Albany
International Corp.
Consolidated
Balance Sheets
At
December 31,
(in
thousands, except per share data)
|
|
2017
|
|
2016
|
|
|
|
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$183,727
|
|
$181,742
|
Accounts receivable, net
|
|
202,675
|
|
171,193
|
Inventories
|
|
136,519
|
|
133,906
|
Income taxes prepaid and receivable
|
|
6,266
|
|
5,213
|
Prepaid
expenses and other current assets
|
|
14,520
|
|
9,251
|
Total current
assets
|
|
543,707
|
|
501,305
|
|
|
|
|
|
Property, plant and equipment, net
|
|
454,302
|
|
422,564
|
Intangibles, net
|
|
55,441
|
|
66,454
|
Goodwill
|
|
166,796
|
|
160,375
|
Deferred income taxes
|
|
68,648
|
|
68,865
|
Contract receivables
|
|
32,811
|
|
14,045
|
Other
assets
|
|
39,493
|
|
29,825
|
Total
assets
|
|
$1,361,198
|
|
$1,263,433
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Notes and loans payable
|
|
$262
|
|
$312
|
Accounts payable
|
|
44,899
|
|
43,305
|
Accrued liabilities
|
|
105,914
|
|
95,195
|
Current maturities of long-term debt
|
|
1,799
|
|
51,666
|
Income
taxes payable
|
|
8,643
|
|
9,531
|
Total current
liabilities
|
|
161,517
|
|
200,009
|
|
|
|
|
|
Long-term debt
|
|
514,120
|
|
432,918
|
Other noncurrent liabilities
|
|
101,555
|
|
106,827
|
Deferred
taxes and other liabilities
|
|
10,991
|
|
12,389
|
Total
liabilities
|
|
788,183
|
|
752,143
|
|
|
|
|
|
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 37,395,753 in 2017 and 37,319,266 in 2016
|
|
37
|
|
37
|
Class B Common Stock, par value
$.001 per share; authorized 25,000,000 shares; issued and outstanding 3,233,998 in 2017 and 2016
|
|
3
|
|
3
|
Additional paid-in capital
|
|
428,423
|
|
425,953
|
Retained earnings
|
|
534,082
|
|
522,855
|
Accumulated items of other comprehensive
income:
|
|
|
|
|
Translation
adjustments
|
|
(87,318)
|
|
(133,298)
|
Pension
and postretirement liability adjustments
|
|
(50,536)
|
|
(51,719)
|
Derivative
valuation adjustment
|
|
1,953
|
|
828
|
Treasury
stock (Class A), at cost; 8,431,335 shares in 2017 and 8,443,444 shares in 2016
|
|
(256,876)
|
|
(257,136)
|
Total Company
shareholders’ equity
|
|
569,768
|
|
507,523
|
Noncontrolling
interest
|
|
3,247
|
|
3,767
|
Total
equity
|
|
573,015
|
|
511,290
|
Total liabilities
and shareholders’ equity
|
|
$1,361,198
|
|
$1,263,433
|
|
|
|
|
|
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)
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
Net
income
|
|
$32,585
|
|
$52,812
|
|
$57,265
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
61,517
|
|
58,106
|
|
52,974
|
Amortization
|
|
10,439
|
|
9,355
|
|
7,140
|
Change
in other noncurrent liabilities
|
|
(10,145)
|
|
(5,232)
|
|
3,608
|
Change
in deferred taxes and other liabilities
|
|
(1,264)
|
|
5,889
|
|
(29,517)
|
Provision
for write-off of property, plant and equipment
|
|
2,870
|
|
2,778
|
|
867
|
Fair
value adjustment on available-for-sale assets
|
|
-
|
|
-
|
|
3,212
|
Gain
on disposition or involuntary conversion of assets
|
|
-
|
|
-
|
|
(1,056)
|
Non-cash
interest expense
|
|
660
|
|
564
|
|
-
|
Write-off
of pension liability adjustment due to settlement
|
|
-
|
|
51
|
|
103
|
Compensation
and benefits paid or payable in Class A Common Stock
|
|
2,133
|
|
2,433
|
|
1,707
|
Write-off
of intangible assets in a discontinued product line
|
|
4,149
|
|
-
|
|
-
|
Changes
in operating assets and liabilities that provide/(use) cash, net of impact of business acquisition:
|
|
|
|
|
|
|
Accounts
receivable
|
|
(21,859)
|
|
(12,697)
|
|
(404)
|
Inventories
|
|
3,090
|
|
(12,520)
|
|
(8,277)
|
Prepaid
expenses and other current assets
|
|
(4,989)
|
|
(2,595)
|
|
1,253
|
Income
taxes prepaid and receivable
|
|
(941)
|
|
(2,206)
|
|
(3,156)
|
Contract
receivable
|
|
(18,766)
|
|
(14,045)
|
|
-
|
Accounts
payable
|
|
2,910
|
|
2,108
|
|
(6,001)
|
Accrued
liabilities
|
|
5,303
|
|
1,312
|
|
2,081
|
Income
taxes payable
|
|
(799)
|
|
1,398
|
|
9,072
|
Other,
net
|
|
(2,677)
|
|
(6,571)
|
|
7,139
|
Net
cash provided by operating activities
|
|
64,216
|
|
80,940
|
|
98,010
|
Investing
Activities
|
|
|
|
|
|
|
Purchase
of business, net of cash acquired
|
|
-
|
|
(187,000)
|
|
-
|
Purchases
of property, plant and equipment
|
|
(85,510)
|
|
(71,244)
|
|
(48,622)
|
Purchased
software
|
|
(2,127)
|
|
(2,248)
|
|
(1,973)
|
Proceeds
from sale or involuntary conversion of assets
|
|
-
|
|
6,939
|
|
2,797
|
Net
cash used in investing activities
|
|
(87,637)
|
|
(253,553)
|
|
(47,798)
|
Financing
Activities
|
|
|
|
|
|
|
Proceeds
from borrowings
|
|
115,334
|
|
235,907
|
|
95,126
|
Principal
payments on debt
|
|
(84,047)
|
|
(34,356)
|
|
(102,215)
|
Debt
acquisition costs
|
|
(2,130)
|
|
(1,771)
|
|
(1,673)
|
Cash
received/(paid) to settle swap agreements
|
|
6,346
|
|
(5,175)
|
|
-
|
Proceeds
from options exercised
|
|
597
|
|
517
|
|
1,897
|
Taxes
paid in lieu of share issuance
|
|
(1,364)
|
|
(1,272)
|
|
(1,449)
|
Dividends
paid
|
|
(21,869)
|
|
(21,812)
|
|
(21,088)
|
Net
cash provided by/(used in) financing activities
|
|
12,867
|
|
172,038
|
|
(29,402)
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
12,539
|
|
(2,796)
|
|
(15,499)
|
Increase/(decrease)
in cash and cash equivalents
|
|
1,985
|
|
(3,371)
|
|
5,311
|
Cash
and cash equivalents at beginning of year
|
|
181,742
|
|
185,113
|
|
179,802
|
Cash
and cash equivalents at end of year
|
|
$183,727
|
|
$181,742
|
|
$185,113
|
|
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 percent 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
For
sales that are recognized at a point in time, 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 a defined profit margin. 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 the second quarter of 2017, we recorded a $15.8
million charge to Cost of goods sold related to revisions on estimated profitability of our BR 725 and A380 programs, which included
the write-off of $4.0 million of program inventory costs and a reserve of $11.8 million for additional anticipated losses. Later
in 2017, we amended a long-term agreement with a licensor for the A380 program that resulted in a reduction to Cost of goods sold
of $4.9 million. In 2015, we recorded a $14.0 million charge on our BR 725 contract, which 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 contracts
other than the profitability changes noted above, decreased gross profit by $0.6 million in 2017, increased gross profit by $1.5
million in 2016, and increased gross profit by $0.4 million in 2015. The Company includes contractual change orders and claims
in the estimated value of customer contracts when there is a legal basis for such items and recovery is probable. As of December
31, 2017 and 2016, the value of change
orders and claims that was included in estimated contract value was not significant. 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. Cost of goods
sold also includes provisions for loss contracts and charges for the write-off of inventories that result from an exit activity.
Selling,
General, Administrative, Technical, and Research Expenses
Selling,
general, administrative, and technical 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 $30.7 million in 2017, $28.8 million in 2016, $31.7 million in 2015.
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 and be considered a collaborative arrangement, in which
case both parties are active participants and are exposed to the risks and rewards dependent on the success of the activity. In
such cases, amounts charged to the customer are credited against research and development expense. While no such arrangements
existed during the last three years, we may enter into such arrangements in the future. 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 valuation 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 percent 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)
|
|
2017
|
|
2016
|
|
2015
|
L
osses/(gains)
included in:
|
|
|
|
|
|
|
Selling,
general, and administrative expenses
|
|
$4,127
|
|
($381)
|
|
(5,090)
|
Other
expense/(income), net
|
|
4,634
|
|
(3,532)
|
|
1,496
|
Total
transaction losses/(gains)
|
|
$8,761
|
|
($3,913)
|
|
($3,594)
|
The
following table presents foreign currency gains and losses on long-term intercompany loans that were recognized in Other comprehensive
income:
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Gain/(loss) on long-term intercompany loans
|
|
$1,867
|
|
$3,515
|
|
($5,225)
|
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, 2017 and 2016, Accounts receivable consisted of the following:
(in
thousands)
|
|
2017
|
|
2016
|
|
Trade and other accounts receivable
|
|
$152,375
|
|
$146,460
|
|
Bank promissory notes
|
|
20,255
|
|
15,759
|
|
Revenue in excess of progress billings
|
|
37,964
|
|
15,926
|
|
Allowance for doubtful accounts
|
|
(7,919
|
)
|
(6,952
|
)
|
Total accounts receivable
|
|
$202,675
|
|
$171,193
|
|
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 that are included in noncurrent assets, which represent revenue earned in 2017 and 2016.
The Contract receivables will be invoiced to the customer, with 2 percent 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 net realizable 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, 2017 and 2016, inventories consisted of the following:
(in thousands)
|
|
2017
|
|
2016
|
Raw materials
|
|
$42,215
|
|
$37,691
|
Work in process
|
|
65,448
|
|
58,715
|
Finished goods
|
|
28,856
|
|
37,500
|
Total inventories
|
|
$136,519
|
|
$133,906
|
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 both 2017 and 2016.
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 reportable segments 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 $0.5 million in 2017 and $0.4 million in 2016. 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 $16.2 million in 2017 and $7.8 million in 2016 for defined benefit pension plans where plan assets exceed the
projected benefit obligations. Other assets also includes financial assets of $1.3 million in 2017 and $6.5 million in 2016 (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. 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 with durations that match expected future payments. The assumption for expected return
on plan assets is based on historical and expected returns on various categories of plan assets.
Recent
Accounting Pronouncements
In
May 2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with
customers. We adopted the standard effective January 1, 2018 using the modified retrospective method for transition, under
which, years prior to 2018 will not be restated. In our Machine Clothing segment, we currently record revenue for the sale of
a product when persuasive evidence of an arrangement exists, delivery has occurred, title has been transferred, the selling
price is fixed, and collectability is reasonably assured. In this segment, we often have contracts with customers whereby the
Company satisfies its performance obligation related to the manufacture and delivery of a product before title has
transferred to the customer. Under the new accounting standard, this will result in earlier recognition of revenue associated
with these contracts. The selling price of products may include a performance obligation to provide certain support services
for no additional cost. We have substantially completed our assessment as to how the new standard effects the Machine
Clothing contracts. When we adopt the new standard, we expect to allocate a portion of the associated revenue to such
services. We currently estimate less than 5% of revenue will be allocated to such services. While we currently expect that
the timing of revenue recognition and the line-item description of Machine Clothing revenue will be affected by the new
standard, we do not expect total annual Machine Clothing revenue to be significantly affected. We have also substantially
completed our assessment as to how the new standard affects contracts in the Albany Engineered Composites (AEC) segment. Due
to the complexity and variability of certain of our AEC contracts, the actual accounting treatment required under the new
standard for these arrangements is dependent on contract-specific terms and therefore may vary. A significant change that we
anticipate relates to our use of the units-of-delivery method for some long-term contracts, which is considered an output
method. Under the new standard, we expect that revenue for most of these contracts will be recognized over time using an
input method as the measure of progress, which is expected to result in earlier recognition of revenue. In addition, any
expected losses on a project will be recorded in full in the period in which they become probable, which we expect will
include losses on requirement contract options that are probable of exercise, excluding profitable options that often follow.
Under the new standard, we will be required to limit our estimate of contract value to the period of the legally enforceable
contract, which may be considerably shorter than the contract period used under the former standard. Some master contracts in
this segment do not contain minimum order quantities and have fixed unit selling prices throughout the contract. Such
arrangements could lead to lower profitability or losses in the early portion of the performance period. We are currently
evaluating the full effect the new standard will have on our financial statements in order to quantify the cumulative effect
of adopting the new standard. In Machine Clothing, we expect that the transition adjustment to the new standard will result
in an increase to Accounts receivable, a decrease to Inventories, and an increase to Retained earnings. In AEC, we
expect the transition adjustment will result in the reclassification of contract-related receivables from Accounts receivable
to Contract assets (a new current asset), an increase to Accrued liabilities, and decreases to Inventories and Retained
earnings. The new standard will also require some additional footnote disclosures, including footnote disclosure of 2018
results under the former standard. During 2017, the Company implemented controls designed to properly assess the impact of
the new standard on existing customer contracts and, for 2018, we are implementing new controls and modifying other controls,
to ensure accurate reporting under the new standard.
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 do not expect the adoption of
this update to have a significant effect 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 are currently evaluating the impact of this update 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 and cash paid to a tax authority in lieu of share issuances to employees on the statements of cash flows. The update
also affects presentation in the Statements of Cash Flows of income tax effects of shares withheld for incentive compensation,
and the exercise of stock options. We adopted this accounting update on January 1, 2017 and it had an insignificant effect on
income tax expense. The updates affecting the Statements of Cash Flows have been applied retrospectively as follows:
-As
a result of the change affecting cash payments of taxes in lieu of share issuance, operating cash flows for the years ended
December 31, 2016 and 2015 were increased $1.3 million and $1.4 million, respectively, and financing cash flows were decreased
by the same amount.
|
|
-As a result
of the change affecting classification of excess tax benefits, operating cash flows were increased $0.1 million and financing
cash flows were decreased by the same amount in the years ended December 31, 2016 and 2015.
|
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
do not expect the adoption of this update to have a significant effect 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 significant effect 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.
In
March 2017, an accounting update was issued which requires that service cost for defined benefit pension and postretirement plans
be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees
during the period. Additionally, the other components of net benefit cost are required to be presented in the income statement
separately from the service cost component and outside a subtotal of income from operations. This accounting update is effective
for reporting periods beginning after December 15, 2017. We expect that the principal effect of adopting this standard will be
to reclassify a portion of our pension and postretirement costs to Other expense/(income), net.
In
May 2017, an accounting update was issued to provide clarity as to when a company must account for changes to stock-based compensation
programs as award modifications. Award modifications require an update to the value of the award, resulting in an adjustment to
compensation expense. We have not made changes to awards in recent years that would be affected by this update, but such changes
are possible in future periods. The update is effective for periods beginning after December 15, 2017.
In
August 2017, an accounting update was issued that will make more financial and nonfinancial hedging strategies eligible for hedge
accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is
intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of
hedge accounting, and increase transparency
as to the scope and results of hedging programs. This accounting update is effective
for years beginning after December 15, 2018, with early adoption permitted. We do not expect the adoption of this update to have
a significant effect 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 seller provided
representations, warranties and indemnities customary for acquisition transactions, including indemnities for certain customer
claims identified before closing. The acquired entity is part of the Albany Engineered Composites (AEC) segment.
There were no
changes during 2017 to the provisional allocation recorded in 2016. The following table summarizes the 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
|
Goodwill
of $95.7 million reflects that the acquisition broadened and deepened AEC’s products, experience and manufacturing capabilities,
and significantly increases opportunities for future growth. The goodwill is non-deductible for tax purposes.
The
following table presents operational results of the acquired entity that are included in the Consolidated Statements of Income
(unaudited):
(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 $119.2 million in 2017, $88.9 million in 2016, and
$58.1 million in 2015. The total of invoiced receivables, unbilled receivables and contract receivables due from Safran amounted
to $58.6 million and $37.1 million as of December 31, 2017 and 2016, 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 2017,
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)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$590,357
|
|
|
$582,190
|
|
|
$608,581
|
|
Albany Engineered Composites
|
|
273,360
|
|
|
197,649
|
|
|
101,287
|
|
Consolidated total
|
|
$863,717
|
|
|
$779,839
|
|
|
$709,868
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
33,527
|
|
|
36,428
|
|
|
39,503
|
|
Albany Engineered Composites
|
|
33,533
|
|
|
24,211
|
|
|
12,140
|
|
Corporate expenses
|
|
4,896
|
|
|
6,822
|
|
|
8,471
|
|
Consolidated total
|
|
$71,956
|
|
|
$67,461
|
|
|
$60,114
|
|
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
153,936
|
|
|
152,529
|
|
|
141,311
|
|
Albany Engineered Composites
|
|
(31,657
|
)
|
|
(15,363
|
)
|
|
(28,478
|
)
|
Corporate expenses
|
|
(46,128
|
)
|
|
(45,390
|
)
|
|
(48,938
|
)
|
Operating income
|
|
$76,151
|
|
|
$91,776
|
|
|
$63,895
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(1,511
|
)
|
|
(2,077
|
)
|
|
(1,857
|
)
|
Interest expense
|
|
18,602
|
|
|
15,541
|
|
|
11,841
|
|
Other expense, net
|
|
4,352
|
|
|
46
|
|
|
2,433
|
|
Income before income taxes
|
|
$54,708
|
|
|
$78,266
|
|
|
$51,478
|
|
The table below presents restructuring costs
by reportable segment (also see Note 5):
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Restructuring expenses, net
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$3,429
|
|
|
$6,069
|
|
|
$22,211
|
|
Albany Engineered Composites
|
|
10,062
|
|
|
2,314
|
|
|
-
|
|
Corporate expenses
|
|
-
|
|
|
(7
|
)
|
|
1,635
|
|
Consolidated total
|
|
$13,491
|
|
|
$8,376
|
|
|
$23,846
|
|
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)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$464,468
|
|
|
$454,010
|
|
|
$494,347
|
|
Albany Engineered Composites
|
|
584,076
|
|
|
514,527
|
|
|
181,825
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
183,727
|
|
|
181,742
|
|
|
185,113
|
|
Asset held for sale
|
|
-
|
|
|
-
|
|
|
4,988
|
|
Income taxes prepaid, receivable and deferred
|
|
74,914
|
|
|
74,078
|
|
|
111,872
|
|
Other assets
|
|
54,013
|
|
|
39,076
|
|
|
31,417
|
|
Consolidated total assets
|
|
$1,361,198
|
|
|
$1,263,433
|
|
|
$1,009,562
|
|
Capital expenditures and purchased software
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$20,522
|
|
|
$15,651
|
|
|
$16,010
|
|
Albany Engineered Composites
|
|
63,865
|
|
|
54,678
|
|
|
30,378
|
|
Corporate expenses
|
|
3,250
|
|
|
3,163
|
|
|
4,207
|
|
Consolidated total
|
|
$87,637
|
|
|
$73,492
|
|
|
$50,595
|
|
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 the 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)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net
sales
|
|
|
|
|
|
|
|
|
|
United States
|
|
$459,525
|
|
|
$396,238
|
|
|
$323,399
|
|
Switzerland
|
|
147,601
|
|
|
145,479
|
|
|
159,804
|
|
Brazil
|
|
60,535
|
|
|
60,287
|
|
|
58,846
|
|
China
|
|
48,920
|
|
|
48,043
|
|
|
48,490
|
|
France
|
|
57,195
|
|
|
42,862
|
|
|
26,081
|
|
Mexico
|
|
31,902
|
|
|
27,526
|
|
|
30,581
|
|
Other countries
|
|
58,039
|
|
|
59,404
|
|
|
62,667
|
|
Consolidated total
|
|
$863,717
|
|
|
$779,839
|
|
|
$709,868
|
|
Property,
plant and equipment, at cost, net
|
|
|
|
|
|
|
|
|
|
United States
|
|
$252,639
|
|
|
$245,626
|
|
|
$172,372
|
|
China
|
|
61,840
|
|
|
65,987
|
|
|
80,786
|
|
France
|
|
58,196
|
|
|
42,272
|
|
|
28,539
|
|
Mexico
|
|
22,981
|
|
|
7,781
|
|
|
5,264
|
|
Korea
|
|
14,558
|
|
|
15,585
|
|
|
19,095
|
|
United Kingdom
|
|
14,256
|
|
|
14,591
|
|
|
19,029
|
|
Canada
|
|
10,230
|
|
|
11,455
|
|
|
12,861
|
|
Other countries
|
|
19,602
|
|
|
$19,267
|
|
|
19,524
|
|
Consolidated total
|
|
$454,302
|
|
|
$422,564
|
|
|
$357,470
|
|
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 42 percent of consolidated pension plan assets, and 43 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, 2017 benefit obligation
for the U.S. pension and postretirement plans were calculated using the RP-2014 mortality table with MP-2017 generational projection.
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, 2017, the accrued postretirement liability was $57.4
million in the U.S. and $1.1 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 2017 and 2016, 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, 2017
|
|
|
As of December 31, 2016
|
|
(in thousands)
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$210,856
|
|
|
$57,488
|
|
|
$199,856
|
|
|
$59,970
|
|
Service cost
|
|
2,720
|
|
|
244
|
|
|
2,656
|
|
|
254
|
|
Interest cost
|
|
7,476
|
|
|
2,214
|
|
|
7,885
|
|
|
2,443
|
|
Plan participants’ contributions
|
|
211
|
|
|
-
|
|
|
249
|
|
|
-
|
|
Actuarial (gain)/loss
|
|
6,626
|
|
|
2,743
|
|
|
17,676
|
|
|
(395
|
)
|
Benefits paid
|
|
(7,697
|
)
|
|
(4,230
|
)
|
|
(7,057
|
)
|
|
(4,812
|
)
|
Settlements and curtailments
|
|
(8
|
)
|
|
-
|
|
|
(2,436
|
)
|
|
-
|
|
Plan amendments and other
|
|
(3
|
)
|
|
-
|
|
|
36
|
|
|
-
|
|
Foreign currency changes
|
|
10,730
|
|
|
72
|
|
|
(8,009
|
)
|
|
28
|
|
Benefit obligation, end of year
|
|
$230,911
|
|
|
$58,531
|
|
|
$210,856
|
|
|
$57,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$220,622
|
|
|
$-
|
|
|
$200,790
|
|
|
$-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine benefit obligations, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - U.S. plan
|
|
3.70
|
%
|
|
3.59
|
%
|
|
4.20
|
%
|
|
4.00
|
%
|
Discount rate - non-U.S. plans
|
|
2.83
|
%
|
|
3.40
|
%
|
|
2.98
|
%
|
|
3.70
|
%
|
Compensation increase - U.S. plan
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Compensation increase - non-U.S. plans
|
|
3.02
|
%
|
|
3.00
|
%
|
|
3.29
|
%
|
|
3.00
|
%
|
The following sets forth information about
plan assets:
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
(in thousands)
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
$180,672
|
|
|
$-
|
|
|
$171,387
|
|
|
$-
|
|
Actual return on plan assets, net of expenses
|
|
19,182
|
|
|
-
|
|
|
19,740
|
|
|
-
|
|
Employer contributions
|
|
4,645
|
|
|
4,230
|
|
|
6,605
|
|
|
4,812
|
|
Plan participants’ contributions
|
|
211
|
|
|
37
|
|
|
249
|
|
|
72
|
|
Benefits paid
|
|
(7,697
|
)
|
|
(4,267
|
)
|
|
(7,057
|
)
|
|
(4,884
|
)
|
Settlements
|
|
(8
|
)
|
|
-
|
|
|
(2,308
|
)
|
|
-
|
|
Foreign currency changes
|
|
8,581
|
|
|
-
|
|
|
(7,944
|
)
|
|
-
|
|
Fair value of plan assets, end of year
|
|
$205,586
|
|
|
$-
|
|
|
$180,672
|
|
|
$-
|
|
The funded status of the plans was as follows:
|
|
As of December 31, 2017
|
|
|
As of December 31, 2016
|
|
(in thousands)
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$205,586
|
|
|
$-
|
|
|
$180,672
|
|
|
$-
|
|
Benefit obligation
|
|
230,911
|
|
|
58,531
|
|
|
210,856
|
|
|
57,488
|
|
Funded status
|
|
($25,325
|
)
|
|
($58,531
|
)
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost, end of year
|
|
($25,325
|
)
|
|
($58,531
|
)
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent asset
|
|
$16,242
|
|
|
$-
|
|
|
$7,794
|
|
|
$-
|
|
Current liability
|
|
(2,094
|
)
|
|
(4,108
|
)
|
|
(2,057
|
)
|
|
(4,195
|
)
|
Noncurrent liability
|
|
(39,473
|
)
|
|
(54,423
|
)
|
|
(35,921
|
)
|
|
(53,293
|
)
|
Net amount recognized
|
|
($25,325
|
)
|
|
($58,531
|
)
|
|
($30,184
|
)
|
|
($57,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$67,283
|
|
|
$34,717
|
|
|
$72,400
|
|
|
$34,782
|
|
Prior service cost/(credit)
|
|
572
|
|
|
(26,411
|
)
|
|
597
|
|
|
(30,899
|
)
|
Net amount recognized
|
|
$67,855
|
|
|
$8,306
|
|
|
$72,997
|
|
|
$3,883
|
|
The composition of the net pension plan
funded status as of December 31, 2017 was as follows:
|
|
|
|
Non-U.S.
|
|
|
|
(in thousands)
|
|
U.S. plan
|
|
|
plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
Pension plans with pension assets
|
|
($6,466
|
)
|
|
$13,870
|
|
|
$7,404
|
|
Pension plans without pension assets
|
|
(7,356
|
)
|
|
(25,373
|
)
|
|
(32,729
|
)
|
Total
|
|
($13,822
|
)
|
|
($11,503
|
)
|
|
($25,325
|
)
|
The composition of the net periodic
benefit plan cost for the years ended December 31, 2017, 2016, and 2015, was as follows:
|
|
Pension plans
|
|
|
Other postretirement benefits
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$2,720
|
|
|
$2,656
|
|
|
$2,959
|
|
|
$244
|
|
|
$254
|
|
|
$330
|
|
Interest cost
|
|
7,476
|
|
|
7,885
|
|
|
7,787
|
|
|
2,214
|
|
|
2,443
|
|
|
2,437
|
|
Expected return on assets
|
|
(8,152
|
)
|
|
(8,675
|
)
|
|
(8,630
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization of prior service cost/(credit)
|
|
36
|
|
|
38
|
|
|
48
|
|
|
(4,488
|
)
|
|
(4,488
|
)
|
|
(4,488
|
)
|
Amortization of net actuarial loss
|
|
2,628
|
|
|
2,283
|
|
|
2,594
|
|
|
2,811
|
|
|
2,819
|
|
|
3,338
|
|
Settlement
|
|
-
|
|
|
162
|
|
|
103
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Curtailment (gain)/loss
|
|
-
|
|
|
(111
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Special/contractual termination of benefits
|
|
-
|
|
|
-
|
|
|
44
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net periodic benefit cost
|
|
$4,708
|
|
|
$4,238
|
|
|
$4,905
|
|
|
$781
|
|
|
$1,028
|
|
|
$1,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate - U.S. plan
|
|
4.20
|
%
|
|
4.54
|
%
|
|
4.18
|
%
|
|
4.00
|
%
|
|
4.24
|
%
|
|
3.90
|
%
|
Discount rate - non-U.S. plan
|
|
2.98
|
%
|
|
3.67
|
%
|
|
3.58
|
%
|
|
3.70
|
%
|
|
4.00
|
%
|
|
3.85
|
%
|
Expected return on plan assets - U.S. plan
|
|
4.40
|
%
|
|
4.74
|
%
|
|
4.43
|
%
|
|
-
|
|
|
-
|
|
|
-
|
|
Expected return on plan assets - non-U.S. plans
|
|
4.46
|
%
|
|
5.39
|
%
|
|
5.52
|
%
|
|
-
|
|
|
-
|
|
|
-
|
|
Rate of compensation increase - U.S. plan
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Rate of compensation increase - non-U.S. plans
|
|
3.29
|
%
|
|
3.24
|
%
|
|
3.23
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
Pretax (gains)/losses on plan assets and
benefit obligations recognized in other comprehensive income during 2017 were as follows:
|
|
|
|
|
Other
|
|
|
|
Pension
|
|
|
postretirement
|
|
(in thousands)
|
|
plan
|
|
|
benefits
|
|
Settlements/curtailments
|
|
$-
|
|
|
$-
|
|
Asset/liability loss/(gain)
|
|
(4,408
|
)
|
|
2,743
|
|
Amortization of actuarial (loss)
|
|
(2,628
|
)
|
|
(2,811
|
)
|
Amortization of prior service (cost)/credit
|
|
(36
|
)
|
|
4,488
|
|
Currency impact
|
|
1,930
|
|
|
2
|
|
Cost/(benefit) in other comprehensive income
|
|
($5,142
|
)
|
|
$4,422
|
|
Total cost/(benefit) recognized in net periodic benefit cost and other comprehensive income
|
|
($434
|
)
|
|
$5,203
|
|
The estimated amounts that will be amortized
from accumulated other comprehensive income into net periodic benefit cost in 2018 are as follows:
|
|
|
|
|
Total
|
|
|
|
Total
|
|
|
postretirement
|
|
(in thousands)
|
|
pension
|
|
|
benefits
|
|
Actuarial loss
|
|
$2,232
|
|
|
$2,956
|
|
Prior service cost/(benefit)
|
|
35
|
|
|
(4,488
|
)
|
Total
|
|
$2,267
|
|
|
($1,532
|
)
|
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, 2017, and 2016, 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,
2017 and 2016, there were no investments expected to be sold at a value materially different than NAV.
|
|
Assets at Fair Value as of December 31, 2017
|
|
|
|
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
|
|
$335
|
|
|
$-
|
|
|
$-
|
|
|
$335
|
|
Debt securities
|
|
-
|
|
|
81,363
|
|
|
-
|
|
|
81,363
|
|
Insurance contracts
|
|
-
|
|
|
-
|
|
|
2,407
|
|
|
2,407
|
|
Cash and short-term investments
|
|
3,253
|
|
|
-
|
|
|
-
|
|
|
3,253
|
|
Total investments in the fair value hierarchy
|
|
$3,588
|
|
|
$81,363
|
|
|
$2,407
|
|
|
87,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at net asset value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks and equity funds
|
|
|
|
|
|
|
|
|
|
|
37,768
|
|
Fixed income funds
|
|
|
|
|
|
|
|
|
|
|
75,881
|
|
Limited partnerships
|
|
|
|
|
|
|
|
|
|
|
4,579
|
|
Hedge funds
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Total plan assets
|
|
|
|
|
|
|
|
|
|
|
$205,586
|
|
|
|
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
|
|
The following tables present a reconciliation
of Level 3 assets held during the years ended December 31, 2017 and 2016:
(in thousands)
|
|
December 31, 2016
|
|
|
Net realized gains
|
|
|
Net unrealized gains
|
|
|
Net purchases, issuances and settlements
|
|
|
Net transfers (out of)
Level 3
|
|
|
December 31,
2017
|
|
Insurance contracts
|
|
$2,238
|
|
|
$-
|
|
|
$56
|
|
|
$113
|
|
|
$-
|
|
|
$2,407
|
|
Total level 3 assets
|
|
$2,238
|
|
|
$-
|
|
|
$56
|
|
|
$113
|
|
|
$-
|
|
|
$2,407
|
|
(in thousands)
|
|
December 31,
2015
|
|
|
Net realized gains
|
|
|
Net unrealized gains
|
|
|
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
|
|
The asset allocation for the Company’s
U.S. and non-U.S. pension plans for 2016 and 2017, and the target allocation for 2018, 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
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
-
|
|
|
1
|
%
|
|
2
|
%
|
|
32
|
%
|
|
30
|
%
|
|
33
|
%
|
Debt securities
|
|
100
|
%
|
|
95
|
%
|
|
92
|
%
|
|
64
|
%
|
|
64
|
%
|
|
61
|
%
|
Real estate
|
|
-
|
|
|
4
|
%
|
|
5
|
%
|
|
1
|
%
|
|
1
|
%
|
|
-
|
|
Other (1)
|
|
-
|
|
|
-
|
|
|
1
|
%
|
|
3
|
%
|
|
5
|
%
|
|
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 2017 and 2016, 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)
|
|
2017
|
|
|
2016
|
|
Projected benefit obligation
|
|
$131,717
|
|
|
$121,600
|
|
Fair value of plan assets
|
|
90,149
|
|
|
83,622
|
|
|
|
|
|
|
|
|
|
|
Plans
with accumulated
benefit obligation
in
excess of plan assets
|
|
(in thousands)
|
|
2017
|
|
|
2016
|
|
Accumulated benefit obligation
|
|
$129,698
|
|
|
$119,728
|
|
Fair value of plan assets
|
|
90,149
|
|
|
83,558
|
|
|
|
|
|
|
|
|
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
|
|
$4,787
|
|
|
$4,108
|
|
|
|
|
|
|
|
|
|
Expected benefit payments
|
|
|
|
|
|
|
2018
|
|
|
$7,495
|
|
|
$4,108
|
|
2019
|
|
|
7,605
|
|
|
3,985
|
|
2020
|
|
|
8,104
|
|
|
3,872
|
|
2021
|
|
|
8,925
|
|
|
3,801
|
|
2022
|
|
|
9,207
|
|
|
3,749
|
|
2023-2027
|
|
|
55,897
|
|
|
17,890
|
|
5. Restructuring
In 2017, the Company
announced the initiation of discussions with the local works council regarding a proposal to discontinue operations at its Machine
Clothing production facility in Sélestat, France. During 2017, we incurred $1.1 million of restructuring expense associated
with this proposal. In February 2018, we completed negotiations with the Works Council regarding benefits that would be
provided
to affected
employees, and submitted the proposed plan to the government labor authorities for approval. While there
can be no assurance that such approval will be obtained, we consider it probable that such approval will be obtained in the first
quarter of 2018. We are presently unable to reasonably estimate the total costs for severance and other charges associated with
the proposal.
AEC restructuring charges in 2017 included
the discontinuation of the Bear Claw® line of hydraulic fracturing components used in the oil and gas industry, which led to
non-cash restructuring charges totaling $4.5 million relating to the impairment of long-lived assets. We also incurred restructuring
charges of $5.0 million in 2017 related to completed work force reductions in Salt Lake City, Utah and Rochester, New Hampshire.
Cost savings associated with these actions will result, principally, in lower cost of goods sold in 2018.
In 2016, the Company discontinued research
and development activities at its Machine Clothing facility in Sélestat, France as part of a plan to reduce research and
development costs. This initiative resulted in 2016 expense of $2.2 million for severance, outplacement, and the write-off of equipment.
In 2017, we recorded additional restructuring charges of $1.6 million, principally related to additional termination benefits paid
to former employees.
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 which led to total restructuring charges of $14.8 million from 2015 to 2017. 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 and 2017, we recorded
additional restructuring charges of $2.6 million and $0.8 million, respectively, principally related to the final closure of the
plant in Germany.
AEC restructuring expenses in 2016 were
principally related to the consolidation of legacy programs into Boerne, Texas.
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 include $4.3 million related to the reduction in selling,
general and administrative employment in Machine Clothing and Corporate.
The following table summarizes charges reported
in the Consolidated Statements of Income under “Restructuring expenses, net”:
|
Total
restructuring
costs incurred
|
|
Termination and
other costs
|
|
Impairment of
assets
|
Benefit plan
curtailment/
settlement
|
|
Year ended December 31, 2017
(in thousands)
|
Machine Clothing
|
$3,429
|
|
$2,945
|
|
$484
|
$-
|
|
Albany Engineered Composites
|
10,062
|
|
5,004
|
|
5,058
|
-
|
|
Corporate expenses
|
-
|
|
-
|
|
-
|
-
|
|
Total
|
$13,491
|
|
$7,949
|
|
$5,542
|
$-
|
|
|
Total
restructuring
costs incurred
|
|
Termination
and
other costs
|
|
Impairment
of
assets
|
Benefit
plan
curtailment/
settlement
|
|
Year
ended December 31, 2016
(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
assets
|
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
|
$-
|
We expect that approximately $2.7
million of Accrued liabilities for restructuring at December 31, 2017 will be paid within one year and approximately $0.6 million
will be paid the following year. The table below presents the changes in restructuring liabilities for 2017 and 2016, all of which
related to termination costs:
|
December 31,
|
Restructuring
|
|
Currency
|
December 31,
|
(in thousands)
|
2016
|
charges accrued
|
Payments
|
translation/other
|
2017
|
|
|
|
|
|
|
Total termination and other costs
|
$5,559
|
$7,949
|
($10,351)
|
$169
|
$3,326
|
|
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
|
6. Other Expense/(Income), net
The components of Other Expense/(Income),
net, are:
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Currency transactions
|
|
$4,634
|
|
|
($3,532
|
)
|
|
$1,496
|
|
Bank fees and amortization of debt issuance costs
|
|
487
|
|
|
759
|
|
|
916
|
|
Gain on insurance recovery
|
|
(2,000
|
)
|
|
-
|
|
|
-
|
|
Loss due to theft
|
|
-
|
|
|
2,506
|
|
|
-
|
|
Gain on sale of investment
|
|
-
|
|
|
-
|
|
|
(872
|
)
|
Other
|
|
1,231
|
|
|
313
|
|
|
893
|
|
Total
|
|
$4,352
|
|
|
$46
|
|
|
$2,433
|
|
In 2016, the Company had a loss due to theft
of cash in Japan, resulting in a loss of $2.5 million. In September 2017, the Company recorded an insurance recovery gain of $2.0
million related to that incident.
In March 2015, the Company sold its total
equity investment in an unaffiliated company, resulting in a gain of $0.9 million. The value of the investment had been written
off in 2004.
7. Income Taxes
The following tables present components
of income tax expense/(benefit) and income before income taxes on continuing operations:
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Income tax based on income from continuing
operations, at estimated tax rates of 32%, 35%, and 32%, respectively
|
|
$17,519
|
|
|
$27,629
|
|
|
$16,388
|
|
Income tax before discrete items
|
|
17,519
|
|
|
27,629
|
|
|
16,388
|
|
|
|
|
|
|
|
|
|
|
|
Discrete tax expense(benefit):
|
|
|
|
|
|
|
|
|
|
Worthless stock deduction
|
|
-
|
|
|
-
|
|
|
(28,553
|
)
|
Net impact of mandatory deemed repatriations
|
|
5,758
|
|
|
-
|
|
|
-
|
|
Provision for/resolution of tax audits and contingencies, net
|
|
1,329
|
|
|
(2,856
|
)
|
|
6,500
|
|
Adjustments to prior period tax liabilities
|
|
(840
|
)
|
|
586
|
|
|
(867
|
)
|
Provision for/adjustment to beginning of year valuation allowances
|
|
(3,522
|
)
|
|
(88
|
)
|
|
75
|
|
Enacted tax legislation
|
|
1,879
|
|
|
183
|
|
|
670
|
|
Total income tax expense/(benefit)
|
|
$22,123
|
|
|
$25,454
|
|
|
($5,787
|
)
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Income/(loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
($5,865
|
)
|
|
$8,556
|
|
|
($7,211
|
)
|
Non-U.S.
|
|
60,573
|
|
|
69,710
|
|
|
58,689
|
|
|
|
$54,708
|
|
|
$78,266
|
|
|
$51,478
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$1,551
|
|
|
$3,728
|
|
|
$-
|
|
State
|
|
1,770
|
|
|
176
|
|
|
1,993
|
|
Non-U.S.
|
|
19,282
|
|
|
19,979
|
|
|
20,842
|
|
|
|
$22,603
|
|
|
$23,883
|
|
|
$22,835
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$1,881
|
|
|
$2,138
|
|
|
($34,135
|
)
|
State
|
|
(1,237
|
)
|
|
1,984
|
|
|
(40
|
)
|
Non-U.S.
|
|
(1,124
|
)
|
|
(2,551
|
)
|
|
5,553
|
|
|
|
($480
|
)
|
|
$1,571
|
|
|
($28,622
|
)
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense/(benefit)
|
|
$22,123
|
|
|
$25,454
|
|
|
($5,787
|
)
|
The significant components of deferred income
tax expense/(benefit) are as follows:
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net effect of temporary differences
|
|
($5,774
|
)
|
|
$7,214
|
|
|
($7,615
|
)
|
Foreign tax credits
|
|
8,340
|
|
|
(6,869
|
)
|
|
(17,874
|
)
|
Retirement benefits
|
|
(502
|
)
|
|
1,734
|
|
|
1,844
|
|
Net impact to operating loss carryforwards
|
|
(900
|
)
|
|
(603
|
)
|
|
(5,722
|
)
|
Enacted changes in tax laws and rates
|
|
1,878
|
|
|
183
|
|
|
670
|
|
Adjustment to beginning-of-the-year valuation allowance balance for changes in circumstances
|
|
(3,522
|
)
|
|
(88
|
)
|
|
75
|
|
Total
|
|
($480
|
)
|
|
$1,571
|
|
|
($28,622
|
)
|
A reconciliation of the U.S. federal statutory tax rate to
the Company’s effective income tax rate is as follows:
|
|
2017
|
|
2016
|
|
2015
|
U.S. federal statutory tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
1.0
|
|
|
2.3
|
|
|
2.4
|
|
Non-U.S. local income taxes
|
|
5.9
|
|
|
3.5
|
|
|
4.1
|
|
Foreign permanent adjustments
|
|
0.4
|
|
|
1.6
|
|
|
7.4
|
|
Foreign rate differential
|
|
(10.5
|
)
|
|
(11.3
|
)
|
|
(13.6
|
)
|
Net U.S. tax on non-U.S. earnings and foreign withholdings
|
|
11.9
|
|
|
5.8
|
|
|
(1.8
|
)
|
Provision for/resolution of tax audits and contingencies, net
|
|
2.4
|
|
|
(3.4
|
)
|
|
12.6
|
|
Research and development and other tax credits
|
|
(1.5
|
)
|
|
(1.2
|
)
|
|
(2.4
|
)
|
Adjustment to beginning-of-the-year valuation allowances
|
|
(6.4
|
)
|
|
(0.1
|
)
|
|
0.1
|
|
Worthless stock deduction
|
|
-
|
|
|
-
|
|
|
(55.5
|
)
|
Other
|
|
2.2
|
|
|
0.3
|
|
|
0.5
|
|
Effective income tax rate
|
|
40.4
|
%
|
|
32.5
|
%
|
|
(11.2
|
)%
|
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 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 (blended 34% tax rate), China, (25% tax rate), Mexico (30% tax rate) and France
(33.33% tax rate). As a result, the foreign income tax rate differential was primarily attributable to these tax rate differences.
On December 22, 2017, the U.S. Tax Cuts
and Jobs Act (the “Tax Reform Act”) was signed into law. The Tax Reform Act significantly revised
the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21% effective January
1, 2018, while also repealing the deduction for domestic production activities, implementing a territorial tax system and imposing
a transition tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax legislation
be recognized in the period in which the law was enacted.
In December 2017, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which addresses how a company recognizes provisional amounts
when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail
to complete its accounting for the effect of the changes in the Tax Reform Act. The measurement period ends when a company has
obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. The Company
has elected to apply the measurement period guidance provided in SAB 118.
Deferred tax assets and liabilities:
The Company remeasured certain deferred tax assets and liabilities based on the federal rate of 21%. However, the Company is still
analyzing certain aspects of the Tax Reform Act, such as IRC section 162(m), and refining its calculations which could potentially
affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded
related to the remeasurement of the Company’s deferred tax balance was a tax charge of $1.0 million.
Foreign tax effects:
The
one-time transition tax is based on the Company’s total post 1986 earnings and profits (E&P). The Company recorded
a provisional federal tax charge of $5.8 million due to the transition tax on deemed repatriation of foreign earnings, for
the year-ended December 31, 2017.
The final impact on the Company from the
Tax Reform Act’s transition tax legislation may differ from the aforementioned reasonable estimate of $5.8 million due to
the complexity of calculating and supporting with primary evidence such U.S. tax attributes as accumulated foreign earnings and
profits, foreign tax paid, and other tax components involved in foreign tax credit calculations for prior years back to 1986. Such
differences could be material, due to, among other things, changes in interpretations of the Tax Reform Act, future legislative
action to address questions that arise because of the Tax Reform Act, changes in accounting standards for income taxes or related
interpretations in response to the Tax Reform Act, or any updates or changes to estimates the Company has utilized to calculate
the transition tax’s reasonable estimate.
Given the lack of guidance from various
states on the treatment of the mandatory deemed repatriation, the Company did not record any additional tax provision for the potential
state tax impact of this item, but will, if necessary, as guidance is provided and analyzed during the measurement period.
The Company has foreign tax credit
carryforward that can be applied against the federal tax liability of the mandatory deemed repatriation, therefore, the
Company did not record a tax payable liability for the mandatory deemed repatriation.
The Company has determined at this time
that the Base Erosion Anti-Abuse Tax (BEAT) does not apply under the Company’s current policies. Therefore no adjustments
have been recorded in the December 31, 2017 consolidated financial statements.
Because of the complexity of the new Global
Intangible Low-Taxed Income (GILTI) tax rules, the Company continues to evaluate this provision of the Tax Reform Act and the application
of ASC 740, Income Taxes. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes
due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost
method”) or (2) factoring such amounts into the Company is measurement of its deferred taxes (the “deferred method”).
The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing
its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so,
what the impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI
depends on not only the Company’s current structure and estimated future results of global operations, but also its intent
and ability to modify its structure. The Company is currently in the process of analyzing its structure and, as a result, is not
yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, the Company has not made any adjustments
related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred
tax on GILTI.
Other federal tax:
As a result of
the Tax Reform Act, the corporate alternative minimum tax (AMT) was repealed. In addition, taxpayers with AMT carryforwards in
excess of their regular tax liability may have the credits refunded over years from 2018 to 2022. The Company has $1.0 million
of AMT credit carryforward; the Company is still determining the potential future AMT credit utilization and any carryforward remaining
will be reclassified to non-current federal tax receivable during the measurement period.
The charges associated with the Tax
Reform Act represent provisional amounts and the Company’s current best estimates. Any adjustments recorded to the
provisional amounts through the end of the measurement period, and no later than the fourth quarter of fiscal 2018, will
be included in income from operations as an adjustment to tax expense. The provisional amounts incorporate assumptions
made based upon the Company’s current interpretation of the Tax Reform Act and may change as the Company
receives additional clarification and implementation guidance.
Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting purposes
and income tax return purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
U.S.
|
|
Non-U.S.
|
(in thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$557
|
|
|
$1,155
|
|
|
$1,341
|
|
|
$1,381
|
|
Inventories
|
|
1,109
|
|
|
1,193
|
|
|
961
|
|
|
1,868
|
|
Deferred compensation
|
|
3,300
|
|
|
7,533
|
|
|
1,362
|
|
|
-
|
|
Depreciation and amortization
|
|
-
|
|
|
2,786
|
|
|
3,211
|
|
|
2,564
|
|
Postretirement benefits
|
|
18,286
|
|
|
26,602
|
|
|
1,464
|
|
|
2,067
|
|
Tax loss carryforwards
|
|
1,368
|
|
|
1,760
|
|
|
22,639
|
|
|
26,084
|
|
Tax credit carryforwards
|
|
41,920
|
|
|
50,624
|
|
|
1,654
|
|
|
1,186
|
|
Other
|
|
3,891
|
|
|
7,828
|
|
|
-
|
|
|
2,876
|
|
Noncurrent deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
before valuation allowance
|
|
70,431
|
|
|
99,481
|
|
|
32,632
|
|
|
38,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance
|
|
-
|
|
|
-
|
|
|
(16,057
|
)
|
|
(22,821
|
)
|
Total noncurrent deferred tax assets
|
|
70,431
|
|
|
99,481
|
|
|
16,575
|
|
|
15,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$70,431
|
|
|
$99,481
|
|
|
$16,575
|
|
|
$15,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrepatriated foreign earnings
|
|
$914
|
|
|
$1,602
|
|
|
$-
|
|
|
$-
|
|
Depreciation and amortization
|
|
20,170
|
|
|
43,156
|
|
|
-
|
|
|
-
|
|
Deferred gain
|
|
4,169
|
|
|
7,156
|
|
|
-
|
|
|
-
|
|
Other
|
|
81
|
|
|
2,198
|
|
|
2,597
|
|
|
2,897
|
|
Total deferred tax liabilities
|
|
$25,334
|
|
|
$54,112
|
|
|
$2,597
|
|
|
$2,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$45,097
|
|
|
$45,369
|
|
|
$13,978
|
|
|
$12,308
|
|
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 2017, the Company recorded the following movements in its valuation allowance: $5.3 million decrease in a valuation allowance
due to a net reduction in the related deferred tax assets, $3.6 million decrease due to the elimination of previously recorded
valuation allowances, and $2.1 million increase due to the effect of the changes in currency translation rates.
At December 31, 2017, the Company
had available approximately $111 million of net operating loss carryforwards, for which we have a deferred tax asset of
$23.4 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 $12.7 million as of December 31, 2017.
Additionally, management has evaluated its ability to utilize its other Non-U.S. tax attributes during the various carryforward periods and has concluded that the Company will more likely than not be able to utilize the remaining Non-U.S. tax
attributes. Included in the net operating loss carryforwards is approximately $20.1 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 $33.7 million that will begin to expire
in 2020, U.S. and Non-U.S. research and development credit carryforwards of $7.6 million and $1.5 million, respectively, that
will begin to expire in 2025, and alternative minimum tax credit carryforwards of $1.3 million with no expiration date.
The Company reported a U.S. net deferred
tax asset of $45.1 million at December 31, 2017, which contained $43.3 million of tax attributes with limited lives. Management
has evaluated its ability to utilize these tax attributes during the carryforward period. Based on the Company’s cumulative
book income position over the past three years, the Company’s expected future profits from operations, available tax elections
and tax planning opportunities, management has concluded that the Company will more likely than not be able 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 indefinitely reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be
repatriated in a tax-free manner.
The accumulated undistributed earnings
of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately $200 million, and are
intended to remain indefinitely invested in foreign operations. U.S. income taxes have been provided on these earnings at
December 31, 2017 which are included in the provisional transition tax of $5.8 million. The Company has targeted for
repatriation $41 million of current year and prior year earnings of the Company’s foreign operations. If these earnings
were distributed, the Company would be subject to foreign withholding taxes of $0.9 million which have already been
recorded.
No additional income taxes have been provided
on the indefinitely invested foreign earnings at December 31, 2017. If these earnings were distributed, the Company could be subject
to both foreign income taxes and additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability
related to any additional outside basis difference in these entities is not practicable. In addition, the Company is still evaluating
the impact of the one-time transition tax on the outside basis differences and cumulative temporary differences inherent in these
subsidiaries as of December 31, 2017 and as a result, it is not practicable to provide the amount of any cumulative temporary differences
related to unrecorded differences.
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)
|
|
2017
|
|
2016
|
|
2015
|
Unrecognized tax benefits balance at January 1
|
|
$4,183
|
|
|
$19,606
|
|
|
$19,509
|
|
Increase in gross amounts of tax positions related to prior years
|
|
480
|
|
|
62
|
|
|
2,315
|
|
Decrease in gross amounts of tax positions related to prior years
|
|
(50
|
)
|
|
(2,129
|
)
|
|
(145
|
)
|
Increase in gross amounts of tax positions related to current years
|
|
-
|
|
|
585
|
|
|
79
|
|
Decrease due to settlements with tax authorities
|
|
(381
|
)
|
|
(14,029
|
)
|
|
(42
|
)
|
Decrease due to lapse in statute of limitations
|
|
(29
|
)
|
|
(163
|
)
|
|
(90
|
)
|
Currency translation
|
|
306
|
|
|
251
|
|
|
(2,020
|
)
|
Unrecognized tax benefits balance at December 31
|
|
$4,509
|
|
|
$4,183
|
|
|
$19,606
|
|
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
interest and penalties related to the unrecognized tax benefits noted above of $0.1 million or less in each of 2017, 2016 and 2015.
As of December 31, 2017, 2016 and 2015 the Company had approximately $0.4 million, $0.3 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 2017. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Canada
and Italy.
As of December 31, 2017 and 2016, current
income taxes prepaid and receivable consisted of the following:
(in thousands)
|
|
2017
|
|
2016
|
Prepaid taxes
|
|
$4,872
|
|
|
$3,914
|
|
Taxes receivable
|
|
1,394
|
|
|
1,299
|
|
Total current income taxes prepaid and receivable
|
|
$6,266
|
|
|
$5,213
|
|
As of December 31, 2017 and 2016, noncurrent
deferred tax liabilities and other credits consisted of the following:
(in thousands)
|
|
2017
|
|
2016
|
Deferred income taxes
|
|
$9,573
|
|
|
$11,188
|
|
Other liabilities
|
|
1,418
|
|
|
1,201
|
|
Total noncurrent deferred taxes and other liabilities
|
|
$10,991
|
|
|
$12,389
|
|
Taxes paid, net of refunds, amounted to
$23.7 million in 2017, $23.4 million in 2016, and $18.3 million in 2015.
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)
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Net income attributable to the Company
|
|
$33,111
|
|
|
$52,733
|
|
|
$57,279
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
calculating basic net income per share
|
|
32,169
|
|
|
32,086
|
|
|
31,978
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock-based compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
30
|
|
|
39
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive plan
|
|
45
|
|
|
45
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
calculating diluted net income per share
|
|
32,244
|
|
|
32,170
|
|
|
32,088
|
|
|
|
|
|
|
|
|
|
|
|
Average market price of common stock used
|
|
|
|
|
|
|
|
|
|
for calculation of dilutive shares
|
|
$52.19
|
|
|
$40.25
|
|
|
$36.68
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$1.03
|
|
|
$1.64
|
|
|
$1.79
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$1.03
|
|
|
$1.64
|
|
|
$1.79
|
|
Shares outstanding, net of treasury shares,
were 32.2 million as of December 31, 2017, 32.1 million as of December 31, 2016, and 32.0 million as of December 31, 2015.
9. Accumulated Other Comprehensive Income (AOCI)
The table below presents changes in the
components of AOCI from January 1, 2015 to December 31, 2017:
(in thousands)
|
|
Translation
adjustments
|
|
Pension and
postretirement
liability
adjustments
|
|
Derivative
valuation
adjustment
|
|
Total Other
Comprehensive
Income
|
January 1, 2015
|
|
($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 Statements of Income, net of tax
|
|
|
|
|
|
|
|
1,233
|
|
|
1,233
|
|
Pension and postretirement liability adjustments reclassified to Statements 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 Statements of Income, net of tax
|
|
|
|
|
|
|
|
1,488
|
|
|
1,488
|
|
Pension and postretirement liability adjustments reclassified to Statements 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
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
45,980
|
|
|
(1,818
|
)
|
|
201
|
|
|
44,363
|
|
Pension/postretirement plan remeasurement
|
|
|
|
|
2,037
|
|
|
|
|
|
2,037
|
|
Interest expense related to swaps reclassified to the Statements of Income, net of tax
|
|
|
|
|
|
|
|
924
|
|
|
924
|
|
Pension and postretirement liability adjustments reclassified to Statements of Income, net of tax
|
|
|
|
|
964
|
|
|
|
|
|
964
|
|
Net current period other comprehensive income
|
|
45,980
|
|
|
1,183
|
|
|
1,125
|
|
|
48,288
|
|
December 31, 2017
|
|
($87,318
|
)
|
|
($50,536
|
)
|
|
$1,953
|
|
|
($135,901
|
)
|
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, 2017,
2016 and 2015.
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Expense related to interest rate swaps included in Income
before taxes (a)
|
|
$1,490
|
|
|
$2,400
|
|
|
$1,988
|
|
Income tax effect
|
|
(566
|
)
|
|
(912
|
)
|
|
(755
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$924
|
|
|
$1,488
|
|
|
$1,233
|
|
|
|
|
|
|
|
|
|
|
|
Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
Pension/postretirement settlements and curtailments
|
|
$-
|
|
|
$51
|
|
|
$103
|
|
Amortization of prior service credit
|
|
(4,453
|
)
|
|
(4,450
|
)
|
|
(4,440
|
)
|
Amortization of net actuarial loss
|
|
5,439
|
|
|
5,102
|
|
|
5,932
|
|
Total pretax amount reclassified (b)
|
|
986
|
|
|
703
|
|
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect
|
|
(22
|
)
|
|
21
|
|
|
(270
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$964
|
|
|
$724
|
|
|
$1,325
|
|
(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 percent 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)
|
|
2017
|
|
2016
|
Net (loss)/income of ASC
|
|
$(4,224
|
)
|
|
$1,777
|
|
Less: Return attributable to the Company’s preferred holding
|
|
1,032
|
|
|
987
|
|
Net (loss)/income of ASC available for common ownership
|
|
($5,256
|
)
|
|
$790
|
|
Ownership percentage of noncontrolling shareholder
|
|
10%
|
|
|
10%
|
|
Net (loss)/income attributable to noncontrolling interest
|
|
($526
|
)
|
|
$79
|
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning of year
|
|
$3,767
|
|
|
$3,690
|
|
Net (loss)/income attributable to noncontrolling interest
|
|
(526
|
)
|
|
79
|
|
Changes in other comprehensive income attributable to noncontrolling interest
|
|
6
|
|
|
(2
|
)
|
Noncontrolling interest, end of year
|
|
$3,247
|
|
|
$3,767
|
|
11. Property, Plant and Equipment
The table below sets forth the reclassification
and components of property, plant and equipment as of December 31, 2017 and 2016:
(in thousands)
|
|
2017
|
|
2016
|
|
Estimated useful life
|
|
|
|
|
|
|
|
Land and land improvements
|
|
$14,853
|
|
|
$13,339
|
|
|
25 years for improvements
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
230,987
|
|
|
214,086
|
|
|
25 to 40 years
|
|
|
|
|
|
|
|
|
|
Building under capital lease
|
|
8,140
|
|
|
8,140
|
|
|
7 years
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
950,519
|
|
|
842,921
|
|
|
5 to 15 years
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
8,861
|
|
|
7,632
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
Computer and other equipment
|
|
15,610
|
|
|
15,264
|
|
|
3 to 10 years
|
|
|
|
|
|
|
|
|
|
Software
|
|
57,847
|
|
|
54,212
|
|
|
5 to 8 years
|
|
|
|
|
|
|
|
|
|
Capital expenditures in progress
|
|
63,951
|
|
|
66,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, gross
|
|
1,350,768
|
|
|
1,222,494
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
(896,466
|
)
|
|
(799,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$454,302
|
|
|
$422,564
|
|
|
|
Depreciation expense was $61.5 million in
2017, $58.1 million in 2016, and $53.0 million in 2015. Software amortization is recorded in Selling, general, and administrative
expense and was $3.6 million in 2017, $4.0 million in 2016, and $6.5 million in 2015. We include amortization of the capital lease
in depreciation expense. Accumulated amortization of the capital lease was $2.4 million and $0.9 million as of December 31, 2017
and 2016, respectively.
Capital
expenditures, including purchased software, were $87.6 million in 2017, $73.5 million in 2016, and $50.6 million in 2015. Unamortized
software cost was $7.6 million and $7.2 million as of December 31, 2017 and 2016, respectively. Expenditures for maintenance and
repairs are charged to income as incurred and amounted to $19.1 million in 2017, $16.6 million in 2016, and $16.6 million in 2015.
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 reportable segments 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.
In the second quarter of 2017, the Company
applied the qualitative assessment approach in performing its annual evaluation of goodwill and concluded that no impairment provision
was required. There were no amounts at risk due to the large spread between the fair, and carrying values, of each reporting unit.
In the third quarter of 2017, the Company
decided to discontinue the Bear Claw® line of hydraulic fracturing components used in the oil and gas industry, which was part
of the Harris aerostructures business acquired by AEC in 2016. This decision resulted in a non-cash write-off of intangibles for
$4.1 million to restructuring expense, which is presented as other changes in the table below for intangible assets and goodwill
in 2017. The write-off represents the full carrying value of intangible assets associated with the Bear Claw® product line
as, based upon anticipated cash flows and the Company’s plan to exit the business, we determined the product line to have
no fair value as of September 30, 2017. Due to the decision to exit this product line, management performed an interim assessment
of goodwill and concluded that no goodwill was allocable to the Bear Claw® product line, and no impairment provision was required.
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, 2015 to December 31, 2017, were as follows:
(in
thousands, except for years)
|
|
Amortization
life in years
|
|
Balance
at December 31, 2016
|
|
Amortization
|
|
Other
Changes
|
|
Currency
Translation
|
|
Balance
at December 31, 2017
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
AEC
trade names
|
|
15
|
|
|
$20
|
|
|
($5
|
)
|
|
$-
|
|
|
$-
|
|
|
$15
|
|
AEC
technology
|
|
15
|
|
|
104
|
|
|
(24
|
)
|
|
-
|
|
|
-
|
|
|
80
|
|
AEC
customer contracts
|
|
6
|
|
|
17,859
|
|
|
(3,280
|
)
|
|
(961
|
)
|
|
-
|
|
|
13,618
|
|
AEC
customer relationships
|
|
15
|
|
|
47,009
|
|
|
(3,280
|
)
|
|
(2,211
|
)
|
|
-
|
|
|
41,518
|
|
AEC
other intangibles
|
|
5
|
|
|
1,462
|
|
|
(275
|
)
|
|
(977
|
)
|
|
-
|
|
|
210
|
|
Total
amortized intangible assets
|
|
|
|
|
$66,454
|
|
|
($6,864
|
)
|
|
($4,149
|
)
|
|
$-
|
|
|
$55,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MC
Goodwill
|
|
|
|
|
$64,645
|
|
|
$-
|
|
|
$-
|
|
|
$6,421
|
|
|
$71,066
|
|
AEC
Goodwill
|
|
|
|
|
95,730
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
95,730
|
|
Total
amortized intangible assets
|
|
|
|
|
$160,375
|
|
|
$-
|
|
|
$-
|
|
|
$6,421
|
|
|
$166,796
|
|
(in thousands, except for years)
|
|
Amortization life
in years
|
|
Balance at
December 31, 2015
|
|
Acquisition
|
|
Amortization
|
|
Currency
Translation
|
|
Balance at
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
|
|
As of December 31, 2017, the gross carrying
amount and accumulated amortization of amortized intangible assets was $66.7 million and $11.3 million, respectively. As of December
31, 2016, the gross carrying amount and accumulated amortization of amortized intangible assets was $72.1 million and $5.6 million,
respectively.
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.
Amortization expense related to intangible
assets was reported in the Consolidated Statement of Income as follows: $3.3 million in Cost of goods sold and $3.6 million in
Selling, general and administrative expenses in 2017; and $2.6 million in Cost of goods sold and $2.7 million in Selling, general
and administrative expenses in 2016. In 2015, all intangible amortization expense was included in Cost of goods sold. Estimated
amortization expense of intangibles for the years ending December 31, 2018 through 2022, is as follows:
|
|
Annual amortization
|
Year
|
|
|
(in thousands)
|
2018
|
|
|
$6,232
|
|
2019
|
|
|
6,232
|
|
2020
|
|
|
6,232
|
|
2021
|
|
|
6,161
|
|
2022
|
|
|
3,955
|
|
13. Accrued Liabilities
Accrued liabilities consist of:
(in thousands)
|
|
2017
|
|
2016
|
Salaries and wages
|
|
$17,916
|
|
|
$18,520
|
|
Accrual for compensated absences
|
|
11,223
|
|
|
10,181
|
|
Employee benefits
|
|
13,553
|
|
|
13,277
|
|
Workers’ compensation
|
|
2,397
|
|
|
2,053
|
|
Pension liability - current portion
|
|
2,094
|
|
|
2,057
|
|
Postretirement medical benefits - current portion
|
|
4,108
|
|
|
4,195
|
|
Returns and allowances
|
|
11,370
|
|
|
13,714
|
|
Billings in excess of revenue recognized
|
|
2,569
|
|
|
2,334
|
|
Contract loss reserve
|
|
11,902
|
|
|
56
|
|
Professional fees
|
|
2,310
|
|
|
3,068
|
|
Utilities
|
|
910
|
|
|
991
|
|
Dividends
|
|
5,474
|
|
|
5,458
|
|
Restructuring costs
|
|
2,714
|
|
|
4,668
|
|
Interest
|
|
817
|
|
|
1,218
|
|
Other
|
|
16,557
|
|
|
13,405
|
|
Total
|
|
$105,914
|
|
|
$95,195
|
|
14. Financial Instruments
Long-term debt, principally to banks and
noteholders, consists of:
(in thousands, except interest rates)
|
|
2017
|
|
2016
|
|
|
|
|
|
Revolving credit agreements with borrowings outstanding at an end of period interest rate of 3.40% in 2017 and 2.58% in 2016 (including the effect of interest rate hedging transactions, as described below), due in 2022
|
|
$501,000
|
|
|
$418,000
|
|
|
|
|
|
|
|
|
Private placement with a fixed interest rate of 6.84%, final payment was made October 25, 2017
|
|
-
|
|
|
50,000
|
|
|
|
|
|
|
|
|
Obligation under capital lease, matures 2022
|
|
14,919
|
|
|
16,584
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
515,919
|
|
|
484,584
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
(1,799
|
)
|
|
(51,666
|
)
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$514,120
|
|
|
$432,918
|
|
Principal payments due on long-term debt
are: 2019, $1.9 million, 2020, $2.0 million, 2021, $2.1 million, and 2022, $508.1 million. Cash payments of interest amounted to
$16.0 million in 2017, $13.7 million in 2016, and $12.6 million in 2015.
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 final principal payment under the Prudential Agreement of $50.0 million was made on October
25, 2017.
On November 7, 2017, we entered into a $685
million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amended and restated
the prior $550 million Agreement, entered into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement,
$501 million of borrowings were outstanding as of December 31, 2017. 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 18, 2017, 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,
2017, we would have been able to borrow an additional $184 million under the Agreement.
The Credit Agreement contains customary
terms, as well as affirmative covenants, negative covenants and events of default that are substantially 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).
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,
2017.
Years ending December 31,
|
|
(in thousands)
|
2018
|
|
|
$ 2,473
|
|
2019
|
|
|
2,473
|
|
2020
|
|
|
2,520
|
|
2021
|
|
|
2,520
|
|
2022
|
|
|
7,373
|
|
Total minimum lease payments
|
|
|
17,359
|
|
Less: Amount representing interest
|
|
|
(2,440
|
)
|
Present value of minimum lease payments
|
|
|
$14,919
|
|
On November 27, 2017, we terminated our
interest rate swap agreements, originally entered into on May 9, 2016, that had effectively fixed the interest rate on $300
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 received $6.3 million to terminate the swap agreements and that payment will be amortized
into interest expense through March 2021.
On May 6, 2016, we terminated other interest
rate swap agreements that had effectively fixed the interest rate on $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 November 28, 2017, we entered into interest
rate swap agreements for the period December 18, 2017 through October 17, 2022. These transactions have the effect of fixing the
LIBOR portion of the effective interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit
Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate of 2.11% and the
counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on December 18, 2017
was 1.50%, during the swap period. On December 18, 2017, the all-in-rate on the $350 million of debt was 3.61%.
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 we are currently
required to maintain a leverage ratio (as defined in the agreement) of not greater than 3.75 to 1.00 for each fiscal quarter ending
prior to (but not including) September 30, 2019, and 3.50 to 1.00 for each fiscal quarter ending on or after September 30, 2019,
and minimum interest coverage (as defined) of 3.00 to 1.00.
As of December 31, 2017, our leverage ratio
was 2.62 to 1.00 and our interest coverage ratio was 9.27 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 does not exceed
the limits noted above.
Indebtedness under 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, 2017.
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.
We had no Level 3 financial assets or liabilities at December 31, 2017, or at December 31, 2016.
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:
|
|
December 31, 2017
|
|
|
|
December 31, 2016
|
|
|
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Unobservable inputs
|
|
Quoted prices in active markets
|
|
Significant other observable inputs
|
|
Unobservable inputs
|
(in thousands)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$13,601
|
|
$-
|
|
$-
|
|
$8,468
|
|
$-
|
|
$-
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock of foreign public company
(a)
|
999
|
|
-
|
|
-
|
|
762
|
|
-
|
|
-
|
Interest rate swaps
|
|
-
|
|
313
|
(b)
|
-
|
|
-
|
|
5,784
|
(c)
|
-
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Original cost basis $0.5 million.
|
|
(b)
|
Net of $34.9 million receivable floating leg and $34.6 million liability fixed leg
|
|
(c)
|
Net of $21.4 million receivable floating leg and $15.6 million liability fixed leg
|
Cash equivalents include short-term securities
that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets
for identical securities.
The common stock of the unaffiliated foreign
public company is traded in an active market exchange. The shares are measured at fair value using closing stock prices and are
recorded in the Consolidated Balance Sheets as Other assets. The securities are classified as available for sale, and as a result
any unrealized gain or loss is recorded in the Shareholders’ Equity section of the Consolidated Balance Sheets rather than
in the Consolidated Statements of Income. When the security is sold or impaired, gains and losses are reported on the Consolidated
Statements of Income. Investments are considered to be impaired when a decline in fair value is judged to be other than temporary.
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 expense/(income), 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 expense/(income), net.
Revaluation gains and losses occur when our business units have cash, intercompany (recorded in Other expense/(income), 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, 2017, 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 active swap agreements totaled $0.8 million in 2017, $1.9 million
in 2016 and $1.9 million in 2015. Additionally, non-cash interest expense related to the amortization of swap buyouts totaled $0.7
million in 2017, $0.6 million in 2016, and is expected to be reduce interest expense by $0.6 million in 2018.
Gains/(losses) related to changes in fair
value of derivative instruments that were recognized in Other expense/(income), net in the Consolidated Statements of Income were
as follows:
|
|
Years ended December 31,
|
(in thousands)
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Derivatives not designated as hedging
instruments Foreign currency options
|
|
($131)
|
|
$202
|
|
($121)
|
16. Other Noncurrent Liabilities
As of December 31 of each year, Other noncurrent
liabilities consists of:
(in thousands)
|
|
2017
|
|
2016
|
|
|
|
|
|
Pension liabilities
|
|
$39,473
|
|
|
$35,921
|
|
Postretirement benefits other than pensions
|
|
54,423
|
|
|
53,293
|
|
Obligations under license agreement
|
|
897
|
|
|
10,254
|
|
Incentive and deferred compensation
|
|
3,048
|
|
|
3,468
|
|
Restructuring
|
|
600
|
|
|
908
|
|
Other
|
|
3,114
|
|
|
2,983
|
|
Total
|
|
$101,555
|
|
|
$106,827
|
|
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 $4.9 million in 2017, $5.2 million in 2016, and $3.5 million in 2015.
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, 2017, are: 2018, $4.1
million; 2019, $3.3 million; 2020, $2.4 million; 2021, $1.8 million; and 2022 and thereafter, $4.0 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 paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976
and used in certain paper mills.
We were defending 3,730 claims as of December
31, 2017.
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
|
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
|
2017
|
3,745
|
105
|
90
|
3,730
|
$55
|
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. Due to the fact that information sufficient to meaningfully estimate a range of possible loss of a particular claim is
typically not available until late in the discovery process, we do not believe a meaningful estimate can be made regarding the
range of possible loss with respect to pending or future claims and therefore are unable to estimate a range of reasonably possible
loss in excess of amounts already accrued for 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 insurance carrier has defended each case and funded settlements under a standard reservation of rights. As of December 31,
2017 we had resolved, by means of settlement or dismissal, 37,594 claims. The total cost of resolving all claims was $10.2 million.
Of this amount, almost 100 percent was paid by our insurance carrier, who has confirmed that we have approximately $140 million
of remaining coverage under primary and excess policies that should be available with respect to current and future asbestos claims.
The Company’s subsidiary, Brandon
Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in many of the asbestos cases in which Albany is named
as a defendant, despite never having manufactured any fabrics containing asbestos. While Brandon was defending against 7,707 claims
as of December 31, 2017, only nine claims have been filed against Brandon since January 1, 2012, and no settlement costs have been
incurred since 2001. Brandon was acquired by the Company in 1999, and has its own insurance policies covering periods prior to
1999. Since 2004, Brandon’s insurance carriers have covered 100 percent of indemnification and defense costs, subject to
policy limits and a standard reservation of rights.
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.
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, the trends in claims filed against us, and available insurance, we also do not
currently anticipate that potential future claims will have a material adverse effect on our financial position, results of operations,
or cash flows.
18. Stock Options and Incentive Plans
We recognized no stock option expense during
2017, 2016 or 2015 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:
|
|
2017
|
|
2016
|
|
2015
|
Shares under option January 1
|
|
62,390
|
|
|
88,773
|
|
|
187,233
|
|
Options canceled
|
|
150
|
|
|
-
|
|
|
-
|
|
Options exercised
|
|
32,900
|
|
|
26,383
|
|
|
98,460
|
|
Shares under option at December 31
|
|
29,340
|
|
|
62,390
|
|
|
88,773
|
|
Options exercisable at December 31
|
|
29,340
|
|
|
62,390
|
|
|
88,773
|
|
The weighted average exercise price is as
follows:
|
|
2017
|
|
2016
|
|
2015
|
Shares under option January 1
|
|
$18.28
|
|
|
$18.67
|
|
|
$18.99
|
|
Options canceled
|
|
20.63
|
|
|
-
|
|
|
-
|
|
Options exercised
|
|
18.16
|
|
|
19.60
|
|
|
19.27
|
|
Shares under option December 31
|
|
18.40
|
|
|
18.28
|
|
|
18.67
|
|
Options exercisable December 31
|
|
18.40
|
|
|
18.28
|
|
|
18.67
|
|
As of December 31, 2017, the aggregate intrinsic
value of vested options was $1.3 million. The aggregate intrinsic value of options exercised was $1.1 million in 2017, $0.5 million
in 2016, and $2.0 million in 2015.
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 2017, we issued
25,899 shares and made cash payments totaling $1.0 million. 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. 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 $2.6 million in 2017, $2.7 million in 2016 and $3.0 million in 2015. For share-based awards
that are dependent on performance after 2017, we expect to record additional compensation expense of approximately $1.2 million
in 2018 and $0.4 million in 2019.
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 2017,
the Company issued 18,784 shares and made cash payments totaling $1.9 million as a result of performance in 2016. 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. 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 $2.6 million in 2017, $3.3 million in 2016, and $3.4 million in 2015.
Shares payable under these plans generally
vest immediately prior to payment. As of December 31, 2017, there were 190,616 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, 2015
|
|
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
|
|
Forfeitures
|
|
-
|
|
|
-
|
|
|
|
|
Payments
|
|
(75,545
|
)
|
|
$36.35
|
|
|
|
|
Shares accrued based on 2017 performance
|
|
43,532
|
|
|
$48.26
|
|
|
|
|
Shares potentially payable at December 31, 2017
|
|
157,405
|
|
|
$40.30
|
|
|
$6,343
|
|
Other Management share-based compensation:
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 $4.9 million
in 2017, $3.8 million in 2016, and $2.6 million in 2015. Based on awards outstanding at December 31,
2017, we expect to record
approximately $10.0 million of compensation cost from 2018 to 2021. The weighted average period for recognition of that cost is
approximately 2 years.
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, 2015
|
|
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
|
|
|
|
|
|
|
|
Grants
|
|
96,505
|
|
|
|
|
|
|
|
Changes due to performance
|
|
(11,891
|
)
|
|
|
|
|
|
|
Payments
|
|
(89,190
|
)
|
|
$46.64
|
|
|
$4,160
|
|
Forfeitures
|
|
(20,473
|
)
|
|
|
|
|
|
|
Share units potentially payable at December 31, 2017
|
|
236,096
|
|
|
|
|
|
|
|
The Company maintains a voluntary savings
plan covering substantially all employees in the United States. The Plan, known as the Prosperity Plus 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 percent and 100
percent 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 $5.9 million in 2017, $5.5 million in 2016, and $4.8 million in 2015.
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 $2.6 million in 2017, $2.9 million in 2016, and $2.4 million in 2015.
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,
2017, 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 2015, 2016, and 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Class
A
|
|
Class
B
|
|
Additional
|
|
|
|
items
of other
|
|
Class
A
|
|
|
|
|
Common
Stock
|
|
Common
Stock
|
|
paid-in
|
|
Retained
|
|
comprehensive
|
|
Treasury
Stock
|
|
Noncontrolling
|
(in thousands)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
capital
|
|
earnings
|
|
income
|
|
Shares
|
|
Amount
|
|
Interest
|
January 1, 2015
|
|
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
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Options exercised
|
|
26
|
|
-
|
|
-
|
|
-
|
|
667
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
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
|
Net income
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
33,111
|
|
-
|
|
-
|
|
-
|
|
(526)
|
Compensation and benefits
paid or payable in shares
|
|
44
|
|
-
|
|
-
|
|
-
|
|
1,564
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Options exercised
|
|
33
|
|
-
|
|
-
|
|
-
|
|
597
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued to Directors’
|
|
-
|
|
-
|
|
-
|
|
-
|
|
309
|
|
-
|
|
-
|
|
(12)
|
|
260
|
|
-
|
Dividends declared
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(21,884)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
45,980
|
|
-
|
|
-
|
|
6
|
Pension and postretirement
liability adjustments
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,183
|
|
-
|
|
-
|
|
-
|
Derivative valuation
adjustment
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,125
|
|
-
|
|
-
|
|
-
|
December 31, 2017
|
|
37,396
|
|
$37
|
|
3,234
|
|
$3
|
|
$428,423
|
|
$534,082
|
|
($135,901)
|
|
8,431
|
|
($256,876)
|
|
$3,247
|
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,
2017, 2016, and 2015. 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 table below presents operating results as filed in our quarterly reports for the first three quarters
of each year. Fourth quarter results presented below may vary from our quarterly earnings report in order to agree to the full
year totals. 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)
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
|
Total
|
Net sales
|
|
$199.3
|
|
$215.6
|
|
$222.1
|
|
$226.7
|
|
$863.7
|
Gross profit
|
|
75.9
|
|
63.1
|
|
79.4
|
|
77.4
|
|
295.8
|
Net income attributable
to the Company
|
|
10.8
|
|
1.1
|
|
15.3
|
|
5.9
|
|
33.1
|
Basic earnings per share
|
|
0.34
|
|
0.03
|
|
0.47
|
|
0.19
|
|
1.03
|
Diluted earnings per share
|
|
0.34
|
|
0.03
|
|
0.47
|
|
0.19
|
|
1.03
|
Cash dividends per share
|
|
0.17
|
|
0.17
|
|
0.17
|
|
0.17
|
|
0.68
|
Class A Common Stock
prices:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
49.05
|
|
53.40
|
|
57.60
|
|
65.25
|
|
|
Low
|
|
43.90
|
|
43.90
|
|
50.25
|
|
56.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Earnings per share for the
fourth quarter of 2017, as reported in the table above, is $0.01 higher than our quarterly earnings report due to rounding
needed to match the full year total.
In 2017, restructuring charges reduced earnings
per share by $0.05 in the first quarter, $0.04 in the second quarter, $0.11 in the third quarter, and $0.07 in the fourth quarter.
The amount recognized in the third quarter was primarily non-cash charges associated with the decision to exit a discontinued product
line.
In 2017, discrete income tax adjustments,
increased/(decreased) earnings per share by ($0.03) in the first quarter, ($0.02) in the second quarter, $0.12 in the third quarter,
and ($0.21) in the fourth quarter. The amount recognized in the fourth quarter was primarily from changes in U.S. tax laws.
In 2017, we recorded a write-off of inventory
in a discontinued product line in the third quarter of 2017. The write-off (decreased)/increased earnings per share by ($0.06)
in the third quarter and $0.01 in the fourth quarter.
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 to 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.
The Company’s Class A Common Stock
is traded principally on the New York Stock Exchange. As of December 31, 2017, there were over 20,000 beneficial owners of the
Company’s common stock, including employees owning shares through the Company’s 401(k) defined contribution plan.