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 SeptemberJune 30, 20202021
 
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 OctoberJuly 15, 2020202117,733,42918,033,012 



LYDALL, INC.
INDEXTABLE OF CONTENTS
 
  Page
Number
3
Part I.Financial InformationI
Item 1. 
 
53
 
64
 
75
 
86
 
97
Item 2.
3324
Item 3.
4841
Item 4.
4841
Part II
Part II.Other Information
Item 1.
5042
Item 1A.
5142
Item 2.
5445
Item 5.
46
Item 6.
5647
Signature 
5748















 
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 fourth 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, 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. 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  
September 30,		Nine Months Ended  
September 30,
2020201920202019For the Three Months EndedFor the Six Months Ended
(Unaudited)(Unaudited)June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net salesNet sales$207,085 $205,274 $553,772 $644,110 Net sales$221,744 $146,160 $448,843 $346,687 
Cost of salesCost of sales169,155 168,918 448,856 520,423 Cost of sales173,958 117,742 352,508 279,701 
Gross profitGross profit37,930 36,356 104,916 123,687 Gross profit47,786 28,418 96,335 66,986 
Selling, product development and administrative expensesSelling, product development and administrative expenses32,227 28,909 95,418 94,011 Selling, product development and administrative expenses38,182 30,164 73,815 63,191 
Impairment of goodwill and other long-lived assetsImpairment of goodwill and other long-lived assets0 0 61,109 0 Impairment of goodwill and other long-lived assets0 0 0 61,109 
Restructuring expensesRestructuring expenses14,984 0 14,984 0 Restructuring expenses190 0 967 0 
Operating (loss) income(9,281)7,447 (66,595)29,676 
Operating income (loss)Operating income (loss)9,414 (1,746)21,553 (57,314)
(Gain) loss on the sale of a business(Gain) loss on the sale of a business266 0 964 0 
Employee benefit plans settlement expensesEmployee benefit plans settlement expenses0 186 385 25,701 Employee benefit plans settlement expenses0 0 0 385 
Interest expenseInterest expense4,537 3,666 11,870 11,025 Interest expense2,414 4,476 5,862 7,333 
Other expense (income), net276 (885)106 (1,359)
(Loss) income before income taxes(14,094)4,480 (78,956)(5,691)
Income tax (benefit) expense(2,334)1,574 (4,944)(5,519)
Income from equity method investment(50)(98)(24)(120)
Net (loss) income$(11,710)$3,004 $(73,988)$(52)
(Loss) earnings per share:
Other (income) expense, netOther (income) expense, net206 248 292 (170)
Income (loss) before income taxesIncome (loss) before income taxes6,528 (6,470)14,435 (64,862)
Income tax expense (benefit)Income tax expense (benefit)905 (595)3,726 (2,610)
(Income) loss from equity method investment(Income) loss from equity method investment(157)(18)(165)26 
Net income (loss)Net income (loss)$5,780 $(5,857)$10,874 $(62,278)
Earnings (loss) per share:Earnings (loss) per share:
BasicBasic$(0.67)$0.17 $(4.26)$0.00 Basic$0.33 $(0.34)$0.62 $(3.59)
DilutedDiluted$(0.67)$0.17 $(4.26)$0.00 Diluted$0.32 $(0.34)$0.61 $(3.59)
Weighted average number of common shares outstanding:Weighted average number of common shares outstanding:Weighted average number of common shares outstanding:
BasicBasic17,384 17,270 17,364 17,264 Basic17,575 17,372 17,560 17,354 
DilutedDiluted17,384 17,330 17,364 17,264 Diluted17,977 17,372 17,923 17,354 

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


















3


LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands) (Unaudited)
For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net income (loss)$5,780 $(5,857)$10,874 $(62,278)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments3,060 5,146 46 (4,811)
Pension liability adjustment, net of taxes of less than $0.1 million, $0.0 million, $0.1 million and $0.1 million, respectively22 0 387 331 
Unrealized gain (loss) on hedging activities, net of taxes of $0.4 million, $0.2 million, $0.9 million, and $0.1 million, respectively(125)(685)2,893 (239)
Other comprehensive income (loss)2,957 4,461 3,326 (4,719)
Total comprehensive income (loss)$8,737 $(1,396)$14,200 $(66,997)
See accompanying notes to condensed consolidated financial statements.
4


LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts) (Unaudited)
AssetsJune 30, 2021December 31, 2020
Current assets:
Cash and cash equivalents$102,544 $102,176 
Accounts receivable, net of allowance for doubtful accounts of $2,188 and $2,402, respectively128,407 116,947 
Contract assets22,756 32,403 
Inventories88,226 78,996 
Taxes receivable12,687 6,652 
Prepaid expenses5,066 4,870 
Other current assets7,986 7,348 
Assets of a business held-for-sale1,233 0 
Total current assets368,905 349,392 
Property, plant and equipment, at cost515,393 506,509 
Accumulated depreciation(303,908)(291,996)
Property, plant and equipment, net211,485 214,513 
Operating lease right-of-use assets25,798 22,243 
Goodwill87,842 87,595 
Other intangible assets, net86,922 95,121 
Other assets, net6,948 6,598 
Total assets$787,900 $775,462 
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt$8,609 $9,789 
Accounts payable116,631 101,905 
Accrued payroll and other compensation23,177 24,589 
Accrued taxes6,555 8,214 
Derivative liabilities8,147 11,996 
Restructuring liabilities36 9,431 
Other accrued liabilities24,442 21,705 
Liabilities of a business held-for-sale1,933 0 
Total current liabilities189,530 187,629 
Long-term debt251,477 260,649 
Long-term operating lease liabilities20,973 17,947 
Deferred tax liabilities30,913 27,174 
Benefit plan liabilities17,554 21,691 
Other long-term liabilities2,254 2,676 
Commitments and Contingencies (Note 16)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 (25,755 and 25,555 shares issued, respectively)258 256 
Capital in excess of par value103,272 99,770 
Retained earnings277,778 266,904 
Accumulated other comprehensive income (loss)(15,016)(18,342)
Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost(91,093)(90,892)
Total stockholders' equity275,199 257,696 
Total liabilities and stockholders’ equity$787,900 $775,462 

See accompanying notes to condensed consolidated financial statements.
5


LYDALL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOMECASH FLOWS
(In Thousands)thousands) (Unaudited)
 
Three Months Ended  
September 30,		Nine Months Ended  
September 30,
2020201920202019
(Unaudited)(Unaudited)
Net (loss) income$(11,710)$3,004 $(73,988)$(52)
Other comprehensive income (loss):
Foreign currency translation8,245 (8,726)3,434 (6,396)
Pension and other postretirement benefit plans, net of tax(49)21 282 19,395 
Unrealized gain/(loss) on derivative instruments, net of tax(1,963)(148)(2,202)(2,174)
Comprehensive (loss) income$(5,477)$(5,849)$(72,474)$10,773 
For the Six Months Ended
 June 30, 2021June 30, 2020
Cash flows from operating activities:
Net income (loss)$10,874 $(62,278)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization22,794 24,035 
Amortization of debt issuance costs252 807 
Impairment of goodwill and long-lived assets0 61,109 
Deferred income taxes3,094 (6,048)
(Gain) loss on the sale of a business964 0 
Employee benefit plans settlement expenses0 385 
Stock-based compensation2,695 1,799 
(Gain) loss on disposition of property, plant and equipment7 25 
(Gain) loss from equity method investment(165)26 
Other, net(88)53 
Changes in operating assets and liabilities:
Accounts receivable(16,690)3,063 
Contract assets9,594 222 
Inventories(9,508)(353)
Income taxes (receivable) payable(6,753)886 
Prepaid expenses and other assets(648)(953)
Accounts payable11,415 8,342 
Accrued payroll and other compensation(2,378)2,974 
Deferred revenue(768)1,850 
Accrued taxes payable(105)5,833 
Benefit plan liabilities(3,899)(434)
Other, net(2,190)(928)
Net cash provided by (used for) operating activities18,497 40,415 
Cash flows from investing activities:
Capital expenditures(13,265)(15,472)
Collections of finance receivables3,111 3,390 
Payments from divestitures(2,715)0 
Proceeds from the sale of property, plant and equipment19 2 
Net cash provided by (used for) investing activities(12,850)(12,080)
Cash flows from financing activities:
Proceeds from borrowings263,210 20,000 
Debt repayments(274,910)(7,001)
Proceeds from servicing receivables4,787 458 
Common stock issued793 33 
Common stock repurchased(201)(8)
Net cash provided by (used for) financing activities(6,321)13,482 
Effect of exchange rate changes on cash1,042 (602)
Increase (decrease) in cash and cash equivalents368 41,215 
Cash and cash equivalents at beginning of period102,176 51,331 
Cash and cash equivalents at end of period$102,544 $92,546 
 

See accompanying Notesnotes to Condensed Consolidated Financial Statements.
condensed consolidated financial statements.
6


LYDALL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30,
2020		December 31,
2019
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$122,043 $51,331 
Accounts receivable, net of allowance for doubtful accounts of $2,465 and $1,842, respectively113,258 107,786 
Contract assets27,186 28,245 
Inventories71,167 80,544 
Taxes receivable6,636 3,427 
Prepaid expenses6,117 3,814 
Other current assets8,516 8,450 
Total current assets354,923 283,597 
Property, plant and equipment, at cost491,291 487,371 
Accumulated depreciation(286,713)(265,729)
Property, plant and equipment, net204,578 221,642 
Operating lease right-of-use assets21,522 23,116 
Goodwill85,385 133,912 
Other intangible assets, net99,445 115,577 
Other assets, net7,785 8,093 
Total assets$773,638 $785,937 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$9,844 $9,928 
Accounts payable101,785 73,426 
Accrued payroll and other compensation24,806 17,198 
Accrued taxes10,125 5,638 
Other accrued liabilities39,214 23,668 
Total current liabilities185,774 129,858 
Long-term debt273,195 262,713 
Long-term operating lease liabilities17,369 18,424 
Deferred tax liabilities27,016 34,561 
Benefit plan liabilities18,770 18,957 
Other long-term liabilities3,201 3,004 
Commitments and Contingencies (Note 16)
Stockholders' equity:
Preferred stock0 0 
Common stock255 253 
Capital in excess of par value96,536 94,140 
Retained earnings266,641 340,629 
Accumulated other comprehensive loss(24,465)(25,979)
Treasury stock, at cost(90,654)(90,623)
Total stockholders’ equity248,313 318,420 
Total liabilities and stockholders’ equity$773,638 $785,937 

See accompanying Notes to Condensed Consolidated Financial Statements.
7


LYDALL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Nine Months Ended September 30,
 20202019
 (Unaudited)
Cash flows from operating activities:
Net loss$(73,988)$(52)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on divestiture0 (1,459)
Depreciation and amortization42,349 36,682 
Impairment of goodwill and long-lived assets61,109 0 
Deferred income taxes(6,911)(12,849)
Employee benefit plans settlement expenses385 25,701 
Stock-based compensation2,508 2,073 
Other, net47 0 
Loss (gain) on disposition of property, plant and equipment164 (43)
Income from equity method investment(24)(120)
Changes in operating assets and liabilities:
Accounts receivable(8,288)10,528 
Contract assets1,269 (4,330)
Inventories10,117 (6,206)
Accounts payable28,391 13,427 
Accrued payroll and other compensation7,192 4,935 
Accrued taxes4,558 1,810 
Other, net5,735 (7,133)
Net cash provided by operating activities74,613 62,964 
Cash flows from investing activities:
Capital expenditures(20,540)(27,236)
Collections of finance receivables4,257 0 
Proceeds from divestiture0 2,298 
Proceeds from the sale of property, plant and equipment14 297 
Business acquisitions, net of cash acquired0 869 
Net cash used for investing activities(16,269)(23,772)
Cash flows from financing activities:
Proceeds from borrowings20,000 0 
Debt repayments(9,500)(38,185)
Proceeds from servicing receivables207 0 
Common stock issued32 5 
Common stock repurchased(31)(50)
Net cash provided by (used for) financing activities10,708 (38,230)
Effect of exchange rate changes on cash1,660 (1,280)
Increase (decrease) in cash and cash equivalents70,712 (318)
Cash and cash equivalents at beginning of period51,331 49,237 
Cash and cash equivalents at end of period$122,043 $48,919 
Non-cash capital expenditures of $4.8 million and $3.8 million were included in accounts payable at September 30, 2020 and 2019, respectively.
See accompanying Notes to Condensed Consolidated Financial Statements.
8


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

Recent Developments: COVID-19

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

Performance Materials (“PM”) Developments

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

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

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

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

Technical Nonwovens (“TNW”) Developments

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

9


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

Thermal Acoustical Solutions (“TAS”) Developments

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

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

Liquidity and Cash Preservation

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

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

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

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

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

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

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

Steps Taken to Protect Employees

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

Use of EstimatesMerger Agreement

The preparationAs previously announced, on June 21, 2021, the Company entered into an Agreement and Plan of condensed consolidated financial statements in conformityMerger (the “Merger Agreement”) by and among the Company, Unifrax Holding Co. (“Parent”), Outback Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and solely with U.S. GAAP requires managementrespect to make estimatescertain payment obligations of Parent thereunder, Unifrax I LLC (“Unifrax”). Subject to the terms and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dateconditions of the condensed consolidated financial statementsMerger Agreement, Merger Sub will be merged with and into the reported amountsCompany (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of revenuesParent. Unifrax is a global provider of specialty materials focused on thermal management, specialty filtration, battery materials, emission control, and expenses duringfire protection applications and is backed by Clearlake Capital Group, L.P.

Subject to the reporting period. The full extentterms and conditions of the Merger Agreement, each share of common stock, par value $0.01 per share, of the Company (the “common stock”) (other than shares of common stock held by the Company as treasury stock) issued and outstanding immediately prior to which the COVID-19 pandemiceffective time of the Merger (the “Effective Time”) (other than dissenting shares) will directly or indirectly impactbe converted into the right to receive $62.10 per share in cash, without interest. If the Merger is consummated, the Company’s business, resultssecurities will be de-listed from the New York Stock Exchange (the “NYSE”) and de-registered under the Securities Exchange Act 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, including1934, as amended (the “Exchange Act”) as soon as practicable following the result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. Actual results could differ from those estimates.Effective Time.

The completion of the Merger is subject to customary closing conditions, including, among others, (i) the approval of the Company’s stockholders holding a majority of the outstanding shares of common stock and (ii) the expiration or termination of any waiting period applicable to the consummation of the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, and the expiration of applicable waiting periods or clearances of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the Merger is currently expected to close in the second half of 2021. However, the Company cannot assure completion of the Merger by any particular date, if at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement. The Company’s Condensed Consolidated Financial Statements and related disclosures for the three and six-month periods ended June 30, 2021 and 2020 do not reflect any potential impacts or effects the Merger may have on the Company’s financial statements if the Merger is finalized.

Additional Cash Flow Information

Non-cash investing activities include non-cash capital expenditures of $4.2 million and $2.7 million that were included in Accounts payable at June 30, 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,
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Recent Accounting Pronouncements Adopted

Effective January 1, 2020, the Company adopted 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. The Company has determined the only financial assets subjectswings in consumer confidence and spending, and unstable economic growth, disruptions to the new standard are its trade receivablesglobal automotive supply chain, and contract assets. The adoption of this ASU did notfluctuations in unemployment rates have anycaused economic instability and can have a negative impact on the Company’s consolidatedresults of operations, financial statementscondition, and disclosures.liquidity.

Effective January 1, 2020, the Company adopted the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement," which adds, amends, and removes certain disclosure requirements related to fair value measurements.  Among other changes, this standard requires certain additional disclosure surrounding Level 3 assets, including changes in unrealized gains or losses in other comprehensive income and certain inputs in those measurements.  Please refer to Note 5, “ImpairmentsTransfers 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.Financial Assets 

Effective January 1, 2020, theThe Company adopted FASB issued ASU2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40); Customer’s Accountingaccounts 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 premisestransfers of authoritative guidance for internal-use software, and deferredfinancial assets as sold when it has surrendered control over the noncancellable termrelated assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the cloud computing arrangement plusnature and extent of the Company's continuing involvement with the assets transferred. Gains or losses and any option renewal periods thatexpenditures stemming from the transfers are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider.  The adoption of this ASU did not have a material impactincluded in Other (income) expense, net on the Company’s consolidated financial statementsCompany's Condensed Consolidated Statements of Operations. Assets obtained and disclosures.liabilities incurred in connection with transfers reported as sold are initially recognized on the Company's Condensed Consolidated Balance Sheets at fair value.

In March 2020,The Company maintains arrangements with banking institutions to sell trade accounts receivable balances for select customers. Under the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848); Facilitationprograms, the Company has no risk of loss due to credit default and is charged a fee based on the nominal value of receivables sold between the time of the Effectssale of Reference Rate Reform on Financial Reporting." The amendments in this update are elective,the trade accounts receivables to banking institutions 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 becausecollection of reference rate reform. The guidance in this update is effective for transactions entered into between March 12, 2020 and December 31, 2022. Thethe trade accounts receivables from the customer. Under one of the programs, the Company adopted this ASU upon issuance and notes no impactservices the trade receivables after the sale to the bank and receives 90.0% of the trade receivables in cash at the time of sale and the remaining 10.0% in cash, net of fees, when the customer pays. Total activity under both arrangements was as follows:

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Total trade accounts receivable balances sold$30,961 $10,288 $65,107 $42,974 
Total cash received$29,268 $9,374 $60,507 $39,533 
Total fees incurred$173 $76 $308 $142 

The Company's consolidated financial statementssenior secured revolving credit agreement permits the Company to sell trade accounts receivable balances to approved third parties in connection with Receivable Purchases Agreements, or other similar agreements. At any given time, outstanding trade accounts receivable balances sold cannot exceed $10.0 million for a certain approved customer and disclosures as$50.0 million in aggregate for any other approved group of September 30, 2020.customers.

2. RECENT ACCOUNTING STANDARDS

Recent Accounting Pronouncements Not YetStandards Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)." The amendments in this update are intended to simplify the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company does not expect the adoption of this update to have a material impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." The amendments in this update are intended to reduce diversity in practice and increase comparability of the accounting for interaction of equity securities, investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This ASU is effective for fiscal years and interim periods beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The new standard is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740, and by clarifying and amending existing guidance in other areas of the same topic. This ASU 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 there was no material impact to the impact of this update on its consolidated financial statementsCompany's Condensed Consolidated Financial Statements and related disclosures.

In August 2018,January 2020, the FASB issued ASU No. 2018-14, "Compensation2020-01, "Investments - Retirement BenefitsEquity Securities (Topic 321), Investments - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - ChangesEquity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)". The amendments in this update were intended to reduce diversity in practice and increase comparability of the Disclosure Requirementsaccounting for Defined Benefit Plans."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 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 iswas effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this ASU upon issuance and there was no material impact to the Company's Condensed Consolidated Financial Statements and disclosures.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The amendments in this update are elective, and provide optional expedients and exceptions in accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. 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 ASUs can be adopted no later than December 1, 2022 with early adoption permitted. The Company has reviewed the guidance and elected to adopt the use of the expedients permitted, however there have been no modifications
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or other changes to the Company’s contracts, hedging relationships or other transactions due to reference rate reform as of June 30, 2021.

In October 2020, the FASB issued ASU 2020-10, "Codification Improvements". The amendments in this update were 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 Condensed Consolidated Financial Statements and disclosures.

Recent Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, "Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)". The amendments in this update were intended to simplify the accounting for convertible debt instruments and convertible preferred stock. This ASU is effective for fiscal years and interim periods beginning after December 15, 2021 with early adoption permitted. The Company is currently evaluating the impactdoes not expect the adoption of this ASU willupdate to have a material impact on its consolidated financial statementsthe Company's Condensed Consolidated Financial Statements and disclosures.

Significant Accounting Policies
3. DIVESTITURE ACTIVITIES

The Company’s significant accounting policies are detailed in Note 1, “Significant Accounting Policies” within Part IV, Item 15During the third quarter of 2020, the Company undertook actions to consolidate global production facilities for sealing & advanced solutions products, a part of the Company’s Annual Report on Form 10-K forCompany's Performance Materials segment. In 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, and unstable economic growth and fluctuations in unemployment rates has caused economic instability and can have a negative impact on the Company’s resultsfirst quarter of operations, financial condition, and liquidity.

Transfers of Financial Assets 

In December 2019,2021, the Company entered into 2 arrangements with a banking institutionan agreement to sell trade accounts receivable balances for select customers. Undera German facility, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the programs, the Company has no riskbuyer and provide $2.3 million (€1.9 million) in additional funding, net of loss duecash and certain net working capital adjustments, to credit defaultcover pension and is chargedrestructuring liabilities recorded in 2020. As a fee based on the nominal valueresult 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,facility, the Company services the trade receivables after sale and receives 90.0%recorded a pre-tax loss of the trade receivables in cash at the time of sale and the remaining 10.0% in cash, net of fees, at the earlier of customer payment or 150 days.  In the three-month and nine-month periods ended September 30, 2020, under both programs, the Company sold $21.3$0.3 million and $64.3$1.0 million respectively, in trade receivable balances, received $59.1 million in total cash under the programs, and incurred $0.2 million in fees.  The Company expects to receive the remainder, net of fees, in the fourth quarter of 2020.

Condensed Consolidated Statements of Comprehensive Income

In connection with the preparation of its 2019 audited financial statements, the Company identified that in its previously filed unaudited interim financial statements for the three-monththree and six-month periods ended June 30, 20192021, respectively. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.

In the nine-month period ended September 30, 2019,second quarter of 2021, the Company had incorrectly excluded, from its Condensed Consolidated Statementsreached an agreement to sell an operating facility located in the Netherlands, which is a component 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 resultPerformance Materials segment. The transaction was completed on July 9, 2021. The assets and liabilities sold in the previously issued unaudited financial statements being materially misstated. In connection with the filingtransaction met the criteria for held-for-sale reporting as of this Quarterly ReportJune 30, 2021. The Company did not report the transaction as discontinued operations as it was not considered a strategic shift in the Company’s business. The Company expects to record a gain on Form 10-Q, the Company has revisedsale in the Condensed Consolidated Statementsthird quarter of Comprehensive Income2021. The results of the operating facility are reflected in continuing operations for the nine-month periodthree and six-month periods ended SeptemberJune 30, 20192021. The assets and liabilities of the operating facility are reported as current “Assets of a business held-for-sale” and current “Liabilities of a business held-for-sale” as of June 30, 2021. The held-for-sale assets and liabilities of the operating facility were as follows:

Nine Months Ended September 30, 2019
In thousandsAs reportedAs revised
Pension liability adjustment, net of tax$379 $19,395 
Comprehensive (loss) income$(8,243)$10,773 
In thousandsAt June 30, 2021
Accounts receivable, net$912 
Inventories18 
Taxes receivable35 
Prepaid expenses22 
Deferred tax assets246 
Total assets held-for-sale$1,233 
Accounts payable$161 
Accrued taxes58 
Accrued payroll & other compensation300 
Restructuring liabilities1,414 
Total liabilities held-for-sale$1,933 

2. Revenue from Contracts with Customers4. REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company accounts for revenue in accordance with ASC 606, "Revenue from Contracts with Customers". Revenues are generated from the design and manufacture of specialty engineered filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers for filtration/separation and thermal/acoustical applications. The Company’s revenue
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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
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Company make such judgments about revenue recognition. Unfulfilled performance obligations are generally expected to be satisfied within one year.
Contract Assets and Liabilities

The Company’s contract assets primarily include unbilled amounts typically resulting from sales under contracts when the over timeovertime 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 obligationobligations 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 thousandsSeptember 30, 2020December 31, 2019Dollar Change
Contract assets$27,186 $28,245 $(1,059)
Contract liabilities$3,414 $1,441 $1,973 

In thousandsAt June 30, 2021At December 31, 2020Dollar Change
Contract assets$22,756 $32,403 $(9,647)
Contract liabilities$3,251 $3,686 $(435)

The $1.1$9.6 million decrease in contactcontract assets from December 31, 20192020 to SeptemberJune 30, 20202021 was primarily due to timing of tooling billings to customers.customers and, to a lesser extent, the billings on last-time sales of membrane-based filtration media initiated in December 2020 in the Company's Netherlands facility.

The $2.0$0.4 million increasedecrease in contract liabilities from December 31, 20192020 to SeptemberJune 30, 20202021 was primarily due to an increase in customer deposits, offset by $1.1$2.7 million of revenue recognized in the first ninesix months of 20202021 related to contract liabilities at December 31, 2019.2020, offset by an increase in customer deposits.

Disaggregated Revenue

The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing, and uncertainty of the Company's revenues and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 20192020 were as follows:

For the Three Months Ended September 30, 2020For the Three Months Ended September 30, 2019For the Three Months Ended June 30, 2021For the Three Months Ended June 30, 2020
In thousandsIn thousandsNorth AmericaEuropeAsiaTotal Net SalesNorth AmericaEuropeAsiaTotal Net SalesIn thousandsNorth AmericaEuropeAsiaTotal Net SalesNorth AmericaEuropeAsiaTotal Net Sales
Performance MaterialsPerformance Materials$45,759 $18,776 $3,282 $67,817 $42,693 $15,203 $2,104 $60,000 Performance Materials$58,195 $15,272 $3,719 $77,186 $40,190 $16,501 $1,782 $58,473 
Technical NonwovensTechnical Nonwovens34,727 17,318 6,464 58,509 42,128 16,544 5,240 63,912 Technical Nonwovens46,443 18,077 7,959 72,479 31,236 15,418 5,353 52,007 
Thermal Acoustical SolutionsThermal Acoustical Solutions57,841 22,861 4,821 85,523 61,315 22,208 4,403 87,926 Thermal Acoustical Solutions50,709 22,673 3,476 76,858 22,575 11,424 3,449 37,448 
Eliminations and OtherEliminations and Other(4,569)(195)0 (4,764)(6,405)(159)0 (6,564)Eliminations and Other(4,475)(304)0 (4,779)(1,668)(100)0 (1,768)
Total Net Sales$133,758 $58,760 $14,567 $207,085 $139,731 $53,796 $11,747 $205,274 
Total net salesTotal net sales$150,872 $55,718 $15,154 $221,744 $92,333 $43,243 $10,584 $146,160 



1410


For the Nine Months Ended September 30, 2020For the Nine Months Ended September 30, 2019For the Six Months Ended June 30, 2021For the Six Months Ended June 30, 2020
In thousandsIn thousandsNorth AmericaEuropeAsiaTotal Net SalesNorth AmericaEuropeAsiaTotal Net SalesIn thousandsNorth AmericaEuropeAsiaTotal Net SalesNorth AmericaEuropeAsiaTotal Net Sales
Performance MaterialsPerformance Materials$131,866 $52,552 $7,092 $191,510 $136,892 $47,589 $5,201 $189,682 Performance Materials$117,069 $32,196 $7,254 $156,519 $86,107 $33,776 $3,810 $123,693 
Technical NonwovensTechnical Nonwovens101,694 49,674 16,551 167,919 121,984 53,384 23,228 198,596 Technical Nonwovens82,281 34,976 16,897 134,154 66,967 32,356 10,087 109,410 
Thermal Acoustical SolutionsThermal Acoustical Solutions137,517 57,825 11,390 206,732 189,152 73,853 12,506 275,511 Thermal Acoustical Solutions111,362 48,786 7,754 167,902 79,676 34,964 6,569 121,209 
Eliminations and OtherEliminations and Other(11,914)(475)0 (12,389)(19,139)(540)0 (19,679)Eliminations and Other(9,153)(579)0 (9,732)(7,345)(280)0 (7,625)
Total Net Sales$359,163 $159,576 $35,033 $553,772 $428,889 $174,286 $40,935 $644,110 
Total net salesTotal net sales$301,559 $115,379 $31,905 $448,843 $225,405 $100,816 $20,466 $346,687 

3. Inventories5. INVENTORIES
 
Inventories as of SeptemberJune 30, 20202021 and December 31, 20192020 were as follows:
In thousandsSeptember 30,
2020		December 31,
2019
Raw materials$31,442 $36,322 
Work in process14,228 14,873 
Finished goods25,497 29,349 
Total inventories$71,167 $80,544 

Included
In thousands
At June 30, 2021 (1)
At December 31, 2020
Raw materials$40,805 $32,258 
Work in process (2)
16,093 17,087 
Finished goods31,328 29,651 
Total inventories$88,226 $78,996 

(1)Excludes inventories at the Netherlands operating facility that is classified as held-for-sale. See Note 3, "Divestiture Activities," in workthese Notes to Condensed Consolidated Financial Statements for additional information.
(2)     Work in process isincludes net tooling inventory of $2.0$1.4 million and $1.8$2.8 million at SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively.
 
4. Goodwill and Other Intangible Assets6. GOODWILL AND OTHER INTANGIBLE ASSETS
 
Goodwill

The Company performs an assessment of its goodwill for impairment at least annually, in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value may exceed its fair value. There were no such events or changes in circumstances during the three-monthsix-month period ended SeptemberJune 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, 2020.2021.

The changesfollowing table sets forth the change in the carrying amountvalue of goodwill byfor each reportable segment as of and for the nine-month period ended SeptemberCompany at June 30, 2020 were as follows:
In thousandsDecember 31,
2019		Currency translation adjustmentsImpairmentSeptember 30,
2020
Performance Materials$80,658 $(22)$(48,671)$31,965 
Technical Nonwovens53,254 166 0 53,420 
Total goodwill$133,912 $144 $(48,671)$85,385 
2021:

Goodwill Impairment

During the three-month period ended March 31, 2020, the Company performed a goodwill impairment analysis in the Performance Materials and Technical Nonwovens reporting units and recorded a goodwill impairment charge 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.

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(17)264 0 247 
Net balance at June 30, 2021$31,971 $55,871 $0 $87,842 

1511


Other Intangible Assets
 
The table below presents the gross carrying amount and, as applicable, the accumulated amortization of the Company’s acquired intangible assets, other than goodwill, at June 30, 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 June 30, 2021At December 31, 2020
In thousandsAmortization PeriodGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortized intangible assets    
Customer Relationships10 - 14 years$143,650 $(58,187)$143,479 $(50,076)
Patents28 years650 (623)650 (616)
Technology15 years2,500 (1,227)2,500 (1,144)
Trade Names5 years7,495 (7,336)7,495 (7,167)
License Agreements10 years0 0 185 (185)
Other7 - 15 years464 (464)467 (467)
Total other intangible assets$154,759 $(67,837)$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 September 30, 2020 andthe years ending December 31, 2019:
 September 30, 2020December 31, 2019
In thousandsGross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortized intangible assets    
Customer Relationships$141,784 $(44,636)$142,400 $(30,648)
Patents791 (670)759 (607)
Technology2,500 (1,102)2,500 (977)
Trade Names7,322 (6,544)7,293 (5,143)
License Agreements629 (629)610 (610)
Other570 (570)551 (551)
Total other intangible assets$153,596 $(54,151)$154,113 $(38,536)
2021 through 2025 and thereafter, respectively.

5. Impairments of Goodwill and Other Long-Lived Assets

During the three-month period ended March 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:

•The Company’s China facilities carried out a planned shutdown in conjunction with 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 February 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;

•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. The Company's facilities in North America and Europe have since resumed operations;

•Leading economic indicators began to signal a broad economic recession and a future decline in automotive sales;

•Certain of 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 to various industrial end markets. Leading economic indicators for certain of these markets also signaled a downturn in demand; and

•The Company's share price and market capitalization experienced a significant decline.

During the three-month period ended March 31, 2020, 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 ended March 31, 2020, in accordance with both ASC 350 Intangibles - Goodwill 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).








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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 $0 $0 $48,671 
Impairment of other long-lived assets12,438 0 0 12,438 
Total impairments$61,109 $0 $0 $61,109 
Goodwill

During the three-month period ended March 31, 2020, the Company performed a quantitative goodwill impairment assessment for both the PM 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 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 the Company's 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.7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

The weighted average cost of capital for the PM reporting unit increased from 9.2 percent in the three-month period endedlong-term debt payable at June 30, 2021 and 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 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.2020 consisted of:

The Company also used a form of the market approach, which was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products and services. The EBITDA multiples used in the market approach 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 recording the impairment charge 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.

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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 an underperforming 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 because the undiscounted cash flows were less than the carrying amount. The Company determined that the carrying value of the assets exceeded the 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 September 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.

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 Arrangements
In thousandsEffective RateMaturityAt June 30, 2021At December 31, 2020
Revolver loan2.10 %4/26/2026$87,210 $134,500 
Term loan, net of debt issuance costs2.10 %4/26/2026172,876 135,938 
Total debt  260,086 270,438 
Less current portion due within one year  (8,609)(9,789)
Total long-term debt, excluding current portion  $251,477 $260,649 

On August 31, 2018, the Company amended and restated its $175 million senior secured revolving credit agreement, ("which was further amended on February 14, 2020, May 11, 2020 and October 14, 2020 (collectively, the “2018 Amended Credit Agreement”). On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement")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, which increased the Company's total available borrowingborrowings from $175$314.0 million to $450$346.0 million. This newly executed Credit Agreement has a revolving facility of $170.0 million, added 3 additional lenders,which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative currency loans and extendeda $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million (the revolving facility and the term loan facility are collectively referred to as the “2021 Credit Facility”). The 2021 Credit Facility permits the Company to request an increase of up to $150.0 million in the aggregate. The proceeds of the 2021 Credit Facility were used, and will continue to be used throughout the duration of the term of the 2021 Credit Facility, to (a) refinance indebtedness and commitments outstanding under the existing 2018 Amended Credit Agreement, (b) pay fees and expenses incurred in connection with the 2021 Credit Facility, and (c) provide ongoing working capital and for other general corporate purposes. The 2021 Credit Facility matures on April 26, 2026.

The term loan feature of the 2021 Credit Facility requires quarterly payments of principal at the rate of $2.2 million, with the remaining balance due on the maturity date from July 7,of the facility. The Company is permitted to prepay amounts outstanding under the 2021 to August 31, 2023. On May 11, 2020,Credit Facility, in whole or in part, at any time without premium or penalty, and the Company amended its 2018 Credit Agreement ("2020 Amendment") which, among other changes, decreased borrowings from $450 millionis generally permitted to $314 million and modified certain financial covenants contained inirrevocably cancel unutilized portions of the 2018 Credit Agreement.revolving commitments.

2018
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At June 30, 2021, the Company had amounts available for borrowing of $81.0 million, net of $87.2 million outstanding under the revolving facility and standby letters of credit outstanding of $1.8 million under the 2021 Credit AgreementFacility.

UnderThe weighted average interest rate on long-term debt was 4.4% for the termssix-month period ended June 30, 2021 and 5.3% for the year ended December 31, 2020.

The Company has an interest rate swap converting a portion of the 2018 Credit Agreement, the lenders provided upCompany's borrowings from a variable rate to a $450 million credit facility (the “Facility”)fixed rate. See Note 8, "Derivatives", in these Notes to the Company, including a term loan commitmentCondensed Consolidated Financial Statements for additional information.

Total amortization of $200debt issuance costs was $0.3 million and revolving loans to or$0.8 million for the benefit of the Companysix-month period ended June 30, 2021 and its subsidiaries of up to $250 million. 2020, respectively.

The Facility was secured byLenders have been granted a security interest in substantially all of theLydall Inc.'s and its domestic subsidiaries’ personal property and other assets (including intellectual property), including a pledge of 65% of the Company.Company’s equity interest in 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.

Interest wasUnder the 2021 Credit Facility, interest 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 Rate plus 1.00%., provided that if the Base Rate shall be less than zero, such rate shall be deemed zero. 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 paid 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.See Note 7, "Derivatives" for additional information.
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The Company is permitted to prepay term and revolving borrowings0.30% per annum based on the Company’s Consolidated Net Leverage Ratio in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, andaccordance with the Company was generally permitted to irrevocably cancel unutilized portionsterms of the revolving commitments under the 20182021 Credit Agreement. The Company is required to repay the term commitment in an amount of $2.5 million per quarter beginning with the quarter ending December 31, 2018 through the quarter ending June 30, 2023.Facility.

The 20182021 Credit Agreement contained covenants required of the Company and its subsidiaries, including variousFacility contains customary affirmative and negative financialcovenants, including covenants limiting the Company's and operational covenants. its subsidiaries' ability to, among other things, incur debt, grant liens, make certain investments, engage in a line of business substantially different from the business conducted by the Company, transact with affiliates, make restricted payments, and sell assets.

The Company wasis required to meet certain quarterly financial covenants calculated fromunder the four fiscal quarters most recently ended,2021 Credit Facility, 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 cash payments and taxes paid in cash, 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(as defined in the 20182021 Credit Agreement, couldFacility) not be greater than 3.5 to 1.0.

2020 Amendments 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 March 31,September 30, 2021, 4.50:1 for the period ending June 30, 2021stepping down to 4.00:1.00 through the period ending March 31, 2022, and 3.50:1 for the periods ending June 30, 2022 and thereafter;1.00 thereafter.

◦The minimum Consolidated Fixed Charge Coverage Ratio, which requires that onEach of the last day of each fiscal quarter the ratio not be lower than 1.10:1financial ratios referred to above are calculated on a consolidated trailing twelve month basis through the period ending June 30, 2020, 1.25:1 calculated on a distinct quarterly basis for the periods ended September 30, 2020 through June 30,twelve-month basis. The 2021 and 1.25:1 calculated on a trailing twelve month basis beginning with the period ending September 30, 2021 and thereafter;

•Required the Company maintain a minimum cash and cash equivalents balance of $40 million, excluding deposit accounts in China;

•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

•RequiredFacility permits 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.

On October 14, 2020, the Company further amended its 2018 Credit Agreement to allowexclude certain non-cash charges and certain restructuring and other charges, as defined by the amendment, to be excludedexpenses from EBITDA in the calculation of the Company's financial covenants. 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 those modified financialall covenants at September 30, 2020,set forth in the 2021 Credit Facility as of the date hereof, and managementthe Company does not anticipate noncompliance in the foreseeable future.

At September 30, 2020, the Company had $283.5 million of borrowings outstanding and standby letters of credit outstanding of $1.8 million. The borrowings outstanding included a $138.5 million term loan, net of $0.5 million in debt issuance costs being
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amortized to interest expense over the debt maturity period. The Company had available borrowings of $23.7 million and $121.6 million at September 30, 2020 and December 31, 2019, respectively.

In addition to the amounts outstanding under the 2021 Credit Facility, the Company has various foreign credit facilities totaling approximately $9.4$10.9 million. At SeptemberJune 30, 2021 and December 31, 2020, the Company's foreign subsidiaries had $0.2$1.6 million in borrowingsand $1.4 million outstanding, as well as $1.3 millionrespectively, in standby letters of credit outstanding.under these foreign credit facilities.

The Company also has a finance lease agreement for equipment at a North America operation requiring monthly principal and interest payments through October 31, 2020.
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Total outstanding debt consists of:
In thousandsEffective RateMaturitySeptember 30, 2020December 31, 2019
Revolver loan5.25 %8/31/2023$144,500 $126,500 
Term loan, net of debt issuance costs5.25 %8/31/2023138,536 146,106 
Finance leases1.60 %10/31/20203 35 
   283,039 272,641 
Less portion due within one year  (9,844)(9,928)
Total long-term debt, net of debt issuance costs  $273,195 $262,713 
The weighted average interest rate on long-term debt was 5.2% for the nine-month period ended September 30, 2020 and 4.3% for the year-ended December 31, 2019.

7. Derivatives8. DERIVATIVES

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

Interest Rate Hedging

The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and in certain countries throughout Europe, which impacts interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are designated as cash flow hedges and are recorded at fair value (seevalue. See Note 8,9, "Fair Value Measurements", in these Notes to Condensed Consolidated Financial Statements for additional information).information.

In November 2018, the Company entered into a five-yearfive-year interest rate swap agreement with a bank to convert the interest on a notional $139.0 million of the Company's borrowings under its 2018 Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount 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 to convert 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.

OnOther Comprehensive Income. An amendment to the Company's 2018 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 baseBase Rate and the Eurocurrency rateRate 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 occurrence of variable interest rate payments on the hedged debt) continues to be probable of occurring. Therefore, as of May 11, 2020, the Company discontinued hedge accounting. After May 11, 2020, any fair value gains or losses on the derivative agreement are recorded as interest expense 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 beis being amortized into earnings / (losses)(loss) through August 31, 2023, the maturity date of the hedged debt.derivative instrument. The loss included in Accumulated Other Comprehensive Income related to the discontinued hedging relationship at
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September June 30, 20202021 was $4.5$2.6 million, net of tax. The amount reclassified out of other comprehensive income into interestInterest expense on the Company's Condensed Consolidated Statement of Operations for the three and nine-monthssix-month periods ended SeptemberJune 30, 20202021 was $0.9$0.6 million and $1.4$1.2 million, net of tax, respectively. The Company expects $3.1$1.8 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 8,9, "Fair Value Measurements"), in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the 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 recorded at fair value and recognized as either assets or liabilities on the balance sheet in either current or non-current other assets or other accrued liabilities or other long-term liabilities depending upon maturity and commitment.liabilities. 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:

September 30, 2020December 31, 2019At June 30, 2021At December 31, 2020
In thousandsIn thousandsAsset DerivativesLiability DerivativesAsset DerivativesLiability DerivativesIn thousandsAsset DerivativesLiability DerivativesAsset DerivativesLiability Derivatives
Interest rate contractsInterest rate contracts$0 $5,967 $2 $4,538 Interest rate contracts$0 $3,430 $0 $5,063 
Cross-currency swapsCross-currency swaps0 3,310 0 1,817 Cross-currency swaps0 4,717 0 6,933 
Total derivativesTotal derivatives$0 $9,277 $2 $6,355 Total derivatives$0 $8,147 $0 $11,996 

The following table sets forth the (loss) incomeactivity recorded in accumulated other comprehensive income (loss) income,, net of tax, for the three and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 20192020 for derivatives held by the Company and designated as hedging instruments:

For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands2020201920202019
Cash flow hedges:
Interest rate contracts$706 $(148)$(1,059)$(2,174)
Cross-currency swaps(2,669)0 (1,143)0 
Total derivatives$(1,963)$(148)$(2,202)$(2,174)

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Cash flow hedges:
Interest rate contracts$571 $11 $1,189 $(2,162)
Cross-currency swaps(696)(1,093)1,704 1,526 
Total derivatives$(125)$(1,082)$2,893 $(636)

8. Fair Value Measurements9. FAIR VALUE MEASUREMENTS

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

September 30, 2020December 31, 2019At June 30, 2021At December 31, 2020
In thousandsIn thousandsCarrying ValueFair ValueCarrying ValueFair ValueIn thousandsCarrying ValueFair ValueCarrying ValueFair Value
DebtDebt$283,500 $288,891 $273,000 $269,434 Debt$261,010 $280,725 $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.

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
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instruments are classified within Level 2 of the valuation hierarchy. At SeptemberJune 30, 20202021 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

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 September 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 stockholders on April 24, 2020, authorizes 3.0 million shares of common stock for awards. The 2012 Plan also authorized an additional 19,720 shares of common stock to the extent awards granted under prior stock plans that were outstanding as of April 24, 2020 are forfeited. The 2012 Plan provides for the following types of awards: options, restricted stock, restricted stock units and other stock-based awards. During the fourth quarter of 2019, additional shares of common stock were issued pursuant to separate inducement share agreements with 2 individuals as material inducement to their employment with the Company (the "Inducement Grants"). The Inducement Grants awarded stock options and restricted stock to the 2 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
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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 and performance-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 ultimately vest depends upon achievement of certain relative performance metrics as measured against the performance of the S&P 600 industrial index during a three-year performance period. The Company estimates the grant date value of performance awards using a Monte Carlo simulation model on the date of grant. The Company accounts for forfeitures as they occur. 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 $0.7 million and $0.6 million for the three-month periods ended September 30, 2020 and 2019, respectively, and $2.5 million and $2.1 million for the nine-month periods ended September 30, 2020 and 2019, respectively, for the Plans, including restricted stock awards. The Company also incurred equity compensation expense of $0.2 million and $0.2 million for the three-month periods ended September 30, 2020 and 2019, respectively, and $0.5 million and $0.5 million for the nine-month periods ended September 30, 2020 and 2019, respectively, for stock awards granted to Directors. No equity compensation costs were capitalized as part of inventory.
Stock Options
The following table is a summary of outstanding and exercisable options for the three and nine-month periods ended September 30, 2020:
For the Three Months Ended September 30, 2020For the Nine Months Ended September 30, 2020
In thousands except per share
amounts		SharesWeighted-
Average
Exercise Price		SharesWeighted-
Average
Exercise Price
Stock Options outstanding at the beginning of the period748 $25.36 683 $27.15 
  Granted11 $16.27 180 $17.37 
  Exercised0 $0 (4)$8.67 
  Forfeited or Expired(71)$26.25 (171)$25.46 
Stock Options outstanding at September 30, 2020688 $25.11 688 $25.11 
Exercisable at September 30, 2020305 $32.54 305 $32.54 
Unvested at September 30, 2020383 $19.20 383 $19.20 
There was 0 cash received from exercise of stock options during the three-month period ended September 30, 2020. The amount of cash received from the exercise of stock options was less than $0.1 million during the nine-month period ended September 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 nine-month period ended September 30, 2020.

At September 30, 2020, the total unrecognized compensation cost related to non-vested stock option awards was approximately $2.1 million, with a weighted average expected amortization period of 2.7 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 and nine-month periods ended September 30, 2020:

For the Three Months Ended September 30, 2020For the Nine Months Ended September 30, 2020
In thousandsSharesShares
Unvested at the beginning of the period220 159 
  Granted0 77 
  Vested(5)(8)
  Forfeited or Expired(12)(25)
Unvested at September 30, 2020203 203 
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The following is a summary of the Company's unvested performance-based restricted shares for the three and nine-month periods ended September 30, 2020:

For the Three Months Ended September 30, 2020For the Nine Months Ended September 30, 2020
In thousandsSharesShares
Unvested at the beginning of the period161 129 
  Granted5 71 
  Vested0 0 
  Forfeited or Expired(18)(52)
Unvested at September 30, 2020148 148 

At September 30, 2020, there were 350,348 total unvested restricted stock awards with total unrecognized compensation cost related to these awards of $4.4 million with a weighted average expected amortization period of 2.1 years.

10. Stock RepurchasesSTOCK REPURCHASES
 
During the nine-monthsix-month period ended SeptemberJune 30, 2020,2021, the Company purchased 2,3405,646 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 the Company's common stock, par value $0.01 per share. NaN shares were repurchased under this program during the three-month period ended June 30, 2021. The Company suspended the Share Repurchase Program due to the pending Merger.

11. Employer Sponsored Benefit PlansEMPLOYER SPONSORED BENEFIT PLANS
 
The Company maintains one domestic pension plan:plan, the Retirement Income Plan for Employees of Interface Performance Materials, Inc. ("IPM Pension Plan"). During the three-month period ended March 31, 2020, the Company settled the pension obligation of the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension Plan") through lump sum distributions to participants or by irrevocably transferring pension liabilities to an insurance company through the purchase of a group annuity contract. This purchase, funded with pension assets, resulted in a pre-tax settlement loss of $0.4 million in the three-monthsix-month period ended March 31,June 30, 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 2021. Contributions of $0.2 million and $0.4 million were made during the three and six-month periods ended June 30, 2021. Contributions of $0.4 million were made during the six-month period ended June 30, 2020. There were 0 contributions made during the three-month period ended SeptemberJune 30, 2020 asbecause the Company took advantage of the delaydeferral in minimum funding contribution due dates as allowedpermitted under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act, and is delaying payment of the minimum funding contributions of $0.3 million originally due during April 2020, and $0.3 million originally due during July 2020. These and other required minimum funding contributions for the remainder of 2020 will be made later in 2020. Contributions of $0.4 million were made during the nine-month period ended September 30, 2020. Contributions of $0.3 million and $1.1 million were made during the three-month and nine-month periods ended September 30, 2019, respectively, inclusive of contributions made to the ISS Pension Plan.Act").

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.














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The following is a summary of the components of net periodic benefit cost for the domestic defined benefit pension plans for
the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019:2020:
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands2020201920202019
Components of employer benefit cost  
Service cost$40 $30 $120 $90 
Interest cost428 530 1,285 2,356 
Expected return on assets(532)(488)(1,597)(2,105)
Amortization of actuarial loss0 0 2 464 
Net periodic benefit cost$(64)$72 $(190)$805 
Settlement loss0 186 385 25,701 
Total employer benefit plan cost$(64)$258 $195 $26,506 

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Components of employer benefit cost  
Service cost$29 $40 $58 $80 
Interest cost304 428 608 857 
Expected return on assets(589)(532)(1,178)(1,065)
Amortization of actuarial loss4 0 8 2 
Net periodic benefit cost (income)$(252)$(64)$(504)$(126)
Settlement loss0 0 0 385 
Total employer benefit plan cost$(252)$(64)$(504)$259 

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.Other (income) expense, net on the Condensed Consolidated Statements of Operations.






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12. RestructuringRESTRUCTURING

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 andlines. In addition, the Company began exiting underperforming facilities in Europe. These restructuring activities, which are projected to concludewill be completed in the first halfthird quarter of 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, theThe Company expects to recordincur total pre-tax expenses of approximately $17.0 million. As a result of these restructuring activities, the Company incurred total pre-tax expenses of $16.9 million through June 30, 2021, of which approximately $11.2 million was related to $20.0 million,cash expenditures primarily relateddue to severance and employee retention expenses. Also contributing to total pre-tax expenses in connection with these restructuring activities,was $5.7 million of which approximately $11.5 to $14.5 million are expected to result in cash expenditures. The Company incurred non-cash expenditures, of approximately $5.5 million, which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory.

In North America, the Company decided See Note 3, "Divestiture Activities", in these Notes to shut down 2 underperforming nonwoven manufacturing carded lines and ancillary equipment, originally acquired in 2018, that served commercial and residential HVAC markets with low to medium efficiency air filtration media. The Company experienced lower demand as a result of COVID-19, which accelerated a market shift from lower efficiency air filtration media to higher performance rated air filtration media. As a result, the Company recorded a pre-tax restructuring charge of $5.4 million, primarily due to accelerated depreciation of property, plant and equipment and other intangible assets. The Company does not anticipate incurring additional restructuring expenses related to the closure of these manufacturing Carded lines.

The Company undertook actions to consolidate global production facilities in the Sealing & Advanced Solutions business from 5 facilities to 4, resulting in the closure of an underperforming facility in Germany. In the first quarter of 2020, the Company performed an impairment analysis of the long-lived assets and determined that the carrying value of the assets did not exceed their fair value and recorded an impairment charge of $12.4 million (see Note 5, “Impairments of Goodwill and Other Long-Lived Assets”Condensed Consolidated Financial Statements for additional information). The closure is expected to be completed in the first quarter of 2021. In addition, the Company decided to close a small volume membrane filtration production facility in the Netherlands. In the fourth quarter of 2019, the Company performed an impairment of the long-lived assets for this facility and recorded an impairment charge of $1.2 million. The assets have been fully depreciated through September 30, 2020. The closure is expected to be completed in the second quarter of 2021.

As a result of the 2 facility closures in Europe, the Company recorded pre-tax restructuring charges of $9.6 million consisting of severance costs, legal expenses, and inventory write-offs and anticipates it could incur an additional $2.0 million to $5.0 million in restructuring expenses, primarily related to severance costs from these facility closures.








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

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

For the three and nine-month periods ended September 30, 2020, $15.0 million was included in restructuring expenses on the Company’s Condensed Consolidated Statements of Operations with $14.8 million recorded in the Performance Materials segment and $0.2 million recorded within Corporate Office expenses.

There were cash outflows of $0.2 million for the restructuring program for the three and nine months ended September 30, 2020.information.

The following table summarizes the total restructuring expenses incurred, by cost type, for the three and six-month periods ended June 30, 2021:

For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2021
Severance and Related Expenses$190 $967 
Total pre-tax expense incurred$190 $967 

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

In ThousandsthousandsTotal
Balance as of December 31, 20192020$09,431 
Pre-tax restructuring expenses, excluding asset write-off expenses9,485967 
Cash paid(203)(1,642)
Accrued liability included with the sale of the German facility(7,311)
Currency translation adjustments(119)5 
Accrued liability included in Liabilities of a business held-for-sale(1,414)
Balance as of SeptemberJune 30, 20202021$9,16336 

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

13. Income TaxesINCOME TAXES
 
For the three-month period ended SeptemberJune 30, 2020,2021, the Company's effective tax rate was 16.6%13.9% compared to an effective tax rate of 35.1%9.2% for the three-month period ended SeptemberJune 30, 2019.2020. For the three monthsthree-month period ended SeptemberJune 30, 2021, the rate was positively impacted by $0.4 million related to accounting method changes and $0.2 million related to foreign earnings taxed at higher rates. These were partially offset by $0.3 million of valuation allowance activity. For the three-month period ended June 30, 2020, the rate was negatively impacted by valuation allowance activity of $2.0$0.5 million offset byand a stateforeign withholding tax benefitliability of $0.8 million.$0.4 million, resulting in a lower effective tax rate when in a pre-tax loss position. For the three months ended September 30, 2019, the effective tax rate was negatively impacted by losses in jurisdictions in which no tax benefit can be recognized.

For the nine-monthsix-month period ended SeptemberJune 30, 2020,2021, the Company's effective tax rate was 6.3%25.8% compared to an effective tax rate of 97.0%4.0% for the nine-monthsix-month period ended SeptemberJune 30, 2019.2020. For the nine monthssix-month period ended SeptemberJune 30, 2021, the rate was negatively impacted by $0.6 million due to a change in assertion on unremitted foreign earnings and $0.5 million of valuation allowance activity. These were partially offset by a benefit of $0.4 million related to accounting method changes. For the six-month period ended June 30, 2020, the Company had a pre-tax loss primarily resulting from impairment charges of $61.1 million. The impairment charges significantly impacted the Company's effective tax rate because $48.7 million of the impairment charges related to non-deductible goodwill, resulting in a low effective tax rate for the nine monthssix-month period ended SeptemberJune 30, 2020 when in a pre-tax loss position. Additionally, the effective rate was negatively impacted by valuation allowance activity of $2.7$0.7 million. For the nine-month period ended September 30, 2019, the Company recorded a tax benefit of $5.5 million primarily driven by $10.5 million of tax benefit related to the pension plan settlement. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the nine months ended September 30, 2019 was 25.2%. This was negatively impacted by $1.8 million from losses in jurisdictions in which no tax benefit can be recognized, partially offset by the Company's geographical mix of earnings.

The Company and its United States 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
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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
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carryforwards in which no tax benefit can be recognized, stock vesting, pension plan terminations, the completion of acquisitions or divestitures, changes in tax rates or tax laws and the completion of ongoing tax planning strategies and audits.

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

14. (Loss) Earnings Per Share
For the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019,2020, basic earnings per share werewas computed by dividing net income (loss) income 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.

The following table provides a reconciliation of weighted-average shares used to determine basic and diluted earnings per share:
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands2020201920202019
Basic weighted-average common shares outstanding17,384 17,270 17,364 17,264 
Effect of dilutive options and restricted stock awards0 60 0 0 
Diluted weighted-average common shares outstanding17,384 17,330 17,364 17,264 

For the Three Months EndedFor the Six Months Ended
In thousands, except per share amountsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net income (loss)$5,780 $(5,857)$10,874 $(62,278)
Basic weighted-average common shares outstanding17,575 17,372 17,560 17,354 
Effect of dilutive options and restricted stock awards402 0 363 0 
Diluted weighted-average common shares outstanding17,977 17,372 17,923 17,354 
Earnings (loss) per share:
Basic$0.33 $(0.34)$0.62 $(3.59)
Diluted$0.32 $(0.34)$0.61 $(3.59)
Dilutive stock awards totaling 77,707
For the three and 28,085six-month periods ended June 30, 2021, there were 73,464 and 156,709 shares of Common Stock were excluded from the computation of diluted earnings per share, computationrespectively. These included antidilutive stock options, antidilutive unvested restricted share awards for which requisite service has not yet been rendered, and antidilutive unvested performance share awards with contingently issuable shares.

For the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 2020, asthere were 736,944 and 734,756 shares excluded from the computation of diluted earnings per share, respectively. Because the Company reportedhad a net loss during thosethe three and six-month periods and, therefore,ended June 30, 2020, the effect of including these options would be antidilutive. Dilutiveexcluded shares included all outstanding, unvested restricted share awards for which requisite service has not yet been rendered, all stock options, totaling 53,892 shares of Common Stock were excluded from the diluted perand certain unvested performance share computation for the nine-month period ended September 30, 2019, as the Company reported a net loss during that period and, therefore, the effect of including these options would be antidilutive.awards with contingently issuable shares.

For eachA description of the three-month periods ended September 30, 2020 and 2019,Company's stock options for 658,654 shares and 584,725 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 nine-month periodsCompany's Annual Report on Form 10-K for the year ended September 30, 2020 and 2019, stock options for 722,006 shares and 542,669 shares of Common Stock were not considered in computing diluted earnings per common share because they were antidilutive.December 31, 2020.

15. 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 SeptemberJune 30, 2020,2021, the Company’s reportableoperating segments were Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.

Performance Materials Segment
The Performance Materials segment includes filtration media solutions primarily for air, fluid power, life science and industrial applications (“Filtration”), and sealing and gasket solutions, thermal insulation, 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 high efficiency specialty filtration products constitute the critical filtration media component of clean-air systems for applications in Indoor Air Quality (commercial, residential, and specialized HVAC applications such as cleanrooms and hospital environments), respiratory Personal Protective Equipment (N95 respirators and surgical masks), power generation, and specialty industrial process applications. Lydall 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
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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.Performance Materials Segment

SealingThe Performance Materials segment is a worldwide leader in delivering innovative specialty filtration, sealing, and Advanced Solutions productsadvanced materials solutions for demanding applications. Specifically, the segment’s offerings include: (1) specialty filtration media solutions for a variety of applications in the global air and liquid filtration market such as personal protective equipment (“PPE”), indoor air quality, life sciences, transportation, and industrial applications; (2) gasket materials and parts for a broad range of applications in the global sealing market for parts in large/heavy duty equipment for commercial, industrial, agriculture, and construction end markets; and (3) advanced materials that include nonwoven specialtyhighly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced 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-goodgeotextile 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, used in commercial applications and predominantly serves the geosynthetics, automotive, industrial, 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 the porotex® family of high temperature filtration felts including microvel® and optivel® products. Technical Nonwovens Advanced Materials products are sold under the brand names Thermofit® thermo-formable products, Ecoduo® recycled content materials, Duotex® floor protection products, and Versaflex® composite molding materials. Technical Nonwovens also offers extensive finishing and coating capabilities which provide custom engineered properties tailored to meet the most demanding applications. The business leverages a wide range of fiber types and extensive technical capabilities to provide products that meet 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 SolutionsSegment Results

Net sales by business 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,is 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 usingfollows:

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Performance Materials Segment (1),(2):
Filtration Products$34,066 $29,636 $68,412 $55,523 
Sealing and Advanced Solutions Products43,120 28,837 88,107 68,170 
Performance Materials Segment net sales77,186 58,473 156,519 123,693 
Technical Nonwovens Segment:
Industrial Filtration Products35,411 29,413 71,812 60,782 
Advanced Materials Products (2)
37,068 22,594 62,342 48,628 
Technical Nonwovens Segment net sales72,479 52,007 134,154 109,410 
Thermal Acoustical Solutions Segment:
Parts71,222 32,448 157,716 109,769 
Tooling5,636 5,000 10,186 11,440 
Thermal Acoustical Solutions Segment net sales76,858 37,448 167,902 121,209 
Eliminations and Other (2)
(4,779)(1,768)(9,732)(7,625)
Consolidated Net Sales$221,744 $146,160 $448,843 $346,687 

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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.

The tables below present net sales and operating income by segment for the three-month and nine-month periods ended September 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 net sales by segment:
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands2020201920202019
Performance Materials Segment:
Filtration$30,899 $22,427 $86,422 $71,093 
Sealing and Advanced Solutions36,918 37,573 105,088 118,589 
Performance Materials Segment net sales67,817 60,000 191,510 189,682 
Technical Nonwovens Segment (1):
Industrial Filtration29,643 32,935 90,425 114,005 
Advanced Materials (2)28,866 30,977 77,494 84,591 
Technical Nonwovens Segment net sales58,509 63,912 167,919 198,596 
Thermal Acoustical Solutions Segment:
Parts79,687 80,309 189,456 250,591 
Tooling5,836 7,617 17,276 24,920 
Thermal Acoustical Solutions Segment net sales85,523 87,926 206,732 275,511 
     Eliminations and Other (2)(4,764)(6,564)(12,389)(19,679)
Consolidated Net Sales$207,085 $205,274 $553,772 $644,110 

Operating income (loss) by segment:business segment is as follows:
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands2020201920202019
Performance Materials (3)$(6,759)$712 $(58,257)$5,474 
Technical Nonwovens (1),(2),(4)5,061 7,165 15,558 19,743 
Thermal Acoustical Solutions1,174 5,022 517 21,870 
Corporate Office Expenses(8,757)(5,452)(24,413)(17,411)
Consolidated Operating Income$(9,281)$7,447 $(66,595)$29,676 

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Performance Materials (1),(3)
$14,853 $5,443 $30,149 $(51,498)
Technical Nonwovens (4)
8,765 6,684 13,869 10,497 
Thermal Acoustical Solutions(1,500)(6,285)174 (657)
Corporate Office Expenses(12,704)(7,588)(22,639)(15,656)
Consolidated Operating Income (Loss)$9,414 $(1,746)$21,553 $(57,314)

(1)The Technical NonwovensFor the six-month period ended June 30, 2021, the Performance Materials segment includes the results of Geosol through the date of disposition of May 9, 2019.German facility that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:
•$3.9 million and $4.3 million ofPerformance Materials segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$1.0 million and $0.3 million for the three-month periods ended SeptemberJune 30, 2021 and 2020, respectively.
◦$2.1 million and 2019,$1.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.
•$10.2 million and $13.6 million ofTechnical Nonwovens segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$3.6 million and $1.4 million for the nine-monththree-month periods ended SeptemberJune 30, 2021 and 2020, respectively.
◦$7.5 million and 2019,$6.4 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(3)Included in the operating results within the Performance Materials segment isare the following:
•$61.1Impairment charges of $61.1 million of impairment charges related to goodwill and other long-lived assets for the nine-monthsix-month period ended SeptemberJune 30, 2020.
•$14.8 million restructuring charges for the three and nine-month periods ending September 30, 2020.Intangible asset amortization as follows:
•◦$4.03.0 million and $4.1$4.0 million of intangible assets amortization for the three-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
•◦$11.96.1 million and $12.2$7.9 million of intangible assets amortization for the nine-monthsix-month periods ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.

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(4)Included in the Technical Nonwovens segment is the following:intangible assets amortization as follows:
•$1.21.1 million and $1.3$1.2 million of intangible assets amortization for the three-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
•$3.52.1 million and $3.8$2.3 million of intangible assets amortization for the nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.

16. 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.action plan. 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 relationdue to the lining of the Company's fresh waterfreshwater lagoons. The site investigation andDuring a building expansion in 2020, additional areas of concern were identified during excavation activities. An interim remedial action plan are ongoing.("IRAP") that includes additional site characterization activities was submitted to the NHDES in March 2021. In June 2021, additional site characterization activities were initiated following approval of the IRAP by the NHDES. Additionally, as part of the IRAP, excavation and disposal of areas of known PFAS contamination were initiated in July 2021. The Company had $0.3 million accrued for these environmental remediation activities, all of which were recorded in the three-month period ended June 30, 2021. 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, NYNew York will be the subject of an investigation in tointo the possibility
20


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 characterizationwill be submitted in 2021. As of June 30, 2021, the Company has less than $0.1 million accrued for these environmental remediation activities. Additional site characterization activities are planned for the fourth quarter of 2020. 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 actions at this location would not have a material effect on the Company's financial condition, results of operations, or cash flows.

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

Asset Retirement Obligations

The Company accounts for asset retirement obligations by recognizing the fair value of the related liability for an asset retirement obligation in the period in which it is incurred, if a reasonable estimate of fair value can be determined. At June 30, 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.

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

Changes in stockholders' equity for the three and six-month periods ended June 30, 2021 and 2020 were as follows:

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Beginning Balance$264,550 $253,577 $257,696 $318,420 
Comprehensive income (loss)8,737 (1,396)14,200 (66,997)
Stock repurchased0 0 (201)(8)
Stock issued under employee plans151 1 793 32 
Stock-based compensation expense1,363 720 2,313 1,455 
Stock issued to directors398 360 398 360 
Ending Balance$275,199 $253,262 $275,199 $253,262 















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17. Stockholders' Equity and Accumulated Other Comprehensive Income

Changes in stockholders' equity for the three and nine-month periods ended September 30, 2020 were as follows:

For the Three Months Ended September 30,For the Nine Months Ended  
September 30,
In thousands2020201920202019
Beginning Balance$253,262 $387,105 $318,420 $369,275 
Comprehensive (loss) income, net of tax(5,477)(5,849)(72,474)10,773 
Stock repurchased(23)(7)(31)(62)
Stock issued under employee plans0 5 4 5 
Stock-based compensation expense551 417 2,006 1,611 
Stock issued to directors0 0 388 252 
Adoption of ASC 606 (1)
0 0 0 (183)
Ending Balance$248,313 $381,671 $248,313 $381,671 

The components of accumulated other comprehensive income (loss) income are shown below:

For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,		For the Three Months EndedFor the Six Months Ended
In Thousands2020201920202019
In thousandsIn thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Foreign currency translation:Foreign currency translation:Foreign currency translation:
Beginning balanceBeginning balance$(22,833)$(16,128)$(18,022)$(18,458)Beginning balance$(6,528)$(27,979)$(3,514)$(18,022)
Net gain (loss) on foreign currency translationNet gain (loss) on foreign currency translation8,245 (8,726)3,434 (6,396)Net gain (loss) on foreign currency translation3,060 5,146 (988)(4,811)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
0 0 1,034 0 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax8,245 (8,726)3,434 (6,396)Other comprehensive income (loss), net of tax3,060 5,146 46 (4,811)
Ending balanceEnding balance(14,588)(24,854)(14,588)(24,854)Ending balance(3,468)(22,833)(3,468)(22,833)
Pension and other postretirement benefit plans:Pension and other postretirement benefit plans:Pension and other postretirement benefit plans:
Beginning balanceBeginning balance(2,749)(2,879)(3,080)(22,253)Beginning balance(5,243)(2,749)(5,608)(3,080)
Amounts reclassified from accumulated other comprehensive (loss) income (2)(49)21 282 19,395 
Other comprehensive (loss) income, net of tax(49)21 282 19,395 
Amounts reclassified from accumulated other comprehensive income (loss) (2)
Amounts reclassified from accumulated other comprehensive income (loss) (2)
22 0 387 331 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax22 0 387 331 
Ending balanceEnding balance(2,798)(2,858)(2,798)(2,858)Ending balance(5,221)(2,749)(5,221)(2,749)
Unrealized gain/(loss) on derivative instruments:
Unrealized loss on derivative instruments:Unrealized loss on derivative instruments:
Beginning balanceBeginning balance(5,116)(4,000)(4,877)(1,974)Beginning balance(6,202)(4,431)(9,220)(4,877)
Net loss on derivative instruments (3)(2,669)(148)(3,306)(2,174)
Amounts reclassified from accumulated other comprehensive income (4)706 0 1,104 0 
Other comprehensive loss, net of tax(1,963)(148)(2,202)(2,174)
Net gain (loss) on derivative instruments (3)
Net gain (loss) on derivative instruments (3)
(696)(1,082)1,704 (636)
Amounts reclassified from accumulated other comprehensive income (loss) (4)
Amounts reclassified from accumulated other comprehensive income (loss) (4)
571 397 1,189 397 
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax(125)(685)2,893 (239)
Ending balanceEnding balance(7,079)(4,148)(7,079)(4,148)Ending balance(6,327)(5,116)(6,327)(5,116)
Total accumulated other comprehensive loss$(24,465)$(31,860)$(24,465)$(31,860)
Total accumulated other comprehensive income (loss)Total accumulated other comprehensive income (loss)$(15,016)$(30,698)$(15,016)$(30,698)

(1) DuringFor the six-month period ended June 30, 2021, the amount represents the recognition of the accumulated loss on foreign currency translation relating to the divestiture of the German Facility in the Performance Materials segment, net of tax impact of $0.2 million. This is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.
(2)For the three-month period ended March 31, 2019,June 30, 2021, 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.

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(2) For the three-months ended September 30, 2020 and 2019, amount represents routine amortization of actuarial gains and losses in net periodic benefit cost, and other activitynet of tax impact of less than $0.1 million. For the six-month period ended June 30, 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 less thantax impact of $0.1 million, tax benefit. and is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations.For the nine-monthssix-month period ended SeptemberJune 30, 2020, the amount primarily represents the settlement of the ISS Pension Plan in the first quarter of 2020 ofPlan. This amount was $0.4 million, net of tax impact of $0.1 million tax benefit,million. The amounts for the six-month periods ended June 30, 2021 and 2020 also include routine amortization of actuarial gains and losses in net periodic benefit cost and other activity of less than $0.1 million, net of tax impact of less than $0.1 million tax benefit. For the nine-months ended September 30, 2019, amount represents the settlement of the Lydall Pension Plan in the second quarter of 2019 of $19.0 million, net of $11.5 million tax benefit, and routine amortization of actuarial losses in net periodic benefit cost during the first five months of fiscal year 2019 prior to the plan termination of $0.4 million, net of $0.1 million tax benefit.million.

(3)
(3) Amount represents unrealized lossesgains (losses) on the fair value of hedging activities, net of tax benefitsimpact of $0.8$0.2 million and less than $0.1$0.3 million for the three-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively and $1.0$0.5 million and $0.7$0.2 million for the nine-monthsix-month periods ended SeptemberJune 30, 2021 and 2020, and 2019, respectively.

(4)
(4) AmountsAmount represents the impact of de-designation of the interest rate swap agreement, net of tax expensesimpact of $0.2$0.6 million and $0.3$0.1 million for the three-month and nine-month periods ended SeptemberJune 30, 2021 and 2020, respectively and $0.4 million and $0.1 million for the six-month periods ended June 30, 2021 and 2020, respectively.

18. Subsequent Events

On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's modified financial covenants.
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18. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the issuance date of these financial statements. No material subsequent events were identified that require disclosure.

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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, Part II, Item 1A - Risk Factors of this Form 10-Q, 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 of the novel strain of the coronavirus (“COVID-19”) has grown throughout the world, including in all global and regional markets served by the Company. During 2020, governmental authorities implemented numerous measures attempting to contain and mitigate the effects of COVID-19, including travel bans and restrictions, quarantines, social distancing orders, shelter in place orders and shutdowns of non-essential activities. The Company’s manufacturing facilities are located in areas that have been affected by the pandemic and shutdowns. Certain Company facilities in the United States, Europe and Asia carried out shutdowns as a result of government-imposed restrictions or in conjunction with customer plant closures during the first quarter. The Company’s Asia facilities resumed operations in late February and other facilities ramped back up moderately, in line with customer demand, during the second quarter. In the third quarter, the Company has seen a stronger recovery in its Performance Materials segment, specifically in its Filtration business, and in the Thermal Acoustical Solutions and Technical Nonwovens segments as discussed below.Merger Agreement

Performance MaterialsAs previously announced, on June 21, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Unifrax Holding Co. (“PM”Parent”) Developments, Outback Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), and solely with respect to certain payment obligations of Parent thereunder, Unifrax I LLC (“Unifrax”). Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Unifrax is a global provider of specialty materials focused on thermal management, specialty filtration, battery materials, emission control, and fire protection applications and is backed by Clearlake Capital Group, L.P.

Performance Materials sales were down 4.6% inSubject to the first halfterms and conditions of 2020 from the comparative period in 2019 with incremental demand for specialty filtration media products more than offset by softer demand in the Sealing and Advanced Solutions business.PM’s Filtration sales continued to be very strong in the third quarter, up approximately 37.8% from the comparative period in the prior year, led by continued demand for fine fiber meltblown media used in personal protective equipment such as N95 respirators and surgical and medical masks. This demand is expected to moderate into the fourth quarter and expected to be down slightly on a sequential basis due to normal seasonality. Weaker demand in automotive, agricultural, and construction equipment markets resulted in a sales declineMerger Agreement, each share of approximately 1.7% in the Sealing and Advanced Solutions business in the third quartercommon stock, par value $0.01 per share, of 2020 from the comparative period in 2019.

As a result of continued strong demand for filtration products, the Company approved investments to add two production lines in Performance Materials’ Rochester facility for the production(the “common stock”) (other than shares of fine fiber meltblown filtration media used in the N95 respirator and surgical and medical masks.In addition,common stock held by the Company reached an agreement withas treasury stock) issued and outstanding immediately prior to the U.S. Government that provides partial fundingeffective time of the investments in the production lines in addition to funding for other technical resources.

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

In the third quarter, the Company initiated actions to close underperforming operating locations in Europe and discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America. These actions are part of the Company's ongoing assessment of underperforming assets and focusMerger (the “Effective Time”) (other than dissenting shares) will be
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converted into the right to receive $62.10 per share in cash, without interest. If the Merger is consummated, the Company’s securities will be de-listed from the New York Stock Exchange (the “NYSE”) and de-registered under the Securities Exchange Act of resources1934, as amended (the “Exchange Act”) as soon as practicable following the Effective Time.

The completion of the Merger is subject to customary closing conditions, including, among others, (i) the approval of the Company’s stockholders holding a majority of the outstanding shares of common stock and (ii) the expiration or termination of any waiting period applicable to the consummation of the Merger under the Hart-Scott Rodino Antitrust Improvements Act of 1976, and the expiration of applicable waiting periods or clearances of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the Merger is currently expected to close in the second half of 2021. However, the Company cannot assure completion of the Merger by any particular date, if at all or that, if completed, it will be completed on the significant investments to expand fine fiber meltblown production.terms set forth in the Merger Agreement. The Company’s Condensed Consolidated Financial Statements and related disclosures for the three and six-month periods ended June 30, 2021 and 2020 These actions are expected to be completed in 2021 and projected to improve overall segment margin performance beginning in 2021. For additional information, see Note 12, "Restructuring".do not reflect any potential impacts or effects the Merger may have on the Company’s financial statements if the Merger is finalized.

Technical Nonwovens (“TNW”) Developments

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

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

Thermal Acoustical Solutions (“TAS”) Developments

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

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

Looking Forward

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

Liquidity and Cash Preservation

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

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

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

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

In addition to the significant measures taken to reduce and contain costs, the Company took actions in March 2020 to provide additional liquidity, primarily including a $20.0 million draw down on its amended credit facility.On May 11, 2020, the Company entered into an amended credit agreement (see Note 6, "Long-term Debt and Financing Arrangements" for the key amended terms and conditions) to modify certain financial maintenance covenants, at least one of which the Company expected to fail during the second quarter of 2020World Health Organization (“WHO”) characterized COVID-19 as a result ofpandemic. In an effort to contain COVID-19 and slow its spread, governments throughout the world enacted various measures, including orders to close "non-essential" businesses, for residents to shelter in place, and to practice social distancing. These actions and the global health crisis caused by COVID-19 has adversely impacted, and may continue to adversely impact, of COVID-19.On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuringglobal business activity and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants.performance. Despite the recent availability of vaccines, a level of risk and uncertainty remains that the residual effects of the pandemic, such as supply chain disruptions, could have an adverse impact in certain areas of our business. The Company was in compliance with those modified financial covenants as of and for the three-month period ended September 30, 2020, and management does not anticipate noncompliance in the foreseeable future.

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

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

Steps Taken to Protect Employees

The Company continues to monitor the global outbreak and spread of COVID-19 and take steps to mitigate the potential risks to the Company and its employees posed by the spread, related circumstances, and economic impacts of COVID-19. As the Company brings employees back to work, it has implemented changes to help ensure the safety and health of all its employees and continues to assess and update its business continuity plans in the context of this pandemic. The Company established the Lydall Emergency Preparedness Team (“LEPT”), implementing strict travel restrictions, enforcing rigorous hygiene protocols, increasing sanitization efforts at all facilities and implementing remote working arrangements for the majority of its employees who work outside the plants. The Company will continue its workefforts to ensure it maintainsmaintain a safe and healthy work environment, and continue to allowincluding the continuation of remote working arrangements, as long as necessary where deemed appropriate.

Among other factors, a strong rebound in demand in many end markets in conjunction with supply disruptions is causing higher commodity prices for certain of the Company's primary raw material inputs including, but not limited to, aluminum, aluminized steel, polypropylene, and microfiber glass. Supply chain issues, including transportation and logistics problems, are causing periodic supply chain disruptions, and in selected cases, material shortages in various markets served by the Company. These issues have caused an adverse impact on the Company’s financial performance. Given the dynamic nature of the situations, we cannot estimate with certainty the future impacts from higher commodity prices, supply chain issues and the COVID-19 pandemic on our financial condition, results of operations or cash flows.

Performance Materials Developments

Market Trends

Demand for the Performance Materials segment’s filtration and sealing and advance solutions products continue to be strong. However, in the second quarter of 2021, the segment experienced some supply chain challenges for select raw materials used in sealing products, and higher commodity prices for polypropylene and other fibers used in filtration products. Although the Company expects this trend to continue through 2021, the Company is working to mitigate inflationary costs through customer pricing where contracts allow for such increases to be passed on to customers.

Other

As previously disclosed, the Performance Materials segment undertook actions to exit underperforming facilities in Europe. In June 2021, the Company reached an agreement to sell an operating facility in the Netherlands. The sale was completed on July 9, 2021. See Note 3, “Divestiture Activities", in the Notes to Condensed Consolidated Financial Statements for additional information.






3525


Third Quarter 2020 HighlightsTechnical Nonwovens Developments

Market Trends

Demand for the Technical Nonwovens segment’s geosynthetic, medical, and filtration products is 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. However, the Company does not expect these issues to have a material adverse impact on the segment’s financial performance in 2021. The segment continues to see significant commodity price increases on polypropylene fibers and other raw material fibers as well as price increases around freight and logistics. Although the Company expects this trend to continue through 2021, the Company anticipates the ability to mitigate these higher costs primarily through increased customer pricing.

Thermal Acoustical Solutions Developments

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 customers temporarily slow or halt production of certain vehicle models due to a global semiconductor chip shortage negatively impacting the automotive industry and its supply chain. As a result, customer orders have been delayed adversely impacting the segment's financial performance during the second quarter. Raw material shortages affecting the automotive industry could continue to have a negative impact on the segment's financial performance for the remainder of 2021.

Consistent with the Company’s other segments, the Thermal Acoustical Solutions segment is experiencing higher commodity pricing, primarily 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 have had, and could continue to have, an adverse impact on the segment’s financial performance in 2021 to the extent these costs cannot be passed on to customers.

SECOND QUARTER 2021 HIGHLIGHTS
 
Below are financial performance highlights for the three-month period ended SeptemberJune 30, 20202021 compared to the three-month period ended SeptemberJune 30, 2019:
2020:
•
Net
The chart below reflects the change in consolidated net sales by segment:
ldl-20210630_g1.jpg
Consolidated net sales were $207.1$221.7 million in the thirdsecond quarter of 2021, compared to $146.2 million in the second quarter of 2020, compared to $205.3 millionresulting in the third quarter of 2019, an increase of $1.8$75.6 million, or 0.9%,51.7%. The increase was primarily driven by $7.8$39.4 million inof higher sales in the Company's Thermal Acoustical Solutions segment, mainly due to improved demand for products across all regions as a result of the continued recovery from the COVID-19 pandemic. Additionally, the Technical Nonwovens segment experienced
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an increase in sales of $20.4 million led by higher demand in industrial filtration markets. The Performance Materials segment resulting from higherexperienced an increase in sales of $18.7 million that was primarily attributable to continued demand in sealing markets and specialty filtration products for face mask media in response to the COVID-19 pandemic, partially offset by lower sales in the Company's Technical Nonwovens and Thermal Acoustical Solutions segments. products.
The change in consolidated net sales is summarized in the following table:
Components (in thousands)Change in Net SalesPercent Change
   Parts volume and pricing change$648 0.3 %
   Change in tooling sales(1,827)(0.9)%
   Foreign currency translation2,990 1.5 %
      Total$1,811 0.9 %
chart:

ldl-20210630_g2.jpg•
(1) Gross margin increased to 18.3% for the three-month period ended September 30, 2020 as compared to 17.7%Includes Parts volume and pricing change of $69.2 million and Tooling Sales of $0.4 million between comparable periods in the corresponding period in 2019. The Performance Materials segment favorably impacted consolidated gross margin by approximately 330 basis points, primarily due to favorable product mix, driven by increased demand for face mask media in response to the COVID-19 pandemicsecond quarters of 2021 and higher liquid filtration sales, combined with favorable raw material commodity and production costs, and lower overhead costs. Gross margin from the Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 160 basis points due to labor shortages and operating inefficiencies directly related to an increase in COVID-19 cases in its North American facility, resulting in higher freight and temporary labor expenses in order to meet larger OEM customers' demands. The Technical Nonwovens segment adversely impacted consolidated gross margin by approximately 110 basis points due to unfavorable overhead absorption on lower segment net sales combined with unfavorable product mix.2020.

•Operating lossConsolidated operating income was $(9.3)$9.4 million for the three-month period ended SeptemberJune 30, 20202021 compared to an operating incomeloss of $7.4$(1.7) million in the corresponding period in 2019. The operating loss2020. Operating income for the three-month period ended June 30, 2020 was drivenadversely impacted by restructuring charges of $15.0 million primarily in the Performance Materials segment and significant operating inefficienciesCOVID-19-related plant shutdowns in the Company's Thermal Acoustical Solutions business and lower production of the Company's industrial filtration products. The $11.1 million increase was primarily a result of higher operating income of $9.4 million in the Performance Materials segment, as noted above. The following expenses adversely impacted operatingdriven by a favorable product mix due to higher sales for specialty filtration products and sealing and insulation products. Operating income for the third quartersThermal Acoustical Solutions segment increased $4.8 million mainly due to the recovery from COVID-19 related shutdowns during the second quarter of 2020 and 2019:
For the Three Months Ended September 30, 2020
Components
(in thousands except per share amounts)
Operating Income ImpactPre-tax
EPS Impact		Tax Effect
EPS Impact (1)		Net
EPS Impact
   PM restructuring expenses$(14,984)$(0.86)$0.21 $(0.65)

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

(1) Tax expense represents2020. The Technical Nonwovens segment also experienced an increase in operating income with a $2.1 million improvement from the statutory tax ratecomparable period in 2020. The increase in Technical Nonwovens was primarily attributable to higher sales volume driven by the jurisdiction in whichrecovery from the expense was incurred.COVID-19 pandemic.

•


















27


The chart below reflects the change in consolidated operating income by segment:
ldl-20210630_g3.jpg
Consolidated net lossincome was $(11.7)$5.8 million, or $(0.67)$0.32 per diluted share, for the three-month period ended SeptemberJune 30, 20202021 compared to a net incomeloss of $3.0$(5.9) million, or $0.17$(0.34) per diluted share, in the corresponding period in 2019.

•Cash was $122.0 million at September 30, 2020, compared to $51.3 million at December 31, 2019. Net cash provided by operations was $74.6 million for the nine-month period ended September 30, 2020 compared to $63.0 million in the corresponding period in 2019, with the improvement primarily driven by increases in payable days across the Company's operations. On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the
36


Company's modified financial covenants. See Note 6. "Long-term Debt and Financing Arrangements" to the Condensed Consolidated Financial Statements for highlights of the key amended terms and conditions.2020.

Results of OperationsCONSOLIDATED RESULTS OF OPERATIONS
 
All of the following tabular comparisons are for the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019,2020, unless otherwise indicated.

Net Sales
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Percent Change20202019Percent Change
Net sales$207,085 $205,274 0.9 %$553,772 $644,110 (14.0)%

 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Net sales$221,744 $146,160 $448,843 $346,687 
$ change75,584 (74,651)102,156 (92,149)
% change51.7 %(33.8)%29.5 %(21.0)%

Net sales for the three-month period ended SeptemberJune 30, 20202021 increased by $1.8$75.6 million, or 0.9%, compared to the third quarter of 2019. This increase was primarily driven by an increase in Performance Materials segment sales of $7.8 million, or 3.8% of consolidated net sales, related to higher net sales of filtration products on higher demand in the air filtration market in response to the COVID-19 pandemic. This increase was partially offset by lower sealing and advanced solutions sales as large OEM customers continued to ramped-up production. The increase in Performance Materials segment sales was partially offset by a $5.4 million decrease, or 2.6% of consolidated sales, in the Technical Nonwovens segment, driven primarily by softness in industrial end markets, primarily air filtration, in North American and Europe. Additionally, the Thermal Acoustical Solutions segment reported a decrease in net sales of $2.4 million, or 1.2% of consolidated net sales, primarily due to lower tooling sales of $1.8 million and lower net parts sales of $0.6 million, as the Company continues to ramp-up production in line with it's large OEM customers. Foreign currency translation favorably impacted net sales by $3.0 million, or 1.5% of consolidated net sales.

Net sales for the nine-month period ended September 30, 2020 decreased by $90.3 million, or 14.0%51.7%, compared to the corresponding period in 2019. This decrease2020. The increase was primarily due to lower net parts sales of $61.1 million, or 9.5% of consolidateddriven by higher net sales in the Thermal Acoustical Solutions segment of $39.4 million, or 27.0%, of consolidated net sales, as a result of improved demand across all regions driven by temporary plant ramp downs across allthe absence of its operationsCOVID-19-related production shutdowns in the first halfprior year. In addition, the Technical Nonwovens segment’s net sales increased $20.5 million, or 14.0%, of 2020consolidated net sales, mainly due to large OEM customer shutdowns resultinghigher sales volume mostly seen in geosynthetics and industrial air filtration. The Company’s Performance Materials segment net sales increased $18.7 million, or 12.8%, of consolidated net sales, primarily due to favorable product mix, driven by increased demand for sealing solutions, higher sales for specialty filtration products, and stronger demand for specialty insulation. Foreign currency translation positively impacted segment net sales by $9.8 million, or 6.7%.

Net sales for the six-month period ended June 30, 2021 increased $102.2 million, or 29.5%, compared to the corresponding period in 2020. The increase was primarily driven by higher net sales in the Thermal Acoustical Solutions segment of $46.7 million, or 13.5%, of consolidated net sales. This increase was mainly due to higher sales volume driven by the continued recovery from the COVID-19 pandemic and lower net tooling salesas the segment experienced temporary plant shutdowns across most of $7.6 million.its operations during the comparable period in 2020. The Technical NonwovensCompany’s Performance Materials segment reported a decrease in net sales of $30.7increased $32.8 million, or 4.8%9.5%, of consolidated net sales, primarily driven primarily by higher sales for specialty filtration products and strong demand for sealing and specialty insulation products, as the global softness in industrial end markets, primarily air filtration. The Performance Materials segment reported an increase incontinues to recover from the COVID-19 pandemic. In addition, the Technical Nonwovens segment’s net sales of $1.8increased $24.7 million, or 0.3%7.1%, of consolidated net sales, driven by increased net sales in filtration as demand increased in the air filtration market for face mask media in response to the COVID-19 pandemic, partially offset by decreased sealing and advanced solutions sales related to large OEM customer shutdowns beginning in mid-Marchmainly due to COVID-19.higher sales volume mostly in geosynthetics and industrial air filtration. Foreign currency translation had a negative impact onpositively impacted consolidated net sales of $1.2by $17.3 million, or 0.2% of consolidated net sales.5.0%.
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Cost of Sales
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Percent Change20202019Percent Change
Cost of sales$169,155 $168,918 0.1 %$448,856 $520,423 (13.8)%

 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Cost of sales$173,958 $117,742 $352,508 $279,701 
$ change56,216 (57,794)72,807 (71,804)
% change47.7 %(32.9)%26.0 %(20.4)%

Cost of sales for the three-month period ended SeptemberJune 30, 20202021 increased by $0.2$56.2 million, or 0.1%47.7%, compared to the corresponding period in 2019.2020. The increase was primarily driven by higher sales volume across all three segments, which was mainly attributable to the absence of shutdowns that the Company endured during the comparable period in 2020 as a significant increase in variable overhead costs, principally inresult of the COVID-19 pandemic. The Company's Thermal Acoustical Solutions segment relatedincurred higher labor costs due to furloughs and layoffs implemented during the comparable period in 2020 in addition to higher material costs associatedprimarily driven by aluminum prices. The Performance Materials segment’s cost of sales increased mainly as a result of higher sales volume coupled with COVID-19, primarilyan increase in labor and material costs. Similarly, the Company's North American plant, and, to a lesser extent,increase in the Technical Nonwovens segment related to unfavorable overhead costs on lower volume. Additionally, higher net sales in the Performance Materials segment due to higher demand for face mask media in response to COVID-19 contributed to the higher cost of sales. The increase insegment’s cost of sales was partially offsetwere driven by lower netan increase in sales volume mainly in the Technical Nonwovensgeosynthetics and Thermal Acoustical Solutions segments and lower rawindustrial air filtration products in addition to higher material commodity and production costs across all segments, coupled with favorable product mix in the Performance Materials and Thermal Acoustical Solutions segments.costs. Foreign currency translation increased cost of sales by $2.5$7.4 million, or 1.5%6.3%, in the third quarter of 2020 compared to the third quarter of 2019.three-month period ended June 30, 2021.

Cost of sales for the nine-monthsix-month period ended SeptemberJune 30, 2020 decreased2021 increased by $71.6$72.8 million, or 13.8%26.0%, compared to of the corresponding period in 2019. The decrease was driven by lower net sales across all segments, primarily due to plant ramp
37


downs in the Thermal Acoustical Solutions segment2020 as noted above and, to a lesser extent, the Technical Nonwovens segment due to the COVID-19 pandemic. In addition, lower raw material commodity and production costs across all segments contributed to lower costresult of sales. These decreases to cost of sales were partially offset by higher overhead costs in the Thermal Acoustical Solutions and Technical Nonwovens segments due to the drivers noted above, combined with unfavorable product mix, primarily in the Thermal Acoustical Solutions segment resulting from lower fibers sales related to the sunsetting of major platforms in the second half of 2019 with select OEM manufacturers.above. Foreign currency translation decreasedincreased cost of sales by $1.1$12.3 million, or 0.2%4.4%, in the first nine months of 2020 compared to the first nine months of 2019.six-month period ended June 30, 2021.

Gross Profit
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Percent Change20202019Percent Change
Gross profit$37,930 $36,356 4.3 %$104,916 $123,687 (15.2)%
Gross margin18.3 %17.7 %18.9 %19.2 %

 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Gross profit$47,786 $28,418 $96,335 $66,986 
$ change19,368 (16,857)29,349 (20,345)
% change68.2 %(37.2)%43.8 %(23.3)%
% of net sales21.6 %19.4 %21.5 %19.3 %

Gross marginprofit for the three-month period ended SeptemberJune 30, 20202021 increased 60 basis points$19.4 million, or 68.2%, compared to the corresponding period in 2019. The Performance Materials segment favorably impacted consolidated gross margin by approximately 330 basis points, primarily due to favorable product mix, driven by higher demand for face mask media in response to the COVID-19 pandemic and increased liquid filtration sales, combined with favorable customer pricing, and raw material commodity and production costs. The Thermal Acoustical Solutions segment adversely impacted consolidated gross margin by approximately 160 basis points driven by higher COVID-19-related costs as noted above. The Technical Nonwovens segment negatively impacted consolidated gross margin by approximately 110 basis points due to unfavorable overhead absorption on reduced segment net sales combined with unfavorable product mix in the third quarter of 2020 compared to the third quarter of 2019.

Gross margin for the for the nine-month period ended September 30, 2020 decreased 30 basis points compared to the corresponding period in 2019. The Thermal Acoustical Solutions segment negatively impacted consolidated gross margin by approximately 300 basis points driven by the significant reduction in segment net sales due to the COVID-19 pandemic and higher COVID-19-related costs in the third quarter of 2020. The Performance Materials segment favorably impacted consolidated gross marginprofit by approximately 290 basis points$9.4 million, primarily due to higher sales for specialty filtration products and strong demand for sealing and specialty insulation products. The Thermal Acoustical Solutions segment also drove positive results with a $6.7 million increase in gross profit, mostly attributable to the drivers noted above whilecontinued recovery from the COVID-19 pandemic, partially offset by higher material pricing mainly in aluminum and aluminized steel. In addition, the Technical Nonwovens segment had a minimal impact onfavorably impacted consolidated gross marginprofit by $3.4 million, primarily driven by higher demand in geosynthetics and industrial air filtration products.

Gross profit for the first nine months of 2020six-month period ended June 30, 2021 increased $29.3 million, or 43.8%, compared to the corresponding period in 2019.2020. The Performance Materials segment was the main driver with an increase of $20.6 million, resulting from higher sales driven by specialty filtration products and strong demand for sealing and specialty insulation products. The Technical Nonwovens and Thermal Acoustical Solutions segments also contributed favorably to consolidated gross profit with increases of $5.3 million and $3.7 million, respectively.

Selling, Product Development and Administrative Expenses
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Percent Change20202019Percent Change
Selling, product development and administrative expenses$32,227 $28,909 11.5 %$95,418 $94,011 1.5 %
Percentage of sales15.6 %14.1 %17.2 %14.6 %

 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Selling, product development and administrative expenses$38,182 $30,164 $73,815 $63,191 
$ change8,018 (1,932)10,624 (1,911)
% change26.6 %(6.0)%16.8 %(2.9)%
% of net sales17.2 %20.6 %16.4 %18.2 %
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Selling, product development and administrative expenses for the three-month period ended SeptemberJune 30, 20202021 increased $3.3$8.0 million, or 150 basis points as a percentage of net sales,26.6%, compared to the corresponding period in 2019.2020. The increase in selling, product development and administrative expenses werewas driven by higher compensation-related expenses of $2.6$4.2 million, higher expenses related to corporate strategic initiatives of $2.5 million, primarily relating to the pending merger, an increase in consulting costs of $0.6$0.8 million, and an increase in other general administrative costs of $0.9$1.5 million. These increases were partially offset by lower travel expensesa decrease in intangible assets amortization expense of $0.8$1.0 million.

Selling, product development and administrative expenses for the nine-monthsix-month period ended SeptemberJune 30, 20202021 increased $1.4$10.6 million, or 260 basis points as a percentage of net sales,16.8%, compared to the corresponding period in 2019.2020. The increase in selling, product development and administrative expenses werewas driven by higher compensation-related expenses of $3.7$7.0 million, higher consulting expenses of $2.9 million, and higherincreases of $0.7 million, $0.6 million, $1.5 million in corporate strategic initiatives expenses, of $1.9 million.computer maintenance and support, and other general administrative costs, respectively. These increases were partially offset by lower salaries expenses of $1.7 million, lower travel expenses of $1.2 million, lower consulting expenses of $0.5 million, and a decrease in other general administrative costsintangible assets amortization expense of $0.8$2.1 million.



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Impairment of Goodwill and Other Long-Lived Assets
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Dollar Change20202019Dollar Change
Impairment of goodwill and other long-lived assets$— $— $— $61,109 $— $61,109 

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
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 an underperforming European plant within the Performance Materials segment. As a result of a strategic shift regarding this plant, the Company performed an impairment assessment on the long-lived assets of the plant. The impairment test concluded that the asset group was not recoverable, and the Company then determined that carrying value of the asset group exceeded its fair value and recordedplant, which resulted in a long-lived asset impairment charge of $12.4 million.million during the three-month period ended March 31, 2020.

Restructuring Expenses
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Dollar Change20202019Dollar Change
Restructuring expenses$14,984 $— $14,984 $14,984 $— $14,984 

During the third quarter of 2020, the Company’s Performance Materials segment undertook actions to discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America and consolidated certain product lines and began exiting underperforming facilities in Europe. These restructuring activities, which are projected to conclude in the first half of 2021, are expected to reduce operating costs, increase production efficiency and enhance the Company’s flexibility by better aligning its manufacturing operations with the segment's customer base. Accordingly, the Company expects to record pre-tax expenses of approximately $17.0 to $20.0 million, primarily related to severance and employee retention expenses, in connection with these restructuring activities, of which approximately $11.5 to $14.5 million are expected to result in cash expenditures. The Company incurred non-cash expenditures of approximately $5.5 million which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory.
 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Restructuring expenses$190 $— $967 $— 

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

The Company undertook actions to consolidate global production facilities in the Sealing and Advanced Solutions business from five facilities to four, resulting in the closure of an underperforming facility in Germany. In addition, the Company decided to close a small volume membrane filtration production facility in the Netherlands. As a result of the two facility closures in Europe,six-month periods ended June 30, 2021, the Company recorded pre-tax restructuring charges of $9.6$0.2 million and $1.0 million, respectively, primarily consisting of severance costs and legal expenses and inventory write-offs.expenses.

(Gain) Loss On The Sale Of A Business

 For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
(Gain) loss on the sale of a business$266 $— $964 $— 

In the three-month period ended March 31, 2021, the Company entered into an agreement to sell a facility in Germany, which closed on March 11, 2021. The Company expectsagreed to generate annualized savingspay $1.8 million (€1.5 million) to the buyer and provide $2.3 million (€1.9 million) in additional funding, net of $5.0cash 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 $0.3 million and $1.0 million for the three-month and six-month periods ending June 30, 2021, respectively. The final consideration and loss are subject to $6.0 million. See Note 12, "Restructuring" for additional information.a working capital adjustment expected to be settled in 2022.


Employee Benefit Plans Settlement Expenses

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Employee benefit plans settlement expenses$— $— $— $385 
39
30


Employee Benefit Plans Settlement Expenses
 For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Dollar Change20202019Dollar Change
Employee benefit plans settlement expenses$— $186 $(186)$385 $25,701 $(25,316)

In the first quarter ofthree-month period ended March 31, 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.

In 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. The settlement, funded with Pension Plan assets, resulted in a non-cash settlement expense of $25.5 million in the second quarter of 2019 related to the recognition of accumulated deferred actuarial losses and an additional $0.2 million in the third quarter of 2019 to complete the termination of the pension plan.Interest Expense

Interest Expense
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,		 For the Three Months EndedFor the Six Months Ended
In thousandsIn thousands20202019Percent Change20202019Percent ChangeIn thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Interest expenseInterest expense$4,537 $3,666 23.8 %$11,870 $11,025 7.7 %Interest expense$2,414 $4,476 $5,862 $7,333 
Weighted average interest rate6.2 %4.4 %5.2 %4.3 %
Weighted average interest rate during the yearWeighted average interest rate during the year4.4 %5.2 %3.7 %4.8 %
 
The increasedecrease in interest expense for the three and nine-month periodssix-month period ended SeptemberJune 30, 20202021 compared to the corresponding periodperiods in 20192020 was primarily due to higherlower interest rates related to the amendmentas a result of the Company's Facilitynewly executed credit agreement the Company entered into effective April 26, 2021. For additional information, see Note 7, “Long-Term Debt and Financing Arrangements,” in the second quarter of 2020, partially offset by reductionNotes 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.Condensed Consolidated Financial Statements.

Other (Income)Income and Expense net
For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,
In thousands20202019Dollar Change20202019Dollar Change
Other expense (income), net$276 $(885)$1,161 $106 $(1,359)$1,465 

For the Three Months EndedFor the Six Months Ended
In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Other expense (income), net$206 $248 $292 $(170)

Other expense (income), net, was unfavorablefavorable for the three-month period ended SeptemberJune 30, 20202021 and unfavorable for the six-month period ended June 30, 2021, compared to the corresponding 2019periods in 2020. The fluctuations of each period were primarily due to the absenceimpact of a gain of $0.6 million recognized for a change in estimate of the contingent purchase price of the 2018 PCC acquisition and higher foreign currency losses recognized on the revaluation of cash, trade payables and receivables and intercompany loans denominated in currencies other than the functional currencies of the Company's subsidiaries.
Other expense (income), net, was unfavorable for the nine-month period ended September 30, 2020 compared to the corresponding 2019 period primarily due to the absence of the $1.5 million gain on the sale of a business that occurred in the second quarter of 2019 and a gain of $0.7 million recognized for a change in estimate of the contingent purchase price of the PCC acquisition in the first nine months of 2019. Additionally, 2020 included higher foreign currency losses recognizedtranslation 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



40


Income Taxes
For the Three Months EndedFor the Six Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Effective income tax rate13.9 %9.2 %25.8 %4.0 %

For the three-month period ended SeptemberJune 30, 2020,2021, the Company's effective tax rate was 16.6%13.9% compared to an effective tax rate of 35.1%9.2% for the three-month period ended SeptemberJune 30, 2019.2020. For the three monthsthree-month period ended SeptemberJune 30, 2021, the rate was positively impacted by $0.4 million related to accounting method changes and $0.2 million related to foreign earnings taxed at higher rates. These were partially offset by $0.3 million of valuation allowance activity. For the three-month period ended June 30, 2020, the rate was negatively impacted by valuation allowance activity of $2.0$0.5 million offset byand a stateforeign withholding tax benefitliability of $0.8 million.$0.4 million, resulting in a lower effective tax rate when in a pre-tax loss position. For the three months ended September 30, 2019, the effective tax rate was negatively impacted by losses in jurisdictions in which no tax benefit can be recognized.

For the nine-monthsix-month period ended SeptemberJune 30, 2020,2021, the Company's effective tax rate was 6.3%25.8% compared to an effective tax rate of 97.0%4.0% for the nine-monthsix-month period ended SeptemberJune 30, 2019.2020. For the nine monthssix-month period ended SeptemberJune 30, 2021, the rate was negatively impacted by $0.6 million due to a change in assertion on unremitted foreign earnings and $0.5 million of valuation allowance activity. These were partially offset by a benefit of $0.4 million related to accounting method changes. For the six-month period ended June 30, 2020, the Company had a pre-tax loss primarily resulting from impairment charges of $61.1 million. The impairment charges significantly impacted the Company's effective tax rate because $48.7 million of the impairment charges related to non-deductible goodwill, resulting in a low effective tax rate for the nine monthssix-month period ended SeptemberJune 30, 2020 when in a pre-tax loss position. Additionally, the effective rate was negatively impacted by valuation allowance activity of $2.7$0.7 million. For the nine-month period ended September 30, 2019, the Company recorded a tax benefit of $5.5 million primarily driven by $10.5 million of tax benefit related to the pension plan settlement. Excluding the tax benefit of the pension plan settlement, the Company's effective tax rate for the nine months ended September 30, 2019 was 25.2%. This was negatively impacted by $1.8 million from losses in jurisdictions in which no tax benefit can be recognized, partially offset by the Company's geographical mix of earnings.

The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, Canada, China, France, Germany, 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 has evaluated the final regulations and included the impacts of these changes in the Company’s third quarter financial statements.





















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Segment ResultsSEGMENT RESULTS
 
The following tables present segment net sales and operating income (loss) for the primary product and service categories for the three-monththree and nine-monthsix-month periods ended SeptemberJune 30, 20202021 and September 30, 2019, respectively.2020.

Net sales by segment:

For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,		For the Three Months EndedFor the Six Months Ended
In thousandsIn thousands2020201920202019In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Performance Materials Segment:
Filtration$30,899 $22,427 $86,422 $71,093 
Sealing and Advanced Solutions36,918 37,573 105,088 118,589 
Performance Materials Segment (1),(2):
Performance Materials Segment (1),(2):
Filtration ProductsFiltration Products$34,066 $29,636 $68,412 $55,523 
Sealing and Advanced Solutions ProductsSealing and Advanced Solutions Products43,120 28,837 88,107 68,170 
Performance Materials Segment net salesPerformance Materials Segment net sales67,817 60,000 191,510 189,682 Performance Materials Segment net sales77,186 58,473 156,519 123,693 
Technical Nonwovens Segment (1):
Industrial Filtration29,643 32,935 90,425 114,005 
Advanced Materials (2)28,866 30,977 77,494 84,591 
Technical Nonwovens Segment:Technical Nonwovens Segment:
Industrial Filtration ProductsIndustrial Filtration Products35,411 29,413 71,812 60,782 
Advanced Materials Products (2)
Advanced Materials Products (2)
37,068 22,594 62,342 48,628 
Technical Nonwovens Segment net salesTechnical Nonwovens Segment net sales58,509 63,912 167,919 198,596 Technical Nonwovens Segment net sales72,479 52,007 134,154 109,410 
Thermal Acoustical Solutions Segment:Thermal Acoustical Solutions Segment:Thermal Acoustical Solutions Segment:
PartsParts79,687 80,309 189,456 250,591 Parts71,222 32,448 157,716 109,769 
ToolingTooling5,836 7,617 17,276 24,920 Tooling5,636 5,000 10,186 11,440 
Thermal Acoustical Solutions Segment net salesThermal Acoustical Solutions Segment net sales85,523 87,926 206,732 275,511 Thermal Acoustical Solutions Segment net sales76,858 37,448 167,902 121,209 
Eliminations and Other (2) Eliminations and Other (2)(4,764)(6,564)(12,389)(19,679)
Eliminations and Other (2)
(4,779)(1,768)(9,732)(7,625)
Consolidated Net SalesConsolidated Net Sales$207,085 $205,274 $553,772 $644,110 Consolidated Net Sales$221,744 $146,160 $448,843 $346,687 

Operating income (loss) by segment:

For the Three Months Ended  
September 30,		For the Nine Months Ended  
September 30,		For the Three Months EndedFor the Six Months Ended
In thousandsIn thousands2020201920202019In thousandsJune 30, 2021June 30, 2020June 30, 2021June 30, 2020
Performance Materials (3)$(6,759)$712 $(58,257)$5,474 
Technical Nonwovens (1),(2),(4)5,061 7,165 15,558 19,743 
Performance Materials (1),(3)
Performance Materials (1),(3)
$14,853 $5,443 $30,149 $(51,498)
Technical Nonwovens (4)
Technical Nonwovens (4)
8,765 6,684 13,869 10,497 
Thermal Acoustical SolutionsThermal Acoustical Solutions1,174 5,022 517 21,870 Thermal Acoustical Solutions(1,500)(6,285)174 (657)
Corporate Office ExpensesCorporate Office Expenses(8,757)(5,452)(24,413)(17,411)Corporate Office Expenses(12,704)(7,588)(22,639)(15,656)
Consolidated Operating Income$(9,281)$7,447 $(66,595)$29,676 
Consolidated Operating Income (Loss)Consolidated Operating Income (Loss)$9,414 $(1,746)$21,553 $(57,314)

(1)The Technical NonwovensFor the six-month period ended June 30, 2021, the Performance Materials segment includes the results of Geosol through the date of disposition of May 9, 2019.German facility that the Company sold on March 11, 2021.
(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:
•$3.9 million and $4.3 million ofPerformance Materials segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$1.0 million and $0.3 million for the three-month periods ended SeptemberJune 30, 2021 and 2020, respectively.
◦$2.1 million and 2019,$1.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.
•$10.2 million and $13.6 million ofTechnical Nonwovens segment intercompany sales to the Thermal Acoustical Solutions segment were as follows:
◦$3.6 million and $1.4 million for the nine-monththree-month periods ended SeptemberJune 30, 2021 and 2020, respectively.
◦$7.5 million and 2019,$6.4 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(3)Included in the operating results within the Performance Materials segment isare the following:
•$61.1Impairment charges of $61.1 million of impairment charges related to goodwill and other long-lived assets for the nine-monthsix-month period ended SeptemberJune 30, 2020.
•$14.8 million restructuring charges for the three and nine-month periods ending September 30, 2020.Intangible asset amortization as follows:
•◦$4.03.0 million and $4.1$4.0 million of intangible assets amortization for the three-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
•$11.9 million and $12.2 million of intangible assets amortization for the nine-month periods ended September 30, 2020 and 2019, respectively.

4232


◦$6.1 million and $7.9 million for the six-month periods ended June 30, 2021 and 2020, respectively.
(4)Included in the Technical Nonwovens segment is the following:intangible assets amortization as follows:
•$1.21.1 million and $1.3$1.2 million of intangible assets amortization for the three-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
•$3.52.1 million and $3.8$2.3 million of intangible assets amortization for the nine-monthsix-month periods ended SeptemberJune 30, 20202021 and 2019,2020, respectively.

Performance Materials

Segment net sales increased $7.8$18.7 million, or 32.0%, in the thirdsecond quarter of 20202021 compared to the third quarter of 2019.corresponding period in 2020. The increase was primarily driven by higher net sales in sealing and advanced solutions of $14.3 million, due to strong demand for sealing in agriculture, construction, and transportation end market products, as well as higher demand for specialty insulation products. Additionally, filtration sales increased $4.4 million due to higher sales of $8.5 million as demand increased inspecialty filtration products driven by PPE products and the airneed for higher performance filtration market for face mask media in response to the COVID-19 pandemic. This increase was partially offset by lower sealing and advanced solutions net sales of $0.7 million as these products partially serve the automotive industry and were impacted by lower demand as automotive customers continued to ramp-up production following shutdowns in the first half of 2020 related to COVID-19. Foreign currency translation positively impacted segment net sales by $0.9$1.7 million, or 1.6%2.8%.

The Performance Materials segment reported an operating lossincome of ($6.8)$14.9 million, or 19.2%, of segment net sales, in the thirdsecond quarter of 2020,2021, compared to operating income of $0.7$5.4 million, or 9.3%, of segment net sales, in the thirdsecond quarter of 2019.2020. The decreaseincrease in operating income of $7.5$9.4 million was primarily due to higher gross profit of $9.4 million, from higher segment net sales driven by segment restructuring chargesthe absence of $14.8 millionthe COVID-19 pandemic related slowdowns that occurred in the third quarter of 2020. This decrease was partially offset by an improvementcorresponding period in segment gross margin of 780 basis points, primarily related to2020, combined with favorable product mix from increasedhigher sales for specialty filtration products and higher demand for face mask media, combined with lower material commoditysealing and production costs. Additionally, selling,specialty insulation products. Selling, product development and general administrative expenses decreased $0.3 million, or 280 basis pointswere flat compared to the corresponding period in 2020 as a percent of segment net sales, primarily drivenhigher employee compensation-related costs were offset by lower travel expenses of $0.4 million, lower salaries of $0.2 million, lower bad debt expense of $0.2 million, and reduced other general administrative costs of $0.1 million. These decreases were partially offset by increased accrued cash incentive compensation of $0.6 million.intangible amortization costs.

Segment net sales increased $1.8$32.8 million, or 26.5%, for the nine-monthsix-month period ended SeptemberJune 30, 20202021 compared to the corresponding period in 2019.2020. The increase was primarily driven by higher net sales in sealing and advanced solutions of $19.9 million, or 29.2%, and an increase in filtration sales of $12.9 million, or 23.2%, as a result of the drivers noted above. Foreign currency translation had a marginal impact onpositively impacted segment net sales in the first nine months of 2020 compared to the first nine months of 2019.by $3.4 million, or 2.7%.

The Performance Materials segment reported anoperating income of $30.1 million, or 19.3% of segment net sales, for the six-month period ended June 30, 2021, compared to operating loss of ($58.3)51.5) million for the nine-month period ended September 30, 2020, compared to operating income of $5.5 million forin the corresponding 2019 period.period in 2020. The decreaseincrease in operating income of $63.7$81.6 million was primarily driven by the absence of goodwill and other long-lived asset impairment charges of $61.1 million in the first quarter of 2020 and segment restructuring charges of $14.8 million in the third quarter of 2020. This decrease was partially offset by an improvement in segment gross margin of 460 basis points, primarily due to favorable product mix driven by increased demand for face mask media, lower material commodity and production costs, lower fixed overhead costs from savings driven by the fourth quarter 2019 reduction-in-force program, and lower depreciation expense related to the asset-write off in one of the segment's European plantsrecorded in the first quarter of 2020. Additionally, selling,The increase in operating income of $20.5 million, excluding the first quarter 2020 impairment charges, was the result of higher gross profit of $20.6 million due to an increase in segment net sales driven by the absence of the COVID-19 pandemic related slowdowns that occurred in the corresponding period in 2020, favorable product mix from higher sales for specialty filtration products and higher demand in the sealing and cryogenics markets, and lower overhead costs. Selling, product development and general administrative expenses decreased $2.9 million, or 170 basis pointswere essentially flat compared to the corresponding period in 2020 as a percent of segment net sales, primarily driven by decreased travel, consulting,higher employee compensation-related and salaries expenses, partiallyrestructuring costs were offset by increased accrued cash incentive compensation.lower intangible amortization costs.

Technical Nonwovens

Segment net sales decreased $5.4increased $20.5 million, or 8.5%39.4%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. Industrial filtration net sales decreased $3.3increased $6.0 million, or 10.0%20.4%, driven by soft industrial end markets, primarily air filtration,a significant increase in North AmericaChina sales compared to the prior year due to key wins for steel, cement, and Europe, as a resultpower projects and the absence of the COVID-19 pandemic.pandemic related shutdowns experienced in the first half of 2020. Advanced materials net sales decreased $2.1increased $14.5 million, or 6.8%64.1%, in the thirdsecond quarter of 2021 compared to the second quarter of 2020, compared to the third quarter of 2019, driven primarily by lower geosynthetic productthe absence of COVID-19 pandemic related shutdowns mentioned above, combined with higher demand and prices in the geosynthetics market in Canada. Foreign currency translation positively impacted segment net sales by $0.8$5.8 million, or 1.2%11.1%.

The Technical Nonwovens segment reported operating income of $5.1$8.8 million, or 8.6%12.1%, of segment net sales, in the thirdsecond quarter of 2020,2021, compared to $7.2$6.7 million, or 11.2%12.9%, of segment net segment sales, in the thirdsecond quarter of 2019.2020. The decreaseincrease in operating income of $2.1 million was primarily due to higher gross profit of $3.4 million from an increase in segment net sales driven by the absence of the COVID-19 pandemic related shutdowns that occurred in the corresponding period in 2020, combined with favorable pricing and lower sales adversely impacting operating marginvariable overhead costs. Partially offsetting these increases to gross profit were higher raw material costs and the absence of a $1.3 million insurance claim settlement that benefited the second quarter of 2020. Operating income was further impacted by 260 basis points. The decreasean increase in operating margin was primarily driven by a decrease in gross margin of 180 basis points, primarily related to reduced customer pricing, unfavorable product mix, and unfavorable absorption on overhead costs, partially offset by lower material commodity and productivity costs. Selling,selling, product development and general administrative expenses were flat with prior year with an increase in compensationof $1.3 million, primarily driven by higher employee compensation-related costs offset by lower travel costs.of $0.9 million and higher other general administrative costs of $0.4 million.

Segment net sales decreased $30.7 million, or 15.4%, in the first nine months of 2020 compared to the first nine months of 2019. Foreign currency translation had a negative impact on segment net sales of $1.3 million, or 0.7%, in the first nine months of 2020 compared to the corresponding period in 2019. Industrial filtration net sales decreased $23.6 million, or 20.7%, driven by soft global industrial end markets across all regions as a result of the COVID-19 pandemic, coupled with the negative impact
4333


of foreign currency. Advanced materialsSegment net sales decreased $7.1increased $24.7 million, or 8.4%22.6%, for the six-month period ended June 30, 2021 compared to the corresponding period in 2020. Industrial filtration net sales increased $11.0 million, or 18.1%, driven by $3.4 milliona 166% increase in lowerChina sales of automotive rolled-good materialcompared to the prior year due to key wins for steel, cement and power projects and the plant ramp-downsabsence of the COVID-19 pandemic related shutdowns experienced in the first half of 2020. Advanced materials net sales increased $13.7 million, or 28.2%, in the first six months of 2021 compared to the first six months of 2020, causedas a result of the drivers noted above. Foreign currency translation positively impacted segment net sales by COVID-19, coupled with lower geosynthetic product demand in Canada.$9.0 million, or 8.3%.

The Technical Nonwovens segment reported operating income of $15.6$13.9 million, or 9.3%10.3% of segment net sales, for the six-month period ended June 30, 2021, compared to $10.5 million, or 9.6% of segment net sales, in the first nine months of 2020, compared to $19.7 million, or 9.9% of segment net sales,corresponding period in the first nine months of 2019.2020. The decreaseincrease in operating income of $4.2$3.4 million was driven by lower sales volumeprimarily due to the COVID-19 pandemic, resulting in operating margin erosionhigher gross profit of 60 basis points. The decrease in operating margin was primarily driven by higher selling, product development and general administrative expenses of 70 basis points,$5.3 million, as a percentageresult of segment net sales, partially offsetthe drivers noted above. Operating income was negatively impacted by improved gross margin of 10 basis points, as a percentage of segment sales. The 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 higher labor and variable overhead costs. Thean increase in selling, product development and general administrative expenses as a percentage of segment net sales, was primarily due to the $30.7 million reduction in sales, but was partially offset by decreased expenses of $1.9 million, primarily driven by lower salaries expenses of $0.8 million, a decrease in travel expenses of $0.6 million, lower intangible amortization expense of $0.3 million, and lower other general administrative costs of $0.2 million.higher employee compensation-related costs.

Thermal Acoustical Solutions
 
Segment net sales decreased $2.4increased $39.4 million, or 2.7%105.2%, in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019.2020. This decreaseincrease was primarily due to lower tooling sales of $1.8 million and, to a lesser extent, lower netan increase in parts sales of $0.6$38.8 million driven by higher sales across all regions as the Company continues to ramp-up production in line with it's large OEM customers ramp-up after plant closuressales in the first halfsecond quarter of 2020 were adversely impacted by temporary plant shutdowns due to the COVID-19 pandemic. Additionally, tooling sales increased $0.6 million in the second quarter of 2021 compared to the second quarter of 2020. These increases were partially offset by lower sales as a result of the semi-conductor chip shortage adversely impacting the automotive industry. Foreign currency translation favorably impacted segment net sales by $1.3$2.3 million, or 1.5%6.2%.

The Thermal Acoustical Solutions segment reported operating incomeloss of $1.2($1.5) million or 1.4% of segment net sales, in the thirdsecond quarter of 2020,2021, compared to operating incomeloss of $5.0($6.3) million or 5.7% of segment net sales, in the thirdsecond quarter of 2019.2020. The decrease in operating incomeloss of $3.8$4.8 million or 430 basis points, as a percentagein the second quarter of net sales,2021 was primarily due to the degradationhigher gross profit of gross margin of 350 basis points$6.7 million, driven by operating inefficienciesa significant increase in segment net sales due to work force shortages directlythe absence of the COVID-19 pandemic related shutdowns that occurred in the corresponding period in 2020, combined with favorable product mix related to higher fibers sales. This increase was partially offset by an increase in COVID-19 cases, resulting inmaterial costs of aluminum and aluminized steel and higher expedited freight and temporary labor costs as the Company continued to ramp-up production at its facility in North America to meet its large OEM customers' demand.overhead costs. Operating income was further impacted by an increase in selling, product development and administrative expenses of $0.5$1.9 million, fordriven by higher compensation andemployee compensation-related costs of $0.6 million, consulting expenses partially offset by lowerof $0.6 million, and higher other general administrative costs.costs of $0.7 million.

Segment net sales decreased $68.8increased $46.7 million, or 25.0%38.5%, for the nine-monthsix-month period ended SeptemberJune 30, 20202021 compared to the corresponding 2019 period.period in 2020. This decreaseincrease was primarily due to lower netan increase in parts sales of $61.1$47.9 million driven by higher sales across all regions. Sales for the six-month period ended June 30, 2020 were adversely impacted by temporary plant ramp-downs across all of its operations in the first half of 2020 as the Company's large OEM customers closed plantsshutdowns due to the COVID-19 pandemic. Additionally, netThis increase was partially offset by lower sales due to the semi-conductor chip shortage that is adversely impacting the automotive industry, combined with lower tooling sales decreased $7.6 million compared to the corresponding 2019 period.of $1.3 million. Foreign currency translation had a marginal impact onfavorably impacted segment net sales.sales by $4.9 million, or 4.0%.

The Thermal Acoustical Solutions segment reported operating income of $0.5$0.2 million or 0.3% of segment net sales, for the nine-monthsix-month period ended SeptemberJune 30, 20202021, compared to an operating incomeloss of $21.9($0.7) million or 7.9% of segment net sales, forin the corresponding 2019 period.period in 2020. The decreaseincrease in operating income of $21.4$0.8 million was primarily due to the degradationhigher gross profit of gross margin$3.7 million, driven by thea significant reductionincrease in segment net sales due to the COVID-19 pandemic in additiondrivers noted above, combined with favorable product mix related to the operating inefficiencies in North America that occurredhigher fibers sales. This increase was partially offset by higher labor and outsourcing costs from work force shortages related to COVID-19 in the third quarter as discussed above. Selling, product developmentearly part of 2021, combined with an increase in material costs for aluminum and administrative expenses decreased $0.7 million; however, as a percentage of net sales, increased due to the significant sales volume reduction. The reductionaluminized steel. Operating income was further impacted by an increase in selling, product development and administrative costs wasexpenses of $2.9 million, driven by lower employee-relatedhigher employee compensation-related costs and travelof $0.7 million, consulting expenses partially offset by an increase in bad debt expenseof $0.6 million, COVID-19 medical examination costs of $0.4 million, recruiting expenses of $0.3 million, and higher consulting expensesother general administrative costs of $0.2$0.9 million.

Corporate Office Expenses
 
Corporate office expenses for the three-month period ended SeptemberJune 30, 20202021 were $8.8$12.7 million, compared to $5.5$7.6 million in the corresponding period in 2019.2020. The increase of $3.3$5.1 million was primarily driven by higher corporate strategic initiatives expenses of $2.5 million, primarily relating to the proposed merger, an increase in employee compensation-related costs of $2.2 million, higher insurance costs of $0.3 million, and increased other general administrative costs of $0.1 million. Included in strategic initiatives expenses is $3.7 million of merger-related costs.

Corporate office expenses for the six-month period ended June 30, 2021 were $22.6 million, compared to $15.7 million in the corresponding period in 2020. The increase of $6.9 million was primarily due to an increase in employee compensation-related costs of $1.9$3.6 million, higher consulting costs of $0.5$2.1 million, and an increase in other general administrativehigher corporate strategic initiatives expenses of $0.9$0.7 million, in the third quarter of 2020 compared to the third quarter of 2019.

Corporate office expenses for the nine-month period ended September 30, 2020 were $24.4 million, compared to $17.4 million in the corresponding period in 2019. The increase of $7.0 million was primarily due to an increase in corporate strategicand
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initiatives expenses of $1.9 million, higher compensation-related costs of $2.9 million, an increase in stock compensation expense of $0.5 million and higherincreased other general administrative costs of $0.5 million. Included in strategic initiatives expenses is $3.8 million of $1.7.merger-related costs.

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, merger expense payments 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; and "Forward-Looking Statements" in Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations and "Risk Factors" in Part II, Item 1A - Risk Factors of this Form 10-Q. 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 manages 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 have negotiated 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. In the three-month and nine-month periods ended September 30, 2020, under both programs, the Company sold $21.3 million and $64.3 million, respectively, in trade receivable balances, received $59.1 million in total cash under the programs.  The Company expects to receive the remainder, net of fees, in the fourth quarter of 2020. 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. Additionally, the Company has a tentative agreement with the French Government to fund up to 30% of the Company’s investment in its facility in France supporting the European Union face mask production and air filter production.Future Cash Requirements

At SeptemberJune 30, 2020,2021, the Company held $122.0$102.5 million in cash and cash equivalents, including $62.8$30.3 million in the U.S. with the remaining held by foreign subsidiaries and $283.5$261.0 million of total borrowings outstanding and standby letters of credit outstanding of $1.8 million.million under the 2021 Credit Facility.

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 16, “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 12, “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 11, “Employer Sponsored Benefit Plans", in the Notes to Condensed Consolidated Financial Statements); and
•merger-related expense payments.

The Company contributed $0.4 million to the domestic defined employee benefit plan through June 30, 2021 and expects to contribute an additional $0.3 million in 2021.

Strategic Investments

In 2020, the Company approved investments to add capital equipment in North America and Europe to produce fine fiber meltblown filtration media in the Performance Materials segment. In North America, the Company is investing approximately $25.0 million for two production lines in its Rochester, New Hampshire facility. The Company received a $13.5 million grant
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from the U.S. Government to partially fund this investment. The cumulative capital expenditures incurred for this project was $11.4 million through June 30, 2021, net of $13.5 million in funding received from the U.S. Government.

In Europe, the Company is investing approximately $13.0 million for a production line in its Saint-Rivalain, France facility to meet the European Union demand for face mask and air filtration products. This investment is being partially funded by a grant from the French Government that provides funding for up to 30% of the investment. The cumulative capital expenditures incurred for this ongoing project was $10.3 million through June 30, 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 Six Months Ended
In thousandsJune 30, 2021June 30, 2020Dollar Change
Total cash provided by (used for):
Operating activities$18,497 $40,415 $(21,918)
Investing activities(12,850)(12,080)(770)
Financing activities(6,321)13,482 (19,803)
Free Cash Flow (1):
Net cash provided by (used for) operating activities18,497 40,415 (21,918)
Capital expenditures(13,265)(15,472)2,207 
Free cash flow$5,232 $24,943 $(19,711)

(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 continued accessCondensed 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 six-month period ended June 30, 2021 was $18.5 million compared with net cash provided by operating activities of $40.4 million in the corresponding period in 2020. The $21.9 million decrease was driven primarily by higher accounts receivables and inventory as a result of an increase in sales volume, as the Company continues to sources of liquidity depends on multiple factors, including global economic conditions,recover from the COVID-19 pandemic’s effects on its customerspandemic, and their production rates,higher income taxes receivables, partially offset by higher accounts payables due to the conditiontiming of global financial markets,payments for raw material purchases.
Investing Cash Flows
During the availabilitysix-month periods ended June 30, 2021 and 2020, net cash used for investing activities consisted of sufficient amountscapital expenditures of financing, its operating performance$13.3 million and its credit ratings.$15.5 million, respectively. The Company borrowed $20also paid $2.7 million underin connection with the revolver portionsale of its Facility duringa facility in Germany.

Financing Cash Flows

During the six-month period ended June 30, 2021, net cash used for financing activities was $6.3 million compared to net cash provided by financing activities of $13.5 million in the corresponding period in 2020. The Company made net debt repayments of $11.7 million in the first six months of 2021 compared to $7.0 million in the first six months 2020. 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. Also, during the first six months of 2021, the Company held $4.8 million in proceeds from servicing receivables owed to the banking institution, which was paid in early third quarter, compared to $0.5 million in the comparable period of 2020.

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 the COVID-19 outbreakCompany's common
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stock, par value $0.01 per share. 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 number 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. No shares were repurchased under this program during the three-month period ended June 30, 2021.

Financing Arrangements

On April 26, 2021, the Company replaced its results2018 Amended Credit Agreement with a newly executed Credit Agreement increasing total borrowings from $314.0 million to $346.0 million. The new 2021 senior secured revolving credit agreement ("2021 Credit Facility") has a revolving facility of operations$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 liquidity. The Company is taking further actions to improve its liquidity, including capital expenditurea $30.0 million sublimit for swingline loans, and operating expense reductions and increased management and oversighta term loan facility of its working capital.$176.0 million.

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

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 June 30, 2021At December 31, 2020
Total borrowings committed:
Revolver commitment$170,000 $170,000 
Term loan commitment176,000 144,000 
Total borrowings committed$346,000 $314,000 
Total borrowings outstanding:
Amounts outstanding under the revolver$87,210 $134,500 
Amounts outstanding under the term loan, excluding debt issuance costs173,800 136,500 
Total borrowings outstanding$261,010 $271,000 
Total borrowings available:
Revolver commitment$170,000 $170,000 
Less amounts outstanding under the revolver87,210 134,500 
Less letters of credit outstanding1,776 1,776 
Available borrowings, net of letters of credit$81,014 $33,724 






Under the 2021 Credit Facility, interest is charged on borrowings, at the Company’s option, of either: (i) LIBOR (if LIBOR is not available for an alternative currency, such other interest rate customarily used by Bank of America for such alternative currency) plus the Applicable Margin, or (ii) for U.S. denominated loans the Base Rate, which is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by the Administrative Agent, and (c) the Eurocurrency Rate plus 1.00%, provided that if the Base Rate shall be less than zero, such rate shall be deemed zero. The Applicable Margin is 2.00% per annum in the case of LIBOR and alternative currency loans and letters of credit and 1.00% per annum in the case of Base Rate loans for the first full fiscal quarter following the closing date of the 2021 Credit Facility. Thereafter, the Applicable Margin is determined based on the Company’s Consolidated Net Leverage Ratio (as defined in the 2021 Credit
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Financing ArrangementsFacility), which ranges from 1.25% to 2.50% per annum for LIBOR and alternative currency loans and letters of credit, and ranges from 0.25% to 1.50% per annum for Base Rate loans. The Company paid 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 based on the Company’s Consolidated Net Leverage Ratio in accordance with the terms of the 2021 Credit Facility.

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. On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants. See Note 6, “Long-term Debt and Financing Arrangements” 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 7,8, "Derivatives", in the Notes to Condensed Consolidated Financial Statements for additional information.

DiscussionThe 2021 Credit Facility contains customary affirmative and Analysisnegative covenants, including covenants limiting the Company to, among other things, incur debt, grant liens, make certain investments, engage in a line of Cash Flowsbusiness 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 Charge Coverage Ratio and Maximum Consolidated Net Leverage Ratio.

OperatingThe Company was in compliance with all covenants set forth 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 7, “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 provides 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 measure 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 nine-monthactivities” in a period ended September 30, 2020 was $74.6 million compared with $63.0 millionless “Capital expenditures” in the corresponding periodsame period. The Company believes Free Cash Flow provides an important perspective on the Company’s ability to generate cash from our business operations and, as such, that it is an important financial measure for use in 2019. Inevaluating the first nine 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 2020, net loss and non-cash adjustments were $25.6 million compared to $49.9 million in the first nine months of 2019. Since December 31, 2019, net operating assets and liabilities decreased by $49.0 million, compared to $13.0 million during the comparative nine-month period beginning December 31, 2018. The decrease in working capital since December 31, 2019 was primarily due to an increase of $28.4 million in accounts payable, $7.2 million in accrued payrollmaturing debt and other compensation and an decrease of $10.1 in inventory, partially offset by an increase in accounts receivable of $8.3 million. 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 accounts receivable was primarily duecontractual obligations. Free cash flow is one measurement management uses internally to higher net sales in the third quarter of 2020 compared to the fourth quarter of 2019.
Investing Cash Flows
In the nine-month periods ended September 30, 2020 and 2019, net cash used for investing activities consisted of capital expenditures of $20.5 and $27.2 million, respectively. In the first nine months of 2020 net cash used for investing activities was partially offset by $4.3 million in cash inflows for collections of finance receivables under the Company’s receivable financing arrangements. In the first nine months of 2019, net 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 million 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 nine-month period ended September 30, 2020, net cash provided by financing activities was $10.7 million compared to net cash used for financing activitiesordinary course of $38.2 millionbusiness in the corresponding periodCompany’s contractual obligations or off-balance sheet arrangements during the first six 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 $9.5 million and $38.2 millionaccounting standards, see Note 2, “Recent Accounting Standards", in the first nine months of 2020 and 2019, respectively. In the first nine 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. The Company held $0.2 million in proceeds from servicing receivables owedNotes to the banking institution which was paid in October.Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES
 
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 six-month period ended June 30, 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 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 timing, expected completion and impacts of the proposed Merger and the potential impacts should the Merger not be consummated on a timely basis or at all for any reason;
•The risk that a closing condition to the Merger Agreement may not be satisfied;
•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 third 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
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•The expected outcomes of legal proceedings and other contingencies, including environmental matters.
All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of the Company to differ materially from those reflected in forward-looking statements made in this Quarterly Report on Form 10-Q, as well as in press releases and other statements made from time to time by the Company’s authorized officers. Such risks and uncertainties include, among others, the failure to occur of any of the conditions to consummation of the pending Merger, diversion of management time relating to the pending Merger, 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.new information, future events or otherwise.
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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 the 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 nine-month period ended September 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 six 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 $283.5 million from its Amended Credit Facility at September 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 $283.5 million outstanding borrowings as of September 30, 2020, the Company’s net income would decrease by an estimated $1.4 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”)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 SeptemberJune 30, 20202021 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 SeptemberJune 30, 20202021 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

TheGeneral

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 16, "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 otherwise noted below, 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 16, "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 December 31, 2018. Additionally, the Company incurred $0.2 million of capital expenditures in 2018, in relation to the lining of the Company's fresh water lagoons. The site investigation and remedial action plan are ongoing. The Company cannot be sure that costsJune 30, 2021, 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. Additional site characterization activities are planned for the fourth quarter of 2020. The Company does not know the scope or extent of its future obligations, if any, that may arise from the site investigation and therefore is unable to estimate the cost of any corrective action. Accordingly, the Company cannot assure that the costs of any future corrective at this location would not have a material effect on the Company's financial condition, results of operations or 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.

Some of the Company’s OEM contractsSee Note 16, "Commitments and Contingencies", in the Thermal Acoustical Solutions (“TAS”) segment contain provisions that require the CompanyNotes to pay expedited freight if it fails or threatens to fail to deliver product timely and/or damages if the Company is the causeCondensed Consolidated Financial Statements of production disruptions at customer facilities. Historically, the Company has paid expedited freight costs as needed to meet delivery obligations. In late third quarter 2020, as a result of labor shortages and operational inefficiencies directly related to COVID-19, TAS was unable to manufacture parts timely, resulting in customer production disruptions. Because of the unforeseen and unforeseeable nature of the COVID-19 pandemic, which is out of the Company’s control, in early October the Company invoked force majeure or commercial impracticability to certain customers as a legal excusethis report for delayed performance of contract and defense to claims that may be asserted by customers. A recent resurgence of cases in that same facility has caused the Company to expand its declaration of force majeure or commercial impracticability to other impacted customers. Although the Company believes it has a strong legal basis for asserting force majeure or commercial impracticability as a result of COVID-19, it is reasonably possible customers may assert claims against the Company, and the
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Company could be subject to financial damages to customers, which could have a material effect on the Company’s consolidated results of operations and cash flows. The Company has not received any such claims and is unable to estimate the amount of any such future claims, if any, at this timeadditional 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 Report2020, and by the newsupplemented with additional risk factors addeddescribed below. The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks the Company normally faces in operating the business, including those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the risk factor disclosure in the Form 10-K is qualified by the information relating to COVID-19 that is described in this report, including the risk factors set forth below. The risks described in this report and in the Annual Report on Form 10-K, and the “Cautionary Note Concerning Forward-Looking Statements” in this report, are not the only risks faced by the Company. Additional risks and uncertainties not 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.

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

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

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

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

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

The Company may also experience impacts from market downturns and changes in consumer behavior related to pandemic fears and impacts on its workforce as a result of COVID-19. The Company has experienced a significant decline in demand from certain customers as a result of COVID-19. In addition, the Company’s customers may choose to delay or abandon
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projects for which the Company provides products and/or services in responseRisks Related to the adverse impact of COVID-19 and the measures to contain its spread have had on the global economy.Merger

In late third quarter 2020,Failure to complete the Thermal Acoustical Solutions segment caused interruption of two customer production lines as a result of labor shortages and operational inefficiencies directly related to COVID-19 causing the Company to invoke force majeure (or excusable delay) with these two customers. A recent resurgence of cases in that same facility has caused the Company to expand its declaration of force majeure (or excusable delay) with most of its automotive customers. If the COVID-19 pandemic becomes more pronounced in the markets in which the Company or its automotive industry customers operate, or there is a resurgence in the virus in markets currently recovering from the spread of COVID-19, then its operations in areas impacted by such eventsMerger 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 tonegatively 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 impactprice of COVID-19 on economic activity. To the extent the COVID-19 pandemic materially adversely affectsour common stock, as well as the Company’s future business and financial results, it may also have the effect of significantly heightening many of the other risks associated with the Company's business and indebtedness, including those described in the most recent Annual Report on Form 10-K for the year ended December 31, 2019.results.

The COVID-19 pandemic presents significant challengesMerger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger, including the Requisite Stockholder Approval and required regulatory approvals. The Company cannot assure you that all of the conditions to the Merger Agreement will be satisfied or waived on a timely basis. If the conditions to the Merger Agreement are not satisfied or waived on a timely basis, the Company may be unable to complete the Merger in the timeframe or manner currently anticipated or at all.

If the Merger is delayed or not completed, the Company’s liquidityongoing business may be adversely affected, including as follows: (i) the Company may experience negative reactions from the financial markets, including negative impacts on the market price of the Company’s common stock; (ii) commitments of management's time and resources may have been directed to the Merger, which could have diverted employees' attention away from the Company’s day-to-day operations; (iii) the manner in which customers, suppliers and other third parties perceive the Company may be negatively impacted, which in turn could affect the Company’s ability to comply with its financial covenants.compete for business; (iv) the Company may experience negative reactions from employees; and (v) the Company may be required, if the Merger Agreement is terminated in certain circumstances, to pay a termination fee of $31.5 million, as provided in the Merger Agreement.

The Company’s continued access to sources of liquidity and ability to comply with its financial covenants depends on multiple factors,complete the Merger is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect the Company or cause the Merger to be abandoned.

The Merger Agreement contains certain closing conditions, including, global economic conditions,among others, the COVID-19 pandemic’s effects on its customersreceipt of Requisite Stockholder Approval, and their production rates, the conditionabsence of global financial markets,any law or order issued by any court of competent jurisdiction or other legal restraint prohibiting, rendering illegal or enjoining the availabilityconsummation of sufficient amounts of financing, its operating performance and its credit worthiness.the Merger. The Company reliescannot provide any assurance that the conditions to the consummation of the Merger will be satisfied or waived, or will not result in the abandonment or delay of the Merger.

In addition, the Merger is conditioned on the credit marketsexpiration or termination of any waiting period applicable to provide it with liquiditythe consummation of the Merger under the HSR Act, and the expiration of applicable waiting periods or clearances of the Merger, as applicable under the antitrust and foreign investment laws of certain other jurisdictions. The granting of these regulatory approvals could involve the imposition of additional conditions on the closing of the Merger. The imposition of such conditions or the failure or delay to operate and grow its businesses beyondobtain regulatory approvals could have the liquidity that operating cash flows provide. In March 2020,effect of delaying completion of the Merger or of imposing additional costs or limitations on the Company drew down an incremental $20.0 million under its 2018 Credit Agreementor may result in the failure to provide liquidity as it addresses critical issues thatclose the Merger. The regulatory approvals may arise. In addition,not be received at all, may not be received in a timely fashion, or may contain conditions 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 resultcompletion of the impacts ofMerger.

Expenses related to the COVID-19 pandemic,pending Merger are significant and could adversely affect the Company's access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, its prospects and its credit ratings. The Company believes that its liquidity resources, including the Facility, are sufficient to meet its working capital needs and other cash requirements. The Company was in compliance with the modified financial covenants as of and for the three-month period ended September 30, 2020, and management does not anticipate noncompliance in the foreseeable future.Company’s operating results.

The Company may notincurred and expects to continue to incur significant expenses in connection with the pending Merger, including fees for professional services. We expect these costs could have an adverse effect on the Company’s operating results. The Company’s financial position and results of operations could be ableadversely affected if we were required to collect amounts owed to it or sell its inventory due to customers becoming significantly impacted bypay the COVID-19 pandemic.$31.5 million termination fee in the circumstances set forth in the Merger Agreement.

The Company may experience an increase in uncollectible receivables if customers are severely impacted by COVID-19is subject to business uncertainties, litigation risk, and are unable to pay. Additionally,contractual restrictions while 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.Merger is pending, which could adversely affect the Company's business.

Increased cybersecurity vulnerabilitiesThe Merger Agreement requires us to operate in the ordinary course of business and threatsrestricts us, without the consent of the Purchaser, from taking certain specified actions agreed by the parties to be outside the ordinary course of business during the period between June 21, 2021 and more sophisticateduntil the consummation of the Merger or the earlier termination of the Merger Agreement. These restrictions may prevent the Company from pursuing otherwise attractive business opportunities and targeted computer crime pose a riskmaking other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement. There may be litigation challenging the Merger purported on behalf of stockholders. One of the conditions to the Company’s systems, networks, and data.closing of the Merger is the absence of any law or order issued by any court of competent jurisdiction or other legal restraint prohibiting, rendering illegal or enjoining the consummation of the Merger. Accordingly, if a potential plaintiff(s) is successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from becoming effective, or delay it becoming effective within the expected time frame.

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

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Despite efforts made byUncertainties associated with 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 orMerger may cause a loss of sensitive, confidential or personal data or informationmanagement and other key employees and disrupt the Company's business relationships, which could adversely impactaffect the Company’s operations.

Uncertainty about the effect of the Merger on the Company’s employees, customers and suppliers may have an adverse effect on the Company’s operations. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger. If key employees depart and as we face additional uncertainties relating to the Merger, the Company’s business relationships may be subject to disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if the Company’s existing business relationships suffer, the Company's results of operations and cash flows. Although the Company carries cybersecurity insurance,may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the eventcompletion 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.Merger.

The General Data Protection Regulation ("GDPR"), which went into effectMerger Agreement contains provisions that could discourage a potential competing acquirer of us.

The Merger Agreement contains certain customary restrictions of the Company’s ability to solicit, initiate, or knowingly encourage or induce third-party proposals (or knowingly cooperate in connection with such third party proposals) for the acquisition of our stock or assets prior to receipt of Requisite Stockholder Approval. In addition, subject to certain customary "fiduciary out" exceptions, our Board of Directors is required to recommend that our stockholders vote in favor of the approval of the Merger, the Merger Agreement, and the transactions contemplated thereby. In addition, in some circumstances, upon termination of the Merger Agreement, the Company will be required to pay a termination fee of $31.5 million.

These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of the Company from considering or proposing that acquisition, even if the acquirer was prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the European Union ("EU") on May 25, 2018, among other things, mandates new requirements regardingMerger, or might otherwise result in a potential third-party acquirer proposing to pay a lower price to our stockholders than they might otherwise have proposed to pay due to the handlingadded expense of personal data of employees and customers, including its use, protectionthe termination fee that may become payable in certain circumstances.

If the Merger Agreement is terminated and the abilityCompany decides to seek another business combination, we may not be able to negotiate or consummate a transaction with another party on terms comparable to, or better than, the terms 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.Merger Agreement.
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Item 2.Unregistered Sales of Equity Securities and Use of ProceedsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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. No shares were repurchased under this program during the three-month period ended June 30, 2021. The Company suspended the Share Repurchase Program due to the pending Merger.

During the three-month period ended SeptemberJune 30, 2020,2021, the Company acquired 1,424did not repurchase any shares of its common stock through withholding, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, which allow the Company to withhold the number of shares having fair value equal to each recipient’s tax withholding due.
PeriodTotal Number
of Shares
Purchased		Average Price
Paid per Share		Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Program		Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Program
July 1, 2020 - July 31, 20201,070 $15.86 — — 
August 1, 2020 - August 31, 2020— $— — — 
September 1, 2020 - September 30, 2020354 $18.84 — — 
 1,424 $16.60 — — 
stock.
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Item 5.Other InformationOTHER INFORMATION
2020 Amendment to the 2018 Credit Agreement

On October 14, 2020, the Company amended its 2018 Credit Agreement to allow certain restructuring and other charges, as defined by the amendment, to be excluded from EBITDA in the calculation of the Company's financial covenants. See Note 6, "Long-term Debt and Financing Arrangements" and Part 1, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Financing Arrangements” for additional information. A copy of the Amendment is filed herewith as Exhibit 10.2 and incorporated herein by reference. The above description of the Amendment is qualified in its entirety by reference to such exhibit.None.

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Item 6.ExhibitsEXHIBITS
Exhibit
Number		 Description
   
10.12.1 
Third Amendment to Second AmendedAgreement and Restated Credit Agreement,Plan of Merger, dated May 11, 2020,June 21, 2021, by and among Lydall, Inc., as borrower, the Guarantors named therein,Unifrax Holding Co., Outback Merger Sub, Inc., and Bank of America, N.A., as Agent for the Lenders,Unifrax I LLC (previously filed as Exhibit 10.1Annex A to the registrant's Form 10-Q dated May 11, 2020,Company’s Preliminary Proxy Statement on Schedule 14A (File No. 001-07665), filed on July 21, 2021 and incorporated herein by this reference.reference).
10.2 
Fourth Amendment to Second Amended and Restated Credit Agreement, dated October 14, 2020, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.2 to the registrant's Form 10-Q dated October 27, 2020, filed herewith.
31.1  
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, of principal executive officer, filed herewith.
   
31.2  
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, of principal financial officer, filed herewith.
   
32.1  
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
   
101.INS Inline XBRL Instance Document
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
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.
  
October 27, 2020July 28, 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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