SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: November 8, 1999 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 Number)
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
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired.
The combined balance sheets of the Geschmay Group as of December 31,
1998 (audited) and June 30, 1999 (unaudited) and statements of
operations, shareholders' equity and comprehensive income (loss) and
cash flows for the year ended December 31, 1998 (audited) and the six
months ended June 30, 1998 and 1999 (unaudited) contained in Exhibit
99.1 attached hereto are incorporated herein by reference.
(b) Pro forma financial information.
The unaudited Pro Forma Combined Financial Statements for Albany
International Corp. contained in Exhibit 99.2 attached
hereto are incorporated herein by reference.
(c) Exhibits.
Exhibit No. Description
----------- -----------
23.1 Consent of KPMG LLP
99.1 The combined balance sheets of the Geschmay
Group as of December 31, 1998 (audited) and
June 30, 1999 (unaudited) and combined
statements of operations, shareholders'
equity and comprehensive income (loss) and
cash flows for the year ended December 31,
1998 (audited) and the six months ended June
30, 1998 and 1999 (unaudited).
99.2 The unaudited Pro Forma Combined Financial
Statements for Albany International Corp.
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: November 8, 1999
By /s/ Michael C. Nahl
----------------------
Michael C. Nahl
Sr. Vice President and
Chief Financial Officer
Exhibit 99.1
Financial Statements of Business Acquired
GESCHMAY GROUP
Combined Financial Statements
December 31, 1998
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Shareholders
Feltrificio Veneto S.p.A., Geschmay Asia Private Limited,
Wurttembergische Filztuchfabrik
D. Geschmay GmbH, Geschmay
Research GmbH, Wangner Systems
Corporation and Cofpa S.A.:
We have audited the accompanying combined balance sheets of Feltrificio Veneto
S.p.A., Geschmay Asia Private Limited, Wurttembergische Filztuchfabrik D.
Geschmay GmbH, Geschmay Research GmbH, Wangner Systems Corporation and Cofpa
S.A. (collectively, the "Geschmay Group") as of December 31, 1998 and the
related combined statements of operations, shareholders' equity and
comprehensive income (loss), and cash flows for the year ended December 31,
1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Geschmay Group as of December 31, 1998, and the results of their operations and
their cash flows for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Albany, New York
October 22, 1999
GESCHMAY GROUP
Combined Balance Sheets
(In thousands, except share amounts)
December 31, June 30,
Assets 1998 1999
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,683 3,128
Short-term investments (note 1 (f)) 1,627 1,465
Trade accounts receivable, net of allowance for doubtful
accounts of $2,413 and $2,370 at December 31, 1998 and
June 30, 1999, respectively. 44,146 42,268
Accounts receivable from related parties (note 9) 7,682 7,078
Other receivables 585 489
Inventories:
Finished goods 33,642 29,594
Work in process 12,137 14,054
Raw materials and supplies 8,153 8,241
----- -----
53,932 51,889
Prepaid and other current assets 2,256 1,312
Deferred income taxes (note 6) 3,366 3,355
----- -----
Total current assets 115,277 110,984
Property, plant and equipment, net (note 2) 78,847 69,460
Notes receivable - related parties (note 9) 2,466 2,160
Investments in associated companies 627 405
Other non-current assets 1,524 1,481
----- -----
Total assets $ 198,741 184,490
=============== =======
(Continued)
2
GESCHMAY GROUP
Combined Balance Sheets
(In thousands, except share amounts)
December 31, June 30,
Liabilities and Shareholders' Equity 1998 1999
---- ----
(Unaudited)
Current liabilities:
Notes payable 794 2,616
Current portion of long-term debt (note 3) 2,804 3,973
Current portion of long-term debt - related parties (note 3) 8,126 6,790
Current installments of capital leases (note 4) 728 680
Bank overdraft 5,983 7,213
Trade accounts payable 14,805 12,847
Accounts payable - related parties (note 9) 786 --
Income taxes payable (note 6) 817 421
Accrued expenses (note 5) 24,317 18,449
Other current liabilities 624 318
--- ---
Total current liabilities 59,784 53,307
------ ------
Long-term liabilities:
Long-term debt, excluding current portion (note 3) 21,809 22,080
Long-term debt, excluding current portion - related parties (note 3) 6,072 6,049
Capital lease obligations, excluding current installments (note 4) 6,331 5,242
Employee benefits payable (note 8) 15,325 13,552
Deferred income taxes (note 6) 1,750 1,765
----- -----
Total liabilities 111,071 101,995
------- -------
Shareholders' equity (note 7):
Capital stock 16,099 16,099
Other additional capital 19,639 19,639
Retained earnings - appropriated 522 522
Retained earnings - unappropriated 51,873 51,790
Accumulated other comprehensive loss, net (265) (5,357)
---- ------
87,868 82,693
Less: treasury stock, 100,800 shares at cost (198) (198)
---- ----
Total shareholders' equity 87,670 82,495
------ ------
Total liabilities and shareholders' equity $198,741 $184,490
======= =======
See accompanying notes to combined financial statements.
3
GESCHMAY GROUP
Combined Statements of Operations
(In thousands)
Year ended Six-months
December 31, ended June 30,
1998 1998 1999
---- ---- ----
(Unaudited)
Net sales (note 9) $ 158,833 81,681 76,055
Cost of goods sold (note 9) 104,495 48,437 51,547
------- ------ ------
Gross profit 54,338 33,244 24,508
Selling, general, and administrative expenses 47,710 25,432 22,571
Technical and research expenses 301 277 327
--- --- ---
Operating income 6,327 7,535 1,610
Other income (expense):
Interest income 377 265 467
Interest expense (2,966) (1,603) (1,463)
Other, net (259) 13 1,083
--- -- -----
(2,848) (1,325) 87
----- ----- --
Income before income taxes 3,479 6,210 1,697
Income taxes (note 6) 3,516 4,026 1,780
----- ----- -----
Net income (loss) $ (37) 2,184 (83)
================ ===== ==
See accompanying notes to combined financial statements.
4
GESCHMAY GROUP
Combined Statements of Shareholders' Equity and Comprehensive Income (Loss)
(In thousands, except share amounts)
Capital Additional
Stock Capital
------- ---------
Balances at December 31,1997 $ 16,038 19,639
Issuance of 100,000 shares at inception - Geschmay Asia Private
Limited 61 0
Transfer to legal reserve - Feltrificio Veneto S.p.A. 0 0
Comprehensive income:
Net loss 0 0
Foreign currency translation adjustment 0 0
------ ------
Total comprehensive income
Balances at December 31, 1998 16,099 19,639
Comprehensive loss:
Net loss (unaudited) 0 0
Foreign currency translation adjustment (unaudited) 0 0
------ ------
Total comprehensive loss (unaudited)
Balances at June 30, 1999 (unaudited) $ 16,099 19,639
============== ======
See accompanying notes to combined financial statements.
5
Accumulated
Retained Retained Other Total
Earnings Earnings Comprehensive Treasury Shareholders' Comprehensive
(Appropriated) (Unappropriated) Income (Loss) Stock Equity Income (Loss)
-------------- ---------------- ------------- ----- ------ -------------
486 51,946 (2,786) (198) 85,125
0 0 0 0 61
36 (36) 0 0 0
0 (37) 0 0 (37) $ (37)
0 0 2,521 0 2,521 2,521
- - ----- - ----- -----
$2,484
======
522 51,873 (265) (198) 87,670
0 (83) 0 0 (83) $ (83)
0 0 (5,092) 0 (5,092) (5,092)
- - ----- - ----- -----
$(5,175)
=======
522 51,790 (5,357) (198) 82,495
=== ====== ===== === ======
6
GESCHMAY GROUP
Combined Statements of Cash Flows
(In thousands)
Year ended Six-month period
December 31, ended June 30,
1998 1998 1999
---- ---- ----
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ (37) 2,184 (83)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 15,042 7,442 7,270
Net loss on disposal of equipment 81 0 17
Deferred income taxes (973) 389 52
Changes in operating assets:
Accounts receivable (2,719) (3,825) 91
Inventories (4,567) (5,211) 1,469
Prepaid expenses 795 1,392 677
Accounts payable 3,600 487 (495)
Accrued expenses and other liabilities 3,453 3,540 (5,279)
Income taxes payable (700) (287) (396)
Other, net (361) (399) (807)
---- ---- ----
Net cash provided by operating activities 13,614 5,712 2,516
------ ----- -----
Cash flows from investing activities:
Proceeds from sale of equipment 410 0 0
Return of investment (investments in) associated companies (268) 0 154
Purchases of other long-term assets (379) (22) (17)
Purchases of property, plant and equipment (14,694) (5,474) (4,546)
------- ------ ------
Net cash used in investing activities (14,931) (5,496) (4,409)
------- ------ ------
Cash flows from financing activities:
Net borrowings (repayments) under lines of credit (552) 1,256 435
Borrowings of long-term debt 9,001 2,182 3,947
Principal payments on long-term debt and capital lease obligations (3,297) (3,466) (3,609)
Borrowings from related parties 264 0 116
Principal payments on debt - related parties (5,171) (186) 0
Borrowings under revolving credit agreement 19,000 10,802 12,115
Repayments under revolving credit agreement (19,434) (10,598) (10,195)
Proceeds from issuance of shares of capital stock 61 61 0
-- -- -
Net cash provided by financing activities (128) 51 2,809
---- -- -----
Effect of exchange rate changes on cash and cash equivalents (117) (400) 529
Net increase (decrease) in cash and cash equivalents (1,562) (133) 1,445
Cash and cash equivalents at beginning of period 3,245 3,245 1,683
----- ----- -----
Cash and cash equivalents at end of period $ 1,683 3,112 3,128
=============== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,457 646 1,195
=============== === =====
Income taxes $ 5,638 2,385 4,852
=============== ===== =====
Supplemental disclosure of non-cash investing and financing activity:
Additions to equipment financed with a capital lease $ 86 86 0
=============== == =
See accompanying notes to combined financial statements.
7
GESCHMAY GROUP
Notes to Combined Financial Statements
December 31, 1998
(1) Summary of Significant Accounting Policies
(a) Description of Business
The Geschmay Group is comprised of Feltrificio Veneto S.p.A.
(hereinafter referred to as "FV") with manufacturing facilities in
Venice (Marghera) and Milan (Lodi), Italy; Geschmay Asia Private
Limited (hereinafter referred to as "GAS") with an office in
Republic Plaza, Singapore; Wurttembergische Filztuchfabrik D.
Geschmay GmbH (hereinafter referred to as "WFG") with
manufacturing facilities in Goppingen, Germany, Geschmay Research
GmbH (hereinafter referred to as "Geschmay Research") with an
office in Goppingen, Germany; Wangner Systems Corporation and
subsidiaries (hereinafter referred to as "WSC") with manufacturing
facilities in Greenville, South Carolina; and Cofpa S.A.
(hereinafter referred to as "COFPA") with manufacturing facilites
in Gond Pontouvre and Saint Junien, France (FV, GAS, WFG, Geschmay
Research, WSC, and COFPA hereinafter collectively referred to as
"Geschmay Group").
The Geschmay Group manufactures and sells paper machine clothing
and engineered fabrics to paper producers located primarily in
North America and Europe. These fabrics are used on paper machines
to produce grades of paper from lightweight tissue paper to
heavyweight containerboard. These custom designed engineered
fabrics are essential to the paper production process and are
manufactured from monofilament and synthetic fiber materials.
Product lines sold to paper producers include wet felts, drying
fabrics, and forming fabrics that are sold under the Humitex,
Setex, Spiralflex, and other brand names. The core technologies
and competencies of the above product lines have also been
leveraged to expand to other industrial process applications.
These include textiles and leather tannery machinery clothing.
(b) Basis of Presentation
The accompanying combined financial statements are presented for
the Geschmay Group companies who are under the common ownership of
Mistral International Finance A.G., a Luxembourg company, and
Golden Bridge S.A., a Belgian company. The Geschmay Group is being
acquired as part of the Share Purchase Agreement, dated as of May
26, 1999, by and among Albany International Corp., a U.S.
corporation, and Mistral International Finance A.G. and Golden
Bridge S.A. See note 12 for further description of the
transaction.
The interim combined financial information included in these
combined financial statements is unaudited but reflects all
adjustments (consisting of only normal recurring adjustments)
which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented.
8
(c) Principles of Combination
The combined financial statements include the respective
individual financial statements of FV, GAS, and COFPA; the
combined financial statements of WFG and Geschmay Research; and
the consolidated financial statements of WSC. All significant
intercompany balances and transactions have been eliminated in
combination.
(d) Translation of Financial Statements
The individual financial statements of the Geschmay Group
companies are translated to U.S. dollars in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation. Assets and liabilities are
translated at the current exchange rate at the balance sheet date.
Results of operations have been translated using the average rates
prevailing throughout the periods presented. Translation
adjustments are recorded as a separate component of shareholders'
equity.
Foreign currency gains and losses arise from the purchase of raw
materials and equipment from foreign sources and from the sale of
products in foreign currencies. All foreign exchange transaction
gains and losses are included in the combined statement of
operations and are included in other income (expense), net. Net
foreign currency gains (losses) were $395,000 for the year ended
December 31, 1998.
(e) Revenue Recognition
Revenue is recognized upon the transfer of ownership and risk of
loss of inventory to the customer. Customers generally assume the
risks of ownership either upon shipment to the customer or when
the product is placed in service.
(f) Cash Equivalents
For purposes of the combined statement of cash flows, all highly
liquid debt instruments owned with original maturities of three
months or less are considered to be cash equivalents.
(g) Short-Term Investments
Short-term investments are those with maturities of less than one
year but greater than three months when purchased. These
investments are readily convertible to cash and are stated at cost
plus accrued interest, which approximates fair value.
9
(h) Inventories
Inventories are stated at the lower of cost or market, on the
basis of specific identification.
(i) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Equipment under
capital leases is stated at the present value of minimum payments
at the inception of the lease.
Depreciation of plant and equipment is generally calculated using
the straight-line method over the estimated useful lives of the
assets. Equipment held under capital lease is amortized using the
straight-line method over the shorter of the lease term or
estimated useful life of the asset. For combined financial
statement purposes, the following estimated useful lives are used:
Buildings 10-50 years
Machinery and equipment 4-12 years
Furniture and office equipment 2-10 years
(j) Allowance for Product Returns
Credits are issued to customers, from time to time, for products
not achieving expected performance specifications or acceptable
product lives. As a result, an allowance for these product
returns, based on historical experience, is maintained.
(k) Derivative Financial Instruments
Derivative financial instrument contracts are utilized by the
Geschmay Group to manage interest rate and foreign exchange risk.
The Geschmay Group uses forward foreign exchange contracts to
manage the risk of adverse movements in exchange rates related to
accounts receivable from - and future sales to - customers. Gains
and losses on forward foreign exchange contracts are recognized
currently through the statement of operations and generally offset
the transaction gains or losses on the foreign currency cash flows
which they are intended to hedge. At December 31, 1998, the
aggregate notional amount of forward foreign exchange contracts
was $3,500,000 and the unrealized gains and losses on forward
foreign exchange contracts were not material to the financial
position of the Geschmay Group.
In addition, the Geschmay Group has an interest rate swap
agreement which hedges the potential impact of increases in
variable interest rates. Income and expense related to the
interest rate swap is accrued as interest rates change and is
recognized over the life of the agreement as an adjustment to
interest expense.
10
(l) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(m) Comprehensive Income
At the initial date of the application of U.S. generally accepted
accounting principles, January 1, 1998, SFAS No. 130, Reporting
Comprehensive Income became applicable. SFAS No. 130 established
standards for reporting and presentation of comprehensive income
and its components in a full set of financial statements.
Comprehensive income consists of net income and the foreign
currency translation adjustment and is presented in the combined
statements of shareholders' equity and comprehensive income
(loss). SFAS No. 130 requires only additional disclosures in the
combined financial statements; it does not affect the combined
financial position or combined results of operations.
(n) Use of Estimates
The preparation of the combined statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the combined financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) Property, Plant, and Equipment
Property, plant, and equipment are summarized as follows (in thousands):
December 31,
1998
----
Land $ 4,337
Buildings 50,112
Machinery and Equipment 209,709
Furniture and Office Equipment 14,853
Construction in Progress 5,860
-----
284,871
Less accumulated depreciation and amortization (206,024)
--------
$ 78,847
==================
11
Depreciation expense recorded for the year ended December 31, 1998 was
$14,587,000.
Included in buildings and machinery and equipment at December 31, 1998
are costs of $8,731,000 and accumulated amortization of $1,271,000
recorded as capital leases. Amortization expense of $387,000 relating to
the buildings, machinery and equipment under these capital leases was
included in depreciation expense at December 31, 1998.
(3) Debt Obligations
Debt obligations at December 31, 1998, principally to financial
institutions and related parties, are summarized as follows (in
thousands):
Financial institutions:
Borrowings under financing agreement denominated in Italian lire, interest at
6.0%, payable in quarterly installments, due on January 25, 2000 (repaid in
August, 1999) $ 1,512
Investment loan denominated in German marks, interest at 5.42%, due in quarterly
installments beginning March, 2000 through December, 2004 554
Borrowings under financing agreement denominated in Italian lire, interest at
4.5%, payable in semi-annual installments through July 1, 2000 254
Euro-Credit loan (Ireland) denominated in German marks, interest at 4.0% to
4.5%, repayable in semi-annual installments of $898 through September 11, 2002 7,184
Borrowings under revolving credit facility denominated in U.S. dollars, with
interest of 6.57% payable monthly under an interest rate swap agreement, due
December 23, 2002 (i) 6,000
Borrowings under revolving credit facility dominated in U.S. dollars, interest
at the London Interbank Offered Rate (LIBOR) plus 60 basis points (5.66% at
December 31, 1998), due December 23, 2002 (i) 3,253
Environmental Credit loans denominated in German marks, interest at 4.75% to
5.75%, repayable in annual installments through December 31, 2008 3,309
Borrowings under financing agreement denominated in Italian lire, interest at
4.5%, payable in semi-annual installments through January 1, 2005 691
12
First mortgage loan denominated in Italian lire, secured by real property,
interest at 6.26%, payable in semi-annual installments through February 1, 2007 1,856
Related parties:
Unsecured loan from holding company denominated in French francs, interest at
1.5%, repayable during 1999 1,909
Loans from holding company denominated in German marks, interest payable in
semi-annual installments at 5.5% - 6% (ii) 1,725
Loan from holding company denominated in German marks, interest
payable in semi-annual installments at three month German Libor
plus 1% per annum,
principal due on December 31, 1999 (ii) 4,492
Unsecured loans from holding company denominated in German marks,
interest payable from the second year of the loans, due on August
11, 2000, and
September 14, 2000 486
Loan from holding company denominated in German marks, interest
payable in quarterly installments at three month German Libor plus
1% per annum,
principal due on September 21, 2001 (ii) 5,586
-----
Total debt obligations 38,811
Less amounts due within one year:
Financial institutions (2,804)
Related parties (8,126)
------
(10,930)
-------
Total long-term debt $ 27,881
=================
(i) On December 23, 1997, WSC entered into a new credit agreement with
a lending institution. The agreement includes an unsecured
revolving credit facility which allows WSC to borrow up to
$30,000,000 in one million dollar increments or multiples thereof,
at LIBOR plus 60 points. Interest rates are variable and can be
determined on a one, two, three or six month period. Termination
of the agreement is December 23, 2002, at which time all amounts
outstanding under the agreement are due. Availablility under the
agreement is decreased annually by $3,000,000 at year end as
follows:
Through December 31,
1999 $ 27,000,000
2000 24,000,000
2001 21,000,000
Termination 18,000,000
13
Concurrent with the borrowing at December 23, 1997, WSC secured an
interest rate swap agreement with the same lending institution to
exchange the floating rate on $6,000,000 of the outstanding
balance under the revolving credit facility to a fixed rate of
6.57%. The swap agreement expires December 23, 2002; however, the
lending institution has the option to terminate the agreement
after 3 years. WSC is exposed to losses in the form of increased
interest costs in the event of nonperformance by the lending
institution; however, management does not anticipate
nonperformance.
(ii)Loans were repaid on August 24, 1999 and replaced by a loan from Albany
International Corp. in connection with the acquisition of the Geschmay
Group (see notes 1(a) and 12).
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1998 and thereafter, are as follows (in
thousands):
1999 $ 10,930
2000 4,979
2001 8,195
2002 11,867
2003 824
Thereafter 2,016
-----
$ 38,811
================
Certain debt agreements with financial institutions contain requirements
to maintain certain financial ratios including current assets to current
liabilities and debt service coverage. The individual companies are
either in compliance with these requirements or have obtained waivers as
of December 31, 1998.
(4) Leases
The Geschmay Group leases various properties, machinery and equipment
used in their operations and classifies those leases as either operating
or capital leases following the provisions of SFAS No. 13, Accounting for
Leases. The terms of the operating leases range from one to five years
and certain lease agreements provide for price escalations. Rent expense
incurred under the operating leases was $757,000 for the year ended
December 31, 1998.
14
Future minimum lease payments under noncancelable operating leases with
initial or remaining lease terms in excess of one year and future minimum
capital lease payments as of December 31, 1998 are as follows (in
thousands):
Capital lease Operating
obligations leases
----------- ------
Year ending December 31:
1999 $ 1,131 773
2000 1,131 374
2001 1,099 101
2002 1,005 42
2003 956 19
Thereafter 3,737 -
----- -------
Future minimum lease payments 9,059 $ 1,309
Less amounts representing interest (2,000)
------
Present value of capital lease payments $ 7,059
===============
(5) Accrued Expenses
Accrued expenses at December 31, 1998, consist of (in thousands):
Accrued payroll and related costs $ 8,611
External sales agent commissions 1,897
Early retirement accrual (i) 1,792
Allowance for product returns 2,892
Property and other taxes 3,831
Other 5,294
-----
$ 24,317
================
(i) During 1998, WSC offered an early retirement plan to employees.
Eligibility was based on the number of years of service and/or
employee age, and 34 employees accepted early retirement resulting
in a pre-tax charge of $1,805,000. Of the total charge, $1,049,000
was recorded as cost of goods sold and $756,000 was recorded as
selling, general, and administrative expenses in the accompanying
statement of operations for the year ended December 31, 1998.
(6) Income Taxes
Income tax expense (benefit) attributable to income from operations consists of the following (in thousands):
Current Deferred Total
------- -------- -----
Year ended December 31, 1998:
Federal $ 195 (950) (755)
State 84 (178) (94)
Foreign 4,209 157 4,471
----- --- -----
$ 4,489 (973) 3,516
================ ==== =====
15
The components the income tax expense were based on the following sources
of income (loss) before income taxes (in thousands):
Year ended
December 31,
1998
----
Total United States $ (1,805)
Total Foreign 5,284
-----
$ 3,479
=================
Income tax expense differs from expected tax expense (computed by
applying the U.S. federal corporate rate of 35% to income before income
taxes) for the year ended December 31, 1998 as follows (in thousands):
Year ended
December 31,
1998 %
---- -
Computed "expected" income taxes
$ 1,218 35.0
Increase (reduction) in income taxes resulting from: Foreign tax in
excess of U.S.
federal corporate rate 1,282 36.8
State and local income taxes,
net of federal effect (84) (2.4)
Increase in valuation allowance 358 10.3
Non-deductible expenses 279 8.0
Non-deductible expenses for
Italian regional production
tax (IRAP) 623 17.9
Other (160) (4.5)
---- ----
Income tax expense $ 3,516 101.1
================= =====
16
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below (in thousands):
December 31,
1998
----
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 389
Inventories, principally due to additional costs inventoried for
tax purposes 1,557
Property, plant, and equipment, principally due to write-down 173
Employee benefits payable and other retirement accruals 1,687
Other accrued expenses 1,204
Net operating loss carryforwards 1,240
Other 371
---
Total gross deferred tax assets 6,621
Less valuation allowance (896)
----
Net deferred tax assets 5,725
-----
Deferred tax liabilities:
Property, plant, and equipment, principally due to differences
in depreciation and capitalized interest (2,831)
Accounts payable (152)
Other (1,126)
------
Total gross deferred tax liabilities (4,109)
------
Net deferred tax asset $ 1,616
===================
During the year ended December 31, 1998, the valuation allowance
increased as a result of additional net operating losses generated at
foreign operations which are not expected to be realized.
17
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependant upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and
tax planning strategies, as well as carryback opportunities, in making
this assessment. Based upon the level of historical taxable income,
projections for future taxable income and carryback opportunities over
the periods in which the deferred tax assets are deductible, management
believes it is more likely than not that the benefits of these deductible
differences will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
At December 31, 1998, the Geschmay Group had approximately $3,545,000 of
foreign net operating loss carry forwards available to offset future
taxable income. Certain of these net operating loss carryforwards will
expire, as follows: $332,000 in 1999; $886,000 in 2000; $228,000 in 2001;
$399,000 in 2002; $473,000 in 2003; $495,000 in 2004; and $509,000 in
2005. Certain net operating losses may be carried forward indefinitely in
accordance with local tax legislation.
(7) Shareholders' Equity
The shareholders' equity balances included in the December 31, 1998,
combined balance sheet are comprised of the following (in thousands,
except share amounts):
Other
Shares Capital Additional
Outstanding Stock Capital
----------- ----- -------
Feltrificio Veneto S.p.A.
Common stock; par value 2,000
(Italian Lire); 3,000,000
shares authorized; 100,800
shares held in treasury 2,899,200 $ 3,920 -
Geschmay Asia Private Limited
Capital stock; par value $1
(Singapore Dollars); 100,000
shares authorized 100,000 61 -
Wurttembergische Filztuchfabrik D. Geschmay GmbH
Share participations - 9,748 -
Geschmay Research GmbH
Share participations - 33 -
Wangner Systems Corporation and
subsidiaries
Common stock; no par value; 25,000
shares authorized 24,722 668 19,382
18
Other
Shares Capital Additional
Outstanding Stock Capital
----------- ----- -------
Cofpa S.A.
Common stock; par value 100
(French Francs); 100,000
shares authorized 99,994 1,670 257
----- ---
$ 16,099 19,639
============= ======
In accordance with Italian law, FV is required to allocate 5% of its net
income to a legal reserve until the total amount allocated represents 20%
of the common stock amount. This amount has been presented as
appropriated retained earnings within the accompanying combined balance
sheets and statements of shareholders' equity and comprehensive income
(loss).
(8) Employee Benefit Plans
(a) Defined Benefit Plan
WFG has a defined benefit pension plan covering substantially all
its employees. Benefits under the plan are based on years of
service and employees' average compensation for the years
immediately preceding retirement. The plan is unfunded.
The following table sets forth information concerning the plan's
benefit obligations and pension obligation recognized in the
combined balance sheet at December 31, 1998 (in thousands):
Change in benefit obligation during year:
Benefit obligation at beginning of year $ 8,038
Service cost 229
Interest cost 479
Benefit payments (396)
Actuarial loss 671
Currency exchange rate effects 629
---
Benefit obligation at end of year $ 9,650
=================
Reconciliation of funded status at end of year:
Funded status $ (9,650)
Unrecognized actuarial losses 712
Unrecognized transition asset (520)
----
Net amount recognized within employee benefits
payable in the accompanying combined
balance sheet $ (9,458)
=================
19
The benefit obligation information has been calculated using a
discount rate assumption of 6% and a salary increase assumption of
1.5%. The 1998 actuarial losses are substantially the result of
the use of updated German mortality tables for purposes of
calculation of the benefit obligation at December 31, 1998.
At the initial date of the application of U.S. generally accepted
accounting principles, January 1, 1998, the projected benefit
obligation exceeded the pension obligation recorded under local
accounting principles. This difference, calculated on the basis
that WFG had adopted SFAS No. 87, Employer's Accounting for
Pensions on January 1, 1989, is being amortized over 15 years,
with 5 years remaining as of December 31, 1998.
The components of the net periodic pension cost for the year ended
December 31, 1998 are as follows (in thousands):
Service cost $ 229
Interest cost 479
Amortization of unrecognized net transition asset (97)
---
Net periodic benefit cost $ 611
===========
(b) Defined Contribution Plan
WSC maintains an employee savings plan, covering substantially all
employees, under Section 401(k) of the U.S. Internal Revenue Code.
Under this plan, WSC contributes to a trust based upon specified
percentages of employee compensation and matches specified
percentages of the employees' voluntary contributions up to a
maximum of 5.5% of each employee's income. Contributions are at
management's discretion and can be discontinued. Management can
terminate the plan at any time. Contributions to the plan for the
year ended December 31, 1998 amounted to $1,025,000.
In addition, WSC also maintains a supplemental retirement plan for
certain highly compensated employees whose contributions to the
401(k) plan are limited by Internal Revenue Service regulations.
Contributions to this plan for the year ended December 31, 1998
were $41,000.
(c) Other Plans
COFPA has a retirement plan that provides a benefit payable to
employees upon retirement. These amounts are only payable if the
employee is employed at the date of retirement and are, therefore,
not vested until such date. The obligation is determined using the
present value of the vested benefits to which the employee is
currently entitled but based on the employee's expected date of
separation or retirement. At December 31, 1998, the estimated
amount of this obligation included on the combined balance sheet
is $707,000. During the year ended December 31, 1998, the expense
associated with this obligation was $86,000.
20
In accordance with Italian legislation and the national labor
contract, FV employees are entitled to a lump-sum payment based on
the gross salary or average commissions over the last five years,
as appropriate, and length of service of the respective employee
upon termination of employment for any reason. The obligation is
determined using the present value of the vested benefits to which
the employee is entitled if the employee were to separate
immediately. At December 31, 1998, the estimated amount of this
obligation included on the combined balance sheet is $5,160,000.
(9) Related Party Transactions
The Geschmay Group companies import and export various finished and
partially finished products to and from other Geschmay Group companies.
These transactions along with the related balance sheet amounts, have
been eliminated in combination. The Geschmay Group also imports and
exports various finished products to and from other related parties. In
addition, the Geschmay Group has purchased certain machinery and repair
parts from related parties.
As discussed in note 3, the Geschmay Group also is indebted to its
holding company. The related party indebtedness and related interest
expense are included in these combined financial statements. The Geschmay
Group is also indebted to certain related parties in the form of capital
leases for several buildings located in Italy and France. These capital
lease obligations comprise a significant portion of the obligations
disclosed in note 4.
Amounts related to transactions with all related parties are set forth below:
Year ended
December 31,
1998
----
Sales of finished products and other sales $ 284,000
Purchases of machinery, repair parts, and other expenses 477,000
Royalties 154,000
Interest expense 570,000
21
(10) Commitments and Contingencies
(a) Lease
On December 30, 1997, FV signed a capital lease agreement with
Leasing Italease SpA, under which the leasing company is
constructing a manufacturing facility (building and related
accessories). At the signing of the contract, FV sold to Leasing
Italease SpA the land on which the manufacturing facility would
have been constructed for an amount of $799,000 (at December 31,
1998 exchange rate). On the completion of the construction work,
FV will lease the land and manufacturing facility at a capital
cost originally stated at $2,420,000 (including $799,000 for the
land portion), repayable as follows:
- $484,000 on consignment;
- ninety-five (95) monthly installments of $26,000
commencing the month following consignment;
for a total of $2,999,000, including interest.
The original amount of $2,420,000 was amended to $2,601,000 on
July 27, 1999. Details of the repayment plan have yet to be
communicated by Leasing Italease SpA.
(b) Contingencies
The Geshmay Group is subject to certain claims and lawsuits,
either asserted or unasserted, arising in the normal course of
business. Based on information currently available, it is the
opinion of management, upon advice of counsel, that the ultimate
resolution of these matters would not have a material adverse
effect on the Geschmay Group's combined financial position or
results of operations. However, based on future developments and
as additional information becomes known, it is possible that the
ultimate resolution of such matters could have a material adverse
effect on the Geschmay Group's results of operations in future
periods.
22
(11) Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of information about the fair
value of certain financial instruments for which it is practicable
to estimate that value. For purposes of the following disclosure,
the fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation.
The following methods and assumptions were used to estimate fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents, Short-term investments, Accounts
receivable, Notes receivable, Notes payable, Bank overdraft
and Accounts payable - The carrying amount approximates fair
value because of the short maturity of these instruments.
Long-term debt - The carrying value of long-term debt with
financial institutions and related parties is considered to
approximate fair value on the bases that the significant
components of the long-term debt held at December 31, 1998
have been negotiated on the current rates offered for similar
debt of the same remaining maturities or is variable rate
debt.
Interest rate swap - The fair value of the interest rate swap
agreement is determined on the net present value of the
differential to be paid and received over the remaining fixed
term of the interest rate swap at December 31, 1998 and
approximates $50,000.
Foreign exchange contracts - The carrying amount and fair
value of these contracts are not significant.
(12) Subsequent Event
On August 24, 1999, all of the outstanding capital stock of the
individual paper machine clothing businesses of the Geschmay Group were
purchased by Albany International Corp., for approximately $232 million
in cash, as outlined in the Share Purchase Agreement, dated as of May 26,
1999.
23
Exhibit 99.2
Pro Forma Combined Financial Information
Exhibit 99.2
Albany International Corp.
Unaudited Pro Forma Combined Financial Statements
Basis of Presentation
The following unaudited pro forma combined income statements and balance sheet
give effect to the acquisition of the Geschmay Group and the financing of the
acquisition with the new $750 million credit agreement. For purposes of the pro
forma combined income statements, the transactions are assumed to have occurred
on January 1, 1998, whereas for purposes of the pro forma combined balance
sheet, the transactions are assumed to have occurred on June 30, 1999.
The acquisition has been accounted for using the purchase method of accounting.
Accordingly, the fair value of assets and liabilities will be determined based
upon valuations and appraisals that are not yet complete. As this work is not
yet complete, the allocation of the total purchase cost and the related pro
forma adjustments, included in the pro forma combined financial statements, have
been based on the book value of the acquired assets and liabilities.
The pro forma adjustments are based on estimates, available information and
certain assumptions, and will be revised as additional information becomes
available. The pro forma financial information does not purport to represent
what Albany International Corp.'s financial position or results of operations
would actually have been had such transactions occurred on these dates and are
not necessarily indicative of Albany International Corp.'s financial position or
results of operations for any future period. Since Albany International Corp.
and the Geschmay Group were not under common control or management during the
periods presented, historical combined results may not be comparable to, or
indicative of, future performance. The unaudited pro forma combined financial
statements should be read in conjunction with the historical combined financial
statements of the Geschmay Group and notes thereto included elsewhere herein.
ALBANY INTERNATIONAL CORP.
PRO FORMA COMBINED STATEMENTS OF INCOME
(in thousands, except share and per share data)
For the Year Ended For the Six Months Ended
December 31, 1998 June 30, 1999
- ------------------------------------------------- -----------------------------------------------
Purchase Purchase
Albany Accounting Albany Accounting
International Geschmay & Financing Pro Forma International Geschmay & Financing Pro Forma
Corp. Group Adjustments Combined Corp. Group Adjustments Combined
- ------------------------------------------------- -----------------------------------------------
$722,653 $158,833 - $881,486 Net sales $357,394 $76,055 - $433,449
417,375 104,495 8,498 530,368 Cost of goods sold 208,652 51,547 4,249 264,448
- ----------------------------------------------- -----------------------------------------------
305,278 54,338 (8,498) 351,118 Gross profit 148,742 24,508 (4,249) 169,001
214,479 48,011 - 262,490 Selling, technical and general expenses 106,556 22,898 - 129,454
Restructuring of operations and
20,191 - - 20,191 termination benefits - - - -
- ----------------------------------------------- -----------------------------------------------
70,608 6,327 (8,498) 68,437 Operating income 42,186 1,610 (4,249) 39,547
19,310 2,589 20,182 42,081 Interest expense, net 8,738 996 11,307 21,041
(406) 259 237 90 Other (income)/expense, net 324 (1,083) 119 (640)
- ----------------------------------------------- -----------------------------------------------
51,704 3,479 (28,917) 26,266 Income before income taxes 33,124 1,697 (15,675) 19,146
20,163 3,516 (7,871) 15,808 Income taxes 12,919 1,780 (4,409) 10,290
- ----------------------------------------------- -----------------------------------------------
31,541 (37) (21,046) 10,458 Income/(loss) before associated companies 20,205 (83) (11,266) 8,856
231 - - 231 Equity in earnings of associated companies 300 - - 300
- ----------------------------------------------- -----------------------------------------------
$31,772 $(37) $(21,046) $10,689 Net income/(loss) $20,505 $(83) $(11,266) $9,156
====== === ======= ====== ====== === ======= =====
$1.04 - - $0.35 Net income per share $0.69 - - $0.31
=============================================== ===============================================
$1.03 - - $0.35 Diluted net income per share $0.68 - - $0.31
=============================================== ===============================================
30,464,208 30,464,208 Weighted average number of shares 29,685,091 29,685,091
============= ============ ============ =============
30,798,336 30,798,336 Weighted average number of fully 29,971,404 29,971,404
============= ============ diluted shares ============ =============
See accompanying notes to the pro forma combined financial statements.
ALBANY INTERNATIONAL CORP.
PRO FORMA COMBINED BALANCE SHEETS
(in thousands)
At June 30, 1999
------------------------------------------------------
Purchase
Albany Accounting
International Geschmay & Financing Pro Forma
Corp. Group Adjustments Combined
------------------------------------------------------
ASSETS
Cash, cash equivalents and short-term investments $9,646 $4,593 ($2,000) $12,239
Accounts receivable, net 179,385 49,835 - 229,220
Inventories:
Finished goods 109,404 29,594 - 138,998
Work in process 47,631 14,054 - 61,685
Raw material and supplies 36,349 8,241 - 44,590
------------------------------------------------------
193,384 51,889 - 245,273
Deferred taxes and prepaid expenses 22,666 4,667 - 27,333
------------------------------------------------------
Total current assets 405,081 110,984 (2,000) 514,065
Property, plant and equipment, net 306,234 69,460 - 375,694
Investments in associated companies 4,112 405 - 4,517
Intangibles 61,017 - 169,960 230,977
Deferred taxes 27,050 - - 27,050
Other assets 43,675 3,641 6,092 53,408
------------------------------------------------------
Total assets $847,169 $184,490 $174,052 $1,205,711
======================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and loans payable $86,246 $9,829 ($70,000) $26,075
Accounts payable 20,343 12,847 - 33,190
Accrued liabilities 58,633 18,767 237 77,637
Current maturities of long-term debt 2,513 11,443 - 13,956
Income taxes payable and deferred 2,838 421 - 3,259
------------------------------------------------------
Total current liabilities 170,573 53,307 (69,763) 154,117
Long-term debt 208,004 33,371 323,902 565,277
Other noncurrent liabilities 115,733 13,552 2,408 131,693
Deferred taxes and other credits 38,738 1,765 - 40,503
------------------------------------------------------
Total liabilities 533,048 101,995 256,547 891,590
------------------------------------------------------
Shareholders' equity 314,121 82,495 (82,495) 314,121
------------------------------------------------------
Total liabilities and shareholders' equity $847,169 $184,490 $174,052 $1,205,711
======================================================
See accompanying notes to the pro forma combined financial statements.
Notes to Pro Forma Combined Financial Statements
1) Purchase Accounting and Financing Adjustments: Balance sheet
A) Purchase Cost - The total purchase cost for the shares of
Geschmay was approximately $249 million, which includes
approximately $17 million paid for assets that were outside of the
original share purchase agreement. The purchase was substantially
financed with a new $750 million credit agreement. The transaction
is being accounted for as a purchase and therefore the total
purchase cost is being allocated to assets and liabilities based
on book value with the excess of cost over book value recorded
to goodwill. This allocation is expected to change and reflect
fair values when the appraisals and valuations
are complete. In addition to the cost of the shares, the
total purchase cost includes other direct costs of the
acquisition, such as legal, tax and accounting fees. Cash, Other
Assets, Intangibles, Other Non-current Liabilities, Long-Term
Debt and Shareholders' Equity have been adjusted to reflect the
purchase accounting of the acquisition cost.
B) Bank Fees - Included as an adjustment to Other Assets is
approximately $5 million of costs associated with the issuance of
the new debt agreement.
C) Notes and Loans Payable - Included as an adjustment to Notes and
Loans Payable is a reduction of $70 million to reflect the
pay-down of notes that occurred at the time of the closing. A
corresponding increase to Long-Term Debt was also included as part
of this adjustment.
2) Purchase Accounting and Financing Adjustments: Income Statement
A) Amortization of Intangibles - Included as an adjustment to Cost of
Goods Sold is the amortization of the newly recorded goodwill. The
amortization period is twenty years and currently is not
considered deductible for income tax purposes.
B) Interest Expense - A pro forma adjustment to interest expense has
been recorded to reflect the effect of the additional debt
incurred to finance the acquisition. This adjustment also reflects
the effect of the higher interest rates that are part of the new
credit agreement. Also, an adjustment has been recorded to
amortize the bank fees over a five year period. The tax effect of
these adjustments has been recorded at 39%.
Exhibit 23.1
Consent of KPMG LLP
The Shareholders
Feltrificio Veneto S.p.A., Geschmay Asia Private Limited,
Wurttembergische Filztuchfabrik
D. Geschmay GmbH, Geschmay
Research GmbH, Wangner Systems
Corporation and Cofpa S.A.:
We consent to the incorporation by reference in the
registration statements (Nos. 33-23163, 33-28028, 33-33048 and
333-90069) on Form S-8 of Albany International Corp. of our
report dated October 22, 1999, with respect to the combined
balance sheets of Feltrificio Veneto S.p.A., Geschmay Asia
Private Limited, Wurttembergische Filztuchfabrik D. Geschmay
GmbH, Geschmay Research GmbH, Wangner Systems Corporation and
Cofpa S.A. as of December 31, 1998, and the related combined
statements of operations, shareholders' equity and
comprhensive income (loss), and cash flows for the year ended
December 31, 1998, which report appears in the Form 8-K/A
of Albany International Corp. dated November 8, 1999.
/s/ KPMG LLP
Albany, New York
November 5, 1999