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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-7665
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LYDALL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-0865505
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE COLONIAL ROAD, MANCHESTER, 06045-0151
CONNECTICUT (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 646-1233
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 par value New York Stock Exchange
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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 [X] NO [_]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [_]
On March 16, 1998, the aggregate market value of the Registrant's voting
stock held by nonaffiliates was $269,819,034.
On March 16, 1998, there were 16,068,885 shares of Common Stock outstanding,
exclusive of treasury shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate certain information by reference from the Annual
Report to Stockholders for the year ended December 31, 1997. Part III
incorporates information by reference from the definitive Proxy Statement to
be distributed in connection with the Registrant's Annual Meeting of
Stockholders to be held on May 13, 1998.
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PART I
ITEM 1. BUSINESS.
Lydall, Inc. (hereafter referred to as "Lydall" or the "Company") is a
manufacturer of technologically advanced engineered materials for demanding
specialty applications.
Lydall develops and manufactures engineered fiber materials and composites
in both roll and sheet form; fiber-based, metal-and-fiber, and all-metal
automotive heat shields; and certain medical filtration and automotive thermal
barrier components as well as wood-replacement board for pencils. Most of
Lydall's products are supplied to original-equipment manufacturers who convert
them or incorporate them into their finished products. Utilizing a broad
spectrum of available fibers, materials, binders, resins, etc. combined with
dry-laid and wet-laid nonwoven processes and specialty weaving capabilities,
the Company has been able to develop a broad range of high-performance
materials.
The Company serves a number of market niches. Lydall's products are
primarily sold directly to the customer through an internal sales force and
are distributed through common carrier, ocean cargo, or the Company's trucking
operation. Within each market niche there are typically several competitors.
The Company primarily competes through high-quality products, technology, and
customer service. Lydall has a number of domestic and foreign competitors for
its products, most of whom are either privately owned or divisions of large
companies, making it difficult to determine the Company's market share.
Lydall's products fall into four basic categories: specialty nonwovens,
fabricated components, fiberboard and paperboard, and other products and
services. The majority of these products serve filtration and heat-management
applications.
MAJOR MARKETS
Thermal Barriers
Lydall manufactures a broad range of materials and fabricates components
which serve as heat or thermal barriers. The Cryotherm(R) and Lytherm(R)
product lines include an assortment of specialty nonwovens using distinctive
materials, in both rigid and flexible forms, manufactured by a variety of
processes. The Company also fabricates heat-shields used by the automotive
market. Lydall products serve thermal-barrier applications in temperatures
ranging from -459 degrees F to +3,000 degrees F.
At the highest temperature requirements, Lytherm(R) specialty nonwoven
products are used as linings for ovens, kilns, and furnaces and in glass and
metal manufacturing.
At mid-range temperatures Lytherm(R) specialty nonwoven composites of
organic and inorganic fibers and certain Lydall fabricated heat shields are
used as thermal barriers throughout trucks, vans, sport-utility vehicles, and
cars. Lydall holds patents on many of its automotive products.
Also, in mid-range temperatures, Manninglas(R) specialty nonwovens are
employed in consumer appliances and heat ventilation and air conditioning
ducting and insulation.
At the very coldest temperatures (approaching absolute zero), Cryotherm(R)
cryogenic specialty nonwovens are used for super-insulating applications.
These include tanker trucks which transport liquid gases; stationary and
portable cryogenic storage vessels; gas tanks for vehicles fueled by liquid
natural gas; and supercolliders. These nonwovens are composed of 100-percent
inorganic fibers.
Lydall also manufactures custom-designed nonwovens employed in automotive
air-bag pyrotechnic inflators. These materials perform both a filtration and
heat-reduction function.
1
Sales to thermal barrier markets were approximately 37 percent of the
Company's sales for 1997, 38 percent 1996, and 36 percent for 1995. Sales for
thermal barrier applications decreased 7 percent in 1997 from 1996 levels.
This decrease can be attributable to the loss of a large piece of business to
Chrysler at the end of 1996 which was not offset by new business in 1997 and
the discontinuation of three Ford models that contained Lydall's thermal
barriers.
Filtration Markets
The Company manufactures high-efficiency air filtration media, marketed
under the Lydair(R) name. Lydair filtration media are specialty nonwovens used
for applications where clean air is vital, such as in semiconductor
manufacturing clean rooms, industrial clean rooms, and biotechnology
laboratories. Lydall's product is sold in roll form to air filter
manufacturers.
Lydall manufactures Lydair media in six filtration classes in over 100
grades with filtering efficiencies from 10 percent at 0.3 micron particle size
to 99.999999 percent at 0.1 micron particle size.
Lydall filtration media are primarily used in air filters which are capital
goods rather than consumables and last approximately five years. A replacement
market exists as facilities using these filters upgrade clean room technology.
Replacement of pre-filters and intermediary filters take place more
frequently. Lydall sells materials for these filters as well. The Company's
HEPA filtration media are also used in home air-purification units.
Lydall's line of fabricated medical filter components are sold under the
trademark Lypore(R) and are widely used in blood filtration devices, such as
cardiotomy reservoirs which filter the blood supply of an open-heart surgery
patient during the operation, and autotransfusion filters used to filter blood
collected from a patient before surgery or from an injured patient. This
product line also includes a leukocyte filtration media used in devices that
separate blood components.
In addition, Lydall produces liquid filtration media used primarily in high-
efficiency hydraulic oil and lubrication oil elements for off-road vehicles,
trucks, and heavy equipment. These products are also sold under the Lypore(R)
trademark.
Early in 1998, a Lydall subsidiary funded the capitalization of Charter
Medical Ltd. This separate corporate entity acquired Charter Med Inc. This
entity manufactures proprietary medical devices serving applications such as
biotech and pharmaceutical packaging, blood bank and transfusion services,
neonatal intensive care, operating room/perfusion and stem cell processing and
freezing.
Sales to the filtration market decreased to 22 percent of sales for 1997
compared with 24 percent and 22 percent for 1996 and 1995, respectively. The
overall sales to these markets decreased 11 percent in 1997 from 1996. High-
efficiency air filtration media, sold to air filter manufacturers for clean-
room applications, contributed the majority of total sales to filtration
applications. Sales were slower in 1997 mainly because of postponements of
planned clean-room construction and inventory reductions by customers
supplying the semiconductor industry.
Materials-Handling Market
Lydall produces slipsheets, separator sheets, and protective sheets. The Ly-
Pak(R) slipsheets are used to ship a growing number of products such as food,
pharmaceuticals, and chemicals. Ly-Pak(R) slipsheet systems are used to
replace wooden pallets, providing significant cost and space reductions for a
shipper. Ly-Pak(R) separator sheets are supplied to the glass and polyethylene
terephthalate bottle industry and are manufactured to meet industry
specifications for bulk palletizing. Ly-Pak(R) protective sheets are used as
pallet pads, protective top caps, and stabilizing sheets. These products are
custom-made from plies of virgin kraft linerboard and laminated with a special
moisture-resistant adhesive. The Company also sells a complete line of dunnage
products.
Sales to materials-handling applications approximated 13 percent of 1997
total sales as compared with 13 percent and 15 percent of 1996 and 1995 total
sales, respectively. Total sales to this market decreased by
2
4 percent in 1997 as compared to 1996. Lower sales in 1997 were primarily as a
result of deflationary pressures through most of the year. Lydall's price
reductions in response to lower raw-material costs reduced sales dollars.
Other Markets and Services
Lydall maintains a transportation operation which brokers and/or hauls
freight for and between Lydall plants as well as for outside customers. In
addition, the Company manufactures paperboard products used in games and
packaging, specialty gasketing materials, and fiberboard shoe insole
materials. Lydall also produces a wood replacement material made from recycled
newsprint and cardboard which is currently being made into writing
instruments. Lydall's electrical insulation material, sold under the
SE/duroid(R), Sep-R-Max(R), and Voltex(R) trademarks are found in a broad
range of applications such as computers, consumer appliances, utility power
transformers, electric motors and other wiring devices. The Company's
electrical insulation products also include battery separator materials
primarily used in European automotive batteries. These products are
manufactured at the Company's European location. An acquisition made in
December 1996 added the manufacture of high-performance woven structural
components to the Company's products. These products are sold to the
aerospace, marine, medical device, automotive and sporting goods industries.
Sales of all other products and services approximated 28 percent of the
Company's sales in 1997, 25 percent and 27 percent in 1996 and 1995
respectively.
GENERAL BUSINESS INFORMATION
Lydall operates 11 manufacturing and fabricating facilities in the United
States which are located in Rochester, New Hampshire; Green Island, New York;
Hoosick Falls, New York; Manchester, Connecticut; Richmond, Virginia;
Hamptonville, North Carolina; Rockwell, North Carolina; Columbus, Ohio;
Jacksonville, Florida, Covington, Tennessee and Fort Washington, Pennsylvania.
Lydall also has one manufacturing facility in Saint-Rivalain, France.
Lydall holds a number of patents, trademarks, and licenses. While no single
patent, trademark or license by itself is critical to the success of Lydall,
together these intangible assets are of considerable value to the Company's
operations.
The working capital requirements of the Company are financed primarily from
operations. No significant portion of Lydall's business is seasonal. Lydall
maintains levels of inventory and grants credit terms which are normal within
the industries it serves. The Company uses a wide range of raw materials in
the manufacturing of its products and was able to obtain the raw materials
needed during 1997 with the exception of shortages of raw materials utilized
at the Fort Washington location. The majority of raw materials used by Lydall
are available from a variety of suppliers who can be substituted if necessary.
Twenty-six percent of Lydall's total sales in 1997 were to the automotive
market compared to thirty-two percent and thirty-three percent in 1996 and
1995 respectively. Lydall's automotive sales are sold to various customers
including parts suppliers, thermal insulation fabricators, air-bag
manufacturers and original equipment manufacturers for use in a variety of
models and applications. Sales to Ford Motor Company represented 18 percent of
Lydall's total sales in 1997, and no other single customer accounted for more
than 10 percent of total sales.
Lydall invested $8.7 million in 1997, $6.8 million in 1996, and $6.2 million
in 1995, respectively, in activities to develop new products and special
manufacturing processes or to improve existing products. Most of Lydall's
investment in research and development is application specific; very little is
pure research. There were no significant customer-sponsored research and
development activities during the past three years.
Lydall's backlog was $18.8 million at December 31, 1997, $25.1 million at
December 31, 1996, and $28.0 million at December 31, 1995. Lydall expects to
fill its backlog of 1997 orders during the first quarter of 1998.
3
Backlog at February 28, 1998 was $19.5 million. There are no seasonal aspects
to this backlog.
No material portion of Lydall's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
government.
Lydall believes that its plants and equipment are 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. Additional measures
to maintain compliance with presently enacted laws and regulations are not
expected to have a substantial adverse effect on the capital expenditures,
earnings and competitive position of the Company and its subsidiaries. For
information relating to certain environmental proceedings involving the
Company, please refer to Item 3 below.
As of March 1, 1998, Lydall and its subsidiaries had 1,212 employees,
including foreign employees. Approximately 169 of the domestic employees are
represented by eight unions under contracts expiring between March 1998 and
November 2002. Lydall considers its employee relationships to be satisfactory,
and there have not been any actual or threatened work stoppages due to union-
related activities. All employees at the Company's facility in France are
covered under a National Collective Bargaining Agreement.
Foreign and export sales were 20 percent of total sales in 1997, 21 percent
in 1996 and 22 percent in 1995. Export sales are concentrated primarily in
Europe, the Far East, Mexico, and Canada and were $34.9 million, $37.0
million, and $38.9 million in 1997, 1996 and 1995, respectively.
Foreign sales were $14.3 million, $17.6 million, and $17.0 million for the
years ended December 31, 1997, 1996, and 1995, respectively. The French
operation incurred losses of $348 thousand, $796 thousand and $165 thousand
for the years ended December 31, 1997, 1996 and 1995, respectively. Total
foreign assets were $16.4 million and $18.5 million at December 31, 1997 and
1996, respectively.
There are no anticipated operating risks related to foreign investment law,
expropriation, inflation effects or availability of material, labor and
energy. The Company's foreign and domestic operations limit currency and
foreign exchange transaction risks by completing transactions primarily in
their functional currencies.
ITEM 2. PROPERTIES
The principal properties of the Company and its subsidiaries are situated at
the following locations and have the following characteristics:
APPROXIMATE AREA
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LAND BUILDINGS
LOCATION GENERAL DESCRIPTION (ACRES) (SQ. FEET)
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1 Manchester, Office Facilities.................... 2.0 25,000
Connecticut
2 Manchester, Paperboard Manufacturing............. 11.6 70,500
Connecticut
3 Covington, Fiberboard and Fabricated Materials
Tennessee Manufacturing........................ 26.0 155,000
4 Richmond, Laminated Fiberboard Manufacturing... 5.0 104,000
Virginia
5 Rochester, Specialty Nonwoven Manufacturing..... 18.0 143,000
New Hampshire
6 Hoosick Falls, Fiberboard Composite Materials
New York Manufacturing........................ 11.0 129,000
7 Hamptonville, Specialty Nonwoven Materials and
North Carolina Fabricated Materials Manufacturing... 35.2 85,000
4
APPROXIMATE AREA
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LAND BUILDINGS
LOCATION GENERAL DESCRIPTION (ACRES) (SQ. FEET)
-------- ------------------- ------- ----------
8 Green Island, Specialty Nonwoven
New York Manufacturing &
Warehouse................. 5.4 275,000
9 Manchester, Corporate Office and
Connecticut Computer Center........... 4.5 20,000
10 Rockwell, Fabricating Facility...... 11.5 51,000
North Carolina
11 Saint-Rivalain en Melrand, Specialty Nonwoven
France Manufacturing............. 14.3 156,000
12 Columbus, Fabricating Facility...... 9.0 80,000
Ohio
13 Jacksonville, Laminated Fiberboard
Florida Manufacturing............. -- 52,000
14 Fort Washington, Specialty Woven Materials
Pennsylvania Manufacturing............. -- 60,000
15 Manchester, Warehouse and Office
Connecticut Facilities................ 7.08 95,000
Properties numbered 4, 10, 12, 13 and 14, are being leased; all others are
owned. For information with respect to obligations for lease rentals and owned
property, see the Notes to the Consolidated Financial Statements of the
Company included in the 1997 Annual Report to Stockholders, which are
incorporated herein by reference. Lydall considers its properties to be
suitable and adequate for its present needs. The properties are being fully
utilized. In addition to the properties listed above, the Company has several
additional leases for sales offices and warehouses in the United States and
overseas.
ITEM 3. LEGAL PROCEEDINGS
In the mid-1980's, the United States Environmental Protection Agency ("EPA")
notified a former subsidiary of the Company that it and other entities may be
potentially responsible in connection with the release of hazardous substances
at a landfill and property located adjacent to a landfill in Michigan City,
Indiana. The preliminary indication, based on the Site Steering Committee's
volumetric analysis, is that the alleged contribution to the waste volume at
the site of the plant once owned by a former subsidiary is approximately 0.434
percent of the total volume. The portion of the 0.434 percent specifically
attributable to the former subsidiary by the current operator of the plant is
approximately 0.286 percent. The EPA has completed its Record of Decision for
the site and has estimated the total cost of remediation to be between $17
million and $22 million. Based on the alleged volumetric contribution of its
former subsidiary to the site, and on the EPA's estimated remediation costs,
Lydall's alleged total exposure would be less than $100 thousand, which has
been accrued.
There are over 800 potentially responsible parties ("prp") which have been
identified by the Site Steering Committee. Of these, 38, not including the
Company's former subsidiary, are estimated to have contributed over 80 percent
of the total waste volume at the site. These prp's include Fortune 500
companies, public utilities, and the State of Indiana. The Company believes
that, in general, these parties are financially solvent and should be able to
meet their obligations at the site. The Company has reviewed Dun & Bradstreet
reports on several of these prp's, and based on these financial reports, does
not believe Lydall will have any material additional volume attributed to it
for reparation of this site due to insolvency of other prp's.
In June 1995, the Company and its former subsidiary were sued in the
Northern District of Indiana by the insurer of the current operator of the
former subsidiary's plant seeking contribution. In October 1997, the insurer
made a settlement demand of $150,591 to the Company in exchange for a release
of the Company's liability at the site and indemnification from the current
operator against site-related claims. The Company executed a settlement
agreement with the insurer and current operator for a full site release;
however, the current operator subsequently backed out of the agreement. The
Company is now evaluating its options.
5
Management believes the ultimate disposition of this matter will not have a
material adverse effect upon the Company's consolidated financial position,
results of operations or cash flows.
On March 19, 1996, patent litigation brought by ATD Corporation (ATD)
against Lydall in the U.S. District Court for the Eastern District of Michigan
was concluded with the jury finding in favor of Lydall and with all of ATD's
claims for damages being denied. A notice of appeal to the U.S. Court of
Appeals for the Federal Circuit regarding this litigation was filed by ATD on
March 28, 1997. The appeal issues were fully briefed and argued in January of
1998. No decision has been rendered. Management believes the ultimate
disposition of this matter will not have a material adverse effect upon the
Company's consolidated financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES OF THE REGISTRANT:
The name, age, current position, and other business experience since January
1, 1993 of each executive officer of the Company are listed on the following
page. Leonard R. Jaskol, John E. Hanley, Carole F. Butenas, and Mary A.
Tremblay are elected annually at the organizational meeting of the Board of
Directors. All others are appointed by the President and Chief Executive
Officer for an indefinite period. There are no family relationships among
executive officers or other significant employees.
OTHER BUSINESS
NAME AGE TITLE EXPERIENCE SINCE 1993
- ---- --- ----- ---------------------
Leonard R. Jaskol 61 Chairman of the Board (since N/A
1991) President and Chief
Executive Officer (since 1988)
John E. Hanley 41 Vice President--Finance and N/A
Treasurer (since 1992)
Carole F. Butenas 55 Vice-President--Investor N/A
Relations (since 1991) Director
(1995)
Mary A. Tremblay 37 General Counsel and Secretary N/A
(since 1991)
Raymond J. Lanzi 59 Division President (since 1979) N/A
Director (1993)
Elliott F. Whitely(1) 54 Division President (since 1987) N/A
Director (1993, 1996, 1997)
James P. Carolan 55 Division President (since 1983) N/A
Director (1994, 1996, 1997)
William J. Rankin 44 Division President (since 1992) N/A
Director (1995)
Christopher R. 44 Division President (since 1990) N/A
Skomorowski Director (1994)
John J. Worthington 49 Division President (since 1996) General Manager,
W. R. Grace and
Specialty Paperboard, Inc.
Bill W. Franks, Jr. 39 Division President (since 1997) Vice President and
General Manager,
Lydall Logistics
Management Division
- --------
(1) Mr. Whitely resigned from his position as Division President, effective
December 31, 1997.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information regarding the common stock of the Company and recent market
prices of such stock, the cash dividend policy, and the approximate number of
holders of common stock, is incorporated herein by reference to pages 28, 37,
45 and 46 of the 1997 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
Information regarding selected financial data of the Company is incorporated
herein by reference to page 45 of the 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results of
operations is incorporated herein by reference to the President's Letter, the
Analysis of Results and Key Financial Items on pages 2 through 6 and 19
through 27 of the 1997 Annual Report to Stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not yet applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Lydall, Inc. and its subsidiaries
and the supplementary quarterly financial information are incorporated by
reference to pages 29 through 43 of the 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with the Company's independent public
accountants on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the directors of Lydall and disclosure of late filings
required by Section 16 of the Exchange Act are incorporated by reference to
the definitive Proxy Statement of Lydall to be filed with the Commission
relating to its Annual Meeting of Stockholders to be held on May 13, 1998.
Information regarding the executive officers and other significant employees
of the Company is contained on page 6 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding the compensation of Lydall's directors and executive
officers is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 13, 1998, including the Compensation and Stock
Option Committee Report to Stockholders found on pages 8 through 18, and the
comparative performance graph located on page 19, therein.
7
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding beneficial ownership of the common stock by certain
beneficial owners and by management of the Company is incorporated by
reference to the definitive Proxy Statement of Lydall to be filed with the
Commission relating to its Annual Meeting of Stockholders to be held on May
13, 1998.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions with
management is incorporated by reference to the definitive Proxy Statement of
Lydall to be filed with the Commission relating to its Annual Meeting of
Stockholders to be held on May 13, 1998.
PART IV
ITEM 14.EHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) 1) The following consolidated financial statements of Lydall, Inc. and
its subsidiaries are found in and are incorporated by reference to the Annual
Report to Stockholders for the year ended December 31, 1997:
ANNUAL
REPORT
PAGES
------
Consolidated Income Statements--Years ended December 31, 1997, 1996,
and 1995.............................................................. 29
Consolidated Balance Sheets--December 31, 1997 and 1996................ 30-31
Consolidated Statements of Cash Flows--Years ended December 31, 1997,
1996, and 1995........................................................ 32
Consolidated Statements of Changes in Stockholders' Equity--Years ended
December 31, 1997, 1996, and 1995..................................... 33
Notes to Consolidated Financial Statements............................. 34-43
Report of Independent Accountants...................................... 44
a) 2) Financial Statement Schedule:
10-K PAGES
----------
Report of Independent Accountants.................................. 12
Consent of Independent Accountants................................. 13
Schedule II--Valuation and Qualifying Accounts-- Years ended
December 31, 1997, 1996, and 1995................................. 14
All 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 the notes to
the consolidated financial statements, and therefore have been omitted.
With the exception of the consolidated financial statements and the
accountants' report thereon listed in the above index, the information
referred to in Items 2, 5, 6 and 7 and the supplementary quarterly financial
information referred to in Item 8, all of which is included in the 1997 Annual
Report to Stockholders of the Company and incorporated by reference into this
Form 10-K Annual Report, the 1997 Annual Report to Stockholders is not to be
deemed "filed" as part of this report.
a) 3) Exhibits included herein:
3.1 Amended and Restated Certificate of Incorporation of the registrant
dated August 14, 1995, (filed as Exhibit 4.1 to the registrants
Quarterly Report on Form 10-Q dated November 9, 1995 and incorporated
herein by this reference).
3.2 Bylaws of the registrant (filed as Exhibit 3.2 to the registrant's
Registration Statement on Form 8-B dated October 16, 1987, and
incorporated herein by this reference).
8
4.1 Certain long-term debt instruments, each representing indebtedness in an
amount equal to 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 hereby undertakes to file these
instruments with the Commission upon request.
10.1* Lydall, Inc. 1978 Long-Term Incentive Compensation Plan (filed as
Exhibit 4.4 to the registrant's Registration Statement on Form S-8 dated
March 18, 1988 (Reg. No. 33-20777), and incorporated herein by this
reference).
10.2* Amended and restated, Lydall, Inc. 1982 Stock Incentive Compensation
Plan, amended through May 14, 1991 (filed as Exhibit 10.6 to the
registrant's Annual Report on Form 10-K dated March 26, 1992 and
incorporated herein by this reference).
10.3* Amended and restated, 1992 Stock Incentive Compensation Plan, dated May
14, 1992, amended through May 11, 1994, (filed as exhibit 10.3 to the
registrant's Annual Report on Form 10-K dated March 27, 1995, and
incorporated herein by this reference.)
10.4* Lydall, Inc. Senior Management Annual Incentive Compensation Plan (filed
as Exhibit 3.5 to the registrant's Registration Statement on Form 8-B
dated October 16, 1987, and incorporated herein by this reference).
10.5* Lydall, Inc. Management Annual Incentive Compensation Plan (filed as
Exhibit 3.6 to the registrant's Registration Statement on Form 8-B dated
October 16, 1987, and incorporated herein by this reference).
10.6* Employment Agreement with Leonard R. Jaskol dated March 1, 1995, (filed
as exhibit 10.6 to the registrant's Annual Report on Form 10-K dated
March 27, 1995, and incorporated herein by this reference.)
10.7* Employment Agreement with John E. Hanley dated March 10, 1995, (filed as
Exhibit 10.1 to the registrant's Quarterly Report on Form 10-Q dated May
9, 1995 and incorporated herein by this reference).
10.8* Employment Agreement with James P. Carolan dated March 10, 1995 (filed
as Exhibit 10.2 to the registrant's Quarterly report on Form 10-Q dated
May 9, 1995 and incorporated herein by this reference).
10.9* Employment Agreement with Elliott F. Whitely dated March 10, 1995 (filed
as Exhibit 10.3 to the registrant's Quarterly report on Form 10-Q dated
May 9, 1995 and incorporated herein by this reference).
10.10* Employment Agreement with Raymond J. Lanzi dated March 10, 1995 (filed
as Exhibit 10.5 to the registrant's Quarterly report on Form 10-Q dated
May 9, 1995 and incorporated herein by this reference).
10.11* Employment Agreement with Christopher R. Skomorowski dated March 10,
1995 (filed as Exhibit 10.6 to the registrant's Quarterly report on
Form 10-Q dated May 9, 1995 and incorporated herein by this reference).
10.12* Employment Agreement with William J. Rankin, dated March 10, 1995
(filed as Exhibit 10.7 to the registrant's Quarterly report on Form 10-
Q dated May 9, 1995 and incorporated herein by this reference).
10.13* Employment Agreement with Carole F. Butenas dated March 10, 1995 (filed
as Exhibit 10.8 to the registrant's Quarterly report on Form 10-Q dated
May 9, 1995 and incorporated herein by this reference).
10.14* Employment Agreement with Mona G. Estey dated March 10, 1995 (filed as
Exhibit 10.9 to the registrant's Quarterly report on Form 10-Q dated
May 9, 1995 and incorporated herein by this reference).
9
10.15* Employment Agreement with Mary A. Tremblay dated March 10, 1995 (filed
as Exhibit 10.10 to the registrant's Quarterly report on Form 10-Q
dated May 9, 1995 and incorporated herein by this reference).
10.16* Employment Agreement with John J. Worthington dated November 7, 1996,
(filed as Exhibit 10.17 to the registrants Annual Report on Form 10-K
dated March 27, 1997 and incorporated herein by this reference).
10.17* Lydall, Inc. Board of Directors Deferred Compensation Plan effective
January 1, 1991, (filed as Exhibit 10.17 to the registrant's Annual
Report on Form 10-K dated March 26, 1991 and incorporated herein by
this reference).
10.18* Lydall, Inc. Supplemental Executive Retirement Plan effective January
1, 1994, (filed as Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K dated March 27, 1996 and incorporated herein by this
reference).
10.19 Asset Purchase Agreement between Lydall New York, Inc. and Textile
Technologies Industries, Inc. (filed as Exhibit 10.22 to the Registrant's
Annual Report on Form 10-K dated March 27, 1997 and incorporated herein
by this reference).
10.20 Asset Purchase Agreement between Chartermed Inc. and Charter Medical
Ltd. filed herewith. The registrant shall furnish copies of exhibits to
the Asset Purchase Agreement upon the request of the Commission.
13.1 Annual Report to Stockholders for the year ended December 31, 1997,
filed herewith.
21.1 List of subsidiaries of the registrant, filed herewith.
23.1 Consent of Coopers and Lybrand, L.L.P., filed herewith.
24.1 Power of Attorney, dated March 13, 1998, authorizing Leonard R. Jaskol
and/or John E. Hanley to sign this report on behalf of each member of
the Board of Directors indicated therein, filed herewith.
27.1 Financial Data Schedule for the year ended December 31, 1997, filed
herewith.
27.2 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated November 7, 1997, filed
herewith.
27.3 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated August 7, 1997, filed
herewith.
27.4 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated May 8, 1997, filed
herewith.
27.5 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated March 17, 1997, filed
herewith.
27.6 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated November 7, 1996, filed
herewith.
27.7 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated August 7, 1996, filed
herewith.
27.8 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated May 8, 1996, filed
herewith.
27.9 Restated Financial Data Schedule originally filed as Exhibit 27.1 to the
registrant's Quarterly report on Form 10-Q dated March 18, 1996, filed
herewith.
- --------
*Management contract or compensatory plan.
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter, 1997.
10
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.
Date: March 25, 1998 By Leonard R. Jaskol
----------------------------------
LEONARD R. JASKOL CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF LYDALL, INC. IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Leonard R. Jaskol Chairman, Chief March 25, 1998
- ------------------------------------- Executive Officer
LEONARD R. JASKOL and Director
John E. Hanley Vice President--Finance March 25, 1998
- ------------------------------------- and Treasurer
JOHN E. HANLEY (Principal Financial
and Accounting Officer)
John E. Hanley
- -------------------------------------
JOHN E. HANLEY
ATTORNEY-IN-FACT FOR:
Lee A. Asseo Director* March 25, 1998
- -------------------------------------
LEE A. ASSEO
Paul S. Buddenhagen Director* March 25, 1998
- -------------------------------------
PAUL S. BUDDENHAGEN
James P. Carolan Director* March 25, 1998
- -------------------------------------
JAMES P. CAROLAN
Samuel P. Cooley Director* March 25, 1998
- -------------------------------------
SAMUEL P. COOLEY
W. Leslie Duffy Director* March 25, 1998
- -------------------------------------
W. LESLIE DUFFY
William P. Lyons Director* March 25, 1998
- -------------------------------------
WILLIAM P. LYONS
Joel Schiavone Director* March 25, 1998
- -------------------------------------
JOEL SCHIAVONE
Elliott F. Whitely Director* March 25, 1998
- -------------------------------------
ELLIOTT F. WHITELY
Roger M. Widmann Director* March 25, 1998
- -------------------------------------
ROGER M. WIDMANN
Albert E. Wolf Director* March 25, 1998
- -------------------------------------
ALBERT E. WOLF
* (constituting in excess of a majority of the full Board of Directors)
11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lydall, Inc.:
Our report on the consolidated financial statements of Lydall, Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from page 44
of the 1997 Annual Report to Stockholders of Lydall, Inc. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 8 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
February 18, 1998.
12
SCHEDULE II
LYDALL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
$ THOUSANDS ADDITIONS
- ----------- ---------------------
CHARGED TO
CHARGED TO OTHER
BALANCE AT COSTS AND ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION JANUARY 1 EXPENSES DESCRIBE DESCRIBE DECEMBER 31
----------- ---------- ---------- ---------- ------------ -----------
1997
Allowance for doubtful
receivables............ $1,727 $ 258 $ -- $ (604)(1) $1,381
Accumulated amortization
of intangible assets... 7,741 450 -- (665)(3) 7,526
Accrued reorganization.. 28 -- -- (28)(7) --
Accrued environmental... 998 20 (128)(4) (506)(8) 384
Accumulated amortization
of goodwill............ 1,688 1,119 -- -- 2,807
LIFO reserve............ 1,740 -- -- (568)(5) 1,172
Inventory obsolescence
reserve................ 519 254 (13)(4) (183)(6) 577
1996
Allowance for doubtful
receivables............ $1,938 $ 235 $ -- $ (446)(1) $1,727
Accumulated amortization
of intangible assets... 8,446 772 -- (1,477)(3) 7,741
Accrued reorganization.. 137 -- -- (109)(2) 28
Accrued environmental... 1,072 -- (62)(4) (12)(2) 998
Accumulated amortization
of goodwill............ 1,103 585 -- -- 1,688
LIFO reserve............ 2,493 316 -- (1,069)(5) 1,740
Inventory obsolescence
reserve................ 612 453 (6)(4) (540)(6) 519
1995
Allowance for doubtful
receivables............ $1,724 $ 565 $ -- $ (351)(1) $1,938
Accumulated amortization
of intangible assets... 7,524 923 -- (1)(4) 8,446
Accrued reorganization.. 157 4 -- (24)(2) 137
Accrued environmental... 1,002 -- 83 (4) (13)(2) 1,072
Accumulated amortization
of goodwill............ 516 587 -- -- 1,103
LIFO reserve............ 1,659 1,152 -- (318)(5) 2,493
Inventory obsolescence
reserve................ 786 804 -- (978)(6) 612
Notes(1):Uncollected receivables written off and adjustments to allowance.
(2): Disbursements of amounts previously accrued.
(3): Write off of fully amortized asset.
(4): Record foreign currency translation adjustments.
(5): Adjustment of LIFO reserve for inventory levels.
(6): Write off of obsolete inventory and adjustment to reserve level.
(7): Adjustment to reserve level.
(8): Disbursements of amounts previously accrued and adjustments to
reserve level.
14
SCHEDULE X
INDEX TO EXHIBITS
-----------------
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------- ----------------------- -------------
3.1 Amended and Restated Certificate of Incorporation of the
registrant dated August 14, 1995, (filed as Exhibit 4.1
to the registrants Quarterly Report on Form 10-Q dated
November 9, 1995 and incorporated herein by this
reference).
3.2 Bylaws of the registrant (filed as Exhibit 3.2 to the
registrant's Registration Statement on Form 8-B dated
October 16, 1987, and incorporated herein by this
reference).
4.1 Certain long-term debt instruments, each representing
indebtedness in an amount equal to 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 hereby undertakes to file these
instruments with the Commission upon request.
10.1 Lydall, Inc. 1978 Long-Term Incentive Compensation Plan
(filed as Exhibit 4.4 to the registrant's Registration
Statement on Form S-8 dated March 18, 1988 (Reg. No.33-
20777), and incorporated herein by this reference).
10.2 Amended and restated, Lydall, Inc. 1982 Stock Incentive
Compensation Plan, amended through May 14, 1991,(filed
as Exhibit 10.6 to the registrant's Annual Report on
Form 10-K dated March 26, 1992 amended through May 14,
1991, by this reference).
10.3 Amended and restated 1992 Stock Incentive Compensation
Plan, dated May 14, 1992 amended through May 11, 1994,
(filed as exhibit 10.3 to the registrant's Annual Report
on Form 10-K dated March 27, 1995, and incorporated
herein by this reference).
10.4 Lydall, Inc. Senior Management Annual Incentive
Compensation Plan (filed as Exhibit 3.5 to the
registrant's Registration Statement on Form 8-B dated
October 16, 1987, and incorporated herein by this
reference).
10.5 Lydall, Inc. Management Annual Incentive Compensation
Plan (filed as Exhibit 3.6 to the registrant's
Registration Statement on Form 8-B dated October 16,
1987, and incorporated herein by this reference).
1
INDEX TO EXHIBITS (Continued)
-----------------------------
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------- ----------------------- -------------
10.6 Employment Agreement with Leonard R. Jaskol dated March
1, 1995 filed as exhibit 10.6 to the registrant's Annual
Report on Form 10-K dated March 27, 1995, and
incorporated herein by this reference).
10.7 Employment Agreement with John E. Hanley dated March 10,
1995, (filed as Exhibit 10.1 to the registrant's
Quarterly Report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.8 Employment Agreement with James P. Carolan dated March
10, 1995 (filed as Exhibit 10.2 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.9 Employment Agreement with Elliott F. Whitely dated March
10, 1995 (filed as Exhibit 10.3 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.10 Employment Agreement with Raymond J. Lanzi dated March
10, 1995 (filed as Exhibit 10.5 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.11 Employment Agreement with Christopher R. Skomorowski
dated March 10, 1995 (filed as Exhibit 10.6 to the
registrant's Quarterly report on Form 10-Q dated May 9,
1995 and incorporated herein by this reference).
10.12 Employment Agreement with William J. Rankin dated March
10, 1995 (filed as Exhibit 10.7 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.13 Employment Agreement with Carole F. Butenas dated March
10, 1995 (filed as Exhibit 10.8 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
2
INDEX TO EXHIBITS (Continued)
-----------------------------
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------- ----------------------- -------------
10.14 Employment Agreement with Mona G. Estey dated March 10,
1995 (filed as Exhibit 10.9 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.15 Employment Agreement with Mary A. Tremblay dated March
10, 1995 (filed as Exhibit 10.10 to the registrant's
Quarterly report on Form 10-Q dated May 9, 1995 and
incorporated herein by this reference).
10.16 Employment Agreement with John J. Worthington dated
November 7, 1996, (filed as Exhibit 10.17 to the
registrant's Annual Report on Form 10-K dated March 27,
1997 and incorporated herein by this reference).
10.17 Lydall, Inc. Board of Directors Deferred Compensation
Plan effective January 1, 1991,(filed as Exhibit 10.17
to the registrant's Annual Report on Form 10-K dated
March 26, 1991 and incorporated herein by this
reference).
10.18 Lydall, Inc. Supplemental Executive Retirement Plan
effective January 1, 1994, (filed as Exhibit 10.20 to
the Registrant's Annual Report on Form 10-K dated March
27, 1996 and incorporated herein by this reference).
10.19 Asset Purchase Agreement between Lydall New York, Inc.
and Textile Technology Industries, Inc. filed as Exhibit
10.22 to the Registrant's Annual Report on Form 10-K
dated March 27, 1997 and incorporated herein by this
reference).
10.20 Asset Purchase Agreement between Chartermed Inc. and
Charter Medical Ltd. filed herewith. The registrant
shall furnish copies of exhibits to the Asset Purchase
Agreement upon request of the Commission.
13.1 Annual Report to Stockholders for the year ended
December 31, 1997, filed herewith.
21.1 List of subsidiaries of the registrant, filed herewith.
23.1 Consent of Coopers and Lybrand, L.L.P., filed
herewith.
3
INDEX TO EXHIBITS (Continued)
-----------------------------
Page in
Exhibit Sequentially
Number Description of Document Numbered Copy
- ------- ----------------------- -------------
24.1 Power of Attorney, dated March 13, 1998, authorizing
Leonard R. Jaskol and/or John E. Hanley to sign this
report on behalf of each member of the Board of
Directors indicated therein, filed herewith.
27.1 Financial Data Schedule for the year ended
December 31, 1997, filed herewith.
27.2 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated November 7, 1997, filed herewith.
27.3 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated August 7, 1997, filed herewith.
27.4 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated May 8, 1997, filed herewith.
27.5 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated March 17, 1997, filed herewith.
27.6 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated November 7, 1996, filed herewith.
27.7 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated August 7, 1996, filed herewith.
27.8 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated May 8, 1996, filed herewith.
27.9 Restated Financial Data Schedule originally filed as
Exhibit 27.1 to the registrant's Quarterly report on
Form 10-Q dated March 18, 1996, filed herewith.
4