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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: | September 30, 2022 |
OR
| | | | | |
| ☐ | 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
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 31.1 million shares of Class A Common Stock and no shares of Class B Common Stock outstanding as of October 15, 2022.
ALBANY INTERNATIONAL CORP.
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | $ | 260,563 | | | $ | 232,442 | | | $ | 766,101 | | | $ | 689,322 | |
| Cost of goods sold | 160,070 | | | 140,400 | | | 473,411 | | | 407,006 | |
| | | | | | | |
| Gross profit | 100,493 | | | 92,042 | | | 292,690 | | | 282,316 | |
| Selling, general, and administrative expenses | 36,873 | | | 37,696 | | | 119,325 | | | 116,899 | |
| Technical and research expenses | 9,934 | | | 9,673 | | | 29,984 | | | 28,916 | |
| Restructuring expenses, net | 42 | | | 187 | | | 268 | | | 230 | |
| | | | | | | |
| Operating income | 53,644 | | | 44,486 | | | 143,113 | | | 136,271 | |
| Interest expense, net | 3,794 | | | 3,734 | | | 11,336 | | | 11,521 | |
| Pension settlement expense | 49,128 | | | — | | | 49,128 | | | — | |
| Aviation Manufacturing Jobs Protection (AMJP) grant | — | | | (5,832) | | | — | | | (5,832) | |
| Other (income)/expense, net | (6,918) | | | 2,753 | | | (17,891) | | | 4,215 | |
| | | | | | | |
| Income before income taxes | 7,640 | | | 43,831 | | | 100,540 | | | 126,367 | |
| Income tax expense/(benefit) | (3,183) | | | 12,889 | | | 22,273 | | | 36,375 | |
| | | | | | | |
| Net income | 10,823 | | | 30,942 | | | 78,267 | | | 89,992 | |
| Net income attributable to the noncontrolling interest | 129 | | | 80 | | | 635 | | | 150 | |
| Net income attributable to the Company | $ | 10,694 | | | $ | 30,862 | | | $ | 77,632 | | | $ | 89,842 | |
| | | | | | | |
| Earnings per share attributable to Company shareholders - Basic | $ | 0.34 | | | $ | 0.95 | | | $ | 2.47 | | | $ | 2.78 | |
| | | | | | | |
| Earnings per share attributable to Company shareholders - Diluted | $ | 0.34 | | | $ | 0.95 | | | $ | 2.46 | | | $ | 2.77 | |
| | | | | | | |
| Shares of the Company used in computing earnings per share: | | | | | | | |
| Basic | 31,111 | | | 32,381 | | | 31,416 | | | 32,369 | |
| | | | | | | |
| Diluted | 31,223 | | | 32,434 | | | 31,518 | | | 32,424 | |
| | | | | | | |
| Dividends declared per share, Class A and Class B | $ | 0.21 | | | $ | 0.20 | | | $ | 0.63 | | | $ | 0.60 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net income | $ | 10,823 | | | $ | 30,942 | | | $ | 78,267 | | | $ | 89,992 | |
| | | | | | | |
| Other comprehensive income/(loss), before tax: | | | | | | | |
| Foreign currency translation and other adjustments | (38,971) | | | (14,709) | | | (79,841) | | | (16,497) | |
| Reclassification of loss on pension settlement | 42,657 | | | — | | | 42,657 | | | — | |
| Amortization of pension liability adjustments: | | | | | | | |
| Prior service credit | (1,123) | | | (1,119) | | | (3,368) | | | (3,356) | |
| Net actuarial loss | 967 | | | 1,103 | | | 2,905 | | | 3,320 | |
| Payments and amortization related to interest rate swaps included in earnings | (106) | | | 1,803 | | | 2,758 | | | 5,049 | |
| Derivative valuation adjustment | 8,492 | | | 722 | | | 23,529 | | | 369 | |
| | | | | | | |
| Income taxes related to items of other comprehensive income/(loss): | | | | | | | |
| Reclassification of loss on pension settlement | (16,459) | | | — | | | (16,459) | | | — | |
| Amortization of prior service credit | 344 | | | 336 | | | 1,031 | | | 1,007 | |
| Amortization of net actuarial loss | (296) | | | (331) | | | (889) | | | (996) | |
| Payments and amortization related to interest rate swaps included in earnings | (27) | | | (466) | | | (752) | | | (1,304) | |
| Derivative valuation adjustment | (2,151) | | | (186) | | | (5,960) | | | (95) | |
| Comprehensive income | 4,150 | | | 18,095 | | | 43,878 | | | 77,489 | |
| Comprehensive income attributable to the noncontrolling interest | 73 | | | (112) | | | 544 | | | (69) | |
| Comprehensive income attributable to the Company | $ | 4,077 | | | $ | 18,207 | | | $ | 43,334 | | | $ | 77,558 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| ASSETS | | | |
| Cash and cash equivalents | $ | 276,482 | | | $ | 302,036 | |
| Accounts receivable, net | 198,847 | | | 191,985 | |
| Contract assets, net | 148,729 | | | 112,546 | |
| Inventories | 133,840 | | | 117,882 | |
| Income taxes prepaid and receivable | 4,055 | | | 1,958 | |
| Prepaid expenses and other current assets | 46,761 | | | 32,394 | |
| Total current assets | $ | 808,714 | | | $ | 758,801 | |
| | | |
| Property, plant and equipment, net | 411,139 | | | 436,417 | |
| Intangibles, net | 34,306 | | | 39,081 | |
| Goodwill | 172,820 | | | 182,124 | |
| Deferred income taxes | 17,954 | | | 26,376 | |
| Noncurrent receivables, net | 28,770 | | | 31,849 | |
| Other assets | 98,146 | | | 81,416 | |
| Total assets | $ | 1,571,849 | | | $ | 1,556,064 | |
| | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Accounts payable | $ | 65,378 | | | $ | 68,954 | |
| Accrued liabilities | 106,831 | | | 124,325 | |
| Current maturities of long-term debt | — | | | — | |
| Income taxes payable | 17,328 | | | 14,887 | |
| Total current liabilities | 189,537 | | | 208,166 | |
| | | |
| Long-term debt | 447,000 | | | 350,000 | |
| Other noncurrent liabilities | 103,843 | | | 107,794 | |
| Deferred taxes and other liabilities | 11,281 | | | 12,499 | |
| Total liabilities | 751,661 | | | 678,459 | |
| | | |
| 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; 40,785,434 issued in 2022 and 40,760,577 in 2021 | 41 | | | 41 | |
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; none issued and outstanding in 2022 and 104 in 2021 | — | | | — | |
| Additional paid in capital | 440,295 | | | 436,996 | |
| Retained earnings | 920,966 | | | 863,057 | |
| Accumulated items of other comprehensive income: | | | |
| Translation adjustments | (185,721) | | | (105,880) | |
| Pension and postretirement liability adjustments | (12,613) | | | (38,490) | |
| Derivative valuation adjustment | 17,961 | | | (1,614) | |
Treasury stock (Class A), at cost; 9,674,542 shares in 2022 and 8,665,090 in 2021 | (364,923) | | | (280,143) | |
| Total Company shareholders' equity | 816,006 | | | 873,967 | |
| Noncontrolling interest | 4,182 | | | 3,638 | |
| Total equity | 820,188 | | | 877,605 | |
| Total liabilities and shareholders' equity | $ | 1,571,849 | | | $ | 1,556,064 | |
The accompanying notes are an integral part of the consolidated financial statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| OPERATING ACTIVITIES | | | | | | | |
| Net income | $ | 10,823 | | | $ | 30,942 | | | $ | 78,267 | | | $ | 89,992 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Depreciation | 15,588 | | | 15,925 | | | 46,864 | | | 48,485 | |
| Amortization | 1,446 | | | 2,289 | | | 5,044 | | | 6,862 | |
| Change in deferred taxes and other liabilities | (18,178) | | | 1,606 | | | (15,582) | | | 7,022 | |
| Impairment of property, plant, equipment, and inventory | (52) | | | 25 | | | 2,610 | | | 563 | |
| Non-cash interest expense | 279 | | | 283 | | | 840 | | | 593 | |
| Non-cash portion of pension settlement expense | 42,657 | | | — | | | 42,657 | | | — | |
| Compensation and benefits paid or payable in Class A Common Stock | 835 | | | 606 | | | 3,282 | | | 2,232 | |
| Provision/(recovery) for credit losses from uncollected receivables and contract assets | (441) | | | (1,075) | | | 885 | | | (1,158) | |
| Foreign currency remeasurement (gain)/loss on intercompany loans | (5,369) | | | 480 | | | (6,629) | | | (551) | |
| Fair value adjustment on foreign currency options | (28) | | | 29 | | (409) | | | 169 |
| | | | | | | |
| Changes in operating assets and liabilities that provided/(used) cash: | | | | | | | |
| Accounts receivable | (5,853) | | | (10,927) | | | (20,260) | | | (14,292) | |
| Contract assets | (13,333) | | | (3,473) | | | (37,201) | | | 22,170 | |
| Inventories | (3,760) | | | 546 | | | (24,895) | | | (9,838) | |
| Prepaid expenses and other current assets | 1,741 | | | 3,949 | | | (2,733) | | | 2,444 | |
| Income taxes prepaid and receivable | (2,119) | | | 2,717 | | | (2,179) | | | 2,408 | |
| Accounts payable | (2,395) | | | (296) | | | 5,081 | | | 4,312 | |
| Accrued liabilities | (879) | | | 5,112 | | | (12,624) | | | (12,311) | |
| Income taxes payable | 10,378 | | | 2,871 | | | 2,639 | | | (1,085) | |
| Noncurrent receivables | 1,112 | | | 1,245 | | | 2,976 | | | 2,832 | |
| Other noncurrent liabilities | (2,708) | | | (1,319) | | | (5,960) | | | (5,582) | |
| Other, net | (150) | | | 1,324 | | | 4,634 | | | 3,232 | |
| Net cash provided by operating activities | 29,594 | | | 52,859 | | | 67,307 | | | 148,499 | |
| | | | | | | |
| INVESTING ACTIVITIES | | | | | | | |
| Purchases of property, plant and equipment | (15,289) | | | (8,918) | | | (50,948) | | | (31,754) | |
| Purchased software | (1,518) | | | (106) | | | (1,884) | | | (394) | |
| Net cash used in investing activities | (16,807) | | | (9,024) | | | (52,832) | | | (32,148) | |
| | | | | | | |
| FINANCING ACTIVITIES | | | | | | | |
| Proceeds from borrowings | 10,000 | | | — | | | 145,000 | | | 8,000 | |
| Principal payments on debt | (48,000) | | | — | | | (48,000) | | | (56,009) | |
| Principal payments on finance lease liabilities | — | | | (363) | | | (654) | | | (1,067) | |
| Purchase of Treasury shares | — | | | — | | | (84,780) | | | — | |
| Taxes paid in lieu of share issuance | — | | | — | | | (770) | | | (998) | |
| Proceeds from options exercised | 10 | | | 4 | | | 17 | | | 153 | |
| Dividends paid | (6,533) | | | (6,476) | | | (19,932) | | | (19,418) | |
| Net cash used in financing activities | (44,523) | | | (6,835) | | | (9,119) | | | (69,339) | |
| | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (12,652) | | | (4,113) | | | (30,910) | | | (2,111) | |
| | | | | | | |
| (Decrease)/increase in cash and cash equivalents | (44,388) | | | 32,887 | | | (25,554) | | | 44,901 | |
| Cash and cash equivalents at beginning of period | 320,870 | | | 253,330 | | | 302,036 | | | 241,316 | |
| Cash and cash equivalents at end of period | $ | 276,482 | | | $ | 286,217 | | | $ | 276,482 | | | $ | 286,217 | |
The accompanying notes are an integral part of the consolidated financial statements
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, 2021.
2. Reportable Segments and Revenue Recognition
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.
Machine Clothing:
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.
Albany Engineered Composites:
The Albany Engineered Composites (“AEC”) segment provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest. AEC, through ASC, is the exclusive supplier of the LEAP program of advanced composite fan blades and fan cases under a long-term supply contract. The LEAP engine is used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft . AEC's largest aerospace customer is the SAFRAN Group and sales to SAFRAN (consisting primarily of fan blades and cases for CFM's LEAP engine) accounted for approximately 12 percent of the Company's consolidated Net sales in 2021. AEC net sales to Safran were $125.4 million and $81.6 million in the first nine months of 2022 and 2021, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $76.4 million and $79.6 million as of September 30, 2022 and December 31, 2021, respectively.
Other significant programs by AEC include the Sikorsky CH-53K, F-35, JASSM, and Boeing 787 programs. AEC also supplies vacuum waste tanks for the Boeing 7-Series programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. In 2021, approximately 47 percent of AEC sales were related to U.S. government contracts or programs.
The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2022 | 2021 | 2022 | 2021 |
| Net sales | | | | |
Machine Clothing | $ | 153,389 | | $ | 154,171 | | $ | 459,121 | | $ | 462,298 | |
| Albany Engineered Composites | 107,174 | | 78,271 | | 306,980 | | 227,024 | |
Consolidated total | $ | 260,563 | | $ | 232,442 | | $ | 766,101 | | $ | 689,322 | |
| Operating income/(loss) | | | | |
Machine Clothing | $ | 57,247 | | $ | 55,467 | | $ | 161,752 | | $ | 161,731 | |
| Albany Engineered Composites | 9,958 | | 2,917 | | 20,688 | | 13,019 | |
Corporate expenses | (13,561) | | (13,898) | | (39,327) | | (38,479) | |
| Operating income | $ | 53,644 | | $ | 44,486 | | $ | 143,113 | | $ | 136,271 | |
Reconciling items: | | | | |
| Interest income | (965) | | (654) | | (2,463) | | (1,584) | |
Interest expense | 4,759 | | 4,388 | | 13,799 | | 13,105 | |
| Pension settlement expense | 49,128 | | — | | 49,128 | | — | |
| AMJP grant | — | | (5,832) | | — | | (5,832) | |
| Other (income)/expense, net | (6,918) | | 2,753 | | (17,891) | | 4,215 | |
| Income before income taxes | $ | 7,640 | | $ | 43,831 | | $ | 100,540 | | $ | 126,367 | |
A subsidiary within our Machine Clothing segment has been a partner in a joint venture (“JV”) that supplies paper machine clothing products to local papermakers in Russia. In March 2022, we made the decision to cease doing business in Russia, including giving notice to our JV partner of our intent to exit the venture. As a result, we recognized $1.6 million expense in the consolidated statement of operations, representing reserves against the risk of uncollectible customer receivables and obsolescence of certain inventory destined for Russian customers. We also wrote down the net book value of our investment in the aforementioned JV to reflect our intent to exit such venture, resulting in $0.8 million impairment loss during the first quarter of 2022.
In the third quarter, we took actions to settle certain pension plan liabilities in the U.S., leading to charges totaling $49.1 million, which were included as Corporate expenses and other. This led to a reduction of unfunded pension liabilities of $6.2 million.
Revenue Recognition:
Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment and we account for these contracts using the percentage of completion (actual cost to estimated cost) method. That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs. Changes in the estimated profitability of long-term contracts could be caused by increases or decreases in the contract value, revisions to customer delivery requirements, updated labor or overhead rates, factors affecting the supply chain, changes in the evaluation of contract risks and opportunities, or other factors. Changes in the estimated profitability of long-term contracts increased operating income by $2.6 million for the third quarter of 2022 and $2.0 million for the first nine months of 2022. Adjustments in the estimated profitability of long-term contracts increased operating income by $2.1 million and $2.4 million for the three and nine month periods ended September 30, 2021, respectively.
We disaggregate revenue earned from contracts with customers for each of our business segments and product groups based on the timing of revenue recognition, and groupings used for internal review purposes.
The following table disaggregates revenue for each product group by timing of revenue recognition:
| | | | | | | | | | | |
| Three months ended September 30, 2022 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
| Machine Clothing | $ | 152,490 | | $ | 899 | | $ | 153,389 | |
| | | |
| Albany Engineered Composites | | | |
ASC | — | | 41,463 | | 41,463 | |
| Other AEC | 5,819 | | 59,892 | | 65,711 | |
Total Albany Engineered Composites | 5,819 | | 101,355 | | 107,174 | |
| | | | |
| Total revenue | $ | 158,309 | | $ | 102,254 | | $ | 260,563 | |
| | | | | | | | | | | |
| Three months ended September 30, 2021 |
(in thousands) | Point in Time Revenue Recognition | Over Time Revenue Recognition | Total |
| Machine Clothing | $ | 153,306 | | $ | 865 | | $ | 154,171 | |
| | | |
| Albany Engineered Composites | | | |
ASC | — | | 26,904 | | 26,904 | |
| Other AEC | 3,589 | | 47,778 | | 51,367 | |
Total Albany Engineered Composites | 3,589 | | 74,682 | | 78,271 | |
| | | |
Total revenue | $ | 156,895 | | $ | 75,547 | | $ | 232,442 | |
| | | |
| | | | | | | | | | | |
| Nine months ended September 30, 2022 |
(in thousands) | Point in Time Revenue
Recognition | Over Time Revenue
Recognition | Total |
| Machine Clothing | $ | 456,423 | | $ | 2,698 | | $ | 459,121 | |
| | | |
| Albany Engineered Composites | | | |
| ASC | — | | 122,836 | | 122,836 | |
| Other AEC | 14,750 | | 169,394 | | 184,144 | |
| Total Albany Engineered Composites | 14,750 | | 292,230 | | 306,980 | |
| | | |
| Total revenue | $ | 471,173 | | $ | 294,928 | | $ | 766,101 | |
| | | |
| | | | | | | | | | | |
| Nine months ended September 30, 2021 |
| (in thousands) | Point in Time Revenue
Recognition | Over Time Revenue
Recognition | Total |
| Machine Clothing | $ | 459,703 | | $ | 2,595 | | $ | 462,298 | |
| | | |
| Albany Engineered Composites | | | |
| ASC | — | | 80,158 | | 80,158 | |
| Other AEC | 11,901 | | 134,965 | | 146,866 | |
| Total Albany Engineered Composites | 11,901 | | 215,123 | | 227,024 | |
| | | |
| Total revenue | $ | 471,604 | | $ | 217,718 | | $ | 689,322 | |
The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing (PMC) and engineered fabrics), and, for PMC, the geographical region to which the paper machine clothing was sold:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2022 | 2021 | 2022 | 2021 |
| Americas PMC | $ | 83,124 | | $ | 81,780 | | $ | 240,173 | | $ | 237,425 | |
Eurasia PMC | 49,828 | | 53,277 | | 157,751 | | 164,320 | |
| Engineered Fabrics | 20,437 | | 19,114 | | 61,197 | | 60,553 | |
Total Machine Clothing Net sales | $ | 153,389 | | $ | 154,171 | | $ | 459,121 | | $ | 462,298 | |
| | | | |
We do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Contracts in the MC segment are generally for periods of less than a year. Most contracts in the AEC segment are relatively short duration firm-fixed-price orders. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $600 million and $155 million as of September 30, 2022 and 2021, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2022, we expect to recognize as revenue approximately $46 million during 2022, $124 million during 2023, $107 million during 2024, and the remainder thereafter.
3. Pensions and Other Postretirement Benefit Plans
The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The Company also provides certain postretirement benefits to retired employees in the U.S. and Canada. The Company accrues the cost of providing these benefits during the active service period of the employees.
The composition of the net periodic benefit cost for the nine months ended September 30, 2022 and 2021, was as follows:
| | | | | | | | | | | | | | |
| Pension plans | Other postretirement benefits |
(in thousands) | 2022 | 2021 | 2022 | 2021 |
| Components of net periodic benefit cost: | | | | |
Service cost | $ | 1,061 | | $ | 1,630 | | $ | 86 | | $ | 99 | |
| Interest cost | 4,235 | | 3,999 | | 916 | | 827 | |
Expected return on assets | (5,099) | | (4,802) | | — | | — | |
| Amortization of prior service cost/(credit) | (2) | | 10 | | (3,366) | | (3,366) | |
Amortization of net actuarial loss | 1,493 | | 1,625 | | 1,412 | | 1,695 | |
| Net periodic benefit cost/(credit) | $ | 1,688 | | $ | 2,462 | | $ | (952) | | $ | (745) | |
| Settlement charge | 49,128 | | — | | — | | — | |
| Net benefit cost/(credit) | $ | 50,816 | | $ | 2,462 | | $ | (952) | | $ | (745) | |
The amount of net benefit cost/(credit) is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement. In the third quarter, we took actions to settle certain pension plan liabilities for a plan in the U.S., leading to charges totaling $49.1 million. No similar charges were incurred in the prior year.
Service cost for defined benefit pension and postretirement plans are reported in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net periodic benefit cost are included in the line item Other (income)/expense, net in the Consolidated Statements of Income.
4. Other (Income)/Expense, net
The components of Other (Income)/Expense, net are:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands) | 2022 | 2021 | 2022 | 2021 |
| Currency transaction (gains)/losses | $ | (6,636) | | $ | 472 | | $ | (17,660) | | $ | 813 | |
Bank fees and amortization of debt issuance costs | 76 | | 74 | | 252 | | 284 | |
| Components of net periodic pension and postretirement cost other than service cost | (138) | | (6) | | (411) | | (12) | |
Other | (220) | | 2,213 | | (72) | | 3,130 | |
| Total | $ | (6,918) | | $ | 2,753 | | $ | (17,891) | | $ | 4,215 | |
Other (income)/expense, net, included foreign currency gains of $6.6 million and $17.7 million in the three and nine month periods ended September 30, 2022, respectively, as compared to losses of $0.5 million and $0.8 million in the three and nine month periods ended September 30, 2021, respectively. The weaker Euro during the three and nine month periods ended September 30, 2022 led to the gains on foreign currency related transactions during such periods.
5. Income Taxes
The following table presents components of income tax expense for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
| (in thousands, except percentages) | 2022 | 2021 | 2022 | 2021 |
| Income tax based on income from continuing operations (1) | $ | 2,208 | | $ | 13,150 | | $ | 28,315 | | $ | 37,733 | |
| Provision for change in estimated tax rate | 674 | | 397 | | 740 | | 179 | |
| Income tax before discrete items | 2,882 | | 13,547 | | 29,055 | | 37,912 | |
| Discrete tax expense: | | | | |
| Exercise of U.S. stock options | (9) | | (4) | | (17) | | (160) | |
| Impact of amended tax returns | — | | — | | (98) | | — | |
| True-up of prior year estimated taxes | (1,185) | | (674) | | (1,693) | | (2,095) | |
| Enacted tax legislation and rate change | — | | — | | — | | 352 | |
| Provision for/resolution of tax audits and contingencies, net | 24 | | — | | (116) | | 278 | |
| US Pension Settlement - Release of Residual Tax Effect | (5,217) | | — | | (5,217) | | — | |
| Other | 322 | | 20 | | 359 | | 88 | |
| Total income tax expense/(benefit) | $ | (3,183) | | $ | 12,889 | | $ | 22,273 | | $ | 36,375 | |
(1) Calculated at estimated annual tax rates of 28.9% and 30.0% for the three and nine months ended September 30, 2022 and 2021. | | | | |
Income tax expense for the quarter was computed in accordance with ASC 740-270, Income Taxes – Interim Reporting. Under this method, loss jurisdictions, which cannot recognize a tax benefit with regard to their generated losses, are excluded from the annual effective tax rate (AETR) calculation and their taxes will be recorded discretely in each quarter.
The Company's policy for releasing income tax effects from accumulated other comprehensive income is the specific identification approach, whereas these items are released to income tax expense when the individual items are disposed of, terminated or extinguished.
The Tax Cuts and Jobs Act lowered the U.S. corporate tax rate from 35% to 21% as of December 31, 2017, creating residual tax effects as a result of the remeasurement of deferred tax assets and liabilities originally established in other comprehensive income. As a result of the U.S. pension liability settlement (see Note 3), and consistent with the Company's policy, in the third quarter of 2022, the Company recorded a net tax benefit of $5.2 million for the release of the residual tax effects within other comprehensive income related to the U.S. pension settlement.
6. 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:
| | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in thousands, except market price and earnings per share) | 2022 | 2021 | 2022 | 2021 |
| Net income attributable to the Company | $ | 10,694 | | $ | 30,862 | | $ | 77,632 | | $ | 89,842 | |
| | | | |
| Weighted average number of shares: | | | | |
Weighted average number of shares used in calculating basic net income per share | 31,111 | | 32,381 | | 31,416 | | 32,369 | |
| Effect of dilutive stock-based compensation plans: | | | | |
| Stock options | — | | 1 | | — | | 2 | |
| RSU and MPP shares | 112 | | 52 | | 102 | | 53 | |
| | | | |
| Weighted average number of shares used in calculating diluted net income per share | 31,223 | | 32,434 | | 31,518 | | 32,424 | |
| | | | |
| Average market price of common stock used for calculation of dilutive shares | $ | |
