LYDALL INC /DE/ (Form: 10-K, Received: 03/03/2015 08:51:47)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

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

For the Fiscal Year Ended December 31, 2014

o 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)



Delaware		06-0865505
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
One Colonial Road, Manchester, Connecticut		06042
(Address of principal executive offices)		(Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:



Title of each class		Name of each exchange on which registered
Common Stock, $.10 par value		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 o No ý

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 o No ý

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 ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Accelerated filer ý	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

On June 30, 2014, the aggregate market value of the Registrant’s voting stock held by nonaffiliates was $447,258,411 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 20, 2015, there were 17,321,903 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, 2015.

The exhibit index is located on pages 43 – 45.

INDEX TO ANNUAL REPORT ON FORM 10-K

Year Ended December 31, 2014



		Page Number
Cautionary Note Concerning Factors That May Affect Future Results		ii
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	11
Item 3.	Legal Proceedings	11
Item 4.	Mine Safety Disclosures	12
	Executive Officers of the Registrant	13
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	39
Item 9B.	Other Information	39
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	40
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions, and Director Independence	41
Item 14.	Principal Accounting Fees and Services	41
PART IV
Item 15.	Exhibits, Financial Statement Schedules	42
	Signatures	46

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 2015 Annual Meeting of Stockholders to be held on April 24, 2015 .

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 and business conditions and the effects on the Company’s markets;


•	Outlook for the fiscal year 2015;


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


•	Growth opportunities in markets served by the Company;


•	Integration of the Industrial Filtration business and expected cost savings from synergy programs;


•	Expected gross margin, operating margin and working capital improvements from the application of Lean Six Sigma;


•	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 requirements;


•	Future cash flow and uses of cash;


•	Future repurchases of the Company’s Common Stock;


•	Future amounts of stock-based compensation expense;


•	Future earnings and other measurements of financial performance;


•	Future levels of indebtedness and capital spending;


•	Ability to meet cash operating requirements;


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


•	Future impact of the variability of interest rates;


•	Future impact of foreign currency exchange rates;


•	The 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.

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 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 Lydall in the integration of the Industrial Filtration business, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, swings in consumer confidence and spending, unstable economic growth, raw material pricing and supply issues, fluctuations in unemployment rates, increases in fuel prices, and outcomes of legal proceedings, claims and investigations, including with respect to possible violations of German anti-trust laws by employees in the Company's German operation 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 non-woven filtration media, industrial thermal insulating solutions, and thermal and acoustical barriers for filtration/separation and heat abatement and sound dampening applications.

On February 20, 2014, the Company acquired certain industrial filtration businesses ("Industrial Filtration") of Andrew Industries Limited, an Altham, United Kingdom based corporation. The Industrial Filtration business serves a global customer base in the manufacture of non-woven felt filtration media and filter bags used primarily in industrial air filtration applications including power, cement, asphalt, incineration, food and pharmaceutical. This business, which strengthened the Company’s position as an industry leading, global provider of filtration and engineered materials products, added complementary and new technologies and diversified the Company’s end markets and geographic base.

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 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.

Foreign and export sales were 46.2% of net sales in 2014 , 45.2% in 2013 , and 46.7% in 2012 . Foreign sales were $190.0 million, $128.0 million, and $127.2 million for the years ended December 31, 2014 , 2013 and 2012 respectively. Export sales primarily to Europe, Asia, Mexico and Canada were $57.6 million , $52.1 million , and $49.7 million in 2014 , 2013 and 2012 , respectively. The increase in foreign sales during 2014 , compared to 2013 , was primarily related to higher sales from Europe and Asia as a result of the acquisition of Industrial Filtration in February 2014.

Foreign operations generated operating income of $6.2 million, $5.1 million, and $6.4 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. Total foreign assets were $155.9 million, $103.0 million and $95.1 million at December 31, 2014 , 2013 and 2012 , respectively. The increase in operating income generated by foreign operations and foreign assets from 2013 to 2014 was primarily due to the addition of the Industrial Filtration segment during 2014. For further detail regarding revenue and financial information about the Company’s geographic areas, see Note 10 to the Consolidated Financial Statements.

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. Additionally, the public may read and copy any materials the Company files with the Commission at the Commission’s Public Reference room located at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

SEGMENTS

The Company’s reportable segments are Performance Materials, Industrial Filtration, Thermal/Acoustical Metals, and Thermal/Acoustical Fibers. The Performance Materials segment reports the results of the Filtration, Thermal Insulation and Life Sciences Filtration businesses. The Industrial Filtration segment reports the results of Lydall's industrial non-woven felt media and filter bag business. The Thermal/Acoustical Metals segment reports the results of Lydall’s metal parts and related tooling. The Thermal/Acoustical Fibers segment reports the results of Lydall’s automotive fiber parts business and related tooling business for use primarily in automotive applications. Other Products and Services (“OPS”) at December 31, 2014 included the Life Sciences Vital Fluids that was subsequently divested by Lydall on January 30, 2015. For additional information regarding the Company’s reportable segments, please refer to Note 10 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, and industrial applications (“Filtration”), air and liquid life science applications (“Life Sciences Filtration”), and thermal insulation solutions for building products, appliances, and energy and industrial markets (“Thermal Insulation”).

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, 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 engine 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.

Life Sciences Filtration products have been developed to meet the requirements of life science applications including biopharmaceutical pre-filtration and clarification, diagnostic and analytical testing, respiratory protection, life protection, medical air filtration, drinking water filtration and high purity process filtration such as that found in food and beverage and medical applications. Lydall also offers Solupor® Membrane specialty microporous membranes that are utilized in various markets and applications including air and liquid filtration and transdermal drug delivery. Solupor® membranes are made from ultra-high molecular weight polyethylene and incorporate a unique combination of mechanical strength, chemical inertness, and high porosity in a unique open structure.

Thermal Insulation products are high performance non-woven veils, papers, mats and specialty composites for the building products, appliance, and energy and industrial markets. The Manniglas® Thermal Insulation brand is diverse in its product application ranging from high temperature seals and gaskets in ovens and ranges to specialty veils for HVAC and cavity wall insulation. The appLY® Mat Needled Glass Mats have been developed to expand Lydall’s high temperature technology portfolio for broad application into the appliance market and supplements the Lytherm® Insulation Media product brand, traditionally utilized in the industrial market for kilns and furnaces used in metal processing. 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.

Net sales from the Performance Materials segment represented 21.6% of Lydall’s net sales in 2014 compared with 28.1% in 2013 and 31.2% in 2012 . Net sales generated by the foreign operations of the Performance Materials segment accounted for 34.2%, 30.1% and 30.6% of segment net sales in 2014 , 2013 , and 2012 , respectively.

Industrial Filtration Segment

The Industrial Filtration segment includes non-woven felt media and filter bags used primarily in industrial air and liquid filtration applications. Non-woven filter media is the most commonly used filter technology to satisfy increasing emission control regulations in a wide range of industries, including power, cement, steel, asphalt, incineration, mining, food, and pharmaceutical. The business also produces non-woven media that is used in automotive and other commercial applications.

Industrial Filtration 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 traditional scrim supported filtration felts. Industrial Filtration also offers extensive finishing and coating capabilities which provide custom engineered properties tailored to meet the most demanding filtration applications. The business leverages a wide range of fiber types and extensive technical capabilities to provide filtration products that meet our customers’ needs across a variety of applications providing both high filtration performance and durability.

Industrial Filtration segment net sales from the date of the acquisition through December 31, 2014 represented 20.9% of the Company’s net sales. Net sales generated by foreign operations of the Industrial Filtration segment accounted for 48.8% of segment net sales in 2014 .

Thermal/Acoustical Metals Segment

The Thermal/Acoustical Metals segment offers a full range of innovative engineered products to assist in noise and heat abatement within the transportation sector. Lydall products are found in underbody (tunnel, fuel tank, exhaust, rear muffler and spare tire) and under hood (engine compartment, turbo charger, and manifolds) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

Thermal/Acoustical Metals segment products are stamped metal combinations which provide thermal and acoustical shielding solutions for the global automotive and truck markets. Thermal/Acoustical Metals products include AMS®, which is an all metal shield designed to be used in various vehicle applications, and Direct Exhaust Mount Heat shields, which are mounted to high temperature surfaces like exhaust down-pipes or engine manifolds using aluminized and stainless steel with high performance heat absorbing materials. Additionally, a patented CLD (constraint layer damped) material is a lightweight material with characteristics to reduce vibration and parasitic noise on powertrain mounted heat shields.

Thermal/Acoustical Metals segment net sales represented 30.7% of the Company’s net sales in 2014 , 39.8% in 2013 and 40.6% in 2012 . Net sales generated by foreign operations of the Thermal/Acoustical Metals segment accounted for 58.2%, 59.5% and 59.2% of segment net sales in 2014 , 2013 and 2012 , respectively.

Thermal/Acoustical Fibers Segment

The Thermal/Acoustical Fibers segment offers a full line of innovative engineered products to assist in noise and heat abatement within the transportation sector. Lydall products are found in the interior (dash insulators), underbody (wheel well, fuel tank, exhaust) and under hood (engine compartment) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

Thermal/Acoustical Fibers segment products offer thermal and acoustical insulating solutions comprised of organic and inorganic fiber composites for the automotive and truck markets primarily in North America. 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 specially engineered wheel wells provide a solution with weight reduction and superior noise suppression capabilities over conventional designs.

Thermal/Acoustical Fibers segment net sales represented 24.0% of the Company’s net sales in 2014 , 28.7% in 2013 and 24.9% in 2012 . There are no net sales generated by foreign operations, as the Thermal/Acoustical Fibers segment only produces domestically.

The Thermal/Acoustical Metals segment and Thermal/Acoustical Fibers segment operating results include allocations of certain costs shared between the segments.

Other Products and Services (“OPS”)

The Life Sciences Vital Fluids business offered specialty products for blood filtration devices, blood transfusion single-use containers and the design and manufacture of single-use solutions for cell growth, frozen storage and fluid handling, as well as equipment for bioprocessing applications.

OPS net sales were 3.7% of the Company’s net sales in 2014 compared with 4.3% in 2013 and 4.4% in 2012 .

On January 30, 2015, the Company sold the Life Sciences Vital Fluids business for a cash purchase price of $29.9 million subject to a customary post closing adjustment. The Company believes the sale of this business is aligned with the Company's strategy to focus its resources on its core businesses in the Thermal/Acoustical and Filtration and Engineered materials markets.

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.

The Company’s business can be slightly stronger in the first half of the calendar year given the timing of customer order patterns and 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 fibers in its Performance Materials, Industrial Filtration, and Thermal/Acoustical Fibers segments. The majority of raw materials used are generally available from a variety of suppliers.

Sales to Ford Motor Company accounted for 16.5% , 20.0% and 18.8% of Lydall’s net sales in the years ended December 31, 2014 , 2013 and 2012 , respectively. Sales to Chrysler Group LLC accounted for 10.9% and 10.0% of Lydall's net sales in the years ended December 31, 2013 and 2012 . No other customers accounted for more than 10% of Lydall's net sales in such years.

The Company invested $9.0 million in 2014 , $7.6 million in 2013 , and $7.7 million in 2012 or approximately 2% in 2014 , 2013 and 2012 of net sales, in research and development to develop new products and to improve existing products. All amounts were expensed as incurred. Most of the investment in research and development is application specific. There were no significant customer-sponsored research and development activities during the past three years.

Backlog at January 31, 2015 was $76.7 million. Lydall’s backlog was $74.8 million at December 31, 2014 , $53.4 million at December 31, 2013 , and $48.8 million at December 31, 2012 . Contributing to the increase in backlog at December 31, 2014 was the inclusion of the Industrial Filtration Segment acquired in February 2014. Thermal/Acoustical Metals and Thermal/Acoustical Fibers 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 for a two month period represent a reasonable timeframe to be deemed as firm orders and included as Thermal/Acoustical Metals and Thermal/Acoustical Fibers segment backlog. There are minimal seasonal aspects to Lydall’s 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 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.

As of December 31, 2014 , Lydall employed approximately 2,100 people. Three unions with contracts expiring on September 30, 2016 represent approximately 60 employees in the United States. 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 are also covered under 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 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.

Uncertainty in the global economy has negatively impacted, and may continue to negatively impact, Lydall’s business — Uncertainty in the global economy has affected, and could continue to adversely affect, demand for the Company’s products and impact profitability. Among other factors, 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 have caused economic instability that has had, and could continue to 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.

The Company’s foreign and export sales were 46.2% of net sales in 2014 , 45.2% in 2013 , and 46.7% in 2012 . 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 Metals and Thermal/Acoustical Fibers segments are tied primarily to general economic and automotive industry conditions — The Company’s Thermal/Acoustical Metals and Thermal/Acoustical Fibers segments, both of which are suppliers in the automotive market, accounted for 54.7%, 68.5% , and 65.5% of consolidated net sales in 2014 , 2013 , and 2012 , respectively. The segments net sales from products manufactured in North America were 67.4%, 65.4%, and 63.1% in 2014, 2013, and 2012, respectively, with the remainder manufactured in Europe and Asia. These segments are 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 and the cost of fuel. These factors have had, and could continue to have, a substantial impact on these segments. 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, technological change, operational efficiencies and inefficiencies, competition, changes in deferred tax asset valuation allowances, strategic initiatives, severance and recruiting charges, asset impairments 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.

The Industrial Filtration acquisition exposes the Company to a number of risks and uncertainties, the occurrence of any of which could materially adversely affect the Company’s business, cash flows, financial condition and results of operations as well as the market price of Lydall’s common stock — On February 20, 2014, the Company acquired the Industrial Filtration businesses and funded the purchase price for the acquisition from cash on hand and borrowings under the Company's amended credit facility. The acquisition exposes the Company to a number of risks and uncertainties, including the subsequent integration of the acquired businesses with the Company, the financial performance of the Industrial Filtration acquisition, risks associated with incurring additional indebtedness and the risks associated with international expansion.

Additionally, Company management has spent, and will continue to spend, a significant amount of its time and efforts directed toward the Industrial Filtration businesses, which time and efforts otherwise would have been spent on existing businesses and other opportunities that could have been beneficial to Lydall. In addition, the Company may not realize the anticipated benefits of the acquisition of the Industrial Filtration businesses. The Company’s ability to realize such benefits will depend on its ability to successfully and efficiently integrate the Industrial Filtration business, which involves

products, markets, and geographies that are new to the Company. Difficulties of integration include coordinating and consolidating separate systems and facilities, integrating the management of the acquired business, integrating legal and financial controls in multiple jurisdictions, retaining market acceptance of products, maintaining employee morale, retaining key employees, and implementing Lydall’s management information systems and operational procedures and disciplines. Any such difficulties may make it more difficult to maintain relationships with employees, customers, business partners and suppliers. Also, even if integration is successful, the financial performance of the acquired business may not be as expected and there can be no assurance that the Company will realize anticipated revenue and earnings enhancements from the acquisition.

The Company’s inability to implement effective internal controls, procedures and policies for the acquired Industrial Filtration businesses as required by Sarbanes-Oxley Act of 2002 within the time periods prescribed thereby — The Company plans to fully evaluate the internal control of the Industrial Filtration businesses as of the year ended December 31, 2015 and then implement the standard integrated framework (2013) of internal controls established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We plan to evaluate the internal control of any subsequently acquired companies in a similar fashion and implement the same standard framework at those acquired businesses. The Company cannot provide assurance that it will be able to provide a report that contains no material weaknesses with respect to the Industrial Filtration businesses or any other future acquisition.

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, which could be difficult to obtain;


•	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; and


•	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.

•

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 incurred a substantial amount of additional indebtedness which 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 financed the Industrial Filtration acquisition with available cash and borrowings under the Amended Credit Facility executed on February 18, 2014. Incurring debt to fund acquisitions 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. Any default under the Amended Credit Facility would likely result in the acceleration of the repayment obligations to the Company's lenders.

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, share repurchases, 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 amended credit facility, 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.

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 cause the market price of Lydall’s common stock to decline.

Raw material pricing, supply issues, and disruptions in transportation networks could affect all of the Company’s businesses — The Thermal/Acoustical Metals segment uses aluminum and other metals to manufacture most of its automotive heat shields. The Thermal/Acoustical Fibers segment, Industrial Filtration segment and Performance Materials segment use various fibers in manufacturing products. If the prices 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 incremental cost increases on to its customers. In addition, an interruption in the ability of the Company to source such materials could negatively impact operations and sales.

If the Company’s goodwill or other long-lived assets become impaired, it may be required to record a significant charge to earnings — The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is also tested by the Company for impairment 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. In 2014 , the Company determined that its Solutech long-lived asset group, with a carrying amount of $3.4 million, had excess fair value over its carrying value. The determination of fair value was based on the assumption that Solutech’s customers would succeed in commercializing their products that contain Solutech technology. Small changes in future operating results in Solutech could result in a future non-cash impairment charge to income from operations.

Volatility in the securities markets, interest rates, and other factors could substantially increase the Company’s costs and funding for its domestic defined benefit pension plan — The Company’s domestic defined benefit pension plan is 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 plan. 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, shareholder 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 an investigation by antitrust regulators and developments in these investigations and related matters could have a material adverse effect 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 antitrust laws can result in significant penalties being imposed by antitrust authorities. Expenses and fines arising out of or related to these investigations and related claims can also be significant. Lydall Gerhardi GmbH & Co. KG ("Lydall Gerhardi"), which is an indirect wholly-owned subsidiary of the Company and part of the Thermal/Acoustical Metals segment, is cooperating with the German Federal Cartel Office (Bundeskartellamt) in connection with an investigation, initiated in the second quarter of 2014, relating to possible violations of German anti-trust laws by and among certain European automotive heat shield manufacturers, including

Lydall Gerhardi. The Company is conducting an internal investigation utilizing outside counsel. In the course of this internal investigation, the Company has discovered instances of inappropriate conduct by certain German employees of Lydall Gerhardi. The Company has disclosed its findings in an application for leniency submitted to the German Federal Cartel Office on July 22, 2014. The Company is continuing its internal investigation and has taken, and will continue to take, remedial actions. The German Federal Cartel Office has wide discretion in fixing the amount of a fine, up to a maximum fine of ten percent (10%) of the Company’s annual revenue of the year preceding the year in which the fine is imposed. The Company believes a loss is probable. However, in light of the uncertainties and variables involved, the Company is unable to estimate either the timing or the amount of the loss associated with this matter. There can be no assurance that this matter will not have a material adverse effect on the Company.

New regulations related to conflict minerals could adversely impact the Company’s business — The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions designed to improve transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of the Congo (DRC) and adjoining countries. In August 2012, the SEC promulgated new disclosure and reporting requirements for companies who use conflict minerals in their products. These requirements may result in changes to the sourcing practices of the Company’s customers which may require the identification and qualification of alternate sourcing for the components of products Lydall manufactures, which could impact the availability of, or cause increases in the price of, materials used in our products. As there may be only a limited number of suppliers offering “conflict free” conflict minerals, there can be no assurance that the Company will be able to obtain necessary conflict free minerals from such suppliers in sufficient quantities or at competitive prices.

Changes in tax rates and exposure to additional income tax liabilities — 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 in various jurisdictions in which the Company operates. In addition, certain jurisdictions 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.

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 products, develop and market new products, and identify and enter new markets — Improved performance and growth are partially dependent on new product introductions planned for the future. Delays in 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.

The Company’s foreign operations expose it to business, economic, political, legal 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 $190.0 million, $128.0 million and $127.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively. Foreign operations are subject to inherent risks including political and economic conditions in various countries, unexpected changes in regulatory requirements, longer accounts receivable collection cycles and potentially adverse tax consequences.

Foreign currency exchange rate fluctuations may affect the Company’s results of operations — As a result of the Industrial Filtration acquisition, the Company’s foreign operations expanded substantially and its financial results are more exposed to currency exchange rate fluctuations and an increased proportion of its assets, liabilities and expenses are denominated in non-U.S. dollar currencies. 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. Additionally, translation of the results of operations and financial condition of its foreign operations into U.S. dollars may be affected by exchange rate fluctuations. The Company receives a material portion of its revenue from foreign operations. Foreign operations generated net sales of $190.0 million, $128.0 million, and $127.2 million for the years ended December 31, 2014 , 2013 , and 2012 , respectively, or approximately 35.5%, 32.1% and 33.6%, respectively, of total net sales.

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 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 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, U.S. Food and Drug Administration 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’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 be unable to adequately protect its intellectual property, which may limit its ability to compete effectively — The Company owns intellectual property, including patents and trademarks, 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 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 potentially 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, theft, misplaced or lost data, programming errors, employee errors and/or malfeasance that could potentially lead to the compromising of sensitive, confidential or personal data or information. In addition, a cyber-related attack could result in other negative consequences, including damage to the Company’s reputation or competitiveness, remediation or increased protection costs, litigation or regulatory action.

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. Specifically, three union contracts expiring on September 30, 2016 represent approximately 60 employees in the United States. 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.



Item 1B.	UNRESOLVED STAFF COMMENTS

None.



Item 2.	PROPERTIES

The principal properties of the Company as of December 31, 2014 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 Metals and Fibers – Product Manufacturing	Owned
Yadkinville, North Carolina	Thermal/Acoustical Metals and Fibers – Product Manufacturing	Leased
Meinerzhagen, Germany	Thermal/Acoustical Metals – Product Manufacturing	Owned
Saint-Nazaire, France	Thermal/Acoustical Metals – Product Manufacturing	Leased
Taicang, China	Thermal/Acoustical Metals – 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
Geleen, the Netherlands	Performance Materials – Specialty Media Manufacturing	Leased
Heerlen, the Netherlands	Performance Materials – Specialty Media Manufacturing	Leased
Stoke-on-Trent, United Kingdom	Industrial Filtration - Filtration Media Manufacturing	Leased
Rossendale, United Kingdom	Industrial Filtration - Filtration Media Manufacturing	Owned
Bury, United Kingdom	Industrial Filtration - Filtration Media Manufacturing	Leased
Wuxi, China	Industrial Filtration - Filtration Media Manufacturing	Leased
Shanghai, China	Industrial Filtration - Filtration Media Manufacturing	Leased
North Augusta, South Carolina	Industrial Filtration - Filtration Media Manufacturing	Owned
Bethune, South Carolina	Industrial Filtration - Filtration Media Manufacturing	Leased
Winston-Salem, North Carolina (a)	Other Products and Services – Biomedical Products Manufacturing	Leased
Manchester, Connecticut	Corporate Office	Owned

(a) On January 30, 2015 the Company sold the Life Sciences Vital Fluids business. As a result of this transaction, on January 30, 2015, this leased facility is no longer a property of the Company.

For additional information regarding lease obligations, see Note 12 to the Consolidated Financial Statements. 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.

Lydall Gerhardi GmbH & Co. KG ("Lydall Gerhardi"), which is an indirect wholly-owned subsidiary of the Company and part of the Thermal/Acoustical Metals segment, is cooperating with the German Federal Cartel Office (Bundeskartellamt) in connection with an investigation, initiated in the second quarter of 2014, relating to possible violations of German anti-trust laws by and among certain European automotive heat shield manufacturers, including Lydall Gerhardi.

The Company is conducting an internal investigation utilizing outside counsel. In the course of this internal investigation, the Company has discovered instances of inappropriate conduct by certain German employees of Lydall Gerhardi. The Company has disclosed its findings in an application for leniency submitted to the German Federal Cartel Office on July 22, 2014. The Company is continuing its internal investigation and has taken, and will continue to take, remedial actions.

The German Federal Cartel Office has wide discretion in fixing the amount of a fine, up to a maximum fine of ten percent (10%) of the Company’s annual revenue of the year preceding the year in which the fine is imposed. The Company believes a loss is probable. However, in light of the uncertainties and variables involved, the Company is unable to estimate either the timing or the amount of the loss associated with this matter. There can be no assurance that this matter will not have a material adverse effect on the Company.



Item 4.	MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of Lydall, Inc. or its subsidiaries, together with the offices presently held by them, their business experience since January 1, 2010, and their age as of February 27, 2015, the record date of the Company’s 2015 Annual Meeting, are as follows:



Name	Age	Position and Date of Appointment	Other Business Experience Since 2010
Dale G. Barnhart	62	President, Chief Executive Officer (August 27, 2007)	Not applicable
Robert K. Julian	52	Executive Vice President and Chief Financial Officer (October 29, 2012)	Senior Vice President and Chief Financial Officer, Legrand North America (2004 – 2012), a provider of products and systems for electrical installation and information networks for commercial, residential and industrial buildings.
Joseph A. Abbruzzi	56	President, Industrial Filtration (February 20, 2014); formerly Sr. V.P., General Manager, Lydall Thermal/Acoustical Fibers (March 14, 2011)	Vice President & General Manager, Guardian Automotive, Glass Division (2007 – 2010), a manufacturer of glass products for commercial, residential, interiors, automotive, energy/solar, and technical glass industries.
William M. Lachenmeyer	56	Vice President, Human Resources (September 30, 2013)	Vice President Human Resources, Smith & Wesson Holding Corporation (2005 – 2012), a manufacturer of firearms.
James V. Laughlan	42	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); formerly Principal Accounting Officer and Controller (December 4, 2007); formerly Controller (October 17, 2005)	Not applicable
Chad A. McDaniel	41	Vice President, General Counsel and Secretary (May 10, 2013)	Associate General Counsel, United Technologies Corporation (“UTC”), Sikorsky Aircraft division (2012 – 2013), Director; Executive Assistant to the President, UTC Fire & Security division (2010 – 2012); UTC is a manufacturer of high-technology products and services for the global aerospace and building systems industries.
David H. Williams	50	President, Performance Materials (June 27, 2012)	General Manager, Saint-Gobain-Performance Plastic division (2009 – 2012), a producer of engineered, high performance polymer products.

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



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

PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY

The Company’s Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol LDL. The table below shows the range of reported sale prices on the NYSE Composite Tape for the Company’s Common Stock for

the periods indicated. As of December 31, 2014 , 7,472 stockholders of record held 17,318,680 shares of Lydall’s Common Stock, $.10 par value.



	High		Low		Close
2014
First Quarter	$	23.24	$	16.55	$	22.87
Second Quarter	29.66		21.50		27.37
Third Quarter	31.64		24.20		27.01
Fourth Quarter	33.57		25.33		32.82
2013
First Quarter	$	16.08	$	14.54	$	15.35
Second Quarter	15.38		13.29		14.60
Third Quarter	17.18		14.53		17.17
Fourth Quarter	19.27		15.50		17.62

The Company does not pay a cash dividend on its Common Stock. The Company’s Amended Credit Facility entered into on February 18, 2014, places no restrictions on cash dividend payments, so long as the payments do not place the Company in default.

ISSUER PURCHASES OF EQUITY SECURITIES

In April 2012, the Company’s Board of Directors approved a Stock Repurchase Program (“Repurchase Program”) to mitigate the potentially dilutive effects of stock options and shares of restricted and unrestricted stock granted by the Company. Under the Repurchase Program, up to 1.0 million shares of Common Stock may be purchased by the Company. There is no expiration date for the Repurchase Program.

As of December 31, 2014 , there were 267,089 shares remaining available for purchase under the Repurchase Program. During 2014 , no shares were repurchased under the Repurchase Program. The Company acquired 33,252 shares through withholding during 2014 , pursuant to provisions in agreements with recipients of restricted stock granted under the Company’s equity compensation plans, which allow 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, 2014 .



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, 2014 - October 31, 2014	—	—		—	267,089
Activity November 1, 2014 - November 30, 2014	8,513	$	28.73	—	267,089
Activity December 1, 2014 - December 31, 2014	—	—		—	267,089
Total	8,513	—		—	267,089

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, 2009, 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.



	12/31/2009	12/31/2010	12/31/2011	12/31/2012	12/31/2013	12/31/2014
Lydall, Inc.	100.00	154.51	182.15	275.24	338.20	629.94
S&P Smallcap 600	100.00	126.31	127.59	148.42	209.74	221.81
Russell 2000	100.00	126.86	121.56	141.43	196.34	205.95



*	$100 invested on 12/31/09 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	2014			2013			2012			2011			2010
Financial results from continuing operations
Net sales	$	535,829		$	397,969		$	378,924		$	383,588		$	316,113
Income from continuing operations	$	21,847		$	19,155		$	16,806		$	9,047		$	1,899
Common stock per share data
Basic income from continuing operations	$	1.31		$	1.16		$	1.01		$	0.54		$	0.11
Basic income from discontinued operations	$	—		$	—		$	—		$	0.28		$	0.04
Basic net income	$	1.31		$	1.16		$	1.01		$	0.82		$	0.16
Diluted income from continuing operations	$	1.28		$	1.14		$	0.99		$	0.54		$	0.11
Diluted income from discontinued operations	$	—		$	—		$	—		$	0.28		$	0.04
Diluted net income	$	1.28		$	1.14		$	0.99		$	0.82		$	0.16
Financial position
Total assets	$	361,770		$	274,685		$	251,916		$	235,185		$	230,738
Long-term debt, net of current maturities	$	40,315		$	1,051		$	1,646		$	2,261		$	3,392
Total stockholders’ equity	$	212,599		$	200,087		$	174,496		$	160,852		$	154,145
Property, plant and equipment
Net property, plant and equipment	$	115,357		$	78,863		$	76,254		$	78,939		$	88,236
Capital expenditures	$	19,001		$	13,826		$	11,404		$	8,884		$	12,001
Depreciation	$	16,659		$	12,109		$	12,784		$	13,625		$	13,650
Performance and other ratios
Gross margin	21.5		%	21.4		%	20.5		%	17.6		%	17.0		%
Operating margin	6.4		%	7.2		%	5.6		%	4.2		%	1.1		%
Total debt to total capitalization	16.1		%	0.8		%	1.4		%	2.0		%	3.1		%

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 for specific changes in the Company and its markets that provide context to the above data for the years 2012 through 2014 including, without limitation, discussions concerning (i) how global economic uncertainties have affected the Company’s results; (ii) the impact of the acquisition of Industrial Filtration; (iii) asset impairment charges; (iv) pension settlement charges and (v) the Company’s effective tax rate. In 2011, changes in the Company that provide context to the above data include the recording of a pre-tax gain on the sale of a product line of $1.6 million, or $0.10 per diluted share, within the Performance Materials segment, and the impact of disposition of business operations of $4.7 million or $0.28 per diluted share. In 2010, changes in the Company that provide context to the above data include the recording of a pretax gain on the sale of a product line of $2.5 million, or $0.15 per diluted share, within the Performance Materials segment.



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

Overview and Outlook

Lydall, Inc. and its subsidiaries (collectively, the “Company” or “Lydall”) designs and manufactures specialty engineered non-woven 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 four reportable segments: Performance Materials, Industrial Filtration, Thermal/Acoustical Metals and Thermal/Acoustical Fibers, with sales globally.

The Performance Materials segment includes filtration media solutions primarily for air, fluid power and industrial applications (“Filtration”), air and liquid life science applications (“Life Sciences Filtration”), and thermal insulation solutions for building products, appliances, and energy and industrial markets (“Thermal Insulation”).

The Industrial Filtration segment includes non-woven felt media and filter bags used primarily in industrial air and liquid filtration applications. Non-woven filter media is the most commonly used filter technology to satisfy increasing emission control regulations in a wide range of industries including power, cement, steel, asphalt, incineration, mining, food and pharmaceutical. The business also produces non-woven media that is used in automotive and other commercial applications.

The Thermal/Acoustical Metals ("T/A Metals") segment offers a full range of innovative engineered products to assist in noise and heat abatement within the transportation sector. Lydall products are found in underbody (tunnel, fuel tank, exhaust, rear muffler and spare tire) and under hood (engine compartment, turbo charger, and manifolds) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

The Thermal/Acoustical Fibers ("T/A Fibers") segment offers a full line of innovative engineered products to assist in noise and heat abatement within the transportation sector. Lydall products are found in the interior (dash insulators), underbody (wheel well, fuel tank, exhaust) and under hood (engine compartment) of cars, trucks, SUVs, heavy duty trucks and recreational vehicles.

Other Products and Services (“OPS”) was comprised of the Life Sciences Vital Fluids business. Life Sciences Vital Fluids offered specialty products for blood filtration devices, blood transfusion single-use containers and bioprocessing single-use containers and products for containment of media, buffers and bulk intermediates used in biotech, pharmaceutical and diagnostic reagent manufacturing processes. On January 30, 2015, the Company sold its Vital Fluids business for a cash purchase price of $29.9 million .

Highlights

On February 20, 2014, the Company completed an acquisition of certain industrial filtration businesses (“Industrial Filtration”) of Andrew Industries Limited, an Altham, United Kingdom based corporation pursuant to the terms of a Sale and Purchase Agreement (the “Sale and Purchase Agreement”) for $86.9 million in cash (“the Acquisition”). The Company funded the purchase price of the Acquisition from cash on hand and borrowings under the Company’s Amended Credit Facility. The results of Industrial Filtration have been included in the Company’s financial statements since the date of the Acquisition. As a result, the consolidated financial results for the year ended December 31, 2014 do not reflect a full twelve months of the Industrial Filtration business. The Acquisition resulted in the inclusion of Industrial Filtration’s assets and liabilities as of the acquisition date at their respective fair values. Accordingly, the Acquisition materially affected the Company’s results of operations and financial position.

Below are financial highlights comparing Lydall’s 2014 results to its 2013 results:


•	Consolidated net sales of $535.8 million , an increase of $137.9 million , or 34.6% , as net sales increased 6.4% related to pre-acquisition businesses and 28.2% from the Acquisition. Foreign currency translation had a minimal impact on sales.


•	Gross margin increased to 21.5% , compared to 21.4% , principally led by the T/A Fibers segment which experienced favorable product mix as well as improved absorption of fixed costs and lower raw material costs, partially offset by lower Industrial Filtration segment gross margin.


•	Selling, product development and administrative expenses were $80.9 million , or 15.1% of net sales, compared to $56.5 million , or 14.2% of net sales;


◦	Inclusion of the Industrial Filtration segment in 2014 increased selling, product development and administrative expenses by $9.5 million;

◦

Selling, product development and administrative expenses increased by $5.4 million in all of the Company's pre-acquisition operating businesses including in the Performance Materials, T/A Fibers and T/A Metals segments as well as in Other Products and Services. This increase was primarily related to a $2.9 million commission settlement in the T/A Metals segment as the Company terminated a long-standing commercial sales agreement in 2014. Other increases were primarily associated with higher salaries and benefits expenses, including an increase of $1.3 million in accrued incentive compensation under the Company's 2014 bonus program. Excluding the $2.9 million commission settlement expense in the T/A Metals segment, selling, product development and administrative expenses in the Company's pre-acquisition operating businesses were flat as a percentage of net sales in 2014 compared to 2013.

◦

Corporate office administrative expenses increased by $9.6 million primarily due to a non-cash pension plan settlement charge of $4.9 million associated with a voluntary one-time lump sum payment option elected by certain former U.S. employees under the Company's domestic defined benefit pension plan, an increase of $1.4 million of transaction related costs associated with the Industrial Filtration acquisition, and increases in salaries and benefit expenses, including greater accrued incentive compensation under the Company's 2014 bonus program and stock-based compensation aggregating to $1.3 million, and increases in other administrative expenses.


•	Operating income was $34.0 million , or 6.4% of net sales, compared to $28.7 million , or 7.2% of net sales;


◦	Industrial Filtration segment operating income was $6.4 million, or 5.7% of Industrial Filtration segment net sales, including the unfavorable impact of $2.1 million , or 180 basis points, of purchase accounting adjustments relating to inventory step-up.

◦

Operating income from Performance Materials, T/A Metals, T/A Fibers, OPS and corporate office was $27.6 million, or 6.5% of pre-acquisition business net sales, compared to $28.7 million, or 7.2% in 2013. The increase in selling, product development and administrative expenses of $14.9 million was partially offset by an increase in gross profit of $13.8 million in 2014 compared to 2013. The increase in gross profit was primarily from the T/A Fibers segment and to a lesser extent the T/A Metals segment due to higher sales volumes and a favorable mix of part sales in both segments, and improved absorption of fixed costs, lower raw material costs and labor efficiencies in the T/A Fibers segment.


•	Net income was $21.8 million , or $1.28 per diluted share, compared to $19.2 million , or $1.14 per diluted share in 2013 ;


•	Cash generated from operations was $41.6 million in 2014 compared to $30.3 million in 2013 , the increase primarily a result of increased net income adjusted for non-cash items, in 2014 compared to 2013, offset to some extent by increased working capital requirements.

Other Matters

On February 18, 2014, the Company amended and restated its $35 million senior secured revolving domestic credit facility to increase the available borrowing under this agreement to $100 million. The amended credit facility, secured by substantially all of the assets of the Company, has a maturity date of January 31, 2019 and was completed with the same financial institution as well as two additional financial institutions. The Company entered into this amended credit facility in part to fund $60 million of the purchase price of the Acquisition, as well as provide the Company with greater borrowing flexibility, more favorable interest rates and financial covenants. As of December 31, 2014, the Company had outstanding borrowings under this credit facility of $40 million, and a consolidated leverage ratio of 0.7.

On January 30, 2015, the Company sold all of the outstanding shares of common stock of its Vital Fluids business for a cash purchase price of $29.9 million, subject to a customary post-closing adjustment (the “Disposition”). The Disposition was completed pursuant to a Stock Purchase and Sale Agreement, dated January 30, 2015, by and among the Company, and the Buyer. The Company expects to recognize an after tax gain on the sale of this business of approximately $10 to $12 million in the first quarter of 2015.

Outlook

The Company’s long-term strategy to drive profitable growth remains unchanged and comprises four elements; (i) increasing revenues and margins through new product development, (ii) geographic expansion, (iii) acquisitions that are aligned with identified growth areas, and (iv) operational excellence through the application of Lydall Lean Six Sigma initiatives.

The Company continually searches for suitable acquisitions. The acquisition of Industrial Filtration in early 2014 was aligned with the Company’s strategic objectives to strengthen Lydall’s leadership position in the filtration and engineered materials markets that it serves. This acquisition expanded the Company’s position as an industry-leading, global provider of filtration products and provides complementary and new technologies while adding significant revenue growth. The acquisition was accretive to Lydall’s 2014 full-year earnings and cash flow, inclusive of transaction related expenses, the effect of inventory step-up and incremental amortization of intangible assets. A major focus for the Company in 2014 which will continue into 2015 was the introduction of Lydall Lean Six Sigma principles to the acquired businesses, which will continue to drive expected cost synergies post 2014.

As described above the Company completed its divestiture of the Vital Fluids business. The disposition was aligned with the Company's strategy to focus its resources on its core businesses in the Thermal/Acoustical and Filtration and Engineered Materials markets. The Company continually evaluates its businesses against its long-term strategy.

Looking forward into 2015, the Company is seeing stable demand for its products globally and anticipates demand to be in line with or exceed industry growth rates by geographic region.

CONSOLIDATED RESULTS OF OPERATIONS

Net Sales



In thousands of dollars	2014		Percent Change		2013		Percent Change		2012
Net sales	$	535,829	34.6	%	$	397,969	5.0	%	$	378,924

Net sales in 2014 increased $137.9 million, or 34.6%, compared to 2013. Foreign currency translation had a minimal impact on net sales in 2014 compared to 2013. The increase in net sales was primarily due to the acquisition of Industrial Filtration. As a result, Industrial Filtration segment net sales of $112.2 million since the date of the acquisition are included in the Company's 2014 consolidated net sales. Pre-acquisition business net sales increased $25.6 million, or 6.4%, compared to 2013. In the T/A Fibers and T/A Metals segments, higher sales volumes resulted in improved parts net sales of $18.6 million, or 17.6%, and $9.3 million, or 6.8%, respectively, compared to 2013. These increases were offset to some extent by lower tooling sales in the T/A Fibers and T/A Metals segments of $4.3 million and $3.4 million, respectively, due to the timing of new product launches. Additionally, net sales increased in the Performance Materials segment by $3.9 million, or 3.5%, and in the Life Sciences Vital Fluids business by $2.5 million, or 14.6%, compared to 2013.

Net sales in 2013 increased $19.0 million, or 5.0%, compared to 2012. Foreign currency translation increased net sales in 2013 by $3.8 million, or 1.0%, compared to 2012, impacting the Thermal/Acoustical Metals segment’s net sales by $2.7 million, or 1.8%, and the Performance Materials segment’s net sales by $1.1 million, or 0.9%. The increase in net sales was primarily due to higher net sales of $19.9 million, or 21.1%, for the T/A Fibers segment compared to 2012 as parts net sales increased by $12.4 million, or 13.2%, and tooling sales increased $7.5 million. Net sales in the T/A Metals segment increased $4.5 million, or 2.9%, compared to 2012, primarily due to increased tooling net sales and foreign currency translation. OPS net sales increased $0.3 million, or 1.9%. The increase in net sales in the T/A Fibers and Metals segments and OPS were partially offset by lower sales volumes in the Performance Material Segment of $6.0 million or 5.1%.

Gross Profit



In thousands of dollars	2014			2013			2012
Gross profit	$	114,978		$	85,225		$	77,807
Gross margin	21.5		%	21.4		%	20.5		%

The increase in gross margin by 10 basis points in 2014 compared to 2013 was attributable to the pre-acquisition businesses gross margins which increased consolidated gross margin in 2014, mostly offset by the inclusion of Industrial Filtration, since the date of acquisition, which reduced the Company's overall gross margin percentage in 2014 compared to 2013. This increase in the pre-acquisition business gross margin was primarily the result of improved gross margin from the T/A Fibers segment, which positively impacted the Company's overall gross margin, as a result of increased sales of higher margin part sales compared to lower margin tooling sales, improved absorption of fixed costs, lower raw material costs and labor efficiencies. To a lesser extent gross margin also improved in the T/A Metals segment due to a favorable mix of part sales, partially offset by higher aluminum raw material costs, particularly associated with sourcing raw material for the Company's start-up operation in China. Increases in gross margin for the Performance Materials segment and OPS had minimal positive impact on the Company's overall gross margin percentage in 2014 compared to 2013. The Industrial Filtration segment gross margin included the negative impact of a $2.1 million purchase accounting adjustment in cost of sales relating to inventory step-up due to the acquisition.

The increase in gross margin by 90 basis points in 2013 compared to 2012 was attributable to the T/A Fibers segment due to lower raw material costs, improved absorption of fixed overhead costs as a result of higher net sales, labor efficiencies and other cost savings. Small changes in gross margin for the T/A Metals and Performance Materials segments and OPS had minimal impact on the Company’s consolidated gross margin.

Selling, Product Development and Administrative Expenses



In thousands of dollars	2014			2013			2012
Selling, product development and administrative expenses	$	80,930		$	56,512		$	57,239
Percentage of net sales	15.1		%	14.2		%	15.1		%

Selling, product development and administrative expenses increased by $24.4 million, or 43.2%, in 2014 compared to 2013. Inclusion of the Industrial Filtration segment increased selling, product development and administrative expenses by $9.5 million in 2014 compared to 2013 and transaction related costs, included in corporate office expenses, increased $1.4 million related to the Acquisition. Additionally, the increase in selling, product development and administrative expenses in 2014 compared to 2013 was due to a non-cash pension plan settlement charge of $4.9 million, included in corporate office expenses, associated with a voluntary one-time lump sum payment option elected by certain former U.S. employees under the Company's domestic defined benefit pension plan, and a $2.9 million commission settlement within the T/A Metals segment as the Company terminated a long-standing commercial sales agreement in 2014. Other selling, product development and administrative expenses associated with pre-acquisition businesses increased in 2014, compared to 2013, related to salaries and benefits of $3.0 million, including $2.0 million of accrued incentive compensation as a result of meeting and exceeding certain operating performance targets in 2014 under an incentive bonus program, professional services of $1.1 million, other administrative costs of $1.3 million and product trial costs of $0.3 million.

Selling, product development and administrative expenses decreased by $0.7 million, or 1.3%, in 2013 compared to 2012. The decrease was primarily due to a $1.8 million asset impairment charge incurred in 2012 due to the abandonment of an ERP project as well as lower severance and recruiting costs in 2013 of approximately $1.0 million, primarily at the corporate office. Also, lower sales commissions of $0.5 million, due to reduced commission rates particularly in our Thermal/Acoustical Fibers segment, and lower professional services expenses and other costs of $0.4 million contributed to lower expense in 2013. These decreased expenses were partially offset by an increase of $2.7 million associated with higher salaries, benefits and incentive compensation expense in 2013, due to increased headcount, annual salary increases and higher accruals related to the targets achieved in the Company’s incentive bonus program. Administrative expenses included strategic initiative costs of approximately $1.2 million in both 2013 and 2012. The strategic initiative costs incurred in 2013 were primarily associated with the Industrial Filtration acquisition completed on February 20, 2014.

Gain on Sale of Product Line



In thousands of dollars	2014		2013		2012
Gain on sale of product line	$	—	$	—	$	(810	)

On June 30, 2010, the Company divested its electrical papers product line business, included in the Performance Materials segment, for total consideration of $5.8 million, of which $4.8 million was paid on June 30, 2010, with the remaining $1.0 million paid in accordance with a License Agreement on July 2, 2012. This transaction contained multiple deliverables, some of which were delivered on June 30, 2010, and recognized in income, while others were delivered in subsequent periods. The Company deferred $3.2 million of the gain from this sale related to undelivered elements of the transaction at June 30, 2010. As part of the sale transaction, the Company entered into a License Agreement with the buyer. Pursuant to the License Agreement, treated as a separate unit of accounting, the Company granted the buyer the right to use certain process technology and provided certain services to the buyer to facilitate the transfer of know-how for the manufacture of electrical paper products. The deferred gain amount was recognized as income as services under the License Agreement were delivered in periods subsequent to the sale, including $0.8 million in 2012. As of June 30, 2012, the Company satisfied its obligations under the License Agreement.

Interest Expense



In thousands of dollars	2014			2013			2012
Interest expense	$	1,093		$	304		$	365
Weighted average interest rate during the year	1.5		%	5.4		%	5.4		%

The increase in interest expense in 2014 compared to 2013 was due to borrowings under the Company's Amended Credit Facility used to finance the Acquisition, partially offset by lower average principal balances on capital lease obligations.

Interest expense was lower in 2013 compared to 2012 due to lower average principal balances on capital lease obligations.

Other Income and Expense



In thousands of dollars	2014			2013		2012
Other (income) expense, net	$	(701	)	$	67	$	31

The increase in other income in 2014 compared to 2013 primarily relates to foreign currency transaction gains associated with intercompany loans denominated in currencies other than the Company's functional currency. The amounts included in other expense (income), net, in 2013 and 2012 are primarily related to foreign currency transaction gains and losses and interest income.

Income Taxes



	2014		2013		2012
Effective income tax rate	35.1	%	32.4	%	19.9	%

The Company’s effective tax rate for 2014 was 35.1% compared to 32.4% in 2013 and 19.9% in 2012. In 2014, the

difference between the Company’s effective tax rate and the statutory federal income tax rate was due to a favorable mix of taxable income generated from countries with lower tax rates compared to that of the United States resulting in a tax benefit of $1.2 million and a tax benefit of $0.9 million attributable to the Domestic Production Activities Deduction . These favorable adjustments were partially offset by tax expense of $0.8 million related to nondeductible transaction costs from the Industrial Filtration acquisition, and a net increase in tax valuation allowances of $0.2 million.

In 2014 , the Company recorded tax valuation allowances of $1.1 million against certain net foreign deferred tax assets in the Netherlands and China as future realization of the assets were not reasonably assured, which were partially offset by the reversal of tax valuation allowances against state tax credits of $0.5 million and certain foreign jurisdictions of $0.4 million.

For 2013, the difference between the Company’s effective tax rate and the statutory federal income tax rate was primarily caused by the release of valuation allowances against state tax credit carryovers of $1.1 million, $0.8 million of benefit relating to Domestic Production Activities Deduction, and a tax benefit of $0.5 million related to the conclusion of certain U.S. federal income tax matters through the year ended December 31, 2009. These favorable tax adjustments were partially offset by an increase in valuation allowance established against a foreign net deferred tax asset. The $1.1 million reversal of valuation allowances against state tax credit carryovers included $0.3 million of state tax credits

which offset 2013 state income taxes and $0.8 million expected to benefit future periods. In 2013, the Company maintained a full valuation allowance against a foreign deferred tax asset in the Netherlands as future realization of the asset was not reasonably assured due to consistent historical losses since 2008. During 2013, the Company increased this valuation allowance by $0.6 million in order to reserve against additional loss carryforwards that were generated in the Netherlands during the current year.

For 2012, the difference between the Company’s effective tax rate and the statutory federal income tax rate was primarily caused by the release of valuation allowances against foreign tax credit carryovers of $3.9 million and state net operating loss carryovers, partially offset by an increase in valuation allowance established against a foreign net deferred tax asset. The Company’s state income taxes in 2012 were offset by the reversal of valuation allowances against state net operating loss carryovers of $0.5 million as the Company used certain state net operating loss carryovers to offset 2012 state income taxes. During 2012, the Company increased its valuation allowance against a foreign deferred tax asset in the Netherlands by $0.7 million as future realization of such tax benefit was not reasonably assured.

The IRS released final tangible property regulations on September 13, 2013 regarding the capitalization of expenditures related to tangible property. All taxpayers must comply with the final tangible property regulations beginning with the first tax year on or after January 1, 2014. The final regulations did not have a significant impact on the Company’s consolidated financial statements in 2014.

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 and the United Kingdom. The Company is no longer subject to U.S. federal examinations for years before 2010, state and local examinations for years before 2002, and non-U.S. income tax examinations for years before 2003.

SEGMENT RESULTS



Consolidated Net Sales	For the Years Ended December 31,
In thousands	2014			2013			2012
Performance Materials Segment:
Filtration	$	71,648		$	64,752		$	68,379
Thermal Insulation	31,404			36,929			38,449
Life Sciences Filtration	12,814			10,320			11,207
Performance Materials Segment net sales	115,866			112,001			118,035
Industrial Filtration Segment:
Industrial Filtration	112,220			—			—
Industrial Filtration net sales	112,220			—			—
Thermal/Acoustical Metals Segment:
Metal parts	145,135			135,833			136,276
Tooling	19,130			22,573			17,645
Thermal/Acoustical Metals Segment net sales	164,265			158,406			153,921
Thermal/Acoustical Fibers Segment:
Fiber parts	124,458			105,876			93,519
Tooling	4,133			8,444			917
Thermal/Acoustical Fibers Segment net sales	128,591			114,320			94,436
Other Products and Services:
Life Sciences Vital Fluids	19,682			17,175			16,853
Other Products and Services net sales	19,682			17,175			16,853
Eliminations and Other	(4,795		)	(3,933		)	(4,321		)
Consolidated Net Sales	$	535,829		$	397,969		$	378,924



Operating Income	For the Years Ended December 31,
In thousands	2014			2013			2012
Performance Materials Segment	$	9,706		$	9,462		$	10,400
Industrial Filtration Segment	6,412			—			—
Thermal/Acoustical Metals Segment	13,823			14,088			14,708
Thermal/Acoustical Fibers Segment	29,167			21,486			12,851
Other Products and Services:
Life Sciences Vital Fluids	1,582			778			1,190
Corporate Office Expenses	(26,642		)	(17,101		)	(17,771		)
Consolidated Operating Income	$	34,048		$	28,713		$	21,378

Performance Materials Segment

Segment net sales increased $3.9 million, or 3.5%, in 2014 compared to 2013, due to increased sales volumes and to a lesser extent, the positive impact of foreign currency translation of $0.2 million or 0.2%. An increase in Filtration net sales of $6.9 million, or 10.6%, primarily contributed to the increase in segment net sales due to increased demand for air filtration and fluid power products in North America and Europe. Net sales of Life Sciences Filtration products increased by $2.5 million, or 24.2%, in 2014 compared to 2013, due to increased demand for liquid filtration and water application products. These increases were partially offset by lower net sales of Thermal Insulation products of $5.5 million, or 15.0%, in 2014 compared to 2013, principally due to a decline in sales to a key customer in the HVAC market offset to some extent by increased sales of insulation and automotive filtration products.

The Performance Materials segment reported operating income of $9.7 million, or 8.4% of net sales in 2014, compared to operating income of $9.5 million, or 8.4% of net sales in 2013. During 2014, the impact of higher sales volume and lower material costs resulted in increased gross margin of approximately 50 basis points, which was nearly offset by higher selling, product development and administrative expenses of $1.2 million, or 7.0%, in 2014 compared to 2013. The higher segment selling, product development and administrative expenses were primarily related to increased accrued incentive compensation of $0.9 million as a result of meeting certain operating performance targets in 2014 compared to 2013 when operating performance targets were not met by the business. Also, increases in salaries and benefits expense of $0.3 million and product development trial costs of $0.2 million contributed to the increase in selling, product development and administrative expenses in 2014. These increases were partially offset by lower general administrative expenses of $0.2 million primarily related to lower advertising costs and lower depreciation and amortization expense in 2014 compared to 2013.

Segment net sales decreased $6.0 million, or 5.1%, in 2013 compared to 2012, due to decreased sales volumes offset to some extent by the positive impact of foreign currency translation of $1.1 million or 0.9%. A reduction in Filtration net sales of $3.6 million, or 5.3%, primarily contributed to the reduction in segment net sales as demand for products in Europe was lower due to macroeconomic conditions. Net sales in the Thermal Insulation business decreased by $1.5 million, including $4.5 million of lower net sales in 2013 of electrical papers products. The Company completed in 2012 its obligation to manufacture and sell these products, pursuant to an agreement with the buyer of this product line in a prior year. This reduction was partially offset by higher net sales of other Thermal Insulation products of $3.0 million, including greater demand for products used to transport cryogenic products and insulate commercial buildings. Net sales of Life Sciences Filtration products decreased by $0.9 million, or 7.9%, in 2013 compared to 2012 due to decreased demand for products used in water and respiration application products.

The Performance Materials segment reported operating income of $9.5 million, or 8.4% of net sales in 2013, compared to operating income of $10.4 million, or 8.8% of net sales in 2012. Operating income in 2012 included a $0.8 million gain from services provided to the buyer of the electrical papers product line in accordance with the terms of a license agreement, which expired June 30, 2012. Operating income in 2013 was essentially flat with 2012 when excluding this gain of $0.8 million from 2012. During 2013, the impact of lower sales volume, unfavorable absorption of fixed overhead costs and unfavorable product mix on operating income was nearly offset by lower selling, product development and administrative expenses of $2.0 million, or 10.6%, in 2013 compared to 2012, primarily due to cost containment measures. The segment reported lower general administrative expenses of $0.9 million, lower salaries, benefits and accrued incentive compensation of $0.6 million, and reductions in research and development expenses of $0.4 million. The reduction in general administrative expenses of $0.9 million was primarily related to a loss on

disposal of assets in 2012, lower amortization of intangible assets, lower professional services and lower travel expenses in 2013 compared to 2012.

Industrial Filtration Segment

Segment net sales were $112.2 million from the Acquisition date of February 20, 2014 through December 31, 2014. Approximately 50% of net sales in this segment were manufactured at Industrial Filtration sites in North America with the remaining net sales split nearly evenly between manufacturing sites in Europe and Asia. The Industrial Filtration segment reported operating income of $6.4 million, or 5.7% of net sales from the Acquisition date through December 31, 2014, which included the impact of purchase accounting adjustments in cost of sales related to inventory step-up of $2.1 million negatively impacting operating margin by 180 basis points. There were no comparative results for the year ended December 31, 2013 as the Industrial Filtration segment was created through the Acquisition of that business on February 20, 2014.

Thermal/Acoustical Metals Segment

Segment net sales increased by $5.9 million, or 3.7%, in 2014 compared to 2013. Foreign currency translation positively impacted net sales by $0.1 million, or 0.1%, in 2014 compared to 2013. Automotive parts net sales increased by $9.3 million, or 6.8%, in 2014 compared to 2013, primarily due to increased demand from customers served by the Company’s North American and European automotive operations and to a lesser extent, parts sales in China as the Company's new manufacturing facility began production in 2014. Market conditions in North America have continued to remain favorable and improved in Europe which led to increased sales volumes. Tooling net sales in 2014 were lower by $3.4 million, or 15.3%, due to timing of new product launches, particularly in Europe.

The Thermal/Acoustical Metals segment reported operating income of $13.8 million, or 8.4% of net sales, in 2014 compared to $14.1 million, or 8.9% of net sales, in 2013. The decrease in operating income was due to an increase in selling, product development and administrative costs of $3.5 million in 2014 compared to 2013. This increase was primarily related to higher sales commission expenses of $1.9 million, largely the result of a $2.9 million commission settlement expense in the second quarter of 2014 associated with the termination of a long-standing commercial sales agreement in Europe. Also, increases in salaries and benefits expense of $0.5 million, professional service expenses of $0.4 million, primarily legal expenses associated with the on-going German Federal Cartel investigation, and other increases in selling expenses contributed to the overall increase in expenses. This increase in selling, general and administrative costs was offset to some extent by an increase in gross profit of $3.2 million, primarily in North America and Europe, due to increased sales volume and a favorable mix of sales of automotive parts. This increased gross profit was offset to some extent by higher production costs, primarily related to sourcing raw material in China as the Company began production operations in 2014.

Segment net sales increased by $4.5 million, or 2.9%, in 2013 compared to 2012. Foreign currency translation positively impacted net sales by $2.7 million, or 1.8%, in 2013 compared to 2012. Tooling net sales in 2013 were higher by $4.9 million, or 27.9%, compared to 2012 due to timing of new product launches, particularly in Europe. Automotive parts net sales decreased by $0.4 million, or 0.3%, in 2013 compared to 2012, due to decreased demand from customers served by the Company’s European automotive operations due to macroeconomic conditions, partially offset by higher parts sales in North America due to strong market demand.

The Thermal/Acoustical Metals segment reported operating income of $14.1 million, or 8.9% of net sales, in 2013 compared to $14.7 million, or 9.6% of net sales, in 2012. The decrease in operating income was primarily due to higher selling, product development and administrative costs of $1.6 million offset to some extent by higher gross profit of $1.0 million related to increased net sales in 2013 compared to 2012. The increase in selling, product development and administrative costs of $1.6 million in 2013 compared to 2012 was primarily due to higher salaries, benefits and accrued incentive compensation of $0.6 million, increased sales commissions of $0.3 million, higher research and development design services of $0.3 million, and higher expenses of $0.3 million related to the start-up of the segment’s China operations.

Thermal/Acoustical Fibers Segment

Segment net sales increased by $14.3 million, or 12.5%, in 2014 compared to 2013. Automotive parts net sales increased by $18.6 million, or 17.6%, in 2014 compared to 2013. Higher volumes of net sales were primarily due to improved consumer demand for vehicles in North America on Lydall’s existing platforms and new platform awards as well as the timing of certain customer purchases. Tooling net sales decreased $4.3 million, or 51.1%, in 2014 compared

to 2013 due to timing of new product launches. Domestic automobile production increased 5.2% in 2014 compared to 2013.

The Thermal/Acoustical Fibers segment reported operating income of $29.2 million, or 22.7% of net sales, in 2014 compared to operating income of $21.5 million, or 18.8%, in 2013. This increase was due to higher net sales and improved gross margin realized from a favorable mix of part sales as well as improved absorption of fixed costs due to higher production levels, lower material costs, and labor efficiencies resulting in gross margin improvement of 360 basis points. Segment selling, product development and administrative expenses increased by $0.4 million in 2014 compared to 2013 primarily due to increased salaries and accrued incentive compensation. However, segment selling, product development and administrative expenses decreased as a percentage of sales to 5.1% in 2014 compared to 5.4% in 2013.

Segment net sales increased by $19.9 million, or 21.1%, in 2013 compared to 2012. Automotive parts net sales increased by $12.4 million, or 13.2%, in 2013 compared to 2012. Higher volumes of net sales were primarily due to improved consumer demand for vehicles in North America on Lydall’s existing platforms and new platform launches, and to a lesser extent, from a completed pricing negotiation and a non-recurring customer project. Domestic automobile production increased 4.8% in 2013 compared to 2012. Tooling net sales in 2013 were higher by $7.5 million compared to 2012, due to timing of new product launches.

The Thermal/Acoustical Fibers segment reported operating income of $21.5 million, or 18.8% of net sales, in 2013 compared to operating income of $12.9 million, or 13.6%, in 2012. This increase was due to higher net sales and improved gross margin realized from favorable absorption of fixed overhead costs, lower raw material costs and reductions in labor costs, and to a lesser extent, $1.8 million related to a completed pricing negotiation and a non-recurring customer project. Segment selling, product development and administrative expenses were essentially unchanged in 2013 compared to 2012.

Other Products and Services

Life Sciences Vital Fluids net sales increased $2.5 million, or 14.6%, in 2014, compared to 2013, due to higher volumes of bioprocessing and cell therapy product net sales, and to a lesser extent, price increases.

Life Sciences Vital Fluids reported operating income of $1.6 million, or 8.0% of net sales, in 2014 compared to $0.8 million, or 4.5% of net sales, in 2013. This increase in operating income was due to a higher net sales, favorable mix of products and improved absorption of fixed costs, partially offset by increased selling and product development and administrative expenses. Contributing to the increase in selling, product development and administrative expenses was an increase in accrued incentive compensation of $0.3 million, as a result of exceeding operating performance targets in 2014 compared to 2013 when operating performance targets were not met by the business, and an asset write off associated with the termination of a product distribution agreement. However, selling, product development and administrative expenses decreased as a percentage of sales to 22.6% in 2014 compared to 23.8% in 2013.

Life Sciences Vital Fluids net sales increased $0.3 million, or 1.9% in 2013, compared to 2012, due to higher volumes of blood filtration and cell therapy net sales, and to a lesser extent, price increases.

Life Sciences Vital Fluids reported operating income of $0.8 million, or 4.5% of net sales, in 2013 compared to $1.2 million, or 7.1% of net sales, in 2012. This decrease in operating income was due to a reduction in gross profit of $0.2 million related to an unfavorable mix of product sales as well as an increase in selling and product development costs of $0.2 million, in 2013 compared to 2012, as the Company expanded its product offerings in the biotech and cellular therapy markets.

On January 30, 2015, the Company sold all of the outstanding shares of common stock of its Vital Fluids business for a cash purchase price of $29.9 million , subject to a customary post-closing adjustment. The Company expects to recognize an after tax gain on the sale of this business of approximately $10 to $12 million in the first quarter of 2015.

Corporate Office Expenses

The increase in corporate office expenses of $9.5 million in 2014 compared to 2013 was primarily due to a non-cash pension plan settlement charge of $4.9 million associated with a voluntary one-time lump sum payment option elected by certain former U.S. employees under the Company's domestic defined benefit pension plan and an increase of

$1.4 million of transaction related costs associated with the Industrial Filtration acquisition on February 20, 2014, including investment banker and legal fees and accounting professional services. Additionally, other corporate office expenses increased in 2014 compared to 2013 including accrued incentive compensation of $0.8 million, as the Company exceeded bonus targets associated with its 2014 incentive bonus program, non-cash stock based compensation of $0.5 million, salaries and benefits of $0.5 million and depreciation expense of $0.3 million and other administrative expenses of $1.1 million, primarily related to professional services and travel associated with the acquisition of Industrial Filtration.

The decrease in corporate office expenses of $0.7 million in 2013 compared to 2012 was due to a $1.5 million asset impairment charge in 2012 associated with the abandonment of an ERP project, lower severance and recruiting costs of $0.7 million, and lower professional services costs of $0.4 million. These decreases were partially offset by an increase in salaries, benefits and accrued incentive compensation of $1.6 million due to increased headcount, annual salary increases and meeting higher bonus targets on the Company’s incentive bonus program. Other administrative costs increased $0.3 million in 2013 compared to 2012. Corporate office strategic initiative costs of approximately $1.2 million and $1.0 million were included in administrative expenses in both 2013 and 2012, respectively. The strategic initiative costs incurred in 2013 were primarily associated with the Industrial Filtration acquisition completed on February 20, 2014.

LIQUIDITY AND CAPITAL RESOURCES



	For the Year Ended December 31,
In thousands except ratio data	2014			2013			2012
Cash and cash equivalents	$	62,051		$	75,407		$	63,623
Cash provided by operating activities	$	41,628		$	30,280		$	34,405
Cash (used for) provided by investing activities	$	(93,489	)	$	(13,986	)	$	1,611
Cash provided by (used for) financing activities	$	42,549		$	(5,617	)	$	(3,871	)
Depreciation and amortization	$	17,646		$	12,703		$	13,682
Capital expenditures	$	(13,971	)	$	(13,826	)	$	(11,404	)
Total debt	$	40,930		$	1,714		$	2,411
Total capitalization (debt plus equity)	$	253,529		$	201,801		$	176,907
Total debt to total capitalization	16.1		%	0.8		%	1.4		%

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, acquisitions and divestitures, income tax payments, stock repurchases, debt service, pension funding and availability of lines of credit and long-term financing. The Company manages worldwide cash requirements considering available funds among domestic and foreign subsidiaries.

At December 31, 2014 , the Company held $62.1 million in cash and cash equivalents, including $26.1 million in the U.S. with the remaining held by foreign subsidiaries.

Operating Cash Flows

Net cash provided by operating activities in 2014 was $41.6 million compared with $30.3 million in 2013 . This increase was primarily due to increases in net income of $2.7 million and non-cash adjustments to net income of $10.4 million. Net operating assets and liabilities increased $6.4 million in 2014 , compared to an increase in operating assets and liabilities of $4.7 million in 2013 . The increase in operating assets and liabilities in 2014 was due to an increase in accounts receivable of $7.2 million primarily due to the addition of the Industrial Filtration segment. Prepaid expenses and other assets and taxes receivable increased $6.4 million in 2014, partially offset by a decrease in inventory $4.5 million in 2014, due to lower inventory days on hand from improvements within the Industrial Filtration business. Further offsetting the increase in operating assets and liabilities in 2014 was a $3.3 million increase in accrued payroll and other compensation mainly due to higher accruals related to the Company's incentive bonus program and health benefits.

Net cash provided by operating activities in 2013 was $30.3 million compared with $34.4 million in 2012. This decrease was primarily due to an increase in operating assets and liabilities of $4.7 million in 2013, compared to a decrease in operating assets and liabilities of $3.0 million in 2012, for a change of $7.7 million, partially offset by improvement in net income of $2.3 million. Net income in 2012 included an adjustment for a non-cash operating item of $1.8 million on the loss on an asset impairment and a $0.8 million gain on sale of a product line. The increase in operating assets and liabilities in 2013 was primarily due to an increase in accounts receivable of $4.1 million due to increased sales in the fourth quarter of 2013 compared to the fourth quarter of 2012 and inventory of $3.0 million, partially offset by an increase in other liabilities, net of $3.0 million. The increase in inventory was due to an increase in net tooling inventory in preparation of new part launches and increased production activity.

Investing Cash Flows

Net cash used for investing activities was $93.5 million in 2014 compared to $14.0 million in 2013 , an increase of $79.5 million. This increase was primarily due to cash used for the acquisition of Industrial Filtration of $79.4 million, net of cash acquired. Cash outflows for capital expenditures in 2014 were $14.0 million compared to $13.8 million in 2013 .

Net cash used for investing activities was $14.0 million in 2013 compared to net cash provided for investing activities of $1.6 million in 2012. Cash outflows for capital expenditures in 2013 were $13.8 million compared to $11.4 million in 2012, an increase of $2.4 million. Investing activities during 2013 included an earn-out payment of $0.2 million made by the Company related to the acquisition of DSM Solutech B.V. which occurred in 2008. Investing activities in 2012 included the receipt of $1.0 million in remaining proceeds from the 2010 sale of its electrical papers product line. In addition, in 2012 the Company redeemed its $12.0 million short term investment which was purchased in 2011.

Financing Cash Flows

In 2014 , net cash provided by financing activities was $42.5 million compared with net cash used for financing activities of $5.6 million in 2013 . In 2014 , the Company borrowed $60.0 million against its amended credit facility to fund the purchase of the Industrial Filtration business and made repayments against those borrowings of $20.0 million. The Company acquired $0.7 million of its Common Stock through its stock repurchase and equity compensation plans in 2014 , compared to $6.6 million in 2013 . The Company also received $2.5 million from the exercise of stock options during 2014 , compared to $1.5 million during 2013 .

In 2013, net cash used for financing activities was $5.6 million compared with net cash used for financing activities of $3.9 million in 2012. In 2013, the Company acquired $6.6 million of its Common Stock through its stock repurchase and equity compensation plans, compared to $4.0 million in 2012. Debt payments and capital lease payments were $0.8 million in 2013 compared to $1.1 million in 2012. The Company received $1.5 million from the exercise of stock options during 2013, compared to $1.0 million during 2012.

Financing Arrangements

On February 18, 2014, the Company amended and restated its $35 million senior secured domestic revolving credit facility (“Amended Credit Facility”) with a financial institution and two additional lenders, increasing the available borrowing from $35 million to $100 million . The Amended Credit Facility is secured by substantially all of the assets of the Company. The maturity date for the Amended Credit Facility is January 31, 2019, at which time amounts outstanding under the Amended Credit Facility are due and payable. The Company entered into this Amended Credit Facility in part to fund a majority of the purchase price of the Industrial Filtration acquisition.

Under the terms of the Amended Credit Facility, the lenders are providing a $100 million revolving credit facility to the Company, under which the lenders may make revolving loans and issue letters of credit to or for the benefit of the Company and its subsidiaries. The Amended Credit Facility may be increased by an aggregate amount not to exceed $50 million through an accordion feature, subject to specified conditions.

The Amended Credit Facility contains a number of affirmative and negative covenants, including financial and operational covenants. The Company is required to meet a minimum interest coverage ratio. The interest coverage ratio requires that, at the end of each fiscal quarter, the ratio of consolidated EBIT to Consolidated Interest Charges, both as defined in the Amended Credit Facility, may not be less than 2.0 to 1.0 for the immediately preceding 12 month period. In addition, the Company must maintain a Consolidated Leverage Ratio, as defined in the Amended Credit Facility, as of the end of each fiscal quarter of no greater than 3.0 to 1.0 . The Company must also meet minimum consolidated EBITDA as of the end of each fiscal quarter for the preceding 12 month period of $30.0 million . The Company was in compliance with all covenants during 2014 and at December 31, 2014 .

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 Dealer 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 15 basis points to 100 basis points, and the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit ranges from 75 basis points to 175 basis points. The Company pays a quarterly fee ranging from 20 basis points to 30 basis points on the unused portion of the $100 million available under the Amended Credit Agreement. At December 31, 2014 , the Company had borrowing availability of $57.7 million under the Amended Credit Facility net of $40.0 million of borrowings outstanding and standby letters of credit outstanding of $2.3 million .

The Company’s previous $35 million senior secured domestic revolving credit facility (“Domestic Credit Facility”) that was outstanding at December 31, 2013 , was entered into on June 16, 2011. The Domestic Credit Facility was secured by substantially all of the assets of the Company. The maturity date for the Domestic Credit Facility was June 15, 2016. The Company had no borrowings under the Domestic Credit Facility during 2013 and no outstanding borrowings at December 31, 2013 . The Company was in compliance with all covenants during 2013 and at December 31, 2013 .

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. The Company continually explores its core markets for suitable acquisitions, joint ventures, alliances and licensing agreements. If completed, such activities would be financed with existing cash balances, cash generated from operations, under the credit facilities described under “Financing Arrangements” above or other forms of financing, as required.

At December 31, 2014 , total indebtedness, of which $40.0 million is a revolver loan and $0.9 million is capital leases, was $40.9 million , or 16.1% of the Company’s total capital structure. Cash requirements for 2015 are expected to include the funding of ongoing operations, capital expenditures, payments due on capital and operating leases, pension plan contributions, income tax payments and optional prepayments on borrowings made to fund the Industrial Filtration acquisition. Capital spending for 2015 is expected to be approximately $20 million to $25 million. The funded status of the Company's domestic defined benefit pension plan is 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 $0.9 million to its defined benefit pension plan in 2015.

As discussed in Item 3, Legal Proceedings, Lydall Gerhardi GmbH & Co. KG an indirect wholly-owned subsidiary of the Company, may be subject to fines related to the on-going German Federal Cartel Office (Bundeskartellamt) investigation. There can be no assurance that this matter will not have a material adverse effect on the Company including its future cash requirements.

Contractual Obligations

The following table summarizes the Company’s significant contractual obligations as of December 31, 2014 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	2015		2016		2017		2018		2019		After 5 years		Total
Contractual Obligations:
Pension plan contributions	$	939	$	—	$	—	$	—	$	—	$	—	$	939
Operating leases	4,848		3,810		3,708		2,529		1,362		1,080		17,337
Capital leases*	647		317		—		—		—		—		964
Long-term debt*	576		576		576		576		40,049				42,353
Total Contractual Obligations	$	7,010	$	4,703	$	4,284	$	3,105	$	41,411	$	1,080	$	61,593



	*	Includes estimated interest payments

The Company has a capital lease agreement for the land and building at the St. Nazaire, France operating facility, included in the Thermal/Acoustical Metals segment, requiring monthly principal and interest payments until 2016. The capital lease provides an option for the Company to purchase the land and building at the end of the lease for a nominal amount. Operating leases are primarily related to buildings, office equipment, vehicles and machinery.

With the exception of the revolver loan, the Company’s long-term debt payments and interest rates relating to its capital lease obligations debt were fixed as of December 31, 2014 . Refer to Note 6 to the Consolidated Financial Statements

for additional discussion on long-term debt. Actual payments may vary significantly from those included in the table above depending on future debt levels, timing of debt repayments and sources of funding utilized.

The amount included in the contractual obligations table related to the Company’s future pension plan contributions represents the minimum funding requirements under ERISA for the 2015 plan year based on the Company’s pension plan valuations at December 31, 2014 . See Note 8 to the Consolidated Financial Statements for additional information regarding the Company’s pension plans.

In addition to the above contractual obligations, the Company utilizes letters of credit in the ordinary course of business for security deposit requirements. Outstanding letters of credit were $2.3 million and $2.6 million at December 31, 2014 and 2013 , respectively.

The above table does not reflect net tax contingencies of $1.9 million, the timing of which is uncertain. Refer to Note 11 to the Consolidated Financial Statements for additional discussion on unrecognized tax benefits. 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 Notes to Consolidated Financial Statements 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 $21.9 million at December 31, 2014 and $18.6 million at December 31, 2013 . 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 or components of operating segments for which discrete financial information is available and segment management regularly reviews the operating results of that reporting unit. The impairment test used for goodwill was a two-step approach. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is considered not impaired and no further testing is required. If the carrying value of the net assets exceeds the fair value of the reporting unit, a second step of the impairment test would be performed in order to determine the implied fair value of a reporting unit’s goodwill. Determining the implied fair value of goodwill would require a valuation of the reporting unit’s tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of the reporting unit’s goodwill exceeds the implied fair value of its goodwill, goodwill is deemed impaired and is written down to the extent of the difference.

During the fourth quarter of 2014 , the Company performed its annual impairment analysis of the $13.3 million of goodwill in the Performance Materials reporting unit (PM reporting unit), $3.9 million of goodwill in Industrial Filtration reporting unit (IF reporting unit) and $4.7 million of goodwill in the Life Sciences Vital Fluids reporting unit (VF reporting unit), included in OPS.

of the excess of fair value over the carrying value, and other factors, the Company concluded it was not necessary to perform the two-step impairment test for the PM or VF reporting unit as it was not more likely than not that the fair value of the reporting unit was less than its carrying value. As a result, the Company concluded that the PM and VF reporting unit goodwill was not impaired. Subsequently on January 30, 2015, the Company sold all of the outstanding shares of common stock of its VF reporting unit for a cash purchase price of $29.9 million , subject to a customary post-closing adjustment. The Company expects to recognize an after tax gain on the sale of this business of approximately $10 to $12 million in the first quarter of 2015.

The Company also used the qualitative method to analyze the goodwill for IF reporting unit, which was acquired in February 2014. When considering capital markets environment, economic conditions, industry trends, results of operations, and other factors the Company determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount.

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. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which incorporate management assumptions about expected future cash flows, as well as other factors such as market capitalization and other market information. 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 and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. If the carrying values of the assets are determined to be impaired, then the carrying values are reduced to their estimated fair values. The fair values of the impaired assets are determined based on market conditions, including independent appraisals when appropriate, the income approach, which utilizes cash flow projections, and other factors.

During the fourth quarter of 2014, the Company performed an impairment analysis for long-lived assets at the Company’s DSM Solutech B.V. (“Solutech”) operation, included in the Performance Materials segment. During 2014, Solutech generated cash flow in excess of amounts projected in the impairment analysis completed in the third quarter of 2013. Although 2014 results were more favorable than forecasted, there was still a cash flow loss for 2014. Cash flow losses, caused by a delay in commercialization of Solutech products to the market place by Solutech’s customers, are expected to continue in 2015. As a result of these negative cash flows, combined with historical operating losses, the Company determined that it was appropriate to test the Solutech asset group for recoverability in the fourth quarter of 2014. Acquisition related intangibles with a remaining useful life of 9 years primarily comprise the carrying value of the asset group of $3.4 million . To determine the recoverability of the Solutech asset group the Company completed an undiscounted cash flow analysis and compared it to the asset group carrying value. This analysis is primarily dependent on the increase in net sales over the period when the business has technological exclusivity provided by the intangible assets.

The Company determined that the Solutech asset group had undiscounted cash flow which was in excess of its carrying value and, as a result, the asset group was not impaired. The estimate of undiscounted cash flows of the Solutech long-lived asset group was based on the best information available as of the date of the assessment, which incorporated management's assumptions around cash flows generated from future operations, the estimated economic useful life of the primary asset within the Solutech long-lived asset group, as well as other market information. The Company performed various sensitivity analyses noting that a more conservative scenario of high single digit revenue growth and an appropriate related cost structure, the undiscounted cash flows exceeded the carrying value with no impairment indicated. As of December 31, 2014 the Company expects to meet the cash flow forecasts included in the impairment analysis. Future cash flows are dependent on the success of commercialization efforts of Solutech products by OEMs, the quality of Solutech products and technology advancements and management’s ability to manage costs. In the event that Solutech’s cash flows in the future do not meet current expectations, management, based upon conditions at the time, would consider taking actions as necessary to maximize cash flow. Accordingly, the above sensitivity

analysis, while a useful tool, should not be used as a sole predictor of future impairment. A thorough analysis of all the facts and circumstances existing at the time would need to be performed to determine if recording an impairment loss was appropriate.

Pensions

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. A substantial portion of the Company’s pension amounts relate to its domestic defined benefit pension plan. Pension plans outside the United States were not significant at December 31, 2014. The domestic defined benefit pension plan, which covers certain domestic Lydall employees, is noncontributory and benefits are based on either years of service or eligible compensation paid while a participant is in a plan. The plan has been closed to new employees for several years and benefits under the pension plan are no longer accruing.

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 investment between equity and fixed income funds, the Company’s expected long-term rate of return on plan assets was 7.25% at December 31, 2014, which will be utilized for determining 2015 pension cost. An expected long-term rate of return of 7.25% was also used for determining 2014 pension expense and 7.50% and 7.75% , respectively, in determining 2013 and 2012 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, within certain parameters, as discussed below. 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, 2014 and 2013, the Company determined this rate to be 4.16% and 5.09% , respectively. Increases or decreases in the discount rate result in decreases and increases, respectively, in the projected benefit obligation. Actuarial losses, related to the decrease in discount rate at December 31, 2014, increased the pension plan liability $5.6 million and decreased other comprehensive income net-of-tax by $3.5 million. The net effect on pension liabilities from changes in the discount rate is deferred within certain parameters, as discussed below.

At December 31, 2013, the domestic defined benefit pension plan mortality assumption was based on the RP-2000 mortality table using mortality improvement scale AA. In October 2014, the Society of Actuaries issued an updated set of mortality tables and improvement scale collectively known as RP-2014 and MP-2014, respectively. The Company has reviewed the findings and recommendations of these reports with their actuary. Based on that review, the Company has elected to utilize the Society of Actuaries' base mortality scale RP-2014 with the BB-2D mortality improvement scale, as the Company believes the BB-2D mortality improvement table more accurately reflects recent rates of mortality improvement since 2006 for the general population compared to the MP-2014 table. Actuarial losses, related to the change in mortality tables at December 31, 2014, increased the pension plan liability $2.4 million and decreased other comprehensive income net-of-tax by $1.5 million.

A one-quarter percentage point change in the assumed long-term rate of return on the Company’s domestic pension plan as of December 31, 2014 would impact the Company’s 2015 pre-tax income by approximately $0.1 million. A one-quarter percentage point decrease in the discount rate on the Company’s domestic pension plan as of December 31, 2014 would have a minimal impact on the Company’s 2015 pre-tax income. The Company reviews these and other assumptions at least annually.

Pension accounting guidance requires that gains or losses be deferred unless the unrecognized net gain or loss at the end of a year exceeds a “corridor” (as defined in the pension accounting guidance). If the deferred gain or loss exceeds the corridor at the end of the year, then the amount in excess of the corridor is amortized over a period equal to the average remaining service period of active employees expected to receive benefits. Since benefit accruals were frozen on certain domestic defined benefit pension plans on June 30, 2006, these plan participants are considered inactive participants. Therefore, the gain/loss amortization for these plans is amortized over the average remaining life expectancy of all plan participants. As of December 31, 2014 and 2013, the net deferred loss exceeded the corridor. Consequently, pension cost for 2015 will include amortization of a portion of the deferred loss in excess of the corridor. The amount of amortization in future years will be dependent on changes in the components of the deferred loss amount, particularly actual return on plan assets in relation to the estimated return on plan assets, as well as future increases or decreases in the discount rate.

For the year ended December 31, 2014, the Company recognized pension expense related to its domestic defined benefit pension plan of $5.2 million as a result of a settlement charge of $4.9 million and the expected return on assets being lower than the aggregate of interest cost and the amortization of actuarial loss by $0.3 million. During 2014, the Company offered a voluntary one-time lump sum payment option to certain former U.S. employees who were vested defined benefit plan participants and not currently receiving monthly payments from the Company's domestic pension plan. This one-time lump sum payout of 10.3 million required a re-measurement of the domestic pension plan and a partial plan settlement charge, which resulted in a non-cash pre-tax loss of $4.9 million in net periodic pension benefit expense. The non-cash charge was required to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the domestic pension plan.

A s discussed above, the Company’s discount rate was 4.16% at December 31, 2014 and will be used for purposes of determining 2015 pension cost. Pension expense for 2015 is expected to be in the range of $0.6 million to $0.7 million. The Company contributed $4.3 million to its domestic defined benefit pension plan during 2014 and expects to contribute approximately $0.9 million in 2015.

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. (See Note 11)

As of December 31, 2014 the Company has not paid U.S. income taxes on approximately $25.1 million of undistributed earnings of foreign subsidiaries. The Company’s intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. The Company estimates that the amount of tax that would be payable on the undistributed earnings if repatriated to the United States would fall in the range of $1.0 million to $8.5 million, based on current facts, but depending on the timing and extent of the repatriation. 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.

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 and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain federal income tax matters through the year ended December 31, 2011 and it is reasonably expected that net unrecognized benefits of $0.4 million may be recognized. The total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $1.3 million as of December 31, 2014. The Company is no

longer subject to U.S. federal examinations for years before 2010, state and local examinations for years before 2002, and non-U.S. income tax examinations for years before 2003.

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. Stock-based compensation expense includes the estimated effects of forfeitures and such estimates of forfeitures are adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ, from such estimates. The effect of changes in estimated forfeitures is recognized in the period of change and will also impact the amount of expense to be recognized in future periods. 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 Company believes 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:



	2014		2013		2012
Risk-free interest rate	1.6	%	1.7	%	1.4	%
Expected life	5.1 years		5.2 years		5.7 years
Expected volatility	46	%	65	%	68	%
Expected dividend yield	—	%	—	%	—	%

Recently Issued Accounting Standards

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU 2014-08 raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. It is effective for annual periods beginning on or after December 15, 2014. Early adoption is permitted but only for disposals. The Company has evaluated the impact the adoption of ASU 2014-08 will have on the Company's consolidated financial statements and disclosures related to the January 2015 sale of its Vital Fluids business and determined that the sale of this business would not qualify as a discontinued operation.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. The standard’s core principle is the recognition of revenue when a company transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This ASU is effective for fiscal years beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s consolidated financial statements and disclosures.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation” (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period. This ASU affects entities that grant their employees share-based payments in which terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments in this ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This ASU is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-12 will have on the Company’s consolidated financial statements and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern” (Subtopic 205-40). This ASU establishes specific guidance to an organization's management on their responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern. This ASU is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. This ASU is not expected to have an impact on the Company’s consolidated financial statements and disclosures.

OTHER KEY FINANCIAL ITEMS

Cash and Cash Equivalents — Cash and cash equivalents decreased to $62.1 million as of December 31, 2014 compared with $75.4 million as of December 31, 2013 . This decrease of $13.3 million was primarily due to cash used for investing activities of $93.5 million , which was partially offset by cash generated from operating activities of $41.6 million , and cash used for financing activities of $42.5 million . Investing activities included $79.4 million used for the acquisition of Industrial Filtration and $14.0 million used for capital expenditures. Financing activities were primarily attributed to proceeds received of $60.0 million under the Company's amended credit facility to fund the purchase of Industrial Filtration and repayments against those borrowings of $20.0 million. The effect of exchange rate changes on cash was an unfavorable by $4.0 million in 2014 .

Accounts Receivable — Accounts receivable, net of the allowance for doubtful receivables, were $84.4 million at December 31, 2014 compared with $52.3 million at December 31, 2013 . The increase of $32.1 million was primarily due to the addition of the Industrial Filtration segment in 2014.

Inventories — Inventories were $51.2 million as of December 31, 2014 compared with $34.9 million as of December 31, 2013 . Primarily contributing to this increase was the addition of the Industrial Filtration segment in 2014.

Goodwill and Other Intangible Assets - Goodwill and other intangible assets increased to $29.8 million at December 31, 2014 compared to $22.1 million at December 31, 2013. The increase of $7.7 million was primarily related to recognition of approximately $5.6 million of other intangible assets and $3.9 of goodwill associated with the acquisition of Industrial Filtration. These increases were offset by amortization of definite lived intangibles and the effect of exchange rate changes.

Accounts Payable - Accounts payable increased to $49.3 million at December 31, 2014 compared to $29.8 million at December 31, 2013. The increase of $19.5 million was primarily attributable to the addition of the Industrial Filtration segment in 2014.

Long Term Deferred Tax Liabilities — Long term deferred tax liabilities were $13.9 million as of December 31, 2014 compared with $8.7 million as of December 31, 2013 . The increase in this balance was primarily due to the purchase accounting related to the acquisition of the Industrial Filtration segment during 2014.

Benefit Plan Liabilities — Benefit plan liabilities increased to $19.1 million at December 31, 2014 compared to $14.1 million at December 31, 2013 . The increase of $5.0 million was primarily due to a $4.8 million increase in the underfunded status of the Company’s domestic defined benefit pension plan. An actuarial loss of $7.7 million from a reduction in the discount rate and a change in mortality tables, as well as $2.3 million in interest cost, increased the pension plan's underfunded status at December 31, 2014 . Returns on plan assets and Company contributions, which aggregated $5.2 million, improved the underfunded status at December 31, 2014.

Capital Expenditures — Capital expenditures were $19.0 million in 2014 , $13.8 million in 2013 , and $11.4 million in 2012 . Capital expenditures for 2015 are expected to be approximately $20 million to $25 million.

Total Debt To Total Capitalization — Total debt to total capitalization increased to 16.1% in 2014 compared with 0.8% in 2013 . The increase was due to borrowings against the amended credit facility to fund the acquisition of Industrial Filtration in 2014 . At December 31, 2014 , the Company had borrowing availability of $57.7 million under its amended credit facility, net of $40.0 million of borrowings outstanding.

Stockholders’ Equity — Stockholders’ equity increased to $212.6 million at December 31, 2014 compared to $200.1 million at December 31, 2013 . This increase was primarily due to 2014 net income of $21.8 million , and, to a lesser extent, stock issuances, tax benefits on stock awards and stock-based compensation aggregating $6.7 million . Partially offsetting this increase was foreign currency translation adjustments of $12.7 million , pension liability adjustments of

$2.6 million and share repurchases of $0.7 million. On a per share basis, calculated as stockholders’ equity divided by shares outstanding at December 31, 2014 , stockholders’ equity increased to $12.28 at December 31, 2014 from $11.90 at December 31, 2013 .

Off Balance Sheet Arrangements — Other than operating leases, the Company does not have any other material off-balance sheet financing arrangements.

Inflation — Inflation generally affects the Company through its costs of labor, equipment, energy and raw materials. The increased costs of these items have generally been offset 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

On February 20, 2014, the Company acquired the Industrial Filtration business from Andrew Industries Limited as discussed in Note 2, "Acquisitions and Divestitures," of the Consolidated Financial Statements included in this Annual Report on Form 10-K. The Industrial Filtration business has operations in the United Kingdom and China, in addition to the United States. As a result of this acquisition, and combined with the Company’s other foreign operations, 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 Euro, the Japanese Yen, the Chinese Yuan, the Hong Kong Dollar and the British Pound Sterling. The Company’s foreign and domestic operations 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 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.

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. In February 2014, the Company borrowed $60.0 million from its Amended Credit Facility to fund the Industrial Filtration acquisition. The Company has debt with variable rates of interest 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. 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 $40.0 million outstanding borrowings as of December 31, 2014 , the Company’s net income would decrease by an estimated $0.3 million over a twelve-month period.

The weighted average interest rate on long-term debt was 1.5% for the year ended December 31, 2014 , compared with 5.4% for the years ended December 31, 2013 and 2012 .



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, 2014, the Company’s disclosure controls and procedures are effective.

Changes in Internal Controls 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, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. As part of its ongoing integration activities, the Company will complete an assessment of existing controls and incorporate its controls and procedures into its industrial filtration businesses ("Industrial Filtration") which were acquired from Andrew Industries Limited in February 2014.

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.

In February 2014, the Company acquired Industrial Filtration for $86.9 million. The Company excluded Industrial Filtration from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a purchase business combination in 2014. Industrial Filtration accounted for 25.9% of the Company’s total consolidated assets as of December 31, 2014 and 20.9% of the Company’s total consolidated revenue for the year then ended.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. 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, 2014. The effectiveness of the Company's internal control over financial reporting as of December 31, 2014 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 “Section 16(a) Beneficial Ownership Reporting Compliance” of the definitive Proxy Statement of Lydall to be filed with the Commission within 120 days of the fiscal year ended December 31, 2014 in connection with the Annual Meeting of Stockholders to be held on April 24, 2015 (the “2015 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 “2014 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 2015 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 2015 Proxy Statement.

The following table provides information about the Company’s Common Stock that may be issued upon exercise of options and rights under all of the Company’s existing equity compensation plans at December 31, 2014 . The number of securities remaining available for issuance at December 31, 2014 was 884,993 and includes shares that may be issued as restricted stock, performance shares and other stock awards.



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	1,068,630	$	8.44	884,993
Equity compensation plans not approved by security holders	—	—		—
Total	1,068,630	$	8.44	884,993



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 2015 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 2015 Proxy Statement.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES




	Page
1. Financial Statements:
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statements of Operations for the years ended December 31, 2014, 2013, and 2012	F-2
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013, and 2012	F-3
Consolidated Balance Sheets at December 31, 2014 and 2013	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013, and 2012	F-5
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2014	F-6
Notes to Consolidated Financial Statements	F-7
2. Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2014, 2013, and 2012	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		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		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 Annual Report on Form 10-K dated March 12, 2004 and incorporated herein by this reference, as further amended by those certain Certificates of Correction and Certificate of Elimination, each dated December 22, 2014 and referenced in Exhibit 3.2 to this Annual Report on Form 10-K.
3.2		Certificates of Correction and Certificate of Elimination to the Certificate of Incorporation of the Registrant, each dated December 22, 2014 filed as Exhibits 3.2 - 3.4 and Exhibit 3.1, respectively, to the Registrant's Form 8-K dated December 22, 2014 and incorporated herein by this reference.
3.3		Bylaws of the Registrant, as amended and restated as of December 11, 2003, filed as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K dated March 12, 2004 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.
10.1		Capital lease agreement between Lydall Thermique Acoustique S.A.S., CMCIC Lease and Natiocredimurs Societe en Nom Collectif, filed as Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q dated November 9, 2004 and incorporated herein by reference.
10.2*		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.
10.3*		Employment Agreement with Robert K. Julian dated October 3, 2012, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated October 4, 2012 and incorporated herein by this reference.
10.4*		Employment Agreement with David H. Williams dated June 27, 2012, filed as Exhibit 10.3 to the Registrant’s Form 10-Q dated August 1, 2012 and incorporated herein by this reference.
10.5*		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.
10.6*		Employment Agreement with Joseph A. Abbruzzi dated March 31, 2014, filed herewith.
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, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated March 15, 2012 and incorporated herein effective prior to January 1, 2015 by this 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 herewith.
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 10.3 to the Registrant’s Annual Report on Form 10-K dated February 26, 2010 and incorporated herein by this reference.
10.22		Credit Agreement, dated June 16, 2011, by and between Lydall, Inc., as borrower, and Bank of America, N.A., as lender, filed as Exhibit 10.1 to the Registrant’s Form 8-K dated June 21, 2011 and incorporated herein by this reference.
10.23		Guaranty Agreement, dated June 16, 2011, by and among Lydall Thermal/Acoustical, Inc., Lydall Filtration/Separation, Inc., Lydall International, Inc., and Bank of America, N.A., filed as Exhibit 10.2 to the Registrant’s Form 8-K dated June 21, 2011 and incorporated herein by this reference.
10.24		Security Agreement, dated June 16, 2011 by and between Lydall, Inc., and Bank of America, N.A., filed as Exhibit 10.3 to the Registrant’s Form 8-K dated June 21, 2011 and incorporated herein by this reference.
10.25		Security Agreement, dated June 16, 2011 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 June 21, 2011 and incorporated herein by this reference.
10.26		Security Agreement, dated June 16, 2011 by and between Lydall Filtration/Separation, Inc. and Bank of America, N.A., filed as Exhibit 10.5 to the Registrant’s Form 8-K dated June 21, 2011 and incorporated herein by this reference.
10.27		Security Agreement, dated June 16, 2011 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 June 21, 2011 and incorporated herein by this reference.
10.28		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.
10.29		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.
10.30		Amended and Restated Security Agreement, dated February 18, 2014, by and between Lydall, Inc., and Bank of America, N.A., filed as Exhibit 10.4 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference, as further amended by that certain 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, filed as Exhibit 10.34 to this Annual Report on From 10-K.
10.31		Amended and Restated Security Agreement, dated February 18, 2014, by and between Lydall Thermal/Acoustical, Inc., and Bank of America, N.A., filed as Exhibit 10.5 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference, as further amended by that certain 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, filed as Exhibit 10.34 to this Annual Report on From 10-K.
10.32		Amended and Restated Security Agreement, dated February 18, 2014, by and between Lydall Filtration/Separation, Inc., and Bank of America, N.A. filed as Exhibit 10.6 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference.
10.33		Amended and Restated Security Agreement, dated February 18, 2014, by and between Lydall International, Inc., and Bank of America, N.A., filed as Exhibit 10.7 to the Registrant’s Form 8-K dated February 24, 2014 and incorporated herein by reference.



10.34		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 herewith.
10.35*		Lydall, Inc. Annual Incentive Performance Program effective January 1, 2015, 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 27, 2015 authorizing Robert K. Julian 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



	*	Management contract or compensatory plan.

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.
March 3, 2015	By:	/s/ Robert K. Julian
		Robert K. Julian 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/ Dale G. Barnhart	President, Chief Executive Officer and Director (Principal Executive Officer)	March 3, 2015
Dale G. Barnhart
/s/ Robert K. Julian	Executive Vice President, Chief Financial Officer (Principal Financial Officer)	March 3, 2015
Robert K. Julian
/s/ James V. Laughlan	Vice President, Chief Accounting Officer, and Treasurer (Principal Accounting Officer)	March 3, 2015
James V. Laughlan
/s/ Robert K. Julian		March 3, 2015
Robert K. Julian
Attorney-in-fact for:
Kathleen Burdett	Director
W. Leslie Duffy	Chairman of the Board of Directors
Matthew T. Farrell	Director
Marc T. Giles	Director
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.:

In our opinion, the consolidated financial statements listed in the index appearing under item 15(a)(1) present fairly, in all material respects, the financial position of Lydall, Inc. and its subsidiaries at December 31, 2014 and December 31, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.

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 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.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the industrial filtration businesses (“Industrial Filtration”) of Andrew Industries Limited from its assessment of internal control over financial reporting as of December 31, 2014 because it was acquired by the Company in a purchase business combination during 2014. We have also excluded Industrial Filtration from our audit of internal control over financial reporting. The Industrial Filtration businesses are wholly-owned subsidiaries whose total consolidated assets and total consolidated net revenues represent approximately 25.9% and approximately 20.9%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2014.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Hartford, Connecticut

March 3, 2015

F-1

Lydall, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS



	For the years ended December 31,
In thousands except per share data	2014			2013		2012

Net sales	$	535,829		$	397,969	$	378,924
Cost of sales	420,851			312,744		301,117
Gross profit	114,978			85,225		77,807
Selling, product development and administrative expenses	80,930			56,512		57,239
Gain on sale of product line	—			—		(810		)
Operating income	34,048			28,713		21,378
Interest expense	1,093			304		365
Other (income) expense, net	(701		)	67		31
Income before income taxes	33,656			28,342		20,982
Income tax expense	11,809			9,187		4,176
Net income	$	21,847		$	19,155	$	16,806
Earnings per common share:
Basic	$	1.31		$	1.16	$	1.01
Diluted	$	1.28		$	1.14	$	0.99
Weighted average common shares outstanding	16,662			16,570		16,717
Weighted average common shares and equivalents outstanding	17,003			16,866		16,973

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

F-2

Lydall, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the years ended December 31,
In thousands	2014			2013		2012

Net income	$	21,847		$	19,155	$	16,806
Other comprehensive (loss) income:
Change in pension plans, net of income taxes of $1,595, $4,028, and $1,832, respectively	(2,603		)	6,572		(2,989		)
Foreign currency translation adjustments	(12,714		)	2,950		1,241
Total other comprehensive (loss) income, net of tax	(15,317		)	9,522		(1,748		)
Comprehensive income	$	6,530		$	28,677	$	15,058

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

F-3

Lydall, Inc.

CONSOLIDATED BALANCE SHEETS



	December 31,
In thousands of dollars and shares	2014			2013

Assets
Current assets:
Cash and cash equivalents	$	62,051		$	75,407
Accounts receivable, (net of allowance for doubtful receivables of $709 and $480, respectively)	84,366			52,301
Inventories	51,241			34,917
Taxes receivable	4,539			1,632
Prepaid expenses and other current assets	11,109			8,004
Total current assets	213,306			172,261
Property, plant and equipment, net	115,357			78,863
Goodwill	21,943			18,589
Other intangible assets, net	7,841			3,510
Deferred tax assets	1,408			574
Other assets, net	1,915			888
Total assets	$	361,770		$	274,685
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	615		$	663
Accounts payable	49,325			29,768
Accrued payroll and other compensation	14,550			10,393
Accrued taxes	1,447			1,816
Other accrued liabilities	7,140			6,044
Total current liabilities	73,077			48,684
Long-term debt	40,315			1,051
Deferred tax liabilities	13,867			8,747
Benefit plan liabilities	19,142			14,097
Other long-term liabilities	2,770			2,019
Commitments and Contingencies (Note 12)
Stockholders’ equity:
Preferred stock (par value $1.00 per share; authorized 500,000 shares; none issued or outstanding)	—			—
Common stock (par value $0.10 per share; authorized 30,000 shares; issued 24,631 and 24,098 shares, respectively)	2,463			2,410
Capital in excess of par value	68,961			62,284
Retained earnings	242,099			220,252
Accumulated other comprehensive loss	(24,161		)	(8,844		)
Treasury stock, 7,312 and 7,279 shares of common stock, respectively, at cost	(76,763		)	(76,015		)
Total stockholders’ equity	212,599			200,087
Total liabilities and stockholders’ equity	$	361,770		$	274,685

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

F-4

Lydall, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the years ended December 31,
In thousands	2014			2013			2012
Cash flows from operating activities:
Net income	$	21,847		$	19,155		$	16,806
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of product line	—			—			(810		)
Depreciation and amortization	17,646			12,703			13,682
Inventory step-up amortization	2,053			—			—
Deferred income taxes	(1,477		)	969			(1,649		)
Stock based compensation	2,787			1,763			1,401
Pension settlement charge	4,914			—			—
Impairment and loss on disposition of property, plant and equipment	241			359			1,977
Accounts receivable	(7,189		)	(4,101		)	(150		)
Inventories	4,539			(3,046		)	2,728
Taxes Receivable	(4,129		)	(640		)	(355		)
Prepaid expenses and other assets	(2,318		)	161			620
Accounts payable	1,167			(59		)	1,118
Accrued payroll and other compensation	3,299			(121		)	1,152
Accrued taxes	337			96			(693		)
Other liabilities, net	(2,089		)	3,041			(1,422		)
Net cash provided by operating activities	41,628			30,280			34,405
Cash flows from investing activities:
Business acquisitions, net of cash required	(79,407		)	—			—
Redemption of short-term investment	—			—			12,015
Capital expenditures	(13,971		)	(13,826		)	(11,404		)
Proceeds from sale of a product line	—			—			1,000
Acquisition earn out payments	(111		)	(160		)	—
Net cash (used for) provided by investing activities	(93,489		)	(13,986		)	1,611
Cash flows from financing activities:
Debt Proceeds	60,000			—			—
Debt repayments	(20,000		)	(34		)	(285		)
Capital lease payments	(646		)	(734		)	(771		)
Common stock issued	2,457			1,497			972
Common stock repurchased	(748		)	(6,617		)	(3,998		)
Excess tax benefit on stock awards	1,486			271			211
Net cash provided by (used for) financing activities	42,549			(5,617		)	(3,871		)
Effect of exchange rate changes on cash	(4,044		)	1,107			573
(Decrease) Increase in cash and cash equivalents	(13,356		)	11,784			32,718
Cash and cash equivalents at beginning of period	75,407			63,623			30,905
Cash and cash equivalents at end of period	$	62,051		$	75,407		$	63,623
Supplemental Schedule for Cash Flow Information
Cash paid during the year for:
Interest	$	875		$	214		$	255
Income taxes	$	14,679		$	7,227		$	5,347

Non-cash capital expenditures of $5.0 million were included in accounts payable at December 31, 2014.

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

F-5

Lydall, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY



	Common Stock Shares	Common Stock Amount		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2011	23,645	$	2,365	$	56,214	$	184,291	$	(16,618	)	$	(65,400	)	$	160,852
Net income						16,806								16,806
Other comprehensive loss, net of tax								(1,748		)				(1,748		)
Stock repurchased											(3,998		)	(3,998		)
Stock issued under employee plans	122	12		960										972
Excess tax benefit on stock awards				211										211
Stock based compensation expense				1,149										1,149
Stock issued to directors	18	2		250										252
Balance at December 31, 2012	23,785	2,379		58,784		201,097		(18,366		)	(69,398		)	174,496
Net income						19,155								19,155
Other comprehensive income, net of tax								9,522						9,522
Stock repurchased											(6,617		)	(6,617		)
Stock issued under employee plans	297	30		1,467										1,497
Excess tax benefit on stock awards				271										271
Stock based compensation expense				1,511										1,511
Stock issued to directors	16	1		251										252
Balance at December 31, 2013	24,098	2,410		62,284		220,252		(8,844		)	(76,015		)	200,087
Net Income						21,847								21,847
Other comprehensive loss, net of tax								(15,317		)				(15,317		)
Stock repurchased											(748		)	(748		)
Stock issued under employee plans	524	52		2,405										2,457
Excess tax benefit on stock awards				1,486										1,486
Stock based compensation expense				2,535										2,535
Stock issued to directors	9	1		251										252
Balance at December 31, 2014	24,631	$	2,463	$	68,961	$	242,099	$	(24,161	)	$	(76,763	)	$	212,599

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

F-6

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 filtration media, industrial thermal insulating solutions, automotive thermal and acoustical barriers, medical filtration media and devices and biopharmaceutical processing components for thermal/acoustical, filtration/separation and bio/medical applications.

On January 30, 2015, the Company sold its Vital Fluids business, reported as Other Products and Services ("OPS") for a cash purchase price of $29.9 million . (See Note 17)

Principles of consolidation — The Consolidated Financial Statements include the accounts of Lydall, Inc. and its wholly owned subsidiaries. All significant 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 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, swings in consumer confidence and spending, unstable economic growth and fluctuations in unemployment rates has caused economic instability that has, and could continue to 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, 2014 , no customers accounted for more than 10.0% of total accounts receivable. At December 31, 2013 , Ford represented 15.3% of total accounts receivable. No other customers accounted for more than 10.0% of total accounts receivable at December 31, 2013 .

Foreign and export sales were 46.2% of the Company’s net sales in 2014 , 45.2% in 2013 , and 46.7% in 2012 . Export sales primarily to Europe, Asia, Mexico and Canada were $57.6 million , $52.1 million , and $49.7 million in 2014 , 2013 , and 2012 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 Metals and Thermal/Acoustical Fibers segments, were 54.1% of the Company’s net sales in 2014 , 68.5% in 2013 , and 65.5% in 2012 . Sales to Ford Motor Company (“Ford”) were 16.5% , 20.0% , and 18.8% of Lydall’s 2014 , 2013 , and 2012 net sales, respectively. Sales to Chrysler Group LLC (“Chrysler”) accounted for 10.9% and 10.0% of Lydall’s 2013 and 2012 net sales, respectively. No other customers accounted for more than 10% of total net sales in 2014 , 2013 , and 2012 .

F-7

Inventories — Inventories are valued at lower of cost or market, 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. Revenue is recognized as tooling is delivered and accepted by the customer. The Company also may progress bill on certain tooling being constructed. These billings are recorded as progress billings (a reduction of the associated work-in-process inventory) until the appropriate revenue recognition criteria have been met.

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, net” 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, 2014 and 2013 :



	December, 31
In thousands	2014		2013
Inventories, net of progress billings and reserves	$	8,832	$	8,793
Prepaid expenses and other current assets, net	30		52
Total tooling related assets	$	8,862	$	8,845

Amounts included in “Prepaid expenses and other current assets, net” include the short-term portion of receivables due under contractually guaranteed reimbursement arrangements. Included in the inventory balance was an offset for progress billings of $1.1 million at December 31, 2014 and 2013 . Company owned tooling is recorded in “Property, plant and equipment, net” at December 31, 2014 and December 31, 2013 .

Property, plant and equipment — Property, plant, and equipment are stated at cost. Assets held under capital 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. Property, plant and equipment, including property, plant and equipment under capital 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 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 4 to 20 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.

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. 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.

F-8

Employer sponsored benefit plans — The Company recognizes the funded status of its domestic defined benefit pension plan. Net benefit obligations are calculated based on actuarial valuations using key assumptions related to discount 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. In general, the types of risks being hedged by the Company are related to the variability of future cash flows caused by changes in foreign currency exchange rates and hedging the impact of variability of foreign exchange rates on recorded intercompany assets or liabilities. Lydall’s objective for entering into derivative instruments has always been for risk management purposes. The Company does not engage in derivative instruments for speculative purposes. Lydall has historically not been a party to a significant number of derivative instruments.

Revenue recognition — The Company recognizes revenue (1) once evidence of an arrangement exists; (2) product delivery has occurred; (3) pricing is fixed or determinable; and (4) collection is reasonably assured. The four criteria required to recognize revenue are considered to be met, and the passage of title to the customer occurs, at the respective FOB point and, therefore, revenue is recognized at that time. The Company’s standard sales and shipping terms are FOB shipping point, therefore, substantially all revenue is recognized upon shipment. However, the Company conducts business with certain customers on FOB destination terms and in these instances revenue is recognized upon receipt by the customer. The Company generally does not provide specific customer inspection or acceptance provisions in its sales terms, with the exception of tooling sales discussed in “Pre-production design and development costs” above.

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.

Shipping and handling costs consist primarily of costs incurred to deliver products to customers and internal costs related to preparing products for shipment and are recorded in cost of sales. Amounts billed to customers as shipping and handling are classified as revenue.

Research and development — Research and development costs are charged to expense as incurred and amounted to $9.0 million in 2014 , $7.6 million in 2013 , and $7.7 million in 2012 . 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).

F-9

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. Stock-based compensation expense includes the estimated effects of forfeitures, and such estimates of forfeitures are adjusted over the requisite service period to the extent actual forfeitures differ, or are expected to differ, from such estimates. The effect of changes in estimated forfeitures is recognized in the period of change and also impacts the amount of expense to be recognized in future periods. 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 Company believes that its 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.

Recently Adopted Accounting Standards

Effective January 1, 2014, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (Topic 740). This ASU required entities to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in their financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The objective of this update is to eliminate the diversity in practice in the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

2. Acquisitions

On February 20, 2014, the Company completed the acquisition of certain industrial filtration businesses of Andrew Industries Limited, an Altham, United Kingdom based corporation. The Industrial Filtration business serves a global customer base in the manufacture of non-woven felt filtration media and filter bags used primarily in industrial air filtration applications including power, cement, asphalt, incineration, food and pharmaceutical. This business, which strengthened the Company’s position as an industry leading, global provider of filtration and engineered materials products, added complementary and new technologies and diversified the Company’s end markets and geographic base. The Company acquired the Industrial Filtration business for $86.9 million in cash (including cash acquired of $7.5 million and a post-closing adjustment payment of $0.2 million to Andrew Industries Limited) and with no debt being acquired. The purchase price was financed with a combination of cash on hand and $60.0 million of borrowings through the Company’s amended $100 million credit facility.

For the year ended December 31, 2014 , the Company incurred $2.6 million of transaction related costs. These costs include investment banker fees, legal fees and other professional services fees to complete the transaction and have been recognized in the Company’s Consolidated Statements of Operations as corporate office selling, product development and administrative expenses.

The operating results of the Industrial Filtration business have been included in the Consolidated Statements of Operations since February 20, 2014, the date of the acquisition. The Industrial Filtration business is being reported as a separate reportable segment. From the date of the acquisition through December 31, 2014 , the Industrial Filtration segment reported net sales and operating income of $112.2 million and $6.4 million , respectively. Operating income from the date of the acquisition through the year ended December 31, 2014 included $2.1 million of purchase accounting inventory fair value step-up adjustments in cost of sales upon the sale of inventory. The total purchase accounting inventory fair value step-up adjustment included in the balance sheet at the acquisition date was $2.1 million .

F-10

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



In thousands
Cash	$	7,493
Accounts Receivable	26,779
Inventory	25,046
Other current assets	2,894
Property, plant and equipment	38,780
Deferred Taxes	2,501
Intangible assets (Note 5)	5,596
Goodwill (Note 5)	3,943
Total assets acquired	113,032

Other liabilities	(18,002		)
Deferred taxes	(8,130		)
Total liabilities assumed	(26,132		)
Net assets acquired	$	86,900

The final purchase price allocation was subject to post-closing adjustments pursuant to the terms of the Sale and Purchase Agreement with Andrews Industries Limited. As a result, in the third quarter of 2014, the Company paid an additional $0.2 million to Andrews Industries Limited, representing the final post-closing adjustment.

The following table reflects the unaudited pro forma operating results of the Company for years ended December 31, 2014 and December 31, 2013, which give effect to the acquisition of Industrial Filtration as if it had occurred on January 1, 2013. The pro forma information includes the historical financial results of the Company and Industrial Filtration. The pro forma results are not necessarily indicative of the operating results that would have occurred had the acquisition been effective January 1, 2013, 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.



	(Unaudited Pro Forma)
	For The Years Ended December 31,
In thousands	2014		2013
Net Sales	$	553,345	$	525,134
Net Income	$	26,302	$	21,500

Earnings per share:
Basic	$	1.58	$	1.30
Diluted	$	1.55	$	1.27

Pro forma earnings during the year ended December 31, 2014 were adjusted to exclude non-recurring items such as acquisition-related costs of $2.6 million and expense related to the fair value adjustment to inventory of $2.1 million , and to include additional amortization of the acquired Industrial Filtration intangible assets recognized at fair value in purchase accounting as well as additional interest expense associated with borrowings under the Company’s Amended Credit Facility. No amount is included in the pro forma earnings during the year ended December 31, 2014 related to inventory fair value adjustments which would have been recognized in cost of sales as the corresponding inventory would have been completely sold during 2013.

Pro forma earnings during the year ended December 31, 2013 were adjusted to include acquisition-related costs of $2.6 million and expense of $2.6 million related to the amortization of the fair value adjustments to inventory and additional amortization of the acquired Industrial Filtration intangible assets recognized at fair value in purchase

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accounting as well as $0.9 million of interest expense associated with borrowings under the Company’s Amended Credit Facility. Pro forma earnings during the year ended December 31, 2013 were adjusted to exclude acquisition-related costs of $1.2 million from 2013 which would have been included in the year ended December 31, 2012 if the acquisition had been effective January 1, 2013.

3. Inventories

Inventories as of December 31, 2014 and 2013 were as follows:



	December 31,
In thousands	2014			2013
Raw materials	$	21,248		$	11,944
Work in process	15,753			14,546
Finished goods	15,348			9,537
	52,349			36,027
Less: Progress billings	(1,108		)	(1,110		)
Total inventories	$	51,241		$	34,917

Included in work in process is gross tooling inventory of $9.9 million at December 31, 2014 and 2013 . Tooling inventory, net of progress billings, was $8.8 million at December 31, 2014 and 2013 .

4. Property, Plant and Equipment

Property, plant and equipment as of December 31, 2014 and 2013 were as follows:



	Estimated Useful Lives	December 31,
In thousands	Estimated Useful Lives	2014			2013
Land	–	$	2,773		$	2,215
Buildings and improvements	10-35 years	56,562			48,779
Machinery and equipment	5-25 years	197,804			166,747
Office equipment	2-8 years	31,139			33,649
Vehicles	3-6 years	930			561
Assets under capital leases:
Land	–	609			692
Buildings and improvements	10-35 years	5,345			6,072
		295,162			258,715
Accumulated depreciation		(186,510		)	(183,535		)
Accumulated amortization of capital leases		(2,944		)	(3,078		)
		105,708			72,102
Construction in progress		9,649			6,761
Total property, plant and equipment		$	115,357		$	78,863

Depreciation expense was $16.7 million in 2014 , $12.1 million in 2013 , and $12.8 million in 2012 .

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5. Goodwill and Intangible Assets

Gross and net carrying amounts of goodwill at December 31, 2014 and 2013 were as follows:



In thousands	Performance Materials		Industrial Filtration		Thermal/ Acoustical Metals			Other Products and Services			Totals
Goodwill	$	13,929	$	—	$	12,160		$	5,787		$	31,876
Accumulated amortization/impairment	—		—		(12,160		)	(1,127		)	(13,287		)
Balance at December 31, 2013	13,929		—		—			4,660			18,589
Goodwill	13,340		3,943		12,160			5,787			35,230
Accumulated amortization/impairment	—		—		(12,160		)	(1,127		)	(13,287		)
Balance at December 31, 2014	$	13,340	$	3,943	$	—		$	4,660		$	21,943

The changes in the carrying amounts of goodwill in 2013 and 2014 were as follows:



In thousands	Performance Materials			Industrial Filtration		Other Products and Services		Totals
Balance at January 1, 2013	$	13,622		$	—	$	4,660	$	18,282
Goodwill adjustment	110			—		—		110
Currency translation adjustment	197			—		—		197
Balance at December 31, 2013	13,929			—		4,660		18,589
Goodwill adjustment	—			3,943		—		3,943
Currency translation adjustment	(589		)	—		—		(589		)
Balance at December 31, 2014	$	13,340		$	3,943	$	4,660	$	21,943

Goodwill Associated with Acquisitions and Divestitures

The goodwill associated with the Industrial Filtration segment results from the acquisition of the Industrial Filtration business on February 20, 2014. The amount allocated to goodwill is reflective of the benefits the Company expects to realize from the entrance into new global markets and Industrial Filtration's assembled workforce. None of the recognized goodwill is deductible for income tax purposes.

The goodwill adjustment of $0.1 million in 2013 was related to the acquisition of DSM Solutech B.V. (“Solutech”) in December 2008. Lydall was obligated to pay to the Seller payments based on the net revenues of Solutech for a period of five years beginning on December 1, 2008 and ending on November 30, 2013 (“Contingent Consideration”). This Contingent Consideration equaled 4% of Solutech’s net revenues, as defined, during each of the periods. The value of the Contingent Consideration when paid was added to the original cost of the acquisition and increased the amount of goodwill previously recorded, as the acquisition occurred prior to the revised guidance issued by the Financial Accounting Standards Board (ASC 805) for business combinations.

Goodwill Impairment Testing

During the fourth quarter of 2014 , the Company performed its annual impairment analysis of the $13.3 million of goodwill in the Performance Materials reporting unit (PM reporting unit), $3.9 million in the Industrial Filtration reporting unit (IF reporting unit) and $4.7 million of goodwill in the Life Sciences Vital Fluids reporting unit (VF reporting unit), included in OPS.

After considering changes in assumptions used in the Company's most recent quantitative annual testing, including the capital markets environment, economic conditions, industry trends, changes in results of operations, the magnitude of the excess of fair value over the carrying value, and other factors, the Company concluded it was not necessary to perform the two-step impairment test for the PM or VF reporting unit as it was not more likely than not that the fair value of the reporting unit was less than its carrying value. As a result, the Company concluded that the PM and VF reporting unit goodwill was not impaired.

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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, 2014 and 2013 :



	December 31, 2014					December 31, 2013
In thousands	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
License agreements	$	818	$	(818	)	$	881	$	(881	)
Technology	2,500		(143		)	—		—
Customer Relationships	2,477		(195		)	—		—
Patents	6,037		(3,274		)	6,766		(3,307		)
Other	691		(252		)	278		(227		)
Total amortized intangible assets	$	12,523	$	(4,682	)	$	7,925	$	(4,415	)

During 2014 , the Company recognized $5.6 million of intangible assets as a result of the Industrial Filtration acquisition, including $2.5 million in both technology and customer relationships and $0.6 million in other. As of December 31, 2014 , the weighted average useful life of the Industrial Filtration intangible assets was approximately 12 years.

Amortization of all intangible assets for the years ended December 31, 2014 , 2013 , and 2012 was $0.9 million , $0.4 million , and $0.8 million , respectively. Estimated amortization expense for intangible assets is expected to be $0.8 million for each of the years ending December 31, 2015 through 2018 , and $0.7 million for the year ended December 31, 2019 . As of December 31, 2014 , the weighted average useful life of intangible assets was approximately 11 years.

During the fourth quarter of 2014 , the Company performed an impairment analysis for long-lived assets at the Company’s DSM Solutech B.V. (“Solutech”) operation, included in the Performance Materials segment. During 2014, Solutech generated cash flow in excess of amounts projected in the impairment analysis completed in the third quarter of 2013. Although 2014 results were more favorable than forecasted, there was still a cash flow loss for 2014. Cash flow losses caused by a delay in commercialization of Solutech products to the market place by Solutech’s customers, are expected to continue in 2015. As a result of these negative cash flows, combined with historical operating losses, the Company determined that it was appropriate to test the Solutech asset group for recoverability in the fourth quarter of 2014. Acquisition related intangibles with a remaining useful life of 9 years primarily comprise the carrying value of the asset group of $3.4 million . To determine the recoverability of the Solutech asset group the Company completed an undiscounted cash flow analysis and compared it to the asset group carrying value. This analysis was primarily dependent on the increase in net sales over the period when the business has technological exclusivity provided by the intangible assets.

The Company determined that the Solutech asset group had undiscounted cash flow which was in excess of its carrying value and, as a result, the asset group was not impaired at December 31, 2014. The estimate of undiscounted cash flows of the Solutech long-lived asset group was based on the best information available as of the date of the assessment, which incorporated management assumptions around cash flows generated from future operations, the estimated economic useful life of the primary asset within the Solutech long-lived asset group, as well as other market information. The Company performed various sensitivity analyses noting that a more conservative scenario of high single digit revenue growth and an appropriate related cost structure, the undiscounted cash flows exceeded the carrying value with no impairment indicated. As of December 31, 2014 , the Company expects to meet the cash flow forecasts included in the impairment analysis. Future cash flows are dependent on the success of commercialization efforts of Solutech products by OEMs, the quality of Solutech products and technology advancements and management’s ability to manage costs. In the event that Solutech’s cash flows in the future do not meet current expectations, management, based upon conditions at the time, would consider taking actions as necessary to maximize cash flow. Accordingly, the above sensitivity analysis, while a useful tool, should not be used as a sole predictor of

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future impairment. A thorough analysis of all the facts and circumstances existing at the time would need to be performed to determine if recording an impairment loss was appropriate.

6. Long-term Debt and Financing Arrangements

The Company has a capital lease agreement for the land and building at the St. Nazaire, France operating facility, included in the Thermal/Acoustical Metals segment, requiring monthly principal and interest payments through 2016. The capital lease provides an option for the Company to purchase the land and building at the end of the lease for a nominal amount.

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Total outstanding debt consists of:



			December 31,
In thousands	Effective Rate	Maturity	2014			2013
Revolver Loan, due January 31, 2019	1.42%	2019	$	40,000		$	—
Capital Lease, land and building, St. Nazaire, France	5.44%	2016	893			1,647
Capital Lease, manufacturing equipment, Hamptonville, North Carolina	5.00%	2017	37			67
			40,930			1,714
Less portion due within one year			(615		)	(663		)
Total long-term debt			$	40,315		$	1,051

As of December 31, 2014 , total debt maturing in 2015 and 2016 was $0.6 million and $0.3 million , respectively. There was no debt outstanding that matures in 2017 or 2018 , and $40.0 million maturing in 2019 .

The weighted average interest rate on long-term debt was 1.5% for the year ended December 31, 2014 , compared with 5.4% for the years ended December 31, 2013 and 2012 .

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. The carrying values of the long-term debt approximate fair market value.

7. Capital Stock

Preferred Stock — The Company has authorized Preferred Stock with a par value of $1.00 . None of the 500,000 authorized shares have been issued.

Common Stock — As of December 31, 2014 , 7,472 Lydall stockholders of record held 17,318,680 shares of Common Stock.

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

8. Employer Sponsored Benefit Plan

The Company maintains a domestic defined benefit pension plan, which covers certain domestic Lydall employees, is noncontributory and benefits are based on either years of service or eligible compensation paid while a participant is in a plan. The plan has been closed to new employees for several years and benefits under the pension plan are no longer accruing.

The Company’s funding policy for its domestic defined benefit pension plan 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.

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Plan assets and benefit obligations of the domestic defined benefit pension plan are as follows:



	December 31,
In thousands	2014			2013
Change in benefit obligation:
Net benefit obligation at beginning of year	$	53,427		$	60,020
Interest cost	2,348			2,453
Actuarial loss (gain)	7,654			(6,900		)
Gross benefits paid	(12,602		)	(2,146		)
Net benefit obligation at end of year	$	50,827		$	53,427
Change in plan assets:
Fair value of plan assets at beginning of year	$	40,680		$	36,355
Actual return on plan assets	945			5,226
Contributions	4,252			1,245
Gross benefits paid	(12,602		)	(2,146		)
Fair value of plan assets at end of year	$	33,275		$	40,680
Net benefit obligation in excess of plan assets	$	(17,552	)	$	(12,747	)
Balance sheet amounts:
Noncurrent liabilities	$	(17,552	)	$	(12,747	)
Total liabilities	$	(17,552	)	$	(12,747	)
Amounts recognized in accumulated other comprehensive income, net of tax consist of:
Net actuarial loss	$	17,228		$	14,830
Net amount recognized	$	17,228		$	14,830

At December 31, 2014 , in addition to the accrued benefit liability of $17.6 million recognized for the Company’s domestic defined benefit pension plan, the Company also had foreign regulatory labor agreements with an accrued benefit liability of $1.4 million and accumulated other comprehensive loss, net of tax, of $0.4 million .

At December 31, 2013 , in addition to the accrued benefit liability of $12.7 million recognized for the Company’s domestic defined benefit pension plan, the Company also had an accrued benefit liability of $1.2 million and accumulated other comprehensive loss, net of tax, related to foreign regulatory labor agreements of $0.2 million .

The domestic defined benefit pension plan liability, net of tax, included in other comprehensive income increased by $2.4 million for the year ended December 31, 2014 and decreased $6.5 million for the year ended December 31, 2013 . These changes are mainly due to changes in pension assumptions, primarily the discount and mortality rates.

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



	December 31,
In thousands	2014		2013
Projected benefit obligation	$	50,827	$	53,427
Accumulated benefit obligation	$	50,827	$	53,427
Fair value of plan assets	$	33,275	$	40,680

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Components of net periodic benefit cost for the domestic pension plan:



	December 31,
In thousands	2014			2013			2012
Interest cost	$	2,348		$	2,453		$	2,583
Expected return on plan assets	(2,798		)	(2,691		)	(2,559		)
Amortization of actuarial net loss	725			1,069			918
Pension settlement cost	4,914			—			—
Total net periodic benefit cost	$	5,189		$	831		$	942

On April 1, 2014, the Company offered a voluntary one-time lump sum payment option to certain former U.S. employees who were vested defined benefit plan participants and not currently receiving monthly payments from the Company's domestic pension plan. The election period for this voluntary offer ended in the second quarter of 2014. Approximately 62% of eligible participants elected to receive a one-time lump sum payout resulting in $10.3 million being paid out of domestic pension plan assets in July 2014. This payout required a re-measurement of the domestic pension plan and a partial plan settlement charge, which resulted in a non-cash pre-tax loss of $4.9 million in net periodic pension benefit expense, which was recorded in selling, product development and administrative expenses in the third quarter of 2014, with an offset to accumulated other comprehensive loss in shareholder’s equity, net of $1.9 million tax benefit. The non-cash charge was required to accelerate the recognition of a portion of the previously unrecognized actuarial losses in the domestic pension plan.

It is estimated that $0.9 million of actuarial net loss will be amortized from accumulated other comprehensive loss into net periodic benefit costs for the domestic pension plan in 2015 .

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



	Benefit Obligation				Net Cost
For the years ended December 31,	2014		2013		2014		2013		2012
Discount rate	4.16	%	5.09	%	5.09	%	4.16	%	5.00	%
Expected return on plan assets	7.25	%	7.25	%	7.25	%	7.50	%	7.75	%

The year-end benefit obligation increased primarily due to a reduction in the assumed discount rate from 5.09% as of December 31, 2013 to 4.16% as of December 31, 2014. During 2014, the Company adopted the new RP-2014 mortality table and mortality improvement scale BB-2D in determining the liability for its domestic defined benefit plan. This new table, along with the change in the discount rate, caused the increase in the actuarial loss recognized during 2014 and the increased projected benefit obligation.

Plan Assets

The domestic defined benefit pension plan is administered by an Administrative Committee and an Investment Committee, which are appointed by the Board of Directors. The Investment Committee’s responsibilities are to establish a funding policy for the Lydall Pooled Pension Investment Trust (“the Trust”) and to appoint and oversee the investment advisors responsible for the Trust’s investments. The Investment Committee is a named fiduciary under the plan with respect to management of the Trust’s investments. The assets of the domestic defined benefit pension plan are invested in the Trust for the purpose of investment diversification. In determining the expected return on plan assets, the

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Investment 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 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 domestic pension plan and to pay the expenses of administration. The long-term investment objective of the Trust is to achieve a total return equal to or greater than the Trust’s actuarially assumed rate of return, currently 7.25% . Though it is the intent of the Investment 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 Investment Committee defines risk as the probability of not meeting the Trust’s objectives and the probability of not meeting the Trust’s liability requirements. The allowable investments include: exchange-traded stocks, over-the-counter common and preferred stocks, warrants, rights, convertible securities, depository receipts and shares, trust certificates, limited partnership interests, shares of other investment companies, real estate investment trusts and equity participation, obligations of foreign governments, obligations of international agencies, obligations issued by the U.S. government, mortgage related and other asset-backed securities, corporate debt securities, inflation-index bonds issued by corporations, structured notes, delayed funding loans and revolving credit facilities, bank certificates of deposit, debt securities issued by state of local governments, and money market funds. Prohibited investments include: venture capital investments, direct investment in real estate properties, CMO derivatives, hedge funds, Lydall, Inc. securities, and commodities.

The Investment Committee’s target asset allocation seeks to control risk through portfolio diversification and takes into account, among other factors, objectives discussed above, current funding levels, cash flow conditions and economic and industry trends. Equity securities include investments in large-cap and mid/small-cap companies primarily located in the United States, non-U.S. equities, and emerging market equities. Fixed income securities include fixed income mutual bond funds and common and collective funds.

The following table presents the target allocation of pension plan assets for 2015 and the actual allocation of plan assets as of December 31, 2014 and 2013 by major asset category:



	Target Allocation	Actual Allocation of Plan Assets December 31,
Asset Category	2015	2014		2013
Equity securities:
U.S. Equity	22% - 60%	43	%	37	%
Non-U.S.	15% - 25%	19	%	23	%
Emerging Markets	3% - 9%	6	%	7	%
Fixed income securities:
U.S. Bond funds	12% - 38%	26	%	26	%
Non-U.S. Bond funds	2% - 8%	3	%	5	%
Real estate investment trusts	0% - 8%	—	%	—	%
Cash and cash equivalents	0% - 5%	3	%	2	%

The investments of the Trust 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).

Equity securities, which consist primarily of common stocks, are valued at the closing price reported in the active market in which individual securities are traded. Short-term cash funds, mutual funds, bond funds and real estate

F-19

investment trusts are valued at the net asset value of shares held by the plan at year end as reported in the active market in which the funds are traded.

The Trust’s purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

The following table sets forth by level, within the fair value hierarchy, the Trust’s assets at fair value as of December 31, 2014 and December 31, 2013 :



December 31, 2014
In thousands	Level 1		Level 2		Level 3		Total
Equity securities:
U.S. Equity	$	14,272	$	—	$	—	$	14,272
Non-U.S.	6,432		—		—		6,432
Emerging Markets	1,896		—		—		1,896
Fixed income securities:
U.S. Bond funds	8,528		—		—		8,528
Non-U.S. Bond funds	917		—		—		917
Real estate investment trusts	170		—		—		170
Cash and cash equivalents	1,060		—		—		1,060
Total Assets at Fair Value	$	33,275	$	—	$	—	$	33,275



December 31, 2013
In thousands	Level 1		Level 2		Level 3		Total
Equity securities:
U.S. Equity	$	15,141	$	—	$	—	$	15,141
Non-U.S.	9,465		—		—		9,465
Emerging Markets	2,713		—		—		2,713
Fixed income securities:
U.S. Bond funds	10,461		—		—		10,461
Non-U.S. Bond funds	1,847		—		—		1,847
Real estate investment trusts	155		—		—		155
Cash and cash equivalents	898		—		—		898
Total Assets at Fair Value	$	40,680	$	—	$	—	$	40,680

Estimated Future Contributions and Benefit Payments

The Company expects to contribute approximately $0.9 million in cash to its domestic defined benefit pension plan in 2015 . Estimated future benefit payments for the next 10 years are as follows:



In thousands	2015		2016		2017		2018		2019		2020-2024
Benefit payments	$	2,337	$	2,365	$	2,430	$	2,510	$	2,647	$	14,490

Employee Savings Plan

The Company also sponsors a 401(k) Plan. Employer contributions to this plan amounted to $2.1 million in 2014 , $1.7 million in 2013 , and $1.6 million in 2012 . 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% .

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9. Equity Compensation Plans

As of December 31, 2014 , 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 shareholders 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.

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. Stock-based compensation expense includes the estimated effects of forfeitures. Compensation expense for performance based awards is recorded based upon management’s assessment of the probability of achieving the performance goals and service period and will be adjusted based upon actual achievement. 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. Upon the exercise of a stock option under the Plans, shares are issued from authorized shares or treasury shares held by the Company.

The Company incurred compensation expense of $2.8 million , $1.8 million , and $1.4 million for the years ended December 31, 2014 , 2013 , and 2012 , 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 $2.5 million , $1.0 million , and $0.5 million for the years ended December 31, 2014 , 2013 , and 2012 , 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:



	2014		2013		2012
Risk-free interest rate	1.6	%	1.7	%	1.4	%
Expected life	5.1 years		5.2 years		5.7 years
Expected volatility	46	%	65	%	68	%
Expected dividend yield	—	%	—	%	—	%

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The following is a summary of the option activity as of December 31, 2014 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, 2013	758	$	10.32
Granted	132	$	27.96
Exercised	(277)	$	8.87
Forfeited/Cancelled	(4)	$	9.24
Outstanding at December 31, 2014	609	$	14.81	7.0	$	10,967
Options exercisable at December 31, 2014	321	$	9.99	5.2	$	7,323
Expected to vest at December 31, 2014	261	$	19.78	8.9	$	3,408

The Company granted 131,800 , 75,279 , and 146,500 stock options during 2014 , 2013 , and 2012 , respectively. The weighted-average grant-date fair value of options granted during the years 2014 , 2013 , and 2012 was $11.85 , $9.41 , and $7.79 , respectively. There were 277,006 options exercised in 2014, 158,322 options exercised in 2013 , and 129,675 options exercised in 2012 . The intrinsic value for options exercised during 2014 was $5.0 million and the associated tax benefit realized from stock options exercised was $1.8 million . The total intrinsic value for options exercised during 2013 was $1.0 million and the associated tax benefit realized from stock options exercised was $0.3 million . The total intrinsic value for options exercised during 2012 was $0.7 million and the associated tax benefit realized from stock options exercised was $0.2 million . The amount of cash received from the exercise of stock options was $2.5 million in 2014 , $1.5 million in 2013 , and $1.0 million in 2012 . At December 31, 2014 , the total unrecognized compensation cost related to non-vested stock option awards was approximately $2.0 million , with a weighted average expected amortization period of 3.1 years .

Restricted Stock

The following is a summary of the Company’s unvested restricted shares for the year ended and as of December 31, 2014 :



In thousands except per share amounts
Outstanding Restricted Shares	Shares	Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2013	308	$	12.99
Granted	253	$	22.93
Vested	(96)	$	9.41
Forfeited/Cancelled	(6)	$	16.48
Outstanding at December 31, 2014	459	$	19.17
Expected to vest at December 31, 2014	431	$	19.50

Restricted stock includes both performance-based and time-based awards. Compensation for restricted stock is recorded based on the market value of the stock on the grant date and amortized to expense over the vesting period of the award. The Company granted 204,800 , 95,090 , and 114,500 shares of performance-based restricted stock during 2014 , 2013 , and 2012 , respectively. The Company granted 48,649 shares of time-based restricted stock in 2014 , 29,480 shares in 2013 , and 73,750 in 2012 . The weighted average fair value per share of restricted stock granted was $22.93 , $16.01 , and $12.56 during 2014 , 2013 , and 2012 , respectively. During 2014 , 2013 , and 2012 , respectively, there were 6,212 , 10,565 , and 171,369 shares of restricted stock forfeited. The fair value of awards for which restrictions lapsed during the years ended December 31, 2014 , 2013 , and 2012 was $2.2 million , $1.6 million , and $0.6 million , respectively. At December 31, 2014 , the total unrecognized compensation cost related to non-vested restricted stock awards was approximately $4.8 million , with a weighted average expected amortization period of 2.2 years .

F-22

Stock Repurchase Program

In April 2012, the Company’s Board of Directors approved a stock repurchase program (the “2012 Stock Repurchase Program”) which authorized the Company to repurchase up to 1.0 million shares of its common stock.

The Company did not repurchase any shares of its common stock during the year ended December 31, 2014 under the 2012 Stock Repurchase Program. As of December 31, 2014 , there were 267,089 shares remaining and authorized for repurchase under the 2012 Stock Repurchase Program.

During the year ended December 31, 2014 , the Company purchased 33,252 shares of common stock valued at $0.8 million , through withholding, pursuant to provisions in agreements with recipients of restricted stock granted under the Company's equity compensation plans, which allow the Company to withhold the number of shares having fair value equal to each recipient's tax withholding due.

10. Segment Information

On February 20, 2014, the Company acquired the Industrial Filtration business from Andrew Industries Limited, which is being reported as a separate reportable segment since the acquisition date. Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance.

The Company’s reportable segments are Performance Materials, Industrial Filtration, Thermal/Acoustical Metals, and Thermal/Acoustical Fibers. Other Products and Services (“OPS”) includes Life Sciences Vital Fluids.

Performance Materials Segment

F-23

Industrial Filtration Segment

Thermal/Acoustical Metals Segment

Thermal/Acoustical Fibers Segment

Thermal/Acoustical Metals segment and Thermal/Acoustical Fibers segment operating results include allocations of certain costs shared between the segments.

Other Products and Services

F-24

On January 30, 2015 the Company sold all of the outstanding shares of common stock of its Vital Fluids business, reported as Other Products and Services, for a cash purchase price of $29.9 million , subject to a post-closing adjustment (the "Disposition"). The Disposition was completed pursuant to a Stock Purchase and Sale Agreement, dated January 30, 2015, by and among the Company, and the Buyer. The Company expects to recognize an after tax gain on the sale of this business of approximately $10 to $12 million in the first quarter of 2015.

Net sales by segment and for OPS, as well as reconciling items, to equal to consolidated net sales for the years ended December 31, 2014 , 2013 , and 2012 were as follows:



Consolidated Net Sales	For the Years Ended December 31,
In thousands	2014			2013			2012
Performance Materials Segment:
Filtration	$	71,648		$	64,752		$	68,379
Thermal Insulation	31,404			36,929			38,449
Life Sciences Filtration	12,814			10,320			11,207
Performance Materials Segment net sales	115,866			112,001			118,035
Industrial Filtration Segment:
Industrial Filtration	112,220			—			—
Industrial Filtration net sales	112,220			—			—
Thermal/Acoustical Metals Segment:
Metal parts	145,135			135,833			136,276
Tooling	19,130			22,573			17,645
Thermal/Acoustical Metals Segment net sales	164,265			158,406			153,921
Thermal/Acoustical Fibers Segment:
Fiber parts	124,458			105,876			93,519
Tooling	4,133			8,444			917
Thermal/Acoustical Fibers Segment net sales	128,591			114,320			94,436
Other Products and Services:
Life Sciences Vital Fluids	19,682			17,175			16,853
Other Products and Services net sales	19,682			17,175			16,853
Eliminations and Other	(4,795		)	(3,933		)	(4,321		)
Consolidated Net Sales	$	535,829		$	397,969		$	378,924

Operating income by segment and for OPS and Corporate Office Expenses for the years ended December 31, 2014 , 2013 , and 2012 were as follows:



Operating Income	For the Years Ended December 31,
In thousands	2014			2013			2012
Performance Materials Segment	$	9,706		$	9,462		$	10,400
Industrial Filtration Segment	6,412			—			—
Thermal/Acoustical Metals Segment	13,823			14,088			14,708
Thermal/Acoustical Fibers Segment	29,167			21,486			12,851
Other Products and Services:
Life Sciences Vital Fluids	1,582			778			1,190
Corporate Office Expenses	(26,642		)	(17,101		)	(17,771		)
Consolidated Operating Income	$	34,048		$	28,713		$	21,378

F-25

Operating results in 2014 were negatively impacted by $2.1 million of purchase accounting adjustments relating to inventory step-up for the Industrial Filtration segment and a $2.9 million commission settlement within the T/A Metals segment. Corporate Office Expenses in 2014 were negatively impacted by a $4.9 million non-cash pension plan settlement charge and $2.6 million of transaction related costs. Corporate Office Expenses in 2013 were impacted by $1.2 million of transaction related costs. Operating results in 2012 were impacted by a net gain on sale of a product line in the Performance Materials segment of $0.8 million and a loss on disposal of assets in Corporate Office Expenses and the Performance Materials segment of $1.5 million and $0.3 million , respectively.

Total assets by segment and for OPS and the Corporate Office were as follows at December 31, 2014 , 2013 and 2012 :



Total Assets	December 31,
In thousands	2014		2013		2012
Performance Materials Segment	$	71,325	$	74,838	$	74,119
Industrial Filtration Segment	100,201		—		—
Thermal/Acoustical Metals Segment	106,210		104,908		96,019
Thermal/Acoustical Fibers Segment	33,109		30,176		26,830
Other Products and Services	11,580		11,866		11,195
Corporate Office	39,345		52,897		43,753
Total Assets	$	361,770	$	274,685	$	251,916

Total capital expenditures and depreciation and amortization by segment and for OPS and the Corporate Office for the years ended December 31, 2014 , 2013 and 2012 were as follows:



	Capital Expenditures						Depreciation and Amortization
In thousands	2014		2013		2012		2014		2013		2012
Performance Materials Segment	$	4,124	$	4,604	$	5,231	$	4,654	$	4,667	$	5,290
Industrial Filtration Segment	1,804		—		—		4,536		—		—
Thermal/Acoustical Metals Segment	8,544		6,027		4,063		4,578		4,777		5,019
Thermal/Acoustical Fibers Segment	3,296		1,887		1,033		2,166		2,217		2,324
Other Products and Services	574		243		128		804		588		596
Corporate Office	659		1,065		949		908		454		453
Total	$	19,001	$	13,826	$	11,404	$	17,646	$	12,703	$	13,682

Net sales by geographic area for the years ended December 31, 2014 , 2013 and 2012 and long-lived asset information by geographic area as of December 31, 2014 , 2013 , and 2012 were as follows:



	Net Sales						Long-Lived Assets
In thousands	2014		2013		2012		2014		2013		2012
United States	$	345,864	$	269,989	$	251,695	$	72,832	$	48,787	$	45,979
France	52,534		47,831		52,517		13,861		16,436		17,463
Germany	77,896		77,229		71,896		12,366		13,287		13,542
United Kingdom	26,387		—		—		7,601		—		—
China	29,401		—		—		11,225		—		—
Other	3,747		2,920		2,816		795		1,815		1,024
Total	$	535,829	$	397,969	$	378,924	$	118,680	$	80,325	$	78,008

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 2014 , 2013 , and 2012 were $88.4 million , $79.7 million , and $71.2 million , respectively, and accounted for 16.5% , 20.0% , and 18.8% of Lydall’s net sales in the years ended December 31, 2014 , 2013 , and 2012 , respectively. Sales to Chrysler Group LLC in 2013 and 2012 were $43.5 million and $38.0 million , respectively and accounted for 10.9% and 10.0% of Lydall's net sales in the years ended December 31, 2013 and 2012 , respectively. These sales were reported in the Thermal/Acoustical Metal and Thermal/Acoustical Fiber segments. No other customers accounted for more than 10.0% of total net sales in 2014, 2013, and 2012.

F-26

11. Income Taxes

The provision for income taxes from continuing operations consists of the following:



	For the years ended December 31,
In thousands	2014			2013			2012
Current:
Federal	$	8,069		$	5,477		$	3,208
State	1,334			709			265
Foreign	3,883			2,032			2,352
Total Current	13,286			8,218			5,825
Deferred:
Federal	$	(42	)	$	1,609		$	(2,031	)
State	(1,626		)	(1,144		)	(291		)
Foreign	191			504			673
Total Deferred	(1,477		)	969			(1,649		)
Provision for income taxes	$	11,809		$	9,187		$	4,176

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



	For the years ended December 31,
	2014		2013		2012
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	0.8		2.9		2.2
Valuation allowances for deferred tax assets, including state	1.3		(1.8	)	(17.8	)
Foreign dividends	—		0.5		0.9
Capitalized transaction costs	2.0		—		—
Domestic production activities deduction	(2.6	)	(2.7	)	(2.4	)
Foreign income taxed at lower rates	(3.5	)	—		—
Other	2.1		(1.5	)	2.0
Effective income tax rate	35.1	%	32.4	%	19.9	%

The Company’s effective tax rate for 2014 was 35.1% compared to 32.4% in 2013 and 19.9% in 2012. In 2014, the difference between the Company’s effective tax rate and the statutory federal income tax rate was due to a favorable mix of taxable income generated from countries with lower tax rates compared to that of the United States resulting in a tax benefit of $1.2 million and a tax benefit of $0.9 million attributable to the Domestic Production Activities Deduction . These favorable adjustments were partially offset by tax expense of $0.8 million related to nondeductible transaction costs from the Industrial Filtration acquisition, and a net increase in tax valuation allowances of $0.2 million . The other line item above is net of research credits, nondeductible expenses, and other income and expense items.

For 2013, the difference between the Company’s effective tax rate and the statutory federal income tax rate was primarily caused by the release of valuation allowances against state tax credit carryovers of $1.1 million , $0.8 million of benefit relating to Domestic Production Activities Deduction, and a tax benefit of $0.5 million related to the conclusion of certain U.S. federal income tax matters through the year ended December 31, 2009. These favorable tax adjustments were partially offset by an increase in valuation allowance established against a foreign net deferred tax asset. The $1.1 million reversal of valuation allowances against state tax credit carryovers included $0.3 million of state tax credits

F-27

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 earnings being lower or higher than anticipated 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, 2014 and 2013:



	2014				2013
	Deferred Tax Assets				Deferred Tax Assets
In thousands	Current		Long-term		Current		Long-term
Federal	$	3,399	$	—	$	3,219	$	—
State	711		1,408		321		479
Foreign	1,504		—		398		95
Totals	$	5,614	$	1,408	$	3,938	$	574



	2014				2013
	Deferred Tax Liabilities				Deferred Tax Liabilities
In thousands	Current		Long-term		Current		Long-term
Federal	$	—	$	10,562	$	—	$	7,780
State	—		—		—		—
Foreign	—		3,305		—		967
Totals	$	—	$	13,867	$	—	$	8,747

F-28

Net deferred tax assets (liabilities) consist of the following as of December 31, 2014 and 2013 :



	December 31,
In thousands	2014			2013
Deferred tax assets:
Accounts receivable	$	211		$	127
Inventories	884			939
Net operating loss carryforwards	4,992			4,566
Other accrued liabilities	3,341			2,020
Pension	7,295			5,268
Tax Credits	1,879			1,953
Total deferred tax assets	18,602			14,873
Deferred tax liabilities:
Domestic liability of foreign assets	$	—		$	96
Intangible assets	6,525			6,066
Property, plant and equipment	15,195			9,631
Total deferred tax liabilities	21,720			15,793
Valuation allowance	3,727			3,315
Net deferred tax liabilities	$	(6,845	)	$	(4,235	)

For the years ended December 31, 2014 , 2013 and 2012 , income from continuing operations before income taxes was derived from the following sources:



	For the years ended December 31,
In thousands	2014		2013		2012
United States	$	27,463	$	23,433	$	14,573
Foreign	6,193		4,909		6,409
Total income before income taxes	$	33,656	$	28,342	$	20,982

At December 31, 2014, the Company had approximately $10.1 million of state net operating loss carryforwards which expire between 2016 and 2034. In addition, at December 31, 2014, the Company had $2.9 million of state tax credit carry forwards that expire between 2015 and 2026. As of December 31, 2014, the Company had provided a valuation reserve against $9.6 million of its state net operating loss carryforwards and $1.1 million on its state tax credits carryforwards. The Company also has $5.0 million of foreign net operating loss carryovers in China, $2.1 million of foreign net operating loss carryovers in France, $0.8 million of net operating loss carryovers in the United Kingdom and $9.4 million of net operating loss carryovers in the Netherlands. The French net operating loss carryforwards have no expiration. The Company concluded it was more likely than not that the French net operating loss carryforwards will be fully realized and no valuation allowance was necessary as of December 31, 2014. The Netherlands’ net operating losses expire between the years 2017 and 2023 and the China net operating losses expire between the years 2015 and 2019. The Company has recorded a valuation allowance against the net operating losses in the Netherlands and China as 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.

As of December 31, 2014 the Company has not paid U.S. income taxes on approximately $25.1 million of undistributed earnings of foreign subsidiaries. The Company’s intention is to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. The Company estimates that the amount of tax that would be payable on the undistributed earnings if repatriated to the United States would fall in the range of $1.0 million to $8.5 million , based on current facts, but depending on the timing and extent of the repatriation. 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.

F-29

taxing authorities, including such major jurisdictions as the United States, China, France, Germany, Hong Kong, the Netherlands and the United Kingdom. Within the next fiscal year, the Company expects to conclude certain federal income tax matters through the year ended December 31, 2011 and it is reasonably expected that net unrecognized benefits of $0.4 million may be recognized. The total amount of net unrecognized tax benefits that would affect the effective tax rate if recognized was $1.3 million as of December 31, 2014. The Company is no longer subject to U.S. federal examinations for years before 2010, state and local examinations for years before 2002, and non-U.S. income tax examinations for years before 2003.

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



In thousands	2014		2013
Unrecognized tax benefits at beginning of year	$	1,864	$	1,029
Increases relating to positions taken in prior periods	20		678
Increases relating to current period	388		586
Decreases due to settlements with tax authorities	—		—
Decreases due to lapse of statute of limitations	—		(429		)
Unrecognized tax benefits at end of year	$	2,272	$	1,864

The Company recognizes the interest accrued and the penalties related to unrecognized tax benefits as a component of tax expense.

12. Commitments and Contingencies

Leases

The Company has operating leases that resulted in expense of $6.4 million in 2014 , $4.0 million in 2013 , and $4.0 million in 2012 . These contracts include building, office equipment, vehicle and machinery leases that require payment of property taxes, insurance, repairs and other operating costs.

The Company has a capital lease agreement for the land and building at the St. Nazaire, France operating facility requiring monthly principal and interest payments until 2016. (See Note 6)

Approximate future minimum lease payments under noncancelable leases are:



	Payments due by period
In thousands	Operating Lease Payments		Capital Lease Payments			Total
2015	$	4,848	$	647		$	5,495
2016	3,810		317			4,127
2017	3,708		—			3,708
2018	2,529		—			2,529
2019	1,362		—			1,362
Thereafter	1,080		—			1,080
Total	17,337		964			18,301
Interest on capital leases	—		(35		)	(35		)
Total	$	17,337	$	929		$	18,266

Commitments and Contingencies

F-30

any matters pending that are expected to be material with respect to the Company’s business, financial position, results of operations or cash flows.

The German Federal Cartel Office has wide discretion in fixing the amount of a fine, up to a maximum fine of ten percent ( 10% ) of the Company’s annual revenue of the year preceding the year in which the fine is imposed. The Company believes a loss is probable. However, in light of the uncertainties and variables involved, the Company is unable to estimate either the timing or the amount of the loss associated with this matter. There can be no assurance that this matter will not have a material adverse effect on the Company.

13. Earnings Per Share

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	2014	2013	2012
Basic average common shares outstanding	16,662	16,570	16,717
Effect of dilutive options and restricted stock awards	341	296	256
Diluted average common shares outstanding	17,003	16,866	16,973

For the years ended December 31, 2014 , 2013 and 2012 , stock options for less than 0.1 million , 0.2 million , and 0.2 million shares of Common Stock, respectively, were not considered in computing diluted earnings per common share as the stock options were considered anti-dilutive.

14. Quarterly Financial Information (Unaudited)

The following table summarizes quarterly financial results for 2014 and 2013 . 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	2014		2013		2014		2013		2014		2013		2014		2013
Net sales	$	125,226	$	99,029	$	148,793	$	101,051	$	134,227	$	97,995	$	127,583	$	99,894
Gross profit	$	26,199	$	21,365	$	34,653	$	23,037	$	28,564	$	20,494	$	25,562	$	20,329
Net income	$	3,716	$	4,492	$	8,240	$	5,955	$	4,158	$	4,575	$	5,733	$	4,133
Earnings per common share:
Basic	$	0.22	$	0.27	$	0.50	$	0.36	$	0.25	$	0.28	$	0.34	$	0.25
Diluted	$	0.22	$	0.26	$	0.49	$	0.35	$	0.24	$	0.27	$	0.34	$	0.25

The table above includes the quarterly results of Industrial Filtration since the acquisition date of February 20, 2014. Gross profit during the quarters ended March 31, 2014, June 30, 2014, and September 30, 2014 were negatively impacted by purchase accounting adjustments of $1.3 million , $0.5 million , and $0.2 million , respectively, related to the acquisition of Industrial Filtration. These purchase accounting adjustments reduced net income by $0.9 million ,

F-31

$0.4 million and $0.2 million during the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, respectively. (See Note 2)

Net income during the quarter ended March 31, 2014 was negatively impacted by $2.2 million of transaction related costs due to the acquisition of Industrial Filtration. Net income during the quarter ended June 30, 2014 was negatively impacted by a $2.0 million commission settlement within the T/A Metals segment. Net income during the quarter ended September 30, 2014, was negatively impacted by $3.0 million , related to a non-cash pension plan settlement charge associated with the Company's domestic defined benefit pension plan. (See Note 8)

Gross profit in the first quarter of 2013 included a completed pricing negotiation and a non-recurring customer project which contributed to an increase in gross profit of $1.8 million .

Net income during the quarters ended March 31, 2013 and June 30, 2013 were positively impacted by discrete tax benefits of $0.5 million and $0.3 million , respectively, related to the conclusion of certain U.S. federal income tax matters. Net income during the quarter ended December 31, 2013 was negatively impacted by $0.7 million of Industrial Filtration transaction related costs offset by the positive impact of the reversal of valuation allowances associated with state tax credit carryovers of $0.9 million . (See Note 11)

15. Recently Issued Accounting Standards

F-32

16. 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, 2014 , 2013 and 2012 :



In thousands	Foreign Currency Translation Adjustment			Defined Benefit Pension Adjustment				Total Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2011	$	1,937		$	(18,555	)		$	(16,618	)
Other Comprehensive income (loss)	1,241			(3,558		)	^(a)	(2,317		)
Amounts reclassified from accumulated other comprehensive income	—			569			^(b)	569
Balance at December 31, 2012	$	3,178		$	(21,544	)		$	(18,366	)
Other Comprehensive income (loss)	2,950			5,909			^(a)	8,859
Amounts reclassified from accumulated other comprehensive income	—			663			^(b)	663
Balance at December 31, 2013	$	6,128		$	(14,972	)		$	(8,844	)
Other Comprehensive loss	(12,714		)	(6,099		)	^(a)	(18,813		)
Amounts reclassified from accumulated other comprehensive income	—			3,496			^(b)	3,496
Balance at December 31, 2014	$	(6,586	)	$	(17,575	)		$	(24,161	)

(a) Amount represents actuarial (losses) gains arising from the Company’s postretirement benefit obligation. This amount was $(6.1) million , net of $3.7 million tax benefit, for 2014 , $5.9 million , net of a $3.6 million tax expense, for 2013 and $(3.6) million , net of $2.1 million tax benefit in 2012 . (See Note 8)

(b) Amount represents the amortization of actuarial losses to pension expense arising from the Company’s postretirement benefit obligation. This amount was $3.5 million , net of $2.1 million tax benefit, which included $3.0 million , net of $1.9 million tax benefit for pension settlement costs in 2014 , $0.7 million , net of $0.4 million tax benefit, for 2013 and $0.6 million , net of $0.3 million tax benefit in 2012 . (See Note 8)

17. Subsequent Events

On January 30, 2015, the Company sold all of the outstanding shares of common stock of its Vital Fluids business, reported as Other Products and Services, for a cash purchase price of $29.9 million , subject to a customary post-closing adjustment (the “Disposition”). The Disposition was completed pursuant to a Stock Purchase and Sale Agreement, dated January 30, 2015, by and among the Company, and the Buyer. The Company expects to recognize an after tax gain on the sale of this business of approximately $10 to $12 million in the first quarter of 2015.

F-33

Schedule II

LYDALL, INC.

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED December 31, 2014 , 2013 AND 2012



In thousands	Balance at January 1,		Charges to Costs and Expenses		Charges (Deductions) to Other Accounts				Deductions				Balance at December 31,
2014
Allowance for doubtful receivables	$	480	$	384	$	(39	)	2	$	(116	)	1	$	709
Tax valuation allowances	3,315		1,120		193			2,5	(901		)	3	3,727
2013
Allowance for doubtful receivables	$	469	$	60	$	15		2	$	(64	)	1	$	480
Tax valuation allowances	3,587		855		—				(1,127		)	3	3,315
2012
Allowance for doubtful receivables	$	622	$	162	$	7		2	$	(322	)	1	$	469
Allowance for note receivable	480		—		—				(480		)	4	—		4
Tax valuation allowances	7,132		854		—				(4,399		)	3	3,587


1.	Uncollected receivables written off and recoveries.


2.	Foreign currency translation and other adjustments.


3.	Reduction to income tax expense.


4.	A reserve for $0.5 million was recorded during 2004 for the remaining balance of the note receivable associated with the sale of certain assets of the fiberboard operation in 2001, which was included within “Prepaid expenses and other current assets” on the Consolidated Balance Sheets as of December 31, 2011. The receivable was written off against the reserve in 2012.


5.	Adjustments relating to the acquisition of Industrial Filtration.

S-1

Exhibit 10.6

AGREEMENT

THIS AGREEMENT is made and entered into as of the 31 ^st day of March, 2014, by and between LYDALL, INC., a Delaware corporation and/or its subsidiaries (together the "Company"), and Joseph A. Abbruzzi (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

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Cause. In the event of such termination of the Employee's employment for Cause, 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 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.

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(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 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 installments at the times that salary payments are normally made by the Company; provided that, if at the time of the Employee's termination of employment, the Employee is a "specified employee" as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations and guidance issued thereunder (a "Specified Employee"), then the Severance Benefit shall be paid in a lump sum on the first payroll date that occurs six (6) months after the date of the Employee's termination of employment.

(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

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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.

(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 30 days after the date of such termination of employment; provided that, if at the time of the Employee's termination of employment, the Employee is a Specified Employee, then the

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COC Severance Benefit shall be paid in a lump sum on the date that is six (6) months after the date of such termination of employment.

(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, including, without limitation, the Lydall, Inc. Severance Plan.

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:	Joseph A. Abbruzzi

22600 Arden Glen Ct.

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Novi, MI 48374

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

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this Agreement to the Employee's devisee, legatee, or other designee or, if there be no such designee, to the Employee's estate.

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.

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8.5 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 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.

8.6 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:	/S/ Dale Barnhart 7/17/14 Dale Barnhart Date President and Chief Executive Officer

/S/ Joseph A. Abbruzzi 3/31/14

Joseph A. Abbruzzi Date

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.

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.

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.

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:		Title:

EXHIBIT B

TERMINATION, VOLUNTARY RELEASE AND WAIVER OF RIGHTS AGREEMENT

I, Joseph A. Abbruzzi, 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 February __, 2014 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 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 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 Employment 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.

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

I, Joseph A. Abbruzzi, 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, Joseph A. Abbruzzi, 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.

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:

Exhibit 10.18

FORM (FOR U.S. EMPLOYEES) OF

LYDALL, INC.

PERFORMANCE SHARE AWARD AGREEMENT

(Three-Year Period)

THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is made between Lydall, Inc., a Delaware corporation (“Lydall”), and the recipient (the “Recipient”) with respect to an Award under Lydall’s 2012 Stock Incentive Plan (the “Plan”) pursuant to the award letter (the “Award Letter”), dated [_________], from Lydall to the Recipient. All capitalized terms used but not defined in this Agreement shall have the same meanings that have been ascribed to them in the Plan, unless the context clearly requires otherwise.

1. Grant of Performance Shares . On the Date of Grant (as defined in the Award Letter), the Recipient has been granted the number of shares of Restricted Stock as set forth in the Award Letter (the “Performance Shares”). The Performance Shares are subject to the terms and conditions set forth in the Award Letter, this Agreement and the Plan. By accepting this Agreement, Recipient understands that the Performance Shares will be forfeited unless both (a) the Performance Objectives (as defined below) are met and (b) the Recipient remains in employment by the Company through the date of the Certification (as defined below).

2. Acceptance of Award . The Recipient shall have no rights with respect to the Performance Shares unless the Recipient accepts this Agreement no later than the close of business on the date that is sixty (60) days after the Date of Grant. Such acceptance shall be effected by accessing the website of Lydall’s administrative agent (the “Administrative Agent”), referenced in the Award Letter and completing the required on-line grant acknowledgment process.

3. Ownership of Performance Shares; No Rights to Dividends on Performance Shares That Do Not Vest . As soon as practicable after the acceptance of the Award by the Recipient, Lydall will cause the Performance Shares to be issued in book entry form in the name of the Recipient, whereupon they will be held for the benefit of the Recipient by the Administrative Agent until the Performance Shares vest or are forfeited in accordance with the terms and conditions of the Plan and this Agreement. Upon such issue, the Recipient shall be the holder of record of the Performance Shares granted hereunder and will have, subject to the terms and conditions of the Plan and this Agreement, voting rights of a stockholder with respect to such Shares. Lydall shall retain custody of all Unvested Dividends made or declared with respect to the Performance Shares, subject to the same restrictions, terms and conditions as are applicable to the Performance Shares, until such time, if ever, as the Performance Shares shall vest.

4. Performance Condition.

(a) Period. The Performance Period for the Performance Shares is defined in the Award Letter.

(b) Performance Objectives. The actual number of Shares eligible for vesting will depend upon satisfaction of the Performance Objectives as defined below. To the extent this Award is intended to be a Section 162(m) Award, this Award shall be subject to Section 9(h) of the Plan. The “ Performance Objectives ” shall be the EPS (as defined below) for the last full fiscal year of the Performance Period compared to the target for such fiscal year (the “ Target ”), the threshold for such fiscal year (the “ Threshold ”) and the maximum for such fiscal year (the

Form of PSA 1 Approved 12/4/14

“ Maximum ”), each as established by the Plan Administrator, as stated in the Award Letter and calculated as set forth in the following table:



EPS Achievement	“Vesting Percentage” of Performance Shares
Below Threshold	None
Threshold	50%
Target	100%
Maximum	150%

For purposes of the foregoing, “ EPS ” means the diluted net income per share of Common Stock of Lydall for the last year of the Performance Period, as set forth in the audited financial statements of Lydall, as may be adjusted by the Plan Administrator pursuant to the terms of the Plan. Any adjustments with respect to Section 162(m) Awards shall be subject to compliance with Section 162(m).

The Vesting Percentage of the Performance Shares where performance achievement is between Threshold and Target will be scaled on a linear basis from 50% to 100%, and the Vesting Percentage of the Performance Shares where performance achievement is between Target and Maximum will be scaled on a linear basis from 100% to 150%.

EPS will be rounded to the nearest whole cent, and the number of Performance Shares determined by the Vesting Percentage will be rounded to the nearest whole share. All other calculations will be rounded to two decimal places. In the event that, in determining the EPS for the last full fiscal year of the Performance Period, the Plan Administrator adjusts the diluted net income per share of Common Stock from that set forth in the audited financial statements of Lydall, the Certification may include a brief statement setting forth the amount of the adjustment and the reasons therefor. Any adjustments with respect to Section 162(m) Awards shall be subject to compliance with Section 162(m).

(c) Determination of Level of Performance Objectives Achieved . As soon as practicable following the completion of the Performance Period and the preparation of Lydall’s audited financial statements for the applicable period, the Plan Administrator shall (a) determine the satisfaction of the Performance Objectives and (b) certify in writing, in accordance with the requirements of Section 162(m) to the extent applicable, the extent to which the Performance Objectives have been achieved, if at all, and the Vesting Percentage as defined in 4(b) resulting therefrom (such certification being hereinafter referred to as the “Certification”).

(d) Delivery of Vested Shares . Following the Certification, the Recipient shall be entitled to receive that number of Shares calculated by multiplying the number of Performance Shares set forth in the Award Letter by the Vesting Percentage set forth in the Certification, together with any Unvested Dividends relating thereto, provided the Recipient has settled all applicable tax withholding obligations arising from the vesting of the Award, as set forth in Section 6 below. All such vested Shares to which the Recipient is entitled, together with any Unvested Dividends, if any, relating thereto and any additional Performance Shares, if any, to which the Recipient is entitled by virtue of the Vesting Percentage being in excess of 100%, shall be released or delivered, as applicable, to the Recipient as soon as reasonably practical after the date of the Certification. Delivery of Shares will be made electronically via book entry to an account in the name of the Recipient maintained with Lydall’s transfer agent or Administrative Agent. In connection therewith,

Form of PSA 2 Approved 12/4/14

the Recipient agrees to execute any documents reasonably requested by Lydall or the Administrative Agent.

5. Forfeiture; Transfer Restrictions .

(a) All Performance Shares that do not vest pursuant to Section 4, as well as any Unvested Dividends relating to the Performance Shares that do not vest, shall be forfeited, effective as of the date of the Certification.

(b) If the Recipient’s employment with the Company terminates for any reason whatsoever prior to the date on which the Certification is made, then, effective upon the date of such termination, all of the Performance Shares, as well as any Unvested Dividends relating thereto, shall be forfeited.

(c) Neither the Performance Shares, nor the Recipient’s interest in any of the Performance Shares or Unvested Dividends, may be encumbered, sold, assigned, transferred, pledged or otherwise disposed of at any time prior to the date of the Certification. In the event any such action is taken, all of the Performance Shares evidenced by this Agreement, as well as any Unvested Dividends relating thereto, shall thereupon automatically be forfeited, effective as of the date of such event.

(d) All forfeited Shares shall be delivered promptly to Lydall by the Administrative Agent, and Lydall shall direct the transfer agent and registrar of the Common Stock to make appropriate entries upon its or their records.

(e) The Plan Administrator shall make all determinations as to whether an event has occurred resulting in the forfeiture of Performance Shares and any related Unvested Dividends, and all such determinations of the Plan Administrator shall be final and conclusive.

(f) The Performance Shares shall be subject to the forfeiture and recoupment provisions of Section 10(a) of the Plan.

6. Taxation .

(a) The Recipient recognizes and agrees that there may be certain tax issues that affect the Recipient arising from the grant and/or vesting of the Performance Shares and that the Recipient is solely responsible for payment of all federal, state and local taxes resulting therefrom. The Company expressly provides no tax advice to the Recipient and recommends that the Recipient seek personal tax advice. In general, the Recipient will have taxable income in any year during which Performance Shares vest, in an amount equal to the number of Shares that vest multiplied by the fair market value of the Common Stock on the vesting date. This amount will be included in Recipient’s taxable income reported on Form W-2 for that year.

(b) Any applicable income and employment tax withholding obligations associated with the vesting of the Performance Shares must be satisfied in accordance with the Plan and sub-section (c) below, prior to the delivery of vested Shares to the Recipient.

(c) Unless otherwise determined by the Plan Administrator, Recipient’s tax withholding liability will be satisfied through “net withholding” whereby the number of vested Shares actually delivered to the Recipient is reduced by a number of Shares with a fair market value of the Common Stock on the vesting date equal to the Company’s minimum statutory withholding tax liability outlined in (b) above.

Form of PSA 3 Approved 12/4/14

(d) Section 83(b) of the Code permits the Recipient to recognize income in the year in which the Performance Shares are granted, rather than in the subsequent year in which they vest. This election must be filed with the Internal Revenue Service within 30 days of the Date of Grant. The Recipient is encouraged to discuss this alternative with his or her own tax advisor. In the event that the Recipient desires to make an election under Section 83(b) of the Code, the Recipient first shall make appropriate arrangements with the Company for the payment of all applicable withholding taxes associated with such election.

7. No Employment Rights . Nothing in this Agreement shall be deemed to: (a) confer or be deemed to confer upon the Recipient any right to continue in the employ of the Company or in any way affect the right of the Company to dismiss or otherwise terminate the Recipient’s employment at any time for any reason with or without cause, (b) impose upon the Company any liability for any forfeiture of Performance Shares which may result if the Recipient’s employment is terminated, or (c) affect the Company’s right to terminate or modify any contractual relationship with a Recipient who is not an employee of the Company.

8. Changes in Capitalization . Neither this Agreement nor the grant of the Performance Shares shall affect in any way the right or power of Lydall or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in Lydall’s capital structure or its business, or any merger or consolidation of Lydall or any Lydall Affiliate, or any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of Lydall or any Lydall Affiliate, or any sale or transfer of all or any part of Lydall’s assets or business, or any other corporate act or proceedings, whether of a similar character or otherwise.

9. Change in Control . Upon a Change in Control Event or other Reorganization Event, the Performance Shares shall be subject to the terms of the Plan.

10. Plan Terms and Plan Administrator Authority . This Agreement and the rights of the Recipient hereunder are subject to all of the terms and conditions of the Plan, as it may be amended from time to time, as well as to such rules and regulations as the Plan Administrator may adopt for the administration of the Plan. It is expressly understood that the Plan Administrator is authorized to administer, construe and make, in its sole and absolute discretion, all determinations necessary or appropriate for the administration of the Plan and this Agreement, all of which shall be binding upon the Recipient. This Agreement shall be interpreted and applied in a manner consistent with the provisions of the Plan, and in the event of any inconsistency between this Agreement and the Plan, the terms of the Plan shall control.

11. Miscellaneous

(a) Amendment; Modification; Waiver . No provision of this Agreement may be amended, modified or waived unless authorized by the Plan Administrator, and no amendment or modification of this Agreement may be made without Recipient’s consent except as permitted by Section 9(e) of the Plan.

(b) Notices . Except as otherwise provided herein, every notice or other communication relating to this Agreement shall be in writing, and shall be mailed or delivered to the party for whom it is intended at such address as may from time to time be designated by such party in a notice mailed or delivered to the other party as herein provided; provided, that, unless and until some other address be so designated, all notices or communications to the Company shall be mailed to or delivered to Lydall’s Vice President, General Counsel and Secretary, with a copy to its Vice President of Human Resources, both at Lydall, Inc., One Colonial Road, P. O. Box

Form of PSA 4 Approved 12/4/14

151, Manchester, Connecticut, 06045-0151, and all notices by the Company to the Recipient may be given to the Recipient personally or may be mailed to him or her at the last address designated for the Recipient on the employment records of the Company. For purposes of this section, the term “mailed” includes electronic delivery methods.

(c) Appointment of Agent . By accepting the Performance Shares evidenced by this Agreement, the Recipient hereby irrevocably nominates, constitutes and appoints each of Lydall’s Vice President of Human Resources and the Administrative Agent as his or her agent and attorney-in-fact to take any and all actions and to execute any and all documents, in the name and on behalf of the Recipient, for any purpose necessary or convenient for the administration of the Plan and this Agreement. This power is intended as a power coupled with an interest and shall survive the Recipient’s death. In addition, it is intended as a durable power and shall survive the Recipient’s incapacity. Lydall has the right to change the appointed transfer agent or Administrative Agent from time to time.

(d) Governing Law; Jurisdiction . This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware, excluding choice-of-law principles of the law of such state that would require the application of the laws of a jurisdiction other than the State of Delaware, and the Recipient agrees to the exclusive jurisdiction of Connecticut courts.

(e) Compliance with Laws . The issuance or delivery of Shares pursuant to this Agreement shall be subject to, and shall comply with, any applicable requirements of any federal and state securities laws, rules and regulations (including, without limitation, the provisions of the Securities Act and the Exchange Act, and any rules and regulations promulgated thereunder) and any other law or regulation applicable thereto. Lydall shall not be obligated to issue or deliver to Recipient any Shares pursuant to this Agreement if such issuance or delivery would violate any such requirements.

(f) Severability . The invalidity or unenforceability of any provision of this Agreement shall not affect the validity, legality or enforceability of the remainder of this Agreement, it being intended that all rights and obligations of the Company and the Recipient shall be enforceable to the fullest extent permitted by law.

12. Statute of Limitations . The Recipient hereby agrees that there shall be a one-year statute of limitations for the filing of any claim relating to this Agreement or the terms or conditions of the Performance Shares. If such a claim is filed more than one year subsequent to the earlier of the date on which the vesting of the Performance Shares is scheduled to occur or termination of the Recipient’s employment, it shall be precluded by this provision, whether or not the claim has accrued at that time.

IN WITNESS WHEREOF, the undersigned officer of Lydall has executed this Agreement.

LYDALL, INC.

By: /s/ Dale G. Barnhart

Name: Dale G. Barnhart

Title: President and Chief Executive Officer

Form of PSA 5 Approved 12/4/14

Exhibit 10.34

AMENDMENT TO THE AMENDED AND RESTATED SECURITY AGREEMENTS,

THE AMENDED AND RESTATED DOMAIN NAME COLLATERAL ASSIGNMENT AND

SECURITY AGREEMENT AND PARTIAL RELEASE

THIS AMENDMENT TO THE AMENDED AND RESTATED SECURITY AGREEMENTS, THE AMENDED AND RESTATED DOMAIN NAME COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT AND PARTIAL RELEASE (“Amendment and Partial Release”) is made this 30th day of January, 2015, by and among LYDALL, INC., a Delaware corporation (“Lydall”), LYDALL THERMAL/ ACOUSTICAL, INC., a Delaware corporation (“Lydall Thermal”), and BANK OF AMERICA, N.A., a national banking association (“Bank of America”), on behalf of itself and as Administrative Agent (in such capacity, the “Agent”) for the ratable benefit of itself and the other lenders that are party to the Amended and Restated Credit Agreement (defined below) (collectively with Bank of America, the “Lenders”).

WITNESSETH:

WHEREAS, Lydall, the Agent and the Lenders are parties to that certain Amended and Restated Credit Agreement dated as of February 18, 2014 (the “Amended and Restated Credit Agreement”) pursuant to which the Lenders have agreed to make loans or extend credit accommodations to Lydall in an amount not to exceed $100,000,000 at any one time outstanding; and

WHEREAS, the obligations of Lydall under the Amended and Restated Credit Agreement are secured in part by (i) that certain Amended and Restated Security Agreement dated as of February 18, 2014 by and between Lydall and the Agent (the “Lydall Security Agreement”) pursuant to which Lydall granted the Agent a security interest in all assets of Lydall other than certain Excluded Assets, as defined in the Lydall Security Agreement; (ii) that certain Amended and Restated Domain Name Collateral Assignment and Security Agreement dated as of February 18, 2014 made by Lydall in favor of the Agent (the “Domain Name Assignment”) pursuant to which Lydall granted the Agent a security interest in all of Lydall’s Domain Names, as defined in the Domain Name Assignment, including but not limited to the Domain Names set forth on Exhibit A attached hereto and made a part hereof (such Domain Names set forth on Exhibit A hereto being herein called the “Charter Medical Domain Names”) and the Domain Name Rights and Domain License Rights, each as defined in the Domain Name Assignment, relating to, or arising from, the Charter Medical Domain Names (collectively together with the Charter Medical Domain Names herein called the “Charter Medical Domain Names Collateral”); and (iii) that certain Amended and Restated Guaranty Agreement dated as of February 18, 2014 made by Lydall Thermal, and certain other Domestic Subsidiaries of Lydall in favor of the Agent (the “Guaranty Agreement”) with Lydall Thermal’s obligations under the Guaranty Agreement being secured by that certain Amended and Restated Security Agreement dated as of February 18, 2014 by and between Lydall Thermal and the Agent (the “Lydall

Thermal Security Agreement”) pursuant to which Lydall Thermal granted the Agent a security interest in all assets of Lydall Thermal other than Excluded Assets, as defined in the Lydall Thermal Security Agreement, and which security interest covered among other assets, all of Lydall Thermal’s equity interest in Charter Medical; and

WHEREAS, Section 7.05(g) of the Amended and Restated Credit Agreement provides that, subject to specified conditions, sales of assets in an aggregate amount of up to $25,000,000 in an Annual Period (as defined therein) is deemed a permitted Disposition; and

WHEREAS, Lydall and Lydall Thermal have notified the Lender that they are in the process of negotiating the sale of Charter Medical, which constitutes less than $25,000,000 of the assets of Lydall; and

WHEREAS, Lydall and Lydall Thermal desire to have the Agent release all liens and security interests it holds for itself and for the benefit of the Lenders in or on (i) Lydall Thermal’s equity interest in Charter Medical; and (ii) the Charter Medical Domain Names Collateral, all of which are to be conveyed to the purchaser of the stock of Charter Medical when it is sold by Lydall Thermal.

NOW, THEREFORE, for good and valuable consideration, each to the other paid, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in the Amended and Restated Credit Agreement, the Lydall Security Agreement, the Domain Name Assignment, the Lydall Thermal Security Agreement or the Guaranty Agreement, as applicable.

2. Representation . Lydall hereby represents and warrants that the sale of Charter Medical to Fenner Drives, Inc., when aggregated with all other sales of assets of Lydall within the current Annual Period, does not exceed the Annual Basket Amount for such period in accordance with Section 7.05(g) of the Amended and Restated Credit Agreement.

3. Release . The Agent, for itself and on behalf of all of the Lenders, hereby agrees that upon the transfer of title of all Lydall Thermal’s equity interest in Charter Medical to Fenner Drives, Inc., any and all liens or security interests which it holds in or on (i) Lydall Thermal’s equity interest in Charter Medical; and (ii) the Charter Medical Domain Names Collateral, whether created by the Lydall Security Agreement, the Domain Name Assignment, the Lydall Thermal Security Agreement, the Guaranty Agreement or otherwise, shall be automatically terminated, cancelled, discharged and released. Following the transfer of the stock of Charter Medical by Lydall Thermal to Fenner Drives, Inc., the Lender agrees to take all such further actions and to provide Lydall and Lydall Thermal, and their successors and assigns, all such cooperation and assistance (including but not limited to the execution and delivery of all documents or other instruments) reasonably requested from Lender to more fully and effectively effectuate the foregoing release, including but not limited to,

the execution and delivery to Lydall of a Release Of Security Interest In Domain Names And Related Collateral in the form attached hereto as Exhibit B .

4. Ratification . Except as hereby modified, all of the terms, covenants, and conditions of the Lydall Security Agreement, the Domain Name Assignment, the Lydall Thermal Security Agreement and the Guaranty Agreement are hereby confirmed, ratified and approved in all respects and shall continue in full force and effect. Henceforth, references in the Lydall Security Agreement, the Domain Name Assignment, the Lydall Thermal Security Agreement and the Guaranty Agreement to “this Agreement”, “hereof,” “hereto” as words of similar import shall be deemed in each case to refer to such documents as hereby amended.

5. Counterparts; Facsimile Transmissions; PDF Electronic Transmissions.

A. This Amendment and Partial Release may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

B. Telefacsimile or PDF electronics transmissions of any executed counterpart of this Amendment and Partial Release and/or retransmission of any executed telefacsimile or PDF electronic transmission shall be deemed to be the same as the delivery of an executed original. At the request of either party hereto, the other party shall confirm telefacsimile or PDF electronic transmissions by executing duplicate original documents and delivering the same to the requesting party.

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IN WITNESS WHEREOF, Lydall, Lydall Thermal and the Agent have caused this Amendment and Partial Release to be duly executed as of the date and year first written above.

LYDALL, INC.

By: /s/ James V. Laughlan

Name: James V. Laughlan

Title: Vice President, Chief Accounting

Officer and Treasurer

LYDALL THERMAL/ACOUSTICAL, INC.

By: /s/ James V. Laughlan

Name: James V. Laughlan

Title: Vice President, Chief Accounting

Officer and Treasurer

BANK OF AMERICA, N.A., as Administrative Agent

By: /s/ Christopher T. Phelan

Name: Christopher T. Phelan

Title: Senior Vice President

STATE OF CONNECTICUT)

) ss Manchester January 30, 2015

COUNTY OF HARTFORD )

Personally appeared James V. Laughlan, Vice President, Chief Accounting Officer and Treasurer of LYDALL, INC., a Delaware corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed of such Officer and the free act and deed of such corporation before me.

/s/ Donna G. Tracy

Name: Donna G. Tracy

Commissioner of the Superior Court

Notary Public

My Commission Expires: March 31, 2018

STATE OF CONNECTICUT )

) ss Manchester January 30, 2015

COUNTY OF HARTFORD )

Personally appeared James V. Laughlan, Vice President, Chief Accounting Officer and Treasurer of LYDALL THERMAL/ACOUSTICAL, INC., a Delaware corporation, signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed of such Officer and the free act and deed of such corporation before me.

/s/ Donna G. Tracy

Name: Donna G. Tracy Commissioner of the Superior Court

Notary Public

My Commission Expires: March 31, 2018

STATE OF CONNECTICUT )

) ss Hartford January 29, 2015

COUNTY OF HARTFORD )

Personally appeared Christopher T. Phelan, Senior Vice President of BANK OF AMERICA, N.A., a national banking association, signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed of such Officer and the free act and deed of such corporation before me.

/s/ Lisa A. Martocchio Name: Lisa A. Martocchio

Commissioner of the Superior Court

Notary Public

My Commission Expires: December 31, 2016

EXHIBIT A

CHARTER MEDICAL DOMAIN NAMES



Domain	Registration Date	Expiration Date	Owner
cellfreeze.com	11/24/2010	08/17/2015	Lydall, Inc.
chartermed.com	02/16/2006	04/02/2015	Lydall, Inc.
chartermedical.com	02/16/2006	01/28/2015	Lydall, Inc.
mybiobag.com	02/16/2006	12/13/2015	Lydall, Inc.
mybiopack.com	02/16/2006	12/13/2015	Lydall, Inc.
mybiopak.com	02/16/2006	12/13/2015	Lydall, Inc.

EXHIBIT B

RELEASE OF SECURITY INTEREST IN DOMAIN NAMES

AND RELATED COLLATERAL

KNOW ALL MEN BY THESE PRESENTS, that BANK OF AMERICA, N.A., for itself and as administrative agent (in such capacity, the “Agent”) for the ratable benefit of the Lenders party to that certain Amended and Restated Credit Agreement dated as of February 18, 2014 by and among Lydall, Inc., the Agent and the Lenders party thereto (the “Amended and Restated Credit Agreement”), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, DOES HEREBY CERTIFY that the security interest which the Agent holds in the domain names set forth on Schedule A attached hereto and made a part hereof (the Charter Medical Domain Names”) of Lydall, Inc., granted to the Agent pursuant to the Amended and Restated Domain Name Collateral Assignment and Security Agreement dated as of February 18, 2014 by and between Lydall, Inc. and the Agent (the “Domain Name Security Agreement”), and any and all other rights or interests relating to, or arising from, or associated with, the Charter Medical Domain Names which were granted to the Agent pursuant to the Domain Name Security Agreement (collectively the “Charter Medical Domain Names Related Collateral”), is terminated, cancelled, discharged and released and all interests in such Charter Medical Domain Names and Charter Medical Domain Names Related Collateral previously assigned, granted or conveyed to the Agent under the Domain Name Security Agreement is hereby reassigned, regranted and reconveyed to Lydall, Inc., without representation or warranty of any kind, nature or description.

The Agent shall take all such further actions, and provide to Lydall, Inc., and its successors, assigns or other legal representatives, all such cooperation and assistance (including, without limitation, the execution and delivery of any and all documents or other instruments), reasonably requested by Lydall, Inc. to more fully and effectively effectuate the purposes of this Release of Security Interest In Domain Names And Related Collateral.

IN WITNESS WHEREOF, the Agent, for itself and on behalf of all the Lenders under the Amended and Restated Credit Agreement, has caused this Release Of Security Interest In Domain Names And Related Collateral to be executed by its duly authorized corporate officer this 29 ^th day of January, 2015.

BANK OF AMERICA, N.A.,

as Administrative Agent

By: /s/Christopher T. Phelan

Name: Christopher T. Phelan

Title: Senior Vice President

Exhibit 10.35

LYDALL, INC.

ANNUAL INCENTIVE PERFORMANCE PROGRAM

(Effective January 1, 2015)

This Annual Incentive Performance Program (this “AIP Program”) sets forth the terms and conditions under which designated employees of Lydall, Inc. and its subsidiaries (collectively, “Lydall” or the “Company”) may receive cash incentive payments based on the annual financial performance of the Company.

1. Purpose . The purpose of this AIP Program is to retain and incentivize Participating Employees (as defined below) by providing annual cash bonus opportunities to reward them when specified performance metrics are achieved.

2. Effective Date . This AIP Program is effective as of January 1, 2015 and shall continue indefinitely until terminated by the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”) of Lydall.

3. Eligibility . Only Participating Employees are eligible to participate in this AIP Program. “Participating Employees” are officers of Lydall and Vice Presidents / Senior Vice Presidents of Lydall subsidiaries as approved by the Compensation Committee (“Group A Participating Employees”) and other employees of Lydall who are designated by the Chief Executive Officer and approved by the Compensation Committee (“Group B Participating Employees”).

4. Program Elements . The following elements and defined terms apply to this AIP Program:

a. Program Year . A “Program Year” is the calendar year.


b.	Base Salary . “Base Salary” is the Participating Employee’s regular earnings as indicated on his or her final paycheck of the Program Year, plus any separately recorded holiday and vacation pay. Base Salary is reduced by earnings attributed to any leave of absence.

Target Bonus Percentage . “Target Bonus Percentage” is a specified percentage of a Participating Employee’s Base Salary that is assigned as part of his or her compensation package. Target Bonus Percentages may change from year-to-year based upon approval of the Chief Executive Officer or, in the case of the Chief Executive Officer and his/her direct reports, based upon approval by the Compensation Committee.


d.	Target Bonus Amount . “Target Bonus Amount” for each Participating Employee is the product obtained by multiplying his or her Base Salary by his or her Target Bonus Percentage.


e.	Performance Metrics . “Performance Metrics” are the following designated measures of financial performance for any given Program Year for Lydall on a consolidated basis or for a Business Unit (as defined below):


(i)	Operating Income (or “OI”) — defined as operating income from continuing operations.


(ii)	Free Cash Flow (or “FCF”) — defined as Cash Flow from Operations minus Capital Expenditures.


(iii)	Gross Margin (or “GM”) — defined as the percentage resulting from: (A) the excess, if any, of net sales from continuing operations over cost of sales from continuing operations; (B) divided by net sales from continuing operations.


(iv)	Revenue — defined as total net sales, adjusted for this Performance Metric only to exclude foreign exchange fluctuations from the budgeted exchange rate.


f.	Performance Targets . “Performance Targets” are the specific measures of financial performance (expressed with reference to consolidated and Business Unit Performance Metrics) that are established and approved by the Compensation Committee for each Program Year.


g.	Business Units . Performance Targets may be established for such business units of the Company as may be determined by the Compensation Committee from time-to-time (each, a “Business Unit” or “BU” and, collectively, the “Business Units”).

Applicability and Relative Weight of Performance Metrics . The applicable Performance Metrics and the relative weight of each such Performance Metric (the “Performance Metric Weight”) for the respective Participating Employees shall be established by the Compensation Committee at the same time it establishes the consolidated and Business Unit Performance Targets for each Program Year. For Group A Participating Employees within each Business Unit, the Performance Metrics and Performance Metric Weight will be set based on 80% of their respective Business Unit performance and 20% on Corporate Headquarters (i.e., consolidated) performance.

5. AIP Program Operation . This AIP Program shall operate as set forth below:

Establishment of Performance Targets . No later than March 31 of each Program Year, the Compensation Committee shall establish the consolidated and Business Unit Performance Targets, Performance Metrics and Performance Metric Weight for such Program Year. All Performance Targets and actual performance with respect to those targets are subject to adjustment by the Compensation Committee, in its discretion, if determined necessary or appropriate to adjust for the effects of extraordinary items, unusual or non-recurring events, changes in accounting principles, realized investment gains or losses, discontinued operations, acquisitions, divestitures, material restructuring or impairment charges and other similar items.


b.	Determination of Cash Bonus Factors for OI and FCF Achieved . Cash bonus awards with respect to the OI and FCF Performance Metrics are determined based upon the achievement of the Performance Targets with reference to the applicable cash bonus factor set forth in the table below (hereinafter, the “OI and FCF Cash Bonus Factor”).

Straight line interpolation will be used to calculate the Cash Bonus Factor for actual performance between the achieved performance levels for each performance metric.



% of Performance Target Achieved for IO and FCF	OI and FCF Cash Bonus Factor
90	.50
100	1.00
110	2.00

Determination of Cash Bonus Factor for Revenue Achieved . Cash bonus awards with respect to the Revenue Performance Metric for performance achieved are determined based upon the achievement of the Performance Targets with reference to the applicable cash bonus factor set forth in the table below (hereinafter, the “Revenue Cash Bonus Factor”). Straight line interpolation will be used to calculate the Cash Bonus Factor for actual performance between the achieved performance levels.



% of Performance Target Achieved for Revenue	Revenue Cash Bonus Factor
95	.50
100	1.00
110	2.00

Determination of Cash Bonus Factor for GM Achieved . Cash bonus awards with respect to the GM Performance Metric for performance achieved are determined based upon the achievement of the Performance Targets with reference to the applicable cash bonus factor set forth in the table below (hereinafter, the “GM Cash Bonus Factor”) Straight line interpolation will be used to calculate the GM Cash Bonus Factor for actual performance between the achieved performance levels.



Basis Points Relative to GM Target	GM Cash Bonus Factor
100	.5
Target	1.0
100	2.0

Determination of Actual Financial Performance . As soon as practicable following the completion of each Program Year and the availability of Lydall’s audited consolidated financial statements for such Program Year, the Compensation Committee shall: (i) determine the consolidated and Business Unit Operating Income, Free Cash Flow, Gross Margin and Revenue achieved for the Program Year (each “Performance Metric Achieved”); and (ii) certify in writing the extent to which the Performance Target for each has been achieved, if at all (such certification is referred to as the “Committee Certification”). If, in determining and certifying the achievement of any Performance Targets for the Program Year, the Compensation Committee determines that it is necessary or appropriate to make adjustments by virtue of the authority set forth in paragraph (a) above, the Committee Certification shall include a brief statement setting forth the amount of the adjustment and the reasons therefor.

Determination of Cash Bonus Amount . Each Participating Employee, other than Group A Participating Employees within each Business Unit, shall be entitled to receive a cash bonus equal to the product of his or her: (i) Target Bonus Amount, (ii) Performance Metric Weight for the applicable Performance Metric, and (iii) Cash Bonus Factor for the applicable Performance Metric Achieved (as set forth in Committee Certification) for the applicable Program Year.

Each Group A Participating Employees within each Business Unit shall be entitled to receive a cash bonus equal to (A) eighty (80%) percent of the product of his or her: (i) Target Bonus Amount, (ii) Performance Metric Weight for the applicable Business Unit Performance Metric, and (iii) Cash Bonus Factor for the applicable Business Unit Performance Metric Achieved (as set forth in Committee Certification) for the applicable Program Year; and (B) twenty (20%) percent of the product of his or her: (i) Target Bonus Amount, (ii) Performance Metric Weight for the applicable Corporate Headquarters Performance Metric, and (iii) Cash Bonus Factor for the applicable the Corporate Headquarters Performance Metric Achieved (as set forth in Committee Certification) for the applicable Program Year.

Limitation on Payments . Notwithstanding any other provision of the AIP Program, the following limitations shall apply with respect to the total bonus amount paid to any Participating Employee: (i) the total amount paid to any Group A Participating Employee shall not exceed 200% of their Target Bonus Amount; and (ii) the total amount paid to any group B Participating employee shall not exceed 150% of their Target Bonus Amount.

6. General Terms and Conditions

Plan Administration . The Compensation Committee shall be responsible for overseeing the administration and interpretation of this AIP Program and for overseeing the implementation of its provisions. The Compensation Committee reserves the right, in its sole discretion, to modify, amend or terminate this AIP Program at any time. All decisions of the Compensation Committee regarding the interpretation, construction, implementation and administration of this AIP Program shall be final and binding.


b.	Repayment of Bonus . The following shall apply with respect to the repayment of bonuses paid under this AIP Program:

(i)

To the extent not required to be repaid by the other provisions to this Section 6 (b), if, at any time, the Compensation Committee, in its sole discretion, determines that any action or omission by a Participating Employee constituted (i) wrongdoing that contributed to any material misstatement in or omission from any report or statement filed by the Company with the U.S. Securities and Exchange Commission; (ii) intentional misconduct or gross misconduct; (iii) a breach of a fiduciary duty to the Company or its shareholders; or (iv) fraud, then in each such case, commencing with the first Program Year during which such action or omission occurred, the Participating Employee committing such act or omission shall be terminated from participation in this AIP Program and such Participating Employee shall immediately repay to the Company, upon notice to the Participating Employee by the Company, up to 100% (as determined by the Company) of the gross amount paid to the Participating Employee pursuant to this AIP Program during and after such Program Year.

(ii)

To the extent not required to be repaid by the other provisions to this Section 6(b), any bonus paid pursuant to this AIP Program also shall be subject to recoupment in accordance with the applicable provisions of any law, 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).

Additionally, at the discretion of the Compensation Committee, if the Company is required to restate any of its financial statements filed with the U.S. Securities and Exchange Commission, other than restatements due solely to facts external to the Company and its affiliates such as a change in accounting principles or a change in securities laws or regulations with retroactive effect, Participating Employees may be required to disgorge and repay to the Company any bonus paid pursuant to this AIP Program to the extent such bonus exceeded the amount that would have been paid for such Program Year if it had been based upon the restated financial statements.


c.	Payment . All cash bonuses shall be paid after issuance of the Committee Certification.


d.	Active Employment Condition . To be eligible to receive a bonus payout under this AIP Program, a Participating Employee must be an employee in good standing as of the date the cash bonus is actually paid by Lydall, except as otherwise specifically agreed to by the Board or the Compensation Committee.


e.	No Guarantee That Cash Bonuses Will Be Paid . Lydall and the Compensation Committee reserve the right to withhold, reduce or deny payment of a cash bonus otherwise payable under the AIP Program, subject to any limitations that may be imposed by applicable law.


f.	Not an ERISA Regulated Program . This is not an ERISA regulated program.


g.	No Assignability . No rights of any Participating Employee may be sold, exchanged, transferred, assigned, pledged or otherwise disposed of (including through the use of any cash-settled instrument), either voluntarily or involuntarily by operation of law, other than by will or by the laws of descent and distribution.


h.	Program Creates No Employment Rights . Nothing in this AIP Program shall confer upon any Participating Employee a right to continue in the employ of Lydall or affect any right which Lydall may have to terminate such employment.


i.	Program Unfunded . This AIP Program is unfunded and nothing in the program shall be construed to create a trust or to establish or evidence any Participating Employee’s claim of any right to payment of a cash bonus other than as a general unsecured creditor.


j.	Governing Law . All rights and obligations under this AIP Program shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflict of laws.


k.	Tax Withholding . All payments hereunder shall be subject to applicable income, employment and other tax withholding as may be required by law.


l.	Section 409A of the Code . Lydall intends that cash payments under this AIP Program shall be exempt from Section 409A of the U.S. Internal Revenue Code, as amended

(the “Code”), as short-term deferrals and shall not constitute “deferred compensation” within the meaning of Section 409A of the Code (absent a valid deferral election under the terms of another plan or arrangement maintained by Lydall). This AIP Program shall be interpreted, construed and administered in accordance with the foregoing intent. Notwithstanding the foregoing, Lydall shall have no liability to any Participating Employee or otherwise if this AIP Program or any cash bonus award paid or payable hereunder is subject to the additional tax and penalties under Section 409A of the Code.

No Effect on Benefits . Awards and payments under this AIP Program shall constitute special incentive payments to the Participating Employee and shall not be required to be taken into account in computing the amount of salary or compensation of the Participating Employee for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of Lydall or under any agreement with a Participating Employee, unless Lydall has elected to implement a different arrangement or practice.

Exhibit 21.1

Lydall, Inc. Subsidiary List as of December 31, 2014

I. Parent Company

Lydall, Inc.

II. First tier

Lydall Thermal/Acoustical, Inc.

Lydall Performance Materials, Inc.

Lydall International, Inc.

LDL C.V.

Southern Felt Company, Inc.

III. Second tier

Charter Medical, Ltd.

Lydall Asia Limited

Lydall Thermal/Acoustical Sales, LLC

Lydall Netherlands B.V.

IV. Third tier

Lydall Thermal/Acoustical (Taicang) Company Limited

Lydall Performance Materials B.V.

Lydall France S.A.S.

Lydall Holdings GmbH

Lydall UK Ltd.

V. Fourth tier

Lydall Performance Materials S.A.S.

Lydall Thermique/Acoustique S.A.S.

Charter Medical S.A.S.

Lydall Gerhardi GmbH & Co. KG

Lydall Industrial Filtration (EMEA) Limited

Lydall Industrial Filtration Textile Manufacturing (EMEA) Limited

Andrew Industries (Hong Kong) Limited

VI. Fifth tier

Health Filtration Limited

Lydall Industrial Textile Manufacturing Company (Shanghai) Limited

Andrew Industrial Textile Manufacturing Company (Wuxi) Limited

Andrew Industrial Textile Trading Company (Shanghai) Limited

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos. 333-08886, 333-109500, 333-160511, and 333-181139) of Lydall Inc. of our report dated March 3, 2015 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K .

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Hartford, Connecticut

March 3, 2015

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Lydall, Inc. (the “Corporation”), does hereby constitute and appoint Dale G. Barnhart and Robert K. Julian, and each of them singly, as his agent and attorney-in-fact to do any and all things and acts in his/her name and in the capacities indicated below and to execute any and all instruments for him/her and in his/her name in the capacities indicated below which said Dale G. Barnhart and Robert K. Julian, or either of them, may deem necessary or advisable to enable the Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the preparation and filing of the Corporation’s Annual Report on Form 10-K (the “Annual Report”) respecting the fiscal year ended December 31, 2014, including specifically, but not limited to, power and authority to sign for him/her in his/her name in the capacities indicated below the Annual Report and any and all amendments thereto, and each of the undersigned does hereby ratify and confirm all that said Dale G. Barnhart and Robert K. Julian, or either of them, shall do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his or her name.

/s/W. Leslie Duffy _________________ Chairman of the Board February 27, 2015

W. Leslie Duffy and Director

/s/Dale G. Barnhart ________________ President, Chief February 27, 2015

Dale G. Barnhart Executive Officer

and Director

/s/Kathleen Burdett _________________ Director February 27, 2015

Kathleen Burdett

/s/Matthew T. Farrell _______________ Director February 27, 2015

Matthew T. Farrell

/s/Marc T. Giles ___________________ Director February 27, 2015

Marc T. Giles

/s/William D. Gurley _______________ Director February 27, 2015

William D. Gurley

/s/Suzanne Hammett _______________ Director February 27, 2015

Suzanne Hammett

/s/S. Carl Soderstrom, Jr. ___________ Director February 27, 2015

S. Carl Soderstrom, Jr.

Exhibit 31.1

CERTIFICATION

I, Dale G. Barnhart, certify that:


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


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



March 3, 2015		/s/ Dale G. Barnhart
		Dale G. Barnhart President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Robert K. Julian, certify that:


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


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



March 3, 2015		/s/ Robert K. Julian
		Robert K. Julian Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Lydall, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

The foregoing certifications are accompanying the Form 10-K solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code) and are not being filed as a part of this Form 10-K or as a separate disclosure document.



March 3, 2015		/s/ Dale G. Barnhart
		Dale G. Barnhart President and Chief Executive Officer

March 3, 2015		/s/ Robert K. Julian
		Robert K. Julian Executive Vice President and Chief Financial Officer