UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q
 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2020March 31, 2021
 
OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from           to         
 
Commission File Number: 1-7665 
LYDALL INC /DE/Lydall, Inc.
(Exact name of registrant as specified in its charter)
Delaware06-0865505
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
 
One Colonial Road,Manchester,Connecticut06042
(Address of principal executive offices)(zip code)
 
(860) 646-1233
(Registrant’s telephone number, including area code) 
None
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueLDLNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐Accelerated filer ☒Non-accelerated filer ☐ Smaller reporting company ☐Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Total Shares outstanding JulyApril 15, 2020202117,760,77718,018,995 



LYDALL, INC.
INDEXTABLE OF CONTENTS
 
  Page
Number
3
Part I.Financial InformationI
Item 1. 
 
53
 
64
 
75
 
86
9
 
117
Item 2.
3222
Item 3.
4637
Item 4.
4637
Part II
Part II.Other Information
Item 1.
4838
Item 1A.
4838
Item 2.
5139
Item 5.
40
Item 6.
5241
SignatureSignatures 
5342
































 
2


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 third quarter and full year 2020;
•Ability to improve operational effectiveness;
•Expected vehicle production in the North American, European or Asian markets;
•Growth opportunities in markets served by the Company;
•Expected costs and future savings associated with restructuring, 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;
•Future impact of the variability of interest rates and foreign currency exchange rates and impacts of hedging instruments;
•Expected future impact of recently issued accounting pronouncements upon adoption;
•Future effective income tax rates and realization of deferred tax assets;
•Estimates of fair values of reporting units and long-lived assets used in assessing goodwill and long-lived assets for possible impairment; and
•The expected outcomes of legal proceedings and other contingencies, including environmental matters.
3


All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of the Company to differ materially from those reflected in forward-looking statements made in this Quarterly Report on Form 10-Q, as well as in press releases and other statements made from time to time by the Company’s authorized officers. Such risks and uncertainties include, among others, the duration, severity, and impact of COVID-19 or other new pandemics and the measures taken in response thereto, worldwide economic cycles and political changes and uncertainties that affect the markets which the Company’s businesses serve, which could have an effect on demand for the Company’s products and impact the Company’s profitability; challenges encountered by the Company in the execution of restructuring programs; disruptions in the global credit and financial markets, including diminished liquidity and credit availability; changes in international trade agreements and policies, including tariff regulation and trade restrictions; swings in consumer confidence and spending; unstable economic growth; volatility in foreign currency exchange rates; raw material pricing and supply issues; fluctuations in unemployment rates; retention of key employees; increases in fuel prices; and outcomes of legal proceedings, claims and investigations, as well as other risks and uncertainties identified in Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q, and Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 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.
4



PART I. FINANCIAL INFORMATION

Item 1. Financial StatementsFINANCIAL STATEMENTS

LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Amounts)thousands, except per share amounts) (Unaudited)
 
Three Months Ended  
June 30,		Six Months Ended  
June 30,
2020201920202019For the Three Months Ended  
(Unaudited)(Unaudited)March 31, 2021March 31, 2020
Net salesNet sales$146,160  $220,811  $346,687  $438,836  Net sales$227,099 $200,527 
Cost of salesCost of sales117,742  175,536  279,701  351,505  Cost of sales178,550 161,959 
Gross profitGross profit28,418  45,275  66,986  87,331  Gross profit48,549 38,568 
Selling, product development and administrative expensesSelling, product development and administrative expenses30,164  32,096  63,191  65,102  Selling, product development and administrative expenses35,633 33,027 
Impairment of goodwill and other long-lived assetsImpairment of goodwill and other long-lived assets—  —  61,109  —  Impairment of goodwill and other long-lived assets0 61,109 
Operating (loss) income(1,746) 13,179  (57,314) 22,229  
Restructuring expensesRestructuring expenses777 0 
Operating income (loss)Operating income (loss)12,139 (55,568)
(Gain) loss on the sale of a business(Gain) loss on the sale of a business698 0 
Employee benefit plans settlement expensesEmployee benefit plans settlement expenses—  25,515  385  25,515  Employee benefit plans settlement expenses0 385 
Interest expenseInterest expense4,476  3,731  7,333  7,359  Interest expense3,448 2,857 
Other expense (income), net248  (873) (170) (474) 
Loss before income taxes(6,470) (15,194) (64,862) (10,171) 
Income tax benefit(595) (8,199) (2,610) (7,093) 
Other (income) expense, netOther (income) expense, net86 (418)
Income (loss) before income taxesIncome (loss) before income taxes7,907 (58,392)
Income tax expense (benefit)Income tax expense (benefit)2,821 (2,015)
(Income) loss from equity method investment(Income) loss from equity method investment(18) (49) 26  (22) (Income) loss from equity method investment(8)44 
Net loss$(5,857) $(6,946) $(62,278) $(3,056) 
Loss per share:
Net income (loss)Net income (loss)$5,094 $(56,421)
Earnings (loss) per share:Earnings (loss) per share:
BasicBasic$(0.34) $(0.40) $(3.59) $(0.18) Basic$0.29 $(3.25)
DilutedDiluted$(0.34) $(0.40) $(3.59) $(0.18) Diluted$0.28 $(3.25)
Weighted average number of common shares outstanding:Weighted average number of common shares outstanding:Weighted average number of common shares outstanding:
BasicBasic17,372  17,267  17,354  17,260  Basic17,545 17,336 
DilutedDiluted17,372  17,267  17,354  17,260  Diluted17,888 17,336 
 
See accompanying Notesnotes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.




















53



LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(In Thousands)thousands) (Unaudited)
 
Three Months Ended  
June 30,		Six Months Ended  
June 30,
2020201920202019
(Unaudited)(Unaudited)
Net loss$(5,857) $(6,946) $(62,278) $(3,056) 
Other comprehensive income (loss):
Foreign currency translation adjustments5,146  2,457  (4,811) 2,330  
Pension liability adjustment, net of tax—  19,159  331  19,374  
Unrealized loss on hedging activities, net of tax(685) (1,351) (239) (2,026) 
Comprehensive (loss) income$(1,396) $13,319  $(66,997) $16,622  
For the Three Months Ended  
March 31, 2021March 31, 2020
Net income (loss)$5,094 $(56,421)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(3,014)(9,957)
Pension liability adjustment, net of taxes of $0.1 million and $0.1 million, respectively365 331 
Unrealized gain (loss) on hedging activities, net of taxes of $0.9 million and $0.1 million, respectively3,018 446 
Other comprehensive income (loss)369 (9,180)
Total comprehensive income (loss)$5,463 $(65,601)
 

See accompanying Notesnotes to Condensed Consolidated Financial Statements.condensed consolidated financial statements.
 
4


LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts) (Unaudited)
March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$88,717 $102,176 
Accounts receivable, net of allowance for doubtful accounts of $2,313 and $2,402, respectively135,464 116,947 
Contract assets25,959 32,403 
Inventories81,448 78,996 
Taxes receivable10,031 6,652 
Prepaid expenses4,937 4,870 
Other current assets7,922 7,348 
Total current assets354,478 349,392 
Property, plant and equipment, at cost505,573 506,509 
Accumulated depreciation(295,557)(291,996)
Property, plant and equipment, net210,016 214,513 
Operating lease right-of-use assets26,163 22,243 
Goodwill87,195 87,595 
Other intangible assets, net90,796 95,121 
Other assets, net6,729 6,598 
Total assets$775,377 $775,462 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt$9,789 $9,789 
Accounts payable113,416 101,905 
Accrued payroll and other compensation22,114 24,589 
Accrued taxes8,339 8,214 
Derivative liabilities7,966 11,996 
Restructuring liabilities2,042 9,431 
Other accrued liabilities22,733 21,705 
Total current liabilities186,399 187,629 
Long-term debt251,202 260,649 
Long-term operating lease liabilities21,220 17,947 
Deferred tax liabilities31,411 27,174 
Benefit plan liabilities17,930 21,691 
Other long-term liabilities2,665 2,676 
Commitments and Contingencies (Note 15)00
Stockholders' equity:
Preferred stock, $0.01 per share par value, 500 shares authorized (NaN issued or outstanding)0 0 
Common stock, $0.01 per share par value, 30,000 shares authorized (25,741 and 25,555 shares issued, respectively)257 256 
Capital in excess of par value101,361 99,770 
Retained earnings271,998 266,904 
Accumulated other comprehensive income (loss)(17,973)(18,342)
Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost(91,093)(90,892)
Total stockholders’ equity264,550 257,696 
Total liabilities and stockholders’ equity$775,377 $775,462 
See accompanying notes to condensed consolidated financial statements.
5


LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
For the Three Months Ended
 March 31, 2021March 31, 2020
Cash flows from operating activities:
Net income (loss)$5,094 $(56,421)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization11,366 12,152 
Amortization of debt issuance costs134 78 
Impairment of goodwill and long-lived assets0 61,109 
Deferred income taxes3,224 (2,896)
(Gain) loss on the sale of a business698 0 
Employee benefit plans settlement expenses0 385 
Stock-based compensation1,125 914 
(Gain) loss on disposition of property, plant and equipment0 20 
(Gain) loss from equity method investment(8)44 
Other, net(106)0 
Changes in operating assets and liabilities:
Accounts receivable(21,817)(7,800)
Contract assets6,298 1,313 
Inventories(3,127)(2,026)
Income taxes (receivable) payable(3,424)(546)
Prepaid expenses and other assets(1,053)526 
Accounts payable11,456 21,127 
Accrued payroll and other compensation(2,185)(68)
Deferred revenue21 0 
Accrued taxes payable245 (1,447)
Benefit plan liabilities(3,517)(450)
Other, net(4,204)727 
Net cash provided by (used for) operating activities220 26,741 
Cash flows from investing activities:
Capital expenditures(8,119)(9,157)
Collections of finance receivables1,379 1,658 
Payments from divestitures(2,715)0 
Net cash provided by (used for) investing activities(9,455)(7,499)
Cash flows from financing activities:
Proceeds from borrowings0 20,000 
Debt repayments(9,499)(4,500)
Proceeds from servicing receivables4,557 2,852 
Common stock issued642 31 
Common stock repurchased(201)(8)
Net cash provided by (used for) financing activities(4,501)18,375 
Effect of exchange rate changes on cash277 (1,121)
Increase (decrease) in cash and cash equivalents(13,459)36,496 
Cash and cash equivalents at beginning of period102,176 51,331 
Cash and cash equivalents at end of period$88,717 $87,827 
See accompanying notes to condensed consolidated financial statements.
6


LYDALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30,
2020		December 31,
2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$92,546  $51,331  
Accounts receivable, net of allowance for doubtful accounts of $2,647 and $1,842, respectively100,767  107,786  
Contract assets27,969  28,245  
Inventories80,300  80,544  
Taxes receivable2,235  3,427  
Prepaid expenses4,389  3,814  
Other current assets8,562  8,450  
Total current assets316,768  283,597  
Property, plant and equipment, at cost483,013  487,371  
Accumulated depreciation(276,577) (265,729) 
Property, plant and equipment, net206,436  221,642  
Operating lease right-of-use assets21,392  23,116  
Goodwill83,951  133,912  
Other intangible assets, net104,595  115,577  
Other assets, net7,391  8,093  
Total assets$740,533  $785,937  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$9,855  $9,928  
Accounts payable78,108  73,426  
Accrued payroll and other compensation20,130  17,198  
Accrued taxes11,152  5,638  
Other accrued liabilities25,106  23,668  
Total current liabilities144,351  129,858  
Long-term debt275,655  262,713  
Long-term operating lease liabilities17,157  18,424  
Deferred tax liabilities28,327  34,561  
Benefit plan liabilities18,528  18,957  
Other long-term liabilities3,253  3,004  
Commitments and Contingencies (Note 15)
Stockholders’ equity:
Preferred stock—  —  
Common stock255  253  
Capital in excess of par value95,985  94,140  
Retained earnings278,351  340,629  
Accumulated other comprehensive loss(30,698) (25,979) 
Treasury stock, at cost(90,631) (90,623) 
Total stockholders’ equity253,262  318,420  
Total liabilities and stockholders’ equity$740,533  $785,937  

See accompanying Notes to Condensed Consolidated Financial Statements.
7


LYDALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Six Months Ended June 30,
 20202019
 (Unaudited)
Cash flows from operating activities:
Net loss$(62,278) $(3,056) 
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on divestiture—  (1,459) 
Depreciation and amortization24,842  24,001  
Impairment of goodwill and long-lived assets61,109  —  
Deferred income taxes(6,048) (12,358) 
Employee benefit plans settlement expenses385  25,515  
Stock-based compensation1,799  1,475  
Other, net53  —  
Loss on disposition of property, plant and equipment25  —  
Loss (Income) from equity method investment26  (22) 
Changes in operating assets and liabilities:
Accounts receivable3,063  (1,988) 
Contract assets222  1,231  
Inventories(353) (4,660) 
Accounts payable8,342  10,227  
Accrued payroll and other compensation2,974  3,000  
Accrued taxes5,833  308  
Other, net421  (5,995) 
Net cash provided by operating activities40,415  36,219  
Cash flows from investing activities:
Capital expenditures(15,472) (20,287) 
Collections of finance receivables3,390  —  
Proceeds from divestiture—  2,298  
Proceeds from the sale of property, plant and equipment2  295  
Business acquisitions, net of cash acquired—  869  
Net cash used for investing activities(12,080) (16,825) 
Cash flows from financing activities:
Proceeds from borrowings20,000  —  
Debt repayments(7,001) (25,169) 
Factoring liability458  —  
Common stock issued33  —  
Common stock repurchased(8) (43) 
Net cash provided by (used for) financing activities13,482  (25,212) 
Effect of exchange rate changes on cash(602) (3) 
Increase (decrease) in cash and cash equivalents41,215  (5,821) 
Cash and cash equivalents at beginning of period51,331  49,237  
Cash and cash equivalents at end of period$92,546  $43,416  
Non-cash capital expenditures of $2.7 million and $2.3 million were included in accounts payable at June 30, 2020 and 2019, respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
8


LYDALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

For the Three Months Ended June 30, 2020
In thousands of dollars and sharesCommon Stock SharesCommon Stock AmountCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Equity
Balance at March 31, 202025,401  $254  $94,905  $284,208  $(35,159) $(90,631) $253,577  
Net loss   (5,857)   (5,857) 
Other comprehensive income, net of tax    4,461   4,461  
Stock issued under employee plans23  1      1  
Stock-based compensation expense  720     720  
Stock issued to directors43   360     360  
Balance at June 30, 202025,467  $255  $95,985  $278,351  $(30,698) $(90,631) $253,262  


For the Six Months Ended June 30, 2020
In thousands of dollars and sharesCommon Stock SharesCommon Stock AmountCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Equity
Balance at December 31, 201925,328  $253  $94,140  $340,629  $(25,979) $(90,623) $318,420  
Net loss   (62,278)   (62,278) 
Other comprehensive loss, net of tax    (4,719)  (4,719) 
Stock repurchased     (8) (8) 
Stock issued under employee plans93  2  30     32  
Stock-based compensation expense  1,455     1,455  
Stock issued to directors46   360     360  
Balance at June 30, 202025,467  $255  $95,985  $278,351  $(30,698) $(90,631) $253,262  


See accompanying Notes to Condensed Consolidated Financial Statements.













9


LYDALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - CONTINUED
(Unaudited)

For the Three Months Ended June 30, 2019
In thousands of dollars and sharesCommon Stock SharesCommon Stock AmountCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Equity
Balance at March 31, 201925,228  $252  $91,713  $415,032  $(43,272) $(90,511) $373,214  
Net loss   (6,946)   (6,946) 
Other comprehensive income, net of tax    20,265   20,265  
Stock repurchased     (13) (13) 
Stock issued (canceled) under employee plans(3) 1  12     13  
Stock-based compensation expense  332     332  
Stock issued to directors10   240     240  
Balance at June 30, 201925,235  $253  $92,297  $408,086  $(23,007) $(90,524) $387,105  


For the Six Months Ended June 30, 2019
In thousands of dollars and sharesCommon Stock SharesCommon Stock AmountCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive LossTreasury StockTotal Stockholders' Equity
Balance at December 31, 201825,254  $253  $90,851  $411,325  $(42,685) $(90,469) $369,275  
Net loss   (3,056)   (3,056) 
Other comprehensive income, net of tax    19,678   19,678  
Stock repurchased     (55) (55) 
Stock issued (canceled) under employee plans(29)  12     12  
Stock-based compensation expense  1,194     1,194  
Stock issued to directors10   240     240  
Adoption of ASC 606 (1)
   (183)   (183) 
Balance at June 30, 201925,235  $253  $92,297  $408,086  $(23,007) $(90,524) $387,105  

(1) During the three-month period 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.


See accompanying Notes to Condensed Consolidated Financial Statements.

10


LYDALL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. Basis of Financial Statement Presentation
Description of Business

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

Recent Developments - COVID-19

The impact of the novel strain of the coronavirus identified in late 2019 (“COVID-19”) has grown throughout the world, including in all global and regional markets served by the Company. During the first quarter of 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 the 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 did not resume operations until late February and other facilities ramped back up moderately, in line with customer demand, during the second quarter. Although the Company is beginning to see an increase in orders, it does not expect operations supporting the automotive markets to reach pre-COVID-19 production levels in the near term.
Thermal Acoustical Solutions (“TAS”) Developments

As previously disclosed, the Company ramped down its Thermal Acoustical Solutions operations in North Carolina, 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 quarter of 2020, TAS sales were down 11.2% from 2019 as the pandemic expanded. April’s parts sales were heavily impacted by customer shutdowns with sales declining approximately 90% from the previous year. TAS began to ramp up production in mid-May 2020 in North America and Europe as customers began to re-open their plants in these regions, with sequential monthly sales growth in both May and June. However, given the facility shutdowns early in the quarter, parts sales in the second quarter were down 62.1% from the previous year.

Technical Nonwovens (“TNW”) Developments

During the first quarter of 2020, TNW experienced slowdowns in all geographic locations except Canada; predominantly in its facilities in South Carolina, the United Kingdom and China operations. 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 quarter of 2020 declined 12.5% from the comparable period in 2019. In the second quarter, softer industrial end markets and lower sales into automotive applications resulted in year over year sales decline in both April and May periods. While down from the prior year, sales in June increased sequentially from May, with seasonal increases in demand for geosynthetics and higher automotive demand partially offsetting weaker industrial end markets. Second quarter sales were down 25.0% in Industrial Filtration and 9.3% in Advanced Materials businesses.

Performance Materials (“PM”) Developments

Performance Materials’ sealing businesses also experienced slowdowns during the first quarter of 2020 as a result of its exposure to automotive end market applications, impacting the Sealing and Advanced Solutions business. In contrast, PM’s Filtration business has been deemed an essential supplier to certain customers which has driven incremental demand in specialty filtration product lines, including media used in N95 respirator, surgical, and medical masks. PM’s sales in the first quarter of 2020 were up 1.0% from the comparative period in 2019. PM’s Filtration sales were very strong in April, with gains of approximately 20.0% from the prior year, and this demand continued through the remainder of the quarter, with second quarter Filtration sales up 19.8% from the previous year. In contrast, exposure to automotive and other end markets resulted in sales decline of approximately 28.6% in the Sealing and Advanced Solutions business, with year over year sales declines spread across all months.

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

Any ramp up of production continues to be dependent on the Company’s customers resuming operations and no additional outbreaks of COVID-19 that could cause a second slow-down 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 stabilize in the third quarter, but that volumes in the second half of 2020 will 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 to face continued headwinds in its Performance Material's sealing businesses but stronger demand for filtration products is expected to offset this. Additionally, the Company expects seasonally strong construction activity driving geosynthetic demand, coupled with stable demand for medical related nonwoven products, to be offset by softness in industrial end markets in its Technical Nonwovens segment in the second half of 2020.

Liquidity and Cash Preservation

The recent automotive production ramp down across most of the world has impacted the Company's daily working capital significantly. The Company experienced working capital cash flow improvements through June 30, 2020 but does not expect the benefits to continue if production does not further ramp up. Upon ramping up production, the Company expects initial cash outflows to support working capital requirements and capital projects for its investments in new meltblown production equipment followed by a more normalized working capital flow over time.

The Company has also taken 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. With these actions initiated in early 2020, the Company has reduced its monthly cash expenditures and plans to continue to do so as long as 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 June 30, 2020, the Company benefited from $1.7 million in social cost reimbursements predominately in Europe and China. The Company plans to continue to pursue, wherever it qualifies, governmental assistance. The Company may also take advantage of governmental programs such as the Main Street Lending Program, to help defray costs. 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 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.

In addition to the significant measures taken to reduce and contain costs, the Company took action 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. The Company was in compliance with those modified financial covenants as of and for the three-month period ended June 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

During the first half of 2020, the Company generated $40.4 million of net cash provided by operations and had cash on hand of $92.5 million as of June 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.



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Steps Taken to Protect Employees

The Company continues to monitor the global outbreak and spread of COVID-19 and to take steps to mitigate the potential risks to the Company and its employees posed by its spread and related circumstances and economic impacts. As the Company’s operations ramp up production and bring employees back to work, it has implemented changes to help ensure the safety and health of all our 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 FINANCIAL STATEMENT PRESENTATION

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements include the accounts of Lydall, Inc. and its subsidiaries.subsidiaries (collectively, “Lydall”, "the Company”, “we”, and “our”). All financial information is unaudited for the interim periods reported. All significant intercompany transactions have been eliminated in the Condensed Consolidated Financial Statements. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principlesU.S. generally accepted in the United States of Americaaccounting principles (“U.S. GAAP”). The year-end Condensed Consolidated Balance Sheet wasamounts have been derived from the audited financial statements for the year ended December 31, 2019,2020, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the condensed consolidated financial information reflects all adjustments necessary for a fair statement of the Company’s consolidated financial position, results of operations, and cash flows for the interim periods reported, but do not include all the disclosures required by U.S. GAAP. All such adjustments are of a normal recurring nature, unless otherwise disclosed in this report. Certain amounts in prior year financial statements and notes thereto have been reclassified to conform to current year presentation. The statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.

UseAdditional Cash Flow Information

Non-cash investing activities include non-cash capital expenditures of Estimates$1.6 million and $2.3 million that were included in Accounts payable on the Company's Condensed Consolidated Statements of Cash Flows at March 31, 2021 and 2020, respectively.

Risks and Uncertainties

Worldwide economic cycles, political changes, and the COVID-19 pandemic affect the markets that the Company’s businesses serve, affect demand for the Company's products, and could impact profitability. Among other factors, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, changes in international trade agreements, swings in consumer confidence and spending, and unstable economic growth, disruptions to the global automotive supply chain, and fluctuations in unemployment rates have caused economic instability and can have a negative impact on the Company’s results of operations, financial condition, and liquidity.

Transfers of Financial Assets 

The preparationCompany accounts for transfers of condensed consolidated financial statementsassets as sold when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company's continuing involvement with the assets transferred. Gains or losses and any expenditures stemming from the transfers are included in conformity with U.S. GAAP requires management to make estimates and assumptions that affectOther (income) expense, net on the reported amountsCompany's Condensed Consolidated Statements of assetsOperations. Assets obtained and liabilities andincurred in connection with transfers reported as sold are initially recognized on the disclosure of contingent assets and liabilitiesCompany's Condensed Consolidated Balance Sheets 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 as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19. 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 Adoptedfair value.

Effective January 1, 2020,The Company maintains arrangements with banking institutions to sell trade accounts receivable balances for select customers. Under the programs, the Company adoptedhas no risk of loss due to credit default and is charged a fee based on the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("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. Thenominal 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 has determinedservices the only financial assets subjecttrade receivables after the sale to the new standard are itsbank and receives 90.0% of the trade receivables in cash at the time of sale and contract assets. The adoptionthe remaining 10.0% in cash, net of this ASU did not have any impact onfees, when the Company’s consolidated financial statementscustomer pays. Total trade accounts receivable balances sold under both arrangements were $34.1 million and disclosures.$32.7 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total cash received was $31.2 million and $30.2 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total fees incurred were $0.1 million and $0.1 million during the three-month periods ended March 31, 2021 and 2020, respectively.

Effective January 1, 2020,The Company's senior secured revolving credit agreement permits the Company adopted the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirementssell trade accounts receivable balances to approved third parties in connection with Receivable Purchases Agreements, or other similar agreements. At any given time, outstanding trade accounts receivable balances sold cannot exceed $10.0 million for Fair Value Measurement," which adds, amendsa certain approved customer and removes certain disclosure requirements related to fair value measurements.  Among$50.0 million in aggregate for any 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, “Impairmentsapproved group 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.customers.


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
7
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provider.  The adoption of this ASU did not have any impact on the Company’s consolidated financial statements and disclosures.2. RECENT ACCOUNTING STANDARDS

Recent Accounting Standards Adopted

In March 2020,December 2019, the FASB issued ASU 2020-04, "Reference Rate Reform2019-12, "Income Taxes (Topic 848); Facilitation740): 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 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 issame topic. This ASU was effective for transactions entered into between March 12,fiscal years and interim periods beginning after December 15, 2020 and December 31, 2022.with early adoption permitted. The Company adopted this ASU upon issuance and notesthere was no material impact to the Company's consolidated financial statementsConsolidated Financial Statements and disclosures as of June 30, 2020.March 31, 2021.

Recent Accounting Pronouncements Not Yet Adopted

In January 2020, the FASB issued ASU 2020-01, "Investments— "Investments - Equity Securities (Topic 321), Investments—Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." The amendments in this update are intended to reduce diversity in practice and increase comparability of the accounting for interaction of equity securities, investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU iswas effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluatingadopted this ASU upon issuance and notes that it did not have a material impact on the impactCompany's Consolidated Financial Statements and disclosures as of this update on its consolidated financial statements and related disclosures.March 31, 2021.

In December 2019,March 2020, the FASB issued ASU 2019-12, "Income Taxes2020-04, "Reference Rate Reform (Topic 740)848): SimplifyingFacilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments in this update are elective, and provide optional expedients and exceptions in accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01 to provide additional clarity around Topic 848. Specifically, certain provisions of Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance in this update is effective for transactions entered into between March 12, 2020 and December 31, 2022. The Company adopted this ASU upon issuance and there was no material impact to the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.

In October 2020, the FASB issued ASU 2020-10, "Codification Improvements." The amendments in this update are intended to clarify the location of certain disclosure guidance within the ASC, as well as clarify certain guidance in cases where the original guidance may have been unclear. These amendments do not change U.S. GAAP. This ASU was effective for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this ASU upon issuance and notes no impact to the Company's Consolidated Financial Statements and disclosures as of March 31, 2021.

Recent Accounting for Income Taxes"Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)." The new standard isamendments in this update are intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740,convertible debt instruments and by clarifying and amending existing guidance in other areas of the same topic.convertible preferred stock. This ASU is effective for fiscal years and interim periods beginning after December 15, 20202021 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 impactdoes not expect the adoption of this ASU willupdate to have a material impact on its consolidated financial statementsConsolidated Financial Statements and 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, 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, 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 sell trade accounts receivable balances for select customers. Under the programs, the Company has no risk of loss due to credit default, with the exception of $0.5 million of trade accounts receivable balances sold from our foreign operations, 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 six-month periods ended June 30, 2020, under both programs, the Company sold $10.3 million and $43.0 million, respectively, in trade receivable balances, received $40.0 million in total cash under the programs, and incurred $0.1 million in fees.  The Company expects to receive the remainder, net of fees, in the third quarter of 2020.


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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 Operations or Condensed Consolidated Statements of Cash Flows. Management has concluded that such errors did not result in the previously issued unaudited financial statements being materially misstated. The Company will revise the Condensed Consolidated Statements of Comprehensive Income for the nine-month period ended September 30, 2019 in connection with the future filing of its Quarterly Report on Form 10-Q for the period ended September 30, 2020. In connection with the filing of this Quarterly Report on Form 10-Q, the Company did, however, revise the Condensed Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended June 30, 2019 as follows:

Three Months Ended June 30, 2019Six Months Ended June 30, 2019
In thousandsAs reportedAs revisedAs reportedAs revised
Pension liability adjustment, net of tax$143  $19,159  $358  $19,374  
Comprehensive (loss) income$(5,697) $13,319  $(2,394) $16,622  

2. Revenue from Contracts with Customers3. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company accounts for revenue in accordance with ASC 606, "Revenue from Contracts fromwith Customers". Revenues are generated from the design and manufacture of specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when the control of products passes to the Company’s customers which can be either at a point in time or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of the Company’s products and revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process. The Company analyzes several factors, including, but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition. Unfulfilled performance obligations are generally expected to be satisfied within one year.



8


Contract Assets and Liabilities

The Company’s contract assets primarily include unbilled amounts typically resulting from sales under contracts when the over time method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. These unbilled accounts receivable in contract assets are transferred to accounts receivable upon invoicing, typically when the right to payment becomes unconditional, in which case payment is due based only upon the passage of time.

The Company’s contract liabilities primarily relate to billings and advance payments received from customers and deferred revenue. These contract liabilities represent the Company’s obligation to transfer its products to its customers for which the Company has received, or is owed, consideration from its customers. Contract liabilities are included in Other long-termaccrued liabilities onin the Company’sCompany's Condensed Consolidated Balance Sheets.

Contract assets and liabilities consisted of the following:
In thousandsIn thousandsJune 30, 2020December 31, 2019Dollar ChangeIn thousandsAt March 31, 2021At December 31, 2020Dollar Change
Contract assetsContract assets$27,969  $28,245  $(276) Contract assets$25,959 $32,403 $(6,444)
Contract liabilitiesContract liabilities$3,762  $1,441  $2,321  Contract liabilities$3,786 $3,686 $100 

The $0.3$6.4 million decrease in contract assets from December 31, 20192020 to June 30, 2020March 31, 2021 was primarily due to timing of tooling billings to customers.customers and to a lesser extent, the billings on last-time buys of membrane-based filtration media initiated in December 2020 in the Company's Netherlands facility.

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The $2.3$0.1 million increase in contract liabilities from December 31, 20192020 to June 30, 2020March 31, 2021 was primarily due to an increase in customer deposits, offset by $0.9$1.4 million of revenue recognized in the first sixthree months of 20202021 related to contract liabilities at December 31, 2019.2020.

Disaggregated Revenue

The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing, and uncertainty of the Company's revenuerevenues and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three-month and six-month periods ended June 30, 2020March 31, 2021 and 20192020 were as follows:
For the Three Months Ended June 30, 2020
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsEliminations and OtherConsolidated Net Sales
North America$40,190  $31,236  $22,575  $(1,668) $92,333  
Europe16,501  15,418  11,424  (100) 43,243  
Asia1,782  5,353  3,449  —  10,584  
Total Net Sales$58,473  $52,007  $37,448  $(1,768) $146,160  
For the Three Months Ended March 31, 2021For the Three Months Ended March 31, 2020
In thousandsNorth AmericaEuropeAsiaTotal Net SalesNorth AmericaEuropeAsiaTotal Net Sales
Performance Materials$58,874 $16,924 $3,535 $79,333 $45,917 $17,275 $2,028 $65,220 
Technical Nonwovens35,838 16,899 8,938 61,675 35,731 16,938 4,734 57,403 
Thermal Acoustical Solutions60,653 26,113 4,278 91,044 57,101 23,540 3,120 83,761 
Eliminations and Other(4,678)(275)0 (4,953)(5,677)(180)0 (5,857)
Total net sales$150,687 $59,661 $16,751 $227,099 $133,072 $57,573 $9,882 $200,527 

For the Three Months Ended June 30, 2019
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsEliminations and OtherConsolidated Net Sales
North America$47,822  $42,667  $64,235  $(6,466) $148,258  
Europe15,729  17,791  25,203  (175) 58,548  
Asia1,551  8,620  3,834  —  14,005  
Total Net Sales$65,102  $69,078  $93,272  $(6,641) $220,811  


For the Six Months Ended June 30, 2020
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsEliminations and OtherConsolidated Net Sales
North America$86,107  $66,967  $79,676  $(7,345) $225,405  
Europe33,776  32,356  34,964  (280) 100,816  
Asia3,810  10,087  6,569  —  20,466  
Total Net Sales$123,693  $109,410  $121,209  $(7,625) $346,687  


For the Six Months Ended June 30, 2019
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsEliminations and OtherConsolidated Net Sales
North America$94,199  $79,856  $127,837  $(12,734) $289,158  
Europe32,386  36,840  51,645  (381) 120,490  
Asia3,097  17,988  8,103  —  29,188  
Total Net Sales$129,682  $134,684  $187,585  $(13,115) $438,836  








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3. Inventories4. INVENTORIES
 
Inventories as of June 30, 2020March 31, 2021 and December 31, 20192020 were as follows:
In thousandsIn thousandsJune 30,
2020		December 31,
2019		In thousandsAt March 31, 2021At December 31, 2020
Raw materialsRaw materials$35,148  $36,322  Raw materials$37,116 $32,258 
Work in processWork in process15,531  14,873  Work in process16,504 17,087 
Finished goodsFinished goods29,621  29,349  Finished goods27,828 29,651 
Total inventoriesTotal inventories$80,300  $80,544  Total inventories$81,448 $78,996 
Included in workWork in process isincludes net tooling inventory of $2.2$3.2 million and $1.8$2.8 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
 
4. Goodwill and Other Intangible Assets5. GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill:Goodwill

The Company testsperforms 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 June 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 six-month period ended June 30, 2020 were as follows:
In thousandsDecember 31,
2019		Currency translation adjustmentsImpairmentJune 30,
2020
Performance Materials$80,658  $(45) $(48,671) $31,942  
Technical Nonwovens53,254  (1,245) —  52,009  
Total goodwill$133,912  $(1,290) $(48,671) $83,951  

Goodwill Impairment

During the three-month period ended March 31, 2020,2021.

The following table sets forth the change in carrying value of goodwill for each reportable segment and for the Company performed a goodwill impairment analysis in the Performance Materials and Technical Nonwovens reporting units and recorded a goodwill impairment chargeas of $48.7 million in the Performance Materials reporting unit. See Note 5, "Impairments of Goodwill and Other Long-Lived Assets", for further discussion of the goodwill impairment.March 31, 2021:
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsTotal
Gross balance at December 31, 2020$143,659 $55,607 $12,160 $211,426 
Accumulated impairment(111,671)0 (12,160)(123,831)
Net balance at December 31, 202031,988 55,607 0 87,595 
Foreign currency translation(23)(377)0 (400)
Net balance at March 31, 2021$31,965 $55,230 $0 $87,195 

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, as of March 31, 2021 and December 31, 2020. These amounts are included in “OtherOther intangible assets, net” innet on the Company's Condensed Consolidated Balance Sheets asSheets.
 At March 31, 2021At December 31, 2020
In thousandsAmortization PeriodGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortized intangible assets    
Customer Relationships10 - 14 years$143,184 $(53,970)$143,479 $(50,076)
Patents28 years650 (619)650 (616)
Technology15 years2,500 (1,185)2,500 (1,144)
Trade Names3 - 5 years7,446 (7,210)7,495 (7,167)
License Agreements10 years0 0 185 (185)
Other7 - 15 years459 (459)467 (467)
Total other intangible assets$154,239 $(63,443)$154,776 $(59,655)

Estimated amortization expense for total intangible assets is expected to be $16.5 million, $14.5 million, $12.8 million, $11.4 million, $9.8 million and $30.1 million, for each of June 30, 2020 andthe years ending December 31, 2019:2021 through 2025 and thereafter, respectively.
 June 30, 2020December 31, 2019
In thousandsGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortized intangible assets    
Customer Relationships$141,462  $(39,622) $142,400  $(30,648) 
Patents760  (661) 759  (607) 
Technology2,500  (1,060) 2,500  (977) 
Trade Names7,205  (5,989) 7,293  (5,143) 
License Agreements611  (611) 610  (610) 
Other550  (550) 551  (551) 
Total amortized intangible assets$153,088  $(48,493) $154,113  $(38,536) 



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5. Impairments of Goodwill and Other Long-Lived Assets6. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

DuringThe long-term debt payable under the three-month period endedCompany’s amended and restated 2018 senior secured revolving credit agreement (as amended to-date, the "2018 Amended Credit Agreement") at March 31, 2021 and December 31, 2020 the Company experienced disruptions in some operations from lower customer demand directly attributable to the COVID-19 pandemic. Many of the Company's automotive customers temporarily ceased operations due to the impact of the COVID-19 pandemic on the global economy resulting in the following:consisted of:

•
In thousandsEffective RateMaturityAt March 31, 2021At December 31, 2020
Revolver loan4.25 %8/31/2023$127,500 $134,500 
Term loan, net of debt issuance costs4.25 %8/31/2023133,491 135,938 
   260,991 270,438 
Less portion due within one year  (9,789)(9,789)
Total long-term debt, net of debt issuance costs  $251,202 $260,649 
The Company’s China facilities carried out a planned shut down in conjunction withweighted average interest rate on long-term debt was 5.1% and 4.4%, for the lunar New Year in late January which was extended to late February as a result of government imposed restrictions.  The facilities did not resume operations until late Februarythree-month periods ending March 31, 2021 and ramped back up moderately in line with customer demand. Currently, all of the Company’s plants in China are operating and all of its automotive customer plants in China have re-opened.  The Company has not experienced any significant disruption it its supply chains in China since resuming operations;2020, respectively.

•Total amortization expense of debt issuance costs was $0.1 million and $0.1 million for the three-month periods ending March 31, 2021 and On March 20, 2020 the Company announced ramp downs at its Thermal Acoustical Solutions ("TAS") operations in North America and Europe as a direct result of customer stoppages;, respectively.

•Leading economic indicators began to signal a broad economic recessionAt March 31, 2021, the Company had amounts available for borrowing of $40.7 million under the 2018 Amended Credit Agreement, net of $127.5 million outstanding under the revolver facility and a future decline in automotive sales;standby letters of credit outstanding of $1.8 million.

•Certain ofIn addition to the Company’s Performance Materials ("PM") and Technical Nonwovens ("TNW") operations with exposure to automotive end markets also experienced reductions in sales, which, in some cases, have been partially offset by increases in sales of other products. These operations also have exposure toamounts outstanding under the 2018 Amended Credit Agreement, the Company has various industrial end markets. Leading economic indicators for certain of these markets also began signaling a downturn in demand; and
•The Company's share price and market capitalization experienced a significant decline.

The Company considered the combination of the above to be triggering events that required an impairment analysis for the goodwill held at the PM and TNW reporting units, and for certain long-lived assets. Therefore, during the three-month period endedforeign credit facilities totaling approximately $10.8 million. At March 31, 2020, in accordance with both ASC 350 Intangibles - Goodwill2021 and Other, and with ASC 360 Property, Plant & Equipment, the Company performed an impairment analysis of its goodwill held by the PM and TNW reporting units, and on certain of its long-lived assets (principally land, machinery and equipment, customer relationships, and buildings and improvements).

As a result of these impairment tests, the Company recorded the following impairment charges during the three-month period ended March 31, 2020:
In thousandsPerformance MaterialsTechnical NonwovensThermal Acoustical SolutionsTotals
Impairment of goodwill$48,671  $—  $—  $48,671  
Impairment of other long-lived assets12,438  —  —  12,438  
Total impairments$61,109  $—  $—  $61,109  
Goodwill

During the three-month period ended MarchDecember 31, 2020, the Company performed a quantitative goodwill impairment assessment for both the PMCompany's foreign subsidiaries had $1.2 million and TNW reporting units. In the quantitative impairment assessment, the Company weighted equally both an income approach (discounted cash flow model) and a market approach to determine the fair value$1.4 million, respectively, in standby letters of the reporting units. The Company’s significant assumptions in the discounted cash flow model included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate.

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. Projected future cash flows includes management estimates and assumptions that are based on the best available information as of the date of the assessment.  Future cash flows can be affected by numerous factors including changes in economic, industry or market conditions, changes in the underlying business or products of the reporting unit, changes in competition and changes in technology. The cash flows of the Company's reporting units can be significantly affected by the depth of the estimated decline in automotive and other end markets and our estimates of the pace and level of their recovery as well as the ability of the Company to increase production in response to the recovery.

The weighted average cost of capital for the PM reporting unit increased from 9.2 percent in the three-month period ended December 31, 2019 to 11.5 percent in the three-month period ended March 31, 2020. The weighted average cost of capital for the TNW reporting unit increased from 9.2 percent in the three-month period ended December 31, 2019 to 10.8 percent in the
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three-month period ended March 31, 2020. There are inherent uncertainties and management judgment required in an analysis of goodwill impairment. The Company believes the income approach was appropriate because it provided a fair value estimate based upon the reporting unit's expected long-term operations and cash flow performance.credit outstanding under these foreign credit facilities.

The Company also usedhas entered into an interest rate swap to convert a formportion of the market approach, which was derivedCompany's borrowings from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the marketsa variable rate to a fixed rate. See Note 7, "Derivatives," in which the reporting unit operates giving considerationthese Notes to risk profiles, size, geography, and diversity of products and services. The EBITDA multiples used in the market approachCondensed Consolidated Financial Statements for both reporting units declined from the three-month period ended December 31, 2019 to the three-month period ended March 31, 2020 due to market-related changes in the industries in which these reporting units operate as a result of COVID-19.

Other assumptions included adding an implied control premium to the valuation based on estimating the fair value on a controlling basis, which was derived from research on control premiums observed in recent mergers and acquisitions in the industries in which the Company operates. The control premium for both reporting units increased by 5 percent from the three-month period ended December 31, 2019 to the three-month period ended March 31, 2020. Control premiums can be higher in periods of depressed stock prices. The Company believes the market approach was appropriate because it provided a fair value using multiples from companies with operations and economic characteristics similar to the PM reporting unit.

The Company also performed an overall reconciliation to corroborate the fair value derived from the income and market approaches to the Company's overall market capitalization. The revised projections, together with a deterioration in the inputs described above, drove a reduction in the fair value of both reporting units. As a result, the carrying value of the PM reporting unit was determined to exceed its fair value by $48.7 million, resulting in the impairment charge. After the impairment charge incurred during the three-month period ended March 31, 2020, the remaining goodwill associated with the PM reporting unit was $31.9 million. The fair value of the TNW reporting unit exceeded its carrying value and therefore no impairment was required. Any declines in financial projections, including changes to key assumptions, could have a material adverse impact on the fair value of the reporting units, and therefore could result in further impairment charges.

In the three-month period ended December 31, 2019, as part of its annual impairment assessment, the Company determined that the fair value of the PM reporting unit was less than its carrying value and recorded a goodwill impairment of $63.0 million.

Other Long-Lived Assets

During the three-month period ended March 31, 2020, the Company performed the following impairment assessments for long lived assets in accordance with ASC 360:

•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 actions. One such action was a review of a low-performing European plant within the PM 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. To determine the recoverability of this asset group, the Company completed an undiscounted cash flow analysis (income approach) and compared it to the asset group carrying value. The impairment test concluded that the assets were not recoverable as the resulting undiscounted cash flows were less than their carrying amount. The Company determined that the carrying value of the assets exceeded their fair value and recorded a long-lived asset impairment charge of $12.4 million.

•As a result of the temporary plant closures announced on March 20, 2020 in response to the COVID-19 pandemic's effects on the automotive sector, the Company performed impairment assessments on the long-lived assets for its TAS plants. The Company considered each operating plant's asset group, primarily consisting of machinery and equipment, and buildings and improvements. To determine the recoverability of each asset group, the Company completed an undiscounted cash flow analysis (income approach) and compared it to each asset groups' carrying value. For two of the asset groups, the undiscounted cash flows exceeded the carrying value of the asset group so no further assessment of impairment was necessary. For two of the European plants, the undiscounted cash flows did not exceed the plants' carrying values. As part of step two of the impairment assessment, the Company used the market approach to determine fair value based on independent appraisals of the long-lived assets. The Company determined that impairment was not necessary since the fair value of the long-lived asset groups for each operating plant exceeded their carrying amounts.

There were no events or circumstances during the three-month period ended June 30, 2020 that indicated any further triggering events under ASC 360 were present. Changes in future operating results could result in a future non-cash impairment charge.

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During the three-month period ended December 31, 2019, the Company determined that fair value of a certain asset group in the PM segment exceeded its carrying value and recorded a long-lived asset impairment charge of $1.2 million.

6. Long-term Debt and Financing Arrangementsadditional information.

On August 31, 2018,April 26, 2021, the Company amendedreplaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and restated its $175among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders, increasing total borrowings from $314.0 million to $346.0 million. The 2021 senior secured revolving credit agreement ("2018has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currencies loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million (the revolving facility and the term loan facility are collectively referred to as the “2021 Credit Agreement"Facility”) which increased the available borrowing from $175 million to $450 million, added three additional lenders and extended the maturity date from July 7,. The 2021 to August 31, 2023. On May 11, 2020,Credit Facility includes an accordion feature permitting the Company amended itsto request an increase of up to $150.0 million in the aggregate. The proceeds of the 2021 Credit Facility will be used to (a) refinance indebtedness and commitments outstanding under the existing 2018 Amended Credit Agreement, ("2020 Amendment") which, among(b) pay fees and expenses incurred in connection with the 2021 Credit Facility, and (c) provide ongoing working capital and for other changes, decreased borrowings from $450 million to $314 million and modified certain financial covenants contained in the 2018general corporate purposes. The 2021 Credit Agreement.Facility matures on April 26, 2026.

2018The term loan facility requires quarterly payments of principal at the rate of $2.2 million, with the remaining balance due in the final quarter of the 2021 Credit AgreementFacility’s term. The Company is permitted to prepay amounts outstanding under the 2021 Credit Facility, in whole or in part, at any time without premium or penalty, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments.

The Lenders have been granted a security interest in substantially all of Lydall Inc.'s and its domestic subsidiaries’ personal property and other assets (including intellectual property), including a pledge of 65% of the Company’s equity interest in certain foreign subsidiaries and 100% of the Company’s equity interest in its domestic subsidiaries, as collateral for the Company’s obligations under the 2021 Credit Facility.

Under the terms of the 20182021 Credit Agreement, the lenders provided up to a $450 million credit facility (the “Facility”) to the Company, including a term loan commitment of $200 million and revolving loans to or for the benefit of the Company and its subsidiaries of up to $250 million. The Facility, was secured by substantially all of the assets of the Company.

Interest wasinterest is charged on borrowings, at the Company’s option, of either: (i) Base RateLIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Rate,Margin, or (ii) for U.S. denominated loans the Eurodollar Rate plus the Applicable Rate. The Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by Bank of America,the Administrative Agent, and (c) the Eurocurrency Rateone month
11


LIBOR (adjusted daily) plus 1.00%., plus the Applicable Margin. The Eurocurrency Rate means (i) if denominated in LIBOR quoted currency, a fluctuating LIBORApplicable Margin is 2.00% per annum rate equal toin the London Interbank Offered Rate; (ii) if denominated in Canadian Dollars, the ratecase of LIBOR and alternative currency loans and letters of credit and 1.00% per annum equal toin the Canadian Dollar Offered Rate; or (iii)case of Base Rate loans for the rate per annum as designated with respect to such alternative currency atfirst full fiscal quarter following the time such alternative currency is approved byclosing date of the Lenders. The2021 Credit Facility. Thereafter, the Applicable RateMargin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 20182021 Credit Agreement). The Applicable Rate addedFacility), which ranges from 1.25% to the2.50% per annum for LIBOR and alternative currency loans and letters of credit, and ranges from 0.25% to 1.50% per annum for Base Rate Committed Loans ranged from 0.00% to 1.25%, and the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit ranged from 0.75% to 2.00%.loans. The Company paidwill pay a quarterly commitment fee ranging from 0.15% toof 0.275% per annum on the unused portion of the revolving commitment.

The Company has an interest rate swap in place to convert a portionfacility for the first full fiscal quarter following the closing date of the Company's borrowings2021 Credit Facility. Thereafter, the quarterly commitment fee ranges from a variable rate0.20% to a fixed rate.0.30% per annum. See Note 7, "Derivatives" for additional information.

The Company is permitted to prepay term2021 Credit Facility contains customary affirmative and revolving borrowings in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, andnegative covenants, including covenants limiting the Company was generally permittedand its subsidiaries to, irrevocably cancel unutilized portionsamong other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from business conducted by the revolving commitments under the 2018 Credit Agreement. The Company, is required to repay the term commitment in an amount of $2.5 million per quarter beginningtransact with the quarter ending December 31, 2018 through the quarter ending June 30, 2023.affiliates, make restricted payments, and sell assets.

The 20182021 Credit Agreement containedFacility contains financial covenants required of the Company and its subsidiaries, including various affirmative and negative financial and operational covenants.subsidiaries. The Company wasis required to meet certain quarterly financial covenants, calculated from the four fiscal quarters most recently ended, including: (i) a minimum

i.A Minimum Consolidated Fixed Charge Coverage Ratio, which requires that at the end of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed maintenance capital expenditures, restricted payments and taxes paid, each as defined in the 20182021 Credit Agreement,Facility, may not be lowerless than 1.25 to 1.0;1.00; and (ii) a

ii. A Consolidated Net Leverage Ratio, which requiredrequires that at the end of each fiscal quarter the ratio of consolidated funded indebtedness minus consolidated domestic cash to consolidated EBITDA, as defined in the 20182021 Credit Agreement, couldFacility, not be greater than 3.5 to 1.0.

2020 Amendment to the 2018 Credit Agreement

On May 11, 2020, the Company amended its $450 million senior secured revolving 2018 Credit Agreement. The principal purpose of the Amendment was to modify certain financial covenants contained in the 2018 Credit Agreement, at least one of which the Company expected to fail as early as the second quarter of 2020 as a result of the impact of COVID-19. The amended terms and conditions included the following:

•Modified the financial covenants as follows:

◦Consolidated Net Leverage Ratio, which requires that on the last day of each fiscal quarter the ratio not be greater than 6.5:14.50:1.00 through the period ending Marchended December 31, 2021, 4.50:1 forstepping down to 4.00:1.00 through the period ending June 30, 2021 through the period ending March 31, 2022, and 3.50:1 for the periods ending June 30, 2022 and thereafter;

◦The minimum Consolidated Fixed Charge Coverage Ratio, which requires that on the last day of each fiscal quarter the ratio not be lower than 1.10:1 calculated on a trailing twelve month basis through the period
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ending June 30, 2020, 1.25:1 calculated on a distinct quarterly basis for the periods ended September 30, 2020 through June 30, 2021, and 1.25:1 calculated on a trailing twelve month basis1.00 beginning with the period ending September 30, 2021starting July 1, 2022 and thereafter;thereafter.

•RequiredEach of the financial ratios referred to above are calculated on a consolidated trailing twelve-month basis. The 2021 Credit Facility, permits the Company maintain a minimum cashto exclude certain non-cash charges and cash equivalents balancecertain restructuring and other expenses, as defined by the 2021 Credit Facility, from EBITDA in the calculation of $40 million, excluding deposit accounts in China;the Company's financial covenants.

•Decreased the term loan facility from $200 million to $144 million and decreased the revolving credit facility from $250 million to $170 million for a total overall facility of $314 million; and eliminated the accordion feature;

•Established a floor on the Base and Eurocurrrency Rate of 1%;

•Modified the definition of the Applicable Rate, as determined based on the Company’s Consolidated Net Leverage Ratio, by increasing the range for the Base Rate for Committed Loans to 2.00% to 3.25% and increasing the range for the Eurocurrency Rate Committed Loans and Letters of Credit to 3.00% to 4.25%;

•Increased the quarterly commitment fee to 0.375% on the unused portion of the revolving commitment; and

•Required the Company to pay an amendment fee to the Lenders based on their commitment levels.

There was no modification to the maturity date of the facility. 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 all covenants set forth in the modified financial covenants at June 30, 2020,2018 Amended Credit Agreement as of and managementfor the quarter ended March 31, 2021, and in the 2021 Credit Facility as of the date hereof, and the Company does not anticipate noncompliance in the foreseeable future.

At June 30, 2020, the Company had $286.0 million of borrowings outstanding and standby letters of credit outstanding of $1.6 million. The borrowings outstanding included a $141.0 million term loan, net of $0.5 million in debt issuance costs being amortized to interest expense over the debt maturity period. The Company has available borrowings of $23.9 million and $121.6 million at June 30, 2020 and December 31, 2019, respectively.

In addition to the amounts outstanding under the Facility, the Company has various foreign credit facilities totaling approximately $7.1 million. At June 30, 2020, the Company's foreign subsidiaries had $0.1 million in borrowings outstanding as well as $1.3 million in standby letters of credit outstanding.

The Company also has finance lease agreements for machinery and equipment at multiple operations requiring monthly principal and interest payments through 2020.

Total outstanding debt consists of:
In thousandsEffective RateMaturityJune 30, 2020December 31, 2019
Revolver loan5.25 %8/31/2023$144,500  $126,500  
Term loan, net of debt issuance costs5.25 %8/31/2023140,996  146,106  
Finance leases1.60 %202014  35  
   285,510  272,641  
Less portion due within one year  (9,855) (9,928) 
Total long-term debt, net of debt issuance costs  $275,655  $262,713  
The weighted average interest rate on long-term debt was 4.8% for the six-month period ended June 30, 2020 and 4.3% for the year-ended December 31, 2019.

7. DerivativesDERIVATIVES

The Company selectively uses financial instruments to manage market risk associated with exposure to fluctuations in interest rates and foreign currency rates. These financial exposures are monitored and managed by the Company as an integral part of its risk management program.




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Interest Rate Hedging

The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and Europe, which impactimpacts interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are designated as cash flow hedges and are recorded at fair value (seevalue. See Note 8, "Fair Value Measurements"Measurements," in these Notes to Condensed Consolidated Financial Statements for additional information).information.

In November 2018, the Company entered into a five-year interest rate swap agreement with a bank which convertsto convert the interest on a notional $139.0 million of the Company's borrowings under its 2018Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reducesdecreases 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 borrowings from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduced quarterly by $5.0 million through March 31, 2020 and is now settled. Prior to May 11, 2020, thesethe Company's interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continued to match the critical terms of the hedged debt in order to report gains or losses on the derivative instrument in other comprehensive income.

On An amendment to the Company's Amended Credit Agreement 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 determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement iswas no longer effective. The Company also concluded that the hedged forecasted transaction (the
12

occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020, any fair value gains or losses on the derivative agreement isare recorded as interest expense inon the Company's Condensed Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, will be amortized into (losses) earnings (loss) through August 31, 2023, the maturity date of the hedged debt. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at June 30, 2020March 31, 2021 was $6.9 million.$3.3 million, net of tax. The amount reclassified out of other comprehensive income into interestInterest expense on ourthe Company's Condensed Consolidated Statement of Operations for both the three and six monthsthree-month period ended June 30, 2020March 31, 2021 was $0.5 million.$0.6 million, net of tax. The Company expects $3.3$2.0 million, net of tax, to be reclassified from Accumulated Other Comprehensive Income over the next twelve months.

Net Investment Hedges

The Company’s operations are subject to certain risks, including foreign currency exchange rate fluctuations. From time to time, the Company enters into cross-currency swaps designated as hedges, which are recorded at fair value (see Note 8, "Fair Value Measurements")Measurements," in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the USU.S. dollar.

In November 2019, the Company entered into 3 fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($7575.0 million U.S. dollar equivalent). These swaps hedge a portion of the Company's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro.differential. Also, settlement of the notional €22.6 million ($2525.0 million U.S. dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022, and August 2023. The Company assesses hedge effectiveness of the cross-currency swaps quarterly by ensuring the critical terms of the swaps continue to match the critical terms of the designated net investment. The Company elected to assess effectiveness using the spot method, and as a result, records the interest rate differential monthly inon the Company's StatementCondensed Consolidated Statements of Operations.

Derivative instruments are recognized as either assets or liabilities depending on maturity. These amounts are included in Other current assets and Derivative liabilities on the balance sheet in either current or non-current other assets or other accrued liabilities or other long-term liabilities depending upon maturity and commitment.Company's Condensed Consolidated Balance Sheets. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods in which the hedge transaction affects earnings. Any ineffective portion, or amounts related to contracts that are not designated as hedges, are recorded directly to earnings. The Company's policy for classifying cash flows from derivatives is to report the cash flows consistent with the underlying hedged item. The Company does not use derivatives for speculative or trading purposes.



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The following table sets forth the fair value amounts of derivative instruments held by the Company presented inon the Condensed Consolidated Balance Sheets as Other current assets and Other accruedDerivative liabilities:

June 30, 2020December 31, 2019At March 31, 2021At December 31, 2020
In thousandsIn thousandsAsset DerivativesLiability DerivativesAsset DerivativesLiability DerivativesIn thousandsAsset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Interest rate contractsInterest rate contracts$—  $6,896  $2  $4,538  Interest rate contracts$0 $4,154 $0 $5,063 
Cross-currency swapsCross-currency swaps177  —  —  1,817  Cross-currency swaps0 3,812 0 6,933 
Total derivativesTotal derivatives$177  $6,896  $2  $6,355  Total derivatives$0 $7,966 $0 $11,996 

The following table sets forth the income (loss) income recorded in accumulated other comprehensive income (loss) income,, net of tax, for the three and six-monththree-month periods ended June 30,March 31, 2021 and 2020 and 2019 for derivatives held by the Company and designated as hedging instruments:

For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		For the Three Months Ended March 31,
In thousandsIn thousands2020201920202019In thousands20212020
Cash flow hedges:Cash flow hedges:Cash flow hedges:
Interest rate contractsInterest rate contracts$11  $(1,351) $(2,162) $(2,026) Interest rate contracts$618 $(2,173)
Cross-currency swapsCross-currency swaps(1,093) —  1,526  —  Cross-currency swaps2,400 2,619 
Total derivativesTotal derivatives$(1,082) $(1,351) $(636) $(2,026) Total derivatives$3,018 $446 



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8. Fair Value MeasurementsFAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

•Level 3 - Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The following table presents the carrying value and fair value of financial instruments that are not carried at fair value:

June 30, 2020December 31, 2019At March 31, 2021At December 31, 2020
In thousandsIn thousandsCarrying ValueFair ValueCarrying ValueFair ValueIn thousandsCarrying ValueFair ValueCarrying ValueFair Value
DebtDebt$286,000  $292,543  $273,000  $269,434  Debt$261,500 $262,394 $271,000 $272,792 

The fair values of the Company’s long-term debt outstanding were computed based on discounted future cash flows (observable inputs), as applicable, which falls under Level 2 of the fair value hierarchy. Differences from carrying values are attributable to interest rate changes subsequent to when the transactions occurred.

The fair values of cash and cash equivalents, accounts receivable, net and accounts payable approximate their carryingcarrying amounts due to the short-term maturities of these instruments.




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Recurring Fair Value Measures

The Company holds derivative instruments for interest rate swap contracts and cross-currency swaps that are measured using observable market inputs such as forward rates and its counterparties' credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy. At June 30, 2020March 31, 2021 and December 31, 2019,2020, these derivative instruments were included in other current assets and other accruedDerivative liabilities on the Company's Condensed Consolidated Balance Sheet.Sheets. Based on the Company's continued ability to trade and enter into interest rate swaps and cross-currency swaps, the Company considers the markets for their fair value instruments to be open.

Nonrecurring Fair Value Measurements

9. STOCK REPURCHASES
During the three-month period ended March 31, 2020, the Company incurred a $48.7 million impairment charge for goodwill at its Performance Materials segment and a $12.4 million impairment charge for a certain asset group at one of the Performance Materials' European businesses. See Note 5, "Impairment of Goodwill and Other Long-Lived Assets" for information regarding the calculation of fair value.

9. Equity Compensation Plans
As of June 30, 2020, the Company’s equity compensation plans consisted of the 2003 Stock Incentive Compensation Plan (the “2003 Plan”), and the Amended and Restated 2012 Stock Incentive Plan, (the “2012 Plan” and together with the 2003 Plan, the “Plans”) under which incentive and non-qualified stock options and time and performance based restricted shares have been granted to employees and directors from authorized but unissued shares of common stock or treasury shares. The 2003 Plan is not active, but continues to govern all outstanding awards granted under the plan until the awards themselves are exercised or terminate in accordance with their terms. The 2012 Plan, amended and approved by shareholders on April 24, 2020, authorizes 3.0 million shares of common stock for awards. The 2012 Plan also authorizes an additional 19,720 shares of common stock to the extent awards granted under prior stock plans that were outstanding as of April 24, 2020 are forfeited. The 2012 Plan provides for the following types of awards: options, restricted stock, restricted stock units and other stock-based awards. During the fourth quarter of 2019, additional shares of common stock were issued pursuant to separate inducement share agreements with two individuals as material inducement to their employment with the Company (the "Inducement Grants"). The Inducement Grants awarded stock options and restricted stock to the two individuals. Amounts shown below are inclusive of the Plans and the Inducement Grants.

The Company accounts for the expense of all share-based compensation by measuring the awards at fair value on the date of grant. The Company recognizes expense on a straight-line basis over the vesting period of the entire award. Options issued by the Company under its stock option plans have a term of ten years and generally vest ratably over a period of three to four years. Time-based restricted stock grants are expensed over the vesting period of the award, which is typically two to four years. The number of performance-based restricted shares that vest or forfeit depend upon achievement of certain targets during the performance period. The Company accounts for forfeitures as they occur. Compensation expense for performance-based awards granted prior to December 2018 is recorded based upon the service period and management’s assessment of the probability of achieving the performance goals and will be adjusted based upon actual achievement. In December 2018, the performance metric changed to a 3-year relative Total Shareholder Return ("TSR") compared to the S&P 600 industrial index instead of a pre-established earnings-per-share target to better align compensation to the long-term interests of shareholders. Stock options issued under the current plan must have an exercise price that may not be less than the fair market value of the Company’s common stock on the date of grant. The Plans provide for automatic acceleration of vesting in the event of a change in control of the Company.

The Company incurred equity compensation expense of $0.9 million and $0.5 million for the three-month periods ended June 30, 2020 and 2019, respectively, and $1.8 million and $1.5 million for the six-month periods ended June 30, 2020 and 2019, respectively, for the Plans, including restricted stock awards. No equity compensation costs were capitalized as part of inventory.
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Stock Options
The following table is a summary of outstanding and exercisable options for the three-month and six-month periods ended June 30, 2020:
For the Three Months Ended June 30, 2020For the Six Months Ended June 30, 2020
In thousands except per share
amounts		SharesWeighted-
Average
Exercise Price		SharesWeighted-
Average
Exercise Price
Stock Options outstanding at the beginning of the period761  $26.35  683  $27.15  
  Granted58  $9.41  169  $17.44  
  Exercised—  $—  (4) $8.67  
  Forfeited or Expired(71) $22.85  (100) $24.91  
Stock Options outstanding at June 30, 2020748  $25.36  748  $25.36  
Exercisable at June 30, 2020297  $33.80  297  $33.80  
Unvested at June 30, 2020451  $19.79  451  $19.79  
There was 0 cash received from exercise of stock options during the three-month period ended June 30, 2020. The amount of cash received from the exercise of stock options was less than $0.1 million during the six-month period ended June 30, 2020. The intrinsic value of stock options exercised was less than $0.1 million with a tax benefit of less than $0.1 million during the three-month and six-month periods ended June 30, 2020.

At June 30, 2020, the total unrecognized compensation cost related to non-vested stock option awards was approximately $2.7 million, with a weighted average expected amortization period of 2.9 years.

Restricted Stock
Restricted stock includes both performance-based and time-based awards. The following is a summary of the Company's unvested time-based restricted shares for the three-month and six-month periods ended June 30, 2020:

For the Three Months Ended June 30, 2020For the Six Months Ended June 30, 2020
In thousandsSharesShares
Unvested at the beginning of the period203  159  
  Granted23  77  
  Vested—  (3) 
  Forfeited or Expired(6) (13) 
Unvested at June 30, 2020220  220  
The following is a summary of the Company's unvested performance-based restricted shares for the three-month and six-month periods ended June 30, 2020:

For the Three Months Ended June 30, 2020For the Six Months Ended June 30, 2020
In thousandsSharesShares
Unvested at the beginning of the period154  129  
  Granted25  66  
  Vested—  —  
  Forfeited or Expired(18) (34) 
Unvested at June 30, 2020161  161  

At June 30, 2020, there were 381,242 total unvested restricted stock awards with total unrecognized compensation cost related to these awards of $5.3 million with a weighted average expected amortization period of 2.2 years. Compensation expense for
25


performance-based awards is recorded based on the service period and management’s assessment of the probability of achieving the performance goals.

10. Stock Repurchases
During the six-month period ended June 30, 2020,2021, the Company purchased 9165,646 shares of common stock valued at less than $0.1$0.2 million throughto satisfy payroll tax withholding obligations, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, in which the Company withholds thatthe number of shares having fair value equal to each recipient’s minimum payroll tax withholding due.obligation.

On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company. The ability to repurchase the Company’s common stock will continue until the Board of Directors reaches a determination to discontinue share repurchases. The timing and actual amount of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, and capital availability, among other factors.

11. Employer Sponsored Benefit Plans10. EMPLOYER SPONSORED BENEFIT PLANS
 
Prior to the three-month period ended June 30, 2020, theThe Company maintained twomaintains one domestic pension plans:plan: the Retirement Income Plan for Employees of Interface Performance Materials, Inc. ("IPM Pension Plan"), and the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension Plan"). During the three-month period ended March 31, 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension PlanPlan") through lump sum distributions to
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participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. This purchase, funded with pension assets, resulted in a pre-tax settlement loss of $0.4 million in the three-month period ended March 31, 2020, related to the recognition of accumulated deferred actuarial losses. The settlement loss and expenses were included as non-operating expense inon the condensed consolidated statementsCondensed Consolidated Statements of operations.Operations.

The IPM Pension Plan covers a portion of Interface's union and non-union employees. The plan is closed to new employees and benefits are no longer accruing for the majority of participants. The Company expects to make required contributions of approximately $1.2$0.7 million to the IPM Pension Plan during 2020. There2021. Contributions of $0.2 million were 0 contributions made during the three-month period ended June 30, 2020, as the Company took advantage of the delay in minimum funding contribution due dates as allowed under the CARES Act, and is delaying payment of the minimum funding contributions of $0.3 million originally due during April 2020. This and other required minimum funding contributions for the remainder of 2020 will be made later in 2020.March 31, 2021. Contributions of $0.4 million were made during the six-monththree-month period ended June 30, 2020. Contributions of $0.3 million and $0.9 million were made during the three-month and six-month periods ended June 30, 2019, respectively,March 31, 2020, inclusive of contributions made to the ISS Pension Plan.

Prior to 2020, the Company also maintained the U.S. Lydall Pension Plan. During the second quarter of 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts. NaN contributions were made to the U.S. Lydall Pension Plan during the three-month and six-month periods ended June 30, 2019.

The following is a summary of the components of net periodic benefit cost for the domestic defined benefit pension plans for
the three-month and six-month periods ended June 30, 2020March 31, 2021 and 2019:2020:
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		For the Three Months Ended March 31,
In thousandsIn thousands2020201920202019In thousands20212020
Components of employer benefit costComponents of employer benefit cost  Components of employer benefit cost  
Service costService cost$40  $30  $80  $60  Service cost$29 $40 
Interest costInterest cost428  833  857  1,827  Interest cost304 430 
Expected return on assetsExpected return on assets(532) (744) (1,065) (1,616) Expected return on assets(589)(533)
Amortization of actuarial lossAmortization of actuarial loss—  186  2  464  Amortization of actuarial loss4 2 
Net periodic benefit cost$(64) $305  $(126) $735  
Net periodic benefit cost (income)Net periodic benefit cost (income)$(252)$(61)
Settlement lossSettlement loss—  25,515  385  25,515  Settlement loss0 385 
Total employer benefit plan costTotal employer benefit plan cost$(64) $25,820  $259  $26,250  Total employer benefit plan cost$(252)$324 

The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in other income.

11. RESTRUCTURING

During the third quarter of 2020, the Company’s Performance Materials segment undertook actions to discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America and consolidated certain product lines and began exiting underperforming facilities in Europe. These restructuring activities, which are projected to conclude in 2021, are expected to reduce operating costs, increase production efficiency, and enhance the Company’s flexibility by better aligning its manufacturing operations with the segment's customer base. Accordingly, the Company expects to record total pre-tax expenses of approximately $18.0 million, primarily related to severance and employee retention expenses in connection with these restructuring activities, of which approximately $12.3 million is expected to result in cash expenditures. The Company incurred a total of $16.7 million through March 31, 2021, of which approximately $5.7 million were non-cash expenditures, which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory.

The Company undertook actions to consolidate global production facilities for sealing & advanced solutions products from 5 facilities to 4, which would have resulted in the closure a facility in Germany. In the first quarter of 2021, the Company entered into an agreement to sell the German facility, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.2 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the business, the Company recorded a pre-tax loss of $0.7 million. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.

In the first quarter of 2021, the Company recorded pre-tax restructuring charges of $0.8 million primarily consisting of severance costs and legal expenses.








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The following table summarizes the total restructuring charges by cost type:

In thousandsSeverance and Related ExpensesLegal and Administrative ExpensesFacility Exit and Asset Write-Off Expenses
Expense incurred during quarter ended:
March 31, 2021$777 $0 $0 
Total pre-tax expense incurred$777 $0 $0 

The following table summarizes the change in the accrued liability balance for the restructuring actions:

In thousandsTotal
Balance as of December 31, 2020$9,431 
Pre-tax restructuring expenses, excluding asset write-off expenses777 
Cash paid(821)
Accrued liability included with the sale of the German facility(7,311)
Currency translation adjustments(34)
Balance as of March 31, 2021$2,042 

The above accrued liability balances were included in Restructuring liabilities on the Company’s Condensed Consolidated Balance Sheets.

12. Income TaxesINCOME TAXES
 
For the three-month period ended June 30, 2020,March 31, 2021, the Company's effective tax rate was 9.2%35.7% compared to an effective tax rate of 54.0%3.5% for the three-month period ended June 30, 2019.March 31, 2020. For the three monthsthree-month period ended June 30, 2020,March 31, 2021, the rate was negatively impacted by $0.5 million due to a change in assertion on unremitted foreign earnings, $0.4 million related to foreign earnings taxed at higher rates, and $0.2 million of valuation allowance activity of $0.5 million and a foreign withholding tax liability of $0.4 million, resulting in a
26


lower effective tax rate when in a pre-tax loss position.activity. For the three months ended June 30, 2019, the Company had a pre-tax loss primarily resulting from a pension plan settlement of $25.5 million, resulting in a $10.5 million tax benefit. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the three months ended June 30, 2019 was 22.7%. This was negatively impacted by valuation allowance activity of $0.9 million, partially offset by the Company's geographical mix of earnings.

For the six-monththree-month period ended June 30, 2020, the Company's effective tax rate was 4.0% compared to an effective tax rate of 69.7% for the six-month period ended June 30, 2019. For the six months ended June 30,March 31, 2020, the Company had a pre-tax loss primarily resulting from an impairment chargescharge of $61.1 million. The impairment chargescharge significantly impacted the Company's effective tax rate becauseas $48.7 million of the impairment chargescharge related to non-deductible goodwill, resulting in a lowlower effective tax rate for the six months ended June 30,first quarter of 2020 when the Company was in a pre-tax loss position. Additionally, the effective rate, for the first quarter of 2020, was negatively impacted by valuation allowance activity of $0.7$0.3 million. For the six-month period ended June 30, 2019, the Company had a pre-tax loss primarily resulting from a pension plan settlement of $25.5 million, resulting in a $10.5 million tax benefit. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the six months ended June 30, 2019 was 22.5%. This was negatively impacted by valuation allowance activity of $1.2 million 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, Hong Kong, India, the Netherlands, and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal examinations for years before 2016,2017, state and local examinations for years before 2015,2016, and non-U.S. income tax examinations for years before 2013.

The Company’s effective tax rates in future periods could be affected by an increase or decrease in earnings in countries where tax rates differ from the United States federal tax rate, the relative impact of permanent tax adjustments on earnings from domestic operations, changes in net deferred tax asset valuation allowances, including valuation allowances on loss carryforwards in which no tax benefit can be recognized, stock vesting, pension plan terminations, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of ongoing tax planning strategies and audits.

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 is evaluating the final regulations and is assessing potential impacts of these changes to the Company’s financial statements.
13. EARNINGS (LOSS) PER SHARE

13. Loss Per Share
For the three-month and six-month periods ended June 30,March 31, 2021 and 2020, and 2019, basic earnings per share werewas computed by dividing net lossincome (loss) by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted sharesshare awards, including awards subject to certain performance criteria, are excluded from thisthe basic earnings per share calculation, but are included in the diluted earnings per share calculation using the treasury stock method in periods of net income, as long as their effect is not antidilutive. All potential shares of common stock from unexercised stock options and unvested restricted share awards are antidilutive in periods of net loss.


16

The following table provides a reconciliation of weighted-average shares used to determine basic and diluted earnings per share:
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		For the Three Months Ended March 31,
In thousandsIn thousands2020201920202019In thousands20212020
Net income (loss)Net income (loss)$5,094 $(56,421)
Basic weighted-average common shares outstandingBasic weighted-average common shares outstanding17,372  17,267  17,354  17,260  Basic weighted-average common shares outstanding17,545 17,336 
Effect of dilutive options and restricted stock awardsEffect of dilutive options and restricted stock awards—  —  —  —  Effect of dilutive options and restricted stock awards343 0 
Diluted weighted-average common shares outstandingDiluted weighted-average common shares outstanding17,372  17,267  17,354  17,260  Diluted weighted-average common shares outstanding17,888 17,336 
Earnings (loss) per share:Earnings (loss) per share:
BasicBasic$0.29 $(3.25)
DilutedDiluted$0.28 $(3.25)

DilutiveFor the three-month periods ended March 31, 2021 and 2020, there were 129,209 and 736,141 shares excluded from the computation of diluted earnings per share, respectively. For the three-month period ended March 31, 2021, these included antidilutive stock options, antidilutive unvested restricted share awards totaling 4,432for which requisite service has not yet been rendered, and 19,710 shares of Common Stockantidilutive unvested performance share awards with contingently issuable shares. For the three-month period ended March 31, 2020, all outstanding, unvested awards were excluded from the calculation of diluted earnings per share computation for the three-month and six-month periods ended June 30, 2020, asbecause the Company reported ahad net loss during those periods and, therefore, the effect of including these options would be antidilutive. Dilutiveperiod. These included all stock options, totaling 54,713as well as unvested restricted share awards for which requisite service has not yet been rendered, and 69,730 shares of Common Stock were excluded from the diluted percertain unvested performance share computation for the three-month and six-month periods ended June 30, 2019, as the Company reported a net loss during that period and, therefore, the effect of including these options would be antidilutive.
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awards with contingently issuable shares.

For eachA description of the three-month periods ended June 30, 2020 and 2019,Company's stock options for 732,512 shares and 520,189 shares of Common Stock were not consideredrestricted share awards is included in computing diluted earnings per common share because they were antidilutive.

For eachNote, 13, "Equity Compensation Plans", in the Notes to Consolidated Financial Statements in Part II, Item 8 - Financial Statements and Supplemental Data of the six-month periodsCompany's Annual Report on Form 10-K for the year ended June 30, 2020 and 2019, stock options for 715,046 shares and 521,293 shares of Common Stock were not considered in computing diluted earnings per common share because they were antidilutive.December 31, 2020.

14. Segment InformationSEGMENT INFORMATION

The Company is organized based on the nature of its products and is composed of 3 reportable segments each overseen by a segment manager. These segments are reflective of how the Company's Chief Executive Officer, who is its Chief Operating Decision Maker ("CODM"), reviews operating results for the purpose of allocating resources and assessing performance. The Company has not aggregated operating segments for purposes of identifying reportable segments. As of June 30, 2020,March 31, 2021, the Company’s reportableoperating segments were Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.

Performance Materials Segment

The Performance Materials segment includesis a worldwide leader in delivering innovative specialty filtration, sealing, and advanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions primarily for a variety of applications in the global air fluid power,and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciencesciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications (“Filtration”),in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture, and sealingconstruction end markets; and, gasket(3) advanced materials that include highly engineered insulation solutions thermal insulation,for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and other engineered products (“Sealing and Advanced Solutions”).

Filtration products include LydAir® MG (Micro-Glass) Air Filtration Media, LydAir® MB (Melt Blown) Air Filtration Media, LydAir® SC (Synthetic Composite) Air Filtration Media, and Arioso® Membrane Composite Media. These products constitute the critical media component of clean-air systems for applications in clean-space, commercial, industrial and residential HVAC, power generation, respiratory protection (including face mask material), and industrial processes. The Company has leveraged its extensive technical expertise and applications knowledge into a suite of media products covering the vast liquid filtration landscape across the transportation and industrial fields. The LyPore® Liquid Filtration Media series address a variety of application needs in fluid power including hydraulic filters, air-water and air-oil coalescing, industrial fluid processes and diesel fuel filtration. LyPore® media and Solupor® ultra-high molecular weight polyethylene membranes also serve critical liquid filtration/separation applications such as biopharmaceutical pre-filtration and clarification, lateral flow diagnostic and analytical testing, potable water filtration and high purity process filtration such as those found in food and beverage and medical applications.

Sealing and Advanced Solutions products include nonwoven specialty engineeredadvanced composite materials for a multitude ofaerospace and defense applications. Interface fiber-reinforced gasket materials serve the heavy-duty diesel, automobile, small engine, transmission and compressor markets. These products handle demanding sealing challenges with a diverse range of metallic, non-metallic, rubber-coated and laminate materials that comprise the extensive Sealing materials portfolio. Interface Engineered Components are ready to use soft and hard gasket parts sold directly to OEMs and aftermarket applications. An example is Select-a-Seal® rubber-edged composite (REC) technology that provides robust sealing, compression, adhesion, and shear strength for driveline applications. Advanced Solutions’ nonwoven veils, papers and specialty composites for the building products, appliance, energy and industrial markets include Manniglas® Thermal Insulation Papers, and Lytherm® Insulation Media for high temperature technology applications. The Company's Cryotherm® Super-Insulating Media, CRS-Wrap® Super-Insulating Media and Cryo-Lite® Cryogenic Insulation products are industry standards for state-of-the-art cryogenic insulation designs used by manufacturers of cryogenic equipment for liquid gas storage, piping, and transportation. Additional specialty composite materials include specialty fiber calendar bowl products to service the printing and textile industries and press pad materials for industrial lamination processes.

Technical Nonwovens Segment

The Technical Nonwovens segment primarily produces needle punchis a global leader in engineered nonwoven solutionsmaterials for a multitude of industriesindustrial filtration applications and applications. Products are manufacturedadvanced materials products. The primary industrial filtration markets include air pollution and sold globally under the leading brands of Lydall Industrial Filtration, Southern Felt, Gutsche, and Texel. Industrial Filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial airemissions control, power generation, and liquid filtration applications. Nonwoven filter media is an effective solution to satisfy increasing emission control regulations in a wide range of industries, including power, cement, steel, asphalt, incineration, mining, food, and pharmaceutical.solutions. Advanced Materialsmaterials products include nonwoven rolled-good media used in commercialgeotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications, and predominantly serves the geosynthetics, automotive, industrial,highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel markets.apparel. Specifically, the segment’s offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier I/II1 and Tier 2 suppliers as well as the Company's Thermal Acoustical Solutions segment.

Technical Nonwovens segment products include air and liquid filtration media sold under the brand names Fiberlox® high performance filtration felts, Checkstatic™ conductive filtration felts, Microfelt® high efficiency filtration felts, Pleatlox® pleatable filtration felts, Ultratech™ PTFE filtration felts, Powertech® and Powerlox® power generation filtration felts, Microcap® high efficiency liquid filtration felts, Duotech membrane composite filtration felts, along with our porotex® family of high temperature filtration felts including microvel® and optivel® products. Technical Nonwovens Advanced Materials

2817


products are sold under the brand names Thermofit® thermo-formable products, Ecoduo® recycled content materials, Duotex® floor protection products, and Versaflex® composite molding materials. Technical Nonwovens also offers extensive finishing and coating capabilities which provide custom engineered properties tailored to meet the most demanding applications. The business leverages a wide range of fiber types and extensive technical capabilities to provide products that meet our customers’ needs across a variety of applications providing both high performance and durability.

Thermal Acoustical Solutions Segment

The Thermal Acoustical Solutions segment offersdesigns, manufactures, and distributes a full range of innovative engineered products tailored for the transportation and industrial sectors to thermallysectors. These products shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well astemperature environments, assist in the reduction of harmful emissions and reduce noise vibration and harshness (NVH).vibration. Within the transportation sector, the Company’sCompany's products are found in the interior, (dash insulators, cabin flooring), underbody, (wheel well, aerodynamic belly pan, fuel tank, exhaust, tunnel, spare tire) and under hood (engine compartment, outer dash, powertrain, catalytic converter, turbo charger, manifolds)underhood of cars, trucks, SUVs, heavy duty trucks, and recreational vehicles.

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

The tables below present net sales and operating income by segment for the three-month and six- month periods ended June 30, 2020 and 2019, and also a reconciliation of total segment net sales and operating income to total consolidated net sales and operating income.

Consolidated netNet sales by segment:business segment is as follows:
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,
In thousands2020201920202019
Performance Materials Segment:
Filtration$29,636  $24,732  $55,523  $48,666  
Sealing and Advanced Solutions28,837  40,370  68,170  81,016  
Performance Materials Segment net sales58,473  65,102  123,693  129,682  
Technical Nonwovens Segment (1):
Industrial Filtration29,413  38,706  60,782  81,070  
Advanced Materials (2)22,594  30,372  48,628  53,614  
Technical Nonwovens Segment net sales52,007  69,078  109,410  134,684  
Thermal Acoustical Solutions Segment:
Parts32,448  85,705  109,769  170,281  
Tooling5,000  7,567  11,440  17,304  
Thermal Acoustical Solutions Segment net sales37,448  93,272  121,209  187,585  
     Eliminations and Other (2)(1,768) (6,641) (7,625) (13,115) 
Consolidated Net Sales$146,160  $220,811  $346,687  $438,836  


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For the Three Months Ended March 31,
In thousands20212020
Performance Materials Segment (1),(2):
Filtration Products$34,346 $25,887 
Sealing and Advanced Solutions Products44,987 39,333 
Performance Materials Segment net sales79,333 65,220 
Technical Nonwovens Segment:
Industrial Filtration Products36,401 31,369 
Advanced Materials Products (2)
25,274 26,034 
Technical Nonwovens Segment net sales61,675 57,403 
Thermal Acoustical Solutions Segment:
Parts86,494 77,321 
Tooling4,550 6,440 
Thermal Acoustical Solutions Segment net sales91,044 83,761 
     Eliminations and Other (2)
(4,953)(5,857)
Consolidated Net Sales$227,099 $200,527 

Operating income (loss) by segment:business segment is as follows:
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		For the Three Months Ended March 31,
In thousandsIn thousands2020201920202019In thousands20212020
Performance Materials (3)$5,443  $3,303  $(51,498) $4,762  
Technical Nonwovens (1),(2),(4)6,684  7,844  10,497  12,578  
Performance Materials (1),(3)
Performance Materials (1),(3)
$15,296 $(56,941)
Technical Nonwovens (4)
Technical Nonwovens (4)
5,104 3,813 
Thermal Acoustical SolutionsThermal Acoustical Solutions(6,285) 7,357  (657) 16,848  Thermal Acoustical Solutions1,674 5,628 
Corporate Office ExpensesCorporate Office Expenses(7,588) (5,325) (15,656) (11,959) Corporate Office Expenses(9,935)(8,068)
Consolidated Operating Income$(1,746) $13,179  $(57,314) $22,229  
Consolidated Operating Income (Loss)Consolidated Operating Income (Loss)$12,139 $(55,568)

(1)The Technical NonwovensPerformance Materials segment includes the results of Geosol through the date of disposition of May 9, 2019.facility in German that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is $1.4the following:
•Technical Nonwovens segment intercompany sales of $3.9 million and $4.6$5.0 million in intercompany sales to the Thermal Acoustical Solutions segment for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $6.4respectively.
•Performance Materials segment intercompany sales of $1.0 million and $9.3$0.9 million in intercompany sales to the Thermal Acoustical Solutions segment for the six-monththree-month periods ended June 30,March 31, 2021 and 2020, and 2019.respectively.
(3)Included in the operating results within the Performance Materials segment is $61.1are the following:
•$61.1 million of impairment charges related to goodwill and other long-lived assets for the six-monththree-month period ended June 30, 2020, $4.0March 31, 2020.
•$3.0 million and $4.1$4.0 million of intangible assets amortization for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $7.9 million and $8.1 million of intangible assets amortization for the six-month periods ended June 30, 2020 and 2019, respectively.
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(4)Included in the Technical Nonwovens segment is $1.2the following:
• $1.1 million and $1.3$1.2 million of intangible assets amortization for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $2.3 million and $2.6 million of intangible assets amortization for the six-month periods ended June 30, 2020 and 2019.respectively.

15. Commitments and ContingenciesCOMMITMENTS AND CONTINGENCIES
 
Environmental Remediation

In the fourth quarter of 2016, as part of a groundwater discharging permitting process, water samples collected from wells and process water basins at the Company’s Rochester New Hampshire manufacturing facility, within the Performance Materials segment, showed concentrations of Per and Polyfluorinated Substances (“PFAS”) in excess of state ambient groundwater quality standards. In January 2017, the Company received a notification from the State of New Hampshire Department of Environmental Services (“NHDES”) naming Lydall Performance Materials, Inc. a responsible party with respect to the discharge of regulated contaminants and, as such, is required to take action to investigate and remediate the impacts in accordance with standards established by the NHDES. The Company conducted a site investigation, the scope of which was reviewed by the NHDES, in order to assess the extent of potential soil and groundwater contamination and develop a remedial action. Based on input received from NHDES in March 2017 with regard to the scope of the site investigation, the Company recorded $0.2 million of expense. In 2018, the Company received a response from the NHDES to the site investigation report outlining proposed remedial actions. The Company recorded an additional $0.1 million of expense in 2018 associated with the expected costs to remediate the impacts of the discharge of regulated contaminants in accordance with standards established by the NHDES. During 2018, the environmental liability was fully reduced reflecting payments made to vendors, resulting in 0 balance at December 31, 2018.vendors. Additionally, the Company incurred $0.2 million of capital expenditures in 2018, in relation to the lining of the Company's fresh water lagoons. TheDuring a building expansion in 2020, additional areas of concern were identified during excavation activities. An interim remedial action plan that includes additional site investigation is ongoing.characterization activities was submitted to the NHDES in March 2021. No comments from the NHDES have been received. As of March 31, 2021, the Company has 0 amounts accrued for these environmental remediation activities. The Company cannot be sure that costs will not exceed the current estimates until this matter is closed with the NHDES, nor that any future corrective action at this location would not have a material effect on the Company’s financial condition, results of operations, or cash flows.

In December 2018, the New York State Department of Environmental Conservation (“NYDEC”) informed the Company that the newly acquired Interface site located at Hoosick Falls, NY will be the subject of an investigation in tointo the possibility of it being an inactive hazardous disposable waste site. The letter specifically references PFAS that have been detected in a nearby water supply, soil and/or surface water. Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source. The NYDEC approved a site characterization plan in December 2019. The Company recorded expense of $0.3 millionAdditional site characterization activities were completed in the fourth quarter of 2019 as a result2020. Results of the site characterization plan preparation and site characterization activities, which will continue whenbe submitted in the COVID-19 crisis abates to a point wheresecond quarter of 2021. As of March 31, 2021, the site investigation can safely proceed.Company has less than $0.1 million accrued for these environmental remediation activities. The Company does not know the scope or extent of itsany additional future obligations, if any, that may arise from the site investigation and therefore is unable to estimate the cost of any corrective action. Accordingly, the Company cannot assure that the costs of any future corrective at this location would not have a material effect on the Company's financial condition, results of operations, or cash flows.

Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not
30


limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, and presently enacted laws and regulations. In future periods, a number of factors could significantly impact any estimates of environmental remediation costs.

Asset Retirement Obligations

The Company accounts for asset retirement obligations by recognizing the fair value of the related liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be determined. At March 31, 2021, the Company had combined asset retirement obligations of $0.8 million, which are associated with the estimated costs to remove/remediate asbestos materials from various locations. The initial measurement of the asset retirement obligations was recorded as a liability at its fair value, with an offsetting asset retirement cost recorded as an increase to the related property and equipment, which is being depreciated using a systematic and rational method similar to the approach used for the associated property and equipment. The Company also has an asset retirement obligation with an offset to goodwill as the estimated costs were derived from known required remediation obligations as of the acquisition date of Interface Performance Materials on August 31, 2018. The Company has been performing ongoing remediation activity, which offsets the liability associated with the respective asset retirement obligations.

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16. STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in Accumulated Other Comprehensive Income (Loss)stockholders' equity for the three-month periods ended March 31, 2021 and 2020 were as follows:

For the Three Months Ended March 31,
In thousands20212020
Beginning Balance$257,696 $318,420 
Comprehensive income (loss)5,463 (65,601)
Stock repurchased(201)(8)
Stock issued under employee plans642 31 
Stock-based compensation expense950 735 
Ending Balance$264,550 $253,577 

The following table discloses the changes by classification withincomponents of accumulated other comprehensive income (loss) for the three-month and six-month periods ended June 30, 2020 and 2019:
In thousandsForeign Currency
Translation
Adjustment		Defined Benefit
Pension
Adjustment		Gains and Losses
on Cash Flow Hedges		Total
Accumulated
Other
Comprehensive
(Loss) Income
Balance at March 31, 2020$(27,979) $(2,749) $(4,431) $(35,159) 
Other comprehensive income (loss)5,146  —  (1,082) (a)4,064  
Amounts reclassified from accumulated other comprehensive loss—  —  397  (b)397  
Balance at June 30, 2020$(22,833) $(2,749) $(5,116) $(30,698) 
Balance at December 31, 2019(18,022) (3,080) (4,877) (25,979) 
Other comprehensive loss(4,811) —  (636)  (a)(5,447) 
Amounts reclassified from accumulated other comprehensive loss—  331  (c)397  (b)728  
Balance at June 30, 2020$(22,833) $(2,749) $(5,116) $(30,698) 
In thousandsForeign Currency
Translation
Adjustment		Defined Benefit
Pension
Adjustment		Gains and Losses
on Cash Flow Hedges		Total
Accumulated
Other
Comprehensive
(Loss) Income
Balance at March 31, 2019$(18,585) $(22,038) $(2,649) $(43,272) 
Other comprehensive income (loss)2,457  —  (1,351) (a)1,106  
Amounts reclassified from accumulated other comprehensive loss—  19,159  (d)—  19,159  
Balance at June 30, 2019$(16,128) $(2,879) $(4,000) $(23,007) 
Balance at December 31, 2018(18,458) (22,253) (1,974) (42,685) 
Other comprehensive income (loss)2,330  —  (2,026) (a)304  
Amounts reclassified from accumulated other comprehensive loss—  19,374  (d)—  19,374  
Balance at June 30, 2019$(16,128) $(2,879) $(4,000) $(23,007) 
are shown below:

(a) 
For the Three Months Ended March 31,
In thousands20212020
Foreign currency translation:
Beginning balance$(3,514)$(18,022)
Net gain (loss) on foreign currency translation(4,048)(9,957)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
1,034 0 
Other comprehensive income (loss), net of tax(3,014)(9,957)
Ending balance(6,528)(27,979)
Pension and other postretirement benefit plans:
Beginning balance(5,608)(3,080)
Amounts reclassified from accumulated other comprehensive income (loss) (2)
365 331 
Other comprehensive income (loss), net of tax365 331 
Ending balance(5,243)(2,749)
Unrealized loss on derivative instruments:
Beginning balance(9,220)(4,877)
Net gain (loss) on derivative instruments (3)
2,400 446 
Amounts reclassified from accumulated other comprehensive income (loss) (4)
618 0 
Other comprehensive income (loss), net of tax3,018 446 
Ending balance(6,202)(4,431)
Total accumulated other comprehensive income (loss)$(17,973)$(35,159)

(1)For the three-month period ended March 31, 2021, the amount represents the recognition of the accumulated loss on foreign currency translation relating to the divestiture of the German Facility in the Performance Materials segment, net of tax impact of $0.2 million. This is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.
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(2)For the three-month period ended March 31, 2021, the amount primarily represents the recognition of the accumulated loss on the defined pension plan relating to the divestiture of the German Facility in the Performance Materials segment. This amount was $0.4 million, net of tax impact of $0.1 million, and is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.For the three-month period ended March 31, 2020, the amount primarily represents the settlement of the ISS Pension Plan. This amount was $0.4 million, net of tax impact of $0.1 million. The amounts for the three-month periods ended March 31, 2021 and 2020 also include routine amortization of actuarial gains and losses in net periodic benefit cost of less than $0.1 million, net of tax impact of less than $0.1 million.
(3)Amount represents unrealized lossesgains (losses) on the fair value of hedging activities, net of taxes,tax impact of $0.7 million and $0.1 million for the three-month and six-month periods ended June 30,March 31, 2021 and 2020, and 2019.respectively.
(b) Amount(4)Amounts represents the impact of de-designation of the interest rate swap agreement. This amount was $0.5 million,agreement, net of $0.1tax impact of $0.2 million, tax benefit, for the three-month and six-month periods ended June 30, 2020.
(c) Amount represents the settlement of the ISS Pension Plan in the first quarter of 2020. This amount was $0.4 million, net of $0.1 million tax benefit.
(d) Amount represents the settlement of the Lydall Pension Plan in the second quarter of 2019. This amount was approximately $19.0 million, net of $11.5 million tax benefit, for the three-month and six-month periods ended June 30, 2019. Amount also represents amortization of actuarial losses, a component of net periodic benefit cost during the first five months of fiscal year 2019 prior to the plan termination. This amount was $0.1 million, net of less than $0.1 million tax benefit for the three-month period ended June 30, 2019 and $0.4 million, net of $0.1 million tax benefit for the six-month period ended June 30, 2019.March 31, 2021.

17. Subsequent EventsSUBSEQUENT EVENTS

TheOn April 20, 2021, the Company's Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company. See Note 9, "Stock Repurchases," in these Notes to Condensed Consolidated Financial Statements for additional information.

On April 26, 2021, the Company has evaluated subsequent events throughreplaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the issuance dateCompany, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank, N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders. See Note 6, "Long-term Debt and Financing Arrangements," in these financial statements. No material events were identified that require disclosure.Notes to Condensed Consolidated Financial Statements for additional information.
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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OverviewForward-looking statements in Management’s Discussion and OutlookAnalysis of Financial Condition and Results of Operations (“MD&A”) are not guarantees of future performance and involve risks and uncertainties that could cause actual results to materially differ from those projected. Refer to the "Forward-Looking Statements" section of this MD&A and Part I, Item IA - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of these risks and uncertainties.

OVERVIEW AND OUTLOOK

Business
 
Lydall, Inc. and its subsidiaries (collectively, the “Company” or “Lydall”, "the Company”, “we”, and “our”) design, manufacture, and manufacturemarket specialty filtration and advanced materials solutions that contribute to a cleaner, quieter, and safer world. The Company operates in a variety of attractive end markets supported by global megatrends such as the demand for indoor air quality and lower emissions, near sourcing of supply chains, and vehicle electrification redefining safety and sound. Lydall solves our customers' problems culminating in demanding applications, including: high performance air and liquid specialty filtration, molecular filtration, engineered fiber based sealing solutions, specialty insulation including high temperature and ultra-low temperature (cryogenic) insulation, needle punch nonwoven filtration media,materials for industrial, thermal insulating solutions,geosynthetic, medical and other specialty applications; and thermal management and acoustical barriers for filtration/separationproducts and heat abatementsolutions to assist in the reduction of noise, vibration, and sound dampening applications.harshness. The Company principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions, with sales globally. Solutions.

The Performance Materials ("PM") segment includesis a worldwide leader in delivering innovative specialty filtration, sealing and advanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions primarily for air, fluid power, life science and industriala variety of 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 industrialthe global air and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture and construction end markets; and, (3) advanced materials that include highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.

The Technical Nonwovens segment is a global leader in engineered nonwoven materials for industrial filtration applications and advanced materials products. The primary industrial filtration markets include air pollution and emissions control, power generation, and liquid filtration solutions. Advanced materials products include geotextile felts for separation, reinforcement, filtration, drainage, and protection; thermal and acoustic insulation for transportation and automotive applications, and highly customized and technical solutions for acoustic media, medical, building & construction, and safety apparel. Specifically, the segment’s offerings include needle punched nonwoven and highly engineered felts made from a variety of synthetic fibers. Automotive media is provided to Tier 1 and Tier 2 suppliers as well as 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 theCompany's Thermal Acoustical Solutions segment.

The Thermal Acoustical Solutions segment manufacturing process. Nonwoven filter media is used to satisfy increasing emission control regulations inoffers a widefull 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 withintailored for the transportation and industrial sectors.sectors to shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise, vibration, and harshness (NVH).

Recent Developments - COVID-19

The impact ofIn early 2020, the novel strain of the coronavirus identified in late 2019World Health Organization (“COVID-19”WHO”) has growncharacterized COVID-19 as a pandemic. In an effort to contain COVID-19 and slow its spread, governments throughout the world, including in all global and regional markets served by the Company. During the first quarterCompany, enacted various measures, including orders to close "non-essential" businesses, isolate residents in their places of 2020, governmental authorities implemented numerous measures attempting to containresidence, and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines,practice 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 pandemicdistancing. These actions and the shutdowns. Certain Company facilities inglobal health crisis caused by COVID-19 has, and may continue to, adversely impact global business activity and our financial performance. Despite the United States, Europe and Asia carried out shutdowns as a resultrecent administration of government-imposed restrictions or in conjunction with customer plant closures duringvaccines, the first quarter. The Company’s Asia facilities did not resume operations until late February and other facilities ramped back up moderately, in line with customer demand, during the second quarter. Although the Company is beginning to see an increase in orders, it does not expect operations supporting the automotive markets to reach pre-COVID-19 production levels in the near term.

Thermal Acoustical Solutions (“TAS”) Developments

As previously disclosed, the Company ramped down its Thermal Acoustical Solutions operations in North Carolina, 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 quarter of 2020, TAS sales were down 11.2% from 2019 as the pandemic expanded. April’s parts sales were heavily impacted by customer shutdowns with sales declining approximately 90% from the previous year. TAS began to ramp-up production in mid-May 2020 in North America and Europe as customers began to re-open their plants in these regions, with sequential monthly sales growth in both May and June. However, given the facility shutdowns early in the quarter, parts sales in the second quarter were down 62.1% from the previous year.

Technical Nonwovens (“TNW”) Developments

During the first quarter of 2020, TNW experienced slowdowns in all geographic locations except Canada; predominantly in its facilities in South Carolina, the United Kingdom and China operations. 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 quarter of 2020 declined 12.5% from the comparable period in 2019. In the second quarter, softer industrial end markets and lower sales into automotive applications resulted in year over year sales decline in both April and May periods. While down from the prior year, sales in June increased sequentially from May, with seasonal increases in demand for geosynthetics and higher automotive demand partially offsetting weaker industrial end markets. Second quarter sales were down 25.0% in Industrial Filtration and 9.3% in Advanced Materials businesses.




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Performance Materials (“PM”) Developments

Performance Materials’ sealing businesses also experienced slowdowns during the first quarter of 2020 as a result of its exposure to automotive end market applications, impacting the Sealing and Advanced Solutions business. In contrast, PM’s Filtration business has been deemed an essential supplier to certain customers which has driven incremental demand in specialty filtration product lines, including media used in N95 respirator, surgical, and medical masks. PM’s sales in the first quarter of 2020 were up 1% from the comparative period in 2019. PM’s Filtration sales were very strong in April, with gains of approximately 20% from the prior year, and this demand continued through the remainder of the quarter, with second quarter Filtration sales up 19.8% from the previous year. In contrast, exposure to automotive and other end markets resulted in sales decline of approximately 28.6% in the Sealing and Advanced Solutions business, with year over year sales declines spread across all months.

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

Looking Forward

Any ramp up of productionoutbreak continues to be dependent on the Company’s customers resuming operations and no additional outbreaks of COVID-19 that could cause a second slow-down 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 stabilize in the third quarter, but that volumes in the second half of 2020 will 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 to face continued headwinds in its Performance Material's sealing businesses but stronger demand for filtration products is expected to offset this. Additionally, the Company expects seasonally strong construction activity driving geosynthetic demand, coupled with stable demand for medical related nonwoven products, to be offset by softness in industrial end markets in its Technical Nonwovens segment in the second half of 2020.

Liquidity and Cash Preservation

The recent automotive production ramp down across most of the world has impacted the Company's daily working capital significantly. The Company experienced working capital cash flow improvements through June 30, 2020 but does not expect the benefits to continue if production does not further ramp up. Upon ramping up production, the Company expects initial cash outflows to support working capital requirements and capital projects for its investments in new meltblown production equipment followed by a more normalized working capital flow over time.

The Company has also taken 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. With these actions initiated in early 2020, the Company has reduced its monthly cash expenditures and plans to continue to do so as long as 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 June 30, 2020, the Company benefited from $1.7 million in social cost reimbursements predominately in Europe and China. The Company plans to continue to pursue, wherever it qualifies, governmental assistance. The Company may also take advantage of governmental programs such as the Main Street Lending Program, to help defray costs. The Company cannot guarantee, however, that it will qualify for, or receive, any additional assistance that it pursues.

As noted above, the Company reachedhave 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.

In addition to the significant measures taken to reduce and contain costs, the Company took action 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. The Company was in compliance with those modified financial covenants as of and for the quarter ended June 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

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During the first half of 2020, the Company generated $40.4 million of net cash provided by operations and had cash on hand of $92.5 million as of June 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 negativeadverse impact on the Company’s financial results,parts of our business including cases of absenteeism 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

certain supply chain challenges. The Company continues to monitor the global outbreak and spread of COVID-19 and to take steps to mitigate the potential risks to the Company and its employees posed by its spread and related circumstances and economic impacts. As the Company’s operations ramp up production and bring employees back to work, it has implemented changes to help ensure the safety and health of all ourits 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 workefforts to ensure it maintainsmaintain a safe and healthy work environment, including and continuecontinuing to allow remote working arrangements as long as necessary where it is appropriate.

Stronger demand in the auto and industrial markets is causing higher commodity prices for aluminum, aluminized steel, polypropylene, and microfiber glass. Supply chain issues, including transportation and logistics problems, are causing periodic
Second Quarter 2020 Highlights
22


supply chain disruptions, and in selected cases, material shortages in various markets served by the Company. Although the Company does not foresee a material adverse impact on the Company’s financial performance for the remainder of 2021, given the dynamic nature of this situation, we cannot estimate with certainty the future impacts from higher commodity prices and the COVID-19 pandemic on our financial condition, results of operations or cash flows.

Performance Materials Developments

COVID-19

The Performance Materials segment did not experience significant business disruption as a result of the COVID-19 pandemic during the first quarter of 2021. The segment’s facilities remain open in all regions in which the segment operates.

Market Trends

Demand for the Performance Materials segment’s filtration and sealing and advance solutions products continue to be strong, however, the segment is experiencing supply chain challenges for key raw materials, primarily impacting sealings products. In addition, the segment is seeing significant commodity price increases for polypropylene and other fibers used in its filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass throughmost of the higher costs in customer pricing.

Other

As previously disclosed, the Performance Materials segment undertook actions to exit underperforming facilities in Europe. In March 2021, the Company entered into an agreement to sell its German facility. The sale was completed in March 2021 and, as a result, the Company recorded a loss in the amount of $0.7 million. See Note 11, “Restructuring,” in the Notes to Condensed Consolidated Financial Statements for additional information.

Technical Nonwovens Developments

COVID-19

The Technical Nonwovens segment did not experience significant business disruptions as a result of the COVID-19 pandemic during the first quarter of 2021. The segment’s facilities remain open in all regions in which the segment operates. A small number of suppliers have issued force majeure notifications, however, the impact on the segment’s financial results have not been material.

Market Trends

Demand for the Technical Nonwovens segment’s geosynthetic, medical and filtration products are strong. The segment has experienced lower demand in North America for nonwoven products used in automotive applications as global semiconductor chip shortages impact the automotive industry's customers. However, the Company does not expect these issues to have a material adverse impact on the Company’s financial performance in 2021. In addition, the segment is seeing significant commodity price increases for polypropylene used in geosynthetic and filtration products. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to pass through the higher costs in customer pricing.

Thermal Acoustical Solutions Developments

COVID-19

As previously disclosed, the Thermal Acoustical Solutions segment’s North Carolina facility experienced labor shortages and operational inefficiencies directly related to COVID-19 in 2020. The segment has seen a decline in COVID-19 related illnesses during the first quarter of 2021 and, as a result, labor and overtime costs have begun to decline compared to the higher costs incurred in 2020. The segment’s facilities remain open in all regions in which the segment operates.

Market Trends

Customer demand continues to be strong for the Thermal Acoustical Solutions segment, however, customer orders from month to month have been volatile as certain automotive OEM customers temporarily slow or halt production of certain vehicle
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models due to material supply shortages. Consistent with the Company’s other segments, the Thermal Acoustical Solutions segment is experiencing higher commodity pricing, specifically for aluminum, aluminized steel, and polyester fiber. The segment is able to pass through the higher commodity costs for certain customers; however, commodity price increases could have a moderate adverse impact on the segment’s financial performance in 2021 to the extent these costs cannot be passed on to customers.

FIRST QUARTER 2021 HIGHLIGHTS
 
Below are financial performance highlights comparingfor the Company’s three-month period ended June 30, 2020 resultsMarch 31, 2021 compared to itsthe three-month period ended June 30, 2019 results:
March 31, 2020:
•
Net
The chart below reflects the change in consolidated net sales by segment:
ldl-20210331_g1.jpg
Consolidated net sales were $146.2$227.1 million in the secondfirst quarter of 2021, compared to $200.5 million in the first quarter of 2020, compared to $220.8an increase of $26.6 million, or 13.3%, driven by $14.1 million in higher sales in the second quarterCompany's Performance Materials segment, resulting from higher demand in filtration products for face mask media in response to the COVID-19 pandemic combined with strong demand in sealing markets. In addition, the Thermal Acoustical Solutions segment saw continued strength in the automotive market led by higher parts sales of 2019, a decrease of $74.7$9.2 million, or 33.8%.partially offset by lower tooling sales, and the Technical Nonwovens segment experienced an increase in sales driven by higher demand in industrial filtration markets. The change in consolidated net sales is summarized in the following table:chart:
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Components (in thousands)Change in Net SalesPercent Change
   Acquisitions and divestitures$(84) — %
   Parts volume and pricing change(70,025) (31.7)%
   Change in tooling sales(2,573) (1.2)%
   Foreign currency translation(1,969) (0.9)%
      Total$(74,651) (33.8)%

ldl-20210331_g2.jpg
(1)Parts volume and pricing change includes a $0.6 million decrease in net sales from the German facility sold on March 11, 2021 between comparable periods in the first quarters of 2021 and 2020.

•Gross margin decreased to 19.4%Consolidated operating income was $12.1 million for the three-month period ended June 30, 2020 asMarch 31, 2021 compared to 20.5%an operating loss of $(55.6) million in the corresponding period in 2019. Gross margin from2020. Operating income for the TAS segmentthree-month period ended March 31, 2020 was adversely impacted consolidated gross margin by approximately 710 basis pointsgoodwill and other long-lived asset impairment charges in the Performance Materials segment of $61.1 million. After adjusting for the impairment charges, operating income increased $6.6 million primarily due to unfavorablean increase in operating income of $11.1 million in the Performance Materials segment, driven by favorable product mix on significant volume reductionfrom continued demand for face mask media and stronger demand in the sealing and cryogenics markets. Operating income for the Technical Nonwovens segment increased $1.3 million primarily due to the absence of higher margin acoustical parts anda $0.9 million inventory charge included in the sunsettingfirst quarter of certain customer OEM platforms2020 related to a flood in one of its European facilities. Offsetting these increases was a $4.0 million decrease in operating income in the Thermal Acoustical Solutions segment primarily due to higher labor and outsourcing costs as a result of workforce shortages related to COVID-19.

The chart below reflects the change in consolidated operating income by segment:
ldl-20210331_g3.jpg
Consolidated net income was $5.1 million, or $0.28 per diluted share, for the three-month period ended March 31, 2021 compared to a net loss of $(56.4) million, or $(3.25) per diluted share, in the corresponding period in 2020.


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CONSOLIDATED RESULTS OF OPERATIONS
All of the following tabular comparisons are for the three-month periods ended March 31, 2021 and 2020, unless otherwise indicated.
Net Sales
 For the Three Months Ended March 31,
In thousands20212020
Net sales$227,099 $200,527 
$ change26,572 (17,498)
% change13.3 %(8.0)%

Net sales for the three-month period ended March 31, 2021 increased by $26.6 million, or 13.3%, compared to the first quarter of 2020. This increase was primarily driven by an increase in Performance Materials segment sales of $14.1 million, or 7.0% of consolidated net sales, related to higher net sales in the air filtration market in response to the COVID-19 pandemic combined with strong demand for advanced solutions and sealing products. In addition, Thermal Acoustical Solutions net sales increased $7.3 million, or 3.6% of consolidated net sales, as a result of stronger automotive demand. In the first quarter of 2020, the COVID-19 pandemic had a significant adverse impact on the Thermal Acoustical segment's sales. The Technical Nonwovens segment net sales increased $4.3 million, or 2.1% of consolidated net sales, driven primarily by a large increase in China sales due to the absence of the facility ramp-downs that heavily impacted the Company's China operations in the first quarter of 2020. Foreign currency translation favorably impacted net sales by $7.5 million, or 3.8% of consolidated net sales.

Cost of Sales
 For the Three Months Ended March 31,
In thousands20212020
Cost of sales$178,550 $161,959 
$ change16,591 (14,010)
% change10.2 %(8.0)%

Cost of sales for the three-month period ended March 31, 2021 increased by $16.6 million, or 10.2%, compared to the corresponding period in 2020. The increase was primarily driven by higher sales volume across all three segments. The Company's Performance Materials segment experienced an increase in sales volume as a result of the higher demand for air filtration and sealing products in response to the COVID-19 pandemic and an increase in labor costs, principally in the Thermal Acoustical Solutions segment, as a result COVID-19-related work force shortages in the early part of 2021. These increases were partially offset by reduced fixed costs.favorable product mix in the Performance Materials segment. Foreign currency translation increased cost of sales by $6.2 million, or 3.8%, in the first quarter of 2021 compared to the first quarter of 2020.

Gross Profit
 For the Three Months Ended March 31,
In thousands20212020
Gross profit$48,549 $38,568 
$ change9,981 (3,488)
% change25.9 %(8.3)%
% of net sales21.4 %19.2 %

Gross margin for the three-month period ended March 31, 2021 increased 220 basis points compared to the corresponding period in 2020. The Performance Materials segment favorably impacted consolidated gross margin by approximately 430 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 liquid filtration sales, combined with reduced fixed overhead and favorable raw material commodity costs in the second quarter of 2020 compared to the second quarter of 2019. The Technical Nonwovens segment favorably impacted consolidated gross margin by approximately 180 basis points, primarily driven by an insurance claim settlement of $1.3 million, or 100 basis points of consolidated gross margin, related to an inventory write-off charge for a flood in one of its European facilities in the first quarter of 2020.

•Operating loss was $(1.7) million for the three-month period ended June 30, 2020 compared to operating income of $13.2 million in the corresponding period in 2019. The operating loss was driven by plant ramp downs, primarily in the Company's Thermal Acoustical Solutions segment, beginning in later March and lasting into mid-May due to the COVID-19 pandemic. The following components are included in operating income for the second quarters of 2020 and 2019 and impact the comparability of each quarter:
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For the Three Months Ended June 30, 2020
Components (in thousands except per share amounts)
Operating Income ImpactPre-tax
EPS Impact		Tax Effect
EPS Impact (1)		Net
EPS Impact
   Strategic initiatives expenses$(1,230) $(0.07) $0.01  $(0.06) 
   Reduction-in-force severance expenses$(257) $(0.02) $0.01  $(0.01) 

For the Three Months Ended June 30, 2019
Components (in thousands except per share amounts)
Operating Income ImpactPre-tax
EPS Impact		Tax Effect
EPS Impact (1)		Net
EPS Impact
Strategic initiatives expenses$(405) $(0.02) $0.01  $(0.01) 
TNW restructuring expenses$(97) $(0.01) $0.00  $(0.01) 

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

•The net loss was $(5.9) million, or $(0.34) per diluted share, for the three-month period ended June 30, 2020 compared to a net loss of $(6.9) million, or $(0.40) per diluted share, in the corresponding period in 2019, which included employee benefit plan settlement expenses of $0.86 per diluted share.

•Cash was $92.5 million at June 30, 2020, compared to $51.3 million at December 31, 2019. Net cash provided by operations was $40.4 million for the six-month period ending June 20, 2020 compared to $36.2 million in the corresponding period in 2019, with the improvement primarily driven by increases in payable days across the Company's operations. At the end of the first quarter the Company drew down an incremental $20 million on its Amended Credit Facility. On May 11, 2020 the Company amended its 2018 Credit Agreement. See Note 6. "Long-term Debt and Financing Arrangements" to the Condensed Consolidated Financial Statements for highlights of the key amended terms and conditions.

Results of Operations
All of the following tabular comparisons, unless otherwise indicated, are for the three-month and six-month periods ended June 30, 2020 and 2019.

Net Sales
 For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,
In thousands20202019Percent Change20202019Percent Change
Net sales$146,160  $220,811  (33.8)%$346,687  $438,836  (21.0)%

Net sales for the second quarter of 2020 decreased by $74.7 million, or 33.8%, compared to the second quarter of 2019. This decrease was primarily due to lower net parts sales of $53.3 million, or 24.1% of consolidated net sales, in the Thermal Acoustical Solutions segment, driven by temporary plant ramp downs across all of its operations beginning in mid-March as the Company's large OEM customers closed plants of their own due to the COVID-19 pandemic; and a $2.6 million decrease in net tooling sales. The Technical Nonwovens segment reported a decrease in net sales of $17.1 million, or 7.7% of consolidated net sales, driven primarily by global softness in industrial end markets, primarily air filtration. The Performance Materials segment reported a decrease in net sales of $6.6 million, or 3.0% of consolidated net sales, primarily due to decreased sealing and advanced solutions sales of $11.5 million, predominately driven by large OEM customer shutdowns due to the COVID-19 pandemic. This decrease was partially offset by increased sales in its air filtration market, driven by demand for face mask media in response to the COVID-19 pandemic. Foreign currency translation had a negative impact on net sales of $2.0 million, or 0.9% of consolidated net sales, primarily impacting the Technical Nonwovens segment by $1.3 million, the Performance Materials segment by $0.4 million, and the Thermal Acoustical Solutions segments by $0.3 million.

Net sales for the six-month period ended June 30, 2020 decreased by $92.1 million, or 21.0%, compared to the corresponding period in 2019. This decrease was primarily due to lower net parts sales of $60.5 million, or 13.8% of consolidated net sales, in the Thermal Acoustical Solutions segment, driven by temporary plant ramp downs across all of its operations discussed above and lower net tooling sales of $5.9 million. The Technical Nonwovens segment reported a decrease in net sales of $25.3 million, or 5.8% of consolidated net sales, driven primarily by the global softness in industrial end markets, primarily air
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filtration. The Performance Materials segment reported a decrease in net sales of $6.0 million, or 1.4% of consolidated net sales, primarily due to decreased sealing and advanced solutions sales of $12.8 million, primarily driven by large OEM customer shutdowns due to COVID-19. This decrease was partially offset by increased sales in its air filtration market, driven by significant demand for face mask media in response to the COVID-19 pandemic. Foreign currency translation had a negative impact on net sales of $4.2 million, or 1.0% of consolidated net sales, primarily impacting the Technical Nonwovens segment by $2.1 million, the Thermal Acoustical Solutions segments by $1.1 million, and the Performance Materials segment by $1.0 million.

Cost of Sales
 For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,
In thousands20202019Percent Change20202019Percent Change
Cost of sales$117,742  $175,536  (32.9)%$279,701  $351,505  (20.4)%

Cost of sales for the second quarter of 2020 decreased by $57.8 million, or 32.9%, compared to the corresponding period in 2019. The decrease was driven by lower net sales across all segments totaling $74.7 million, primarily due to plant ramp downs in the Thermal Acoustical Solutions segment and, to a lesser extent, the Technical Nonwovens segment due to the COVID-19 pandemic. In addition, reduced fixed overhead costs, primarily in the Thermal Acoustical Solutions and Performance Materials segments related to reduction-in-force programs initiated in the fourth quarter of 2019, employee furloughs in the second quarter of 2020, and lower material costs in the Technical Nonwovens and Performance Materials segments, contributed to the lower cost of sales. These decreases to cost of sales were partially offset by 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 $1.6 million, or 0.9%, in the second quarter of 2020 compared to the second quarter of 2019.

Cost of sales for the six-month period ended June 30, 2020 decreased by $71.8 million, or 20.4%, compared to of the corresponding period in 2019. The decrease was driven by the drivers noted above. Foreign currency translation decreased cost of sales by $3.5 million, or 1.0%, in the first six months of 2020 compared to the first six months of 2019.

Gross Profit
 For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,
In thousands20202019Percent Change20202019Percent Change
Gross profit$28,418  $45,275  (37.2)%$66,986  $87,331  (23.3)%
Gross margin19.4 %20.5 %19.3 %19.9 %

Gross margin for the second quarter of 2020 decreased 110 basis points compared to the second quarter of 2019. The Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 710 basis points driven by unfavorable product mix on significant volume reduction of higher margin acoustical parts and the sunsetting of certain customer OEM platforms, partially offset by reduced fixed costs, primarily driven by reduction-in-force programs completed during the fourth quarter of 2019 and second quarter of 2020 along with furlough activity during plant ramp downs in response to the pandemic. The Performance Materials segment favorably impacted consolidated gross margin by approximately 430390 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 lowerhigher sealing and advanced solutions sales. Lower fixed overhead and favorable raw material commodity costs. The Technical Nonwovens segment favorably impacted consolidatedcosts driven by the 2020 restructuring activities also contributed to the Performance Materials segment's gross margin in the second quarter by approximately 180 basis points, primarily driven by an insurance claim settlement of $1.3 million, or 100 basis points of consolidated gross margin, related to an inventory write-off charge for a flood in one of its European facilities in the first quarter of 2020, combined with lower raw material commodity costs.

Gross margin for the for the six-month period ended June 30, 2020 decreased 60 basis points compared to the corresponding period in 2019.improvement. The Thermal Acoustical Solutions segment negatively impacted consolidated gross margin by approximately 370 basis points due to the same drivers noted above. The Performance Materials segment favorably impacted consolidated gross margin by approximately 260 basis points and the Technical Nonwovens segment favorably impacted consolidated gross margin by approximately 5020 basis points; both segment improvements in gross margin werepoints due to the driversabsence of a $0.9 million inventory charge in the first quarter of 2020 related to a flood in one of its European facilities. The Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 190 basis points, primarily driven by the higher labor costs noted above.



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Selling, Product Development and Administrative Expenses
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		 For the Three Months Ended March 31,
In thousandsIn thousands20202019Percent Change20202019Percent ChangeIn thousands20212020
Selling, product development and administrative expensesSelling, product development and administrative expenses$30,164  $32,096  (6.0)%$63,191  $65,102  (2.9)%Selling, product development and administrative expenses$35,633 $33,027 
Percentage of sales20.6 %14.5 %18.2 %14.8 %
$ change$ change2,606 21 
% change% change7.9 %0.1 %
% of net sales% of net sales15.7 %16.5 %

Selling, product development and administrative expenses for the second quarter of 2020 decreased $1.9three-month period ended March 31, 2021 increased $2.6 million, but increased 610decreased 80 basis points as a percentage of consolidated net sales, compared to the second quarter of 2019 due to the significant dropcorresponding period in net sales driven by the COVID-19 pandemic. Decreased2020. The increase in selling, product development and administrative expenses were driven by lower travel expenses and salaries of $0.9 million each, lower severancehigher compensation-related expenses of $0.7$2.8 million, decreasedhigher consulting expensescosts of $0.5$2.1 million, and lower other general administrative expenses of approximately $1.1 million. These decreases were partially offset by an increase in cash incentive compensation expense of $1.4 million and higher strategic initiatives expenses of $0.8 million.

Selling, product development and administrative expenses for the first six months of 2020 decreased $1.9 million, but increased 340 basis points as a percentage of net sales, compared to the first six months of 2019 due to the significant drop in net sales driven by the COVID-19 pandemic. Lower selling, product development and administrative expenses were driven by lower salaries of $1.7 million, reduced travel and consulting expenses of $1.2 million and $1.0 million, respectively, lower intangibles amortization expense of $0.4 million, and a decrease in other general administrative costs of $1.2$0.6 million. These decreasesincreases were partially offset by higherlower corporate strategic initiatives expenses of $1.9$1.8 million, and increased cash incentive compensationa decrease in intangible assets amortization expense of $1.7$1.1 million.

Impairment of Goodwill and Other Long-Lived Assets
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		 For the Three Months Ended March 31,
In thousandsIn thousands20202019Dollar Change20202019Dollar ChangeIn thousands20212020
Impairment of goodwill and other long-lived assetsImpairment of goodwill and other long-lived assets$—  $—  $—  $61,109  $—  $61,109  Impairment of goodwill and other long-lived assets$— $61,109 

As previously reported, theThe Company recorded a goodwill impairment charge of $48.7 million in the Performance Materials segment during the three-month period ended March 30, 2020. Lower expected2020 due to lower 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.

AsCOVID-19 pandemic. In addition, as a result of the COVID 19 pandemic and the Company's action plan to address the risks associated with it,risks, the Company accelerated certain strategic actions. One such action was a review of a low-performingan 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 recordedplant, which resulted in a long-lived asset impairment charge of $12.4 million.million during the three-month period ended March 31, 2020.

Employee Benefit Plans SettlementRestructuring Expenses
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		 For the Three Months Ended March 31,
In thousandsIn thousands20202019Dollar Change20202019Dollar ChangeIn thousands20212020
Employee benefit plans settlement expenses$—  $25,515  $(25,515) $385  $25,515  $(25,130) 
Restructuring expensesRestructuring expenses$777 $— 

In the first quarter of 2021, the Company recorded pre-tax restructuring charges of $0.8 million primarily consisting of severance costs and legal expenses.

(Gain) Loss On The Sale Of A Businesses
 For the Three Months Ended March 31,
In thousands20212020
(Gain) loss on the sale of a business$698 $— 

In the first quarter of 2021, the Company entered into an agreement to sell a facility in Germany, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.2 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the business, the Company recorded a pre-tax loss of $0.7 million. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.






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Employee Benefit Plans Settlement Expenses
 For the Three Months Ended March 31,
In thousands20212020
Employee benefit plans settlement expenses$— $385 
In the first quarter of 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan through lump sum distributions to participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. The settlement, funded with pension plan assets, resulted in a non-cash settlement expense of $0.4 million in the first quarter of 2020 related to the recognition of accumulated deferred actuarial losses.

During the three-month period ended June 30, 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan 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.

Interest Expense
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		 For the Three Months Ended March 31,
In thousandsIn thousands20202019Percent Change20202019Percent ChangeIn thousands20212020
Interest expenseInterest expense$4,476  $3,731  20.0 %$7,333  $7,359  (0.4)%Interest expense$3,448 $2,857 
Weighted average interest rate5.2 %4.4 %4.8 %4.3 %
Weighted average interest rate during the yearWeighted average interest rate during the year5.1 %4.4 %
 
The increase in interest expense for the three-month period ended June 30, 2020March 31, 2021 compared to the corresponding period in 20192020 was primarily due to higher interest rates and the write-off of debt issuance costs related to the amendment of the Company's Facility2018 Amended Credit Agreement in the second quarter of 2020, partially offset by reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro related to the net investment hedge the company entered into in the fourth quarter of 2019.

Interest expense for the six-month period ended June 30, 2020 was essentially flat compared to the corresponding period in 2019 as higher interest rates and the write-off of debt issuances costs was offset by lower average borrowings and a reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro related to the net investment hedge the company entered into in the fourth quarter of 2019.

Other (Income)Income and Expense net
For the Three Months Ended  
June 30,		For the Six Months Ended  
June 30,		For the Three Months Ended March 31,
In thousandsIn thousands20202019Dollar Change20202019Dollar ChangeIn thousands20212020
Other expense (income), netOther expense (income), net$248  $(873) $1,121  $(170) $(474) $304  Other expense (income), net$86 $(418)
Other expense (income), net, decreasedwas unfavorable for the three and six monththree-month period ended June 30, 2020March 31, 2021 compared to the corresponding 2020 period in 2019 primarily resulting from the absence of the $1.5 million gain on the sale of a business that occurred in the second quarter of 2019 and lowerdue to foreign currency losses recognized on the revaluation of cash, trade payables and receivables and intercompany loans denominated in currencies other than the functional currencies of the Company's subsidiaries.

Effective Income Tax Rate
Income Taxes
For the Three Months Ended March 31,
20212020
Effective income tax rate35.7 %3.5 %

For the three-month period ended June 30, 2020,March 31, 2021, the Company's effective tax rate was 9.2%35.7% compared to an effective tax rate of 54.0%3.5% for the three-month period ended June 30, 2019.March 31, 2020. For the three monthsthree-month period ended June 30, 2020,March 31, 2021, the rate was negatively impacted by $0.5 million due to a change in assertion on unremitted foreign earnings, $0.4 million related to foreign earnings taxed at higher rates, and $0.2 million of valuation allowance activity of $0.5 million and a foreign withholding tax liability of $0.4 million, resulting in a lower effective tax rate when in a pre-tax loss position.activity. For the three-month period ended June 30, 2019, the Company had a pre-tax loss primarily resulting from a pension plan settlement of $25.5 million, resulting in a $10.5 million tax benefit. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the three months ended June 30, 2019 was 22.7%. This was negatively impacted by valuation allowance activity of $0.9 million, partially offset by the Company's geographical mix of earnings.

For the six-month period ended June 30, 2020, the Company's effective tax rate was 4.0% compared to an effective tax rate of 69.7% for the six-month period ended June 30, 2019. For the six months ended June 30,March 31, 2020, the Company had a pre-tax loss primarily resulting from an impairment chargescharge of $61.1 million. The impairment chargescharge significantly impacted the Company's effective tax rate becauseas $48.7 million of the impairment chargescharge related to non-deductible goodwill, resulting in a lowlower effective tax rate for the six months ended June 30,first quarter of 2020 when the Company was in a pre-tax loss position. Additionally, the effective rate, was
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negatively impacted by valuation allowance activity of $0.7 million. For the six-month period ended June 30, 2019, the Company had a pre-tax loss primarily resulting from a pension plan settlement of $25.5 million, resulting in a $10.5 million tax benefit. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the six months ended June 30, 2019 was 22.5%. Thisfirst quarter of 2020, was negatively impacted by valuation allowance activity of $1.2 million, partially offset by the Company's geographical mix of earnings.$0.3 million.

The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, Canada, China, France, Germany, Hong Kong, India, the Netherlands, and the United Kingdom. With few exceptions, the Company is no longer subject to U.S. federal examinations for years before 2016, state and local examinations for years before 2015, and non-U.S. income tax examinations for years before 2013.
The Company’s effective tax rates in future periods could be affected by an increase or decrease in earnings in countries where tax rates differ from the United States federal tax rate, the relative impact of permanent tax adjustments on earnings from domestic operations, changes in net deferred tax asset valuation allowances, including valuation allowances on loss carryforwards in which no tax benefit can be recognized, stock vesting, pension plan terminations, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of ongoing tax planning strategies and audits.

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 is evaluating the final regulations and is assessing potential impacts of these changes to the Company’s financial statements.

Segment Results
The following tables present net sales for the primary product and service categories within each operating segment and operating income by segment for the three-month and six-month periods ended June 30, 2020 and June 30, 2019, respectively.

Net sales and operating income by segment:
For the Three Months Ended June 30,
In thousands20202019Dollar Change
Performance Materials Segment:
Filtration$29,636  $24,732  $4,904  
Sealing and Advanced Solutions28,837  40,370  (11,533) 
Performance Materials Segment net sales58,473  65,102  (6,629) 
Technical Nonwovens Segment (1):
Industrial Filtration29,413  38,706  (9,293) 
Advanced Materials (2)22,594  30,372  (7,778) 
Technical Nonwovens Segment net sales52,007  69,078  (17,071) 
Thermal Acoustical Solutions Segment:
Parts32,448  85,705  (53,257) 
Tooling5,000  7,567  (2,567) 
Thermal Acoustical Solutions Segment net sales37,448  93,272  (55,824) 
     Eliminations and Other (2)(1,768) (6,641) 4,873  
Consolidated Net Sales$146,160  $220,811  $(74,651) 


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For the Three Months Ended June 30,
20202019
In thousandsOperating IncomeOperating Margin %Operating IncomeOperating Margin %Dollar Change
Performance Materials (3)$5,443  9.3%$3,303  5.1%$2,140  
Technical Nonwovens (1),(2),(4)6,684  12.9%7,844  11.4%(1,160) 
Thermal Acoustical Solutions(6,285) (16.8)%7,357  7.9%(13,642) 
Corporate Office Expenses(7,588) (5,325) (2,263) 
Consolidated Operating Income$(1,746) (1.2)%$13,179  6.0%$(14,925) 
SEGMENT RESULTS
The following tables present segment net sales and operating income (loss) for the primary product categories for the three-month periods ended March 31, 2021 and 2020.

For the Six Months Ended June 30,
In thousands20202019Dollar Change
Performance Materials Segment:
Filtration$55,523  $48,666  $6,857  
Sealing and Advanced Solutions68,170  81,016  (12,846) 
Performance Materials Segment net sales123,693  129,682  (5,989) 
Technical Nonwovens Segment (1):
Industrial Filtration60,782  81,070  (20,288) 
Advanced Materials (2)48,628  53,614  (4,986) 
Technical Nonwovens Segment net sales109,410  134,684  (25,274) 
Thermal Acoustical Solutions Segment:
Parts109,769  170,281  (60,512) 
Tooling11,440  17,304  (5,864) 
Thermal Acoustical Solutions Segment net sales121,209  187,585  (66,376) 
     Eliminations and Other (2)(7,625) (13,115) 5,490  
Consolidated Net Sales$346,687  $438,836  $(92,149) 
Net sales by segment:

For the Six Months Ended June 30,
20202019
In thousandsOperating IncomeOperating Margin %Operating IncomeOperating Margin %Dollar Change
Performance Materials (3)$(51,498) (41.6)%$4,762  3.7%$(56,260) 
Technical Nonwovens (1),(2),(4)10,497  9.6%12,578  9.3%(2,081) 
Thermal Acoustical Solutions(657) (0.5)%16,848  9.0%(17,505) 
Corporate Office Expenses(15,656) (11,959) (3,697) 
Consolidated Operating Income$(57,314) (16.5)%$22,229  5.1%$(79,543) 
For the Three Months Ended March 31,
In thousands20212020
Performance Materials Segment (1),(2):
Filtration Products$34,346 $25,887 
Sealing and Advanced Solutions Products44,987 39,333 
Performance Materials Segment net sales79,333 65,220 
Technical Nonwovens Segment:
Industrial Filtration Products36,401 31,369 
Advanced Materials Products (2)
25,274 26,034 
Technical Nonwovens Segment net sales61,675 57,403 
Thermal Acoustical Solutions Segment:
Parts86,494 77,321 
Tooling4,550 6,440 
Thermal Acoustical Solutions Segment net sales91,044 83,761 
     Eliminations and Other (2)
(4,953)(5,857)
Consolidated Net Sales$227,099 $200,527 

Operating income (loss) by segment:

For the Three Months Ended March 31,
In thousands20212020
Performance Materials (1),(3)
$15,296 $(56,941)
Technical Nonwovens (4)
5,104 3,813 
Thermal Acoustical Solutions1,674 5,628 
Corporate Office Expenses(9,935)(8,068)
Consolidated Operating Income (Loss)$12,139 $(55,568)

(1)The Technical NonwovensPerformance Materials segment includes the results of Geosol through the date of disposition of May 9, 2019.facility in German that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is $1.4the following:
•Technical Nonwovens segment intercompany sales of $3.9 million and $4.6$5.0 million in intercompany sales to the Thermal Acoustical Solutions segment for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $6.4respectively.
•Performance Materials segment intercompany sales of $1.0 million and $9.3$0.9 million in intercompany sales to the Thermal Acoustical Solutions segment for the six monthsthree-month periods ended June 30,March 31, 2021 and 2020, and 2019.respectively.
(3)Included in the operating results within the Performance Materials segment is $61.1are the following:
•$61.1 million of impairment charges related to goodwill and other long-lived assets for the six monthsthree-month period ended June 30, 2020, $4.0March 31, 2020.
•$3.0 million and $4.1$4.0 million of intangible assets amortization for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019 and $7.9 million and $8.1 million of intangible assets amortization for the six-month periods ended June 30, 2020 and 2019.respectively.
(4)Included in the Technical Nonwovens segment is $1.2the following:
•$1.1 million and $1.3$1.2 million of intangible assets amortization for the three-month periods ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $2.3 million and $2.6 million of intangible assets amortization for the six-month periods ended June 30, 2020 and 2019.respectively.

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Performance Materials

Segment net sales decreased $6.6increased $14.1 million, or 21.6%, in the secondfirst quarter of 20202021 compared to the secondfirst quarter of 2019.2020. The decreaseincrease was primarily due to decreased sealing and advanced solutions net sales of $11.5 million as these products partially serve the automotive industry and were impacteddriven by lower demand due to automotive customer shutdowns in the second quarter of 2020 related to COVID-19. This decrease was partially offset by increasedhigher net sales in filtration of $4.9$8.5 million asdue to the demand in the air filtration market for face mask media in response to the COVID-19 pandemic grew.pandemic. Additionally, sealing and advanced solutions sales increased $5.7 million driven by strong demand for sealing in agriculture, construction, and transportation end markets, as well as higher demand for cryogenic insulation products. Foreign currency translation had a negative impact onpositively impacted segment net sales of $0.4by $1.7 million, or 0.6%, in the second quarter of 2020 compared to the second quarter of 2019.2.6%.

The Performance Materials segment reported operating income of $5.4$15.3 million, or 19.3% of segment sales, in the first quarter of 2021, compared to an operating loss of ($56.9) million in the secondfirst quarter of 2020, compared to operating income of $3.3 million in the second quarter of 2019.2020. The increase in operating income of $2.1$72.2 million or 420 basis points, was primarily due to improved gross margin of 370 basis points and, to a lesser extent, lower selling, product development and general administrative expenses of 50 basis points as a percentage of segment net sales. Improved gross margin was primarily driven by favorable product mix related to increased face mask media demand, reduced fixed overhead costs from savings driven by the fourth quarter 2019 reduction-in-force program, and lower raw material commodity costs in the second quarter of 2020 compared to the corresponding 2019 period. Selling, product development and general administrative expenses decreased by $1.8 million, primarily driven by lower travel expenses of $0.4 million, the absence of a $0.4 million bad debt write-off in the second quarter of 2019, lower salaries and consulting expense of $0.3 million each. and reduced other general administrative costs of $1.2 million. These decreases were partially offset by increased accrued cash incentive compensation of $0.8 million in the second quarter of 2020 compared to the corresponding period in 2019.

Segment net sales decreased $6.0 million for the six-month period ended June 30, 2020 compared to the corresponding period in 2019. The decrease was driven by the drivers noted above. Foreign currency translation had a negative impact on segment net sales of $1.0 million, or 0.8%, in the first six months of 2020 compared to the first six months of 2019.

The Performance Materials segment reported an operating loss of ($51.5) million for the six-month period ended June 30, 2020, compared to operating income of $4.8 million for the corresponding 2019 period. The change in operating income of $56.3 million was primarily driven by goodwill and other long-lived asset impairment charges of $61.1 million recorded in the first quarter of 2020. The increase in operating income of $11.1 million, excluding the first quarter 2020 impairment charges, were partially offsetwas driven by higheran improvement in gross margin of 300940 basis points, primarily duerelated to favorable product mix driven by increasedfrom continued demand for face mask media, combined with reducedhigher demand in the sealing and cryogenics markets, and lower fixed overhead and labor costs from savings driven by the fourth quarter 2019 reduction-in-force program and lower material commodity and production costs in the first six months of 2020 compared to the corresponding 2019 period. After excluding the impairment charges, selling,restructuring activities. Selling, product development and general administrative expenses were favorable by 110increased $0.1 million, decreasing 340 basis points as a percentage of segment net sales, for the six-month period ended June 30, 2020, compareddue to the corresponding 2019 period, primarily driven by decreased consulting, salariessegment restructuring charges of $0.7 million and travel expenses, partially offset by increasedhigher accrued cash incentive compensation.compensation of $0.3 million, which was largely offset by lower intangible amortization costs of $0.9 million.

Technical Nonwovens

Segment net sales decreased $17.1increased $4.3 million, or 24.7%7.4%, in the secondfirst quarter of 20202021 compared to the secondfirst quarter of 2020. Foreign currency translation had a negative impact on segment net sales of $1.3 million, or 1.9%, in the second quarter of 2020 compared to the second quarter of 2019. Industrial filtration net sales decreased $9.3increased $5.0 million, or 24.0%16.0%, driven by soft industrial end markets, primarily air filtration, across all regions as a result86% increase in China sales compared to the prior year due to key wins for steel, cement and power projects and the absence of the COVID-19 coupled withpandemic related shutdowns experienced in the negative impactfirst quarter of foreign currency.2020. Advanced materials net sales decreased $7.8$0.8 million, or 25.6%2.9%, in the first quarter of 2021 compared to the first quarter of 2020, driven primarily by lower domestic demand, partially offset by higher demand in the geosynthetics market in Canada. Foreign currency translation positively impacted segment net sales by $3.2 million, less in sales of automotive rolled-good material for use in the Thermal Acoustical Solutions segment manufacturing process due to the plant ramp downs in the second quarter of 2020 caused by COVID-19 and decreased geosynthetic product demand in Canada in the second quarter of 2020 compared to the second quarter of 2019.or 5.6%.

The Technical Nonwovens segment reported operating income of $6.7$5.1 million, or 12.9%8.3% of segment net sales, in the secondfirst quarter of 2020,2021, compared to $7.8$3.8 million, or 11.4%6.6% of net segment sales, in the secondfirst quarter of 2019.2020. The decreaseincrease in operating income of $1.2$1.3 million was primarily driven by the significant top-line reduction, yet operating margin improved 150 basis points as a result of improvedan improvement in gross margin of 230190 basis points, partially offset by higher selling,primarily related to the absence of a $0.9 million inventory charge in the first quarter of 2020 related to a flood in one of its European facilities. Selling, product development and general administrative expenses of 90increased $0.6 million, or 20 basis points as a percentage of segment net sales. Gross margin improvement wassales, primarily driven by an insurance claim settlement of $1.3 million, or 260 basis points coupled with lower material commodity and productivity costs, partially offset by unfavorable labor and variable overhead absorption on reduced volume. The increase in selling, product development and general administrative expenses as a percentagesalaries expense of net sales was primarily due to the $17.1 million reduction in sales, while expenses actually decreased $1.2 million, primarily driven by lower salaries of $0.4 million, decreased travel expenses of $0.3 million and reduced other general administrative costs of $0.5 million in the second quarter of 2020 compared to the second quarter of 2019.

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Segment net sales decreased $25.3 million, or 18.8%, in the first six months of 2020 compared to the first six months of 2020. Foreign currency translation had a negative impact on segment net sales of $2.1 million, or 1.6%, in the first six months of 2020 compared to the first six months of 2019. Industrial filtration net sales decreased $20.3 million, or 25.0%, driven by soft global industrial end markets across all regions as a result of COVID-19, coupled with the negative impact of foreign currency. Advanced materials net sales decreased $5.0 million, or 9.3%, driven by $2.9 million less in sales of automotive rolled-good material due to the plant ramp downs in the second quarter of 2020 caused by COVID-19.

The Technical Nonwovens segment reported operating income of $10.5 million, or 9.6% of net sales, in the first six months of 2020, compared to $12.6 million, or 9.3% of net sales, in the first six months of 2019. The decrease in operating income of $2.1 million was driven by the significant top-line reduction due to COVID-19, yet operating margin improved 30 basis points as a result of improved gross margin of 100 basis points, partially offset by higher selling, product development and general administrative expenses of 70 basis points as a percentage of segment net sales. Gross margin improvement was primarily driven by lower raw material commodity costs and favorable product mix in North America related to personal protective equipment, partially offset by unfavorable labor and variable overhead absorption on reduced volume. The increase in selling, product development and general administrative expenses as a percentage of net sales was primarily due to the $25.3 million reduction in sales, while expenses actually decreased $1.8 million, primarily driven by lower salaries of $0.9 million, decreased travel expenses of $0.4 million and reduced other general administrative costs of $0.5 million in the first six months of 2020 compared to the first six months of 2019.$0.7 million.

Thermal Acoustical Solutions
 
Segment net sales decreased $55.8increased $7.3 million, or 59.9%8.7%, in the secondfirst quarter of 20202021 compared to the secondfirst quarter of 2019.2020. This decreaseincrease was primarily due to lower netan increase in parts sales of $53.3$9.2 million driven by higher sales across all regions. During the first quarter 2020, sales were adversely impacted by temporary plant ramp downs across all of its operations beginning in mid-March as the Company's large OEM customers closed plants of their ownshutdowns due to the COVID-19 pandemic. The Company's Thermal Acoustical Solutions plants began ramping up production in May through the end of June, with the exception of plants in China, which resumed operations in April. Additionally, netThis increase was partially offset by lower tooling sales decreased $2.6of $1.9 million in the secondfirst quarter of 20202021 compared to the corresponding 2019 period.first quarter of 2020. Foreign currency translation had a negative impact onfavorably impacted segment net sales of $0.3by $2.6 million, or 0.3%, in the second quarter of 2020 compared to the second quarter of 2019.3.0%.

The Thermal Acoustical Solutions segment reported an operating lossincome was $1.7 million, or 1.8% of ($6.3) millionsegment net sales, in the secondfirst quarter of 2020,2021, compared to operating income of $7.4$5.6 million, or 7.9%6.7% of segment net sales, in the secondfirst quarter of 2019.2020. The decrease in operating income of $13.6$3.9 million, or 490 basis points, as a percentage of segment net sales, was primarily due to the degradation of gross margin of 430 basis points driven by the significant reduction in segment net sales due to the COVID-19 pandemic. Additionally, unfavorable product mix on significant volume reduction of higher margin acoustical partslabor and outsourcing costs from work force shortages related to COVID-19 in the COVID-19 pandemicearly part of 2021. Gross margin was also negatively impacted by higher raw material commodity costs related to an increase in market pricing of aluminum and aluminized steel in the sunsetting of certain customer OEM platforms coupled with unfavorable labor absorption drove further degradation of gross margin. These decreases to operating income were partially offset by reduced fixed costs, primarily driven by reduction-in-force programs completed during the fourthfirst quarter of 2019 and second quarter of 2020 along with furlough activity during plant ramp downs2021. Operating income was further impacted by an increase in response to the pandemic. Selling,selling, product development and administrative expenses decreased $1.2of $1.0 million, primarily driven by reduced severance expenses of $0.7 million and lower salaries of $0.3 million, but increased 610or 60 basis points as a percentage of net sales due to the significant volume reduction in the second quarter of 2020 compared to the corresponding 2019 period.

Segment net sales decreased $66.4 million, or 35.4%, for the six-month period ended June 30, 2020 compared to the corresponding 2019 period. This decrease was primarily due to lower net parts sales of $60.5 million, driven by temporary plant ramp downs across all of its operations beginning in mid-March as the Company's large OEM customers closed plants of their own due to the COVID-19 pandemic. Additionally, net tooling sales decreased $5.9 million compared to the corresponding 2019 period. Foreign currency translation had a negative impact on segment net sales, of $1.1 million, or 0.6%, for the six months ended June 30, 2020 compared to the same 2019 period.

The Thermal Acoustical Solutions segment reported an operating loss of ($0.7) million for the six-month period ended June 30, 2020 compared to operating income of $16.8 million, or 9.0% of net sales, for the corresponding 2019 period. The decrease in operating income of $17.5 million was primarily due to the degradation of gross margin driven by the significant reduction in segment net sales due to the COVID-19 pandemic caused by the same drivers noted above. Selling, product developmenthigher salaries and administrative expenses decreased $1.3 million, primarily driven by reduced severance expensesrecruiting costs of $0.7$0.4 million and lower salarieshigher other general administrative costs of $0.5 million, but increased 210 basis points as a percentage of net sales due to the significant volume reduction for the six-month period ended June 30, 2020 compared to the corresponding 2019 period.$0.6 million.

Corporate Office Expenses
 
Corporate office expenses for the three-month period ended June 30, 2020March 31, 2021 were $7.6$9.9 million, compared to $5.3$8.1 million in the corresponding period in 2019.2020. The increase of $2.3$1.8 million was primarily due to increased corporate strategic initiativeshigher consulting costs of $2.0 million, an
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expensesincrease in employee compensation-related costs of $0.8 million, higher accrued cash incentive compensation of $0.5 million, increased stock compensation expense of $0.4$1.4 million, and increased other general administrative expensescosts of $0.6 million in the second quarter of 2020 compared to the second quarter of 2019.

Corporate office expenses for the six-month period ended June 30, 2020$0.2 million. These increases were $15.7 million, compared to $12.0 million in the corresponding period in 2019. The increase of $3.7 million was primarily due to increasedpartially offset by lower corporate strategic initiatives expenses of $1.9 million, higher accrued cash incentive compensation of $0.9 million, increased stock compensation expense of $0.4 million and increased other general administrative expenses of $0.5 million in the first six months of 2020 compared to the first six months of 2019.$1.8 million.

Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES
 
The Company assesses its liquidity in terms of its ability to generate cash to fund operating, investing and financing activities. The Company's principal source of liquidity is operating cash flows and borrowings under the Credit Facility.bank borrowings. In addition to operating cash flows, other significant factors that affect the overall management of liquidity include capital expenditures, investments in businesses, strategic transactions, income tax payments, debt service payments, outcomes of commitments and contingencies, foreign currency exchange rates, and employee benefit plan funding.funding and factors that might otherwise affect the company's business and operations generally, as described under the heading “Risk Factors” and “Forward-Looking Statements” in Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Company manages worldwide cash requirements by considering available funds among domestic and foreign subsidiaries. The Company expects to finance its 2020 operating activities and capital spending requirements from existing cash balances, cash provided by operating activities and through borrowings under the Credit Facility, as needed.

In December 2019,The Company continues to manage working capital effectively through inventory management and using consigned inventory arrangements where appropriate, taking advantage of early pay discounts when offered by suppliers, and optimizing accounts receivable collections by selling trade accounts receivable balances when appropriate. A select number of larger customers negotiate longer payment terms. These selected customers offer early pay discounts and/or supply chain financing agreements that allows the Company to collect amounts due earlier than the customer negotiated terms, less a discount on the nominal value of the receivable. The Company also entered into two arrangements with a banking institution to sell trade accounts receivable balances for selectselected customers. For the six-month period ended June 30, 2020 and December 31, 2019, the Company sold $43.0 million in trade receivables balances. See “TransferTransfers of Financial Assets” in Note 1, “Basis of Financial Statement Presentation”Presentation,” in the Notes to Condensed Consolidated Financial Statements for additional information.

In June 2020, the Company reached an agreement with the U.S. Government 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.Future Cash Requirements

At June 30, 2020,March 31, 2021, the Company held $92.5$88.7 million in cash and cash equivalents, including $49.7$23.1 million in the U.S. with the remaining held by foreign subsidiaries and $286.0$261.5 million of borrowings outstanding and standby letters of credit outstanding of $1.6 million.$1.8 million under the 2018 Amended Credit Agreement.

In addition to the Company’s working capital requirements, one or more of the following items could have a material impact on the Company’s liquidity during the next twelve months (items are not in the order of importance):

•the matters described in Note 15, “Commitments and Contingencies,” in the Notes to Condensed Consolidated Financial Statements;
•capital expenditures, including the strategic investments discussed below;
•investments in businesses and strategic costs and/or transactions;
•restructuring and severance costs (see Note 11, “Restructuring,” in the Notes to Condensed Consolidated Financial Statements);
•income tax payments;
•research and development expenditures;
•costs and payments associated with tooling for new OEM programs;
•debt service payments;
•employer payroll tax payments deferred under the CARES Act;
•foreign currency exchange rates;
•employee benefit plan funding (see Note 10, “Employer Sponsored Benefit Plans,” in the Notes to Condensed Consolidated Financial Statements); and
•repurchase of common stock under the Company's Share Repurchase Program.

The Company’s continued accessCompany expects to sources of liquidity depends on multiple factors, including global economic conditions,contribute approximately $0.7 million to its domestic defined employee benefit plan in 2021.

Strategic Investments

In 2020, the COVID-19 pandemic’s effects onCompany approved investments to add capital equipment in North America and Europe to produce fine fiber meltblown filtration media in the Performance Materials segment. In North America, the Company is investing approximately $25.0 million for two production lines in its customers and their production rates, the condition of global financial markets, the availability of sufficient amounts of financing, its operating performance and its credit ratings.Rochester, New Hampshire facility. The Company borrowed $20received a $13.5 million undergrant from the revolver portionU.S. Government to partially fund this investment. The cumulative capital expenditures incurred for this ongoing project was $8.5 million through March 31, 2021, net of $12.3 million in funding from the U.S. Government.

In Europe, the Company is investing approximately $13.0 million for a production line in its Facility duringSaint-Rivalain, France facility to meet the European Union demand for face mask and air filtration products. This investment is being partially funded by a grant
31


from the French Government that provides funding up to 30% of the investment. The cumulative capital expenditures incurred for this ongoing project was $8.0 million through March 31, 2021, net of $3.2 million in funding from the French Government.

Discussion and Analysis of Cash Flows

A summary of the Company's consolidated cash flows is as follows:
For the Three Months Ended
In thousandsMarch 31, 2021March 31, 20202021 vs. 2020
Total cash provided by (used for):
Operating activities$220 $26,741 $(26,521)
Investing activities(9,455)(7,499)(1,956)
Financing activities(4,501)18,375 (22,876)
Free Cash Flow (1):
Net cash provided by (used for) operating activities220 26,741 (26,521)
Capital expenditures(8,119)(9,157)1,038 
Free cash flow$(7,899)$17,584 $(25,483)
(1) Free Cash Flow, a non-U.S. GAAP financial measure, is defined as net cash provided by operating activities less capital expenditures, both of which are presented in the Company’s Condensed Consolidated Statements of Cash Flows. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures for more information regarding Free Cash Flow.

Operating Cash Flows
Net cash provided by operating activities for the three-month period ended March 31, 2021 was $0.2 million compared with net cash provided by operating activities of $26.7 million in the corresponding period in 2020. The $26.5 million decrease is driven primarily by higher accounts receivables, as a result of higher sales volume and lower accounts payables due to the timing of payments for raw material purchases.
Investing Cash Flows
During the three-month periods ended March 31, 2021 and 2020, net cash used for investing activities consisted of capital expenditures of $8.1 million and $9.2 million, respectively. The Company also paid $2.7 million in connection with the sale of a facility in Germany.

Financing Cash Flows

During the three-month period ended March 31, 2021, net cash used for financing activities was $4.5 million compared to net cash provided by financing activities of $18.4 million in the corresponding period in 2020. The Company made debt repayments of $9.5 million and $4.5 million in the first three months of 2021 and 2020, respectively. During the first quarter of 2020, in order to increasethe Company borrowed an incremental $20.0 million under its cash position and preserve financial flexibility2018 Amended Credit Agreement as a precautionary measure in light of the impactuncertainty caused by the COVID-19 pandemic.

Other Sources and Use of Cash

On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30 million of common stock, par value $0.01 per share, of the COVID-19 outbreakCompany. The ability to repurchase the Company’s common stock will continue until the Board of Directors reaches a determination to discontinue share repurchases. The timing and actual amount of shares repurchased will depend on its resultsa variety of operationsfactors including stock price, market conditions, corporate and liquidity. The Company is taking further actions to improve its liquidity, includingregulatory requirements, and capital expenditure and operating expense reductions and increased management and oversight of its working capital.availability, among other factors.

Financing Arrangements

The Company's 2018 Amended Credit Agreement has a revolving commitment of $170 million and a term loan commitment of $144 million.

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Interest rates on amounts outstanding under the 2018 Amended Credit Agreement are variable based on LIBOR. The LIBOR benchmark has been the subject of national, international, and other regulatory guidance and proposals for reform. In July 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit rates for calculation of LIBOR after 2021. These reforms may cause LIBOR to perform differently than in the past, and LIBOR may ultimately cease to exist after 2021. Alternative, benchmark rate(s) may replace LIBOR and could affect the Company's debt securities, derivative instruments, receivables, debt payments and receipts. At this time, it is not possible to predict the effect of any changes to LIBOR, any phase out of LIBOR or any establishment of alternative benchmark rates. Any new benchmark rate will likely not replicate LIBOR exactly, which could impact ourthe Company's contracts whichthat terminate after 2021. There is uncertainty about how applicable law, the courts or the Company will address the replacement of LIBOR with alternative rates on variable rate retail loan contracts and other contracts that do not include alternative rate fallback provisions. In addition, any changes to benchmark rates may have an uncertain impact on ourthe Company's cost of funds and our access to the capital markets, which could impact our liquidity, financial position, or results of operations.

The Company continues to assess strategic initiatives that could result in costs being incurred in future quarters related to restructuring activities.Borrowings outstanding and available borrowings are summarized below:


In thousandsAt March 31, 2021At December 31, 2020
Total borrowings committed:
Revolver commitment$170,000 $170,000 
Term loan commitment144,000 144,000 
Total borrowings committed314,000 314,000 
Total borrowings outstanding:
Amounts outstanding under the revolver$127,500 $134,500 
Amounts outstanding under the term loan, excluding debt issuance costs134,000 136,500 
Total borrowings outstanding261,500 271,000 
Total borrowings available:
Revolver commitment$170,000 $170,000 
Less amounts outstanding under the revolver127,500 134,500 
Less letters of credit outstanding1,776 1,776 
Available borrowings, net of letters of credit$40,724 $33,724 
Average bank borrowings$270,894 $283,291 

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Financing ArrangementsThe Company is required to pay a quarterly commitment fee on the unused revolving commitment amount at a rate of 0.375% per annum, based on the unused portion of the revolver commitment. Fees for outstanding letters of credit range from 3.00% to 4.25%.

2020 Amendment to the 2018 Credit Agreement

On August 31, 2018, the Company amended and restated its $175 million senior secured revolving credit agreement ("2018 Credit Agreement") which increased the available borrowing from $175 million to $450 million, added three additional lenders and extended the maturity date from July 7, 2021 to August 31, 2023.On May 11, 2020, the Company amended its 2018 Credit Agreement ("2020 Amendment") which, among other changes, modified certain financial covenants contained in the 2018 Credit Agreement, decreased the term loan facility from $200 million to $144 million and reduced the revolving credit facility from $250 million to $170 million. See Note 6, “Long-term Debt and Financing Arrangements” for additional information.

The Company has an interest rate swap in place to convert a portion of the Company's borrowings from a variable rate to a fixed rate.See Note 7, "Derivatives""Derivatives," in the Notes to Condensed Consolidated Financial Statements for additional information.information..

On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement increasing total borrowings from $314 million to $346 million. The new 2021 senior secured revolving credit agreement ("2021 Credit Facility") has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currencies loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million.

Interest is charged on borrowings, at the Company’s option, of either: (i) LIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Margin, or (ii) for U.S. denominated loans the Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the one month LIBOR (adjusted daily) plus 1.00%, plus the Applicable Margin. The Applicable Margin is 2.00% per annum in the case of LIBOR and alternative currency loans and letters of credit and 1.00% per annum in the case of Base Rate loans for the first full fiscal quarter following the
33


Discussionclosing date of the 2021 Credit Facility. Thereafter, the Applicable Margin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit Facility), which ranges from 1.25% to 2.50% per annum for LIBOR and Analysisalternative currency loans and letters of Cash Flowscredit, and ranges from 0.25% to 1.50% per annum for Base Rate loans. The Company pays a quarterly commitment fee of 0.275% per annum on the unused portion of the revolving facility for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the quarterly commitment fee ranges from 0.20% to 0.30% per annum.

OperatingThe 2021 Credit Facility contains customary affirmative and negative covenants, including covenants limiting the Company to, among other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from business conducted by the Company, transact with affiliates, restricted payments, and sell assets. The 2021 Credit Facility also contains customary financial covenants including a minimum consolidated fixed coverage ratio and maximum consolidated net leverage ratios.

The Company was in compliance with all covenants set forth in the 2018 Amended Credit Agreement as of and for the quarter ended March 31, 2021, and in the 2021 Credit Facility as of the date hereof, and the Company does not anticipate noncompliance in the foreseeable future.

For additional information, see Note 6, “Long-Term Debt and Financing Arrangements,” in the Notes to Condensed Consolidated Financial Statements.

NON-GAAP FINANCIAL MEASURES

The Company believes that the non-GAAP measure used in this report provide investors with important perspectives into our ongoing business performance. The Company does not intend for the information to be considered in isolation or as a substitute for the related U.S. GAAP measure. Other companies may define the measures differently. The Company defines the Free Cash FlowsFlow measure as follows:

NetFree cash flow is defined as U.S. GAAP “Net cash provided by (used in) operating activities for the six-monthactivities” in a period ended June 30, 2020 was $40.4 million compared with $36.2 millionless “Capital expenditures” in the corresponding period in 2019. In the first six months of 2020, net loss and non-cash adjustments were $19.9 million compared to $34.1 million in the first six months of 2019. Since December 31, 2019, net operating assets and liabilities decreased by $20.5 million, compared to $2.1 million from December 31, 2018.same period. The decrease since December 31, 2019 was primarily due toCompany believes Free Cash Flow provides an increase of $8.3 million in accounts payable and $5.8 million in accrued taxes. The increase in accounts payable was primarily driven by the timing of vendor payments, including capital expenditures within all segments of the Company. The increase in accrued taxes was primarily due to the timing of U.S. income tax payables within the first six months of 2020.
Investing Cash Flows
In the six-month periods ended June 30, 2020 and 2019, net cash used for investing activities consisted of capital expenditures of $15.5 and $20.3 million, respectively. In the first six months of 2020 net cash used for investing activities was partially offset by $3.4 million in cash inflows for collections of finance receivables underimportant perspective on the Company’s receivable financing arrangements. Inability to generate cash from our business operations and, as such, that it is an important financial measure for use in evaluating the first six monthsCompany's financial performance. Free Cash Flow should not be viewed as representing the residual cash flow available for discretionary expenditures such as dividends to shareholders or acquisitions, as it excludes certain mandatory expenditures such as repayment of 2019, netmaturing debt and other contractual obligations. Free cash used for investing activities included cash proceeds of $1.4 million from a final purchase price adjustment for the Interface acquisition less cash outflows of $0.5 millionflow is one measurement management uses internally to fund an acquisition. The Company also received proceeds of $2.3 million from the divestiture of the Geosol business during the second quarter of 2019.assess overall liquidity.

Financing Cash FlowsCONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

InThere have been no material changes outside the six-month period ended June 30, 2020, net cash provided by financing activities was $13.5 million compared to net cash used for financing activitiesordinary course of $25.2 millionbusiness in the corresponding periodCompany’s contractual obligations or off-balance sheet arrangements during the first three months of 2021. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the Company’s contractual obligations and off-balance sheet arrangements.

RECENT ACCOUNTING STANDARDS

For information regarding recent changes in 2019. The Company made debt repayments of $7.0 million and $25.2 millionaccounting standards, see Note 2, “Recent Accounting Standards,” in the first six months of 2020 and 2019, respectively. In the first six months of 2020, the Company borrowed $20.0 million from its Amended Credit Facility as a precautionary measure in light of the uncertainty caused by COVID-19.Notes to Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING STATEMENTS
 
Critical Accounting Estimates
The preparationPreparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and liabilitiesexpenses. Management believes the most complex and disclosuresensitive judgments, because of contingent assetstheir significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters that are inherently uncertain. Management’s Discussion and liabilities as of the date of the financial statementsAnalysis and the reported amounts of revenues and expenses during the reporting periods. Note 1, "Significant Accounting Policies" of the “NotesNotes to Consolidated Financial Statements”Statements in the Company’s 2020 Annual Report on Form 10-K describe the critical accounting estimates and Critical Accounting Estimatessignificant accounting policies used in Item 7preparing the Condensed Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates.

There have been no significant changes in the Company’s critical accounting estimates during the three-month period ended March 31, 2021.
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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current assumptions relating to the Company’s business, the economy and future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs” and other words of similar meaning in connection with the discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Forward-looking statements in this Quarterly Report on Form 10-Q include, among others, statements relating to:
•Expected impact of the coronavirus pandemic ("COVID-19") on the Company's businesses;
•Overall economic, business and political conditions and the effects on the Company’s markets;
•Ability to meet financial covenants in the Company's credit agreement;
•Outlook for the second quarter and full year 2021;
•Ability to improve operational effectiveness;
•Expected vehicle production in the North American, European or Asian markets;
•Growth opportunities in markets served by the Company;
•Expected costs and future savings associated with restructuring or other cost savings programs;
•Expected gross margin, operating margin and working capital improvements from cost control and other improvement programs;
•Future impact of raw material commodity costs;
•Product development and new business opportunities;
•Future strategic transactions, including but not limited to: acquisitions, joint ventures, alliances, licensing agreements and divestitures;
•Pension plan funding;
•Future cash flow and uses of cash;
•Future amounts of stock-based compensation expense;
•Future earnings and other measurements of financial performance;
•Ability to meet cash operating requirements;
•Future levels of indebtedness and capital spending;
•Future impact of the variability of interest rates and foreign currency exchange rates and impacts of hedging instruments;
•Expected future impact of recently issued accounting pronouncements upon adoption;
•Future effective income tax rates and realization of deferred tax assets;
•Estimates of fair values of reporting units and long-lived assets used in assessing goodwill and long-lived assets for possible impairment;
•Future impacts resulting from cyber-security threats and vulnerabilities; and
•The expected outcomes of legal proceedings and other contingencies, including environmental matters.
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All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of the Company to differ materially from those reflected in forward-looking statements made in this Quarterly Report on Form 10-Q, as well as in press releases and other statements made from time to time by the Company’s authorized officers. Such risks and uncertainties include, among others, the duration, severity, and impact of COVID-19 or other new pandemics and the measures taken in response thereto, in particular the impact the virus has on the Company's operations and ability to meet customer demands; worldwide economic cycles and political changes and uncertainties that affect the markets which the Company’s businesses serve, which could have an effect on demand for the Company’s products and impact the Company’s profitability; challenges encountered by the Company in the execution of restructuring programs; disruptions in the global credit and financial markets, including diminished liquidity and credit availability; changes in international trade agreements and policies, including tariff regulation and trade restrictions; swings in consumer confidence and spending; unstable economic growth; volatility in foreign currency exchange rates; raw material pricing and supply issues; fluctuations in unemployment rates; retention of key employees; increases in fuel prices; and outcomes of legal proceedings, claims and investigations, as well as other risks and uncertainties identified in Part II, Item 1A - Risk Factors of this Quarterly Report on Form 10-Q, and Part I, Item 1A - Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and the “Notes2020. The Company does not assume any obligation to Condensed Consolidated Financial Statements”update any forward-looking statements, whether as a result of this report describe the significant accounting policies and critical accounting estimates used in the preparation of the consolidated financial statements. The Company’s management is required to make judgments and estimates about the effect of matters that are inherently uncertain. Actual results could differ from management’s estimates.

During the three-month period ended March 31, 2020, the Company recorded a goodwill impairment charge of $48.7 million, and a long-lived asset impairment charge of $12.4 million, both in the Performance Materials reporting unit. See Note 5, "Impairments of Goodwill and Other Long-Lived Assets", to the “Notes to Condensed Consolidated Financial Statements” of this report for additional discussion of the facts and circumstances surrounding and critical estimates made regarding thenew information, future events or otherwise.
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impairment charges. The Company continues to monitor the recoverability of the long-lived assets within the Thermal Acoustical Solutions segment taking into consideration on-going financial results and automotive market conditions.

There have been no other significant changes in the Company’s critical accounting estimates during the six-month period ended June 30, 2020.
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Item 3.Quantitative and Qualitative Disclosures about Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
TheThere have been no significant changes in the Company’s limitedexposure to 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,during the United Kingdom, Canada, India and the Netherlands, in additionfirst three months of 2021. Refer to the United States. As a resultCompany’s Annual Report on Form 10-K for the year ended December 31, 2020 for discussion 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 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 $286.0 million from its Amended Credit Facility at June 30, 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 swaps or other hedging agreements to manage interest ratemarket 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 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 borrowings from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduced quarterly by $5.0 million through March 31, 2020 and is now settled. Effectiveness of the remaining derivative agreement was assessed quarterly, or more frequently, if necessary, by ensuring that the critical terms of the swap continues to match the critical terms of the hedged 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 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 $286.0 million outstanding borrowings as of June 30, 2020, the Company’s net income would decrease by an estimated $1.3 million over a twelve-month period.

Item 4.Controls and ProceduresCONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
The Company’s management, including the Company’s President and Chief Executive Officer (the “CEO”) and the Executive Vice President and Chief Financial Officer and Treasurer (the "CFO"), conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the
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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 June 30, 2020March 31, 2021 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three-month period ended June 30, 2020March 31, 2021 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.
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PART II.      OTHER INFORMATION
Item 1.Legal ProceedingsLEGAL PROCEEDINGS
General
The
From time to time, the Company is subject to legal proceedings, claims, investigations and inquiries that arise in the ordinary course of business such as, but not limited to, actions with respect to commercial, intellectual property, employment, personal injury, and environmental matters. The Company believes that it has meritorious defenses against the claims currently asserted against it and intends to defend them vigorously. While the outcome of litigation is inherently uncertain and the Company cannot be sure that it will prevail in any of the cases, subject to the mattermatters referenced below,in Note 15, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements of this report, the Company is not aware of any matters pending that are expected to have a material adverse effect on the Company’s business, competitive position, financial position, results of operations, capital expenditures or cash flows.

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 conductedrecords loss accruals related to matters for which it considers a site investigation,loss to be both probable and reasonably estimable. Legal expenses are generally expensed when incurred. The Company evaluates, on a quarterly basis, developments in legal proceedings that could affect the scopeamount of any accrual and developments that would make a loss contingency both probable and reasonably estimable. Loss contingencies are subject to substantial uncertainties, however, including for each such contingency the following, among other factors: (i) the procedural status of the case; (ii) whether the case has or may be certified as a class action suit; (iii) the outcome of preliminary motions; (iv) the impact of discovery; (v) whether there are significant factual issues to be determined or resolved; (vi) whether the proceedings involve a large number of parties and/or claims in multiple jurisdictions or jurisdictions in which was reviewed by the NHDES, in order to assessrelevant laws are complex or unclear; (vii) the extent of potential soildamages, which are often unspecified or indeterminate; and groundwater contamination(viii) the status of settlement discussions, if any, and developthe settlement postures of the parties. Because of these uncertainties, management has determined that, except as set forth in Note 15, "Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements of this report, the amount of loss or range of loss that is reasonably possible in respect of each matter described below (including any reasonably possible losses in excess of amounts already accrued), is not reasonably estimable.

Except as set forth in Note 15, "Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements of this report, neither the Company nor any of its subsidiaries is a remedial action. Based on input received from NHDES in March 2017 with regardparty, nor is any of its or their property subject, to any material pending legal proceedings, other than ordinary routine litigation incidental to the scopebusiness 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. and its subsidiaries.

Environmental Matters

The Company recorded an additional $0.1 millionand its subsidiaries are subject to numerous U.S. Federal, state and international environmental laws and regulatory requirements and are involved from time to time in investigations or litigation of expensevarious potential environmental issues concerning activities at our facilities or former facilities or remediation as a result of past activities (including past activities of companies we have acquired). While it is not possible to predict the outcome of these proceedings, in 2018 associated with the expected costsopinion of management, any payments we may be required to remediate the impactsmake as a result of the discharge of regulated contaminantsall such claims in accordance with standards established by the NHDES. During 2018 the environmental liability was fully reduced reflecting payments made to vendors, resulting in no balanceexistence at DecemberMarch 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 is ongoing. The Company cannot be sure that costs2021, 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 adverse effect on the Company’sour business, financial condition results of operations or 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 PFAS that have been detected in a nearby water supply, soil and/or surface water.  Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source.  The NYDEC approved a site characterization plan in December 2019. The Company recorded expense of $0.3 million in the fourth quarter of 2019 as a result of the site characterization plan preparation and site characterization activities, which will continue when the COVID-19 crisis abates to a point where the site investigation can safely proceed. 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 cash flows.

Provisions for such matters are charged to expense when it is probable that a liability has been incurred and reasonable estimates of the liability can be made. Estimates of environmental liabilities are based on a variety of matters, including, but not limited to, the stage of investigation, the stage of the remedial design, evaluation of existing remediation technologies, the availability of insurance coverage by or contractual environmental risk transfer to third parties, and presently enacted laws and regulations. In future periods, a number ofnumerous factors could significantly impact any estimates of environmental remediation costs.

See Note 15, "Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements for additional information regarding environmental matters.
Item 1A.Risk FactorsRISK FACTORS

SeeInvestors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition and cash flows as set forth under Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as updated by Part II, Item 1, Legal Proceedings, of this Report and by2020. We do not believe there have been any material changes to 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 our business, including thosepreviously disclosed in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2019, and2020, but we may disclose changes to such factors or disclose additional factors from time to time in future filings with 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.SEC. Additional risks and uncertainties not currentlypresently known to us or that arewe currently judgedbelieve not to be immaterialmaterial may also materially affect the Company’sadversely impact our business, financial position, results of operations, orfinancial position and cash flows.
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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 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 may experience disruptions or delays in its supply chain as a result of such actions, 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.

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 our business and indebtedness, including those described in in our most recent Annual Report on Form 10-K for the year ended December 31, 2019.




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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 June 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 our 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 our 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.

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Item 2.Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
DuringThe following table provides information about purchases of Common Stock by the Company during the three-month period ended June 30, 2020,March 31, 2021:
Period
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share
Total Number of Shares
Purchased as
Part of
Publicly
Announced
Program (2)
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
January 1, 2021 - January 31, 2021— $— — — 
February 1, 2021 - February 28, 2021664 $32.82 — — 
March 1, 2021 - March 31, 20214,982 $36.03 — — 
 5,646 $35.65 — — 

(1)During the quarter, the Company did not repurchase anyacquired 5,646 shares of its common stock.stock in connection with tax withholding obligations pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans.
(2)On April 20, 2021, the Company announced that our Board of Directors approved a Share Repurchase Program authorizing the repurchase, from time to time at the Company's discretion, of up to an aggregate of $30.0 million of common stock, par value $0.01 per share, of the Company.
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Item 5.
OTHER INFORMATION
2021 Credit Facility
On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A, Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A, as Lenders. The principal purpose of the 2021 Amendment was to increase total borrowings from $314 million to $346 million and obtain more favorable borrowing rates. See Note 6, "Long-term Debt and Financing Arrangements," in the Notes to Condensed Consolidated Financial Statements for additional information. A copy of the Amendment is filed herewith as Exhibit 10.1 and incorporated herein by reference. The above description of the 2021 Credit Facility is qualified in its entirety by reference to such exhibit.
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Item 6.ExhibitsEXHIBITS
Exhibit
Number		 Description
   
10.1 
Third Amendment to Second Amended and Restated Credit Agreement, dated May 11, 2020,April 26, 2021, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.1 to the registrant's Form 10-Q dated May 11, 2020, and incorporated herein by this reference.herewith.
10.2 
Security and Pledge Agreement, dated April 26, 2021, by and among Lydall, Inc., and Bank of America, N.A., 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
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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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.
  
July 28, 2020April 27, 2021By:/s/ Randall B. Gonzales
  Randall B. Gonzales
Executive Vice President and Chief Financial Officer and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
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