1997 to March 1, 2005, and Technical Director
— Dryer Fabrics from 1993 to 1997. He held various technical and management positions in St. Stephen, South Carolina and Selestat, France from
1987 to 1993.
Hartmut Peters joined the Registrant upon the
acquisition by the Registrant of Wurttembergische Filztuchfabrik D. Geschmay GmbH (“WFG”) in 1999. He has served the Registrant as Group Vice
President — PMC Asia & Pacific since March 1, 2005, Vice President — Asian Operations from 2003 to March 1, 2005 and Managing Director of
WFG from 1999 to 2003.
Dieter Polt joined the Registrant in 2001. He
has served the Registrant as Group Vice President — Albany Door Systems and Applied Technologies since March 1, 2005, and Senior Vice President
— Industrial Products from 2001 to March 1, 2005. Prior to joining the Registrant, he served as President and Chief Executive Officer of the
Wangner Group and held senior management positions in the instrumentation industry.
Thomas H. Hagoort joined the Registrant in
1991. He has served the Registrant as Secretary since 1997, Senior Vice President — Legal Affairs from 2002 to January 1, 2005 and General Counsel
from 1991 to 2002. From 1968 until December 31, 1990, he was a partner in Cleary, Gottlieb, Steen and Hamilton, an international law firm with
headquarters in New York City.
Frank Kolf joined the Registrant in 2001. He
has served the Registrant as Senior Vice President —Administration and Development since 2001. Prior to joining the Registrant, he served as
Executive Vice President and Chief Financial Officer for the Wangner Group.
John C. Standish joined the Registrant in
1986. He has served the Registrant as Senior Vice President — Manufacturing since March 1, 2005, Director, North American Dryer Manufacturing from
2003 to March 1, 2005, Director, PAC Pressing and Process Technology from 2000 to 2003, Manager of the Registrant’s forming and engineered fabrics
manufacturing facility in Portland, Tennessee from 1998 to 2000, Production Manager of Albany International B.V. in Europe from 1994 to 1998,
Department Manager — Press Fabrics Division from 1991 to 1994 and Design Engineer for Albany International Canada from 1986 to 1991. He has been a
Director of the Registrant since 2001.
Richard A. Carlstrom joined the Registrant in
1972. He has served the Registrant as Vice President — Controller since 1993, Controller since 1980, and Controller of a U.S. division from 1975
to 1980.
David C. Michaels joined the Registrant in
1987. He has served the Registrant as Vice President — Treasury and Tax since 2000 and previously served as Director of Tax. Prior to 1987, he
held various financial and tax positions at Veeco Instruments, Inc.
Kenneth C. Pulver joined the Registrant in
1968. He has served the Registrant as Vice President — Corporate Communications since 1997 and as Vice President of Operations for Primaloft from
1992 to 1997. From 1984 to 1992 he served in various marketing positions with Albany Engineered Systems.
Charles J. Silva, Jr. joined the Registrant
in 1994. He has served the Registrant as Vice President — General Counsel since 2002 and as Assistant Secretary since 1996. He served as Assistant
General Counsel from 1994 until 2002. Prior to 1994, he was an associate with Cleary, Gottlieb, Steen and Hamilton, an international law firm with
headquarters in New York City.
The Registrant believes it is in material compliance
with federal, state, and local provisions that have been enacted or adopted regarding the discharge of materials into the environment, or otherwise
relating to the protection of the environment, and does not have knowledge of environmental regulations that do or might have a material effect on
future capital expenditures, earnings, or competitive position.
The Registrant is incorporated under the laws of the
State of Delaware and is the successor to a New York corporation originally incorporated in 1895, which was merged into the Registrant in August 1987
solely for the purpose of changing the domicile of the corporation. Upon such merger, each outstanding share of Class B Common Stock of the predecessor
New York corporation was changed into one share of Class B Common Stock of the Registrant. References to the Registrant that relate to any time prior
to the August 1987 merger should be understood to refer to the predecessor New York corporation.
The Registrant’s Corporate Governance
Guidelines, Business Ethics Policy and Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Controller, and the charters of the
Audit, Compensation and
19
Governance Committees of the Board of Directors
are available at the Corporate Governance section of the Registrant’s website (www.albint.com). Stockholders may obtain a copy of any of these
documents, without charge, from the Registrant’s Investor Relations Department. The Registrant’s Investor Relations Department may be
contacted at:
|
|
Investor Relations Department
Albany International
Corp.
Post Office Box 1907
Albany, New York 12201-1907
Telephone: (518) 445-2284
Fax: (518) 447-6343
E-mail:
investor_relations@albint.com |
The Registrant’s current reports on Form 8-K,
quarterly reports on Form 10-Q, and annual reports on Form 10-K are electronically filed with the Securities and Exchange Commission (SEC), and all
such reports and amendments to such reports filed subsequent to November 15, 2002, have been and will be made available, free of charge, through the
Registrant’s website (www.albint.com) as soon as reasonably practicable after such filing. The public may read and copy any materials filed by the
Registrant with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, D.C. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC.
The Registrant submitted to the New York Stock
Exchange the certification required pursuant to Section 303A.12(a) of the Exchange’s Corporate Governance Rules in May 2004. The Registrant also
filed the certifications required by SEC Rule 13a-14(a) as exhibits to its Annual Report on Form 10-K for the year ended December 31,
2003.
The Registrant’s principal manufacturing
facilities are located in the Australia, Brazil, Canada, China, Finland, France, Germany, Great Britain, Italy, Mexico, South Korea, Sweden, and the
United States. The aggregate square footage of the Registrant’s operating facilities in the United States and Canada is approximately 2,198,000
square feet, of which 2,069,000 square feet are owned and 129,000 square feet are leased. The Registrant’s facilities located outside the United
States and Canada comprise approximately 2,651,000 square feet, of which 2,423,000 square feet are owned and 228,000 square feet are leased. The
Registrant considers these facilities to be in good condition and suitable for their purpose. The capacity associated with these facilities is adequate
to meet production levels required and anticipated through 2005. The Registrant’s expected 2005 capital expenditures of about $45 million will
provide sufficient capacity for anticipated growth.
The Registrant believes it has modern, efficient
production equipment. In the last five years, excluding acquisitions, it has spent approximately $203.4 million on new plants and equipment or
upgrading existing facilities.
Item 3. LEGAL PROCEEDINGS
Albany International Corp. (“Albany”) is a
defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of
exposure to asbestos-containing products previously manufactured by Albany. Albany’s production of asbestos-containing paper machine clothing
products was limited to certain synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics
generally had a useful life of three to twelve months.
Albany was defending against 29,138 claims as of
February 11, 2005. This compares with 29,411 such claims as of December 31, 2004, 30,463 claims as of October 22, 2004, 28,838 claims as of December
31, 2003, 22,593 claims as of December 31, 2002, 7,347 claims as of December 31, 2001, 1,997 claims as of December 31, 2000, and 2,276 claims as of
December 31, 1999. These suits allege a variety of lung and other diseases based on alleged exposure to products previously manufactured by
Albany.
Albany anticipates that additional claims will be
filed against it and the related companies in the future but is unable to predict the number and timing of such future claims. These suits typically
involve claims against from
20
twenty to over two hundred defendants, and the
complaints usually fail to identify the plaintiffs’ work history or the nature of the plaintiffs’ alleged exposure to Albany’s products.
In cases in which work histories have been provided, approximately one-third of the claimants have alleged time spent in a paper mill, and only a
portion of those claimants have alleged time spent in a paper mill to which Albany is believed to have supplied asbestos-containing
products.
Approximately 24,314 of the claims pending against
Albany are filed in various counties in Mississippi. 20,072 such claims are included in only 14 proceedings. Recent changes in the application of
procedural rules regarding the mass joinder of numerous asbestos claims in a single proceeding against numerous defendants could at some point result
in a significant reduction of the claims pending against Albany in that State, as well as a better understanding of the remaining claims. As the result
of a recent ruling of the Mississippi Supreme Court, courts in counties throughout the State have begun issuing orders severing the individual claims
of plaintiffs in mass joinder asbestos cases. Once severed, the courts are requiring the plaintiffs to file amended complaints which include more
detailed information regarding their allegations of asbestos exposure, and have indicated that the dismissal or transfer of improperly filed cases may
follow. As a consequence, the Company expects that many plaintiffs who cannot satisfy the amended pleading requirements will voluntarily dismiss their
claims. As to plaintiffs who do file amended complaints, the Company expects some claims to be transferred from Mississippi, and that the only
claimants remaining in Mississippi will be those who are residents of, or who allege exposure to asbestos in, that State, and whose amended complaints
satisfy the requirement for specific information regarding their exposure claims.
The Company expects that only a portion of these
remaining claimants will be able to demonstrate time spent in a paper mill to which Albany supplied asbestos-containing products during a period in
which Albany’s asbestos-containing products were in use. Based on past experience, communications from certain plaintiffs’ counsel and the
advice of the Company’s Mississippi counsel, the Company expects the percentage of claimants with paper mill exposure in the Mississippi
proceedings to be considerably lower than the total number of claims previously asserted. However, due to the fact that the mandate of the Mississippi
Supreme Court is just beginning to be implemented, the Company does not believe a meaningful estimate can be made regarding the expected reduction in
claims or the range of possible loss with respect to the remaining claims. The Company does not expect the Supreme Court’s ruling to be fully
implemented for many months.
It is the position of Albany and the other paper
machine clothing defendants that there was insufficient exposure to asbestos from any paper machine clothing products to cause asbestos-related injury
to any plaintiff. Furthermore, asbestos contained in Albany’s synthetic products was encapsulated in a resin-coated yarn woven into the interior
of the fabric, further reducing the likelihood of fiber release. While the Company believes it has meritorious defenses to these claims, it has settled
certain of these cases for amounts it considers reasonable given the facts and circumstances of each case. The Company’s insurer, Liberty Mutual,
has defended each case under a standard reservation of rights. As of February 11, 2005, the Company had resolved, by means of settlement or dismissal,
8,189 claims, and had reached tentative agreement to resolve an additional 4,563 claims reported above as pending. The total cost of resolving all
12,752 such claims was $5,931,000. Of this amount, $5,896,000, or 99%, was paid by the Company’s insurance carrier. The Company has more than $130
million in confirmed insurance coverage that should be available with respect to current and future asbestos claims, as well as additional insurance
coverage that it should be able to access.
Brandon Drying Fabrics, Inc.
Brandon Drying Fabrics, Inc.
(“Brandon”), a subsidiary of Geschmay Corp., is also a separate defendant in most of these cases. Brandon was defending against 9,599
claims as of February 11, 2005. This compares with 9,985 such claims as of December 31, 2004, 9,980 claims as of October 22, 2004, 10,242 claims as of
December 31, 2003, 11,802 claims as of December 31, 2002, 8,759 claims as of December 31, 2001, 3,598 claims as of December 31, 2000, and 1,887 claims
as of December 31, 1999. The Company acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a wholly-owned
subsidiary of Geschmay Corp. In 1978, Brandon acquired certain assets from Abney Mills (“Abney”), a South Carolina textile
manufacturer. Among the assets acquired by Brandon from Abney were assets of Abney’s wholly-owned subsidiary, Brandon Sales, Inc. which, among
other things, had sold dryer fabrics containing asbestos made by its parent, Abney. It is believed
21
that Abney ceased production of
asbestos-containing fabrics prior to the 1978 transaction. Although Brandon manufactured and sold dryer fabrics under its own name subsequent to the
asset purchase, none of such fabrics contained asbestos. Under the terms of the Assets Purchase Agreement between Brandon and Abney, Abney agreed to
indemnify, defend, and hold Brandon harmless from any actions or claims on account of products manufactured by Abney and its related corporations prior
to the date of the sale, whether or not the product was sold subsequent to the date of the sale. It appears that Abney has since been dissolved.
Nevertheless, a representative of Abney has been notified of the pendency of these actions and demand has been made that it assume the defense of these
actions. Because Brandon did not manufacture asbestos-containing products, and because it does not believe that it was the legal successor to, or
otherwise responsible for obligations of, Abney with respect to products manufactured by Abney, it believes it has strong defenses to the claims that
have been asserted against it. In some instances, plaintiffs have voluntarily dismissed claims against it, while in others it has entered into what it
considers to be reasonable settlements. As of February 11, 2005, Brandon has resolved, by means of settlement or dismissal, 6,923 claims for a total of
$152,499. Brandon’s insurance carriers initially agreed to pay 88.2% of the total indemnification and defense costs related to these proceedings,
subject to the standard reservation of rights. The remaining 11.8% of the costs has been borne directly by Brandon. During 2004, Brandon’s
insurance carriers agreed to cover 100% of indemnification and defense costs, subject to policy limits and the standard reservation of rights, and to
reimburse Brandon for all indemnity and defense costs paid directly by Brandon related to these proceedings.
Mount Vernon
In some of these cases, the Company is named both as
a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). The Company 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. The Company denies 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, the Company has successfully moved for
dismissal in a number of actions.
While the Company does not
believe, based on currently available information and for the reasons stated above, that a meaningful estimate of a range of possible loss can be made
with respect to such claims, based on its understanding of the insurance policies available, how settlement amounts have been allocated to various
policies, its recent settlement experience, the absence of any judgments against the Company or Brandon, the ratio of paper mill claims to total claims
filed, and the defenses available, the Company currently does not anticipate any material liability relating to the resolution of the aforementioned
pending proceedings in excess of existing insurance limits. Consequently, the Company currently does 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 the Company cannot predict the number and timing of future claims, based on the foregoing factors and
the trends in claims against it to date, the Company does not anticipate that additional claims likely to be filed against it in the future will have a
material adverse effect on its financial position, results of operations or cash flows. However, the Company is aware that litigation is inherently
uncertain, especially when the outcome is dependent primarily on determinations of factual matters to be made by juries. The Company is also aware that
numerous other defendants in asbestos cases, as well as others who claim to have knowledge and expertise on the subject, have found it difficult to
anticipate the outcome of asbestos litigation, the volume of future asbestos claims and the anticipated settlement values of those claims. For these
reasons, there can be no assurance that the foregoing conclusions will not change.
There have been a number of proposals discussed in
recent months in United States Senate that would provide compensation for persons injured as the result of exposure to asbestos. The Judiciary
Committee of the current United States Senate has recently begun discussing such a proposal that would require the Company to make payments of up to
$500,000 per year for up to 30 years. Such payments would not be covered by any of the Company’s insurance policies. The proposal has not been
offered as proposed legislation and is subject to
22
negotiation and modification. The Company cannot
predict whether any proposal will be offered as legislation or, if so, whether such proposal will ultimately be enacted into law.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There were no matters submitted during the fourth
quarter of 2004 to a vote of security holders.
23
PART II
| Item 5. |
|
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Registrant’s common stock is principally
traded on the New York Stock Exchange under symbol AIN. On December 31, 2004, there were approximately 5,500 registered holders on record of the
Registrant’s common stock. The Registrant’s cash dividends and the high and low common stock prices per share were as
follows:
Quarter Ended
|
|
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share |
|
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
Class A
Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
$ |
35.00 |
|
|
$ |
33.75 |
|
|
$ |
33.60 |
|
|
$ |
35.16 |
|
Low |
|
|
|
$ |
26.40 |
|
|
$ |
27.20 |
|
|
$ |
28.65 |
|
|
$ |
28.19 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends per share |
|
|
|
$ |
0.055 |
|
|
$ |
0.055 |
|
|
$ |
0.07 |
|
|
$ |
0.07 |
|
Class A
Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
$ |
23.67 |
|
|
$ |
27.76 |
|
|
$ |
31.82 |
|
|
$ |
34.20 |
|
Low |
|
|
|
$ |
20.30 |
|
|
$ |
22.00 |
|
|
$ |
26.62 |
|
|
$ |
29.46 |
|
Restrictions on dividends and other distributions
are described in Note 6 of the Consolidated Financial Statements (see Item 8).
In January 1998, the Board authorized the purchase
of 3,000,000 shares of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be
advantageous to the Company’s shareholders. The Company has purchased 2,946,900 shares of its Class A Common Stock pursuant to this authorization,
including 1,330,000 purchased in 2004. In July 2004, the Company purchased 1,489,943 shares of its Class A Common Stock in a private transaction. The
authorization given by the Board for this purchase was separate from the authorization given in 1998. The total cost of treasury shares purchased in
2004 was $81,135,000. In November 2004, the Board authorized the purchase of up to 1,000,000 additional shares of its Class A Common Stock. As of
December 31, 2004, the Company remains authorized to purchase 1,053,100 shares without further announcement.
Period
|
|
|
|
Total number of
shares
purchased
|
|
Average
price paid
|
|
Total number of shares
purchased as part of publicly
announced
plans or programs
|
|
Maximum number of shares
that may yet be purchased
under the
plans or programs
|
March 1 to
31, 2004 |
|
|
|
|
764,300 |
|
|
$ |
27.68 |
|
|
|
not applicable |
|
|
|
not applicable |
|
April 1 to
30, 2004 |
|
|
|
|
65,700 |
|
|
|
29.88 |
|
|
|
not applicable |
|
|
|
not applicable |
|
July 1 to
31, 2004 |
|
|
|
|
1,489,943 |
|
|
|
28.87 |
|
|
|
not applicable |
|
|
|
not applicable |
|
November 1
to 30, 2004 |
|
|
|
|
500,000 |
|
|
|
30.00 |
|
|
|
not applicable |
|
|
|
not applicable |
|
24
Item 6. SELECTED FINANCIAL DATA
The following selected historical financial data
have been derived from the Consolidated Financial Statements of the Registrant (see Item 8). The data should be read in conjunction with those
financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Item 7).
(in thousands, except per share amounts)
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
Summary of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
|
|
$ |
919,802 |
|
|
$ |
887,943 |
|
|
$ |
832,499 |
|
|
$ |
853,493 |
|
|
$ |
870,365 |
|
Cost of goods
sold |
|
|
|
|
557,742 |
|
|
|
526,757 |
|
|
|
492,217 |
|
|
|
514,098 |
|
|
|
533,080 |
|
Restructuring
charges, net (3) |
|
|
|
|
54,058 |
|
|
|
21,751 |
|
|
|
— |
|
|
|
21,892 |
|
|
|
— |
|
Operating
income |
|
|
|
|
40,504 |
|
|
|
85,614 |
|
|
|
102,088 |
|
|
|
84,112 |
|
|
|
103,634 |
|
Interest
expense, net |
|
|
|
|
14,636 |
|
|
|
15,074 |
|
|
|
17,536 |
|
|
|
28,916 |
|
|
|
41,822 |
|
Income before
income taxes |
|
|
|
|
12,329 |
|
|
|
69,878 |
|
|
|
79,549 |
|
|
|
52,363 |
|
|
|
62,567 |
|
Income
taxes |
|
|
|
|
2,450 |
|
|
|
15,720 |
|
|
|
25,041 |
|
|
|
19,374 |
|
|
|
25,027 |
|
Income before
cumulative effect changes in accounting principles |
|
|
|
|
10,385 |
|
|
|
54,055 |
|
|
|
54,778 |
|
|
|
33,331 |
|
|
|
38,085 |
|
Cumulative
effect of changes in accounting principles, net of tax (1) (2) |
|
|
|
|
— |
|
|
|
— |
|
|
|
(5,837 |
) |
|
|
(1,129 |
) |
|
|
— |
|
Net
income |
|
|
|
|
10,385 |
|
|
|
54,055 |
|
|
|
48,941 |
|
|
|
32,202 |
|
|
|
38,085 |
|
Basic
earnings per share |
|
|
|
|
0.32 |
|
|
|
1.64 |
|
|
|
1.52 |
|
|
|
1.04 |
|
|
|
1.24 |
|
Diluted
earnings per share |
|
|
|
|
0.31 |
|
|
|
1.61 |
|
|
|
1.50 |
|
|
|
1.03 |
|
|
|
1.24 |
|
Dividends
declared per share |
|
|
|
|
0.30 |
|
|
|
0.25 |
|
|
|
0.205 |
|
|
|
0.05 |
|
|
|
— |
|
Weighted
average number of shares outstanding — basic |
|
|
|
|
32,575 |
|
|
|
32,889 |
|
|
|
32,126 |
|
|
|
31,089 |
|
|
|
30,632 |
|
Capital
expenditures |
|
|
|
|
57,129 |
|
|
|
51,849 |
|
|
|
31,678 |
|
|
|
25,831 |
|
|
|
36,866 |
|
|
Financial
position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
$ |
58,982 |
|
|
$ |
78,822 |
|
|
$ |
18,799 |
|
|
$ |
6,153 |
|
|
$ |
5,359 |
|
Cash
surrender value of life insurance, net |
|
|
|
|
34,583 |
|
|
|
32,399 |
|
|
|
29,282 |
|
|
|
1,862 |
|
|
|
10,981 |
|
Property,
plant and equipment, net |
|
|
|
|
378,170 |
|
|
|
370,280 |
|
|
|
346,073 |
|
|
|
339,102 |
|
|
|
387,658 |
|
Total
assets |
|
|
|
|
1,155,760 |
|
|
|
1,138,923 |
|
|
|
1,011,521 |
|
|
|
931,929 |
|
|
|
1,112,252 |
|
Current
liabilities |
|
|
|
|
209,218 |
|
|
|
178,511 |
|
|
|
186,494 |
|
|
|
186,072 |
|
|
|
222,034 |
|
Long-term
debt |
|
|
|
|
213,615 |
|
|
|
214,894 |
|
|
|
221,703 |
|
|
|
248,146 |
|
|
|
398,087 |
|
Total
noncurrent liabilities |
|
|
|
|
395,765 |
|
|
|
405,757 |
|
|
|
424,429 |
|
|
|
429,213 |
|
|
|
565,301 |
|
Total
liabilities |
|
|
|
|
604,983 |
|
|
|
584,268 |
|
|
|
610,923 |
|
|
|
615,285 |
|
|
|
787,335 |
|
Shareholders’ equity |
|
|
|
|
550,777 |
|
|
|
554,655 |
|
|
|
400,598 |
|
|
|
316,644 |
|
|
|
324,917 |
|
(1) |
|
In 2002, as a result of adopting the provisions of FAS No.142,
Goodwill and 0ther Intangible Assets, the Company recorded a charge of $5,837,000 for the write-off of goodwill in the Applied Technologies
segment, representing the cumulative effect of this change in accounting principle. |
(2) |
|
In 2001, as a result of adopting the provisions of FAS No.
133, Accounting for Derivative Instruments and Hedging Activities, the Company recorded a charge of $1,129,000 related to a lease with an
embedded derivative, representing the cumulative effect of this change in accounting principle. |
(3) |
|
In 2001, 2003 and 2004, the Company recorded restructuring
charges related to cost reduction initiatives. |
25
| Item 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Critical Accounting Policies and Assumptions
The Company’s discussion and analysis of its
financial condition and results of operation are based on the Company’s consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.
The Company records sales when persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is fixed and collectibility is reasonably assured. The timing of revenue recognition
is dependent upon the contractual arrangement between the Company and its customers. These arrangements, which may include provisions for transfer of
title and guarantees of workmanship, are specific to each customer. Sales contracts in the Albany Door Systems segment may include product and
installation services. For these sales, the Company applies the provisions of EITF 00-21, “Revenue Arrangements with Multiple Deliverables”.
The Company’s contracts that include product and installation services generally do not qualify as separate units of accounting and, accordingly,
revenue for the entire contract value is recognized upon completion of installation services. The Company limits the concentration of credit risk in
receivables by closely monitoring credit and collection policies. The Company records 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.
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of its customers to make required payments. 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.
The Company has interest rate swap agreements that
fix the rate of interest on $200 million of the Company’s debt. The Company has determined that the swaps qualify for hedge accounting in
accordance with GAAP and, accordingly, changes in the fair value of these swaps are recorded in shareholders’ equity in the caption,
“Derivative valuation adjustment”. Future events, such as a change in the Company’s underlying debt arrangements, could require that the
Company record changes in fair value in earnings. The Company values these swaps by estimating the cost of entering into one or more inverse swap
transactions that would neutralize the original transactions. As of December 31, 2004, the pretax cost to neutralize the original swap transactions
would have been approximately $4.6 million.
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. The Company performs a test for goodwill impairment at least annually. The
determination of whether these assets are impaired involves significant judgments based on short and long-term projections of future performance.
Changes in strategy and/or market conditions may result in adjustments to recorded asset balances.
The Company has investments in other companies that
are accounted for under either the cost method, or equity method of accounting. The investment accounted for under the cost method was included in
Other assets as of December 31, 2003. In 2004, the Company determined that investment to be other than temporarily impaired and, accordingly, recorded
an impairment charge of $4 million in Other expense/(income), net, representing the full amount of the investment. Investments accounted for under the
equity method are included in Investments in associated companies. The Company performs regular reviews of the financial condition of the investees to
determine if its investment is impaired. If the financial condition of the investees were to no longer support their valuations, the Company would
record an impairment provision.
The Company has pension and postretirement benefit
costs and liabilities that 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. The Company is required to consider current market conditions,
26
including changes in interest rates, in making these
assumptions. Changes in the related pension and postretirement benefit costs or credits may occur in the future due to changes in the assumptions. The
amount of annual pension plan funding and annual expense is subject to many variables, including the investment return on pension plan assets and
interest rates. Weakness in investment returns and low interest rates could result in the Company making equal or greater pension plan contributions in
future years, as compared to 2004. Including anticipated contributions for all pension plans, the Company has classified $27.7 million of its accrued
pension liability as a current liability at December 31, 2004.
The Company records deferred income tax assets and
liabilities for the tax consequences of differences between financial statement and tax bases of existing assets and liabilities. A tax valuation
allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than
not that some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
The Company has a trade accounts receivable program
whereby it sells, without recourse, certain North American accounts receivable to a qualified special purpose entity (QSPE), as defined under Financial
Accounting Standard No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (FAS No. 140). The
QSPE is a wholly owned subsidiary of the Company and, in accordance with FAS No. 140, its financial statements are not consolidated with the financial
statements of the Company. The securitization program can be terminated at any time, with thirty days notice, by the Company or the unrelated third
party. If the securitization program were terminated, the Company would not be required to repay cash received from the sale of accounts receivable,
but no additional receivables would be sold under the program. Accounts receivable would increase as new sales were made, and the note receivable would
decrease as the sold accounts receivable were collected. The Company might need to borrow from its existing credit facilities or use existing cash to
fund operations until cash flow from accounts receivable returned to normal levels.
The unconsolidated subsidiary receives cash from an
unrelated third party in exchange for an undivided ownership interest in the accounts receivable. As of December 31, 2004, the unconsolidated
subsidiary had assets of $20.0 million consisting primarily of $61.8 million of accounts receivables sold to it by the Company, net of a $40.8 million
interest sold to the unrelated third party, and an allowance for doubtful accounts. As of December 31, 2004, the liabilities of the unconsolidated
subsidiary were $19.0 million consisting principally of the note payable to the Company, and equity was $1.0 million.
The Company has contingent liabilities for
litigation, claims and assessments that result from the ordinary course of business. These matters are more fully described in Note 7 to the
Consolidated Financial Statements included in Item 8.
Overview
The Company is engaged in three business segments:
Engineered Fabrics, Albany Door Systems and Applied Technologies.
The Company’s largest segment is Engineered
Fabrics, which includes paper machine clothing and process belts (PMC), which are technologically sophisticated consumable products designed,
manufactured and marketed for each section of the paper machine. The design and material composition of clothing and belts can have a considerable
effect on the quality of paper products produced and the efficiency of paper machines on which they are used. Paper machine clothing and belts have
finite lives and must be replaced on a regular basis. The Company expends considerable effort on research and development to maintain what it believes
to be its position as the technology leader in the marketplace, and to continually improve the production processes and deliver increased value to
customers. The Company’s operations are strategically located in the major paper-producing regions of the world.
Albany Door Systems produces and services
high-performance doors, which are primarily marketed to industrial and commercial enterprises requiring interior or external doors that either involve
frequent openings or temperature or environmental contrasts on the two areas separated by the doors. High-performance doors open and close very
rapidly, and may utilize electrical systems that assure automatic opening and closing under circumstances desired by customers. Although the
Company’s high-performance doors are marketed globally, its largest manufacturing operations are in North America and Europe.
27
The Applied Technologies segment of the Company
includes a wide variety of products, from wet and dry filtration media to Primaloft® patented synthetic down for the home furnishings and
outerwear markets. Although these products do not represent a large portion of total sales, they do offer the opportunity for growth as new markets are
developed. New product lines developed within this segment that do not provide expected returns are generally discontinued.
Industry Trends
The Engineered Fabrics segment has experienced
significant change since 1999 as consolidation and restructuring impacted the global paper and paperboard industry and reduced the number of major
paper machine clothing competitors from eight to four. During the last four years, this consolidation has resulted in a reduction of capacity in the
paper machine clothing industry. Albany International is the paper machine clothing market leader, with about 30% market share, as compared to about
19% for the next largest competitor.
As part of the Company’s long-term strategy to
provide value to customers and to reduce costs to improve returns to shareholders, the Company has rationalized production capacity by closing and
consolidating manufacturing facilities in North America and Europe, while increasing its presence in Asia. These actions enabled the Company to lower
costs and focus resources in regions where the Company anticipates significant growth.
Implementing capacity reduction and consolidation
involves risks such as employee work stoppages, slowdowns or strikes, which can threaten uninterrupted production, maintenance of high product quality
and the meeting of customers’ delivery deadlines. Increases in output in remaining manufacturing operations can likewise impose stress on these
remaining facilities as they undertake the manufacture of a greater volume and, in some cases, greater variety of products. Competitors can be quick to
attempt to exploit these situations. The Company considers these risks and plans each step of the process carefully, taking such steps as it can to
address them in advance of any announcement of a planned or proposed plant closure or consolidation. The Company works to reassure customers who could
be affected by any such matters that their requirements will continue to be met. The Company uses experience gained during previous consolidation
initiatives in order to improve its processes and minimize these risks.
Similarly, the Company’s papermaking customers
have also gone through an extended period of consolidation and rationalization, which has in turn led to the reduction of their capacity in some
markets, offset by additions of new, more efficient papermaking facilities in other markets, especially Asia. This appears to have had the effect of
shutting down many older, inefficient paper machines, especially in North America, and reducing the overall number of global positions on paper
machines where the Company’s products could be used. Since major consolidation and rationalization in the paper industry seems to be largely
completed, the Company expects their impact on PMC demand in future periods will be minimized. Technological advances in Engineered Fabrics, while
contributing to the papermaking efficiency of customers, have in some cases lengthened the useful life of the Company’s products and reduced the
number of pieces required to produce the same volume of paper. While the Company is often able to charge higher prices for its products as a result of
these improvements, increased prices may not always be sufficient to offset completely a decrease in the number of fabrics sold. After adjusting for
currency translation effects, the Company’s net sales of Engineered Fabrics have decreased in each of the last three years. The trend toward a
decrease in the ratio of PMC consumed to paper produced may be a significant contributor to this decline. If these trends were to continue, they could
have a negative impact on net sales in this segment. The Company’s strategy for dealing with these trends is to continue to focus on improving the
performance of its products and improving its product mix and price structure, while at the same time identifying additional cost-saving
opportunities.
Challenges, Risks and Opportunities
The Engineered Fabrics segment of the business is
very competitive. While some competitors tend to compete more on the basis of price, and others attempt to compete more on the basis of technology,
both are significant competitive factors in the industry. The Company’s strategy for addressing competition is to focus on continuous improvement
in the technical performance of its products and services that deliver greater value to customers than the offerings of competitors. During the past
three years, the Company has spent an average of 3% of its consolidated
28
net sales on research expenses, and expects to
spend similar amounts in future periods. Failure to maintain or increase the product and service value delivered to customers in future periods could
have a material impact on sales in this segment.
One competitor in this segment is also in the
business of making and selling paper machines and papermaking equipment. It is thus able to market machines and fabrics together, and to condition
machine warranties on the purchase and use of its clothing and belts.
The basic papermaking process, while it has
undergone dramatic increases in efficiency and speed, has always relied on paper machine clothing. In the event that a paper machine builder or other
person were able to develop a commercially viable manner of paper manufacture that did not require paper machine clothing, sales of the Company’s
products in this segment could be expected to decline significantly. As paper machines currently represent significant investments of capital, the
Company does not believe that a commercially feasible substitute technology that does not employ PMC is likely to be developed and incorporated into
the paper production process by paper manufacturers in the foreseeable future. Accordingly, the prospects for continued demand of PMC appear
excellent.
Albany Door Systems derives most of its revenue from
the sale of high-performance doors. The purchase of these doors is normally a capital expenditure item for customers and, as such, market opportunities
tend to fluctuate with industrial capital spending. The majority of the segment’s revenues are derived from sales and manufacturing outside of the
United States, which can cause the reported financial results to be more sensitive to changes in currency rates than the other segments of the
Company.
The Applied Technologies segment has experienced
significant growth in net sales during the last two years, due to the introduction of new products and growth in demand and application of previously
existing products. While opportunities for continued growth remain excellent, there can be no assurances that the growth in sales enjoyed during the
last two years will continue.
Foreign Currency
Albany International operates in many geographic
regions of the world and has more than half of its business in countries outside the United States. A substantial portion of the Company’s sales
are denominated in euros or other currencies. In some locations, the profitability of transactions is affected by the fact that sales are denominated
in a currency different from the currency in which the costs to manufacture and distribute the products are denominated. As a result, changes in the
relative values of U.S. dollars, euros and other currencies affect revenues and profits as the results are translated into U.S. dollars in the
consolidated financial statements.
From time to time, the Company enters into foreign
currency or other derivative contracts in order to enhance cash flows, or to mitigate volatility in the financial statements that can be caused by
changes in currency exchange rates.
29
Review of Operations
2004 vs.
2003
Total Company
Net sales increased to $919.8 million in 2004, as
compared to $887.9 million for 2003. Changes in currency translation rates had the effect of increasing net sales by $44.7 million. Excluding the
effect of changes in currency translation rates, 2003 net sales decreased 1.4% as compared to 2003.
Following is a table of net sales for each business
segment and the effect of changes in currency translation rates:
|
|
|
|
Net sales as reported
Year ended December 31,
|
|
|
|
Percent change
|
|
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
Increase in 2004
net sales due to changes in
currency
translation rates
|
|
As reported
|
|
Excluding
currency
rate effect
|
Engineered
Fabrics |
|
|
|
$ |
740,824 |
|
|
$ |
733,316 |
|
|
$ |
33,149 |
|
|
|
1.0 |
% |
|
|
–3.5 |
% |
Albany Door
Systems |
|
|
|
|
112,773 |
|
|
|
101,331 |
|
|
|
8,498 |
|
|
|
11.3 |
% |
|
|
2.9 |
% |
Applied
Technologies |
|
|
|
|
66,205 |
|
|
|
53,296 |
|
|
|
3,022 |
|
|
|
24.2 |
% |
|
|
18.6 |
% |
Total |
|
|
|
$ |
919,802 |
|
|
$ |
887,943 |
|
|
$ |
44,669 |
|
|
|
3.6 |
% |
|
|
–1.4 |
% |
Gross profit as a percentage of net sales was 39.4%
for 2004 and 40.7% for 2003. The decrease was principally due to lower sales in the Engineered Fabrics segment, excluding the effect of changes in
currency translation rates. Gross profit as a percentage of sales was also negatively affected by the effect of changes in currency exchange rates on
export sales. These sales are typically denominated in U.S. dollars, while the manufacturing costs are based mainly on currencies that strengthened
against the U.S. dollar. In 2004, gross profit was lower by approximately $2.7 million as a result of the currency effect on these export sales.
Despite those negative effects, cost reduction activities helped to generate a gross profit percentage that increased during the last six months of
2004.
Selling, general, technical and research expenses
increased 5.4% in 2004 as compared to 2003. Excluding the effect of changes in currency translation rates, these costs decreased 0.6%. In 2004, Selling
and general expenses included $0.8 million of remeasurement losses at certain Company operations related to trade accounts receivable denominated in
currencies other than their functional currency, while in 2003, the losses were negligible. Selling, general, technical and research expenses remains
an area where the Company believes there are substantial opportunities for efficiency improvements. The fact that this category of expense was
relatively flat excluding currency effects, means that the Company’s efficiency improvements offset sharp increases in Sarbanes-Oxley costs, as
well nearly all other cost categories that were affected by general inflation.
Following is a table of operating income and
restructuring charges by segment:
|
|
|
|
Years ended
December 31,
|
|
(in thousands)
|
|
|
|
2004
|
|
2003
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
96,421 |
|
|
$ |
143,440 |
|
Albany Door
Systems |
|
|
|
|
3,515 |
|
|
|
(1,024 |
) |
Applied
Technologies |
|
|
|
|
11,558 |
|
|
|
6,065 |
|
Research
expense |
|
|
|
|
(27,436 |
) |
|
|
(26,353 |
) |
Unallocated
expenses |
|
|
|
|
(43,554 |
) |
|
|
(36,514 |
) |
Operating
income |
|
|
|
$ |
40,504 |
|
|
$ |
85,614 |
|
Restructuring Costs by Segment
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
52,664 |
|
|
$ |
18,219 |
|
Albany Door
Systems |
|
|
|
|
1,265 |
|
|
|
2,351 |
|
Applied
Technologies |
|
|
|
|
(15 |
) |
|
|
677 |
|
Corporate and
other |
|
|
|
|
144 |
|
|
|
504 |
|
Consolidated
total |
|
|
|
$ |
54,058 |
|
|
$ |
21,751 |
|
30
Operating income decreased to $40.5 million for
2004, compared to $85.6 million for 2003. The decrease is principally due to higher restructuring costs in 2004, and the lower sales in the Engineered
Fabrics segment, excluding the effect of changes in currency translation rates. Changes in currency translation rates had the effect of increasing
operating income by $2.1 million, while the effect of currency rates on U.S. dollar-denominated export sales decreased operating income by $2.7
million.
In January 2003, the Company announced a
restructuring program that it anticipated would reduce costs by at least $30 million per year. In January 2005, the Company announced that the plan had
succeeded in reducing costs by more than $40 million per year. The restructuring activities associated with this program were completed in 2004.
Approximately half of the cost savings were recognized through the end of 2004, with the remainder of the cost reductions taking effect in the first
half of 2005. Approximately 94% of the cost reductions were in the Engineered Fabrics segment; the reductions principally affect cost of goods sold.
The restructuring initiative, which resulted in a reduction of approximately 600 employees, was part of a continuing effort to match manufacturing
capacity to the global demand for paper machine clothing.
The cost reduction initiative resulted in
restructuring charges of $21.8 million in 2003 and $54.1 million in 2004. The charges include plant and equipment write-downs of approximately $13.0
million in 2003 and $13.5 million in 2004. The majority of these restructuring costs related to the shut-down of the Company’s engineered fabrics
segment facilities in South Carolina, France, and the Netherlands and discontinuation of dryer fabrics manufacturing at the facility in Bury,
England.
Research expense increased $1.1 million to $27.4
million in 2004, principally due to the effect of changes in currency translation rates. Unallocated expenses increased $7.0 million to $43.6 million
in 2004 principally due to increases in corporate headquarters expense, including $2.2 million for the Company’s United States postretirement
medical benefits program, and $2.4 million related to the restricted stock program (see Notes 13 and 15 of Notes to Consolidated Financial Statements).
The increase in postretirement benefits was due to higher cost trend rates, while the increase in the cost of the restricted stock program was due to
the program being initiated at the end of 2003.
Interest expense declined to $16.8 million for 2004
compared to $17.3 million for 2003, principally due to lower average debt in 2004. A significant portion of the Company’s interest expense is
derived from interest rate swap agreements. Interest expense related to the swaps amounted to $10.0 million in 2004 and $10.4 million in
2003.
Other expense/(income), net, was expense of $13.5
million for 2004 and $0.7 million for 2003. The increase in expense is primarily due to currency hedging activities, and the remeasurement of
short-term intercompany balances at operations that held amounts denominated in currencies other than their local currency. In 2004, these transactions
resulted in expense of $1.6 million compared with income of $8.2 million in 2003. (The Company’s currency hedging strategy is aimed at mitigating
volatility in the income statement that can be caused by sharp changes in currency exchange rates. The Company uses various derivative instruments,
primarily currency forward contracts, in its currency hedging activities. Changes in fair value of derivative instruments that are designated and
qualify for hedge accounting in accordance with FAS No. 133 are reported in Other comprehensive income, and not Other expense/(income), net.
Additionally, in the first quarter of 2004, the Company recorded an impairment loss of $4.0 million representing the full value of the Company’s
investment in an unaffiliated company.
Income tax expense was $2.5 million in 2004 compared
to $15.7 million in 2003, principally due to lower income before tax. Income tax in 2004 includes expense of $6.9 million for valuation allowances
related to restructuring activities, and a tax benefit of $4.6 million related to the favorable resolution of discrete tax matters. The results for
2003 include a tax benefit of $5.2 million for the favorable resolution of tax contingencies. Including the effect of these discrete tax items, the tax
rate was 19.9% of pre-tax income in 2004, and 22.5% in 2003. The decrease in the tax rate was partially attributable to a change in the mix of the
Company’s consolidated earnings. The Company expects that the 2005 tax rate will not exceed 30%, before any discrete items.
Net income was $10.4 million for 2004, compared to
$54.1 million for 2003. Basic earnings per share were $0.32 for 2004, compared to $1.64 for 2003. The decrease is principally due to higher
restructuring charges in 2004. Restructuring charges reduced net income by $1.16 per share in 2004, compared to $0.46 per share in 2003. The decrease
in net income was also affected by lower Engineered Fabrics sales excluding changes in currency translation rates, and the income tax valuation
allowances recorded in 2004.
31
Engineered Fabrics segment
Net sales in the Engineered Fabrics segment
increased to $740.8 million for 2004 as compared to $733.3 million for 2003. Changes in currency translation rates had the effect of increasing net
sales by $33.1 million. Excluding the effect of changes in currency translation rates, 2004 net sales decreased 3.5% as compared to 2003. Pricing for
products in this segment was generally flat, while overall volume decreased.
In 2004, global paper and paperboard manufacturers
continued to produce more tons of product with fewer units of paper machine clothing (PMC). Several factors contributed to this trend, including
enhanced PMC product performance that creates additional value for our customers, more efficient paper machine operation as a result of industry
consolidation and rationalization, and the practice by some paper manufacturers to run PMC products longer. Since the rate of paper industry
consolidation and rationalization appears to have slowed, the Company expects the negative impact of this effect on PMC demand in future periods to
decrease. Matching the Company’s capacity to the changing demand of the global paper and board industries, while a difficult challenge, has made
the Company stronger and well positioned to meet the needs of its customers.
Gross profit as a percentage of net sales was 42.1%
for 2004 compared to 43.2% for 2003. The decrease in 2004 was principally due to lower sales excluding the effect of changes in currency translation
rates, and the currency effect on U.S. dollar-denominated export sales. Operating income decreased from $143.4 million in 2003 to $96.4 million in
2004, principally due to an increase of $34.4 million in restructuring charges, in addition to the same factors that affected gross
profit.
Albany Door Systems segment
Net sales in the Albany Door Systems segment
increased to $112.8 million in 2004 as compared to $101.3 million for 2003. Changes in currency translation rates had the effect of increasing net
sales by $8.5 million. Excluding the effect of changes in currency translation rates, 2004 net sales increased 2.9% as compared to 2003.
High-performance door sales remained sluggish as increases in customers’ capital spending did not to materialize. Approximately 77% of the sales
in this segment are in European markets and, accordingly, results are significantly impacted by European economies. The Company provides aftermarket
service and parts for high-performance doors, and this revenue component grew to $34.9 million in 2004, compared to $29.7 million in
2003.
Gross profit as a percentage of net sales was 32.8%
for 2004 compared to 32.0% for 2003. Operating income improved from a loss of $1.0 million in 2003, to income of $3.5 million in 2004. Approximately
$1.1 million of the improvement is due to lower restructuring costs. Results for the full year were positively affected by efficiency improvements, new
product development, and increases in aftermarket and service revenues, even though customers’ capital spending for high-performance door products
did not improve in major markets.
Applied Technologies segment
Net sales in the Applied Technologies segment
increased to $66.2 million in 2004 as compared to $53.3 million for 2003. Changes in currency translation rates had the effect of increasing net sales
by $3.0 million. Excluding the effect of changes in currency translation rates, 2004 net sales increased 18.6% as compared to 2003. Filtration products
for power generation plants, principally in Australia, and gains in tannery and textile markets in Asia and Latin America provided a large portion of
the 2004 improvement in this segment.
Gross profit as a percentage of net sales was 35.6%
for 2004 compared to 32.6% for 2003. Operating income increased to $11.6 million compared to $6.1 million for 2003. The increase is principally due to
higher sales. The businesses within this segment have opportunities to expand into new geographic markets and to provide products to new
customers.
32
2003 vs.
2002
Total Company
Net sales increased to $887.9 million in 2003 as
compared to $832.5 million for 2002. Changes in currency translation rates had the effect of increasing net sales by $72.2 million. Excluding the
effect of changes in currency translation rates, 2003 net sales decreased 2.0% as compared to 2002.
Following is a table of net sales for each business
segment and the effect of changes in currency translation rates:
|
|
|
|
Net sales as reported
Year ended December 31,
|
|
|
|
Percent change
|
|
(in thousands)
|
|
|
|
2003
|
|
2002
|
|
Increase in 2003
net sales due to changes in
currency translation
rates
|
|
As reported
|
|
Excluding
currency
rate effect
|
Engineered
Fabrics |
|
|
|
$ |
733,316 |
|
|
$ |
697,790 |
|
|
$ |
55,663 |
|
|
|
5.1 |
% |
|
|
–2.9 |
% |
Albany Door
Systems |
|
|
|
|
101,331 |
|
|
|
92,477 |
|
|
|
13,291 |
|
|
|
9.6 |
% |
|
|
–4.8 |
% |
Applied
Technologies |
|
|
|
|
53,296 |
|
|
|
42,232 |
|
|
|
3,203 |
|
|
|
26.2 |
% |
|
|
18.6 |
% |
Total |
|
|
|
$ |
887,943 |
|
|
$ |
832,499 |
|
|
$ |
72,157 |
|
|
|
6.7 |
% |
|
|
–2.0 |
% |
Despite a very difficult business environment, the
Company reported improved earnings in 2003 as compared to 2002. Although stronger economic indicators were reported in some geographic regions the
Company’s paper and paperboard customers continued to reduce capacity and limit production. The resulting impact on demand for the Company’s
products adversely affected sales in the Engineered Fabrics Segment. Sales of high-performance doors were similarly affected as industrial customers
continued constraints on capital spending. The Company continued to focus on new product introductions in the Engineered Fabrics and High Performance
Door segments in 2003. Net sales in the Applied Technologies segment improved and also reflected the effect of new product
developments.
Gross profit as a percentage of net sales was 40.7%
for 2003 and 40.9% for 2002. In 2003, gross profit was negatively affected by the weaker U.S. dollar on sales exported from Europe. These sales are
typically denominated in U.S. dollars, while the manufacturing costs are based mainly on currencies that strengthened against the U.S. dollar. In 2003,
gross profit was lower by approximately $9.4 million as a result of the currency effect on these export sales. Gross profit in 2003 was also negatively
affected by higher costs for insurance ($1.5 million) and pension benefits ($6.1 million). The increase in insurance costs was driven by market pricing
for insurance, while increased pension costs were related to decreases in the discount rate and unfavorable performance on pension plan assets. Gross
profit was negatively affected by costs incurred related to cost reduction initiatives, principally related to the relocation of equipment, of $2.0
million in 2003 and $6.2 million in 2002.
Selling, general, technical and research expenses
increased 6.6% in 2003 as compared to 2002. Excluding the effect of changes in currency translation rates, these costs decreased 1.4%. Cost reduction
initiatives resulted in a decrease in these expenses of approximately $1.4 million. In 2002, Selling and general expenses include $3.6 million of
remeasurement losses at certain Company operations related to trade accounts receivable denominated in currencies other than their functional currency,
while in 2003, the losses were negligible.
33
Following is a table of operating income and
restructuring charges by segment:
|
|
|
|
Year ended
December 31,
|
|
(in thousands)
|
|
|
|
2003
|
|
2002
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
143,440 |
|
|
$ |
161,875 |
|
Albany Door
Systems |
|
|
|
|
(1,024 |
) |
|
|
1,093 |
|
Applied
Technologies |
|
|
|
|
6,065 |
|
|
|
3,311 |
|
Research
expense |
|
|
|
|
(26,353 |
) |
|
|
(24,918 |
) |
Unallocated
expenses |
|
|
|
|
(36,514 |
) |
|
|
(39,273 |
) |
Operating
income |
|
|
|
$ |
85,614 |
|
|
$ |
102,088 |
|
Restructuring Costs by Segment
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
18,219 |
|
|
$ |
— |
|
Albany Door
Systems |
|
|
|
|
2,351 |
|
|
|
— |
|
Applied
Technologies |
|
|
|
|
677 |
|
|
|
— |
|
Corporate |
|
|
|
|
504 |
|
|
|
— |
|
Consolidated
total |
|
|
|
$ |
21,751 |
|
|
$ |
— |
|
Operating income decreased to $85.6 million for
2003, compared to $102.1 million for 2002. The decrease is principally due to 2003 restructuring costs. Changes in currency translation rates had the
effect of increasing operating income by $8.8 million, while the effect of currency rates on European exports decreased operating income by $9.4
million. The cost reduction initiative announced in January 2003 resulted in restructuring charges of $21.8 million, which included $13.0 million in
plant and equipment write-downs and $8.8 million in termination and other costs. The majority of these restructuring costs relate to the shut-down of
the Company’s Engineered Fabrics segment facility in Greenville, South Carolina, and Sélestat, France.
Research expense increased $1.4 million to $26.4
million in 2003 principally due to the effect of changes in currency translation rates. Unallocated expenses decreased $2.8 million to $36.5 million in
2003 principally due to termination of the deferred compensation plan for active employees in 2002 (see Note 15 of Notes to Consolidated Financial
Statements).
Interest expense declined to $17.3 million for 2003
compared to $20.6 million for 2002. The decrease is principally due to lower average debt in 2003. A significant portion of the Company’s interest
expense is derived from interest rate swap agreements. Interest expense related to the swaps amounted to $10.4 million in 2003 and $9.3 million in
2002.
Other expense/(income), net, was expense of $0.7
million for 2003 and $5.0 million for 2002. The favorable change in 2003 is primarily due to a positive effect of currency rates on intercompany loans
and balances and currency hedging activities. Income from these transactions was $8.2 million in 2003 and $2.7 million in 2002.
Income tax expense was $15.7 million in 2003,
compared to $25.0 million in 2002. The Company recorded favorable tax adjustments of $5.2 million in 2003 and $2.8 million in 2002 related to the
resolution of certain income tax contingencies. The effective income tax rate excluding the adjustments was 30% in 2003 and 35% in 2002. The decrease
in the tax rate was due to improving the tax efficiency of the Company’s global operations.
Net income was $54.1 million for 2003, compared to
$48.9 million for 2002. Basic earnings per share were $1.64 for 2003 compared to $1.52 for 2002. The increase in earnings per share in 2003 is
principally due to benefits resulting from cost reduction initiatives, strong cash flows that resulted in lower interest costs, and lower income
taxes.
Engineered Fabrics segment
Net sales in the Engineered Fabrics segment
increased to $733.3 million for 2003 as compared to $697.8 million for 2002. Changes in currency translation rates had the effect of increasing net
sales by $55.7 million. Excluding the effect of changes in currency translation rates, 2003 net sales decreased 2.9% as compared to 2002.
Although
34
the operating rates of the paper and paperboard
industries might be expected to rise as a result of the reductions in capacity produced by their consolidations, reported operating rates in the United
States improved only slightly for paper and declined for paperboard. In Europe, operating rates remained soft. Growth in the paper and paperboard
industry, the Company’s principal market, was flat in most regions except Asia.
The United States consumption of papermachine
clothing has decreased approximately 20% during the last five years, while consumption in Europe has increased approximately 10%. The decrease in
consumption of paper machine clothing in the United States reflects a shift in paper making to different regions, principally Asia. Unit pricing of
paper machine clothing was decreasing during the late 1990’s, but was steadier and, in some product lines, improved during 2003. As a result of
these factors, 2003 unit sales volume of global paper machine clothing decreased approximately 5% while pricing was relatively stable.
Gross profit as a percentage of net sales was 43.2%
for 2003 compared to 44.0% for 2002. The 2003 gross profit was negatively impacted by $9.4 million of higher costs related to the currency effect on
European export sales. Operating income decreased to $143.4 million compared to $161.9 million for 2002. The decrease is principally due to $18.2
million of restructuring charges.
Albany Door Systems segment
Net sales in the Albany Door Systems segment
increased to $101.3 million in 2003 as compared to $92.5 million for 2002. Changes in currency translation rates had the effect of increasing net sales
by $13.3 million. Excluding the effect of changes in currency translation rates, 2003 net sales decreased 4.8% as compared to 2002. Sales were affected
by soft capital spending in Europe, this segment’s principal market. The Company provides aftermarket service and parts for high-performance
doors, and this revenue component grew. Aftermarket revenue was approximately $29.7 million in 2003, up from $25.6 million in 2002.
Gross profit as a percentage of net sales was 32.0%
for 2003 compared to 33.3% for 2002. The 2003 gross profit was negatively impacted by sales volume, which was lower excluding the effects of changes in
currency translation rates. Operating income decreased to a loss of $1.0 million compared to income of $1.1 million for 2002. The results for 2003
include restructuring costs of approximately $2.4 million.
Applied Technologies segment
Net sales in the Applied Technologies segment
increased to $53.3 million in 2003 as compared to $42.2 million for 2002. Changes in currency translation rates had the effect of increasing net sales
by $3.2 million. Excluding the effect of changes in currency translation rates, 2003 net sales increased 18.6% as compared to 2002. New products and
market opportunities are driving growth in this segment. For example, the expansion of PrimaLoft® premium synthetic insulation into the European
and Japanese markets is providing continued growth for this product.
Gross profit as a percentage of net sales was 32.6%
for 2003 compared to 36.3% for 2002. Operating income increased to $6.1 million compared to $3.3 million for 2002. The increase is principally due to
higher sales.
International Activities
The Company conducts more than half of its business
in countries outside of the United States. As a result, the Company experiences transaction and translation gains and losses because of currency
fluctuations. The Company periodically enters into foreign currency contracts to hedge this exposure (see Notes 6, 10 and 14 of Notes to Consolidated
Financial Statements). The Company believes that the risks associated with its operations and locations outside the United States are not other than
those normally associated with operations in such locations.
Liquidity and Capital Resources
The Company finances its business activities
primarily with cash generated from operations and borrowings, primarily under the revolving credit agreement described in Note 6 of Notes to
Consolidated Financial Statements. Company subsidiaries outside of the United States may also maintain working capital lines with local banks, but
borrowings under such local facilities tend not to be significant.
35
Net cash provided by operating activities was $101.8
million for 2004, compared with $131.5 million for 2003, and $118.8 million for 2002. The decrease from 2003 to 2004 was principally due to an increase
of $29.6 million in cash used for restructuring charges. A significant portion of the increase in net cash provided by operating activities in 2003
compared to 2002 was due to higher net sales as reported in U.S. dollars, and the resulting impact on operating income. 2003 cash flow also reflected a
provision for deferred income taxes and other long-term liabilities of $6.9 million, compared to provisions of $16.7 million in 2004 and $21.1 million
in 2002. The lower use of cash for these provisions in 2003 was principally due to a tax refund.
Accounts receivable at December 31, 2004, decreased
$6.2 million while inventory increased $8.0 million as compared to December 31, 2003. Excluding the effect of changes in currency translation rates,
accounts receivable and inventories decreased a total of $18.4 million. While the Company will continue efforts to reduce the amount of working capital
invested in accounts receivable and inventories, there can be no assurance that the increase in cash flow will be repeated in future
periods.
The Company has a program to sell a portion of its
North American accounts receivable. This program is described in detail in Note 6 of Notes to Consolidated Financial Statements. This form of financing
results in a lower current incremental cost of financing than the lowest rate on the Company’s revolving credit agreement, and it broadens the
Company’s sources of financing. In exchange for the accounts receivable sold, the Company receives cash and a note. The note is subject to monthly
fluctuation based on the amount of receivables sold and bears interest at variable rates. As of December 31, 2004, the interest rate was 2.9% per
annum. As described above under “Critical Accounting Policies and Assumptions”, in the event that the receivables program was terminated, the
Company would not be required to repay any amounts received, but would also not realize any cash proceeds from the collection of additional receivables
sold under the program prior to termination. Accounts receivable as reflected in the Consolidated Balance Sheets would increase as new sales were made,
and, after the QSPE’s obligations to the third party were satisfied, the note receivable would decrease as sold receivables were collected. These
factors would result in a decrease in reported cash flow from operations beginning in the period of termination and continuing in subsequent periods
until the sold receivables were collected. The Company might need to borrow from its existing credit facilities or use available cash to make up the
difference in cash generated from accounts receivable until collections from new accounts not sold under the program begin to be
received.
The Company currently anticipates its consolidated
tax rate in 2005 will not exceed 30% before any discrete items, although there can be no assurance that this will not change.
At December 31, 2004, the Company’s order
backlog was $521.4 million, an increase of approximately 11.2% from the prior year-end. The increase was partially due to the effect of changes in
currency translation rates.
As discussed above under “Industry
Trends”, since major consolidation and capacity rationalization in the paper industry appears to be largely completed, the Company expects the
negative impact of these trends on PMC demand in future periods will be minimized. Nevertheless, if these trends were to continue, they could have a
negative impact on net sales as well as on cash flow from operations. The Company will continue to focus on improving the performance of its products
and improving its product mix and price structure, while at the same time identifying additional cost-saving opportunities. In any event, although
historical cash flows may not, for all of these reasons, necessarily be indicative of future cash flows, the Company expects to continue to be able to
generate substantial cash from sales of its products and services in future periods.
In January 2004, the Company entered into an
unsecured five-year $460 million revolving credit agreement with a group of banks. Under the agreement, the Company pays a fee of 0.25% on the unused
portion of the commitment, and pays interest, at variable rates based on LIBOR, plus a spread, on the drawn portion. The spread is determined by the
Company’s leverage ratio, as defined in the agreement. The agreement includes a number of covenants that could limit the Company’s ability to
purchase Common Stock, pay dividends, acquire other companies or dispose of its assets, and also requires the Company to maintain a leverage ratio of
not greater than 3.00 to 1.00, and a minimum interest coverage of at least 3.00 to 1.00. The Company may purchase its Common Stock or pay dividends to
the extent its leverage ratio remains at or below 2.25 to 1.00, and may make acquisitions provided its leverage ratio would not exceed 2.50 to 1.00
after giving pro forma effect to the acquisition. If any bank in the lending group is unable to meet its commitment to lend, the Company may be unable
to borrow the full amount. The Company does not expect that any of the banks in the bank group will be unable to meet their
36
commitments. The Company’s 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 of December 31, 2004, the Company’s leverage ratio under the agreement was 1.11 to 1.00, and the interest coverage ratio was 9.48 to
1.00.
As of December 31, 2004, borrowings under the
principal loan agreement were $200 million, and total long-term debt was $213.6 million. The majority of other long-term indebtedness represented debt
under industrial revenue financings in the United States (see Note 6 of Notes to Consolidated Financial Statements.) Based on the maximum leverage
ratio, the Company, as of December 31, 2004, would have been able to borrow an additional $260 million under the principal loan agreement. The Company
also had short-term indebtedness of $16.0 million at December 31, 2004.
The Company is the owner and beneficiary of life
insurance policies on certain present and former employees. The Company reports the cash surrender value of life insurance, net of any outstanding
loans, as a separate noncurrent asset. The year-end cash surrender value of life insurance policies was $34.6 million in 2004, $32.4 million in 2003,
and $29.3 million in 2002. The rate of return on the policies varies with market conditions and was approximately 7.7% in 2004, 8.2% in 2003 and is
expected to be approximately 7.1% in 2005. The Company may convert the cash surrender value of these policies to cash at any time, by either
surrendering the policies or borrowing against the cash value of the policies. In 2002, the Company used $25.9 million of cash to repay all outstanding
loans against the policies. There were no borrowings against the life insurance policies during 2004 or 2003.
Capital expenditures were $57.1 million in 2004,
$51.8 million in 2003, and $31.7 million in 2002. Capital expenditures in 2003 and 2004 included amounts related to a new facility in France as well as
capacity and efficiency improvements at the Company’s plant in Finland. The Company estimates capital expenditure requirements of about $45
million in 2005. Such expenditures would be for replacement of equipment, upgrades for efficiency improvements and extension of asset lives, as well as
to support safety and environmental requirements and the expansion of capacity in accordance with the Company’s business strategies. As with
previous capital spending, the Company expects to fund future capital spending from cash from operations and existing credit
facilities.
Cash dividends per share increased from $0.205 in
2002, to $0.25 in 2003, to $0.30 in 2004. Dividends payable as of December 31, 2004 and 2003, were $2.5 million and $2.3 million, respectively.
Dividends have been declared each quarter since the fourth quarter of 2001. Decisions with respect to whether a dividend will be paid, and the amount
of the dividend, are made by the Board of Directors each quarter. To the extent the Board declares cash dividends in the future, the Company would
expect to pay such dividends out of operating cash flow. Future cash dividends will be dependent on debt covenants and on the Board’s assessment
of the Company’s ability to generate sufficient cash flows.
In January 1998, the Board authorized the purchase
of 3,000,000 shares of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be
advantageous to the Company’s shareholders. Since January 1998, the Company has purchased 2,946,900 shares of its Class A Common Stock pursuant to
this authorization, including 1,330,000 purchased in 2004. In July 2004, the Company purchased 1,489,943 shares of its Class A Common Stock in a
private transaction. The authorization given by the Board for this purchase was separate from the authorization given in 1998. The total cost of
treasury shares purchased in 2004 was $81.1 million. In November 2004, the Board authorized the purchase of up to 1,000,000 additional shares of its
Class A Common Stock. As of December 31, 2004, the Company remains authorized to purchase 1,053,100 shares without further
announcement.
As of December 31, 2004, the Company had accrued
restructuring liabilities of $10.3 million. The Company anticipates that cash payments for restructuring will be approximately $9.2 million in 2005,
$0.1 million in 2006, and $1.0 million thereafter.
37
As of December 31, 2004, the Company had the
following cash flow obligations:
|
|
|
|
Payments Due by Period
|
|
(in millions)
|
|
|
|
Total
|
|
Less than
One year
|
|
One to
Three years
|
|
Three to
Five years
|
|
After
Five years
|
Total
debt |
|
|
|
$ |
229.6 |
|
|
$ |
15.9 |
|
|
$ |
12.3 |
|
|
$ |
201.4 |
|
|
$ |
— |
|
Interest
payments (a) |
|
|
|
|
9.7 |
|
|
|
8.2 |
|
|
|
1.4 |
|
|
|
0.1 |
|
|
|
— |
|
Pension plan
contributions (b) |
|
|
|
|
27.7 |
|
|
|
27.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other
postretirement benefits (c) |
|
|
|
|
44.8 |
|
|
|
7.6 |
|
|
|
17.2 |
|
|
|
20.0 |
|
|
|
— |
|
Restructuring
accruals |
|
|
|
|
10.3 |
|
|
|
9.2 |
|
|
|
0.1 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Other
noncurrent liabilities (d) |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Operating
leases |
|
|
|
|
42.5 |
|
|
|
15.4 |
|
|
|
20.6 |
|
|
|
5.5 |
|
|
|
1.0 |
|
|
|
|
|
$ |
364.6 |
|
|
$ |
84.0 |
|
|
$ |
51.6 |
|
|
$ |
227.5 |
|
|
$ |
1.5 |
|
(a) |
|
The terms of variable rate debt arrangements, including interest
rates and maturities, are included in Note 6 of Notes to Consolidated Financial Statements. The Company used interest rate swap agreements to fix the
rate of interest on $200 million of variable rate debt at 7.17% through the maturity of the swaps in June and August 2005. Making the assumption that
the Company maintains $200 million of variable rate debt until the swaps mature, and no changes in variable interest rates occur, the Company would
expect to incur additional interest on that debt of approximately $7.2 million in 2005 and an additional $1.0 million of interest on other debt.
Estimates of interest on the $200 million beyond the maturity of the swaps is not provided due to many factors that could affect the reliability of
those estimates. The Company expects variable interest rates to change in future periods, but cannot predict the nature, timing, or magnitude of such
changes. |
(b) |
|
The Company’s largest pension plan is in the United States.
Although no contributions are currently required, the Company’s planned contribution of $20 million in 2005 is included in this schedule and,
additionally, $7.7 million is included for plans outside of the United States. The amount of contributions after 2005 is subject to many variables
including return of pension plan assets, interest rates, and tax and employee benefit laws. Therefore, contributions beyond 2005 are not included in
this schedule. |
(c) |
|
Estimated payments for Other postretirement benefits for the
next five years is based on the assumption that employer cash payments will increase by 8% after 2005. No estimate of the payments after five years has
been made due to many uncertainties. |
(d) |
|
Estimated payments for deferred compensation and other
noncurrent liabilities of $25.6 million are not included in this table due to the uncertain timing of the ultimate cash settlement. |
The foregoing table should not be deemed to
represent all of the Company’s future cash requirements, which will vary based upon the Company’s future needs. While the cash required to
satisfy the obligations set forth in the table is reasonably determinable in advance, many other cash needs such as raw materials costs, payroll and
taxes are dependent on future events and are harder to predict. In addition, while the contingencies described in Note 7 of Notes to Consolidated
Financial Statements are not currently anticipated to have a material adverse effect on the Company, there can be no assurance that this will be the
case. Subject to the foregoing, the Company currently expects that cash from operations and the other sources of liquidity described above will be
sufficient to enable it to meet the foregoing cash obligations, as well as to meet its other cash requirements.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards
Board (FASB) issued FAS No. 123 (Revised) “Share-Based Payment” (FAS No. 123R). This Standard establishes accounting guidelines for
transactions in which an entity exchanges its equity instruments for goods or services. The Standard focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment transactions. The Company is required to adopt the provisions of this standard on
July 1, 2005. The Company will apply the “modified prospective application” under FAS 123R and expects that the adoption of this Standard
will result in additional compensation expense of approximately $1.2 million in 2005.
38
In December 2004, the FASB issued FAS No. 153,
“Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. This Standard modifies the accounting for nonmonetary exchanges of
similar productive assets. The Company is required to adopt the Standard on July 1, 2005 and does not expect the adoption to have a material effect on
its financial statements.
In November 2004, the FASB issued FAS No. 151,
“Inventory Costs, an amendment of ARB No. 43, Chapter 4”. This Standard requires that items such as idle facility expense and excess spoilage
be recognized as current period charges. Under ARB No. 43, such costs were considered inventoriable costs unless they were considered so abnormal as to
require immediate expensing. The Company is required to adopt the Standard on January 1, 2006 and does not expect the adoption to have a material
effect on its financial statements.
Outlook
Management expects that the global paper and
paperboard markets will improve in 2005. Current operating rates remain high, especially in paperboard, and demand for most paperboard grades and
selected paper grades is expected to hold through the first half of 2005. The Albany Door Systems segment should continue to grow in 2005 due to new
products and the expansion of aftermarket sales and service. The Applied Technologies segment should benefit from new power generation plants, which
will come onstream in 2005, improvements in tannery and textile markets in Asia and Latin America, and the growth of wet filtration
products.
Increased operating expenses resulting from higher
energy prices will have an impact on the Company’s operations in 2005. The Company’s primary raw material for PMC is petroleum-based, and it
is anticipated that higher petroleum prices will increase raw material costs by approximately $12 million in 2005. Additionally, general inflationary
pressures could result in cost increases in other expense categories. The incremental savings in 2005 from completed restructuring programs is expected
to offset most but not all of the cost increases that may result from petroleum-based raw materials and general inflation.
The Company’s restructuring activities are
complete, and in 2005 the focus will be on growth. The Company believes that customers will place their business with suppliers that offer them the
greatest value. The Albany Value Concept directs the Company’s efforts in the marketplace in the form of new and improved products and superior
process support for customers. At the same time, it focuses employees on product quality and consistency and the pursuit of process and efficiency
improvements in all business areas. Management expects these efforts will continue to provide substantial benefits for customers and improved returns
for shareholders.
39
Forward-Looking Statements and non-GAAP measures
This annual report 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. Restructuring charges per share is calculated by dividing total restructuring charges for a period by the average number of
shares outstanding for that period. 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 annual report,
including statements about future sales, earnings, cash flows, possible uses for cash, pricing, markets, cost reductions, new products and process
improvements, paper industry consolidation and outlook, 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,
including those detailed in the Company’s other filings with the Securities and Exchange Commission.
| Item 7a. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
The Company has market risk with respect to foreign
currency exchange rates and interest rates. The market risk is the potential loss arising from adverse changes in these rates as discussed
below.
The Company has manufacturing plants and sales
transactions worldwide and therefore is subject to foreign currency risk. This risk is composed of both potential losses from the translation of
foreign currency financial statements and the remeasurement of foreign currency transactions. To manage this risk, the Company periodically enters into
forward exchange contracts to either hedge the net assets of a foreign investment or to provide an economic hedge against future cash flows. The total
net assets of non-U.S. operations and long-term intercompany loans denominated in non-functional currencies subject to potential loss amount to
approximately $631.1 million. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange
rates amounts to $63.1 million. Furthermore, related to foreign currency transactions, the Company has exposure to non-functional currency balances
totalling $147.7 million. This amount includes, on an absolute basis, exposures to foreign currency assets and liabilities. On a net basis, the Company
had approximately $25.4 million of foreign currency liabilities as of December 31, 2004. As currency rates change, these non-functional currency
balances are revalued, and the corresponding adjustment is recorded in the income statement. A hypothetical change of 10% in currency rates could
result in an adjustment to the income statement of approximately $2.5 million. Actual results may differ.
Including the effect of the interest rate swap
agreements, the Company had fixed the interest rate on approximately 98% of its total debt. Included in Accrued liabilities at December 31, 2004 was
$4.6 million that represents the fair value of the swap agreements.
40
| Item 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
42 |
|
Consolidated
Statements of Income and Retained Earnings for the years ended December 31, 2004, 2003, and 2002 |
|
|
|
|
44 |
|
Consolidated
Statements of Comprehensive Income for the years ended December 31, 2004,
2003, and 2002 |
|
|
|
|
45 |
|
Consolidated
Balance Sheets as of December 31, 2004 and 2003 |
|
|
|
|
46 |
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004, 2003, and 2002 |
|
|
|
|
47 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
48 |
|
Quarterly
Financial Data |
|
|
|
|
76 |
|
41
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albany International Corp.
We have completed an integrated audit of Albany International Corp.’s 2004
consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions,
based on our audits, are presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial
statements listed in the accompanying index present fairly, in all material respects, the financial position of Albany International Corp. and its
subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 4 to the consolidated financial
statements, on January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets.
Internal control over financial reporting
Also, in our opinion, management’s assessment,
included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective
internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based
on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the
Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures
as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance
42
with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Albany, New York
March 9, 2005
43
Albany
International Corp.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31,
(in thousands, except per share
amounts)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Statements
of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
|
|
$ |
919,802 |
|
|
$ |
887,943 |
|
|
$ |
832,499 |
|
Cost of goods
sold |
|
|
|
|
557,742 |
|
|
|
526,757 |
|
|
|
492,217 |
|
Gross
profit |
|
|
|
|
362,060 |
|
|
|
361,186 |
|
|
|
340,282 |
|
|
Selling and
general expenses |
|
|
|
|
210,348 |
|
|
|
198,610 |
|
|
|
188,347 |
|
Technical and
research expenses |
|
|
|
|
57,150 |
|
|
|
55,211 |
|
|
|
49,847 |
|
Restructuring, net |
|
|
|
|
54,058 |
|
|
|
21,751 |
|
|
|
— |
|
Operating
income |
|
|
|
|
40,504 |
|
|
|
85,614 |
|
|
|
102,088 |
|
|
Interest
income |
|
|
|
|
(2,150 |
) |
|
|
(2,232 |
) |
|
|
(3,084 |
) |
Interest
expense |
|
|
|
|
16,786 |
|
|
|
17,306 |
|
|
|
20,620 |
|
Other
expense/(income), net |
|
|
|
|
13,539 |
|
|
|
662 |
|
|
|
5,003 |
|
Income before
income taxes |
|
|
|
|
12,329 |
|
|
|
69,878 |
|
|
|
79,549 |
|
|
Income
taxes |
|
|
|
|
2,450 |
|
|
|
15,720 |
|
|
|
25,041 |
|
Income before
equity in earnings/(losses) of
associated companies |
|
|
|
|
9,879 |
|
|
|
54,158 |
|
|
|
54,508 |
|
|
Equity in
earnings/(losses) of associated companies |
|
|
|
|
506 |
|
|
|
(103 |
) |
|
|
270 |
|
Income before
cumulative effect of change in
accounting principle, net of taxes |
|
|
|
|
10,385 |
|
|
|
54,055 |
|
|
|
54,778 |
|
|
Cumulative
effect of change in accounting principle,
net of taxes |
|
|
|
|
— |
|
|
|
— |
|
|
|
(5,837 |
) |
Net
income |
|
|
|
|
10,385 |
|
|
|
54,055 |
|
|
|
48,941 |
|
|
Retained
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings, beginning of year |
|
|
|
|
433,407 |
|
|
|
387,609 |
|
|
|
345,273 |
|
Less
dividends |
|
|
|
|
9,735 |
|
|
|
8,257 |
|
|
|
6,605 |
|
Retained
earnings, end of year |
|
|
|
$ |
434,057 |
|
|
$ |
433,407 |
|
|
$ |
387,609 |
|
Earnings per
share — basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
cumulative effect of change in
accounting principle |
|
|
|
$ |
0.32 |
|
|
$ |
1.64 |
|
|
$ |
1.70 |
|
Cumulative
effect of change in accounting principle |
|
|
|
|
— |
|
|
|
— |
|
|
|
(0.18 |
) |
Net
income |
|
|
|
$ |
0.32 |
|
|
$ |
1.64 |
|
|
$ |
1.52 |
|
Earnings per
share — diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before
cumulative effect of change in
accounting principle |
|
|
|
$ |
0.31 |
|
|
$ |
1.61 |
|
|
$ |
1.68 |
|
Cumulative
effect of change in accounting principle |
|
|
|
|
— |
|
|
|
— |
|
|
|
(0.18 |
) |
Net
income |
|
|
|
$ |
0.31 |
|
|
$ |
1.61 |
|
|
$ |
1.50 |
|
Dividends per
share |
|
|
|
$ |
0.30 |
|
|
$ |
0.25 |
|
|
$ |
0.205 |
|
The accompanying notes are an integral part of the consolidated financial
statements.
44
Albany
International Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31,
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net
income |
|
|
|
$ |
10,385 |
|
|
$ |
54,055 |
|
|
$ |
48,941 |
|
|
Other
comprehensive income/(loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments |
|
|
|
|
52,933 |
|
|
|
81,935 |
|
|
|
48,690 |
|
Hedges of net
investments in non-U.S. subsidiaries |
|
|
|
|
1,537 |
|
|
|
(235 |
) |
|
|
(1,810 |
) |
Pension
liability adjustments — before tax effect |
|
|
|
|
(70 |
) |
|
|
(5,668 |
) |
|
|
(34,815 |
) |
Derivative
valuation adjustment — before tax effect |
|
|
|
|
9,926 |
|
|
|
7,084 |
|
|
|
(8,484 |
) |
|
Income taxes
related to items of other comprehensive
income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedges of net
investments in non-U.S. subsidiaries |
|
|
|
|
(569 |
) |
|
|
87 |
|
|
|
670 |
|
Pension
liability adjustments |
|
|
|
|
1,280 |
|
|
|
2,052 |
|
|
|
12,882 |
|
Derivative
valuation adjustment |
|
|
|
|
(3,871 |
) |
|
|
(2,331 |
) |
|
|
3,138 |
|
Comprehensive
income |
|
|
|
$ |
71,551 |
|
|
$ |
136,979 |
|
|
$ |
69,212 |
|
The accompanying notes are an integral part of the consolidated financial
statements.
45
Albany
International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except share data)
|
|
|
|
2004
|
|
2003
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
58,982 |
|
|
$ |
78,822 |
|
Accounts
receivable, less allowance for doubtful accounts ($9,931 in 2004;
$8,673 in 2003) |
|
|
|
|
144,950 |
|
|
|
151,157 |
|
Note
receivable |
|
|
|
|
18,955 |
|
|
|
21,814 |
|
Inventories |
|
|
|
|
185,530 |
|
|
|
177,528 |
|
Prepaid
expenses |
|
|
|
|
8,867 |
|
|
|
8,067 |
|
Deferred
taxes |
|
|
|
|
26,526 |
|
|
|
33,314 |
|
Total current
assets |
|
|
|
|
443,810 |
|
|
|
470,702 |
|
|
Property, plant
and equipment, at cost, net |
|
|
|
|
378,170 |
|
|
|
370,280 |
|
Investments in
associated companies |
|
|
|
|
6,456 |
|
|
|
5,278 |
|
Intangibles |
|
|
|
|
14,207 |
|
|
|
15,790 |
|
Goodwill |
|
|
|
|
171,622 |
|
|
|
159,543 |
|
Deferred
taxes |
|
|
|
|
87,848 |
|
|
|
63,657 |
|
Cash surrender
value of life insurance |
|
|
|
|
34,583 |
|
|
|
32,399 |
|
Other
assets |
|
|
|
|
19,064 |
|
|
|
21,274 |
|
Total
assets |
|
|
|
$ |
1,155,760 |
|
|
$ |
1,138,923 |
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Notes and
loans payable |
|
|
|
$ |
14,617 |
|
|
$ |
5,250 |
|
Accounts
payable |
|
|
|
|
43,378 |
|
|
|
35,080 |
|
Accrued
liabilities |
|
|
|
|
120,263 |
|
|
|
122,550 |
|
Current
maturities of long-term debt |
|
|
|
|
1,340 |
|
|
|
1,949 |
|
Income taxes
payable and deferred |
|
|
|
|
29,620 |
|
|
|
13,682 |
|
Total current
liabilities |
|
|
|
|
209,218 |
|
|
|
178,511 |
|
|
Long-term
debt |
|
|
|
|
213,615 |
|
|
|
214,894 |
|
Other
noncurrent liabilities |
|
|
|
|
147,268 |
|
|
|
153,811 |
|
Deferred taxes
and other credits |
|
|
|
|
34,882 |
|
|
|
37,052 |
|
Total
liabilities |
|
|
|
|
604,983 |
|
|
|
584,268 |
|
|
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 33,176,872 in 2004 and 32,548,938 in 2003 |
|
|
|
|
33 |
|
|
|
33 |
|
Class B Common
Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 3,236,476 in 2004 and 2003 |
|
|
|
|
3 |
|
|
|
3 |
|
Additional
paid-in capital |
|
|
|
|
296,045 |
|
|
|
280,734 |
|
Retained
earnings |
|
|
|
|
434,057 |
|
|
|
433,407 |
|
Accumulated
items of other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Translation
adjustments |
|
|
|
|
(11,711 |
) |
|
|
(65,613 |
) |
Derivative
valuation adjustment |
|
|
|
|
(2,785 |
) |
|
|
(8,840 |
) |
Pension
liability adjustment |
|
|
|
|
(38,369 |
) |
|
|
(39,579 |
) |
|
|
|
|
|
677,273 |
|
|
|
600,145 |
|
Less treasury
stock, at cost |
|
|
|
|
126,496 |
|
|
|
45,490 |
|
Total
shareholders’ equity |
|
|
|
|
550,777 |
|
|
|
554,655 |
|
Total
liabilities and shareholders’ equity |
|
|
|
$ |
1,155,760 |
|
|
$ |
1,138,923 |
|
The accompanying notes are an integral part of the consolidated financial
statements.
46
Albany
International Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
10,385 |
|
|
$ |
54,055 |
|
|
$ |
48,941 |
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in
(earnings)/losses of associated companies |
|
|
|
|
(506 |
) |
|
|
103 |
|
|
|
(270 |
) |
Depreciation |
|
|
|
|
51,843 |
|
|
|
51,003 |
|
|
|
47,478 |
|
Amortization |
|
|
|
|
3,372 |
|
|
|
5,091 |
|
|
|
5,385 |
|
Provision for
deferred income taxes, other credits and long-term liabilities |
|
|
|
|
(16,652 |
) |
|
|
(6,908 |
) |
|
|
(21,094 |
) |
Provision for
write-off of equipment |
|
|
|
|
17,099 |
|
|
|
14,671 |
|
|
|
— |
|
Provision for
impairment of investment |
|
|
|
|
4,000 |
|
|
|
— |
|
|
|
— |
|
Cumulative
effect of change in accounting principle |
|
|
|
|
— |
|
|
|
— |
|
|
|
5,837 |
|
Increase in
cash surrender value of life insurance, net of premiums paid |
|
|
|
|
(1,958 |
) |
|
|
(1,998 |
) |
|
|
(569 |
) |
Change in
unrealized currency transaction gains and losses |
|
|
|
|
8,004 |
|
|
|
(8,286 |
) |
|
|
(1,933 |
) |
Gain on
disposition of assets |
|
|
|
|
(285 |
) |
|
|
(513 |
) |
|
|
(2,688 |
) |
Shares
contributed to ESOP |
|
|
|
|
5,505 |
|
|
|
5,398 |
|
|
|
4,635 |
|
Tax benefit
of options exercised |
|
|
|
|
1,473 |
|
|
|
2,289 |
|
|
|
1,672 |
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
|
9,747 |
|
|
|
15,685 |
|
|
|
21,974 |
|
Note
receivable |
|
|
|
|
2,859 |
|
|
|
(1,739 |
) |
|
|
1,028 |
|
Inventories |
|
|
|
|
642 |
|
|
|
3,171 |
|
|
|
17,687 |
|
Prepaid
expenses |
|
|
|
|
(300 |
) |
|
|
(894 |
) |
|
|
(1,885 |
) |
Accounts
payable |
|
|
|
|
3,029 |
|
|
|
(4,544 |
) |
|
|
(10,653 |
) |
Accrued
liabilities |
|
|
|
|
(5,518 |
) |
|
|
12,457 |
|
|
|
(5,671 |
) |
Income taxes
payable |
|
|
|
|
9,638 |
|
|
|
(9,294 |
) |
|
|
8,346 |
|
Other,
net |
|
|
|
|
(552 |
) |
|
|
1,777 |
|
|
|
605 |
|
Net cash
provided by operating activities |
|
|
|
|
101,825 |
|
|
|
131,524 |
|
|
|
118,825 |
|
|
Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of
property, plant and equipment |
|
|
|
|
(57,129 |
) |
|
|
(51,849 |
) |
|
|
(31,678 |
) |
Purchased
software |
|
|
|
|
(879 |
) |
|
|
(1,072 |
) |
|
|
(1,465 |
) |
Proceeds from
sale of assets |
|
|
|
|
5,416 |
|
|
|
2,653 |
|
|
|
6,373 |
|
Cash received
from life insurance policy terminations |
|
|
|
|
863 |
|
|
|
— |
|
|
|
— |
|
Repayments of
loans from life insurance policies |
|
|
|
|
— |
|
|
|
— |
|
|
|
(25,934 |
) |
Premiums paid
for life insurance |
|
|
|
|
(1,089 |
) |
|
|
(1,118 |
) |
|
|
(1,159 |
) |
Net cash used
in investing activities |
|
|
|
|
(52,818 |
) |
|
$ |
(51,386 |
) |
|
|
(53,863 |
) |
|
Financing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
borrowings |
|
|
|
|
68,005 |
|
|
|
45,833 |
|
|
|
60,208 |
|
Principal
payments on debt |
|
|
|
|
(60,724 |
) |
|
|
(59,709 |
) |
|
|
(106,446 |
) |
Purchase of
treasury shares |
|
|
|
|
(81,135 |
) |
|
|
— |
|
|
|
— |
|
Proceeds from
options exercised |
|
|
|
|
8,284 |
|
|
|
17,559 |
|
|
|
14,950 |
|
Debt issuance
costs |
|
|
|
|
(1,555 |
) |
|
|
— |
|
|
|
— |
|
Dividends
paid |
|
|
|
|
(9,570 |
) |
|
|
(7,692 |
) |
|
|
(6,391 |
) |
Net cash used
in financing activities |
|
|
|
|
(76,695 |
) |
|
|
(4,009 |
) |
|
|
(37,679 |
) |
Effect of
exchange rate changes on cash flows |
|
|
|
|
7,848 |
|
|
|
(16,106 |
) |
|
|
(14,637 |
) |
(Decrease)/increase in cash and cash equivalents |
|
|
|
|
(19,840 |
) |
|
|
60,023 |
|
|
|
12,646 |
|
Cash and cash
equivalents at beginning of year |
|
|
|
|
78,822 |
|
|
|
18,799 |
|
|
|
6,153 |
|
Cash and cash
equivalents at end of year |
|
|
|
$ |
58,982 |
|
|
$ |
78,822 |
|
|
$ |
18,799 |
|
The accompanying notes are an integral part of the consolidated financial
statements.
47
Albany International Corp.
NOTES TO 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”) after elimination of intercompany transactions. The Company has
one subsidiary that is a qualified special purpose entity that is not consolidated, in accordance with Financial Accounting Standard (FAS) No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (see Note 6). The Company has 50% interests in
an entity in South Africa, an entity in England, and an entity in Russia. The consolidated financial statements include the Company’s original
investment in these entities, plus its share of undistributed earnings or losses, in the account “Investments in associated
companies.”
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. Actual results could differ from those
estimates.
Revenue Recognition
The Company records sales when persuasive evidence
of an arrangement exists, delivery has occurred, the selling price is fixed and collectibility is reasonably assured. The Company includes in revenue
any amounts invoiced for shipping and handling. The timing of revenue recognition is dependent upon the contractual arrangement between the Company and
its customers. These arrangements, which may include provisions for transfer of title and guarantees of workmanship, are specific to each customer.
Sales contracts in the Albany Door Systems segment may include product and installation services. For these sales, the Company applies the provisions
of EITF 00-21, “Revenue Arrangements with Multiple Deliverables”. The Company’s contracts that include product and installation services
generally do not qualify as separate units of accounting and, accordingly, revenue for the entire contract value is recognized upon completion of
installation services. The Company limits the concentration of credit risk in receivables by closely monitoring credit and collection policies. The
Company records 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.
Cost of Goods Sold
Cost of goods sold includes the cost of materials,
provisions for obsolete inventories, labor and supplies, shipping and handling costs, depreciation of manufacturing facilities and equipment,
purchasing, receiving, warehousing and other expenses.
Selling, General and Technical Expenses
Selling, general and technical expenses are
comprised primarily of wages, benefits, travel, professional fees, remeasurement of foreign currency balances and other costs, and are expensed as
incurred. Provisions for bad debts are included in selling expense.
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 the average rates of exchange for the year. 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.
48
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
1. Accounting
Policies — (Continued)
Gains or losses resulting from short-term
intercompany loans and balances denominated in a currency other than the entity’s local currency, forward exchange contracts that are not
designated as hedges for accounting purposes and futures contracts are generally included in income 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. Gains and losses resulting
from other balances denominated in a currency other than the entity’s local currency are recorded in Selling and general
expenses.
The following table summarizes total transaction
gains and losses recognized in the income statement:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Losses/(gains) included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and
general expenses |
|
|
|
$ |
758 |
|
|
$ |
— |
|
|
$ |
2,771 |
|
Other
expense/(income), net |
|
|
|
|
1,559 |
|
|
|
(8,218 |
) |
|
|
(2,680 |
) |
Total
transaction losses/(gains) |
|
|
|
$ |
2,317 |
|
|
$ |
(8,218 |
) |
|
$ |
91 |
|
Research Expense
Research expense consists primarily of compensation,
supplies and professional fees incurred in connection with processing of patents, and is charged to operations as incurred. Research expense was
$27,436,000 in 2004, $26,353,000 in 2003, and $24,918,000 in 2002.
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.
Inventories
Inventories are stated at the lower of cost or
market and are valued at average cost, net of reserves. The Company records a provision for obsolete inventory based on the age and category of the
inventories. As of December 31, 2004 and 2003, inventories consist of the following:
(in thousands)
|
|
|
|
2004
|
|
2003
|
Raw
materials |
|
|
|
$ |
31,998 |
|
|
$ |
29,805 |
|
Work in
process |
|
|
|
|
57,470 |
|
|
|
53,936 |
|
Finished
goods |
|
|
|
|
96,062 |
|
|
|
93,787 |
|
Total
inventories |
|
|
|
$ |
185,530 |
|
|
$ |
177,528 |
|
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Depreciation is recorded using the straight-line method over the estimated useful lives of the assets for financial reporting purposes; accelerated
methods are used for income tax purposes. Useful lives for land improvements, buildings, and machinery and equipment are 25 years, 25 to 40 years, and
3 to 10 years, respectively. 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 are included in the respective asset and accumulated depreciation
accounts. When items are sold or retired, related gains or losses are included in net income.
The Company reviews 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 may not
be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
49
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
1. Accounting
Policies — (Continued)
Goodwill, Intangibles and Other Assets
Prior to 2002, the excess purchase price over fair
values assigned to net assets acquired (goodwill) had been amortized on a straight-line basis over 20 to 40 years. Beginning in 2002, the Company
adopted the provisions of FAS No. 142 “Goodwill and Other Intangible Assets” which eliminated the prior practice of goodwill amortization and
instead adopted an impairment-only approach (see Note 4). 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. In accordance with FAS No. 142, the Company performs a test for goodwill impairment at least annually during the second quarter of
the year.
Patents, trade names and technology, at cost, are
amortized on a straight-line basis over 8 to 12 years. Computer software purchased for internal use, at cost, is amortized on a straight-line basis
over 5 years and is included in Other assets.
The Company has investments in other companies that
are accounted for under either the cost method or equity method of accounting. The investment accounted for under the cost method was included in Other
assets as of December 31, 2003. In 2004, the Company determined that investment to be impaired and, accordingly, recorded an impairment charge of
$4,000,000 in Other expense/(income), net, representing the full amount of the investment. Investments accounted for under the equity method are
included in Investments in associated companies. The Company performs regular reviews of the financial condition of the investees to determine if its
investment is other than temporarily impaired. If the financial condition of the investees were to no longer support their valuations, the Company
would record an impairment provision.
Cash Surrender Value of Life Insurance
The Company is the owner and beneficiary of life
insurance policies on certain present and former employees. The cash surrender value of the policies generates income that is reported as a reduction
to Selling and general expenses. The rate of return on the policies varies with market conditions and was approximately 7.7% in 2004 and 8.2% in 2003.
The Company may convert the cash surrender value of these policies to cash at any time by either surrendering the policies or borrowing against the
cash value of the policies. The Company reports the cash surrender value of life insurance, net of any outstanding loans, as a separate noncurrent
asset. As of December 31, 2004 and 2003, there were no outstanding loans.
Stock-Based Compensation
As described in Note 15, the Company has Stock-Based
Compensation plans for key employees. Prior to 2003, the Company issued stock options to certain key employees. Stock options are accounted for in
accordance with the prospective method of FAS No. 148, “Accounting for Stock-Based Compensation — an Amendment of FAS No. 123”. Under
this method, the Company records compensation expense for any new options granted after December 31, 2002 or for changes to the terms of existing
options. During 2003 and 2004, there were no stock option grants and no stock-based compensation expense was recorded. The Company is continuing to
follow the pro forma disclosure requirements of FAS No. 123, “Accounting for Stock-Based Compensation” and FAS No. 148. Additionally, refer
to Recent Accounting Pronouncements below.
Derivatives
The Company uses derivatives to reduce
potentially large adverse effects from changes in currency exchange rates and interest rates. The Company monitors its exposure to these risks and
evaluates, on an ongoing basis, the risk of potentially large adverse effects versus the costs associated with hedging such risks.
50
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
1. Accounting
Policies — (Continued)
The Company uses 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 the Company enters into a derivative
contract, the Company makes a determination whether the transaction is deemed to be a hedge for accounting purposes. For those contracts deemed to be a
hedge, the Company formally documents the relationship between the derivative instrument and the risk being hedged. In this documentation, the Company
specifically identifies the asset, liability, forecasted transaction, cash-flow, or net investment that has been designated as the hedged item, and
evaluates whether the derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not met,
the Company does not use hedge accounting for the derivative.
All derivative contracts are recorded in the balance
sheet at fair value. For transactions that are designated as hedges, the Company performs an evaluation of the effectiveness of the hedge. To the
extent that the hedge is effective, changes in the fair value of the hedge is recorded, net of tax, in Other comprehensive income. The Company measures
effectiveness of its 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.
The Company has designated each of its outstanding
interest rate swap agreements as cash-flow hedges of the underlying variable rate obligation. The fair value of the interest rate swap agreements is
recorded in Other noncurrent liabilities. The Company has structured all existing interest rate swap agreements to be 100% effective. As a result,
there is no current impact to earnings resulting from hedge ineffectiveness.
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.
Income Taxes
The Company accounts for income taxes in accordance
with the asset and liability method. 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 financial statement and tax bases of existing assets and liabilities. 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 tax valuation
allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than
not that some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
It is the Company’s policy to accrue U.S. and
non-U.S. income taxes on earnings of subsidiary companies that are intended to be remitted to the parent company in the near future.
The provision for taxes is reduced by tax credits in
the years such credits become available.
Pension and Postretirement Benefit Plans
Substantially all employees are covered under
Company or government-sponsored pension plans. The defined benefit pension plan in the United States was closed to new participants as of October 1998.
The plans are generally trusteed or insured and accrued amounts are funded as required in accordance with governing laws and regulations. The Company
provides certain postretirement medical, dental and life insurance benefits to eligible United States retirees. Effective January 1, 2005, any new
employees that wish to be covered under this plan will be responsible for the full cost of such benefits. The annual expense and liability recognized
for defined benefit pension plans and postretirement benefit plans are developed from actuarial valuations. Inherent in these valuations are
key
51
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
1. Accounting
Policies — (Continued)
assumptions, including discount rates and
expected return on plan assets, which are updated on an annual basis at the beginning of each fiscal year. The Company considers current market
conditions, including changes in interest rates, in making these assumptions.
Change in Classification
In 2004, the Company changed its classification of
costs for shipping and handling. Prior to this change, shipping and handling costs were reported as a deduction in the computation of net sales. The
Company now records shipping and handling costs in cost of goods sold. Net sales and cost of goods sold for 2003 and 2002 have been restated to reflect
this change. The amount of this change in classification was $18,971,000 for 2003 and $16,451,000 for 2002.
Earnings Per Share
Net income 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 (stock options). Dilutive common shares are calculated in accordance with the treasury stock method,
which assumes that proceeds from the exercise of options are used to repurchase common stock at the average market value.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards
Board (FASB) issued FAS No. 123 (Revised) “Share-Based Payment” (FAS No. 123R). This Standard establishes accounting guidelines for
transactions in which an entity exchanges its equity instruments for goods or services. The Standard focuses primarily on accounting for transactions
in which an entity obtains employee services in share-based payment transactions. The Company is required to adopt the provisions of this standard on
July 1, 2005. The Company will apply the “modified prospective application” under FAS 123R and expects that the adoption of this Standard
will result in additional compensation expense of approximately $1,200,000 in 2005.
In December 2004, the FASB issued FAS No. 153,
“Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29”. This Standard modifies the accounting for nonmonetary exchanges of
similar productive assets. The Company is required to adopt the Standard on July 1, 2005, and does not expect the adoption to have a material effect on
its financial statements.
In November 2004, the FASB issued FAS No. 151,
“Inventory Costs, an amendment of ARB No. 43, Chapter 4”. This Standard requires that items such as idle facility expense and excess spoilage
be recognized as current period charges. Under ARB No. 43, such costs were considered inventoriable costs unless they were considered so abnormal as to
require immediate expensing. The Company is required to adopt the Standard on January 1, 2006, and does not expect the adoption to have a material
effect on its financial statements.
52
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
2. 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 data)
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Income
available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders |
|
|
|
$ |
10,385 |
|
|
$ |
54,055 |
|
|
$ |
48,941 |
|
Weighted
average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in basic earnings per share calculations |
|
|
|
|
32,575 |
|
|
|
32,889 |
|
|
|
32,126 |
|
Effect of
dilutive securities: stock options |
|
|
|
|
599 |
|
|
|
622 |
|
|
|
509 |
|
Weighted
average number of shares used in diluted earnings per share calculations |
|
|
|
|
33,174 |
|
|
|
33,511 |
|
|
|
32,635 |
|
Average
market price of common stock used for calculation of diluted shares |
|
|
|
$ |
30.96 |
|
|
$ |
27.13 |
|
|
$ |
23.41 |
|
Option shares
that were not included in the computation of
2002 diluted earnings per share because to do so would have been antidilutive |
|
|
|
|
— |
|
|
|
— |
|
|
|
250 |
|
Total shares outstanding were 31,409,196 as of
December 31, 2004, 33,595,376 as of December 31, 2003, and 32,396,840 as of December 31, 2002.
3. Property, Plant and Equipment
The components of property, plant and equipment are
summarized below:
(in thousands)
|
|
|
|
2004
|
|
|
2003
|
|
|
|
Estimated useful life
|
Land and land
improvements |
|
|
|
$ |
35,520 |
|
|
$ |
32,983 |
|
|
|
25 years for improvements |
|
Buildings |
|
|
|
|
208,268 |
|
|
|
194,348 |
|
|
|
25 to 40 years |
|
Machinery and
equipment |
|
|
|
|
684,985 |
|
|
|
633,910 |
|
|
|
10 years |
|
Furniture and
fixtures |
|
|
|
|
36,424 |
|
|
|
33,730 |
|
|
|
5 years |
|
Computer and
other equipment |
|
|
|
|
7,567 |
|
|
|
7,070 |
|
|
|
3 to 10 years |
|
Construction
in progress |
|
|
|
|
— |
|
|
|
4,219 |
|
|
|
|
|
|
|
|
|
|
972,764 |
|
|
|
906,260 |
|
|
|
|
|
Accumulated
depreciation |
|
|
|
|
594,594 |
|
|
|
535,980 |
|
|
|
|
|
|
|
|
|
$ |
378,170 |
|
|
$ |
370,280 |
|
|
|
|
|
Expenditures for maintenance and repairs are charged
to income as incurred and amounted to $20,920,000 in 2004, $19,078,000 in 2003, and $18,522,000 in 2002.
Depreciation expense was $51,843,000 in 2004,
$51,003,000 in 2003, and $47,478,000 in 2002. Capital expenditures were $57,129,000 in 2004, $51,849,000 in 2003, and $31,678,000 in
2002.
4. Goodwill and Intangibles
Effective January 1, 2002, the Company adopted
Statement of FAS No. 142, “Goodwill and Other Intangible Assets”. FAS No. 142 changed the accounting for goodwill from an amortization method
to an impairment-only approach. An initial transition impairment test of goodwill was required as of January 1, 2002. The Company completed this
initial transition impairment test which resulted in a non-cash charge of $5,837,000 to write-off the carrying value of goodwill in the Applied
Technologies business segment. This charge is reflected as a cumulative
53
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
4. Goodwill and Intangibles
— (Continued)
effect of a change in accounting principle in
the accompanying consolidated statements of income and retained earnings. There was no tax effect from this charge. As required by FAS No. 142, the
Company performed its annual test for impairment during the second quarters of 2002, 2003 and 2004, and determined that there was no impairment of
goodwill in the Engineered Fabrics or Albany Door Systems segments.
For purposes of applying FAS No. 142, the Company
has determined that the reporting units are consistent with the operating segments identified in Note 12, Operating Segment and Geographic Data. Fair
values of the reporting units and the related implied fair values of their respective goodwill were established using public company analysis and
discounted cash flows.
The Company is continuing to amortize certain
patents and trade names that have finite lives.
The changes in intangible assets and goodwill from
January 1, 2003 to December 31, 2004 were as follows:
(in thousands)
|
|
|
|
Balance at
December 31, 2003
|
|
Amortization
|
|
Currency
translation/other
|
|
Balance at
December 31, 2004
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
|
$ |
3,526 |
|
|
$ |
544 |
|
|
$ |
359 |
|
|
$ |
3,341 |
|
Trade
names |
|
|
|
|
3,769 |
|
|
|
581 |
|
|
|
259 |
|
|
|
3,447 |
|
Total |
|
|
|
|
7,295 |
|
|
|
1,125 |
|
|
|
618 |
|
|
|
6,788 |
|
Deferred
pension costs |
|
|
|
|
8,495 |
|
|
|
— |
|
|
|
(1,076 |
) |
|
|
7,419 |
|
Total
intangibles |
|
|
|
$ |
15,790 |
|
|
$ |
1,125 |
|
|
$ |
(458 |
) |
|
$ |
14,207 |
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
$ |
159,543 |
|
|
$ |
— |
|
|
$ |
12,079 |
|
|
$ |
171,622 |
|
(in thousands)
|
|
|
|
Balance at
January 1, 2003
|
|
Amortization
|
|
Currency
translation/other
|
|
Balance at
December 31, 2003
|
Amortizable
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
|
|
$ |
3,566 |
|
|
$ |
588 |
|
|
$ |
548 |
|
|
$ |
3,526 |
|
Trade
names |
|
|
|
|
3,241 |
|
|
|
415 |
|
|
|
943 |
|
|
|
3,769 |
|
Total |
|
|
|
|
6,807 |
|
|
|
1,003 |
|
|
|
1,491 |
|
|
|
7,295 |
|
Deferred
pension costs |
|
|
|
|
9,467 |
|
|
|
— |
|
|
|
(972 |
) |
|
|
8,495 |
|
Total
intangibles |
|
|
|
$ |
16,274 |
|
|
$ |
1,003 |
|
|
$ |
519 |
|
|
$ |
15,790 |
|
Unamortized
intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
$ |
137,146 |
|
|
$ |
— |
|
|
$ |
22,397 |
|
|
$ |
159,543 |
|
The change in goodwill resulted primarily from the
effect of changes in currency translation rates.
As of December 31, 2004, the remaining goodwill
included $141,377,000 in the Engineered Fabrics segment and $30,245,000 in the Albany Door Systems segment.
Estimated amortization expense for the years ending
December 31, 2005 through 2009 is as follows:
(in thousands)
Year
|
|
|
|
Annual
Amortization
|
2005 |
|
|
|
$ |
1,100 |
|
2006 |
|
|
|
|
1,100 |
|
2007 |
|
|
|
|
1,100 |
|
2008 |
|
|
|
|
1,100 |
|
2009 |
|
|
|
|
856 |
|
54
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
5. Accrued Liabilities
Accrued liabilities consists of:
(in thousands)
|
|
|
|
2004
|
|
2003
|
Salaries and
wages |
|
|
|
$ |
15,670 |
|
|
$ |
15,632 |
|
Accrual for
compensated absences |
|
|
|
|
14,361 |
|
|
|
13,227 |
|
Employee
benefits |
|
|
|
|
13,000 |
|
|
|
18,597 |
|
Pension
liability — current portion (see Note 13) |
|
|
|
|
27,693 |
|
|
|
23,640 |
|
Postretirement
medical benefits — current portion |
|
|
|
|
7,644 |
|
|
|
6,576 |
|
Interest rate
swaps — current portion (see Note 6) |
|
|
|
|
4,565 |
|
|
|
10,108 |
|
Returns and
allowances |
|
|
|
|
8,072 |
|
|
|
6,928 |
|
Interest |
|
|
|
|
1,204 |
|
|
|
1,242 |
|
Restructuring
costs — current portion (see Note 16) |
|
|
|
|
9,189 |
|
|
|
8,538 |
|
Other |
|
|
|
|
18,865 |
|
|
|
18,062 |
|
|
|
|
|
$ |
120,263 |
|
|
$ |
122,550 |
|
Notes and loans payable at December 31, 2004 and
2003 were short-term debt instruments with banks, denominated in local currencies with a weighted average interest rate of 2.35% in 2004 and 1.09% in
2003.
Long-term debt at December 31, 2004 and 2003,
principally to banks and bondholders, exclusive of amounts due within one year, consists of:
(in thousands)
|
|
|
|
2004
|
|
2003
|
January 2004
credit agreement with borrowings outstanding at an average interest rate of 3.19% in 2004 and 2.19% in 2003 |
|
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
Various notes
and mortgages relative to operations principally outside the United States, at an average rate of 5.81% in 2004 and 6.61% in 2003, due in varying
amounts through 2008 |
|
|
|
|
2,321 |
|
|
|
3,244 |
|
|
Industrial
revenue financings at an average interest rate of 6.73% in 2004 and 6.58% in 2003, due in varying amounts through 2009 |
|
|
|
|
11,294 |
|
|
|
11,650 |
|
|
|
|
|
$ |
213,615 |
|
|
$ |
214,894 |
|
Including the effect of interest rate swaps
described below, the weighted average interest rate for all debt was 6.98% in 2004 and 6.92% in 2003.
Principal payments due on long-term debt for the
next five years are: 2005, $1,340,000; 2006, $1,132,000; 2007, $11,163,000; 2008, $1,130,000; and 2009, $200,190,000.
Interest paid was $16,815,000 in 2004, $17,398,000
in 2003, and $21,377,000 in 2002.
In January 2004, the Company entered into an
unsecured five-year $460 million revolving credit agreement with a group of banks. Under the agreement, the Company pays a fee of 0.25% on the unused
portion of the commitment, and pays interest, at variable rates based on LIBOR, plus a spread, on the drawn portion. The spread is determined by the
Company’s leverage ratio, as defined in the agreement. The agreement includes a number of covenants that could limit the Company’s ability to
purchase Common Stock, pay dividends, acquire other companies or dispose of its assets, and also requires the Company to maintain a leverage ratio of
not greater than 3.00 to 1.00 and a minimum interest coverage of at least 3.00 to 1.00. The Company may purchase its Common Stock or pay dividends to
the extent its leverage ratio remains at or below 2.25 to 1.00, and may make acquisitions
55
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
6. Financial Instruments
— (Continued)
provided its leverage ratio would not exceed
2.50 to 1.00 after giving pro forma effect to the acquisition. If any bank in the lending group is unable to meet its commitment to lend, the Company
may be unable to borrow the full amount. The Company does not expect that any of the banks in the bank group will be unable to meet their commitments.
The Company’s 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. Based on the maximum leverage ratio as of December 31, 2004, the Company would have been able to borrow an
additional $260 million under the loan agreement. As of December 31, 2004, the Company’s leverage ratio under the agreement was 1.11 to 1.00 and
the interest coverage ratio was 9.48 to 1.00.
During 2000, the Company entered into swap
agreements that hedge a portion of its interest rate exposure. Under the terms of the agreements, each party makes payments on a notional amount of
$100,000,000. The Company pays a blended fixed rate of 7.17% and the counterparties pay a floating rate based on LIBOR. These swap agreements expire on
June 6, 2005. As of December 31, 2004, the blended rate receivable from the counterparties was 2.44%. On January 2, 2001, the Company entered into four
additional swap agreements that fixed interest rates on an additional notional amount of $100,000,000. The blended fixed rate payable by the Company
under these agreements is 5.65%. The counterparties pay a floating rate, based on LIBOR, which was 2.44% at December 31, 2004. These agreements expire
on August 11, 2005. The total cost of the swap agreements of $10,024,000 in 2004, $10,440,000 in 2003, and $9,251,000 in 2002 was recorded as Interest
expense. With the exception of the portion of debt that has been hedged, the estimated fair value of the Company’s long-term debt is considered to
be its carrying value on the basis that the significant components are variable rate debt.
The Company had open forward exchange contracts with
a total unrealized gain of $946,000 and $6,047,000 at December 31, 2004 and 2003, respectively, that were included in Accounts receivable. For all
positions there is risk from the possible inability of the counterparties (major financial institutions) to meet the terms of the contracts and the
risk of unfavorable changes in interest and currency rates that may reduce the benefit of the contracts. However, for most closed forward exchange
contracts, both the purchase and sale sides of the Company’s exposures were with the same financial institution. The Company seeks to control risk
by evaluating the credit-worthiness of counterparties and by monitoring the currency exchange and interest rate markets, hedging risks in compliance
with internal guidelines and reviewing all principal economic hedging contracts with designated directors of the Company.
In accordance with the provisions of FAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (FAS No. 133), all derivative instruments are recognized on the balance sheet
at their fair value and changes in fair value are recognized immediately in earnings, unless the derivatives qualify as hedges in under FAS No. 133.
The Company’s interest rate swaps qualify as cash flow hedges as defined in FAS No. 133 and, accordingly, changes in the fair value are recognized
in liabilities and Other comprehensive income. Subsequently, amounts will be reclassified to Interest expense. The liability recorded for interest rate
swaps increased $8,484,000 in 2002, then decreased $7,084,000 in 2003 and $9,926,000 in 2004. Included in Accrued liabilities is $4,565,000 in 2004 and
$10,108,000 in 2003 for the estimated cash payments in the following year under the swap agreements. As of December 31, 2003, an additional $4,384,000
was included in other noncurrent liabilities, while no portion of the liability at December 31, 2004 was classified as a noncurrent liability, as the
swap agreements will expire during 2005.
The Company has a trade accounts receivable
securitization program whereby it sells, without recourse, certain North American accounts receivable to a qualified special purpose entity (QSPE), as
defined under FAS No. 140. This form of financing results in a lower current incremental cost of financing than the lowest rate on the Company’s
revolving credit agreement and it broadens the Company’s sources of financing. The QSPE is a wholly owned subsidiary of the Company and, in
accordance with FAS No. 140, its financial statements are not consolidated with the financial statements of the Company. The QSPE finances a portion of
the accounts receivable purchased by selling an undivided ownership interest in the pool of purchased receivables to an unrelated third party for cash.
The balance of the purchase price is financed by the Company in exchange for a note receivable. In addition to
56
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
6. Financial Instruments
— (Continued)
financing a portion of the purchase price, the
Company performs certain administrative functions for the QSPE, including collecting the accounts receivable, in exchange for a fee. The securitization
program can be terminated at any time, with thirty days notice, by the Company or the unrelated third party.
Eligible accounts receivable are sold at a discount
to the QSPE on an ongoing basis at the discretion of the Company and the amount is subject to change. The Company does not retain an interest in the
receivables sold. The eligibility of accounts receivable is based on certain criteria agreed to by the Company and the unrelated third party. The
discount rate is determined by the average time the accounts receivable are outstanding, current interest rates, and estimated credit
losses.
The following summarizes cash flows between the
Company and the QSPE:
(in thousands, except interest rates)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Amounts
included in the change in Accounts receivable in
the Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
new securitizations |
|
|
|
$ |
370,424 |
|
|
$ |
371,957 |
|
|
$ |
380,552 |
|
Amounts
recognized in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
receivable from QSPE at year end |
|
|
|
$ |
18,955 |
|
|
$ |
21,814 |
|
|
$ |
20,075 |
|
Interest rate
on note receivable from QSPE at year end |
|
|
|
|
2.92 |
% |
|
|
1.57 |
% |
|
|
2.41 |
% |
Amounts
recognized in the Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
fees received, included in Other
expense/(income), net |
|
|
|
$ |
34 |
|
|
$ |
37 |
|
|
$ |
36 |
|
Discount
expense, included in Other expense/(income), net |
|
|
|
$ |
2,566 |
|
|
$ |
1,848 |
|
|
$ |
2,053 |
|
The unconsolidated subsidiary receives cash from an
unrelated third party in exchange for an undivided ownership interest in the accounts receivable. As of December 31, 2004, the unconsolidated
subsidiary had assets of $19,995,000, consisting primarily of $61,822,000 of accounts receivables sold to it by the Company, net of $40,796,000
interest sold to the unrelated third party, and an allowance for doubtful accounts. As of December 31, 2004, the liabilities of the unconsolidated
subsidiary were $18,987,000, consisting principally of the note payable to the Company, and equity was $1,008,000.
7. 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. There were no significant capital leases
during 2004. Total rental expense amounted to $15,619,000, $19,032,000, and $19,962,000 for 2004, 2003, and 2002, respectively.
Future rental payments required under operating
leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2004 are: 2005, $15,399,000, 2006,
$12,031,000, 2007, $8,565,000, 2008, $3,802,000, 2009, $1,669,000, and thereafter, $1,003,000.
Albany International Corp. (“Albany”) is a
defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of
exposure to asbestos-containing products previously manufactured by Albany. Albany’s production of asbestos-containing paper machine clothing
products was limited to certain synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics
generally had a useful life of three to twelve months.
57
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
7. Commitments and Contingencies
— (Continued)
Albany was defending against 29,138 claims as of
February 11, 2005. This compares with 29,411 such claims as of December 31, 2004, 30,463 claims as of October 22, 2004, 28,838 claims as of December
31, 2003, 22,593 claims as of December 31, 2002, 7,347 claims as of December 31, 2001, 1,997 claims as of December 31, 2000, and 2,276 claims as of
December 31, 1999. These suits allege a variety of lung and other diseases based on alleged exposure to products previously manufactured by
Albany.
Albany anticipates that additional claims will be
filed against it and the related companies in the future but is unable to predict the number and timing of such future claims. These suits typically
involve claims against from twenty to over two hundred defendants, and the complaints usually fail to identify the plaintiffs’ work history or the
nature of the plaintiffs’ alleged exposure to Albany’s products. In cases in which work histories have been provided, approximately one-third
of the claimants have alleged time spent in a paper mill, and only a portion of those claimants have alleged time spent in a paper mill to which Albany
is believed to have supplied asbestos-containing products.
Approximately 24,314 of the claims pending against
Albany are filed in various counties in Mississippi. 20,072 such claims are included in only 14 proceedings. Recent changes in the application of
procedural rules regarding the mass joinder of numerous asbestos claims in a single proceeding against numerous defendants could at some point result
in a significant reduction of the claims pending against Albany in that State, as well as a better understanding of the remaining claims. As the result
of a recent ruling of the Mississippi Supreme Court, courts in counties throughout the State have begun issuing orders severing the individual claims
of plaintiffs in mass joinder asbestos cases. Once severed, the courts are requiring the plaintiffs to file amended complaints which include more
detailed information regarding their allegations of asbestos exposure, and have indicated that the dismissal or transfer of improperly filed cases may
follow. As a consequence, the Company expects that many plaintiffs who cannot satisfy the amended pleading requirements will voluntarily dismiss their
claims. As to plaintiffs who do file amended complaints, the Company expects some claims to be transferred from Mississippi, and that the only
claimants remaining in Mississippi will be those who are residents of, or who allege exposure to asbestos in, that State, and whose amended complaints
satisfy the requirement for specific information regarding their exposure claims.
The Company expects that only a portion of these
remaining claimants will be able to demonstrate time spent in a paper mill to which Albany supplied asbestos-containing products during a period in
which Albany’s asbestos-containing products were in use. Based on past experience, communications from certain plaintiffs’ counsel and the
advice of the Company’s Mississippi counsel, the Company expects the percentage of claimants with paper mill exposure in the Mississippi
proceedings to be considerably lower than the total number of claims previously asserted. However, due to the fact that the mandate of the Mississippi
Supreme Court is just beginning to be implemented, the Company does not believe a meaningful estimate can be made regarding the expected reduction in
claims or the range of possible loss with respect to the remaining claims. The Company does not expect the Supreme Court’s ruling to be fully
implemented for many months.
It is the position of Albany and the other paper
machine clothing defendants that there was insufficient exposure to asbestos from any paper machine clothing products to cause asbestos-related injury
to any plaintiff. Furthermore, asbestos contained in Albany’s synthetic products was encapsulated in a resin-coated yarn woven into the interior
of the fabric, further reducing the likelihood of fiber release. While the Company believes it has meritorious defenses to these claims, it has settled
certain of these cases for amounts it considers reasonable given the facts and circumstances of each case. The Company’s insurer, Liberty Mutual,
has defended each case under a standard reservation of rights. As of February 11, 2005, the Company had resolved, by means of settlement or dismissal,
8,189 claims, and had reached tentative agreement to resolve an additional 4,563 claims reported above as pending. The total cost of resolving all
12,752 such claims was $5,931,000. Of this amount, $5,896,000, or 99%, was paid by the Company’s insurance carrier. The Company has more than $130
million in confirmed insurance coverage that should be available with respect to current and future asbestos claims, as well as additional insurance
coverage that it should be able to access.
58
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
7. Commitments and Contingencies
— (Continued)
Brandon Drying Fabrics, Inc.
Brandon Drying Fabrics, Inc. (“Brandon”),
a subsidiary of Geschmay Corp., is also a separate defendant in most of these cases. Brandon was defending against 9,599 claims as of February 11,
2005. This compares with 9,985 such claims as of December 31, 2004, 9,980 claims as of October 22, 2004, 10,242 claims as of December 31, 2003, 11,802
claims as of December 31, 2002, 8,759 claims as of December 31, 2001, 3,598 claims as of December 31, 2000, and 1,887 claims as of December 31, 1999.
The Company acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a wholly-owned subsidiary of Geschmay Corp. In
1978, Brandon acquired certain assets from Abney Mills (“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon
from Abney were assets of Abney’s wholly-owned subsidiary, Brandon Sales, Inc. which, among other things, had sold dryer fabrics containing
asbestos made by its parent, Abney. It is believed that Abney ceased production of asbestos-containing fabrics prior to the 1978 transaction. Although
Brandon manufactured and sold dryer fabrics under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Under the
terms of the Assets Purchase Agreement between Brandon and Abney, Abney agreed to indemnify, defend, and hold Brandon harmless from any actions or
claims on account of products manufactured by Abney and its related corporations prior to the date of the sale, whether or not the product was sold
subsequent to the date of the sale. It appears that Abney has since been dissolved. Nevertheless, a representative of Abney has been notified of the
pendency of these actions and demand has been made that it assume the defense of these actions. Because Brandon did not manufacture asbestos-containing
products, and because it does not believe that it was the legal successor to, or otherwise responsible for obligations of, Abney with respect to
products manufactured by Abney, it believes it has strong defenses to the claims that have been asserted against it. In some instances, plaintiffs have
voluntarily dismissed claims against it, while in others it has entered into what it considers to be reasonable settlements. As of February 11, 2005,
Brandon has resolved, by means of settlement or dismissal, 6,923 claims for a total of $152,499. Brandon’s insurance carriers initially agreed to
pay 88.2% of the total indemnification and defense costs related to these proceedings, subject to the standard reservation of rights. The remaining
11.8% of the costs has been borne directly by Brandon. During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and
defense costs, subject to policy limits and the standard reservation of rights, and to reimburse Brandon for all indemnity and defense costs paid
directly by Brandon related to these proceedings.
Mount Vernon
In some of these cases, the Company is named both as
a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). The Company 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. The
Company denies 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, the Company has successfully moved for dismissal in a
number of actions.
While the Company does not
believe, based on currently available information and for the reasons stated above, that a meaningful estimate of a range of possible loss can be made
with respect to such claims, based on its understanding of the insurance policies available, how settlement amounts have been allocated to various
policies, its recent settlement experience, the absence of any judgments against the Company or Brandon, the ratio of paper mill claims to total claims
filed, and the defenses available, the Company currently does not anticipate any material liability relating to the resolution of the aforementioned
pending proceedings in excess of existing insurance limits. Consequently, the Company currently does 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
59
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
7. Commitments and Contingencies
— (Continued)
of operations or cash flows of the Company.
Although the Company cannot predict the number and timing of future claims, based on the foregoing factors and the trends in claims against it to date,
the Company does not anticipate that additional claims likely to be filed against it in the future will have a material adverse effect on its financial
position, results of operations or cash flows. However, the Company is aware that litigation is inherently uncertain, especially when the outcome is
dependent primarily on determinations of factual matters to be made by juries. The Company is also aware that numerous other defendants in asbestos
cases, as well as others who claim to have knowledge and expertise on the subject, have found it difficult to anticipate the outcome of asbestos
litigation, the volume of future asbestos claims and the anticipated settlement values of those claims. For these reasons, there can be no assurance
that the foregoing conclusions will not change.
There have been a number of proposals discussed in
recent months in United States Senate that would provide compensation for persons injured as the result of exposure to asbestos. The Judiciary
Committee of the current United States Senate has recently begun discussing such a proposal that would require the Company to make payments of up to
$500,000 per year for up to 30 years. Such payments would not be covered by any of the Company’s insurance policies. The proposal has not been
offered as proposed legislation and is subject to negotiation and modification. The Company cannot predict whether any proposal will be offered as
legislation or, if so, whether such proposal will ultimately be enacted into law.
8. Other Noncurrent Liabilities
Other noncurrent liabilities consists
of:
(in thousands)
|
|
|
|
2004
|
|
2003
|
Pension
liabilities |
|
|
|
$ |
56,206 |
|
|
$ |
62,080 |
|
Postretirement
benefits other than pensions |
|
|
|
|
65,264 |
|
|
|
61,277 |
|
Deferred
compensation (see Note 15) |
|
|
|
|
9,434 |
|
|
|
10,656 |
|
Interest rate
swaps (see Note 6) |
|
|
|
|
— |
|
|
|
4,384 |
|
Other |
|
|
|
|
16,364 |
|
|
|
15,414 |
|
|
|
|
|
$ |
147,268 |
|
|
$ |
153,811 |
|
9. Shareholders’ Equity
The Company has two classes of Common Stock, Class A
Common Stock and Class B Common Stock, each with a par value $.001 and equal liquidation rights. Each share of the Company’s 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, 2004, 5,581,976 shares of Class A Common Stock were reserved for the
conversion of Class B Common Stock and the exercise of stock options.
In January 1998, the Board authorized the purchase
of 3,000,000 shares of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be
advantageous to the Company’s shareholders. The Company has purchased 2,946,900 shares of its Class A Common Stock pursuant to this authorization,
including 1,330,000 purchased in 2004. In July 2004, the Company purchased 1,489,943 shares of its Class A Common Stock in a private transaction. The
authorization given by the Board for this purchase was separate from the authorization given in 1998. The total cost of treasury shares purchased in
2004 was $81,135,000. In November 2004, the Board authorized the purchase of up to 1,000,000 additional shares of its Class A Common Stock. As of
December 31, 2004, the Company remains authorized to purchase 1,053,100 shares without further announcement.
60
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
9. Shareholders’ Equity
— (Continued)
Dividends payable were $2,510,000 and $2,346,000 as
of December 31, 2004 and 2003, respectively.
Changes in shareholders’ equity for 2004,
2003, and 2002 are as follows:
|
|
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
|
|
Treasury Stock
Class A
|
|
(in thousands)
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional
Paid-in
Capital
|
|
Shares
|
|
Amount
|
Balance:
January 1, 2002 |
|
|
|
|
27,712 |
|
|
$ |
28 |
|
|
|
5,867 |
|
|
$ |
6 |
|
|
$ |
234,213 |
|
|
|
2,197 |
|
|
$ |
45,651 |
|
Shares
contributed to ESOP |
|
|
|
|
197 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,635 |
|
|
|
— |
|
|
|
— |
|
Conversion of
Class B shares to Class A shares |
|
|
|
|
259 |
|
|
|
— |
|
|
|
(259 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Options
exercised |
|
|
|
|
815 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
16,621 |
|
|
|
— |
|
|
|
— |
|
Shares issued
to Directors |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
(3 |
) |
|
|
(75 |
) |
Balance:
December 31, 2002 |
|
|
|
|
28,983 |
|
|
|
29 |
|
|
|
5,608 |
|
|
|
6 |
|
|
|
255,484 |
|
|
|
2,194 |
|
|
|
45,576 |
|
Shares
contributed to ESOP |
|
|
|
|
209 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,398 |
|
|
|
— |
|
|
|
— |
|
Conversion of
Class B shares to Class A shares |
|
|
|
|
2,371 |
|
|
|
3 |
|
|
|
(2,371 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
Options
exercised |
|
|
|
|
986 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
19,847 |
|
|
|
— |
|
|
|
— |
|
Shares issued
to Directors |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5 |
|
|
|
(4 |
) |
|
|
(86 |
) |
Balance:
December 31, 2003 |
|
|
|
|
32,549 |
|
|
|
33 |
|
|
|
3,237 |
|
|
|
3 |
|
|
|
280,734 |
|
|
|
2,190 |
|
|
|
45,490 |
|
Shares
contributed to ESOP |
|
|
|
|
177 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,505 |
|
|
|
— |
|
|
|
— |
|
Purchase of
treasury shares |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,820 |
|
|
|
81,135 |
|
Options
exercised |
|
|
|
|
451 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,756 |
|
|
|
— |
|
|
|
— |
|
Shares issued
to Directors |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
(6 |
) |
|
|
(129 |
) |
Balance:
December 31, 2004 |
|
|
|
|
33,177 |
|
|
$ |
33 |
|
|
|
3,237 |
|
|
$ |
3 |
|
|
$ |
296,045 |
|
|
|
5,004 |
|
|
$ |
126,496 |
|
10. Other Expense/(Income), Net
The components of other expense/(income), net,
are:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Currency
transactions (Note 1) |
|
|
|
$ |
1,559 |
|
|
$ |
(8,218 |
) |
|
$ |
(2,680 |
) |
Costs
associated with sale of accounts receivable (Note 6) |
|
|
|
|
2,566 |
|
|
|
1,848 |
|
|
|
2,053 |
|
Investment
write-off (Note 1) |
|
|
|
|
4,000 |
|
|
|
— |
|
|
|
— |
|
Debt finance
fee write-off |
|
|
|
|
874 |
|
|
|
— |
|
|
|
— |
|
License fee
expense/(income), net |
|
|
|
|
2,428 |
|
|
|
1,086 |
|
|
|
(286 |
) |
Amortization
of debt issuance costs and loan origination fees |
|
|
|
|
1,099 |
|
|
|
2,790 |
|
|
|
2,093 |
|
Other |
|
|
|
|
1,013 |
|
|
|
3,156 |
|
|
|
3,823 |
|
|
|
|
|
$ |
13,539 |
|
|
$ |
662 |
|
|
$ |
5,003 |
|
61
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
11. Income Taxes
The components of income/(loss) before income taxes
and the provision for income taxes are as follows:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
(Loss)/income
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
$ |
(10,738 |
) |
|
$ |
2,107 |
|
|
$ |
24,527 |
|
Non-U.S. |
|
|
|
|
23,067 |
|
|
|
67,771 |
|
|
|
55,022 |
|
|
|
|
|
$ |
12,329 |
|
|
$ |
69,878 |
|
|
$ |
79,549 |
|
Income tax
provision/(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
$ |
1,283 |
|
|
$ |
(5,407 |
) |
|
$ |
7,892 |
|
State |
|
|
|
|
349 |
|
|
|
375 |
|
|
|
539 |
|
Non-U.S. |
|
|
|
|
10,781 |
|
|
|
17,698 |
|
|
|
23,571 |
|
|
|
|
|
|
12,413 |
|
|
|
12,666 |
|
|
|
32,002 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
(6,444 |
) |
|
|
1,588 |
|
|
|
1,169 |
|
State |
|
|
|
|
(292 |
) |
|
|
(256 |
) |
|
|
709 |
|
Non-U.S. |
|
|
|
|
(3,227 |
) |
|
|
1,722 |
|
|
|
(8,839 |
) |
|
|
|
|
|
(9,963 |
) |
|
|
3,054 |
|
|
|
(6,961 |
) |
Total
provision for income taxes |
|
|
|
$ |
2,450 |
|
|
$ |
15,720 |
|
|
$ |
25,041 |
|
The significant components of deferred income tax
(benefit)/expense are as follows:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net effect of
temporary differences |
|
|
|
$ |
(4,608 |
) |
|
$ |
7,427 |
|
|
$ |
(433 |
) |
Adjustments
to deferred tax assets and liabilities for enacted changes in tax laws and rates |
|
|
|
|
446 |
|
|
|
1,321 |
|
|
|
1,232 |
|
Benefit of
tax loss carry-forward |
|
|
|
|
(5,801 |
) |
|
|
(5,694 |
) |
|
|
(7,760 |
) |
|
|
|
|
$ |
(9,963 |
) |
|
$ |
3,054 |
|
|
$ |
(6,961 |
) |
A reconciliation of the U.S. Federal statutory tax
rate to the Company’s effective tax rate is as follows:
|
|
|
|
2004
|
|
2003
|
|
2002
|
U.S. federal
statutory tax rate |
|
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State taxes,
net of federal benefit |
|
|
|
|
2.0 |
|
|
|
1.5 |
|
|
|
1.0 |
|
Non-U.S. tax
rates |
|
|
|
|
(55.0 |
) |
|
|
(14.5 |
) |
|
|
(3.2 |
) |
Repatriation
of non-U.S. earnings |
|
|
|
|
15.4 |
|
|
|
2.2 |
|
|
|
2.8 |
|
Non-US
statutory tax rate changes |
|
|
|
|
3.6 |
|
|
|
1.9 |
|
|
|
1.5 |
|
Addition to
valuation allowance for non-U.S. taxes |
|
|
|
|
55.9 |
|
|
|
6.4 |
|
|
|
— |
|
Favorable
resolution of contingency related to prior years |
|
|
|
|
(37.4 |
) |
|
|
(7.5 |
) |
|
|
(3.5 |
) |
Nondeductible
compensation |
|
|
|
|
14.0 |
|
|
|
— |
|
|
|
— |
|
Research and
development tax credits |
|
|
|
|
(10.9 |
) |
|
|
(1.4 |
) |
|
|
(0.9 |
) |
Other |
|
|
|
|
(2.7 |
) |
|
|
(1.1 |
) |
|
|
(1.2 |
) |
Effective
income tax rate |
|
|
|
|
19.9 |
% |
|
|
22.5 |
% |
|
|
31.5 |
% |
62
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
11. Income Taxes
— (Continued)
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax
expense purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
U.S.
|
|
Non-U.S.
|
|
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
$ |
74 |
|
|
$ |
392 |
|
|
$ |
1,139 |
|
|
$ |
1,341 |
|
Inventories |
|
|
|
|
3,134 |
|
|
|
7,149 |
|
|
|
— |
|
|
|
— |
|
Tax credits
carry-forward |
|
|
|
|
12,714 |
|
|
|
7,638 |
|
|
|
— |
|
|
|
— |
|
Tax losses
carry-forward |
|
|
|
|
683 |
|
|
|
7,444 |
|
|
|
— |
|
|
|
274 |
|
Restructuring
costs |
|
|
|
|
2,440 |
|
|
|
4,096 |
|
|
|
— |
|
|
|
— |
|
Deferred
compensation |
|
|
|
|
702 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
|
|
922 |
|
|
|
1,284 |
|
|
|
4,718 |
|
|
|
3,696 |
|
Total current
deferred tax assets |
|
|
|
|
20,669 |
|
|
|
28,003 |
|
|
|
5,857 |
|
|
|
5,311 |
|
Noncurrent
deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
leaseback transaction |
|
|
|
|
1,276 |
|
|
|
1,353 |
|
|
|
— |
|
|
|
— |
|
Deferred
compensation |
|
|
|
|
3,651 |
|
|
|
8,949 |
|
|
|
— |
|
|
|
— |
|
Depreciation
and amortization |
|
|
|
|
2,423 |
|
|
|
(6,368 |
) |
|
|
1,261 |
|
|
|
2,061 |
|
Post-retirement benefits |
|
|
|
|
35,555 |
|
|
|
27,165 |
|
|
|
2,097 |
|
|
|
2,573 |
|
Tax loss
carryforward |
|
|
|
|
868 |
|
|
|
868 |
|
|
|
41,785 |
|
|
|
27,866 |
|
Impairment of
investment |
|
|
|
|
1,560 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Derivative
valuation adjustment |
|
|
|
|
1,780 |
|
|
|
5,652 |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
|
|
1,945 |
|
|
|
(40 |
) |
|
|
6,102 |
|
|
|
371 |
|
Noncurrent
deferred tax assets before valuation allowance |
|
|
|
|
49,058 |
|
|
|
37,579 |
|
|
|
51,245 |
|
|
|
32,871 |
|
Less:
valuation allowance |
|
|
|
|
— |
|
|
|
— |
|
|
|
(12,455 |
) |
|
|
(6,793 |
) |
Total
non-current deferred tax assets |
|
|
|
|
49,058 |
|
|
|
37,579 |
|
|
|
38,790 |
|
|
|
26,078 |
|
Total
deferred tax assets |
|
|
|
$ |
69,727 |
|
|
$ |
65,582 |
|
|
$ |
44,647 |
|
|
$ |
31,389 |
|
Current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,146 |
|
|
$ |
— |
|
Other |
|
|
|
|
— |
|
|
|
— |
|
|
|
7,204 |
|
|
|
763 |
|
Total current
deferred tax liabilities |
|
|
|
|
— |
|
|
|
— |
|
|
|
13,350 |
|
|
|
763 |
|
NonCurrent
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference
between book and tax depreciation |
|
|
|
|
— |
|
|
|
— |
|
|
|
27,674 |
|
|
|
28,640 |
|
Other |
|
|
|
|
— |
|
|
|
— |
|
|
|
7,208 |
|
|
|
8,412 |
|
Total
noncurrent deferred tax liabilities |
|
|
|
|
— |
|
|
|
— |
|
|
|
34,882 |
|
|
|
37,052 |
|
Total
deferred tax liabilities |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
48,232 |
|
|
$ |
37,815 |
|
Net deferred
tax asset/(liability) |
|
|
|
$ |
69,727 |
|
|
$ |
65,582 |
|
|
$ |
(3,585 |
) |
|
$ |
(6,426 |
) |
Deferred income tax assets, net of valuation
allowances, will be realized through the reversal of existing taxable temporary differences and future taxable income. In 2004, the Company recorded a
valuation allowance of
63
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
11. Income Taxes
— (Continued)
$7,100,000 against deferred tax assets for non-U.S. net operating losses
carryforward. The Company intends to maintain the valuation allowance for these net operating losses carryforward until sufficient evidence exists to
support the reversal of the valuation allowance.
At December 31, 2004, the Company had available
approximately $43,300,000 of net operating losses carryforward with expiration dates ranging from one year to indefinite that may be applied against
future taxable income. The Company has recorded valuation allowances of approximately $12,500,000 against these losses carryforward. In addition, the
Company had available foreign tax credits carryforward of $7,900,000 that begin to expire in 2012, research and development credits carryforward of
$3,600,000 that begin to expire in 2023 and alternative minimum tax credits carryforward of $1,200,000 with no expiration date.
In February 2004, the Company received a refund from
the Internal Revenue Service relating to amended income tax returns for the years 1998 and 1999, which resulted in the reduction of the 2004 income tax
provision by $861,000. In October 2004, the statute of limitations for examining income tax returns expired in several taxing jurisdictions and the
Company reversed income tax accruals that reduced the 2004 income tax provision by $890,000. In November 2004, an income tax contingency was favorably
resolved in a non-U.S. taxing jurisdiction which resulted in the reversal of income tax accruals that reduced the 2004 income tax provision by
$856,000. In December 2004, the Company successfully resolved income tax contingencies in two non-U.S. taxing jurisdictions, which resulted in the
reversal of income tax accruals that reduced the 2004 income tax provision by $2,006,000.
The Company has not recognized U.S. deferred income
taxes on $193,000,000 of undistributed earnings of its foreign subsidiaries because management considers such earnings to be reinvested indefinitely
outside of the U.S. If the earnings were distributed, the Company may be subject to both foreign withholding taxes and U.S. income taxes that may not
be fully offset by foreign tax credits. Determination of the amount of this unrecognized deferred income tax liability is not
practical.
On October 22, 2004, the American Jobs Creation Act
of 2004 (the AJCA) was signed into law. The AJCA includes an elective deduction of 85% of certain foreign earnings that are repatriated and subject to
certain restrictions, as defined in the AJCA. The Company is allowed to elect to apply this provision to qualifying earnings repatriations in 2005. The
Company has started an evaluation of the effects of the repatriation provision; however, the Company does not expect to be able to complete this
evaluation until after Congress provides additional clarifying language on key elements of the provision. The Company expects to complete its
evaluation of the effects of the repatriation provision within a reasonable period of time following the enactment of the additional clarifying
language. The Company is not contemplating the repatriation of any earnings, as it does not appear likely that repatriation under the AJCA elective
relief provision would be beneficial.
Taxes paid, net of refunds, were $10,231,000 in
2004, $18,708,000 in 2003, and $18,147,000 in 2002. Income taxes payable were $16,270,000 and $12,919,000 as of December 31, 2004 and 2003,
respectively.
In February 2005, an income tax contingency in a
non-U.S. tax jurisdiction was resolved in the Company’s favor. As a result, the Company will record a favorable income tax adjustment to income
tax expense of $1,400,000 in the first quarter of 2005.
12. Operating Segment and Geographic Data
In accordance with FAS No. 131, “Disclosures
About Segments of an Enterprise and Related Information”, the internal organization that is used by management for making operating decisions and
assessing performance is used as the source of the Company’s reportable segments. The accounting policies of the segments are the same as those
described in “Accounting Policies” (see Note 1). The Company does not allocate research costs and corporate headquarters expenses to the
segments because the decision making for the majority of these expenses does not reside within the segments.
64
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
12. Operating Segment and Geographic Data
— (Continued)
The primary segment of the Company is Engineered
Fabrics which includes developing, manufacturing, marketing and servicing custom-designed engineered fabrics used in the manufacture of paper,
paperboard and products in other process industries. Another segment of the Company, Albany Door Systems, is an aggregation of the Company’s
operations that manufacture, market and service high-performance doors. The Applied Technologies segment is made up of operations that manufacture
products outside of the core businesses of the Company.
The following tables show data by operating segment,
reconciled to consolidated totals included in the financial statements:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
740,824 |
|
|
$ |
733,316 |
|
|
$ |
697,790 |
|
Albany Door
Systems |
|
|
|
|
112,773 |
|
|
|
101,331 |
|
|
|
92,477 |
|
Applied
Technologies |
|
|
|
|
66,205 |
|
|
|
53,296 |
|
|
|
42,232 |
|
Consolidated
total |
|
|
|
$ |
919,802 |
|
|
$ |
887,943 |
|
|
$ |
832,499 |
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
46,723 |
|
|
$ |
46,084 |
|
|
$ |
44,815 |
|
Albany Door
Systems |
|
|
|
|
1,506 |
|
|
|
1,860 |
|
|
|
2,136 |
|
Applied
Technologies |
|
|
|
|
3,690 |
|
|
|
3,731 |
|
|
|
2,122 |
|
Corporate |
|
|
|
|
3,296 |
|
|
|
4,419 |
|
|
|
3,790 |
|
Consolidated
total |
|
|
|
$ |
55,215 |
|
|
$ |
56,094 |
|
|
$ |
52,863 |
|
Operating
income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
96,421 |
|
|
$ |
143,440 |
|
|
$ |
161,875 |
|
Albany Door
Systems |
|
|
|
|
3,515 |
|
|
|
(1,024 |
) |
|
|
1,093 |
|
Applied
Technologies |
|
|
|
|
11,558 |
|
|
|
6,065 |
|
|
|
3,311 |
|
Research
expense |
|
|
|
|
(27,436 |
) |
|
|
(26,353 |
) |
|
|
(24,918 |
) |
Unallocated
expenses |
|
|
|
|
(43,554 |
) |
|
|
(36,514 |
) |
|
|
(39,273 |
) |
Operating
income before reconciling items |
|
|
|
|
40,504 |
|
|
|
85,614 |
|
|
|
102,088 |
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
|
|
2,150 |
|
|
|
2,232 |
|
|
|
3,084 |
|
Interest
expense |
|
|
|
|
(16,786 |
) |
|
|
(17,306 |
) |
|
|
(20,620 |
) |
Other
expense, net |
|
|
|
|
(13,539 |
) |
|
|
(662 |
) |
|
|
(5,003 |
) |
Consolidated
income before income taxes |
|
|
|
$ |
12,329 |
|
|
$ |
69,878 |
|
|
$ |
79,549 |
|
Restructuring costs included in segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
52,664 |
|
|
$ |
18,219 |
|
|
$ |
— |
|
Albany Door
Systems |
|
|
|
|
1,265 |
|
|
|
2,351 |
|
|
|
— |
|
Applied
Technologies |
|
|
|
|
(15 |
) |
|
|
677 |
|
|
|
— |
|
Corporate and
other |
|
|
|
|
144 |
|
|
|
504 |
|
|
|
— |
|
Consolidated
total |
|
|
|
$ |
54,058 |
|
|
$ |
21,751 |
|
|
$ |
— |
|
65
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
12. Operating Segment and Geographic Data
— (Continued)
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Operating
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
1,416,854 |
|
|
$ |
1,320,179 |
|
|
$ |
1,164,610 |
|
Albany Door
Systems |
|
|
|
|
80,340 |
|
|
|
80,994 |
|
|
|
69,938 |
|
Applied
Technologies |
|
|
|
|
94,477 |
|
|
|
98,646 |
|
|
|
90,162 |
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation |
|
|
|
|
(594,594 |
) |
|
|
(535,980 |
) |
|
|
(438,859 |
) |
Deferred tax
assets |
|
|
|
|
114,374 |
|
|
|
96,971 |
|
|
|
109,013 |
|
Investment in
associated companies |
|
|
|
|
6,456 |
|
|
|
5,278 |
|
|
|
4,849 |
|
Other |
|
|
|
|
37,853 |
|
|
|
72,835 |
|
|
|
11,808 |
|
Consolidated
total assets |
|
|
|
$ |
1,155,760 |
|
|
$ |
1,138,923 |
|
|
$ |
1,011,521 |
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineered
Fabrics |
|
|
|
$ |
53,704 |
|
|
$ |
46,682 |
|
|
$ |
30,042 |
|
Albany Door
Systems |
|
|
|
|
609 |
|
|
|
2,080 |
|
|
|
993 |
|
Applied
Technologies |
|
|
|
|
2,753 |
|
|
|
2,900 |
|
|
|
551 |
|
Corporate |
|
|
|
|
63 |
|
|
|
187 |
|
|
|
92 |
|
Consolidated
total |
|
|
|
$ |
57,129 |
|
|
$ |
51,849 |
|
|
$ |
31,678 |
|
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.
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Net
sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
309,521 |
|
|
$ |
311,245 |
|
|
$ |
322,609 |
|
Canada |
|
|
|
|
67,834 |
|
|
|
62,731 |
|
|
|
58,566 |
|
Sweden |
|
|
|
|
108,427 |
|
|
|
91,108 |
|
|
|
78,470 |
|
Germany |
|
|
|
|
115,288 |
|
|
|
106,713 |
|
|
|
101,297 |
|
France |
|
|
|
|
72,981 |
|
|
|
65,526 |
|
|
|
54,487 |
|
Other
countries |
|
|
|
|
245,751 |
|
|
|
250,620 |
|
|
|
217,070 |
|
Consolidated
total |
|
|
|
$ |
919,802 |
|
|
$ |
887,943 |
|
|
$ |
832,499 |
|
Property,
plant and equipment, at cost, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
82,914 |
|
|
$ |
102,262 |
|
|
$ |
118,908 |
|
Canada |
|
|
|
|
24,498 |
|
|
|
15,993 |
|
|
|
15,866 |
|
Sweden |
|
|
|
|
62,734 |
|
|
|
52,767 |
|
|
|
49,833 |
|
Germany |
|
|
|
|
59,342 |
|
|
|
60,258 |
|
|
|
62,512 |
|
France |
|
|
|
|
35,906 |
|
|
|
29,179 |
|
|
|
20,676 |
|
Other
countries |
|
|
|
|
112,776 |
|
|
|
109,821 |
|
|
|
78,278 |
|
Consolidated
total |
|
|
|
$ |
378,170 |
|
|
$ |
370,280 |
|
|
$ |
346,073 |
|
66
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
13. Pensions and Other Postretirement Benefit
Plans
In December 2003, the FASB issued FAS No. 132
(Revised), “Employers’ Disclosures About Pensions and Other Postretirement Benefits — an Amendment of FAS No. 87, 88 and 106 and a
revision of FAS No. 132”. This Statement required expanded disclosures about these benefit plans. As permitted by this Statement, pension plan
data for U.S. and non-U.S. plans has been combined for both 2004 and 2003, except where indicated below.
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.
The eligibility and benefit formula for plans outside of the U.S. varies by location.
Other Postretirement Benefits
In addition to providing pension benefits, the
Company provides certain medical, dental and life insurance benefits for its retired United States employees. Substantially all of the Company’s
U.S. employees 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 1, 2005, any new employees that wish to be covered under
this plan will be responsible for the full cost of such benefits. The Company’s non-U.S. operations do not offer such benefits to retirees. The
Company accrues the cost of providing postretirement benefits during the active service period of the employees. The Company currently funds the plan
as claims are paid.
The following table sets forth the plan benefit
obligations:
|
|
|
|
As of December 31, 2004
|
|
As of December 31, 2003
|
|
(in thousands)
|
|
|
|
Pension Plans
|
|
Other Benefits
|
|
Pension Plans
|
|
Other Benefits
|
Benefit
obligation, beginning of year |
|
|
|
$ |
298,777 |
|
|
$ |
116,092 |
|
|
$ |
250,841 |
|
|
$ |
102,070 |
|
Service
cost |
|
|
|
|
8,135 |
|
|
|
3,180 |
|
|
|
6,473 |
|
|
|
2,794 |
|
Interest
cost |
|
|
|
|
18,648 |
|
|
|
7,289 |
|
|
|
16,575 |
|
|
|
6,743 |
|
Plan
participants’ contributions |
|
|
|
|
1,068 |
|
|
|
1,099 |
|
|
|
850 |
|
|
|
1,058 |
|
Actuarial
loss |
|
|
|
|
8,155 |
|
|
|
12,460 |
|
|
|
19,727 |
|
|
|
10,947 |
|
Liabilities
related to plans not previously included |
|
|
|
|
26,270 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Curtailments |
|
|
|
|
(7,299 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Special
termination benefits |
|
|
|
|
785 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Benefits
paid |
|
|
|
|
(17,555 |
) |
|
|
(8,743 |
) |
|
|
(14,876 |
) |
|
|
(7,520 |
) |
Foreign
currency changes |
|
|
|
|
12,332 |
|
|
|
— |
|
|
|
19,187 |
|
|
|
— |
|
Benefit
obligation, end of year |
|
|
|
$ |
349,316 |
|
|
$ |
131,377 |
|
|
$ |
298,777 |
|
|
$ |
116,092 |
|
|
Accumulated
benefit obligation |
|
|
|
$ |
318,648 |
|
|
$ |
— |
|
|
$ |
270,525 |
|
|
$ |
— |
|
|
Weighted
average assumptions used
to determine benefit obligations, end of year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
|
|
|
|
5.69 |
% |
|
|
5.75 |
% |
|
|
5.85 |
% |
|
|
6.00 |
% |
Weighted
average rate of compensation increase |
|
|
|
|
3.44 |
% |
|
|
3.50 |
% |
|
|
3.41 |
% |
|
|
3.50 |
% |
The Company uses a measurement date of September 30
for its pension plans and December 31 for its postretirement benefit plan.
67
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
13. Pensions and Other Postretirement Benefit Plans
— (Continued)
A 12% annual rate of increase in the per capita cost
of covered medical and prescription drug benefits was assumed for 2005. The rate is assumed to decrease 1% per year until reaching 5% for 2012, then
remaining at that level thereafter.
Assumed health care cost trend rates have a
significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the
following effect:
(in thousands)
|
|
|
|
1 percentage
point increase
|
|
1 percentage
point decrease
|
Effect on
postretirement benefit obligation |
|
|
|
$ |
19,315 |
|
|
$ |
(15,558 |
) |
In December 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the “Act”) was enacted. The Act established a prescription drug benefit under Medicare, known as
“Medicare Part D,” and a federal subsidy to sponsors of retiree healthcare benefit plans that provide a benefit that is at least actuarially
equivalent to Medicare Part D. Albany International believes that benefits provided to certain participants will be at least actuarially equivalent to
Medicare Part D, and, accordingly, Albany International will be entitled to a subsidy.
In May 2004, the FASB issued FASB Staff Position No.
FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (FSP
106-2). FSP 106-2 requires that the effects of the federal subsidy be considered an actuarial gain and recognized in the same manner as other actuarial
gains and losses and also requires that certain disclosures for employers that sponsor postretirement health care plans that provide prescription drug
benefits.
The Company adopted FSP 106-2 prospectively from
July 1, 2004. The expected subsidy reduced the accumulated postretirement benefits obligation (APBO) by $17,700,000 and net periodic cost for 2004 by
$1,300,000 (as compared with the amount calculated without considering the effects of the subsidy).
The following sets forth information about plan
assets:
|
|
|
|
As of December 31, 2004
|
|
As of December 31, 2003
|
|
(in thousands)
|
|
|
|
Pension Plans
|
|
Other Benefits
|
|
Pension Plans
|
|
Other Benefits
|
Fair value of
plan assets, beginning
of year |
|
|
|
$ |
184,770 |
|
|
$ |
— |
|
|
$ |
143,154 |
|
|
$ |
— |
|
Actual return
on plan assets (net
of expenses) |
|
|
|
|
19,229 |
|
|
|
— |
|
|
|
18,199 |
|
|
|
— |
|
Employer
contributions |
|
|
|
|
28,609 |
|
|
|
7,644 |
|
|
|
26,885 |
|
|
|
6,462 |
|
Plan
participants’ contributions |
|
|
|
|
1,068 |
|
|
|
1,099 |
|
|
|
850 |
|
|
|
1,058 |
|
Assets
related to plans not previously included |
|
|
|
|
16,041 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Benefits
paid |
|
|
|
|
(17,555 |
) |
|
|
(8,743 |
) |
|
|
(14,876 |
) |
|
|
(7,520 |
) |
Foreign
currency changes |
|
|
|
|
6,442 |
|
|
|
— |
|
|
|
10,558 |
|
|
|
— |
|
Fair value of
plan assets, end of year |
|
|
|
$ |
238,604 |
|
|
$ |
— |
|
|
$ |
184,770 |
|
|
$ |
— |
|
68
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
13. Pensions and Other Postretirement Benefit Plans
— (Continued)
The funded status of the plans, reconciled to the
amount on the Consolidated Balance Sheet, follows:
|
|
|
|
As of December 31, 2004
|
|
As of December 31, 2003
|
|
(in thousands)
|
|
|
|
Pension Plans
|
|
Other Benefits
|
|
Pension Plans
|
|
Other Benefits
|
Fair value of
plan assets |
|
|
|
$ |
238,604 |
|
|
$ |
— |
|
|
$ |
184,770 |
|
|
$ |
— |
|
Benefit
obligation |
|
|
|
|
(349,316 |
) |
|
|
(131,376 |
) |
|
|
(298,777 |
) |
|
|
(116,092 |
) |
Funded
status |
|
|
|
|
(110,712 |
) |
|
|
(131,376 |
) |
|
|
(114,007 |
) |
|
|
(116,092 |
) |
Amounts not
yet recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
net actuarial loss |
|
|
|
|
90,058 |
|
|
|
65,036 |
|
|
|
90,552 |
|
|
|
55,754 |
|
Unrecognized
prior service cost |
|
|
|
|
7,292 |
|
|
|
(6,568 |
) |
|
|
7,872 |
|
|
|
(7,515 |
) |
Unrecognized
net transition obligation |
|
|
|
|
127 |
|
|
|
— |
|
|
|
194 |
|
|
|
— |
|
Fourth
quarter contributions |
|
|
|
|
2,058 |
|
|
|
— |
|
|
|
2,926 |
|
|
|
— |
|
(Accrued)
benefit cost, end of year |
|
|
|
$ |
(11,177 |
) |
|
$ |
(72,908 |
) |
|
$ |
(12,463 |
) |
|
$ |
(67,853 |
) |
Amounts
recognized in the statement
of financial position consist of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
benefit cost |
|
|
|
$ |
2,482 |
|
|
$ |
— |
|
|
$ |
2,012 |
|
|
$ |
— |
|
Accrued
benefit cost |
|
|
|
|
(83,899 |
) |
|
|
(72,908 |
) |
|
|
(85,720 |
) |
|
|
(67,853 |
) |
Intangible
asset |
|
|
|
|
7,419 |
|
|
|
— |
|
|
|
8,495 |
|
|
|
— |
|
Accumulated
other comprehensive income before tax |
|
|
|
|
62,821 |
|
|
|
— |
|
|
|
62,750 |
|
|
|
— |
|
Net amount
recognized |
|
|
|
$ |
(11,177 |
) |
|
$ |
(72,908 |
) |
|
$ |
(12,463 |
) |
|
$ |
(67,853 |
) |
The composition of the net periodic benefit plan
cost for the years ended December 31, 2004, 2003, and 2002, was as follows:
|
|
|
|
Pension Plans
|
|
Other Benefits
|
|
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
|
2004
|
|
2003
|
|
2002
|
Components of
net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost |
|
|
|
$ |
8,135 |
|
|
$ |
6,473 |
|
|
$ |
5,693 |
|
|
$ |
3,180 |
|
|
$ |
2,794 |
|
|
$ |
2,213 |
|
Interest
cost |
|
|
|
|
18,648 |
|
|
|
16,575 |
|
|
|
14,576 |
|
|
|
7,289 |
|
|
|
6,743 |
|
|
|
6,010 |
|
Expected
return on plan assets |
|
|
|
|
(14,984 |
) |
|
|
(12,491 |
) |
|
|
(13,518 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Amortization
of prior service cost (credit) |
|
|
|
|
979 |
|
|
|
972 |
|
|
|
936 |
|
|
|
(947 |
) |
|
|
(947 |
) |
|
|
(947 |
) |
Amortization
of net actuarial loss |
|
|
|
|
5,831 |
|
|
|
3,338 |
|
|
|
1,113 |
|
|
|
3,178 |
|
|
|
1,943 |
|
|
|
1,401 |
|
Amortization
of transition obligation |
|
|
|
|
110 |
|
|
|
78 |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Curtailment
(gain) |
|
|
|
|
(347 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net periodic
benefit cost |
|
|
|
$ |
18,372 |
|
|
$ |
14,945 |
|
|
$ |
8,808 |
|
|
$ |
12,700 |
|
|
$ |
10,533 |
|
|
$ |
8,677 |
|
Special
termination benefits |
|
|
|
$ |
785 |
|
|
$ |
— |
|
|
$ |
1,083 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Weighted
average assumptions used to determine net cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate |
|
|
|
|
5.85 |
% |
|
|
6.44 |
% |
|
|
6.84 |
% |
|
|
6.00 |
% |
|
|
6.75 |
% |
|
|
7.25 |
% |
Expected
return on plan assets — U.S. plans |
|
|
|
|
8.50 |
% |
|
|
8.50 |
% |
|
|
9.50 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Expected
return on plan assets — non-U.S. plans |
|
|
|
|
6.52 |
% |
|
|
6.33 |
% |
|
|
6.42 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Rate of
compensation increase |
|
|
|
|
3.41 |
% |
|
|
3.40 |
% |
|
|
4.75 |
% |
|
|
3.50 |
% |
|
|
4.50 |
% |
|
|
4.50 |
% |
69
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
13. Pensions and Other Postretirement Benefit Plans
— (Continued)
The expected rate of return on plan assets is based
on the targeted plan asset allocation and historical returns of various investments.
Assumed health care cost trend rates have a
significant effect on the amounts reported for health care plans. A one-percentage point change in the assumed health care cost trend rates would have
had the following effect:
(in thousands)
|
|
|
|
1 percentage
point increase
|
|
1 percentage
point decrease
|
Effect on total
of service and interest cost |
|
|
|
$ |
1,903 |
|
|
$ |
(1,491 |
) |
The asset allocation for the Company’s U.S. and
non-U.S. pension plans as of September 30, 2004 and 2003, and target allocation for 2005, by asset category, are as follows:
|
|
|
|
United States Plan
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
Percentage of plan assets
at plan measurement
date
|
|
|
|
Percentage of plan assets
at plan measurement
date
|
|
Asset category
|
|
|
|
Target
Allocation
2005
|
|
2004
|
|
2003
|
|
Target
Allocation
2005
|
|
2004
|
|
2003
|
Fixed
income |
|
|
|
|
10 |
% |
|
|
13 |
% |
|
|
21 |
% |
|
|
41 |
% |
|
|
41 |
% |
|
|
48 |
% |
Equities |
|
|
|
|
45 |
% |
|
|
52 |
% |
|
|
62 |
% |
|
|
55 |
% |
|
|
55 |
% |
|
|
48 |
% |
Real
Estate |
|
|
|
|
8 |
% |
|
|
5 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
1 |
% |
|
|
2 |
% |
Cash |
|
|
|
|
— |
% |
|
|
2 |
% |
|
|
16 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
2 |
% |
Other
(1) |
|
|
|
|
37 |
% |
|
|
28 |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
— |
% |
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
(1) |
|
Includes hedged equity and absolute return strategies, and
private equity |
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 2004 and 2003, the projected benefit
obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligation in excess of plan assets
and for pension plans with accumulated benefit obligation in excess of plan assets were as follows:
|
|
|
|
Projected benefit obligation
exceeds plan assets
|
|
Accumulated benefit obligation
exceeds plan assets
|
|
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2004
|
|
2003
|
Projected
benefit obligation |
|
|
|
$ |
301,706 |
|
|
$ |
286,701 |
|
|
$ |
301,706 |
|
|
$ |
286,701 |
|
Accumulated
benefit obligation |
|
|
|
|
272,178 |
|
|
|
259,514 |
|
|
|
272,178 |
|
|
|
259,514 |
|
Fair value of
plan assets |
|
|
|
|
189,470 |
|
|
|
172,386 |
|
|
|
189,470 |
|
|
|
172,386 |
|
70
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
13. Pensions and Other Postretirement Benefit Plans
— (Continued)
Information about expected cash flows for the
pension and other benefit obligations are as follows:
(in thousands)
|
|
|
|
Pension plans
|
|
|
Other benefits
|
|
Expected
employer contributions in the next fiscal year |
|
|
|
$ |
27,693 |
|
|
$ |
7,644 |
|
Expected benefit
payments
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
$ |
17,088 |
|
|
$ |
5,401 |
|
2006 |
|
|
|
|
17,387 |
|
|
|
5,909 |
|
2007 |
|
|
|
|
18,812 |
|
|
|
6,432 |
|
2008 |
|
|
|
|
19,043 |
|
|
|
6,888 |
|
2009 |
|
|
|
|
18,554 |
|
|
|
7,338 |
|
2010–2014 |
|
|
|
|
106,086 |
|
|
|
44,001 |
|
The change in minimum liability of the U.S. pension
plans resulted in a pre-tax charge to Other comprehensive income in the amount of $70,000 in 2004 and $5,668,000 in 2003.
| 14. |
|
Translation Adjustments |
The Consolidated Statements of Cash Flows were
affected by translation as follows:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Change in
cumulative translation adjustments |
|
|
|
$ |
53,902 |
|
|
$ |
81,787 |
|
|
$ |
47,550 |
|
Other
noncurrent liabilities |
|
|
|
|
5,002 |
|
|
|
7,881 |
|
|
|
6,343 |
|
Deferred
taxes |
|
|
|
|
101 |
|
|
|
(382 |
) |
|
|
(3,257 |
) |
Long-term
debt |
|
|
|
|
36 |
|
|
|
128 |
|
|
|
308 |
|
Accounts
receivable |
|
|
|
|
(11,544 |
) |
|
|
(23,216 |
) |
|
|
(12,226 |
) |
Inventories |
|
|
|
|
(8,644 |
) |
|
|
(16,636 |
) |
|
|
(7,674 |
) |
Investments
in associated companies |
|
|
|
|
(672 |
) |
|
|
(631 |
) |
|
|
(340 |
) |
Property,
plant and equipment, net |
|
|
|
|
(24,561 |
) |
|
|
(39,301 |
) |
|
|
(26,940 |
) |
Goodwill and
intangibles |
|
|
|
|
(13,130 |
) |
|
|
(23,843 |
) |
|
|
(17,216 |
) |
Other |
|
|
|
|
7,358 |
|
|
|
(1,893 |
) |
|
|
(1,185 |
) |
Effect of
exchange rate changes |
|
|
|
$ |
7,848 |
|
|
$ |
(16,106 |
) |
|
$ |
(14,637 |
) |
The change in cumulative translation adjustments
includes the following:
(in thousands)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Translation
of non-U.S. subsidiaries |
|
|
|
$ |
52,436 |
|
|
$ |
83,216 |
|
|
$ |
54,485 |
|
Gain/(loss)
on long-term intercompany loans |
|
|
|
|
498 |
|
|
|
(1,281 |
) |
|
|
(5,795 |
) |
Gain/(loss)
on derivative contracts designated as hedge |
|
|
|
|
968 |
|
|
|
(148 |
) |
|
|
(1,140 |
) |
Effect of
exchange rate changes |
|
|
|
$ |
53,902 |
|
|
$ |
81,787 |
|
|
$ |
47,550 |
|
| 15. |
|
Stock Options and Incentive Plans |
During 1988, 1992 and 1998, the shareholders
approved stock option plans for key employees. The 1988 and 1992 plans, under which options can no longer be granted, each provided for the granting of
up to 2,000,000 shares of Class A Common Stock. The 1998 plan provides for the granting of up to 5,000,000 shares of Class A Common Stock. In addition,
in 1997 the Board of Directors granted one option outside these plans for 250,000 shares of Class A Common Stock. Options are normally exercisable in
five cumulative annual amounts beginning 12 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. The option granted by the Board in 1997 is not exercisable unless the Company’s share
71
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
15. Stock Options and Incentive Plans
— (Continued)
price reaches $48 per share and exercise is then
limited to 10% of the total number of shares multiplied by the number of full years of employment elapsed since the grant date. During 2000, the Board
of Directors approved an amendment to increase the period after retirement to exercise options from 5 years to 10 years. This amendment, however, does
not change the original termination date of each option. Unexercised options generally terminate twenty years after the date of grant for all
plans.
There were no stock options granted during 2004 or
2003. For options granted prior to 2003, the fair value of each option granted was estimated on the grant date using the Black-Scholes option-pricing
model. No adjustments were made for certain factors that are generally recognized to reduce the value of option contracts since such impact was not
considered material to pro forma data. These factors include limited transferability, a 20% per year vesting schedule, a share price threshold with
vesting based on years of employment, and the risk of forfeiture of the non-vested portion if employment were terminated. The expected life of the
options was based on employee group and ranged from 11 to 20 years. For those options, the Company applied Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees”, in accounting for the stock option plans. Accordingly, no compensation cost was recognized in
2002.
In 2003, the Company adopted the prospective method
under FAS No. 148. Under this method, the Company does not record expense for options granted prior to 2003 but would record expense for options
granted or modified after 2002.
In accordance with FAS No. 148, the Company will
continue to report the pro forma effect of not recording expense for options granted prior to 2003. Had the Company elected to adopt FAS No. 123 for
its stock option plans, net income and earnings per share would have been affected by additional compensation cost as indicated by the pro forma
amounts below:
(in thousands, except per share amounts)
|
|
|
|
2004
|
|
2003
|
|
2002
|
Pro forma
stock-based employee compensation cost,
net of taxes |
|
|
|
$ |
2,402 |
|
|
$ |
2,694 |
|
|
$ |
2,115 |
|
|
Net income,
as reported |
|
|
|
$ |
10,385 |
|
|
$ |
54,055 |
|
|
$ |
48,941 |
|
Net income,
pro forma |
|
|
|
|
7,983 |
|
|
|
51,361 |
|
|
|
46,826 |
|
|
Basic
earnings per share, as reported |
|
|
|
$ |
0.32 |
|
|
$ |
1.64 |
|
|
$ |
1.52 |
|
Basic
earnings per share, pro forma |
|
|
|
|
0.25 |
|
|
|
1.56 |
|
|
|
1.46 |
|
|
Diluted
earnings per share, as reported |
|
|
|
$ |
0.31 |
|
|
$ |
1.61 |
|
|
$ |
1.50 |
|
Diluted
earnings per share, pro forma |
|
|
|
|
0.24 |
|
|
|
1.53 |
|
|
|
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value per share of options granted:
|
|
|
|
|
— |
|
|
|
— |
|
|
$ |
10.64 |
|
Assumptions
used in determining value of options granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
yield |
|
|
|
|
— |
|
|
|
— |
|
|
|
1.1 |
% |
Expected
volatility |
|
|
|
|
— |
|
|
|
— |
|
|
|
28.3 |
% |
Risk free
interest rates |
|
|
|
|
— |
|
|
|
— |
|
|
3.4%–5.0% |
Activity with respect to these plans is as
follows:
|
|
|
|
2004
|
|
2003
|
|
2002
|
Shares under
option January 1 |
|
|
|
|
2,823,630 |
|
|
|
3,834,225 |
|
|
|
4,296,695 |
|
Options
granted |
|
|
|
|
— |
|
|
|
— |
|
|
|
413,500 |
|
Options
canceled |
|
|
|
|
27,300 |
|
|
|
24,460 |
|
|
|
62,180 |
|
Options
exercised |
|
|
|
|
450,830 |
|
|
|
986,135 |
|
|
|
813,790 |
|
Shares under
option at December 31 |
|
|
|
|
2,345,500 |
|
|
|
2,823,630 |
|
|
|
3,834,225 |
|
Options
exercisable at December 31 |
|
|
|
|
1,673,560 |
|
|
|
1,846,040 |
|
|
|
2,493,215 |
|
Shares
available for future option grants |
|
|
|
|
463,165 |
|
|
|
436,615 |
|
|
|
443,655 |
|
72
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
15. Stock Options and Incentive Plans
— (Continued)
The weighted average exercise price is as
follows:
|
|
|
|
2004
|
|
2003
|
|
2002
|
Shares under
option January 1 |
|
|
|
$ |
19.01 |
|
|
$ |
18.69 |
|
|
$ |
18.42 |
|
Options
granted |
|
|
|
|
— |
|
|
|
— |
|
|
|
20.63 |
|
Options
canceled |
|
|
|
|
18.50 |
|
|
|
18.15 |
|
|
|
16.98 |
|
Options
exercised |
|
|
|
|
18.39 |
|
|
|
17.80 |
|
|
|
18.37 |
|
Shares under
option December 31 |
|
|
|
$ |
19.13 |
|
|
$ |
19.01 |
|
|
$ |
18.69 |
|
Options
exercisable December 31 |
|
|
|
$ |
18.12 |
|
|
$ |
18.28 |
|
|
$ |
18.16 |
|
The following is a summary of the status of options
outstanding at December 31, 2004:
|
|
|
|
|
|
Outstanding Options
|
|
Exercisable Options
|
|
Exercise Price Range
|
|
|
|
Number
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
|
|
Weighted
Average
Exercise
Price
|
$10.56–11.00 |
|
|
|
|
179,350 |
|
|
|
15.2 |
|
|
$ |
10.56 |
|
|
|
127,310 |
|
|
$ |
10.56 |
|
15.00–15.70 |
|
|
|
|
408,250 |
|
|
|
7.9 |
|
|
|
15.50 |
|
|
|
408,250 |
|
|
|
15.50 |
|
16.25–16.75 |
|
|
|
|
211,300 |
|
|
|
5.8 |
|
|
|
16.61 |
|
|
|
211,300 |
|
|
|
16.61 |
|
18.20–18.70 |
|
|
|
|
11,900 |
|
|
|
7.1 |
|
|
|
18.63 |
|
|
|
11,900 |
|
|
|
18.63 |
|
18.75–19.00 |
|
|
|
|
65,200 |
|
|
|
8.9 |
|
|
|
18.75 |
|
|
|
65,200 |
|
|
|
18.75 |
|
19.38–20.00 |
|
|
|
|
253,350 |
|
|
|
11.7 |
|
|
|
19.55 |
|
|
|
253,350 |
|
|
|
19.55 |
|
20.25–20.50 |
|
|
|
|
322,050 |
|
|
|
16.3 |
|
|
|
20.45 |
|
|
|
176,250 |
|
|
|
20.45 |
|
20.51–20.75 |
|
|
|
|
348,800 |
|
|
|
17.0 |
|
|
|
20.63 |
|
|
|
124,700 |
|
|
|
20.63 |
|
22.00–22.50 |
|
|
|
|
295,300 |
|
|
|
9.2 |
|
|
|
22.25 |
|
|
|
295,300 |
|
|
|
22.25 |
|
25.00–26.00 |
|
|
|
|
250,000 |
|
|
|
12.8 |
|
|
|
25.56 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
2,345,500 |
|
|
|
11.9 |
|
|
$ |
19.13 |
|
|
|
1,673,560 |
|
|
$ |
18.12 |
|
In November 2003, the Company adopted a Restricted
Stock Program under which certain key employees are awarded restricted stock units. The restricted stock units vest over a five-year period and are
paid annually in cash based on current market prices of the Company’s stock. Employees may elect to defer receipt to a later date to the extent
permitted by applicable law. The amount of compensation expense is subject to changes in the market price of the Company’s stock. The amount of
compensation cost recorded was $2,615,000 in 2004 and $178,000 in 2003 and is included in Selling and general expenses.
The Company’s voluntary deferred compensation
plans provided that a portion of certain employees’ salaries are deferred in exchange for amounts payable, upon their retirement, disability or
death, during a period selected by the participants in accordance with the provisions of each plan. Voluntary withdrawals are permitted under some
circumstances. The plans were terminated for active employees during 2002 and remain in effect for retired employees of the Company. The remaining
Deferred compensation liability was included in the caption Other noncurrent liabilities and was $9,434,264 and $10,656,000 at December 31, 2004 and
2003, respectively. The Company’s expense for all plans, was $928,000 in 2004, $1,130,000 in 2003, and $3,032,000 in 2002 and is included in
Selling and general expenses.
The Company maintains a voluntary savings plan
covering substantially all employees in the United States. The Plan, known as Prosperity Plus Savings Plan is a qualified plan under section 401(k) of
the U.S. Internal Revenue Code. Under the plan, employees may make tax-deferred contributions of 1% to 15% of their wages, subject to contribution
limitations specified in the Internal Revenue Code which, for 2004, was $13,000. The
73
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
15. Stock Options and Incentive Plans
— (Continued)
Company matches between 50% and 100% of each
dollar contributed by employees up to 10% of their wages, in the form of Class A Common Stock, which is contributed to an Employee Stock Ownership
Plan. The investment of employee contributions to the plan is self-directed. The cost of the plan amounted to $4,212,000 in 2004, $4,110,000 in 2003,
and $4,144,000 in 2002.
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 and whether the contribution will be made in cash or in shares of the Company’s Class A Common Stock. Contributions are only made to
current active participants in Prosperity Plus. The expense recorded for this plan was $1,765,000 in 2004, $2,424,000 in 2003, and $1,358,000 in
2002.
In January 2003, the Company announced a
restructuring program that it anticipated would reduce costs by at least $30 million per year. The restructuring activities associated with this
program were completed in 2004. Approximately 94% of the cost reductions were in the Engineered Fabrics segment; the reductions principally affect cost
of goods sold. The restructuring initiative, which resulted in a reduction of approximately 600 employees, was part of a continuing effort to match
manufacturing capacity to the global demand for paper machine clothing.
The cost reduction initiative resulted in
restructuring charges of $54,058,000 in 2004 and $21,751,000 in 2003. The charges include plant and equipment write-downs of approximately $13,515,000
in 2004 and $12,990,000 in 2003. The majority of these restructuring costs related to the shut-down of the Company’s Engineered Fabrics segment
facilities in South Carolina, France, the Netherlands and discontinuation of dryer fabrics manufacturing at the facility in Bury,
England.
Total restructuring costs incurred, by segment, for
this cost reduction program were:
(in thousands)
|
|
|
|
Total restructuring
costs incurred
|
|
Termination and
other costs
|
|
Plant and equipment
write-downs
|
Engineered
Fabrics |
|
|
|
$ |
70,883 |
|
|
$ |
45,362 |
|
|
$ |
25,521 |
|
Albany Door
Systems |
|
|
|
|
3,616 |
|
|
|
2,632 |
|
|
|
984 |
|
Applied
Technologies |
|
|
|
|
662 |
|
|
|
662 |
|
|
|
— |
|
Other |
|
|
|
|
648 |
|
|
|
648 |
|
|
|
— |
|
Total |
|
|
|
$ |
75,809 |
|
|
$ |
49,304 |
|
|
$ |
26,505 |
|
Pursuant to this cost reduction program, the changes
in restructuring accruals from the outset of the program to December 31, 2004 were as follows:
(in thousands)
|
|
|
|
December 31,
2003
|
|
Charged to
expense
|
|
Payments
|
|
Currency
translation/other
|
|
December 31,
2004
|
Termination
costs |
|
|
|
$ |
4,374 |
|
|
$ |
36,387 |
|
|
$ |
(34,465 |
) |
|
$ |
(26 |
) |
|
$ |
6,270 |
|
Other
restructuring costs |
|
|
|
|
837 |
|
|
|
2,806 |
|
|
|
(2,127 |
) |
|
|
(870 |
) |
|
|
646 |
|
Total |
|
|
|
$ |
5,211 |
|
|
$ |
39,193 |
|
|
$ |
(36,592 |
) |
|
$ |
(896 |
) |
|
$ |
6,916 |
|
74
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
— (Continued)
16. Restructuring
— (Continued)
(in thousands)
|
|
|
|
January 1,
2003
|
|
Charged to
expense
|
|
Payments
|
|
Currency
translation/other
|
|
December 31,
2003
|
Termination
costs |
|
|
|
$ |
— |
|
|
$ |
7,604 |
|
|
$ |
(3,466 |
) |
|
$ |
236 |
|
|
$ |
4,374 |
|
Other
restructuring costs |
|
|
|
|
— |
|
|
|
1,157 |
|
|
|
(176 |
) |
|
|
(144 |
) |
|
|
837 |
|
|
|
|
|
$ |
— |
|
|
$ |
8,761 |
|
|
$ |
(3,642 |
) |
|
$ |
92 |
|
|
$ |
5,211 |
|
Pursuant to restructuring initiatives announced
prior to 2003, the changes in restructuring accruals during 2003 and 2004 were as follows:
(in thousands)
|
|
|
|
December 31,
2003
|
|
Payments
|
|
Currency
translation/other
|
|
December 31,
2004
|
Termination
costs |
|
|
|
$ |
2,677 |
|
|
$ |
(993 |
) |
|
$ |
97 |
|
|
$ |
1,781 |
|
Plant
rationalization costs |
|
|
|
|
155 |
|
|
|
— |
|
|
|
(155 |
) |
|
|
— |
|
Lease
obligations |
|
|
|
|
1,988 |
|
|
|
(1,023 |
) |
|
|
686 |
|
|
|
1,651 |
|
Total |
|
|
|
$ |
4,820 |
|
|
$ |
(2,016 |
) |
|
$ |
628 |
|
|
$ |
3,432 |
|
(in thousands)
|
|
|
|
January 1,
2003
|
|
Payments
|
|
Currency
translation/other
|
|
December 31,
2003
|
Termination
costs |
|
|
|
$ |
5,311 |
|
|
$ |
(3,022 |
) |
|
$ |
388 |
|
|
$ |
2,677 |
|
Plant
rationalization costs |
|
|
|
|
551 |
|
|
|
(396 |
) |
|
|
— |
|
|
|
155 |
|
Lease
obligations |
|
|
|
|
3,571 |
|
|
|
(1,927 |
) |
|
|
344 |
|
|
|
1,988 |
|
|
|
|
|
$ |
9,433 |
|
|
$ |
(5,345 |
) |
|
$ |
732 |
|
|
$ |
4,820 |
|
As of December 31, 2004, total restructuring
liabilities included $9,189,000 classified as a current and $1,159,000 classified as noncurrent. As of December 31, 2003, total restructuring
liabilities included $8,538,000 classified as a current and $1,493,000 classified as noncurrent.
75
Quarterly Financial Data
(unaudited)
(in millions except per share amounts)
|
|
|
|
1st
|
|
2nd
|
|
3rd
|
|
4th
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales |
|
|
|
$ |
231.3 |
|
|
$ |
227.2 |
|
|
$ |
222.9 |
|
|
$ |
238.4 |
|
Gross
profit |
|
|
|
|
91.8 |
|
|
|
88.1 |
|
|
|
87.3 |
|
|
|
94.9 |
|
Restructuring, net |
|
|
|
|
11.6 |
|
|
|
31.1 |
|
|
|
2.6 |
|
|
|
8.8 |
|
Net
income/(loss) |
|
|
|
|
3.3 |
|
|
|
(15.4 |
) |
|
|
10.5 |
|
|
|
12.0 |
|
Basic
earnings/(loss) per share |
|
|
|
|
0.10 |
|
|
|
(0.47 |
) |
|
|
0.33 |
|
|
|
0.38 |
|
Diluted
earnings/(loss) per share |
|
|
|
|
0.10 |
|
|
|
(0.47 |
) |
|
|
0.32 |
|
|
|
0.38 |
|
Cash
dividends per share |
|
|
|
|
0.07 |
|
|
|
0.07 |
|
|
|
0.08 |
|
|
|
0.08 |
|
Class A
Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
35.00 |
|
|
|
33.75 |
|
|
|
33.60 |
|
|
|
35.16 |
|
Low |
|
|
|
|
26.40 |
|
|
|
27.20 |
|
|
|
28.65 |
|
|
|
28.19 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(a) |
|
|
|
$ |
214.7 |
|
|
$ |
228.5 |
|
|
$ |
213.4 |
|
|
$ |
231.3 |
|
Gross
profit |
|
|
|
|
90.3 |
|
|
|
93.7 |
|
|
|
86.3 |
|
|
|
90.9 |
|
Restructuring, net |
|
|
|
|
0.8 |
|
|
|
0.9 |
|
|
|
14.3 |
|
|
|
5.8 |
|
Net
income |
|
|
|
|
21.0 |
|
|
|
16.0 |
|
|
|
6.6 |
|
|
|
10.5 |
|
Basic
earnings per share |
|
|
|
|
0.65 |
|
|
|
0.49 |
|
|
|
0.20 |
|
|
|
0.32 |
|
Diluted
earnings per share |
|
|
|
|
0.64 |
|
|
|
0.48 |
|
|
|
0.19 |
|
|
|
0.31 |
|
Cash
dividends per share |
|
|
|
|
0.055 |
|
|
|
0.055 |
|
|
|
0.07 |
|
|
|
0.07 |
|
Class A
Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
23.67 |
|
|
|
27.76 |
|
|
|
31.82 |
|
|
|
34.20 |
|
Low |
|
|
|
|
20.30 |
|
|
|
22.00 |
|
|
|
26.62 |
|
|
|
29.46 |
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
(a) |
|
|
|
$ |
195.6 |
|
|
$ |
208.0 |
|
|
$ |
209.1 |
|
|
$ |
219.8 |
|
Gross
profit |
|
|
|
|
80.5 |
|
|
|
86.4 |
|
|
|
84.7 |
|
|
|
88.7 |
|
Income before
cumulative effect of a change in accounting principle |
|
|
|
|
8.9 |
|
|
|
13.9 |
|
|
|
14.2 |
|
|
|
17.8 |
|
Net
income |
|
|
|
|
3.0 |
|
|
|
13.9 |
|
|
|
14.2 |
|
|
|
17.8 |
|
Earnings per
share before cumulative effect of a change in accounting principle |
|
|
|
|
0.28 |
|
|
|
0.43 |
|
|
|
0.44 |
|
|
|
0.55 |
|
Basic
earnings per share |
|
|
|
|
0.10 |
|
|
|
0.43 |
|
|
|
0.44 |
|
|
|
0.55 |
|
Diluted
earnings per share before cumulative effect of a change in accounting principle |
|
|
|
|
0.27 |
|
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.55 |
|
Diluted
earnings per share |
|
|
|
|
0.09 |
|
|
|
0.43 |
|
|
|
0.43 |
|
|
|
0.54 |
|
Cash
dividends per share |
|
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.05 |
|
|
|
0.055 |
|
Class A
Common Stock prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
|
|
30.10 |
|
|
|
29.88 |
|
|
|
26.11 |
|
|
|
21.60 |
|
Low |
|
|
|
|
20.77 |
|
|
|
24.18 |
|
|
|
18.93 |
|
|
|
16.96 |
|
(a) |
|
In 2004, the Company changed its classification of costs for
shipping and handling. Prior to 2004, such amounts were recorded as a reduction to revenues. In 2004, these amounts were reclassified into Cost of
goods sold. Net sales for 2003 and 2002 have been restated to conform to the current presentation.
The Company’s Class A Common Stock is
traded principally on the New York Stock Exchange.
At December 31, 2004, there were approximately 5,500 shareholders. |
76
| Item 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
None.
| Item 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company, with the participation of its
management, including its Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) as of the end of the period
covered by this annual report. Based upon, and as of the date of, that evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the disclosure controls and procedures of the Company were effective in ensuring that information required to be disclosed in the
periodic reports that it files or submits under the Exchange Act is accumulated and communicated to the management of the Company, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial
Reporting
Management of the Company is responsible for
establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. The Company’s internal control system is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally
accepted in the United States of America.
Because of its limitations, internal control over
financial reporting may not prevent or detect mistatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may
deteriorate.
Management of the Company assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on
that assessment, management concluded that, as of December 31, 2004, the company’s internal control over financial reporting is effective based on
those criteria.
The Company’s independent registered public
accounting firm has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2004 as stated in their report, which is included herein.
/s/ Frank R.
Schmeler |
|
|
|
/s/ Michael C.
Nahl |
|
/s/ Richard A.
Carlstrom |
Frank R. Schmeler
Chairman and
Chief Executive Officer
(Principal Executive Officer)
|
|
|
|
Michael C. Nahl
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
Richard A. Carlstrom
Vice President and
Controller
(Principal Accounting Officer)
|
| Item 9B. |
|
OTHER INFORMATION |
None.
77
PART III
| Item 10. |
|
DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT |
| (a) |
|
Directors. The information set out in the section
captioned “Election of Directors” in the Proxy Statement is incorporated herein by reference. |
| (b) |
|
Audit Committee Financial Expert. The information set out
in the section captioned “Committees” in the Proxy Statement is incorporated herein by reference. |
| (c) |
|
Executive Officers of Registrant. Information about the
officers of the Registrant is set forth in Item 1 above. |
| (d) |
|
Code of Ethics. The Company has adopted a Code of Ethics
that applies to its Chief Executive Officer, Chief Financial Officer and Controller. A copy of the Code of Ethics is filed as Exhibit 10(p) and is
available at the Corporate Governance section of the Company’s Web site (www.albint.com). A copy of the Code of Ethics may be obtained, without
charge, by writing to: Investor Relations Department, Albany International Corp., P.O. Box 1907, Albany, New York 12201. Any amendment to the Code of
Ethics will be disclosed by posting the amended Code of Ethics on the Company’s website. Any waiver of any provision of the Code of Ethics will be
disclosed by the filing of a Form 8K. |
| Item 11. |
|
EXECUTIVE COMPENSATION |
The information set forth in the sections of the
Proxy Statement captioned “Executive Compensation,” “Summary Compensation Table,” “Option/Restricted Stock Unit Grants in Last
Fiscal Year,” “RSU Payments During 2004 and Year End Values,” “Option/SAR Exercises During 2004 and Year-End Values,”
“Pension Plan Table,” “Compensation Committee Report on Executive Compensation,” “Compensation of Executive Officers,”
“Compensation of Chief Executive Officer,” “Compensation Committee Interlocks and Insider Participation,” “Stock Performance
Graph,” and “Directors’ Fees” is incorporated herein by reference.
| Item 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS |
The information set forth in the section captioned
“Share Ownership” in the Proxy Statement is incorporated herein by reference.
Equity Compensation Plan Information
Plan Category
|
|
|
|
Number of securities to be
issued upon exercise of
outstanding
options,
warrants, and rights
|
|
Weighted average
exercise price of
outstanding options,
warrants, and rights
|
|
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity
compensation plans approved by security holders |
|
|
|
|
2,095,500 |
|
|
$ |
17.23 |
|
|
|
436,165 |
(1,2,3) |
Equity
compensation plans not approved by security holders |
|
|
|
|
250,000 |
|
|
$ |
25.56 |
|
|
|
— |
|
Total |
|
|
|
|
2,345,500 |
|
|
$ |
18.12 |
|
|
|
463,165 |
(1,2,3) |
(1) |
|
Reflects only the number of shares for which options may be
granted as of January 1, 2005 under the Registrant’s 1998 Stock Option Plan (“the 1998 Plan”). Additional shares of Class A Common Stock
are available for issuance under the 1998 Plan (see note 2 below) as well as under the Registrant’s Directors Retainer Plan (see note 3
below). |
(2) |
|
The 1998 Plan allows the Registrant’s Board of Directors to
increase the amount of shares available for future option grants, from time to time, provided that it may not be increased by more than 500,000 in any
calendar |
78
|
|
year and that no such increase may cause the total number of
shares then available for option to exceed 1,000,000. If options granted under the 1998 Plan expire or are terminated or surrendered without having
been exercised, the shares of Class A Common Stock subject thereto may again be optioned. Assuming full exercise by the Board of its power to increase
annually the number of shares available for options, the maximum number of additional shares that could yet be issued upon exercise of future option
grants pursuant to the 1998 Plan (including those set forth in column (c) above) would be 2,436,615. |
(3) |
|
The Directors Retainer Plan provides that the aggregate dollar
amount of the annual retainer payable for service as a member of the Board is $60,000. Of this total, $20,000 is paid in shares of Class A Common Stock
of the Registrant, the exact number of shares to be paid for any year being determined on the basis of the per share closing price of such stock on the
day of the Annual Meeting at which the election of directors for such year occurs, as shown in the composite index published for such day in the Wall
Street Journal, rounded down to the nearest whole share. |
The Company has adopted only one equity compensation
“plan” not approved by security holders and required to be disclosed under Item 201(d) of Regulation S-K. In 1997, the Company granted an
option exercisable at $25.56 per share for 250,000 shares of Class A Common Stock to Michael C. Nahl, the Company’s Senior Vice President and
Chief Financial Officer. The option is not exercisable unless the market price of Class A Common Stock reaches $48 per share while Mr. Nahl is employed
by the Company or a subsidiary. When the target price is achieved, the option becomes exercisable as to a number of shares determined by multiplying
25,000 times the number of full years that have elapsed since the grant date. Thereafter, the option becomes exercisable as to an additional 25,000
shares on each anniversary of the grant date while the optionee remains an employee. In the event of termination of the optionee’s employment, the
option terminates as to all shares as to which it is not then exercisable, except that, in the case of voluntary termination after age 62, death,
disability, or involuntary termination, if the target price has been achieved prior to such termination, the option becomes exercisable, immediately
prior to such termination.
| Item 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
None.
| Item 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information set forth in the section captioned
“Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.
79
PART IV
| Item 15. |
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a)(1) |
|
Financial Statements. The consolidated financial
statements included in the Annual Report are incorporated in Item 8. |
| (a)(2) |
|
Schedule. The following financial statement schedule
for each of the three years in the period ended December 31, 2004: Schedule II — Valuation and Qualifying Accounts |
| 3(a) |
|
Certificate of Incorporation of Registrant. (3) |
| 3(b) |
|
Bylaws of Registrant. (9) |
| 4(a) |
|
Article IV of Certificate of Incorporation of Registrant
(included in Exhibit 3(a)). |
| 4(b) |
|
Specimen Stock Certificate for Class A Common Stock.
(1) |
Credit Agreement
| 10(i)(i) |
|
Credit Agreement, dated as of August 11, 1999 (the “Credit
Agreement”), among the Registrant, certain banks listed therein, the Chase Manhattan Bank as Administrative Agent, Chase Manhattan International
Limited as London Agent, Citibank N.A. as Syndication Agent, and Banc One Capital Markets, Inc. as Documentation Agent. (8) |
| 10(i)(ii) |
|
Amendment No. 1, dated as of December 22, 1999, to the Credit
Agreement. (10) |
| 10(i)(iii) |
|
Amendment No. 2, dated as of October 1, 2002, to the Credit
Agreement. (11) |
| 10(j)(i) |
|
Receivables Sale Agreement, dated as of September 28, 2001,
among the Registrant as the Collection Agent, Albany International Receivables Corporation as the Seller, ABN AMRO Bank N.V., as the Agent the
Committed Purchasers party thereto, and Amsterdam Funding Corporation. (10) |
| 10(j)(i)(a) |
|
Amendment No. 1, dated as of September 27, 2002, to the
Receivables Sale Agreement. (11) |
| 10(j)(i)(b) |
|
Amendment No. 2, dated as of October 25, 2002, to the
Receivables Sale Agreement. (11) |
| 10(j)(i)(c) |
|
Amendment No. 3, dated as of September 26, 2003, to the
Receivables Sale Agreement. (12) |
| 10(j)(i)(d) |
|
Amendment No. 4, dated as of December 31, 2003, to the
Receivables Sale Agreement. (15) |
| 10(j)(i)(e) |
|
Amendment No. 5, dated as of September 24, 2004, to the
Receivables Sale Agreement. (16) |
| 10(j)(i)(f) |
|
Amendment No. 6, dated as of November 23, 2004 to the
Receivables Sale Agreement. (17) |
| 10(j)(ii) |
|
Purchase and Sale Agreement, dated as of September 28, 2001,
among the Registrant, Geschmay Corp., Albany International Research Co., Albany International Techniweave, Inc., Albany International Canada Inc.,
M&I Door Systems Ltd., as Originators, and Albany International Receivables Corporation as Buyer. (11) |
| 10(j)(ii)(a) |
|
Amendment No. 1, dated as of March 1, 2002, to Exhibit A of the
Purchase and Sale Agreement. (11) |
| 10(j)(ii)(b) |
|
Amendment No. 2, dated as of July 1, 2003, to Exhibit A of the
Purchase and Sale Agreement. (12) |
| 10(k)(I) |
|
Five-Year Revolving Credit Agreement, dated as of January 8,
2004, among the Registrant, certain banks listed therein, JP Morgan Chase Bank as the Administrative Agent, J.P. Morgan Europe Limited as the London
Agent, J.P. Morgan Securities Inc. as Lead Arranger and Sole Bookrunner, Fleet National Bank and ABN AMRO Bank N.V. as Co-Syndication Agents, and
Sumitomo Mitsui Banking Corp., New York, and Wachovia Bank, N.A., as Co-Documentation Agents. (13) |
80
Restricted Stock Units
| 10(l)(i) |
|
2003 Restricted Stock Unit Plan, as adopted November 13, 2003.
(15) |
| 10(l)(ii) |
|
2003 Form of Restricted Stock Unit Award, as adopted November
13, 2003. (14) |
Stock Options
| 10(m)(i) |
|
Form of Stock Option Agreement, dated as of August 1, 1983,
between the Registrant and each of five employees, together with schedule showing the names of such employees and the material differences among the
Stock Option Agreements with such employees. (1) |
| 10(m)(ii) |
|
Form of Amendment of Stock Option Agreement, dated as of July 1,
1987, between the Registrant and each of the five employees identified in the schedule referred to as Exhibit 10(m)(i). (1) |
| 10(m)(iii) |
|
1988 Stock Option Plan. (2) |
| 10(m)(iv) |
|
1992 Stock Option Plan. (4) |
| 10(m)(v) |
|
1997 Executive Stock Option Agreement. (6) |
| 10(m)(vi) |
|
1998 Stock Option Plan. (7) |
| 10(m)(vii) |
|
1998 Stock Option Plan, as amended and restated as of August 7,
2003. (12) |
Executive Compensation
| 10(n) |
|
Pension Equalization Plan adopted April 16, 1986, naming two
current executive officers and one former executive officer of Registrant as “Participants” thereunder. (1) |
| 10(n)(i) |
|
Supplemental Executive Retirement Plan, adopted as of January 1,
1994, as amended and restated as of June 30, 2002. (15) |
| 10(n)(ii) |
|
Annual Bonus Program. (1) |
| 10(o)(I) |
|
Form of Executive Deferred Compensation Plan adopted September
1, 1985, as amended and restated as of August 8, 2001. (10) |
| 10(o)(ii) |
|
Form of Directors’ Deferred Compensation Plan adopted
September 1, 1985, as amended and restated as of August 8, 2001. (10) |
| 10(o)(iii) |
|
Deferred Compensation Plan of Albany International Corp., as
amended and restated as of August 8, 2001. (11) |
| 10(o)(iv) |
|
Centennial Deferred Compensation Plan, as amended and restated
as of August 8, 2001. (10) |
| 10(o)(v) |
|
Directors Annual Retainer Plan, as amended and restated as of
May 10, 2001. |
| 10(o)(v) |
|
Directors Annual Retainer Plan, as amended and restated as of
August 7, 2003. |
| 10(o)(v) |
|
Directors Annual Retainer Plan, as amended and restated as of
May 6, 2004. (12) |
Other Exhibits
| 10(p) |
|
Code of Ethics. (15) |
| 13 |
|
Annual Report to Security Holders for the year ended December
31, 2004. Filed herewith. |
| 21 |
|
Subsidiaries of Registrant. Filed herewith. |
| 23 |
|
Consent of PricewaterhouseCoopers LLP. Filed
herewith. |
| 24 |
|
Powers of Attorney. Filed herewith. |
81
| 31(a) |
|
Certification of Frank R. Schmeler required pursuant to Rule
13a-14(a) or Rule 15d-14(a). Filed herewith. |
| 31(b) |
|
Certification of Michael C. Nahl required pursuant to Rule
13a-14(a) or Rule 15d-14(a). Filed herewith. |
| 32(a) |
|
Certification of Frank R. Schmeler and Michael C. Nahl required
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Furnished herewith. |
All other schedules and exhibits are not required or are inapplicable and,
therefore, have been omitted.
| (1) |
|
Previously filed as an Exhibit to the Registrant’s
Registration Statement on Form S-1, No. 33-16254, as amended, declared effective by the Securities and Exchange Commission on September 30, 1987, which
previously filed Exhibit is incorporated by reference herein. |
| (2) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on Form 8-K dated August 8, 1988, which previously filed Exhibit is incorporated by reference herein. |
| (3) |
|
Previously filed as an Exhibit to the Registrant’s
Registration Statement on Form 8-A, File No. 1-10026, declared effective by the Securities and Exchange Commission on August 26, 1988 (as to The
Pacific Stock Exchange, Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.), which previously filed Exhibit is incorporated by
reference herein. |
| (4) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on Form 8-K dated January 18, 1993, which previously filed Exhibit is incorporated by reference herein. |
| (5) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on Form 8-K dated March 15, 1996, which previously filed Exhibit is incorporated by reference herein. |
| (6) |
|
Previously filed as an Exhibit to the Registrant’s Annual
Report on Form 10-K dated March 16, 1998, which previously filed Exhibit is incorporated by reference herein. |
| (7) |
|
Previously filed as an Exhibit to the Registrant’s
Quarterly Report on Form 10-Q dated August 10, 1998, which previously filed Exhibit is incorporated by reference herein. |
| (8) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on form 8-K dated September 21, 1999, which previously filed Exhibit is incorporated by reference herein. |
| (9) |
|
Previously filed as an Exhibit to the Registrant’s
Quarterly Report on Form 10-Q dated November 10, 1999, which previously filed Exhibit is incorporated by reference herein. |
| (10) |
|
Previously filed as an Exhibit to the Registrant’s
Quarterly Report on Form 10-Q dated November 12, 2001, which previously filed Exhibit is incorporated by reference herein. |
| (11) |
|
Previously filed as an Exhibit to the Registrant’s Annual
Report on Form 10-K dated March 21, 2003, which previously filed Exhibit is incorporated by reference herein. |
| (12) |
|
Previously filed as an Exhibit to the Registrant’s
Quarterly Report on Form 10-Q dated August 4, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (13) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on Form 8-K filed January 22, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (14) |
|
Previously filed as an Exhibit to the Registrant’s Current
Report on Form 8-K filed November 5, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (15) |
|
Previously filed as an Exhibit to the Registrant’s Annual
Report on Form 10-K dated March 11, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (16) |
|
Previously filed as an Exhibit the Registrant’s Current
Report on Form 8-K filed September 27, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (17) |
|
Previously filed as an Exhibit the Registrant’s Current
Report on Form 8-K filed November 23, 2004, which previously filed Exhibit is incorporated by reference herein. |
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 9th day of March, 2005.
ALBANY INTERNATIONAL CORP.
by |
|
/s/ Michael C. Nahl
Michael C. Nahl
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer) |
83
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
|
|
|
|
Title
|
|
Date
|
*
Frank R. Schmeler
|
|
|
|
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer) |
|
March 9,
2005 |
|
|
|
|
|
|
|
/s/ Michael
C. Nahl
Michael C. Nahl
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Richard A. Carlstrom
|
|
|
|
Vice
President — Controller
(Principal Accounting Officer) |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Thomas R. Beecher Jr.
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Paula H. J. Cholmondeley
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Erland E. Kailbourne
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Francis L. McKone
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Joseph G. Morone, Ph.D.
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Hugh J. Murphy
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Juhani Pakkala
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Christine L. Standish
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
John C. Standish
|
|
|
|
Director |
|
March 9,
2005 |
|
|
|
|
|
|
|
*
Barbara P. Wright
|
|
|
|
Director |
|
March 9,
2005 |
*By /s/
Michael C. Nahl
Michael C. Nahl
|
|
|
|
|
|
|
|
|
84
SCHEDULE
II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Column A
|
|
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
Description
|
|
|
|
Balance at
Beginning
of Period
|
|
Charged to
Expense
|
|
Other (A)
|
|
Balance at
End of Period
|
|
Allowance for
doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
8,673 |
|
|
$ |
2,130 |
|
|
$ |
(872 |
) |
|
$ |
9,931 |
|
|
|
|
|
2003 |
|
|
|
|
11,790 |
|
|
|
2,841 |
|
|
|
(5,958 |
) (B) |
|
|
8,673 |
|
|
|
|
|
2002 |
|
|
|
|
10,488 |
|
|
|
2,651 |
|
|
|
(1,349 |
) |
|
|
11,790 |
|
|
|
|
|
Allowance for
inventory obsolescence
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
8,626 |
|
|
$ |
2,111 |
|
|
$ |
(3,501 |
) |
|
$ |
7,236 |
|
|
|
|
|
2003 |
|
|
|
|
7,105 |
|
|
|
3,872 |
|
|
|
(2,351 |
) |
|
|
8,626 |
|
|
|
|
|
2002 |
|
|
|
|
7,707 |
|
|
|
2,584 |
|
|
|
(3,186 |
) |
|
|
7,105 |
|
|
|
|
|
Allowance for
sales returns
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
6,928 |
|
|
$ |
10,204 |
|
|
$ |
(9,060 |
) |
|
$ |
8,072 |
|
|
|
|
|
2003 |
|
|
|
|
7,635 |
|
|
|
7,749 |
|
|
|
(8,456 |
) |
|
|
6,928 |
|
|
|
|
|
2002 |
|
|
|
|
6,380 |
|
|
|
8,438 |
|
|
|
(7,183 |
) |
|
|
7,635 |
|
|
|
|
|
Valuation
allowance for deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
$ |
6,793 |
|
|
$ |
7,100 |
|
|
$ |
(1,438 |
) |
|
$ |
12,455 |
|
|
|
|
|
2003 |
|
|
|
|
1,690 |
|
|
|
4,500 |
|
|
|
603 |
|
|
|
6,793 |
|
|
|
|
|
2002 |
|
|
|
|
2,139 |
|
|
|
— |
|
|
|
(449 |
) |
|
|
1,690 |
|
|
|
|
|
(A) |
|
Amounts sold, written off or recovered, and the effect of
changes in currency translation rates, are included in Column D. |
(B) |
|
The decrease in allowance for doubtful accounts in 2003 includes
the reduction of the allowance in North America that is no longer required because the accounts receivable in that region are sold, without recourse.
See Note 6 of Notes to Consolidated Financial Statements. |
85
CORPORATE INFORMATION
Transfer Agent, Dividend Distribution Agent, and Registrar
For assistance with shareholder account questions such as change of address, lost
certificates, change of ownership, dividend reinvestment plan, and other similar matters, contact:
For Mail/Deliveries
Shareholder
Communications Team
Computershare Investor Services LLC
Two North LaSalle St., Mezzanine Level
Chicago, Illinois
60602-3702
Telephone: (312) 360-5395
Fax: (312) 601-4332
Email:
web.queries@computershare.com
On the Web
Shareholders can
access account information and shareholder services online at
www.computershare.com/contact_us.
Notice of Annual Meeting
The Annual Meeting of the Company’s shareholders will be held on Thursday, May
12, 2005, at 10:00 a.m. at Albany International Corp., 1373 Broadway, Albany, New York.
Stock Listing
Albany International is listed on the New York Stock Exchange, Pacific Stock
Exchange, and Frankfurt Stock Exchange (Symbol AIN). Stock tables in newspapers and financial publications list Albany International as
“AlbanyInt.”
Equal Employment Opportunity
Albany International, as a matter of policy, does not discriminate against any
employee or applicant for employment because of race, color, religion, sex, national origin, age, physical or mental disability, or status as a
disabled or Vietnam-era veteran. This policy of nondiscrimination is applicable to matters of hiring, upgrading, promotions, transfers, layoffs,
terminations, rates of pay, selection for training, recruitment, and recruitment advertising. The Company maintains affirmative action programs to
implement its EEO policy.
93
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94