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: March 31, 1997
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
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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 25,023,463 shares of Class A Common Stock and 5,615,563
shares of Class B Common Stock outstanding as of March 31, 1997.
ALBANY INTERNATIONAL CORP.
INDEX
Page No.
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Part I Financial information
Item 1. Financial Statements
Consolidated statements of income and retained earnings -
three months ended March 31, 1997 and 1996 1
Consolidated balance sheets - March 31, 1997 and December 31, 1996 2
Consolidated statements of cash flows - three months ended March 31, 1997 and 1996 3
Notes to consolidated financial statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5-6
Part II Other information
Item 6. Exhibits and Reports on Form 8-K 7
Item 1. Financial Statements
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(unaudited)
(in thousands except per share data)
Three Months Ended
March 31,
1997 1996
---- ----
Net sales $171,820 $168,067
Cost of goods sold 100,005 98,307
------- ------
Gross profit 71,815 69,760
Selling, technical and general expenses 49,493 48,832
------ ------
Operating income 22,322 20,928
Interest expense, net 3,888 4,515
Other expense, net 583 1,107
--- -----
Income before income taxes 17,851 15,306
Income taxes 6,961 5,970
----- -----
Income before associated companies 10,890 9,336
Equity in losses of associated companies (7) (184)
-- ----
Income before extraordinary item 10,883 9,152
Extraordinary loss on early extinguishment of debt, net of tax of $828 - 1,296
---- -----
Net income 10,883 7,856
Retained earnings, beginning of period 206,308 171,082
Less dividends 3,209 3,037
----- -----
Retained earnings, end of period $213,982 $175,901
======== ========
Income/(loss) per common share:
Income before extraordinary item $0.36 $0.30
Extraordinary loss on early extinguishment of debt - (0.04)
----- -----
Net income $0.36 $0.26
===== =====
Dividends per common share $0.105 $0.10
====== =====
Weighted average number of shares 30,546,690 30,284,588
========== ==========
The accompanying notes are an integral part of the financial statements.
1
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
March 31, December 31,
1997 1996
---------------- ----------------
ASSETS
Cash and cash equivalents $7,028 $8,034
Accounts receivable, net 172,024 179,516
Inventories:
Finished goods 99,084 98,605
Work in process 42,635 40,568
Raw material and supplies 33,536 33,808
---------------- ----------------
175,255 172,981
Deferred taxes and prepaid expenses 17,155 16,879
---------------- ----------------
Total current assets 371,462 377,410
Property, plant and equipment, net 327,321 339,461
Investments in associated companies 2,153 2,060
Intangibles 43,909 44,954
Deferred taxes 28,637 27,756
Other assets 34,015 33,059
---------------- ----------------
Total assets $807,497 $824,700
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and loans payable $36,760 $65,165
Accounts payable 32,483 32,813
Accrued liabilities 53,104 59,755
Current maturities of long-term debt 2,374 2,295
Income taxes payable and deferred 11,289 13,068
---------------- ----------------
Total current liabilities 136,010 173,096
Long-term debt 211,959 187,100
Other noncurrent liabilities 98,371 97,579
Deferred taxes and other credits 37,788 38,162
---------------- ----------------
Total liabilities 484,128 495,937
---------------- ----------------
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
25,026,699 in 1997 and 24,865,573 in 1996 25 25
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and
outstanding 5,615,563 in 1997 and 1996 6 6
Additional paid in capital 180,670 177,412
Retained earnings 213,982 206,308
Translation adjustments (58,799) (42,340)
Pension liability adjustment (12,483) (12,483)
---------------- ----------------
323,401 328,928
Less treasury stock (Class A), at cost (3,236 shares
in 1997; 16,511 shares in 1996) 32 165
---------------- ----------------
Total shareholders' equity 323,369 328,763
---------------- ----------------
Total liabilities and shareholders' equity $807,497 $824,700
================ ================
The accompanying notes are an integral part of the financial statements.
2
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
March 31,
1997 1996
----------------- -----------------
OPERATING ACTIVITIES
Net income $10,883 $7,856
Adjustments to reconcile net cash provided by operating activities:
Equity in losses of associated companies 7 184
Depreciation and amortization 11,253 11,573
Accretion of convertible subordinated debentures - 353
Provision for deferred income taxes, other credits and long-term liabilities 3,337 (851)
Increase in cash surrender value of life insurance, net of premiums paid (516) (485)
Unrealized currency transaction losses 500 6
(Gain)/loss on disposition of assets (17) 19
Shares contributed to ESOP 1,896 2,948
Loss on early extinguishment of debt - 1,296
Changes in operating assets and liabilities:
Accounts receivable 6,812 405
Inventories (2,577) (8,095)
Prepaid expenses 84 38
Accounts payable (330) (5,105)
Accrued liabilities (6,905) (7,734)
Income taxes payable (1,904) 8,585
Other, net (941) (594)
----------------- -----------------
Net cash provided by operating activities 21,582 10,399
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (11,170) (11,650)
Purchased software (291) (849)
Proceeds from sale of assets 72 1,799
----------------- -----------------
Net cash used in investing activities (11,389) (10,700)
----------------- -----------------
FINANCING ACTIVITIES
Proceeds from borrowings 26,923 151,426
Principal payments on debt (29,607) (144,113)
Proceeds from options exercised 2,382 -
Tax benefit of options exercised 444 -
Purchases of treasury shares (1,332) (2,552)
Dividends paid (3,045) (3,030)
----------------- -----------------
Net cash (used)/provided by financing activities (4,235) 1,731
----------------- -----------------
Effect of exchange rate changes on cash (6,964) (963)
----------------- -----------------
(Decrease)/increase in cash and cash equivalents (1,006) 467
Cash and cash equivalents at beginning of year 8,034 7,609
----------------- -----------------
Cash and cash equivalents at end of period $7,028 $8,076
================= =================
The accompanying notes are an integral part of the financial statements.
3
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, 1996.
2. Other Expense, Net
Included in other expense, net are: currency transactions, $.4 million
income in 1997 and $.1 million expense in 1996, amortization of debt issuance
costs and loan origination fees, $.2 million in 1997 and $.3 million in 1996,
interest rate protection agreements, $.2 million income in 1997 and $.3 million
expense in 1996 and other miscellaneous expenses, none of which are significant,
in 1997 and 1996.
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 to earnings per share at March 31, 1997 and 1996. As discussed in Note
5, the convertible subordinated debentures were redeemed in March 1996 and
therefore excluded from the 1996 earnings per share calculation.
Effective December 15, 1997, the Company is required to adopt Financial
Accounting Standard No. 128, "Earnings per Share". This Standard requires both
basic and diluted earnings per share to be reported for all periods presented.
When income/(loss) per common share is calculated in accordance with this
Standard, for the three months ended March 31, 1997 and 1996, basic and diluted
income/(loss) per common share do not significantly differ from reported
amounts.
4. Income Taxes
The Company's effective tax rate for the three months ended March 31,
1997 and 1996 was 39% and approximates the anticipated effective tax rate for
the full year 1997.
5. Supplementary Cash Flow Information
Interest paid for the three months ended March 31, 1997 and 1996 was
$3.6 million and $6.8 million, respectively.
Taxes paid for the three months ended March 31, 1997 and 1996 was $3.3
million and $.6 million, respectively.
4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
For the Three Months Ended March 31, 1997
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS:
Net sales increased to $171.8 million for the three months ended March 31, 1997
as compared to $168.1 million for the three months ended March 31, 1996. The
effect of the stronger U.S. dollar as compared to the first quarter of 1996 was
to decrease net sales by $4.9 million. Excluding this effect and the 1996
acquisition of Schieffer Door Systems ("Schieffer"), 1997 net sales were flat as
compared to 1996.
Geographically, net sales for the three months ended March 31, 1997, as compared
to the same period in 1996, increased slightly in the U.S. and decreased in
Canada. The decrease in Canada is due to poor economic conditions in the
Canadian paper industry and lower exports to Asia due to high inventories in
that region. Net sales in Europe decreased primarily due to the effect of the
stronger U.S. dollar.
Gross profit was 41.8% of net sales for the three months ended March 31, 1997 as
compared to 41.5% for the three months ended March 31, 1996. Excluding the
effect of Schieffer, gross profit was 42.3% of net sales in 1997. Year to date
variable costs as a percent of net sales increased from 31.8% in 1996 to 33.6%
for the same period in 1997. Excluding the effect of Schieffer, variable costs
as a percent of net sales were 32.2% in 1997.
Selling, technical, general and research expenses decreased 2.4%, excluding
Schieffer, for the three months ended March 31, 1997 as compared to the three
months ended March 31, 1996. Excluding the additional effect of translation of
non-U.S. currencies into fewer U.S. dollars, these expenses approximated costs
in the 1996 period.
Operating income as a percentage of net sales increased to 13.0% for the three
months ended March 31,1997 from 12.5% for the comparable period in 1996 due to
items discussed above. Excluding Schieffer, operating income as a percentage of
net sales was 13.2% in 1997.
The tax rate for the three months ended March 31, 1997 and 1996 was 39.0% and
approximates the anticipated effective rate for the full year 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Accounts receivable decreased $7.5 million, principally due to the effect of the
stronger U.S. dollar. Excluding this effect, accounts receivable decreased $1.9
million. Inventories increased $2.3 million during the three months ended March
31, 1997. Excluding the effect of the stronger U.S. dollar, inventories
increased $6.4 million.
5
On March 15, 1996, the Company redeemed the $150 million, 5.25% convertible
subordinated debentures at a redemption price of 91.545%. This redemption
resulted in an extraordinary loss of approximately $1.3 million, net of tax. The
debentures were redeemed by utilizing the revolving credit agreement and
short-term debt. The Company's current debt structure has resulted in lower
interest expense and currently provides approximately $230 million in committed
and available unused long-term debt capacity with financial institutions.
Management believes that this debt capacity, in combination with expected free
cash flows, should be sufficient to meet operating requirements and for business
opportunities and most acquisitions which support corporate strategies.
Capital expenditures for the three months ended March 31, 1997 were $11.2
million as compared to $11.7 million for the same period last year. The Company
anticipates that capital expenditures, excluding the capital equivalent of
leases, will be approximately $60 million for the full year. The largest single
capital expenditure will be approximately $15 million to complete the
construction of a new manufacturing facility in South Korea. The Company will
continue to finance these expenditures with cash from operations and existing
credit facilities.
A cash dividend of $.10 per share, which was declared for the fourth quarter of
1996, was paid in the first quarter of 1997. The Company also declared a cash
dividend of $.105 per share for the first quarter of 1997, which will be paid in
the second quarter of this year.
Effective December 15, 1997, the Company is required to adopt Financial
Accounting Standard No. 128, "Earnings per Share". This Standard requires both
basic and diluted earnings per share to be reported for all periods presented.
When income/(loss) per common share is calculated in accordance with this
Standard, for the three months ended March 31, 1997 and 1996, basic and diluted
income/(loss) per common share do not significantly differ from reported
amounts.
6
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
Exhibit No. Description
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11. Schedule of computation of primary and fully diluted net income per share
27. Financial data schedule
7
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: April 25, 1997
by /s/Michael C. Nahl
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Michael C. Nahl
Sr. Vice President and
Chief Financial Officer
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
PRIMARY EARNINGS PER SHARE:
For the three months
ended March 31,
1997 (1) 1996 (1)
------------------ ------------------
Common stock outstanding at end of period 30,639,026 30,333,402
Adjustments to ending shares to arrive at weighted average for the period:
Shares contributed to E.S.O.P. (2) (53,868) (104,374)
Shares issued under option (2) (55,079) -
Treasury shares purchased (2) 16,611 55,560
------------------- -------------------
Weighted average number of shares 30,546,690 30,284,588
=================== ===================
Income before extraordinary item $10,883 $9,152
Extraordinary loss on early extinguishment of debt,
net of tax of $828 - $1,296
------------------- -------------------
Net income $10,883 $7,856
=================== ===================
Income per share before extraordinary item (3) $0.36 $0.30
Extraordinary loss on early extinguishment of debt (3) - ($0.04)
------------------- -------------------
Net income per share (3) $0.36 $0.26
=================== ===================
(1) Includes Class A and Class B Common Stock
(2) Calculated as follows:
number of shares multiplied by the reciprocal of the number of days
outstanding (or the reciprocal of the number of days held in
treasury for treasury stock purchases) divided by the number of
days in the period
SHARES CONTRIBUTED TO E.S.O.P.:
January 31, 1996 12,969 * (30/91) 4,276
February 29, 1996 136,670 * (59/91) 88,610
March 31, 1996 11,616 * (90/91) 11,488
-------------------
104,374
===================
January 31, 1997 12,002 * (30/90) 4,001
February 28, 1997 58,773 * (58/90) 37,876
March 31, 1997 12,126 * (89/90) 11,991
-------------------
53,868
===================
SHARES ISSUED UNDER OPTION:
January 2, 1997 200 * (1/90) 2
January 3, 1997 3,600 * (2/90) 80
January 6, 1997 10,000 * (5/90) 556
January 7, 1997 900 * (6/90) 60
January 8, 1997 5,000 * (7/90) 389
January 30, 1997 37,300 * (29/90) 12,019
February 3, 1997 20,000 * (33/90) 7,333
February 7, 1997 5,000 * (37/90) 2,056
February 12, 1997 27,000 * (42/90) 12,600
February 13, 1997 1,400 * (43/90) 669
February 14, 1997 28,600 * (44/90) 13,982
February 18, 1997 10,000 * (48/90) 5,333
-------------------
55,079
===================
TREASURY SHARES PURCHASED:
January 17, 1996 91,000 * (16/91) 16,000
March 13, 1996 50,000 * (72/91) 39,560
-------------------
55,560
===================
January 27, 1997 57,500 * (26/90) 16,611
===================
(3) Dilutive common stock equivalents are not material and therefore are
not included in the calculation of primary earnings per common share.
FULLY DILUTED EARNINGS PER SHARE:
For the three months
ended March 31,
1997 1996
------------------- -------------------
Weighted average number of shares 30,546,690 30,284,588
Incremental shares of unexercised options (4) 356,510 253,364
------------------- -------------------
Adjusted weighted average number of shares 30,903,200 30,537,952
=================== ===================
Income before extraordinary item $10,883 $9,152
Extraordinary loss on early extinguishment of debt,
net of tax of $828 - $1,296
------------------- -------------------
Net income (including after-tax income adjustment) $10,883 $7,856
=================== ===================
Income per share before extraordinary item $0.35 $0.30
Extraordinary loss on early extinguishment of debt - ($0.04)
------------------- -------------------
Fully diluted net income per share $0.35 $0.26
=================== ===================
(4) Incremental shares of unexercised options are calculated based on the
higher of the average price of the Company's stock or the ending price
for the respective period. The calculation includes all options whose
exercise price is below the higher of the average or ending stock price.
5
1,000
3-MOS
DEC-31-1997
MAR-31-1997
$7,028
0
176,295
4,271
175,255
371,462
625,995
298,674
807,497
136,010
211,959
0
0
31
323,338
807,497
171,820
171,820
100,005
150,189
583
(691)
3,888
17,851
6,961
10,883
0
0
0
10,883
0.36
0.36
