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 ~~March 31,~~June 30, 2021

☐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.

(Exact name of registrant as specified in its charter)

Delaware

06-0865505

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

One Colonial Road

Manchester

Connecticut

06042

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	LDL	New 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 ~~April~~July 15, 2021			~~18,018,995~~18,033,012

LYDALL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

LYDALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts) (Unaudited)


		For the Three Months Ended			For the Three Months Ended						For the Six Months Ended
			March 31, 2021			March 31, 2020			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net sales	Net sales		$	227,099		$	200,527	Net sales	$	221,744	$	146,160	$	448,843	$	346,687
Cost of sales	Cost of sales		178,550			161,959		Cost of sales	173,958		117,742		352,508		279,701
Gross profit	Gross profit		48,549			38,568		Gross profit	47,786		28,418		96,335		66,986
Selling, product development and administrative expenses	Selling, product development and administrative expenses		35,633			33,027		Selling, product development and administrative expenses	38,182		30,164		73,815		63,191
Impairment of goodwill and other long-lived assets	Impairment of goodwill and other long-lived assets		0			61,109		Impairment of goodwill and other long-lived assets	0		0		0		61,109
Restructuring expenses	Restructuring expenses		777			0		Restructuring expenses	190		0		967		0
Operating income (loss)	Operating income (loss)		12,139			(55,568)		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 business		698			0		(Gain) loss on the sale of a business	266		0		964		0
Employee benefit plans settlement expenses	Employee benefit plans settlement expenses		0			385		Employee benefit plans settlement expenses	0		0		0		385
Interest expense	Interest expense		3,448			2,857		Interest expense	2,414		4,476		5,862		7,333
Other (income) expense, net	Other (income) expense, net		86			(418)		Other (income) expense, net	206		248		292		(170)
Income (loss) before income taxes	Income (loss) before income taxes		7,907			(58,392)		Income (loss) before income taxes	6,528		(6,470)		14,435		(64,862)
Income tax expense (benefit)	Income tax expense (benefit)		2,821			(2,015)		Income tax expense (benefit)	905		(595)		3,726		(2,610)
(Income) loss from equity method investment	(Income) loss from equity method investment		(8)			44		(Income) loss from equity method investment	(157)		(18)		(165)		26
Net income (loss)	Net income (loss)		$	5,094		$	(56,421)	Net income (loss)	$	5,780	$	(5,857)	$	10,874	$	(62,278)
Earnings (loss) per share:	Earnings (loss) per share:							Earnings (loss) per share:
Basic	Basic		$	0.29		$	(3.25)	Basic	$	0.33	$	(0.34)	$	0.62	$	(3.59)
Diluted	Diluted		$	0.28		$	(3.25)	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:
Basic	Basic		17,545			17,336		Basic	17,575		17,372		17,560		17,354
Diluted	Diluted		17,888			17,336		Diluted	17,977		17,372		17,923		17,354

See accompanying notes to condensed consolidated financial statements.

LYDALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands) (Unaudited)


		For the Three Months Ended			For the Three Months Ended						For the Six Months Ended
			March 31, 2021			March 31, 2020			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income (loss)	Net income (loss)		$	5,094		$	(56,421)	Net income (loss)	$	5,780	$	(5,857)	$	10,874	$	(62,278)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments		(3,014)			(9,957)		Foreign currency translation adjustments	3,060		5,146		46		(4,811)
Pension liability adjustment, net of taxes of $0.1 million and $0.1 million, respectively			365			331
Unrealized gain (loss) on hedging activities, net of taxes of $0.9 million and $0.1 million, respectively			3,018			446
Pension liability adjustment, net of taxes of less than $0.1 million, $0.0 million, $0.1 million and $0.1 million, respectively								Pension liability adjustment, net of taxes of less than $0.1 million, $0.0 million, $0.1 million and $0.1 million, respectively	22		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								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)	Other comprehensive income (loss)		369			(9,180)		Other comprehensive income (loss)	2,957		4,461		3,326		(4,719)
Total comprehensive income (loss)	Total comprehensive income (loss)		$	5,463		$	(65,601)	Total comprehensive income (loss)	$	8,737	$	(1,396)	$	14,200	$	(66,997)

See accompanying notes to condensed consolidated financial statements.

LYDALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts) (Unaudited)


		March 31, 2021		December 31, 2020
Assets	Assets					Assets	June 30, 2021		December 31, 2020

Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	88,717	$	102,176	Cash and cash equivalents	$	102,544	$	102,176
Accounts receivable, net of allowance for doubtful accounts of $2,313 and $2,402, respectively		135,464		116,947
Accounts receivable, net of allowance for doubtful accounts of $2,188 and $2,402, respectively						Accounts receivable, net of allowance for doubtful accounts of $2,188 and $2,402, respectively	128,407		116,947
Contract assets	Contract assets	25,959		32,403		Contract assets	22,756		32,403
Inventories	Inventories	81,448		78,996		Inventories	88,226		78,996
Taxes receivable	Taxes receivable	10,031		6,652		Taxes receivable	12,687		6,652
Prepaid expenses	Prepaid expenses	4,937		4,870		Prepaid expenses	5,066		4,870
Other current assets	Other current assets	7,922		7,348		Other current assets	7,986		7,348
Assets of a business held-for-sale						Assets of a business held-for-sale	1,233		0
Total current assets	Total current assets	354,478		349,392		Total current assets	368,905		349,392
Property, plant and equipment, at cost	Property, plant and equipment, at cost	505,573		506,509		Property, plant and equipment, at cost	515,393		506,509
Accumulated depreciation	Accumulated depreciation	(295,557)		(291,996)		Accumulated depreciation	(303,908)		(291,996)
Property, plant and equipment, net	Property, plant and equipment, net	210,016		214,513		Property, plant and equipment, net	211,485		214,513
Operating lease right-of-use assets	Operating lease right-of-use assets	26,163		22,243		Operating lease right-of-use assets	25,798		22,243
Goodwill	Goodwill	87,195		87,595		Goodwill	87,842		87,595
Other intangible assets, net	Other intangible assets, net	90,796		95,121		Other intangible assets, net	86,922		95,121
Other assets, net	Other assets, net	6,729		6,598		Other assets, net	6,948		6,598
Total assets	Total assets	$	775,377	$	775,462	Total assets	$	787,900	$	775,462
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term debt	Current portion of long-term debt	$	9,789	$	9,789	Current portion of long-term debt	$	8,609	$	9,789

Accounts payable	Accounts payable	113,416		101,905		Accounts payable	116,631		101,905
Accrued payroll and other compensation	Accrued payroll and other compensation	22,114		24,589		Accrued payroll and other compensation	23,177		24,589
Accrued taxes	Accrued taxes	8,339		8,214		Accrued taxes	6,555		8,214

Derivative liabilities	Derivative liabilities	7,966		11,996		Derivative liabilities	8,147		11,996
Restructuring liabilities	Restructuring liabilities	2,042		9,431		Restructuring liabilities	36		9,431
Other accrued liabilities	Other accrued liabilities	22,733		21,705		Other accrued liabilities	24,442		21,705
Liabilities of a business held-for-sale						Liabilities of a business held-for-sale	1,933		0
Total current liabilities	Total current liabilities	186,399		187,629		Total current liabilities	189,530		187,629
Long-term debt	Long-term debt	251,202		260,649		Long-term debt	251,477		260,649
Long-term operating lease liabilities	Long-term operating lease liabilities	21,220		17,947		Long-term operating lease liabilities	20,973		17,947
Deferred tax liabilities	Deferred tax liabilities	31,411		27,174		Deferred tax liabilities	30,913		27,174
Benefit plan liabilities	Benefit plan liabilities	17,930		21,691		Benefit plan liabilities	17,554		21,691
Other long-term liabilities	Other long-term liabilities	2,665		2,676		Other long-term liabilities	2,254		2,676

Commitments and Contingencies (Note 15)		0		0
Commitments and Contingencies (Note 16)						Commitments and Contingencies (Note 16)	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 per share par value, 500 shares authorized (NaN issued or outstanding)	Preferred stock, $0.01 per share par value, 500 shares authorized (NaN issued or outstanding)	0		0		Preferred stock, $0.01 per share par value, 500 shares authorized (NaN issued or outstanding)	0		0
Common stock, $0.01 per share par value, 30,000 shares authorized (25,741 and 25,555 shares issued, respectively)		257		256
Common stock, $0.01 per share par value, 30,000 shares authorized (25,755 and 25,555 shares issued, respectively)						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 value	Capital in excess of par value	101,361		99,770		Capital in excess of par value	103,272		99,770
Retained earnings	Retained earnings	271,998		266,904		Retained earnings	277,778		266,904
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(17,973)		(18,342)		Accumulated other comprehensive income (loss)	(15,016)		(18,342)
Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost	Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost	(91,093)		(90,892)		Less treasury stock, 7,722 and 7,717 shares of common stock, respectively, at cost	(91,093)		(90,892)
Total stockholders’ equity		264,550		257,696
Total stockholders' equity						Total stockholders' equity	275,199		257,696
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	775,377	$	775,462	Total liabilities and stockholders’ equity	$	787,900	$	775,462

See accompanying notes to condensed consolidated financial statements.

LYDALL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)


		For the Three Months Ended					For the Six Months Ended
		March 31, 2021		March 31, 2020			June 30, 2021		June 30, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	5,094	$	(56,421)	Net income (loss)	$	10,874	$	(62,278)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization	Depreciation and amortization	11,366		12,152		Depreciation and amortization	22,794		24,035
Amortization of debt issuance costs	Amortization of debt issuance costs	134		78		Amortization of debt issuance costs	252		807
Impairment of goodwill and long-lived assets	Impairment of goodwill and long-lived assets	0		61,109		Impairment of goodwill and long-lived assets	0		61,109
Deferred income taxes	Deferred income taxes	3,224		(2,896)		Deferred income taxes	3,094		(6,048)
(Gain) loss on the sale of a business	(Gain) loss on the sale of a business	698		0		(Gain) loss on the sale of a business	964		0
Employee benefit plans settlement expenses	Employee benefit plans settlement expenses	0		385		Employee benefit plans settlement expenses	0		385
Stock-based compensation	Stock-based compensation	1,125		914		Stock-based compensation	2,695		1,799

(Gain) loss on disposition of property, plant and equipment	(Gain) loss on disposition of property, plant and equipment	0		20		(Gain) loss on disposition of property, plant and equipment	7		25
(Gain) loss from equity method investment	(Gain) loss from equity method investment	(8)		44		(Gain) loss from equity method investment	(165)		26
Other, net	Other, net	(106)		0		Other, net	(88)		53
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(21,817)		(7,800)		Accounts receivable	(16,690)		3,063
Contract assets	Contract assets	6,298		1,313		Contract assets	9,594		222
Inventories	Inventories	(3,127)		(2,026)		Inventories	(9,508)		(353)
Income taxes (receivable) payable	Income taxes (receivable) payable	(3,424)		(546)		Income taxes (receivable) payable	(6,753)		886
Prepaid expenses and other assets	Prepaid expenses and other assets	(1,053)		526		Prepaid expenses and other assets	(648)		(953)
Accounts payable	Accounts payable	11,456		21,127		Accounts payable	11,415		8,342
Accrued payroll and other compensation	Accrued payroll and other compensation	(2,185)		(68)		Accrued payroll and other compensation	(2,378)		2,974

Deferred revenue	Deferred revenue	21		0		Deferred revenue	(768)		1,850
Accrued taxes payable	Accrued taxes payable	245		(1,447)		Accrued taxes payable	(105)		5,833

Benefit plan liabilities	Benefit plan liabilities	(3,517)		(450)		Benefit plan liabilities	(3,899)		(434)
Other, net	Other, net	(4,204)		727		Other, net	(2,190)		(928)
Net cash provided by (used for) operating activities	Net cash provided by (used for) operating activities	220		26,741		Net cash provided by (used for) operating activities	18,497		40,415
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(8,119)		(9,157)		Capital expenditures	(13,265)		(15,472)
Collections of finance receivables	Collections of finance receivables	1,379		1,658		Collections of finance receivables	3,111		3,390
Payments from divestitures	Payments from divestitures	(2,715)		0		Payments from divestitures	(2,715)		0

Proceeds from the sale of property, plant and equipment						Proceeds from the sale of property, plant and equipment	19		2

Net cash provided by (used for) investing activities	Net cash provided by (used for) investing activities	(9,455)		(7,499)		Net cash provided by (used for) investing activities	(12,850)		(12,080)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from borrowings	Proceeds from borrowings	0		20,000		Proceeds from borrowings	263,210		20,000
Debt repayments	Debt repayments	(9,499)		(4,500)		Debt repayments	(274,910)		(7,001)
Proceeds from servicing receivables	Proceeds from servicing receivables	4,557		2,852		Proceeds from servicing receivables	4,787		458
Common stock issued	Common stock issued	642		31		Common stock issued	793		33
Common stock repurchased	Common stock repurchased	(201)		(8)		Common stock repurchased	(201)		(8)
Net cash provided by (used for) financing activities	Net cash provided by (used for) financing activities	(4,501)		18,375		Net cash provided by (used for) financing activities	(6,321)		13,482
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	277		(1,121)		Effect of exchange rate changes on cash	1,042		(602)
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	(13,459)		36,496		Increase (decrease) in cash and cash equivalents	368		41,215
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	102,176		51,331		Cash and cash equivalents at beginning of period	102,176		51,331
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	88,717	$	87,827	Cash and cash equivalents at end of period	$	102,544	$	92,546

See accompanying notes to condensed consolidated financial statements.

LYDALL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF FINANCIAL STATEMENT PRESENTATION

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements include the accounts of Lydall, Inc. and its subsidiaries (collectively, “Lydall”, ~~"the~~“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 U.S. generally accepted accounting principles (“U.S. GAAP”). The year-end Condensed Consolidated Balance Sheet amounts have been derived from the audited financial statements for the year ended December 31, 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, 2020.

Merger Agreement

As 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. (“Parent”), 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.

Subject to the terms 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 the effective time of the Merger (the “Effective Time”) (other than dissenting shares) will be 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 1934, 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 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 ~~$1.6~~$4.2 million and ~~$2.3~~$2.7 million that were included in Accounts payable ~~on the Company's Condensed Consolidated Statements of Cash Flows~~ at ~~March 31,~~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,

swings in consumer confidence and spending, and unstable economic growth, disruptions to the global automotive supply chain, and fluctuations in unemployment rates have caused economic instability and can have a negative impact on the Company’s results of operations, financial condition, and liquidity.

Transfers of Financial Assets

The Company accounts for transfers of financial assets as sold when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company's continuing involvement with the assets transferred. Gains or losses and any expenditures stemming from the transfers are included in Other (income) expense, net on the Company's Condensed Consolidated Statements of Operations. Assets obtained and liabilities incurred in connection with transfers reported as sold are initially recognized on the Company's Condensed Consolidated Balance Sheets at fair value.

The Company maintains arrangements with banking institutions to sell trade accounts receivable balances for select customers. Under the programs, the Company has no risk of loss due to credit default and is charged a fee based on the nominal value of receivables sold ~~and~~between the time ~~between~~of the sale of the trade accounts receivables to banking institutions and collection of the trade accounts receivables from the customer. Under one of the programs, the Company services 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 ~~trade accounts receivable balances sold~~activity under both arrangements ~~were $34.1 million and $32.7 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total cash received~~ was $31.2 million and $30.2 million during the three-month periods ended March 31, 2021 and 2020, respectively. Total fees incurred were $0.1 million and $0.1 million during the three-month periods ended March 31, 2021as follows:

~~and 2020, respectively.~~


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 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 senior 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 $50.0 million in aggregate for any other approved group of customers.

2. RECENT ACCOUNTING STANDARDS

Recent Accounting Standards Adopted

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 was 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 as of March 31, 2021.~~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~~were 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 was effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this ASU upon issuance and ~~notes that it did not have a~~there was no material impact onto the Company's Condensed Consolidated Financial Statements and ~~disclosures as of March 31, 2021.~~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."~~Reporting". The amendments in this update are elective, and provide optional expedients and exceptions in accounting for contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU 2021-01 to provide additional clarity around Topic 848. Specifically, certain provisions of Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The ~~guidance in this update is effective for transactions entered into between March 12, 2020 and~~ASUs can be adopted no later than December ~~31, 2022.~~1, 2022 with early adoption permitted. The Company ~~adopted this ASU upon issuance~~has reviewed the guidance and elected to adopt the use of the expedients permitted, however there ~~was~~have been no ~~material impact~~modifications

or other changes to the ~~Company's Consolidated Financial Statements and disclosures~~Company’s contracts, hedging relationships or other transactions due to reference rate reform as of ~~March 31,~~June 30, 2021.

In October 2020, the FASB issued ASU 2020-10, "Codification ~~Improvements."~~Improvements". The amendments in this update ~~are~~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 as of March 31, 2021.~~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 ~~are~~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 does not expect the adoption of this update to have a material impact on ~~its~~the Company's Condensed Consolidated Financial Statements and disclosures.

3. DIVESTITURE ACTIVITIES

During 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 Performance Materials segment. In the first quarter of 2021, the Company entered into an agreement to sell a German facility, which closed on March 11, 2021. The Company agreed to pay $1.8 million (€1.5 million) to the buyer and provide $2.3 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the facility, the Company recorded a pre-tax loss of $0.3 million and $1.0 million for the three and six-month periods ended June 30, 2021, respectively. The final consideration and loss are subject to a working capital adjustment expected to be settled in 2022.

In the second quarter of 2021, the Company reached an agreement to sell an operating facility located in the Netherlands, which is a component of the Company’s Performance Materials segment. The transaction was completed on July 9, 2021. The assets and liabilities sold in connection with the transaction met the criteria for held-for-sale reporting as of June 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 the sale in the third quarter of 2021. The results of the operating facility are reflected in continuing operations for the three and six-month periods ended June 30, 2021. 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:


In thousands	At June 30, 2021
Accounts receivable, net	$	912
Inventories	18
Taxes receivable	35
Prepaid expenses	22
Deferred tax assets	246
Total assets held-for-sale	$	1,233

Accounts payable	$	161
Accrued taxes	58
Accrued payroll & other compensation	300
Restructuring liabilities	1,414
Total liabilities held-for-sale	$	1,933

4. 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

recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when the control of products passes to the Company’s customers which can be either at a point in time or over time. Revenue is generally recognized at a point in time when control passes to customers upon shipment of the Company’s products and revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process. The Company analyzes several factors, including, but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition. Unfulfilled performance obligations are generally expected to be satisfied within one year.

Contract Assets and Liabilities

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

The Company’s contract liabilities primarily relate to billings and advance payments received from customers and deferred revenue. These contract liabilities represent the Company’s ~~obligation~~obligations 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 accrued liabilities in the Company's Condensed Consolidated Balance Sheets.

Contract assets and liabilities consisted of the following:

In thousands At March 31, 2021 At December 31, 2020 Dollar Change
Contract assets $ 25,959 $ 32,403 $ (6,444)
Contract liabilities $ 3,786 $ 3,686 $ 100


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

The ~~$6.4~~$9.6 million decrease in contract assets from December 31, 2020 to ~~March 31,~~June 30, 2021 was primarily due to timing of tooling billings to customers and, to a lesser extent, the billings on last-time ~~buys~~sales of membrane-based filtration media initiated in December 2020 in the Company's Netherlands facility.

The ~~$0.1~~$0.4 million ~~increase~~decrease in contract liabilities from December 31, 2020 to ~~March 31,~~June 30, 2021 was primarily due to ~~an increase in customer deposits, offset by $1.4~~$2.7 million of revenue recognized in the first ~~three~~six months of 2021 related to contract liabilities at December 31, ~~2020.~~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-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020 were as follows:

For the Three Months Ended March 31, 2021 For the Three Months Ended March 31, 2020
In thousands North America Europe Asia Total Net Sales North America Europe Asia Total Net Sales
Performance Materials $ 58,874 $ 16,924 $ 3,535 $ 79,333 $ 45,917 $ 17,275 $ 2,028 $ 65,220
Technical Nonwovens 35,838 16,899 8,938 61,675 35,731 16,938 4,734 57,403
Thermal Acoustical Solutions 60,653 26,113 4,278 91,044 57,101 23,540 3,120 83,761
Eliminations and Other (4,678) (275) 0 (4,953) (5,677) (180) 0 (5,857)
Total net sales $ 150,687 $ 59,661 $ 16,751 $ 227,099 $ 133,072 $ 57,573 $ 9,882 $ 200,527


	For the Three Months Ended June 30, 2021								For the Three Months Ended June 30, 2020
In thousands	North America		Europe		Asia		Total Net Sales		North America		Europe		Asia		Total Net Sales

Performance Materials	$	58,195	$	15,272	$	3,719	$	77,186	$	40,190	$	16,501	$	1,782	$	58,473
Technical Nonwovens	46,443		18,077		7,959		72,479		31,236		15,418		5,353		52,007
Thermal Acoustical Solutions	50,709		22,673		3,476		76,858		22,575		11,424		3,449		37,448
Eliminations and Other	(4,475)		(304)		0		(4,779)		(1,668)		(100)		0		(1,768)
Total net sales	$	150,872	$	55,718	$	15,154	$	221,744	$	92,333	$	43,243	$	10,584	$	146,160

910


	For the Six Months Ended June 30, 2021								For the Six Months Ended June 30, 2020
In thousands	North America		Europe		Asia		Total Net Sales		North America		Europe		Asia		Total Net Sales

Performance Materials	$	117,069	$	32,196	$	7,254	$	156,519	$	86,107	$	33,776	$	3,810	$	123,693
Technical Nonwovens	82,281		34,976		16,897		134,154		66,967		32,356		10,087		109,410
Thermal Acoustical Solutions	111,362		48,786		7,754		167,902		79,676		34,964		6,569		121,209
Eliminations and Other	(9,153)		(579)		0		(9,732)		(7,345)		(280)		0		(7,625)
Total net sales	$	301,559	$	115,379	$	31,905	$	448,843	$	225,405	$	100,816	$	20,466	$	346,687

5. INVENTORIES

Inventories as of ~~March 31,~~June 30, 2021 and December 31, 2020 were as follows:

In thousands At March 31, 2021 At December 31, 2020
Raw materials $ 37,116 $ 32,258
Work in process 16,504 17,087
Finished goods 27,828 29,651
Total inventories $ 81,448 $ 78,996


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 goods	31,328		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 these Notes to Condensed Consolidated Financial Statements for additional information.

(2) Work in process includes net tooling inventory of ~~$3.2~~$1.4 million and $2.8 million at ~~March 31,~~June 30, 2021 and December 31, 2020, respectively.

5.6. 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-month~~six-month period ended ~~March 31,~~June 30, 2021.

The following table sets forth the change in carrying value of goodwill for each reportable segment and for the Company ~~as of March 31,~~at June 30, 2021:

In thousands Performance Materials Technical Nonwovens Thermal Acoustical Solutions Total
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, 2020 31,988 55,607 0 87,595
Foreign currency translation (23) (377) 0 (400)
Net balance at March 31, 2021 $ 31,965 $ 55,230 $ 0 $ 87,195


In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Total
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, 2020	31,988		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

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, ~~as of March 31,~~at June 30, 2021 and December 31, 2020. These amounts are included in Other intangible assets, net on the Company's Condensed Consolidated Balance Sheets.

At March 31, 2021 At December 31, 2020
In thousands Amortization Period Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Amortized intangible assets
Customer Relationships 10 - 14 years $ 143,184 $ (53,970) $ 143,479 $ (50,076)
Patents 28 years 650 (619) 650 (616)
Technology 15 years 2,500 (1,185) 2,500 (1,144)
Trade Names 3 - 5 years 7,446 (7,210) 7,495 (7,167)
License Agreements 10 years 0 0 185 (185)
Other 7 - 15 years 459 (459) 467 (467)
Total other intangible assets $ 154,239 $ (63,443) $ 154,776 $ (59,655)


		At June 30, 2021				At December 31, 2020
In thousands	Amortization Period	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Customer Relationships	10 - 14 years	$	143,650	$	(58,187)	$	143,479	$	(50,076)
Patents	28 years	650		(623)		650		(616)
Technology	15 years	2,500		(1,227)		2,500		(1,144)
Trade Names	5 years	7,495		(7,336)		7,495		(7,167)
License Agreements	10 years	0		0		185		(185)
Other	7 - 15 years	464		(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 the years ending December 31, 2021 through 2025 and thereafter, respectively.

6.7. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

The long-term debt payable ~~under the Company’s amended and restated 2018 senior secured revolving credit agreement (as amended to-date, the "2018 Amended Credit Agreement")~~ at ~~March 31,~~June 30, 2021 and December 31, 2020 consisted of:

In thousands Effective Rate Maturity At March 31, 2021 At December 31, 2020
Revolver loan 4.25 % 8/31/2023 $ 127,500 $ 134,500
Term loan, net of debt issuance costs 4.25 % 8/31/2023 133,491 135,938
260,991 270,438
Less portion due within one year (9,789) (9,789)
Total long-term debt, net of debt issuance costs $ 251,202 $ 260,649

~~The weighted average interest rate on long-term debt was 5.1% and 4.4%, for the three-month periods ending March 31, 2021 and~~ ~~2020, respectively.~~


In thousands	Effective Rate		Maturity	At June 30, 2021		At December 31, 2020
Revolver loan	2.10	%	4/26/2026	$	87,210	$	134,500
Term loan, net of debt issuance costs	2.10	%	4/26/2026	172,876		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

~~Total amortization expense of debt issuance costs was $0.1 million and $0.1 million for the three-month periods ending March~~On August 31, ~~2021 and~~ ~~2020, respectively.~~

~~At March 31, 2021,~~2018, the Company ~~had amounts available for borrowing of $40.7 million under~~amended and restated its senior secured revolving credit agreement, which was further amended on February 14, 2020, May 11, 2020 and October 14, 2020 (collectively, the ~~2018~~“2018 Amended Credit ~~Agreement, net of $127.5 million outstanding under the revolver facility and standby letters of credit outstanding of $1.8 million.~~

In addition to the amounts outstanding under the 2018 Amended Credit Agreement, the Company has various foreign credit facilities totaling approximately $10.8 million. At March 31, 2021 and December 31, 2020, the Company's foreign subsidiaries had $1.2 million and $1.4 million, respectively, in standby letters of credit outstanding under these foreign credit facilities.

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

Agreement”). On April 26, 2021, the Company replaced its 2018 Amended Credit Agreement with a newly executed Credit Agreement by and among the Company, as borrower, and certain direct and indirect subsidiaries as guarantors, and Bank of America, N.A., as Administrative Agent, Lender, L/C Issuer and Swingline Lender, and Wells Fargo Bank, N.A., JPMorgan Chase Bank, N.A., KeyBank N.A., Santander Bank, N.A., TD Bank, N.A., and Webster Bank, N.A., as Lenders, ~~increasing~~which increased the Company's total available borrowings from $314.0 million to $346.0 million. ~~The 2021 senior secured revolving credit agreement~~This newly executed Credit Agreement has a revolving facility of $170.0 million, which includes a $50.0 million sublimit for the issuance of letters of credit, a $50.0 million sublimit for alternative ~~currencies~~currency loans and a $30.0 million sublimit for swingline loans, and a term loan facility of $176.0 million (the revolving facility and the term loan facility are collectively referred to as the “2021 Credit Facility”). The 2021 Credit Facility ~~includes an accordion feature permitting~~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 ~~facility~~feature of the 2021 Credit Facility requires quarterly payments of principal at the rate of $2.2 million, with the remaining balance due inon the ~~final quarter~~maturity date of the ~~2021 Credit Facility’s term.~~facility. The Company is permitted to prepay amounts outstanding under the 2021 Credit Facility, in whole or in part, at any time without premium or penalty, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments.

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 Facility.

The weighted average interest rate on long-term debt was 4.4% for the six-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 Company's borrowings from a variable rate to a fixed rate. See Note 8, "Derivatives", in these Notes to Condensed Consolidated Financial Statements for additional information.

Total amortization of debt issuance costs was $0.3 million and $0.8 million for the six-month period ended June 30, 2021 and 2020, respectively.

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

Under the 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 ~~one month~~

~~LIBOR (adjusted daily)~~Eurocurrency Rate plus 1.00%, ~~plus~~provided that if the ~~Applicable Margin.~~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 Facility), 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 ~~will pay~~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.~~annum based on the Company’s Consolidated Net Leverage Ratio in accordance with the terms of the 2021 Credit Facility.

The 2021 Credit Facility contains customary affirmative and negative covenants, including covenants limiting the ~~Company~~Company's and its ~~subsidiaries~~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 ~~2021 Credit Facility contains financial covenants required of the Company and its subsidiaries. The~~ Company is required to meet certain quarterly financial covenants under the 2021 Credit Facility, including:

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 2021 Credit Facility, may not be less than 1.25 to 1.00; and

ii.A Consolidated Net Leverage Ratio, which requires 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 2021 Credit ~~Facility,~~Facility) not be greater than 4.50:1.00 through the period ~~ended December 31,~~ending September 30, 2021, stepping down to 4.00:1.00 through the period ending ~~June 30,~~March 31, 2022, and 3.50:1.00 ~~beginning with the period starting July 1, 2022 and~~ thereafter.

Each of the financial ratios referred to above are calculated on a consolidated trailing twelve-month basis. The 2021 Credit Facility permits the Company to exclude certain non-cash charges and certain restructuring and other expenses ~~as defined by the 2021 Credit Facility,~~ from EBITDA in the calculation of the Company's financial covenants.

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

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

8. 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 recorded at fair value. See Note 8,9, "Fair Value ~~Measurements,"~~Measurements", in these Notes to Condensed Consolidated Financial Statements for additional information.

In November 2018, the Company entered into a ~~five-year~~five-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 decreases quarterly by fluctuating amounts through August 2023. Prior to May 11, 2020, the 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.~~Other Comprehensive Income. An amendment to the Company's 2018 Amended Credit Agreement on May 11, 2020 included, among other modifications, the establishment of a floor on the ~~base~~Base Rate and the Eurocurrency ~~rate~~Rate of 1%. As a result, the Company determined that the critical terms of the swap no longer matched the critical terms of the hedged debt and performed an assessment of the effectiveness of the interest rate swap agreement. The Company concluded the interest rate swap agreement was 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 on the Company's Condensed Consolidated Statement of Operations. The cumulative loss on the discontinued hedge relationship through May 11, 2020, which was recorded in Accumulated Other Comprehensive Income, ~~will be~~is being amortized into earnings (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 ~~March 31,~~June 30, 2021 was ~~$3.3~~$2.6 million, net of tax. The amount reclassified out of other comprehensive income into Interest expense on the Company's Condensed Consolidated Statement of Operations for the ~~three-month period~~three and six-month periods ended ~~March 31,~~June 30, 2021 was $0.6 million and $1.2 million, net of ~~tax.~~tax, respectively. The Company expects ~~$2.0~~$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,"~~Measurements", in these Notes to Condensed Consolidated Financial Statements), to protect the Company's net investments in subsidiaries denominated in currencies other than the U.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 ($75.0 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. Also, settlement of the notional €22.6 million ($25.0 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 on the Company's Condensed Consolidated Statements of Operations.

Derivative instruments are recorded at fair value and recognized as either assets or ~~liabilities depending on maturity. These amounts are included in Other current assets and Derivative liabilities on the Company's Condensed Consolidated Balance Sheets.~~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.

The following table sets forth the fair value amounts of derivative instruments held by the Company presented on the Condensed Consolidated Balance Sheets as Derivative liabilities:

At March 31, 2021 At December 31, 2020
In thousands Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives
Interest rate contracts $ 0 $ 4,154 $ 0 $ 5,063
Cross-currency swaps 0 3,812 0 6,933
Total derivatives $ 0 $ 7,966 $ 0 $ 11,996


	At June 30, 2021				At December 31, 2020
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts	$	0	$	3,430	$	0	$	5,063
Cross-currency swaps	0		4,717		0		6,933
Total derivatives	$	0	$	8,147	$	0	$	11,996

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

For the Three Months Ended March 31,
In thousands 2021 2020
Cash flow hedges:
Interest rate contracts $ 618 $ (2,173)
Cross-currency swaps 2,400 2,619
Total derivatives $ 3,018 $ 446


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 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)

8.9. 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.

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:


		At March 31, 2021				At December 31, 2020					At June 30, 2021				At December 31, 2020
In thousands	In thousands	Carrying Value		Fair Value		Carrying Value		Fair Value		In thousands	Carrying Value		Fair Value		Carrying Value		Fair Value
Debt	Debt	$	261,500	$	262,394	$	271,000	$	272,792	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 carrying 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

instruments are classified within Level 2 of the valuation hierarchy. At ~~March 31,~~June 30, 2021 and December 31, 2020, these derivative instruments were included in Derivative liabilities on the Company's Condensed Consolidated Balance 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.

9.10. STOCK REPURCHASES

During the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2021, the Company purchased 5,646 shares of common stock valued at $0.2 million to 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 the number of shares having fair value equal to each recipient’s minimum payroll tax withholding 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, of~~share. NaN shares were repurchased under this program during the ~~Company.~~three-month period ended June 30, 2021. The ~~ability~~Company suspended the Share Repurchase Program due to ~~repurchase~~ the Company’s common stock will continue until the Board of Directors reaches a determination to discontinue share repurchases. The timing and actual amount of shares repurchased will depend on a variety of factors including stock price, market conditions, corporate and regulatory requirements, and capital availability, among other factors.pending Merger.

~~10.~~11. EMPLOYER 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-month~~six-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 on the Condensed Consolidated Statements of 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 contributions of approximately $0.7 million to the IPM Pension Plan during 2021. Contributions of $0.2 million and $0.4 million were made during the ~~three-month period~~three and six-month periods ended ~~March 31,~~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 ~~March 31,~~June 30, 2020 ~~inclusive~~because the Company took advantage of ~~contributions made to~~ the ~~ISS Pension Plan.~~deferral in minimum funding contribution due dates as permitted under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The following is a summary of the components of net periodic benefit cost for the domestic defined benefit pension plans for

the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020:

For the Three Months Ended March 31,
In thousands 2021 2020
Components of employer benefit cost
Service cost $ 29 $ 40
Interest cost 304 430
Expected return on assets (589) (533)
Amortization of actuarial loss 4 2
Net periodic benefit cost (income) $ (252) $ (61)
Settlement loss 0 385
Total employer benefit plan cost $ (252) $ 324


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Components of employer benefit cost
Service cost	$	29	$	40	$	58	$	80
Interest cost	304		428		608		857
Expected return on assets	(589)		(532)		(1,178)		(1,065)
Amortization of actuarial loss	4		0		8		2
Net periodic benefit cost (income)	$	(252)	$	(64)	$	(504)	$	(126)
Settlement loss	0		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.

~~11.~~

12. RESTRUCTURING

During the third quarter of 2020, the Company’s Performance Materials segment undertook actions to discontinue production of a lower efficiency air filtration media product and, in turn, fully depreciated the supporting machinery and equipment in North America and consolidated certain product ~~lines and~~lines. In addition, the Company began exiting underperforming facilities in Europe. These restructuring activities, which ~~are projected to conclude~~will be completed in the third 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, the~~The Company expects to ~~record~~incur total pre-tax expenses of approximately ~~$18.0~~$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 cash expenditures primarily ~~related~~due to severance and employee retention expenses. Also contributing to total pre-tax expenses in connection with these restructuring activities, of which approximately $12.3 million is expected to result in cash expenditures. The Company incurred a total of $16.7 million through March 31, 2021, of which approximatelywas $5.7 million ~~were~~of non-cash expenditures, which consisted of fully depreciating and/or amortizing long-lived assets and, to a lesser extent, writing-off inventory. See Note 3, "Divestiture Activities", in these Notes to Condensed Consolidated Financial Statements for additional information.

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

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

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

In thousands Severance and Related Expenses Legal and Administrative Expenses Facility Exit and Asset Write-Off Expenses
Expense incurred during quarter ended:
March 31, 2021 $ 777 $ 0 $ 0
Total pre-tax expense incurred $ 777 $ 0 $ 0


	For the Three Months Ended		For the Six Months Ended
	June 30, 2021		June 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 for the restructuring actions:


In thousands	Total
Balance as of December 31, 2020	$	9,431
Pre-tax restructuring expenses, excluding asset write-off expenses	~~777~~967
Cash paid	~~(821)~~(1,642)
Accrued liability included with the sale of the German facility	(7,311)
Currency translation adjustments	~~(34)~~5
Accrued liability included in Liabilities of a business held-for-sale	(1,414)
Balance as of ~~March 31,~~June 30, 2021	$	~~2,042~~36

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

~~12.~~13. INCOME TAXES

For the three-month period ended ~~March 31,~~June 30, 2021, the Company's effective tax rate was ~~35.7%~~13.9% compared to an effective tax rate of ~~3.5%~~9.2% for the three-month period ended ~~March 31,~~June 30, 2020. For the three-month period ended ~~March 31,~~June 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 $0.5 million and a foreign withholding tax liability of $0.4 million, resulting in a lower effective tax rate when in a pre-tax loss position.

For the six-month period ended June 30, 2021, the Company's effective tax rate was 25.8% compared to an effective tax rate of 4.0% for the six-month period ended June 30, 2020. For the six-month period ended June 30, 2021, the rate was negatively impacted by ~~$0.5~~$0.6 million due to a change in assertion on unremitted foreign earnings ~~$0.4 million related to foreign earnings taxed at higher rates,~~ and ~~$0.2~~$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 ~~three-month~~six-month period ended ~~March 31,~~June 30, 2020, the Company had a pre-tax loss primarily resulting from an impairment ~~charge~~charges of $61.1 million. The impairment ~~charge~~charges significantly impacted the Company's effective tax rate asbecause $48.7 million of the impairment ~~charge~~charges related to non-deductible goodwill, resulting in a ~~lower~~low effective tax rate for the ~~first quarter of~~six-month period ended June 30, 2020 when ~~the Company was~~ in a pre-tax loss position. Additionally, the effective rate ~~for the first quarter of 2020,~~ was negatively impacted by valuation allowance activity of ~~$0.3~~$0.7 million.

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

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 2017, state and local examinations for years before 2016, and non-U.S. income tax examinations for years before 2013.

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

~~13.~~14. EARNINGS (LOSS) PER SHARE

For the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020, basic earnings per share was computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted share awards, including awards subject to certain performance criteria, are excluded from the 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 March 31,
In thousands 2021 2020
Net income (loss) $ 5,094 $ (56,421)
Basic weighted-average common shares outstanding 17,545 17,336
Effect of dilutive options and restricted stock awards 343 0
Diluted weighted-average common shares outstanding 17,888 17,336
Earnings (loss) per share:
Basic $ 0.29 $ (3.25)
Diluted $ 0.28 $ (3.25)


	For the Three Months Ended				For the Six Months Ended
In thousands, except per share amounts	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Net income (loss)	$	5,780	$	(5,857)	$	10,874	$	(62,278)

Basic weighted-average common shares outstanding	17,575		17,372		17,560		17,354
Effect of dilutive options and restricted stock awards	402		0		363		0
Diluted weighted-average common shares outstanding	17,977		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)

For the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021, ~~and 2020,~~ there were ~~129,209~~73,464 and ~~736,141~~156,709 shares excluded from the computation of diluted earnings per share, respectively. ~~For the three-month period ended March 31, 2021, these~~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-month period~~three and six-month periods ended ~~March 31,~~June 30, 2020, ~~all outstanding, unvested awards~~there were 736,944 and 734,756 shares excluded from the ~~calculation~~computation of diluted earnings per share, ~~because~~respectively. Because the Company had a net loss during the ~~period. These~~three and six-month periods ended June 30, 2020, the excluded shares included all ~~stock options, as well as~~outstanding, unvested restricted share awards for which requisite service has not yet been rendered, all stock options, and certain unvested performance share awards with contingently issuable shares.

A description of the Company's stock options and restricted share awards is included in Note, 13, "Equity Compensation Plans", in the Notes to Consolidated Financial Statements in Part II, Item 8 - Financial Statements and Supplemental Data of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

~~14.~~15. SEGMENT 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 ~~March 31,~~June 30, 2021, the operating segments were Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.

Performance Materials Segment

The Performance Materials segment is 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 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 highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.

Technical Nonwovens Segment

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,~~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 the Company's Thermal Acoustical Solutions segment.

Thermal Acoustical Solutions Segment

The Thermal Acoustical Solutions segment designs, manufactures, and distributes a full range of innovative engineered products tailored for the transportation and industrial sectors. These products shield sensitive components from high temperature environments, assist in the reduction of harmful emissions and reduce noise and vibration. Within the transportation sector, the Company's products are found in the interior, underbody, and underhood of cars, trucks, SUVs, heavy duty trucks, and recreational vehicles.

Segment Results

Net sales by business segment is as follows:

For the Three Months Ended March 31,
In thousands 2021 2020
Performance Materials Segment (1),(2):
Filtration Products $ 34,346 $ 25,887
Sealing and Advanced Solutions Products 44,987 39,333
Performance Materials Segment net sales 79,333 65,220
Technical Nonwovens Segment:
Industrial Filtration Products 36,401 31,369
Advanced Materials Products (2)
25,274 26,034
Technical Nonwovens Segment net sales 61,675 57,403
Thermal Acoustical Solutions Segment:
Parts 86,494 77,321
Tooling 4,550 6,440
Thermal Acoustical Solutions Segment net sales 91,044 83,761
Eliminations and Other (2)
(4,953) (5,857)
Consolidated Net Sales $ 227,099 $ 200,527


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Performance Materials Segment (1),(2):
Filtration Products	$	34,066	$	29,636	$	68,412	$	55,523
Sealing and Advanced Solutions Products	43,120		28,837		88,107		68,170
Performance Materials Segment net sales	77,186		58,473		156,519		123,693

Technical Nonwovens Segment:
Industrial Filtration Products	35,411		29,413		71,812		60,782
Advanced Materials Products (2)	37,068		22,594		62,342		48,628
Technical Nonwovens Segment net sales	72,479		52,007		134,154		109,410

Thermal Acoustical Solutions Segment:
Parts	71,222		32,448		157,716		109,769
Tooling	5,636		5,000		10,186		11,440
Thermal Acoustical Solutions Segment net sales	76,858		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

Operating income (loss) by business segment is as follows:

For the Three Months Ended March 31,
In thousands 2021 2020
Performance Materials (1),(3)
$ 15,296 $ (56,941)
Technical Nonwovens (4)
5,104 3,813
Thermal Acoustical Solutions 1,674 5,628
Corporate Office Expenses (9,935) (8,068)
Consolidated Operating Income (Loss) $ 12,139 $ (55,568)


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 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~~For the six-month period ended June 30, 2021, the Performance Materials segment includes the results of the German facility ~~in German~~ that the Company sold on March 11, 2021.

(2)Included in the Performance Materials segment, Technical Nonwovens segment, and Eliminations and Other is the following:

•~~Technical Nonwovens~~Performance Materials segment intercompany sales ~~of $3.9 million and $5.0 million~~ to the Thermal Acoustical Solutions segment were as follows:

◦$1.0 million and $0.3 million for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.

◦$2.1 million and $1.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.

•~~Performance Materials~~Technical Nonwovens segment intercompany sales ~~of $1.0 million and $0.9 million~~ to the Thermal Acoustical Solutions segment were as follows:

◦$3.6 million and $1.4 million for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.

◦$7.5 million and $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 are the following:

•~~$61.1~~Impairment charges of $61.1 million ~~of impairment charges~~ related to goodwill and other long-lived assets for the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2020.

•Intangible asset amortization as follows:

◦$3.0 million and $4.0 million ~~of intangible assets amortization~~ for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.

◦

$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:

• ~~$1.1~~$1.1 million and $1.2 million ~~of intangible assets amortization~~ for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively.

•$2.1 million and $2.3 million for the six-month periods ended June 30, 2021 and 2020, respectively.

~~15.~~16. COMMITMENTS 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. Additionally, the Company incurred $0.2 million of capital expenditures in 2018 ~~in relation~~due to the lining of the Company's ~~fresh water~~freshwater lagoons. During a building expansion in 2020, additional areas of concern were identified during excavation activities. An interim remedial action plan ("IRAP") that includes additional site characterization activities was submitted to the NHDES in March 2021. ~~No comments from~~In June 2021, additional site characterization activities were initiated following approval of the ~~NHDES have been received. As~~IRAP by the NHDES. Additionally, as part of ~~March 31, 2021,~~ the IRAP, excavation and disposal of areas of known PFAS contamination were initiated in July 2021. The Company ~~has 0 amounts~~had $0.3 million accrued for these environmental remediation ~~activities.~~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 into 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. Additional site characterization activities were completed in the fourth quarter of 2020. Results of the site characterization will be submitted in ~~the second quarter of~~ 2021. As of ~~March 31,~~June 30, 2021, the Company has less than $0.1 million accrued for these environmental remediation activities. The Company does not know the scope or extent of any 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 ~~March 31,~~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.

~~16.~~17. STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in stockholders' equity for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020 were as follows:


		For the Three Months Ended March 31,				For the Three Months Ended				For the Six Months Ended
In thousands	In thousands	2021		2020			In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Beginning Balance	Beginning Balance	$	257,696	$	318,420		Beginning Balance	$	264,550	$	253,577	$	257,696	$	318,420
Comprehensive income (loss)	Comprehensive income (loss)	5,463		(65,601)			Comprehensive income (loss)	8,737		(1,396)		14,200		(66,997)
Stock repurchased	Stock repurchased	(201)		(8)			Stock repurchased	0		0		(201)		(8)
Stock issued under employee plans	Stock issued under employee plans	642		31			Stock issued under employee plans	151		1		793		32
Stock-based compensation expense	Stock-based compensation expense	950		735			Stock-based compensation expense	1,363		720		2,313		1,455

Stock issued to directors							Stock issued to directors	398		360		398		360

Ending Balance	Ending Balance	$	264,550	$	253,577		Ending Balance	$	275,199	$	253,262	$	275,199	$	253,262

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


		For the Three Months Ended March 31,				For the Three Months Ended				For the Six Months Ended
In thousands	In thousands	2021		2020			In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Foreign currency translation:	Foreign currency translation:						Foreign currency translation:
Beginning balance	Beginning balance	$	(3,514)	$	(18,022)		Beginning balance	$	(6,528)	$	(27,979)	$	(3,514)	$	(18,022)
Net gain (loss) on foreign currency translation	Net gain (loss) on foreign currency translation	(4,048)		(9,957)			Net gain (loss) on foreign currency translation	3,060		5,146		(988)		(4,811)
Amounts reclassified from accumulated other comprehensive income (loss) (1)	Amounts reclassified from accumulated other comprehensive income (loss) (1)	1,034		0			Amounts reclassified from accumulated other comprehensive income (loss) (1)	0		0		1,034		0
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(3,014)		(9,957)			Other comprehensive income (loss), net of tax	3,060		5,146		46		(4,811)
Ending balance	Ending balance	(6,528)		(27,979)			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 balance	Beginning balance	(5,608)		(3,080)			Beginning balance	(5,243)		(2,749)		(5,608)		(3,080)
Amounts reclassified from accumulated other comprehensive income (loss) (2)	Amounts reclassified from accumulated other comprehensive income (loss) (2)	365		331			Amounts reclassified from accumulated other comprehensive income (loss) (2)	22		0		387		331
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	365		331			Other comprehensive income (loss), net of tax	22		0		387		331
Ending balance	Ending balance	(5,243)		(2,749)			Ending balance	(5,221)		(2,749)		(5,221)		(2,749)

Unrealized loss on derivative instruments:	Unrealized loss on derivative instruments:						Unrealized loss on derivative instruments:
Beginning balance	Beginning balance	(9,220)		(4,877)			Beginning balance	(6,202)		(4,431)		(9,220)		(4,877)
Net gain (loss) on derivative instruments (3)	Net gain (loss) on derivative instruments (3)	2,400		446			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)	618		0			Amounts reclassified from accumulated other comprehensive income (loss) (4)	571		397		1,189		397
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	3,018		446			Other comprehensive income (loss), net of tax	(125)		(685)		2,893		(239)
Ending balance	Ending balance	(6,202)		(4,431)			Ending balance	(6,327)		(5,116)		(6,327)		(5,116)

Total accumulated other comprehensive income (loss)	Total accumulated other comprehensive income (loss)	$	(17,973)	$	(35,159)		Total accumulated other comprehensive income (loss)	$	(15,016)	$	(30,698)	$	(15,016)	$	(30,698)

(1)For the ~~three-month~~six-month period ended ~~March 31,~~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,~~June 30, 2021, the amount represents routine amortization of actuarial gains and losses in net periodic benefit cost, net 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 tax impact of $0.1 million, and is included in (Gain) loss on the sale of a business on the Company’s Condensed Consolidated Statements of Operations. For the ~~three-month~~six-month period ended ~~March 31,~~June 30, 2020, the amount primarily represents the settlement of the ISS Pension Plan. This amount was $0.4 million, net of tax impact of $0.1 million. The amounts for the ~~three-month~~six-month periods ended ~~March 31,~~June 30, 2021 and 2020 also include routine amortization of actuarial gains and losses in net periodic benefit cost of less than $0.1 million, net of tax impact of less than $0.1 million.

(3)Amount represents unrealized gains (losses) on the fair value of hedging activities, net of tax impact of ~~$0.7~~$0.2 million and ~~$0.1~~$0.3 million for the three-month periods ended ~~March 31,~~June 30, 2021 and 2020, respectively and $0.5 million and $0.2 million for the six-month periods ended June 30, 2021 and 2020, respectively.

(4)~~Amounts~~Amount represents the impact of de-designation of the interest rate swap agreement, net of tax impact of ~~$0.2~~$0.6 million and $0.1 million for the three-month ~~period~~periods ended ~~March 31, 2021.~~June 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.

~~17. SUBSEQUENT EVENTS~~

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

2122

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.


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

Forward-looking statements in Management’s Discussion and Analysis 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, “Lydall”, ~~"the~~“the Company”, “we”, and “our”) design, manufacture, and market 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 materials for industrial, geosynthetic, medical and other specialty applications; and thermal management and acoustical products and solutions to assist in the reduction of noise, vibration, and harshness. The Company principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions.

The Performance Materials segment is 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 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 highly engineered insulation solutions for cryogenic storage of liquid hydrogen/nitrogen, energy storage, and advanced composite materials for aerospace and defense applications.

The Thermal Acoustical Solutions segment offers a full range of innovative engineered products tailored for the transportation and industrial 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

Merger Agreement

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 1934, as amended (the “Exchange Act”) as soon as practicable following the Effective Time.

COVID-19 Pandemic

In early 2020, the World Health Organization (“WHO”) characterized COVID-19 as a pandemic. In an effort to contain COVID-19 and slow its spread, governments throughout the world ~~including global and regional markets served by the Company,~~ enacted various measures, including orders to close "non-essential" businesses, ~~isolate~~for residents to shelter in ~~their places of residence,~~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, global business activity and ~~our~~the Company's financial performance. Despite the recent ~~administration~~availability of vaccines, a level of risk and uncertainty remains that the ~~outbreak continues to~~residual effects of the pandemic, such as supply chain disruptions, could have an adverse impact ~~on parts~~in certain areas of our ~~business including cases of absenteeism and certain supply chain challenges.~~business. The Company 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 will continue its efforts to maintain a safe and healthy work environment, including ~~and continuing to allow~~the continuation of remote working arrangements, where ~~it is~~deemed appropriate.

~~Stronger~~Among other factors, a strong rebound in demand in ~~the auto and industrial~~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. ~~Although the Company does not foresee a material~~These issues have caused an adverse impact on the Company’s financial ~~performance for the remainder of 2021, given~~performance. Given the dynamic nature of ~~this situation,~~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

~~COVID-19~~

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

Market Trends

Demand for the Performance Materials segment’s filtration and sealing and advance solutions products continue to be ~~strong, however,~~strong. However, in the second quarter of 2021, the segment ~~is experiencing~~experienced some supply chain challenges for ~~key~~select raw materials ~~primarily impacting sealings products. In addition, the segment is seeing significant~~used in sealing products, and higher commodity ~~price increases~~prices for polypropylene and other fibers used in ~~its~~ filtration products. Although the Company expects this trend to continue through 2021, the Company ~~anticipates the ability~~is working to ~~pass~~mitigate inflationary costs through~~most of the higher costs in~~ customer ~~pricing.~~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 ~~March~~June 2021, the Company ~~entered into~~reached an agreement to sell ~~its German facility.~~an operating facility in the Netherlands. The sale was completed ~~in March 2021 and, as a result, the Company recorded a loss in the amount of $0.7 million.~~on July 9, 2021. See Note ~~11, “Restructuring,”~~3, “Divestiture Activities", in the Notes to Condensed Consolidated Financial Statements for additional information.

~~Technical Nonwovens Developments~~

~~COVID-19~~

~~The~~

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

Market Trends

Demand for the Technical Nonwovens segment’s geosynthetic, medical, and filtration products ~~are~~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's customers.~~industry. However, the Company does not expect these issues to have a material adverse impact on the ~~Company’s~~segment’s financial performance in 2021. ~~In addition, the~~The segment ~~is seeing~~continues to see significant commodity price increases ~~for~~on polypropylene ~~used in geosynthetic~~fibers and ~~filtration products.~~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 ~~pass through the~~mitigate these higher costs inprimarily through increased customer pricing.

Thermal Acoustical Solutions Developments

~~COVID-19~~

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

Market Trends

Customer demand continues to be strong for the Thermal Acoustical Solutions ~~segment, however,~~segment. However, customer orders from month to month have been volatile as certain automotive ~~OEM~~ 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.

~~models due to material supply shortages.~~ Consistent with the Company’s other segments, the Thermal Acoustical Solutions segment is experiencing higher commodity pricing, ~~specifically~~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, ~~a moderate~~an adverse impact on the segment’s financial performance in 2021 to the extent these costs cannot be passed on to customers.

~~FIRST~~SECOND QUARTER 2021 HIGHLIGHTS

Below are financial performance highlights for the three-month period ended ~~March 31,~~June 30, 2021 compared to the three-month period ended ~~March 31,~~June 30, 2020:

The chart below reflects the change in consolidated net sales by segment:

Consolidated net sales were ~~$227.1~~$221.7 million in the ~~first~~second quarter of 2021, compared to ~~$200.5~~$146.2 million in the ~~first~~second quarter of 2020, resulting in an increase of ~~$26.6~~$75.6 million, or ~~13.3%,~~51.7%. The increase was primarily driven by ~~$14.1~~$39.4 million inof higher sales in the Company's Performance Materials segment, resulting from higher demand in filtration products for face mask media in response to the COVID-19 pandemic combined with strong demand in sealing markets. In addition, the Thermal Acoustical Solutions segment, ~~saw~~mainly due to improved demand for products across all regions as a result of the continued ~~strength in~~recovery from the ~~automotive market led by higher parts sales of $9.2 million, partially offset by lower tooling sales, and~~COVID-19 pandemic. Additionally, the Technical Nonwovens segment experienced

an increase in sales ~~driven~~of $20.4 million led by higher demand in industrial filtration markets. The Performance Materials segment experienced an increase in sales of $18.7 million that was primarily attributable to continued demand in sealing markets and specialty filtration products.

The change in consolidated net sales is summarized in the following chart:

(1)Includes Parts volume and pricing change ~~includes a $0.6~~of $69.2 million ~~decrease in net sales from the German facility sold on March 11, 2021~~and Tooling Sales of $0.4 million between comparable periods in the ~~first~~second quarters of 2021 and 2020.

Consolidated operating income was ~~$12.1~~$9.4 million for the three-month period ended ~~March 31,~~June 30, 2021 compared to an operating loss of ~~$(55.6)~~$(1.7) million in the corresponding period in 2020. Operating income for the three-month period ended ~~March 31,~~June 30, 2020 was adversely impacted by ~~goodwill and other long-lived asset impairment charges~~COVID-19-related plant shutdowns in the ~~Performance Materials segment~~Company's Thermal Acoustical Solutions business and lower production of ~~$61.1 million. After adjusting for~~ the ~~impairment charges, operating income increased $6.6~~Company's industrial filtration products. The $11.1 million increase was primarily ~~due to an increase in~~a result of higher operating income of ~~$11.1~~$9.4 million in the Performance Materials segment, driven by a favorable product mix ~~from continued demand~~due to higher sales for ~~face mask media~~specialty filtration products and ~~stronger demand in the~~ sealing and ~~cryogenics markets.~~insulation products. Operating income for the Technical Nonwovens segment increased $1.3 million primarily due to the absence of a $0.9 million inventory charge included in the first quarter of 2020 related to a flood in one of its European facilities. Offsetting these increases was a $4.0 million decrease in operating income in the Thermal Acoustical Solutions segment ~~primarily~~increased $4.8 million mainly due to the recovery from COVID-19 related shutdowns during the second quarter of 2020. The Technical Nonwovens segment also experienced an increase in operating income with a $2.1 million improvement from the comparable period in 2020. The increase in Technical Nonwovens was primarily attributable to higher ~~labor and outsourcing costs as a result of workforce shortages related to COVID-19.~~sales volume driven by the recovery from the COVID-19 pandemic.

The chart below reflects the change in consolidated operating income by segment:

Consolidated net income was ~~$5.1~~$5.8 million, or ~~$0.28~~$0.32 per diluted share, for the three-month period ended ~~March 31,~~June 30, 2021 compared to a net loss of ~~$(56.4)~~$(5.9) million, or ~~$(3.25)~~$(0.34) per diluted share, in the corresponding period in 2020.

CONSOLIDATED RESULTS OF OPERATIONS

All of the following tabular comparisons are for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020, unless otherwise indicated.

Net Sales

For the Three Months Ended March 31,
In thousands 2021 2020
Net sales $ 227,099 $ 200,527
$ change 26,572 (17,498)
% change 13.3 % (8.0) %


	For the Three Months Ended						For the Six Months Ended
In thousands	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Net sales	$	221,744		$	146,160		$	448,843		$	346,687
$ change	75,584			(74,651)			102,156			(92,149)
% change	51.7		%	(33.8)		%	29.5		%	(21.0)		%

Net sales for the three-month period ended ~~March 31,~~June 30, 2021 increased ~~by $26.6~~$75.6 million, or ~~13.3%~~51.7%, compared to the ~~first quarter of~~corresponding period in 2020. ~~This~~The increase was primarily driven by ~~an increase in Performance Materials segment sales of $14.1 million, or 7.0% of consolidated net sales, related to~~ higher net sales in the ~~air filtration market in response to the COVID-19 pandemic combined with strong demand for advanced solutions and sealing products. In addition,~~ Thermal Acoustical Solutions ~~net sales increased $7.3~~segment of $39.4 million, or ~~3.6%~~27.0%, of consolidated net sales, as a result of ~~stronger automotive demand.~~improved demand across all regions driven by the absence of COVID-19-related production shutdowns in the prior year. In addition, the ~~first quarter of 2020, the COVID-19 pandemic had a significant adverse impact on the Thermal Acoustical segment's sales. The~~ Technical Nonwovens segment’s net sales increased $20.5 million, or 14.0%, of consolidated net sales, mainly due to higher sales volume mostly seen in geosynthetics and industrial air filtration. The Company’s Performance Materials segment net sales increased ~~$4.3~~$18.7 million, or ~~2.1%~~12.8%, of consolidated net sales, ~~driven~~ primarily ~~by a large increase in China sales~~ due to ~~the absence of the facility ramp-downs that heavily impacted the Company's China operations in the first quarter of 2020.~~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 ~~favorably~~positively impacted segment net sales by ~~$7.5~~$9.8 million, or ~~3.8%~~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 as the segment experienced temporary plant shutdowns across most of its operations during the comparable period in 2020. The Company’s Performance Materials segment net sales increased $32.8 million, or 9.5%, of consolidated net sales, primarily driven by higher sales for specialty filtration products and strong demand for sealing and specialty insulation products, as the segment continues to recover from the COVID-19 pandemic. In addition, the Technical Nonwovens segment’s net sales increased $24.7 million, or 7.1%, of consolidated net sales, mainly due to higher sales volume mostly in geosynthetics and industrial air filtration. Foreign currency translation positively impacted consolidated net sales by $17.3 million, or 5.0%.

Cost of Sales

For the Three Months Ended March 31,
In thousands 2021 2020
Cost of sales $ 178,550 $ 161,959
$ change 16,591 (14,010)
% change 10.2 % (8.0) %


	For the Three Months Ended						For the Six Months Ended
In thousands	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Cost of sales	$	173,958		$	117,742		$	352,508		$	279,701
$ change	56,216			(57,794)			72,807			(71,804)
% change	47.7		%	(32.9)		%	26.0		%	(20.4)		%

Cost of sales for the three-month period ended ~~March 31,~~June 30, 2021 increased by ~~$16.6~~$56.2 million, or ~~10.2%~~47.7%, compared to the corresponding period in 2020. The increase was primarily driven by higher sales volume across all three ~~segments.~~segments, which was mainly attributable to the absence of shutdowns that the Company endured during the comparable period in 2020 as a result of the COVID-19 pandemic. The Company's Thermal Acoustical Solutions segment incurred higher labor costs due to furloughs and layoffs implemented during the comparable period in 2020 in addition to higher material costs primarily driven by aluminum prices. The Performance Materials ~~segment experienced~~segment’s cost of sales increased mainly as a result of higher sales volume coupled with an increase in labor and material costs. Similarly, the increase in the Technical Nonwovens segment’s cost of sales were driven by an increase in sales volume ~~as a result of the higher demand for~~mainly in geosynthetics and industrial air filtration ~~and sealing~~ products in ~~response~~addition to the COVID-19 pandemic and an increase in labor costs, principally in the Thermal Acoustical Solutions segment, as a result COVID-19-related work force shortages in the early part of 2021. These increases were partially offset by favorable product mix in the Performance Materials segment.higher material costs. Foreign currency translation increased cost of sales by ~~$6.2~~$7.4 million, or ~~3.8%~~6.3%, in the ~~first quarter~~three-month period ended June 30, 2021.

Cost of sales for the six-month period ended June 30, 2021 increased by $72.8 million, or 26.0%, compared to the ~~first quarter~~corresponding period in 2020 as a result of ~~2020.~~the drivers noted above. Foreign currency translation increased cost of sales by $12.3 million, or 4.4%, in the six-month period ended June 30, 2021.

Gross Profit

For the Three Months Ended March 31,
In thousands 2021 2020
Gross profit $ 48,549 $ 38,568
$ change 9,981 (3,488)
% change 25.9 % (8.3) %
% of net sales 21.4 % 19.2 %


	For the Three Months Ended						For the Six Months Ended
In thousands	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Gross profit	$	47,786		$	28,418		$	96,335		$	66,986
$ change	19,368			(16,857)			29,349			(20,345)
% change	68.2		%	(37.2)		%	43.8		%	(23.3)		%
% of net sales	21.6		%	19.4		%	21.5		%	19.3		%

Gross ~~margin~~profit for the three-month period ended ~~March 31,~~June 30, 2021 increased ~~220 basis points~~$19.4 million, or 68.2%, compared to the corresponding period in 2020. The Performance Materials segment favorably impacted consolidated gross ~~margin~~profit by ~~approximately 390 basis points,~~$9.4 million, primarily due to ~~favorable product mix, driven by~~ higher sales for specialty filtration products and strong demand for ~~face mask media~~sealing and specialty insulation products. The Thermal Acoustical Solutions segment also drove positive results with a $6.7 million increase in ~~response~~gross profit, mostly attributable to the continued recovery from the COVID-19 pandemic, partially offset by higher material pricing mainly in aluminum and ~~higher sealing and advanced solutions sales. Lower fixed costs driven by~~aluminized steel. In addition, the ~~2020 restructuring activities also contributed to the Performance Materials segment's gross margin improvement. The~~ Technical Nonwovens segment favorably impacted consolidated gross ~~margin~~profit by ~~approximately 20 basis points due~~$3.4 million, primarily driven by higher demand in geosynthetics and industrial air filtration products.

Gross profit for the six-month period ended June 30, 2021 increased $29.3 million, or 43.8%, compared to the ~~absence~~corresponding period in 2020. The Performance Materials segment was the main driver with an increase of ~~a $0.9~~$20.6 million, ~~inventory charge in the first quarter of 2020 related to a flood in one of its European facilities.~~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 ~~segment adversely impacted~~segments also contributed favorably to consolidated gross ~~margin by approximately 190 basis points, primarily driven by the higher labor costs noted above.~~profit with increases of $5.3 million and $3.7 million, respectively.

Selling, Product Development and Administrative Expenses


	For the Three Months Ended						For the Six Months Ended
In thousands	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Selling, product development and administrative expenses	$	38,182		$	30,164		$	73,815		$	63,191
$ change	8,018			(1,932)			10,624			(1,911)
% change	26.6		%	(6.0)		%	16.8		%	(2.9)		%
% of net sales	17.2		%	20.6		%	16.4		%	18.2		%

~~Selling, Product Development and Administrative Expenses~~

For the Three Months Ended March 31,
In thousands 2021 2020
Selling, product development and administrative expenses $ 35,633 $ 33,027
$ change 2,606 21
% change 7.9 % 0.1 %
% of net sales 15.7 % 16.5 %

Selling, product development and administrative expenses for the three-month period ended ~~March 31,~~June 30, 2021 increased ~~$2.6~~$8.0 million, ~~but decreased 80 basis points as a percentage of consolidated net sales,~~or 26.6%, compared to the corresponding period in 2020. The increase ~~in selling, product development and administrative expenses were~~was driven by higher compensation-related expenses of ~~$2.8~~$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 ~~$2.1~~$0.8 million, and an increase in other general administrative costs of ~~$0.6~~$1.5 million. These increases were partially offset by ~~lower corporate strategic initiatives expenses of $1.8 million, and~~ a decrease in intangible assets amortization expense of ~~$1.1~~$1.0 million.

Selling, product development and administrative expenses for the six-month period ended June 30, 2021 increased $10.6 million, or 16.8%, compared to the corresponding period in 2020. The increase was driven by higher compensation-related expenses of $7.0 million, higher consulting expenses of $2.9 million, and increases of $0.7 million, $0.6 million, $1.5 million in corporate strategic initiatives expenses, computer maintenance and support, and other general administrative costs, respectively. These increases were partially offset by a decrease in intangible assets amortization expense of $2.1 million.

Impairment of Goodwill and Other Long-Lived Assets

For the Three Months Ended March 31,
In thousands 2021 2020
Impairment of goodwill and other long-lived assets $ — $ 61,109


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Impairment of goodwill and other long-lived assets	$	—	$	—	$	—	$	61,109

The Company recorded a goodwill impairment charge of $48.7 million in the Performance Materials segment during the three-month period ended March 30, 2020 due to lower demand in automotive and other end markets as a result of the COVID-19 pandemic. In addition, as a result of the COVID 19 pandemic and the Company's action plan to address the associated 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, which resulted in a long-lived asset impairment charge of $12.4 million during the three-month period ended March 31, 2020.

Restructuring Expenses

For the Three Months Ended March 31,
In thousands 2021 2020
Restructuring expenses $ 777 $ —


	For the Three Months Ended				For the Six Months Ended
In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Restructuring expenses	$	190	$	—	$	967	$	—

In the ~~first quarter of~~three and six-month periods ended June 30, 2021, the Company recorded pre-tax restructuring charges of ~~$0.8~~$0.2 million and $1.0 million, respectively, primarily consisting of severance costs and legal expenses.

(Gain) Loss On The Sale Of A ~~Businesses~~

For the Three Months Ended March 31,
In thousands 2021 2020
(Gain) loss on the sale of a business $ 698 $ —
Business


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

In the ~~first quarter of~~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 agreed to pay $1.8 million (€1.5 million) to the buyer and provide ~~$2.2~~$2.3 million (€1.9 million) in additional funding, net of cash and certain net working capital adjustments, to cover pension and restructuring liabilities recorded in 2020. As a result of the sale of the business, the Company recorded a pre-tax loss of ~~$0.7 million.~~$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 a working capital adjustment expected to be settled in 2022.

Employee Benefit Plans Settlement Expenses


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

2730

~~Employee Benefit Plans Settlement Expenses~~

For the Three Months Ended March 31,
In thousands 2021 2020
Employee benefit plans settlement expenses $ — $ 385

In the ~~first quarter of~~three-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.

Interest Expense

For the Three Months Ended March 31,
In thousands 2021 2020
Interest expense $ 3,448 $ 2,857
Weighted average interest rate during the year 5.1 % 4.4 %


	For the Three Months Ended						For the Six Months Ended
In thousands	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020
Interest expense	$	2,414		$	4,476		$	5,862		$	7,333
Weighted average interest rate during the year	4.4		%	5.2		%	3.7		%	4.8		%

The ~~increase~~decrease in interest expense for the ~~three-month~~three and six-month period ended ~~March 31,~~June 30, 2021 compared to the corresponding ~~period~~periods in 2020 was primarily due to ~~higher~~lower interest rates ~~related to the amendment~~as a result of the ~~2018 Amended Credit Agreement~~newly 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 reduction~~Notes 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 2019.~~Condensed Consolidated Financial Statements.

Other Income and Expense

For the Three Months Ended March 31,
In thousands 2021 2020
Other expense (income), net $ 86 $ (418)


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

Other expense (income), net, was ~~unfavorable~~favorable for the three-month period ended ~~March 31,~~June 30, 2021 and unfavorable for the six-month period ended June 30, 2021, compared to the corresponding ~~2020~~periods in 2020. The fluctuations of each period were primarily due to the impact of foreign currency ~~losses recognized~~translation 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

For the Three Months Ended March 31,
2021 2020
Effective income tax rate 35.7 % 3.5 %


	For the Three Months Ended				For the Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Effective income tax rate	13.9	%	9.2	%	25.8	%	4.0	%

2831

SEGMENT RESULTS

The following tables present segment net sales and operating income (loss) for the primary product categories for the ~~three-month~~three and six-month periods ended ~~March 31,~~June 30, 2021 and 2020.

Net sales by segment:


		For the Three Months Ended March 31,				For the Three Months Ended				For the Six Months Ended
In thousands	In thousands	2021		2020			In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Performance Materials Segment (1),(2):	Performance Materials Segment (1),(2):						Performance Materials Segment (1),(2):
Filtration Products	Filtration Products	$	34,346	$	25,887		Filtration Products	$	34,066	$	29,636	$	68,412	$	55,523
Sealing and Advanced Solutions Products	Sealing and Advanced Solutions Products	44,987		39,333			Sealing and Advanced Solutions Products	43,120		28,837		88,107		68,170
Performance Materials Segment net sales	Performance Materials Segment net sales	79,333		65,220			Performance Materials Segment net sales	77,186		58,473		156,519		123,693

Technical Nonwovens Segment:	Technical Nonwovens Segment:						Technical Nonwovens Segment:
Industrial Filtration Products	Industrial Filtration Products	36,401		31,369			Industrial Filtration Products	35,411		29,413		71,812		60,782
Advanced Materials Products (2)	Advanced Materials Products (2)	25,274		26,034			Advanced Materials Products (2)	37,068		22,594		62,342		48,628
Technical Nonwovens Segment net sales	Technical Nonwovens Segment net sales	61,675		57,403			Technical Nonwovens Segment net sales	72,479		52,007		134,154		109,410

Thermal Acoustical Solutions Segment:	Thermal Acoustical Solutions Segment:						Thermal Acoustical Solutions Segment:
Parts	Parts	86,494		77,321			Parts	71,222		32,448		157,716		109,769
Tooling	Tooling	4,550		6,440			Tooling	5,636		5,000		10,186		11,440
Thermal Acoustical Solutions Segment net sales	Thermal Acoustical Solutions Segment net sales	91,044		83,761			Thermal Acoustical Solutions Segment net sales	76,858		37,448		167,902		121,209

Eliminations and Other (2)	Eliminations and Other (2)	(4,953)		(5,857)			Eliminations and Other (2)	(4,779)		(1,768)		(9,732)		(7,625)
Consolidated Net Sales	Consolidated Net Sales	$	227,099	$	200,527		Consolidated Net Sales	$	221,744	$	146,160	$	448,843	$	346,687

Operating income (loss) by segment:


		For the Three Months Ended March 31,				For the Three Months Ended				For the Six Months Ended
In thousands	In thousands	2021		2020			In thousands	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Performance Materials (1),(3)	Performance Materials (1),(3)	$	15,296	$	(56,941)		Performance Materials (1),(3)	$	14,853	$	5,443	$	30,149	$	(51,498)
Technical Nonwovens (4)	Technical Nonwovens (4)	5,104		3,813			Technical Nonwovens (4)	8,765		6,684		13,869		10,497
Thermal Acoustical Solutions	Thermal Acoustical Solutions	1,674		5,628			Thermal Acoustical Solutions	(1,500)		(6,285)		174		(657)

Corporate Office Expenses	Corporate Office Expenses	(9,935)		(8,068)			Corporate Office Expenses	(12,704)		(7,588)		(22,639)		(15,656)
Consolidated Operating Income (Loss)	Consolidated Operating Income (Loss)	$	12,139	$	(55,568)		Consolidated Operating Income (Loss)	$	9,414	$	(1,746)	$	21,553	$	(57,314)