Lydall, Inc.

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Lydall, Inc.

1 Colonial Road
Manchester, Connecticut 06045
U.S.A.
Telephone: (860) 646-1233
Toll Free: (800) 365-9325
Fax: (860) 646-8847
Web site: http://www.lydall.com

Public Company
Incorporated: 1913 as Colonial Board Company
Employees: 1,241
Sales: $271.38 million (2003)
Stock Exchanges: New York
Ticker Symbol: LDL
NAIC: 325222 Noncellulosic Organic Fiber Manufacturing; 322130 Paperboard Mills; 322221 Coated and Laminated Packaging Paper and Plastics Film Manufacturing

Lydall, Inc. designs and produces specialty engineered products that withstand heat, reduce noise, and act as filters for a variety of industrial applications. The bulk of Lydall's business is derived from the automotive industry, for which the company makes heat shields, thermal and acoustical barriers, and insulation products. The company's two largest customers are automobile manufacturers DaimlerChrysler AG and Ford Motor Company. Lydall's products also are used in other industrial applications, such as in furnaces and kilns, and as filtration devices in industrial settings. More than one-third of the company's annual revenue is derived from overseas sales. Lydall operates three manufacturing facilities in Europe and maintains sales offices in Asia. Domestically, the company owns production plants in New Hampshire, New York, Connecticut, Virginia, North Carolina, Florida, and Pennsylvania. Through Lydall Transport Ltd., the company provides trucking and logistics services throughout the United States and Canada.

Origins

Lydall traced its corporate roots to 1913, when a company named Colonial Board Company was founded. More than a half-century passed before the Lydall name first appeared, however, a moment that arrived when Colonial Board merged with another company in 1969, creating Lydall, Inc. The 1969 merger paved the way for several important additions made in the following decade that gave Lydall its modern-day business foundation. There was one important development that occurred before the 1970s, however. In 1951, Norfould, Inc. was organized as part of Colonial Board Company, a company that represented the predecessor to Lydall Transport, Ltd., the logistics services arm of Lydall's operations in the 21st century. Considering that much of what constituted Lydall in its second century of business was developed following the 1969 merger, the 1970s marked the beginning of Lydall's second era of existence and the beginning of it modern corporate history.

Lydall's involvement in the manufacture of engineered fiber materials and composites eventually became organized in two business segments the company labeled "filtration/separation" and "thermal/acoustical." The first of these two business groups was bolstered significantly by the formation of a fiber process division in 1970. Located in Rochester, New Hampshire, the division manufactured high-performance, engineered filtration and specialty separation media. In 1977, when Lydall merged with Logistics Industries, the company completed an acquisition that strengthened the other pillar supporting its existence. Lydall acquired a plant in Hamptonville, North Carolina, that was jointly operated by Chatham Manufacturing and Scott Paper Company. The plant, which was known as Lydall Westex before becoming part of the company's thermal/acoustical group, manufactured integrated automotive test shields and acoustical barrier systems.

The two additions to the company's operations in the 1970s helped establish Lydall's future foundation, although, at the time, the company was involved in a variety of businesses. A third significant addition arrived in 1986, when the company acquired a plant from the Hammermill Paper Company. Located in Green Island, New York, the facility initially was known as Lydall Manning before becoming the Green Island Operation of Lydall Industrial Thermal Solutions. The plant, which began operating in 1846, was used by Lydall to produce industrial thermal and flame barriers and electrical insulating materials. Not long after acquiring the Green Island plant, Lydall's management decided to restructure the company, aiming to narrow its strategic focus. In 1988, a number of elastomer product businesses and a partial ownership stake in a defense electronics business were divested. The following year, Lydall moved from the American Stock Exchange to the New York Stock Exchange.

Lydall in the 1990s

The 1990s brought significant change and significant growth to Lydall. For the first time in its history, the company established a presence overseas. In 1991, when Lydall's sales volume amounted to $135 million, the company acquired a facility in Brittany, France, using the plant to manufacture high efficiency air filtration media. The acquisition became part of the company's filtration/separation group, functioning as the Saint-Rivalain operation within Lydall's corporate structure. Several years later, the company expanded domestically, adding another production facility to its thermal/acoustical group. In 1994, Lydall acquired a plant in Columbus, Ohio, capable of fabricating automotive thermal and acoustical insulation products.

The Columbus production plant symbolized an important aspect of Lydall's future. Although the plant itself would not be part of the company's future, it was devoted to serving the automotive market, a market of increasing importance to Lydall in the late 1990s and early 21st century. The company's thermal and acoustical products were used by parts suppliers, thermal insulation fabricators, air-bag manufacturers, and by automobile manufacturers. Ford Motor Company, for example, accounted for nearly one-fifth of Lydall's annual sales during the latter half of the 1990s. The company made several investments in strengthening its automotive business during the late 1990s, completing acquisitions that broadened the geographic presence of the company and expanded its thermal/acoustical group. The acquisitions were completed in 1998, a year that also brought sweeping change throughout the Lydall organization.

Lydall's 85th anniversary coincided with the significant overseas expansion and the appointment of a new leader. After acquiring what the company referred to as the St. Johnsbury Operation—a facility geared for the production of automotive heat shields—Lydall followed up on its foray into France seven years earlier when it acquired a German firm, which was renamed Lydall Gerhardi, that produced numerous metal heat shields and acoustical components that were distributed to manufacturers competing in the automotive market. The addition of the Gerhardi operation greatly aided Lydall's efforts to become a global manufacturer of automotive thermal and acoustical components. The acquisition, completed in December 1998, occurred the same month the company promoted its chief operating officer, Christopher Skomorowski, to the post of chief executive officer.

Under Skomorowski's leadership, an extensive restructuring program was started. Like the company's reorganization 11 years earlier, assets deemed outside the company's strategic scope were divested. Lydall shed non-core and underperforming properties, focusing its efforts exclusively on its filtration/separation and thermal/acoustical business segments. At the same time, the company announced the formulation of an acquisition program. The restructuring efforts, begun in 1999 shortly after Skomorowski's promotion, sharpened in focus in the fall of 2000 when the company announced it was abandoning its decentralized structure in favor of a group structure built around the filtration/separation and thermal/acoustical business segments. The sweeping restructuring program, which included the adoption of a new corporate logo meant to convey the company's two-pronged strategic focus, was completed in early 2001.

In the wake of the nearly two-year-long restructuring program, Lydall completed two important deals, both concluded in October 2001. In the first half of the month, the company announced that its subsidiary, Lydall Distribution Services, Inc., had formed a partnership with the Virginia Port Authority to establish a new paper distribution facility at The Port of Virginia's Newport News Marine Terminal. The addition of the 100,000-square-foot facility was hailed by Bill Franks, president of Lydall Distribution Services. "We look forward to offering a total distribution solution for all types of paper products to our customers and to attracting new customers to The Port of Virginia," Franks remarked in an October 11, 2001 interview with Internet Wire. "The center will give us the opportunity to expand the breadth of our services as well as to enhance the services of Virginia ports and to be a part of the continuing expansion of business within the Commonwealth." The new facility operated as the Lydall Paper Distribution Center under the management of Lydall Distribution Services.

Company Perspectives:

Lydall participates in progressive markets providing healthy growth opportunities for the Company. The increasingly technical and sophisticated demands of the automotive, semiconductor, consumer liquid-and air-filtration, bioprocessing/biomedical, and commercial building markets in which we concentrate present both challenges and opportunities. Lydall looks forward to meeting the challenges and maximizing the opportunities. Our resolve is strengthened by our commitment to greater investment in new-product development and sales and marketing efforts.

Roughly two weeks after the announcement of the partnership with the Virginia Port Authority, Skomorowski made good on his promise to expand through acquisitions. In late October 2001, Lydall announced it had acquired Affinity Industries, Inc. for $21.7 million. Based in Ossipee, New Hampshire, Affinity designed and manufactured high-precision specialty temperature-control equipment. The equipment was used in industrial processes involved in semiconductor, medical, laser pharmaceutical, and telecommunications applications. The $18 million-in-sales company represented Lydall's first attempt to expand its industrial thermal business. "Two years ago," Skomorowski said in an October 22, 2001 interview with Internet Wire, "we announced a concentrated, systematic approach to growing Lydall through strategic acquisitions. The acquisition of Affinity is the initial product of extensive research and analysis under that program and represents the first step in our strategy to broaden our industrial thermal focus in value segments of high growth markets."

Skomorowski's commitment to growth manifested itself a year after the Affinity acquisition, as the company bolstered its presence overseas. In December 2002, the company announced its intention to construct a 90,000-square-foot production plant in St. Nazaire, France, its second plant in France and its third in Europe. The $16-million facility, which was expected to be completed in 2004, was established to manufacture engineered thermal and acoustical components for automotive applications. From the St. Nazaire plant, Lydall intended to serve automobile manufacturers Renault-Nissan and Peugeot/Citroen, as well as other European manufacturers. Commenting on the new plant in a December 19, 2002 interview with Internet Wire, Skomorowski said: "The French expansion initiative that we are announcing today represents a continuation of Lydall's strategy to further globalize our automotive business and to expand its base of customers and vehicle platforms."

New Management in the 21st Century

Despite the expansion achieved in 2001 and 2002, Lydall's financial totals lagged behind the figures recorded in the late 1990s. In 2002, the company generated $253.5 million in sales, a $30 million increase from the previous year's total but significantly less than the $318 million recorded in 1999. Recessive economic conditions largely were to blame, according to Lydall officials, as anemic market conditions negatively affected the automotive industry, which accounted for 47 percent of Lydall's business in 2002. The purchase of Affinity and the expansion in France positioned the company to reap the benefits of a more robust economy, however. To take full advantage of more prosperous times once they arrived, the company's board of directors decided to appoint a new chief executive officer. In July 2003, Skomorowski returned to his post as chief operating officer, making room for the appointment of David Freeman as Lydall's new chief executive officer. In a statement released in the July 1, 2003 issue of Internet Wire, Lydall's chairman, Roger Widmann, explained that the change was made to strengthen the senior management of the company in anticipation of significant growth ahead. "David [Freeman] and Chris [Skomorowski] have been working closely together during the past several months," Widmann said, "and the board believes that having them work as a team will give the company the management and leadership to achieve the best growth."

Freeman, who joined Lydall as a director in 1998 after spending 25 years as an executive at Loctite Corp., hoped to achieve considerable growth during his command. Shortly after his appointment as chief executive officer, Freeman announced he expected to double the company's sales by 2008, projecting a pace of growth unprecedented in Lydall's history. Freeman expected much of the company's forecasted growth to be realized from existing operations, not from acquisitions.

In late 2003, Freeman announced a major restructuring program. According to the details of the plan, Lydall's group structure, which called for separate leaders for each of its divisions, was to be removed and replaced with two councils: a manufacturing council headed by Freeman and a sales and marketing council headed by Skomorowski. "Effective January 1, 2004," Freeman announced in the December 15, 2003 issue of Internet Wire, "we are streamlining our organization into a corporate structure which will enable us to manage Lydall as a cohesive whole. We seek to reduce overhead redundancies, move closer to our customers and markets, leverage our manufacturing knowledge, and solidify a Lydall corporate culture."

As Lydall prepared for its future, much of the company's efforts were directed toward implementing the new organizational structure envisioned by Freeman. In January 2004, the company announced it was closing its Columbus plant and integrating the facility's operations into other plants. The closure was expected to be concluded by the end of 2004.

Principal Subsidiaries

Lydall Thermal/Acoustical, Inc.; Lydall Filtration/Separation, Inc.; Lydall FSC, Ltd.; Lydall Transport, Ltd.; Lydall Finance, Inc.; Lydall International, Inc.; Lydall France S.A.S.; Lydall Deutschland Holding GmbH (Germany) Charter Medical, Ltd.; Lydall Thermal/Acoustical Sales, LLC; Lydall Industrial Thermal Solutions, Inc.; Trident II, Inc.; Lydall Distribution Services, Inc.; Lydall Filtration/Separation S.A.S. (France); Lydall Thermique/Acoustique S.A.S. (France); Lydall Gerhardi GmbH & Co. KG (Germany).

Principal Competitors

Johns Manville Corporation; The Morgan Crucible Company PLC; Pall Corporation.

Key Dates:

1913:
The Colonial Board Company is formed.: 1951:
The predecessor to Lydall Transport, Ltd. is formed as part of the Colonial Board Company.: 1969:
The Colonial Board Company merges with another company, creating Lydall, Inc.: 1970:
Lydall's fiber process division is formed.: 1977:
Lydall acquires a plant in Hamptonville, North Carolina.: 1991:
Lydall acquires a plant in Brittany, France, its first foreign property.: 1998:
A German company, renamed Lydall Gerhardi, is acquired.: 2001:
Lydall acquires Affinity Industries, Inc.: 2003:
David Freeman is appointed chief executive officer.