September 11, 2006

Manchester, CT
$113 million

Key Personnel

W. Leslie Duffy, chairman of the board, David Freeman, president and CEO; Thomas Smith, vice president, chief financial officer, and treasurer; Mona Estey, vice president—human resources; Mary Tremblay, vice president, general counsel, and secretary


Rochester, NH; Saint Rivalain, France; Winston-Salem, NC; Hamptonville, NC; St. Johnsbury, VT; Green Island, NY; Ossipee, NH; Meinerzhagen, Germany; Saint-Nazaire, France

Major Markets

Thermal and acoustical shields and insulation, high-efficiency air and liquid filtration media, bioprocessing and specialty blood and cell therapy products

Major Brand Names

Lytherm, Manniglas, Manniweb, Affinity, ZeroClearance, dBLyte, Lydair, Actipure, AcuPore, AMS, CRS Wrap, Cryotherm, dBCore, LyPore, BioPak

Strong growth was the key to success in 2005 for  Lydall Inc., Manchester, CT. The company’s nonwovens sales reached $113 million, which represents an increase of 12% from 2004. During 2005, Lydall instituted major operating improvements, strengthened its operating and marketing management and integrated the production of a sizeable amount of new automotive business.

“Lydall’s progress in 2005 was primarily attributable to our automotive businesses, particularly in Europe,” commented David Freeman, Lydall president and CEO. “Our filtration and vital fluids businesses, however, had a difficult year.  During the first quarter of 2006, our air filtration business continued to face a price-competitive market as well as higher manufacturing costs. The vital fluids business showed some improvement.”

Lydall’s largest business segment continues to be thermal/acoustical applications, which represents approximately 69% of total sales. This segment includes automotive, passive thermal and active thermal businesses. Making up approximately 21% of total sales, the filtration/separation segment includes air and liquid filtration and vital fluids businesses. Other products and services, which is primarily comprised of its transport business, represents about 10% of total sales.

In describing current filtration/separation market conditions, Mr. Freeman said that the market, particularly for air filtration products, has become increasingly price competitive, especially in light of rising raw material and energy costs. “In response, Lydall is focusing on value-added product development to meet unique industry needs.”

Lydall’s recent efforts to consolidate domestic automotive operations and expand its position in Europe were successful, according to Mr. Freeman. “We completed the consolidation, increased sales and strengthened management of our North American operations. These operations are well-positioned for future growth and further improvements,” he said. The company’s Lean programs, particularly Lean Manufacturing, are a key factor as is a strengthening collaboration between its European and North American operations.

During 2005, European automotive sales increased and operating income grew significantly, according to Lydall. The company made substantial gains in operating efficiencies in Germany and benefited from a successful first year of operation at its St. Nazaire, France facility.  Both North American and European operations are continuing to improve operating efficiencies and growing sales in 2006.

In terms of capacity upgrades, no major expansion plans for this year are being reported. “Significant capital has been invested in the past two years, both here and in Europe, related to our automotive businesses. We are anticipating lower capital spending in 2006 compared with 2005,” offered Mr. Freeman. “We believe that we are well positioned for growth as a result of the capital invested during the past couple of years. This investment has been key to the growth of our automotive business. We’re not expecting any out-of-the-ordinary capital requirements by any of our facilities this year.”

In its passive thermal business sector, Lydall is building on its initial successes in the appliance market, an area about which the company is very enthusiastic. This business is also exploring certain cross-marketing opportunities with other Lydall operations.  

In its active thermal operation, which manufactures and markets Affinity temperature-control units, Lydall is stepping up development efforts of next-generation products for the semiconductor market. “We are also exploring the viability of outsourcing basic manufacturing of these products so we can concentrate on our strengths in this area, which are exceptional service and customization.”

The company has also strengthened its marketing force, which focuses on air and liquid filtration. “We expect this to be an area of growth. Both air and liquid filtration businesses are working closely with customers to meet their needs and to provide innovative products and value-added offerings,” Mr. Freeman remarked.

In the vital fluids business, Lydall has changed its approach to the market for its bioprocessing product lines and brought all selling activities in-house. “We are beginning to see progress as a result. All Lydall businesses are concentrating on operational excellence to counter erosion of gross margins and guarantee the highest level of quality,” said Mr. Freeman. He added that the company remains committed to its Lean Six Sigma program as a powerful tool to accomplish these objectives.

As for its globalization strategy, Lydall sells its filtration/separation and passive and active thermal products worldwide. The company currently sells to the North American and European automotive markets. “We are making progress gaining Asian transplant business.”

Wrapping things up, Mr. Freeman pointed to manufacturing excellence as Lydall’s major focus and said that its Lean Six Sigma programs are expected to significantly improve its bottom line. “Our priorities for 2006 are to increase accountability and to continue focusing on management development. We expect to improve gross margins, and we are concentrating on how we allocate and manage our capital resources. Most importantly, we are driving value-added product development throughout our businesses.”

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