Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Reports
of Independent Registered Public Accounting Firm
Consolidated
Statements of Income for the years ended
December
31, 2016, 2015, and 2014
Consolidated
Statements of Comprehensive Income/(Loss) for the years ended
December
31, 2016, 2015, and 2014
Consolidated
Balance Sheets as of December 31, 2016 and 2015
Consolidated
Statements of Cash Flows for the years ended
December
31, 2016, 2015, and 2014
Notes
to Consolidated Financial Statements
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Shareholders of Albany International
Corp.:
We have audited the accompanying consolidated
balance sheets of Albany International Corp. and subsidiaries (Albany International Corp.) as of December 31, 2016 and 2015,
and the related consolidated statements of income, comprehensive income/(loss), and cash flows for each of the years in the three-year
period ended December 31, 2016. In connection with our audits of the consolidated financial statements, we also have audited the
financial statement schedule of valuation and qualifying accounts. These consolidated financial statements and financial statement
schedule are the responsibility of Albany International Corp.’s management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based on our 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Albany International Corp. as
of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), Albany International Corp.’s internal control
over financial reporting as of December 31, 2016, based on criteria established in
Internal Control – Integrated
Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 1, 2017, expressed an adverse opinion on the effectiveness of Albany International Corp.’s internal control over financial
reporting.
/s/ KPMG LLP
Albany, New York
March 1, 2017
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders of Albany International
Corp.:
We have audited Albany International Corp. and subsidiaries’
(Albany International Corp.) internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Albany International Corp.’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting (Item 9A). Our responsibility is to express an opinion on
Albany International Corp.’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
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 (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis. Material weaknesses related to ineffective controls associated
with the establishment of reporting lines, appropriate authorities, responsibilities and monitoring activities for financial reporting
processes and internal controls at a foreign
sales location and certain other foreign locations; ineffective
controls associated with the assignment of banking signatory authorities, limits and responsibilities at a foreign sales location
and certain other foreign locations; a lack of effective written entity and process level controls over initiation, authorization,
processing and recording of transactions and safeguarding of assets managed by a third party service provider at a foreign sales
location; and ineffective management review controls over the assessment of a potential reserve for a loss contract due to a failure
to understand and document the design requirements and operation of an effective management review control have been identified
and included in management’s assessment.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Albany International Corp. as of
December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income/(loss), and cash flows
for each of the years in the three-year period ended December 31, 2016. These material weaknesses were considered in determining
the nature, timing, and extent of audit tests applied in our audit of those consolidated financial statements, and this report
does not affect our report dated March 1, 2017, which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned
material weaknesses on the achievement of the objectives of the control criteria, Albany International Corp. has not maintained
effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control—Integrated
Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management excluded from its assessment of the effectiveness of
Albany International Corp.’s internal control over financial reporting as of December 31, 2016 the internal control over
financial reporting related to the acquired business of Albany Aerostructures Composites, LLC associated with total assets of $252.5
million (of which $137.5 million represents goodwill and intangibles included within the scope of the assessment) and total revenues
of $67.0 million included in the consolidated financial statements of Albany International Corp. as of and for the year ended December 31,
2016. Our audit of internal control over financial reporting of Albany International Corp. also excluded an evaluation of the internal
control over financial reporting of Albany Aerostructures Composites, LLC.
/s/ KPMG LLP
Albany, New York
March 1, 2017
Albany
International Corp.
Consolidated
Statements of Income
For
the years ended December 31,
(in
thousands, except per share amounts)
|
2016
|
2015
|
2014
|
|
|
|
|
Net
sales
|
$779,839
|
$709,868
|
$745,345
|
Cost
of goods sold
|
479,271
|
431,182
|
453,710
|
Gross
profit
|
300,568
|
278,686
|
291,635
|
|
|
|
|
Selling,
general and administrative expenses
|
160,112
|
146,192
|
147,198
|
Technical,
product engineering, and research expenses
|
40,304
|
44,753
|
59,128
|
Restructuring
and other, net
|
8,376
|
23,846
|
5,759
|
Pension
settlement expense
|
-
|
-
|
8,190
|
Operating
income
|
91,776
|
63,895
|
71,360
|
|
|
|
|
Interest
income
|
(2,077)
|
(1,857)
|
(1,541)
|
Interest
expense
|
15,541
|
11,841
|
12,254
|
Other
expense/(income), net
|
46
|
2,433
|
(6,853)
|
Income
before income taxes
|
78,266
|
51,478
|
67,500
|
|
|
|
|
Income
tax expense/(benefit)
|
25,454
|
(5,787)
|
25,751
|
Net
income
|
52,812
|
57,265
|
41,749
|
Net
income/(loss) attributable to the noncontrolling interest
|
79
|
(14)
|
180
|
Net
income attributable to the Company
|
$52,733
|
$57,279
|
$41,569
|
|
|
|
|
|
|
|
|
Earnings
per share attributable to Company shareholders - Basic
|
$1.64
|
$1.79
|
$1.31
|
|
|
|
|
Earnings
per share attributable to Company shareholders - Diluted
|
$1.64
|
$1.79
|
$1.30
|
|
|
|
|
Dividends
declared per share, Class A and Class B
|
$0.68
|
$0.67
|
$0.63
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Albany
International Corp.
Consolidated
Statements of Comprehensive Income/(Loss)
For
the years ended December 31,
(in
thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net income
|
|
$52,812
|
|
|
$57,265
|
|
|
$41,749
|
|
Other comprehensive income/(loss), before tax:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(23,967
|
)
|
|
(51,177
|
)
|
|
(54,850
|
)
|
Pension/postretirement settlements and curtailments
|
|
51
|
|
|
103
|
|
|
8,377
|
|
Pension/postretirement plan remeasurement
|
|
(5,498
|
)
|
|
(700
|
)
|
|
(14,707
|
)
|
Amortization of pension liability adjustments:
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
(4,450
|
)
|
|
(4,440
|
)
|
|
(4,436
|
)
|
Net actuarial loss
|
|
5,102
|
|
|
5,932
|
|
|
5,329
|
|
Payments related to interest rate swaps included in earnings
|
|
2,400
|
|
|
1,988
|
|
|
1,914
|
|
Derivative valuation adjustment
|
|
1,297
|
|
|
(2,961
|
)
|
|
(1,724
|
)
|
|
|
|
|
|
|
|
|
|
|
Income taxes related to items of other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
Pension/postretirement settlements and curtailments
|
|
(6
|
)
|
|
-
|
|
|
(3,210
|
)
|
Pension/postretirement plan remeasurement
|
|
1,104
|
|
|
78
|
|
|
5,442
|
|
Amortization of pension liability adjustments
|
|
27
|
|
|
(270
|
)
|
|
(330
|
)
|
Payments related to interest rate swaps included in earnings
|
|
(912
|
)
|
|
(755
|
)
|
|
(746
|
)
|
Derivative valuation adjustment
|
|
(493
|
)
|
|
1,125
|
|
|
672
|
|
Comprehensive income/(loss)
|
|
27,467
|
|
|
6,188
|
|
|
(16,520
|
)
|
Comprehensive income/(loss) attributable to the noncontrolling interest
|
|
77
|
|
|
(9
|
)
|
|
178
|
|
Comprehensive income/(loss) attributable to the Company
|
|
$27,390
|
|
|
$6,197
|
|
|
($16,698
|
)
|
The accompanying
notes are an integral part of the consolidated financial statements.
Albany
International Corp.
Consolidated
Balance Sheets
At
December 31,
(in
thousands, except share data)
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$181,742
|
|
|
$185,113
|
|
Accounts receivable, net
|
|
171,193
|
|
|
146,383
|
|
Inventories
|
|
133,906
|
|
|
106,406
|
|
Income taxes prepaid and receivable
|
|
5,213
|
|
|
2,927
|
|
Asset held for sale
|
|
-
|
|
|
4,988
|
|
Prepaid expenses and other current assets
|
|
9,251
|
|
|
6,243
|
|
Total current assets
|
|
501,305
|
|
|
452,060
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
422,564
|
|
|
357,470
|
|
Intangibles, net
|
|
66,454
|
|
|
154
|
|
Goodwill
|
|
160,375
|
|
|
66,373
|
|
Income taxes receivable and deferred
|
|
68,865
|
|
|
108,945
|
|
Contract receivables
|
|
14,045
|
|
|
-
|
|
Other assets
|
|
29,825
|
|
|
24,560
|
|
Total assets
|
|
$1,263,433
|
|
|
$1,009,562
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Notes and loans payable
|
|
$312
|
|
|
$587
|
|
Accounts payable
|
|
43,305
|
|
|
26,753
|
|
Accrued liabilities
|
|
95,195
|
|
|
91,785
|
|
Current maturities of long-term debt
|
|
51,666
|
|
|
16
|
|
Income taxes payable
|
|
9,531
|
|
|
7,090
|
|
Total current liabilities
|
|
200,009
|
|
|
126,231
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
432,918
|
|
|
265,080
|
|
Other noncurrent liabilities
|
|
106,827
|
|
|
101,544
|
|
Deferred taxes and other liabilities
|
|
12,389
|
|
|
14,154
|
|
Total liabilities
|
|
752,143
|
|
|
507,009
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
|
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued
|
|
-
|
|
|
-
|
|
Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; issued 37,319,266 in 2016 and 37,238,913 in 2015
|
|
37
|
|
|
37
|
|
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 3,233,998 in 2016 and 3,235,048 in 2015
|
|
3
|
|
|
3
|
|
Additional paid-in capital
|
|
425,953
|
|
|
423,108
|
|
Retained earnings
|
|
522,855
|
|
|
491,950
|
|
Accumulated items of other comprehensive income:
|
|
|
|
|
|
|
Translation adjustments
|
|
(133,298
|
)
|
|
(108,655
|
)
|
Pension and postretirement liability adjustments
|
|
(51,719
|
)
|
|
(48,725
|
)
|
Derivative valuation adjustment
|
|
828
|
|
|
(1,464
|
)
|
Treasury stock (Class A), at cost; 8,443,444 shares in 2016 and 8,455,293 shares in 2015
|
|
(257,136
|
)
|
|
(257,391
|
)
|
Total Company shareholders' equity
|
|
507,523
|
|
|
498,863
|
|
Noncontrolling interest
|
|
3,767
|
|
|
3,690
|
|
Total Equity
|
|
511,290
|
|
|
502,553
|
|
Total liabilities and shareholders' equity
|
|
$1,263,433
|
|
|
$1,009,562
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
Albany
International Corp.
Consolidated
Statements of Cash Flows
For
the years ended December 31,
(in
thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$52,812
|
|
|
$57,265
|
|
|
$41,749
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
58,106
|
|
|
52,974
|
|
|
56,575
|
|
Amortization
|
|
9,355
|
|
|
7,140
|
|
|
7,717
|
|
Change in other noncurrent liabilities
|
|
(6,504
|
)
|
|
2,159
|
|
|
(12,246
|
)
|
Change in deferred taxes and other liabilities
|
|
5,889
|
|
|
(29,517
|
)
|
|
1,521
|
|
Provision for write-off of property, plant and equipment
|
|
2,778
|
|
|
867
|
|
|
1,915
|
|
Fair value adjustment on available-for-sale assets
|
|
-
|
|
|
3,212
|
|
|
-
|
|
Gain on disposition or involuntary conversion of assets
|
|
-
|
|
|
(1,056
|
)
|
|
(1,126
|
)
|
Excess tax benefit of options exercised
|
|
(150
|
)
|
|
(624
|
)
|
|
(201
|
)
|
Non-cash interest expense
|
|
564
|
|
|
-
|
|
|
-
|
|
Write-off of pension liability adjustment due to settlement
|
|
51
|
|
|
103
|
|
|
8,331
|
|
Compensation and benefits paid or payable in Class A Common Stock
|
|
2,433
|
|
|
1,707
|
|
|
1,384
|
|
Changes in operating assets and liabilities that provide/(use) cash, net of impact of business acquisition:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(12,697
|
)
|
|
(404
|
)
|
|
(6,564
|
)
|
Inventories
|
|
(12,520
|
)
|
|
(8,277
|
)
|
|
(744
|
)
|
Prepaid expenses and other current assets
|
|
(2,595
|
)
|
|
1,253
|
|
|
1,318
|
|
Income taxes prepaid and receivable
|
|
(2,206
|
)
|
|
(3,156
|
)
|
|
2,566
|
|
Contract receivable
|
|
(14,045
|
)
|
|
-
|
|
|
-
|
|
Accounts payable
|
|
2,108
|
|
|
(6,001
|
)
|
|
640
|
|
Accrued liabilities
|
|
1,312
|
|
|
2,081
|
|
|
(11,042
|
)
|
Income taxes payable
|
|
1,398
|
|
|
9,072
|
|
|
1,535
|
|
Other, net
|
|
(6,571
|
)
|
|
7,139
|
|
|
(9,132
|
)
|
Net cash provided by operating activities
|
|
79,518
|
|
|
95,937
|
|
|
84,196
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Purchase of business, net of cash acquired
|
|
(187,000
|
)
|
|
-
|
|
|
-
|
|
Purchases of property, plant and equipment
|
|
(71,244
|
)
|
|
(48,622
|
)
|
|
(58,224
|
)
|
Purchased software
|
|
(2,248
|
)
|
|
(1,973
|
)
|
|
(649
|
)
|
Proceeds from sale or involuntary conversion of assets
|
|
6,939
|
|
|
2,797
|
|
|
1,126
|
|
Net cash used in investing activities
|
|
(253,553
|
)
|
|
(47,798
|
)
|
|
(57,747
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
235,907
|
|
|
95,126
|
|
|
13,396
|
|
Principal payments on debt
|
|
(34,356
|
)
|
|
(102,215
|
)
|
|
(45,124
|
)
|
Debt acquisition costs
|
|
(1,771
|
)
|
|
(1,673
|
)
|
|
-
|
|
Swap termination payment
|
|
(5,175
|
)
|
|
-
|
|
|
-
|
|
Proceeds from options exercised
|
|
517
|
|
|
1,897
|
|
|
773
|
|
Excess tax benefit of options exercised
|
|
150
|
|
|
624
|
|
|
201
|
|
Dividends paid
|
|
(21,812
|
)
|
|
(21,088
|
)
|
|
(19,729
|
)
|
Net cash provided by/(used in) financing activities
|
|
173,460
|
|
|
(27,329
|
)
|
|
(50,483
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(2,796
|
)
|
|
(15,499
|
)
|
|
(18,830
|
)
|
(Decrease)/increase in cash and cash equivalents
|
|
(3,371
|
)
|
|
5,311
|
|
|
(42,864
|
)
|
Cash and cash equivalents at beginning of year
|
|
185,113
|
|
|
179,802
|
|
|
222,666
|
|
Cash and cash equivalents at end of year
|
|
$181,742
|
|
|
$185,113
|
|
|
$179,802
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
1.
Accounting Policies
Basis
of Consolidation
The
consolidated financial statements include the accounts of Albany International Corp. and its subsidiaries (the Company, Albany,
we, us, or our) after elimination of intercompany transactions. We have a 50% interest in an entity in Russia. The consolidated
financial statements include our original investment in the entity, plus our share of undistributed earnings or losses, in the
account “Other Assets.”
The
Company owns 90 percent of the common equity of Albany Safran Composites, LLC (ASC) which is reported within the Albany Engineered
Composites (AEC) segment. Additional information regarding that entity is included in Note 10.
Estimates
The
preparation of the 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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Estimates are used in accounting for, among other things, revenue recognition,
contract profitability, allowances for doubtful accounts, rebates and sales allowances, inventory allowances, pension benefits,
goodwill and intangible assets, contingencies, income tax related balances, and other accruals. Our estimates are based on historical
experience and on various other assumptions, which are believed to be reasonable under the circumstances. Due to the inherent
uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates
and assumptions are reviewed periodically, and the effects of any revisions are reflected in the consolidated financial statements
in the period they are determined to be necessary.
Revenue
Recognition
We
record sales when persuasive evidence of an arrangement exists, delivery has occurred, title has been transferred, the selling
price is fixed, and collectability is reasonably assured. We include in revenue any amounts invoiced for shipping and handling.
The timing of revenue recognition is dependent upon the contractual arrangement with customers. These arrangements, which may
include provisions for transfer of title and guarantees of workmanship, are specific to each customer. Some of these contracts
provide for a transfer of title upon delivery, or upon reaching a specific date, while other contracts provide for title transfer
to occur upon consumption of the product.
Products
and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment.
We have a contract with a major customer for which revenue is recognized under a cost plus fixed fee arrangement. We also have
fixed price long-term contracts, for which we use the percentage of completion method (actual cost to estimated cost, or units
of delivery). Accounting for long-term contracts requires significant judgment and estimation, which could be considerably different
if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes
from prior estimates are included in earnings in the period the change occurs. In 2015, we recorded a charge of $14.0 million
on our BR 725 contract. That charge included the write-off of $10.9 million of deferred contract costs and a reserve of $3.1 million
for additional anticipated losses. Changes in estimates on other contracts increased gross profit by $1.5 million in 2016, increased
gross profit by $0.4 million in 2015, and reduced gross profit by $0.6 million in 2014. For contracts with anticipated losses
at completion, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which
the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling,
general or administrative cost allocations that are treated as period expenses.
For
programs in which we use the units of delivery method, there are generally two phases: a phase during which the production part
is designed and tested, and a phase of supplying production parts. Certain costs are capitalized during the first phase, such
as costs for engineering, equipment, and inventory, where recovery is probable. Revenue is recognized during the second phase,
as parts are delivered. Accumulated capitalized costs are written off when those costs are determined to be unrecoverable.
We
limit the concentration of credit risk in receivables by closely monitoring credit and collection policies. We record allowances
for sales returns as a deduction in the computation of net sales. Such provisions are recorded on the basis of written communication
with customers and/or historical experience. Any value added taxes that are imposed on sales transactions are excluded from net
sales.
Cost
of Goods Sold
Cost
of goods sold includes the cost of materials, provisions for obsolete inventories, labor and supplies, shipping and handling costs,
depreciation of manufacturing facilities and equipment, purchasing, receiving, warehousing, and other expenses.
Selling,
General, Administrative, Technical, Product Engineering, and Research Expenses
Selling,
general, administrative, technical, and product engineering expenses are primarily comprised of wages, benefits, travel, professional
fees, revaluation of trade foreign currency balances, and other costs, and are expensed as incurred. Selling expense includes
provisions for bad debts and costs related to contract acquisition. Research expenses are charged to operations as incurred and
consist primarily of compensation, supplies, and professional fees incurred in connection with intellectual property. Total Company
research expense was $28.8 million in 2016, $31.7 million in 2015, and $32.4 million in 2014.
The
Albany Engineered Composites segment participates in both Company-sponsored, and customer-funded research and development. Some
customer-funded research and development may be on a cost-sharing basis, in which case amounts charged to the customer are credited
against research and development expense. Expenses were reduced by $0.4 million in 2014 as a result of such arrangements, while
no such arrangements existed in 2015 or 2016. For customer-funded research and development in which we anticipate funding to exceed
expenses, we include amounts charged to the customer in Net sales, while expenses are included in Cost of goods sold.
Restructuring
Expense
We
may incur expenses related to restructuring of our operations, which could include employee termination costs, costs to consolidate
or close facilities, or costs to terminate contractual relationships. Restructuring expenses may also include impairment of Property,
plant and equipment, as described below. Employee termination costs include the severance pay and social costs for periods after
employee service is completed. Termination costs related to an ongoing benefit arrangement are recognized when the amount becomes
probable and estimable. Termination costs related to a one-time benefit arrangement are recognized at the communication date to
employees. Costs related to contract termination, relocation of employees, outplacement and the consolidation or the closure of
facilities, are recognized when incurred.
Income
Taxes
Deferred
income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable
for future years to differences between existing assets and liabilities for financial reporting and income tax return purposes.
The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment
date. A valuation allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized.
In the event it becomes more likely than not that some or all of the deferred tax asset allowances will not be needed, the valuation
allowance will be adjusted.
In
the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax
positions and record tax benefits for all years subject to examination based upon management's evaluation of the facts, circumstances,
and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will
be sustained, we have determined the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit
that has a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge
of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will
be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated interest and penalties
have also been recognized. We recognize accrued interest and penalties related to unrecognized tax benefits as a component of
income tax expense.
Earnings
Per Share
Net
income or loss per share is computed using the weighted average number of shares of Class A Common Stock and Class B Common Stock
outstanding during each year. Diluted net income per share includes the effect of all potentially dilutive securities. If we report
a net loss from continuing operations, the diluted loss is equal to the basic earnings per share calculation.
Translation
of Financial Statements
Assets
and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statements are translated
at average exchange rates. Gains or losses resulting from translating non-U.S. currency financial statements are recorded in other
comprehensive income and accumulated in Shareholders’ equity in the caption “Translation adjustments”.
Selling,
general, and administrative expenses include foreign currency gains and losses resulting from third party balances, such as receivables
and payables, which are denominated in a currency other than the entity’s local currency. Gains or losses resulting from
cash and short-term intercompany loans and balances denominated in a currency other than the entity’s local currency, and
foreign currency options are generally included in Other expense/(income), net. Gains and losses on long-term intercompany loans
not intended to be repaid in the foreseeable future are recorded in other comprehensive income.
The
following table summarizes foreign currency transaction gains and losses recognized in the income statement:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
(Gains)/losses included in:
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses
|
|
($381
|
)
|
|
(5,090
|
)
|
|
($3,931
|
)
|
Other (income)/expense, net
|
|
(3,532
|
)
|
|
1,496
|
|
|
(6,379
|
)
|
Total transaction (gains)/losses
|
|
($3,913
|
)
|
|
($3,594
|
)
|
|
($10,310
|
)
|
The
following table presents foreign currency gains and losses on long-term intercompany loans that were recognized in Other comprehensive
income:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on long-term intercompany loans
|
|
$3,515
|
|
|
($5,225
|
)
|
|
$5,317
|
|
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less.
Accounts
Receivable
Accounts
receivable includes trade receivables and revenue in excess of progress billings on long-term contracts in the Albany Engineered
Composites segment. 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 December 31, 2016 and 2015, Accounts receivable consisted of the following:
(in
thousands)
|
2016
|
2015
|
Trade and
other accounts receivable
|
$146,460
|
$123,179
|
Bank promissory
notes
|
15,759
|
15,845
|
Revenue
in excess of progress billings
|
15,926
|
15,889
|
Allowance
for doubtful accounts
|
(6,952)
|
(8,530)
|
Total
accounts receivable
|
$171,193
|
$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.
The
Company also has Contract receivables representing revenue earned in 2016 which has extended payment terms. The Contract receivable
will be invoiced to the customer, with 2% interest, over a 10 year period starting in 2020.
Inventories
Costs
included in inventories are raw materials, labor, supplies and allocable depreciation and overhead. Raw material inventories are
valued on an average cost basis. Other inventory cost elements are valued at cost, using the first-in, first out method. The Company
writes down inventories for estimated obsolescence, and to the lower of cost or market value based upon assumptions about future
demand and market conditions. If actual demand or 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 write-down represents
the new cost basis of such inventories. The AEC segment has long-term contracts under which we incur engineering and development
costs that are allocable to parts that will be delivered over multiple years. These costs are included in Work in process in the
table below.
As
of December 31, 2016 and 2015, inventories consisted of the following:
(in thousands)
|
|
2016
|
|
2015
|
Raw materials
|
|
$37,691
|
|
|
$27,636
|
|
Work in process
|
|
58,715
|
|
|
41,823
|
|
Finished goods
|
|
37,500
|
|
|
36,947
|
|
Total inventories
|
|
$133,906
|
|
|
$106,406
|
|
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost, or if acquired as part of a business combination, at fair value. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets for financial reporting purposes; in some cases,
accelerated methods are used for income tax purposes. Significant additions or improvements extending assets’ useful lives
are capitalized; normal maintenance and repair costs are expensed as incurred. The cost of fully depreciated assets remaining
in use is included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains
or losses are included in net income.
Computer
software purchased for internal use, at cost, is amortized on a straight-line basis over five to eight years, depending on the
nature of the asset, after being placed into service, and is included in property, plant, and equipment. We capitalize internal
and external costs incurred related to the software development stage. Capitalized salaries, travel, and consulting costs related
to the software development amounted to $1.2 million in 2016 and $1.3 million in 2015.
We
review the carrying value of property, plant and equipment and other long-lived assets for impairment whenever events and circumstances
indicate that the carrying value of an asset group may not be recoverable from the estimated future cash flows expected to result
from its use and eventual disposition.
Goodwill,
Intangibles, and Other 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. See additional information set forth
under Note 12.
Intangible
assets acquired in a business combination are recognized at fair value and amortized to Cost of goods sold or
Selling, general and administrative expenses over the estimated useful lives of the assets. We review amortizable intangible
asset groups for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be
recoverable.
We
have an investment in a company in Russia that is accounted for under the equity method of accounting and is included in Other
assets amounting to $0.4 million in 2016 and 2015. We perform regular reviews of the financial condition of the investee to determine
if our investment is other than temporarily impaired. If the financial condition of the investee were to no longer support their
valuation, we would record an impairment provision.
Included
in Other assets is $7.8 million in 2016 and $10.4 million in 2015 for defined benefit pension plans where plan assets exceed the
projected benefit obligations. Other assets also includes financial assets of $6.5 million in 2016 and $0.8 million in 2015 (see
Note 15).
Stock-Based
Compensation
We
have stock-based compensation plans for key employees. Stock options are accounted for in accordance with applicable guidance
for the modified prospective transition method of share-based payments. No options have been granted since 2002. See additional
information set forth under Note 18.
Derivatives
We
use derivatives from time to time to reduce potentially large adverse effects from changes in currency exchange rates and interest
rates. We monitor our exposure to these risks and evaluate, on an ongoing basis, the risk of potentially large adverse effects
versus the costs associated with hedging such risks.
We
use interest rate swaps in the management of interest rate exposures and foreign currency derivatives in the management of foreign
currency exposure related to assets and liabilities (including net investments in subsidiaries located outside the U.S.) denominated
in foreign currencies. When we enter into a
derivative
contract, we make a determination whether the transaction is deemed to be a hedge for accounting purposes. For those contracts
deemed to be a hedge, we formally document the relationship between the derivative instrument and the risk being hedged. In this
documentation, we specifically identify the asset, liability, forecasted transaction, cash flow, or net investment that has been
designated as the hedged item, and evaluate whether the derivative instrument is expected to reduce the risks associated with
the hedged item. To the extent these criteria are not met, we do not use hedge accounting for the derivative.
All
derivative contracts are recorded at fair value, as a net asset or a net liability. For transactions that are designated as hedges,
we perform an evaluation of the effectiveness of the hedge. To the extent that the hedge is effective, changes in the fair
value of the hedge are recorded, net of tax, in other comprehensive income. We measure the effectiveness of hedging
relationships both at inception and on an ongoing basis. The ineffective portion of a hedge, if any, and changes in the fair
value of a derivative not deemed to be a hedge, are recorded in Other expense/(income), net.
For
derivatives that are designated and qualify as hedges of net investments in subsidiaries located outside the United States, changes
in the fair value of derivatives are reported in other comprehensive income as part of the Cumulative translation adjustment.
Pension
and Postretirement Benefit Plans
As
described in Note 4, we have pension and postretirement benefit plans covering substantially all employees. Our defined benefit
pension plan in the United States was closed to new participants as of October 1998 and, as of February 2009, benefits accrued
under this plan were frozen. We have liabilities for postretirement benefits in the U.S. and Canada. Substantially all of the
liability relates to the U.S. plan. Effective January 2005, our postretirement benefit plan in the U.S. was closed to new participants,
except for certain life insurance benefits. In September 2008, we changed the cost sharing arrangement under this program such
that increases in health care costs are the responsibility of plan participants and, in August 2013, we reduced the life insurance
benefit for retirees and eliminated that benefit for active employees.
The
pension plans are generally trusteed or insured, and accrued amounts are funded as required in accordance with governing laws
and regulations. The annual expense and liabilities recognized for defined benefit pension plans and postretirement benefit plans
are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected
return on plan assets, which are updated on an annual basis at the beginning of each fiscal year. We consider current market conditions,
including changes in interest rates, in making these assumptions. Discount rate assumptions are based on the population of plan
participants and a mixture of high-quality fixed-income investments for which the average maturity approximates the average remaining
service period of plan participants. The assumption for expected return on plan assets is based on historical and expected returns
on various categories of plan assets.
Reportable
Segments
In
accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that
is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.
The reportable segments, which are described in more detail in Note 3, are Machine Clothing (MC) and Albany Engineered Composites
(AEC). In the determination of segment operating income, we exclude expenses for certain corporate expenses, which consist primarily
of corporate headquarters and global information systems costs.
Recent
Accounting Pronouncements
In
May 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers.
We
will adopt the standard on January 1, 2018 and the Company is currently assessing the effects of the new standard. The new standard
may result in earlier
recognition
of revenue in Machine Clothing due to the customized nature of our products. In Albany Engineered Composites, we use the units
of delivery method for some contracts, which is considered an output method. Under the new standard, we expect that most of these
contracts will be accounted for using an input method, which is expected to result in earlier recognition of revenue. However,
we are currently unable to determine the full effect that the new standard will have on our financial statements. The guidance
permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years,
and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is continuing
to evaluate the implementation approach to be used.
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 have modified
footnote disclosures accordingly.
In
July 2015, an accounting update was issued simplifying the measurement of inventory from the lower of cost or market to lower
of cost or 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 was adopted January 1, 2016. Measurement period adjustments related to the Company’s 2016 business acquisition
are described in Note 2.
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 de-designation 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 statements 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. However,
we do not expect the adoption of this update to have a significant effect on our financial statements.
In
August 2016, an accounting update was issued in order to reduce diversity in practice in how certain transactions are classified
in the statement of cash flows. This accounting update is effective for reporting periods beginning after December 15, 2017. Early
adoption is permitted. We do not expect the adoption of this update to have a significant effect on our financial statements.
In
October 2016, an accounting update was issued which modifies the recognition of income tax effects on intracompany transfers of
assets, other than inventory. This accounting update is effective for reporting periods beginning after December 15, 2017. We
have not determined the effect of this update on our financial statements.
In
November 2016, an accounting update was issued which provides clarification of how changes in restricted cash should be reported
in the statement of cash flows. This accounting update is effective for reporting periods beginning after December 15, 2017. We
do not expect this update to have a material impact on our financial statements.
In
January 2017, an accounting update was issued which provides the definition of a business for the purposes of business combination
accounting. This accounting update is effective for reporting periods beginning after December 15, 2017 and is to be applied prospectively.
Accordingly, there will be no effect on prior business combinations. We have not determined the impact of the update due to the
absence of transactions that would be impacted.
In
January 2017, an accounting update was issued which simplifies the process for determining the amount of goodwill impairment.
This accounting update is effective for reporting periods beginning after December 15, 2019. Early adoption is permitted. We are
presently unable to determine the effect that the update will have on our financial statements.
2.
Business Acquisition
On
April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business for
cash of $187 million, plus the assumption of certain liabilities. The Company funded the cash payable at closing by utilizing
proceeds from a $550 million, unsecured credit facility agreement that was completed April 8, 2016 (see Note 14). The acquired
entity is part of the Albany Engineered Composites (“AEC”) segment.
The
following table summarizes the provisional allocation of the purchase price to the fair value of the assets and liabilities acquired:
(in
thousands)
|
April
8, 2016
|
Assets
acquired
|
|
Accounts
receivable
|
$15,443
|
Inventories
|
16,670
|
Prepaid
expenses and other current assets
|
402
|
Property,
plant and equipment
|
62,784
|
Intangibles
|
71,630
|
Goodwill
|
95,730
|
Total
assets acquired
|
$262,659
|
|
|
Liabilities
assumed
|
|
Accounts
payable
|
$10,323
|
Accrued
liabilities
|
2,862
|
Capital
lease obligation
|
17,560
|
Deferred
income taxes
|
33,143
|
Other
noncurrent liabilities
|
11,771
|
Total
liabilities assumed
|
$75,659
|
|
|
Net
assets acquired
|
$187,000
|
In
the fourth quarter of 2016, the Company identified certain adjustments to the provisional value of acquired assets
and liabilities. The adjustments increased goodwill by $28.7 million, amortizable intangible assets by $12.3 million,
noncurrent liabilities by $10.4 million, deferred tax liabilities by $7.8 million and other liabilities by $2.6 million.
Property plant and equipment was reduced by $18.9 million and other assets were reduced by $1.3 million. The effect of these
adjustments on fourth-quarter 2016 income before income taxes was approximately $0.1 million and the effect on earnings per
share was negligible. Deferred income taxes and goodwill in the table above were still provisional as of December 31, 2016,
because the Company is waiting for information needed to finalize the amounts. Goodwill of $95.7 million reflects that the
acquisition broadens and deepens AEC’s products, experience and manufacturing capabilities, and significantly increases
opportunities for future growth. The goodwill is non-deductible for tax purposes.
The
seller provided representations, warranties and indemnities customary for acquisition transactions, including indemnities for
certain customer claims identified before closing.
The
following table presents operational results of the acquired entity that are included in the Consolidated Statements of Income:
(in
thousands, except per share amounts)
|
|
April, 8 to December 31, 2016
|
Net sales
|
|
$67,011
|
|
Operating loss
|
|
(1,246
|
)
|
Loss before income taxes
|
|
(2,342
|
)
|
Net loss attributable to the Company
|
|
(1,495
|
)
|
|
|
|
|
Loss per share:
|
|
|
|
Basic
|
|
($0.05
|
)
|
Diluted:
|
|
($0.05
|
)
|
The
Consolidated Statements of Income reflect operational activity of the acquired business for only the period subsequent to the
closing, which affects comparability of results. The following table shows total Company pro forma statements of what results
would have been if the 2016 acquisition had occurred as of January 1, 2015.
|
|
Unaudited - Pro forma
|
(in thousands, except per share amounts)
|
|
2016
|
|
|
2015
|
|
Combined Net sales
|
|
$802,023
|
|
|
$786,623
|
|
|
|
|
|
|
|
|
Combined Income before income taxes
|
|
$80,639
|
|
|
$52,542
|
|
|
|
|
|
|
|
|
Pro forma increase/(decrease) to income before income taxes:
|
|
|
|
|
|
|
Acquisition expenses
|
|
5,367
|
|
|
-
|
|
Interest expense related to purchase price
|
|
(1,382
|
)
|
|
(5,133
|
)
|
|
|
|
|
|
|
|
Acquisition accounting adjustments:
|
|
|
|
|
|
|
Depreciation and amortization on property, plant and equipment, and intangible assets
|
|
(1,575
|
)
|
|
(7,875
|
)
|
Valuation of contract inventories
|
|
1,997
|
|
|
6,908
|
|
Interest expense on capital lease obligation
|
|
300
|
|
|
1,096
|
|
Interest expense on other obligations
|
|
(133
|
)
|
|
(533
|
)
|
Pro forma Income before income taxes
|
|
$85,213
|
|
|
$47,005
|
|
|
|
|
|
|
|
|
Pro forma Net Income attributable to the Company
|
|
$57,229
|
|
|
$54,245
|
|
3.
Reportable Segments and Geographic Data
In
accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that
is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.
The
accounting policies of the segments are the same as those described in Note 1. Corporate expenses include wages and benefits for
corporate headquarters personnel, costs related to information systems development and support, and professional fees related
to legal, audit, and other activities. These costs are not allocated to the reportable segments because the decision-making for
these functions lies outside of the segments.
Machine
Clothing:
The
Machine Clothing segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, nonwovens, fiber
cement and several other industrial applications. The Machine Clothing segment also supplies customized, consumable fabrics used
in the manufacturing process in the pulp, corrugator, nonwovens, fiber cement, building products, and tannery and textile industries.
We sell our Machine Clothing products directly to customer end-users in countries across the globe. Our products, manufacturing
processes, and distribution channels for Machine Clothing are substantially the same in each region of the world in which we operate.
We
design, manufacture, and market paper machine clothing for each section of the paper machine and for every grade of paper. Paper
machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials
in a complex structure.
Albany
Engineered Composites
:
The
Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in which our customer SAFRAN Group
(Safran) owns a 10 percent noncontrolling interest, provides highly engineered, advanced composite structures to customers in
the aerospace and defense industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this
program, AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term supply contract.
The manufacturing spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased
to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the Company due
to the cost-plus nature of the supply agreement. AEC net sales to Safran were $88.9 million in 2016, $58.1 million in 2015, and
$46.9 million in 2014. The total of invoiced receivables, unbilled receivables and contract receivables due from Safran amounted
to $68.5 million and $29.7 million as of December 31, 2016 and 2015, respectively. Other significant AEC programs include components
for the F-35 Joint Strike Fighter, fuselage frame components for the Boeing 787, and the fan case for the GE9X engine. In 2016,
approximately 30 percent of AEC sales were related to U.S. government contracts or programs.
The
following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$582,190
|
|
|
$608,581
|
|
|
$655,026
|
|
Albany Engineered Composites
|
|
197,649
|
|
|
101,287
|
|
|
90,319
|
|
Consolidated total
|
|
$779,839
|
|
|
$709,868
|
|
|
$745,345
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
36,428
|
|
|
39,503
|
|
|
45,066
|
|
Albany Engineered Composites
|
|
24,211
|
|
|
12,140
|
|
|
10,880
|
|
Corporate expenses
|
|
6,822
|
|
|
8,471
|
|
|
8,346
|
|
Consolidated total
|
|
$67,461
|
|
|
$60,114
|
|
|
$64,292
|
|
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$152,529
|
|
|
$141,311
|
|
|
$136,450
|
|
Albany Engineered Composites
|
|
(15,363
|
)
|
|
(28,478
|
)
|
|
(10,483
|
)
|
Corporate expenses
|
|
(45,390
|
)
|
|
(48,938
|
)
|
|
(54,607
|
)
|
Operating income
|
|
91,776
|
|
|
63,895
|
|
|
71,360
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(2,077
|
)
|
|
(1,857
|
)
|
|
(1,541
|
)
|
Interest expense
|
|
15,541
|
|
|
11,841
|
|
|
12,254
|
|
Other expense/(income),net
|
|
46
|
|
|
2,433
|
|
|
(6,853
|
)
|
Income before income taxes
|
|
$78,266
|
|
|
$51,478
|
|
|
$67,500
|
|
The
table below presents pension settlement and restructuring costs by reportable segment (also see Note 5):
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Pension settlement expense
|
|
|
|
|
|
|
|
|
|
Corporate expenses
|
|
$ -
|
|
|
$ -
|
|
|
$8,190
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses, net
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$6,069
|
|
|
$22,211
|
|
|
$4,828
|
|
Albany Engineered Composites
|
|
2,314
|
|
|
-
|
|
|
931
|
|
Corporate expenses
|
|
(7
|
)
|
|
1,635
|
|
|
-
|
|
Consolidated total
|
|
$8,376
|
|
|
$23,846
|
|
|
$5,759
|
|
In
the measurement of assets utilized by each reportable segment, we include accounts and contract receivables, inventories, net
property, plant and equipment, intangibles and goodwill. Excluded from segment assets are cash, tax related assets, prepaid and
other current assets, and certain other assets not directly associated with segment operations.
The
following table presents assets and capital expenditures by reportable segment:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Segment assets
|
|
|
|
|
|
|
Machine Clothing
|
|
$454,010
|
|
|
$494,347
|
|
|
$565,853
|
|
Albany Engineered Composites
|
|
514,527
|
|
|
181,825
|
|
|
175,338
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
181,742
|
|
|
185,113
|
|
|
179,802
|
|
Asset held for sale
|
|
-
|
|
|
4,988
|
|
|
-
|
|
Income taxes prepaid, receivable and deferred
|
|
74,078
|
|
|
111,872
|
|
|
76,283
|
|
Other assets
|
|
39,076
|
|
|
31,417
|
|
|
32,028
|
|
Consolidated total assets
|
|
$1,263,433
|
|
|
$1,009,562
|
|
|
$1,029,304
|
|
Capital expenditures and purchased software
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$16,158
|
|
|
$16,010
|
|
|
$23,202
|
|
Albany Engineered Composites
|
|
59,195
|
|
|
30,378
|
|
|
32,141
|
|
Corporate expenses
|
|
3,163
|
|
|
4,207
|
|
|
3,530
|
|
Consolidated total
|
|
$78,516
|
|
|
$50,595
|
|
|
$58,873
|
|
Total
capital expenditures for 2016 includes an increase from 2015 of $5.0 million of purchases that were included in Accounts payable
at year-end. The Consolidated Statements of Cash Flows has been adjusted to remove the non-cash transactions. Non-cash transactions
for 2015 and 2014 were negligible.
In
2016, the Company recorded expense of $5.4 million for cost directly related to the acquisition. These costs are included in Selling,
general and administrative expenses of AEC segment.
The
following table shows data by geographic area. Net sales are based on the location of the operation recording the final sale to
the customer. Net sales recorded by our entity in Switzerland are derived from products sold throughout Europe and Asia, and are
invoiced in various currencies.
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
United States
|
|
$396,238
|
|
|
$323,399
|
|
|
$324,750
|
|
Switzerland
|
|
145,479
|
|
|
159,804
|
|
|
184,022
|
|
Brazil
|
|
60,287
|
|
|
58,846
|
|
|
59,332
|
|
China
|
|
48,043
|
|
|
48,490
|
|
|
52,822
|
|
France
|
|
42,862
|
|
|
26,081
|
|
|
26,654
|
|
Mexico
|
|
27,526
|
|
|
30,581
|
|
|
27,431
|
|
Other countries
|
|
59,404
|
|
|
62,667
|
|
|
70,334
|
|
Consolidated total
|
|
$779,839
|
|
|
$709,868
|
|
|
$745,345
|
|
Property, plant and equipment, at cost, net
|
|
|
|
|
|
|
|
|
|
United States
|
|
$245,626
|
|
|
$172,372
|
|
|
$168,848
|
|
China
|
|
65,987
|
|
|
80,786
|
|
|
93,182
|
|
France
|
|
42,272
|
|
|
28,539
|
|
|
25,091
|
|
Korea
|
|
15,585
|
|
|
19,095
|
|
|
23,473
|
|
United Kingdom
|
|
14,591
|
|
|
19,029
|
|
|
22,222
|
|
Canada
|
|
11,455
|
|
|
12,861
|
|
|
18,236
|
|
Other countries
|
|
27,048
|
|
|
24,788
|
|
|
44,061
|
|
Consolidated total
|
|
$422,564
|
|
|
$357,470
|
|
|
$395,113
|
|
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 U.S. pension plan accounts for 43 percent of consolidated pension plan assets, and
44 percent of consolidated pension plan obligations. The eligibility, benefit formulas, and contribution requirements for plans
outside of the U.S. vary by location.
The
December 31, 2016 and 2015 benefit obligations for the U.S. pension and postretirement plans were calculated using the RP-2014
with generational projection using scale BB-2D from the 2006 mortality basis. For U.S. pension funding purposes, the Company uses
the plan’s IRS-basis current liability as its funding target, which is determined based on mandated assumptions. Weak investment
returns and low interest rates could result in higher than expected contributions to pension plans in future years.
Other
Postretirement Benefits
In
addition to providing pension benefits, the Company provides various medical, dental, and life insurance benefits for certain
retired United States employees. U.S. employees hired prior to 2005 may become eligible for these benefits if they reach normal
retirement age while working for the Company. Benefits provided under this plan are subject to change. Retirees share in the cost
of these benefits. Effective January 2005, any new employees who wish to be covered under this plan will be responsible for the
full cost of such benefits. In September 2008, we changed the cost-sharing arrangement under this program such that increases
in health care costs are the responsibility of plan participants. In August 2013, we reduced the life insurance benefit for retirees
and eliminated the benefit for active employees.
The
Company also provides certain postretirement life insurance benefits to retired employees in Canada. As of December 31, 2016,
the accrued postretirement liability was $56.5 million in the U.S. and $1.0 million in Canada. The Company accrues the cost of
providing postretirement benefits during the active service period of the employees. The Company currently funds the plans as
claims are paid.
Accounting
guidance requires the recognition of the funded status of each defined benefit and other postretirement benefit plan. Each overfunded
plan is recognized as an asset and each underfunded plan is recognized as a liability. Company pension plan data for U.S. and
non-U.S. plans has been combined for both 2016 and 2015, except where indicated below.
The
Company’s pension and postretirement benefit costs and benefit obligations are based on actuarial valuations that are affected
by many assumptions, the most significant of which are the assumed discount rate, expected rate of return on pension plan assets,
and mortality. Each of the assumptions is reviewed and updated annually, as appropriate. The assumed rates of return for pension
plan assets are determined for each major asset category based on historical rates of return for assets in that category and expectations
of future rates of return based, in part, on simulated future capital market performance. The assumed discount rate is based on
yields from a portfolio of currently available high-quality fixed-income investments with durations matching the expected future
payments, based on the demographics of the plan participants and the plan provisions.
Gains
and losses arise from changes in the assumptions used to measure the benefit obligations, and experience different from what had
been assumed, including asset returns different than what had been expected. The Company amortizes gains and losses in excess
of a “corridor” over the average future service of the plan’s current participants. The corridor is defined
as 10 percent of the greater of the plan’s projected benefit obligation or market-related value of plan assets. The market-related
value of plan assets is also used to determine the expected return on plan assets component of net periodic cost. The Company’s
market-related value for its U.S. plan is measured by first determining the absolute difference between the actual and the expected
return on the plan assets. The absolute difference in excess of 5 percent of the expected return is added to the market-related
value over two years; the remainder is added to the market-related value immediately.
To
the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the amount recognized through
accumulated other comprehensive income, are not reduced by future favorable plan experience, they will be recognized as a component
of the net periodic cost in future years.
The
following table sets forth the plan benefit obligations:
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
(in thousands)
|
|
Pension
plans
|
|
Other
postretirement benefits
|
|
Pension plans
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$199,856
|
|
|
$59,970
|
|
|
$213,110
|
|
|
$64,987
|
|
Service cost
|
|
2,656
|
|
|
254
|
|
|
2,959
|
|
|
330
|
|
Interest cost
|
|
7,885
|
|
|
2,443
|
|
|
7,787
|
|
|
2,437
|
|
Plan participants' contributions
|
|
249
|
|
|
-
|
|
|
304
|
|
|
-
|
|
Actuarial (gain)/loss
|
|
17,676
|
|
|
(395
|
)
|
|
(4,209
|
)
|
|
(2,855
|
)
|
Benefits paid
|
|
(7,057
|
)
|
|
(4,812
|
)
|
|
(6,530
|
)
|
|
(4,758
|
)
|
Settlements and curtailments
|
|
(2,436
|
)
|
|
-
|
|
|
(321
|
)
|
|
-
|
|
Plan amendments and other
|
|
36
|
|
|
-
|
|
|
(37
|
)
|
|
-
|
|
Foreign currency changes
|
|
(8,009
|
)
|
|
28
|
|
|
(13,207
|
)
|
|
(171
|
)
|
Benefit obligation, end of year
|
|
$210,856
|
|
|
$57,488
|
|
|
$199,856
|
|
|
$59,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$200,790
|
|
|
$-
|
|
|
$188,909
|
|
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to
|
|
|
|
|
|
|
|
|
|
|
|
|
determine benefit obligations, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - U.S. plan
|
|
4.20%
|
|
|
4.00%
|
|
|
4.54%
|
|
|
4.24%
|
|
Discount rate - non-U.S. plans
|
|
2.98%
|
|
|
3.70%
|
|
|
3.67%
|
|
|
4.00%
|
|
Compensation increase - U.S. plan
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Compensation increase - non-U.S. plans
|
|
3.29%
|
|
|
3.00%
|
|
|
3.24%
|
|
|
3.00%
|
|
The
following sets forth information about plan assets:
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
(in thousands)
|
|
Pension
plans
|
|
Other
postretirement benefits
|
|
Pension plans
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$171,387
|
|
|
$-
|
|
|
$183,199
|
|
|
$-
|
|
Actual return on plan assets, net of expenses
|
|
19,740
|
|
|
-
|
|
|
730
|
|
|
-
|
|
Employer contributions
|
|
6,605
|
|
|
4,812
|
|
|
5,287
|
|
|
4,758
|
|
Plan participants' contributions
|
|
249
|
|
|
72
|
|
|
304
|
|
|
1,068
|
|
Benefits paid
|
|
(7,057
|
)
|
|
(4,884
|
)
|
|
(6,530
|
)
|
|
(5,826
|
)
|
Settlements
|
|
(2,308
|
)
|
|
-
|
|
|
(688
|
)
|
|
-
|
|
Foreign currency changes
|
|
(7,944
|
)
|
|
-
|
|
|
(10,915
|
)
|
|
-
|
|
Fair value of plan assets, end of year
|
|
$180,672
|
|
|
$-
|
|
|
$171,387
|
|
|
$-
|
|
The
funded status of the plans was as follows:
|
|
As of December 31, 2016
|
|
As of December 31, 2015
|
(in thousands)
|
|
Pension
plans
|
|
Other
postretirement benefits
|
|
Pension plans
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$180,672
|
|
|
$-
|
|
|
$171,387
|
|
|
$-
|
|
Benefit obligation
|
|
210,856
|
|
|
57,488
|
|
|
199,856
|
|
|
59,970
|
|
Funded status
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
($28,469
|
)
|
|
($59,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost, end of year
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
($28,469
|
)
|
|
($59,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of the following:
|
|
|
|
|
|
|
Noncurrent asset
|
|
$7,794
|
|
|
$-
|
|
|
$10,423
|
|
|
$-
|
|
Current liability
|
|
(2,057
|
)
|
|
(4,195
|
)
|
|
(2,110
|
)
|
|
(4,660
|
)
|
Noncurrent liability
|
|
(35,921
|
)
|
|
(53,293
|
)
|
|
(36,782
|
)
|
|
(55,310
|
)
|
Net amount recognized
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
($28,469
|
)
|
|
($59,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$72,400
|
|
|
$34,782
|
|
|
$69,896
|
|
|
$37,997
|
|
Prior service cost/(credit)
|
|
597
|
|
|
(30,899
|
)
|
|
608
|
|
|
(35,387
|
)
|
Net amount recognized
|
|
$72,997
|
|
|
$3,883
|
|
|
$70,504
|
|
|
$2,610
|
|
The
composition of the net pension plan funded status as of December 31, 2016 was as follows:
|
|
|
|
Non-U.S.
|
|
|
(in thousands)
|
|
U.S. plan
|
|
plans
|
|
Total
|
|
|
|
|
|
|
|
Pension plans with pension assets
|
|
($5,197
|
)
|
|
$5,648
|
|
|
$451
|
|
Pension plans without pension assets
|
|
(7,761
|
)
|
|
(22,874
|
)
|
|
(30,635
|
)
|
Total
|
|
($12,958
|
)
|
|
($17,226
|
)
|
|
($30,184
|
)
|
The
composition of the net periodic benefit plan cost for the years ended December 31, 2016, 2015, and 2014, was as follows:
|
|
Pension plans
|
|
|
|
Other postretirement benefits
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$2,656
|
|
|
$2,959
|
|
|
$3,269
|
|
|
$254
|
|
|
$330
|
|
|
$314
|
|
Interest cost
|
|
7,885
|
|
|
7,787
|
|
|
9,505
|
|
|
2,443
|
|
|
2,437
|
|
|
2,741
|
|
Expected return on assets
|
|
(8,675
|
)
|
|
(8,630
|
)
|
|
(9,577
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization of prior service cost/(credit)
|
|
38
|
|
|
48
|
|
|
53
|
|
|
(4,488
|
)
|
|
(4,488
|
)
|
|
(4,488
|
)
|
Amortization of transition obligation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization of net actuarial loss
|
|
2,283
|
|
|
2,594
|
|
|
2,421
|
|
|
2,819
|
|
|
3,338
|
|
|
2,908
|
|
Settlement
|
|
162
|
|
|
103
|
|
|
8,331
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Curtailment (gain)/loss
|
|
(111
|
)
|
|
-
|
|
|
(942
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Special/contractual termination of benefits
|
|
-
|
|
|
44
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net periodic benefit cost
|
|
$4,238
|
|
|
$4,905
|
|
|
$13,060
|
|
|
$1,028
|
|
|
$1,617
|
|
|
$1,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - U.S. plan
|
|
4.54%
|
|
|
4.18%
|
|
|
5.22%
|
|
|
4.24%
|
|
|
3.90%
|
|
|
4.68%
|
|
Discount rate - non-U.S. plan
|
|
3.67%
|
|
|
3.58%
|
|
|
4.50%
|
|
|
4.00%
|
|
|
3.85%
|
|
|
4.75%
|
|
Expected return on plan assets - U.S. plan
|
|
4.74%
|
|
|
4.43%
|
|
|
5.40%
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expected return on plan assets - non-U.S. plans
|
|
5.39%
|
|
|
5.52%
|
|
|
5.65%
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Rate of compensation increase - U.S. plan
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Rate of compensation increase - non-U.S. plans
|
|
3.24%
|
|
|
3.23%
|
|
|
3.39%
|
|
|
3.00%
|
|
|
3.00%
|
|
|
3.00%
|
|
Health care cost trend rate (U.S. and non-U.S. plans):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial rate
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Ultimate rate
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Years to ultimate
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Pretax
(gains)/losses in plan assets and benefit obligations recognized in other comprehensive income during 2016 were as follows:
|
|
|
|
Other
|
|
|
Pension
|
|
postretirement
|
(in thousands)
|
|
plan
|
|
benefits
|
Settlements/curtailments
|
|
($51
|
)
|
|
$ -
|
|
Asset/liability loss/(gain)
|
|
6,519
|
|
|
(395
|
)
|
Amortization of actuarial (loss)
|
|
(2,283
|
)
|
|
(2,819
|
)
|
Amortization of prior service (cost)/credit
|
|
(38
|
)
|
|
4,488
|
|
Amortization of transition (obligation)
|
|
-
|
|
|
-
|
|
Currency impact
|
|
(1,655
|
)
|
|
(1
|
)
|
Cost in other comprehensive income
|
|
$2,492
|
|
|
$1,273
|
|
Total cost recognized in net periodic benefit cost and other comprehensive income
|
|
$6,730
|
|
|
$2,301
|
|
The
estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2017 are
as follows:
|
|
|
|
Total
|
|
|
Total
|
|
postretirement
|
(in thousands)
|
|
pension
|
|
benefits
|
Actuarial loss
|
|
$2,578
|
|
|
$2,811
|
|
Prior service cost/(benefit)
|
|
38
|
|
|
(4,488
|
)
|
Total
|
|
$2,616
|
|
|
($1,677
|
)
|
Investment
Strategy
Our
investment strategy for pension assets differs for the various countries in which we have defined benefit pension plans. Some
of our defined benefit plans do not require funded trusts and, in those arrangements, the Company funds the plans on a “pay
as you go” basis. The largest of the funded defined benefit plans is the United States plan.
United
States plan:
During
2009, we changed our investment strategy for the United States pension plan by adopting a liability-driven investment strategy.
Under this arrangement, the Company seeks to invest in assets that track closely to the discount rate that is used to measure
the plan liabilities. Accordingly, the plan assets are primarily debt securities. The change in investment strategy is reflective
of the Company’s 2008 decision to freeze benefit accruals under the plan.
Non-United
States plans:
For
the countries in which the Company has funded pension trusts, the investment strategy is to achieve a competitive, total investment
return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset
class are determined based on specific risks and investment opportunities identified. Actual allocations to each asset class vary
from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to
fully implement investment allocation positions, and the timing of benefit payments and contributions.
Fair-Value
Measurements
The
following tables present plan assets as of December 31, 2016, and 2015, using the fair-value hierarchy, which has three levels
based on the reliability of inputs used, as described in Note 15. Certain investments that are measured at fair value using net
asset value (NAV) as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair
value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented
in the funded status table above. As of December 31, 2016 and 2015, there were no investments expected to be sold at a value materially
different than NAV.
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
Quoted prices
|
|
Significant other
|
|
Significant
|
|
|
|
|
in active markets
|
|
observable inputs
|
|
unobservable inputs
|
|
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common Stocks and equity funds
|
|
$309
|
|
|
$-
|
|
|
$-
|
|
|
$309
|
|
Debt securities
|
|
-
|
|
|
74,449
|
|
|
-
|
|
|
74,449
|
|
Insurance contracts
|
|
-
|
|
|
-
|
|
|
2,238
|
|
|
2,238
|
|
Cash and short-term investments
|
|
3,401
|
|
|
-
|
|
|
-
|
|
|
3,401
|
|
Total investments in the fair value hierarchy
|
|
$3,710
|
|
|
$74,449
|
|
|
$2,238
|
|
|
80,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks and equity funds
|
|
|
|
|
|
|
|
|
|
|
35,510
|
|
Fixed income funds
|
|
|
|
|
|
|
|
|
|
|
59,662
|
|
Limited partnerships
|
|
|
|
|
|
|
|
|
|
|
5,065
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Total plan assets
|
|
|
|
|
|
|
|
|
|
|
$180,672
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
Quoted prices
|
|
Significant other
|
|
Significant
|
|
|
|
|
in active markets
|
|
observable inputs
|
|
unobservable inputs
|
|
|
(in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common Stocks and equity funds
|
|
$404
|
|
|
$-
|
|
|
$-
|
|
|
$404
|
|
Debt securities
|
|
-
|
|
|
71,886
|
|
|
-
|
|
|
71,886
|
|
Insurance contracts
|
|
-
|
|
|
-
|
|
|
2,403
|
|
|
2,403
|
|
Cash and short-term investments
|
|
2,501
|
|
|
-
|
|
|
-
|
|
|
2,501
|
|
Total investments in the fair value hierarchy
|
|
$2,905
|
|
|
$71,886
|
|
|
$2,403
|
|
|
77,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks and equity funds
|
|
|
|
|
|
|
|
|
|
|
34,709
|
|
Fixed income funds
|
|
|
|
|
|
|
|
|
|
|
53,616
|
|
Limited partnerships
|
|
|
|
|
|
|
|
|
|
|
5,676
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
|
192
|
|
Total plan assets
|
|
|
|
|
|
|
|
|
|
|
$171,387
|
|
The
following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2016 and 2015:
(in thousands)
|
|
December 31, 2015
|
|
|
Net realized
gains/(losses)
|
|
|
Net unrealized gains/(losses)
|
|
Net purchases, issuances and settlements
|
|
|
Net transfers
(out of)
Level 3
|
|
|
December 31, 2016
|
Insurance contracts
|
|
$2,403
|
|
|
$-
|
|
|
$26
|
|
|
$(191)
|
|
|
$-
|
|
|
$2,238
|
|
Total level 3 assets
|
|
$2,403
|
|
|
$-
|
|
|
$26
|
|
|
($191)
|
|
|
$-
|
|
|
$2,238
|
|
(in thousands)
|
|
December 31, 2014
|
|
|
Net realized
gains/(losses)
|
|
|
Net unrealized gains/(losses)
|
|
Net purchases, issuances and settlements
|
|
|
Net transfers
(out of)
Level 3
|
|
|
December 31, 2015
|
Insurance contracts
|
|
$2,133
|
|
|
$-
|
|
|
$35
|
|
|
$235
|
|
|
$-
|
|
|
$2,403
|
|
Total level 3 assets
|
|
$2,133
|
|
|
$-
|
|
|
$35
|
|
|
$235
|
|
|
$-
|
|
|
$2,403
|
|
The
asset allocation for the Company’s U.S. and non-U.S. pension plans for 2015 and 2016, and the target allocation for 2017,
by asset category, are as follows:
|
|
|
|
United
States Plan
|
|
|
|
Non-U.S.
Plans
|
|
|
|
Target
|
|
Percentage of plan assets
|
Target
|
|
Percentage of plan assets
|
|
|
Allocation
|
|
at plan measurement date
|
Allocation
|
|
at plan measurement date
|
Asset
category
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
-
|
|
2%
|
|
3%
|
|
32%
|
|
33%
|
|
35%
|
Debt securities
|
|
100%
|
|
92%
|
|
92%
|
|
64%
|
|
61%
|
|
55%
|
Real estate
|
|
-
|
|
5%
|
|
5%
|
|
-
|
|
-
|
|
4%
|
Other (1)
|
|
-
|
|
1%
|
|
-
|
|
4%
|
|
6%
|
|
6%
|
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
(1)
Other includes hedged equity and absolute return strategies, and private equity. The Company has procedures to closely monitor
the performance of these investments and compares asset valuations to audited financial statements of the funds.
The
targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset classes, and an
analysis of the expected rate of return, risk, and other investment characteristics of various investment asset classes.
At
the end of 2016 and 2015, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for
pension plans with projected benefit obligation and an accumulated benefit obligation in excess of plan assets were as follows:
|
Plans
with projected benefit obligation
|
|
in
excess of plan assets
|
(in
thousands)
|
2016
|
2015
|
Projected benefit
obligation
|
$121,600
|
$120,312
|
Accumulated benefit
obligation
|
119,753
|
117,447
|
Fair value of
plan assets
|
83,622
|
81,421
|
|
|
|
|
|
|
|
|
|
|
Plans
with accumulated benefit obligation
|
|
in
excess of plan assets
|
(in
thousands)
|
2016
|
2015
|
Projected benefit
obligation
|
$121,511
|
$120,312
|
Accumulated benefit
obligation
|
119,728
|
117,447
|
Fair value of
plan assets
|
83,558
|
81,421
|
Information
about expected cash flows for the pension and other benefit obligations are as follows:
(in
thousands)
|
Pension
plans
|
Other
postretirement benefits
|
Expected
employer contributions and direct employer payments in the next fiscal year
|
$3,727
|
$4,195
|
|
|
|
Expected benefit
payments
|
|
|
2017
|
$6,625
|
$4,195
|
2018
|
7,013
|
4,047
|
2019
|
7,380
|
3,913
|
2020
|
7,873
|
3,804
|
2021
|
8,473
|
3,748
|
2022-2026
|
50,990
|
17,983
|
5.
Restructuring
In
2016, the Company announced a plan to discontinue research and development activities at its Machine Clothing production facility
in Sélestat, France. We subsequently reached agreement with the Works Council on the restructuring plan and we recorded
$2.2 million of restructuring expense in 2016 for severance, outplacement, and the write-off of equipment. Cost savings associated
with this action reduced 2016 research and development expenses.
AEC
restructuring expenses in 2016 were principally related to the consolidation of legacy programs into Boerne, Texas.
In
2015, the Company announced a plan to discontinue manufacturing operations at its press fabric manufacturing facility in Göppingen,
Germany and manufacturing operations were discontinued during the second quarter. The restructuring program was driven by
the Company’s need to balance manufacturing capacity with
demand. In
2015, we recorded charges of $11.4 million related to this restructuring, including $3.3 million related to the write down of
the land and former manufacturing facility to estimated fair market value, and the property was sold in 2016 at that value. In
2016, we recorded additional restructuring charges of $2.6 million, principally related to the final closure of the plant in Germany.
In
the fourth quarter of 2015, the Company implemented an early retirement program for certain employees in the United States. Restructuring
charges associated with this restructuring program were $8.1 million.
2015
restructuring charges also includes $4.3 million related to the reduction in STG&R employment in Machine Clothing and Corporate.
Machine Clothing restructuring costs in 2014 were principally related to restructuring of manufacturing operations in France,
where employment was reduced by approximately 200 positions.
Albany
Engineered Composites restructuring expenses in 2014 were principally related to organizational changes and exiting certain aerospace
programs.
The
following table summarizes charges reported in the Consolidated Statements of Income under “Restructuring and other, net”:
Year ended December 31, 2016
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
|
Impairment of plant and equipment
|
|
Benefit plan curtailment/ settlement
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$6,069
|
|
|
$5,756
|
|
|
$425
|
|
|
($112
|
)
|
Albany Engineered Composites
|
|
2,314
|
|
|
1,502
|
|
|
812
|
|
|
|
|
Corporate expenses
|
|
(7
|
)
|
|
(7
|
)
|
|
|
|
|
|
|
Total
|
|
$8,376
|
|
|
$7,251
|
|
|
$1,237
|
|
|
($112
|
)
|
Year ended December 31, 2015
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
|
Impairment of plant and equipment
|
|
Benefit plan curtailment/ settlement
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$22,211
|
|
|
$18,906
|
|
|
$3,305
|
|
|
$-
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate expenses
|
|
1,635
|
|
|
1,635
|
|
|
-
|
|
|
-
|
|
Total
|
|
$23,846
|
|
|
$20,541
|
|
|
$3,305
|
|
|
$-
|
|
Year ended December 31, 2014
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
|
Impairment of plant and equipment
|
|
Benefit plan curtailment/ settlement
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$4,828
|
|
|
$5,769
|
|
|
$-
|
|
|
($941
|
)
|
Albany Engineered Composites
|
|
931
|
|
|
319
|
|
|
612
|
|
|
-
|
|
Corporate expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$5,759
|
|
|
$6,088
|
|
|
$612
|
|
|
($941
|
)
|
We
expect that approximately $4.7 million of Accrued liabilities for restructuring at December 31, 2016 will be paid within one year
and approximately $0.9 million will be paid the following year. The table below
presents the changes in restructuring liabilities for 2016 and 2015, all of which related to termination costs:
|
|
December
31,
|
|
Restructuring
|
|
|
|
Currency
|
|
December
31,
|
(in thousands)
|
|
2015
|
|
charges
accrued
|
|
Payments
|
|
translation/other
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total termination and other costs
|
|
$10,177
|
|
|
$7,251
|
|
|
($11,800
|
)
|
|
($69
|
)
|
|
$5,559
|
|
|
|
December 31,
|
|
Restructuring
|
|
|
|
Currency
|
|
December 31,
|
(in thousands)
|
|
2014
|
|
charges accrued
|
|
Payments
|
|
translation/other
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total termination and other costs
|
|
$1,874
|
|
|
$20,541
|
|
|
($12,323
|
)
|
|
$85
|
|
|
$10,177
|
|
6.
Other Expense/(Income), net
The
components of Other Expense/(Income), net, are:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Currency transactions
|
|
($3,532
|
)
|
|
$1,496
|
|
|
($6,379
|
)
|
Bank fees and amortization of debt issuance costs
|
|
759
|
|
|
916
|
|
|
1,174
|
|
Loss due to theft of cash
|
|
2,506
|
|
|
-
|
|
|
-
|
|
Gain on sale of investment
|
|
-
|
|
|
(872
|
)
|
|
-
|
|
Gain on insurance recovery
|
|
-
|
|
|
-
|
|
|
(1,126
|
)
|
Other
|
|
313
|
|
|
893
|
|
|
(522
|
)
|
Total
|
|
$46
|
|
|
$2,433
|
|
|
($6,853
|
)
|
In
2016, the Company had a loss due to theft of cash in Japan, resulting in a loss of $2.5 million. While some of the loss occurred
in prior periods, that portion was not material and, accordingly, we have not restated any previously-issued financial statements.
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.
In
July 2013, the Company’s manufacturing facility in Germany was damaged by severe weather. At that time, the Company expensed
the remaining book value of the damaged property, but the value was minimal. The gain recorded in 2014 represents the finalization
of the insurance claim.
7.
Income Taxes
The
following tables present components of income tax expense/(benefit) and income before income taxes on continuing operations:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Income tax based on income from continuing operations, at estimated tax rates of 35%, 32%, and 34%, respectively
|
|
$27,629
|
|
|
$16,388
|
|
|
$25,703
|
|
Pension plan settlements
|
|
-
|
|
|
-
|
|
|
(3,194
|
)
|
Income tax before discrete items
|
|
27,629
|
|
|
16,388
|
|
|
22,509
|
|
|
|
|
|
|
|
|
|
|
|
Discrete tax expense/(benefit):
|
|
|
|
|
|
|
|
|
|
Worthless Stock deduction
|
|
-
|
|
|
(28,553
|
)
|
|
-
|
|
Repatriation of non-U.S. prior years' earnings
|
|
-
|
|
|
-
|
|
|
2,210
|
|
Provision for/resolution of tax audits and contingencies, net
|
|
(2,856
|
)
|
|
6,500
|
|
|
744
|
|
Adjustments to prior period tax liabilities
|
|
769
|
|
|
(867
|
)
|
|
397
|
|
Provision for/adjustment to beginning of year valuation allowances
|
|
(88
|
)
|
|
75
|
|
|
(109
|
)
|
Enacted tax legislation
|
|
-
|
|
|
670
|
|
|
-
|
|
Total income tax expense/(benefit)
|
|
$25,454
|
|
|
($5,787
|
)
|
|
$25,751
|
|
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Income/(loss) before income taxes:
|
|
|
|
|
|
|
U.S.
|
|
$8,556
|
|
|
($7,211
|
)
|
|
$4,993
|
|
Non-U.S.
|
|
69,710
|
|
|
58,689
|
|
|
62,507
|
|
|
|
$78,266
|
|
|
$51,478
|
|
|
$67,500
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$3,728
|
|
|
$-
|
|
|
$1,874
|
|
State
|
|
176
|
|
|
1,993
|
|
|
1,102
|
|
Non-U.S.
|
|
19,979
|
|
|
20,842
|
|
|
17,474
|
|
|
|
$23,883
|
|
|
$22,835
|
|
|
$20,450
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$2,138
|
|
|
($34,135
|
)
|
|
($1,707
|
)
|
State
|
|
1,984
|
|
|
(40
|
)
|
|
(495
|
)
|
Non-U.S.
|
|
(2,551
|
)
|
|
5,553
|
|
|
7,503
|
|
|
|
$1,571
|
|
|
($28,622
|
)
|
|
$5,301
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense/(benefit)
|
|
$25,454
|
|
|
($5,787
|
)
|
|
$25,751
|
|
The
significant components of deferred income tax expense/(benefit) are as follows:
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net effect of temporary differences
|
|
$7,214
|
|
|
($7,615
|
)
|
|
($1,667
|
)
|
Foreign tax credits
|
|
(6,869
|
)
|
|
(17,874
|
)
|
|
(481
|
)
|
Retirement benefits
|
|
1,734
|
|
|
1,844
|
|
|
1,438
|
|
Net impact to operating loss carryforwards
|
|
(603
|
)
|
|
(5,722
|
)
|
|
6,120
|
|
Enacted changes in tax laws and rates
|
|
183
|
|
|
670
|
|
|
-
|
|
Adjustments to beginning-of-the-year valuation
|
|
|
|
|
|
|
allowance balance for changes in circumstances
|
|
(88
|
)
|
|
75
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$1,571
|
|
|
($28,622
|
)
|
|
$5,301
|
|
A reconciliation
of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:
|
|
2016
|
|
2015
|
|
2014
|
U.S. federal statutory tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
2.3
|
|
|
2.4
|
|
|
1.7
|
|
Non-U.S. local income taxes
|
|
3.5
|
|
|
4.1
|
|
|
4.0
|
|
Foreign adjustments
|
|
1.6
|
|
|
7.4
|
|
|
3.7
|
|
Foreign rate differential
|
|
(11.3
|
)
|
|
(13.6
|
)
|
|
(13.9
|
)
|
Net U.S. tax on non-U.S. earnings and foreign withholdings
|
|
5.8
|
|
|
(1.8
|
)
|
|
8.0
|
|
Provision for/resolution of tax audits and contingencies, net
|
|
(3.4
|
)
|
|
12.6
|
|
|
1.0
|
|
Research and development and other tax credits
|
|
(1.2
|
)
|
|
(2.4
|
)
|
|
(1.6
|
)
|
Adjustment to beginning of year valuation allowances
|
|
(0.1
|
)
|
|
0.1
|
|
|
(0.2
|
)
|
Worthless stock deduction
|
|
-
|
|
|
(55.5
|
)
|
|
-
|
|
Other
|
|
0.3
|
|
|
0.5
|
|
|
0.4
|
|
Effective income tax rate
|
|
32.5
|
%
|
|
(11.2
|
)%
|
|
38.1
|
%
|
The
Company has operations which constitute a taxable presence in 18 countries outside of the United States. All of these countries
had 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. The rate impact of this component is influenced
by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix
of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location
of other income and expense items, such as pension settlement and restructuring charges. The foreign income tax rate differential
that is included above in the reconciliation of the effective tax rate includes the difference between tax expense calculated
at the U.S. federal statutory tax rate of 35% and the expense accrued based on lower statutory tax rates that apply in the jurisdictions
where the income or loss is earned.
During
the periods reported, income outside of the U.S. was heavily concentrated within Brazil, China, (both with 25% tax rates), Mexico
(30% tax rate) and Switzerland (8% tax rate). As a result, the foreign income tax rate differential was primarily attributable
to these tax rate differences.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities
for financial reporting and income tax return purposes. Significant components of the Company’s deferred tax assets and
liabilities are as follows:
|
|
U.S.
|
|
|
|
Non-U.S.
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$1,155
|
|
|
$1,392
|
|
|
$1,381
|
|
|
$1,304
|
|
Inventories
|
|
1,193
|
|
|
897
|
|
|
1,868
|
|
|
1,750
|
|
Deferred compensation
|
|
7,533
|
|
|
6,714
|
|
|
-
|
|
|
-
|
|
Depreciation and amortization
|
|
2,786
|
|
|
10,323
|
|
|
5,030
|
|
|
4,882
|
|
Postretirement benefits
|
|
26,602
|
|
|
26,475
|
|
|
3,478
|
|
|
4,138
|
|
Tax loss carryforwards
|
|
1,760
|
|
|
2,682
|
|
|
26,084
|
|
|
27,134
|
|
Tax credit carryforwards
|
|
50,624
|
|
|
42,851
|
|
|
1,186
|
|
|
1,740
|
|
Other
|
|
7,828
|
|
|
10,222
|
|
|
2,876
|
|
|
3,503
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
before valuation allowance
|
|
99,481
|
|
|
101,556
|
|
|
41,903
|
|
|
44,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
-
|
|
|
-
|
|
|
(22,821
|
)
|
|
(24,439
|
)
|
Total noncurrent deferred tax assets
|
|
99,481
|
|
|
101,556
|
|
|
19,082
|
|
|
20,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$99,481
|
|
|
$101,556
|
|
|
$19,082
|
|
|
$20,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrepatriated foreign earnings
|
|
$1,602
|
|
|
$1,157
|
|
|
$-
|
|
|
$-
|
|
Depreciation and amortization
|
|
43,156
|
|
|
10,309
|
|
|
2,466
|
|
|
3,174
|
|
Postretirement benefits
|
|
-
|
|
|
-
|
|
|
1,411
|
|
|
2,003
|
|
Deferred gain
|
|
7,156
|
|
|
7,559
|
|
|
-
|
|
|
-
|
|
Branch losses subject to recapture
|
|
-
|
|
|
-
|
|
|
-
|
|
|
918
|
|
Other
|
|
2,198
|
|
|
-
|
|
|
2,897
|
|
|
3,245
|
|
Total deferred tax liabilities
|
|
$54,112
|
|
|
19,025
|
|
|
$6,774
|
|
|
9,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$45,369
|
|
|
$82,531
|
|
|
$12,308
|
|
|
$10,672
|
|
Deferred
income tax assets, net of valuation allowances, are expected to be realized through the reversal of existing taxable temporary
differences and future taxable income. In 2016, the Company recorded the following decreases in its valuation allowance: $0.9
million due to a net reduction in the related deferred tax assets, $0.3 million due to the elimination of previously recorded
valuation allowances, and $0.4 million due to the effect of changes in currency translation rates.
At
December 31, 2016, the Company had available approximately $143 million of net operating loss carryforwards, for which we
have a deferred tax asset of $27.8 million, with expiration dates ranging from one year to indefinite, that may be applied
against future taxable income. We believe that it is more likely than not that certain benefits from these net operating loss
carryforwards will not be realized and, accordingly, we have recorded a valuation allowance of $19.7 million as of December
31, 2016. Included in the net operating loss carryforwards is approximately $23.0 million of state net operating loss
carryforwards that are subject to various business apportionment factors and multiple jurisdictional requirements when
utilized. In addition, the Company had available a foreign tax credit carryforward of $41.4 million that will begin to expire
in 2020, U.S. and non-U.S. research and development credit carryforwards of $7.9 million, and $1.2 million, respectively,
that will begin to expire in 2025, and alternative minimum tax credit carryforwards of $1.2 million with no expiration
date.
The
Company reported a U.S. net deferred tax asset of $45.4 million at December 31, 2016, which contained $52.4 million of tax attributes
with limited lives. Although the Company is in a cumulative book income position over the evaluation period (three-year period
ending December 31, 2016), management has evaluated its ability to utilize these tax attributes during the carryforward period.
The Company’s future profits from operations, available tax elections and tax planning opportunities, coupled with the repatriation
of non-U.S. earnings will
generate
income of sufficient character to utilize the remaining tax attributes. Accordingly, no valuation allowance has been established
for the remaining U.S. net deferred tax assets.
The
Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation
to the U.S. These amounts are not considered to be permanently reinvested, and the Company accrued for the tax cost on these earnings
to the extent they cannot be repatriated in a tax-free manner.
At
December 31, 2016 the Company reported a deferred tax liability of $1.6 million on $24.9 million of non-U.S. earnings that have
been targeted for future repatriation to the U.S. Included in these amounts are $1.1 million of tax expense on approximately $14.6
million of foreign earnings that were generated in 2016.
The
accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately
$164.0 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes have been provided
on these earnings at December 31, 2016. If these earnings were distributed, the Company would be subject to both foreign withholding
taxes and U.S. income taxes that may not be fully offset by foreign tax credits. Determination of the amount of any unrecognized
deferred tax liability on these earnings is not practicable because of the complexities of the hypothetical calculation.
The
following table provides a reconciliation of the beginning and ending amount of unrecognized tax benefits, all of which, if recognized,
would impact the effective tax rate.
(in thousands)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at January 1
|
|
$19,606
|
|
|
$19,509
|
|
|
$12,538
|
|
|
|
|
|
|
|
|
|
|
|
Increase in gross amounts of tax positions related to prior years
|
|
62
|
|
|
2,315
|
|
|
14,699
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in gross amounts of tax positions related to prior years
|
|
(2,129
|
)
|
|
(145
|
)
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase in gross amounts of tax positions related to current year
|
|
585
|
|
|
79
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
Decrease due to settlements with tax authorities
|
|
(14,029
|
)
|
|
(42
|
)
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
Decrease due to lapse in statute of limitations
|
|
(163
|
)
|
|
(90
|
)
|
|
(6,775
|
)
|
|
|
|
|
|
|
|
|
|
|
Currency translation
|
|
251
|
|
|
(2,020
|
)
|
|
(1,931
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits balance at December 31
|
|
$4,183
|
|
|
$19,606
|
|
|
$19,509
|
|
The
Company recognizes interest and penalties related to unrecognized tax benefits within its global operations as a component of
income tax expense. The Company recognized (income)/expense for interest and penalties related to the unrecognized tax benefits
noted above of ($0.1) million, ($0.1) million and $1.0 million in the Consolidated Statements of Income in 2016, 2015 and 2014,
respectively. As of December 31, 2016, 2015 and 2014, the Company had approximately $0.3 million, $0.4 million, and $0.4 million
respectively, of accrued interest and penalties related to unrecognized tax benefits.
The
Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state
and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout
the world, including major jurisdictions such as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland.
The open tax years in these jurisdictions range from 2007 to 2016. The Company is currently under audit in non-U.S. tax jurisdictions,
including but not limited to Canada, France, and Italy.
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 less than $0.1 million to a net decrease of $0.6 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 a number of 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 that payment was
recorded as an income tax receivable. As additional information became available in subsequent years, the receivable was written
down by $6.3 million in 2014 and $6.4 million in 2015. In 2016, the Company received $3.7 million representing the final settlement
of this matter, which resulted in the recognition of a discrete tax benefit.
As
of December 31, 2016 and 2015, current income taxes prepaid and receivable consisted of the following:
(in thousands)
|
|
2016
|
|
|
2015
|
|
Prepaid taxes
|
|
$3,914
|
|
|
$2,417
|
|
Taxes receivable
|
|
1,299
|
|
|
510
|
|
Total current income taxes prepaid and receivable
|
|
$5,213
|
|
|
$2,927
|
|
As
of December 31, 2016 and 2015, noncurrent income taxes receivable and deferred consisted of the following:
(in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred income taxes
|
|
$68,865
|
|
|
$105,792
|
|
Taxes receivable
|
|
-
|
|
|
3,153
|
|
Total noncurrent income taxes receivable and deferred
|
|
$68,865
|
|
|
$108,945
|
|
As
of December 31, 2016 and 2015, current income taxes payable consisted of the following:
(in thousands)
|
|
2016
|
|
|
2015
|
|
Taxes Payable
|
|
$9,531
|
|
|
$7,090
|
|
Total current income taxes payable
|
|
$9,531
|
|
|
$7,090
|
|
As
of December 31, 2016 and 2015, noncurrent deferred taxes and other liabilities consisted of the following:
(in thousands)
|
|
2016
|
|
|
2015
|
|
Deferred income taxes
|
|
$11,188
|
|
|
$12,589
|
|
Other liabilities
|
|
1,201
|
|
|
1,565
|
|
Total noncurrent deferred taxes and other liabilities
|
|
$12,389
|
|
|
$14,154
|
|
Taxes
paid, net of refunds, amounted to $23.4 million in 2016, $18.3 million in 2015, and $17.6 million in 2014.
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:
(in thousands, except market price and earnings per share)
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
$52,733
|
|
|
$57,279
|
|
|
$41,569
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
calculating basic net income per share
|
|
32,086
|
|
|
31,978
|
|
|
31,832
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock-based compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
39
|
|
|
58
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive plan
|
|
45
|
|
|
52
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
calculating diluted net income per share
|
|
32,170
|
|
|
32,088
|
|
|
31,988
|
|
|
|
|
|
|
|
|
|
|
|
Average market price of common stock used
|
|
|
|
|
|
|
|
|
|
for calculation of dilutive shares
|
|
$40.25
|
|
|
$36.68
|
|
|
$36.29
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$1.64
|
|
|
$1.79
|
|
|
$1.31
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$1.64
|
|
|
$1.79
|
|
|
$1.30
|
|
Shares
outstanding, net of treasury shares, were 32.1 million as of December 31, 2016, 32.0 million as of December 31, 2015, and 31.9
million as of December 31, 2014.
9.
Accumulated Other Comprehensive Income (AOCI)
The
table below presents changes in the components of AOCI from January 1, 2014 to December 31, 2016:
(in thousands)
|
|
Translation adjustments
|
|
Pension and postretirement liability adjustments
|
|
Derivative valuation adjustment
|
|
Total Other Comprehensive Income
|
January
1, 2014
|
|
($138
|
)
|
|
($48,383
|
)
|
|
($977
|
)
|
|
($49,498
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
(55,102
|
)
|
|
252
|
|
|
(1,052
|
)
|
|
(55,902
|
)
|
Pension/postretirement settlements and curtailments
|
|
|
|
|
5,167
|
|
|
|
|
|
5,167
|
|
Pension/postretirement plan remeasurement
|
|
|
|
|
(9,265
|
)
|
|
|
|
|
(9,265
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
|
|
|
|
|
|
1,168
|
|
|
1,168
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
|
|
|
563
|
|
|
|
|
|
563
|
|
Net current period other comprehensive income
|
|
(55,102
|
)
|
|
(3,283
|
)
|
|
116
|
|
|
(58,269
|
)
|
December
31, 2014
|
|
(55,240
|
)
|
|
(51,666
|
)
|
|
(861
|
)
|
|
(107,767
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
(53,415
|
)
|
|
2,238
|
|
|
(1,836
|
)
|
|
(53,013
|
)
|
Pension/postretirement settlements and curtailments
|
|
|
|
|
103
|
|
|
|
|
|
103
|
|
Pension/postretirement plan remeasurement
|
|
|
|
|
(622
|
)
|
|
|
|
|
(622
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
|
|
|
|
|
|
1,233
|
|
|
1,233
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
|
|
|
1,222
|
|
|
|
|
|
1,222
|
|
Net current period other comprehensive income
|
|
(53,415
|
)
|
|
2,941
|
|
|
(603
|
)
|
|
(51,077
|
)
|
December
31, 2015
|
|
(108,655
|
)
|
|
(48,725
|
)
|
|
(1,464
|
)
|
|
(158,844
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
(24,643
|
)
|
|
676
|
|
|
804
|
|
|
(23,163
|
)
|
Pension/postretirement settlements and curtailments
|
|
|
|
|
45
|
|
|
|
|
|
45
|
|
Pension/postretirement plan remeasurement
|
|
|
|
|
(4,394
|
)
|
|
|
|
|
(4,394
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
|
|
|
|
|
|
1,488
|
|
|
1,488
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
|
|
|
679
|
|
|
|
|
|
679
|
|
Net current period other comprehensive income
|
|
(24,643
|
)
|
|
(2,994
|
)
|
|
2,292
|
|
|
(25,345
|
)
|
December
31, 2016
|
|
($133,298
|
)
|
|
($51,719
|
)
|
|
$828
|
|
|
($184,189
|
)
|
As
part of the Company’s pension de-risking strategy, in 2014, certain U.S. participants received a lump-sum distribution from
the pension plan, which led to a pension settlement charge of $8.2 million. Including other 2014 pension plan settlements and
curtailments, the amount reclassified from AOCI was $8.4 million before tax, and $5.2 million after tax effects.
The
components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of Income relate to our pension
and postretirement plans and interest rate swaps.
The
table below presents the expense/(income) amounts reclassified, and the line items of the Statement of Income that were affected
for the periods ended December 31, 2016, 2015 and 2014.
(in
thousands)
|
2016
|
2015
|
2014
|
Pretax
Derivative valuation reclassified from Accumulated Other Comprehensive Income:
|
|
Expense
related to interest rate swaps included in Income before taxes (a)
|
$2,400
|
$1,988
|
$1,914
|
Income
tax effect
|
(912)
|
(755)
|
(746)
|
Effect
on net income due to items reclassified from Accumulated Other Comprehensive Income
|
$1,488
|
$1,233
|
$1,168
|
|
|
|
|
Pretax
pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:
|
Pension/postretirement
settlements and curtailments
|
$51
|
$103
|
$8,377
|
Amortization
of prior service credit
|
(4,450)
|
(4,440)
|
(4,436)
|
Amortization
of net actuarial loss
|
5,102
|
5,932
|
5,329
|
Total
pretax amount reclassified (b)
|
703
|
1,595
|
9,270
|
|
|
|
|
Income
tax effect
|
21
|
(270)
|
(3,540)
|
Effect
on net income due to items reclassified from Accumulated Other Comprehensive Income
|
$724
|
$1,325
|
$5,730
|
|
(a)
|
Included
in Interest expense are payments related to the interest rate swap agreements and amortization
of swap buyouts (see Note 15).
|
|
(b)
|
These
accumulated other comprehensive income components are included in the computation of
net periodic pension cost (see Note 4).
|
10.
Noncontrolling Interest
Effective
October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany subsidiary, Albany Safran Composites,
LLC (ASC). Under the terms of the transaction agreements, ASC will be the exclusive supplier to Safran of advanced 3D-woven composite
parts for use in aircraft and rocket engines, thrust reversers and nacelles, and aircraft landing and braking systems (the “Safran
Applications”). AEC may develop and supply parts other than advanced 3D-woven composite parts for all aerospace applications,
as well as advanced 3D-woven composite parts for any aerospace applications that are not Safran Applications (such as airframe
applications) and any non-aerospace applications.
The
agreement provides Safran an option to purchase Albany’s remaining 90 percent interest upon the occurrence of certain bankruptcy
or performance default events, or if Albany’s Engineered Composites business is sold to a direct competitor of Safran. The
purchase price is based initially on the same valuation of ASC used to determine Safran’s 10% equity interest, and increases
over time as LEAP production increases.
In
accordance with the operating agreement, Albany received a $28 million preferred holding in ASC which includes a preferred return
based on the Company’s revolving credit agreement. The common shares of ASC are owned 90 percent by Albany and 10 percent
by Safran.
The
table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity:
(in thousands, except percentages)
|
|
2016
|
|
2015
|
Net income of ASC
|
|
$1,777
|
|
|
$842
|
|
Less: Return attributable to the Company's preferred holding
|
|
987
|
|
|
978
|
|
Net income/(loss) of ASC available for common ownership
|
|
$790
|
|
|
(136
|
)
|
Ownership percentage of noncontrolling shareholder
|
|
10%
|
|
|
10%
|
|
Net income/(loss) attributable to noncontrolling interest
|
|
$79
|
|
|
($14
|
)
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning of year
|
|
$3,690
|
|
|
$3,699
|
|
Net income/(loss) attributable to noncontrolling interest
|
|
79
|
|
|
(14
|
)
|
Changes in other comprehensive income attributable to noncontrolling interest
|
|
(2
|
)
|
|
5
|
|
Noncontrolling interest, end of year
|
|
$3,767
|
|
|
$3,690
|
|
11.
Property, Plant and Equipment
The
table below sets forth the reclassification and components of property, plant and equipment as of December 31, 2016 and 2015:
(in thousands)
|
|
2016
|
|
2015
|
|
Estimated useful life
|
|
|
|
|
|
|
|
Land and land improvements
|
|
$13,339
|
|
|
$14,307
|
|
|
25 years for improvements
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
214,086
|
|
|
211,027
|
|
|
25 to 40 years
|
|
|
|
|
|
|
|
|
|
Assets under capital lease
|
|
8,140
|
|
|
-
|
|
|
7 years
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
842,921
|
|
|
828,409
|
|
|
5 to 15 years
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
7,632
|
|
|
6,074
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
Computer and other equipment
|
|
15,264
|
|
|
14,813
|
|
|
3 to 10 years
|
|
|
|
|
|
|
|
|
|
Software
|
|
54,212
|
|
|
52,503
|
|
|
5 to 8 years
|
|
|
|
|
|
|
|
|
|
Capital expenditures in progress
|
|
66,900
|
|
|
26,291
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, gross
|
|
1,222,494
|
|
|
1,153,424
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
(799,930
|
)
|
|
(795,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$422,564
|
|
|
$357,470
|
|
|
|
In
April 2016, we acquired Harris Corporation’s composite aerostructures business which increased property, plant and equipment
by $62.8 million, including $8.1 million for a building under capital lease. We included amortization of the capital lease in
depreciation expense. Accumulated amortization of the capital lease was $0.9 million as of December 31, 2016.
Expenditures
for maintenance and repairs are charged to income as incurred and amounted to $16.6 million in 2016, $16.6 million in 2015, and
$17.4 million in 2014.
Depreciation
expense was $58.1 million in 2016, $53.0 million in 2015, and $56.6 million in 2014. Software amortization is recorded in Selling,
general, and administrative expense and was $4.0 million in 2016, $6.5 million in 2015, and $6.2 million in 2014. Capital expenditures,
including purchased software, were $78.5 million in 2016, $50.6 million in 2015, and $58.9 million in 2014. Unamortized software
cost was $7.2 million and $9.6 million as of December 31, 2016 and 2015, respectively.
12.
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.
On
April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures
business. The assets acquired include amortizable intangible assets of $71.6 million and goodwill of $95.7 million. As of
December 31, 2016, the amount of goodwill acquired was still provisional because the Company is waiting for information
needed to finalize the amount.
Prior
to the acquisition, the entire balance of goodwill on our books was attributable to the Machine Clothing business. In the second
quarter of 2016, 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 Machine Clothing amounts at risk due to the large spread between the
fair and carrying values.
We
are continuing to amortize certain patents, trade names, customer contracts and technology assets that have finite lives. The
changes in intangible assets and goodwill from December 31, 2014 to December 31, 2016, were as follows:
|
|
Amortization life
|
|
Balance at
|
|
|
|
|
|
Currency
|
|
Balance at
|
(in thousands, except for years)
|
|
in years
|
|
December 31, 2015
|
|
Acquisition
|
|
Amortization
|
|
Translation
|
|
December 31, 2016
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEC trade names
|
|
15
|
|
|
$25
|
|
|
$-
|
|
|
($5
|
)
|
|
$-
|
|
|
$20
|
|
AEC technology
|
|
15
|
|
|
129
|
|
|
-
|
|
|
(25
|
)
|
|
-
|
|
|
104
|
|
AEC customer contracts
|
|
6
|
|
|
-
|
|
|
20,420
|
|
|
(2,561
|
)
|
|
-
|
|
|
17,859
|
|
AEC customer relationships
|
|
15
|
|
|
-
|
|
|
49,490
|
|
|
(2,481
|
)
|
|
-
|
|
|
47,009
|
|
AEC other intangibles
|
|
5
|
|
|
-
|
|
|
1,720
|
|
|
(258
|
)
|
|
-
|
|
|
1,462
|
|
Total amortized intangible assets
|
|
|
|
|
$154
|
|
|
$71,630
|
|
|
($5,330
|
)
|
|
$-
|
|
|
$66,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MC Goodwill
|
|
|
|
|
$66,373
|
|
|
$-
|
|
|
$-
|
|
|
($1,728
|
)
|
|
$64,645
|
|
AEC Goodwill
|
|
|
|
|
-
|
|
|
95,730
|
|
|
-
|
|
|
-
|
|
|
95,730
|
|
Total amortized intangible assets
|
|
|
|
|
$66,373
|
|
|
$95,730
|
|
|
$-
|
|
|
($1,728
|
)
|
|
$160,375
|
|
|
|
Balance at
|
|
|
|
Currency
|
|
Balance at
|
(in thousands)
|
|
December 31, 2014
|
|
Amortization
|
|
Translation
|
|
December 31, 2015
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
AEC trade names
|
|
$29
|
|
|
($4
|
)
|
|
$-
|
|
|
$25
|
|
AEC customer contracts
|
|
202
|
|
|
(202
|
)
|
|
-
|
|
|
-
|
|
AEC technology
|
|
154
|
|
|
(25
|
)
|
|
-
|
|
|
129
|
|
Total amortized intangible assets
|
|
$385
|
|
|
($231
|
)
|
|
$-
|
|
|
$154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$71,680
|
|
|
$-
|
|
|
($5,307
|
)
|
|
$66,373
|
|
As
of December 31, 2016, the cost and accumulated amortization of amortized intangible assets was $72.1 million and $5.6 million,
respectively. As of December 31, 2015, the cost and accumulated amortization of amortized intangible assets was $0.5 million and
$0.3 million, respectively.
In
2016, amortization expense related to intangible assets was reported in the Consolidated Statements of Income as
follows: $2.6 million in Cost of goods sold and $2.7 million in Selling, general and administrative expenses. In 2015 and 2014,
all intangible amortization expense was included in Cost of goods sold.
Estimated
amortization expense of intangibles for the years ending December 31, 2017 through 2021, is as follows:
|
|
Annual
amortization
|
Year
|
|
(in
thousands)
|
2017
|
|
$7,076
|
2018
|
|
7,076
|
2019
|
|
7,076
|
2020
|
|
7,076
|
2021
|
|
6,796
|
13.
Accrued Liabilities
Accrued
liabilities consist of:
(in
thousands)
|
|
2016
|
2015
|
Salaries and wages
|
|
$18,520
|
$17,621
|
Accrual for compensated
absences
|
|
10,181
|
9,564
|
Employee benefits
|
|
13,277
|
10,880
|
Pension liability
- current portion
|
|
2,057
|
2,110
|
Postretirement
medical benefits - current portion
|
4,195
|
4,660
|
Returns and allowances
|
|
13,714
|
14,024
|
Interest
|
|
1,218
|
942
|
Restructuring
costs
|
|
4,668
|
6,856
|
Dividends
|
|
5,458
|
5,443
|
Workers' compensation
|
|
2,053
|
2,086
|
Billings in excess
of revenue recognized
|
|
2,390
|
2,903
|
Professional fees
|
|
3,068
|
2,093
|
Utilities
|
|
991
|
779
|
Other
|
|
13,405
|
11,824
|
Total
|
|
$95,195
|
$91,785
|
14.
Financial Instruments
Long-term
debt, principally to banks and noteholders, consists of:
(in thousands, except interest rates)
|
|
2016
|
|
2015
|
|
|
|
|
|
Private placement with a fixed interest rate of 6.84%, due 2017
|
|
$50,000
|
|
|
$50,000
|
|
|
|
|
|
|
|
|
Revolving credit agreements with borrowings outstanding at an end of period interest rate of 2.58% in 2016 and 2.27% in 2015 (including the effect of interest rate hedging transactions, as described below), due in 2021
|
|
418,000
|
|
|
215,000
|
|
|
|
|
|
|
|
|
Obligation under capital lease, matures 2022
|
|
16,584
|
|
|
96
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
484,584
|
|
|
265,096
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
(51,666
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$432,918
|
|
|
$265,080
|
|
Principal
payments due on long-term debt are: 2018, $1.8 million, 2019, $1.9 million, 2020, $2.0 million, 2021, $420.1 million, and 2022,
$7.1 million. Cash payments of interest amounted to $13.7 million in 2016, $12.6 million in 2015, and $13.0 million in 2014.
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%. The remaining principal under the Prudential
Agreement is $50.0 million, and is due on the maturity date of 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 December 31, 2016, the fair value of this debt was approximately $52.8 million, and was measured using
active market interest rates, which would be considered Level 2 for fair value measurement purposes.
On
April 8, 2016, we entered into a $550 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”)
which amended and restated the prior $400 million Agreement, entered into on June 18, 2015 (the “Prior Agreement”).
Under the Credit Agreement, $418 million of borrowings were outstanding as of December 31, 2016. The applicable interest rate
for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing
on December 16, 2016, the spread was 1.500%. 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, and without modification to any other
credit agreements, as of December 31, 2016, we would have been able to borrow an additional $132 million under the Agreement.
The
Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of defaults 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).
In
connection with the 2016 acquisition transaction, the Company has a long-term capital lease obligation for real property in Salt
Lake City, Utah. The lease has an implied interest rate of 5.0% and matures in 2022.
The
following schedule presents future minimum annual lease payments under the capital lease obligation and the present value of the
minimum lease payments, as of December 31, 2016.
Years
ending December 31,
|
(in
thousands)
|
2017
|
$
2,696
|
2018
|
2,743
|
2019
|
2,743
|
2020
|
2,790
|
2021
|
2,790
|
Thereafter
|
7,644
|
Total
minimum lease payments
|
21,406
|
Less:
Amount representing interest
|
(4,822)
|
Present
value of minimum lease payments
|
$
16,584
|
On
May 6, 2016, we terminated our interest rate swap agreements that had effectively fixed the interest rate on up to $120 million
of revolving credit borrowings, in order to enter into a new interest rate swap with a greater notional amount, and the same maturity
as the Credit Agreement. We paid $5.2 million to terminate the swap agreements and that cost will be amortized into interest expense
through June 2020.
On
May 9, 2016, we entered into interest rate hedges for the period May 16, 2016 through March 16, 2021. These transactions have
the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $300 million of indebtedness
drawn under the Credit Agreement at the rate of 1.245% during the period. Under the terms of these transactions, we pay the fixed
rate of 1.245% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date,
which on December 16, 2016 was 0.710%, plus the applicable spread, during the swap period. On December 16, 2016, the all-in-rate
on the $300 million of debt was 2.745%.
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 December 31, 2016, our leverage ratio was 2.30 to 1.00 and our interest coverage ratio was 11.52 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 December 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 reported land and building related to the former manufacturing facility
in Germany as Asset held for sale in the accompanying Consolidated Balance Sheets. That property was sold in 2016. The value as
of December 31, 2015 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 assets measured at fair value:
|
|
December 31, 2016
|
|
|
|
December 31, 2015
|
|
|
(in thousands)
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Unobservable
inputs
(Level 3)
|
|
Quoted
prices in
active
markets
(Level 1)
|
|
Significant
other
observable
inputs
(Level 2)
|
|
Unobservable
inputs
(Level 3)
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$8,468
|
|
|
$-
|
|
|
$-
|
|
|
$5,189
|
|
|
$-
|
|
|
$-
|
|
Assets held for sale
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,988
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock of foreign public company
|
|
762
|
(a)
|
|
-
|
|
|
-
|
|
|
819
|
|
|
-
|
|
|
-
|
|
Interest rate swaps
|
|
-
|
|
|
5,784
|
(b)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,400
|
)
(c)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Original
cost basis $0.5 million.
|
|
(b)
|
Net
of $21.4 million receivable floating leg and $15.6 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 in the Consolidated Statements of Income. Investments are considered to be impaired when a decline in
fair value is judged to be other than temporary.
We
operate our business in many regions of the world, and currency rate movements can have a significant effect on operating results.
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.
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 December 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),
and amortization related to the swap buyouts, affect earnings. Interest expense related to payments under the current swaps
totaled $1.7 million in 2016, $2.0 million in 2015 and $1.9 million in 2014. Additionally, Interest expense related to the
2016 swap buyouts totaled $0.6 million in 2016 and is expected to be approximately $0.5 million in 2017.
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:
|
Years
ended December 31,
|
(in
thousands)
|
2016
|
2015
|
2014
|
|
|
|
|
Derivatives not
designated as hedging instruments
|
|
|
|
Foreign
currency options
|
$202
|
($121)
|
($81)
|
16.
Other Noncurrent Liabilities
As
of December 31 of each year, Other noncurrent liabilities consists of:
(in
thousands)
|
2016
|
|
2015
|
|
|
|
|
Pension liabilities
|
$35,921
|
|
$36,782
|
Postretirement
benefits other than pensions
|
53,293
|
|
55,310
|
Obligations under
license agreement
|
10,254
|
|
-
|
Interest rate
swap agreement
|
-
|
|
2,400
|
Incentive and
deferred compensation
|
3,468
|
|
3,421
|
Restructuring
|
908
|
|
3,320
|
Other
|
2,983
|
|
311
|
Total
|
$106,827
|
|
$101,544
|
17.
Commitments and Contingencies
Principal
leases are for machinery and equipment, vehicles, and real property. Certain leases contain renewal and purchase option provisions
at fair values. Total rental expense amounted to $5.2 million in 2016, $3.5 million in 2015, and $4.2 million in 2014.
Future
rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year,
as of December 31, 2016, are: 2017, $5.6 million; 2018, $3.7 million; 2019, $1.4 million; 2020, $0.8 million, and 2021 and thereafter,
$0.3 million.
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 3,745 claims as of December 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
|
2016
|
3,791
|
148
|
102
|
3,745
|
$758
|
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 December 31, 2016, we had resolved, by means of settlement or dismissal, 37,489 claims. The total
cost of resolving all claims was $10.2 million. Of this amount, almost 100% was paid by our insurance carrier. The Company’s
insurer has confirmed that although coverage limits under two (of approximately 23) primary insurance policies have been exhausted,
there still remains approximately $2.5 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 7,706
claims as of December 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
|
-
|
2016
|
7,713
|
7
|
-
|
7,706
|
$-
|
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 December 31, 2016, Brandon has resolved, by means of settlement or dismissal,
9,900 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.
18.
Stock Options and Incentive Plans
We
recognized no stock option expense during 2016, 2015 or 2014 and there are currently no remaining unvested options for which stock-option
compensation costs will be recognized in future periods.
There
have been no stock options granted since November 2002 and we have no stock option plan under which options may be granted, although
options may be granted under the Company’s 2011 incentive plan. Options issued under previous plans and still outstanding
were exercisable in five cumulative annual amounts beginning twelve months after date of grant. Option exercise prices were normally
equal to and were not permitted to be less than the market value on the date of grant. Unexercised options generally terminate
twenty years after the date of grant for all plans, and must be exercised within ten years of retirement.
Activity
with respect to these plans is as follows:
|
2016
|
2015
|
2014
|
Shares under option
January 1
|
88,773
|
187,233
|
228,533
|
Options canceled
|
-
|
-
|
-
|
Options
exercised
|
26,383
|
98,460
|
41,300
|
Shares under option
at December 31
|
62,390
|
88,773
|
187,233
|
Options
exercisable at December 31
|
62,390
|
88,773
|
187,233
|
The
weighted average exercise price is as follows:
|
2016
|
2015
|
2014
|
Shares under option
January 1
|
$18.67
|
$18.99
|
$18.94
|
Options canceled
|
-
|
-
|
-
|
Options
exercised
|
19.60
|
19.27
|
18.71
|
Shares under option
December 31
|
18.28
|
18.67
|
18.99
|
Options
exercisable December 31
|
18.28
|
18.67
|
18.99
|
As
of December 31, 2016, the aggregate intrinsic value of vested options was $1.7 million. The aggregate intrinsic value of options
exercised was $0.5 million in 2016, $2.0 million in 2015, and $0.7 million in 2014.
Executive
Management share-based compensation:
In
2011, shareholders approved the Albany International 2011 Incentive Plan. Awards granted to date under these plans provide key
members of management with incentive compensation based on achieving certain performance targets over a three year period. Such
awards are paid out partly in cash and partly in shares of Class A Common Stock. Participants may elect to receive shares net
of applicable income taxes. In March 2016, we issued 26,146 shares and made cash payments totaling $0.8 million. In March 2015,
we issued 35,393 shares and made cash payments totaling $1.2 million. In March 2014, we issued 29,321 shares and made cash payments
totaling $1.1 million. If a person terminates employment prior to the award becoming fully vested, the person may forfeit all
or a portion of the incentive compensation award. The grant date share price is determined when the awards are approved each year
and that price is used for measuring the cost for the share-based portion of the award. Expense associated with these awards is
recognized over the three year vesting period. In connection with this plan, we recognized expense of $2.7 million in 2016, $3.0
million in 2015 and $2.4 million in 2014. For share-based awards that are dependent on performance after 2016, we expect to record
additional compensation expense of approximately $0.7 million in 2017 and $0.6 million in 2018.
In
2011, the Board of Directors modified the annual incentive plan for executive management whereby 40 to 50 percent of the earned
incentive compensation is payable in the form of shares of Class A Common Stock. Participants may elect to receive shares net
of applicable income taxes. In March 2016, the Company issued 26,774 shares and made cash payments totaling $1.9 million as a
result of performance in 2015. In March 2015, the Company issued 19,571 shares and made cash payments totaling $1.5 million as
a result of performance in 2014. In March 2014, the Company issued 15,910 shares and made cash payments totaling $1.4 million
as a result of performance in 2013. The allocation of the award between cash and shares is determined by an average share price
after the year of performance. Expense recorded for this plan was $3.3 million in 2016, $3.4 million in 2015, and $2.7 million
in 2014.
Shares
payable under these plans generally vest immediately prior to payment. As of December 31, 2016, there were 235,299 shares of Company
stock authorized for the payment of awards under these plans. Information with respect to these plans is presented below:
|
|
Number of shares
|
|
Weighted
average grant
date value per
share
|
|
Year-end
intrinsic value
(000's)
|
Shares potentially payable at January 1, 2014
|
|
185,564
|
|
|
$27.51
|
|
|
$6,667
|
|
Forfeitures
|
|
-
|
|
|
-
|
|
|
|
|
Payments
|
|
(75,385
|
)
|
|
$28.60
|
|
|
|
|
Shares accrued based on 2014 performance
|
|
75,020
|
|
|
$34.65
|
|
|
|
|
Shares potentially payable at December 31, 2014
|
|
185,199
|
|
|
$30.69
|
|
|
$5,683
|
|
Forfeitures
|
|
-
|
|
|
-
|
|
|
|
|
Payments
|
|
(95,889
|
)
|
|
$29.09
|
|
|
|
|
Shares accrued based on 2015 performance
|
|
98,998
|
|
|
$38.01
|
|
|
|
|
Shares potentially payable at December 31, 2015
|
|
188,308
|
|
|
$35.35
|
|
|
$6,657
|
|
Forfeitures
|
|
-
|
|
|
-
|
|
|
|
|
Payments
|
|
(86,926
|
)
|
|
$33.43
|
|
|
|
|
Shares accrued based on 2016 performance
|
|
88,036
|
|
|
$36.78
|
|
|
|
|
Shares potentially payable at December 31, 2016
|
|
189,418
|
|
|
$36.90
|
|
|
$6,989
|
|
Other
Management share-based compensation:
In
2003, the Company adopted a Restricted Stock Program under which certain key employees were awarded restricted stock units. Company
has not awarded new restricted stock units since November 2010 and no expense was recognized in 2016 for this plan. Such units
vested over a five-year period and were paid annually in cash based on current market prices of the Company’s stock. The
amount of compensation cost attributable to such units was recorded in Selling, general and administrative expenses and was $0.6
million in 2015 and $1.4 million in 2014.
In
2012, the Company adopted a Phantom Stock Plan that replaced the Restricted Stock Program. Awards under this program vest over
a five-year period and are paid annually in cash based on current market prices of the Company’s stock. Under this program,
employees may earn more or less than the target award based on the Company’s results in the year of the award. Expense recognized
for this plan amounted to $3.8 million in 2016, $2.6 million in 2015, and $2.2 million in 2014. Based on awards outstanding at
December 31, 2016, we expect to record $8.3 million of compensation cost from 2017 to 2020. The weighted average period for recognition
of that cost is approximately 2 years.
In
2012, the Company granted restricted stock units to two executives. The amount of compensation expense was subject to changes
in the market price of the Company’s stock and was recorded in Selling, general, and administrative expenses. The final
vesting and payment due under these grants occurred in 2015, resulting in no expense recognized in 2016. Expense recognized for
these grants was $0.3 million in 2015, and $0.7 million in 2014.
The
determination of compensation expense for other management share-based compensation plans is based on the number of outstanding
share units, the end-of-period share price, and Company performance. Information with respect to these plans is presented below:
|
|
Number of
shares
|
|
Weighted average
value per share
|
|
Cash paid for
share based
liabilities(000's)
|
Share units potentially payable at January 1, 2014
|
|
361,189
|
|
|
|
|
|
|
|
Grants
|
|
91,631
|
|
|
|
|
|
|
|
Changes due to performance
|
|
(8,793
|
)
|
|
|
|
|
|
|
Payments
|
|
(86,840
|
)
|
|
$35.01
|
|
|
$3,040
|
|
Forfeitures
|
|
(9,246
|
)
|
|
|
|
|
|
|
Share units potentially payable at December 31, 2014
|
|
347,941
|
|
|
|
|
|
|
|
Grants
|
|
90,065
|
|
|
|
|
|
|
|
Changes due to performance
|
|
13,966
|
|
|
|
|
|
|
|
Payments
|
|
(167,482
|
)
|
|
$36.08
|
|
|
$6,040
|
|
Forfeitures
|
|
(31,624
|
)
|
|
|
|
|
|
|
Share units potentially payable at December 31, 2015
|
|
252,866
|
|
|
|
|
|
|
|
Grants
|
|
118,279
|
|
|
|
|
|
|
|
Changes due to performance
|
|
18,779
|
|
|
|
|
|
|
|
Payments
|
|
(88,073
|
)
|
|
$33.20
|
|
|
$2,924
|
|
Forfeitures
|
|
(40,706
|
)
|
|
|
|
|
|
|
Share units potentially payable at December 31, 2016
|
|
261,145
|
|
|
|
|
|
|
|
The
Company maintains a voluntary savings plan covering substantially all employees in the United States. The Plan, known as the ProsperityPlus
Savings Plan, is a qualified plan under section 401(k) of the U.S. Internal Revenue Code. The Company matches, in the form of
cash, between 50% and 100% of employee contributions up to a defined maximum. The investment of employee contributions to the
plan is self-directed. The Company’s cost of the plan amounted to $5.5 million in 2016, $4.8 million in 2015, and $4.3 million
in 2014.
The
Company’s profit-sharing plan covers substantially all employees in the United States. After the close of each year, the
Board of Directors determines the amount of the profit-sharing contribution. Company contributions to the plan are in the form
of cash. The expense recorded for this plan was $2.9 million in 2016, $2.4 million in 2015, and $1.5 million in 2014.
19.
Shareholders’ Equity
We
have two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with a par value of $0.001 and equal liquidation
rights. Each share of our Class A Common Stock is entitled to one vote on all matters submitted to shareholders, and each share
of Class B Common Stock is entitled to ten votes. Class A and Class B Common Stock will receive equal dividends as the Board of
Directors may determine from time to time. The Class B Common Stock is convertible into an equal number of shares of Class A Common
Stock at any time. At December 31, 2016, 3.3 million shares of Class A Common Stock were reserved for the conversion of Class
B Common Stock and the exercise of stock options.
In
August 2006, we announced that the Board of Directors authorized management to purchase up to 2.0 million additional shares of
our Class A Common Stock. The Board’s action authorizes management to purchase shares from time to time, in the open market
or otherwise, whenever it believes such purchase to be
advantageous
to our shareholders, and it is otherwise legally permitted to do so. We have made no share purchases under the August 2006 authorization.
Activity in Shareholders’ equity for 2014, 2015, and 2016 is presented below:
|
Class A
Common Stock
|
|
Class B
Preferred Stock
|
Additional paid-in capital
|
Retained earnings
|
Accumulated
items of other
comprehensive
income
|
Class A
Treasury Stock
|
Noncontrolling Interest
|
(in thousands)
|
Shares
|
Amount
|
|
Shares
|
Amount
|
Shares
|
Amount
|
January 1, 2014
|
36,996
|
$37
|
|
3,236
|
$3
|
$416,728
|
$434,598
|
($49,498)
|
8,464
|
($257,571)
|
$3,482
|
Net income
|
-
|
-
|
|
-
|
-
|
-
|
41,569
|
-
|
-
|
-
|
180
|
Compensation and benefits paid or payable in shares
|
47
|
-
|
|
-
|
-
|
1,234
|
-
|
-
|
-
|
-
|
-
|
Conversion of Class B shares to Class A shares
|
1
|
-
|
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Changes in equity related to Noncontrolling interest in ASC
|
-
|
-
|
|
-
|
-
|
(24)
|
-
|
-
|
-
|
-
|
38
|
Options exercised
|
41
|
-
|
|
-
|
-
|
974
|
-
|
-
|
-
|
-
|
-
|
Shares issued to Directors'
|
-
|
-
|
|
-
|
-
|
60
|
-
|
-
|
(5)
|
90
|
-
|
Dividends declared
|
-
|
-
|
|
-
|
-
|
-
|
(20,062)
|
|
-
|
-
|
-
|
Cumulative translation adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(55,102)
|
-
|
-
|
(1)
|
Pension and postretirement liability adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(3,283)
|
-
|
-
|
-
|
Derivative valuation adjustment
|
-
|
-
|
|
-
|
-
|
-
|
-
|
116
|
-
|
-
|
-
|
December 31, 2014
|
37,085
|
$37
|
|
3,235
|
$3
|
$418,972
|
$456,105
|
($107,767)
|
8,459
|
($257,481)
|
$3,699
|
Net income
|
-
|
-
|
|
-
|
-
|
-
|
57,279
|
-
|
-
|
-
|
(14)
|
Compensation and benefits paid or payable in shares
|
55
|
-
|
|
-
|
-
|
1,540
|
-
|
-
|
-
|
-
|
-
|
Options exercised
|
99
|
-
|
|
-
|
-
|
2,520
|
-
|
-
|
-
|
-
|
-
|
Shares issued to Directors'
|
-
|
-
|
|
-
|
-
|
76
|
-
|
-
|
(4)
|
90
|
-
|
Dividends declared
|
-
|
-
|
|
-
|
-
|
-
|
(21,434)
|
|
-
|
-
|
-
|
Cumulative translation adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(53,415)
|
-
|
-
|
5
|
Pension and postretirement liability adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
2,941
|
-
|
-
|
-
|
Derivative valuation adjustment
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(603)
|
-
|
-
|
-
|
December 31, 2015
|
37,239
|
$37
|
|
3,235
|
$3
|
$423,108
|
$491,950
|
($158,844)
|
8,455
|
($257,391)
|
$3,690
|
Net income
|
-
|
-
|
|
-
|
-
|
-
|
52,733
|
-
|
-
|
-
|
79
|
Compensation and benefits paid or payable in shares
|
53
|
-
|
|
-
|
-
|
1,980
|
-
|
-
|
-
|
-
|
0
|
Options exercised
|
26
|
-
|
|
-
|
-
|
667
|
-
|
-
|
-
|
-
|
0
|
Shares issued to Directors'
|
1
|
-
|
|
(1)
|
-
|
198
|
-
|
-
|
(12)
|
255
|
-
|
Dividends declared
|
-
|
-
|
|
-
|
-
|
-
|
(21,828)
|
-
|
-
|
-
|
-
|
Cumulative translation adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(24,643)
|
-
|
-
|
(2)
|
Pension and postretirement liability adjustments
|
-
|
-
|
|
-
|
-
|
-
|
-
|
(2,994)
|
-
|
-
|
-
|
Derivative valuation adjustment
|
-
|
-
|
|
-
|
-
|
-
|
-
|
2,292
|
-
|
-
|
-
|
December 31, 2016
|
37,319
|
$37
|
|
3,234
|
$3
|
$425,953
|
$522,855
|
($184,189)
|
8,443
|
($257,136)
|
$3,767
|
20.
Quarterly Financial Data (unaudited)
The
following table presents certain unaudited quarterly consolidated statement of operations data from continuing operations for
each of the quarters in the periods ended December 31, 2016, 2015 and 2014. The information has been derived from our unaudited
financial statements, which have been prepared on substantially the same basis as the audited consolidated financial statements
contained in this report. We have presented quarterly earnings per share numbers as reported in our earnings releases. The sum
of these quarterly results may differ from annual results due to rounding and the impact of the difference in the weighted shares
outstanding for the stand-alone periods. The results of operations for any quarter are not necessarily indicative of the results
to be expected for any future period.
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total
|
Net
sales
|
|
$172.3
|
|
|
$203.2
|
|
|
$191.3
|
|
|
$213.0
|
|
|
$779.8
|
|
Gross profit
|
|
72.5
|
|
|
78.3
|
|
|
72.4
|
|
|
77.4
|
|
|
300.6
|
|
Net income attributable
to the Company
|
|
13.5
|
|
|
10.4
|
|
|
13.1
|
|
|
15.8
|
|
|
52.8
|
|
Basic earnings per share
|
|
0.42
|
|
|
0.32
|
|
|
0.41
|
|
|
0.49
|
|
|
1.64
|
|
Diluted earnings per share
|
|
0.42
|
|
|
0.32
|
|
|
0.41
|
|
|
0.49
|
|
|
1.64
|
|
Cash dividends per share
|
|
0.17
|
|
|
0.17
|
|
|
0.17
|
|
|
0.17
|
|
|
0.68
|
|
Class A Common
Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
38.21
|
|
|
41.31
|
|
|
43.78
|
|
|
49.25
|
|
|
|
|
Low
|
|
31.43
|
|
|
37.27
|
|
|
38.92
|
|
|
38.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
Net sales
|
|
$181.3
|
|
|
$172.3
|
|
|
$178.8
|
|
|
$177.5
|
|
|
$709.9
|
|
Gross profit
|
|
76.7
|
|
|
54.6
|
|
|
75.7
|
|
|
71.7
|
|
|
278.7
|
|
Net income/(loss) attributable to the Company
|
|
12.2
|
|
|
(2.2
|
)
|
|
9.7
|
|
|
37.6
|
|
|
57.3
|
|
Basic earnings per share
|
|
0.38
|
|
|
(0.07
|
)
|
|
0.30
|
|
|
1.18
|
|
|
1.79
|
|
Diluted earnings per share
|
|
0.38
|
|
|
(0.07
|
)
|
|
0.30
|
|
|
1.18
|
|
|
1.79
|
|
Cash dividends per share
|
|
0.16
|
|
|
0.17
|
|
|
0.17
|
|
|
0.17
|
|
|
0.67
|
|
Class A Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
40.31
|
|
|
41.15
|
|
|
40.21
|
|
|
39.25
|
|
|
|
|
Low
|
|
34.13
|
|
|
39.15
|
|
|
28.28
|
|
|
28.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
1st
|
|
|
2nd
|
|
|
3rd
|
|
|
4th
|
|
|
Total
|
|
Net sales
|
|
$180.3
|
|
|
$193.5
|
|
|
$179.9
|
|
|
$191.6
|
|
|
$745.3
|
|
Gross profit
|
|
74.8
|
|
|
75.3
|
|
|
68.6
|
|
|
72.9
|
|
|
291.6
|
|
Net income attributable to the Company
|
|
10.6
|
|
|
11.2
|
|
|
11.8
|
|
|
8.0
|
|
|
41.6
|
|
Basic earnings per share
|
|
0.33
|
|
|
0.35
|
|
|
0.37
|
|
|
0.26
|
|
|
1.31
|
|
Diluted earnings per share
|
|
0.33
|
|
|
0.35
|
|
|
0.37
|
|
|
0.25
|
|
|
1.30
|
|
Cash dividends per share
|
|
0.15
|
|
|
0.16
|
|
|
0.16
|
|
|
0.16
|
|
|
0.63
|
|
Class A Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
37.59
|
|
|
38.01
|
|
|
38.53
|
|
|
38.15
|
|
|
|
|
Low
|
|
32.85
|
|
|
33.67
|
|
|
34.04
|
|
|
32.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
2016, restructuring charges reduced earnings per share by $0.01 in the first quarter, $0.13 in the second quarter, $0.01 in the
third quarter, and $0.01 in the fourth quarter.
In
2016, we recorded measurement period adjustments related to the business acquisition that occurred in the second quarter of 2016.
Measurement period adjustments decreased earnings per share by $0.03 in the third quarter, and $0.00 in the fourth quarter. Costs
related the acquisition transaction reduced earnings per share by $0.03 in the first quarter, $0.08 in the second quarter, $0.00
in the third quarter, and $0.00 in the fourth quarter
In
2016, discrete income tax adjustments, increased earnings per share by $0.03 in the first quarter, $0.00 in the second quarter,
$0.00 in the third quarter, and $0.04 in the fourth quarter.
In
2015, restructuring charges reduced earnings per share by $0.18 in the first quarter, $0.02 in the second quarter, $0.07 in the
third quarter, and $0.21 in the fourth quarter.
In
2015, discrete income tax adjustments, increased/(decreased) earnings per share by $(0.01) in the first quarter, $0.00 in the
second quarter, ($0.15) in the third quarter, and $0.85 in the fourth quarter. The amount recognized in the fourth quarter was
principally due to a worthless stock deduction for the Company’s investment in its German subsidiary.
In
2015, we recognized a gain related to the sale of investment of $0.02 per share in the first quarter.
In
2014, restructuring charges reduced earnings per share by $0.02 in the first quarter, $0.04 in the second quarter, $0.02 in the
third quarter, and $0.04 in the fourth quarter.
In
2014, we recognized a gain related to the insurance recovery due to damage to a Machine Clothing manufacturing facility, $0.03
per share in the second quarter and $0.01 per share in the third quarter.
In
2014, earnings per share included a pension plan settlement charge of $0.16 per share in the fourth quarter.
The
Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of December 31, 2016, there were
approximately 7,500 beneficial owners of the Company’s common stock, including employees owning shares through the Company’s
401(k) defined contribution plan.