SEC Filing | Albany International Corp

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ain-20200630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended:	June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from __________ to __________

Commission file number: 1-10026


ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

Delaware


(State or other jurisdiction of incorporation or organization)

216 Airport Drive, Rochester, New Hampshire


(Address of principal executive offices)

14-0462060


(IRS Employer Identification No.)

03867


(Zip Code)

603-330-5850


(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	AIN	The New York Stock Exchange (NYSE)
Class B Common Stock, $0.001 par value per share	AIN	The New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 30.7 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock outstanding as of July 21, 2020.

ALBANY INTERNATIONAL CORP.

TABLE OF CONTENTS


		Page No.
Part I Financial information
Item 1.	Financial Statements
	Consolidated statements of income –three and six months ended June 30, 2020 and 2019	3
	Consolidated statements of comprehensive income/(loss) – three and six months ended June 30, 2020 and 2019	4
	Consolidated balance sheets as of June 30, 2020 and December 31, 2019	5
	Consolidated statements of cash flows – three and six months ended June 30, 2020 and 2019	6
	Notes to consolidated financial statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Forward-looking statements	28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	43
Part II Other Information
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	44

Index

ITEM 1. FINANCIAL STATEMENTS

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net sales	$	225,990	$	273,949	$	461,754	$	525,321
Cost of goods sold	123,010		168,767		269,302		328,368

Gross profit	102,980		105,182		192,452		196,953
Selling, general, and administrative expenses	38,543		40,816		78,649		81,761
Technical and research expenses	8,873		9,242		18,003		19,491
Restructuring expenses, net	2,837		899		3,479		1,383

Operating income	52,727		54,225		92,321		94,318
Interest expense, net	3,823		4,631		7,800		9,048
Other expense/(income), net	1,091		930		16,660		(278)

Income before income taxes	47,813		48,664		67,861		85,548
Income tax expense	15,364		14,405		27,818		21,881

Net income	32,449		34,259		40,043		63,667
Net (loss)/income attributable to the noncontrolling interest	95		205		(1,420)		423
Net income attributable to the Company	$	32,354	$	34,054	$	41,463	$	63,244

Earnings per share attributable to Company shareholders - Basic	$	1.00	$	1.05	$	1.28	$	1.96

Earnings per share attributable to Company shareholders - Diluted	$	1.00	$	1.05	$	1.28	$	1.96

Shares of the Company used in computing earnings per share:
Basic	32,328		32,299		32,320		32,286

Diluted	32,336		32,311		32,328		32,298

Dividends declared per share, Class A and Class B	$	0.19	$	0.18	$	0.38	$	0.36

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	32,449	$	34,259	$	40,043	$	63,667

Other comprehensive income/(loss), before tax:
Foreign currency translation and other adjustments	8,753		(50)		(16,202)		(2,202)
Pension/postretirement settlements and curtailments	378		—		378		—
Amortization of pension liability adjustments:
Prior service credit	(1,114)		(1,105)		(2,228)		(2,210)
Net actuarial loss	1,232		1,118		2,476		2,239
Payments and amortization related to interest rate swaps included in earnings	1,116		(420)		1,523		(872)
Derivative valuation adjustment	(1,366)		(5,887)		(12,130)		(9,264)

Income taxes related to items of other comprehensive income/(loss):
Pension/postretirement settlements and curtailments	(113)		—		(113)		—
Amortization of pension liability adjustment	(30)		(4)		(62)		(9)
Payments and amortization related to interest rate swaps included in earnings	(286)		108		(390)		223
Derivative valuation adjustment	349		1,504		3,102		2,367
Comprehensive income	41,368		29,523		16,397		53,939
Comprehensive income/(loss) attributable to the noncontrolling interest	247		207		(1,159)		417
Comprehensive income/(loss) attributable to the Company	$	41,121	$	29,316	$	17,556	$	53,522

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)


	June 30, 2020		December 31, 2019
ASSETS
Cash and cash equivalents	$	204,037	$	195,540
Accounts receivable, net	202,612		218,271
Contract assets, net	96,092		79,070
Inventories	115,532		95,149
Income taxes prepaid and receivable	5,998		6,162
Prepaid expenses and other current assets	26,209		24,142
Total current assets	$	650,480	$	618,334

Property, plant and equipment, net	443,046		466,462
Intangibles, net	49,706		52,892
Goodwill	181,302		180,934
Deferred income taxes	40,999		51,621
Noncurrent receivables, net	36,901		41,234
Other assets	59,526		62,891
Total assets	$	1,461,960	$	1,474,368

LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable	$	50,181	$	65,203
Accrued liabilities	115,458		125,885
Current maturities of long-term debt	17		20
Income taxes payable	11,546		11,611
Total current liabilities	177,202		202,719

Long-term debt	435,000		424,009
Other noncurrent liabilities	134,898		132,725
Deferred taxes and other liabilities	8,702		12,226
Total liabilities	755,802		771,679

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; 39,112,722 issued in 2020 and 39,098,792 in 2019	39		39
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 1,617,998 in 2020 and 2019	2		2
Additional paid in capital	432,738		432,518
Retained earnings	726,233		698,496
Accumulated items of other comprehensive income:
Translation adjustments	(139,635)		(122,852)
Pension and postretirement liability adjustments	(48,962)		(49,994)
Derivative valuation adjustment	(11,030)		(3,135)
Treasury stock (Class A), at cost; 8,394,022 shares in 2020 and 8,408,770 shares in 2019	(256,074)		(256,391)
Total Company shareholders' equity	703,311		698,683
Noncontrolling interest	2,847		4,006
Total equity	706,158		702,689
Total liabilities and shareholders' equity	$	1,461,960	$	1,474,368

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
OPERATING ACTIVITIES
Net income	$	32,449	$	34,259	$	40,043	$	63,667
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	15,498		15,345		31,004		30,987
Amortization	2,456		2,409		5,020		4,723
Change in deferred taxes and other liabilities	3,543		319		9,360		(746)
Provision for write-off of property, plant and equipment	36		720		233		1,106
Non-cash interest expense	20		152		171		303
Compensation and benefits paid or payable in Class A Common Stock	1,198		1,170		516		623
Fair value adjustment on foreign currency option	—		—		64		—
Provision for credit losses from uncollected receivables and contract assets	114		219		1,769		804
Foreign currency remeasurement loss/(gain) on intercompany loans	194		100		15,581		(1,607)

Changes in operating assets and liabilities that provided/(used) cash:
Accounts receivable	11,511		14,215		8,117		2,006
Contract assets	(11,169)		3,528		(20,009)		3,047
Inventories	(4,878)		(1,505)		(24,628)		(18,167)
Prepaid expenses and other current assets	(301)		(1,384)		(2,457)		(4,188)
Income taxes prepaid and receivable	29		(316)		(208)		358
Accounts payable	(9,337)		(14,276)		(10,383)		7,474
Accrued liabilities	4,171		(1,074)		(10,901)		(12,169)
Income taxes payable	5,526		5,724		1,955		7,230
Noncurrent receivables	628		(46)		397		(340)
Other noncurrent liabilities	(464)		(481)		(524)		(2,160)
Other, net	(552)		(548)		(1,086)		145
Net cash provided by operating activities	50,672		58,530		44,034		83,096

INVESTING ACTIVITIES
Purchases of property, plant and equipment	(9,212)		(14,606)		(21,971)		(35,404)
Purchased software	—		(27)		(46)		(49)
Net cash used in investing activities	(9,212)		(14,633)		(22,017)		(35,453)

FINANCING ACTIVITIES
Proceeds from borrowings	—		—		70,000		20,000
Principal payments on debt	(56,005)		(9,004)		(59,011)		(37,008)
Principal payments on finance lease liabilities	(329)		(178)		(6,463)		(578)
Taxes paid in lieu of share issuance	—		—		(490)		(971)
Proceeds from options exercised	20		28		20		72
Dividends paid	(6,141)		(5,813)		(12,280)		(11,621)
Net cash used in financing activities	(62,455)		(14,967)		(8,224)		(30,106)

Effect of exchange rate changes on cash and cash equivalents	2,352		(1,082)		(5,296)		(59)

Increase/(decrease) in cash and cash equivalents	(18,643)		27,848		8,497		17,478
Cash and cash equivalents at beginning of period	222,680		187,385		195,540		197,755
Cash and cash equivalents at end of period	$	204,037	$	215,233	$	204,037	$	215,233

The accompanying notes are an integral part of the consolidated financial statements

Index

ALBANY INTERNATIONAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of results for such periods. Albany International Corp. (Albany, the Registrant, the Company, we, us, or our) consolidates the financial results of its subsidiaries for all periods presented. The results for any interim period are not necessarily indicative of results for the full year.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in Albany International Corp.’s Consolidated Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Albany International Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019.

Effective January 1, 2020, we adopted the provisions of ASC 326, Current Expected Credit Losses (CECL), using the effective date (or modified retrospective) approach for transition. Under this transition method, periods prior to 2020 were not restated. The pre-tax cumulative effect of initially applying the new standard was an increase in credit loss reserves of $1.8 million, primarily for Accounts receivable and Contract assets. Including tax effects, Retained earnings was reduced by $1.4 million as a result of transitioning to the new standard. The effect of the application of CECL during the first quarter of 2020 is further described in Notes 11 and 12.

2. Reportable Segments

In accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.

The Machine Clothing (“MC”) segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel, nonwovens, fiber cement and several other industrial applications. We sell our MC products directly to customer end-users in countries across the globe. Our products, manufacturing processes, and distribution channels for MC are substantially the same in each region of the world in which we operate.

We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure.

The Albany Engineered Composites (“AEC”) segment, including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest, provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program, AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term supply contract. The manufacturing spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the Company due to the cost-plus nature of the supply agreement. In the fourth quarter of 2019, Safran leased manufacturing space from AEC for the GE9X program. Rent paid by Safran under this lease amounted to $0.5 million for the first six months of 2020. AEC net sales to Safran, substantially all of which were through ASC, were $57.0 million and $116.3 million in the first six months of 2020 and 2019, respectively.

The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $105.4 million and $114.5 million as of June 30, 2020 and December 31, 2019, respectively. Other significant programs by AEC include the F-35, Boeing 787, Sikorsky CH-53K and JASSM, as well as the fan case for the GE9X engine. In 2019, approximately 25 percent of AEC sales were related to U.S. government contracts or programs.

Index

The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:


	Three months ended June 30,						Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Net sales
Machine Clothing	$	153,433	$	155,016	$	290,035	$	299,349
Albany Engineered Composites	72,557		118,933		171,719		225,972
Consolidated total	$	225,990	$	273,949	$	461,754	$	525,321
Operating income/(loss)
Machine Clothing	$	56,543	$	49,538	$	103,718	$	93,781
Albany Engineered Composites	8,299		17,732		15,922		27,254
Corporate expenses	(12,115)		(13,045)		(27,319)		(26,717)
Operating income	$	52,727	$	54,225	$	92,321	$	94,318
Reconciling items:
Interest income	(348)		(587)		(795)		(1,186)
Interest expense	4,171		5,218		8,595		10,234
Other expense/(income), net	1,091		930		16,660		(278)
Income before income taxes	$	47,813	$	48,664	$	67,861	$	85,548

There were no material changes in the total assets of the reportable segments in the first six months of 2020.

The table below presents restructuring costs by reportable segment (also see Note 5):


	Three months ended June 30,						Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Machine Clothing	$	388	$	935	$	1,030	$	1,336
Albany Engineered Composites