of $122.0 million as of September 30, 2020. The Company continues to maintain the necessary capital to meet its debt obligations and interest payments. As previously disclosed in late 2019, the Company entered into arrangements with a banking institution to sell trade accounts receivable balances for selected customers. The Company continues to sell trade accounts receivable balances under these arrangements. See Transfer of Financial Assets in this Note 1, “Basis of Financial Statement Presentation” for more information.

The spread of COVID-19 and the measures taken to constrain the spread of the virus have had, and will continue to have, a material negative impact on the Company’s financial results, and such negative impact may continue well beyond the containment of such outbreak. There is inherent uncertainty in the assumptions the Company uses to estimate its future liquidity due to the impact of the COVID-19 outbreak. In addition, the magnitude, duration, and speed of the global pandemic is uncertain. Consequently, the impact on the Company's business, financial condition or longer-term financial or operational results is uncertain. However, management believes, based on the actions taken to reduce cash expenditures and the Company’s financial position, that net cash provided by operations combined with its cash and cash equivalents and borrowing availability under its Credit Facility will be sufficient to fund its current obligations, capital spending, debt service requirements, and working capital needs over at least the next twelve months.

Steps Taken to Protect Employees

The Company continues to monitor the global outbreak and spread of COVID-19 and take steps to mitigate the potential risks to the Company and its employees posed by the spread, related circumstances, and economic impacts of COVID-19. As the Company brings employees back to work, it 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 established the Lydall Emergency Preparedness Team (“LEPT”), implementing strict travel restrictions, enforcing rigorous hygiene protocols, increasing sanitization efforts at all facilities and implementing remote working arrangements for the majority of its employees who work outside the plants. The Company will continue its work to ensure it maintains a safe and healthy work environment and continue to allow remote working arrangements as long as necessary, where appropriate.

Basis of Presentation

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 Interface have been included in the Consolidated Statements of Operations beginning on the date of acquisition. The~~ year-end Condensed Consolidated Balance Sheet was derived from the audited financial statements for the year ended December 31, ~~2018,~~2019, but does not include all disclosures required by U.S. GAAP. ~~Management believes that~~In the opinion of management, the condensed consolidated financial information reflects 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 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 ~~included. For further information, refer~~reclassified to conform to current year presentation. The statements should be read in conjunction with 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, ~~2018.~~2019.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations, and financial condition, including sales, expenses, reserves and allowances, manufacturing, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including the result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. Actual results could differ from those estimates.

Recent Accounting Pronouncements Adopted

~~In July 2019,~~Effective January 1, 2020, the Company adopted the Financial Accounting Standards Board ("FASB") ~~issued~~ Accounting Standards Update ("ASU") No. 2019-07, “Codification Updates to SEC Sections — Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update)”2016-13, "Financial Instruments - Credit Losses (Topic 326). ~~ASU 2019-07 aligns the~~" The new standard amends guidance ~~in various SEC sections of the Codification with the requirements of certain SEC final rules. ASU 2019-07 was effective immediately. The adoption of this ASU did not have any impact~~ on ~~the Company's consolidated financial statements and disclosures.~~

Effective January 1, 2019, the Company adopted the FASB issued ASU No. 2016-02, "Leases (Topic 842)", along with several additional clarification ASU's issued during 2018, collectively, "New Lease Standard". The New Lease Standard requires entities that leasereporting credit losses for assets with lease terms of more than 12 months to recognize right-of-use assets and lease liabilities created by those leases on their balance sheets. This New Lease Standard also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The Company's adoption of the New Lease Standard was on a modified retrospective basis and did not have any impact on the Company's 2018 financial statements and disclosures. As part of the adoption of the New Lease Standard, the Company elected the package of practical expedients which allowed the Company to not re-assess 1) if any existing arrangements contained a lease, 2) the lease classification of any existing leases and 3) initial direct costs for any existing lease.held at amortized cost basis. The Company ~~also elected~~has determined the ~~practical expedient which allows use of hindsight in determining~~only financial assets subject to the ~~lease term for leases in existence at the date of adoption. Effective January 1, 2019, the Company reported lease right-of-use assets~~new standard are its trade receivables and lease liabilities on the Company's Condensed Consolidated Balance Sheets. Adoption of the New Lease Standard did not change the balances reported in the Company's 2019 Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Cash Flows, or Condensed Statements of Comprehensive Income. See Footnote 8 "Leases" for additional information required as part of the adoption of the New Lease Standard.

Effective January 1, 2019, the Company adopted the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Account for Hedging Activities". This ASU provides various improvements revolving around the financial reporting of hedging relationships that requires an entity to amend the presentation and disclosure of hedging activities

to better portray the economic results of an entity's risk management activities in its financial statements. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements and disclosures.

~~Effective January 1, 2019, the Company adopted the FASB issued ASU~~ No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". This ASU allows for reclassification of stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings, but does not require the reclassification. The Company elected not to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

Effective January 1, 2019, the Company adopted the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting". This ASU expands the guidance for stock-based compensation to include share-based payment transactions for acquiring goods and services from nonemployees. contract assets. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements and disclosures.

~~In June 2016,~~Effective January 1, 2020, the ~~FASB issued~~Company adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)". The new standard amends guidance on reporting credit losses for assets held at amortized cost basis. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The impact on the Company's consolidated financial statements and disclosures is not expected to be material.

~~In August 2018,~~ the FASB issued ASU 2018-13, ~~Fair~~"Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value ~~Measurement",~~Measurement," which adds, amends, and removes certain disclosure requirements related to fair value measurements. Among other changes, this standard requires certain additional disclosure surrounding Level 3 assets, including changes in unrealized gains or losses in other comprehensive income and certain inputs in those measurements. Please refer to Note 5, “Impairments of Goodwill and Other Long-Lived Assets”, for discussion of the inputs used in the quantitative impairment assessments for the three-month period ended March 31, 2020.

Effective January 1, 2020, the Company adopted FASB issued ASU2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract."The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and disclosures.

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. 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 notes no impact to the Company's consolidated financial statements and disclosures as of September 30, 2020.

Recent Accounting Pronouncements 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 ~~within those fiscal years,~~ beginning after December 15, ~~2019. Certain amended or eliminated disclosures~~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 related disclosures.

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 ~~standard may be adopted~~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 is effective for fiscal years and interim periods beginning after December 15, 2020 with early ~~while certain additional disclosure requirements in this standard can be adopted on its effective date. In addition, certain changes in the standard require retrospective~~ adoption ~~while other changes must be adopted prospectively.~~ permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

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 is effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU requires entities to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates. This ASU also requires entities to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. This ASU is effective for fiscal years beginning after December 15, 2020

with early adoption permitted. The Company is currently evaluating the ~~method and~~ impact the adoption of this ASU will have on its consolidated financial statements and disclosures.

~~In August 2018, the FASB issued ASU2018~~-~~15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of 2020. Early adoption is permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

Significant Accounting Policies

The Company’s significant accounting policies are detailed in Note 1, “Significant Accounting Policies” within Part IV, Item 15 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018. Significant~~2019.

Risks and Uncertainties

Worldwide economic cycles, political changes, and the COVID-19 pandemic affect the markets that the Company’s businesses serve and 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 and fluctuations in unemployment rates has caused economic instability and can have a negative impact on the Company’s results of operations, financial condition, and liquidity.

Transfers of Financial Assets

In December 2019, the Company entered into 2 arrangements with a banking institution to ~~these accounting policies as~~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 sale 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, at the earlier of customer payment or 150 days. In the three-month and nine-month periods ended September 30, 2020, under both programs, the Company sold $21.3 million and $64.3 million, respectively, in trade receivable balances, received $59.1 million in total cash under the programs, and incurred $0.2 million in fees. The Company expects to receive the remainder, net of fees, in the fourth quarter of 2020.

Condensed Consolidated Statements of Comprehensive Income

In connection with the preparation of its 2019 audited financial statements, the Company identified that in its previously filed unaudited interim financial statements for the three-month and six-month periods ended June 30, 2019 and the nine-month period ended September 30, 2019, the Company had incorrectly excluded, from its Condensed Consolidated Statements of Comprehensive Income, the impact to comprehensive income resulting from the settlement of its U.S. Lydall Pension Plan (see Note 11, "Employer Sponsored Benefit Plans"). As a result, unaudited comprehensive income for such periods was understated by approximately $19.0 million. This error did not have any impact on the Company’s corresponding previously filed Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of ~~adopting~~Operations or Condensed Consolidated Statements of Cash Flows. Management has concluded that such errors did not result in the ~~New Lease Standard are discussed within Note 8, “Leases”.~~previously issued unaudited financial statements being materially misstated. In connection with the filing of this Quarterly Report on Form 10-Q, the Company has revised the Condensed Consolidated Statements of Comprehensive Income for the nine-month period ended September 30, 2019 as follows:


	Nine Months Ended September 30, 2019
In thousands	As reported		As revised
Pension liability adjustment, net of tax	$	379	$	19,395
Comprehensive (loss) income	$	(8,243)	$	10,773

2. Revenue from Contracts with Customers

The Company accounts for revenue in accordance with ASC 606, ~~Revenue~~"Revenue from Contracts ~~from Customers. These revenues~~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 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 ~~deferred revenue~~Other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets.

Contract assets and liabilities consisted of the following:


In thousands	September 30, 2020		December 31, 2019		Dollar Change
Contract assets	$	27,186	$	28,245	$	(1,059)
Contract liabilities	$	3,414	$	1,441	$	1,973

In thousands September 30, 2019 December 31, 2018 Dollar Change
Contract assets $ 26,804
$ 23,040
$ 3,764
Contract liabilities $ 2,001
$ 4,537
$ (2,536 )

The ~~$3.8~~$1.1 million ~~increase~~decrease in ~~contract~~contact assets from December 31, ~~2018~~2019 to September 30, ~~2019~~2020 was primarily due to timing of billings to customers.

The ~~$2.5~~$2.0 million ~~decrease~~increase in contract liabilities from December 31, ~~2018~~2019 to September 30, ~~2019~~2020 was primarily due to ~~$4.5~~an increase in customer deposits, offset by $1.1 million of revenue recognized in the first nine months of ~~2019~~2020 related to contract liabilities at December 31, ~~2018, offset by an increase in customer deposits.~~2019.

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 ~~revenue~~revenues and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the ~~quarters~~three-month and ~~nine months~~nine-month periods ended September 30, ~~2019~~ ~~and~~2020 ~~2018~~and 2019 were as follows:

Quarter Ended September 30, 2019
In thousands Performance Materials Technical Nonwovens Thermal Acoustical Solutions Eliminations and Other Consolidated Net Sales

North America $ 42,693
$ 42,128
$ 61,315
$ (6,405 ) $ 139,731
Europe 15,203
16,544
22,208
(159 ) 53,796
Asia 2,104
5,240
4,403
—
11,747
Total Net Sales $ 60,000
$ 63,912
$ 87,926
$ (6,564 ) $ 205,274


	For the Three Months Ended September 30, 2020														For the Three Months Ended September 30, 2019
In thousands	North America		Europe		Asia		Total Net Sales		North America		Europe		Asia		Total Net Sales

Performance Materials	$	45,759	$	18,776	$	3,282	$	67,817	$	42,693	$	15,203	$	2,104	$	60,000
Technical Nonwovens	34,727		17,318		6,464		58,509		42,128		16,544		5,240		63,912
Thermal Acoustical Solutions	57,841		22,861		4,821		85,523		61,315		22,208		4,403		87,926
Eliminations and Other	(4,569)		(195)		0		(4,764)		(6,405)		(159)		0		(6,564)
Total Net Sales	$	133,758	$	58,760	$	14,567	$	207,085	$	139,731	$	53,796	$	11,747	$	205,274

Quarter Ended September 30, 2018
In thousands Performance Materials Technical Nonwovens Thermal Acoustical Solutions Eliminations and Other Consolidated Net Sales

North America $ 29,048
$ 44,092
$ 58,484
$ (4,891 ) $ 126,733
Europe 12,120
18,757
24,183
(225 ) 54,835
Asia 552
10,222
5,544
—
16,318
Total Net Sales $ 41,720
$ 73,071
$ 88,211
$ (5,116 ) $ 197,886

Nine Months Ended September 30, 2019
In thousands Performance Materials Technical Nonwovens Thermal Acoustical Solutions Eliminations and Other Consolidated Net Sales

North America $ 136,892
$ 121,984
$ 189,152
$ (19,139 ) $ 428,889
Europe 47,589
53,384
73,853
(540 ) 174,286
Asia 5,201
23,228
12,506
—
40,935
Total Net Sales $ 189,682
$ 198,596
$ 275,511
$ (19,679 ) $ 644,110

Nine Months Ended September 30, 2018
In thousands Performance Materials Technical Nonwovens Thermal Acoustical Solutions Eliminations and Other Consolidated Net Sales

North America $ 69,088
$ 128,788
$ 190,385
$ (19,249 ) $ 369,012
Europe 34,007
56,197
76,753
(580 ) 166,377
Asia 552
27,339
12,679
—
40,570
Total Net Sales $ 103,647
$ 212,324
$ 279,817
$ (19,829 ) $ 575,959


3.	~~Acquisitions and Divestiture~~

~~Acquisitions~~

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 and engineered materials and expands the Company's end markets into attractive adjacencies. The Company acquired 100 percent of Interface for an initial price of $268.4 million, net of cash acquired of $5.2 million. In the second quarter of 2019, the Company finalized the post closing adjustment resulting in a decrease in purchase price of $1.4 million 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.

For the quarter ended September 30, 2019, Interface reported net sales and operating loss of $30.4 million and $1.3 million, respectively. Interface's operating loss for the quarter ended September 30, 2019 included $4.0 million of intangible assets amortization expense in selling, product development and administrative expenses. For the quarter ended September 30, 2018, the results of operations of Interface were included in the Company's results from the date of the acquisition and Interface reported net sales and operating loss of $11.8 million and $0.3 million, respectively. Interface's operating loss for the quarter ended September 30, 2018 included $1.4 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory and $0.9 million of intangible amortization expense in selling, product development and administrative expenses.

For the nine months ended September 30, 2019, Interface reported net sales and operating loss of $96.0 million and $2.1 million, respectively. Interface's operating loss for the nine months ended September 30, 2019 included $12.1 million of intangible assets amortization expense in selling, product development and administrative expenses. For the nine months ended September 30, 2018, the results of operations of Interface were included in the Company's results from the date of the acquisition and Interface reported net sales and operating loss of $11.8 million and $0.3 million, respectively. Interface's operating loss for the nine months ended September 30, 2018 included $1.4 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory and $0.9 million of intangible amortization expense in selling, product development and administrative expenses.


	For the Nine Months Ended September 30, 2020														For the Nine Months Ended September 30, 2019
In thousands	North America		Europe		Asia		Total Net Sales		North America		Europe		Asia		Total Net Sales

Performance Materials	$	131,866	$	52,552	$	7,092	$	191,510	$	136,892	$	47,589	$	5,201	$	189,682
Technical Nonwovens	101,694		49,674		16,551		167,919		121,984		53,384		23,228		198,596
Thermal Acoustical Solutions	137,517		57,825		11,390		206,732		189,152		73,853		12,506		275,511
Eliminations and Other	(11,914)		(475)		0		(12,389)		(19,139)		(540)		0		(19,679)
Total Net Sales	$	359,163	$	159,576	$	35,033	$	553,772	$	428,889	$	174,286	$	40,935	$	644,110

~~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 5) 129,749
Other intangible assets (Note 5) 106,900
Other assets 308
   Total assets acquired, net of cash acquired $ 322,436

Current liabilities $ (11,319 )
Deferred tax liabilities (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 final purchase price allocation reflects post-closing adjustments pursuant to the terms of the Stock Purchase Agreement.~~

The following table reflects the unaudited actual results of the Company for the quarter and nine months ended September 30, 2019 and the pro forma operating results of the Company for the quarter and nine months ended September 30, 2018, 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.

Quarter Ended
September 30, Nine Months Ended
September 30,
(Actual) (Pro Forma) (Actual) (Pro Forma)
In thousands 2019 2018 2019 2018
Net sales $ 205,274
$ 220,937
$ 644,110
$ 678,418
Net income (loss) $ 3,004
$ 6,452
$ (52 ) $ 29,303

Earnings per share:
  Basic $ 0.17
$ 0.37
$ —
$ 1.70
  Diluted $ 0.17
$ 0.37
$ —
$ 1.69

Basic 17,270
17,216
17,264
17,189
Diluted 17,330
17,349
17,264
17,339

Included in net income during the quarter ended September 30, 2019 was $3.1 million of intangible assets amortization expense related to acquired Interface intangible assets and $2.5 million of interest expense primarily to finance the Interface acquisition.

Pro forma adjustments during the quarter ended September 30, 2018 increased net income by $7.8 million. Included in net income for the quarter ended September 30, 2018 was $3.0 million of intangible assets amortization expense and $1.1 million of interest expense associated with borrowings under the Company's Amended Credit Facility. Net income was adjusted to exclude items such as corporate strategic initiatives expenses, Interface management fee expenses and tax valuation allowance expenses.

Included in net income during the nine months ended September 30, 2019 was $9.2 million of intangible assets amortization expense related to acquired Interface intangible assets and $7.7 million of interest expense to finance the Interface acquisition.

Pro forma adjustments during the nine months ended September 30, 2018 increased net income by $6.1 million. Included in net income for the nine months ended September 30, 2018 was $9.1 million of intangible assets amortization expense and $4.8 million of interest expense associated with borrowings under the Company's Amended Credit Facility. Net income was adjusted to exclude items such as corporate strategic initiatives expenses, 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 $2.0 million to be made based on the achievement of certain future financial targets through 2022. PCC had a minimal impact on the Company's sales and operating income for the quarter ended September 30, 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 3 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 would not be 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.

4.3. Inventories

Inventories as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 were as follows:

In thousands September 30,
2019 December 31,
2018
Raw materials $ 43,279
$ 37,731
Work in process 17,308
18,296
Finished goods 27,602
28,438
Total inventories $ 88,189
$ 84,465


In thousands	September 30, 2020		December 31, 2019
Raw materials	$	31,442	$	36,322
Work in process	14,228		14,873
Finished goods	25,497		29,349


Total inventories	$	71,167	$	80,544

Included in work in process is ~~gross~~net tooling inventory of ~~$3.3~~$2.0 million and ~~$4.3~~$1.8 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

5.4. Goodwill and Other Intangible Assets

~~Goodwill:~~Goodwill

The Company ~~tests~~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 September 30, 2020. See Note 5, "Impairments of Goodwill and Other Long-Lived Assets", for discussion of the goodwill impairment recorded during the three-month period ended March 31, 2020.

The changes in the carrying amount of goodwill by segment as of and for the ~~nine months~~nine-month period ended September 30, ~~2019~~2020 were as follows:


In thousands	December 31, 2019		Currency translation adjustments		Impairment		September 30, 2020

Performance Materials	$	80,658	$	(22)	$	(48,671)	$	31,965
Technical Nonwovens	53,254		166		0		53,420
Total goodwill	$	133,912	$	144	$	(48,671)	$	85,385

In thousands December 31,
2018 Currency translation adjustments Reductions September 30,
2019

Performance Materials $ 144,626
$ (485 ) $ (662 ) $ 143,479
Technical Nonwovens 52,337
(203 ) —
52,134
Total goodwill $ 196,963
$ (688 ) $ (662 ) $ 195,613

Goodwill Impairment

~~Goodwill Associated with Acquisitions~~

~~The net~~During the three-month period ended March 31, 2020, the Company performed a goodwill ~~reduction of $0.7 million within~~impairment analysis in the Performance Materials ~~segment was due to~~and Technical Nonwovens reporting units and recorded a goodwill ~~reduction~~impairment charge of ~~$1.3~~$48.7 million ~~as a result of post-closing purchase price adjustments~~ in the ~~second and third quarters of 2019 related to the acquisition of~~

~~Interface~~ Performance Materials ~~on August 31, 2018, partially offset by acquisition activity in~~reporting unit. See Note 5, "Impairments of Goodwill and Other Long-Lived Assets", for further discussion of the ~~second quarter of 2019 resulting in a~~ goodwill ~~addition of $0.6 million.~~impairment.

Other Intangible ~~Assets:~~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 September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2020						December 31, 2019
In thousands	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Customer Relationships	$	141,784	$	(44,636)	$	142,400	$	(30,648)
Patents	791		(670)		759		(607)
Technology	2,500		(1,102)		2,500		(977)
Trade Names	7,322		(6,544)		7,293		(5,143)
License Agreements	629		(629)		610		(610)
Other	570		(570)		551		(551)
Total other intangible assets	$	153,596	$	(54,151)	$	154,113	$	(38,536)

September 30, 2019 December 31, 2018
In thousands Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Amortized intangible assets

Customer Relationships $ 141,537
$ (25,625 ) $ 141,455
$ (11,453 )
Patents 4,215
(3,731 ) 4,333
(3,816 )
Technology 2,500
(935 ) 2,500
(810 )
Trade Names 7,203
(4,520 ) 7,235
(2,840 )
License Agreements 598
(598 ) 619
(619 )
Other 539
(539 ) 561
(561 )
Total amortized intangible assets $ 156,592
$ (35,948 ) $ 156,703
$ (20,099 )



Item 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~OVERVIEW AND OUTLOOK~~Overview and Outlook

Business

Lydall, Inc. and its subsidiaries (collectively, 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. ~~Lydall~~The Company principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens and Thermal Acoustical Solutions, with sales globally. The Performance Materials ("PM") segment includes filtration media solutions primarily for air, fluid power, life science and industrial applications (“Filtration”), and gasket and sealing solutions, thermal insulation, energy storage, and other engineered products (“Sealing and Advanced Solutions”). The Technical Nonwovens ("TNW") segment consists of Industrial Filtration products that include nonwoven rolled-goods felt media and filter bags used primarily in industrial air and liquid filtration applications as well as Advanced Materials products that include nonwoven rolled-good media that is used in other commercial applications and predominantly serves the geosynthetics, automotive, industrial, and medical markets. Advanced Materials products also include automotive rolled-good material for use in the Thermal Acoustical Solutions segment manufacturing process. Nonwoven filter media is used to satisfy increasing emission control regulations in a wide range of industries, including power, cement, steel, asphalt, incineration, food, and pharmaceutical. The Thermal Acoustical Solutions ("TAS") segment offers innovative engineered products to assist in noise and heat abatement within the transportation and industrial sectors.

Recent Developments - COVID-19

The impact of the novel strain of the coronavirus (“COVID-19”) has grown throughout the world, including in all global and regional markets served by the Company. During 2020, governmental authorities implemented numerous measures attempting to contain and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines, social distancing orders, shelter in place orders and shutdowns of non-essential activities. The Company’s manufacturing facilities are located in areas that have been affected by the pandemic and shutdowns. Certain Company facilities in the United States, Europe and Asia carried out shutdowns as a result of government-imposed restrictions or in conjunction with customer plant closures during the first quarter. The Company’s Asia facilities resumed operations in late February and other facilities ramped back up moderately, in line with customer demand, during the second quarter. In the third quarter, the Company has seen a stronger recovery in its Performance Materials segment, specifically in its Filtration business, and in the Thermal Acoustical Solutions and Technical Nonwovens segments as discussed below.

Performance Materials (“PM”) Developments

As a result of continued strong demand for filtration products, the Company approved investments to add two production lines in Performance Materials’ Rochester facility for the production of fine fiber meltblown filtration media used in the N95 respirator and surgical and medical masks.In addition, the Company reached an agreement with the U.S. Government that provides partial funding of the investments in the production lines in addition to funding for other technical resources.

In the third quarter of 2020, the Company announced an investment in a new fine fiber meltblown production line in its French facility to support the European Union face mask production and air filter production in the fight against COVID-19. This investment is being partially funded by the French Government.

of resources on the significant investments to expand fine fiber meltblown production.These actions are expected to be completed in 2021 and projected to improve overall segment margin performance beginning in 2021. For additional information, see Note 12, "Restructuring".

Technical Nonwovens (“TNW”) Developments

Thermal Acoustical Solutions (“TAS”) Developments

Looking Forward

The continuation of the ramp-up of production is dependent on customer demand and no additional outbreaks of COVID-19 that could cause a major slowdown in demand impacting the Company’s ability to operate because of government mandates, employee illnesses or other related unforeseen events. The Company anticipates the global automotive industry will continue to stabilize in the fourth quarter, but fourth quarter volumes are expected to be lower than the comparative 2019 period as a result of the global economic slowdown caused by the COVID-19 pandemic. New vehicle sales are highly dependent on the strength of the consumer. If unemployment remains at higher levels, new vehicle sales could be significantly lower than historical and previously projected sales levels. The Company expects workforce shortages directly driven by COVID-19 to continue into the fourth quarter for the TAS segment. The Company also expects to face continued headwinds in PM’s sealing businesses but stronger demand for filtration products is expected to offset this decline. Additionally, the Company expects seasonally strong construction activity, which drives demand for geosynthetic products, to decline as winter approaches and continued softness in industrial end markets in its Technical Nonwovens segment in the fourth quarter of 2020.

Liquidity and Cash Preservation

The Company continued to experience working capital cash flow improvements through September 30, 2020 generating $74.6 million in cash from operating activities. As the Company continues to ramp up production and invest in new fine fiber meltblown production equipment to meet customer demand, the Company expects cash outflows to support working capital requirements and capital projects.

During the nine months of 2020, the Company took significant measures to reduce its overall cash expenditures, including the furlough or lay-off of hourly/salary plant workers and select furloughs of corporate and other salaried employees, deferred company contributions to its pension plans and matching contributions under the Company's 401(k) defined contribution plan, reduction of purchase obligations for raw materials and reduction/delay of non-critical capital spending. As a result, the Company reduced its monthly cash expenditures. The Company may elect to continue certain actions if the COVID-19 pandemic continues.

As noted above, the Company reached an agreement with the U.S. Government in June 2020 that provides funding to cover a portion of the cost to install two new production lines for the production of meltblown material for N95 respirator, surgical and medical masks and for other technical resources. The Company will receive monthly payments in accordance with the agreement to fund up to $13.5 million. Additionally, the Company has a tentative agreement with the French Government to fund up to 30% of the Company’s investment in its facility in France supporting the European Union face mask production and air filter production.

In addition to the significant measures taken to reduce and contain costs, the Company took actions in March 2020 to provide additional liquidity, primarily including a $20.0 million draw down on its amended credit facility.On May 11, 2020, the Company entered into an amended credit agreement (see Note 6, "Long-term Debt and Financing Arrangements" for the key amended terms and conditions) to modify certain financial maintenance covenants, at least one of which the Company expected to fail during the second quarter of 2020 as a result of the impact of COVID-19.On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants. The Company was in compliance with those modified financial covenants as of and for the three-month period ended September 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

Through September of 2020, the Company generated $74.6 million of net cash provided by operations and had cash on hand of $122.0 million as of September 30, 2020. The Company continues to maintain the necessary capital to meet its debt obligations and interest payments. As previously disclosed in late 2019, the Company entered into arrangements with a banking institution to sell trade accounts receivable balances for selected customers. The Company continues to sell trade accounts receivable balances under these arrangements. See Transfer of Financial Assets under Note 1, “Basis of Financial Statement Presentation” for more information.

The spread of COVID-19 and the measures taken to constrain the spread of the virus have had, and will continue to have, a material negative impact on the Company’s financial results, and such negative impact may continue well beyond the containment of such outbreak. There is inherent uncertainty in the assumptions the Company uses to estimate its future liquidity due to the impact of the COVID-19 outbreak. In addition, the magnitude, duration, and speed of the global pandemic is uncertain. Consequently, the impact on the Company's business, financial condition or longer-term financial or operational results is uncertain. However, management believes, based on the actions taken to reduce cash expenditures and the Company’s financial position, that net cash provided by operations combined with its cash and cash equivalents and borrowing availability under its Credit Facility will be sufficient to fund its current obligations, capital spending, debt service requirements and working capital needs over at least the next twelve months.

Steps Taken to Protect Employees

Third Quarter ~~2019~~2020 Highlights

Below are financial performance highlights ~~comparing Lydall’s quarter~~for the three-month period ended September 30, ~~2019 (“Q3 2019”) results~~2020 compared to ~~its quarter~~the three-month period ended September 30, ~~2018 (“Q3 2018”) results:~~2019:

•Net sales were $207.1 million in the third quarter of 2020, compared to $205.3 million in Q3the third quarter of 2019, ~~compared to $197.9 million in Q3 2018,~~ an increase of ~~$7.4~~$1.8 million, or ~~3.7%.~~0.9%, driven by $7.8 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, partially offset by lower sales in the Company's Technical Nonwovens and Thermal Acoustical Solutions segments. The change in consolidated net sales is summarized in the following table:


Components (in thousands)	Change in Net Sales		Percent Change

Parts volume and pricing change	$	648	0.3	%
Change in tooling sales	(1,827)		(0.9)	%
Foreign currency translation	2,990		1.5	%
Total	$	1,811	0.9	%

Components (in thousands)
Change in Net Sales Percent Change
   Acquisitions and divestitures $ 17,526
8.9 %
   Parts volume and pricing change (4,343 ) (2.2 )%
   Change in tooling sales (2,720 ) (1.4 )%
   Foreign currency translation (3,075 ) (1.6 )%
      Total $ 7,388
3.7 %

•Gross margin ~~was~~increased to 18.3% for the three-month period ended September 30, 2020 as compared to 17.7% in the ~~third quarter of 2019, compared to 17.8%~~corresponding period in ~~the third quarter of 2018.~~2019. The PMPerformance Materials segment favorably impacted consolidated gross margin by approximately ~~210~~330 basis points, primarily due to favorable product mix, driven by increased demand for face mask media in response to the COVID-19 pandemic and higher ~~gross margin sealing product sales.~~liquid filtration sales, combined with favorable raw material commodity and production costs, and lower overhead costs. Gross margin from the ~~TAS~~Thermal Acoustical Solutions segment ~~lowered~~adversely impacted consolidated gross margin by approximately ~~180~~160 basis points ~~primarily~~ due to ~~increased~~ labor ~~costs, coupled with increased outsourcing~~shortages and ~~expedited~~operating inefficiencies directly related to an increase in COVID-19 cases in its North American facility, resulting in higher freight ~~expenses.~~and temporary labor expenses in order to meet larger OEM customers' demands. The ~~TNW~~Technical Nonwovens segment ~~reported improved gross margin but, based on segment mix, was negative to~~adversely impacted consolidated gross margin by approximately 110 basis points due to unfavorable overhead absorption on lower segment net sales combined with unfavorable product mix.

•Operating loss was $(9.3) million for the three-month period ended September 30, 2020 compared to operating income of $7.4 million in the ~~quarter~~corresponding period in 2019. The operating loss was driven by ~~approximately 30 basis points.~~

~~Operating income was $7.4~~restructuring charges of $15.0 million ~~or 3.6% of net sales,~~primarily in ~~Q3 2019, compared to $9.7 million, or 4.9% of net sales,~~the Performance Materials segment and significant operating inefficiencies in ~~Q3 2018. Operating margin declined 130 basis points primarily due to increased selling, product development and administrative expenses of $3.5 million, or 130 basis points~~the Company's Thermal Acoustical Solutions segment as ~~a percentage of net sales, primarily related to incremental intangible assets amortization of 150 basis points.~~

noted above. The following ~~components are included in~~expenses adversely impacted operating income for ~~Q3 2019~~the third quarters of 2020 and ~~Q3 2018 and impact~~2019:


	For the Three Months Ended September 30, 2020
Components (in thousands except per share amounts)	Operating Income Impact		Pre-tax EPS Impact		Tax Effect EPS Impact (1)		Net EPS Impact
PM restructuring expenses	$	(14,984)	$	(0.86)	$	0.21	$	(0.65)


	For the Three Months Ended September 30, 2019
Components (in thousands except per share amounts)	Operating Income Impact		Pre-tax EPS Impact		Tax Effect EPS Impact (1)		Net EPS Impact
TNW restructuring expenses	$	(117)	$	(0.01)	$	0.00	$	(0.01)

(1) Tax expense represents the ~~comparability~~statutory tax rate in the jurisdiction in which the expense was incurred.

•The net loss was $(11.7) million, or $(0.67) per diluted share, for the three-month period ended September 30, 2020 compared to net income of ~~each quarter:~~

Q3 2019 Q3 2018
Components (in thousands except per share amounts)
Operating income effect EPS impact Operating income effect EPS impact
   TNW restructuring expenses (117 ) $ (0.01 ) (519 ) $ (0.03 )
   Strategic initiatives expenses —
$ —
(1,514 ) $ (0.09 )
   Inventory step-up purchase accounting adjustments —
$ —
(1,390 ) $ (0.06 )
   Intangible assets amortization expenses (5,368 ) $ (0.24 ) (2,344 ) $ (0.10 )

~~Net income was~~ $3.0 million, or $0.17 per diluted share, in ~~Q3 2019 compared to net income of $6.3 million, or $0.36 per diluted share,~~the corresponding period in ~~Q3 2018.~~2019.

~~Liquidity~~

•Cash was ~~$48.9~~$122.0 million at September 30, ~~2019,~~2020, compared to ~~$49.2~~$51.3 million at December 31, ~~2018.~~2019. Net cash provided by operations was ~~$26.7~~$74.6 million infor the ~~third quarter of 2019 and~~nine-month period ended September 30, 2020 compared to $63.0 million in the ~~nine months ended September 30,~~corresponding period in 2019, ~~compared~~with the improvement primarily driven by increases in payable days across the Company's operations. On October 14, 2020, the Company amended its 2018 Credit Agreement to ~~$6.5 million~~allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the ~~third quarter~~calculation of ~~2018~~the

Company's modified financial covenants. See Note 6. "Long-term Debt and ~~$14.5 million in~~Financing Arrangements" to the ~~nine months ended September 30, 2018. Improved cash flow, principally through working capital management, has allowed~~Condensed Consolidated Financial Statements for highlights of the ~~Company to repay outstanding borrowings of approximately $38.0 million in 2019~~key amended terms and ~~fund capital expenditures. As of September 30, 2019, there was approximately $110 million of availability under the Company's credit facility.~~conditions.

~~Outlook~~

The Company believes the weakness seen in both the Technical Nonwovens and Performance Materials segments is not expected to improve in the fourth quarter and may further deteriorate. As a result, the Company is aggressively adjusting its cost structure, and will record one-time severance related expenses of $2.0 million to $2.5 million in the fourth quarter, with savings of $4.0 million to $5.0 million anticipated in 2020. Further, the Company will be negatively impacted by the General Motors strike in the fourth quarter, and continues to focuss on reducing manufacturing costs in the Thermal Acoustical Solutions segment. As 2019 closes out, the Company expects strong cash generations that will allow the Company to continue to reduce its outstanding debt.

~~Other~~

On October 15, 2019, the Company announced that Sara A. Greenstein has been appointed President and Chief Executive Officer of Lydall, Inc., effective upon the commencement of her employment with Lydall, which will be on or before November 18, 2019. Ms. Greenstein will succeed Dale G. Barnhart, who will be retiring. In connection with these actions, the Company expects to incur one-time expense in the fourth quarter of 2019 of approximately $1.8 million.

Results of Operations

All of the following tabular comparisons ~~unless otherwise indicated,~~ are for the ~~quarters~~three-month and nine-month periods ended September 30, 2020 and 2019, ~~(Q3-19) and September 30, 2018 (Q3-18) and the nine months ended September 30, 2019 (YTD-19) and September 30, 2018 (YTD-18).~~unless otherwise indicated.

Net Sales


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Percent Change		2020		2019		Percent Change
Net sales	$	207,085	$	205,274	0.9	%	$	553,772	$	644,110	(14.0)	%

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Percent Change YTD-19 YTD-18 Percent Change
Net sales $ 205,274
$ 197,886
3.7 % $ 644,110
$ 575,959
11.8 %

Net sales for the ~~third quarter of 2019~~three-month period ended September 30, 2020 increased by ~~$7.4~~$1.8 million, or ~~3.7%~~0.9%, compared to the third quarter of ~~2018.~~2019. This increase was primarily driven by an increase in Performance Materials segment sales of $7.8 million, or 3.8% of consolidated net sales, related to ~~incremental~~higher net sales of ~~$18.6~~filtration products on higher demand in the air filtration market in response to the COVID-19 pandemic. This increase was partially offset by lower sealing and advanced solutions sales as large OEM customers continued to ramped-up production. The increase in Performance Materials segment sales was partially offset by a $5.4 million ~~from~~decrease, or 2.6% of consolidated sales, in the ~~acquisition of Interface, which led to increased Performance Materials~~Technical Nonwovens segment, driven primarily by softness in industrial end markets, primarily air filtration, in North American and Europe. Additionally, the Thermal Acoustical Solutions segment reported a decrease in net sales of ~~$18.3~~$2.4 million, or ~~9.2%~~1.2% of consolidated net sales, primarily due to lower tooling sales of $1.8 million and lower net parts sales of $0.6 million, as the Company continues to ramp-up production in line with it's large OEM customers. Foreign currency translation favorably impacted net sales by $3.0 million, or 1.5% of consolidated net sales.

Net sales for the nine-month period ended September 30, 2020 decreased by $90.3 million, or 14.0%, compared to the corresponding period in 2019. This decrease was primarily due to lower net parts sales of $61.1 million, or 9.5% of consolidated net sales, in the Thermal Acoustical Solutions segment, driven by temporary plant ramp downs across all of its operations in the first half of 2020 due to large OEM customer shutdowns resulting from the COVID-19 pandemic, and lower net tooling sales of $7.6 million. The Technical Nonwovens segment reported a decrease in net sales of ~~$9.2~~$30.7 million, or ~~4.6%~~4.8% of consolidated net sales, driven primarily by the global softness in industrial end markets, primarily air filtration. The Performance Materials segment reported an increase in net sales of $1.8 million, or 0.3% of consolidated net sales, driven by ~~a significant decline~~increased net sales in filtration as demand increased in the ~~industrial~~air filtration market ~~primarily~~for face mask media in ~~China and to a lesser extent, Europe. Additionally, the divestiture of the Geosol business in the second quarter of 2019 reduced net sales by $2.9 million in the third quarter of 2019 compared~~response to the ~~third quarter of 2018. Net sales decreased in~~

~~the Thermal Acoustical Solutions segment by $0.3 million, as decreased tooling sales in Europe and Asia were mostly~~COVID-19 pandemic, partially offset by ~~increased parts~~decreased sealing and advanced solutions sales related to large OEM customer shutdowns beginning in ~~Europe and North America.~~mid-March due to COVID-19. Foreign currency translation had a negative impact on net sales of ~~$3.1~~$1.2 million, or ~~1.6%~~0.2% of consolidated net sales.

Cost of Sales


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Percent Change		2020		2019		Percent Change
Cost of sales	$	169,155	$	168,918	0.1	%	$	448,856	$	520,423	(13.8)	%

Cost of sales ~~primarily impacting~~for the ~~Technical Nonwovens segment~~three-month period ended September 30, 2020 increased by ~~$1.3~~$0.2 million, or ~~0.7% of consolidated net sales, and~~0.1%, compared to the corresponding period in 2019. The increase was primarily driven by a significant increase in variable overhead costs, principally in the Thermal Acoustical Solutions segment related to higher costs associated with COVID-19, primarily in the Company's North American plant, and, to a lesser extent, in the Technical Nonwovens segment related to unfavorable overhead costs on lower volume. Additionally, higher net sales in the Performance Materials segment due to higher demand for face mask media in response to COVID-19 contributed to the higher cost of sales. The increase in cost of sales was partially offset by ~~$1.2~~lower net sales in the Technical Nonwovens and Thermal Acoustical Solutions segments and lower raw material commodity and production costs across all segments, coupled with favorable product mix in the Performance Materials and Thermal Acoustical Solutions segments. Foreign currency translation increased cost of sales by $2.5 million, or ~~0.6%~~1.5%, in the third quarter of ~~consolidated~~2020 compared to the third quarter of 2019.

Cost of sales for the nine-month period ended September 30, 2020 decreased by $71.6 million, or 13.8%, compared to of the corresponding period in 2019. The decrease was driven by lower net ~~sales.~~sales across all segments, primarily due to plant ramp

~~Net~~

downs in the Thermal Acoustical Solutions segment as noted above and, to a lesser extent, the Technical Nonwovens segment due to the COVID-19 pandemic. In addition, lower raw material commodity and production costs across all segments contributed to lower cost of sales. These decreases to cost of sales ~~for~~were partially offset by higher overhead costs in the Thermal Acoustical Solutions and Technical Nonwovens segments due to the drivers noted above, combined with unfavorable product mix, primarily in the Thermal Acoustical Solutions segment resulting from lower fibers sales related to the sunsetting of major platforms in the second half of 2019 with select OEM manufacturers. Foreign currency translation decreased cost of sales by $1.1 million, or 0.2%, in the first nine months of ~~2019 increased by $68.2 million, or 11.8%,~~2020 compared to the first nine months of 2018. This increase was related to incremental net sales of $84.2 million from the acquisition of Interface, which led to increased Performance Materials net sales of $86.0 million, or 14.9% of consolidated net sales. Net sales decreased in the Technical Nonwovens segment by $10.2 million, net of intercompany sales, driven by a significant decline in demand in the industrial filtration market, primarily in China and Europe. Additionally, the divestiture of the Geosol business in the second quarter of 2019 reduced net sales by $4.9 million in the first nine months of 2019 compared to the first nine months of 2018. Net sales decreased by $4.3 million in the Thermal Acoustical Solutions segment, as decreased tooling net sales of $6.1 million were partially offset by increased parts sales of $1.8 million, primarily in North America. Foreign currency translation had a negative impact on net sales of $14.5 million, or 2.5% of consolidated net sales, primarily impacting the Technical Nonwovens segment by $6.8 million, or 1.2% of consolidated net sales, and the Thermal Acoustical Solutions segment by $5.5 million, or 1.0% of consolidated net sales.2019.

~~Cost of Sales~~

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Percent Change YTD-19 YTD-18 Percent Change
Cost of sales $ 168,918
$ 162,747
3.8 % $ 520,423
$ 465,186
11.9 %

Cost of sales for the third quarter of 2019 increased by $6.2 million, or 3.8%, compared to the third quarter of 2018. The increase was primarily related to increased net sales of $7.4 million, due to increased sales of sealing and advanced solutions products from the Interface acquisition. Additionally, the Thermal Acoustical Solutions segment contributed increased cost of sales of $2.9 million on stagnant sales levels in the third quarter of 2019 compared to the third quarter of 2018, primarily due to operating inefficiencies in its North America and Europe facilities. This increase was partially offset by foreign currency translation decreasing cost of sales by $2.7 million, or 1.6%, in the third quarter of 2019 compared to the third quarter of 2018.

Cost of sales for the first nine months of 2019 increased by $55.2 million, or 11.9%, compared to the first nine months of 2018. The increase was primarily related to increased net sales of $68.2 million, primarily due to increased sales of sealing and advanced solutions products from the Interface acquisition. Additionally, the Thermal Acoustical Solutions segment contributed increased cost of sales of $3.6 million on reduced sales levels in the first nine months of 2019 compared to the first nine months of 2018, primarily due to operating inefficiencies in its North America and Europe facilities. This increase was partially offset by foreign currency translation decreasing cost of sales by $12.6 million, or 2.7%, in the first nine months of 2019 compared to the first nine months of 2018.

Gross Profit


	For the Three Months Ended September 30,														For the Nine Months Ended September 30,
In thousands	2020			2019			Percent Change		2020			2019			Percent Change
Gross profit	$	37,930		$	36,356		4.3	%	$	104,916		$	123,687		(15.2)	%
Gross margin	18.3		%	17.7		%			18.9		%	19.2		%

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Percent Change YTD-19 YTD-18 Percent Change
Gross profit $ 36,356
$ 35,139
3.5 % $ 123,687
$ 110,773
11.7 %
Gross margin 17.7 % 17.8 % 19.2 % 19.2 %

Gross margin for the ~~third quarter of 2019 decreased 10~~three-month period ended September 30, 2020 increased 60 basis points compared to the ~~third quarter of 2018.~~corresponding period in 2019. The Performance Materials segment favorably impacted consolidated gross margin by approximately ~~210~~330 basis points, primarily due to favorable product mix, driven by higher demand for face mask media in response to the COVID-19 pandemic and increased liquid filtration sales, combined with favorable customer pricing, and raw material commodity and production costs. The Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 160 basis points driven by ~~the inclusion of~~ higher COVID-19-related costs as noted above. The Technical Nonwovens segment negatively impacted consolidated gross margin ~~Interface sealing and advanced solutions products sales and the absence of a $1.4 million, or 70~~by approximately 110 basis points ~~purchase accounting adjustment~~due to ~~cost of~~unfavorable overhead absorption on reduced segment net sales ~~related to inventory step-up~~combined with unfavorable product mix in the third quarter of ~~2019~~2020 compared to the third quarter of ~~2018.~~2019.

Gross margin for the for the nine-month period ended September 30, 2020 decreased 30 basis points compared to the corresponding period in 2019. The Thermal Acoustical Solutions segment negatively impacted consolidated gross margin by approximately ~~180~~300 basis points ~~primarily~~driven by the significant reduction in segment net sales due to ~~increased labor, outsourcing~~the COVID-19 pandemic and ~~logistics~~higher COVID-19-related costs primarily related to increased headcount, temporary labor and equipment inefficiencies, particularly in North America and Europe. The Technical Nonwovens segment reported improved segment gross margin due to favorable pricing and product mix in the third quarter of ~~2019 compared to the third quarter of 2018, but negatively impacted consolidated gross margin by approximately 30 basis points due to consolidated segment mix.~~

~~Gross margin for the first nine months of 2019 was flat with the first nine months of 2018.~~2020. The Performance Materials segment favorably impacted consolidated gross margin by approximately ~~280~~290 basis points ~~primarily driven by~~due to the ~~inclusion of higher margin Interface sealing and advanced solutions products sales. The Thermal Acoustical Solutions~~drivers noted above while the Technical Nonwovens segment ~~negatively impacted~~

had a minimal impact on consolidated gross margin by approximately 210 basis points primarily due to higher labor, outsourcing and logistics costs associated with increased headcount, temporary labor and equipment inefficiencies, particularly in North America and Europe, to meet customer demand. Additionally, unfavorable product mix and lower customer pricing drove further gross margin reduction in the first nine months of ~~2019~~2020 compared to the first nine months of 2018. The Technical Nonwovens segment reported improved segment gross margin due to lower segment restructuring charges of $1.2 million, favorable absorption of fixed costs related to cost savings from segment restructuring activities and increased pricingcorresponding period in the first nine months of 2019 compared to the first nine months of 2018. This favorability was partially offset by increased raw material commodity costs in the Technical Nonwovens segment and negatively impacted consolidated gross margin by approximately 70 basis points due to consolidated segment mix.2019.

Selling, Product Development and Administrative Expenses


	For the Three Months Ended September 30,														For the Nine Months Ended September 30,
In thousands	2020			2019			Percent Change		2020			2019			Percent Change
Selling, product development and administrative expenses	$	32,227		$	28,909		11.5	%	$	95,418		$	94,011		1.5	%
Percentage of sales	15.6		%	14.1		%			17.2		%	14.6		%

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Percent Change YTD-19 YTD-18 Percent Change
Selling, product development and administrative expenses $ 28,909
$ 25,406
13.8 % $ 94,011
$ 74,755
25.8 %
Percentage of sales 14.1 % 12.8 % 14.6 % 13.0 %

Selling, product development and administrative expenses for the ~~third quarter of 2019~~three-month period ended September 30, 2020 increased ~~by $3.5~~$3.3 million, or ~~130~~150 basis points as a percentage of net sales, compared to the ~~third quarter of 2018. This~~corresponding period in 2019. The increase was primarily related to the Performance Materials segment acquisition of Interface on August 31, 2018, contributing $5.9 million of incremental expense, including $3.1 million, or 150 basis points, of increased intangible asset amortization as a percentage of consolidated net sales. There were no Interface selling, product development and administrative expenses included in ~~the Performance Materials segment in the first two months of the third quarter of 2018. Remaining~~ selling, product development and administrative expenses were ~~lower~~driven by ~~$2.4 million, or 40 basis points, primarily due to decreased corporate strategic initiatives~~higher compensation-related expenses of ~~$1.5~~$2.6 million, ~~primarily associated with the Interface acquisition, lower salaries and benefits~~higher consulting costs of ~~$0.5 million, decreased severance expense of $0.3~~$0.6 million, and an increase in other general administrative costs of $0.9 million. These increases were partially offset by lower ~~stock compensation expense~~travel expenses of ~~$0.1~~$0.8 million.

Selling, product development and administrative expenses for the ~~first nine months of 2019~~nine-month period ended September 30, 2020 increased ~~by $19.3~~$1.4 million, or ~~160~~260 basis points compared to the first nine months of 2018. This increase was primarily related to the Performance Materials segment acquisition of Interface on August 31, 2018, contributing $25.0 million of incremental expense, including $11.2 million, or 170 basis points, of increased intangible asset amortization as a percentage of ~~consolidated~~ net ~~sales. There were no Interface selling, product development and administrative expenses included~~sales, compared to the corresponding period in ~~the Performance Materials segment~~2019. The increase in ~~the first eight months of 2018. Remaining~~ selling, product development and administrative expenses were ~~lower~~driven by ~~$5.8~~higher compensation-related expenses of $3.7 million ~~or 60 basis points, due to lower salaries, benefits~~ and ~~sales commissions of $2.0 million, decreased corporate~~higher strategic initiatives expenses of ~~$1.6 million, primarily associated with the Interface acquisition, lower stock compensation expense of $1.3 million and other professional service costs of $1.4~~$1.9 million. These ~~decreases~~increases were partially offset by ~~increased severance~~lower salaries expenses of ~~$0.6~~$1.7 million, ~~primarily~~lower travel expenses of $1.2 million, lower consulting expenses of $0.5 million, and a decrease in other general administrative costs of $0.8 million.

Impairment of Goodwill and Other Long-Lived Assets


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Dollar Change		2020		2019		Dollar Change
Impairment of goodwill and other long-lived assets	$	—	$	—	$	—	$	61,109	$	—	$	61,109

As previously reported, the Company recorded a goodwill impairment charge of $48.7 million in the ~~Thermal Acoustical Solutions~~Performance Materials segment during the three-month period ended March 30, 2020. Lower expected demand in automotive and other end markets due to the COVID-19 pandemic resulted in a reduction in sales and cash generation projections as compared to prior projections for the reporting units. As a result of these revised projections and changes in other Company and market-based inputs to the determination of fair value, the carrying value of the Performance Materials reporting unit exceeded its fair value by $48.7 million, resulting in the impairment charge.

As a result of the COVID 19 pandemic and the Company's action plan to address the risks associated with it, 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. The impairment test concluded that the asset group was not recoverable, and the Company then determined that carrying value of the asset group exceeded its fair value and recorded a long-lived asset impairment charge of $12.4 million.

Restructuring Expenses


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Dollar Change		2020		2019		Dollar Change
Restructuring expenses	$	14,984	$	—	$	14,984	$	14,984	$	—	$	14,984

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 the first ~~nine months~~half of ~~2019 compared~~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 pre-tax expenses of approximately $17.0 to $20.0 million, primarily related to severance and employee retention expenses, in connection with these restructuring activities, of which approximately $11.5 to $14.5 million are expected to result in cash expenditures. The Company incurred non-cash expenditures of approximately $5.5 million which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory.

In North America, the Company decided to shut down two underperforming nonwoven manufacturing carded lines and ancillary equipment, originally acquired in 2018, that served commercial and residential HVAC markets with low to medium efficiency air filtration media. The Company experienced lower demand as a result of COVID-19, which accelerated a market shift from lower efficiency air filtration media to higher performance rated air filtration media. As a result, the Company recorded a pre-tax restructuring charge of $5.4 million, primarily due to accelerated depreciation of property, plant and equipment and other intangible assets.

The Company undertook actions to consolidate global production facilities in the Sealing and Advanced Solutions business from five facilities to four, resulting in the closure of an underperforming facility in Germany. In addition, the Company decided to close a small volume membrane filtration production facility in the Netherlands. As a result of the two facility closures in Europe, the Company recorded pre-tax restructuring charges of $9.6 million consisting of severance costs, legal expenses and inventory write-offs. The Company expects to generate annualized savings of $5.0 million to $6.0 million. See Note 12, "Restructuring" for additional information.

Employee Benefit Plans Settlement Expenses


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Dollar Change		2020		2019		Dollar Change
Employee benefit plans settlement expenses	$	—	$	186	$	(186)	$	385	$	25,701	$	(25,316)

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 ~~first nine months~~recognition of ~~2018.~~accumulated deferred actuarial losses.

~~Pension Plan Settlement Expense~~

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Dollar Change YTD-19 YTD-18 Dollar Change
Pension plan settlement expense $ 186
$ —
$ 186
$ 25,701
$ —
$ 25,701

In the second quarter of 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan ~~("pension settlement")~~ through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts. The settlement, funded with Pension Plan assets, resulted in a non-cash settlement expense of $25.5 million in the second quarter of 2019 related to the recognition of accumulated deferred actuarial losses and an additional $0.2 million in the third quarter of 2019 to complete the termination of the pension plan.

Interest Expense


	Quarter Ended								Nine Months Ended									For the Three Months Ended September 30,														For the Nine Months Ended September 30,
In thousands	Q3-19			Q3-18			Percent Change		YTD-19			YTD-18			Percent Change		In thousands	2020			2019			Percent Change		2020			2019			Percent Change
Interest expense	$	3,666		$	1,505		143.6	%	$	11,025		$	2,617		321.3	%	Interest expense	$	4,537		$	3,666		23.8	%	$	11,870		$	11,025		7.7	%
Weighted average interest rate	4.4		%	3.3		%			4.3		%	2.9		%			Weighted average interest rate	6.2		%	4.4		%			5.2		%	4.3		%

The increase in interest expense for the ~~quarter~~three and ~~nine months~~nine-month periods ended September 30, ~~2019~~2020 compared to the ~~quarter and nine months ended September 30, 2018~~corresponding period in 2019 was due to higher ~~borrowings incurred~~interest rates related to ~~finance~~ the ~~Interface acquisition~~amendment of the Company's Facility 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 ~~increased interest rates.~~Euro related to the net investment hedge the company entered into in the fourth quarter of 2019.

Other ~~Income/~~(Income) Expense, net


	For the Three Months Ended September 30,										For the Nine Months Ended September 30,
In thousands	2020		2019		Dollar Change		2020		2019		Dollar Change
Other expense (income), net	$	276	$	(885)	$	1,161	$	106	$	(1,359)	$	1,465

Quarter Ended Nine Months Ended
In thousands Q3-19 Q3-18 Dollar Change YTD-19 YTD-18 Dollar Change
Other income, net $ (885 ) $ (40 ) $ (845 ) $ (1,359 ) $ (93 ) $ (1,266 )

~~The increase in other income,~~Other expense (income), net, was unfavorable for the ~~quarter~~three-month period ended September 30, ~~2019~~2020 compared to the ~~quarter ended September 30, 2018 was~~corresponding 2019 period primarily ~~related~~due to the absence of a gain of $0.6 million recognized for a change in estimate of the contingent purchase price of the 2018 PCC acquisition and foreign currency gains 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, partially offset by incremental pension expense from the Interface pension plan.

The increase in other income, net, for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily related to the gain on sale from a divestiture of $1.5 million and a gain recognized for a change in estimate of the contingent purchase price of the PCC acquisition of $0.7 million, partially offset by incremental pension expense from the Interface pension plans andhigher 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.

Other expense (income), net, was unfavorable for the nine-month period ended September 30, 2020 compared to the corresponding 2019 period primarily due to the absence of the $1.5 million gain on the sale of a business that occurred in the second quarter of 2019 and a gain of $0.7 million recognized for a change in estimate of the contingent purchase price of the PCC acquisition in the first nine months of 2019. Additionally, 2020 included higher 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.

Income Taxes

~~The~~For the three-month period ended September 30, 2020, the Company's effective tax rate was 16.6% compared to an effective tax rate of 35.1% ~~and 25.1%~~ for the ~~quarters~~three-month period ended September 30, ~~2019 and 2018, respectively. The Company's~~2019. For the three months ended September 30, 2020, the rate was negatively impacted by valuation allowance activity of $2.0 million, offset by a state tax benefit of $0.8 million. resulting in a lower effective tax rate ~~for~~when in a pre-tax loss position. For the three months ended September 30, 2019, the effective tax rate was negatively impacted by losses atin jurisdictions in which no tax benefit can be recognized.

For the nine-month period ended September 30, 2020, the Company's effective tax rate was 6.3% compared to an effective tax rate of 97.0% for the nine-month period ended September 30, 2019. For the nine months ended September 30, 2020, the Company had a pre-tax loss primarily resulting from impairment charges of $61.1 million. The impairment charges significantly impacted the Company's effective tax rate because $48.7 million of the impairment charges related to non-deductible goodwill, resulting in a low effective tax rate for the ~~quarter~~nine months ended September 30, ~~2018~~2020 when in a pre-tax loss position. Additionally, the effective rate was ~~primarily~~negatively impacted by the provisional one-time mandatory repatriation of foreign earnings tax and non-deductible transaction costs as a result of the Interface Performance Materials acquisition, partially offset by a tax benefit from valuation allowance ~~release.~~

activity of $2.7 million. For the ~~nine months~~nine-month period ended September 30, 2019, the Company recorded a tax benefit of $5.5 million ~~compared to tax expense of $5.9 million for the nine months ended September 30, 2018. The tax benefit was~~primarily driven by $10.5 million of tax benefit related to the pension plan ~~settlement and resulted in an effective tax rate for the nine months ended September 30, 2019 of 97.0%. This is compared to an effective tax rate of 17.5% for the nine months ended September 30, 2018.~~settlement. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the nine months ended September 30, 2019 was 25.2%. This ~~rate~~ was negatively impacted by $1.8 million from losses atin jurisdictions in which no tax benefit can be recognized, partially offset by the Company's geographical mix of earnings.

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, ~~China,~~Hong Kong, India, the Netherlands, and the United ~~Kingdom, Canada and the Netherlands.~~Kingdom. With few exceptions, the Company is no longer subject to U.S. federal examinations for years before ~~2015,~~2016, state and local examinations for years before ~~2013,~~2015, and non-U.S. income tax examinations for years before ~~2003.~~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.

On July 20, 2020, the U.S. Treasury Department and IRS released T.D. 9902 final regulations for publication in the Federal Register related to the global intangible low-taxed income (“GILTI”) high-tax exception. The final regulations largely adopt the framework of the 2019 proposed regulations, with certain key departures. The most significant departures are that an election to apply the GILTI high-tax exception may be made annually instead of once every five years, and that the calculation is made with respect to each “tested unit” of a controlled foreign corporation, rather than on a qualified business unit by qualified business unit basis. The company has evaluated the final regulations and included the impacts of these changes in the Company’s third quarter financial statements.

Segment Results

The following tables present segment net sales ~~information~~and operating income for the ~~key~~primary product and service ~~groups included within each operating segment as well as other products and services and operating income by segment,~~categories for the ~~quarter~~three-month and nine-month periods ended September 30, ~~2019 compared with the quarter ended September 30, 2018~~2020 and ~~the nine months ended~~ September 30, 2019, ~~compared with the nine months ended September 30, 2018:~~respectively.

Net sales by segment:


	Quarter Ended										For the Three Months Ended September 30,						For the Nine Months Ended September 30,
In thousands	Q3-19			Q3-18			Dollar Change			In thousands	2020		2019		2020		2019
Performance Materials Segment (1):
Performance Materials Segment:										Performance Materials Segment:
Filtration	$	22,427		$	22,643		$	(216	)	Filtration	$	30,899	$	22,427	$	86,422	$	71,093
Sealing and Advanced Solutions	37,573			19,077			18,496			Sealing and Advanced Solutions	36,918		37,573		105,088		118,589
Performance Materials Segment net sales	60,000			41,720			18,280			Performance Materials Segment net sales	67,817		60,000		191,510		189,682

Technical Nonwovens Segment (2):
Technical Nonwovens Segment (1):										Technical Nonwovens Segment (1):
Industrial Filtration	32,935			40,945			(8,010		)	Industrial Filtration	29,643		32,935		90,425		114,005
Advanced Materials (3)	30,977			32,126			(1,149		)
Advanced Materials (2)										Advanced Materials (2)	28,866		30,977		77,494		84,591
Technical Nonwovens Segment net sales	63,912			73,071			(9,159		)	Technical Nonwovens Segment net sales	58,509		63,912		167,919		198,596

Thermal Acoustical Solutions Segment:										Thermal Acoustical Solutions Segment:
Parts	80,309			77,723			2,586			Parts	79,687		80,309		189,456		250,591
Tooling	7,617			10,488			(2,871		)	Tooling	5,836		7,617		17,276		24,920
Thermal Acoustical Solutions Segment net sales	87,926			88,211			(285		)	Thermal Acoustical Solutions Segment net sales	85,523		87,926		206,732		275,511
Eliminations and Other (3)	(6,564		)	(5,116		)	(1,448		)

Eliminations and Other (2)										Eliminations and Other (2)	(4,764)		(6,564)		(12,389)		(19,679)
Consolidated Net Sales	$	205,274		$	197,886		$	7,388		Consolidated Net Sales	$	207,085	$	205,274	$	553,772	$	644,110



Item 3.			Quantitative and Qualitative Disclosures about Market Risk

~~Lydall’s~~The Company’s limited market risk exposures relate to changes in foreign currency exchange rates and interest rates.

Foreign Currency Risk

The Company has operations in France, Germany, China, the United Kingdom, Canada, India and the Netherlands, in addition to the United States. As a result of this, the Company’s financial results are affected by factors such as changes in foreign currency exchange rates or economic conditions in the foreign markets where the Company manufactures and distributes its products. The Company’s currency exposure is to the ~~US Dollar,~~U.S. dollar, the Euro, the Chinese Yuan, the British Pound Sterling, the Canadian Dollar, the Japanese Yen, the Indian Rupee and the Hong Kong Dollar. The Company’s foreign and domestic operations attempt to limit foreign currency exchange transaction risk by completing transactions in local functional currencies, whenever practicable. The Company may periodically enter into foreign currency forward exchange contracts to mitigate exposure to foreign currency volatility. In addition, the Company utilizes bank loans and other debt instruments throughout its operations. To mitigate foreign currency risk, such debt is denominated primarily in the functional currency of the operation maintaining the debt.

The Company also has exposure to fluctuations in currency risk on intercompany loans that the Company makes to certain of its subsidiaries. The Company may periodically enter into foreign currency forward contracts which are intended to offset the impact of foreign currency movements on the underlying intercompany loan obligations.

Interest Rate Risk

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 borrowings outstanding of ~~$287.0~~$283.5 million from its Amended Credit Facility at September 30, ~~2019,~~2020, with variable rates of interest based generally on LIBOR. Increases in interest rates could therefore significantly increase the associated interest payments that the Company is required to make on this debt. From time to time, the Company may enter into interest rate ~~swap~~swaps or other hedging agreements to manage interest rate risk.

In November 2018, the Company entered into a five year interest rate swap agreement with a bank which converts the interest on a notional $139.0 million of the Company's one-month LIBOR-based borrowings under its ~~Amended~~2018 Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reduces quarterly by fluctuating amounts through August 2023. In April 2017, the Company entered into a three-year interest rate swap agreement with a bank which converts the interest on a notional $60.0 million of the Company's ~~one-month LIBOR-based~~ borrowings ~~under its Amended Credit Agreement~~ from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount ~~reduces~~reduced quarterly by $5.0 million through March 31, ~~2020. These interest rate swap agreements were accounted for as cash flow hedges.~~2020 and is now settled. Effectiveness of ~~these~~the remaining derivative ~~agreements are~~agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the ~~swaps continue~~swap continues to match the critical terms of the hedged ~~debt.~~debt in order to report gains or losses on the derivative instrument in other comprehensive income.

On May 11, 2020, the Company amended its 2018 Credit Agreement, see Note 6, "Long-term Debt and Financing Arrangements". The amendment included, among other modifications, the establishment of a floor on the base and Eurocurrency rate of 1%. As a result, the Company performed an assessment of the effectiveness of the interest rate swap agreement to determine if the critical terms of the interest rate swap agreement continues to match the critical terms of the debt. The Company concluded the interest rate swap agreement is no longer effective. See Note 7. "Derivatives" for more information.

The Company has assessed its exposure to changes in interest rates by analyzing the sensitivity to ~~Lydall’s~~the Company's earnings assuming various changes in market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on the variable portion of the ~~$287.0~~$283.5 million outstanding borrowings as of September 30, ~~2019,~~2020, the Company’s net income would decrease by an estimated ~~$1.1~~$1.4 million over a twelve-month period.



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 (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 September 30, ~~2019~~2020 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

On August 31, 2018, the Company completed the acquisition of Interface Performance Materials ("Interface"). Management considers this transaction to be material to the Company’s consolidated financial statements. The Company is currently in the process of evaluating the existing controls and procedures of Interface and integrating the business into our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 (the “Act”) and the applicable rules and regulations under such Act. The Company will report on its assessment of the effectiveness of internal control over financial reporting of its consolidated operations (including the Interface business) within the time period provided by the Act and the applicable SEC rules and regulations concerning business combinations.

~~Subject to the foregoing, there~~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 ~~quarter~~three-month period ended September 30, ~~2019~~2020 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company has not experienced any material impact to its internal control over financial reporting during the COVID-19 pandemic. Most of the Company’s corporate and non-production employees worked remotely during the period in which these financial statements were prepared due to the impact of COVID-19. The Company enhanced its oversight and monitoring during the financial close and reporting process, including higher awareness and monitoring of cybersecurity threats. Other than enhancing its oversight and monitoring processes, the Company did not alter or compromise its disclosure controls and procedures. The Company continues to monitor and assess the need to modify or enhance its disclosure controls to ensure disclosure controls and procedures continue to be effective.

PART II. OTHER INFORMATION



Item 1.			Legal Proceedings

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 matter referenced below, the Company is not aware of any matters pending that are expected to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

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, resulting in no balance at December 31, 2018. Additionally, the Company incurred $0.2 million of capital expenditures in 2018, in relation to the lining of the Company's fresh water lagoons. The site investigation isand remedial action plan are ongoing. 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 ~~liquidity.~~cash flow.

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 in to the possibility of it being an inactive hazardous disposable waste site. The letter specifically references ~~perflourinated compounds or per- and polyfluoroalkyl substances (“PFAS”)~~PFAS that have been detected in a nearby water supply, soil and/or surface water. ~~The~~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 ~~Company will conduct~~NYDEC approved a site ~~investigation~~characterization plan in December 2019. The Company recorded expense of $0.3 million in the fourth quarter of 2019 ~~the scope of which has been agreed upon with the NYDEC, in order to assess the extent~~as a result of the ~~potential contamination~~site characterization plan preparation and ~~develop a remedial action, if necessary.~~site characterization activities. Additional site characterization activities are planned for the fourth quarter of 2020. The Company does not know the scope or extent of its 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 ~~liquidity.~~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.

Some of the Company’s OEM contracts in the Thermal Acoustical Solutions (“TAS”) segment contain provisions that require the Company to pay expedited freight if it fails or threatens to fail to deliver product timely and/or damages if the Company is the cause of production disruptions at customer facilities. Historically, the Company has paid expedited freight costs as needed to meet delivery obligations. In late third quarter 2020, as a result of labor shortages and operational inefficiencies directly related to COVID-19, TAS was unable to manufacture parts timely, resulting in customer production disruptions. Because of the unforeseen and unforeseeable nature of the COVID-19 pandemic, which is out of the Company’s control, in early October the Company invoked force majeure or commercial impracticability to certain customers as a legal excuse for delayed performance of contract and defense to claims that may be asserted by customers. A recent resurgence of cases in that same facility has caused the Company to expand its declaration of force majeure or commercial impracticability to other impacted customers. Although the Company believes it has a strong legal basis for asserting force majeure or commercial impracticability as a result of COVID-19, it is reasonably possible customers may assert claims against the Company, and the

Company could be subject to financial damages to customers, which could have a material effect on the Company’s consolidated results of operations and cash flows. The Company has not received any such claims and is unable to estimate the amount of any such future claims, if any, at this time



Item 1A.			Risk Factors

See Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as updated by Part II, Item 1, Legal Proceedings, of this ~~Report.~~Report and by the new risk factors added below. The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks the Company normally faces in operating the business, including those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the risk factor disclosure in the Form 10-K is qualified by the information relating to COVID-19 that is described in this report, including the risk factors set forth below. The risks described in this report and in the Annual Report on Form 10-K, and the “Cautionary Note Concerning Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties not currently known or that are currently judged to be immaterial may also materially affect the Company’s business, financial position, results of operations or cash flows.

The Company’s financial condition and results of operations have been, and are expected to continue to be, adversely affected by the recent COVID-19 pandemic.

The global outbreak of COVID-19 has caused a material adverse effect on the level of economic activity around the world, including in all markets served by the Company. In response to this outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations. The Company has implemented numerous measures attempting to manage and mitigate the effects of the virus. While the Company has implemented programs to mitigate the impact of these measures on its results of operations, there can be no assurance that these programs will be successful. The Company cannot predict the degree to, or the time period over, which its sales and operations will be affected by this outbreak and preventative measures, and the effects could be material.

The COVID-19 pandemic poses the risk that we or the Company’s affiliates, employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, social distancing protocols, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be requested or mandated by governmental authorities. For example, the Company experienced a temporary reduction of its manufacturing and operating capacity in China as a result of government-mandated actions to control the spread of COVID-19. Additionally, beginning in March 2020, the Company experienced the ramp-down of its automotive manufacturing facilities in the Americas and European regions coinciding with the shutdown of its major automotive customer facilities in these regions. While many of the Company’s other facilities have been designated by its customers as essential business in jurisdictions in which facility closures have otherwise been mandated, the Company can give no assurance that this will not change in the future or that its businesses will continue to be classified as essential in each of the jurisdictions in which it operates.

Additionally, restrictions on the Company’s access to its manufacturing facilities or on its support operations or workforce, or similar limitations for its distributors and suppliers, could continue to limit customer demand and/or the Company’s capacity to meet customer demand and have a material adverse effect on its business, financial condition and results of operations. In addition, the Company has modified its business practices (including employee travel, employee work locations, limited/restricted third-party access to the Company's facilities, and cancellation of physical participation in meetings, events and conferences), and may take further actions as may be required by government authorities, for the continued health and safety of its employees, or that the Company otherwise determines are in the best interests of its employees, customers, partners, and suppliers. Further, the Company has experienced disruptions and operational inefficiencies from COVID-19-related illnesses and workforce shortages and may continue to experience such disruptions and operational inefficiencies in the future. The Company may experience delays in its supply chain, which is likely to result in higher supply chain costs to the Company in order to maintain the supply of materials and components for its products.

Managing the impact of COVID-19 on the Company has and will continue to require significant investment of time from its management and employees, as well as resources across its global enterprise. The focus on managing and mitigating the impacts of COVID-19 on the Company’s business may cause it to divert or delay the application of its resources toward other or new initiatives or investments, which may cause a material adverse impact on its results of operations.

The Company may also experience impacts from market downturns and changes in consumer behavior related to pandemic fears and impacts on its workforce as a result of COVID-19. The Company has experienced a significant decline in demand from certain customers as a result of COVID-19. In addition, the Company’s customers may choose to delay or abandon

projects for which the Company provides products and/or services in response to the adverse impact of COVID-19 and the measures to contain its spread have had on the global economy.

In late third quarter 2020, the Thermal Acoustical Solutions segment caused interruption of two customer production lines as a result of labor shortages and operational inefficiencies directly related to COVID-19 causing the Company to invoke force majeure (or excusable delay) with these two customers. A recent resurgence of cases in that same facility has caused the Company to expand its declaration of force majeure (or excusable delay) with most of its automotive customers. If the COVID-19 pandemic becomes more pronounced in the markets in which the Company or its automotive industry customers operate, or there is a resurgence in the virus in markets currently recovering from the spread of COVID-19, then its operations in areas impacted by such events could experience further materially adverse financial impacts due to market changes and other resulting events and circumstances. The extent to which the COVID-19 outbreak continues to impact the Company’s financial condition will depend on future developments that are highly uncertain and are difficult to predict, including new government actions or restrictions, new information that may emerge concerning the severity, the longevity and the impact of COVID-19 on economic activity. To the extent the COVID-19 pandemic materially adversely affects the Company’s business and financial results, it may also have the effect of significantly heightening many of the other risks associated with the Company's business and indebtedness, including those described in the most recent Annual Report on Form 10-K for the year ended December 31, 2019.

The COVID-19 pandemic presents significant challenges to the Company’s liquidity and ability to comply with its financial covenants.

The Company’s continued access to sources of liquidity and ability to comply with its financial covenants depends on multiple factors, including global economic conditions, the COVID-19 pandemic’s effects on its customers and their production rates, the condition of global financial markets, the availability of sufficient amounts of financing, its operating performance and its credit worthiness. The Company relies on the credit markets to provide it with liquidity to operate and grow its businesses beyond the liquidity that operating cash flows provide. In March 2020, the Company drew down an incremental $20.0 million under its 2018 Credit Agreement to provide liquidity as it addresses critical issues that may arise. In addition, on May 11, 2020, the Company amended its 2018 Credit Agreement, which, among other changes, decreased available from $450 million to $314 million and modified financial covenants, at least one of which the Company expected to fail under the 2018 Credit Agreement as early as the second quarter of 2020. As a result of the impacts of the COVID-19 pandemic, the Company's access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, its prospects and its credit ratings. The Company believes that its liquidity resources, including the Facility, are sufficient to meet its working capital needs and other cash requirements. The Company was in compliance with the modified financial covenants as of and for the three-month period ended September 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

The Company may not be able to collect amounts owed to it or sell its inventory due to customers becoming significantly impacted by the COVID-19 pandemic.

The Company may experience an increase in uncollectible receivables if customers are severely impacted by COVID-19 and are unable to pay. Additionally, the Company may experience an increase in inventory write-off charges for those inventory items that have no alternative use for customers that are severely impacted by COVID-19.

Increased cybersecurity vulnerabilities and threats and more sophisticated and targeted computer crime pose a risk to the Company’s systems, networks, and data.

Increased global cybersecurity vulnerabilities and threats and more sophisticated and targeted cyber-related attacks pose an ongoing risk to the security of the Company’s systems and networks and the confidentiality, availability and integrity of the Company’s data. While the Company has not to date suffered a material loss from cyber incidents, from time to time, the Company experiences attacks on its systems and networks, including attacks that introduce malicious software into the Company's systems and networks, or gain access to and manipulate information in order to perpetrate a fraud on the Company or customers. Cyber threats are constantly evolving, thereby increasing the efforts and controls required to prevent, detect and successfully defend against them. While the Company attempts to mitigate these risks by employing a number of measures, including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, the Company remains vulnerable to additional known or unknown threats. Moreover, as a result of the COVID-19 pandemic, a greater number of employees are working remotely, which further increases the Company's vulnerability to the cyber risks. The Company's systems and networks contain sensitive, confidential or personal data or information in certain of the Company’s businesses that is subject to foreign, federal, state and local privacy and security laws, regulations and customer-imposed controls.

Despite efforts made by the Company to protect sensitive, confidential or personal data or information, the Company remains vulnerable to security breaches, ransomware, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance and the compromising or loss of sensitive, confidential or personal data or information could adversely impact the Company's results of operations and cash flows. Although the Company carries cybersecurity insurance, in the event of a cyber incident, that insurance may not be extensive enough or adequate in scope of coverage or amount to cover damages the Company may incur. In addition, a cyber-related attack could result in other negative consequences, including loss of information, damage to the Company’s reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.

The General Data Protection Regulation ("GDPR"), which went into effect in the European Union ("EU") on May 25, 2018, among other things, mandates new requirements regarding the handling of personal data of employees and customers, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. If the Company fails to comply with these laws or regulations, we could be subject to significant litigation, monetary damages, regulatory enforcement actions or fines in one or more jurisdictions.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

During the ~~three months~~three-month period ended September 30, ~~2019,~~2020, the Company acquired ~~354~~1,424 shares of common stock through withholding, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, which allow the Company to withhold the number of shares having fair value equal to each recipient’s tax withholding due.



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number of Shares That May Yet Be Purchased Under the Program
July 1, 2020 - July 31, 2020	1,070	$	15.86	—	—
August 1, 2020 - August 31, 2020	—	$	—	—	—
September 1, 2020 - September 30, 2020	354	$	18.84	—	—
	1,424	$	16.60	—	—

Period
Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program

Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
July 1, 2019 - July 31, 2019 —
$ —
—
—
August 1, 2019 - August 31, 2019 —
$ —
—
—
September 1, 2019 - September 30, 2019 354
$ 19.85
—
—
354
$ 19.85
—
—


Item 5.			Other Information

2020 Amendment to the 2018 Credit Agreement

On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants. See Note 6, "Long-term Debt and Financing Arrangements" and Part 1, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Financing Arrangements” for additional information. A copy of the Amendment is filed herewith as Exhibit 10.2 and incorporated herein by reference. The above description of the Amendment is qualified in its entirety by reference to such exhibit.



~~Item 6.~~	~~Exhibits~~



~~Exhibit~~Item 6.			Exhibits

~~Number~~

	~~Description~~
Exhibit Number		Description
~~31.1~~
10.1		Third Amendment to Second Amended and Restated Credit Agreement, dated May 11, 2020, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.1 to the registrant's Form 10-Q dated May 11, 2020, and incorporated herein by this reference.

10.2		Fourth Amendment to Second Amended and Restated Credit Agreement, dated October 14, 2020, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.2 to the registrant's Form 10-Q dated October 27, 2020, filed herewith.

31.1		Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, of principal executive officer, filed herewith.

31.2		Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, of principal financial officer, filed herewith.

32.1		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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.



	LYDALL, INC.

October ~~29, 2019~~27, 2020	By:	/s/ Randall B. Gonzales
		Randall B. Gonzales Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer)

4857



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



In thousands	Effective Rate		Maturity	September 30, 2019			December 31, 2018
Revolver loan	4.04	%	8/31/2023	$	138,000		$	138,000
Term loan, net of debt issuance costs	4.04	%	8/31/2023	148,578			186,498
Finance leases	0.00% - 2.09%		2019 - 2020	92			315
				286,670			324,813
Less portion due within one year				(9,981		)	(10,172		)
Total long-term debt, net of debt issuance costs				$	276,689		$	314,641


In thousands	Effective Rate		Maturity	September 30, 2020		December 31, 2019
Revolver loan	5.25	%	8/31/2023	$	144,500	$	126,500
Term loan, net of debt issuance costs	5.25	%	8/31/2023	138,536		146,106
Finance leases	1.60	%	10/31/2020	3		35
				283,039		272,641
Less portion due within one year				(9,844)		(9,928)
Total long-term debt, net of debt issuance costs				$	273,195	$	262,713



	September 30, 2019				December 31, 2018
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate contracts	$	10	$	5,433	$	179	$	2,738
Total derivatives	$	10	$	5,433	$	179	$	2,738


	September 30, 2020						December 31, 2019
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts	$	0	$	5,967	$	2	$	4,538
Cross-currency swaps	0		3,310		0		1,817
Total derivatives	$	0	$	9,277	$	2	$	6,355



Total Shares outstanding October 15, ~~2019~~2020			~~17,522,797~~17,733,429



	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	48,919		$	49,237
Accounts receivable, less allowances (2019 - $1,850; 2018 - $1,440)	133,821			144,938
Contract assets	26,804			23,040
Inventories	88,189			84,465
Taxes receivable	2,354			2,912
Prepaid expenses	4,987			4,707
Other current assets	7,743			7,779
Total current assets	312,817			317,078
Property, plant and equipment, at cost	475,395			458,075
Accumulated depreciation	(258,733		)	(244,706		)
Net, property, plant and equipment	216,662			213,369
Operating lease right-of-use assets	24,148			—
Goodwill	195,613			196,963
Other intangible assets, net	120,644			136,604
Other assets, net	9,003			8,672
Total assets	$	878,887		$	872,686
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	9,981		$	10,172
Accounts payable	84,506			73,265
Accrued payroll and other compensation	17,605			16,621
Deferred revenue	2,630			6,990
Other accrued liabilities	26,072			14,298
Total current liabilities	140,794			121,346
Long-term debt	276,689			314,641
Long-term operating lease liabilities	19,241			—
Deferred tax liabilities	36,125			39,265
Benefit plan liabilities	19,827			22,795
Other long-term liabilities	4,540			5,364

Commitments and Contingencies (Note 16)
Stockholders’ equity:
Preferred stock	—			—
Common stock	252			253
Capital in excess of par value	92,720			90,851
Retained earnings	411,090			411,325
Accumulated other comprehensive loss	(31,860		)	(42,685		)
Treasury stock, at cost	(90,531		)	(90,469		)
Total stockholders’ equity	381,671			369,275
Total liabilities and stockholders’ equity	$	878,887		$	872,686



In thousands of dollars and shares	Common Stock Shares		Common Stock Amount		Capital in Excess of Par Value	Retained Earnings	Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
Balance at June 30, 2019	25,235		253		92,297	408,086	(23,007	)	(90,524	)	387,105
Net income						3,004					3,004
Other comprehensive loss, net of tax							(8,853	)			(8,853	)
Stock repurchased									(7	)	(7	)
Stock issued (canceled) under employee plans	(12	)	(1	)	6						5
Stock-based compensation expense					417						417
Balance at September 30, 2019	25,223		252		92,720	411,090	(31,860	)	(90,531	)	381,671



	Quarter Ended September 30, 2019
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	42,693	$	42,128	$	61,315	$	(6,405	)	$	139,731
Europe	15,203		16,544		22,208		(159		)	53,796
Asia	2,104		5,240		4,403		—			11,747
Total Net Sales	$	60,000	$	63,912	$	87,926	$	(6,564	)	$	205,274



	Quarter Ended September 30, 2018
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	29,048	$	44,092	$	58,484	$	(4,891	)	$	126,733
Europe	12,120		18,757		24,183		(225		)	54,835
Asia	552		10,222		5,544		—			16,318
Total Net Sales	$	41,720	$	73,071	$	88,211	$	(5,116	)	$	197,886



	Nine Months Ended September 30, 2018
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	69,088	$	128,788	$	190,385	$	(19,249	)	$	369,012
Europe	34,007		56,197		76,753		(580		)	166,377
Asia	552		27,339		12,679		—			40,570
Total Net Sales	$	103,647	$	212,324	$	279,817	$	(19,829	)	$	575,959



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 5)	129,749
Other intangible assets (Note 5)	106,900
Other assets	308
Total assets acquired, net of cash acquired	$	322,436

Current liabilities	$	(11,319	)
Deferred tax liabilities	(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



	Quarter Ended September 30,				Nine Months Ended September 30,
	(Actual)		(Pro Forma)		(Actual)			(Pro Forma)
In thousands	2019		2018		2019			2018
Net sales	$	205,274	$	220,937	$	644,110		$	678,418
Net income (loss)	$	3,004	$	6,452	$	(52	)	$	29,303

Earnings per share:
Basic	$	0.17	$	0.37	$	—		$	1.70
Diluted	$	0.17	$	0.37	$	—		$	1.69

Basic	17,270		17,216		17,264			17,189
Diluted	17,330		17,349		17,264			17,339



	Quarters Ended September 30,					Nine Months Ended September 30,
In thousands	2019			2018		2019			2018
Cash flow hedges:
Interest rate contracts	$	(148	)	$	14	$	(2,174	)	$	89
	$	(148	)	$	14	$	(2,174	)	$	89



In thousands	Quarter Ended September 30, 2019		Nine Months Ended September 30, 2019
Finance lease expense:
Amortization of right-of-use assets	$	16	$	65
Interest on lease liabilities	—		1
Operating lease expense	1,657		4,906
Short-term lease expense	183		651
Variable lease expense	72		126
Total lease expense	$	1,928	$	5,749



In thousands, except lease term	September 30, 2019
Operating leases:
Operating lease right-of-use assets	$	24,148

Short-term lease liabilities, included in "Other accrued liabilities"	$	4,973
Long-term lease liabilities	19,241
Total operating lease liabilities	$	24,214

Finance leases:
Property, plant and equipment	$	719
Accumulated depreciation	(207		)
Property, plant and equipment, net	$	512

Short-term lease liabilities, included in debt	$	89
Long-term lease liabilities, included in debt	3
Total finance lease liabilities	$	92

Weighted average remaining lease term:
Operating leases	7.4 years
Finance leases	12.6 years



In thousands
Years Ending December 31,	Operating Leases			Finance Leases
2019 (excluding the nine months ended September 30, 2019)	$	1,516		$	58
2020	5,557			35
2021	4,267			—
2022	3,510			—
2023	2,619			—
2024	1,996			—
Thereafter	9,167			—
Total lease payments	28,632			93
Less imputed interest	(4,418		)	(1		)
Total discounted future lease payments	$	24,214		$	92



In thousands except per share amounts	Shares	Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at September 30, 2019	680	$	28.58	$	2,507
Exercisable at September 30, 2019	256	$	29.98	$	989
Unvested at September 30, 2019	424	$	27.73	$	1,518



In thousands	Severance and Related Expenses	Contract Termination Expenses	Facility Exit, Move and Set-up Expenses	Total
Total estimated expenses	1,000	290	2,450	3,740
Expenses incurred through December 31, 2018	787	290	1,882	2,959
Estimated remaining expense at December 31, 2018	213	—	568	781
Expense incurred during quarter ended:
March 31, 2019	16	—	360	376
June 30, 2019	53	—	44	97
September 30, 2019	50	—	67	117
Total pre-tax expense incurred	906	290	2,353	3,549
Estimated remaining expense at September 30, 2019	94	—	97	191



In thousands	Total
Balance as of December 31, 2018	$	147
Pre-tax restructuring expenses, excluding depreciation	591
Cash paid	(661		)
Balance as of September 30, 2019	$	77


In Thousands	Severance and Related Expenses		Facility Exit and Asset Write-Off Expenses		Total
Expense incurred during quarter ended:
September 30, 2020	$	9,484	$	5,500	$	14,984
Total pre-tax expense incurred	$	9,484	$	5,500	$	14,984


In Thousands	Total
Balance as of December 31, 2019	$	0
Pre-tax restructuring expenses, excluding asset write-off expenses	9,485
Cash paid	(203)
Currency translation adjustments	(119)
Balance as of September 30, 2020	$	9,163



	Quarters Ended September 30,						Nine Months Ended September 30,
In thousands	2019			2018			2019			2018
Performance Materials Segment (1):
Filtration	$	22,427		$	22,643		$	71,093		$	68,846
Sealing and Advanced Solutions	37,573			19,077			118,589			34,801
Performance Materials Segment net sales	60,000			41,720			189,682			103,647

Technical Nonwovens Segment (2):
Industrial Filtration	32,935			40,945			114,005			120,346
Advanced Materials (3)	30,977			32,126			84,591			91,978
Technical Nonwovens Segment net sales	63,912			73,071			198,596			212,324

Thermal Acoustical Solutions Segment:
Parts	80,309			77,723			250,591			248,764
Tooling	7,617			10,488			24,920			31,053
Thermal Acoustical Solutions Segment net sales	87,926			88,211			275,511			279,817

Eliminations and Other (3)	(6,564		)	(5,116		)	(19,679		)	(19,829		)
Consolidated Net Sales	$	205,274		$	197,886		$	644,110		$	575,959



In thousands	Foreign Currency Translation Adjustment			Defined Benefit Pension Adjustment				Gains and Losses on Cash Flow Hedges				Total Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2017	$	(2,221	)	$	(18,049	)		$	122			$	(20,148	)
Other comprehensive (loss) income	(9,262		)	—				89			(c)	(9,173		)
Amounts reclassified from accumulated other comprehensive loss	—			595			(a)	—				595
Balance at September 30, 2018	(11,483		)	(17,454		)		211				(28,726		)
Balance at December 31, 2018	(18,458		)	(22,253		)		(1,974		)		(42,685		)
Other comprehensive loss	(6,396		)	—				(2,174		)	(c)	(8,570		)
Amounts reclassified from accumulated other comprehensive loss	—			19,395			(b)	—				19,395
Balance at September 30, 2019	$	(24,854	)	$	(2,858	)		$	(4,148	)		$	(31,860	)


~~(a)~~	~~Amount represents amortization of actuarial losses, a component of net periodic benefit cost. This~~ amount ~~was $0.6 million, net of $0.2 million tax benefit, for the nine months ended September 30, 2018.~~


~~(c)~~	~~Amount represents unrealized gains (losses) on the fair value of hedging activities, net of taxes, for the nine months ended September 30, 2019 and 2018.~~



	Q3 2019					Q3 2018
Components (in thousands except per share amounts)	Operating income effect		EPS impact			Operating income effect		EPS impact
TNW restructuring expenses	(117	)	$	(0.01	)	(519	)	$	(0.03	)
Strategic initiatives expenses	—		$	—		(1,514	)	$	(0.09	)
Inventory step-up purchase accounting adjustments	—		$	—		(1,390	)	$	(0.06	)
Intangible assets amortization expenses	(5,368	)	$	(0.24	)	(2,344	)	$	(0.10	)


~~(1)~~	The Performance Materials segment reports results of Interface and PCC for the period following the date of acquisitions of August 31, 2018 and July 12, 2018, respectively, and included $3.1 million and $11.2 million of incremental intangible assets amortization for the quarter and nine months ended September 30, 2019, respectively.


~~(2)~~	~~The Technical Nonwovens segment reports the results of Geosol through the date of disposition of May 9, 2019.~~


~~(3)~~	Included in the Technical Nonwovens segment and Eliminations and Other is $4.3 million in intercompany sales to the Thermal Acoustical Solutions segment for the quarters ended September 30, 2019 and 2018, and $13.6 million and $17.2 million for the nine months ended September 30, 2019 and 2018, respectively.