NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Basis of Presentation
In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments
and elimination of intercompany transactions necessary for a fair presentation of results for such periods. Albany International
Corp. (“Albany”) consolidates the financial results of its subsidiaries for all periods presented. The results for
any interim period are not necessarily indicative of results for the full year.
The preparation of financial statements
in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the amounts reported in Albany International Corp.’s Consolidated Financial Statements and accompanying
Notes. Actual results could differ materially from those estimates.
The information included in this
Quarterly Report on Form 10-Q should be read in conjunction with “Risk Factors,” “Legal Proceedings,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operation,” “Quantitative and Qualitative Disclosures
about Market Risk” and the Consolidated Financial Statements and Notes thereto included in Items 1A, 3, 7, 7A and 8, respectively,
of the Albany International Corp. Annual Report on Form 10-K for the year ended December 31, 2015.
Except as described herein, there
has been no material change to the accounting policies applied to our consolidated results and footnote disclosures. In accordance
with the accounting guidance for business combinations, we use the acquisition method of accounting to allocate costs of acquired
businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The
excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill.
The valuations of acquired assets and liabilities will impact the determination of future operating results. In addition to using
management estimates and negotiated amounts, we use a variety of information sources to determine the estimated fair values of
the assets and liabilities, including third-party appraisals for the estimated value and lives of identifiable intangible assets
and property and equipment. The business and technical judgment of management is used in determining the useful lives of finite-lived
intangible assets in accordance with the accounting guidance for goodwill and intangible assets.
2.
Business Acquisitions
On
April 8, 2016, the Company completed the purchase of Harris Corporation’s composite aerostructures business for total
consideration of $210 million, including the assumption of a capital lease. The purchase price is subject to a
post-closing working capital adjustment. The acquired business, which is now called Albany Aerostructures Composites LLC
(“AAC”), will be part of Albany Engineered Composites (“AEC”) segment. The acquisition of AAC
significantly increases the growth opportunity for the Company.
Allocation of the respective purchase
price to the fair value of net assets associated with the AAC acquisition will be performed upon completion of acquisition accounting
valuation activities.
3. Reportable Segments
The following tables show data by
reportable segment, reconciled to consolidated totals included in the financial statements:
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Net sales
|
|
|
|
|
|
|
Machine Clothing
|
|
$145,264
|
|
|
$158,494
|
|
Albany Engineered Composites
|
|
27,067
|
|
|
22,830
|
|
Consolidated total
|
|
$172,331
|
|
|
$181,324
|
|
Operating income/(loss)
|
|
|
|
|
|
|
Machine Clothing
|
|
$37,139
|
|
|
$35,689
|
|
Albany Engineered Composites
|
|
(3,706
|
)
|
|
(3,811
|
)
|
Corporate expenses
|
|
(11,164
|
)
|
|
(11,729
|
)
|
Operating income
|
|
22,269
|
|
|
20,149
|
|
Reconciling items:
|
|
|
|
|
|
|
Interest income
|
|
(126
|
)
|
|
(340
|
)
|
Interest expense
|
|
2,364
|
|
|
3,016
|
|
Other income, net
|
|
(328
|
)
|
|
(3,285
|
)
|
Income before income taxes
|
|
$20,359
|
|
|
$20,758
|
|
There were no material changes in
the total assets of the reportable segments during this period. Total capital expenditures for the first quarter of 2016 were $10.9
million, including amounts that were included in Accounts payable. In the Consolidated Statements of Cash Flows, capital expenditures
and accounts payable were each adjusted by $2.9 million to reflect the non-cash nature of that amount.
During the first quarter of 2016,
the Company recorded expenses of $1.6 million for acquisition related costs incurred during the period. These costs are included
in Selling, general and administrative expenses of the AEC segment.
The table below presents restructuring
costs by reportable segment (also see Note 5):
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Restructuring expenses, net
|
|
|
|
|
|
|
Machine Clothing
|
|
$698
|
|
|
$9,001
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
Corporate expenses
|
|
(19
|
)
|
|
-
|
|
Consolidated total
|
|
$679
|
|
|
$9,001
|
|
During
the first quarter of 2016 the Company announced the initiation of discussions with the employee Works Council regarding a
proposal to discontinue R&D activities at its Machine Clothing production facility in Sélestat, France. The
Company is unable to determine the restructuring costs associated with this proposal. See Note 5 for additional
information.
Machine Clothing restructuring
costs in 2016 and 2015 were principally related to ongoing plant closure costs in Göppingen, Germany.
4. Pensions and Other Postretirement
Benefit Plans
Pension Plans
The Company has defined benefit
pension plans covering certain U.S. and non-U.S. employees. The U.S. qualified defined benefit pension plan has been closed to
new participants since October 1998 and, as of February 2009, benefits accrued under this plan were frozen. As a result of the
freeze, employees covered by the pension plan will receive, at retirement, benefits already accrued through February 2009, but
no new benefits accrue after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan ("SERP")
were similarly frozen. The eligibility, benefit formulas, and contribution requirements for plans outside of the U.S. vary by location.
Other Postretirement Benefits
The Company also provides certain
postretirement life insurance benefits to retired employees in Canada. The Company accrues the cost of providing postretirement
benefits during the active service period of the employees. The Company currently funds the plan as claims are paid.
The composition of the net periodic
benefit plan cost for the three months ended March 31, 2016 and 2015 was as follows:
|
|
Pension plans
|
|
Other postretirement benefits
|
(in
thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$650
|
|
|
$790
|
|
|
$63
|
|
|
$83
|
|
Interest cost
|
|
1,994
|
|
|
2,013
|
|
|
611
|
|
|
610
|
|
Expected return on assets
|
|
(2,207
|
)
|
|
(2,235
|
)
|
|
-
|
|
|
-
|
|
Amortization of prior service cost/(credit)
|
|
9
|
|
|
13
|
|
|
(1,122
|
)
|
|
(1,122
|
)
|
Amortization of net actuarial loss
|
|
573
|
|
|
670
|
|
|
705
|
|
|
835
|
|
Net periodic benefit cost
|
|
$1,019
|
|
|
$1,251
|
|
|
$257
|
|
|
$406
|
|
5. Restructuring
During
the first quarter of 2016 the Company announced the initiation of discussions with the employee Works Council regarding
a proposal to discontinue R&D activities at its Machine Clothing production facility in Sélestat, France. The
proposed measures would result in the elimination of 25 positions and the departure of 22 employees. The consultations are
subject to applicable law, and until they are concluded the Company is unable to determine the restructuring costs associated
with this proposal.
Machine Clothing restructuring costs
in 2016 and 2015 were principally related to ongoing plant closure costs in Göppingen, Germany.
The following table summarizes
charges reported in the Consolidated Statements of Income under “Restructuring expenses, net”:
|
|
Three months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$698
|
|
|
$9,001
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
Corporate Expenses
|
|
(19
|
)
|
|
-
|
|
Total
|
|
$679
|
|
|
$9,001
|
|
Three months ended March 31,2016
(in thousands)
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
Machine Clothing
|
|
$698
|
|
|
$698
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
Corporate Expenses
|
|
(19
|
)
|
|
(19
|
)
|
Total
|
|
$679
|
|
|
$679
|
|
Three months ended March 31, 2015
(in thousands)
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
Machine Clothing
|
|
$9,001
|
|
|
$9,001
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
Corporate Expenses
|
|
-
|
|
|
-
|
|
Total
|
|
$9,001
|
|
|
$9,001
|
|
We expect that approximately $5.6
million of Accrued liabilities for restructuring at March 31, 2016 will be paid within one year and approximately $2.7 million
will be paid in the following year. The table below presents the year-to-date changes in restructuring liabilities for 2016 and
2015, all of which related to termination costs:
(in thousands)
|
|
December 31,
2015
|
|
Restructuring
charges accrued
|
|
Payments
|
|
Currency
translation /other
|
|
March 31
,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total termination costs
|
|
$10,177
|
|
|
$679
|
|
|
($2,573
|
)
|
|
$39
|
|
|
$8,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
2014
|
|
Restructuring
charges accrued
|
|
Payments
|
|
Currency
translation /other
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total termination costs
|
|
$1,874
|
|
|
$9,001
|
|
|
($2,122
|
)
|
|
($228
|
)
|
|
$8,525
|
|
6. Other Income, net
The components of other (income)/expense,
net are:
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Currency transaction gains
|
|
($479
|
)
|
|
($2,427
|
)
|
Bank fees and amortization of debt issuance costs
|
|
152
|
|
|
311
|
|
Gain on sale of investment
|
|
-
|
|
|
(872
|
)
|
Other
|
|
(1
|
)
|
|
(297
|
)
|
Total
|
|
($328
|
)
|
|
($3,285
|
)
|
In March 2015, the Company sold
its total equity investment in an unaffiliated company, resulting in a gain of $0.9 million. The value of the investment had been
written off in 2004.
7. Income Taxes
The following table presents components
of income tax expense for the three months ended March 31, 2016 and 2015:
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Income tax based on income from continuing operations, at estimated tax rates of 39.7% and 40.0%, respectively
|
|
$8,076
|
|
|
$8,300
|
|
|
|
|
|
|
|
|
Income tax before discrete items
|
|
8,076
|
|
|
8,300
|
|
|
|
|
|
|
|
|
Discrete tax expense/(benefit):
|
|
|
|
|
|
|
Provision for/resolution of tax audits and contingencies, net
|
|
(825
|
)
|
|
83
|
|
Other discrete tax adjustments, net
|
|
(208
|
)
|
|
45
|
|
Enacted tax legislation
|
|
-
|
|
|
91
|
|
Total income tax expense
|
|
$7,043
|
|
|
$8,519
|
|
The first quarter
estimated effective tax rate on continuing operations before discrete items was 39.7 percent in 2016, compared to 40.0 percent
for the same period in 2015.
The Company
records the residual U.S. and foreign taxes on certain amounts of current year foreign earnings that have been targeted for repatriation
to the U.S. As a result, such amounts are not considered to be permanently reinvested, and the income tax provision before discrete
items, includes the residual taxes on these earnings to the extent they cannot be repatriated in a tax-free manner. As of March
31, 2016, the Company has recorded a deferred tax liability on $59.0 million of prior year non-U.S. earnings that have been targeted
for future repatriation to the U.S.
We conduct
business globally and, as a result, the Company files income tax returns in the U.S. federal jurisdiction and various state and
foreign jurisdictions. In the normal course of business we are
subject to examination
by taxing authorities throughout the world and we are currently under audit in various jurisdictions, including Canada and Italy.
The open tax years range from 2007 to 2015.
It is reasonably
possible that over the next twelve months the amount of unrecognized tax benefits may change within a range of a net increase of
$0.0 million to a net decrease of $2.3 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals,
or in the courts, or from the closure of tax statutes.
In the first
quarter of 2016, the Company reached a settlement with the German tax authorities over matters that had been outstanding for many
years. The German Tax Authority had denied tax positions taken by the Company related to a 1999 reorganization. In 2009, the Company
made a payment of $14.5 million in order to appeal the German Tax Authority decision, and we recorded that payment as an income
tax receivable. As additional information became available in recent years, we wrote down the receivable by $6.3 million
in 2014 and $6.4 million in 2015 ($5.8 million in the third quarter and $0.6 million in the fourth quarter). In April 2016, we
received $3.7 million representing the final settlement of this matter, and accordingly, we adjusted our income tax receivable
as of March 31, 2016 to that amount, and recorded a discrete tax benefit of $0.5 million for the first quarter of 2016.
8. Earnings Per Share
The amounts used in computing earnings
per share and the weighted average number of shares of potentially dilutive securities are as follows:
|
|
Three months ended
March 31,
|
(in thousands, except market price and earnings per share)
|
|
2016
|
|
2015
|
|
|
|
|
|
Net income attributable to the Company
|
|
$13,501
|
|
|
$12,213
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
calculating basic net income per share
|
|
32,041
|
|
|
31,882
|
|
Effect of dilutive stock-based compensation plans:
|
|
|
|
|
|
|
Stock options
|
|
40
|
|
|
90
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
calculating diluted net income per share
|
|
32,081
|
|
|
31,972
|
|
|
|
|
|
|
|
|
Average market price of common stock used
|
|
|
|
|
|
|
for calculation of dilutive shares
|
|
$35.23
|
|
|
$37.36
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Company shareholders:
|
|
|
|
|
|
|
Basic
|
|
$0.42
|
|
|
$0.38
|
|
Diluted
|
|
$0.42
|
|
|
$0.38
|
|
9. Noncontrolling Interest
The table below presents a reconciliation
of income attributable to the noncontrolling interest and noncontrolling equity:
|
|
Three
months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Net (loss)/income of Albany Safran Composites (ASC)
|
|
$(1,609
|
)
|
|
$511
|
|
Less: Return attributable to the Company's preferred holding
|
|
238
|
|
|
255
|
|
Net (loss)/income of ASC available for common ownership
|
|
($1,847
|
)
|
|
$256
|
|
Ownership percentage of noncontrolling shareholder
|
|
10
|
%
|
|
10
|
%
|
Net (loss)/income attributable to noncontrolling interest
|
|
($185
|
)
|
|
$26
|
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning of year
|
|
$3,690
|
|
|
$3,699
|
|
Net (loss)/income attributable to noncontrolling interest
|
|
(185
|
)
|
|
26
|
|
Changes in other comprehensive income attributable to noncontrolling interest
|
|
(3
|
)
|
|
1
|
|
Noncontrolling interest
|
|
$3,502
|
|
|
$3,726
|
|
10. Accumulated Other Comprehensive
Income (AOCI)
The table below presents changes
in the components of AOCI for the period December 31, 2015 to March 31, 2016:
(in thousands)
|
|
Translation adjustments
|
|
Pension and postretirement liability adjustments
|
|
Derivative valuation adjustment
|
|
Total Other Comprehensive Income
|
December
31, 2015
|
|
($108,655
|
)
|
|
($48,725
|
)
|
|
($1,464
|
)
|
|
($158,844
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
13,114
|
|
|
(373
|
)
|
|
(1,768
|
)
|
|
10,973
|
|
Pension/postretirement plan remeasurements, net of tax
|
|
-
|
|
|
(105
|
)
|
|
-
|
|
|
(105
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
-
|
|
|
-
|
|
|
174
|
|
|
174
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
-
|
|
|
116
|
|
|
-
|
|
|
116
|
|
Net current period other comprehensive income/(loss)
|
|
13,114
|
|
|
(362
|
)
|
|
(1,594
|
)
|
|
11,158
|
|
March
31, 2016
|
|
($95,541
|
)
|
|
($49,087
|
)
|
|
($3,058
|
)
|
|
($147,686
|
)
|
The table below presents changes in the
components of AOCI for the period December 31, 2014 to March 31, 2015:
(in thousands)
|
|
Translation adjustments
|
|
Pension and postretirement liability adjustments
|
|
Derivative valuation adjustment
|
|
Total Other Comprehensive Income
|
December 31, 2014
|
|
($55,240
|
)
|
|
($51,666
|
)
|
|
($861
|
)
|
|
($107,767
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
(37,413
|
)
|
|
1,730
|
|
|
(675
|
)
|
|
(36,358
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
-
|
|
|
-
|
|
|
296
|
|
|
296
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
-
|
|
|
257
|
|
|
-
|
|
|
257
|
|
Net current period other comprehensive income/(loss)
|
|
(37,413
|
)
|
|
1,987
|
|
|
(379
|
)
|
|
(35,805
|
)
|
March
31, 2015
|
|
($92,653
|
)
|
|
($49,679
|
)
|
|
($1,240
|
)
|
|
($143,572
|
)
|
The table below presents the expense/(income)
amounts reclassified, and the line items of the Consolidated Statements of Income that were affected for the periods ended March
31, 2016 and 2015.
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:
|
Payments made on interest rate swaps included in Income
before taxes(a)
|
|
$281
|
|
|
$486
|
|
Income tax effect
|
|
(107
|
)
|
|
(190
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$174
|
|
|
$296
|
|
|
|
|
|
|
|
|
Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:
|
Amortization of prior service credit
|
|
($1,113
|
)
|
|
($1,109
|
)
|
Amortization of net actuarial loss
|
|
1,278
|
|
|
1,505
|
|
Total pretax amount reclassified (b)
|
|
165
|
|
|
396
|
|
Income tax effect
|
|
(49
|
)
|
|
(139
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$116
|
|
|
$257
|
|
|
(a)
|
Included in Interest expense.
|
|
(b)
|
These accumulated other comprehensive income/(loss) components are included
in the computation of net periodic pension cost (see Note 4).
|
11. Accounts Receivable
Accounts receivable includes trade
receivables, and revenue in excess of progress billings on long-term contracts in the Albany Engineered Composites business. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required
payments. The Company determines the allowance based on historical write-off
experience, customer-specific facts and
economic conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
As of March 31, 2016 and December
31, 2015, Accounts receivable consisted of the following:
(in thousands)
|
|
March 31,
2016
|
|
December 31,
2015
|
Trade and other accounts receivable
|
|
$132,215
|
|
|
$123,179
|
|
Bank promissory notes
|
|
14,560
|
|
|
15,845
|
|
Revenue in excess of progress billings
|
|
12,569
|
|
|
15,889
|
|
Allowance for doubtful accounts
|
|
(8,523
|
)
|
|
(8,530
|
)
|
Total accounts receivable
|
|
$150,821
|
|
|
$146,383
|
|
In connection with certain sales
in Asia Pacific, the Company accepts a bank promissory note as customer payment. The notes may be presented for payment at maturity,
which is less than one year.
12. Inventories
Inventories are stated at the lower
of cost or market, with cost determined using the first-in-first out method. The Company writes down the inventory for estimated
obsolescence and to lower of cost or market value based upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Once established,
the original cost of the inventory less the related inventory allowance represents the new cost basis of such inventories.
As of March 31, 2016 and December
31, 2015, inventories consisted of the following:
(in thousands)
|
|
March
31,
2016
|
|
December 31, 2015
|
Raw materials
|
|
$26,824
|
|
|
$27,636
|
|
Work in process
|
|
46,884
|
|
|
41,823
|
|
Finished goods
|
|
36,648
|
|
|
36,947
|
|
Total inventories
|
|
$110,356
|
|
|
$106,406
|
|
13. Goodwill and Other Intangible
Assets
Goodwill and intangible assets with
indefinite useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the
purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination.
Our reporting units are consistent with our operating segments.
Determining the fair value of a reporting
unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates,
and future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment whenever
events, such as significant changes in
the business climate, plant closures, changes in product offerings, or other circumstances indicate that the carrying amount may
not be recoverable.
To determine fair value, we utilize
two market-based approaches and an income approach. Under the market-based approaches, we utilize information regarding the Company
as well as publicly available industry information to determine earnings multiples and sales multiples. Under the income approach,
we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average
cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor
would expect to earn.
The entire balance of goodwill on our
books is attributable to the Machine Clothing business. In the second quarter of 2015, the Company applied the qualitative assessment
approach in performing its annual evaluation of goodwill and concluded that no impairment provision was required. There were no
amounts at risk due to the large spread between the fair and carrying values.
We are continuing to amortize certain
patents, trade names and technology assets that have finite lives. The changes in intangible assets and goodwill from December
31, 2015 to March 31, 2016, were as follows:
(in thousands)
|
|
December 31,
2015
|
|
Amortization
|
|
Currency Translation
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
AEC trade names
|
|
$25
|
|
|
$(1
|
)
|
|
$-
|
|
|
$24
|
|
AEC technology
|
|
129
|
|
|
(6
|
)
|
|
-
|
|
|
123
|
|
Total amortized intangible assets
|
|
$154
|
|
|
$(7
|
)
|
|
$-
|
|
|
$147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$66,373
|
|
|
$-
|
|
|
$1,986
|
|
|
$68,359
|
|
Estimated amortization expense of
intangibles for the years ending December 31, 2016 through 2020, is as follows:
|
|
Annual amortization
|
Year
|
|
(in thousands)
|
2016
|
|
|
$29
|
|
2017
|
|
|
29
|
|
2018
|
|
|
29
|
|
2019
|
|
|
29
|
|
2020
|
|
|
29
|
|
14. Financial Instruments
Long-term debt, principally to banks
and bondholders, consists of:
(in thousands, except interest rates)
|
|
March
31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Private placement with a fixed interest rate of 6.84%, due 2017
|
|
$50,000
|
|
|
$50,000
|
|
|
|
|
|
|
|
|
Credit agreement with borrowings outstanding at an end of period interest rate of 2.34% in 2016 and 2.27% in 2015 (including the effect of interest rate hedging transactions, as described below)
|
|
205,000
|
|
|
215,000
|
|
|
|
|
|
|
|
|
Various notes and mortgages relative to operations principally outside the United States, at an average end of period rate of 5.5% in 2016 and 2015, due in varying amounts through 2021
|
|
92
|
|
|
96
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
255,092
|
|
|
265,096
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
(16
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$255,076
|
|
|
$265,080
|
|
A note agreement and guaranty (“Prudential
Agreement”) was originally entered into in October 2005 with the Prudential Insurance Company of America, and certain other
purchasers, with interest at 6.84% and a maturity date of October 25, 2017. The remaining obligation under the Prudential Agreement
has a final payment of $50 million due on October 25, 2017. At the noteholders’ election, certain prepayments may also be
required in connection with certain asset dispositions or financings. The notes may not otherwise be prepaid without a premium,
under certain market conditions. The Prudential Agreement contains customary terms, as well as affirmative covenants, negative
covenants, and events of default, comparable to those in our current principal credit facility agreement (as described below).
The Prudential Agreement has been amended a number of times, most recently in April 2016, in order to maintain terms comparable
to our current principal credit facility. For disclosure purposes, we are required to measure the fair value of outstanding debt
on a recurring basis. As of March 31, 2016, the fair value of this debt was approximately $54.3 million, and was measured using
active market interest rates, which would be considered Level 2 for fair value measurement purposes.
On
June 18, 2015, we entered into a $400 million, unsecured Five-Year Revolving Credit Facility Agreement (the “Prior
Agreement”), under which $205 million of borrowings were outstanding as of March 31, 2016. The applicable interest rate
for borrowings under the Prior Agreement was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At
the time of the last borrowing on March 16, 2016, the spread was 1.375%. The spread was based on a pricing grid, which ranged
from 1.250% to 1.750%, based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA (as
defined in the Prior Agreement), and without modification to any other credit agreements, as of March 31, 2016, we would have
been able to borrow an additional $195 million under the Prior Agreement.
On April 8, 2016, we entered into
a $550 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amends and restates
the Prior Agreement. The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and
events of default comparable to those
in the Prior Agreement. The Borrowings are guaranteed by certain of the Company's subsidiaries.
Our ability to borrow additional
amounts under the Credit Agreement is conditional upon the absence of any defaults, as well as the absence of any material adverse
change (as defined in the Credit Agreement).
On May 20, 2013, we entered into
interest rate hedging transactions for the period July 16, 2015 through March 16, 2018. These transactions have the effect of fixing
the LIBOR portion of the effective interest rate (before addition of the spread) on $110 million of indebtedness drawn under the
Credit Agreement at the rate of 1.414% during this period. Under the terms of these transactions, we pay the fixed rate of 1.414%
and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on March 16,
2016 was 0.450%. The net effect is to fix the effective interest rate on $110 million of indebtedness at 1.414%, plus the applicable
spread, during the swap period. On March 16, 2016, the all-in-rate on the $110 million of debt was 2.789%.
On July 16, 2015, we entered into
interest rate hedging transactions for the period March 16, 2018 through June 16, 2020. These transactions have the effect of fixing
the LIBOR portion of the effective interest rate (before addition of the spread) on $120 million of indebtedness drawn under the
Credit Agreement at the rate of 2.43% during this period. Under the terms of these transactions, we pay the fixed rate of 2.43%
and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on March 16,
2016 was 0.45%. The net effect is to fix the effective interest rate on $120 million of indebtedness at 2.43%, plus the applicable
spread, during the swap period.
These interest rate swaps are accounted
for as a hedge of future cash flows, as further described in Note 15 of the Notes to Consolidated Financial Statements. No cash
collateral was received or pledged in relation to the swap agreements.
Under the Credit Agreement and Prudential
Agreement, we are currently required to maintain a leverage ratio (as defined in the agreements) of not greater than 3.50 to 1.00
and minimum interest coverage (as defined) of 3.00 to 1.00.
As of March 31, 2016, our leverage
ratio, including the pro-forma effect of the acquisition, was 2.57 to 1.00 and our interest coverage ratio was 13.59 to 1.00. We
may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below 3.50 to 1.00, and may make
acquisitions with cash provided our leverage ratio would not exceed 3.50 to 1.00 after giving pro forma effect to the acquisition.
Indebtedness under each of the Prudential
Agreement and the Credit Agreement is ranked equally in right of payment to all unsecured senior debt.
We were in compliance with all debt
covenants as of March 31, 2016.
15. Fair-Value Measurements
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting principles
establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs be used when available. Level 3 inputs are unobservable data
points for the asset or liability, and include
situations in which there is little,
if any, market activity for the asset or liability. In 2015 we reclassified land and building related to the former manufacturing
facility in Germany as Asset held for sale in the accompanying Consolidated Balance Sheets. As of March 31, 2016 and December 31,
2015, we have Level 3 financial assets of $5.2 million and $5.0 million, respectively. The value as of March 31, 2016 was determined
based on preliminary offers from active market participants.
The following table presents the
fair-value hierarchy for our Level 1 and Level 2 financial and non-financial assets and liabilities, which are measured at fair
value on a recurring basis, and Level 3 non-financial measured at fair value:
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
Quoted
prices in active markets
|
|
Significant
other observable inputs
|
|
Unobservable
inputs
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Unobservable inputs
|
(in thousands)
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$9,028
|
|
|
$-
|
|
|
$-
|
|
|
$5,189
|
|
|
$-
|
|
|
$-
|
|
Asset held for sale
|
|
|
|
|
|
|
|
5,193
|
|
|
|
|
|
|
|
|
4,988
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency options
|
|
-
|
|
|
263
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock of unaffiliated foreign public company
|
|
721
|
(a)
|
|
-
|
|
|
-
|
|
|
819
|
|
|
-
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
-
|
|
|
(4,971
|
)
(b)
|
|
-
|
|
|
(2,400
|
)
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Original cost basis $0.5 million
|
|
(b)
|
Net of $4.6 million receivable floating leg and $9.6 million liability
fixed leg
|
|
(c)
|
Net of $7.4 million receivable floating leg and $9.8 million liability
fixed leg
|
Cash equivalents include short-term
securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in
active markets for identical securities.
The common stock of the unaffiliated
foreign public company is traded in an active market exchange. The shares are measured at fair value using closing stock prices
and are recorded in the Consolidated Balance Sheets as Other assets. The securities are classified as available for sale, and as
a result any unrealized gain or loss is recorded in the Shareholders’ Equity section of the Consolidated Balance Sheets rather
than in the Consolidated Statements of Income. When the security is sold or impaired, gains and losses are reported on the Consolidated
Statements of Income. Investments are considered to be impaired when a decline in fair value is judged to be other than temporary.
Foreign currency instruments are
entered into periodically, and consist of foreign currency option contracts and forward contracts that are valued using quoted
prices in active markets obtained from independent pricing sources. These instruments are measured using market foreign exchange
prices and are recorded in the Consolidated Balance Sheets as Other current assets and Accounts
payable, as applicable. Changes in
fair value of these instruments are recorded as gains or losses within Other (income)/expenses, net.
When exercised, the foreign currency
instruments are net settled with the same financial institution that bought or sold them. For all positions, whether options or
forward contracts, there is risk from the possible inability of the financial institution to meet the terms of the contracts and
the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments. We seek to control
risk by evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while
reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.
We operate our business in many
regions of the world, and currency rate movements can have a significant effect on operating results.
Changes in exchange rates can result
in revaluation gains and losses that are recorded in Selling, General and Administrative expenses or Other (income)/expenses, net.
Revaluation gains and losses occur when our business units have cash, intercompany (recorded in Other (income)/expenses, net) or
third-party trade (recorded in Selling, General and Administrative expenses) receivable or payable balances in a currency other
than their local reporting (or functional) currency.
Operating results can also be affected
by the translation of sales and costs, for each non-U.S. subsidiary, from the local functional currency to the U.S. dollar. The
translation effect on the Consolidated Statements of Income is dependent on our net income or expense position in each non-U.S.
currency in which we do business. A net income position exists when sales realized in a particular currency exceed expenses paid
in that currency; a net expense position exists if the opposite is true.
The interest rate swaps are accounted
for as hedges of future cash flows. The fair value of our interest rate swaps are derived from a discounted cash flow analysis
based on the terms of the contract and the interest rate curve, and is included in Other assets and/or Other noncurrent liabilities
in the Consolidated Balance Sheets. Unrealized gains and losses on the swaps flow through the caption Derivative valuation adjustment
in the Shareholders’ equity section of the Consolidated Balance Sheets, to the extent that the hedges are highly effective.
As of March 31, 2016, these interest rate swaps were determined to be highly effective hedges of interest rate cash flow risk.
Any gains and losses related to the ineffective portion of the hedges will be recognized in the current period in earnings. Amounts
accumulated in Other comprehensive income are reclassified as Interest expense, net when the related interest payments (that is,
the hedged forecasted transactions) affect earnings. Interest expense related to the swaps totaled $0.3 million for the three month
period ended March 31, 2016 and $0.5 million for the three month period ended March 31, 2015.
Gains/(losses) related to changes
in fair value of derivative instruments that were recognized in Other (income)/expenses, net in the Consolidated Statements of
Income were as follows:
|
|
Three months ended
March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
Foreign currency options
|
|
$205
|
|
|
$217
|
|
16. Contingencies
Asbestos Litigation
Albany International Corp. is a
defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury
as a result of exposure to asbestos-containing products that we previously manufactured. We produced asbestos-containing paper
machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics
generally had a useful life of three to twelve months.
We were defending 3,785 claims as
of March 31, 2016.
The following table sets forth the
number of claims filed, the number of claims settled, dismissed or otherwise resolved, and the aggregate settlement amount during
the periods presented:
Year ended December 31,
|
Opening Number of Claims
|
Claims Dismissed, Settled, or Resolved
|
New Claims
|
Closing Number of Claims
|
Amounts Paid (thousands) to Settle or Resolve
|
2005
|
|
29,411
|
|
6,257
|
|
1,297
|
|
24,451
|
|
$504
|
|
2006
|
|
24,451
|
|
6,841
|
|
1,806
|
|
19,416
|
|
3,879
|
|
2007
|
|
19,416
|
|
808
|
|
190
|
|
18,798
|
|
15
|
|
2008
|
|
18,798
|
|
523
|
|
110
|
|
18,385
|
|
52
|
|
2009
|
|
18,385
|
|
9,482
|
|
42
|
|
8,945
|
|
88
|
|
2010
|
|
8,945
|
|
3,963
|
|
188
|
|
5,170
|
|
159
|
|
2011
|
|
5,170
|
|
789
|
|
65
|
|
4,446
|
|
1,111
|
|
2012
|
|
4,446
|
|
90
|
|
107
|
|
4,463
|
|
530
|
|
2013
|
|
4,463
|
|
230
|
|
66
|
|
4,299
|
|
78
|
|
2014
|
|
4,299
|
|
625
|
|
147
|
|
3,821
|
|
437
|
|
2015
|
|
3,821
|
|
116
|
|
86
|
|
3,791
|
|
164
|
|
As
of March 31, 2016
|
3,791
|
|
37
|
|
31
|
|
3,785
|
|
$12
|
|
We anticipate that additional claims
will be filed against the Company and related companies in the future, but are unable to predict the number and timing of such
future claims.
Exposure and disease information
sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available until late in the
discovery process, and often not until a trial date is imminent and a settlement demand has been received. For these reasons, we
do not believe a meaningful estimate can be made regarding the range of possible loss with respect to pending or future claims.
While we believe we have meritorious
defenses to these claims, we have settled certain claims for amounts we consider reasonable given the facts and circumstances of
each case. Our insurer, Liberty Mutual, has defended each case and funded settlements under a standard reservation of rights. As
of March 31, 2016 we had resolved, by means of settlement or dismissal, 37,378 claims. The total cost of resolving all claims was
$9.4 million. Of this amount, almost 100% was paid by our insurance carrier. The Company’s insurer has confirmed that although
the coverage limits under two (of approximately 23) primary insurance policies have been exhausted, there still remains approximately
$3 million in coverage limits under other applicable primary policies, and $140 million in coverage under excess umbrella coverage
policies that should be available with respect to current and future asbestos claims.
Brandon Drying Fabrics, Inc. (“Brandon”),
a subsidiary of Geschmay Corp., which is a subsidiary of the Company, is also a separate defendant in many of the asbestos cases
in which Albany is named as a defendant. Brandon was defending against 7,707 claims as of March 31, 2016.
The following table sets forth the
number of claims filed, the number of claims settled, dismissed or otherwise resolved, and the aggregate settlement amount during
the periods presented:
Year ended December 31,
|
Opening Number of Claims
|
Claims
Dismissed, Settled, or Resolved
|
New Claims
|
Closing Number of Claims
|
Amounts Paid (thousands) to Settle or Resolve
|
2005
|
|
9,985
|
|
642
|
|
223
|
|
9,566
|
|
$-
|
|
2006
|
|
9,566
|
|
1,182
|
|
730
|
|
9,114
|
|
-
|
|
2007
|
|
9,114
|
|
462
|
|
88
|
|
8,740
|
|
-
|
|
2008
|
|
8,740
|
|
86
|
|
10
|
|
8,664
|
|
-
|
|
2009
|
|
8,664
|
|
760
|
|
3
|
|
7,907
|
|
-
|
|
2010
|
|
7,907
|
|
47
|
|
9
|
|
7,869
|
|
-
|
|
2011
|
|
7,869
|
|
3
|
|
11
|
|
7,877
|
|
-
|
|
2012
|
|
7,877
|
|
12
|
|
2
|
|
7,867
|
|
-
|
|
2013
|
|
7,867
|
|
55
|
|
3
|
|
7,815
|
|
-
|
|
2014
|
|
7,815
|
|
87
|
|
2
|
|
7,730
|
|
-
|
|
2015
|
|
7,730
|
|
18
|
|
1
|
|
7,713
|
|
-
|
|
As
of March 31, 2016
|
7,713
|
|
6
|
|
-
|
|
7,707
|
|
$-
|
|
We acquired Geschmay Corp., formerly
known as Wangner Systems Corporation, in 1999. Brandon is a wholly owned subsidiary of Geschmay Corp. In 1978, Brandon acquired
certain assets from Abney Mills (“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon
from Abney were assets of Abney’s wholly owned subsidiary, Brandon Sales, Inc. which had sold, among other things, dryer
fabrics containing asbestos made by its parent, Abney. Although Brandon manufactured and sold dryer fabrics under its own name
subsequent to the asset purchase, none of such fabrics contained asbestos. Because Brandon did not manufacture asbestos-containing
products, and because it does not believe that it was the legal successor to, or otherwise responsible for obligations of Abney
with respect to products manufactured by Abney, it believes it has strong defenses to the claims that have been asserted against
it. As of March 31, 2016, Brandon has resolved, by means of settlement or dismissal, 9,899 claims for a total of $0.2 million.
Brandon’s insurance carriers initially agreed to pay 88.2% of the total indemnification and defense costs related to these
proceedings, subject to the standard reservation of rights. The remaining 11.8% of the costs had been borne directly by Brandon.
During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and defense costs, subject to policy limits
and the standard reservation of rights, and to reimburse Brandon for all indemnity and defense costs paid directly by Brandon related
to these proceedings.
For the same reasons set forth above
with respect to Albany’s claims, as well as the fact that no amounts have been paid to resolve any Brandon claims since 2001,
we do not believe a meaningful estimate can be made regarding the range of possible loss with respect to these remaining claims.
In some of these asbestos cases,
the Company is named both as a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount
Vernon”). We acquired certain assets from Mount Vernon in 1993. Certain plaintiffs allege injury caused by asbestos-containing
products alleged to have been sold by Mount Vernon many years prior to this acquisition. Mount Vernon is contractually obligated
to indemnify the Company against any liability arising out of such products. We deny any liability for products sold by Mount Vernon
prior to the acquisition of the Mount Vernon assets.
Pursuant to its contractual indemnification
obligations, Mount Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a
number of actions.
Although we do not believe, based
on currently available information and for the reasons stated above, that a meaningful estimate of a range of possible loss can
be made with respect to such claims, based on our understanding of the insurance policies available, how settlement amounts have
been allocated to various policies, our settlement experience, the absence of any judgments against the Company or Brandon, the
ratio of paper mill claims to total claims filed, and the defenses available, we currently do not anticipate any material liability
relating to the resolution of the aforementioned pending proceedings in excess of existing insurance limits.
Consequently, we currently do not
anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have
a material adverse effect on the financial position, results of operations, or cash flows of the Company. Although we cannot predict
the number and timing of future claims, based on the foregoing factors and the trends in claims against us to date, we do not anticipate
that additional claims likely to be filed against us in the future will have a material adverse effect on our financial position,
results of operations, or cash flows. We are aware that litigation is inherently uncertain, especially when the outcome is dependent
primarily on determinations of factual matters to be made by juries.
17. Changes in Shareholders’
Equity
The following table summarizes changes
in Shareholders’ Equity:
(in thousands)
|
|
Common Stock Class
A and B
|
|
Additional paid in capital
|
|
Retained earnings
|
|
Accumulated items of other comprehensive income/(loss)
|
|
Treasury stock
|
|
Noncontrolling Interest
|
|
Total Equity
|
December
31, 2015
|
|
$40
|
|
|
$423,108
|
|
|
$491,950
|
|
|
($158,844
|
)
|
|
($257,391
|
)
|
|
$3,690
|
|
|
$502,553
|
|
Net income
|
|
-
|
|
|
-
|
|
|
13,501
|
|
|
-
|
|
|
-
|
|
|
(185
|
)
|
|
13,316
|
|
Compensation and benefits paid or payable in shares
|
|
-
|
|
|
864
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
864
|
|
Options exercised
|
|
-
|
|
|
271
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
271
|
|
Dividends declared
|
|
-
|
|
|
-
|
|
|
(5,454
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5,454
|
)
|
Cumulative translation adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,114
|
|
|
-
|
|
|
(3
|
)
|
|
13,111
|
|
Pension and postretirement liability adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(362
|
)
|
|
-
|
|
|
-
|
|
|
(362
|
)
|
Derivative valuation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,594
|
)
|
|
-
|
|
|
-
|
|
|
(1,594
|
)
|
March
31, 2016
|
|
$40
|
|
|
$424,243
|
|
|
$499,997
|
|
|
($147,686
|
)
|
|
($257,391
|
)
|
|
$3,502
|
|
|
$522,705
|
|
18. Recent Accounting Pronouncements
In May 2014, an accounting update was
issued that replaces the existing revenue recognition framework regarding contracts with customers. The standard was revised in
July 2015 and March 2016. This accounting update is effective for reporting periods beginning after December 31, 2017. Early adoption
is permitted but not before the original effective date, which is for reporting periods beginning after December 31, 2016. We have
not determined the impact of this update on our financial statements.
In February 2015, amended accounting
guidance was issued which changes the evaluation of variable interest entities regarding whether they should consolidate limited
partnerships and similar
entities, or whether fees are paid to
a decision maker or service provider, or whether they are held by related parties. We adopted this provision as of January 1, 2016
and it did not affect our financial statements.
In April 2015 and August 2015, accounting
updates were issued which require that debt issuance costs related to certain types of recognized debt liability be presented in
the balance sheet as a direct deduction of that debt, which could result in a minor netting down of assets and liabilities. We
adopted this provision as of January 1, 2016 and it did not affect our financial statements.
In May 2015, an accounting update was
issued which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at
net asset value (NAV) per share. We adopted this provision as of January 1, 2016 and it did not affect our financial statements.
In July 2015, an accounting update
was issued simplifying the measurement of inventory from the lower of cost or market to lower of cost net realizable value. This
accounting update eliminates the requirement for consideration of replacement cost or net realizable value less normal profit margin
measurements. This accounting update is effective for reporting periods beginning after December 15, 2016. We do not expect the
adoption of this update to have a significant effect on our financial statements.
In September 2015, an accounting
update was issued which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period
adjustments that occur in periods after a business combination is consummated. This accounting update is effective for reporting
periods beginning after December 15, 2015. Adoption of this update did not affect our financial statements.
In January 2016, an accounting update
was issued which requires entities to present separately in Other comprehensive income the portion of the total change in the fair
value of a liability resulting from a change in the instrument-specific credit risk if the entity has elected to measure the liability
at fair value in accordance with the fair value option for financial instruments. This accounting update is effective for reporting
periods beginning after December 15, 2017. We have not determined the impact of this update on our financial statements.
In February 2016, an accounting
update was issued which requires lessees to recognize most leases on the balance sheet. The update may significantly increase reported
assets and liabilities. This accounting update is effective for reporting periods beginning after December 15, 2018. We have not
determined the impact of this update on our financial statements.
In March 2016, an accounting update
was issued which clarifies that a change in counterparty to a derivative contract, through novation, that is part of a hedge accounting
relationship does not, by itself, require dedesignation of that relationship, as long as all other hedge accounting criteria continue
to be met. This accounting update is effective for reporting periods beginning after December 15, 2016. We do not expect the adoption
of this update to have a significant effect on our financial statements.
In March 2016, an accounting update
was issued which simplifies the transition to the equity method of accounting by eliminating the requirement for an investor to
retroactively apply the equity method when its increase in ownership interest, or degree of influence, triggers equity method accounting.
This accounting update is effective for reporting periods beginning after December 15, 2016. We do not expect the adoption of this
update to have a significant effect on our financial statements.
In March 2016, an accounting update
was issued which simplifies several aspects related to the accounting for share-based payment transactions, including the income
tax consequences, statutory tax withholding requirements, and classification of excess tax benefits on the statement of cash flows.
This accounting update is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. Adoption
of this accounting update could increase the volatility of income tax expense. We have not determined the effect of this update
on our financial statements.
|
|
Three
months ended March 31,
|
|
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
|
% Change
|
Machine Clothing
|
|
$145,264
|
|
|
$158,494
|
|
|
-8.3
|
%
|
Albany Engineered Composites
|
|
27,067
|
|
|
22,830
|
|
|
18.6
|
%
|
Total
|
|
$172,331
|
|
|
$181,324
|
|
|
-5.0
|
%
|
Three
month comparison
|
·
|
Changes
in currency translation rates had the effect of decreasing net sales by $1.9 million during the first quarter of 2016 as compared
to 2015.
|
|
·
|
Excluding
the effect of changes in currency translation rates:
|
|
·
|
Net sales decreased 3.9% compared to the same period in
2015.
|
|
·
|
Net sales in MC decreased
7.2%.
|
|
·
|
Net sales in AEC increased 18.8%.
|
|
·
|
Excluding
the effect of changes in currency translation rates, the decline in first-quarter MC segment sales was principally due to the
continuing effect of the significant drop in publication grade sales that occurred in the first half of 2015.
|
|
·
|
The
AEC segment sales increase was due to higher sales related to the LEAP program.
|
Gross Profit
The following table summarizes gross
profit/(loss) by business segment:
|
|
Three months ended March 31,
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$69,622
|
|
|
$75,260
|
|
Albany Engineered Composites
|
|
3,121
|
|
|
1,815
|
|
Corporate expenses
|
|
(242
|
)
|
|
(391
|
)
|
Total
|
|
$72,501
|
|
|
$76,684
|
|
% of Net sales
|
|
42.1
|
%
|
|
42.3
|
%
|
Three
month comparison
The decrease in gross profit, compared
to the same period in 2015, was principally due to the net effect of the following individually significant items:
|
·
|
The reduction in MC sales described above resulted in a decrease in gross
profit of $5.9 million. MC gross profit margin improved to 47.9% in 2016 from 47.5% in 2015.
|
|
·
|
The increase in AEC gross profit to $3.1 million in Q1 2016, compared
to $1.8 million in Q1 2015, was principally due to the higher LEAP program sales noted above.
|
Selling, Technical, General, and Research
(STG&R)
The following table summarizes STG&R
by business segment:
|
|
Three
months ended March 31,
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$31,785
|
|
|
$30,570
|
|
Albany Engineered Composites
|
|
6,826
|
|
|
5,626
|
|
Corporate expenses
|
|
10,942
|
|
|
11,338
|
|
Total
|
|
$49,553
|
|
|
$47,534
|
|
% of Net sales
|
|
28.8
|
%
|
|
26.2
|
%
|
Three month comparison
The
increase in STG&R expenses of $2.0 million, compared to the same period in 2015, was principally due to the net effect of
the following individually significant items:
|
·
|
Revaluation
of nonfunctional currency assets and liabilities resulted in first-quarter losses of $1.9 million in 2016 and gains of $2.9 million
in 2015.
|
|
·
|
Restructuring
actions taken in 2015 reduced 2016 STG&R expenses by approximately $2 million.
|
|
·
|
In
the first quarter of 2016, the Company recorded expenses in AEC of $1.6 million related to the acquisition of Harris Corporation’s
composite aerostructures business. The sale closed in April 2016.
|
|
·
|
Changes
in currency translation rates reduced MC STG&R by $1.5 million, compared to the first quarter of 2015.
|
Research and Development
The following table summarizes expenses
associated with internally funded research and development by business segment:
|
|
Three months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$4,337
|
|
|
$4,796
|
|
Albany Engineered Composites
|
|
2,681
|
|
|
2,873
|
|
Corporate expenses
|
|
-
|
|
|
294
|
|
Total
|
|
$7,018
|
|
|
$7,963
|
|
Restructuring Expense
In addition to the items discussed
above affecting gross profit and STG&R, operating income was affected by restructuring costs of $0.7 million in the first three
months of 2016 and $9.0 million in the comparable period of 2015.
The following table summarizes restructuring
expense by business segment:
|
|
Three
months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$698
|
|
|
$9,001
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
Corporate expenses
|
|
(19
|
)
|
|
-
|
|
Total
|
|
$679
|
|
|
$9,001
|
|
Machine Clothing restructuring
costs in 2016 and 2015 were principally related to ongoing plant closure costs in Göppingen, Germany.
During
the first quarter of 2016 the Company announced the initiation of discussions with the employee Works Council regarding a
proposal to discontinue R&D activities at its Machine Clothing production facility in Sélestat, France.
The proposed measures would result in the elimination of 25 positions and the departure of 22 employees. The consultations
are subject to applicable law, and until they are concluded the Company is unable to determine the restructuring costs
associated with this proposal.
For more information on our restructuring
charges, see Note 5 to the Consolidated Financial Statements in Item 1, which is incorporated herein by reference.
Operating Income
The following table summarizes operating
income/(loss) by business segment:
|
|
Three
months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$37,139
|
|
|
$35,689
|
|
Albany Engineered Composites
|
|
(3,706
|
)
|
|
(3,811
|
)
|
Corporate expenses
|
|
(11,164
|
)
|
|
(11,729
|
)
|
Total
|
|
$22,269
|
|
|
$20,149
|
|
Other Earnings Items
|
|
Three months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Interest expense, net
|
|
$2,238
|
|
|
$2,676
|
|
Other income, net
|
|
(328
|
)
|
|
(3,285
|
)
|
Income tax expense
|
|
7,043
|
|
|
8,519
|
|
Net income/(loss) attributable to the noncontrolling interest
|
|
(185
|
)
|
|
26
|
|
Interest Expense, net
Interest expense, net, decreased $0.4
million principally due to lower debt and average interest rates. For more information on borrowings and interest rates, see Note
14 to the Consolidated Financial Statements in Item 1, which is incorporated herein by reference.
Other Income, net
Other income, net included the following individually
significant items:
Three month comparison
|
·
|
Foreign
currency revaluations of intercompany balances resulted in first-quarter gains of $0.5 million in 2016 and $2.4 million in 2015.
|
|
·
|
A
gain of $0.9 million was recorded in the first quarter of 2015 related to the sale of the Company’s investment in an unaffiliated
company.
|
Income Tax
The Company has
operations which constitute a taxable presence in 18 countries outside of the United States, all of which have income tax rates
that were at or below the United States’ federal tax rate of 35% during the periods reported. The jurisdictional location
of earnings is a significant component of our effective tax rate each year and therefore on our overall income tax expense.
Three month comparison
The Company’s
effective tax rates for the first quarter of 2016 and 2015 were 34.6% and 41.0%, respectively. The tax rate is affected by recurring
items, such as the income tax rate in the U.S. and in non-U.S. jurisdictions and the mix of income earned in those jurisdictions.
The rate is also affected by U.S. tax costs on foreign earnings that have been or will be repatriated to the U.S., and by discrete
items that may occur in any given year but are not consistent from year to year.
Significant
items that impacted the 2016 tax rate included the following (percentages reflect the effect of each item as a percentage of Income
before income taxes):
|
·
|
The income tax rate on continuing operations,
excluding discrete items, was 39.7%
|
|
·
|
A
$0.8 million (4.1%) discrete income tax benefit related to provisions for and settlements of income tax audits.
|
|
·
|
A
$0.2 million (1.0%) net tax benefit due to other discrete tax adjustments.
|
Significant
items that impacted the 2015 tax rate included the following (percentages reflect the effect of each item as a percentage of Income
before income taxes):
|
·
|
The
income tax rate on continuing operations, excluding discrete items, was 40.0%.
|
|
·
|
Discrete
charges of $0.2 million (1.0%) were recognized.
|
Segment Results of Operations
Machine Clothing Segment
Business Environment and Trends
Machine Clothing is our primary business
segment and accounted for 87% of our consolidated revenues during the first three months of 2016. Machine Clothing products are
purchased primarily by manufacturers of paper and paperboard.
According to RISI, Inc., global production
of paper and paperboard is expected to grow at an annual rate of approximately 2% over the next five years, driven primarily by
secular demand increases in Asia and South America, with stabilization in the mature markets of Europe and North America.
Shifting demand for paper, across different
paper grades as well as across geographical regions, continues to drive the elimination of papermaking capacity in areas with significant
established capacity, primarily in the mature markets of Europe and North America. At the same time, the newest, most efficient
machines are being installed in areas of growing demand, including Asia and South America generally, as well as tissue and towel
paper grades in all regions. Recent technological advances in paper machine clothing, while contributing to the papermaking efficiency
of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing
demand.
The Company’s manufacturing and
product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for
meeting these challenges continues to be to grow share in all markets, with new products and technology, and to maintain our manufacturing
footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement.
We have incurred significant restructuring
charges in recent periods as we reduced Machine Clothing manufacturing capacity in the United States, Germany, France, Canada,
and Sweden.
Review of Operations
|
|
Three
months ended March 31,
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
Net sales
|
|
$145,264
|
|
|
$158,494
|
|
Gross profit
|
|
69,622
|
|
|
75,260
|
|
% of net sales
|
|
47.9
|
%
|
|
47.5
|
%
|
STG&R expenses
|
|
31,785
|
|
|
30,570
|
|
Operating income
|
|
37,139
|
|
|
35,689
|
|
Net Sales
Three month comparison
|
·
|
Changes
in currency translation rates had the effect of decreasing 2016 sales by $1.8 million.
|
|
·
|
Excluding the effect of changes in currency translation
rates, MC sales declined 7.2% principally due to the continuing effect of the significant drop in publication grade sales that
occurred in the first half of 2015.
|
Gross Profit
Three month comparison
|
·
|
The
reduction in MC sales described above resulted in a decrease in gross profit of $5.9 million. MC gross profit margin improved
to 47.9% in 2016 from 47.5% in 2015.
|
Operating Income
Three
month comparison
The increase in operating income was
principally due to the net effect of the following individually significant items:
|
·
|
Gross
profit decreased $5.6 million as described above.
|
|
·
|
Restructuring
charges of $0.7 million in the first quarter of 2016, compared to $9.0 million in 2015.
|
|
·
|
Revaluation
of nonfunctional currency assets and liabilities resulted in first quarter losses of $1.9 million in 2016 and gains of $2.9 million
in 2015.
|
|
·
|
Restructuring
actions taken in 2015 reduced STG&R expenses by approximately $2 million.
|
Albany Engineered Composites Segment
Business Environment and Trends
The
Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in which our customer SAFRAN Group owns
a 10 percent noncontrolling interest, provides highly engineered advanced composite structures based on proprietary technology
to customers primarily in the aerospace and defense industries. AEC’s largest program relates to CFM International’s
LEAP engine, which is scheduled to enter into service in 2016. AEC, through ASC, is the exclusive supplier of advanced composite
fan blades and cases for this program under a long-term supply contract. In 2015, approximately 15 percent of this segment’s
sales were related to U.S. government contracts or programs.
Review of Operations
Net Sales
|
|
Three
months ended March 31,
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
Net sales
|
|
$27,067
|
|
|
$22,830
|
|
Gross profit
|
|
3,121
|
|
|
1,815
|
|
% of net sales
|
|
11.5
|
%
|
|
8.0
|
%
|
STG&R expenses
|
|
6,826
|
|
|
5,626
|
|
Operating loss
|
|
(3,706
|
)
|
|
(3,811
|
)
|
Three month comparison
|
·
|
2016
AEC sales increased due to growth in the LEAP program.
|
Gross Profit
Three
month comparison
|
·
|
The
$1.3 million increase in gross profit was principally due to higher sales from the LEAP program.
|
Long-term contracts
AEC has contracts with certain customers,
including its contract for the LEAP program, where revenue is determined by cost, plus a defined profit margin. Revenue earned
under these arrangements accounted for approximately 60 percent and 50 percent of AEC revenue for 2016 and 2015, respectively.
In addition, AEC has long-term fixed
price contracts. In accounting for those contracts, we estimate the profit margin expected at the completion of the contract and
recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost or units of delivery approach.
Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant
favorable or unfavorable effect on revenue and gross profit in any reporting period. Changes in contract estimates increased gross
profit $0.4 million in the first three months of 2016, and had minimal impact on gross profit in the same period of 2015.
The table below provides a summary
of long-term fixed price contracts that were in process at the end of each period.
|
|
Three
months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Revenue earned during period
|
|
$4,526
|
|
|
$5,198
|
|
Total value of contracts in process
|
|
21,701
|
|
|
34,892
|
|
Revenue recognized to date
|
|
11,502
|
|
|
23,329
|
|
Revenue to be recognized in future periods
|
|
10,199
|
|
|
11,563
|
|
In
February 2016, our customer on a long-term contract for the manufacture of composite components for the Rolls-Royce
BR725 engine notified us that they disagreed with our calculation of pricing for the parts to be sold in 2016, which could,
potentially, have an adverse effect on the profitability of this contract in the future. While the Company believes that its
position is supported by the prior course of dealing between the parties, if the customer’s position were to prevail it
could have a material effect on operating results in future periods.
Operating Loss
Three month comparison
|
·
|
2016 operating loss slightly improved principally due to the higher
gross profit, which was mostly offset by higher STG&R expenses, which includes $1.6 million of expenses related to the
acquisition of Harris Corporation’s composite aerostructures business.
|
Liquidity and Capital Resources
Cash Flow Summary
|
|
Three
months ended March 31,
|
(in thousands)
|
|
2016
|
|
2015
|
Net income
|
|
$13,316
|
|
|
$12,239
|
|
Depreciation and amortization
|
|
14,820
|
|
|
15,354
|
|
Changes in working capital
|
|
(25,375
|
)
|
|
(20,318
|
)
|
Gain on disposition of assets
|
|
-
|
|
|
(1,056
|
)
|
Changes in other noncurrent liabilities and deferred taxes
|
|
(107
|
)
|
|
(277
|
)
|
Other operating items
|
|
1,390
|
|
|
467
|
|
Net cash provided by operating activities
|
|
4,044
|
|
|
6,409
|
|
Net cash used in investing activities
|
|
(8,075
|
)
|
|
(9,447
|
)
|
Net cash (used in)/provided by financing activities
|
|
(15,374
|
)
|
|
5,679
|
|
Effect of exchange rate changes on cash flows
|
|
3,907
|
|
|
(11,605
|
)
|
Decrease in cash and cash equivalents
|
|
(15,498
|
)
|
|
(8,964
|
)
|
Cash and cash equivalents at beginning of year
|
|
185,113
|
|
|
179,802
|
|
Cash and cash equivalents at end of period
|
|
$169,615
|
|
|
$170,838
|
|
Operating activities
Cash provided by operating activities
was $4.0 million for the first three months of 2016, compared to $6.4 million in the same period of 2015. Changes in working capital
for the first three months of 2016 resulted in a use of cash totaling $25.4 million compared to $20.3 million in 2015. Cash paid
for income taxes was $9.2 million and $7.1 million for the first three months of 2016 and 2015, respectively.
At
March 31, 2016, we had $169.6 million of cash and cash equivalents, of which $149.1 million was held by subsidiaries outside of
the United States. As disclosed in Note 7 contained in Item 1, “Notes to Consolidated Financial Statements”, we determined
that all but $59.0 million of this amount (which represents the amount of prior year earnings to be repatriated to the United States
at some point in the future) is intended to be utilized by these non-U.S. operations for an indefinite period of time. Our current
plans do not anticipate that we will need additional funds generated from foreign operations to fund our domestic operations or
satisfy debt obligations in the United States. In the event that such funds were to be needed to fund operations in the U.S., and
if associated accruals for U.S. tax have not already been provided, we would be required to accrue and pay additional U.S. taxes
to repatriate these funds.
Investing Activities
Total capital expenditures for the
first quarter of 2016 were $10.9 million, including amounts that were included in Accounts payable. In the Consolidated Statements
of Cash Flows, capital expenditures and accounts payable were each adjusted by $2.9 million to reflect the non-cash nature of that
amount. The Company estimates full-year capital expenditure spending of $85 million to $95 million, including capital expenditures
for the acquired business.
Financing Activities
Dividends have been declared each quarter
since the fourth quarter of 2001. Decisions with respect to whether a dividend will be paid, and the amount of the dividend, are
made by the Board of Directors each quarter. To the extent the Board declares cash dividends in the future, we expect to pay such
dividends out of operating cash flows. Future cash dividends will also depend on debt covenants and on the Board’s assessment
of our ability to generate sufficient cash flows.
Capital Resources
We finance our business activities
primarily with cash generated from operations and borrowings, largely through our revolving credit agreement as discussed below.
Our subsidiaries outside of the United States may also maintain working capital lines with local banks, but borrowings under such
local facilities tend not to be significant. Substantially all of our cash balance at March 31, 2016 was held by non-U.S. subsidiaries.
Based on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to operate for the
foreseeable future. We were in compliance with all debt covenants as of March 31, 2016.
On June 18, 2015, we entered into a
$400 million, unsecured Five-Year Revolving Credit Facility Agreement (the “Prior Agreement”), under which $205 million
of borrowings were outstanding as of March 31, 2016. The applicable interest rate for borrowings under the Prior Agreement was
LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on March 16, 2016,
the spread was 1.375%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%, based on our leverage ratio.
Based on our maximum leverage ratio
and our Consolidated EBITDA (as defined
in the Prior Agreement), and without modification to any other credit agreements, as of March 31, 2016, we would have been able
to borrow an additional $195 million under the Prior Agreement.
On April 8, 2016, we entered into
a $550 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amends and restates
the Prior Agreement. The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events
of default comparable to those in the Prior Agreement. The Borrowings are guaranteed by certain of the Company's subsidiaries.
On May 20, 2013 and July 16, 2015
we entered into hedging transactions that had the effect of fixing the interest rate on $110 million to $120 million of borrowings
drawn under the Credit Agreement at the rate during the period.
As of March 31, 2016, our leverage
ratio, including the pro-forma effect of the acquisition, was 2.57 to 1.00 and our interest coverage ratio was 13.59 to 1.00. We
may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below 3.50 to 1.00, and may make
acquisitions with cash provided our leverage ratio would not exceed 3.50 to 1.00 after giving pro forma effect to the acquisition.
For more information, see Note 14 to
the Consolidated Financial Statements in Item 1, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
As of March 31, 2016, we have no off-balance
sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K.
Recent Accounting Pronouncements
The information set forth under Note
18 contained in Item 1, “Notes to Consolidated Financial Statements”, which is incorporated herein by reference.
Non-GAAP Measures
This Form 10-Q contains certain items,
such as earnings before interest, taxes, depreciation and amortization (EBITDA), Adjusted EBITDA, EBITDA margin, sales excluding
currency effects, income tax rate excluding adjustments, net debt, net income attributable to the Company, excluding adjustments
(on an absolute and per-share basis), and certain income and expense items on a per-share basis that could be considered non-GAAP
financial measures. Such items are provided because management believes that, when presented together with the GAAP items to which
they relate, they provide additional useful information to investors regarding the Company’s operational performance. Presenting
increases or decreases in sales, after currency effects are excluded, can give management and investors insight into underlying
sales trends. An understanding of the impact in a particular period of specific restructuring costs, or other gains and losses,
on operating income or EBITDA can give management and investors additional insight into period performance, especially when compared
to periods in which such items had a greater or lesser effect, or no effect. All non-GAAP financial measures in this report relate
to the Company’s continuing operations.
The effect of changes in currency translation
rates is calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period.
That amount is then compared to the U.S. dollar amount reported in the current period. The Company calculates Income tax adjustments
by adding discrete tax items to the effect of a change in tax rate for the reporting period. The Company calculates its income
tax rate, exclusive of income tax adjustments, by removing income tax adjustments from total income tax expense, then dividing
that result by income before income taxes. The Company calculates EBITDA by removing the following from Net income: Interest expense
net, Income tax expense, and Depreciation and amortization. Adjusted EBITDA is calculated by adding to EBITDA, costs associated
with restructuring, adding or subtracting revaluation losses or gains, subtracting or adding gains or losses from the sale of buildings
or investments and insurance -recovery gains, and subtracting Income attributable to the noncontrolling interest in Albany Safran
Composites, LLC (ASC); and adding expenses related to the Company’s acquisition of Harris Corporation’s composite aerostructures
business. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they provide an
indication of the strength and performance of the Company's ongoing business operations, including its ability to fund discretionary
spending such as capital expenditures and strategic investments, as well as its ability to incur and service debt. While depreciation
and amortization are operating costs under GAAP, they are non-cash expenses equal to current period allocation of costs associated
with capital and other long-lived investments made in prior periods. While restructuring expenses, acquisition costs, foreign currency
revaluation losses or gains, and gains and losses from the sale of buildings or investments and insurance-recovery gains have an
impact on the Company's net income, removing them from EBITDA can provide, in the opinion of the Company, a better measure of operating
performance. EBITDA is also a calculation commonly used by investors and analysts to evaluate and compare the periodic and future
operating performance and value of companies. EBITDA, as defined by the Company, may not be similar to EBITDA measures of other
companies. Such EBITDA measures may not be considered measurements under GAAP, and should be considered in addition to, but not
as substitutes for, the information contained in the Company’s Consolidated Statements of Income.
The following tables show the calculation
of EBITDA and Adjusted EBITDA:
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Machine Clothing
|
|
AEC
|
|
Corporate expenses and other
|
|
Total Company
|
Net income
|
|
$37,139
|
|
|
($3,706
|
)
|
|
($20,117
|
)
|
|
$13,316
|
|
Interest expense, net
|
|
-
|
|
|
-
|
|
|
2,238
|
|
|
2,238
|
|
Income tax expense
|
|
-
|
|
|
-
|
|
|
7,043
|
|
|
7,043
|
|
Depreciation and amortization
|
|
9,318
|
|
|
3,395
|
|
|
2,107
|
|
|
14,820
|
|
EBITDA
|
|
46,457
|
|
|
(311
|
)
|
|
(8,729
|
)
|
|
37,417
|
|
Restructuring expenses, net
|
|
698
|
|
|
-
|
|
|
(19
|
)
|
|
679
|
|
Foreign currency revaluation (gains)/losses
|
|
1,890
|
|
|
5
|
|
|
(477
|
)
|
|
1,418
|
|
Acquisition expenses
|
|
-
|
|
|
1,596
|
|
|
-
|
|
|
1,596
|
|
Pretax loss attributable to the noncontrolling interest in ASC
|
|
-
|
|
|
187
|
|
|
-
|
|
|
187
|
|
Adjusted EBITDA
|
|
$49,045
|
|
|
$1,477
|
|
|
($9,225
|
)
|
|
$41,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Machine Clothing
|
|
AEC
|
|
Corporate expenses and other
|
|
Total Company
|
Net income
|
|
$35,689
|
|
|
($3,811
|
)
|
|
($19,639
|
)
|
|
$12,239
|
|
Interest expense, net
|
|
-
|
|
|
-
|
|
|
2,676
|
|
|
2,676
|
|
Income tax expense
|
|
-
|
|
|
-
|
|
|
8,519
|
|
|
8,519
|
|
Depreciation and amortization
|
|
10,205
|
|
|
2,995
|
|
|
2,154
|
|
|
15,354
|
|
EBITDA
|
|
45,894
|
|
|
(816
|
)
|
|
(6,290
|
)
|
|
38,788
|
|
Restructuring expenses, net
|
|
9,001
|
|
|
-
|
|
|
-
|
|
|
9,001
|
|
Foreign currency revaluation gains
|
|
(2,923
|
)
|
|
(17
|
)
|
|
(2,431
|
)
|
|
(5,371
|
)
|
Gain on sale of investment
|
|
-
|
|
|
-
|
|
|
(872
|
)
|
|
(872
|
)
|
Pretax income attributable to the noncontrolling interest in ASC
|
|
-
|
|
|
(26
|
)
|
|
-
|
|
|
(26
|
)
|
Adjusted EBITDA
|
|
$51,972
|
|
|
($859
|
)
|
|
($9,593
|
)
|
|
$41,520
|
|
The Company discloses certain income
and expense items on a per-share basis. The Company believes that such disclosures provide important insight into the underlying
quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share
amount for items included in continuing operations by using the estimated effective annual tax rate and the weighted average number
of shares outstanding for each period. The year-to-date earnings per-share effects are determined by adding the amounts calculated
at each reporting period.
The following tables show the earnings
per share effect of certain income and expense items:
Three months ended March 31, 2016
|
|
Pre tax
|
|
Tax
|
|
After tax
|
|
Per Share
|
(in thousands, except per share amounts)
|
|
Amounts
|
|
Effect
|
|
Effect
|
|
Effect
|
Restructuring expenses, net
|
|
$679
|
|
|
$270
|
|
|
$409
|
|
|
$0.01
|
|
Foreign currency revaluation losses
|
|
1,418
|
|
|
563
|
|
|
855
|
|
|
0.03
|
|
Acquisition expenses
|
|
1,596
|
|
|
575
|
|
|
1,021
|
|
|
0.03
|
|
Net discrete income tax benefit
|
|
-
|
|
|
1,033
|
|
|
1,033
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015
|
|
Pre tax
|
|
Tax
|
|
After tax
|
|
Per Share
|
(in thousands, except per share amounts)
|
|
Amounts
|
|
Effect
|
|
Effect
|
|
Effect
|
Restructuring expenses, net
|
|
$9,001
|
|
|
$3,420
|
|
|
$5,581
|
|
|
$0.18
|
|
Foreign currency revaluation gains
|
|
5,371
|
|
|
2,041
|
|
|
3,330
|
|
|
0.10
|
|
Gain on sale of investment
|
|
872
|
|
|
331
|
|
|
541
|
|
|
0.02
|
|
Net discrete income tax charge
|
|
-
|
|
|
219
|
|
|
219
|
|
|
0.01
|
|
The following table contains the
calculation of net income per share attributable to the Company, excluding adjustments:
|
|
Three
months ended March 31,
|
Per share amounts (Basic)
|
|
2016
|
|
2015
|
Net income attributable to the Company
|
|
$0.42
|
|
|
$0.38
|
|
Adjustments:
|
|
|
|
|
|
|
Restructuring expenses, net
|
|
0.01
|
|
|
0.18
|
|
Discrete tax charges/(benefit)
|
|
(0.03
|
)
|
|
0.01
|
|
Foreign currency revaluation losses/(gains)
|
|
0.03
|
|
|
(0.10
|
)
|
Acquisition expenses
|
|
0.03
|
|
|
|
|
Gain on sale of investment
|
|
-
|
|
|
(0.02
|
)
|
Net income attributable to the Company, excluding adjustments
|
|
$0.46
|
|
|
$0.45
|
|
The following table contains the calculation
of net debt:
(in thousands)
|
|
March 31,
2016
|
|
December
31, 2015
|
|
March 31,
2015
|
|
December
31, 2014
|
Notes and loans payable
|
|
$590
|
|
|
$587
|
|
|
$496
|
|
|
$661
|
|
Current maturities of long-term debt
|
|
16
|
|
|
16
|
|
|
50,015
|
|
|
50,015
|
|
Long-term debt
|
|
255,076
|
|
|
265,080
|
|
|
232,092
|
|
|
222,096
|
|
Total
debt
|
|
255,682
|
|
|
265,683
|
|
|
282,603
|
|
|
272,772
|
|
Cash and cash equivalents
|
|
169,615
|
|
|
185,113
|
|
|
170,838
|
|
|
179,802
|
|
Net
debt
|
|
$86,067
|
|
|
$80,570
|
|
|
$111,765
|
|
|
$92,970
|
|