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, 1998
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 24,343,705 shares of Class A Common Stock and 5,615,563
shares of Class B Common Stock outstanding as of March 31, 1998.
ALBANY INTERNATIONAL CORP.
INDEX
Page No.
----------
Part I Financial information
Item 1. Financial Statements
Consolidated statements of income and retained earnings -
three months ended March 31, 1998 and 1997 1
Consolidated balance sheets - March 31, 1998 and December 31, 1997 2
Consolidated statements of cash flows - three months ended March 31, 1998 and 1997 3
Notes to consolidated financial statements 4-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8
Part II Other information
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)
Three Months Ended
March 31,
1998 1997
---- ----
Net sales $176,156 $171,820
Cost of goods sold 101,344 100,005
------- -------
Gross profit 74,812 71,815
Selling, technical and general expenses 51,231 49,493
------ ------
Operating income 23,581 22,322
Interest expense, net 4,418 3,888
Other expense, net 1,124 583
----- ---
Income before income taxes 18,039 17,851
Income taxes 7,035 6,961
----- -----
Income before associated companies 11,004 10,890
Equity in earnings/(losses) of associated companies 50 (7)
-- --
Net income 11,054 10,883
Retained earnings, beginning of period 246,013 209,875
Less dividends 3,140 3,209
----- -----
Retained earnings, end of period $253,927 $217,549
======== ========
Net income per share $0.37 $0.36
===== =====
Diluted net income per share $0.36 $0.35
===== =====
Dividends per common share $0.105 $0.105
====== ======
Weighted average number of shares 30,070,783 30,546,690
========== ==========
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,
1998 1997
---------------- ---------------
ASSETS
Cash and cash equivalents $13,751 $2,546
Accounts receivable, net 170,846 171,886
Inventories:
Finished goods 112,355 106,259
Work in process 41,605 38,904
Raw material and supplies 35,924 35,288
---------------- ---------------
189,884 180,451
Deferred taxes and prepaid expenses 19,339 18,440
---------------- ---------------
Total current assets 393,820 373,323
Property, plant and equipment, net 328,068 321,611
Investments in associated companies 4,464 2,444
Intangibles 49,479 36,080
Deferred taxes 22,962 22,826
Other assets 40,090 40,613
---------------- ---------------
Total assets $838,883 $796,897
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and loans payable $59,722 $76,095
Accounts payable 25,656 25,786
Accrued liabilities 54,936 56,743
Current maturities of long-term debt 2,096 1,703
Income taxes payable and deferred 15,147 10,113
---------------- ---------------
Total current liabilities 157,557 170,440
Long-term debt 233,695 173,654
Other noncurrent liabilities 77,542 74,075
Deferred taxes and other credits 34,117 35,620
---------------- ---------------
Total liabilities 502,911 453,789
---------------- ---------------
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
25,416,013 in 1998 and 25,375,413 in 1997 25 25
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and
outstanding 5,615,563 in 1998 and 1997 6 6
Additional paid in capital 188,590 187,831
Retained earnings 253,927 246,013
Translation adjustments (accumulated other comprehensive income) (83,271) (84,351)
---------------- ---------------
359,277 349,524
Less treasury stock (Class A), at cost (1,072,308 shares
in 1998; 280,680 shares in 1997) 23,305 6,416
---------------- ---------------
Total shareholders' equity 335,972 343,108
---------------- ---------------
Total liabilities and shareholders' equity $838,883 $796,897
================ ===============
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,
1998 1997
----------------- -----------------
OPERATING ACTIVITIES
Net income $11,054 $10,883
Adjustments to reconcile net cash provided by operating activities:
Equity in (earnings)/losses of associated companies (50) 7
Depreciation and amortization 12,231 11,253
Provision for deferred income taxes, other credits and long-term liabilities 1,352 3,337
Increase in cash surrender value of life insurance, net of premiums paid (551) (516)
Unrealized currency transaction (gains)/losses (204) 500
Gain on disposition of assets (8) (17)
Shares contributed to ESOP 1,500 1,896
Changes in operating assets and liabilities:
Accounts receivable 3,659 6,812
Inventories (6,114) (2,577)
Prepaid expenses (896) 84
Accounts payable (745) (330)
Accrued liabilities (3,301) (6,905)
Income taxes payable 4,988 (1,904)
Other, net 691 (941)
----------------- -----------------
Net cash provided by operating activities 23,606 21,582
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (9,920) (11,170)
Purchased software (213) (291)
Proceeds from sale of assets 58 72
Acquisitions, net of cash acquired (16,217) -
Investment in associated companies (2,025) -
----------------- -----------------
Net cash used in investing activities (28,317) (11,389)
----------------- -----------------
FINANCING ACTIVITIES
Proceeds from borrowings 57,002 26,923
Principal payments on debt (20,140) (29,607)
Proceeds from options exercised 705 2,382
Tax benefit of options exercised 62 444
Purchases of treasury shares (18,396) (1,332)
Dividends paid (3,241) (3,045)
----------------- -----------------
Net cash provided/(used) in financing activities 15,992 (4,235)
----------------- -----------------
Effect of exchange rate changes on cash flows (76) (6,964)
----------------- -----------------
Increase/(decrease) in cash and cash equivalents 11,205 (1,006)
Cash and cash equivalents at beginning of year 2,546 8,034
----------------- -----------------
Cash and cash equivalents at end of period $13,751 $7,028
================= =================
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, 1997.
2. Accounting for Derivatives
Gains or losses on forward exchange contracts that function as an
economic hedge against currency fluctuation effects on future revenue streams
are recorded in "Other expense, net".
Gains or losses on forward exchange contracts that are designated a
hedge of a foreign operation's net assets and/or long-term intercompany loans
are recorded in "Translation adjustments", a separate component of shareholders'
equity. These contracts reduce the risk of currency exposure on foreign currency
net assets and do not exceed the foreign currency amount being hedged. To the
extent the above criteria are not met, or the related assets are sold,
extinguished, or terminated, activity associated with such hedges is recorded in
"Other expense, net".
All open positions on forward exchange contracts are valued at fair
value using the estimated forward rate of a matching contract.
Gains or losses on futures contracts are recorded in "Other expense,
net". Open positions are valued at fair value using quoted market rates.
3. Other Expense, Net
Included in other expense, net are: currency transactions, $0.4 million
income in 1998 and 1997; amortization of debt issuance costs and loan
origination fees, $0.2 million in 1998 and 1997; interest rate protection
agreements, $0.2 million income in 1997 and other miscellaneous expenses, none
of which are significant, in 1998 and 1997.
4. Earnings Per Share
In accordance with Financial Accounting Standard No. 128, "Earnings Per
Share", net income per share is computed using the weighted average number of
shares of Class A and Class B Common Stock outstanding during the period.
Diluted net income per share includes the effect of all potentially dilutive
securities.
4
The amounts used in computing earnings per share, including the effect
on income and the weighted average number of shares of potentially dilutive
securities, are as follows for the three months ended March 31, 1998 and 1997:
- --------------------------------------------------------------------------------
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Income available to common stockholders:
Income available to common stockholders
(No adjustments needed for dilutive securities) $11,054 $10,883
------- -------
Weighted average number of shares:
Weighted average number of shares used in
net income per share 30,071 30,547
Effect of dilutive securities:
Stock options 398 365
--- ----
Weighted average number of shares used in
diluted net income per share 30,469 30,912
------ ------
Options to purchase 250,000 shares of common stock at $25.5625 per share were
outstanding at March 31, 1998 but were not included in the computation of
diluted net income per share because the options' exercise price was greater
than the average market price of the common shares.
5. Comprehensive Income
Total comprehensive income for the three months ended March 31, 1998
and 1997 consists of:
- ----------------------------------------------------------------------------------------
(in thousands) 1998 1997
- ----------------------------------------------------------------------------------------
Net income $11,054 $10,883
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments 1,080 (16,459)
Income tax related to items of other
comprehensive income/(loss) - -
- ----------------------------------------------------------------------------------------
Total comprehensive income/(loss) $12,134 $(5,576)
- ----------------------------------------------------------------------------------------
6. Income Taxes
The Company's effective tax rate for the three months ended March 31,
1998 and 1997 was 39% and approximates the anticipated effective tax rate for
the full year 1998.
7. Supplementary Cash Flow Information
Interest paid for the three months ended March 31, 1998 and 1997 was
$4.2 million and $3.6 million, respectively.
5
Taxes paid for the three months ended March 31, 1998 and 1997 was $2.2
million and $3.3 million, respectively.
8. Acquisitions
In January 1998, the Company acquired substantially all of the assets
of Burwell Door Systems located in Sydney, Australia for approximately $3.4
million.
In March 1998, the Company purchased all of the outstanding capital
stock of Techniweave, Inc., a specialty fabricator of high performance
textiles and composites. The purchase price was approximately $8.9 million
with $3.3 million paid at closing and $5.6 million deferred for up to 10
years.
In March 1998, the Company purchased all of the outstanding capital
stock of Metco Form Oy, a Finnish supplier of forming fabrics and other
engineered fabrics for pulp mills and other chemical process industries. The
purchase price was approximately $10.9 million.
All of the above acquisitions were accounted for as purchases and,
accordingly, the Company included in its financial statements the results of
operations of the acquired entities as of the respective acquisition dates.
In March 1998, the Company purchased a 50% interest in SARA (Loading
Bay Specialists, Ltd.), a distributor of high performance industrial doors
located in England for approximately $2.0 million. This investment is being
accounted for on an equity basis and is included in "Investments in Associated
Companies".
6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
For the Three Months Ended March 31, 1998
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS:
Net sales increased to $176.2 million for the three months ended March 31, 1998
as compared to $171.8 million for the three months ended March 31, 1997. The
effect of the stronger U.S. dollar as compared to the first quarter of 1997 was
to decrease net sales by $7.6 million. Excluding this effect, 1998 net sales
increased 6.9% as compared to 1997. Acquisitions made in the first quarter of
1998, as discussed below, added $1.3 million to 1998 net sales.
Geographically, net sales for the three months ended March 31, 1998, as compared
to the same period in 1997, increased in the United States and decreased in
Canada. Net sales in Canada were impacted by the effect of the stronger U.S.
dollar and a weather related shutdown that closed manufacturing operations for
about two weeks in January 1998. Asian sales were lower in 1998, as compared to
1997. European sales were strong in local currencies and increased 1.8% in U.S.
dollars.
Gross profit was 42.5% of net sales for the three months ended March 31, 1998 as
compared to 41.8% for the three months ended March 31, 1997. Year to date
variable costs as a percent of net sales decreased to 33.2% in 1998 from 33.6%
for the same period in 1997. Excluding the effect of the stronger U.S. dollar,
1998 acquisitions and the start-up of the Company's new Korean plant, as
discussed below, variable costs as a percent of net sales were 32.6% in 1998.
Selling, technical, general and research expenses increased 2.7%, excluding 1998
acquisitions and the new Korean plant, for the three months ended March 31, 1998
as compared to the three months ended March 31, 1997. Excluding the additional
effect of translation of non-U.S. currencies into fewer U.S. dollars, these
expenses increased 6.3% as compared to 1997. This increase was principally due
to higher wages and benefit costs and foreign currency losses recorded by the
Company's non-U.S. operations.
Operating income as a percentage of net sales increased to 13.4% for the three
months ended March 31, 1998 from 13.0% for the comparable period in 1997 due to
items discussed above. Excluding the effect of the stronger U.S. dollar, 1998
acquisitions and the new Korean plant, operating income as a percentage of net
sales was 14.1% in 1998.
Interest expense increased $0.5 million for the three months ended March 31,
1998 as compared to the same period in 1997. This increase was mostly due to
higher total debt during 1998 as a result of acquisitions and the Company's
purchase of 1,154,400 shares of its own stock since November 1997.
The tax rate for the three months ended March 31, 1998 and 1997 was 39.0% and
approximates the anticipated effective rate for the full year 1998.
7
In late 1997, the Company finished the construction of a new paper machine
clothing plant located in Chungju, South Korea for a total cost of approximately
$22 million. The first shipments to customers were made in February 1998.
In January 1998, the Company acquired substantially all of the assets of Burwell
Door Systems located in Sydney, Australia for approximately $3.4 million.
In March 1998, the Company purchased all of the outstanding capital stock of
Techniweave, Inc., a specialty fabricator of high performance textiles and
composites. The purchase price was approximately $8.9 million with $3.3 million
paid at closing and $5.6 million deferred for up to 10 years.
In March 1998, the Company purchased all of the outstanding capital stock of
Metco Form Oy, a Finnish supplier of forming fabrics and other engineered
fabrics for pulp mills and other chemical process industries. The purchase price
was approximately $10.9 million.
All of the above acquisitions were accounted for as purchases and, accordingly,
the Company included in its financial statements the results of operations of
the acquired entities as of the respective acquisition dates. Management does
not expect these acquisitions to have a significant impact on 1998 operating
results.
In March 1998, the Company purchased a 50% interest in SARA (Loading Bay
Specialists, Ltd.), a distributor of high performance industrial doors located
in England for approximately $2.0 million. This investment is being accounted
for on an equity basis and is included in "Investments in Associated Companies".
LIQUIDITY AND CAPITAL RESOURCES:
Accounts receivable decreased $1.0 million since December 31, 1997. Excluding
the effect of the stronger U.S. dollar ,the 1998 acquisitions and the new Korean
plant, accounts receivable decreased $4.2 million. Inventories increased $9.4
million during the three months ended March 31, 1998. Excluding the factors
noted above, inventories increased $4.6 million.
The Company's current debt structure, which is mostly floating-rate, provides
approximately $160 million in committed and available unused debt capacity with
financial institutions. Management believes that this debt capacity, in
combination with informal commitments and 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, 1998, including leases
to the extent they are required to be capitalized, were $9.9 million as compared
to $11.2 million for the same period last year. The Company anticipates that
capital expenditures, including leases, will be approximately $45 million for
the full year and will continue to finance these expenditures with cash from
operations and existing credit facilities.
A cash dividend of $.105 per share, which was declared for the fourth quarter
of 1997, was paid in the first quarter of 1998. The Company also declared a cash
dividend of $.105 per share for the first quarter of 1998, which will be paid in
the second quarter of this year. In February 1998, the Board of Directors
announced its intention to pay future dividends in the Company's Common Stock.
8
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, 1998.
Exhibit No. Description
----------- -----------
11. Schedule of computation of net income per share and diluted net income per share
27. Financial data schedule
9
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: May 5, 1998
by /s/Michael C. Nahl
------------------
Michael C. Nahl
Sr. Vice President and
Chief Financial Officer
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
NET INCOME PER SHARE:
For the three months
ended March 31,
1998 (1) 1997 (1)
-------------- --------------
Common stock outstanding at end of period 29,959,268 30,639,026
Adjustments to ending shares to arrive at weighted average for the period:
Shares contributed to E.S.O.P. (2) (40,826) (53,868)
Shares issued under option or to Directors(2) (34,701) (55,079)
Treasury shares purchased (2) 187,042 16,611
-------------- --------------
Weighted average number of shares 30,070,783 30,546,690
============== ==============
Net income $11,054 $10,883
============== ==============
Net income per share $0.37 $0.36
============== ==============
(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
ADJUSTMENTS TO ENDING SHARES: Number of days
--------------
Three months
--------------
1997 90
1998 90
==============
Reciprocal days Shares adjustment
- --------------------- -----------------
Three months Shares Three months
- --------------------- 1997 --------------------------
Shares Contributed to ESOP:
30 31-Jan-97 12,002 4,001
58 28-Feb-97 58,773 37,876
89 31-Mar-97 12,126 11,991
--------------
Total 53,868
==============
Shares Issued Under Option or to Directors:
1 02-Jan-97 200 2
2 03-Jan-97 3,600 80
5 06-Jan-97 10,000 556
6 07-Jan-97 900 60
7 08-Jan-97 5,000 389
29 30-Jan-97 37,300 12,019
33 03-Feb-97 20,000 7,333
37 07-Feb-97 5,000 2,056
42 12-Feb-97 27,000 12,600
43 13-Feb-97 1,400 669
44 14-Feb-97 28,600 13,982
48 18-Feb-97 10,000 5,333
--------------
Total 55,079
==============
Treasury Shares Purchased:
26 27-Jan-97 57,500 16,611
==============
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
1998
Shares Contributed to ESOP:
30 31-Jan-98 12,783 4,260
58 28-Feb-98 41,378 26,666
89 31-Mar-98 10,011 9,900
--------------
Total 40,826
==============
Shares Issued Under Option or to Directors:
14 15-Jan-98 2,500 389
71 13-Mar-98 600 473
76 18-Mar-98 20,000 16,889
85 27-Mar-98 8,000 7,556
89 31-Mar-98 9,500 9,394
--------------
Total 34,701
==============
Treasury Shares Purchased:
8 09-Jan-98 5,000 444
15 16-Jan-98 411,100 68,517
22 23-Jan-98 400,000 97,778
29 30-Jan-98 13,700 4,414
55 25-Feb-98 26,000 15,889
--------------
Total 187,042
==============
DILUTED NET INCOME PER SHARE:
For the three months
ended March 31,
1998 1997
-------------- --------------
Weighted average number of shares 30,070,783 30,546,690
Incremental shares of unexercised options (3) 397,672 365,048
-------------- --------------
Adjusted weighted average number of shares 30,468,455 30,911,738
============== ==============
Net income $11,054 $10,883
============== ==============
Diluted net income per share $0.36 $0.35
============== ==============
(3) Incremental shares of unexercised options are calculated based on the
average price of the Company's stock for the respective period. The
calculation includes all options that are dilutive to earnings per
share.
5
1,000
3-MOS
DEC-31-1998
MAR-31-1998
13,751
0
175,841
4,995
189,884
393,820
640,311
312,243
838,883
157,557
233,695
0
0
31
335,941
838,883
176,156
176,156
101,344
152,804
1,124
(229)
4,418
18,039
7,035
11,054
0
0
0
11,054
0.37
0.36
