SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: June 30, 1994 ------------- 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: 0-16214 ------- ALBANY INTERNATIONAL CORP. -------------------------- (Exact name of registrant as specified in its charter) Delaware 14-0462060 ----------------- ------------------------------ (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1373 Broadway, Albany, New York 12204 - - ---------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 518-445-2200 ------------ 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 X No ---- The registrant had 24,305,820 shares of Class A Common Stock and 5,653,251 shares of Class B Common Stock outstanding as of June 30, 1994. ALBANY INTERNATIONAL CORP. INDEX Page No. -------- Part I Financial information Item 1. Financial Statements Consolidated statements of income and retained earnings - three months and six months ended June 30, 1994 and 1993 1 Consolidated balance sheets - June 30, 1994 and December 31,1993 2 Consolidated statements of cash flows - six months ended June 30, 1994 and 1993 3 Notes to consolidated financial statements 4-5 Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations 6-8 Part II Other information Item 4 Submissions of Matters to a Vote of Security Holders 9 Item 6 Exhibits and Reports on Form 8-K 9 Item 1. Financial Statements ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (unaudited) (in thousands except per share data) The accompanying notes are an integral part of the financial statements. -1-
Three Months Ended Six Months Ended June 30, June 30, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- $139,626 $149,628 Net sales $271,050 $286,723 85,056 94,822 Cost of goods sold 166,286 184,467 ---------- ---------- ---------- ---------- 54,570 54,806 Gross profit 104,764 102,256 40,419 42,531 Selling, technical and general expenses 79,672 83,783 - 419 Restructuring charges and termination benefits - 419 ---------- ---------- ---------- ---------- 14,151 11,856 Operating Income 25,092 18,054 4,334 4,148 Interest expense, net 7,869 8,845 (439) 10 Other (income)/expense, net 607 232 ---------- ---------- ---------- ---------- 10,256 7,698 Income before income taxes 16,616 8,977 4,410 3,033 Income taxes 7,144 3,537 ---------- ---------- ---------- ---------- 5,846 4,665 Income before associated companies 9,472 5,440 86 (91) Equity in earnings/(losses) of associated companies 113 (735) ---------- ---------- ---------- ---------- 5,932 4,574 Net Income 9,585 4,705 127,312 117,998 Retained earnings, beginning of period 126,276 120,113 2,620 2,249 Less dividends 5,237 4,495 ---------- ---------- ---------- ---------- $130,624 $120,323 Retained earnings, end of period $130,624 $120,323 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $0.20 $0.17 Net income per common share $0.32 $0.18 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $0.0875 $0.0875 Dividends per common share $0.175 $0.175 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 29,935,204 25,694,218 Weighted average number of shares 29,915,014 25,675,298 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ALBANY INTERNATIONAL CORP. CONSOLIDATED BALANCE SHEETS (in thousands) The accompanying notes are an integral part of the financial statements. -2-
(unaudited) June 30, December 31, 1994 1993 ------------ ------------- ASSETS Cash and cash equivalents $227 $1,381 Accounts receivable, net 134,170 120,416 Inventories: Finished goods 77,687 72,763 Work in process 36,728 32,991 Raw material and supplies 23,177 18,539 ------------ ------------- 137,592 124,293 Deferred taxes and prepaid expenses 18,895 18,050 ------------ ------------- Total current assets 290,884 264,140 Property, plant and equipment, net 316,750 302,829 Investments in associated companies 1,354 10,951 Intangibles 26,769 25,558 Deferred taxes 34,598 33,640 Other assets 27,821 18,302 ------------ ------------- Total assets $698,176 $655,420 ------------ ------------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Notes and loans payable $8,184 $8,560 Accounts payable 21,795 23,284 Accrued liabilities 51,244 55,288 Current maturities of long-term debt 1,637 2,917 Income taxes payable and deferred 3,407 7,881 ------------ ------------- Total current liabilities 86,267 97,930 Long-term debt 243,124 208,620 Other noncurrent liabilities 87,802 82,423 Deferred taxes and other credits 20,824 21,979 ------------ ------------- Total liabilities 438,017 410,952 ------------ ------------- 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 24,544,209 in 1994 and 24,531,445 in 1993 25 25 Class B common stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,653,251 in 1994 and 5,658,515 in 1993 6 6 Additional paid in capital 170,425 170,112 Retained earnings 130,624 126,276 Translation adjustments (35,871) (45,758) Pension adjustment (1,856) (1,856) ------------ ------------- 263,353 248,805 Less treasury stock (Class A), at cost (238,389 shares in 1994; 307,491 shares in 1993) 3,194 4,337 ------------ ------------- Total shareholders' equity 260,159 244,468 ------------ ------------- Total liabilities and shareholders' equity $698,176 $655,420 ------------ ------------- ------------ ------------- ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) The accompanying notes are an integral part of the financial statements. -3-
Six Months Ended June 30, 1994 1993 -------- ------- OPERATING ACTIVITIES Net income $ 9,585 $ 4,705 Adjustments to reconcile net cash provided by operating activities: Equity in (earnings)/losses of associated companies (113) 735 Distributions received from associated companies - 407 Depreciation and amortization 20,486 22,250 Provision for deferred income taxes, other credits and long-term liabilities 3,736 3,426 Increase in cash surrender value of life insurance, net of premiums paid (893) (900) Unrealized currency transaction (gains)/losses, net (3,021) 1,452 Loss on disposition of assets 74 419 Tax benefit of options exercised 11 - Treasury shares contributed to ESOP 1,320 1,211 Changes in operating assets and liabilities: Accounts receivable (8,300) 3,990 Inventories (10,108) 1,897 Prepaid expenses (815) (114) Accounts payable (1,914) (2,873) Accrued liabilities (6,174) 16,881 Income taxes payable (7,071) 3,426 Other, net (8,184) 394 -------- ------- Net cash (used)/provided by operating activities (11,381) 57,306 -------- ------- INVESTING ACTIVITIES Purchases of property, plant and equipment (17,280) (11,730) Proceeds from sale of assets 1,733 27,454 Acquisitions, net of cash acquired 526 (55,356) -------- ------- Net cash used in investing activities (15,021) (39,632) -------- ------- FINANCING ACTIVITIES Proceeds from borrowings 41,792 28,180 Principal payments on debt (10,291) (28,942) Proceeds from options exercised 126 - Dividends paid (5,230) (4,489) -------- ------- Net cash provided/(used) in financing activities 26,397 (5,251) -------- ------- Effect of exchange rate changes on cash (1,149) (11,622) -------- ------- (Decrease)/increase in cash and cash equivalents (1,154) 801 Cash and cash equivalents at beginning of year 1,381 4,005 -------- ------- Cash and cash equivalents at end of period $ 227 $ 4,806 -------- ------- -------- ------- ALBANY INTERNATIONAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Management Opinion In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of results for such periods. The results for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements should be read in conjunction with financial statements and notes thereto for the year ended December 31, 1993. 2. Other (Income)/Expense, Net Included in other (income)/expense, net for the six months ended June 30 are: currency transactions, $.5 million income in 1994 and $2.3 million income in 1993, pre-receivable sale, $.3 million income in 1994 and $1.0 million expense in 1993, amortization of debt issuance costs and loan origination fees, $.4 million in 1994 and $.5 million in 1993 and other miscellaneous (income)/expenses, none of which are significant, in 1994 and 1993. Included in other (income)/expense, net for the three months ended June 30 are: currency transactions, $1.0 million income in 1994 and $1.5 million income in 1993, pre-receivable sale $.5 million income in 1994 and $.6 million expense in 1993, amortization of debt issuance costs and loan origination fees, $.2 million in 1994 and 1993, and other miscellaneous (income)/expenses, none of which are significant, in 1994 and 1993. 3. Earnings Per Share Earnings per share on common stock are computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. Options granted under the Company's stock option plans were not dilutive at June 30, 1994 and 1993. The convertible subordinated debentures are not common stock equivalents and will not affect primary earnings per share. Further, the convertible subordinated debentures were not dilutive at June 30, 1994 and 1993. 4. Income Taxes The Company's effective tax rate for the six months ended June 30, 1994 was 43.0% as compared to 39.4% for the same period last year and approximates the anticipated effective tax rate for the full year 1994. The increase is due principally to the accrual of net charges associated with prior years resulting from both U.S. and non-U.S. examinations. 4 5. Debt The Company has an agreement under which it may sell to a financial institution up to $40 million of the Company's right to receive certain payments for goods ordered from the Company. At June 30, there were no amounts sold under this agreement as compared to $12.0 million at December 31, 1993. At December 31, 1993, this transaction had the effect of reducing long-term debt $12.0 million, reducing accounts receivable $5.4 million and increasing accrued liabilities $6.6 million. 6. Supplementary Cash Flow Information Interest paid for the six months ended June 30, 1994 and 1993 was $7.8 million and $7.9 million, respectively. Taxes paid for the six months ended June 30, 1994 and 1993 were $12.7 million and $.6 million, respectively. 7. Acquisition In February 1994, the Company exchanged its 40% equity interests in Brazil and Argentina for the remaining 60% interest in Mexico. The transaction was accounted for as a purchase and, accordingly, the Company has included the results of operations in its financial statements as of January 1, 1994. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994 The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS: Net sales for the three months ended June 30, 1994 decreased $10.0 million or 6.7% compared to the same period in 1993. The stronger U.S. dollar during the quarter as compared to 1993 decreased net sales by $3.1 million. The divestiture of the Company's equipment division (AES) in mid-1993 further reduced sales by $11.2 million. Excluding these factors, net sales were 2.9% above second quarter 1993. The sales growth rate for paper machine clothing in the United States declined in the second quarter. Canadian sales declined in U. S. dollar equivalent terms due to approximately flat sales in Canadian dollars and a weaker Canadian dollar than in the second quarter of last year. In North America, sales growth rates were also slowed by selective price concessions, mainly for customers entering into continuous supply agreements for the Company's products. Management believes that continuous supply agreements are part of a continuing effort by paper companies to reduce the number of suppliers of paper machine clothing and that this will be beneficial to Albany International shareholders. The sales growth rate remained strong in Scandinavia. In Continental Europe, orders imply that the recession is past and that gradual economic improvement can be expected over the remainder of the year which should have a positive effect on the Company's fourth quarter earnings. Net sales decreased $15.7 million or 5.5% to $271 million for the six months ended June 30, 1994 compared with the same period in 1993. Net sales were reduced by $6.3 million from the effect of a stronger U.S dollar as compared to the first six months of 1993 and by $20. 6 million resulting from the divestiture of AES. Excluding these factors, 1994 net sales were 3.9% above 1993 net sales. The Company continues to gain market share in Forming Fabrics and retain its Press Fabric market share. While there have not been any significant price increases in 1994, except for new products and upgrades, some of the Company's customers have increased prices, particularly in the kraft and pulp grades, and this could result in better pricing for paper machine clothing in 1995. Gross profit continued to improve and was 39.1% of net sales for the three months ended June 30, 1994 as compared to 36.6% for the same period in 1993 bringing the six month result to 38.7% for 1994 as compared to 35.7% for 1993. Year to date variable costs as a percent of net sales decreased to 32.2% in 1994 from 34.9% in 1993. The improvement is due mainly to plant closings and workforce reductions, principally in Europe, and the divestiture of AES in June 1993. In addition, the Company's Total Quality Assurance program has resulted in improved product quality and efficiencies, both of which have contributed to lower costs. Selling, technical and general expenses decreased 4.9% for the six months ended June 30, 1994 as compared to the six months ended June 30, 1993. Translation of non-U.S. currencies into U.S. dollars decreased reported amounts by $1.6 million due to the stronger U.S. dollar while the divestiture of AES reduced these costs by $ 6.6 million. Excluding these factors, expenses increased 5.5%. The Company has not reduced its sales and service efforts as there is increasing customer demand for service. Management anticipates that this demand will continue to increase as customers reduce the number of suppliers. 6 Operating income as a percent of net sales increased to 9.3% for the six months ended June 30, 1994 from 6.3% for the comparable period in 1993 and increased to 10.1% for the three months ended June 30, 1994 as compared to 7.9% for the same period last year due principally to factors described above. Management is continuing to review capacity requirements with the intention of further reducing costs and streamlining operations and anticipates that operating income as a percent of net sales should continue to improve during the rest of 1994. However, the magnitude of any improvements will depend on the rate of recovery of the European economies. Interest expense decreased as compared to the six months ended June 30, 1993 as total debt is lower at June 30, 1994 as compared to the same period in 1993. This reduction is due principally to a 4.1 million share public offering of the Company's Class A Common Stock during the fourth quarter of 1993 which proceeds were used to repay floating rate bank debt. The decrease in other (income)/expense, net was due to currency transactions which resulted in income of $.5 million for the six months ended June 30, 1994 as compared to income of $2.3 million for the same period in 1993 and to no pre- receivable sales in 1994 which resulted in $1.3 million less expense in 1994 as compared to 1993. The tax rate for the six months ended June 30, 1994 is 43.0% as compared to 39.4% for the comparable period in 1993 and approximates the anticipated effective rate for the full year 1994. The rate increase is due principally to the accrual of net charges associated with prior years resulting from both U. S. and non- U. S. examinations. During February 1994 the Company exchanged its 40% equity interests in Brazil and Argentina for the remaining 60% interest in Mexico. The transaction was accounted for as a purchase, and accordingly, the Company has included the results of operations in its financial statements as of January 1, 1994. Reported results of Mexico were not significant. The Company's only remaining equity interest is a 50% partnership in South Africa. Reasons for changes in the results of operations for the three month period ended June 30, 1994 as compared to the corresponding period in 1993 are similar to those which affected the six month comparisons, except where specifically noted. LIQUIDITY AND CAPITAL RESOURCES: The weakening U. S. dollar during the first six months of 1994 and the purchase of the remaining Mexican equity interest (discussed above) increased accounts receivable by $ 11.9 million and increased inventories by $ 5.8 million. In addition, no accounts receivable were sold at June 30, 1994 as compared to $ 5.4 million sold at December 31, 1993. During the first six months of 1994, the Company implemented Continuous Supply programs with a number of paper manufacturers. These relationships require the Company to carry inventory rather than the customer and provide just in time sourcing to the customers mill. This has resulted in increased inventories and may result in additional increases in the near term but should result in more predictable requirements and lower inventory levels and increased sales in the long term. Management does not expect to see any significant reductions in inventory until the first quarter of 1995. 7 The Company has an agreement under which it may sell to a financial institution up to $40 million of the Company's right to receive certain payments for goods ordered from the Company. At June 30, 1994, there were no amounts sold under this agreement as compared to $12.0 million at December 31,1993. At December 31, 1993 this transaction reduced long-term debt by $12.0 million, reduced accounts receivable by $ 5.4 million and increased accrued liabilities by $ 6.6 million. Capital expenditures for the six months ended June 30, 1994 were $17.3 million as compared to $11.7 million for the same period last year. The Company anticipates that capital expenditures for the full year will approximate $39 million. The Company will finance these expenditures with cash from operations and existing credit facilities. Cash dividends of $.0875 per share, were paid in the first two quarters of 1994 and were related to the fourth quarter of 1993 and the first quarter of 1994. The Company also declared a cash dividend of $.0875 per share for the second quarter of 1994 which will be paid in the third quarter of this year. 8 Part II - Other Information ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of shareholders held on May 12, 1994 items subject to a vote of security holders were the election of eight directors and the election of auditors. In the vote for the election of eight members of the Board of Directors of the Company, the number of votes cast for, and the number of votes withheld from, each of the nominees were as follows: In the vote on the motion to appoint the firm of Coopers & Lybrand as the Company's auditor for 1994, the number of votes cast for, the number cast against, and the number of votes abstaining with respect to such resolution were as follows:
Nominee Number of Votes For Number of Votes Withheld Broker Nonvotes - - ------- ------------------------- ---------------------------- ---------------- Class A Class B Class A Class B Class A Class B --------- ------- ------- ------- ------- ------- J. Spencer Standish 18,880,991 56,333,270 26,838 - - - Francis L. McKone 18,880,991 56,333,270 26,838 - - - Charles B. Buchanan 18,880,991 56,333,270 26,838 - - - Paul Bancroft III 18,880,751 56,333,270 27,078 - - - Thomas R. Beecher, Jr. 18,880,991 56,333,270 26,838 - - - Stanley I. Landgraf 18,881,091 56,333,270 26,738 - - - Allan Stenshamn 18,880,991 56,333,270 26,838 - - - Barbara P. Wright 18,880,630 56,333,270 27,199 - - - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A report on Form 8-K was filed on June 30, 1994 containing exhibits only (no items were reported). Exhibit No. Description ----------- ----------- 11. Schedule of computation of primary net income per share 9
Number of Votes For Number of Votes Against Number of Votes Abstaining Broker Nonvotes Class A Class B Class A Class B Class A Class B Class A Class B -------- ------- ------- ------- ------- ------- ------- ------- 18,844,830 56,333,270 22,784 - 40,215 - - - SIGNATURES Pursuant to the requirements 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. ALBANY INTERNATIONAL CORP. -------------------------- (Registrant) Date: August 12, 1994 by /s/ Michael C. Nahl ------------------- Michael C. Nahl Sr. Vice President and Chief Financial Officer ALBANY INTERNATIONAL CORP. EXHIBIT II SCHEDULE OF COMPUTATION OF PRIMARY NET INCOME PER SHARE (in thousands, except per share data)
For the three months For the six months ended June 30, ended June 30, 1994 (1) 1993 (1) 1994 (1) 1993 (1) ----------- ---------- ----------- ----------- 29,959,071 25,718,187 Common stock outstanding at end of period 29,959,071 25,718,187 Adjustments to ending shares to arrive at weighted average for the period: (23,867) (23,969) Shares contributed to E.S.O.P. (2) (40,742) (42,889) - - Shares issued under option (2) (3,315) - ----------- ---------- ----------- ----------- 29,935,204 25,694,218 Weighted average number of shares 29,915,014 25,675,298 ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- $5,932 $4,574 Net income $9,585 $4,705 ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- $0.20 $0.17 Net income per share $0.32 $0.18 ----------- ---------- ----------- ----------- ----------- ---------- ----------- ----------- (1) Includes Class A and Class B Common Stock (2) Calculated as follows: number of shares outstanding multiplied by the reciprocal of the number of days outstanding divided by the number of days in the period
SHARES CONTRIBUTED TO E.S.O.P.: Shares For the six months: January 31, 1993 13,626 * (30/181) 2,259 February 28, 1993 13,572 * (58/181) 4,349 March 31 1993 12,074 * (89/181) 5,937 April 30, 1993 12,736 * (119/181) 8,373 May 31, 1993 11,770 * (150/181) 9,754 June 30, 1993 12,285 * (180/181) 12,217 -------- 42,889 -------- -------- January 31, 1994 10,831*(30/181) 1,795 February 28, 1994 11,120*(58/181) 3,564 March 31, 1994 11,090*(89/181) 5,453 April 12, 1994 56*(101/181) 31 April 30, 1994 11,683*(119/181) 7,681 May 31, 1994 11,882*(150/181) 9,847 June 30, 1994 12,440*(180/181) 12,371 -------- 40,742 -------- -------- For the three months: April 30, 1993 12,736*(29/91) 4,059 May 31, 1993 11,770*(60/91) 7,760 June 30, 1993 12,285*(90/91) 12,150 -------- 23,969 -------- -------- April 12, 1994 56*(11/91) 7 April 30, 1994 11,683*(29/91) 3,723 May 31, 1994 11,882*(60/91) 7,834 June 30, 1994 12,440*(90/91) 12,303 -------- 23,867 -------- -------- ALBANY INTERNATIONAL CORP. EXHIBIT II SCHEDULE OF COMPUTATION OF PRIMARY NET INCOME PER SHARE (in thousands, except per share data)
SHARES ISSUED UNDER OPTION: For the six months: Shares -------- March 22, 1994 7,500*(80/181) 3,315 -------- --------