LYDALL INC /DE/ (Form: 10-K, Received: 02/26/2020 07:51:27)

(State or Other Jurisdiction of Incorporation or Organization)

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

One Colonial Road

Manchester

Connecticut

(Address of principal executive offices)

(Zip code)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2019

☐ 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)

Registrant’s telephone number, including area code: (860) 646-1233

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, $.01 par value	LDL	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

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 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 ☒

On June 28, 2019, the aggregate market value of the Registrant’s voting stock held by nonaffiliates was $340,893,927 based on the New York Stock Exchange closing price on that date. For purposes of this calculation, the Registrant has assumed that its directors and executive officers are affiliates.

On February 14, 2020, there were 17,621,746 shares of Common Stock outstanding, exclusive of treasury shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates information by reference to the definitive Proxy Statement to be distributed in connection with the Registrant’s

Annual Meeting of Stockholders to be held on April 24, 2020.

The exhibit index is located on pages 38 – 41.

INDEX TO ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2019



		Page Number
Cautionary Note Concerning Forward-Looking Statements		ii
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved Staff Comments	11
Item 2.	Properties	11
Item 3.	Legal Proceedings	12
Item 4.	Mine Safety Disclosures	12
	Information About Our Executive Officers	13
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	35
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	35
Item 9A.	Controls and Procedures	35
Item 9B.	Other Information	35
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	36
Item 14.	Principal Accounting Fees and Services	36
PART IV
Item 15.	Exhibits, Financial Statement Schedules	37
Item 16.	Form 10-K Summary	42
	Signatures	43

The information called for by Items 10, 11, 12, 13 and 14, to the extent not included in this document, is incorporated herein by reference to such information included in the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission and distributed in connection with Lydall, Inc.’s 2020 Annual Meeting of Stockholders to be held on April 24, 2020.

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements contained in this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. All such forward-looking statements are intended to provide management’s current expectations for the future operating and financial performance of the Company based on current assumptions relating to the Company’s business, the economy and future conditions. Forward-looking statements generally can be identified through the use of words such as “believes,” “anticipates,” “may,” “should,” “will,” “plans,” “projects,” “expects,” “expectations,” “estimates,” “forecasts,” “predicts,” “targets,” “prospects,” “strategy,” “signs” and other words of similar meaning in connection with the discussion of future operating or financial performance. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash and other measures of financial performance. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Forward-looking statements in this Annual Report on Form 10-K include, among others, statements relating to:


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


•	Outlook for first quarter and full year 2020;


•	Ability to improve operational effectiveness;


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


•	Growth opportunities in markets served by the Company;


•	Integration and financial performance of the Interface acquisition, acquired in August 2018;


•	Expected costs and future savings associated with restructuring or other cost savings programs;


•	Expected gross margin, operating margin and working capital improvements from cost control and other improvement programs;


•	Future impact of raw material commodity costs;


•	Product development and new business opportunities;


•	Future strategic transactions, including but not limited to: acquisitions, joint ventures, alliances, licensing agreements and divestitures;


•	Pension plan funding;


•	Future cash flow and uses of cash;


•	Future amounts of stock-based compensation expense;


•	Future earnings and other measurements of financial performance;


•	Ability to meet cash operating requirements;


•	Future levels of indebtedness and capital spending;


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


•	Future impact of the variability of interest rates and foreign currency exchange rates and impacts of hedging instruments;


•	Expected future impact of recently issued accounting pronouncements upon adoption;


•	Future effective income tax rates and realization of deferred tax assets;


•	Estimates of fair values of reporting units and long-lived assets used in assessing goodwill and long-lived assets for possible impairment; and


•	The expected outcomes of legal proceedings and other contingencies, including environmental matters.


•	Expected impact of the coronavirus on the Company's businesses

All forward-looking statements are inherently subject to a number of risks and uncertainties that could cause the actual results of the Company to differ materially from those reflected in forward-looking statements made in this Annual Report on Form 10-K, as well as in press releases and other statements made from time to time by the Company’s authorized officers. Such risks and uncertainties include, among others, worldwide economic cycles and political changes that affect the markets which the Company’s businesses serve, which could have an effect on demand for the Company’s products and impact the Company’s profitability; challenges encountered by the Company in execution of restructuring or other cost savings programs; challenges encountered in the integration and financial performance of the acquired Interface business; disruptions in the global credit and financial markets, including diminished liquidity and credit availability; changes in international trade agreements and trade policies including tariff regulation and trade restrictions; swings in consumer confidence and spending; unstable economic growth; volatility in foreign currency exchange rates; raw material pricing and supply issues; fluctuations in unemployment rates; retention of key employees and successful execution of the Company's CEO transition; increases in fuel prices; changes in tax laws; and outcomes of legal proceedings, claims and investigations; and cybersecurity attacks or intrusions that could adversely impact the Company's business, as well as other risks and uncertainties identified in Part I, Item 1A — Risk Factors of this Annual Report on Form 10-K. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

iii

PART I



Item 1.	BUSINESS

Lydall, Inc. has been incorporated in Delaware since 1987 after originally being incorporated in Connecticut in 1969. The principal executive offices are located in Manchester, Connecticut. The Company designs and manufactures specialty engineered nonwoven filtration media, industrial thermal insulating solutions, and thermal and acoustical barriers for filtration/separation and heat abatement and sound dampening applications.

Lydall serves a number of markets. The Company’s products are primarily sold directly to customers through an internal sales force and distributed via common carrier. The majority of products are sold to original equipment manufacturers and tier-one suppliers. The Company differentiates itself through high-quality, specialty engineered innovative products, application engineering and exceptional customer service. Lydall has a number of domestic and foreign competitors for its products, most of whom are either privately owned or divisions of larger companies.

The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements are made available free of charge through the Investor Relations Section of the Company’s Internet website at www.lydall.com after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “Commission”) and are also available on the Commission’s website at www.sec.gov. Information found on these websites is not part of this Form 10-K.

SEGMENTS

The Company’s reportable segments are Performance Materials, Technical Nonwovens and Thermal Acoustical Solutions. The Performance Materials segment reports the results of the Filtration, and Sealing and Advanced Solutions businesses. The Technical Nonwovens segment reports the results of Industrial Filtration and Advanced Materials products. The Thermal Acoustical Solutions segment reports the results of parts and tooling products. For additional information regarding the Company’s reportable segments, refer to Note 15 in the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Performance Materials Segment

The Performance Materials segment includes filtration media solutions primarily for air, fluid power, life science and industrial applications (“Filtration”), and sealing and gasket solutions, thermal insulation, energy storage, and other engineered products (“Sealing and Advanced Solutions”).

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

Sealing and Advanced Solutions products include nonwoven specialty engineered materials for a multitude of applications. Interface fiber-reinforced gasket materials serve the heavy-duty diesel, automobile, small engine, transmission and compressor markets. These products handle demanding sealing challenges with a diverse range of metallic, non-metallic, rubber-coated and laminate materials that comprise the extensive Sealing materials portfolio. Interface Engineered Components are ready to use soft and hard gasket parts sold directly to OEMs and aftermarket applications. An example is Select-a-Seal® rubber-edged composite (REC) technology that provides robust sealing, compression, adhesion, and shear strength for driveline applications. Advanced Solutions’ nonwoven veils, papers and specialty composites for the building products, appliance, energy and industrial markets include Manniglas® Thermal Insulation Papers, and Lytherm® Insulation Media for high temperature technology applications. Lydall’s Cryotherm® Super-Insulating Media, CRS-Wrap® Super-Insulating Media and Cryo-Lite® Cryogenic Insulation

products are industry standards for state-of-the-art cryogenic insulation designs used by manufacturers of cryogenic equipment for liquid gas storage, piping, and transportation. Additional specialty composite materials include specialty fiber calendar bowl products to service the printing and textile industries and press pad materials for industrial lamination processes.

Technical Nonwovens Segment

The Technical Nonwovens segment primarily produces needle punch nonwoven solutions for a multitude of industries and applications. Products are manufactured and sold globally under the leading brands of Lydall Industrial Filtration, Southern Felt, Gutsche, and Texel. Industrial Filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications. Nonwoven filter media is an effective solution to satisfy increasing emission control regulations in a wide range of industries, including power, cement, steel, asphalt, incineration, mining, food, and pharmaceutical. Advanced Materials products include nonwoven rolled-good media used in commercial applications and predominantly serves the geosynthetics, automotive, industrial, medical, and safety apparel markets. Automotive media is provided to Tier I/II suppliers as well as the Company's Thermal Acoustical Solutions segment.

On May 9, 2019, the Company sold its Texel Geosol, Inc. ("Geosol") business, a subsidiary of the Company's Texel Technical Materials, Inc. ("Texel") business, for a cash purchase price of $3.0 million. The Company believes the sale of this business is aligned with the Company's strategy to focus on its core technologies and capabilities that improve its effectiveness and positioning as a specialty materials provider.

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

Thermal Acoustical Solutions Segment

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

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

GENERAL BUSINESS INFORMATION

Lydall holds a number of patents, trademarks and licenses. While no single patent, trademark or license is critical to the success of Lydall, together these intangible assets are of considerable value to the Company.

Typically, the Company’s business can be slightly stronger in the first half of the calendar year given the timing of customer order patterns and planned customer shutdowns in North America and Europe that typically occur in the third and fourth quarters of each year. Lydall maintains levels of inventory and grants credit terms that are normal within the industries it serves. The Company uses a wide range of raw materials in the manufacturing of its products, including aluminum and other metals to manufacture most of its automotive heat shields and various glass and petroleum derived fibers in its Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions segments. The majority of raw materials used are generally available from a variety of suppliers.

Sales to Ford Motor Company accounted for 11.8%, 14.8% and 17.3% of Lydall’s net sales in the years ended December 31, 2019, 2018 and 2017, respectively. No other customers accounted for more than 10% of Lydall's net sales in such years.

Backlog at January 31, 2020 was $126.7 million. Lydall’s backlog was $119.1 million at December 31, 2019, $114.4 million at December 31, 2018, and $109.0 million at December 31, 2017. Thermal Acoustical Solutions segment backlog, which comprises the majority of total backlog, may be impacted by various assumptions, including future automotive production volume estimates, changes in program launch timing and changes in customer development plans. The Company believes that global automotive orders are typically fulfilled within a two month period and therefore represent a reasonable time frame to be included as Thermal Acoustical Solutions segment backlog.

No material portion of Lydall’s business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of any governmental body.

Lydall believes that its plants and equipment are overall, in substantial compliance with applicable federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment (See Item 3, Legal Proceedings).

As of December 31, 2019, Lydall employed approximately 3,250 people. The Company has approximately 250 employees in the United States under union contracts expiring between September 2020 through September 2022. All employees at the facilities in France and the Netherlands are covered under a National Collective Bargaining Agreement. Certain salaried and all hourly employees in Germany, the United Kingdom, China, and Canada are also covered under some form of a National Collective Bargaining Agreement. Lydall considers its employee relationships to be satisfactory.

There are no significant anticipated operating risks related to foreign investment law, expropriation, or availability of material, labor or energy. The foreign and domestic operations attempt to limit foreign currency exchange transaction risk by completing transactions in functional currencies whenever practical or through the use of foreign currency forward exchange contracts when deemed appropriate.



Item 1A.	RISK FACTORS

The reader should carefully review and consider the risk factors discussed below. Any and all of these risk factors could materially affect the Company’s business, financial condition, future results of operations or cash flows and possibly lead to a decline in Lydall’s stock price. The risks, uncertainties and other factors described below constitute all material risk factors known to management as of the date of this report.

Global political or economic changes may negatively impact Lydall’s business - Ongoing instability or changes in a country's or region's economic or political conditions could adversely affect demand for the Company’s products and impact profitability. Among other factors, political conflicts or changes, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, swings in consumer confidence and spending, unstable economic growth and fluctuations in unemployment rates causing economic instability could have a negative impact on the Company’s results of operations, financial condition and liquidity. These factors also make it difficult to accurately forecast and plan future business activities.

Further, the implementation of more restrictive trade policies, including the imposition of tariffs, or the renegotiation of existing trade agreements by the U.S. or by countries where the Company sells products or procures materials incorporated into our products could negatively impact the Company's business, results of operations and financial condition. For example, a government's adoption of "buy national" policies or retaliation by another government against such policies, such as tariffs, could have a negative impact on the Company's results of operations by decreasing the demand for Company products in certain countries and/or increasing the prices on raw materials that are critical to the Company's businesses.

The United Kingdom's exit effective January 31, 2020 from the European Union (generally referred to as “BREXIT”) could cause disruptions to, and create uncertainty surrounding, Lydall's business, including affecting our relationships with existing and potential customers, suppliers, and employees. The effects of BREXIT will depend on any agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or more permanently. BREXIT also may create global economic uncertainty, which may cause the Company's customers and potential customers to monitor their costs and reduce their budgets for Lydall's products. Any of these effects of BREXIT, among others, could materially adversely affect Lydall's business, business opportunities, results of operations, financial condition, and cash flows.

The Company’s foreign and export sales were 53.1% of net sales in 2019, 53.5% in 2018, and 54.2% in 2017. If the global economy were to take a significant downturn, depending on the length, duration and severity of such downturn, the Company’s business and financial statements could be adversely affected.

The Company’s Thermal Acoustical Solutions segment is tied primarily to general economic and automotive industry conditions - Consolidated sales to the automotive market accounted for 42.9% of the Company’s net sales in 2019, 46.3% in 2018, and 48.3% in 2017. The segment net sales from products manufactured in North America were 69.9%, 69.6%, and 72.3% in 2019, 2018, and 2017, respectively, with the remainder manufactured in Europe and Asia. This segment is closely tied to general economic and automotive industry conditions as demand for vehicles depends largely on the strength of the economy, employment levels, consumer confidence levels, the availability and cost of credit, the cost of fuel, legislative and regulatory oversight and trade agreements. These factors have had, and could continue to have, a substantial impact on the segment. Adverse developments could reduce demand for new vehicles, causing Lydall’s customers to reduce their vehicle production in North America, Europe and Asia and, as a result, demand for Company products would be adversely affected.

The Company’s quarterly operating results may fluctuate; as a result, the Company may fail to meet or exceed the expectations of research analysts or investors, which could cause Lydall’s stock price to decline - The Company’s quarterly results are subject to significant fluctuations. Operating results have fluctuated as a result of many factors, including size and timing of orders and shipments, loss of significant customers, product mix, reductions in customer pricing, customer or company shut-downs, technological change, operational efficiencies and inefficiencies, competition, changes in tax laws and deferred tax asset valuation allowances, strategic initiatives, severance and recruiting charges, asset impairment, penalties or fines and general economic conditions. In addition, lower revenues may cause asset utilization to decrease, resulting in the under absorption of the Company’s fixed costs, which could negatively impact gross margins. Additionally, the Company’s gross margins vary among its product groups and have fluctuated from quarter to quarter as a result of shifts in product mix. Any and all of these factors could affect the

Company’s business, financial condition, future results of operations or cash flows and possibly lead to a decline in Lydall’s stock price.

Implementation of the Company’s strategic initiatives may not be successful - As part of Lydall’s business strategy, the Company continues to review various strategic and business opportunities to grow the business and to assess the profitability and growth potential for each of its existing businesses. The Company may incur significant professional services expenses associated with the review and potential implementation of strategic business opportunities. The Company cannot predict with certainty whether any recent or future strategic transactions will be beneficial to the Company. Among other things, future performance could be impacted by the Company’s ability to:


•	Identify and effectively complete strategic transactions;


•	Obtain adequate financing to fund strategic initiatives;


•	Successfully integrate and manage acquired businesses that involve numerous operational and financial risks, including difficulties in the integration of acquired operations, diversion of management's attention from other business concerns, managing assets in multiple geographic regions and potential loss of key employees and key customers of acquired operations;


•	Improve operating margins through its Lean Six Sigma initiatives which are intended to improve processes and work flow, improve customer service, reduce costs and leverage synergies across the Company; and


•	Successfully invest and deploy capital investments to support our business and commitments to our customers.

In order to meet its strategic objectives, the Company may also divest assets and/or businesses. Successfully executing such a strategy depends on various factors, including effectively transferring assets, liabilities, contracts, facilities and employees to any purchaser, identifying and separating the intellectual property to be divested from the intellectual property that the Company wishes to retain, reducing or eliminating fixed costs previously associated with the divested assets or business, and collecting the proceeds from any divestitures.

The Company may be unable to realize expected benefits from cost reduction, restructuring and consolidation efforts and profitability may be hurt or business otherwise might be adversely affected - In order to operate more efficiently and control costs, the Company announces from time to time restructuring or consolidation plans, which include workforce reductions as well as facility consolidations and other cost reduction initiatives. These plans are intended to generate operating expense savings through direct cost and indirect overhead expense reductions as well as other savings. The Company may undertake workforce reductions or restructuring actions in the future. These types of cost reduction and restructuring activities are complex. If the Company does not successfully manage current restructuring activities, or any other restructuring activities that it may undertake in the future, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted. Risks associated with these actions and other workforce management issues include unforeseen delays in implementation of anticipated workforce reductions, additional unexpected costs, adverse effects on employee morale and the failure to meet operational targets due to the loss of employees, any of which may impair our ability to achieve anticipated cost reductions or may otherwise harm the business, which could have a material adverse effect on competitive position, results of operations, cash flows or financial condition.

The Company may not have adequate cash to fund its operating requirements - The principal source of the Company’s liquidity is operating cash flows. Other significant factors that affect the overall management of liquidity include capital expenditures, investments in businesses, acquisitions, income tax payments, pension funding, outcomes of contingencies and availability of lines of credit and long-term financing. The Company’s liquidity can be impacted by the Company’s ability to:


•	Manage working capital and the level of future profitability. The consolidated cash balance is impacted by capital equipment and inventory investments that may be made in response to changing market conditions;

•

Satisfy covenants and other obligations under its existing credit facility, which expires in August 2023, and includes a consolidated net leverage ratio and consolidated fixed charge coverage ratio, which could limit or prohibit Lydall’s ability to borrow funds. Additionally, these debt covenants and other obligations could limit the Company’s ability to make acquisitions, incur additional debt, make investments, or consummate asset sales and obtain additional financing from other sources.

Incurring a substantial amount of indebtedness could have an adverse effect on the Company’s financial health and make it more difficult for Lydall to obtain additional financing in the future - The Company incurred a substantial amount of debt to fund the purchase price of Interface Performance Materials in August 2018. Incurring this additional debt may have an adverse effect on the Company’s financial condition and may limit Lydall’s ability to obtain any necessary financing in the future for working capital, capital expenditures, future acquisitions, debt service requirements or other purposes. Additionally, the Company may not be able to generate sufficient cash flow or otherwise obtain funds necessary to meet the additional debt obligations. On August 31, 2018, the Company amended and restated its $175 million senior secured revolving credit agreement (the "Amended Credit Agreement"), which increased the available borrowing from $175 million to $450 million. See Note 8 in the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information. Any default under the Amended Credit Agreement would likely result in the acceleration of the repayment obligations to our lenders.

The Company is subject to the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which impose restrictions on the Company and violations of which may carry substantial fines and penalties and result in criminal sanctions - The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions, including anti-bribery legislation in the United Kingdom, generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. The Company’s policies mandate compliance with these anti-bribery laws, violations of which often carry substantial fines and penalties and could result in criminal sanctions against the Company, Lydall’s officers or employees. The Company cannot assure that its internal control policies and procedures always will protect it from reckless or other inappropriate acts committed by the Company’s affiliates, employees or agents. Violations of these laws, or allegations of such violations, could have a material adverse effect on Lydall’s business, or financial statements and could possibly lead to a decline in Lydall's stock price.

Raw material pricing, supply issues, and disruptions in transportation networks could affect all of the Company’s businesses - The Thermal Acoustical Solutions segment uses aluminum and other metals to manufacture most of its automotive heat shields. The Thermal Acoustical Solutions and Technical Nonwovens segments use various petroleum-derivative fibers in manufacturing products, and the Performance Materials segment uses various glass-derivative fibers in manufacturing products. If the prices and duties of these raw materials, or any other raw materials used in the Company’s businesses increase, the Company may not have the ability to pass all of the incremental cost increases on to its customers. In addition, an interruption in the ability of the Company to source such materials, including government trade restrictions, could negatively impact operations and sales.

Impairment of the Company’s goodwill or other long-lived assets has required, and may in the future require recording significant charges to earnings - The Company reviews its long-lived assets for impairment at the asset group level when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is also tested by the Company for impairment at the reporting unit level during the fourth quarter of each year. Factors that may be considered a change in circumstances, indicating that the carrying value of goodwill or other long-lived assets may not be recoverable, include, but are not limited to, a decline in the Company’s stock price and market capitalization, reduced future cash flow estimates, and slower growth rates. Certain factors led to an impairment of the Performance Materials segment goodwill and other long-lived assets aggregating to $64.2 million in the fourth quarter of 2019. See Note 7, Impairment, in the Consolidated Financial Statements included in this Annual Report on Form 10-K for further discussion of the impairments.

Volatility in the securities markets, interest rates, actuarial assumptions and other factors could substantially increase the Company’s costs and funding for its defined benefit pension plans - The Company’s defined benefit pension plans are funded with trust assets invested in a diversified portfolio of securities. Changes in interest rates, mortality rates, investment returns, and the market value of plan assets may affect the funded status and cause volatility in the net periodic benefit cost and future funding requirements of such plans. A significant increase in benefit plan liabilities or future funding requirements could have a negative impact on the Company’s financial statements.

The Company is involved in certain legal proceedings and may become involved in future legal proceedings all of which could give rise to liability - The Company is involved in legal proceedings that, from time to time, may be material. These proceedings may include, without limitation, commercial or contractual disputes, intellectual property matters, personal injury claims, stockholder claims, and employment matters. No assurances can be given that such proceedings and claims will not have a material adverse impact on the Company’s financial statements.

The Company is subject to legal and compliance risks and oversight on a global basis and developments in these risks and related matters could have a material adverse effect on Lydall's consolidated financial position, results of

operations or liquidity - The Company is subject to a variety of laws and regulations that govern our business both in the United States and internationally, including antitrust laws. Violations of these laws and regulations can result in significant fines, penalties or other damages being imposed by regulatory authorities. Expenses and fines arising out of or related to these investigations and related claims can also be significant. Despite meaningful measures that the Company undertakes to seek to ensure lawful conduct, which include training and internal control policies, these measures may not always prevent Lydall's employees or agents from violating the laws and regulations. As a result, the Company could be subject to criminal and civil penalties, disgorgement, further changes or enhancements to our procedures, policies and controls, personnel changes or other remedial actions. Violations of laws, or allegations of such violations, could disrupt operations, involve significant management distraction and result in a material adverse effect on the Company's competitive position, results of operations, cash flows or financial condition.

Changes in Accounting Standards could have a material adverse effect on Lydall's business - The Company’s accounting and financial reporting policies conform to U.S. generally accepted accounting principles (“U.S. GAAP”), which are periodically revised and/or expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, the Company is required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB and the SEC. Such new financial accounting standards may change the financial accounting or reporting standards that govern the preparation of the Company’s Consolidated Financial Statements. During 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases, which provided for a wide-ranging change to lease accounting. During 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, which provided for comprehensive changes in revenue recognition and superseded nearly all existing U.S. GAAP. Implementing changes required by new standards, requirements or laws require interpretation of rules and development of new accounting policies and internal controls that if not appropriately applied could result in financial statement errors, deficiencies in internal control as well as significant costs to implement.

Changes in tax rates and exposure to additional income tax liabilities could have a material adverse effect on Lydall's consolidated financial position - The Company is subject to risks with respect to changes in tax law and rates, changes in rules related to accounting for income taxes, or adverse outcomes from tax audits that are in process or future tax audits in various jurisdictions in which the Company operates. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act were broad and complex. In addition, certain jurisdictions in which the Company operates have statutory rates greater than or less than the United States statutory rate. Changes in the mix and source of earnings between jurisdictions could have a significant impact on the Company’s overall effective tax rate.

Ineffective internal controls could impact our business and operating results - The Company's internal controls over financial reporting may not prevent or detect misstatements because of their inherent limitations in detecting human errors, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company fails to maintain the adequacy of internal controls, including any failure to implement required new or improved controls; otherwise fails to prevent financial reporting misstatements; or if the Company experiences difficulties in implementing internal controls of acquired businesses, Lydall's operating results could be negatively impacted, and the Company could fail to meet its financial reporting obligations.

Realization of deferred tax assets is not assured - The Company maintains valuation allowances against certain deferred tax assets where realization is not reasonably assured. The Company evaluates the likelihood of the realization of all deferred tax assets and reduces the carrying amount to the extent it believes a portion will not be realized. Changes in these assessments can result in an increase or reduction to valuation allowances on deferred tax assets and could have a significant impact on the Company’s overall effective tax rate.

The Company’s future success depends upon its ability to continue to innovate, improve its existing products, develop and market new products, and identify and enter new markets - Improved performance and growth are partially dependent on improvements to existing products and new product introductions planned for the future. Delays in improving or developing products and long customer qualification cycles may impact the success of new product programs. The degree of success of new product programs could impact the Company’s future results. Developments by other companies of new or improved products, processes or technologies may make Lydall's products or proposed products obsolete or less competitive and may negatively impact the Company's net sales. Accordingly, the ability to compete is in part dependent on the Company's ability to continually offer enhanced and improved products that meet the changing requirements of Lydall's customers. If the Company fails to develop new products or enhance existing products, it could have a material adverse effect on the Company's business, financial condition or results of operations.

The Company’s foreign operations expose it to business, economic, political, legal, regulatory and other risks - The Company believes that in order to be competitive and grow its businesses, it needs to maintain significant foreign operations. Foreign sales were $358.7 million, $363.7 million and $322.4 million for the years ended December 31, 2019, 2018, and 2017, respectively. Foreign operations are subject to inherent risks including political and economic conditions in various countries, unexpected changes in regulatory requirements (including tariff regulations and trade restrictions), longer accounts receivable collection cycles and potentially adverse tax consequences. In addition, a strain of coronavirus surfaced in China in early 2020, resulting in travel restrictions and extended shutdowns of certain businesses in the region. The impact of the coronavirus on the Company's businesses is uncertain at this time and will depend on future developments, but prolonged closures in China may disrupt the Company's operations and the operations of suppliers and customers. The Company has little control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter its business practices in time to avoid the adverse effect of any of these possible changes.

Foreign currency exchange rate fluctuations and limitations on repatriation of earnings may affect the Company’s results of operations - The Company’s financial results are exposed to currency exchange rate fluctuations and an increased proportion of its assets, liabilities and expenses are denominated in non-U.S. dollar currencies. There can be significant volatility in foreign currencies that impact the Company, primarily the British Pound Sterling, Euro, Chinese Yuan, and Canadian Dollar. The Company’s foreign and domestic operations seek to limit foreign currency exchange transaction risk by completing transactions in functional currencies whenever practical or through the use of foreign currency forward exchange contracts when deemed appropriate. If the Company does not successfully hedge its currency exposure, changes in the rate of exchange between these currencies and the U.S. dollar may negatively impact the Company. Translation of the results of operations and financial condition of its foreign operations into U.S. dollars may be affected by exchange rate fluctuations. Additionally, limitations on the repatriation of earnings, including imposition or increase of withholding and other taxes on remittances, may limit or negatively impact the Company’s ability to redeploy or distribute cash. The Company receives a material portion of its revenue from foreign operations. Foreign operations generated approximately 42.8%, 46.3% and 46.1% of total net sales in 2019, 2018, and 2017, respectively.

The Company's hedging activities could negatively impact results of operations and cash flows - From time to time, the Company enters into derivatives to manage exposure to interest rate and currency movements. If the Company does not execute contracts that effectively mitigate the Company's economic exposure to interest rates and currency rates, elects to not apply hedge accounting, or fails to comply with the complex accounting requirements for hedging transactions, the Company's results of operations and cash flows could be volatile, as well as negatively impacted.

The Company’s manufacturing processes are subject to inherent risk - The Company operates a number of manufacturing facilities and relies upon an effective workforce and properly performing machinery and equipment. The workforce may experience a relatively high turnover rate, causing inefficiencies associated with retraining and rehiring. The equipment and systems necessary for such operations may break down, perform poorly or fail, and possibly cause higher manufacturing and delivery costs. Manufacturing processes affect the Company’s ability to deliver quality products on a timely basis, and delays in delivering products to customers could result in the Company incurring increased freight costs and penalties from customers.

Increases in energy pricing can affect all of the Company’s businesses - Higher energy costs at the Company’s manufacturing plants or higher energy costs passed on from the Company’s vendors could impact the Company’s profitability.

The Company’s resources are limited and may impair its ability to capitalize on changes in technology, competition and pricing - The industries in which the Company sells its products are highly competitive and many of the competitors are affiliated with entities that are substantially larger and that have greater financial, technical and marketing resources. The Company’s more limited resources and relatively diverse product mix may limit or impair its ability to capitalize on changes in technology, competition and pricing.

The Company’s products may fail to perform as expected, subjecting it to warranty or other claims from its customers -If such failure results in, or is alleged to result in, bodily injury and/or property damage or other losses, the Company may be subject to product liability lawsuits, product recalls and other claims, any of which could have a material adverse impact on results of operations and cash flows.

If the Company does not retain its key employees, the Company’s ability to execute its business strategy could be adversely affected - The Company’s success, in part, depends on key managerial, engineering, sales and marketing

and technical personnel and its ability to continue to attract and retain additional personnel. The loss of certain key personnel could have a material, adverse effect upon the Company’s business and results of operations. There is no assurance that the Company can retain its key employees or that it can attract competent and effective new or replacement personnel in the future.

The Company uses a combination of insurance and self-insurance to provide for potential liabilities - For property risk, workers’ compensation, automobile and general liability, director and officers’ liability and employee health care benefits, the Company uses a combination of insurance and self-insurance. The Company estimates the liabilities associated with the risks retained by Lydall, in part, by considering historical claims experience and other actuarial assumptions which, by their nature, are subject to a high degree of variability.

The Company’s current reserve levels may not be adequate to cover potential exposures - Estimates and assumptions may affect the reserves that the Company has established to cover uncollectible accounts receivable, excess or obsolete inventory, income tax valuation and fair market value write downs of certain assets and various liabilities. Actual results could differ from those estimates.

The Company is subject to environmental laws and regulations that could increase its expense and affect operating results - The Company is subject to federal, state, local, and foreign environmental, health and safety laws and regulations that affect operations. New and changing environmental laws and regulations may impact the products manufactured and sold to customers. In order to maintain compliance with such laws and regulations, the Company must devote significant resources and maintain and administer adequate policies, procedures and oversight. Should the Company fail to do these things, it could be negatively impacted by lower net sales, fines, legal costs, and clean-up requirements.

The Company may incur liabilities under various government statutes for the investigation and cleanup of contaminants previously released into the environment. Although there is no certainty, the Company does not anticipate that compliance with current provisions relating to the protection of the environment or that any payments the Company may be required to make for cleanup liabilities will have a material adverse effect upon the Company's cash flows, competitive position, financial condition or results of operations. Current and on-going environmental matters are further addressed in Item 3, Legal Proceedings, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17 to the Consolidated Financial Statements in this 2019 Annual Report on Form 10-K.

The Company may be unable to adequately protect its intellectual property, which may limit its ability to compete effectively - The Company owns intellectual property, including patents, trademarks and trade secrets, which play an important role in helping the Company to maintain its competitive position in a number of markets. The Company is subject to risks with respect to (i) changes in the intellectual property landscape of markets in which it competes; (ii) the potential assertion of intellectual property-related claims against the Company; (iii) the misappropriation by third parties of our intellectual property (e.g., disclosure of trade secrets by former employees); (iv) the failure to maximize or successfully assert its intellectual property rights; and (iv) significant technological developments by others.

Disruptions may occur to the Company’s operations relating to information technology - The capacity, reliability and security of the Company’s information technology (“IT”) hardware and software infrastructure and the ability to expand and update this infrastructure in response to the Company’s changing needs are important to the operation of the businesses. Also, any inadequacy, interruption, loss of data, integration failure or security failure of the Company’s IT technology could harm its ability to effectively operate its business, which could adversely impact the Company’s results of operations and cash flows.

Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to the Company’s systems, networks, and data - Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cyber-related attacks pose a risk to the security of the Company’s systems and networks and the confidentiality, availability and integrity of the Company’s data. While the Company attempts to mitigate these risks by employing a number of measures, including employee training, monitoring and testing, and maintenance of protective systems and contingency plans, the Company remains vulnerable to additional known or unknown threats. The Company also may have access to sensitive, confidential or personal data or information in certain of Lydall’s businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Despite efforts made by the Company to protect sensitive, confidential or personal data or information, the Company may be vulnerable to security breaches, ransomware, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromising or loss of sensitive, confidential or personal

data or information and could adversely impact the Company's results of operations and cash flows. Although the Company carries cybersecurity insurance, in the event of a cyber incident, that insurance may not be extensive enough or adequate in scope of coverage or amount to cover damages the Company may incur. In addition, a cyber-related attack could result in other negative consequences, including loss of information, damage to the Company’s reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.

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

The Company could be subject to work stoppages or other business interruptions as a result of its unionized work force - A portion of the Company’s hourly employees are represented by various union locals and covered by collective bargaining agreements. These agreements contain various expiration dates and must be renegotiated upon expiration. If the Company is unable to negotiate any of its collective bargaining agreements on satisfactory terms prior to expiration, the Company could experience disruptions in its operations which could have a material adverse effect on operations.

The Company could be negatively affected as a result of the actions of activist stockholders - Over the last few years, proxy contests and other forms of stockholder activism have been directed against numerous public companies. The Company could become engaged in a solicitation, or proxy contest, or experience other stockholder activism, in the future. Activist stockholders may advocate for certain governance and strategic changes at the Company. In the event of stockholder activism, particularly with respect to matters which Lydall's Board of Directors, in exercising their fiduciary duties, disagree with or have determined not to pursue, the Company could be adversely affected because responding to actions by activist stockholders can be costly and time-consuming, disrupting operations and diverting the attention of management, and perceived uncertainties as to future direction may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel, business partners and customers.



Item 1B.	UNRESOLVED STAFF COMMENTS

None.



Item 2.	PROPERTIES

The principal properties of the Company as of December 31, 2019 are situated at the following locations and have the following characteristics:



Location	Primary Business Segment/General Description	Type of Interest
Hamptonville, North Carolina	Thermal Acoustical Solutions – Product Manufacturing	Owned
Yadkinville, North Carolina	Thermal Acoustical Solutions – Product Manufacturing	Leased
Meinerzhagen, Germany	Thermal Acoustical Solutions – Product Manufacturing	Owned
Saint-Nazaire, France	Thermal Acoustical Solutions – Product Manufacturing	Owned
Taicang, China	Thermal Acoustical Solutions – Product Manufacturing	Leased
Green Island, New York	Performance Materials – Specialty Media Manufacturing	Owned
Rochester, New Hampshire	Performance Materials – Specialty Media Manufacturing	Owned
Saint-Rivalain, France	Performance Materials – Specialty Media Manufacturing	Owned
Fulton, New York	Performance Materials – Specialty Media Manufacturing	Owned
Marshalltown, Iowa	Performance Materials – Specialty Media Manufacturing	Owned
Altenkirchen, Germany	Performance Materials – Specialty Media Manufacturing	Owned
St. Elzear, Quebec, Canada	Technical Nonwovens - Filtration Media Manufacturing	Owned
St. Marie, Quebec, Canada	Technical Nonwovens - Filtration Media Manufacturing	Owned
Rossendale, United Kingdom	Technical Nonwovens - Filtration Media Manufacturing	Owned
North Augusta, South Carolina	Technical Nonwovens - Filtration Media Manufacturing	Owned
Wuxi, China	Technical Nonwovens - Filtration Media Manufacturing	Leased
Fulda, Germany	Technical Nonwovens - Filtration Media Manufacturing	Leased
Manchester, Connecticut	Corporate Office	Owned

For additional information regarding lease obligations, see Note 10 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company considers its properties to be in good operating condition and suitable and adequate for its present needs. In addition to the properties listed above, the Company has several leases for sales offices and warehouses in the United States, Europe and Asia, which the Company believes are immaterial individually and in the aggregate.



Item 3.	LEGAL PROCEEDINGS

The Company is subject to legal proceedings, claims, investigations and inquiries that arise in the ordinary course of business such as, but not limited to, actions with respect to commercial, intellectual property, employment, personal injury, and environmental matters. The Company believes that it has meritorious defenses against the claims currently asserted against it and intends to defend them vigorously. While the outcome of litigation is inherently uncertain and the Company cannot be sure that it will prevail in any of the cases, subject to the matter referenced below, the Company is not aware of any matters pending that are expected to have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

In the fourth quarter of 2016, as part of a groundwater discharging permitting process, water samples collected from wells and process water basins at the Company’s Rochester, New Hampshire manufacturing facility, within the Performance Materials segment, showed concentrations of Perfluorinated Compounds (“PFCs”) 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, required the Company to take action to investigate and remediate the impacts in accordance with standards established by the NHDES. The Company conducted a site investigation, the scope of which was reviewed by the NHDES, in order to assess the extent of potential soil and groundwater contamination and develop a remedial action. Based on input received from NHDES in 2017 with regard to the scope of the site investigation, the Company recorded $0.2 million of expense. In 2018, the Company received a response from the NHDES to the site investigation report outlining proposed remedial actions. The Company recorded an additional $0.1 million of expense in 2018 associated with the expected costs to remediate the impacts of the discharge of regulated contaminants in accordance with standards established by the NHDES. During 2018, the environmental liability was fully reduced reflecting payments made to vendors, resulting in no balance at December 31, 2018. Additionally, the Company incurred $0.2 million of capital expenditures in 2018, in relation to the lining of the Company's fresh water waste lagoons. In the third quarter of 2019, the Company reviewed interim remedial actions with the NHDES. The Company has not yet received further direction from the NHDES. The site investigation is ongoing. The Company cannot be sure that costs will not exceed the current estimates until this matter is closed with the NHDES, nor that any future corrective action at this location would not have a material effect on the Company’s financial condition, results of operations or cash flows.

In December 2018, the New York State Department of Environmental Conservation (“NYDEC”) informed the Company that the acquired Interface site located at Hoosick Falls, NY will be the subject of an investigation into the possibility of it being an inactive hazardous disposable waste site. The letter specifically references perflourinated compounds or per- and polyfluoroalkyl substances (“PFAS”) that have been detected in a nearby water supply, soil and/or surface water. Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source. The NYDEC approved a site characterization plan in December 2019. The Company recorded expense of $0.3 million in the fourth quarter of 2019 as a result of the site characterization plan preparation and site characterization activities, which will continue into the first quarter of 2020. The Company does not know the scope or extent of its future obligations, if any, that may arise from the site investigation and therefore is unable to estimate the cost of any future corrective action. Accordingly, the Company cannot assure that the costs of any future corrective at this location would not have a material effect on the Company's financial condition, results of operations or cash flows.

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



Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The executive officers of Lydall, Inc. or its subsidiaries, together with the offices presently held by them, their business experience since January 1, 2015, and their age as of March 2, 2020, the record date of the Company’s 2020 Annual Meeting, are as follows:



Name	Age	Position and Date of Appointment	Other Business Experience Since 2015
Sara A. Greenstein	45	President, Chief Executive Officer (November 18, 2019)	Senior Vice President of Consumer Solutions, United States Steel Corporation, an integrated steel producer (2014 - 2019)
Randall B. Gonzales	48	Executive Vice President and Chief Financial Officer (March 12, 2018)	Chief Financial Officer and Treasurer, Progress Rail Services Corporation, a wholly-owned subsidiary of Caterpillar Inc. (2014-2018), a diversified global supplier of railroad and transit system products and services.
Chad A. McDaniel	46	Executive Vice President, Chief Administrative Officer and General Counsel (October 15, 2019); formerly Senior Vice President, Chief Administrative Officer and General Counsel (May 13, 2015); formerly Vice President, General Counsel and Secretary (May 10, 2013)	Director, Chase Corporation (2016), NYSE: CCF, a manufacturer of protective materials for high reliability applications.
Joseph A. Abbruzzi	61	President, Lydall Thermal Acoustical Solutions (August 30, 2019); formerly President, Technical Nonwovens, (February 20, 2014); formerly Sr. Vice President, General Manager, Lydall Thermal/Acoustical Fibers (March 14, 2011)	Not applicable
Robert B. Junker	51	President, Lydall Thermal Acoustical Solutions (October 14, 2019)	Vice President, Operations, Parker Hannifin (2017 - 2019), a global leader in motion and control technologies; President, Purolator Advanced Filtration Group, CLARCOR (2016-2017), a manufacturer of filtration systems and packaging materials; President & CEO, Hengst North America, a division of Hengst Automotive (2010 - 2016), an international developer and manufacturer of filtration and fluid management solutions for the automotive and engine industry.
James V. Laughlan (1)	47	Vice President, Chief Accounting Officer and Treasurer (March 26, 2013); formerly Chief Accounting Officer, Controller and Treasurer (July 27, 2012); formerly Chief Accounting Officer and Controller (March 29, 2010)	Not applicable
Paul A. Marold	58	President, Performance Materials (February 15, 2016)	Chief Operating Officer, Sontara, a division of Jacob Holm & Sons (2014-2016), a global manufacturer of spunlace nonwoven fabrics and finished goods.

There is no family relationship among any of the Company’s directors or executive officers.

(1) On January 20, 2020, James V. Laughlan gave notice of his resignation of employment with the Company effective February 28, 2020.

PART II



Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

COMMON STOCK

The Company’s Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol LDL. As of December 31, 2019, 5,422 stockholders of record held 17,622,191 shares of Lydall’s Common Stock, $0.01 par value.

ISSUER PURCHASES OF EQUITY SECURITIES

The Company acquired 7,122 shares through withholding during 2019, pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, which provide for the Company to withhold the number of shares having fair value equal to each recipient’s tax withholding due. The following table details the activity for the fourth quarter ended December 31, 2019.



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
Activity October 1, 2019 - October 31, 2019	505	$	23.65	—	—
Activity November 1, 2019 - November 30, 2019	—	$	—	—	—
Activity December 1, 2019 - December 31, 2019	4,139	$	19.33	—	—
Total	4,644	$	19.80	—	—

PERFORMANCE GRAPH

The following performance graph and related information shall not be deemed to be “soliciting material” or “filed” for purposes of Section 18 of the Exchange Act, nor shall such information be incorporated by reference into any filing of Lydall, Inc. under the Exchange Act, except to the extent that the Company specifically incorporates it by reference in such filing.

The following graph compares the cumulative total return on Lydall’s shares over the past five years with the cumulative total return on shares of companies comprising the Standard & Poor’s Smallcap 600 Index and the Russell 2000 Index. Cumulative total return is measured assuming an initial investment of $100 on December 31, 2014, including reinvestment of dividends, if any. Due to the diversity of niche businesses that the Company participates in, it is difficult to identify a reasonable peer group or one industry or line-of-business index for comparison purposes. Thus, Lydall has chosen to compare its performance to the Standard & Poor’s Smallcap 600 Index and to the Russell 2000 Index, which are comprised of issuers with generally similar market capitalizations to that of the Company.



	12/14	12/15	12/16	12/17	12/18	12/19
Lydall, Inc.	100.00	108.10	188.45	154.63	61.88	62.52
S&P Smallcap 600	100.00	98.03	124.06	140.48	128.56	157.85
Russell 2000	100.00	95.59	115.95	132.94	118.30	148.49



*	$100 invested on 12/31/14 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.



Item 6.	SELECTED FINANCIAL DATA

FIVE-YEAR SUMMARY



In thousands except per share amounts and ratio data	2019 (1)			2018 (2)			2017			2016 (3)			2015 (4)
Financial results for the year
Net sales	$	837,398		$	785,897		$	698,437		$	566,852		$	524,505
Gross margin	18.1		%	19.4		%	23.4		%	24.5		%	23.4		%
Impairment of goodwill and other long-lived assets	$	64,206		$	—		$	—		$	—		$	—
Operating margin	(4.6		)%	6.3		%	9.5		%	9.8		%	10.1		%
Employee benefit plans settlement expenses	$	25,247		$	—		$	—		$	—		$	—
Net (loss) income	$	(70,513	)	$	34,944		$	49,317		$	37,187		$	46,259
Depreciation and amortization	$	48,623		$	32,731		$	25,939		$	19,401		$	17,162
Capital expenditures	$	36,433		$	29,630		$	24,915		$	28,159		$	21,555
Common stock per share data
Basic net income	$	(4.08	)	$	2.03		$	2.89		$	2.20		$	2.76
Diluted net income	$	(4.08	)	$	2.02		$	2.85		$	2.16		$	2.71
Financial position
Working capital	$	153,739		$	195,732		$	171,389		$	165,162		$	158,303
Property, plant and equipment, net	$	221,642		$	213,369		$	170,322		$	160,795		$	114,433
Goodwill	$	133,912		$	196,963		$	68,969		$	63,606		$	16,841
Other intangible assets, net	$	115,577		$	136,604		$	40,543		$	41,447		$	5,399
Total assets	$	785,937		$	872,686		$	560,871		$	527,029		$	358,260
Long-term debt, net of current maturities	$	262,713		$	314,641		$	76,913		$	128,141		$	20,156
Total stockholders’ equity	$	318,420		$	369,275		$	353,396		$	273,456		$	245,225
Total debt to total capitalization	46.1		%	46.8		%	17.9		%	32.0		%	7.7		%

Please read Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this Annual Report on Form 10-K and the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for specific changes in the Company and its markets that provide context to the above data for the years 2017 through 2019 including, without limitation, discussions concerning (i) how global economic uncertainties have affected the Company’s results; (ii) the impact of the acquisitions and divestitures; (iii) the impact of foreign currency translation; (iv) consolidation and restructuring charges; (v) the impact of the adoption of new accounting standards, including ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” and ASU 2016-02, "Leases (Topic 842)" and (vi) the Company’s effective tax rate.

(1) During 2019, the Company sold its Geosol business, a subsidiary of the Company's Texel business. As a result, the Company recognized a gain on the sale of $1.5 million, reported as non-operating income, and net income of $1.3 million, or $0.07 per diluted share, for the year ended December 31, 2019.

(2) During 2018, the Company completed the acquisitions of the Precision Custom Coatings ("PCC") and Interface businesses. The results of PCC and Interface, from their respective acquisition dates on July 12, 2018 and August 31, 2018, respectively, have been included within the Company's Consolidated Financial Statements as of and for the year ended December 31, 2018 and contributed to the increase in the balance sheet line items above, compared to 2017.

(3) During 2016, the Company completed the acquisitions of the Texel and Gutsche businesses. The results of Texel and Gutsche, from their respective acquisition dates on July 7, 2016 and December 31, 2016, were included within the Company's Consolidated Financial Statements as of and for the year ended December 31, 2016 and contributed to the increase in the balance sheet line items above, compared to 2015.

(4) On January 30, 2015, the Company sold all of the outstanding shares of common stock of its Life Sciences Vital Fluids business, reported as Other Products and Services. As a result, the Company recognized a gain on the sale of $18.6 million, reported as non-operating income, and net income of $11.8 million, or $0.69 per diluted share, for the year ended December 31, 2015.



Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of this Annual Report on Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of Lydall’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Overview and Outlook

Lydall, Inc. and its subsidiaries (collectively, the “Company” or “Lydall”) designs and manufactures specialty engineered nonwoven filtration media, industrial thermal insulating solutions, and thermal and acoustical barriers for filtration/separation and heat abatement and sound dampening applications. Lydall principally conducts its business through three reportable segments: Performance Materials, Technical Nonwovens, and Thermal Acoustical Solutions, with sales globally.

On August 31, 2018, the Company acquired an engineered sealing materials business operating under Interface Performance Materials ("Interface"), based in Lancaster, Pennsylvania for $268.4 million, net of cash acquired of $5.2 million, subject to a post-closing purchase price adjustment in the second quarter of 2019 which reduced the purchase price to $267.0 million. A globally-recognized leader in the delivery of engineered sealing solutions, the Interface operations manufacture wet-laid gasket and specialty materials primarily serving OEM and Tier I manufacturers in the agriculture, construction, earthmoving, industrial, and automotive segments. The acquired business has been included in the Company's Performance Materials operating segment since the date of acquisition.

Effective January 1, 2018, the Company's former Thermal/Acoustical Metals and Thermal/Acoustical Fibers operating segments were combined into a single operating segment named Thermal Acoustical Solutions. The Thermal Acoustical Solutions segment offers a full range of innovative engineered products tailored for the transportation and industrial sectors to thermally shield sensitive components from high heat, improve exhaust gas treatment and lower harmful emissions as well as assist in the reduction of noise, vibration and harshness (NVH). Within the transportation sector, Lydall’s products are found in the interior (dash insulators, cabin flooring), underbody (wheel well, aerodynamic belly pan, fuel tank, exhaust, tunnel, spare tire) and under hood (engine compartment, outer dash, powertrain, catalytic converter, turbo charger, manifolds) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

Financial Highlights

Below are financial highlights comparing Lydall’s 2019 results to its 2018 results:


•	Consolidated net sales were $837.4 million in 2019, compared to $785.9 million in 2018, an increase of $51.5 million, or 6.6%, with the increase primarily attributable to a full year of Interface, which was acquired on August 31, 2018, being included in the Company's results. The change in consolidated net sales is summarized in the following table:



Components	Change in Net Sales			Percent Change
Acquisitions and divestitures	$	81,531		10.4	%
Parts volume and pricing change	(12,592		)	(1.6	)%
Change in tooling sales	(1,170		)	(0.1	)%
Foreign currency translation	(16,268		)	(2.1	)%
Total	$	51,501		6.6	%

•

Gross margin decreased to 18.1% in 2019 compared to 19.4% in 2018, primarily driven by the Thermal Acoustical Solutions segment, and to a lesser extent the Technical Nonwovens segment. The Thermal Acoustical Solutions segment negatively impacted consolidated gross margin by approximately 220 basis points due to higher manufacturing and logistics costs to meet customer demand, combined with unfavorable pricing and product mix. The Technical Nonwovens segment reported improved segment gross margin primarily driven by lower segment restructuring expenses and cost savings associated with those restructuring activities, but negatively impacted consolidated gross margin by approximately 60 basis points due to consolidated segment mix. While the Performance Materials segment reported lower gross margin, the segment favorably impacted consolidated gross margin by approximately 150 basis points from improved segment mix, driven by higher margin sealing and advanced solutions products sales, primarily from the acquired Interface business since August 31, 2018.

•

Operating loss was $(38.8) million in 2019, compared to operating income of $49.2 million. The operating loss was driven by fourth quarter 2019 goodwill and other long-lived asset impairment charges in the Performance Materials segment of $64.2 million and incremental 2019 intangible assets amortization of $12.2 million in the Performance Materials segment, combined with incremental manufacturing and logistics costs in the Thermal Acoustical Solutions segment. The following items are included in operating income (loss) for 2019 and 2018 and impact the comparability of each year:



	2019				2018
Components (in thousands except per share amounts)	Operating income effect		EPS impact		Operating income effect		EPS impact
Impairment of goodwill and long-lived assets	$	64,206	$	3.72	$	—	$	—
Intangible assets amortization expenses	$	21,481	$	0.98	$	9,308	$	0.40
Strategic initiatives expenses	$	1,456	$	0.07	$	3,631	$	0.18
TNW restructuring expenses	$	767	$	0.04	$	2,296	$	0.12
Inventory step-up purchase accounting adjustments	$	—	$	—	$	1,975	$	0.09
CEO transition expenses	$	2,259	$	0.10	$	—	$	—
Reduction-in-force severance expenses	$	1,943	$	0.10	$	—	$	—


•	In the second quarter of 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan, which was partially offset by a gain recognized from the withdrawal from a multi-employer pension plan in the fourth quarter of 2019 and resulted in net non-cash settlement expenses of $25.2 million, or $0.86 per diluted share, in 2019.


•	Net loss was $(70.5) million, or $(4.08) per diluted share in 2019, compared to net income of $34.9 million, or 2.02 per diluted share in 2018.

Liquidity

Cash was $51.3 million at December 31, 2019, compared to $49.2 million at December 31, 2018. Net cash provided by operations was $86.9 million in 2019 compared to $44.7 million in 2018, with the improvement primarily driven by lower accounts receivable. Cash generation of $86.9 million in 2019 enabled the Company to pay down $52 million of outstanding borrowings from its Amended Credit Agreement.

As of December 31, 2019, there was $121.6 million of availability under the Company's Amended Credit Agreement. The Company's cash from operations and capacity under its Amended Credit Agreement provide for sufficient cash availability to support organic growth programs and fund capital investments.

Outlook

While the Company has seen some recent stabilization in the end markets for Interface sealing products, weaker demand in European industrial markets is impacting all of the Company's segments. In China, the Company is closely monitoring the impact of the coronavirus on its businesses and expects that its first quarter results will be negatively impacted, but is uncertain with regards to the severity and duration of the impact.

The Company has started a strategic review, which it expects to conclude by the end of the second quarter of 2020, to evaluate Lydall's portfolio and end markets. The objective is to prioritize strategic actions that optimize capital allocation and drive long-term shareholder value. As part of the process, the Company is identifying specific near-term opportunities for improvement in commercial performance, cost structure and working capital.

CONSOLIDATED RESULTS OF OPERATIONS

Net Sales



In thousands of dollars	2019		Percent Change		2018		Percent Change		2017
Net sales	$	837,398	6.6	%	$	785,897	12.5	%	$	698,437

Net sales for 2019 increased by $51.5 million, or 6.6%, compared to 2018. This increase was related to incremental sealing and advanced solutions sales of $76.0 million, primarily from the acquisition of Interface, which led to increased Performance Materials net sales of $76.3 million, or 9.7% of consolidated net sales. Net sales decreased in the Technical Nonwovens segment by $20.5 million, net of intercompany sales, driven primarily by a decline in demand in the industrial filtration market, primarily in China and Europe. Additionally, the divestiture of the Geosol business in the second quarter of 2019 reduced net sales by $7.0 million in 2019 compared to 2018. Net sales decreased by $3.9 million in the Thermal Acoustical Solutions segment due to decreased tooling sales of $2.2 million, related to the timing of new platform launches, and lower parts sales of $1.6 million as reduced demand in North America was partially offset by increased demand in Europe and Asia. Foreign currency translation had a negative impact on net sales of $16.3 million, or 2.1% of consolidated net sales, impacting the Technical Nonwovens segment by $7.3 million, or 0.9% of consolidated net sales, the Thermal Acoustical Solutions segment by $6.4 million, or 0.8% of consolidated net sales and the Performance Materials segment by $2.6 million, or 0.3% of consolidated net sales.

Cost of Sales



In thousands of dollars	2019		Percent Change		2018		Percent Change		2017
Cost of sales	$	685,608	8.3	%	$	633,252	18.3	%	$	535,078

Cost of sales for 2019 increased by $52.4 million, or 8.3%, compared to 2018. The increase was primarily related to increased net sales of sealing and advanced solutions products from the Interface acquisition of $76.0 million, within the Performance Materials segment. Additionally, labor inefficiencies and increased overhead costs drove increased cost of sales in 2019 compared to 2018 within the Performance Materials segment. Also, the Thermal Acoustical Solutions segment contributed increased cost of sales of $10.5 million on reduced sales levels in 2019 compared to 2018, primarily due to operating inefficiencies in its North America and Europe facilities. This increase was partially offset by decreased cost of sales of $20.0 million in the Technical Nonwovens segment related to reduced sales volumes and cost savings from segment restructuring activities in 2019 compared to 2018. Included in these variances was foreign currency translation which decreased cost of sales by $14.2 million, or 2.2%, in 2019 compared to 2018.

Gross Profit



In thousands of dollars	2019			2018			2017
Gross profit	$	151,790		$	152,645		$	163,359
Gross margin	18.1		%	19.4		%	23.4		%

Gross margin for 2019 decreased by 130 basis points compared to 2018. The Thermal Acoustical Solutions segment negatively impacted consolidated gross margin by approximately 220 basis points primarily due to higher labor, outsourcing and logistics costs associated with increased headcount, temporary labor and equipment inefficiencies, particularly in North America and Europe, to meet customer demand. Additionally, reduced volume on higher margin accoustical parts and increased volume on lower margin thermal parts combined with lower customer pricing drove further gross margin reduction in 2019 compared to 2018. The Technical Nonwovens segment reported improved segment gross margin due to lower segment restructuring charges of $1.3 million, favorable absorption of overhead costs related to cost savings associated with segment restructuring activities and increased pricing in 2019 compared to 2018. This favorability was partially offset by increased raw material commodity costs. Overall, the Technical Nonwovens segment negatively impacted consolidated gross margin by approximately 60 basis points due to consolidated segment mix. While the Performance Materials segment reported lower gross margin, the segment favorably impacted consolidated gross margin by approximately 150 basis points primarily driven by the inclusion of higher margin Interface sealing and advanced solutions products sales.

Selling, Product Development and Administrative Expenses



In thousands of dollars	2019			2018			2017
Selling, product development and administrative expenses	$	126,409		$	103,457		$	97,159
Percentage of net sales	15.1		%	13.2		%	13.9		%

Selling, product development and administrative expenses for 2019 increased by $23.0 million, or 190 basis points, compared to 2018. This increase was primarily related to the Performance Materials segment acquisition of Interface on August 31, 2018, contributing $25.0 million of incremental expense, including $12.7 million, or 160 basis points, of increased intangible asset amortization as a percentage of consolidated net sales. There were no Interface selling, product development and administrative expenses included in the Performance Materials segment in the first eight months of 2018. Remaining selling, product development and administrative expenses were lower by $2.1 million, or 20 basis points as a percentage of net sales, due to lower corporate strategic initiatives costs of $2.2 million, lower salaries, benefits and sales commissions of $2.0 million and reduced various product development costs of $1.1 million in 2019 compared to 2018. These decreases were partially offset by CEO transition expenses of $2.3 million and increased severance costs of $1.7 million, including $1.0 million related to the reduction-in-force severance that occurred in the fourth quarter of 2019.

Impairment of Goodwill and Other Long-Lived Assets



In thousands of dollars	2019		2018		2017
Impairment of goodwill and other long-lived assets	$	64,206	$	—	$	—

During the fourth quarter of 2019 the Company recorded a goodwill impairment charge of $63.0 million in the Performance Materials segment. Lower than expected 2019 financial results from slowed demand in the sealing products' markets, combined with revised future financial projections, resulted in a reduction in the long-term forecasts of sales and cash generation as compared to prior projections for the Performance Materials reporting unit. As a result, the carrying value of the Performance Materials reporting unit exceeded its fair value by $63.0 million, resulting in the impairment charge.

Employee Benefit Plans Settlement Expenses



In thousands of dollars	2019		2018		2017
Employee Benefit Plans Settlement Expenses	$	25,247	$	—	$	—

In the second quarter of 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan ("Pension Settlement") through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts. The settlement, funded with Pension Plan assets, resulted in a non-cash settlement expense of $25.7 million in 2019 related to the recognition of accumulated deferred actuarial losses. This expense was partially offset by a gain recognized from the withdrawal from a multi-employer pension plan in the fourth quarter of 2019.

Interest Expense



In thousands of dollars	2019			2018			2017
Interest expense	$	14,262		$	6,212		$	2,720
Weighted average interest rate during the year	4.3		%	3.4		%	2.2		%

The increase in interest expense for 2019 compared to 2018 was due to greater average outstanding borrowings as a result of the Interface acquisition on August 31, 2018 and increased interest rates.

Other Income and Expense



In thousands of dollars	2019			2018			2017
Other (income) expense, net	$	(1,257	)	$	(289	)	$	2,161

The increase in other income, net, for 2019 compared to 2018 was primarily related to the gain on sale from a divestiture of $1.5 million and a gain recognized for a change in estimate of the contingent purchase price of the PCC acquisition of $1.2 million, partially offset by incremental pension expense from the Interface pension plans and foreign currency losses recognized on the revaluation of cash, trade payables and receivables and intercompany loans denominated in currencies other than the functional currencies of the Company's subsidiaries.

Income Taxes



	2019		2018		2017
Effective income tax rate	8.3	%	19.5	%	19.5	%

In 2019, the Company had a pre-tax loss primarily resulting from a goodwill impairment charge of $63.0 million, recorded in the fourth quarter of 2019. The impairment significantly impacted the Company's effective tax rate because goodwill impairment expense is not deductible for income taxes purposes, resulting in a low effective tax rate in 2019 when in a pre-tax loss position. Partially offsetting the impairment was a tax benefit of $4.5 million recorded in the second quarter of 2019 related to the reclassification of stranded tax effects from accumulated other comprehensive income. Also, the Company's effective tax rate in 2019 was negatively impacted by losses in jurisdictions in which no tax benefit can be recognized. In 2018, the effective tax rate of 19.5% was below the federal statutory rate and included valuation allowance activity of $0.6 million. This was primarily a result of the fourth quarter partial release of valuation allowance on the Netherlands net operating losses offset by a valuation allowance addition in Germany.

The Company and its subsidiaries file a consolidated federal income tax return, as well as returns required by various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities, including such major jurisdictions as the United States, China, France, Germany, Hong Kong, the Netherlands, Canada and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain income tax matters through the year ended December 31, 2016 and it is reasonably expected that net unrecognized

benefits of $1.6 million may be recognized. The total amount of unrecognized tax benefits that would affect the effective tax rate if recognized is $3.2 million as of December 31, 2019. However, $1.3 million of the unrecognized tax benefits, if recognized, would be offset in pre-tax income by the reversal of indemnification assets due to the Company. The Company is no longer subject to U.S. federal examinations for years before 2016, state and local examinations for years before 2013, and non-U.S. income tax examinations for years before 2003.

SEGMENT RESULTS



Consolidated Net Sales	For the Years Ended December 31,
In thousands	2019			2018			2017
Performance Materials Segment (1):
Filtration	$	93,314		$	93,089		$	87,173
Sealing and Advanced Solutions	152,166			76,128			29,496
Performance Materials Segment net sales	245,480			169,217			116,669
Technical Nonwovens Segment (2):
Industrial Filtration	144,320			157,606			147,087
Advanced Materials (3)	111,026			119,465			121,990
Technical Nonwovens net sales	255,346			277,071			269,077
Thermal Acoustical Solutions Segment:
Parts	326,436			328,057			318,217
Tooling	35,141			37,370			23,888
Thermal Acoustical Solutions Segment net sales	361,577			365,427			342,105
Eliminations and Other (3)	(25,005		)	(25,818		)	(29,414		)
Consolidated Net Sales	$	837,398		$	785,897		$	698,437



Operating Income	For the Years Ended December 31,
In thousands	2019			2018			2017
Performance Materials Segment (1)	$	(59,804	)	$	13,139		$	12,321
Technical Nonwovens Segment (2)	22,895			21,323			26,047
Thermal Acoustical Solutions Segment	23,590			38,085			53,132
Corporate Office Expenses	(25,506		)	(23,359		)	(25,300		)
Consolidated Operating Income	$	(38,825	)	$	49,188		$	66,200


(1)	The Performance Materials segment reports the results of Interface and PCC for the periods following the dates of acquisitions of August 31, 2018 and July 12, 2018, respectively, and included $64.2 million in impairment charges and $12.7 million of incremental intangible assets amortization for the year ended December 30, 2019.


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


(3)	Included in the Technical Nonwovens segment and Eliminations and Other is $21.0 million, $22.2 million and $26.5 million in intercompany sales to the Thermal Acoustical Solutions segment for the years ended December 31, 2019, 2018 and 2017, respectively.

Performance Materials Segment

Segment net sales increased $76.3 million in 2019 compared to 2018. The increase was primarily due to increased sealing and advanced solutions sales of $76.0 million, predominantly from the Interface acquisition which occurred on August 31, 2018. Remaining Performance Materials net sales increased $0.2 million, primarily related to increased air filtration sales in Europe. Foreign currency translation had a negative impact on segment net sales of $2.6 million, or 1.6%, in 2019 compared to 2018.

The Performance Materials segment reported an operating loss of ($59.8) million in 2019, compared to operating income of $13.1 million in 2018. The change in operating income of $72.9 million was primarily driven by goodwill and other long-lived assets impairment charges of $64.2 million and incremental intangible assets amortization of $12.7 million. These items were partially offset by increased operating income from a full year of contribution by the Interface business that was acquired in August 2018, offset in part by decreased operating income from the remaining segment businesses. The remaining businesses were impacted by unfavorable start-up costs from a new product line, under absorption of fixed costs, labor inefficiencies and unfavorable product mix. After excluding the impairment charges and incremental intangibles assets amortization, selling, general and administration expenses were favorable by 80 basis points in 2019 compared to 2018.

Technical Nonwovens Segment

Segment net sales decreased $21.7 million, or 7.8%, in 2019 compared to 2018. Foreign currency translation had a negative impact on segment net sales of $7.3 million, or 2.6%, in 2019 compared to 2018. Industrial filtration net sales decreased $13.3 million, or 8.4%, primarily driven by weakness in the Asia markets that have been impacted by uncertainties around trade regulations and reduced demand in the European and Canadian markets, combined with the negative impact of foreign currency translation of $4.8 million in 2019 compared to 2018. Additionally, advanced materials sales decreased $8.4 million, or 7.1%, primarily driven by $7.0 million of lower sales due to the divestiture of the Geosol business in the second quarter of 2019, the negative impact of $2.4 million of foreign currency translation and $1.2 million less sales of automotive rolled-good material for use in the Thermal Acoustical Solutions segment manufacturing process. These decreases were partially offset by increased demand and pricing in North America in 2019 compared to 2018.

The Technical Nonwovens segment reported operating income of $22.9 million, or 9.0% of net sales, in 2019 compared to $21.3 million, or 7.7% of net sales, in 2018. The increase in operating income of $1.6 million and operating margin of 130 basis points was attributable to improved gross margin of 90 basis points and a reduction in selling, product development and administrative expenses of $3.3 million, or 30 basis points as a percentage of net sales. Gross margin was favorably impacted by reduced restructuring costs of $1.3 million, or 50 basis points. Additionally, increased customer pricing, partially offset by higher aramid raw material costs, and favorable absorption of fixed costs related to cost savings from segment restructuring activities led to improved gross margin in 2019 compared to 2018. The decrease in selling, product development and administrative expenses was primarily related to decreased salaries and benefits of $1.5 million, reduced amortization of intangibles expense of $0.5 million, lower restructuring expenses of $0.3 million coupled with cost savings related to segment restructuring activities that concluded in the fourth quarter of 2019.

Thermal Acoustical Solutions Segment

Segment net sales decreased $3.9 million, or 1.1%, in 2019 compared to 2018. The decrease was related to the negative impact of foreign currency translation of $6.4 million, or 1.7%, on total segment net sales, coupled with decreased tooling sales of $2.2 million, or 6.0%, or when excluding foreign currency translation, $1.3 million, due to the timing of new platform launches in North America and Europe. Parts net sales decreased $1.6 million, or 0.5%, or when excluding foreign currency translation, increased $3.9 million, or 1.2%, primarily due to improved demand in Europe and Asia. Additionally, parts sales in North America were negatively impacted by approximately $4.2 million due to the GM strike in 2019.

The Thermal Acoustical Solutions segment reported operating income of $23.6 million, or 6.5% of net sales, in 2019, compared to operating income of $38.1 million, or 10.4% of net sales, in 2018. The decrease in operating income of $14.5 million and operating margin of 390 basis points was primarily due to lower gross margin of 380 basis points. Overhead costs increased by approximately 190 basis points, primarily due to increased outsourcing and expedited freight expenses caused by equipment and other inefficiencies in Europe and North America to meet customer delivery requirements. Additionally, labor costs increased by approximately 140 basis points, primarily related to increased headcount and temporary labor, particularly in North America and Europe to meet customer demand. Finally, gross margin was further reduced by unfavorable pricing of approximately 60 basis points. Selling, product development and administrative expenses increased $0.2 million as was essentially flat compared to 2018 as a percentage of net sales.

Corporate Office Expenses

The increase in corporate office expenses of $2.1 million in 2019 compared to 2018 was primarily due to CEO transition expenses of $2.3 million, increased stock based compensation expenses of $0.9 million, higher consulting and other professional fees of $0.8 million and increased Board of Director's fees of $0.5 million. These increases were partially offset by lower strategic initiatives costs of $2.2 million.

LIQUIDITY AND CAPITAL RESOURCES



	For the Year Ended December 31,
In thousands except ratio data	2019			2018			2017
Cash and cash equivalents	$	51,331		$	49,237		$	59,875
Cash provided by operating activities	$	86,862		$	44,739		$	62,936
Cash used for investing activities	$	(32,385	)	$	(300,965	)	$	(27,329	)
Cash (used for) provided by financing activities	$	(51,927	)	$	247,476		$	(53,209	)
Depreciation and amortization	$	49,000		$	33,162		$	26,130
Capital expenditures	$	(35,850	)	$	(31,291	)	$	(27,006	)
Total debt	$	272,641		$	324,813		$	77,190
Total capitalization (debt plus equity)	$	591,061		$	694,088		$	430,586
Total debt to total capitalization	46.1		%	46.8		%	17.9		%

The Company assesses its liquidity in terms of its ability to generate cash to fund operating, investing and financing activities. The principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect the overall management of liquidity include capital expenditures, investments in businesses, strategic transactions, income tax payments, debt service payments, outcomes of contingencies, foreign currency exchange rates and employee benefit plan funding. The Company manages worldwide cash requirements by considering available funds among domestic and foreign subsidiaries.The Company expects to finance its 2020 operating cash and capital spending requirements from existing cash balances, cash provided by operating activities and through borrowings under the Amended Credit Agreement, as needed.

At December 31, 2019, the Company held $51.3 million in cash and cash equivalents, including $15.6 million in the U.S. with the remaining held by foreign subsidiaries.

Operating Cash Flows

Net cash provided by operating activities in 2019 was $86.9 million compared with $44.7 million in 2018. In 2019, net loss and non-cash adjustments were $54.6 million compared to net income and non-cash adjustments of $72.9 million in 2018. Since December 31, 2018, net operating assets and liabilities decreased by $32.3 million, compared to 2018 when net operating assets and liabilities increased $28.2 million from December 31, 2017. The decrease of $32.3 million since December 31, 2018 was primarily due to a reduction of $37.5 million in accounts receivable principally due to lower net sales in the fourth quarter of 2019 compared to the fourth quarter of 2018, as well as the Company selling approximately $15.0 million in trade accounts receivable balances to a banking institution that would have normally been collected in the first quarter of 2020.

Investing Cash Flows

In 2019, net cash used for investing activities was $32.4 million compared to $301.0 million in 2018. In 2019 and 2018, net cash used for investing activities consisted of capital expenditures of $35.9 million and $31.3 million, respectively. In 2019, net cash used for investing activities included cash proceeds of $1.4 million from a final purchase price adjustment for the Interface acquisition less cash outflows of $0.5 million to fund an acquisition. The Company also received proceeds of $2.3 million from the divestiture of the Geosol business in 2019. Investing activities in 2018 consisted of cash outflows of $268.4 million to fund the Interface acquisition, net of cash acquired of $5.2 million and cash outflows of $1.6 million to fund the PCC acquisition.

Financing Cash Flows

In 2019, net cash used for financing activities was $51.9 million compared to net cash provided by financing activities of $247.5 million in 2018. The Company made debt repayments of $52.2 million in 2019. In 2018, the Company borrowed $338.0 million from its Amended Credit Agreement, of which the Company repaid $76.6 million in outstanding borrowings under the previous facility, and used the remaining proceeds to fund the purchase of the Interface acquisition in the third quarter of 2018. The Company repaid $13.0 million of those borrowings under the Amended Credit

Agreement during the fourth quarter of 2018. In 2018, the Company acquired $1.0 million in company stock through its equity compensation plans and received $0.9 million from the exercise of stock options.

Financing Arrangements

The Amended Credit Agreement increased the available borrowing from $175 million to $450 million and added three additional lenders and extended the maturity date from July 7, 2021 to August 31, 2023.

Under the terms of the Amended Credit Agreement, the lenders are providing up to a $450 million credit facility (the “Facility”) to the Company, under which the lenders provided a term loan commitment of $200 million and revolving loans to or for the benefit of the Company and its subsidiaries of up to $250 million. The Facility may be increased by an aggregate amount not to exceed $150 million through an accordion feature, subject to specified conditions. The Facility is secured by substantially all of the assets of the Company.

Interest is charged on borrowings at the Company’s option of either: (i) Base Rate plus the Applicable Rate, or (ii) the Eurodollar Rate plus the Applicable Rate. The Base Rate is a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by Bank of America, and (c) the Eurocurrency Rate plus 1.00%. The Eurocurrency Rate means (i) if denominated in LIBOR quoted currency, a fluctuating LIBOR per annum rate equal to the London Interbank Offered Rate; (ii) if denominated in Canadian Dollars, the rate per annum equal to the Canadian Dollar Offered Rate; or (iii) the rate per annum as designated with respect to such alternative currency at the time such alternative currency is approved by the Lenders. The Applicable Rate is determined based on the Company’s Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). The Applicable Rate added to the Base Rate Committed Loans ranges from 0.00% to 1.25%, and the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit ranges from 0.75% to 2.00%. The Company pays a quarterly fee ranging from 0.15% to

0.275% on the unused portion of the revolving commitment. The Company has entered into multiple interest rate swaps to convert a portion of the Company's one-month LIBOR-based borrowings from a variable rate to a fixed rate. See Note 9 in the Consolidated Financial Statements included in this Annual Report on Form 10-K.

The Company is permitted to prepay term and revolving borrowings in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments under the Amended Credit Agreement. The Company is required to repay the term commitment in an amount of $2.5 million per quarter beginning with the quarter ended December 31, 2018 through the quarter ending June 30, 2023.

The Amended Credit Agreement contains covenants required of the Company and its subsidiaries, including various affirmative and negative financial and operational covenants. The Company is required to meet certain quarterly financial covenants calculated from the four fiscal quarters most recently ended, 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 payments and taxes paid, each as defined in the Amended Credit Agreement, may not be lower than 1.25 to 1.0; 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 defined in the Amended Credit Agreement, may not be greater than 3.5 to 1.0. The Company was in compliance with all covenants at December 31, 2019.

In November 2018, the Company entered into a five year interest rate swap agreement with a bank which converts the interest on a notional $139.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reduces quarterly by fluctuating amounts through August 2023. In April 2017, the Company entered into a three-year interest rate swap agreement with a bank which converts the interest on a notional $60.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduces quarterly by $5.0 million through March 31, 2020. These interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of these derivative agreements are assessed quarterly by ensuring that the critical terms of the swaps continue to match the critical terms of the hedged debt.

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 in the Company's consolidated statements of operations due to the favorable interest rate differential between the U.S. dollar and Euro, which is expected to be approximately $1.3 million in 2020. Also, settlement of the notional €22.6 million ($25 million U.S. Dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022 and August 2023.

In addition to the amounts outstanding under the Facility, the Company has various foreign credit facilities totaling approximately $7.0 million. At December 31, 2019, the Company's foreign subsidiaries had $2.1 million in standby letters of credit outstanding.

Future Cash Requirements

The Company manages worldwide cash requirements considering available funds among domestic and foreign subsidiaries. The Company expects to fund its operating cash requirements from existing cash balances, cash generated by operations, and through borrowings, as needed, under its existing domestic and foreign credit facilities. If completed, such activities would be financed with existing cash balances, cash generated from operations, borrowings under the credit facilities described under “Financing Arrangements” above or other forms of financing, as required.

At December 31, 2019, total indebtedness was $272.6 million, of which $126.5 million was a revolver loan and $146.1 million, net of $0.4 million of capitalized debt costs, was a term loan. These loans are governed by the Amended Credit Agreement and totaled 46.1% of the Company’s total capital structure at December 31, 2019. Cash requirements for 2020 are expected to include the funding of ongoing operations, capital expenditures, restructuring programs, payments due on finance and operating leases, pension plan contributions, income tax payments, term loan payments and optional prepayments on the revolver loan. Capital spending for 2020 is expected to be approximately $25 million to $30 million.

The funded status of the Company's defined benefit pension plans are dependent upon many factors, including returns on invested assets, levels of market interest rates, mortality rates and levels of contributions to the plan. The Company expects to contribute approximately $2.4 million to its domestic defined employee benefit plans in 2020. See Note 12 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding the Company’s pension plans.

Contractual Obligations

The following table summarizes the Company’s significant contractual obligations as of December 31, 2019 and the effect of such contractual obligations are expected to have on the Company’s liquidity and cash flows in future periods. For recent financing activity please refer to “Financing Arrangements” above.



	Payments Due by Period
In thousands	2020		2021		2022		2023		2024		After 5 years		Total
Contractual Obligations:
Employee benefit plan contributions	$	2,398	$	—	$	—	$	—	$	—	$	—	$	2,398
Operating leases	$	5,680	$	4,329	$	3,555	$	2,659	$	1,848	$	9,465	$	27,536
Finance leases*	36		—		—		—		—		—		36
Long-term debt*	20,733		20,049		19,614		249,111		—		—		309,507
Total Contractual Obligations	$	28,847	$	24,378	$	23,169	$	251,770	$	1,848	$	9,465	$	339,477



	*	Includes estimated interest payments

The Company has finance lease agreements for machinery and equipment at multiple operations requiring monthly principal and interest payments through 2020. Operating leases are primarily related to buildings, office equipment, vehicles and machinery with payments through 2033.

The Company’s long-term debt payments in the table above represent the estimated annual required term loan fixed principal payments, revolver loan payments due in 2023 and annual interest payments. Actual payments may vary

significantly depending on future debt levels, timing of debt repayments and sources of funding utilized. Refer to Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion on long-term debt.

The Company’s future employee benefit plan contributions relate to the minimum contributions for the 2020 plan year based on the Company’s employee benefit plan valuations at December 31, 2019. See Note 12 to the Consolidated Financial Statements for additional information regarding the Company’s employee benefit plans.

In addition to the above contractual obligations, the Company utilizes letters of credit in the ordinary course of business. Outstanding letters of credit were $4.0 million and $6.1 million at December 31, 2019 and 2018, respectively.

The above table does not reflect net tax contingencies of $3.2 million, the timing of which is uncertain. Refer to Note 16 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion on unrecognized tax benefits.

Not included in the table above, because the price is not fixed, is annual purchase obligations of 15 million pounds of aluminum at the Company’s U.S. automotive operation, beginning in January 2020 through December 31, 2021, containing variable pricing based on the U.S. Midwest price previous month’s average rate. Based on an estimated price at December 31, 2019 and expected 2020 and 2021 production requirements, the Company estimated this aluminum commitment to be approximately $21.0 million to $24.0 million for 2020 and $22.0 million to $25.0 million for 2021.

Purchase orders or contracts for normal purchases of raw materials and other goods and services are not included in the table above. The Company is not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For purposes of this table, contractual obligations for purchase of goods or services are defined as agreements that are enforceable and legally binding on the Company and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions. The Company does not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed expected requirements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company’s Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Note 1 in the notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the Consolidated Financial Statements. The Company’s management is required to make judgments about and estimates of the effect of matters that are inherently uncertain. Actual results could differ from management’s estimates. The most significant areas involving management judgments and estimates are described below.

Goodwill

The Company had goodwill of $133.9 million at December 31, 2019 and $197.0 million at December 31, 2018. Goodwill is not amortized, but rather is subject to impairment tests annually or more frequently when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The identification and measurement of goodwill impairment involves the estimation of the fair value of reporting units, including related goodwill. The Company’s reporting units are operating segments for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit. As a result of the fourth quarter 2019 goodwill impairment testing for the Performance Materials reporting unit, the Company recorded an impairment charge of $63.0 million. As of December 31, 2019, the Performance Materials segment had goodwill remaining of $80.7 million.

For the Performance Materials reporting unit, lower than expected 2019 financial results from slowed demand in the sealing products' markets, combined with revised future financial projections, resulted in a reduction in the long-term forecasts of sales and cash generation as compared to prior projections for the Performance Materials reporting unit.

As a result, the carrying value of the Performance Materials reporting unit exceeded its fair value by $63.0 million, resulting in the impairment charge.

Those factors, along with other factors, caused the Company to perform a quantitative goodwill impairment assessment. The Company weighted equally both an income approach (discounted cash flow model) and a market approach, both level 3 unobservable inputs, to determine the Performance Materials reporting unit's fair value. The Company’s significant assumptions in the discounted cash flow model included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. Calculation of future cash flows includes management estimates and assumptions that are based on the best available information as of the date of the assessment. There are inherent uncertainties and management judgment required in an analysis of goodwill impairment. The Company believes the income approach was appropriate because it provided a fair value estimate based upon the reporting unit's expected long-term operations and cash flow performance.

The Company also used a form of the market approach, which was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products and services. Other assumptions included adding an implied control premium to the valuation based on estimating the fair value on a controlling basis, which was derived from research on control premiums observed in recent mergers and acquisitions in the industries in which Lydall operates.The Company believes the market approach was appropriate because it provided a fair value using multiples from companies with operations and economic characteristics similar to the Performance Materials reporting unit.

The Company also performed an overall reconciliation to corroborate the fair value derived from the income and market approaches to Lydall's overall market capitalization.

The Company used the qualitative method to analyze the $53.3 million of goodwill for the Technical Nonwovens reporting unit by considering capital markets environment, economic conditions, industry trends, results of operations, and other factors. The Company also considered changes in assumptions used in the Company's most recent quantitative annual testing, including results of operations, the magnitude of excess of fair value over carrying value and other factors. As a result of this qualitative analysis, the Company concluded that the Technical Nonwovens reporting unit's fair value more likely than not exceeds its carrying value and as a result, the quantitative impairment assessment was not required to be completed.

In the event that the Company’s operating results in the future do not meet current expectations, management, based upon conditions at the time, would consider taking restructuring or other actions as necessary to maximize profitability. Future cash flows can be affected by numerous factors including changes in economic, industry or market conditions, changes in the underlying business or products of the reporting unit, changes in competition and changes in technology. Any changes in key assumptions about the business and its prospects, changes in any of the factors discussed above or other factors could affect the fair value of one or more of the reporting units resulting in an impairment charge.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on the Company’s judgment and estimates of undiscounted future cash flows resulting from the use of the assets and their eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the fair value of the assets and measurement of an impairment loss for long-lived assets that are held for sale is based on the fair value of the assets less costs to sell. If the carrying values of the assets are determined to be impaired, then the carrying values are reduced to their estimated fair values, or fair value less costs to sell. The fair values of the impaired assets are determined based on applying a combination of market approaches, including independent appraisals when appropriate, the income approach, which utilizes cash flow projections, and the cost approach.

The asset group that is tested for impairment represents the lowest level for which discrete cash flows are largely independent of the cash flows of other groups. The determination of asset groups involves judgment and all relevant facts and circumstances are considered.

The Company performed an impairment assessment on the long-lived assets for its two Thermal Acoustical Solutions' European plants during the fourth quarter of 2019 due to negative 2019 financial performance compared to budget, changes in financial projections and general weakening in the European automotive sector. The Company considered

each operating plant's asset group, primarily consisting of machinery and equipment, and buildings and improvements. Step one of the impairment tests required by Accounting Standards Codification ("ASC") 350 Intangibles - Goodwill and Other ("ASC 350") failed, as the undiscounted cash flows over the useful life of each operating plant's primary assets did not exceed the separate plant's asset groups carrying values of $28.5 million and $12.5 million. As part of step two of the impairment assessment, the Company used the market approach to determine fair value based on independent appraisals of the long-lived assets. The Company determined that impairment did not exist as the fair value of the long-lived asset groups for each operating plant exceeded their carrying amounts. Small changes in future operating results could result in a future non-cash impairment charge.

During the fourth quarter of 2019, as a result of negative cash flows in 2019 and an expected reduction in demand from certain customers further impacting net sales and cash flows in 2020, the Company tested for impairment a discrete long-lived asset group (primarily consisting of machinery and equipment and patents) in the Performance Materials segment with a carrying value of approximately $3.0 million. To determine the recoverability of this asset group, the Company completed an undiscounted cash flow analysis and compared it to the asset group carrying value in accordance with ASC 350. This analysis was primarily dependent on the expectations for net sales over the estimated remaining useful life of the underlying asset group. The impairment test concluded that the asset group was not recoverable as the resulting undiscounted cash flows were less than their carrying amount. The Company then determined that fair value of the asset group exceeded its carrying value and recorded a long-lived asset impairment charge of $1.2 million. The fair value of the asset group was determined based on market conditions, the income approach which utilizes cash flow projections, and other factors.

The estimate of undiscounted cash flows of the long-lived asset groups was based on the best information available as of the date of the assessments, which incorporated management's assumptions around cash flows generated from future operations, the estimated economic useful life of the primary assets within the long-lived asset groups, as well as other market information. If cash flows in the future do not meet current expectations a thorough analysis of all the facts and circumstances existing at that time would need to be performed to determine if recording an impairment loss is necessary.

Employee Benefit Plan Obligations

Pension cost and the related obligations recognized in the Consolidated Financial Statements are determined on an actuarial basis. The determination of such amounts is made in consultation with the Company’s outside actuaries based on information and assumptions provided by the Company.

Prior to the quarter ended June 30, 2019, the Company maintained a defined benefit pension plan ("U.S. Lydall Pension Plan") and two domestic pension plans acquired in the Interface acquisition. During the quarter ended June 30, 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts. See Note 12 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional discussion. As of December 31, 2019, the Company maintains the domestic defined benefit pension plans acquired in the Interface acquisition ("Domestic Pension Plans").

A substantial portion of the Company’s employee benefits plan obligations relate to its domestic pension plans. Pension plans outside the United States were not significant at December 31, 2019. As discussed further below, the significant assumptions that impact pension costs include discounts rates, mortality rates, and expected long-term rates of return on invested pension assets.

A significant element in determining the Company’s pension cost is the expected return on plan assets. Based on a review of market trends, actual returns on plan assets and other factors, including the allocation of the Company’s investments between equity and fixed income funds, the Company’s weighted expected long-term rate of return on plan assets for the Domestic Pension Plans was 5.06% at December 31, 2019, which will be utilized for determining 2020 pension cost. A weighted expected long-term rate of return of 4.65% was used for determining 2019 pension expense and 5.79% in determining 2018 pension expense. In determining the expected return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of marketable debt and equity securities and economic and other indicators of future performance. Investment management objectives include maintaining an adequate level of diversification to balance market risk and to provide sufficient liquidity for near-term payments of benefits accrued under the plan and to pay the expenses of administration. The investment plan assets are stated at fair value, which is based on quoted market prices in an active market. The expected long-term rate of return on assets is applied to the value of plan assets at the beginning of the year and this produces the expected

return on plan assets that is included in the determination of pension cost for that year. The difference between this expected return and the actual return on plan assets is deferred. The Company continually evaluates its expected long-term rate of return and will adjust such rate as deemed appropriate.

At the end of each year, the Company determines the discount rate to be used to calculate the present value of plan liabilities, as well as the following year’s pension cost. The discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year.

The Company based its discount rate assumption on an analysis which included the selection of a bond portfolio comprised of high quality fixed income investments whose cash flows would provide for the projected benefit payments of the plan. The discount rate is then developed as the single rate that equates the market value of the bond portfolio to the discounted value of the plan’s benefit payments. At December 31, 2019, the Company determined this discount rate to be 3.37%.

A one-quarter percentage point change in the assumed long-term rate of return on the Company’s Domestic Pension Plans as of December 31, 2019 would impact the Company’s 2019 pre-tax income by approximately $0.1 million. A one-quarter percentage point change in the discount rate on the Company’s Domestic Pension Plans as of December 31, 2019 would impact the Company’s 2019 pre-tax income by approximately $0.1 million. The Company reviews these and other assumptions at least annually.

Pension expense for 2020 is expected to be in the range of $0.2 million to $0.3 million. The Company contributed $1.4 million to its Domestic Pension Plans during 2019 and expects to contribute approximately $2.4 million in 2020.

Income Taxes

The Company accounts for income taxes following ASC 740, Accounting for Income Taxes, recognizing deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between book and tax basis of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company analyzes historical financial results by jurisdiction and estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizable benefit of tax loss carryforwards. Valuation allowances related to deferred tax assets can be impacted by changes in tax law, changes in statutory tax rates and future levels of taxable income. In the event the Company was to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the Company would reduce such amounts through a charge to income in the period that such determination was made. Conversely, if the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance and record an increase to income in the period that such determination was made.

As of December 31, 2019, the Company maintains its intention to distribute certain earnings of its foreign subsidiaries that have been previously taxed in the U.S. and has recorded taxes associated with this position. For the remainder of the undistributed foreign earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2019, such undistributed earnings were approximately $3.4 million. The Company estimates that the amount of tax that would be payable on the undistributed earnings if repatriated to the United States could be up to $0.9 million. This amount may vary in the future due to a variety of factors including future tax law changes, future earnings and statutory taxes paid by foreign subsidiaries, and ongoing tax planning strategies by the Company.

Equity Compensation Plans

The Company accounts for awards of equity instruments under the fair value method of accounting and recognizes such amounts in the Consolidated Statements of Operations. The Company recognizes expense on a straight-line basis over the vesting period of the entire award. In accordance with accounting requirements the Company accounts for forfeitures as they occur. Compensation expense for performance based awards is based upon the service period and management’s assessment of the probability of achieving the performance goals and adjusted based upon actual achievement. The Company estimates the fair value of option grants based on the Black Scholes option-pricing model. Expected volatility and expected term are based on historical information. The calculation assumes that future volatility and expected term are not likely to materially differ from the Company’s historical stock price volatility and historical exercise data, respectively.

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the years ended December 31:



	2019		2018		2017
Risk-free interest rate	1.7	%	2.7	%	2.2	%
Expected life	5.3 years		5.5 years		5.5 years
Expected volatility	37	%	34	%	33	%
Expected dividend yield	—	%	—	%	—	%

Contingencies and Environmental Obligations

The Company makes judgments and estimates in accordance with applicable accounting rules when it establishes reserves for legal proceedings, claims, investigations, environmental obligations and other contingent matters. 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. The amount and timing of all future expenses related to legal proceedings, claims, investigations, environmental obligations and other contingent matters may vary significantly from the Company's estimates.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 20 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding accounting standards issued by the FASB but not effective until after December 31, 2019.

OTHER KEY FINANCIAL ITEMS

Inflation — Inflation generally affects the Company through its costs of labor, equipment, energy and raw materials. The Company attempts to offset increased costs by price increases, operating improvements and other cost-saving initiatives. The Company also has certain arrangements in which it can pass through inflation on raw material costs to its customers.



Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

FOREIGN CURRENCY RISK

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

In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75 million U.S. dollar equivalent). These swaps hedge a portion of Lydall, Inc'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 in the Company's consolidated statements of operations due to the favorable interest rate differential between the U.S. dollar and Euro, which is expected to be approximately $1.3 million in 2020. Also, settlement of the notional €22.6 million ($25 million U.S. Dollar equivalent) cross-currency swaps occur at maturity dates of August 2021, August 2022 and August 2023.

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

INTEREST RATE RISK

The Company’s interest rate exposure is most sensitive to fluctuations in interest rates in the United States and Europe, which impact interest paid on its debt. The Company has borrowings outstanding of approximately $273.0 million from its Amended Credit Agreement at December 31, 2019, with a variable interest rate, based generally on LIBOR. Increases in interest rates could therefore significantly increase the associated interest payments that the Company is required to make on this debt. From time to time, the Company may enter into interest rate swap agreements to manage interest rate risk.

In November 2018, the Company entered into a five year interest rate swap agreement with a bank which converts the interest on a notional $139.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reduces quarterly by fluctuating amounts through August 2023. In April 2017, the Company entered into a three year interest rate swap agreement with a bank which converts the interest on the first notional $60.0 million of the Company's one-month LIBOR-based borrowings under its revolver loan from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduces quarterly by $5.0 million through March 2020.

The Company has assessed its exposure to changes in interest rates by analyzing the sensitivity to Lydall’s earnings assuming various changes in market interest rates. Assuming a hypothetical increase of one percentage point in interest rates on the variable portion of the $273.0 million outstanding borrowings as of December 31, 2019, the Company’s net income would decrease by an estimated $1.1 million over a twelve month period.

The weighted average interest rate on long-term debt was 4.3% for the year ended December 31, 2019, compared with 3.4% and 2.2% for the years ended December 31, 2018 and 2017, respectively.



Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this Item is contained under Item 15. “Exhibits, Financial Statement Schedules.”



Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.



Item 9A.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including the Company’s President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer, the Company has, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined under Rule 13a-15(e) of the Exchange Act). Based upon that evaluation, the Company’s President and Chief Executive Officer and its Executive Vice President and Chief Financial Officer have concluded that, as of December 31, 2019, the Company’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013 Framework). Management concluded that based on its assessment, the Company’s internal control over financial reporting was effective as of December 31, 2019. The effectiveness of the Company's internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.



Item 9B.	OTHER INFORMATION

None.

PART III



Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item is incorporated by reference from the sections entitled “Proposal 1 — Election of Directors,” “Corporate Governance” and, if applicable, “Delinquent Section 16(a) Reports” of the definitive Proxy Statement of Lydall to be filed with the Commission within 120 days of the fiscal year ended December 31, 2019 in connection with the Annual Meeting of Stockholders to be held on April 24, 2020 (the “2020 Proxy Statement”). Information regarding the Executive Officers of the Company is contained in this Annual Report on Form 10-K.

The Company’s Code of Ethics and Business Conduct for all employees and its Code of Ethics for the Chief Executive Officer, Senior Financial Officers and all Accounting and Financial Personnel can be obtained free of charge on the Company’s website under the Corporate Governance section or by contacting the Office of the General Counsel, P.O. Box 151, One Colonial Road, Manchester, CT 06045-0151.

The Company intends to post on its website all disclosures that are required by law or New York Stock Exchange listing standards concerning any amendments to, or waivers from, the provisions of these documents.



Item 11.	EXECUTIVE COMPENSATION

Information required by this Item is incorporated by reference from the sections entitled “2019 Director Compensation,” “Compensation Discussion and Analysis,” “Executive Compensation Tables,” “Corporate Governance — Compensation Committee Interlocks and Insider Participation” and “Compensation Discussion and Analysis — Compensation Committee Report on Executive Compensation” of the 2020 Proxy Statement.



Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain information required by this Item is incorporated by reference from the section entitled “Securities Ownership of Directors, Certain Officers and 5% Beneficial Owners” of the 2020 Proxy Statement.



Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this Item is incorporated by reference from the sections entitled “Corporate Governance — Independence Determination,” “Related Party Transactions,” and “Compensation Committee Interlocks and Insider Participation” of the 2020 Proxy Statement.



Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

Information required by this Item is incorporated by reference from the sections entitled “Proposal 4 — Ratification of Appointment of Independent Auditors,” and “Principal Fees and Services” of the 2020 Proxy Statement.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES




	Page
(a) 1. Financial Statements:
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	F-3
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017	F-4
Consolidated Balance Sheets at December 31, 2019 and 2018	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017	F-6
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2019	F-7
Notes to Consolidated Financial Statements	F-8
(a) 2. Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018, and 2017	S-1

Other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or are presented in “Notes to Consolidated Financial Statements” and therefore have been omitted.

a) 3. Exhibits Included Herein or Incorporated by Reference:



2.1		Stock Purchase Agreement, dated August 9, 2018, by and among Lydall, Inc., Susquehanna Capital Acquisition Co. and Vulcan Global, LLC, an affiliate of Wind Point Partners, filed as Exhibit 2.1 to the Registrant’s Form 8-K dated August 14, 2018 and incorporated herein by reference. The Registrant will supplementally furnish any omitted schedules to the Commission upon request.
2.2		Share Purchase Agreement, dated July 7, 2016, by and among ADS, Inc. and Lydall Canada Acquisition Corp., filed as Exhibit 2.1 to the Registrant’s Form 8-K dated July 12, 2016 and incorporated herein by reference. The Registrant will supplementally furnish any omitted schedules to the Commission upon request.
2.3		Sale and Purchase Agreement dated February 20, 2014, by and among the Andrew Industries Limited, Lydall Inc. and Lydall UK Ltd., filed as Exhibit 10.1 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference. The Registrant will supplementally furnish any omitted schedules to the Commission upon request.
3.1		Restated Certificate of Incorporation of the Registrant, as amended through the date of filing of this Annual Report on Form 10-K, filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q dated April 30, 2015 and incorporated herein by this reference.
3.2		Amended and Restated Bylaws of the Registrant, as amended and restated as of December 6, 2018, filed as Exhibit 3.2 to the Registrant’s Form 8-K dated December 6, 2018 and incorporated herein by this reference.
4.1		Certain long-term debt instruments, each representing indebtedness in an amount equal to or less than 10 percent of the Registrant’s total consolidated assets, have not been filed as exhibits to this Annual Report on Form 10-K. The Registrant will file these instruments with the Commission upon request.
4.3		Description of the Company's Common Stock
10.1*		Employment Agreement with Dale G. Barnhart dated July 31, 2007, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated August 3, 2007 and incorporated herein by this reference.
10.2*		Employment Agreement with Chad A. McDaniel dated May 8, 2013, filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K dated March 5, 2014 and incorporated herein by reference.
10.3*		Employment Agreement with Joseph A. Abbruzzi dated March 31, 2014, filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K dated March 3, 2015 and incorporated herein by reference.
10.4*		Employment Agreement with James V. Laughlan dated August 3, 2015, filed as Exhibit 10.1 to the Registrant's Form 8-K dated August 5, 2015 and incorporated herein by reference.
10.5*		Employment Agreement with Scott M. Deakin dated August 21, 2015, filed as Exhibit 10.1 to the Registrant's Form 8-K dated August 21, 2015 and incorporated herein by reference.
10.6*		Employment Agreement with Paul A. Marold dated February 18, 2016, filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K dated February 22, 2017 and incorporated herein by reference.
10.7*		Indemnification Agreement with Dale G. Barnhart dated July 31, 2007, filed as Exhibit 10.2 to the Registrant’s Form 8-K dated August 3, 2007 and incorporated herein by this reference.
10.8*		Lydall, Inc. Annual Incentive Performance Program adopted March 30, 2016 and effective January 1, 2016, filed as Exhibit 99.1 to the Registrant's Form 8-K dated April 1, 2016 and incorporated herein by reference.
10.9		Form of Indemnification Agreement between Lydall, Inc. and non-employee directors, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated June 19, 2009 and incorporated herein by this reference.
10.10*		Amended and Restated Lydall 2003 Stock Incentive Compensation Plan, filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q dated May 2, 2011 and incorporated herein by this reference.
10.11*		Lydall 2012 Stock Incentive Plan, filed as Exhibit A to the Registrant’s Definitive Proxy Statement dated March 16, 2012 and incorporated herein by this reference.
10.12*		Form of Restricted Share Award Agreement to Non-Employee Directors (Under the Lydall 2012 Stock Incentive Plan), filed as Exhibit 10.9 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.13*		Form of Non-Qualified/Incentive Stock Option Agreement (Under the Lydall 2012 Stock Incentive Plan) for U.S. employees, filed as Exhibit 10.4 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.



10.14*		Form of Restricted Stock Award Agreement (Under the Lydall 2012 Stock Incentive Plan) for U.S. Employees, filed as Exhibit 10.8 to the Registrant’s to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.15*		Form of Non-Qualified Stock Option Agreement (Under the Lydall 2012 Stock Incentive Plan) for Netherland employees, filed as Exhibit 10.10 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.16*		Form of Non-Qualified Stock Option Agreement (Under the Lydall 2012 Stock Incentive Plan) for French employees, filed as Exhibit 10.11 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.17*		Form of Non-Qualified Stock Option Agreement (Under the Lydall 2012 Stock Incentive Plan) for German employees, filed as Exhibit 10.12 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.18*		Form of Lydall, Inc. Performance Share Award Agreement (Three-Year Period) for U.S. employees, filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K dated March 3, 2015 and incorporated herein by reference.
10.19*		Form of Lydall, Inc. Performance Share Award Agreement (Three-Year Period) for French employees, filed as Exhibit 10.6 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.20*		Form of Lydall, Inc. Performance Share Award Agreement (Three-Year Period) for German employees, filed as Exhibit 10.7 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.21*		Form of Lydall, Inc. Performance Share Award Agreement (One-Year Period), filed as Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K dated February 26, 2010 and incorporated herein by this reference.
10.22*		Amended and Restated Form of Lydall, Inc. Performance Share Award Agreement (Three-Year Period) for U.S. employees, filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K dated February 26, 2019 and incorporated herein by this reference.
10.23		Joinder and Second Amendment and Reaffirmation of Guaranty Agreement, dated July 7, 2016, by and among Lydall, Inc., as borrower, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 99.2 to the Registrant's From 8-K dated July 12, 2016 and incorporated herein by reference.
10.24		Amended and Restated Credit Agreement, dated February 18, 2014, by and between Lydall, Inc., as borrower, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.2 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by this reference, as further amended by Amendment No. 1 to the Amended and Restated Credit Agreement, dated May 5, 2015, filed as Exhibit 99.1 to the Registrant's Form 8-K dated May 6, 2015 and incorporated herein by reference.
10.25		Amended and Restated Guaranty Agreement, dated February 18, 2014, by and among Lydall Thermal/Acoustical, Inc., Lydall Filtration/Separation, Inc., Lydall International, Inc., and Bank of America, N.A., filed as Exhibit 10.3 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference.
10.26		Amendment to the Amended and Restated Security Agreements, the Amended and Restated Domain Name Collateral Assignment and Security Agreement and Partial Release dated January 30, 2015 by and among Lydall, Inc., Lydall Thermal/Acoustical, Inc. and Bank of America, filed as Exhibit 10.34 to the Registrant's Annual Report on Form 10-K dated March 3, 2015 and incorporated herein by reference.
10.27*		Amendment No. 1 to the Agreement, dated February 24, 2016, between the Company and Chad A. McDaniel, amending that certain Employment Agreement dated May 8, 2013, filed as Exhibit 10.31 to the Registrant's Annual Report on Form 10-K dated February 24, 2016 and incorporated herein by reference.
10.28*		Amendment No. 1 to the Agreement, dated February 24, 2016, between the Company and Joseph A. Abbruzzi, amending that certain Employment Agreement dated March 31, 2014, filed as Exhibit 10.32 to the Registrant's Annual Report on Form 10-K dated February 24, 2016 and incorporated herein by reference.
10.29*		Amendment No. 1 to the Agreement, dated February 24, 2016, between the Company and James V. Laughlan, amending that certain Employment Agreement dated August 3, 2015, filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K dated February 24, 2016 and incorporated herein by reference.
10.30*		Amendment No. 1 to the Agreement, dated February 24, 2016, between the Company and Scott M. Deakin, amending that certain Employment Agreement dated August 21, 2015, filed as Exhibit 10.34 to the Registrant's Annual Report on Form 10-K dated February 24, 2016 and incorporated herein by reference.



10.31*		Second Amended and Restated Credit Agreement, dated August 31, 2018, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed as Exhibit 10.2 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.32*		Second Amended and Restated Security Agreement, dated August 31, 2018 by and between Lydall, Inc., and Bank of America, N.A., filed as Exhibit 10.3 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.33*		Second Amended and Restated Security Agreement, dated August 31, 2018 by and between Lydall Thermal/Acoustical, Inc., and Bank of America, N.A., filed as Exhibit 10.4 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.34*		Second Amended and Restated Security Agreement, dated August 31, 2018 by and between Lydall Performance Materials, Inc. (formerly known as Lydall Filtration/Separation, Inc.), and Bank of America, N.A., filed as Exhibit 10.5 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.35		Second Amended and Restated Security Agreement, dated August 31, 2018 by and between Lydall International, Inc., and Bank of America, N.A., filed as Exhibit 10.6 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.36		Amended and Restated Security Agreement, dated August 31, 2018 by and between Lydall Southern Felt Company, Inc., and Bank of America, N.A., filed as Exhibit 10.7 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.37		Security Agreement, dated August 31, 2018, by and between Lydall North America LLC, and Bank of America, N.A., filed as Exhibit 10.8 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.38		Security Agreement, dated August 31, 2018, by and between Susquehanna Capital Acquisition Co., and Bank of America, N.A., filed as Exhibit 10.9 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.39		Security Agreement, dated August 31, 2018, by and between Interface Performance Materials, Inc., and Bank of America, N.A., filed as Exhibit 10.10 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.40		Security Agreement, dated August 31, 2018, by and between Interface Sealing Solutions, Inc., and Bank of America, N.A., filed as Exhibit 10.11 to the registrant's Form 8-K dated September 7, 2018 and incorporated herein by reference.
10.41*		Employment Agreement with Randall B. Gonzales dated March 12, 2018, filed as Exhibit 10.1 to the Registrant’s Form 10-Q dated May 1, 2018 and incorporated herein by this reference.
10.42		Offer letter for Randall B. Gonzales dated January 5, 2018, filed as Exhibit 10.2 to the Registrant’s Form 10-Q dated May 1, 2018 and incorporated herein by this reference.
10.43*		Second Amendment to Employment Agreement with Scott M. Deakin, dated December 10, 2018, amending that certain Employment Agreement (as amended), dated August 21, 2015, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated December 6, 2018 and incorporated herein by this reference.
10.44*		Employment Agreement with Sara A. Greenstein, dated as of October 11, 2019, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated October 15, 2019 and incorporated herein by this reference.
10.45*		Indemnification Agreement with Sara A. Greenstein, dated as of October 11, 2019, filed as Exhibit 10.2 to the Registrant’s Form 8-K dated October 15, 2019 and incorporated herein by this reference.
10.46*		Separation and Transition Agreement with Dale G. Barnhart, dated October 11, 2019, filed as Exhibit 10.3 to the Registrant’s Form 8-K dated October 15, 2019 and incorporated herein by this reference.
10.47*		Inducement Performance-Based Restricted Share Award Agreement with Robert B. Junker, dated November 1, 2019, filed as Exhibit 99.1 to the Registrant’s Form S-8 dated October 29, 2019 and incorporated herein by this reference.
10.48*		Inducement Time-Based Restricted Share Award Agreement with Sara A. Greenstein, dated November 20, 2019, filed as Exhibit 99.2 to the Registrant’s Form S-8 dated October 29, 2019 and incorporated herein by this reference.
10.49*		Inducement Performance-Based Restricted Share Award Agreement with Sara A. Greenstein, dated November 20, 2019, filed as Exhibit 99.3 to the Registrant’s Form S-8 dated October 29, 2019 and incorporated herein by this reference.
10.50*		Employment Agreement with Robert B. Junker, dated as of October 14, 2019, filed herewith.
10.51*		Inducement Nonqualified Stock Option Agreement with Robert B. Junker, dated November 1, 2019, filed herewith.



10.52*		Inducement Nonqualified Stock Option Agreement with Sara A. Greenstein, dated November 20, 2019, filed herewith.
10.53		First Amendment to Second Amended and Restated Credit Agreement, dated December 6, 2019, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed herewith.
10.54		Second Amendment to Second Amended and Restated Credit Agreement, dated February 14, 2020, by and among Lydall, Inc., as borrower, the Guarantors named therein, and Bank of America, N.A., as Agent for the Lenders, filed herewith.
14.1		Lydall’s Code of Ethics and Business Conduct, as amended, and the supplemental Code of Ethics for the Chief Executive Officer, Senior Financial Officers and All Accounting and Financial Personnel, as amended, each can be accessed on Lydall’s website at www.lydall.com under the Corporate Governance section.
21.1		List of subsidiaries of the Registrant, filed herewith.
23.1		Consent of PricewaterhouseCoopers LLP, filed herewith.
24.1		Power of Attorney, dated February 13, 2020 authorizing Randall B. Gonzales to sign this Annual Report on Form 10-K on behalf of each member of the Board of Directors indicated therein, filed herewith.
31.1		Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934 as principal executive officer, filed herewith.
31.2		Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934 as principal executive officer, filed herewith.
32.1		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).



	*	Management contract or compensatory plan.



Item 16.	FORM 10-K SUMMARY

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Lydall, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	LYDALL, INC.
February 26, 2020	By:	/s/ Randall B. Gonzales
		Randall B. Gonzales Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Lydall, Inc. in the capacities and on the dates indicated.




Signature	Title	Date
/s/ Sara A. Greenstein	President, Chief Executive Officer and Director (Principal Executive Officer)	February 26, 2020
Sara A. Greenstein
/s/ Randall B. Gonzales	Executive Vice President, Chief Financial Officer (Principal Financial Officer)	February 26, 2020
Randall B. Gonzales
/s/ James V. Laughlan	Vice President, Chief Accounting Officer, and Treasurer (Principal Accounting Officer)	February 26, 2020
James V. Laughlan

/s/ Randall B. Gonzales		February 26, 2020
Randall B. Gonzales
Attorney-in-fact for:
David G. Bills	Director
Kathleen Burdett	Director
James Cannon	Director
Matthew T. Farrell	Director
Marc T. Giles	Chairman of the Board of Directors
William D. Gurley	Director
Suzanne Hammett	Director
S. Carl Soderstrom, Jr.	Director

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Lydall, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Lydall, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of changes in stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect

F-1

the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Hartford, Connecticut

February 26, 2020

We have served as the Company’s auditor since 1987.

F-2

Lydall, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS



	For the years ended December 31,
In thousands except per share data	2019			2018			2017

Net sales	$	837,398		$	785,897		$	698,437
Cost of sales	685,608			633,252			535,078
Gross profit	151,790			152,645			163,359
Selling, product development and administrative expenses	126,409			103,457			97,159
Impairment of goodwill and other long-lived assets	64,206			—			—
Operating (loss) income	(38,825		)	49,188			66,200
Employee benefit plans settlement expenses	25,247			—			—
Interest expense	14,262			6,212			2,720
Other (income) expense, net	(1,257		)	(289		)	2,161
(Loss) income before income taxes	(77,077		)	43,265			61,319
Income tax (benefit) expense	(6,416		)	8,453			11,974
(Income) loss from equity method investment	(148		)	(132		)	28
Net (loss) income	$	(70,513	)	$	34,944		$	49,317
(Loss) earnings per common share:
Basic	$	(4.08	)	$	2.03		$	2.89
Diluted	$	(4.08	)	$	2.02		$	2.85
Weighted average common shares outstanding	17,271			17,204			17,045
Weighted average common shares and equivalents outstanding	17,271			17,330			17,317

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-3

Lydall, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the years ended December 31,
In thousands	2019			2018			2017

Net (loss) income	$	(70,513	)	$	34,944		$	49,317
Other comprehensive income (loss):
Pension liability adjustment, net of income taxes of $11,605, $1,285, and $409, respectively	19,173			(4,204		)	2,016
Foreign currency translation adjustments	436			(16,237		)	25,664
Unrealized (loss) gain on hedging activities, net of tax	(2,903		)	(2,096		)	122
Total other comprehensive income (loss), net of tax	16,706			(22,537		)	27,802
Comprehensive (loss) income	$	(53,807	)	$	12,407		$	77,119

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-4

Lydall, Inc.

CONSOLIDATED BALANCE SHEETS



	December 31,
In thousands of dollars and shares	2019			2018

Assets
Current assets:
Cash and cash equivalents	$	51,331		$	49,237
Accounts receivable, (net of allowance for doubtful receivables of $1,842 and $1,440, respectively)	107,786			144,938
Contract assets	28,245			23,040
Inventories	80,544			84,465
Taxes receivable	3,427			2,912
Prepaid expenses and other current assets	12,264			12,486
Total current assets	283,597			317,078
Property, plant and equipment, net	221,642			213,369
Operating lease right-of-use assets	23,116			—
Goodwill	133,912			196,963
Other intangible assets, net	115,577			136,604
Deferred tax assets	1,933			2,055
Other assets, net	6,160			6,617
Total assets	$	785,937		$	872,686
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	9,928		$	10,172
Accounts payable	73,426			73,265
Accrued payroll and other compensation	17,198			16,621
Deferred revenue	2,643			6,990
Other accrued liabilities	26,663			14,298
Total current liabilities	129,858			121,346
Long-term debt	262,713			314,641
Long-term lease liability	18,424			—
Deferred tax liabilities	34,561			39,265
Benefit plan liabilities	18,957			22,795
Other long-term liabilities	3,004			5,364
Commitments and Contingencies (Note 17)
Stockholders’ equity:
Preferred stock (par value $0.01 per share; authorized 500 shares; none issued or outstanding) (Note 11)	—			—
Common stock (par value $0.01 per share; authorized 30,000 shares; issued 25,328 and 25,254 shares, respectively) (Note 11)	253			253
Capital in excess of par value	94,140			90,851
Retained earnings	340,629			411,325
Accumulated other comprehensive loss	(25,979		)	(42,685		)
Treasury stock, 7,705 and 7,698 shares of common stock, respectively, at cost	(90,623		)	(90,469		)
Total stockholders’ equity	318,420			369,275
Total liabilities and stockholders’ equity	$	785,937		$	872,686

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5

Lydall, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the years ended December 31,
In thousands	2019			2018			2017
Cash flows from operating activities:
Net (loss) income	$	(70,513	)	$	34,944		$	49,317
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Gain on divestiture	(1,459		)	—			—
Depreciation and amortization	49,000			33,162			26,130
Impairment of goodwill and long-lived assets	64,206			—			772
Deferred income taxes	(14,585		)	636			(2,933		)
Employee benefit plans settlement expenses	25,247			—			—
Stock-based compensation	2,829			2,081			4,269
Inventory step-up amortization	—			1,975			1,108
(Gain) loss on disposition of property, plant and equipment	(17		)	230			—
(Income) loss from equity method investment	(148		)	(132		)	28
Changes in operating assets and liabilities:
Accounts receivable	37,470			(7,127		)	(8,046		)
Contract assets	(5,514		)	(3,828		)	—
Inventories	2,619			(6,001		)	(11,116		)
Taxes receivable	(876		)	3,151			(1,216		)
Prepaid expenses and other assets	2,031			(542		)	(784		)
Accounts payable	(393		)	(5,055		)	14,315
Accrued payroll and other compensation	4,597			(2,352		)	1,103
Deferred revenue	(4,267		)	3,801			934
Accrued taxes	2,500			535			(4,708		)
Benefit plan liabilities	(4,288		)	(7,658		)	(5,245		)
Other, net	(1,577		)	(3,081		)	(992		)
Net cash provided by operating activities	86,862			44,739			62,936
Cash flows from investing activities:
Capital expenditures	(35,850		)	(31,291		)	(27,006		)
Proceeds from the sale of property, plant and equipment	298			298			—
Proceeds from divestiture	2,298			—			—
Business acquisitions, net of cash acquired	869			(269,972		)	(323		)
Net cash used for investing activities	(32,385		)	(300,965		)	(27,329		)
Cash flows from financing activities:
Proceeds from borrowings	—			338,000			—
Debt repayments	(52,233		)	(89,862		)	(51,762		)
Debt issuance cost repayments	—			(538		)	—
Common stock issued	448			850			1,323
Common stock repurchased	(142		)	(974		)	(2,770		)
Net cash (used for) provided by financing activities	(51,927		)	247,476			(53,209		)
Effect of exchange rate changes on cash	(456		)	(1,888		)	5,543
Increase (decrease) in cash and cash equivalents	2,094			(10,638		)	(12,059		)
Cash and cash equivalents at beginning of period	49,237			59,875			71,934
Cash and cash equivalents at end of period	$	51,331		$	49,237		$	59,875
Supplemental Schedule for Cash Flow Information
Cash paid during the year for:
Interest	$	14,064		$	5,960		$	2,747
Income taxes, net	$	5,863		$	4,606		$	16,158

Non-cash capital expenditures of $5.5 million, $4.9 million and $6.5 million were included in accounts payable at December 31, 2019, 2018 and 2017 respectively.

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6

Lydall, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



In thousands of dollars and shares	Common Stock Shares	Common Stock Amount		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2016	24,858	$	249	$	82,387	$	325,466		$	(47,950	)	$	(86,696	)	$	273,456
Net income						49,317									49,317
Other comprehensive income, net of tax									27,802						27,802
Stock repurchased												(2,799		)	(2,799		)
Stock issued under employee plans	152	1		1,350											1,351
Stock-based compensation expense				3,868											3,868
Stock issued to directors	8			401											401
Balance at December 31, 2017	25,018	250		88,006		374,783			(20,148		)	(89,495		)	353,396
Net income						34,944									34,944
Other comprehensive loss, net of tax									(22,537		)				(22,537		)
Stock repurchased												(974		)	(974		)
Stock issued under employee plans	225	3		852											855
Stock-based compensation expense				1,619											1,619
Stock issued to directors	11			374											374
Adoption of ASC 606						1,598									1,598
Balance at December 31, 2018	25,254	253		90,851		411,325			(42,685		)	(90,469		)	369,275
Net loss						(70,513		)							(70,513		)
Other comprehensive income, net of tax									16,706						16,706
Stock repurchased												(154		)	(154		)
Stock issued under employee plans	46			448											448
Stock-based compensation expense				2,229											2,229
Stock issued to directors	28			612											612
Adoption of ASC 606 (1)						(183		)							(183		)
Balance at December 31, 2019	25,328	$	253	$	94,140	$	340,629		$	(25,979	)	$	(90,623	)	$	318,420

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

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-7

Lydall, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Significant Accounting Policies

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

On August 31, 2018, the Company acquired an engineered sealing materials business operating under Interface Performance Materials ("Interface"), based in Lancaster, Pennsylvania. A globally-recognized leader in the delivery of engineered sealing solutions, the Interface operations manufacture wet-laid gasket and specialty materials primarily serving OEM and Tier I manufacturers in the agriculture, construction, earthmoving, industrial, and automotive segments. The acquired business is included in the Company's Performance Materials operating segment.

Principles of consolidation — The Consolidated Financial Statements include the accounts of Lydall, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Estimates and assumptions — The preparation of the Company’s Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the financial statement dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Risks and uncertainties — Worldwide economic cycles and political changes affect the markets that the Company’s businesses serve and affect demand for Lydall’s products and impact profitability. Among other factors, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, changes in international trade agreements, swings in consumer confidence and spending, unstable economic growth and fluctuations in unemployment rates has caused economic instability and can have a negative impact on the Company’s results of operations, financial condition and liquidity.

Cash and cash equivalents — Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less at the date of purchase.

Concentrations of credit risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents in high-quality financial institutions. Concentrations of credit risk with respect to trade accounts receivable are limited by the large number of customers comprising the Company’s customer base and their dispersion across many different industries and geographies. At December 31, 2019 and December 31, 2018, no customer accounted for more than 10.0% of total accounts receivable. Foreign and export sales were 53.1% of the Company’s net sales in 2019, 53.5% in 2018, and 54.2% in 2017. Export sales primarily to Canada, Mexico, Asia and Europe were $86.3 million, $56.8 million, and $55.9 million in 2019, 2018, and 2017, respectively. The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. Sales to the automotive market, included in the Thermal Acoustical Solutions segment and to a lesser extent the Performance Materials segment, were 42.9% of the Company’s net sales in 2019, 46.3% in 2018, and 48.3% in 2017. Sales to Ford were 11.8%, 14.8%, and 17.3% of Lydall’s 2019, 2018, and 2017 net sales, respectively. No other customers accounted for more than 10% of total net sales in 2019, 2018, and 2017.

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" in the accompanying Consolidated Statements of Operations. Assets obtained and liabilities incurred in connection with transfers reported as sold are initially recognized in the Consolidated Balance Sheets at fair value.

In December 2019, the Company entered into two arrangements with a banking institution to sell trade accounts receivable balances for select customers. Under the programs, the Company has no risk of loss due to credit default

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and is charged a fee based on the nominal value of receivables sold and the time between the sale of the trade accounts receivables to banking institutions and collection from the customer. Under one of the programs, the Company services the trade receivables after sale and receives 90.0% of the trade receivables in cash at the time of sale and the remaining 10.0% in cash, net of fees, when the customer pays. As of December 31, 2019, under both programs, the Company sold $16.0 million in trade receivable balances, received $14.9 million in cash in December 2019 and incurred less than $0.1 million in fees. The Company expects to receive the remaining $1.0 million, net of fees, in 2020.

In December 2019, the Company's Amended Credit Agreement was amended to allow the Company to sell trade accounts receivable to approved third parties in connection with Receivable Purchases Agreements, or similar agreements ("Agreements"). At any given time, the maximum amount subject to such Agreements is not allowed to exceed $10.0 million for a certain approved customer and $50.0 million in aggregate for any other approved group of customers.

Inventories — Inventories are valued at lower of cost or net realizable value, cost being determined using the first-in, first-out (FIFO) cost method. Inventories in excess of requirements for current or anticipated orders have been written down to net realizable value.

Pre-production design and development costs — The Company enters into contractual agreements with certain customers to design and develop molds, dies and tools (collectively, “tooling”). All such tooling contracts relate to parts that the Company will supply to customers under long-term supply agreements. Tooling costs are accumulated in work-in process inventory and are charged to operations as the related revenue from the tooling is recognized. The Company’s revenue recognition policies require the Company to make significant judgments and estimates regarding timing of recognition based on timing of the transfer of control to the customer. 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. For tooling revenue recognized over time, the Company's significant judgments include, but are not limited to, estimated costs to completion, costs incurred to date, and assessments of risks related to changes in estimates of revenues and costs. The Company's management must make assumptions regarding the work required to fulfill the performance obligations, which is dependent upon the execution by the Company's subcontractors, among other variables and contract requirements.

Periodically, the Company enters into contractually guaranteed reimbursement arrangements as a mechanism to collect amounts due from customers from tooling sales. Under these arrangements, amounts due from tooling sales are collected as parts are delivered over the part supply arrangement, in accordance with the specific terms of the arrangement. The amounts due from the customer in such transactions are recorded in “Prepaid expenses and other current assets” or “Other assets, net” based upon the expected term of the reimbursement arrangement.

The following tooling related assets were included in the Consolidated Balance Sheets as of December 31, 2019 and 2018:



	December, 31
In thousands	2019		2018
Inventories, net of progress billings and reserves	$	1,777	$	4,262
Prepaid expenses and other current assets	530		469
Other assets, net	1,757		987
Total tooling related assets	$	4,064	$	5,718

Amounts included in “Prepaid expenses and other current assets” include the short-term portion of receivables due under contractually guaranteed reimbursement arrangements. Company owned tooling is recorded in “Property, plant and equipment, net” at December 31, 2019 and December 31, 2018.

Property, plant and equipment — Property, plant, and equipment are stated at cost. Assets held under finance leases are recorded at the lower of the net present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Please refer to Note 10, Leases, to these Consolidated Financial Statements for additional policy details related to all leases including finance leases. Property, plant and equipment, including property, plant and equipment under finance leases, are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are depreciated on a straight-line basis over the term of the lease or the life of the asset, whichever is shorter. The cost and accumulated depreciation amounts applicable to assets sold or otherwise disposed of are removed from the asset and accumulated depreciation accounts and any net gain or loss is included

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in the Consolidated Statements of Operations. Expenses for maintenance and repairs are charged to expense as incurred.

Goodwill and other intangible assets — Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. Goodwill and other intangible assets with indefinite lives are not amortized but are subject to annual impairment tests. All other intangible assets are amortized over their estimated useful lives, which range from 2 to 17 years. In performing impairment tests, the Company considers discounted cash flows and other market factors as best evidence of fair value. There are inherent uncertainties and management judgment required in these analyses. Please refer to Note 6, Goodwill and Long-Lived Assets and Note 7, Impairment, to these Consolidated Financial Statements for additional details regarding impairment calculations.

Valuation of long-lived assets — The Company evaluates the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. Should such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values would be reduced to fair value and this adjusted carrying value would become the assets’ new cost basis. For long-lived assets held for sale, assets are written down to fair value, less costs to sell. Please refer to Note 7, Impairment, to these Consolidated Financial Statements for additional details regarding impairment calculations.

Fair value is determined primarily using future anticipated cash flows that are directly associated with, and that are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, as well as market conditions and other factors. There are inherent uncertainties and management judgment required in these analyses.

Contingencies and environmental obligations — The Company makes judgments and estimates in accordance with applicable accounting rules when it establishes reserves for legal proceedings, claims, investigations, environmental obligations and other contingent matters. 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. The amount and timing of all future expenses related to legal proceedings, claims, investigations, environmental obligations and other contingent matters may vary significantly from estimates. Please refer to Footnote 17 "Commitments and Contingencies" for additional details regarding the Company's contingencies and environmental obligations.

Employer sponsored benefit plans — The Company recognizes the funded status of its defined benefit pension plans and post-retirement plans. Net benefit obligations are calculated based on actuarial valuations using key assumptions related to discount rates, mortality rates and expected return on plan assets.

Derivative instruments — Derivative instruments are measured at fair value and recognized as either assets or liabilities on the Consolidated Balance Sheet in either current or non-current other assets or other accrued liabilities or other long-term liabilities depending upon maturity and commitment. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the Consolidated Statement of Operations. 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. 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. The Company does not engage in derivative instruments for speculative or trading purposes. Please refer to Note 9, Derivatives, to these Consolidated Financial Statements for additional details regarding the Company's derivative instruments.

Revenue recognition — The Company's 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 judgments and estimates. 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. In applying the Company’s revenue recognition policy, determinations must be made as to when control of products passes to the Company’s customers which can be either at a point in

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time or over time depending on when control of the Company’s products transfers to its customers. 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. If sales are recognized at a point in time, the Company’s standard sales and shipping terms are FOB shipping point, therefore, most point in time revenue is recognized upon shipment. However, the Company conducts business with certain customers on FOB destination terms and in these instances point in time revenue is recognized upon receipt by the customer. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. See Note 2, Revenue from Contracts with Customers, to these Consolidated Financial Statements.

Sales returns and allowances are recorded as identified or communicated by the customer and internally approved. The Company does not provide customers with general rights of return for products sold; however, in limited circumstances, the Company will allow sales returns and allowances from customers if the products sold do not conform to specifications.

The Company's accounting policy is to record shipping and handling activities occurring after control has passed to the customer as a fulfillment cost rather than as a distinct performance obligation. Shipping and handling expenses consist primarily of costs incurred to deliver products to customers and internal costs related to preparing products for shipment and are recorded as a cost of sales. Amounts billed to customers as shipping and handling are classified as revenue when services are performed.

Research and development — Research and development costs are charged to expense as incurred and amounted to $11.2 million in 2019, $10.6 million in 2018, and $10.8 million in 2017. Research and development costs were primarily comprised of development personnel salaries, prototype material costs and testing and trials of new products.

Earnings per share — Basic earnings per common share are equal to net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are equal to net income divided by the weighted average number of common shares outstanding during the period, including the effect of stock options and stock awards, if such effect is dilutive.

Income taxes — The provision for income taxes is based upon income reported in the accompanying Consolidated Financial Statements. Deferred income taxes reflect the impact of temporary differences between the amounts of income and expense recognized for financial reporting purposes and such amounts recognized for tax purposes. In the event the Company was to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the Company would record a valuation allowance through a charge to income in the period that such determination was made. Conversely, if the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance and record an increase to income in the period that such determination was made.

Translation of foreign currencies — Assets and liabilities of foreign subsidiaries are translated at exchange rates prevailing on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the period. Any resulting translation gains or losses are reported in other comprehensive income (loss).

Stock options and share grants — The Company accounts for awards of equity instruments under the fair value method of accounting and recognizes such amounts in the Consolidated Statements of Operations. The Company recognizes expense on a straight-line basis over the vesting period of the entire award and records forfeitures as they occur. The Company estimates the fair value of option grants based on the Black Scholes option-pricing model. Expected volatility and expected term are based on historical information. The calculation assumes that future volatility and expected term are not likely to materially differ from the Company’s historical stock price volatility and historical exercise data, respectively. Compensation expense for all restricted stock awards is recorded based on the market value of the stock on the grant date and recognized as expense over the vesting period of the award. Compensation expense for performance-based restricted stock is also impacted by the probability of achieving the performance targets.

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Recently Adopted Accounting Standards

Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)", along with several additional clarification ASU's issued during 2018 (collectively, "New Lease Standard"). The New Lease Standard requires entities that lease assets with lease terms of more than 12 months to recognize right-of-use assets and lease liabilities created by those leases on their balance sheets. This New Lease Standard also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The Company's adoption of the New Lease Standard was on a modified retrospective basis and did not have any impact on the Company's financial statements and disclosures for all periods prior to 2019. As part of the adoption of the New Lease Standard, the Company elected the package of practical expedients which allowed the Company to not re-assess 1) if any existing arrangements contained a lease, 2) the lease classification of any existing leases and 3) initial direct costs for any existing lease. The Company also elected the practical expedient which allows use of hindsight in determining the lease term for leases in existence at the date of adoption. Effective January 1, 2019, the Company reported lease right-of-use assets and lease liabilities on the Company's Consolidated Balance Sheets. Adoption of the New Lease Standard did not change the balances reported in the Company's 2019 Consolidated Statements of Operations, Consolidated Statements of Cash Flows, or Consolidated Statements of Comprehensive Income. See Footnote 10 "Leases" for additional information required as part of the adoption of the New Lease Standard.

Effective January 1, 2019, the Company adopted the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Account for Hedging Activities". This ASU provides various improvements revolving around the financial reporting of hedging relationships that requires an entity to amend the presentation and disclosure of hedging activities to better portray the economic results of an entity's risk management activities in its financial statements. The adoption of this ASU did not have any impact on the Company’s consolidated financial statements and disclosures.

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

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

Effective July 1, 2019, the FASB ASU No. 2019-07, “Codification Updates to SEC Sections — Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update)”. ASU 2019-07 aligns the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. The adoption of this ASU did not have any impact on the Company's consolidated financial statements and disclosures.

Effective October 1, 2019, the Company adopted the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment." This ASU simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test and allows for an impairment of goodwill to be recorded as the difference in the carrying value and quantitative calculation of fair value (previously known as step one). Please refer to Footnote 7 "Impairment", for additional details of the annual goodwill impairment testing for its reporting units, including an impairment of $63.0 million which was recorded in the fourth quarter of 2019 in the Performance Materials segment.

2. Revenue from Contracts with Customers

The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") 606 Revenue from Contracts from Customers. The Company analyzes several factors, including but not limited to, the nature of the

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products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition.

The Company accounts for revenue from contracts with customers when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is primarily derived from customer purchase orders, master sales agreements, and negotiated contracts, all of which represent contracts with customers.

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

The transaction price in the contract is determined based on the consideration to which the Company will be entitled in exchange for transferring products to the customer, excluding amounts collected on behalf of third parties (for example, sales taxes). The transaction price is typically stated on the purchase order or in a negotiated agreement. Certain contracts may include variable consideration in the transaction price, such as rebates, pricing discounts, price concessions, sales incentives, index pricing or other provisions that can decrease the transaction price. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on reasonably available information (customer historical, current and forecasted data). In certain circumstances where a particular outcome is probable, the Company utilizes the most likely amount to which the Company expects to be entitled. The Company accounts for consideration payable to a customer as a reduction of the transaction price thereby reducing the amount of revenue recognized. Consideration payable to a customer includes cash amounts that the Company pays, or expects to pay, to a customer based on certain contract requirements.

The Company recognizes revenue as performance obligations are satisfied, which can be either over time or at a point in time, depending on when control of the Company’s products transfers to its customers.

In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires judgment.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company generally uses the cost-to-cost measure of progress for contracts because it best depicts the transfer of control to the customer which occurs as costs are incurred on contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

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

Changes in estimates for revenue recognized over time are recorded by the Company in the period they become known. Changes are recognized on a cumulative catch-up basis in net sales, costs of sales, and operating income. The cumulative catch up adjustment recognizes in the current period the cumulative effect of changes in estimates on current and prior periods.

Performance Obligations

The following is a description of products and performance obligations, separated by reportable segments, from which the Company generates its revenue. For more detailed information about reportable segments, see Note 15, Segment Information, to these Consolidated Financial Statements.

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Segment	Performance Materials

Products	Products for this segment include filtration media solutions primarily for air, fluid power, life science and industrial applications, gasket and sealing solutions, thermal insulation, energy storage, and other engineered products.

Performance Obligations	These contracts typically have distinct performance obligations, which is the promise to transfer the media solutions to the Company’s customers. The Company recognizes revenue at a point in time or over time, based upon when control transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days.

Segment	Technical Nonwovens

Products	This segment produces needle punch nonwoven solutions including industrial filtration and advanced materials products. Industrial Filtration products include nonwoven rolled-good felt media and filter bags used primarily in industrial air and liquid filtration applications. Advanced materials products include nonwoven rolled good media used in commercial applications and predominantly serves the geosynthetic, automotive, industrial, medical, and safety apparel markets. The automotive media is provided to tier-one suppliers as well as the Company’s Thermal Acoustical Solutions segment.

Performance Obligations	These contracts typically have distinct performance obligations, which is the promise to transfer the industrial filtration or advanced materials products to the Company’s customers. The Company recognizes revenue at a point in time or over time, based upon when control transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days. For filter bag sales, the Company may enter into warranty agreements that are implied or sold with the product to provide assurance that a product will function as expected and in accordance with certain specifications. Therefore, this type of warranty is not a separate performance obligation.

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Segment	Thermal Acoustical Solutions

Products	Parts - The segment produces a full range of innovative engineered products tailored for the transportation sector to thermally 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. The majority of products are sold to original equipment manufacturers and tier-one suppliers. Tooling - The Company enters into contractual agreements with certain customers within the automotive industry, to design and develop molds, dies and tools (collectively, “tooling”).

Performance Obligations	Parts - Customer contracts typically have distinct performance obligations, which is the promise to transfer manufactured parts to these customers. The Company recognizes parts revenue at a point in time or over time, based upon when control transfers to the customer. If revenue is recognized at a point in time, the performance obligation is typically satisfied upon shipment and in accordance with shipping terms. In circumstances when control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. Customer payment terms are negotiated on a contract-by-contract basis and typically range from 30 to 90 days. Tooling - Customer contracts typically have distinct performance obligations and are generally completed within one year. The Company periodically enters into multiple contracts with a customer at or near the same time which may be combined for purposes of determining the appropriate transaction price. The Company allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price using costs incurred plus expected margin. The corresponding revenues are recognized over time as the related performance obligations are satisfied. Tooling customer payment terms typically range from 30 to 90 days after title transfers to the customer. Occasionally customers make progress payments as the tool is constructed.

Contract Assets and Liabilities

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

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

Contract assets and liabilities consisted of the following:



In thousands	December 31, 2019		December 31, 2018		Dollar Change
Contract assets	$	28,245	$	23,040	$	5,205
Contract liabilities	$	1,441	$	4,537	$	(3,096	)

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The $5.2 million increase in contract assets from December 31, 2018 to December 31, 2019 was primarily due to timing of tooling billings to customers.

The $3.1 million decrease in contract liabilities from December 31, 2018 to December 31, 2019 was primarily due to revenue recognized of $4.5 million in 2019 related to contract liabilities at December 31, 2018, partially offset by customer deposits in 2019.

Disaggregated Revenue

The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors. Disaggregated revenue by geographical region, based on the region in which the sales originated, for the years ended December 31, 2019 and 2018 were as follows:



	Year Ended December 31, 2019
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	176,094	$	157,579	$	245,870	$	(24,287	)	$	555,256
Europe	61,889		68,456		98,221		(718		)	227,848
Asia	7,497		29,311		17,486		—			54,294
Total Net Sales	$	245,480	$	255,346	$	361,577	$	(25,005	)	$	837,398



	Year Ended December 31, 2018
In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Eliminations and Other			Consolidated Net Sales

North America	$	117,313	$	167,519	$	250,133	$	(25,121	)	$	509,844
Europe	49,055		73,912		99,529		(697		)	221,799
Asia	2,849		35,640		15,765		—			54,254
Total Net Sales	$	169,217	$	277,071	$	365,427	$	(25,818	)	$	785,897

3. Acquisitions and Divestitures

On August 31, 2018, the Company completed the acquisition of Interface Performance Materials ("Interface"), based in Lancaster, Pennsylvania. A globally-recognized leader in the delivery of engineered sealing solutions, the Interface operations manufacture wet-laid gasket and specialty materials primarily serving OEM and Tier I manufacturers in the agriculture, construction, earthmoving, industrial, and automotive segments. The transaction strengthens the Company's position as an industry-leading global provider of filtration materials and expands the Company's end markets into attractive adjacencies. The Company acquired one hundred percent of Interface for $268.4 million, net of cash acquired of $5.2 million. In the second quarter of 2019, the Company finalized the post closing adjustment leading to a decrease in purchase price of $1.4 million and resulting in a final purchase price of $267.0 million. The purchase price was financed with a combination of cash on hand and $261.4 million of borrowings from the Company's amended $450 million credit facility. The operating results of the Interface businesses have been included in the Consolidated Statements of Operations since August 31, 2018, the date of acquisition, and are reported within the Performance Materials reporting segment.

During the year ended December 31, 2018, the Company incurred $3.4 million of transaction costs, related to the acquisition of Interface. These transaction costs include legal fees and other professional services fees to complete the transaction. These expenses have been recognized in the Company's Condensed Consolidated Statements of Operations as selling, product development and administrative expenses.

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The following table summarizes the fair values of identifiable assets acquired and liabilities assumed at the date of the acquisition:



In thousands
Accounts receivable	$	25,182
Inventories	17,013
Prepaid expenses and other current assets	2,382
Property, plant and equipment	40,902
Goodwill (Note 6)	129,749
Other intangible assets (Note 6)	106,900
Other assets	308
Total assets acquired, net of cash acquired	$	322,436

Current liabilities	(11,319		)
Deferred tax liabilities (Note 16)	(24,081		)
Benefit plan liabilities (Note 12)	(19,002		)
Other long-term liabilities	(1,031		)
Total liabilities assumed	(55,433		)
Total purchase price, net of cash acquired	$	267,003

The following table reflects the unaudited pro forma operating results of the Company for the years ended December 31, 2019, 2018 and 2017, which gives effect to the acquisition of Interface as if it had occurred on January 1, 2017. The pro forma information includes the historical financial results of the Company and Interface. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2017, nor are they intended to be indicative of results that may occur in the future. The pro forma information does not include the effects of any synergies related to the acquisition.



	For The Years Ended December 31,
	(Actual)			(Unaudited Pro Forma)		(Unaudited Pro Forma)
In thousands	2019			2018		2017
Net Sales	$	837,398		$	888,355	$	840,040
Net Income	$	(70,513	)	$	37,537	$	36,773

Earnings per share:
Basic	$	(4.08	)	$	2.18	$	2.16
Diluted	$	(4.08	)	$	2.17	$	2.12

Included in net income during the year ended December 31, 2019 was $64.2 million of impairment charges in the Performance Materials segment, $12.3 million of intangible assets amortization expense related to acquired Interface intangible assets and $9.8 million of interest expense primarily to finance the Interface acquisition.

Pro forma adjustments during the year ended December 31, 2018 increased net income by $7.1 million. Included in net income for the year ended December 31, 2018 was $10.2 million of intangible assets amortization expense and $3.5 million of interest expense associated with borrowings under the Company's Amended Credit Agreement. Net income was adjusted to exclude items such as corporate strategic initiatives expenses, Interface management fee expenses and tax valuation allowance expenses.

Pro forma adjustments during the year ended December 31, 2017 reduced net income by $13.8 million. Included in net income for the year ended December 31, 2017 was $9.2 million of intangible assets amortization expense and $7.1 million of interest expense associated with borrowings under the Company's Amended Credit Agreement. Net income was adjusted to exclude items such as Interface management fee expenses and tax valuation allowance expenses.

F-17

On July 12, 2018, the Company acquired certain assets and assumed certain liabilities of the Precision Filtration division of Precision Custom Coatings ("PCC") based in Totowa, NJ. Precision Filtration is a producer of high-quality, air filtration media principally serving the commercial and residential HVAC markets with a range of low efficiency through high-performing air filtration media. The Company acquired the assets and liabilities of PCC for $1.6 million in cash with additional cash payments of up to $1.6 million to be made based on the achievement of certain future financial targets through 2022. The estimate of contingent consideration to be earned was revalued to fair value at December 31, 2019. PCC had a minimal impact on the Company's sales and operating income from the date of the acquisition in 2018 and the year ended December 31, 2019.

Divestiture

On May 9, 2019, the Company sold its Texel Geosol, Inc. ("Geosol") business, a subsidiary of the Company's Texel Technical Materials, Inc. ("Texel") business, for a cash purchase price of $3.0 million. Under the terms of the arrangement, $0.4 million of the total purchase price will be withheld and paid to the Company in three annual payments of approximately $0.1 million. The disposition was completed pursuant to a Sale Agreement, dated May 9, 2019, by and between the Company, and the third-party buyer. The Company recognized a pre-tax gain on the sale of $1.5 million, reported as non-operating income in the second quarter of 2019. Net of income taxes, the Company reported a gain on sale of $1.3 million in the second quarter of 2019.

The Company did not report Geosol as a discontinued operation as it was not considered a strategic shift in Lydall's business. Accordingly, the operating results of Geosol are included in the operating results of the Company through the sale date and in comparable periods.

4. Inventories

Inventories as of December 31, 2019 and 2018 were as follows:



	December 31,
In thousands	2019		2018
Raw materials	$	36,322	$	37,731
Work in process	14,873		18,296
Finished goods	29,349		28,438
Total inventories	$	80,544	$	84,465

Included in work in process is net tooling inventory of $1.8 million and $4.3 million at December 31, 2019 and 2018, respectively.

F-18

5. Property, Plant and Equipment, Net

Property, plant and equipment as of December 31, 2019 and 2018 were as follows:



	Estimated Useful Lives	December 31,
In thousands	Estimated Useful Lives	2019			2018
Land	–	$	6,268		$	6,280
Buildings and improvements	10-35 years	107,721			104,036
Machinery and equipment	5-25 years	308,457			289,059
Office equipment	2-8 years	36,905			36,110
Vehicles	3-6 years	1,516			1,640
Assets under finance leases:
Land	–	225			228
Buildings and improvements	2-10 years	—			229
Machinery and equipment	8-10 years	200			1,005
Office equipment	5 years	31			32
		461,323			438,619
Accumulated depreciation		(265,586		)	(244,098		)
Accumulated depreciation of finance leases		(143		)	(608		)
		195,594			193,913
Construction in progress		26,048			19,456
Total property, plant and equipment, net		$	221,642		$	213,369

Depreciation expense was $27.1 million in 2019, $23.4 million in 2018, and $21.4 million in 2017.

6. Goodwill and Long-Lived Assets

Gross and net carrying amounts of goodwill at December 31, 2019 and 2018 were as follows:



In thousands	Performance Materials			Technical Nonwovens		Thermal Acoustical Solutions			Totals
Goodwill	$	144,626		$	52,337	$	12,160		$	209,123
Accumulated amortization/impairment	—			—		(12,160		)	(12,160		)
Balance at December 31, 2018	144,626			52,337		—			196,963
Goodwill	143,658			53,254		12,160			209,072
Accumulated amortization/impairment	(63,000		)	—		(12,160		)	(75,160		)
Balance at December 31, 2019	$	80,658		$	53,254	$	—		$	133,912

The changes in the carrying amounts of goodwill in 2019 and 2018 were as follows:



In thousands	Performance Materials			Technical Nonwovens			Totals
Balance at January 1, 2018	$	13,307		$	55,662		$	68,969
Goodwill addition	131,509			—			131,509
Currency translation adjustment	(190		)	(3,325		)	(3,515		)
Balance at December 31, 2018	144,626			52,337			196,963
Goodwill reduction	(662		)	—			(662		)
Goodwill impairment	(63,000		)	—			(63,000		)
Currency translation adjustment	(306		)	917			611
Balance at December 31, 2019	$	80,658		$	53,254		$	133,912

F-19

Goodwill Associated with Acquisitions and Divestitures

The net goodwill reduction of $0.7 million in 2019 within the Performance Materials segment was due to a goodwill reduction of $1.3 million as a result of post-closing purchase price adjustments in the second and third quarters of 2019 related to the acquisition of Interface Performance Materials on August 31, 2018, partially offset by acquisition activity in the second quarter of 2019 resulting in a goodwill addition of $0.6 million.

The additional goodwill of $131.5 million in 2018 within the Performance Materials segment results from the two acquisitions completed in the third quarter of 2018. The Interface acquisition accounted for $131.0 million of the $131.5 million increase. The amount allocated to goodwill was reflective of the benefits the Company expected to realize from the expansion of the Company's engineered materials offering, new product development and Interface's assembled workforce. None of the goodwill associated with the Interface acquisition is expected to be deductible for income tax purposes.

Goodwill Impairment

During the fourth quarter of 2019, the Company performed its annual impairment analysis of the goodwill in the Performance Materials reporting unit (PM reporting unit) and in the Technical Nonwovens reporting unit (TNW reporting unit). The Company used the qualitative method to analyze the goodwill for the TNW reporting unit by considering capital markets environment, economic conditions, industry trends, results of operations, and other factors. The Company also considered changes in assumptions used in the Company's most recent quantitative annual testing, including results of operations, the magnitude of excess of fair value over carrying value and other factors. As a result of this qualitative analysis, the Company concluded that the TNW reporting unit's fair value more likely than not exceeds its carrying value and as a result, the quantitative impairment assessment was not required to be completed.

For the PM reporting unit, the Company recorded a goodwill impairment charge of $63.0 million during the fourth quarter of 2019. See Note 7, Impairment, to these Consolidated Financial Statements for further discussion of the goodwill impairment.

Other Intangible Assets

The table below presents the gross carrying amount and, as applicable, the accumulated amortization of the Company’s acquired intangible assets other than goodwill included in “Other intangible assets, net” in the Consolidated Balance Sheets as of December 31, 2019 and 2018:



	December 31, 2019					December 31, 2018
In thousands	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Customer relationships	$	142,400	$	(30,648	)	$	141,455	$	(11,453	)
Patents	759		(607		)	4,333		(3,816		)
Technology	2,500		(977		)	2,500		(810		)
Trade names	7,293		(5,143		)	7,235		(2,840		)
License agreements	610		(610		)	619		(619		)
Other	551		(551		)	561		(561		)
Total amortized intangible assets	$	154,113	$	(38,536	)	$	156,703	$	(20,099	)

In connection with the acquisition of Interface on August 31, 2018, the Company recorded intangible assets of $106.9 million, which included $103.7 million of customer relationships and $3.2 million of trade names. As of December 31, 2019, the weighted average useful lives of Interface's intangible assets was 11 years.

Amortization of all intangible assets for the years ended December 31, 2019, 2018, and 2017 was $21.5 million, $9.3 million, and $4.5 million, respectively. Estimated amortization expense for intangible assets is expected to be $20.8 million, $16.3 million, $14.4 million, $12.7 million, $11.3 million, and $40.0 million for each of the years ending December 31, 2020 through 2024 and thereafter, respectively. As of December 31, 2019, the weighted average useful life of intangible assets was approximately 11 years.

F-20

7. Impairments of Goodwill and Other Long-Lived Assets

During the fourth quarter of 2019, in accordance with ASC 350 Intangibles - Goodwill and Other, the Company performed its annual impairment test of its goodwill held by the Performance Materials and Technical Nonwovens reporting units. In addition, in accordance with ASC 360 Property, Plant & Equipment, the Company performed an impairment test on certain of its long-lived assets (principally machinery and equipment, and buildings and improvements) due to events and changes in circumstances during the fourth quarter of 2019 that indicated an impairment might have occurred. As a result of these impairment tests, the Company recorded the following impairment charges during the fourth quarter of 2019:



In thousands	Performance Materials		Technical Nonwovens		Thermal Acoustical Solutions		Totals
Impairment of goodwill	$	63,000	$	—	$	—	$	63,000
Impairment of other long-lived assets	1,206		—		—		1,206
Total impairments	64,206		—		—		64,206

Goodwill

As a result of the Interface acquisition in August 2018 and recording the acquired assets and liabilities at fair value, there was a significant increase to the Performance Materials segment goodwill and intangible assets. Any declines in financial projections, including changes to key assumptions, could have a material, negative impact on the fair value of the segment, and therefore could result in an impairment.

Those factors, along with other factors, caused the Company to perform a quantitative goodwill impairment assessment. The Company weighted equally both an income approach (discounted cash flow model) and a market approach, both level 3 unobservable inputs, to determine the Performance Materials reporting unit's fair value. The Company’s significant assumptions in the discounted cash flow model included, but were not limited to, future cash flow projections, the weighted average cost of capital, the terminal growth rate, and the tax rate. Calculation of future cash flows includes management estimates and assumptions that are based on the best available information as of the date of the assessment. Future cash flows can be affected by numerous factors including changes in economic, industry or market conditions, changes in the underlying business or products of the reporting unit, changes in competition and changes in technology. There are inherent uncertainties and management judgment required in an analysis of goodwill impairment. The Company believes the income approach was appropriate because it provided a fair value estimate based upon the reporting unit's expected long-term operations and cash flow performance.

The Company also used a form of the market approach, which was derived from metrics of publicly traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the markets in which the reporting unit operates giving consideration to risk profiles, size, geography, and diversity of products and services. Other assumptions included adding an implied control premium to the valuation based on estimating the fair value on a controlling basis, which was derived from research on control premiums observed in recent mergers and acquisitions in the industries in which Lydall operates. The Company believes the market approach was appropriate because it provided a fair value using multiples from companies with operations and economic characteristics similar to the Performance Materials reporting unit.

The Company also performed an overall reconciliation to corroborate the fair value derived from the income and market approaches to Lydall's overall market capitalization.

F-21

Other Long-Lived Assets

The Company performed an impairment assessment on the long-lived assets for its two Thermal Acoustical Solutions European plants during the fourth quarter of 2019 due to negative 2019 financial performance compared to budget, changes in financial projections and general weakening in the European automotive sector. The Company considered each operating plant's asset group, primarily consisting of machinery and equipment, and buildings and improvements. Step one of the impairment tests required by ASC 350 failed as the undiscounted cash flows over the useful life of each operating plant's primary assets did not exceed the separate plant's asset groups carrying values of $28.5 million and $12.5 million. As part of step two of the impairment assessment, the Company used the market approach to determine fair value based on independent appraisals of the long-lived assets. The Company determined that impairment did not exist as the fair value of the long-lived asset groups for each operating plant exceeded their carrying amounts. Small changes in future operating results could result in a future non-cash impairment charge.

During the fourth quarter of 2019, as a result of negative cash flows in 2019 and an expected reduction in demand from certain customers further impacting net sales and cash flows in 2020, the Company tested for impairment a discrete long-lived asset group (primarily consisting of machinery and equipment and patents) in the Performance Materials segment with a carrying value of approximately $3.0 million. To determine the recoverability of this asset group, the Company completed an undiscounted cash flow analysis (income approach) and compared it to the asset group carrying value in accordance with ASC 350. This analysis was primarily dependent on the expectations for net sales over the estimated remaining useful life of the underlying asset group. The impairment test concluded that the asset group was not recoverable as the resulting undiscounted cash flows were less than their carrying amount. The Company then determined that fair value of the asset group exceeded its carrying value and recorded a long-lived asset impairment charge of $1.2 million.

8. Long-term Debt and Financing Arrangements

On August 31, 2018, the Company amended and restated its $175 million senior secured revolving credit agreement ("Amended Credit Agreement") that increased the available borrowing from $175 million to $450 million, added three additional lenders and extended the maturity date from July 7, 2021 to August 31, 2023.

Under the terms of the Amended Credit Agreement, the lenders are providing up to a $450 million credit facility (the “Facility”) to the Company, under which the lenders provided a term loan commitment of $200 million and revolving loans and issue letters of credit to or for the benefit of the Company and its subsidiaries of up to $250 million. The Facility may be increased by an aggregate amount not to exceed $150 million through an accordion feature, subject to specified conditions. The Facility is secured by substantially all of the assets of the Company.

The Company is permitted to prepay term and revolving borrowings in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, and the Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments under the Amended Credit Agreement. The Company is required to repay the term commitment in an amount of $2.5 million per quarter beginning with the quarter ending December 31, 2018 through the quarter ending June 30, 2023.

F-22

fixed charge coverage ratio, which requires that at the end of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed maintenance capital expenditures, restricted payments and taxes paid, each as defined in the Amended Credit Agreement, may not be lower than 1.25 to 1.0; 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 defined in the Amended Credit Agreement, may not be greater than 3.5 to 1.0. The Company was in compliance with all covenants at December 31, 2019.

At December 31, 2019, the Company had borrowing availability of $121.6 million under the Facility, net of $273.0 million of borrowings outstanding and standby letters of credit outstanding of $1.9 million. The borrowings outstanding include a $146.1 million term loan, net of $0.4 million in debt issuance costs being amortized to interest expense over the debt maturity period.

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

Total outstanding debt consists of:



			December 31,
In thousands	Effective Rate	Maturity	2019			2018
Revolver loan	3.80%	8/31/2023	$	126,500		$	138,000
Term loan, net of debt issuance costs	3.80%	8/31/2023	146,106			186,498
Finance leases	0.00% - 2.09%	2020	35			315
			272,641			324,813
Less portion due within one year			(9,928		)	(10,172		)
Total long-term debt, net of debt issuance costs			$	262,713		$	314,641

As of December 31, 2019, total debt maturing in 2020, 2021, 2022, and 2023 is $10.0 million, $10.0 million, $10.0 million, and $243.0 million, respectively.

The weighted average interest rate on long-term debt was 4.3% for the year ended December 31, 2019, compared with 3.4% and 2.2% for the years ended December 31, 2018 and 2017, respectively.

The carrying value of the Company’s $450 million Facility approximates fair value given the variable rate nature of the debt. The fair values of the Company’s long-term debt are determined using discounted cash flows based upon the Company’s estimated current interest cost for similar type borrowings or current market value, which falls under Level 2 of the fair value hierarchy.

9. 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 Europe, which impact interest paid on its debt. The Company has debt with variable rates of interest based generally on LIBOR. From time to time, the Company enters into interest rate swap agreements to manage interest rate risk. These instruments are designated as cash flow hedges and are recorded at fair value using Level 2 observable market inputs.

F-23

In November 2018, the Company entered into a five-year interest rate swap agreement with a bank which converts the interest on a notional $139.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 3.09% plus the borrowing spread. The notional amount reduces quarterly by fluctuating amounts through August 2023. In April 2017, the Company entered into a three-year interest rate swap agreement with a bank which converts the interest on a notional $60.0 million of the Company's one-month LIBOR-based borrowings under its Amended Credit Agreement from a variable rate, plus the borrowing spread, to a fixed rate of 1.58% plus the borrowing spread. The notional amount reduces quarterly by $5.0 million through March 31, 2020. These interest rate swap agreements were accounted for as cash flow hedges. Effectiveness of these derivative agreements are assessed quarterly by ensuring that the critical terms of the swaps continue to match the critical terms of the hedged debt.

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, recorded at fair value using Level 2 observable market inputs, to protect the Company's net investments in subsidiaries denominated in currencies other than the US dollar.

In November 2019, the Company entered into three fixed-to-fixed cross-currency swaps with banking institutions with aggregate notional amounts totaling €67.8 million ($75 million U.S. dollar equivalent). These swaps hedge a portion of Lydall, Inc's net investment in a Euro functional currency denominated subsidiary against the variability of exchange rate translation impacts between the U.S. Dollar and Euro. These contracts require monthly cash interest exchanges over the life of the contracts with the Company recognizing a reduction to interest expense due to the favorable interest rate differential between the U.S. dollar and Euro. Also, settlement of the notional €22.6 million ($25 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 in the Company's Statement of Operations.

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

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



	December 31, 2019				December 31, 2018
In thousands	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate contracts	$	2	$	4,538	$	179	$	2,738
Cross-currency swaps	—		1,817		—		—
Total derivatives	$	2	$	6,355	$	179	$	2,738

F-24

The following table sets forth the (loss) income, recorded in accumulated other comprehensive loss, net of tax, for the years ended December 31, 2019 and 2018 for derivatives held by the Company and designated as hedging instruments:



	Years Ended December 31,
	2019			2018
Cash flow hedges:
Interest rate contracts	$	(1,500	)	$	(2,096	)
Cross-currency swaps	$	(1,403	)	$	—
Total derivatives	$	(2,903	)	$	(2,096	)

10. Leases

From time to time, the Company enters into arrangements with vendors to provide certain tangible assets used in the Company's operations which qualify as a lease pursuant to ASC 842, Leases. The tangible assets leased include buildings, office equipment, machinery and vehicles. The Company's leases have remaining terms of a few months to 14 years, some of which have options to extend for a period of up to 7 years and some of which have options to terminate within 1 year.

At inception of the arrangement, the Company determines if an arrangement is a lease based on assessment of the terms and conditions of the contract. Operating leases are included in Operating lease right-of-use (“ROU”) assets, other accrued liabilities, and Long-term operating lease liabilities in the Company's condensed consolidated balance sheets. Finance leases are included in property, plant and equipment, Current portion of long-term debt, and long-term debt in the Company's condensed consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

While the overwhelming majority of leases have fixed payments schedules, some leases have variable lease schedules based on market indices such as LIBOR or include additional payments based on excess consumption of services. For leases on a variable schedule based on a market index, the current lease payment amount is used in the calculation of the lease liability and corresponding asset included on the balance sheet. For leases with additional payments based on excess consumption of services, no amount is included in the calculation of the lease liability or corresponding asset as it is not probable excess consumption will continue in the future.

As most leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. At December 31, 2019, the weighted average discount rate used for operating and finance leases is 4.39% and 1.61%, respectively. The implicit rate is used when readily determinable from a lease.

The operating lease ROU asset also includes any lease payments made in advance of the assets use and excludes lease incentives received. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for as one component as permitted by ASC 842.

After consideration of any options to terminate early which are reasonably certain to be executed or any options to extend which are not reasonably certain to be executed, any lease with a term of 12 months or less is considered short-term. As permitted by ASC 842, short-term leases are excluded from the ROU Asset and Lease Liability accounts on the condensed consolidated balance sheets. Consistent with all other operating leases, short-term lease expense is recorded on a straight-line basis over the lease term.

F-25

The components of lease expense are as follows:



In thousands	For the year ended December 31, 2019
Finance lease expense:
Amortization of right-of-use assets	$	81
Interest on lease liabilities	2
Operating lease expense	6,510
Short-term lease expense	918
Variable lease expense	199
Total lease expense	$	7,710

Supplemental balance sheet information related to leases are as follows:



In thousands, except lease term	December 31, 2019
Operating leases:
Operating lease right-of-use assets	$	23,116

Short-term lease liabilities, included in "Other accrued liabilities"	$	4,789
Long-term lease liabilities	18,424
Total operating lease liabilities	$	23,213

Finance leases:
Property, plant and equipment	$	456
Accumulated depreciation	(143		)
Property, plant and equipment, net	$	313

Short-term lease liabilities, included in debt	$	35
Long-term lease liabilities, included in debt	—
Total finance lease liabilities	$	35

Weighted average remaining lease term:
Operating leases	7.1 years
Finance leases	20.4 years

Supplemental cash flow information related to leases are as follows:



	For the year ended December 31,
In thousands	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,301
Operating cash flows from finance leases	2
Financing cash flows from finance leases	240

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,743
Finance leases	—

F-26

As of December 31, 2019, future lease payments maturities were as follows:



In thousands
Years Ending December 31,	Operating Leases			Finance Leases
2020	$	5,680		$	36
2021	4,329			—
2022	3,555			—
2023	2,659			—
2024	1,848			—
Thereafter	9,465			—
Total lease payments	27,536			36
Less imputed interest	(4,323		)	(1		)
Total discounted future lease payments	$	23,213		$	35

As of December 31, 2018, future lease payment maturities were as follows:



In thousands
Years Ending December 31,	Operating Leases		Finance Leases
2019	$	6,004	$	279
2020	4,871		35
2021	3,877		—
2022	3,226		—
2023	2,617		—
Thereafter	11,111		—
Total lease payments	$	31,706	$	314

11. Capital Stock

Preferred Stock — The Company has authorized Preferred Stock with a par value of $0.01. None of the 500,000 authorized shares have been issued.

Common Stock — As of December 31, 2019, 5,422 Lydall stockholders of record held 17,622,191 shares of Common Stock.

Dividend policy — The Company does not pay a cash dividend on its common stock. The Company’s Amended Credit Agreement does not place any restrictions on cash dividend payments, so long as the payments do not place the Company in default.

12. Employer Sponsored Benefit Plans

During 2019, the Company maintained a domestic defined benefit pension plan ("U.S. Lydall Pension Plan") and two domestic defined benefit pension plans acquired in the Interface acquisition: the Retirement Income Plan for Employees of Interface Performance Materials, Inc. ("IPM Pension Plan"), and the Interface Sealing Solutions, Inc. Pension Plan ("ISS Pension Plan"), collectively, the "Interface Pension Plans."

During 2019, the Company settled the pension obligation of the U.S. Lydall Pension Plan through lump sum distributions to participants or by irrevocably transferring pension liabilities to two insurance companies through the purchase of group annuity contracts. These purchases, funded with pension assets, resulted in a pre-tax settlement loss of $25.7 million in 2019 related to the recognition of accumulated deferred actuarial losses U.S. Lydall Pension Plan as well as settlement-related fees and expenses. The settlement loss was included as non-operating expense in the consolidated statements of operations. No contributions were made to the U.S. Lydall Pension Plan during the year ended December 31, 2019.

F-27

The Interface Pension Plans cover Interface's union and non-union employees. The plans are closed to new employees and benefits are no longer accruing for the majority of participants. Contributions of $1.4 million were made to the plans during the year ended December 31, 2019. During the fourth quarter of 2019, the Company terminated the ISS Pension Plan. The Company anticipates completing the settlement of this plan in the first half of 2020. At December 31, 2019, the benefit obligations of the ISS Pension Plan have been valued at the amount expected to be required to settle the obligations through a combination of participant-elected lump sums or annuities, and the cost to purchase those annuities. Overall, the Company estimates it will incur expense of approximately $0.4 million to $0.6 million in 2020 when the plan settlement is completed. The Company is expected to make a one-time cash contribution of approximately $0.7 million to $0.9 million to purchase annuities for participants and make lump sum payments. The estimated expense and cash contribution are subject to change based on valuations at the actual date of settlement.

During 2019 and 2018, certain union employees of Interface participated in a separate multi-employer pension plan. There were no significant contributions to the multi-employer plan during 2019 and 2018. In the fourth quarter of 2019, the Company negotiated with its union employees and the multi-employer pension plan the withdrawal from the plan and satisfied all outstanding obligations with a payment of $2.2 million, which was previously accrued on the Company's consolidated balance sheet at $2.7 million, resulting in a pension settlement gain of $0.5 million in 2019.

The Company’s funding policy for the Interface Pension Plans is to fund not less than the ERISA minimum funding standard and not more than the maximum amount that can be deducted for federal income tax purposes.

Plan assets and benefit obligations of the former U.S. Lydall Pension Plan and the Interface Pension Plans were as follows:



	December 31,
In thousands	2019			2018
Change in benefit obligation:
Net benefit obligation at beginning of year	$	102,679		$	51,882
Benefit obligation assumed through acquisition	—			52,392
Service Cost	136			46
Interest cost	2,132			2,595
Actuarial loss/(gain)	5,149			(876		)
Gross benefits paid	(2,932		)	(3,360		)
Net effect of remeasurement	(3,290		)	—
Settlement	(48,773		)	—
Net benefit obligation at end of year	$	55,101		$	102,679
Change in plan assets:
Fair value of plan assets at beginning of year	$	87,452		$	44,174
Fair value of plan assets through acquisition	—			43,230
Actual return/(loss) on plan assets	6,987			(4,092		)
Contributions	1,415			7,500
Gross benefits paid	(2,932		)	(3,360		)
Net effect of remeasurement	(211		)	—
Settlement	(48,773		)	—
Fair value of plan assets at end of year	$	43,938		$	87,452
Net benefit obligation in excess of plan assets	$	(11,163	)	$	(15,227	)
Balance sheet amounts:
Current liabilities	$	(787	)	$	(3,078	)
Noncurrent liabilities	$	(10,376	)	$	(12,149	)
Total liabilities	$	(11,163	)	$	(15,227	)
Amounts recognized in accumulated other comprehensive income, net of tax consist of:
Net actuarial loss	$	2,579		$	21,850
Net amount recognized	$	2,579		$	21,850

F-28

At December 31, 2019, in addition to the accrued benefit liability of $11.2 million recognized for the Company’s domestic defined benefit pension plans, the Company had foreign pension plans, including those acquired in the Interface acquisition, with an accrued benefit liability of $5.2 million and accumulated other comprehensive loss, net of tax, of $0.9 million. At December 31, 2018, in addition to the accrued benefit liability of $15.2 million recognized for the Company’s domestic defined benefit pension plan, the Company had foreign pension plans, including those acquired in the Interface acquisition, with an accrued benefit liability of $4.7 million and accumulated other comprehensive loss, net of tax, of $0.4 million.

In addition to the Domestic Pension Plans included in the table above, the Interface domestic post-retirement benefits include life insurance and medical benefits for certain domestic employees with an accrued benefit liability of $3.6 million at December 31, 2019 and $4.1 million at December 31, 2018. For the year ended December 31, 2019, benefit expense of approximately $0.1 million was recognized and benefit payments of $0.2 million were made. From the August 31, 2018 acquisition to December 31, 2018, benefit expense of $0.1 million was recognized and benefit payments of $0.1 million were made.

The U.S. Lydall Pension Plan liability, net of tax, included in other comprehensive income decreased by $19.4 million as a result of the settlement. The Interface Pension Plans' liability, net of tax, included in other comprehensive income increased by $0.3 million at December 31, 2019. The U.S. Lydall Pension Plan liability, net of tax, included in other comprehensive income increased by $1.8 million for the year ended December 31, 2018. The Interface Pension Plans liability, net of tax, included in other comprehensive income increased by $1.8 million at December 31, 2018.

Aggregated information for the domestic defined benefit pension plans with an accumulated benefit obligation in excess of plan assets is provided in the tables below:



	December 31,
In thousands	2019		2018
Projected benefit obligation	$	55,101	$	102,679
Accumulated benefit obligation	$	55,101	$	104,188
Fair value of plan assets	$	43,938	$	87,452

Components of net periodic benefit cost for the domestic defined benefit pension plans:



	December 31,
In thousands	2019			2018			2017
Service cost	$	136		$	46		$	—
Interest cost	2,886			2,595			2,058
Expected return on plan assets	(2,601		)	(3,339		)	(2,376		)
Amortization of actuarial net loss	464			1,024			1,092
Total net periodic benefit cost	$	885		$	326		$	774
Settlement loss	25,247			$	—		$	—
Total employer pension plan cost	$	26,132		$	326		$	774

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 and expense.

The major assumptions used in determining the year-end benefit obligation and annual net cost for the domestic defined benefit pension plans are presented in the following table:



	Benefit Obligation				Net Cost
For the years ended December 31,	2019		2018		2019		2018		2017
Discount rate	3.37	%	3.99	%	3.88	%	3.75	%	4.21	%
Expected return on plan assets	5.06	%	4.08	%	4.65	%	5.79	%	6.30	%

F-29

Plan Assets

The domestic defined benefit pension plans are administered by the Lydall Retirement Committee (the "Committee"), which is appointed by the Board of Directors. The Committee’s responsibilities are to establish a funding policy for the Domestic Pension Plans and to appoint and oversee the investment advisor responsible for the plan investments. The Committee is a named fiduciary under the plan, and the Committee has granted discretion to the investment advisor with respect to management of the investments. The Interface Pension Plans are invested for the purpose of investment diversification. In determining the expected return on plan assets, the Committee considers the relative weighting of plan assets, the historical performance of marketable debt and equity securities and economic and other indicators of future performance.

Investment management objectives for the Interface Pension Plans include maintaining an adequate level of diversification to balance market risk and to provide sufficient liquidity for near-term payments of benefits accrued under the Plans and to pay the expenses of administration. Investment decisions are based on the returns and risk relative to the Plan's liabilities, an approach commonly referred to as liability-driven investing. The long-term investment objective of the Interface Pension Plan is to achieve a total return equal to or greater than the assumed weighted rate of return, currently 5.20%. Though it is the intent of the Committee to achieve income and growth, that intent does not include taking extraordinary risks or engaging in investment activities not commonly considered prudent under the standards imposed by ERISA. The allowable investments include: securities, mutual funds, sub-advisers, independent investment managers and/or programs, and cash or cash equivalents. Prohibited investments include: single strategy hedge funds, investment in individual securities, direct investment in venture capital, and CMO derivatives and commodities.

The following table presents the target allocation of the IPM Pension Plan assets for 2020 and the actual allocation of all domestic defined benefit pension plan assets as of December 31, 2019 and 2018 by major asset category:



	Target Allocation	Actual Allocation of Plan Assets December 31,
Asset Category	2020 (1)	2019		2018 (2)
Domestic equities	20% - 40%	38	%	16	%
International equities	15% - 35%	25	%	11	%
Fixed income	20%-45%	18	%	49	%
Real assets	0% - 10%	7	%	3	%
Hedge fund of funds	5% - 15%	9	%	5	%
Cash and cash equivalents	0% - 10%	3	%	16	%

(1) Target allocation percentages reflect the IPM Pension Plan only, as the terminated ISS Pension Plan assets, which comprise 5% of the total domestic defined benefit pension balances at December 31, 2019, has an investment target of primarily fixed income investments in anticipation of 2020 settlement.
(2) Plan Assets as of December 31, 2018 included values associated with the U.S. Lydall Plan, which was settled during 2019.

The investments of the domestic defined benefit plans are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The fixed income long duration fund and certain hedge funds that were measured at fair value using the NAV practical expedient are included as a reconciling item to the fair value table.

F-30

The following tables set forth the fair value of the assets by major asset category as of December 31, 2019 and December 31, 2018:



December 31, 2019
In thousands	Level 1		Level 2		Level 3		Measured at NAV		Total

Domestic equity	$	16,729	$	—	$	—	$	—	$	16,729
International equity	10,903		—		—		—		10,903
Fixed income	3,724		—		—		—		3,724
U.S. government securities	—		2,686		—		—		2,686
Corporate and foreign bonds	—		1,701		—		—		1,701
Real assets	3,010		—		—		—		3,010
Hedge fund of funds	4,009		—		—		—		4,009
Cash and cash equivalents	145		1,031		—		—		1,176
Total Assets at Fair Value	$	38,520	$	5,418	$	—	$	—	$	43,938



December 31, 2018
In thousands	Level 1		Level 2		Level 3		Measured at NAV		Total

Domestic equity	$	13,941	$	—	$	—	$	—	$	13,941
International equity	9,547		—		—		—		9,547
Fixed income	10,977		—		—		27,727		38,704
U.S. government securities	—		2,466		—		—		2,466
Corporate and foreign bonds	—		1,448		—		—		1,448
Real assets	2,808		—		—		—		2,808
Hedge fund of funds	4,129		—		—		312		4,441
Cash and cash equivalents	12,027		2,070		—		—		14,097
Total Assets at Fair Value	$	53,429	$	5,984	$	—	$	28,039	$	87,452

Domestic and international equities consist primarily of mutual funds valued at the closing price reported in the active market in which individual securities are traded.

Fixed income consisted of mutual funds valued using quoted market prices and a long duration fixed income held in proprietary funds pooled with other investor accounts which sometimes uses the net asset value (NAV) per share practical expedient to measure fair value.

Real assets includes inflation hedge mutual funds that invest primarily in a portfolio of inflation-protected debt securities, real-estate related securities and commodity/natural resource-related securities. The mutual fund, which is valued using quoted market prices, is designed to protect against the long-term effects of inflation on an investment portfolio with the long-term objective of preservation of capital with current income.

U.S. government securities include U.S. Treasury Notes and Bonds which represent middle range and long term fixed income investments, and are valued using pricing models maximizing the use of observable inputs for similar securities.

Corporate and foreign bonds primarily include a diversified portfolio of U.S. corporate debt obligations, and are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks or a broker quote if available.

F-31

Hedge funds are mutual funds and pooled funds that employ a range of investment strategies for diversification including equity and fixed income, credit driven, macro and multi oriented strategies. Certain hedge funds were measured at fair value using the NAV practical expedient and are not classified in the fair value hierarchy.

Cash and cash equivalents include investments readily converted to cash valued in the active market in which the funds were traded and are classified within Level 1 of the fair value hierarchy. Non-government money market funds are classified as Level 2.

Estimated Future Contributions and Benefit Payments

The Company expects to contribute approximately $2.4 million in cash to its domestic defined employee benefit plans in 2020.

Estimated future benefit payments for the next 10 years for the Interface Pension Plans are as follows:



In thousands	2020		2021		2022		2023		2024		2025-2028
Benefit payments	$	5,903	$	3,026	$	3,065	$	3,082	$	3,138	$	15,957

Employee Savings Plan

The Company also sponsors a 401(k) Plan. Employer contributions to this plan amounted to $3.7 million in 2019, $2.9 million in 2018, and $2.6 million in 2017. Matching contributions by the Company are made on employee pretax contributions up to five percent of compensation, with the first three percent matched at 100% and the next two percent matched at 50%.

13. Equity Compensation Plans

As of December 31, 2019, the Company’s equity compensation plans consisted of the 2003 Stock Incentive Compensation Plan (the “2003 Plan”) and the 2012 Stock Incentive Plan (the “2012 Plan” and together with the 2003 Plan, the “Plans”) under which incentive and non-qualified stock options and time and performance based restricted shares have been granted to employees and directors from authorized but unissued shares of common stock or treasury shares. The 2003 Plan is not active, but continues to govern all outstanding awards granted under the plan until the awards themselves are exercised or terminate in accordance with their terms. The 2012 Plan, approved by stockholders on April 27, 2012, authorized 1,750,000 shares of common stock for awards. The 2012 Plan also authorizes an additional 1,200,000 shares of common stock to the extent awards granted under prior stock plans that were outstanding as of April 27, 2012 are forfeited. The 2012 Plan provides for the following type of awards: options, restricted stock, restricted stock units and other stock-based awards. During the fourth quarter of 2019, additional shares of common stock were issued pursuant to separate inducement share agreements with two individuals as material inducement to their employment with the Company (the "Inducement Grants"). The Inducement Grants awarded stock options and restricted stock to the two individuals. Amounts shown below are inclusive of the Plans and the Inducement Grants.

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

F-32

The Company incurred compensation expense of $2.9 million, $2.1 million, and $4.3 million for the years ended December 31, 2019, 2018, and 2017, respectively, for all stock-based compensation plans, including restricted stock awards. No compensation costs were capitalized as part of inventory. The associated tax benefit realized was $0.2 million, $1.3 million, and $4.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Stock Options

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the years ended December 31:



	2019		2018		2017
Risk-free interest rate	1.7	%	2.7	%	2.2	%
Expected life	5.3 years		5.5 years		5.5 years
Expected volatility	37	%	34	%	33	%
Expected dividend yield	—	%	—	%	—	%

The following is a summary of the option activity as of December 31, 2019 and changes during the year then ended:



In thousands except per share amounts and years
	Shares	Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	623	$	30.14
Granted	242	$	19.35
Exercised	(40)	$	11.47
Forfeited/Cancelled	(142)	$	31.36
Outstanding at December 31, 2019	683	$	27.15	7.9	$	688
Options exercisable at December 31, 2019	318	$	33.01	6.1	$	372
Unvested at December 31, 2019	365	$	22.04	3.0	$	316

The Company granted 242,592, 245,830, and 99,840 stock options during 2019, 2018, and 2017, respectively. The weighted-average grant-date fair value of options granted during the years 2019, 2018, and 2017 was $19.35, $21.49, and $17.91, respectively. There were 40,147 options exercised in 2019, 54,316 options exercised in 2018, and 90,897 options exercised in 2017. The intrinsic value for options exercised during 2019 was $0.4 million and the associated tax benefit realized from stock options exercised was $0.1 million. The total intrinsic value for options exercised during 2018 was $1.4 million and the associated tax benefit realized from stock options exercised was $0.3 million. The total intrinsic value for options exercised during 2017 was $3.6 million and the associated tax benefit realized from stock options exercised was $1.1 million. The amount of cash received from the exercise of stock options was $0.4 million in 2019, $0.9 million in 2018, and $1.3 million in 2017. At December 31, 2019, the total unrecognized compensation cost related to non-vested stock option awards was approximately $2.7 million, with a weighted average expected amortization period of 3.0 years.

Restricted Stock

The following is a summary of the Company’s unvested restricted shares for the year ended and as of December 31, 2019:



In thousands except per share amounts
Outstanding Restricted Shares	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2018	304	$	37.02
Granted	157	$	20.96
Vested	(23)	$	56.45
Forfeited/Cancelled	(150)	$	38.07
Nonvested at December 31, 2019	288	$	26.13

F-33

Restricted stock includes both performance-based and time-based awards. Compensation for restricted stock is recorded based on the fair market value of the stock on the grant date and amortized to expense over the vesting period of the award. The Company granted 59,566, 99,560, and 52,595 shares of performance-based restricted stock during 2019, 2018, and 2017, respectively. The Company granted 97,803 shares of time-based restricted stock in 2019, 71,516 shares in 2018, and 22,700 in 2017. The Company granted 1,245, and 485 of time-based restricted stock units in 2018 and 2017, respectively. The weighted average fair value per share of restricted stock granted was $20.96, $25.19, and $45.18 during 2019, 2018, and 2017, respectively. During 2019, 2018, and 2017, respectively, there were 150,365, 8,440 and 14,045 shares of restricted stock forfeited. The fair value of awards for which restrictions lapsed during the years ended December 31, 2019, 2018, and 2017 was $0.5 million, $3.2 million, and $8.0 million, respectively. At December 31, 2019, the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $4.5 million, with a weighted average expected amortization period of 2.4 years.

Stock Repurchases

During the year ended December 31, 2019, the Company acquired 7,122 shares of common stock valued at $0.2 million, through withholding, pursuant to provisions in agreements with recipients of restricted stock granted under the Company's equity compensation plans, which provide for the Company to withhold the number of shares having fair value equal to each recipient's tax withholding due.

14. Restructuring

In April 2017, the Company commenced a restructuring plan in the Technical Nonwovens segment which includes plant consolidations and transfer of equipment to other facilities within the segment's Europe and China operations. The consolidation of certain plants, which concluded in the fourth quarter of 2019, is expected to reduce operating costs, increase efficiency and enhance the Company’s flexibility by better aligning its manufacturing footprint with the segment's customer base. The Company recorded expenses of $3.7 million in connection with this restructuring plan, of which approximately $3.3 million resulted in cash expenditures over the period of consolidation. The Company also incurred cash expenditures of approximately $3.8 million for capital expenditures associated with this plan.

During the year ended December 31, 2019, the Company recorded pre-tax restructuring expenses of $0.8 million as part of this restructuring plan. Restructuring expenses of $0.6 million were recorded in cost of sales and $0.2 million were recorded in selling, product development and administrative expenses. During the year ended December 31, 2018, the Company recorded pre-tax restructuring expenses of $2.3 million as part of this restructuring plan. Restructuring expenses of $1.9 million were recorded in cost of sales and $0.4 million were recorded in selling, product development and administrative expenses.

Actual pre-tax expenses incurred for the restructuring program by type are as follows:



In thousands	Severance and Related Expenses		Contract Termination Expenses		Facility Exit, Move and Set-up Expenses		Total
Expenses incurred during year ended:
December 31, 2017	$	181	$	154	$	327	$	662
December 31, 2018	606		136		1,555		2,297
December 31, 2019	145		—		622		767
Total expenses	$	932	$	290	$	2,504	$	3,726

There were cash outflows of $0.8 million and $2.2 million for the restructuring program for the years ended December 31, 2019 and 2018, respectively.

F-34

Accrued restructuring costs were as follows at December 31, 2019:



In thousands	Total
December 31, 2017	$	333
Pre-tax restructuring expenses, excluding depreciation	$	2,012
Cash paid	(2,198		)
December 31, 2018	$	147
Pre-tax restructuring expenses, excluding depreciation	$	767
Cash paid	(806		)
December 31, 2019	$	108

15. Segment Information

The Company’s reportable segments as of December 31, 2019 were Performance Materials, Technical Nonwovens, Thermal Acoustical Solutions.

Performance Materials Segment

Technical Nonwovens Segment

F-35

used in commercial applications and predominantly serves the geosynthetics, automotive, industrial, medical, and safety apparel markets. Automotive media is provided to Tier I/II suppliers as well as the Company's Thermal Acoustical Solutions segment.

Thermal Acoustical Solutions Segment

F-36

Net sales by segment, as well as reconciling items, to equal consolidated net sales for the years ended December 31, 2019, 2018, and 2017 were as follows:



Consolidated Net Sales	For the Years Ended December 31,

In thousands	2019			2018			2017
Performance Materials Segment (1):
Filtration	$	93,314		$	93,089		$	87,173
Sealing and Advanced Solutions	152,166			76,128			29,496
Performance Materials Segment net sales	245,480			169,217			116,669
Technical Nonwovens Segment (2):
Industrial Filtration	144,320			157,606			147,087
Advanced Materials (3)	111,026			119,465			121,990
Technical Nonwovens net sales	255,346			277,071			269,077
Thermal Acoustical Solutions Segment:
Parts	326,436			328,057			318,217
Tooling	35,141			37,370			23,888
Thermal Acoustical Solutions Segment net sales	361,577			365,427			342,105
Eliminations and Other (3)	(25,005		)	(25,818		)	(29,414		)
Consolidated Net Sales	$	837,398		$	785,897		$	698,437

Operating income by segment and Corporate Office Expenses for the years ended December 31, 2019, 2018, and 2017 were as follows:



Operating Income	For the Years Ended December 31,

In thousands	2019			2018			2017
Performance Materials Segment (1)	$	(59,804	)	$	13,139		$	12,321
Technical Nonwovens Segment (2)	22,895			21,323			26,047
Thermal Acoustical Solutions Segment	23,590			38,085			53,132
Corporate Office Expenses	(25,506		)	(23,359		)	(25,300		)
Consolidated Operating Income	$	(38,825	)	$	49,188		$	66,200

Operating results in 2019 were negatively impacted by $64.2 million related to the impairment of goodwill and other long-lived assets in the Performance Materials segment, $12.2 million of incremental intangible assets amortization, $2.3 million of CEO transition expenses within Corporate Office Expenses, $1.9 million of reduction-in-force severance expenses across all segments, $1.5 million of corporate strategic initiatives expenses within Corporate Office Expenses, and $0.8 million of restructuring expenses in the Technical Nonwovens segment. Operating results in 2018 were negatively impacted by $3.6 million of corporate strategic initiatives expenses predominantly within Corporate Office Expenses, $2.3 million of restructuring expenses in the Technical Nonwovens segment, and a $2.0 million purchase accounting adjustment related to inventory step-up in the Performance Materials segment. Operating results in 2017 were negatively impacted by $1.7 million of expenses associated with the combination of the Company's former T/A Metals and T/A Fibers segments, a $1.1 million purchase accounting adjustment related to inventory step-up in the Technical Nonwovens segment, $0.7 million and $0.3 million related to severance expenses for a reduction in force in the Thermal Acoustical Solutions and Technical Nonwovens segments, respectively, $0.8 million of corporate strategic initiatives expenses predominantly within Corporate Office Expenses, a $0.8 million non-cash long-lived asset impairment in the Performance Materials segments and $0.7 million of restructuring expenses in the Technical Nonwovens segment.

F-37

Total assets by segment and the Corporate Office were as follows at December 31, 2019, 2018, and 2017:



Total Assets	December 31,

In thousands	2019		2018		2017
Performance Materials Segment (1)	$	325,164	$	414,211	$	72,837
Technical Nonwovens Segment (2)	242,787		242,007		271,713
Thermal Acoustical Solutions Segment	199,218		201,509		189,301
Corporate Office	18,768		14,959		27,020
Total Assets	$	785,937	$	872,686	$	560,871

The significant reduction in total assets in the Performance Materials segment was driven by $64.2 million of goodwill and other long lived asset impairment charges in the fourth quarter of 2019.

Total capital expenditures and depreciation and amortization by segment and the Corporate Office for the years ended December 31, 2019, 2018, and 2017 were as follows:



	Capital Expenditures						Depreciation and Amortization

In thousands	2019		2018		2017		2019		2018		2017
Performance Materials Segment (1)	$	8,914	$	11,288	$	3,610	$	25,118	$	9,006	$	3,996
Technical Nonwovens Segment (2)	9,345		5,864		2,903		12,702		13,877		12,625
Thermal Acoustical Solutions Segment	17,858		11,934		17,462		10,168		9,190		8,619
Corporate Office	316		544		940		635		658		699
Total	$	36,433	$	29,630	$	24,915	$	48,623	$	32,731	$	25,939

Net sales by geographic area for the years ended December 31, 2019, 2018 and 2017 and long-lived asset information by geographic area as of December 31, 2019, 2018, and 2017 were as follows:



	Net Sales						Long-Lived Assets

In thousands	2019		2018		2017		2019 (4)		2018		2017
United States (1)	$	478,720	$	422,222	$	376,086	$	138,265	$	136,448	$	93,583
France (1)	75,313		66,579		56,214		13,723		13,219		14,268
Germany (1)	124,402		125,796		105,828		44,116		25,873		20,872
United Kingdom	26,556		27,156		24,921		5,981		4,844		4,916
Canada (2)	76,535		87,622		84,701		29,667		25,614		30,739
China (1)	54,036		54,198		47,856		17,888		11,958		11,896
Other (1)	1,836		2,324		2,831		3,211		4,085		1,590
Total	$	837,398	$	785,897	$	698,437	$	252,851	$	222,041	$	177,864


(1)	The Performance Materials segment includes the results of Interface and PCC for the periods following the dates of acquisitions of August 31, 2018 and July 12, 2018, respectively.


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


(3)	Included in the Technical Nonwovens segment and Eliminations and Other is $21.0 million, $22.2 million and $26.5 million of intercompany sales to the Thermal Acoustical Solutions segment for the years ended December 31, 2019, 2018 and 2017, respectively.


(4)	Effective January 1, 2019, the Company adopted ASU 2016-02, "Leases (Topic 842)", requiring the Company to recognize right-of-use assets totaling $23.1 million at December 31, 2019.

Foreign sales are based on the country in which the sales originated (i.e., where the Company’s legal entity is domiciled). Sales to Ford Motor Company in 2019, 2018, and 2017 were $99.1 million, $116.1 million, and $120.7 million, respectively, and accounted for 11.8%, 14.8%, and 17.3% of Lydall’s consolidated net sales in the years ended

F-38

December 31, 2019, 2018, and 2017, respectively. These sales were reported in the Thermal Acoustical Solutions segment. No other customers accounted for more than 10.0% of total net sales in 2019, 2018, and 2017.

16. Income Taxes

The provision for income taxes consists of the following:



	For the years ended December 31,
In thousands	2019			2018			2017
Current:
Federal	$	3,505		$	3,739		$	11,526
State	381			498			956
Foreign	4,479			3,788			2,425
Total Current	$	8,365		$	8,025		$	14,907
Deferred:
Federal	$	(12,481	)	$	2,646		$	(2,472	)
State	(1,442		)	380			256
Foreign	(858		)	(2,598		)	(717		)
Total Deferred	(14,781		)	428			(2,933		)
Provision (Benefit) for income taxes	$	(6,416	)	$	8,453		$	11,974

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory tax rate on earnings:



	For the years ended December 31,
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
State income taxes, net of federal benefit	2.7		1.6		1.6
Valuation allowances for deferred tax assets, including state	(4.4	)	(1.3	)	0.1
Research and development credits	0.7		(1.3	)	(1.0	)
Capitalized transaction costs	—		0.6		—
Domestic production activities deduction	—		—		(1.8	)
Stock based compensation	(0.1	)	(0.7	)	(4.4	)
Goodwill Impairment	(19.6	)	—		—
Foreign income taxed at lower rates	2.4		(1.6	)	(2.8	)
Reserves for uncertain tax positions	0.3		—		(1.7	)
Repatriation of foreign undistributed earnings	—		1.6		1.3
Revaluation of deferred tax liabilities due to federal rate change	—		—		(7.3	)
Pension plan settlement	5.9		—		—
Other	(0.6	)	(0.4	)	0.5
Effective income tax rate	8.3	%	19.5	%	19.5	%

In 2018, the effective tax rate of 19.5% was below the federal statutory rate and included valuation allowance activity of $0.6 million. This was primarily a result of the fourth quarter partial release of valuation allowance on the Netherlands

F-39

net operating losses offset by a valuation allowance addition in Germany. Compared to 2017, the tax benefit from stock compensation expense had a lesser impact on the 2018 rate because of less windfall benefits recognized. Also, foreign income taxed at lower rates had a lesser impact on the 2018 rate because of new U.S. regulations that were released in the fourth quarter 2018 that limit the amount of the tax benefit recorded compared to 2017.

In 2017, in addition to the Tax Reform Act, which favorably impacted the effective tax rate by a net $3.7 million, the effective tax rate of 19.5% was impacted by a favorable mix of taxable income generated from foreign income taxed at lower rates, resulting in a tax benefit of $1.7 million, net of $0.7 million of expense to correct a foreign tax error in prior years. The Company also recorded a tax benefit of $1.1 million attributable to the Domestic Production Activities Deduction, a tax benefit of $2.7 million related to stock based compensation and a tax benefit of $1.5 million attributable to the release of certain reserves for uncertain tax positions from the settlement of the IRS tax audit that closed in the third quarter of 2017. These favorable adjustments were partially offset by tax expense of $0.3 million against certain deferred tax assets in China, as future realization of the assets is not reasonably assured.

The Company maintains valuation allowances against certain deferred tax assets where realization is not reasonably assured. The Company evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount to the extent it believes a portion will not be realized. The Company’s effective tax rates in future periods could be affected by increases or decreases in anticipated earnings in countries where tax rates differ from the United States federal rate, the relative impact of permanent tax adjustments on higher or lower earnings from domestic operations, changes in net deferred tax asset valuation allowances, completion of acquisitions or divestitures, changes in tax rates or tax laws, and the outcome of tax audits.

The following schedule presents net current and net long-term deferred tax assets and liabilities by tax jurisdiction as of December 31, 2019 and 2018:



	2019				2018
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	—	$	—	$	—
State	—		—		—		—
Foreign	—		1,933		—		2,055
Totals	$	—	$	1,933	$	—	$	2,055



	2019				2018
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	26,992	$	—	$	30,193
State	—		2,902		—		3,728
Foreign	—		4,667		—		5,344
Totals	$	—	$	34,561	$	—	$	39,265

F-40

Net deferred tax assets (liabilities) consisted of the following as of December 31, 2019 and 2018:



	December 31,
In thousands	2019			2018
Deferred tax assets:
Accounts receivable	$	377		$	172
Financial Hedging Instruments	1,491			585
Interest Expense Carryovers	2,371			463
Inventories	1,845			520
Net operating loss carryforwards	8,478			6,095
Operating lease	6,001			—
Other accrued liabilities	5,905			2,378
Pension	4,274			5,181
Tax Credits	2,015			1,846
Total deferred tax assets	32,757			17,240
Deferred tax liabilities:
Intangible assets	21,990			25,133
Right of use assets	6,001			—
Property, plant and equipment	28,177			23,353
Total deferred tax liabilities	56,168			48,486
Valuation allowance	9,217			5,964
Net deferred tax liabilities	$	(32,628	)	$	(37,210	)

For the years ended December 31, 2019, 2018 and 2017, (loss) income before income taxes was derived from the following sources:



	For the years ended December 31,
In thousands	2019			2018		2017
United States	$	(73,539	)	$	33,928	$	54,212
Foreign	(3,538		)	9,337		7,107
Total income before income taxes	$	(77,077	)	$	43,265	$	61,319

At December 31, 2019, the Company had approximately $4.0 million of state net operating loss carryforwards which will expire between 2027 and 2036. The Company has not recorded a deferred tax asset for $4.0 million of this carryforward as the Company anticipates paying a non-income based franchise tax for the foreseeable future in the applicable jurisdiction. In addition, at December 31, 2019, the Company had $2.1 million of state tax credit carryforwards that expire between 2020 and 2028. As of December 31, 2019, the Company has recorded a valuation allowance against the full amount of its state tax credit carryforwards. The Company also has $7.6 million of foreign net operating loss carryforwards in China, $13.7 million of net operating loss carryforwards in Germany, $3.4 million of net operating loss carryforwards in the Netherlands, and $0.7 million of net operating loss carryforwards in India. The Netherlands’ net operating losses expire between the years 2021 and 2025 and the China net operating losses expire between the years 2020 and 2024. A valuation allowance is recorded against the net operating losses in all four jurisdictions for the portion of its net operating losses that future realization is not reasonably assured. The Company evaluates and weighs the positive and negative evidence present at each period. The Company will continue to monitor the realization criteria based on future operating results.

F-41

future tax law changes, future earnings and statutory taxes paid by foreign subsidiaries, and ongoing tax planning strategies by the Company.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



In thousands	2019			2018
Unrecognized tax benefits at beginning of year	$	3,563		$	2,526
Decreases relating to positions taken in prior periods	(36		)	(298		)
Increases relating to positions taken in prior periods	—			—
Increases relating to current period	—			1,584
Decreases due to settlements with tax authorities	—			(233		)
Decreases due to lapse of statute of limitations	(315		)	(16		)
Unrecognized tax benefits at end of year	$	3,212		$	3,563

The Company recognizes the interest accrued and the penalties related to unrecognized tax benefits as a component of tax expense. The Company accrued interest and penalties of $0.2 million and $0.1 million as of December 31, 2019 and 2018, respecitvely.

17. Commitments and Contingencies

The Company is subject to legal proceedings, claims, investigations and inquiries that arise in the ordinary course of business such as, but not limited to, actions with respect to commercial, intellectual property, employment, personal injury and environmental matters. While the outcome of any matter is inherently uncertain and the Company cannot be sure that it will prevail in any of the cases, subject to the matter referenced below, the Company is not aware of any matters pending that are expected to be material with respect to the Company’s business, financial position, results of operations or cash flows.

Environmental Obligations

F-42

is closed with the NHDES, nor that any future corrective action at this location would not have a material effect on the Company’s financial condition, results of operations or cash flows.

In December 2018, the New York State Department of Environmental Conservation (“NYDEC”) informed the Company that the newly acquired Interface site located at Hoosick Falls, NY will be the subject of an investigation in to the possibility of it being an inactive hazardous disposable waste site. The letter specifically references perflourinated compounds or per- and polyfluoroalkyl substances (“PFAS”) that have been detected in a nearby water supply, soil and/or surface water. Notably, the PFAS contamination has been identified in the Hoosick Falls area for some time and other large manufacturers in the area have previously been identified as a source. The NYDEC approved a site characterization plan in December 2019. The Company recorded expense of $0.3 million in the fourth quarter of 2019 as a result of the site characterization plan preparation and site characterization activities, which will continue into the first quarter of 2020. The Company does not know the scope or extent of its future obligations, if any, that may arise from the site investigation and therefore is unable to estimate the cost of any corrective action. Accordingly, the Company cannot assure that the costs of any future corrective at this location would not have a material effect on the Company's financial condition, results of operations or cash flows.

18. Earnings Per Share

For the years ended December 31,2019, 2018, and 2017, basic earnings per share were computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period. Unexercised stock options and unvested restricted shares are excluded from this calculation but are included in the diluted earnings per share calculation using the treasury stock method as long as their effect is not antidilutive.

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



	For the years ended December 31,
In thousands	2019	2018	2017
Basic average common shares outstanding	17,271	17,204	17,045
Effect of dilutive options and restricted stock awards	—	126	272
Diluted average common shares outstanding	17,271	17,330	17,317

Dilutive stock options totaling 54,828 shares of Common Stock were excluded from the diluted per share computation for the year ended December 31, 2019, as the Company reported a net loss during that period and, therefore, the effective of including these options would be antidilutive.

For the years ended December 31, 2019, 2018 and 2017, stock options for 573,920, 455,515 and 44,837 shares of Common Stock, respectively, were not considered in computing diluted earnings per common share as the stock options were considered anti-dilutive.

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19. Quarterly Financial Information (Unaudited)

The following table summarizes quarterly financial results for 2019 and 2018. In management’s opinion, all material adjustments necessary for a fair statement of the information for such quarters have been reflected.



	1st Quarter				2nd Quarter					3rd Quarter				4th Quarter
In thousands except per share data	2019		2018		2019			2018		2019		2018		2019			2018
Net sales	$	218,025	$	191,660	$	220,811		$	186,413	$	205,274	$	197,886	$	193,288		$	209,938
Gross profit	$	42,056	$	39,507	$	45,275		$	36,127	$	36,356	$	35,139	$	28,103		$	41,872
Net income (loss)	$	3,890	$	11,054	$	(6,946	)	$	10,450	$	3,004	$	6,256	$	(70,461	)	$	7,184
Earnings (loss) per share:
Basic	$	0.23	$	0.64	$	(0.40	)	$	0.61	$	0.17	$	0.36	$	(4.07	)	$	0.42
Diluted	$	0.22	$	0.64	$	(0.40	)	$	0.60	$	0.17	$	0.36	$	(4.07	)	$	0.42

The table above includes the quarterly results of Interface since the acquisition date of August 31, 2018.

The following components are included gross profit and net income for 2019 and 2018 and impact the comparability of each year:



	1st Quarter				2nd Quarter					3rd Quarter				4th Quarter
In thousands except per share data	2019		2018		2019			2018		2019		2018		2019			2018
Gross profit impact:
Inventory step-up purchase accounting adjustments	$	—	$	—	$	—		$	—	$	—	$	1,390	$	—		$	585
Restructuring, severance and segment consolidation expenses	351		449		42			876		88		400		1,137			169
Net income impact:
Inventory step-up purchase accounting adjustments	$	—	$	—	$	—		$	—	$	—	$	1,077	$	—		$	438
Restructuring, severance and segment consolidation expenses	364		494		93			711		114		409		1,836			527
Goodwill and other long-lived asset impairment charges	—		—		—			—		—		—		64,206			—
CEO transition expenses	—		—		—			—		—		—		1,728			—
Strategic initiatives expenses	652		87		311			923		—		1,730		161			493
Employee benefit plan settlements	—		—		14,977			—		142		—		(347		)	—
Gain on sale from a divestiture	—		—		(1,265		)	—				—		—			—
Discrete tax items	—		—		—			—		—		—		—			320

In connection with the preparation of its 2019 audited financial statements, the Company identified that in its previously filed unaudited interim financial statements for the three and six months ended June 30, 2019 and the nine months ended September 30, 2019, the Company had incorrectly excluded from its Consolidated Statements of Comprehensive Income the impact to comprehensive income resulting from the settlement of its U.S. Lydall Pension Plan (see Note 12). As a result, unaudited comprehensive income for such periods was understated by $19.0 million. This error did not have any impact on the Company’s corresponding previously filed Consolidated Balance Sheets, Statements of Operations or Statements of Cash Flows. Management has concluded that such errors did not result in the previously issued unaudited financial statements being materially misstated. The Company will, however, revise these Consolidated Statements of Comprehensive Income in connection with the future filings of its 2020 Form 10-Qs to correct for such errors.

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20. Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)". Subsequent additional clarifying ASUs were issued during 2019. Collectively, the new standards amend guidance on reporting credit losses for assets held at amortized cost basis. The Company has determined the only financial asset subject to the new standards are its trade receivables. As our allowance for doubtful accounts assessment process takes into consideration forward-looking information related to our customers in addition to historical experience the Company does not expect the new standard to have a material impact on the Company's consolidated financial statements and disclosures upon adoption of the new standards effective January 1, 2020.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement", which adds, amends and removes certain disclosure requirements related to fair value measurements. Among other changes, this standard requires certain additional disclosure surrounding Level 3 assets, including changes in unrealized gains or losses in other comprehensive income and certain inputs in those measurements. Certain amended or eliminated disclosures in this standard may be adopted early, while certain additional disclosure requirements in this standard can be adopted on its effective date. In addition, certain changes in the standard require retrospective adoption, while other changes must be adopted prospectively. Upon adoption of this ASU effective January 1, 2020, the Company does not anticipate any material changes to its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This ASU requires entities to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates. This ASU also requires entities to disclose an explanation for significant gains and losses related to changes in the benefit obligation for the period. This ASU is effective for fiscal years beginning after December 15, 2020 with early adoption permitted. The Company is currently evaluating the method and impact the adoption of this ASU will have on its consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40); Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". The amendments in this update require implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software, and deferred over the noncancellable term of the cloud computing arrangement plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company is required to adopt this new guidance in the first quarter of 2020. Early adoption is permitted. The Company currently does not have any cloud computing arrangements related to internal use software and therefore does not expect the new standard to have a material impact on its consolidated financial statements and disclosures upon adoption of the new standard effective January 1, 2020.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". The new standard is intended to simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740, and by clarifying and amending existing guidance in other areas of the same topic. This ASU is effective for fiscal years and interim periods beginning after December 15, 2020. The Company is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

F-45

21. Changes in Accumulated Other Comprehensive Income (Loss)

The following table discloses the changes by classification within accumulated other comprehensive income (loss) for the period ended December 31, 2019, 2018 and 2017:



In thousands	Foreign Currency Translation Adjustment			Defined Benefit Pension Adjustment				Gains and Losses on Cash Flow Hedges				Total Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2016	$	(27,885	)	$	(20,065	)		$	—			$	(47,950	)
Other Comprehensive income	25,664			1,299			^(a)	122			^(c)	27,085
Amounts reclassified from accumulated other comprehensive loss	—			717			^(b)	—				717
Balance at December 31, 2017	$	(2,221	)	$	(18,049	)		$	122			$	(20,148	)
Other Comprehensive loss	(16,237		)	(4,998		)	^(a)	(2,096		)	^(c)	(23,331		)
Amounts reclassified from accumulated other comprehensive loss	—			794			^(b)	—				794
Balance at December 31, 2018	$	(18,458	)	$	(22,253	)		$	(1,974	)		$	(42,685	)
Other Comprehensive income (loss)	436			(222		)	^(a)	(2,903		)	^(c)	(2,689		)
Amounts reclassified from accumulated other comprehensive loss	—			19,395			^(b)	—				19,395
Balance at December 31, 2019	$	(18,022	)	$	(3,080	)		$	(4,877	)		$	(25,979	)

(a) Amount represents actuarial gains (losses) arising from the Company's pension and postretirement benefit obligations, excluding the effect of the settlement in 2019. This amount was $(0.2) million, net of less than $0.1 million tax benefit, for 2019, $(5.0) million, net of a $1.5 million tax benefit, for 2018 and $1.3 million, net of $0.1 million tax expense, for 2017. (See Note 12)

(b) Amount represents the settlement of the Lydall Pension Plan in the second quarter of 2019. This amount was $19.0 million, net of $11.5 million tax benefit. Amount also represents the amortization of actuarial losses to pension expense arising from the Company’s pension and postretirement benefit obligations. This amount was $0.4 million, net of $0.1 million tax benefit during the first five months of fiscal year 2019 prior to the plan settlement, $0.8 million, net of $0.2 million tax benefit in 2018, and $0.7 million, net of $0.4 million tax benefit in 2017. (See Note 12)

(c) Amount represents unrealized gains (losses) on the fair value of hedging activities, net of taxes, for the years ended December 31, 2019, 2018 and 2017.

F-46

Schedule II

LYDALL, INC.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED December 31, 2019, 2018 AND 2017



In thousands	Balance at January 1,		Charges to Costs and Expenses		Charges (Deductions) to Other Accounts				Deductions				Balance at December 31,
2019
Allowance for doubtful receivables	$	1,440	$	1,036	$	(11	)	2	$	(623	)	1	$	1,842
Tax valuation allowances	5,964		3,328		(75		)	2	—			3	9,217
2018
Allowance for doubtful receivables	$	1,507	$	785	$	(58	)	2	$	(794	)	1	$	1,440
Tax valuation allowances	5,709		3,859		(192		)	2	(3,412		)	3	5,964
2017
Allowance for doubtful receivables	$	1,429	$	541	$	103		2	$	(566	)	1	$	1,507
Tax valuation allowances	4,903		886		394			2	(474		)	3	5,709


1.	Uncollected receivables written off and recoveries.


2.	Foreign currency translation and other adjustments.


3.	Reduction to income tax expense.

S-1

Exhibit 10.50

AGREEMENT

THIS AGREEMENT is made and entered into as of the 14^th day of October, 2019, by and between LYDALL, INC., a Delaware corporation and/or its subsidiaries (together the "Company"), and Robert Junker (the "Employee").

W I T N E S S E T H

WHEREAS, the Company and the Employee (the "Parties") have agreed to enter into this agreement (the "Agreement) relating to the termination of the employment of the Employee;

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows:

1.Termination of Employment by the Company.

1.1 Termination by the Company Other Than For Cause. The Company may terminate the Employee's employment at any time other than for Cause (as defined in Section 1.2), by giving the Employee a written notice of termination at least 30 days before the date of termination (or such lesser notice period as the Employee may agree to). In the event of such a termination of employment pursuant to this Section 1.1, the Employee shall be entitled to receive (i) the benefits described in Section 3 if such termination of employment does not occur within 18 months following a "Change of Control" (as defined in Section 5), or (ii) the benefits described in Section 4 if such termination of employment occurs within 18 months following a Change of Control.

1.2 Termination for Cause. The Company may terminate the Employee's employment immediately for Cause for any of the following reasons: (i) an act or acts of dishonesty or fraud by the Employee relating to the performance of his services to the Company; (ii) a breach by the Employee of his duties or responsibilities under this Agreement resulting in significant demonstrable injury to the Company or any of its subsidiaries; (iii) the Employee's conviction of a felony or any crime involving moral turpitude; (iv) the Employee's material failure (for reasons other than death or Disability) to perform his duties under this Agreement or insubordination (defined as refusal to execute or carry out directions from the Board or its duly appointed designees) where the Employee has been given written notice of the acts or omissions constituting such failure or insubordination and the Employee has failed to cure such conduct, where susceptible to cure, within ten days following such notice; or (v) a breach by the Employee of any provision of any material policy of the Company or of his obligations under the confidentiality, non-competition and invention ownership agreement executed by the Employee and attached hereto as Exhibit A (the "Confidentiality Agreement"). The Company shall exercise its right to terminate the Employee's employment for Cause by giving the Employee written notice of termination specifying in reasonable detail the circumstances constituting such Cause. In the event of such termination of the Employee's employment for Cause, the Employee

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shall be entitled to receive only (i) his base salary earned through the date of such termination of employment plus his base salary for the period of any vacation time earned but not taken for the year of termination of employment, such base salary to be paid in a lump sum no later than the next payroll date following the Employee's date of termination to the extent not previously paid, (ii) any other compensation and benefits to the extent actually earned by the Employee under any other benefit plan or program of the Company as of the date of such termination of employment, such compensation and benefits to be paid at the normal time for payment of such compensation and benefits to the extent not previously paid and (iii) any reimbursement amounts owing.

2. Termination of Employment by the Employee. The Employee may terminate his employment at any time and for any reason by giving the Company a written notice of termination to that effect at least 30 days before the date of termination (or such lesser notice period as the Company may agree to); provided, however, that the Company following receipt of such notice from the Employee may elect to have the Employee's employment terminate immediately following its receipt of such notice. In the event of the Employee's termination of his employment, the Employee shall be entitled to receive only (i) his base salary earned through the date of such termination of employment plus his base salary for the period of vacation time earned but not taken for the year of termination of employment, such base salary to be paid in a lump sum no later than the next payroll date following the Employee's date of termination to the extent not previously paid, (ii) any other compensation and benefits to the extent actually earned by the Employee under any other benefit plan or program of the Company as of the date of such termination of employment, such compensation and benefits to be paid at the normal time for payment of such compensation and benefits to the extent not previously paid, and (iii) any reimbursement amounts owing.

3. Benefits Upon Termination Without Cause (No Change of Control). If (a) the Employee's employment hereunder shall terminate because of termination by the Company pursuant to Section 1.1 and (b) such termination of employment does not occur within 18 months following a Change of Control of the Company, the Employee shall be entitled to the following:

(a) The Company shall pay to the Employee his base salary earned through the date of such termination of employment in a lump sum no later than the next payroll date following the Employee's date of termination to the extent not previously paid, and any other compensation and benefits to the extent actually earned by the Employee under any benefit plan or program of the Company as of the date of such termination of employment, any such compensation and benefits to be paid at the normal time for payment of such compensation and benefits to the extent not previously paid.

(b) The Company shall pay the Employee any reimbursement amounts owing.

(c) The Company shall pay to the Employee one (1) times the sum of (i) the Employee's annual rate of base salary in effect immediately preceding his termination of

-3-

employment, and (ii) the average of his annual bonuses earned under the Company's annual bonus plan for the three calendar years preceding his termination of employment (or, if the Employee was not eligible for a bonus in each of those three calendar years, then the average of such bonuses for all of the calendar years in such three-year period for which he was eligible), with any deferred bonuses counting for the year earned rather than the year paid (the "Severance Benefit"). The Severance Benefit shall be paid in equal installments over a twelve (12) month period at the same intervals that salary payments are normally made by the Company; provided that, if at the time of the Employee's termination of employment, (i) the Employee is a "specified employee" (a "Specified Employee") as defined in subsection (a)(2)(B)(i) of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the Severance Benefit is subject to the provisions of Code Section 409A, then the portion of the Severance Benefit that is subject to Code Section 409A shall be paid as provided in Section 8.15, below.

(d) If the Employee elects to continue coverage under the Company's health plan pursuant to COBRA, then for the period beginning on the date of the Employee's termination of employment and ending on the earlier of (i) the date which is 12 months after the date of such termination of employment or (ii) the date the Employee becomes eligible for health insurance benefits under the group health plan of another employer, the Company will pay the same percentage of the Employee's premium for COBRA coverage for the Employee and, if applicable, his spouse and dependent children, as the Company paid at the applicable time for coverage under such plan for actively employed members of management generally. In addition, for the period beginning on the date of the Employee's termination of employment and ending on the earlier of (i) the date which is 12 months after the date of such termination of employment or (ii) the date on which the Employee becomes eligible for life insurance benefits from another employer, the Company will continue to provide the executive life insurance benefits that the Company would have provided to the Employee if the Employee had continued in employment with the Company for such period, but only if the Employee timely pays the portion of the premium for such coverage that members of management of the Company generally are required to pay for such coverage, if any. The Employee shall notify the Company promptly if he, while eligible for benefits under this subsection (d), becomes eligible to receive health and/or life insurance benefits from another employer. In the event that the Employee's participation in the Company's group life insurance plan is barred, the Company shall arrange to provide the Employee with comparable life insurance coverage to the extent available at a cost not to exceed 125% of the cost of the group life insurance coverage offered through the Company's group life insurance plan; provided that the Employee shall pay the same proportionate share of the premium for such coverage that members of senior management of the Company generally are required to pay for group life insurance coverage under the Company's group life insurance plan, if any.

-4-

(e) The Company will pay to the outplacement services provider reasonably selected by the Employee an amount not to exceed $10,000 for outplacement services costs incurred by Employee within the twelve months following the Employee's termination of employment.

(f) The Company's obligation to provide the severance benefits set forth in Sections 3(c), (d) and (e) upon the Employee's termination of employment without Cause, which does not occur within 18 months following a Change of Control, is subject to the Employee's execution without revocation of a valid release in substantially the form attached to this Agreement as Exhibit B (the "Release").

4. Benefits Upon Termination Without Cause (Change of Control). If (a) the Employee's employment hereunder shall terminate because of termination by the Company pursuant to Section 1.1 and (b) such termination of employment occurs within 18 months following a Change of Control of the Company, the Employee shall be entitled to the following:

(b) The Company shall pay the Employee any reimbursement amounts owing.

(c) The Company shall pay to the Employee as a severance benefit an amount equal to two (2) times the sum of (i) his annual rate of base salary in effect immediately preceding his termination of employment, and (ii) the average of his three highest annual bonuses earned under the Company's annual bonus plan for any of the five calendar years preceding his termination of employment (or, if the Employee was not eligible for a bonus for at least three calendar years in such five-year period, then the average of such bonuses for all of the calendar years in such five-year period for which the Employee was eligible), with any deferred bonuses counting for the year earned rather than the year paid (the "COC Severance Benefit"). The COC Severance Benefit shall be paid in a lump sum within thirty (30) days after the date of such termination of employment; provided that, if at the time of the Employee's termination of employment, (i) the Employee is a Specified Employee, and (ii) the COC Severance Benefit is subject to the provisions of Code Section 409A, then the

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portion of the COC Severance Benefit that is subject to Code Section 409A shall be paid as provided in Section 8.15, below.

(d) The Company shall pay to the Employee as a bonus for the year of termination of his employment an amount equal to a portion (determined as provided in the next sentence) of the Employee's target bonus opportunity under the Company's annual bonus plan for the calendar year of termination of the Employee's employment or, if none, such portion of the bonus awarded to the Employee under the Company's annual bonus plan for the calendar year immediately preceding the calendar year of the termination of the Employee's employment, with deferred bonuses counting for the year earned rather than the year paid. Such portion shall be determined by dividing the number of days of the Employee's employment during such calendar year up to his termination of employment by 365 (366 if a leap year). Such payment shall be made in a lump sum within 30 days after the date of such termination of employment, and the Employee shall have no right to any further bonuses under said plan; provided that, if at the time of the Employee's termination of employment, the Employee is a Specified Employee, then such payment shall be made in a lump sum on the date that is six (6) months after the date of such termination of employment, and the Employee shall have no right to any further bonuses under said plan.

(e) If the Employee elects to continue coverage under the Company's health plan pursuant to COBRA, then for the period beginning on the date of the Employee's termination of employment and ending on the earlier of (i) the date which COBRA coverage ends but not to exceed 24 months after the date of such termination of employment or (ii) the date the Employee becomes eligible for comparable benefits from another employer, the Employee (and, if applicable, the Employee's spouse and dependent children) shall remain covered by the medical, dental, executive life insurance, and, if reasonably commercially available through nationally reputable insurance carriers, executive long-term disability plans of the Company that covered the Employee immediately prior to his termination of employment as if the Employee had remained in employment for such period; provided, however, that the coverage under any such plan is conditioned on the timely payment by the Employee (or his spouse or dependent children) of the portion of the premium for such coverage that actively employed members of senior management of the Company generally are required to pay for such coverage. In the event that the Employee's participation in any such plan is barred, the Company shall arrange to provide the Employee (and, if applicable, his spouse and dependent children) with comparable benefits to the extent available at a cost not to exceed 125% of the cost of providing benefits to the Employee under the Company's plan or plans. The Employee shall notify the Company promptly if he, while eligible for benefits under this subsection (e) becomes eligible to receive benefits from another employer.

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(f) Each stock option granted by the Company to the Employee and outstanding immediately prior to termination of his employment shall be fully vested and immediately exercisable and may be exercised by the Employee (or, following his death, by the person or entity to which such option passes) at any time prior to the expiration date of the applicable option (determined without regard to any earlier termination of the option that would otherwise occur by reason of termination of his employment). Each restricted stock award granted by the Company to the Employee and outstanding immediately prior to termination of the Employee's employment shall be fully vested upon such termination of employment.

(g) The Company will pay to the outplacement services provider reasonably selected by the Employee an amount not to exceed $10,000 for outplacement services costs incurred by Employee within the twelve months following the Employee's termination of employment.

(h) The Company shall promptly pay all reasonable attorneys' fees and related expenses incurred by the Employee in seeking to obtain or enforce any right or benefit under this Section 4 or to defend against any claim or assertion in connection with this Section 4, but only if and to the extent that the Employee substantially prevails.

(i) The Company will pay to the Employee an automobile allowance, in an amount equal to the Employee's monthly allowance at the time of termination, each month for 24 months following termination of the Employee's employment; provided that, if at the time of the Employee's termination of employment, the Employee is a Specified Employee, then fifty percent (50%) of the automobile allowance shall be paid in a lump sum on the date that is six (6) months after the date of termination, and the remaining fifty percent (50%) of the automobile allowance shall be paid in six (6) equal monthly installments, beginning in the seventh month following the date of termination.

(j) The Company's obligation to provide the severance benefits set forth in Sections 4(c), (d), (e), (f), (g), (h) and (i) upon the Employee's termination of employment without Cause within 18 months following a Change of Control is subject to the Employee's execution of the Release.

5. Change of Control. For the purposes of this Agreement, a "Change of Control" shall be deemed to occur upon the consummation of any of the following events: (a) any person or persons acting together which would constitute a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than the Company or any subsidiary of the Company) shall beneficially own (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 25% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; (b) Current

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Directors (as herein defined) shall cease for any reason to constitute at least a majority of the members of the Board (for this purpose, a "Current Director" shall mean any member of the Board as of the date hereof and any successor of a Current Director whose election, or nomination for election by the Company's shareholders, was approved by at least a majority of the Current Directors then on the Board); (c) (i) the complete liquidation of the Company or (ii) the merger or consolidation of the Company, other than a merger or consolidation in which (x) the holders of the common stock of the Company immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or (y) the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporation, which liquidation, merger or consolidation has been approved by the shareholders of the Company; or (d) the sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company pursuant to an agreement (or agreements) which has (have) been approved by the shareholders of the Company.

6. Golden Parachute Excise Tax.

(a) In the event that any payment or benefit received or to be received by the Employee pursuant to this Agreement or any other plan, program or arrangement of the Company or any of its affiliates would constitute an "excess parachute payment" within the meaning of Section 280G of the Code ("Excess Parachute Payment"), then the payments under this Agreement shall be reduced (by the minimum possible amounts) until no amount payable to the Employee under this Agreement constitutes an Excess Parachute Payment; provided, however, that no such reduction shall be made if the net after-tax payment (after taking into account Federal, state, local or other income and excise taxes) to which the Employee would otherwise be entitled without such reduction would be greater than the net after-tax payment (after taking into account Federal, state, local or other income and excise taxes) to the Employee resulting from the receipt of such payments with such reduction. If, as a result of subsequent events or conditions (including a subsequent payment or absence of a subsequent payment under this Agreement or other plan, program or arrangement of the Company or any of its affiliates), it is determined that payments under this Agreement have been reduced by more than the minimum amount required to prevent any payments from constituting an Excess Parachute Payment, then an additional payment shall be promptly made to the Employee in an amount equal to the additional amount that can be paid without causing any payment to constitute an Excess Parachute Payment.

(b) All determinations required to be made under this Section 6 shall be made by a nationally recognized independent accounting firm mutually agreeable to the Company and the Employee (the "Accounting Firm") which shall provide detailed supporting calculations to the Company and the Employee as requested by the Company or the

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Employee. All fees and expenses of the Accounting Firm shall be borne solely by the Company and shall be paid by the Company upon demand of the Employee as incurred or billed by the Accounting Firm. All determinations made by the Accounting Firm pursuant to this Section 6 shall be final and binding upon the Company and the Employee.

(c) To the extent any payment or benefit is to be reduced pursuant to this Section 6, the severance payment described in Section 3(c) or 4(c) will first be reduced and then the bonus described in Section 4(d), in each case only to the extent necessary.

7. Entitlement to Other Benefits. Except as otherwise provided in this Agreement, this Agreement shall not be construed as limiting in any way any rights or benefits that the Employee or his spouse, dependents or beneficiaries may have pursuant to any other plan or program of the Company; provided that the Employee shall not be eligible to receive any benefits under any circumstances under any severance plan or policy of the Company.

8. General Provisions.

8.1 No Duty to Seek Employment. The Employee shall not be under any duty or obligation to seek or accept other employment following termination of employment, and no amount, payment or benefits due to the Employee hereunder shall be reduced or suspended if the Employee accepts subsequent employment, except as expressly set forth herein.

8.2 Deductions and Withholding. All amounts payable or which become payable under any provision of this Agreement shall be subject to any deductions authorized by the Employee and any deductions and withholdings required by law.

8.3 Notices. All notices, demands, requests, consents, approvals or other communications (collectively "Notices") required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be delivered personally, sent by facsimile transmission with a copy deposited in the United States mail, registered or certified, return receipt requested, postage prepaid, or sent by overnight mail addressed as follows:


To the Company:	Lydall, Inc. P.O. Box 151 One Colonial Road Manchester, CT 06045-0151 Attn: Chief Executive Officer


To the Employee:	Robert Junker

at the most recent address shown on the payroll records of the Company

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or such other address as such party shall have specified most recently by written notice. Notice mailed as provided herein shall be deemed given when so delivered personally or sent by facsimile transmission, or, if sent by overnight mail, on the day after the date of mailing.

8.4 No Disparagement. The Employee shall not during the period of his employment with the Company, nor following the date of termination of his employment for any reason, publish or communicate to any person or entity any Disparaging (as defined below) remarks, comments or statements concerning the Company, or any of its subsidiaries or affiliates or any of their shareholders, directors, officers, employees or agents. "Disparaging" remarks, comments or statements are those that impugn the character, honesty, integrity or morality or business acumen or abilities in connection with any aspect of the operation of business of the individual or entity being disparaged. The Employee agrees that the terms of this Section 8.4 shall survive the term of this Agreement and the termination of the Employee's employment.

8.5 Proprietary Information and Inventions. The Confidentiality Agreement is incorporated by reference in this Agreement, and the Employee agrees to continue to be bound thereby.

8.6 Covenant to Notify Management. The Employee agrees to abide by the ethics policies of the Company as well as the Company's other rules, regulations, policies and procedures. The Employee agrees to comply in full with all governmental laws and regulations as well as ethics codes applicable. In the event that the Employee is aware or suspects the Company, or any of its officers or agents, of violating any such laws, ethics, codes, rules, regulations, policies or procedures, the Employee agrees to bring all such actual and suspected violations to the attention of the Company immediately so that the matter may be properly investigated and appropriate action taken. The Employee understands that the Employee is precluded from filing a complaint with any governmental agency or court having jurisdiction over wrongful conduct unless the Employee has first notified the Company of the facts and permits it to investigate and correct the concerns.

8.7 Amendments and Waivers. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either Party hereto at any time of any breach by the other Party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other Party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

8.8 Beneficial Interests. This Agreement shall inure to the benefit of and be enforceable by (a) the Company's successors and assigns and (b) the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee shall die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate.

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8.9 Successors. The Company will require any successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform.

8.10 Assignment. This Agreement and the rights, duties, and obligations hereunder may not be assigned or delegated by any Party without the prior written consent of the other Party and any attempted assignment or delegation without such prior written consent shall be void and be of no effect. Notwithstanding the foregoing provisions of this Section 8.10, the Company may assign or delegate its rights, duties and obligations hereunder to any affiliate or to any person or entity which succeeds to all or substantially all of the business of the Company or one of its subsidiaries through merger, consolation, reorganization, or other business combination or by acquisition of all or substantially all of the assets of the Company or one of its subsidiaries without the Employee's consent.

8.1 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to the conflicts of law provisions thereof.

8.2 Statute of Limitations. The Employee and the Company hereby agree that there shall be a one year statute of limitations for the filing of any requests for arbitration or any lawsuit relating to this Agreement or the terms or conditions of Employee's employment by the Company. If such a claim is filed more than one year subsequent to the Employee's last day of employment it shall be precluded by this provision, regardless of whether or not the claim has accrued at that time.

8.3 Right to Injunctive and Equitable Relief. The Employee's obligations under Section 9.4 are of a special and unique character, which gives them a peculiar value. The Company cannot be reasonably or adequately compensated for damages in an action at law in the event the Employee breaches such obligations. Therefore, the Employee expressly agrees that the Company shall be entitled to injunctive and other equitable relief without bond or other security in the event of such breach in addition to any other rights or remedies which the Company may possess or be entitled to pursue. Furthermore, the obligations of the Employee and the rights and remedies of the Company under Section 8.4 and this Section 8.13 are cumulative and in addition to, and not in lieu of, any obligations, rights, or remedies as created by applicable law. The Employee agrees that the terms of this Section 8.13 shall survive the term of this Agreement and the termination of the Employee's employment.

8.4 Severability or Partial Invalidity. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

8.5 Section 409A of the Code.

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(a) If (i) the Employee is determined to be a “specified employee” within the meaning of Code Section 409A(a)(2)(B)(i), (ii) any amounts payable under this Agreement are subject to Code Section 409A, and (iii) such amounts are payable on the Employee’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h), then such amounts will be payable on a monthly basis after Employee’s termination of employment (or, if earlier, the date of death of Employee). Payments under this Section to which an Employee would otherwise be entitled during the first six (6) months following Employee’s termination date will be accumulated and paid on the day that is six (6) months after the termination date.

(b) Any taxable reimbursements under this Agreement will be made no later than the end of the calendar year following the calendar year the expense was incurred. For purposes of complying with Section 409A: (i) payment of such reimbursements or in-kind benefits during one calendar year will not affect the amount of such reimbursement or in-kind benefits provided during a subsequent calendar year; and (ii) such reimbursement benefit or rights or in-kind benefits may not be exchanged or substituted for another form of compensation to the Employee.

(c) Any severance payments due as a result of Employee’s termination of employment with the Company will be made only upon a “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

(d) In no event shall the Company be liable to the Employee for or with respect to any taxes, penalties or interest which may be imposed upon the Employee pursuant to Section 409A. The Employee hereby acknowledges that she or he has been advised to seek and has sought the advice of a tax advisor with respect to the tax consequences to the Employee of all payments pursuant to this Agreement, including any adverse tax consequences or penalty taxes under Code Section 409A and applicable state tax law. The Employee hereby agrees to bear the entire risk of any such adverse federal and state tax consequences and penalty taxes in the event any payment pursuant to this Agreement is deemed to be subject to Code Section 409A, and that no representations have been made to the Employee relating to the tax treatment of any payment pursuant to this Agreement under Code Section 409A and the corresponding provisions of any applicable state income tax laws.

8.6 Obligation to Resign upon Termination The Employee must resign from any office held in the Company and/or any of its subsidiaries if requested in writing to do so by the Company on the termination of his employment. If the Employee does not do so on being requested to do so, the Company is hereby irrevocably authorized to appoint a person in his name to sign and deliver any required letter(s) of resignation to the Company.

8.7 Entire Agreement. This Agreement, along with the Confidentiality Agreement, constitutes the entire agreement of the Parties and supersedes all prior written or oral and all contemporaneous oral agreements, understandings, and negotiations between the Parties with respect to the subject matter hereof. This Agreement may not be changed orally

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and may only be modified in writing signed by both Parties. This Agreement, along with the Confidentiality Agreement, is intended by the Parties as the final expression of their agreement with respect to such terms as are included herein and therein and may not be contradicted by evidence of any prior or contemporaneous agreement. The Parties further intend that this Agreement, along with the Confidentiality Agreement, constitutes the complete and exclusive statement of their terms and that no extrinsic evidence may be introduced in any judicial proceeding involving such agreements. For the avoidance of doubt, the terms of the Confidentiality Agreement do not prevent the Employee from communicating directly with a government agency regarding any potential or pending investigation, either during or after my employment with the Company.

8.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed an original but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Employee has hereunto set his hand as of the day and year first above written.

LYDALL, INC.


By:	October 14, 2019 Chad A. McDaniel Date Senior Vice President, General Counsel and Chief Administrative Officer

October 14, 2019

Robert Junker Date

Exhibit 10.50

EXHIBIT A

Confidentiality, Invention and Non-Compete Agreement

In consideration of my employment by Lydall, Inc., or employment or future employment with an affiliate to whom I am transferred (collectively, the “Company”), the compensation and other benefits to be received by me from the Company, I agree that:

1. Definitions

The term “Confidential Information” as used in this Agreement includes all business information and records which relate to the Company or to parties working with the Company under a confidentiality agreement, and which are not known to the public generally, including, but not limited to, technical notebook records, technical reports, patent applications, machine equipment, computer software, models, process and product designs including any drawings and descriptions, unwritten knowledge and “know-how”, operating instructions, training manuals, production and development processes, production or other schedules, customer lists, customer buying records, product sales records, sales requests, territory listings, market surveys, plans including marketing plans and long-range plans, salary information, contracts, supplier lists, product costs, policy statements, policy procedures, policy manuals, flowcharts, computer printouts, program listings, reproductions and correspondence.

The term “Invention” as used in this Agreement includes any discovery, improvement, design or idea, patentable, copywriteable or otherwise, which relates to any activity or business in which the Company is engaged or any process, equipment, material, product or method (including computer software) in which the Company has any direct or indirect interest.

2. Inventions

I will disclose promptly to the Company any Invention conceived, developed or perfected by me, either alone or jointly with another or others, while I am an employee, whether or not such conception, development or perfection occurs during the hours of my employment.

I grant to the Company without further compensation, all my right, title and interest in and to any such Invention for the sole use and benefit of the Company, together with all U.S. and foreign patents, trademarks or copyrights that may at any time be granted, and all reissues, renewals and extensions of such patents, trademarks or copyrights. At the request and expense of the Company, I will at any time do what the Company reasonably believes to be necessary to assist the Company to vest full right and title to each such Invention in the Company, enable the Company to obtain and maintain full right and title in any country, prosecute applications for and secure patents (including their reissue, renewal and extension), trademarks, copyrights and any other form of protection for each such Invention, and prosecute or defend any interference or opposition which may be declared involving any such application or patent and any litigation in which the Company may be involved concerning any such Invention. This will include preparing, executing and delivering any written document, drawings, flowcharts, or computer printouts. The provisions of this section will continue after I stop working for the Company and shall be binding on my executors, administrators and assigns, unless waived in writing by the Company.

3. Confidential Information

I have not disclosed and will not disclose to the Company, and I will not use, in the discharge of my duties as an employee of the Company, any trade secret or confidential information belonging to a former employer or other person and which has been classified by the former employer or other person as a trade secret or confidential information. The limitation set forth in this section shall not apply to matters which (a) are or become public knowledge, (b) were previously known to the Company, (c) are subsequently received by the Company from a third party, or (d) are independently derived by the Company.

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I will not, directly or indirectly, during or at any time after the period of my employment by the Company, use for myself or others, or disclose to others, any Confidential Information, no matter how such information becomes known to me, unless I first obtain the Company’s written consent.

When I leave the Company’s employ, or at any other time upon request by the Company, I will promptly deliver to the Company all documents and records, including but not limited to those listed under the definition of Confidential Information, which are in my possession or under my control and which pertain to the Company, any of its activities or any of my activities while in the course of my employment and all copies thereof. I will not retain or deliver to any others copies of these documents or records.

For the avoidance of doubt, I understand that the terms of the Confidentiality Agreement do not prevent me from communicating directly with a government agency regarding any potential or pending investigation, either during or after my employment with the Company.

THE FOLLOWING SECTION 4 ONLY RELATES TO SALARIED EXEMPT AND NON-EXEMPT EMPLOYEES

4. Non-Competition

I acknowledge and agree that the Company’s business competes upon a worldwide basis, and that the degree of competition in that business is high. I recognize that the Company may assign me to duties in a geographic area or specific market. I agree that, unless I first obtain the Company’s written consent, I will not during my employment with the Company and for a period of two (2) years following the termination of my employment (provided, however, that if I am employed by the Company for less than two (2) years, the post-employment period to which this section applies shall be the greater of six (6) months or the length of my employment in any capacity), directly or indirectly or through others, individually, or as a member, officer, director, employee, agent, or investor of any partnership or entity (except ownership of not more than one percent (1%) of the outstanding publicly traded stock of any company):

(i)

participate in the ownership, management, operation or control of, or work for (as an employee, consultant or independent contractor) or have any material financial interest in, any business competitive with the Company in (a) any market in which the company for which I have worked in the two (2) preceding years has sold or attempted to sell any of its product in the two (2) years preceding my termination or (b) if the Company has assigned me to duties in a geographic area, within two hundred fifty (250) miles of any such geographic area in which I have worked in the two (2) years preceding my termination,


(ii)	induce or encourage any employee of the Company to terminate his or her employment with the Company, or


(iii)	solicit, induce or encourage any person, business or entity which is a supplier of, a purchaser from, or a contracting party with, the Company to terminate any written or oral agreement, order or understanding with the Company or to conduct business in a way that results in an adverse impact to the Company.

I further understand and agree that the remedy at law for any breach or threatened breach of my agreement not to compete contained in this section would be inadequate and that any breach or attempted breach would result in irreparable damage to the Company, the monetary amount of which would be impossible to ascertain. Thus, I agree that in the event of any breach or threatened breach of my agreement not to compete, in addition to all other available legal or equitable remedies, the Company may obtain injunctive relief to remedy damage caused by such breach or threatened breach, and that the Company shall be entitled to recover from me its costs and expenses, including reasonable attorney fees, incurred in remedying such breach or threatened breach.

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5. General Terms

I represent and agree that I have and will assume no obligations to others inconsistent with any of my obligations to the Company under this Agreement. I represent and agree that the performance of my duties and obligations as an employee of the Company does not, and shall not, breach any agreement that obligates me to refrain from competing, directly or indirectly, with the business of any other party.

In consideration of my employment, I agree to conform to the policies of the Company. I understand that my employment is for an indefinite period and can be terminated at any time, with or without cause or prior notice by either the Company or me, and will remain so unless a written agreement for a specific term is entered into and executed by me and the Company’s CEO. No other representations or agreements have been made regarding the term or termination of my employment. I understand that no employee of the Company other than its CEO has the authority to enter into any agreement, commitment or guarantees binding on the Company regarding my employment and then only by a signed, written document.

This Agreement, which is ancillary to any other agreement I may have with the Company, (a) is intended as the complete and exclusive statement of my agreement with the Company with respect to its subject matter, (b) shall be binding upon my heirs, executors and administrators, (c) shall be assignable by the Company to its successors; (d) shall not be modified unless in writing and signed by me and the Company, (e) shall be governed by and construed in accordance with the law of the State of Connecticut, the Company's home office state, and (f) if any part of this Agreement is found invalid by any court, the remainder shall be valid and enforceable in law and equity.

Lydall, Inc.



Employee Name:		By:
Date:	October 14, 2019	Title:	October 14, 2019

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EXHIBIT B

TERMINATION, VOLUNTARY RELEASE AND WAIVER OF RIGHTS AGREEMENT

I, Robert Junker, unqualifiedly accept and agree to the relinquishment of my title, responsibilities and obligations as an employee of Lydall, Inc. and/or its subsidiaries (together "the Company"), and concurrently and unconditionally agree to sever my relationship as an employee of the Company, in consideration for the voluntary payment to me by the Company of the separation benefits set forth in Section __ of the Agreement dated as of October __, 2019 by and between me and the Company (the "Severance Agreement"), which is made a part hereof.

1. In exchange for this consideration, which I understand that the Company is not otherwise obligated to provide to me, I voluntarily agree to waive and forego any and all claims, rights, interests, covenants, contracts, warranties, promises, undertakings, actions, suits, causes of action, obligations, debts, attorneys' fees or other expenses, accounts, judgments, fines, fees, losses and liabilities, of any kind, nature or description, in law, equity or otherwise (collectively, "Claims") that I may have against the Company and to release the Company and their respective affiliates, subsidiaries, officers, directors, employees, representatives, agents, successors and assigns (hereinafter collectively referred to as "Releasees") from any obligations any of them may owe to me, accepting the aforestated consideration as full settlement of any monies or obligations owed to me by Releasees that may have arisen at any time prior to the date of my execution of this Termination, Voluntary Release and Waiver of Rights Agreement (the "Agreement"), except as specifically provided below in the following paragraph number 2.

2. I do not waive, nor has the Company asked me to waive, any rights arising exclusively under the Fair Labor Standards Act, except as such waiver may henceforth be made in a manner provided by law. I do not waive, nor has the Company asked me to waive, any vested benefits that I may have or that I may have derived from the course of my employment with the Company. I understand that such vested benefits will be subject to and administered in accordance with the established and usual terms governing same. I do not waive any rights which may in the future, after the execution of this Agreement, arise exclusively from a substantial breach by the Company of a material obligation of the Company expressly undertaken in consideration of my entering into this Agreement.

3. Except as set forth in paragraph 2, I do fully, irrevocably and forever waive, relinquish and agree to forego any and all Claims whatsoever, whether known or unknown, that I may have or may hereafter have against the Releasees or any of them arising out of or by reason of any cause, matter or thing whatsoever from the beginning of the world to the date hereof, including without limitation any and all matters relating to my employment with the Company and the cessation thereof and all matters arising under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000 et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., the Family and Medical Leave Act of 1993, 29 U.S.C. § 2601 et seq., the Age Discrimination in Employment Act of 1967, 29 U.S.C. § 621 et seq., the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., all as amended, or under any other laws, ordinances, Employee orders, regulations or administrative or judicial case law arising under the statutory

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or common laws of the United States, the State of Connecticut or any other applicable county or municipal ordinance.

4. As a material inducement to the Company to enter into this Agreement, I, the undersigned, recognize that I may have been privy to certain confidential, proprietary and trade secret information of the Company which, if known to third parties, could be used in a manner that would reduce the value of the Company for its shareholders. In order to reduce the risk of that happening, I, the undersigned, agree that for a period of two (2) years after termination of employment, I, the undersigned, will not, directly or indirectly, assist, or be part of or have any involvement in, any effort to acquire control of the Company through the acquisition of its stock or substantially all of its assets, without the prior consent of the Board of Directors of the Company. This provision shall not prevent the undersigned from owning up to not more than one percent (1%) of the outstanding publicly traded stock of any company.

5. I further acknowledge pursuant to the Older Worker's Benefit Protection Act (29 U.S.C. § 626(f)), I expressly agree that the following statements are true:

a. The payment of the consideration described in Section __ of the Severance Agreement is in addition to the standard employee benefits and anything else of value which the Company owes me in connection with my employment with the Company or the separation of employment.

b. I have [twenty-one days] days from [date of receipt] to consider and sign this agreement. If I choose to sign this Agreement before the end of the [twenty-one] day period, that decision is completely voluntary and has not been forced on me by the Company.

c. I will have seven (7) days after signing the Agreement in which to revoke it, and the Agreement will not become effective or enforceable until the end of those seven (7) days.

d. I am now being advised in writing to consult an attorney before signing this Agreement.

I acknowledge that I have been given sufficient time to freely consult with an attorney or counselor of my own choosing and that I knowingly and voluntarily execute this Agreement, after bargaining over the terms hereof, with knowledge of the consequences made clear, and with the genuine intent to release claims without threats, duress, or coercion on the part of the Company. I do so understanding and acknowledging the significance of such waiver.

6. Further, in view of the above-referenced consideration voluntarily provided to me by the Company, after due deliberation, I agree to waive any right to further litigation or claim against any or all of the Releasees except as specifically provided in paragraph number 2 above. I hereby agree to indemnify and hold harmless the Releasees and their respective agents or representatives from and against any and all losses, costs, damages or expenses, including, without limitation, attorney’s fees incurred by said parties, or any of them, arising out of any

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breach of this Agreement by me or by any person acting on my behalf, or the fact that any representation made herein by the undersigned was false when made.

7. As a material inducement to the Company to enter into this Agreement, I, the undersigned, understand and agree that if I should fail to comply with the conditions hereof or to carry out the agreement set forth herein, all amounts previously paid under this Agreement shall be immediately forfeited to the Company and that the right or claim to further payments and/or benefits hereunder would likewise be forfeited.

8. As a further material inducement to the Company to enter into this Agreement, the undersigned provides as follows:

First. I represent that I have not filed any complaints or charges against the Company, or any of the Releasees relating to the relinquishment of my former titles and responsibilities at the Company or the terms of my employment with the Company and that if any agency or court assumes jurisdiction of any complaint or charge against the Company or any of the Releasees on behalf of me concerning my employment with the Company, I understand and agrees that I have, by my knowing and willing execution of this Agreement waived my rights to any form of recovery or relief against the Company, or any of the Releasees, including but not limited to, attorney's fees. Provided, however, that this provision shall not preclude the undersigned from pursuing appropriate legal relief against the Company for redress of a substantial breach of a material obligation of the Company expressly undertaken in consideration of my entering into this Agreement.

Second. I acknowledge and understand that the consideration for this release shall not be in any way construed as an admission by the Company or any of the Releasees of any improper acts or any improper employment decisions, and that the Company, specifically disclaims any liability on the part of itself, the Releasees, and their respective agents, employees, representatives, successors or assigns in this regard.

Third. I acknowledge and agree that this Agreement shall be binding upon me, upon the Company, and upon our respective administrators, representatives, Employees, successors, heirs and assigns and shall inure to the benefit of said parties and each of them.

Fourth. I represent, understand and agree that this Agreement sets forth the entire agreement between the parties hereto, and fully supersedes any and all prior agreements or understandings between the parties pertaining to the subject matter hereof, except for the confidentiality and non-competition agreement previously executed by me, the terms of which retain their full force and effect, and which are in no way limited or curtailed by this Agreement. (A copy of that agreement is attached to the Agreement as Exhibit A and is made a part hereof.)

Fifth. Modification. This Agreement may not be altered or changed except by an agreement in writing that has been properly executed by the party against whom any waiver, change, modification or discharge is sought.

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Sixth. Severability. All provisions and terms of this Agreement are severable. The invalidity or unenforceability of any particular provision(s) or term(s) of this Agreement shall not affect the validity or enforceability of the other provisions and such other provisions shall be enforceable in law or equity in all respects as if such particular invalid or unenforceable provision(s) or term(s) were omitted. Notwithstanding the foregoing, the language of all parts of this Agreement shall, in all cases, be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties.

Seventh. No Disparagement. Unless otherwise required by a court of competent jurisdiction or pursuant to any recognized subpoena power, I agree and promise that I will not make any oral or written statements or reveal any information to any person, company, or agency which is disparaging or damaging to the reputation or business of the Company, its subsidiaries, directors, officers or affiliates, or which would interfere in any way with the business relations between the Company or any of its subsidiaries or affiliates and any of their customers, suppliers or vendors whether present or in the future.

Eighth. Confidentiality. The Company and the undersigned agree to refrain from disclosing to third parties and to keep strictly confidential all details of this Agreement and any and all information relating to its negotiation, except as necessary to each party's accountants or attorneys.

Ninth. Termination of Agreement. Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated by the Company and all further payment obligations of the Company will cease, if: (a) the undersigned is terminated for "Cause" prior to the undersigned's separation date; or (b) facts are discovered after the undersigned's separation date that would have supported a termination for "Cause" had such facts been discovered prior to the undersigned's separation date.

AFFIRMATION OF RELEASOR

I, Robert Junker, warrant that I am competent to execute this Termination, Voluntary Release and Waiver of Rights Agreement and that I accept full responsibility thereof.

I, Robert Junker, warrant that I have had the opportunity to consult with an attorney of my choosing with respect to this matter and the consequences of my executing this Termination, Voluntary Release and Waiver of Rights Agreement.

I, Robert Junker, have read this Termination, Voluntary Release and Waiver of Rights Agreement carefully and I fully understand its terms. I execute this document voluntarily with full and complete knowledge of its significance.

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Executed this day of , 20__, at .

NAME

STATE OF )

) SS:

COUNTY OF )

Subscribed and sworn to before me, a Notary Public in and for said County and State, this day of , 20__, under the pains and penalties of perjury.

Notary Public

My Commission Expires:

County of Residence:


•	30,000,000 shares of common stock, par value of $.01 per share; and


•	500,000 shares of preferred stock, par value of $.01 per share.


(v)	only if expressly permitted by the Award Administrator, by payment of such other lawful consideration as the Award Administrator may determine; or


(vi)	only if expressly permitted by the Award Administrator, by any combination of the above forms of payment.


(ii)	This Option shall be subject to recoupment as required by the applicable provisions of any law (including without limitation Section 10D of the Exchange Act), government regulation or stock exchange listing requirement (and any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement).




		LYDALL, INC. By: /s/ Dale G. Barnhart
		Name: Dale G. Barnhart
		Title: President and Chief Executive Officer


(b)	“Cause” shall have the meaning set forth in that certain employment agreement between the Recipient and the Company dated as of October 14, 2019.


(c)	“Change in Control Event” shall mean the occurrence, after the Effective Date, of any of the following events:


(d)	“Code” means the Internal Revenue Code of 1986 and any regulations thereunder, each as amended from time to time.


(e)	“Commission” means the U.S. Securities and Exchange Commission.


(f)	“Committee” means (i) the Compensation Committee of the Board or (ii) any other committee or subcommittee of the Board to the extent that the Board’s powers or authority under this Agreement have been delegated to such committee or subcommittee by the Board or by the Compensation Committee of the Board.


(g)	“Common Stock” means shares of common stock, $0.10 par value per share, of Lydall.


(h)	“Company” means collectively Lydall and each Lydall Affiliate at the relevant applicable time.


(i)	“Economic Value” means the amount reportable by the Recipient as taxable compensation for federal income tax purposes with respect to the Option.


(j)	“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.


(k)	“Fair Market Value” means the fair market value per share of Common Stock, determined as follows:


(1)	if the Common Stock trades on a national securities exchange, the closing sale price (for the primary trading session) on the date of determination; or


(2)	if the Common Stock does not trade on any such exchange, the average of the closing bid and asked prices as reported by an authorized OTCBB market data vendor as listed on the OTCBB website (otcbb.com) (or another similar system then in use as determined by the Award Administrator) on the date of determination; or


(3)	if the Common Stock is not publicly traded, the Award Administrator will determine the Fair Market Value for purposes of this Agreement using any measure of value it determines to be appropriate (including, as it considers appropriate, relying on appraisals) in a manner consistent with the valuation


(m)	“Lydall Affiliates” means collectively each Lydall Affiliate at the relevant applicable time.


(n)	“Nonqualified Stock Option” is an option to acquire Shares that does not qualify as an “incentive stock option” under Section 422 of the Code.


(p)	“NYSE Listed Company Manual” means the NYSE Listed Company Manual, as amended from time to time, an any successor rule or regulation.


(r)	“Securities Act” means the Securities act of 1933, as amended from time to time.


(l)	“Good Reason” shall have the meaning set forth in the Employment Agreement.


(h)	A new Section 3.03(c) is hereby added to the Credit Agreement as follows:


(i)	adequate and reasonable means do not exist for ascertaining LIBOR for any requested Interest Period, including, without limitation, because the LIBOR Screen Rate is not available or published on a current basis and such circumstances are unlikely to be temporary; or


(iii)	syndicated loans currently being executed, or that include language similar to that contained in this Section 3.03, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR,


(i)	A new Section 11.24 is hereby added to the Credit Agreement as follows:


Title:	Executive Vice President, General Counsel & Chief Administrative Officer


1.	I have reviewed this annual report on Form 10-K of Lydall, Inc.;