2. Revision of Prior Period Amounts

In preparing Lydall’s financial statements for the quarter ended September 30, 2011, the Company discovered certain prior period errors related to accounting for income taxes associated with dividends from a foreign subsidiary, which were omitted in error from U.S. income tax reporting. The impact of the errors was partially offset by a resulting adjustment to certain valuation allowances. These errors impacted income tax expense recorded by the Company beginning in the year ended December 31, 2004 and subsequent periods through June 30, 2011. The Company evaluated these errors and determined that they were immaterial to each of the reporting periods affected. However, if the adjustments to correct the cumulative errors had been recorded in the current period, the Company believes the impact would be material to 2011 results. As a result, the Company revised in the current filing previously reported quarterly results for the first and second quarters of 2011, the third and fourth quarters of 2010, as well as Lydall’s annual results for 2010, 2009 and 2008, for these income tax errors. In addition to recording these out of period tax adjustments, the Company recorded other adjustments to prior period amounts to correct other immaterial out of period errors.

The Consolidated Balance Sheet was also revised to reflect the cumulative effect of these errors described above and other immaterial errors. These revisions to the Consolidated Balance Sheet resulted in a decrease to retained earnings of $1.3 million and $2.0 million as of December 31, 2010 and June 30, 2011, respectively.

The adjustments to the Consolidated Statement of Cash Flows for the six months ended June 30, 2011 and three months ended March 31, 2011, and all periods in 2010, 2009 and 2008 did not result in any changes to the amounts previously reported for net cash from operating activities, investing activities or financing activities in these periods. All adjustments had an immaterial effect on the components of cash flows from operating activities and had no net impact on net cash from operating activities in any period.

On June 30, 2011, the Company sold its Affinity business. Beginning in the Form 10-Q for the period ended June 30, 2011 the Company retroactively restated its results to reflect its Affinity business as a discontinued operation. Except for the quarterly results for the second and third quarters of 2010, the Company has not retroactively restated its previously reported results for the Affinity sale and discontinued operations. The Company will retroactively restate the results for 2010 and 2009 and all 2011 and 2010 quarters in its 2011 Form 10-K. The Company has determined that the impact of the above adjustments will not be material to the revised amounts.

The revisions of prior period reported amounts are as follows:

Consolidated Balance Sheet - December 31, 2009
	As Previously Reported					Revised
in thousands	December 31, 2009		Adjustments			December 31, 2009

Taxes receivable	$	4,651	$	(1,269	)	$	3,382
Total current assets	$	99,987	$	(1,269	)	$	98,718
Total assets	$	224,352	$	(1,269	)	$	223,083

Deferred tax liabilities	$	6,357	$	(59	)	$	6,298

Retained earnings	$	169,083	$	(1,210	)	$	167,873
Total stockholders' equity	$	156,389	$	(1,210	)	$	155,179
Total liabilities and stockholders' equity	$	224,352	$	(1,269	)	$	223,083

Consolidated Balance Sheet - December 31, 2010

	As Previously Reported					Revised
in thousands	December 31, 2010		Adjustments			December 31, 2010

Taxes receivable	$	1,867	$	(1,150	)	$	717
Total current assets	$	116,031	$	(1,150	)	$	114,881
Total assets	$	231,888	$	(1,150	)	$	230,738

Accrued taxes	$	3,113	$	317		$	3,430
Total current liabilities	$	52,671	$	317		$	52,988

Deferred tax liabilities	$	5,360	$	(157	)	$	5,203

Retained earnings	$	171,822	$	(1,310	)	$	170,512
Total stockholders' equity	$	155,455	$	(1,310	)	$	154,145
Total liabilities and stockholders' equity	$	231,888	$	(1,150	)	$	230,738

Consolidated Balance Sheet - June 30, 2011

in thousands	As Previously Reported					Revised
(Unaudited)	June 30, 2011		Adjustments			June 30, 2011

Accrued taxes	$	4,389	$	1,501		$	5,890
Total current liabilities	$	54,332	$	1,501		$	55,833

Deferred tax liabilities	$	7,618	$	499		$	8,117

Retained earnings	$	182,492	$	(2,000	)	$	180,492
Total stockholders' equity	$	172,979	$	(2,000	)	$	170,979

Consolidated Statement of Operations - Year Ended December 31, 2008**

	As Previously Reported						Revised
	Year Ended						Year Ended
in thousands, except per share data	December 31, 2008**			Adjustments			December 31, 2008**

Income tax (benefit) expense from continuing operations	$	(3,888	)	$	336		$	(3,552	)
Loss from continuing operations	$	(6,031	)	$	(336	)	$	(6,367	)
Net loss	$	(4,979	)	$	(336	)	$	(5,315	)
Basic loss per share:
Continuing operations	$	(0.37	)				$	(0.39	)
Net loss	$	(0.30	)				$	(0.32	)
Diluted earnings (loss) per share:
Continuing operations	$	(0.37	)				$	(0.39	)
Net loss	$	(0.30	)				$	(0.32	)
Weighted average number of common shares outstanding:
Basic		16,458						16,458
Diluted		16,458						16,458

** As previously reported year ended December 31, 2008 discontinued operations represents the sale of Lydall's wholly owned subsidiary, Lydall Transport, Ltd.

Consolidated Statement of Operations - Year Ended December 31, 2009

	As Previously Reported						Revised
	Year Ended						Year Ended
in thousands, except per share data	December 31, 2009			Adjustments			December 31, 2009

Income tax (benefit) expense	$	(3,789	)	$	243		$	(3,546	)
Net loss	$	(14,572	)	$	(243	)	$	(14,815	)
Basic loss per share	$	(0.88	)				$	(0.89	)
Diluted loss per share	$	(0.88	)				$	(0.89	)
Weighted average number of common shares outstanding:
Basic		16,567						16,567
Diluted		16,567						16,567

Consolidated Statement of Operations - Quarter Ended September 30, 2010*

	As Previously Reported						Revised
in thousands, except per share data	Quarter Ended						Quarter Ended
(unaudited)	September 30, 2010*			Adjustments			September 30, 2010*

Income tax (benefit) expense	$	(1,284	)	$	170		$	(1,114	)
Income (loss) from continuing operations	$	597		$	(170	)	$	427
Net income (loss)	$	1,516		$	(170	)	$	1,346
Basic earnings per share:
Continuing operations	$	0.04					$	0.03
Net income	$	0.09					$	0.08
Diluted earnings per share:
Continuing operations	$	0.04					$	0.03
Net income	$	0.09					$	0.08
Weighted average number of common shares outstanding:
Basic		16,682						16,682
Diluted		16,731						16,731

* As previously reported quarter ended September 30, 2010 has been retroactively restated to reflect Affinity as a discontinued operation.

Consolidated Statement of Operations - Quarter Ended December 31, 2010

	As Previously Reported						Revised
in thousands, except per share data	Quarter Ended						Quarter Ended
(unaudited)	December 31, 2010			Adjustments			December 31, 2010

Income tax expense (benefit)	$	2,319		$	(70	)	$	2,249
Net (loss) income	$	(389	)	$	70		$	(319	)
Basic loss per share	$	(0.02	)				$	(0.02	)
Diluted loss per share	$	(0.02	)				$	(0.02	)
Weighted average number of common shares outstanding:
Basic		16,695						16,695
Diluted		16,695						16,695

Consolidated Statement of Operations - Year Ended December 31, 2010

	As Previously Reported					Revised
	Year Ended					Year Ended
in thousands, except per share data	December 31, 2010		Adjustments			December 31, 2010

Income tax expense	$	1,187	$	100		$	1,287
Net income (loss)	$	2,739	$	(100	)	$	2,639
Basic earnings per share	$	0.16				$	0.16
Diluted earnings per share	$	0.16				$	0.16
Weighted average number of common shares outstanding:
Basic		16,672					16,672
Diluted		16,788					16,788

Consolidated Statement of Operations - Quarter Ended March 31, 2011

	As Previously Reported					Revised
in thousands, except per share data	Quarter Ended					Quarter Ended
(unaudited)	March 31, 2011		Adjustments			March 31, 2011

Income tax expense	$	1,729	$	63		$	1,792
Net income (loss)	$	2,943	$	(63	)	$	2,880
Basic earnings per share	$	0.18				$	0.17
Diluted earnings per share	$	0.17				$	0.17
Weighted average number of common shares outstanding:
Basic		16,735					16,735
Diluted		16,838					16,838

Consolidated Statement of Operations - Quarter Ended June 30, 2011

	As Previously Reported					Revised
in thousands, except per share data	Quarter Ended					Quarter Ended
(unaudited)	June 30, 2011		Adjustments			June 30, 2011

Income tax expense	$	1,284	$	627		$	1,911
Income (loss) from continuing operations	$	3,243	$	(627	)	$	2,616
Net income (loss)	$	7,727	$	(627	)	$	7,100
Basic earnings per share:
Continuing operations	$	0.19				$	0.16
Net income	$	0.46				$	0.42
Diluted earnings per share:
Continuing operations	$	0.19				$	0.15
Net income	$	0.46				$	0.42
Weighted average number of common shares outstanding:
Basic		16,741					16,741
Diluted		16,909					16,909