Third-Quarter Highlights ALBANY, N.Y., Oct. 26
/PRNewswire-FirstCall/ -- Albany International Corp. (NYSE: AIN;
PCX, FWB) reported third-quarter net income of $0.49 per share,
compared to $0.58 per share for the same period last year. Results
for the third quarter of 2006 included income tax adjustments that
increased net income by $0.12 per share, while expenses associated
with cost-reduction initiatives reduced net income by $0.10 per
share. Results for the third quarter of 2005 included income tax
adjustments that decreased net income by $0.09 per share. Net sales
increased $0.5 million, or 0.2 percent, compared to the third
quarter of last year. Excluding the effect of changes in currency
translation rates, net sales decreased 2.3 percent. The following
table presents net sales by segment and the effect of changes in
currency translation rates: Increase in Percent Net Sales
Third-Quarter 2006 Change Three Months ended Net Sales due to
excluding September 30, Percent Changes in Currency Currency (in
thousands) 2006 2005 Change Translation Rates Rate Effect Paper
Machine Clothing $178,211 $184,232 -3.3 % $4,256 -5.6 % Applied
Technologies 35,251 31,374 12.3 % 690 10.1 % Albany Door Systems
29,386 26,724 10.0 % 1,058 6.0 % Total $242,838 $242,330 0.2 %
$6,004 -2.3 % Gross profit was 38.4 percent of net sales in the
third quarter of 2006, compared to 41.1 percent for the same period
of 2005. Gross profit percentage was negatively affected by
increases in materials costs (which reduced gross margin by 2.8
percentage points), a decrease in European PMC sales volume (1.6
percentage points), and integration and manufacturing ramp-up costs
to meet the Texas Composite Inc. (TCI) order backlog (0.6
percentage points). Selling, technical, general, and research
expenses increased from 28.4 percent of net sales in the third
quarter of 2005 to 30.3 percent for the same period of 2006. The
increase was due to charges in the third quarter of 2006 of
approximately $4.2 million related to cost-reduction initiatives
including $3.1 million related to the previously announced capacity
reductions in Canada and Wisconsin. Excluding these expenses
related to the cost-reduction initiatives, selling, technical,
general, and research expenses would have been 28.6 percent of net
sales. The Company estimates that equipment relocation expenses
associated with the cost-reduction initiatives in Canada will be
approximately $1.0 million during 2007. Operating income was $19.7
million in the third quarter of 2006, compared to $30.8 million in
the same period last year. The decline in operating income was
attributable to the above-discussed decline in gross profit and the
$4.2 million of expenses related to cost-reduction activities that
increased selling, technical, general, and research expenses. In
the third quarter of 2006, the Company recorded favorable discrete
tax adjustments of $4.2 million related to changes in estimated tax
liabilities and the resolution of certain income tax contingencies,
which were partially offset by an increase in the annual effective
tax rate from 30 to 31 percent before discrete items. These two
factors resulted in an increase to net income of $0.12 per share
for the quarter. Income tax expense for the third quarter of 2005
included a charge of $3.9 million related to the repatriation of
non-U.S. earnings, which was partially offset by a reduction in the
annual effective tax rate from 30 to 28 percent before discrete
items. These two factors resulted in a decrease to third-quarter
2005 net income of $0.09 per share. Year-to-date net sales
increased $24.9 million, or 3.4 percent, compared to the same
period last year. Following is a table of net sales by segment and
the effect of changes in currency translation rates:
Increase/(Decrease) Percent Net Sales in 2006 Change Nine Months
ended Net Sales due to excluding September 30, Percent Changes in
Currency Currency (in thousands) 2006 2005 Change Translation Rates
Rate Effect Paper Machine Clothing $556,568 $549,074 1.4 % 365 1.3
% Applied Technologies 110,848 98,020 13.1 % 377 12.7 % Albany Door
Systems 88,275 83,706 5.5 % (976) 6.6 % Total $755,691 $730,800 3.4
% (234) 3.4 % Year-to-date gross profit was 39.9 percent in 2006,
compared to 40.9 percent for the first nine months of 2005.
Year-to-date gross profit was negatively affected by materials cost
increases, the third-quarter decline in European PMC sales volume,
and costs associated with the integration of TCI and the ramp-up of
manufacturing to meet the TCI backlog. Year-to-date operating
income was $78.0 million in 2006, compared to $92.6 million in the
same period last year. The decline in operating income was
attributable to the above-discussed decline in gross profit and
$5.2 million of expenses related to cost-reduction activities that
increased selling, technical, general, and research expenses.
Liquidity and Capital Resources In September 2006, the Company
terminated its accounts receivable securitization program,
resulting in an increase in accounts receivable of $58.1 million,
and a decrease in the related note receivable of $17.3 million. The
Company terminated the program because it is now able to obtain
more favorable financing terms under its revolving credit
agreement. Cash flow for the third quarter includes a contribution
to the United States pension plan of $20 million in 2006 and $10
million in 2005. Excluding the pension contributions and the
termination of the accounts receivable securitization program, net
cash provided by operating activities was $36.1 million, in the
third quarter of 2006, in comparison with $56.6 million in the same
period last year. Excluding the effects of changes in currency
translation rates, inventories increased $4.0 million during the
third quarter of 2006. Capital spending during the quarter was
$22.0 million and was $54.3 million for the first nine months of
2006. The Company expects that 2006 capital spending will be lower
than the previously announced $90-100 million, and is expected to
be substantially higher in 2007. Depreciation was $13.4 million and
amortization was $1.1 million for the third quarter of 2006, and
are expected to be approximately $54 million and $4 million,
respectively, for the full year. Paper Machine Clothing This
segment includes Paper Machine Clothing and Process Belts (PMC)
used in the manufacture of paper and paperboard products. Compared
to the third quarter of 2005, net sales in the Americas grew
modestly, as did sales in the Pacific region, while net sales in
Europe declined sharply. The decline in Europe was due entirely to
a reduction in sales volume. The combined effect was to reduce PMC
segment sales by 5.6 percent during the quarter, excluding the
effects of changes in currency translation rates. Shutdowns of
paper and paperboard machines in both Europe and the Americas
continued in the quarter. In Europe, a total of 66 machines have
either closed or announced plans to close since the beginning of
2005, representing a total annualized sales impact on the Company
of more than $10 million. The third- quarter sales impact of these
closures on the Company, compared to the third quarter of 2005, was
$2 million. In the Americas, since the beginning of 2005, new
announcements of planned closures in both the U.S. and Canada
totaled 64 machines, representing a total annualized sales impact
on the Company of approximately $9 million. The third- quarter
sales impact of these closures on the Company, compared to the
third quarter of 2005, was $1.7 million. Due to a change in
inventory practices associated with a major customer, which was
discussed previously, net sales and operating income are expected
to be reduced, for the fourth quarter only, by approximately $8
million and $3 million respectively. Applied Technologies This
segment includes the emerging businesses that apply our core
competencies in advanced textiles and materials to other industries
including insulation for personal outerwear and home furnishings
(PrimaLoft(R)); specialty materials and composite structures for
aircraft and other applications (Albany Engineered Composites);
specialty filtration products for wet and dry applications (Albany
Filtration Technologies); industrial belts for Tannery, Textile,
and Corrugator applications (Albany Industrial Process Belts); and
fabrics, wires, and belting products for the nonwovens and pulp
industries (Albany Engineered Fabrics). Third-quarter Applied
Technologies net sales benefited from strong performance in
PrimaLoft, Engineered Fabrics, and Albany Engineered Composites.
The Texas Composite Inc. (TCI) portion of Albany Engineered
Composites remained dilutive in the quarter as we invested
aggressively in manufacturing and engineering talent to meet
current customer demand. TCI is expected to be accretive to
earnings in 2007. Growth next year in Albany Engineered Composites
will be driven by the high order backlog at TCI, the supply of
advanced composite landing gear components to Messier Dowty, and
several new orders, highlighted by a contract to supply components
to Eclipse Aviation for use on their Eclipse500 aircraft. Albany
Door Systems This segment includes sales and service of High
Performance Doors and after-market sales to a variety of industrial
customers. Third-quarter Door Systems results were driven by strong
new product sales in Europe and Asia and increasing after-market
sales in Europe. During the quarter, Albany Door Systems introduced
the first products in its new product series strategy. The new
high-speed exterior RR3000 and new low-cost interior RR300 products
were instrumental to revenue increases in Europe. Comments on
Current and Planned Activities President and CEO Joe Morone
commented, "In our second quarter earnings release, I indicated
that our results for the next few quarters could be negatively
affected by pressure on European PMC revenue, because of
competitive pricing patterns at a time when the consolidating paper
industry in Europe was under intense financial pressure. This was
certainly the case in the third quarter. Global PMC revenue
declined 5.6 percent, excluding currency effects, compared to the
third quarter of 2005. This decline was due entirely to a reduction
in European revenue that was much sharper than expected. In the
Americas and Asia, revenue grew modestly; in fact, in the Americas,
even as shutdowns of paper machines continued, our market share
increased as customers continued to respond to our efforts to
provide them ever greater benefits from our products and services.
"The decline in European PMC revenue was due entirely to a
reduction in volume; our average PMC prices for the quarter
actually increased modestly. The sharp decline in European volume
resulted from three factors: shut-downs of paper machines, an
industry-wide slowdown in PMC shipments, and a wider gap in PMC
pricing between Albany and our competitors. That is, as the gap
between our prices and our competitors' prices grew, we lost sales
for our least differentiated products. We held and, in fact, gained
sales for our newest and most differentiated products. "Going
forward, the third quarter should mark a low point in operating
results for the foreseeable future. Excluding the fourth-quarter
effect of the change in inventory practices mentioned above, and
expenses associated with cost-reduction and other process
improvement activities, we are hopeful that the trend forward is
for gradual improvement in revenue and operating income. We are
also hopeful that the operating income impact from the decline in
European PMC revenue will be fully offset by the fourth quarter of
2007. "We see three primary factors that should contribute to this
gradual improvement: "First, we are hopeful that PMC revenue will
gradually improve from third- quarter levels. In the Americas, this
improvement will be driven by our continued competitive strength.
In Asia, we also expect steady improvement driven by our growing
competitive strength, but the earnings impact during 2007 should be
offset by start-up costs associated with our new investments in the
region. Going forward in Europe, we do expect the pricing gap to
narrow, and volumes to increase, and we are cautiously optimistic
that the combined effect should lead to flat, or slight
improvements in, European PMC revenue from third-quarter levels
over the next few quarters. "Second, along with the gradual
improvement of PMC revenue in the next few quarters, we also expect
to see a gradual, positive impact on operating income from the
accelerated cost-reduction and process-improvement activities that
began in the third quarter and will continue through year-end and
throughout 2007. "In the third quarter, we reduced capacity in the
Americas in two locations, initiated a global procurement
initiative, and reduced corporate overhead expenses. "During the
fourth quarter, in addition to more general cost-reduction
activities, we intend to launch two major process improvement
initiatives: we are initiating discussions with our Works Councils
in Europe about a proposal to centralize our administrative
functions for the European PMC business; and we plan to migrate our
global ERP (Enterprise Resource Planning) system to SAP. We believe
that the migration to the new ERP system will lead to significant
efficiency improvements in the long term, but will result in cost
increases in 2007. The switch-over to SAP will begin early in 2008
and will be substantially completed in 2009. "The third-quarter
2006 charge associated with these initial cost- reduction
initiatives was $0.10 per share. We estimate that the additional
cost of all of these initiatives over the next five quarters will
be approximately $0.30 per share, the largest portion of which is
likely to be incurred in the first half of 2007. The positive
effect of these cost- reduction and process-improvement initiatives
should be $0.45 per share in 2008. These positive effects will
begin in the first quarter of 2007 and be fully in place by the end
of 2007. "The third contributor to the anticipated gradual
improvement in revenue and operating income is expected to be
continued growth of the emerging businesses in our Applied
Technologies and Albany Door systems segments. "In the Applied
Technologies segment, Albany Engineered Composites, including the
businesses acquired during 2006, have recorded year-to-date sales
of $16 million. Without any acquisitions or additional new
projects, we believe that this business has the potential to
maintain a compound annual growth rate of at least 25 percent over
the next five years, assuming that our customers' realize their
commercial expectations, and we execute to plan. By 2012, our work
with Snecma on composite fan blades should begin making a
significant additional contribution, assuming commercial
development continues as we anticipate. The primary risk in this
business is one of execution. That is, given our unique technology,
we believe this area of business is opportunity-rich; the
realization of its full growth potential hinges on our ability to
build the manufacturing and engineering infrastructure required to
manage high growth, while delivering high quality. We expect a
fairly high rate of capital investment in this business and that
the returns on this investment will exceed our cost of capital.
"The other businesses within the Applied Technologies segment apply
the core advanced textiles and materials technologies of PMC to
other industries. In the past, these businesses had been
undercapitalized, relying in part on excess PMC capacity. The
Company is now investing in both new product development and
dedicated manufacturing capacity. For example, in the past twelve
months the Company opened a new Applied Technologies plant in
Zhangjiagang, China, and announced plans to construct a new
Engineered Fabrics plant in Kaukauna, Wisconsin. We believe that
without acquisitions, these businesses have the potential to grow
at least at a 5 percent compound annual growth rate for the next
decade. "Albany Door Systems continues to perform well. On its
current trajectory, we believe it has the potential to grow at a 5
to 7 percent compound annual growth rate. We see a potential for
acceleration of this growth rate, assuming we can develop new
approaches to the very large aftermarket. We have begun to explore
those new approaches, and will have a more definitive sense of
whether we can achieve the accelerated growth rate by the end of
2007. "In sum, over the next five quarters, we look for gradual
improvement in revenue and operating income, with the full effects
on operating income of the PMC revenue decline in Europe offset by
the fourth quarter of 2007. And for the longer term, we believe
that the steps we are taking today are, on the one hand,
significantly enhancing our already strong competitive position in
PMC, and on the other, positioning the emerging businesses so that
they have the collective potential to grow over the next ten years
to a size comparable to the PMC segment." The Company plans a live
webcast to discuss third-quarter 2006 financial results on Friday,
October 27, 2006, at 9:00 a.m. Eastern Time. For access, go to
http://www.albint.com/ Albany International is the world's largest
producer of custom-designed paper machine fabrics and process belts
that are essential to the manufacture of paper and paperboard. In
its family of businesses, Albany applies its core competencies in
advanced textiles and materials to other industries. Founded in
1895, the Company is headquartered in Albany, New York, and employs
approximately 6,100 people worldwide. Our plants are strategically
located to serve our global customers. Additional information about
the Company and its businesses and products is available at
http://www.albint.com/. This release contains certain items that
may be considered to be non-GAAP financial measures. Such items are
provided because management believes that, when presented together
with the GAAP items to which they relate, they can provide
additional useful information to investors regarding the
registrant's financial condition, results of operations, and cash
flows. The effect of changes in currency translation rates is
calculated by converting amounts reported in local currencies into
U.S. dollars at the exchange rate of a prior period. That amount is
then compared to the U.S. dollar amount reported in the current
period. Forward-looking statements in this release or in the
webcast, including statements about future economic conditions,
materials costs, growth in PMC sales and operating income during
the next several quarters, growth expectations for the Company's
emerging businesses, the amount and timing of anticipated costs and
savings associated with cost-reduction and process improvement
initiatives, the accretive effect on earnings of TCI, pension
contributions, pricing conditions in the PCM industry, paper
industry outlook, the amount and timing of capital expenditures,
tax rates, and depreciation and amortization are made pursuant to
the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are based on current
expectations and are subject to various risks and uncertainties,
including, but not limited to, economic conditions affecting the
paper industry and other risks and uncertainties set forth in the
Company's 2005 Annual Report to Shareholders and subsequent filings
with the U.S. Securities and Exchange Commission. Furthermore, a
change in any one or more of the foregoing factors could have a
material effect on the Company's financial results in any period.
ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS (in thousands except per share data) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30,
2006 2005 2006 2005 $242,838 $242,330 Net sales $755,691 $730,800
149,537 142,689 Cost of goods sold 454,405 431,649 93,301 99,641
Gross profit 301,286 299,151 Selling, technical, general and 73,617
68,842 research expenses 223,243 206,522 19,684 30,799 Operating
income 78,043 92,629 1,738 1,848 Interest expense, net 6,329 8,662
2,169 (665) Other expense/ (income), net 2,941 916 15,777 29,616
Income before income taxes 68,773 83,051 1,253 11,140 Income tax
expense 16,990 25,783 14,524 18,476 Income before associated
companies 51,783 57,268 Equity in (losses)/earnings of (196) 32
associated companies 47 500 14,328 18,508 Net income 51,830 57,768
Retained earnings, beginning of 526,898 468,235 period 495,018
434,057 (2,914) (2,899) Dividends declared (8,536) (7,981) $538,312
$483,844 Retained earnings, end of period $538,312 $483,844
Earnings per share: $0.49 $0.58 Basic $1.73 $1.82 $0.48 $0.57
Diluted $1.70 $1.78 Shares used in computing earnings per share:
29,103 32,063 Basic 30,017 31,791 29,594 32,626 Diluted 30,539
32,416 $0.10 $0.09 Dividends per share $0.29 $0.25 ALBANY
INTERNATIONAL CORP. CONSOLIDATED BALANCE SHEETS (in thousands,
except share data) (unaudited) September 30, December 31, 2006 2005
ASSETS Cash and cash equivalents $70,785 $72,771 Accounts
receivable, net 202,668 132,247 Note receivable - 17,827
Inventories 226,555 194,398 Deferred taxes 19,120 22,012 Prepaid
expenses 10,459 7,892 Total current assets 529,587 447,147
Property, plant and equipment, net 373,716 335,446 Investments in
associated companies 6,568 6,403 Intangibles 15,555 12,076 Goodwill
169,596 153,001 Deferred taxes 77,857 75,875 Cash surrender value
of life insurance policies 40,340 37,778 Other assets 28,996 19,321
Total assets $1,242,215 $1,087,047 LIABILITIES AND SHAREHOLDERS'
EQUITY Notes and loans payable $8,345 $6,151 Accounts payable
46,110 36,775 Accrued liabilities 119,773 116,395 Current
maturities of long-term debt 11,160 1,009 Income taxes payable and
deferred 12,766 14,793 Total current liabilities 198,154 175,123
Long-term debt 346,787 162,597 Other noncurrent liabilities 149,838
144,905 Deferred taxes and other credits 29,402 29,504 Total
liabilities 724,181 512,129 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
34,445,776 in 2006 and 34,176,010 in 2005 34 34 Class B Common
Stock, par value $.001 per share; authorized 25,000,000 shares;
issued and outstanding 3,236,098 in 2006 and 3,236,476 in 2005 3 3
Additional paid in capital 314,298 319,372 Retained earnings
538,312 495,018 Accumulated items of other comprehensive income:
Translation adjustments (35,007) (71,205) Pension liability
adjustment (40,340) (40,340) 777,300 702,882 Less treasury stock
(Class A), at cost (8,541,191 shares in 2006 and 5,050,159 shares
in 2005) 259,266 127,964 Total shareholders' equity 518,034 574,918
Total liabilities and shareholders' equity $1,242,215 $1,087,047
ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited) Nine Months Ended September 30, 2006
2005 OPERATING ACTIVITIES Net income $51,830 $57,768 Adjustments to
reconcile net income to net cash provided by operating activities:
Equity in earnings of associated companies (47) (500) Depreciation
40,348 38,570 Amortization 3,096 2,877 Provision for deferred
income taxes, other credits and long-term liabilities (17,067)
(1,326) Provision for write-off of equipment 506 2,138 Increase in
cash surrender value of life insurance (2,562) (1,372) Unrealized
currency transaction gains and losses 2,112 (3,058) Shares
contributed to ESOP 5,209 4,361 Stock option expense 1,154 - Tax
benefit of options exercised (697) 4,672 Changes in operating
assets and liabilities, net of business acquisition: Accounts
receivable (61,728) 7,378 Note receivable 17,827 203 Inventories
(24,093) (18,840) Prepaid expenses (2,139) (807) Accounts payable
(2,632) (466) Accrued liabilities 15,333 10,767 Income taxes
payable (1,155) (3,659) Other, net (4,200) (2,267) Net cash
provided by operating activities 21,095 96,439 INVESTING ACTIVITIES
Purchases of property, plant and equipment (54,334) (30,541)
Purchased software (306) (2,035) Proceeds from sale of assets -
5,067 Acquisitions, net of cash acquired (7,918) - Premiums paid
for life insurance policies - (1,022) Net cash used in investing
activities (62,558) (28,531) FINANCING ACTIVITIES Proceeds from
borrowings 209,530 20,280 Principal payments on debt (16,488)
(103,965) Purchase of treasury shares (131,499) (1,576) Purchase of
call options on common stock (47,688) - Sale of common stock
warrants 32,961 - Proceeds from options exercised 2,428 12,531 Tax
benefit of options exercised 697 - Debt issuance costs (5,434) -
Dividends paid (8,533) (7,590) Net cash provided by/(used in)
financing activities 35,974 (80,320) Effect of exchange rate
changes on cash flows 3,503 (10,609) Increase in cash and cash
equivalents (1,986) (23,021) Cash and cash equivalents at beginning
of year 72,771 58,982 Cash and cash equivalents at end of period
$70,785 $35,961 DATASOURCE: Albany International Corp. CONTACT:
Kenneth C. Pulver, Vice President-Global Marketing &
Communications, Albany International Corp., +1-518-445-2214 Web
site: http://www.albint.com/
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