Company Quick10K Filing
Quick10K
Albany International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$76.51 32 $2,470
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-30 Enter Agreement, Other Events, Exhibits
8-K 2019-05-28 Enter Agreement, Other Events, Exhibits
8-K 2019-05-10 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-03-29 Officers, Exhibits
8-K 2019-02-25 Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-09-04 Officers
8-K 2018-08-06
8-K 2018-05-11 Shareholder Vote
8-K 2018-05-07 Earnings, Exhibits
8-K 2018-03-06 Officers
8-K 2018-02-23 Officers, Other Events, Exhibits
8-K 2018-02-05 Officers, Exhibits
ITUB Itau Unibanco Holding 80,180
NVT Nvent Electric 4,590
PLCE Children's Place 1,770
GOOD Gladstone Commercial 657
PTN Palatin Technologies 284
NVTR Nuvectra 106
CHKE Cherokee 12
PVA Penn Virginia 0
ITCC Inspro Technologies 0
SFRX Seafarer Exploration 0
AIN 2019-03-31
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.(U)(II) e4939ex10uii.htm
EX-10.(L)(XII) e4939ex10lxii.htm
EX-10.(N)(III) e4939ex10niii.htm
EX-31.1 e4939ex31-1.htm
EX-31.2 e4939ex31-2.htm
EX-32.1 e4939ex32-1.htm
EX-99.1 e4939ex99-1.htm

Albany International Earnings 2019-03-31

AIN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 e4939_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(√) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2019

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 1-10026

ALBANY INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

 Delaware    14-0462060
 (State or other jurisdiction of    (IRS Employer Identification No.)
incorporation or organization)     
     
 216 Airport Drive, Rochester, New Hampshire    03867
 (Address of principal executive offices)   (Zip Code) 

 

Registrant’s telephone number, including area code 603-330-5850

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ √ ] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [ √ ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

       
Large accelerated filer  [ √ ]  Accelerated filer  [    ] 
Non-accelerated filer  [    ]  Smaller reporting company  [    ] 
    Emerging growth company  [    ] 
       

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [    ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [    ] No [ √ ]

 

1

 

The registrant had 29.0 million shares of Class A Common Stock and 3.3 million shares of Class B Common Stock outstanding as of April 17, 2019.

 

 

ALBANY INTERNATIONAL CORP.

TABLE OF CONTENTS

  Page No.
   
Part I Financial information  
   
  Item 1. Financial Statements 3
  Consolidated statements of income – three months ended March 31, 2019 and 2018 3
  Consolidated statements of comprehensive income/(loss) – three months ended March 31, 2019 and 2018 4
  Consolidated balance sheets as of March 31, 2019 and December 31, 2018 5
  Consolidated statements of cash flows – three months ended March 31, 2019 and 2018 6
  Notes to consolidated financial statements 7
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
 

Forward-looking statements

Item 3. Quantitative and Qualitative Disclosures about Market Risk

48
  Item 4. Controls and Procedures 48
   
Part II Other Information  
   
  Item 1. Legal Proceedings 49
  Item 1A. Risk Factors 49
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
  Item 3. Defaults upon Senior Securities 50
  Item 4. Mine Safety Disclosures 50
  Item 5. Other Information 50
  Item 6. Exhibits 50

 

 

 

2

 

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)

 

    Three Months Ended  
    March 31,  
       
  2019   2018
       
Net sales $251,373   $223,603
Cost of goods sold 159,602   145,821
       
Gross profit 91,771   77,782
  Selling, general, and administrative expenses 40,945   41,888
  Technical and research expenses 10,249   10,317
  Restructuring expenses, net 484   8,573
       
Operating income 40,093   17,004
  Interest expense, net 4,417   4,288
  Other (income)/expense, net   (1,208)     1,452
       
Income before income taxes 36,884   11,264
  Income tax expense 7,476   3,365
       
 Net income    29,408     7,899
Net income attributable to the noncontrolling interest   218     237
 Net income attributable to the Company $29,190   $7,662
       
Earnings per share attributable to Company shareholders - Basic $0.90   $0.24
       
Earnings per share attributable to Company shareholders - Diluted $0.90   $0.24
       
Shares of the Company used in computing earnings per share:      
  Basic 32,272   32,220
       
  Diluted 32,285   32,236
       
Dividends declared per share, Class A and Class B $0.18   $0.17
       

 

The accompanying notes are an integral part of the consolidated financial statements

3

 

 

 

 

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(unaudited)

 

    Three Months Ended  
    March 31,  
       
  2019   2018
       
Net income $29,408   $7,899
       
Other comprehensive income/(loss), before tax:      
Foreign currency translation and other adjustments   (2,152)     17,505
Amortization of pension liability adjustments:      
  Prior service credit   (1,105)     (1,114)
  Net actuarial loss   1,121     1,297
Payments and amortization related to interest rate swaps included in earnings   (452)     180
Derivative valuation adjustment   (3,377)     5,715
       
Income taxes related to items of other comprehensive income/(loss):      
Amortization of pension liability adjustment    (5)      (55)
Payments related to interest rate swaps included in earnings   115      (43)
Derivative valuation adjustment   863     (1,372)
Comprehensive income   24,416     30,012
Comprehensive income/(loss) attributable to the noncontrolling interest   210     230
Comprehensive income attributable to the Company $24,206   $29,782

 

The accompanying notes are an integral part of the consolidated financial statements

4

 

 

 

ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)

 

  March 31,   December 31,
       
  2019   2018
ASSETS      
  Cash and cash equivalents $187,385   $197,755
  Accounts receivable, net   234,127     223,176
  Contract assets   57,869     57,447
  Inventories   102,379     85,904
  Income taxes prepaid and receivable   6,818     7,473
  Prepaid expenses and other current assets   23,696     21,294
    Total current assets   612,274     593,049
       
  Property, plant and equipment, net   460,520     462,055
  Intangibles, net   47,646     49,206
  Goodwill   163,438     164,382
  Deferred income taxes   63,736     62,622
  Noncurrent receivables   45,354     45,061
  Other assets   50,313     41,617
    Total assets $1,443,281   $1,417,992
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
  Accounts payable $74,050   $52,246
  Accrued liabilities   122,342     129,030
  Current maturities of long-term debt   19     1,224
  Income taxes payable   8,387     6,806
    Total current liabilities   204,798     189,306
       
  Long-term debt   491,022     523,707
  Other noncurrent liabilities   112,726     88,277
  Deferred taxes and other liabilities   8,328     8,422
    Total liabilities 816,874   809,712
       
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 37,478,402 in 2019      
    and 37,450,329 in 2018   37     37
  Class B Common Stock, par value $.001 per share;      
    authorized 25,000,000 shares; issued and      
    outstanding 3,233,998 in 2019 and 2018   3     3
  Additional paid in capital   430,052     430,555
  Retained earnings   613,057     589,645
  Accumulated items of other comprehensive income:      
    Translation adjustments    (116,630)      (115,976)
    Pension and postretirement liability adjustments   (48,596)     (47,109)
    Derivative valuation adjustment   1,846     4,697
  Treasury stock (Class A), at cost; 8,418,620 shares in 2019      
    and in 2018    (256,603)      (256,603)
    Total Company shareholders' equity   623,166     605,249
  Noncontrolling interest   3,241     3,031
 Total equity 626,407   608,280
  Total liabilities and shareholders' equity $1,443,281   $1,417,992

 

The accompanying notes are an integral part of the consolidated financial statements

5

 

 

 

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 

          Three Months Ended
          March 31,
               
          2019   2018
OPERATING ACTIVITIES          
Net income       $29,408   $7,899
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:      
  Depreciation       15,642     18,302
  Amortization       2,314     2,646
  Change in deferred taxes and other liabilities     (1,065)     (2,028)
  Provision for write-off of property, plant and equipment   386     271
  Non-cash interest expense       151     -
  Compensation and benefits paid or payable in Class A Common Stock   (547)     289
  Fair value adjustment on foreign currency option    -       37
               
 Changes in operating assets and liabilities that (used)/provided cash:
  Accounts receivable        (11,624)      (25,089)
  Contract assets       (481)     2,116
  Inventories          (16,662)      (11,753)
  Prepaid expenses and other current assets     (2,804)     (4,063)
  Income taxes prepaid and receivable     674     102
  Accounts payable       21,750     (2,538)
  Accrued liabilities        (11,095)     (1,227)
  Income taxes payable       1,506     (3,431)
  Noncurrent receivables       (294)     (2,527)
  Other noncurrent liabilities       (1,679)     (377)
  Other, net         (1,014)     2,424
  Net cash provided by/(used in) operating activities 24,566   (18,947)
               
INVESTING ACTIVITIES          
  Purchases of property, plant and equipment      (20,798)      (15,771)
  Purchased software        (22)      (29)
  Net cash used in investing activities   (20,820)   (15,800)
               
FINANCING ACTIVITIES          
  Proceeds from borrowings       20,000     13,011
  Principal payments on debt        (28,004)     (8,490)
  Principal payments on finance lease liabilities     (400)      -  
  Taxes paid in lieu of share issuance     (971)     (1,652)
  Proceeds from options exercised       44     147
  Dividends paid       (5,808)     (5,474)
  Net cash used in financing activities   (15,139)   (2,458)
               
Effect of exchange rate changes on cash and cash equivalents   1,023     4,904
               
Decrease in cash and cash equivalents      (10,370)    (32,301)
Cash and cash equivalents at beginning of period   197,755     183,727
Cash and cash equivalents at end of period   $187,385   $151,426

 

The accompanying notes are an integral part of the consolidated financial statements

6

 

ALBANY INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 

1. Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of results for such periods. Albany International Corp. (Albany, the Registrant, the Company, we, us, or our) consolidates the financial results of its subsidiaries for all periods presented. The results for any interim period are not necessarily indicative of results for the full year.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in Albany International Corp.’s Consolidated Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.

The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Risk Factors,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” “Quantitative and Qualitative Disclosures about Market Risk” and the Consolidated Financial Statements and Notes thereto included in Items 1A, 3, 7, 7A and 8, respectively, of the Albany International Corp. Annual Report on Form 10-K for the year ended December 31, 2018. Certain quarterly results for 2018 contained within this report have been revised to correct immaterial errors, as described in Note 24 of Item 8 in that same Annual Report on Form 10-K.

Effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the effective date approach for transition as discussed in Note 3, Leases. Accounting policies have been applied consistently to periods presented, except for the application of ASC 842, as further described in Note 3.

 

2. Reportable Segments

In accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.

The Machine Clothing (MC) segment designs and manufactures fabrics and process felts used in the manufacture of all grades of paper products and other industrial products. We sell our MC products directly to customer end-users in countries across the globe. Our products, manufacturing processes, and distribution channels for MC are substantially the same in each region of the world in which we operate. We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure.

The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in which our customer SAFRAN Group (Safran) owns a 10 percent noncontrolling interest, is a designer and manufacturer of advanced materials-based engineered components for jet engine and airframe applications, supporting both commercial and military platforms provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program,

7

 

AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term supply contract. The manufacturing spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the Company due to the cost-plus nature of the supply agreement. AEC net sales to Safran were $56.0 million and $40.8 million in the first quarter of 2019 and 2018, respectively. The total of invoiced receivables, Contract assets and Noncurrent receivables due from Safran amounted to $107.8 million and $96.2 million as of March 31, 2019 and December 31, 2018, respectively.

The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:

 

  Three months ended March 31,
(in thousands) 2019 2018
Net sales    
Machine Clothing $144,334 $141,773
Albany Engineered Composites    107,039   81,830
Consolidated total $251,373 $223,603
Operating income/(loss)    
Machine Clothing $44,243 $26,942
Albany Engineered Composites   9,522    2,275
Corporate expenses    (13,672)   (12,213)
Operating income $40,093 $17,004
Reconciling items:    
Interest income   (599)    (382)
Interest expense   5,016    4,670
Other (income)/expense, net    (1,208)    1,452
Income before income taxes $36,884 $11,264

 

The table below presents restructuring costs by reportable segment (also see Note 5):

 

  Three months ended
March 31,
(in thousands) 2019 2018
Machine Clothing $401 $8,352
Albany Engineered Composites   83    221
 Total   $484 $8,573

8

 

We disaggregate revenue earned from contracts with customers for each of our business segments and reporting units based on the timing of revenue recognition, and groupings used for internal review purposes.

 

The following table disaggregates revenue for each reporting unit by timing of revenue recognition:

 

    For the three months ended March 31, 2019  
(in thousands) Point in Time Revenue
Recognition
Over Time Revenue
Recognition
Total
         
Machine Clothing $143,534 $800 $144,334
         
Albany Engineered Composites      
  ASC   -       55,442   55,442
  Other AEC   6,245   45,352   51,597
Total Albany Engineered Composites   6,245   100,794   107,039
         
Total revenue $149,779 $101,594 $251,373

 

 

    For the three months ended March 31, 2018  
(in thousands) Point in Time Revenue Recognition Over Time Revenue Recognition Total
         
Machine Clothing $140,973 $800 $141,773
         
Albany Engineered Composites      
  ASC     -     40,781   40,781
  Other AEC   6,040    35,009   41,049
Total Albany Engineered Composites   6,040    75,790   81,830
         
Total revenue $147,013 $76,590 $223,603

 

The following table disaggregates MC segment revenue by significant product groupings (paper machine clothing (PMC) and engineered fabrics), and, for PMC, the geographical region to which the paper machine clothing was sold:

 

9

 

    For the three months ended March 31,
(in thousands) 2019 2018
       
Americas PMC $75,341 $67,629
Eurasia PMC   51,438   53,811
Engineered Fabrics   17,555   20,333
Total Machine Clothing Net sales $144,334 $141,773

 

In accordance with ASC 606-10-50-14, we do not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less. Contracts in the MC segment are generally for periods of less than a year. Most contracts in the AEC segment are short duration firm-fixed-price orders representing performance obligations with an original maturity of less than one year. Remaining performance obligations on contracts that had an original duration of greater than one year totaled $90 million and $115 million as of March 31, 2019 and 2018, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of March 31, 2019 we expect to recognize as revenue approximately $53 million during 2019, with the remainder to be recognized in between 2020 and 2021.

 

At the January 1, 2019 date of adoption of ASC 842, Leases, MC assets increased by $5.6 million, AEC assets increased by $0.5 million, and Corporate assets increased by $1.0 million.

 

3. Leases

Effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the effective date (or modified retrospective) approach for transition. Under this transition method, periods prior to 2019 have not been restated and the cumulative effect of initially applying the new standard was recorded as an adjustment to Retained earnings at January 1, 2019.

The new standard is intended to increase transparency and comparability among organizations by requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We applied the new accounting standard to leases existing at the date of initial application on January 1, 2019.

We elected the available package of practical expedients, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We implemented processes and internal controls to enable the preparation of financial information on adoption.

The most significant impact resulting from the adoption of the new standard was the recognition of ROU assets and lease liabilities for operating leases on our balance sheet for our real estate and automobile operating leases, in addition to the derecognition and reassessment of assets and liabilities related to our primary manufacturing facility in Salt Lake City, Utah (SLC lease), which had been accounted for as a build-to-suit lease with a failed sale leaseback. For that lease, transitional guidance required the derecognition of existing assets and liabilities and a reassessment of lease classification. We determined that the lease met the criteria for recording as a finance lease and we determined the

10

 

January 1, 2019 values of the ROU asset and lease liability on the basis of that reassessment. The change in the SLC lease-related assets and liabilities resulted in a $0.3 million pre-tax reduction to retained earnings at the date of adoption.

The table below presents the cumulative effect of changes made to our December 31, 2018 Balance Sheet as a result of the adoption of ASC 842, Leases:

ALBANY INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

(unaudited)

             
             
  As previously
reported at
December 31,
2018
  Adjustments
Increase/
(decrease)
  Opening
balance, as
adjusted,
January 1, 2019
 
ASSETS            
  Cash and cash equivalents $197,755   $ -   $197,755  
  Accounts receivable, net     223,176         -       223,176  
  Contract assets      57,447         -        57,447  
  Inventories      85,904         -        85,904  
  Income taxes prepaid and receivable      7,473         -        7,473  
  Prepaid expenses and other current assets       21,294         (370)        20,924  
  Total current assets 593,049   (370)   592,679  
             
  Property, plant and equipment, net     462,055        (6,144)        455,911  
  Intangibles, net      49,206         -        49,206  
  Goodwill     164,382         -       164,382  
  Deferred income taxes      62,622         (20)        62,602  
 Noncurrent receivables       45,061         -         45,061  
  Other assets     41,617       13,615        55,232  
  Total assets $1,417,992   $7,081   $1,425,073  
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
  Notes and loans payable $-   $-   $-  
  Accounts payable      52,246         -        52,246  
  Accrued liabilities     129,030        4,964       133,994  
  Current maturities of long-term debt       1,224        (1,206)         18  
  Income taxes payable      6,806         -        6,806  
  Total current liabilities 189,306   3,758   193,064  
             
  Long-term debt     523,707       (24,680)       499,027  
  Other noncurrent liabilities      88,277        27,968        116,245  
  Deferred taxes and other liabilities      8,422         -        8,422  
  Total liabilities 809,712   7,046   816,758  
             
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 37,450,329 in 2018            
    and 37,395,753 in 2017       37         -         37  
  Class B Common Stock, par value $.001 per share;            
    authorized 25,000,000 shares; issued and            
    outstanding 3,233,998 in 2018 and 2017      3         -        3  
  Additional paid in capital     430,555         -       430,555  
  Retained earnings     589,645         35       589,680  
  Accumulated items of other comprehensive income:            
    Translation adjustments       (115,976)         -         (115,976 )
    Pension and postretirement liability adjustments     (47,109)         -       (47,109 )
    Derivative valuation adjustment      4,697         -        4,697  
  Treasury stock (Class A), at cost 8,418,620 shares in 2018            
    and 8,431,335 shares in 2017     (256,603)         -       (256,603 )
  Total Company shareholders' equity     605,249         35       605,284  
  Noncontrolling interest       3,031         -         3,031  
 Total equity 608,280   35   608,315  
  Total liabilities and shareholders' equity $1,417,992   $7,081   $1,425,073  

 

11

 

Adoption of the standard had no impact to cash from or used in operating, investing, or financing activities in our Consolidated Statements of Cash Flows.

Significant changes to our accounting policies as a result of adopting the new standard are discussed below.

We determine if an arrangement is a lease at inception. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we would assess whether:

·The contract involves the use of an identified asset. This may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset,
·We have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and
·We have the right to direct the use of the asset. We have this right when we have the decision-making rights that are most relevant to changing how and for what purpose the asset is used.

 

Judgement is required in the application of ASC 842, Leases, including in determining whether a contract contains a lease, the appropriate classification, allocation of consideration, and the determination of the discount rate for the lease. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.

We are generally the lessee in our lease transactions. For periods ending after December 31, 2018, lessees will be required to recognize a lease liability and an ROU asset for leases with terms greater than 12 months, in accordance with the practical expedient that is available for ongoing accounting.

ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the commencement date based on the present value of lease payments over the lease term, using the rate implicit in the lease. If that rate is not readily determinable, the rate is based on the Company’s incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease. Our ROU assets include the values associated with the additional periods when it is reasonably certain that we will exercise the option. We review the carrying value of ROU assets for impairment whenever events and circumstances indicate that the carrying value of an asset group may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.

We have lease agreements with lease and non-lease components. For most leases, we account for the lease and non-lease components as a single lease component, in accordance with the practical expedient that is available for ongoing accounting. Additionally, for certain leases, such as for vehicles, we apply a portfolio approach. New leases will be classified as financing or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Expenses related to operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile, in which interest and amortization are presented separately in the income statement.

Operating lease ROU assets are included in Other assets in the Consolidated Balance Sheets and Operating lease liabilities are included in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. Finance lease ROU assets are included in Property, plant, and

12

 

equipment, net in the Consolidated Balance Sheets and Finance lease liabilities are included in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets.

We have operating and finance leases for offices, manufacturing facilities, warehouses, vehicles, and certain equipment. Our leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:

(in thousands) For the three
months ended
March 31, 2019
Finance lease  
  Amortization of right-of-use asset  $ 253
  Interest on lease liabilities   399
Operating lease  
  Fixed lease cost   1,217
  Variable lease cost   57
  Short-term lease cost   332
Total lease expense  $ 2,258

 

Lease expense for the same period of 2018 was $2.1 million.

Supplemental cash flow information related to leases was as follows:

(in thousands) For the three
months ended
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
  Operating cash flows from operating leases  $ 1,191
  Operating cash flows from finance leases    399
  Financing cash flows from finance leases    400
   
Right-of-use assets obtained in exchange for lease obligations:
  Operating leases  $ 412
  Finance leases    -  

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Supplemental balance sheet information related to leases was as follows:

   
(in thousands) March 31, 2019
Operating leases  
   
Right of use assets included in Other assets  $ 12,969
   
   
Lease liabilities included in  
  Accrued liabilities  $ 4,182
  Other noncurrent liabilities    8,935
Total operating lease liabilities  $ 13,117
   
Finance leases  
   
Right of use assets included in Property, plant and equipment, net  $ 10,890
   
   
Lease liabilities included in  
  Accrued liabilities  $ 1,216
  Other noncurrent liabilities   18,564
Total finance lease liabilities  $ 19,780
   

 

Additional information for leases existing at March 31, 2019 was as follows:

Weighted average remaining lease term  
Operating leases 5 years
Finance leases 11 years
   
Weighted average discount rate  
Operating leases 6.1%
Finance leases 8.0%
   

 

Maturities of lease liabilities as of March 31, 2019 were as follows:

(in thousands) Operating leases Finance lease
Year ending December 31,    
2019  $ 3,487  $ 2,057
2020   4,068   2,790
2021   2,033   2,790
2022    1,419   2,838
2023    1,346   3,004
Thereafter   3,047   15,512
Total lease payments   15,400   28,991
     
Less imputed interest   (2,283)   (9,211)
Total  $ 13,117  $ 19,780
     

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The finance lease liability includes the SLC lease described above, but excludes additional manufacturing space that was included in the September 2018 modification of that lease. We will take control of the additional space during the fourth quarter of 2019, which will be the commencement of this lease component, at which time the lease liability and ROU asset will be recorded. We will have control of the additional space through 2029 and the additional space will increase gross cash outflows during that period by $6.1 million.

As of December 31, 2018, future rental payments required under operating leases with initial or remaining non-cancelable lease terms in excess of one year, were: 2019, $4.6 million; 2020, $3.2 million; 2021, $2.1 million; 2022, $1.5 million; and 2023 and thereafter, $6.5 million.

As of December 31, 2018, the following schedule presents future minimum annual payments under the SLC lease finance obligation, and the present value of the minimum payments:

   
  (in thousands)
Year ending December 31,  
2019  $ 2,451
2020    2,974
2021    2,990
2022    3,054
2023    3,277
Thereafter    18,930
Total minimum payments    33,676
   
Less imputed interest    (7,790)
Total  $ 25,886
   

 

As of December 31, 2018, the capitalized value associated with the SLC lease was included in Property, plant, and equipment, net at a value of $17.3 million, which included a gross cost of $20.8 million, and Accumulated depreciation of $3.5 million.

 

4. Pensions and Other Postretirement Benefit Plans

Pension Plans

The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The U.S. qualified defined benefit pension plan has been closed to new participants since October 1998, and benefits accrued under this plan have been frozen since February 2009. As a result of the freeze, employees covered by the pension plan will receive, at retirement, benefits already accrued through February 2009 but no new benefits accrue after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan ("SERP") were similarly frozen. The eligibility, benefit formulas, and contribution requirements for plans outside of the U.S. vary by location.

Other Postretirement Benefits

The Company also provides certain postretirement benefits to retired employees in the U.S. and Canada. The Company accrues the cost of providing postretirement benefits during the active service period of the employees. The Company currently funds the plans as claims are paid.

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The composition of the net periodic benefit cost for the three months ended March 31, 2019 and 2018, was as follows:

  Pension plans   Other postretirement benefits
(in thousands) 2019 2018 2019 2018
Components of net periodic benefit cost:        
Service cost $632 $699 $47 $58
Interest cost   1,794   1,820    528   507
Expected return on assets   (2,057)   (2,247)   -   -
Amortization of prior service cost/(credit)    17    8   (1,122)   (1,122)
Amortization of net actuarial loss    564   558    557   739
Net periodic benefit cost $950 $838 $10 $182

 

Service cost for defined benefit pension and postretirement plans are reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net periodic benefit cost are presented in the income statement separately from the service cost component and outside a subtotal of income from operations, in the line item Other (income)/expense, net in the Consolidated Statements of Income.

 

5. Restructuring

MC restructuring charges include expenses for the first three months of 2019 and 2018 related to discontinued operations at its MC production facility in Sélestat, France. In 2018, the plan was approved by the French Labor Ministry which led to restructuring expense of $8.1 million in the first three months of 2018 for severance and outplacement costs for the approximately 50 positions that were terminated under this plan. In the first quarter of 2019, restructuring charges were $0.4 million. Since 2017, we have recorded $12.1 million of restructuring charges related to this action.

AEC restructuring charges include expenses for the first three months of 2019 and 2018 related to work force reductions in AEC locations in Salt Lake City, Utah and Rochester, New Hampshire. The restructuring charges for the first three months of 2019 and 2018 include expenses of $0.1 million and $0.2 million, respectively.

The following table summarizes charges reported in the Consolidated Statements of Income under “Restructuring expenses, net”:

     
  Three months ended March 31,
(in thousands) 2019 2018
Machine Clothing $401 $8,352
Albany Engineered Composites    83   221
Corporate expenses   -   -
 Total   $484 $8,573

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Three months ended March 31, 2019 Total
restructuring
costs incurred  
 Termination
and other
costs  
(in thousands)    
Machine Clothing    $401  $401
Albany Engineered Composites      83   83
Corporate expenses     -    -
Total    $484  $484

 

Three months ended March 31, 2018 Total
restructuring
costs
incurred  
 Termination
and other
costs  
(in thousands)    
Machine Clothing    $8,352  $8,352
Albany Engineered Composites       221    221
Corporate expenses     -      -  
Total   $8,573 $8,573

 

We expect substantially all of Accrued liabilities for restructuring at March 31, 2019 will be paid within one year. The table below presents the year-to-date changes in restructuring liabilities for 2019 and 2018, all of which related to termination costs:

           
  December 31, Restructuring   Currency March 31,
(in thousands) 2018 charges accrued Payments translation /other 2019
           
Total termination and other costs $5,570 $484 ($876) $23  $5,201
           

 

  December 31, Restructuring   Currency March 31,
(in thousands) 2017 charges accrued Payments translation /other 2018
           
Total termination and other costs $3,326 $8,573 ($2,051) $25  $9,873

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6. Other (Income)/Expense, net

 

The components of Other (Income)/Expense, net are:

  Three months ended  March 31,
(in thousands)   2019 2018
Currency transaction (gains)/losses ($2,038) $690
Bank fees and amortization of debt issuance costs   109    108
Components of net periodic pension and postretirement cost other than service   281   263
Other     440    391
Total   ($1,208) $1,452

 

7. Income Taxes

 

The following table presents components of income tax expense for the three months ended March 31, 2019 and 2018:

        Three months ended
        March 31,
(in thousands, except percentages) 2019 2018
Income tax based on income from continuing operations, at estimated tax    
rates of 29.4% and 32.5%, respectively $10,847 $3,656
           
Income tax before discrete items     10,847   3,656
           
Discrete tax expense:        
            
  Exercise of U.S. stock options     (50)   (123)
  Adjustments to prior period tax liabilities   194   (46)
  Provision for resolution of tax audits and contingencies, net   (2,232)    5
  Adjustment related to prior period change in opening valuation allowance   (1,346)    -
  Other         63   (127)
Total income tax expense   $7,476 $3,365

 

The first-quarter estimated annual effective tax rate on continuing operations was 29.4 percent in 2019, compared to 32.5 percent for the same period in 2018.

Income tax expense for the quarter was computed in accordance with ASC 740-270 “Income Taxes – Interim Reporting”. Under this method, loss jurisdictions, which cannot recognize a tax benefit with regard to their generated losses, are excluded from the annual effective tax rate (AETR) calculation and their taxes will be recorded discretely in each quarter.

The Company’s tax rate is affected by recurring items such as the income tax rate in the U.S. and in non-U.S. jurisdictions and the mix of income earned in those jurisdictions, including changes in losses and income from excluded loss jurisdictions, and the impact of discrete items in the respective quarter.

The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that have been targeted for repatriation to the U.S. These amounts are not considered to be indefinitely reinvested, and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a tax-free manner. The Company has targeted for repatriation $159.2 million of current year and prior year earnings of the Company’s foreign operations. If these earnings were distributed, the Company would be subject to foreign withholding taxes of $4.1 million and state income taxes of $3.3 million which have already been recorded.

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The Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including major jurisdictions such as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland. The open tax years in these jurisdictions range from 2007 to 2019. The Company is currently under audit in non-U.S. tax jurisdictions, including but not limited to Italy.

In the first quarter of 2019, the Company recorded a net benefit of $2.2 million for tax audit settlements with Canada. The Canadian Revenue Agency agreed to accept the Company’s appeal of all protested issues. The Company has begun to receive refunds from the Canadian Revenue Agency and Ontario for taxes that were pre-paid at the time of protests. As such, the Company determined that it is more likely than not that the liability for unrecognized tax benefits of $2.2 million that was recorded as of December 31, 2018 was no longer warranted and thus it was reduced in the first quarter of 2019, resulting in a $2.2 million discrete tax benefit.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. There was no evidence obtained during the first quarter 2019 that would require the Company to make any changes to its view of the future realization of deferred tax assets. In the first quarter of 2019, the Company recorded a $1.3 million out-of-period immaterial adjustment related to a German tax valuation allowance.

 

8. Earnings Per Share

 

The amounts used in computing earnings per share and the weighted average number of shares of potentially dilutive securities are as follows:

  Three months ended
March 31,
(in thousands, except market price and earnings per share) 2019 2018
     
Net income attributable to the Company $29,190 $7,662
     
Weighted average number of shares:    
Weighted average number of shares used in    
calculating basic net income per share   32,272   32,220
Effect of dilutive stock-based compensation plans:    
Stock options    13    16
     
Weighted average number of shares used in    
calculating diluted net income per share   32,285   32,236
     
Average market price of common stock used    
for calculation of dilutive shares $71.24 $63.86
     
Net income attributable to the Company per share:    
Basic $0.90 $0.24
Diluted $0.90 $0.24

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9. Accumulated Other Comprehensive Income (AOCI)

The table below presents changes in the components of AOCI for the period December 31, 2018 to March 31, 2019:

(in thousands) Translation
adjustments
Pension and
postretirement
liability
adjustments
Derivative
valuation
adjustment
Total Other
Comprehensive
Income
December 31, 2018 ($115,976) ($47,109) $4,697 ($158,388)
Other comprehensive income/(loss) before reclassifications   (654)   (152)   (2,514)   (3,320)
Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax   -    -   (337)    (337)
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax   -   11   -    11
Adjustment related to prior period change in opening valuation allowance   -   (1,346)   -    (1,346)
Net current period other comprehensive income   (654)   (1,487)   (2,851)   (4,992)
March 31, 2019 ($116,630) ($48,596) $1,846 ($163,380)
         

The table below presents changes in the components of AOCI for the period December 31, 2017 to March 31, 2018:

         
(in thousands) Translation
adjustments
Pension and
postretirement
liability
adjustments
Derivative
valuation
adjustment
Total Other
Comprehensive
Income
December 31, 2017 ($87,318) ($50,536) $1,953 ($135,901)
Other comprehensive income/(loss) before reclassifications   17,646    (141)   4,343   21,848
Interest expense related to swaps reclassified to the Consolidated Statements of Income, net of tax    -    -   137   137
Pension and postretirement liability adjustments reclassified to Consolidated Statements of Income, net of tax    -    128    -   128
Net current period other comprehensive income   17,646    (13)   4,480    22,113
March 31, 2018 ($69,672) ($50,549) $6,433 ($113,788)
         

The components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of Income relate to our pension and postretirement plans and interest rate swaps.

20

 

The table below presents the expense/(income) amounts reclassified, and the line items of the Consolidated Statements of Income that were affected for the three months ended March 31, 2019 and 2018.

  Three months ended
March 31,
(in thousands) 2019 2018
Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:    

Expense related to interest rate swaps included in Income

before taxes (a)

($452) $180
Income tax effect 115 (43)
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income ($337) $137
     
Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:    
Amortization of prior service credit   (1,105)   (1,114)
Amortization of net actuarial loss   1,121   1,297
Total pretax amount reclassified (b) 16 183
Income tax effect (5) (55)
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income $11 $128

(a)Included in Interest expense, net, are payments related to the interest rate swap agreements and amortization of swap buyouts (see Notes 15 and 16).
(b)These accumulated other comprehensive income components are included in the computation of net periodic cost (see Note 4).

 

10. Noncontrolling Interest

Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany subsidiary, Albany Safran Composites, LLC (ASC). Under the terms of the transaction agreements, ASC is the exclusive supplier to Safran of advanced 3D-woven composite parts for use in aircraft and rocket engines, thrust reversers and nacelles, and aircraft landing and braking systems (the “Safran Applications”). AEC may develop and supply parts other than advanced 3D-woven composite parts for all aerospace applications, as well as advanced 3D-woven composite parts for any aerospace applications that are not Safran Applications (such as airframe applications) and any non-aerospace applications.

The agreement provides Safran an option to purchase Albany’s remaining 90 percent interest upon the occurrence of certain bankruptcy or performance default events, or if Albany’s Engineered Composites business is sold to a direct competitor of Safran. The purchase price is based initially on the same valuation of ASC used to determine Safran’s 10 percent equity interest, and increases over time as LEAP production increases.

In accordance with the operating agreement, Albany received a $28 million preferred holding in ASC which includes a preferred return based on the Company’s revolving credit agreement. The common shares of ASC are owned 90 percent by Albany and 10 percent by Safran.

21

 

The table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity in the Company’s subsidiary Albany Safran Composites, LLC:

  Three months ended
March 31,
(in thousands) 2019 2018
Net income of Albany Safran Composites (ASC)  $2,510  $2,681
Less: Return attributable to the Company's preferred holding   328   312
Net income of ASC available for common ownership  $2,182  $2,369
Ownership percentage of noncontrolling shareholder 10% 10%
Net income attributable to noncontrolling interest  $218  $237
     
Noncontrolling interest, beginning of year  $3,031  $3,247
Decrease attributable to 2018 adoption of ASC 606    -   (327)
Net income attributable to noncontrolling interest   218    237
Changes in other comprehensive income attributable to noncontrolling interest    (8)   (7)
Noncontrolling interest  $3,241  $3,150

 

11. Accounts Receivable

Accounts receivable includes trade receivables.

In connection with certain sales in Asia, the Company accepts a bank promissory note as customer payment. The notes may be presented for payment at maturity, which is less than one year.

The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company determines the allowance based on historical write-off experience, customer-specific facts and economic conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

As of March 31, 2019 and December 31, 2018, Accounts receivable consisted of the following:

(in thousands)  

March 31,

2019

December 31,

2018

Trade and other accounts receivable $223,717 $211,244
Bank promissory notes 18,332 19,269
Allowance for doubtful accounts   (7,922)   (7,337)
Accounts receivable, net $234,127 $223,176

 

The Company has Noncurrent receivables in the AEC segment that represent revenue earned which has extended payment terms. The Noncurrent receivables will be invoiced to the customer, with 2% interest, over a 10-year period starting in 2020.

22

 

As of March 31, 2019 and December 31, 2018, Noncurrent receivables consisted of the following:

(in thousands)  

March 31,

2019

December 31,

2018

Noncurrent receivables $45,354 $45,061

 

12. Contract Assets and Liabilities

Contract assets includes unbilled amounts typically resulting from sales under contracts when the cost-to-cost method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. Contract assets are transferred to Accounts receivable, net when the entitlement to pay becomes unconditional. Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are included in Accrued liabilities in the Consolidated Balance Sheets.

Contract assets and Contract liabilities are reported on the Consolidated Balance Sheets in a net position on a contract-by-contract basis at the end of each reporting period. As of March 31, 2019 and December 31, 2018 Contract assets and contract liabilities consisted of the following:

(in thousands)  

March 31,

2019

December 31,

2018

Contract assets $57,869 $57,447
Contract liabilities    9,865    9,025

 

Contract assets increased $0.4 million during the three month period ended March 31, 2019. The increase was primarily due to an increase in unbilled revenue related to the satisfaction of performance obligations, in excess of the amounts billed to customers. There were no impairment losses related to our Contract assets during the three month period ended March 31, 2019.

Contract liabilities increased $0.8 million during the three month period ended March 31, 2019, primarily due to increased billings in excess of revenue recognized. Revenue recognized for the three month period ended March 31, 2019, that was included in the Contract liability balance as of December 31, 2018 was $3.7 million, and included revenue in the MC and AEC segments.

 

13. Inventories

Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead. Raw material inventories are valued on an average cost basis. Other inventory cost elements are valued at cost, using the first-in, first-out method. The Company writes down the inventories for estimated obsolescence, and to lower of cost or net realizable value based upon assumptions about future demand and market conditions. If actual demand or market conditions are less favorable than those projected by the Company, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related write-down represents the new cost basis of such inventories.

23

 

As of March 31, 2019 and December 31, 2018, Inventories consisted of the following:

(in thousands)   March 31,
2019
December 31,
2018
Raw materials $47,820 $40,489
Work in process   37,582    33,181
Finished goods   16,977   12,234
Total inventories $102,379 $85,904

 

14. Goodwill and Other Intangible Assets

 

Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. Our reportable segments are consistent with our operating segments.

Determining the fair value of a reporting unit requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates, and future market conditions, among others. Goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant changes in the business climate, plant closures, changes in product offerings, or other circumstances indicate that the carrying amount may not be recoverable.

To determine fair value, we utilize two market-based approaches and an income approach. Under the market-based approaches, we utilize information regarding the Company as well as publicly available industry information to determine earnings multiples and sales multiples. Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

In the second quarter of 2018, the Company applied the qualitative assessment approach in performing its annual evaluation of goodwill and concluded that no impairment provision was required. There were no amounts at risk due to the large spread between the fair and carrying values, of each reporting unit.

24

 

We are continuing to amortize certain patents, trade names, customer relationships, customer contracts and technology assets that have finite lives. The gross carrying value, accumulated amortization and net values of intangible assets and goodwill as of March 31, 2019 and December 31, 2018, were as follows:

 

As of March 31, 2019   
(in thousands)
Weighted average
amortization life in
years
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
         
Amortized intangible assets:        
AEC trade names 15 $140 ($131) $9
AEC technology 15 370 (321) 49
Customer relationships 15   48,421 (9,690) 38,731
Customer contracts 6   17,471 (8,743) 8,728
Other intangibles 5    322 (193) 129
Net amortized intangible assets   $66,724 ($19,078) $47,646
               
Unamortized intangible assets:        
MC Goodwill   $67,708  $- $67,708
AEC Goodwill     95,730    -   95,730
Total unamortized intangible assets:   $163,438  $- $163,438

 

 

As of December 31, 2018   
(in thousands)
Weighted average
amortization life
in years
Gross
carrying
amount
Accumulated
amortization
Net carrying
amount
         
Amortized intangible assets:        
AEC trade names 15 $140 ($129) $11
AEC technology 15 370 (314)     56
Customer relationships 15   48,421 (8,883)    39,538
Customer contracts 6   17,471 (8,015)   9,456
Other intangibles 5   322 (177)    145
Net amortized intangible assets   $66,724 ($17,518) $49,206
               
Unamortized intangible assets:        
MC Goodwill   $68,652  $- $68,652
AEC Goodwill     95,730   -    95,730
Total unamortized intangible assets:   $164,382  $- $164,382

25

 

The changes in intangible assets, net and goodwill from December 31, 2018 to March 31, 2019, were as follows:

 

(in thousands) December 31,
2018
Amortization Currency
Translation
March 31,2019
         
Amortized intangible assets:        
AEC trade names $11 ($2)  $- $9
AEC technology 56 (7)   - 49
Customer relationships   39,538 (807)   - 38,731
Customer contracts   9,456 (728)   - 8,728
Other intangibles    145 (16)   - 129
Net amortized intangible assets $49,206 ($1,560)  $- $47,646
             
Unamortized intangible assets:        
MC Goodwill $68,652  $- ($944) $67,708
AEC Goodwill   95,730    -   - 95,730
Total unamortized intangible assets: $164,382  $- ($944) $163,438
         

Estimated amortization expense of intangibles for the years ending December 31, 2019 through 2023, is as follows:

  Annual amortization
Year (in thousands)
2019 $6,234
2020   6,234
2021    6,163
2022   3,949
2023   3,228
   

 

15. Financial Instruments

 

Long-term debt, principally to banks and noteholders, consists of:

(in thousands, except interest rates)   March 31,
2019
December 31, 2018
       
Revolving credit agreement with borrowings outstanding at an end of period interest rate of 3.61% in 2019 and 3.69% in 2018 (including the effect of interest rate hedging transactions, as described below), due in 2022  $491,000  $499,000
       
Finance obligation   - 25,886
       
Other debt, at an average end of period rate of 5.50% in both 2019 and 2018, due in varying amounts through 2021 41 45
       
Long-term debt   491,041 524,931
       
Less: current portion   (19) (1,224)
       
Long-term debt, net of current portion   $491,022 $523,707

 

On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement,

26

 

$491 million of borrowings were outstanding as of March 31, 2019. The applicable interest rate for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on March 18, 2019, the spread was 1.375%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%, based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification to any other credit agreements, as of March 31, 2019, we would have been able to borrow an additional $194 million under the Agreement.

The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default that are comparable to those in the Prior Agreement. The Borrowings are guaranteed by certain of the Company’s subsidiaries.

Our ability to borrow additional amounts under the Credit Agreement is conditional upon the absence of any defaults, as well as the absence of any material adverse change (as defined in the Credit Agreement).

Due to the implementation of ASC 842, Leases, on January 1, 2019, as further described in Note 3 the finance obligation that had a balance of $25.9 million as of December 31, 2018, was eliminated and replaced with a finance lease obligation that is included in Other noncurrent liabilities and Accrued liabilities.

On November 27, 2017, we terminated our interest rate swap agreements, originally entered into on May 9, 2016, that had effectively fixed the interest rate on $300 million of revolving credit borrowings, in order to enter into a new interest rate swap with a greater notional amount, and the same maturity as the Credit Agreement. We received $6.3 million when the swap agreements were terminated and that payment will be amortized into interest expense through March 2021.

On May 6, 2016, we terminated other interest rate swap agreements that had effectively fixed the interest rate on $120 million of revolving credit borrowings, in order to enter into a new interest rate swap with a greater notional amount, and the same maturity as the Credit Agreement. We paid $5.2 million to terminate the swap agreements and that cost will be amortized into interest expense through June 2020.

On November 28, 2017, we entered into interest rate swap agreements for the period December 18, 2017 through October 17, 2022. These transactions have the effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate of 2.11% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which on March 18, 2019 was 2.49%, during the swap period. On March 18, 2019, the all-in-rate on the $350 million of debt was 3.61%.

These interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 16. No cash collateral was received or pledged in relation to the swap agreements.

Under the Credit Agreement, we are currently required to maintain a leverage ratio (as defined in the agreement) of not greater than 3.75 to 1.00 for each fiscal quarter ending prior to (but not including) September 30, 2019, and 3.50 to 1.00 for each fiscal quarter ending on or after September 30, 2019, and minimum interest coverage (as defined) of 3.00 to 1.00.

As of March 31, 2019, our leverage ratio was 1.79 to 1.00 and our interest coverage ratio was 12.08 to 1.00. We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below 3.50 to 1.00, and may make acquisitions with cash provided our leverage ratio does not exceed the limits noted above.

27

 

Indebtedness under the Credit Agreement is ranked equally in right of payment to all unsecured senior debt.

We were in compliance with all debt covenants as of March 31, 2019.

16. Fair-Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting principles establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Level 3 inputs are unobservable data points for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability. We had no Level 3 financial assets or liabilities at March 31, 2019, or at December 31, 2018.

The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial and non-financial assets and liabilities, which are measured at fair value on a recurring basis:

    March 31, 2019   December 31, 2018
    Quoted
prices in
active
markets
Significant
other
observable
inputs
Quoted
prices in
active
markets
Significant
other
observable
inputs
                     
(in thousands)   (Level 1) (Level 2)   (Level 1) (Level 2)
Fair Value                    
Assets:                    
Cash equivalents    $13,897    $-      $14,234    $-  
Other Assets:                    
Common stock of unaffiliated foreign public company (a)      743       -         731       -    
Interest rate swaps       -        822 (b)     -        4,548 (c)
                     
                     
                     
 (a)Original cost basis $0.5 million.
 (b)Net of $26.7 million receivable floating leg and $25.9 million liability fixed leg.
 (c)Net of $32.0 million receivable floating leg and $27.5 million liability fixed leg.

Cash equivalents include short-term securities that are considered to be highly liquid and easily tradable. These securities are valued using inputs observable in active markets for identical securities.

The common stock of the unaffiliated foreign public company is traded in an active market exchange. The shares are measured at fair value using closing stock prices and are recorded in the Consolidated Balance Sheets as Other assets. Changes in the fair value of the investment are reported in the Consolidated Statements of Income.

We operate our business in many regions of the world, and currency rate movements can have a significant effect on operating results. Foreign currency instruments are entered into periodically, and consist of foreign currency option contracts and forward contracts that are valued using quoted prices in active markets obtained from independent pricing sources. These instruments are measured using market foreign exchange prices and are recorded in the Consolidated Balance

28

 

Sheets as Other current assets and Accounts payable, as applicable. Changes in fair value of these instruments are recorded as gains or losses within Other (income)/expense, net.

When exercised, the foreign currency instruments are net settled with the same financial institution that bought or sold them. For all positions, whether options or forward contracts, there is risk from the possible inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the value of the instruments. We seek to mitigate risk by evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.

Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, general and administrative expenses or Other (income)/expense, net. Revaluation gains and losses occur when our business units have cash, intercompany (recorded in Other (income)/expense, net) or third-party trade (recorded in selling, general and administrative expenses) receivable or payable balances in a currency other than their local reporting (or functional) currency.

Operating results can also be affected by the translation of sales and costs, for each non-U.S. subsidiary, from the local functional currency to the U.S. dollar. The translation effect on the Consolidated Statements of Income is dependent on our net income or expense position in each non-U.S. currency in which we do business. A net income position exists when sales realized in a particular currency exceed expenses paid in that currency; a net expense position exists if the opposite is true.

The interest rate swaps are accounted for as hedges of future cash flows. The fair value of our interest rate swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, and is included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance Sheets. Unrealized gains and losses on the swaps flow through the caption Derivative valuation adjustment in the Shareholders’ equity section of the Consolidated Balance Sheets. As of March 31, 2019, these interest rate swaps were determined to be highly effective hedges of interest rate cash flow risk. Amounts accumulated in Other comprehensive income are reclassified as Interest expense, net when the related interest payments (that is, the hedged forecasted transactions), and amortization related to the swap buyouts, affect earnings. Interest expense related to payments under the active swap agreements totaled ($0.3) million for the three month period ended March 31, 2019, and $0.5 million for the three month period ended March 31, 2018. Additionally, non-cash interest income related to the amortization of swap buyouts totaled $0.1 million for the three month period ended March 31, 2019 and $0.2 million for the three month period ended March 31, 2018.

Gains/(losses) related to changes in fair value of derivative instruments that were recognized in Other (income)/expense, net in the Consolidated Statements of Income were as follows:

 

  Three months
ended  March 31,
(in thousands) 2019 2018
     
Derivatives not designated as hedging instruments    
Foreign currency options (losses)  $ -   ($37)

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17. Contingencies

Asbestos Litigation

Albany International Corp. is a defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills.

We were defending 3,688 claims as of March 31, 2019.

The following table sets forth the number of claims filed, the number of claims settled, dismissed or otherwise resolved, and the aggregate settlement amount during the periods presented:

Year ended December 31, Opening Number
of Claims
Claims
Dismissed, Settled,
or Resolved
New Claims Closing Number
of Claims
Amounts Paid
(thousands) to
Settle or Resolve
2014   4,299   625    147   3,821    $437
2015   3,821   116   86   3,791    164
2016   3,791   148    102   3,745    758
2017   3,745    105   90   3,730 55
2018   3,730    152   106   3,684 100
2019 (as of March 31) 3,684 13 17 3,688 $-

 

We anticipate that additional claims will be filed against the Company and related companies in the future, but are unable to predict the number and timing of such future claims. Due to the fact that information sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available until late in the discovery process, we do not believe a meaningful estimate can be made regarding the range of possible loss with respect to pending or future claims and therefore are unable to estimate a range of reasonably possible loss in excess of amounts already accrued for pending or future claims.

While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts we consider reasonable given the facts and circumstances of each case. Our insurance carrier has defended each case and funded settlements under a standard reservation of rights. As of March 31, 2019 we had resolved, by means of settlement or dismissal, 37,759 claims. The total cost of resolving all claims was $10.3 million. Of this amount, almost 100% was paid by our insurance carrier, who has confirmed that we have approximately $140 million of remaining coverage under primary and excess policies that should be available with respect to current and future asbestos claims.

The Company’s subsidiary, Brandon Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any fabrics containing asbestos. While Brandon was defending against 7,709 claims as of March 31, 2019, only eleven claims have been filed against Brandon since January 1, 2012, and no settlement costs have been incurred since 2001. Brandon was acquired by the Company in 1999, and has its own insurance policies covering periods prior to 1999. Since 2004, Brandon’s insurance carriers have covered 100% of indemnification and defense costs, subject to policy limits and a standard reservation of rights.

In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). We acquired certain assets from Mount Vernon in 1993. Certain plaintiffs allege injury caused by asbestos-containing products alleged

30

 

to have been sold by Mount Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company against any liability arising out of such products. We deny any liability for products sold by Mount Vernon prior to the acquisition of the Mount Vernon assets. Pursuant to its contractual indemnification obligations, Mount Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a number of actions.

We currently do not anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results of operations, or cash flows of the Company. Although we cannot predict the number and timing of future claims, based on the foregoing factors, the trends in claims filed against us, and available insurance, we also do not currently anticipate that potential future claims will have a material adverse effect on our financial position, results of operations, or cash flows.

 

18. Changes in Shareholders’ Equity

The following table summarizes changes in Shareholders’ Equity for the period December 31, 2018 to March 31, 2019:

 

(in thousands, except per share amounts)

Common
Stock
Class

A and B

Additional
paid in
capital
Retained
earnings
Accumulated
items of other
comprehensive
income/(loss)
Treasury
stock
Noncontrolling
Interest
Total
Equity
December 31, 2018 $40 $430,555 $589,645 ($158,388) ($256,603) $3,031 $608,280
Adoption of accounting standards (a)     -     -   35     -      -     -    35
Net income     -     -    29,190     -      -     218     29,408
Compensation and benefits paid or payable in shares     -     (547)    -     -      -     -    (547)
Options exercised     -     44    -     -      -     -    44
Dividends declared:              
  Class A Common Stock, $0.18 per share     -     -    (5,813)     -      -     -     (5,813)
  Class B Common Stock, $0.18 per share     -     -    -     -      -     -     -
Cumulative translation adjustments     -     -    -     (654)      -     (8)    (662)
Pension and postretirement liability adjustments     -     -    -     (1,487)      -     -     (1,487)
Derivative valuation adjustment     -     -    -     (2,851)      -     -     (2,851)
March 31, 2019 $40 $430,052 $613,057 ($163,380) ($256,603) $3,241 $626,407

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The following table summarizes changes in Shareholders’ Equity for the period December 31, 2017 to March 31, 2018:

(in thousands, except per share amounts)

Common
Stock
Class

A and B

Additional
paid in
capital
Retained
earnings
Accumulated
items of other
comprehensive
income/(loss)
Treasury
stock
Noncontrolling
Interest
Total
Equity
December 31, 2017 $40 $428,423 $534,082 ($135,901) ($256,876) $3,247 $573,015
Adoption of accounting standards (b),(c)    -    -   (5,068)     -     -     (327)    (5,395)
Net income    -    -     7,662     -     -    237     7,899
Compensation and benefits paid or payable in shares    -    289     -     -     -       -    289
Options exercised    -    147     -     -     -       -    147
Dividends declared:              
Class A Common Stock, $0.17 per share    -    -   (5,483)     -     -       -    (5,483)
Class B Common Stock, $0.17 per share    -    -     -     -     -       -     -
Cumulative translation adjustments    -    -     -     17,646     -     (7)    17,639
Pension and postretirement liability adjustments    -    -     -     (13)     -       -    (13)
Derivative valuation adjustment    -    -     -    4,480     -       -     4,480
March 31, 2018 $40 $428,859 $531,193 ($113,788) ($256,876) $3,150 $592,578

 

(a)As described in Note 3, the Company adopted ASC 842, Leases effective January 1, 2019, which resulted in an increase to Retained earnings of less than $0.1 million.
(b)The Company adopted ASC 606 effective January 1, 2018, which resulted in a decrease to Retained earnings of $5.6 million and a $0.3 million decrease to Noncontrolling interest.
(c)The Company adopted ASU 2016-16 effective January 1, 2018, which resulted in a $0.5 million increase to Retained earnings.

 

19. Recent Accounting Pronouncements

 

In June 2016, an accounting update was issued which changes the way entities recognize impairment of many financial assets by requiring immediate recognition of credit losses expected to occur over their remaining life. We are continuing to evaluate the expected impact on our consolidated financial statements and related disclosures. We will adopt the new standard effective January 1, 2020.

In August 2018, an accounting update was issued which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing defined benefit plan disclosures. We do not expect a significant impact to our consolidated assets and liabilities, net earnings, or cash flows as a result of adopting this new standard. We plan to adopt the new standard effective January 1, 2020.

In August 2018, an accounting update was issued which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. We are currently evaluating the impact of this update. We will adopt the new standard effective January 1, 2020.

In November 2018, an accounting update was issued which clarifies when transactions between collaborative arrangement participants are in the scope of ASC 606. The update also provides some guidance on presentation of transactions not in the scope of ASC 606. We are currently evaluating the impact of this update. We will adopt the new standard effective January 1, 2020.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes.

 

Forward-looking statements

This quarterly report and the documents incorporated or deemed to be incorporated by reference in this quarterly report contain statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” ”look for,” “will,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. Because forward-looking statements are subject to certain risks and uncertainties, (including, without limitation, those set forth in the Company’s most recent Annual Report on Form 10-K or prior Quarterly Reports on Form 10-Q) actual results may differ materially from those expressed or implied by such forward-looking statements.

There are a number of risks, uncertainties, and other important factors that could cause actual results to differ materially from the forward-looking statements, including, but not limited to:

·Conditions in the industries in which our Machine Clothing and Albany Engineered Composites segments compete, along with the general risks associated with macroeconomic conditions;
·In the Machine Clothing segment, greater than anticipated declines in the demand for publication grades of paper, or lower than anticipated growth in other paper grades;
·In the Albany Engineered Composites segment, unanticipated reductions in demand, delays, technical difficulties or cancellations in aerospace programs that are expected to drive growth;
·Failure to achieve or maintain anticipated profitable growth in our Albany Engineered Composites segment; and
·Other risks and uncertainties detailed in this report.

Further information concerning important factors that could cause actual events or results to be materially different from the forward-looking statements can be found in “Business Environment Overview and Trends” sections of this quarterly report, as well as in Item 1A-“Risk Factors” section of our most recent Annual Report on Form 10-K. Statements expressing our assessments of the growth potential of the Albany Engineered Composites segment are not intended as forecasts of actual future growth, and should not be relied on as such. While we believe such assessments to have a reasonable basis, such assessments are, by their nature, inherently uncertain. This report sets forth a number of assumptions regarding these assessments, including projected timing and volume of demand for aircraft and for LEAP aircraft engines. Such assumptions could prove incorrect. Although we believe the expectations reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements included or incorporated by reference in this report are made on the basis of our assumptions and analyses, as of the time the

33

 

statements are made, in light of our experience and perception of historical conditions, expected future developments, and other factors believed to be appropriate under the circumstances.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained or incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Business Environment Overview and Trends

 

Our reportable segments, Machine Clothing (MC) and Albany Engineered Composites (AEC), draw on the same advanced textiles and materials processing capabilities, and compete on the basis of product-based advantage that is grounded in those core capabilities.

 

The MC segment is the Company’s long-established core business and primary generator of cash. While it has suffered from well-documented declines in publication grades in the Company’s traditional markets, the paper and paperboard industry is still expected to grow slightly on a global basis, driven by demand for packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South America. We feel we are now well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Because of pricing pressures and industry overcapacity, the machine clothing and paper industries will continue to face top line pressure. Despite continued market pressure on revenue, the business retains the potential for maintaining stable earnings in the future. It has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we achieved through continuous focus on cost reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality.

The AEC segment provides significant growth potential for our Company both near and long term. Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites, LLC (ASC), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 19 percent of the Company’s consolidated net sales in 2018. AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine. AEC’s current portfolio of non-3D programs includes components for the F-35, fuselage components for the Boeing 787, components for the CH-53K helicopter, vacuum waste tanks for Boeing 7-Series aircraft, and missile bodies for Lockheed Martin’s JASSM air-to-surface missiles. AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets. In 2018, approximately 25 percent of AEC sales were related to U.S. government contracts or programs.

34

 

Consolidated Results of Operations

Net sales

The following table summarizes our Net sales by business segment:

 

  Three months ended
March 31,
(in thousands, except percentages) 2019 2018 % Change
Machine Clothing $144,334 $141,773 1.8%
Albany Engineered Composites   107,039   81,830 30.8%
Total $251,373 $223,603 12.4%

 

The following table summarizes first-quarter 2019 Net sales, excluding the impact of currency translation effects:

 

(in thousands, except percentages) Net sales as
reported,
Q1 2019
Decrease
due to
changes in
currency
translation
rates
Q1 2019
sales on
same basis
as Q1 2018
Net sales
as
reported,
Q1 2018
% Change
compared to Q1
2018, excluding
currency rate
effects
Machine Clothing $144,334 $4,241 $148,575 $141,773 4.8%
Albany Engineered Composites   107,039   1,887   108,926   81,830 33.1%
Total $251,373 $6,128 $257,501 $223,603 15.2%

 

Three month comparison

 

·Changes in currency translation rates had the effect of decreasing net sales by $6.1 million during the first quarter of 2019, as compared to 2018, principally due to the weakening of the euro and Chinese renminbi in the first quarter of 2019, compared to the first quarter of 2018.
·Excluding the effect of changes in currency translation rates:
   
·Net sales increased 15.2% compared to the same period in 2018.
   
·Net sales in MC increased 4.8% principally due to global growth in sales for tissue and packaging grades, and in the North America market across all major grades.
   
·Net sales in AEC increased 33.1% primarily driven by growth in the LEAP, and CH-53K programs.

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Gross Profit

 

The following table summarizes Gross profit by business segment:

 

  Three months ended  
March 31,
(in thousands, except percentages) 2019 2018
Machine Clothing $74,528 $66,312
Albany Engineered Composites   17,243   11,524
Corporate expenses   -   (54)
Total $91,771 $77,782
% of Net sales 36.5% 34.8%
     

 

Three month comparison

 

The increase in 2019 gross profit, as compared to the same period in 2018, was principally due to the net effect of the following individually significant items:

·An increase in MC gross profit, principally due to higher sales and improved labor productivity.
·An increase in AEC gross profit, principally due to higher sales, improved labor productivity, and the favorable effect of changes in the estimated profitability of long-term contracts, which increased Gross profit by $0.6 million in the first quarter of 2019, compared to a reduction of $0.7 million in 2018.

 

·Changes in currency translation rates did not have a significant effect on gross profit in 2019.

Selling, Technical, General, and Research (STG&R)

 

Selling, Technical, General and Research (STG&R) expenses include; selling, general, administrative, technical and research expenses.

 

The following table summarizes STG&R expenses by business segment:

 

  Three months ended
March 31,
(in thousands, except percentages) 2019 2018
Machine Clothing $29,886 $31,018
Albany Engineered Composites   7,637   9,028
Corporate expenses   13,671    12,159
Total $51,194 $52,205
% of Net sales 20.4% 23.3%
     

 

Three month comparison

 

The overall decrease in STG&R expenses in the first quarter of 2019, compared to the same period in 2018, was principally due to the net effect of the following individually significant items:

 

·In MC, revaluation of nonfunctional currency assets and liabilities and resulted in first-quarter losses of $1.5 million in 2018, while the effect in 2019 was nil.

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·In AEC, lower compensation and professional fees in 2019, as compared to 2018.
·Corporate STG&R expenses increased principally due to CFO termination costs in 2019.

 

Research and Development

 

The following table is a subset of the STG&R expenses table above and summarizes expenses associated with internally funded research and development by business segment:

 

  Three months ended
March 31,
(in thousands) 2019 2018
Machine Clothing $4,422 $4,418
Albany Engineered Composites   3,116    3,148
Total $7,538 $7,566
     

Restructuring Expense

 

In addition to the items discussed above affecting gross profit, and STG&R expenses, operating income was affected by restructuring costs of $0.5 million in the first three months of 2019, and $8.6 million for the same period in 2018.

 

The following table summarizes restructuring expenses by business segment:

 

  Three months ended
March 31,
(in thousands) 2019 2018
Machine Clothing $401 $8,352
Albany Engineered Composites    83   221
Corporate expenses   -     -
Total $484 $8,573
     

 

In 2018, the Company’s proposal to close its Machine Clothing production facility in Sélestat, France was approved by the French Labor Ministry. The restructuring program was driven by the Company’s need to balance manufacturing capacity with demand. In the first three months of 2018, we recorded restructuring expense of $8.1 million for severance and outplacement costs for the approximately 50 positions that will be terminated under this plan. Since 2017, we have recorded $12.1 million of restructuring charges related to this action. The Company continues to assess property, plant and equipment in that location to determine if equipment will be transferred to other facilities, or if the value of the assets can be recovered through a sale. Depending on the outcome of

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that assessment, additional restructuring charges could be recorded in future periods. Annual cost savings associated with this action has resulted in lower cost of goods sold.

AEC restructuring charges include expenses for the first three months of 2019 and 2018 related to work force reductions in AEC locations in Salt Lake City, Utah and Rochester, New Hampshire.

For more information on our restructuring charges, see Note 5 to the Consolidated Financial Statements in Item 1, which is incorporated herein by reference.

Operating Income

The following table summarizes operating income/(loss) by business segment:

 

Three months ended

March 31,

(in thousands) 2019 2018
Machine Clothing $44,243 $26,942
Albany Engineered Composites    9,522   2,275
Corporate expenses   (13,672)   (12,213)
Total $40,093 $17,004

 

Other Earnings Items

 

  Three months ended
March 31,
(in thousands) 2019 2018
Interest expense, net $4,417 $4,288
Other (income)/expense, net   (1,208)    1,452
Income tax expense    7,476   3,365
Net income attributable to the noncontrolling interest   218   237

 

Interest Expense, net

 

Interest expense, net, increased in 2019, principally due to an increase in average debt outstanding. The higher debt balances related to funding expansion of the AEC business. See the Capital Resources section for further discussion of borrowings and interest rates.

 

Other (income)/expense, net

 

The decrease in Other (income)/expense, net included the following individually significant items:

 

Three month comparison

 

·For the first quarter of each year, revaluation of nonfunctional currency cash and intercompany balances resulted in a gain of $2.0 million in 2019 and a loss of $0.7 million in 2018.

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Income Tax

 

The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21% during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges.

 

Three month comparison

 

The Company’s effective tax rates for the first quarter of 2019 and 2018 were 20.3% and 29.9%, respectively. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and in non-U.S. jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign earnings, and by discrete items that may occur in any given year but are not consistent from year to year.

Significant items that impacted the 2019 effective tax rate included the following (percentages reflect the effect of each item as a percentage of income before income taxes):

·The income tax rate on continuing operations, excluding discrete items, was 29.4%.
·A $2.2 million [-6.1%] tax benefit due to changes of uncertain tax positions.
·A $1.3 million [-3.6%] tax benefit from an adjustment related to a prior period change in a valuation allowance.
·A $0.2 million [0.6%] tax expense for other tax adjustments.
   
 

Significant items that impacted the first quarter of 2018 tax rate included the following:

·The income tax rate on continuing operations, excluding discrete items, was 32.5%.
·A $0.1 million [-1.1%] discrete income tax benefit related to the exercise of U.S. stock options.
·A $0.2 million [-1.5%] net tax benefit related to other discrete items.

 

Segment Results of Operations

 

Machine Clothing Segment

 

Machine Clothing is our primary business segment and accounted for 57% of our consolidated revenues during the first three months of 2019. MC products are purchased primarily by manufacturers of paper and paperboard.

 

According to RISI, Inc., global production of paper and paperboard is expected to grow at an annual rate of approximately 1 percent over the next five years, driven primarily by global growth in packaging and tissue, which is expected to be greater than expected declines in publication grades.

 

While the MC business has suffered from well-documented declines in publication grades in the Company’s traditional markets, the paper and paperboard industry is still expected to grow slightly on a global basis, driven by demand for packaging and tissue grades. We feel we are now

39

 

well-positioned in these markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Recent technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand.

 

The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology, and to maintain our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement.

 

We have incurred significant restructuring charges in recent periods as we reduced MC manufacturing capacity and administrative positions in the United States and France.

 

Review of Operations

 

  Three months ended
March 31,
(in thousands, except percentages) 2019 2018
Net sales $144,334 $141,773
Gross profit   74,528   66,312
% of Net sales 51.6% 46.8%
STG&R expenses   29,886   31,018
Operating income   44,243   26,942

 

Net Sales

 

Three month comparison

 

·Net sale’s increased by 1.8%.
·Changes in currency translation rates had the effect of decreasing first-quarter 2019 sales by $4.2 million compared to the same period in 2018. That currency translation effect was principally due to the weakening of the euro and Chinese renminbi in the first quarter of 2019, compared to the first quarter of 2018.

 

·Excluding the effect of changes in currency translation rates, Net sales in MC increased 4.8% principally due to growth in sales for the tissue and packaging grades, and in the North America market across all major grades.

40

 

Gross Profit

 

Three month comparison

 

·The increase in MC Gross profit was principally due to higher sales and improved labor productivity.

 

·Changes in currency translation rates did not have a significant effect on Gross profit for the first quarter of 2019.

 

Operating Income

 

Three month comparison

 

The increase in operating income was principally due to the net effect of the following individually significant items:

 

·Gross profit increased $8.2 million due to increased sales and improved labor productivity.

 

·STG&R expenses decreased $1.1 million principally due to revaluation of nonfunctional currency assets and liabilities and resulted in first-quarter losses of $1.5 million in 2018, while the effect in 2019 was nil.

 

·Restructuring charges were $0.4 million in the first-quarter of 2019, compared to $8.4 million in the same period in 2018.

Albany Engineered Composites Segment

 

The AEC segment, including Albany Safran Composites, LLC (ASC), in which our customer, the SAFRAN Group, owns a 10 percent noncontrolling interest, provides highly engineered advanced composite structures to customers primarily in the aerospace (both commercial and defense) industry. AEC’s largest program relates to CFM International’s LEAP engine. AEC, through ASC, is the exclusive supplier of advanced composite fan blades and cases for this program under a long-term supply contract. LEAP engines are currently used on the Boeing 737 Max, Airbus A320neo and COMAC aircraft. Other significant AEC programs include components for the F-35, fuselage frames for the Boeing 787, components for the CH53-K helicopter, and the fan case for the GE9X engine.

A number of countries, including the United States, have recently issued orders grounding Boeing 737 Max 8 and/or Max 9 aircraft. If these recent groundings cause a decrease in demand for, or production of, this aircraft, it could have an adverse impact on demand for LEAP engines, which could in turn have an adverse impact on demand for our LEAP engine parts. Based on recent communications by Boeing and the SAFRAN Group, we are currently not projecting any change to our production forecast.

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Review of Operations

 

  Three months ended
March 31,
(in thousands, except percentages) 2019 2018
Net sales $107,039 $81,830
Gross profit   17,243   11,524
% of Net sales 16.1% 14.1%
STG&R expenses    7,637   9,028
Operating income/(loss) 9,522 2,275

 

 

Net Sales

 

Three month comparison

 

The increase in Net sales was principally due to the net effect of the following individually significant items:

 

·Net sales increased by 30.8%.
·Excluding the effect of changes in currency translation rates, Net sales increased 33.1% primarily driven by growth in the LEAP and CH-53K programs.

 

Gross Profit

 

Three month comparison

 

The increase in gross profit of $5.7 million was principally due to the increase in Net sales, as described above, improved labor productivity, and the effect of changes in the estimated profitability of long-term contracts which increased Gross profit by $0.6 million in the first quarter of 2019, compared to a reduction of $0.7 million in 2018.

 

Long-term contracts

AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus fee agreement. Revenue earned under these arrangements accounted for approximately 50 percent of segment revenue for each of the first three months of 2019 and 2018.

 

In addition, AEC has long-term contracts in which the selling price is fixed. In accounting for those contracts, we estimate the profit margin expected at the completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach. Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue and gross profit in any reporting period.

 

Changes in contract estimates resulted in an increase to gross profit of $0.6 million for the first quarter of 2019. Changes in other contract estimates in the first quarter of 2018 resulted in a decrease to gross profit of $0.7 million.

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Operating Income/(Loss)

 

Three month comparison

 

The increase in operating income of $7.3 million in the first quarter of 2019 was principally due to the net effect of the following individually significant items:

 

·A $5.7 million increase in Gross profit, as described above.
·A $1.4 million decrease in STG&R expenses, due to lower compensation and professional fees in 2019.

 

Liquidity and Capital Resources

 

Cash Flow Summary

 

Three months ended

March 31,

(in thousands) 2019 2018
Net income $29,408 $7,899
   Depreciation and amortization   17,956   20,948
   Changes in working capital (a)   (7,017)    (37,264)
   Changes in other noncurrent liabilities and deferred taxes   (2,744)   (2,405)
   Other operating items   (13,037)   (8,125)
Net cash provided by/(used in) operating activities   24,566   (18,947)
Net cash used in investing activities   (20,820)   (15,800)
Net cash used in financing activities   (15,139)   (2,458)
Effect of exchange rate changes on cash and cash equivalents   1,023   4,904
Decrease in cash and cash equivalents   (10,370)   (32,301)
Cash and cash equivalents at beginning of year   197,755    183,727
Cash and cash equivalents at end of period $187,385 $151,426

 

(a)Includes Accounts receivable, Contract assets, Inventories, and Accounts payable.

 

Operating activities

 

Cash flow provided by operating activities was $24.6 million for the first three months of 2019, cash flow used by operating activities was $18.9 million for the first three months of 2018. The net increase in cash provided by operating activities in 2019 was due to increased profitability in both MC and AEC, and improved management of working capital that resulted from a number of improvement initiatives.

Cash paid for income taxes was $8.0 million and $8.2 million for the first three months of 2019 and 2018, respectively.

At March 31, 2019, we had $187.4 million of cash and cash equivalents, of which $157.7 million was held by subsidiaries outside of the United States.

Investing and Financing Activities

 

Capital expenditures for the first three months were $20.8 million in 2019 and $15.8 million in 2018.

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Dividends have been declared each quarter since the fourth quarter of 2001. Decisions with respect to whether a dividend will be paid, and the amount of the dividend, are made by the Board of Directors each quarter. To the extent the Board declares cash dividends in the future, we expect to pay such dividends out of operating cash flows. Future cash dividends will also depend on debt covenants and on the Board’s assessment of our ability to generate sufficient cash flows.

 

Capital Resources

 

We finance our business activities primarily with cash generated from operations and borrowings, largely through our revolving credit agreement as discussed below. Our subsidiaries outside of the United States may also maintain working capital lines with local banks, but borrowings under such local facilities tend not to be significant. Substantially all of our cash balance at March 31, 2019 was held by non-U.S. subsidiaries. Based on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to operate for the foreseeable future. We were in compliance with all debt covenants as of March 31, 2019.

On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement, $491 million of borrowings were outstanding as of March 31, 2019. The applicable interest rate for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on March 18, 2019, the spread was 1.375%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%, based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification to any other credit agreements, as of March 31, 2019, we would have been able to borrow an additional $194 million under the Agreement.

For more information, see Note 15 to the Consolidated Financial Statements in Item 1, which is incorporated herein by reference.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2019, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K.

 

Recent Accounting Pronouncements

 

The information set forth under Note 19 contained in Item 1, “Notes to Consolidated Financial Statements”, which is incorporated herein by reference.

 

Non-GAAP Measures

 

This Form 10-Q contains certain non-GAAP measures, including: net sales, and percent change in net sales, excluding the impact of currency translation effects (for each segment and on a consolidated basis); EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis represented in dollars or as a percentage of net sales); Net debt and changes in Net debt excluding reductions due to the effect of changes to the treatment of leases due to the adoption of ASC 842; and Adjusted earnings per share (or Adjusted EPS). Such items are provided because management believes that they provide additional useful information to investors regarding the Company’s operational performance.

44

 

Presenting Net sales and increases or decreases in Net sales, after currency effects are excluded, can give management and investors insight into underlying sales trends. Net sales, or percent changes in net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts are then compared to the U.S. dollar amount as reported in the current period.

EBITDA, Adjusted EBITDA and Adjusted EPS are performance measures that relate to the Company’s continuing operations. EBITDA, or net income with interest, taxes, depreciation, and amortization added back, is a common indicator of financial performance used, among other things, to analyze and compare core profitability between companies and industries because it eliminates effects due to differences in financing, asset bases and taxes. The Company calculates EBITDA by removing the following from Net income: Interest expense net, Income tax expense, Depreciation and amortization. Adjusted EBITDA is calculated by: adding to EBITDA costs associated with restructuring, and inventory write-offs associated with discontinued businesses; charges and credits related to pension plan settlements; adding (or subtracting) revaluation losses (or gains); subtracting (or adding) gains (or losses) from the sale of buildings or investments; subtracting insurance recovery gains in excess of previously recorded losses; and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC). Adjusted EBITDA may also be presented as a percentage of net sales by dividing it by net sales. An understanding of the impact in a particular quarter of specific restructuring costs, currency revaluation, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Restructuring expenses in the MC segment, while frequent in recent years, are reflective of significant reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the profitability of the business going forward as restructured. Adjusted earnings per share (Adjusted EPS) is calculated by adding to (or subtracting from) net income attributable to the Company per share, on an after-tax basis: restructuring charges; charges and credits related to pension plan settlements and curtailments; inventory write-offs associated with discontinued businesses; foreign currency revaluation losses (or gains); acquisition expenses; and losses (or gains) from the sale of investments.

 

EBITDA, Adjusted EBITDA, and Adjusted EPS, as defined by the Company, may not be similar to similarly named measures of other companies. Such measures are not considered measurements under GAAP, and should be considered in addition to, but not as substitutes for, the information contained in the Company’s statements of income.

45

 

The following tables show the calculation of EBITDA and Adjusted EBITDA:

 

Three months ended March 31, 2019        
(in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company
Operating income/(loss) (GAAP) $44,243 $9,522 ($13,672) $40,093
Interest, taxes, other income/(expense)    -     -     (10,685)   (10,685)
Net income/(loss) (GAAP)   44,243   9,522  (24,357)   29,408
Interest expense, net    -    -    4,417   4,417
Income tax expense    -    -   7,476   7,476
Depreciation and amortization expense    5,919   10,902   1,135   17,956
EBITDA (non-GAAP) 50,162 20,424 (11,329)   59,257
Restructuring expenses, net    401   83     -   484
Foreign currency revaluation (gains)/losses    (32)    235   (2,036)   (1,833)
Pretax income attributable to the noncontrolling interest in ASC    -    (290)     -   (290)
Adjusted EBITDA (non-GAAP) $50,531 $20,452 ($13,365) $57,618

 

Three months ended March 31, 2018        
(in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company
Operating income/(loss) (GAAP) $26,942 $2,275 ($12,213) $17,004
Interest, taxes, other income/(expense)    -     -    (9,105)   (9,105)
Net income/(loss)  (GAAP)   26,942   2,275   (21,318)   7,899
Interest expense, net    -     -     4,288   4,288
Income tax expense    -     -     3,365   3,365
Depreciation and amortization expense   8,362     11,156   1,430   20,948
EBITDA (non-GAAP) 35,304 13,431 (12,235) 36,500
Restructuring expenses, net   8,352    221   -   8,573
Foreign currency revaluation (gains)/losses   1,517    186   687   2,390
Pretax income attributable to the noncontrolling interest in ASC    -    (343)   -    (343)
Adjusted EBITDA (non-GAAP) $45,173 $13,495 ($11,548) $47,120

 

The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insight into underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on income from continuing operations and the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period. Beginning in 2019, the Company no longer includes discrete tax adjustments or the effect of changes in income tax rates in its calculation of Adjusted EPS. Prior year results have been revised to conform to this calculation.

 

The following tables show the earnings per share effect of certain income and expense items:

 

Three months ended March 31, 2019 Pre tax Tax After tax Per share
(in thousands, except per share amounts) Amounts Effect Effect Effect
Restructuring expenses, net $484 $142 $342 $0.01
Foreign currency revaluation (gains)/losses    (1,833)    (539)   (1,294)   (0.04)

46

 
Three months ended March 31, 2018 Pre tax Tax After tax Per share
(in thousands, except per share amounts) Amounts Effect Effect Effect
Restructuring expenses, net $8,573 $2,786 $5,787 $0.18
Foreign currency revaluation (gains)/losses    2,390   777 1,613 0.05

 

The following table contains the calculation of Adjusted EPS:

  Three months ended  March 31,
Per share amounts (Basic) 2019 2018
Earnings per share (GAAP) $0.90 $0.24
Adjustments:    
Restructuring expenses, net (after-tax)   0.01   0.18
Foreign currency revaluation (gains)/losses (after-tax)   (0.04)   0.05
Adjusted Earnings per share $0.87 $0.47

 

Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any.

The following table contains the calculation of net debt:

 

(in thousands) March 31,  2019 December 31,  2018 March 31,  2018 December 31, 2017
Notes and loans payable  $ -  $ - $226 $262
Current maturities of long-term debt   19    1,224     1,821   1,799
Long-term debt    491,022   523,707   518,656   514,120
Total debt   491,041   524,931    520,703   516,181
Cash and cash equivalents    187,385   197,755   151,426    183,727
Net debt $303,656 $327,176 $369,277 $332,454
First-quarter increase/(decrease)   (23,520)    -   36,823   -
Effect of ASC 842 adoption   (25,886)     -    -    -
Increase excluding effect of ASC 842 adoption $2,366  $ - $36,823  $ -

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The following table contains the reconciliation of forecasted full-year 2019 Adjusted EBITDA and Adjusted EPS (non-GAAP measures) to comparable GAAP measures:

 

  Total Company Machine Clothing

Forecast of full year 2019 Adjusted EBITDA

(in millions)

Low High Low High
Net income attributable to the Company (GAAP) $99 $109 $173 $181
Interest expense, net     17   16   -    -
Income tax expense    40   41   -    -
Depreciation and amortization    70   75     22    24
EBITDA (non-GAAP)    226   241    195     205
Restructuring expenses (a)    1    1   -    -
Foreign currency revaluation gains/(losses) (a)    (2)    (2)   -    -
Pretax income attributable to the noncontrolling interest    -    -   -    -
Adjusted EBITDA (non-GAAP) $225 $240 $195 $205

 

  Total Company    
Forecast of full year 2019 Adjusted Earnings Per Share (b)        
Per share amounts- Basic (b) Low High    
Earnings per share (GAAP) $3.08 $3.38    
Restructuring expenses, net (a)    0.01   0.01    
Foreign currency revaluation gains/(losses) (a)   (0.04)    (0.04)    
Adjusted Earnings per share (non-GAAP) $3.05 $3.35    

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures about Market Risk”, which is included as an exhibit to this Form 10-Q.

Item 4. Controls and Procedures

 

a) 

Disclosure controls and procedures.

 

The principal executive officer and principal financial officer, based on their evaluation of disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that the Company’s disclosure controls and procedures are effective for ensuring that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in filed or submitted reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

Remediation Plans for Material Weaknesses in Internal Control over Financial Reporting

In the fourth quarter of 2018, and as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2018, we identified a material weakness in our internal control over financial reporting as described below:

The Company did not conduct an effective risk assessment process over the design and implementation of the systems development plan affecting the financial reporting process and process level controls impacted by the adoption of ASC 606, Revenue from contracts with customers, for certain revenue transactions in the Company’s Machine Clothing business that are recognized at a point-in-time. In addition, the Company did not have effective reconciliation controls over the unbilled accounts receivable and inventory accounts related to those point-in-time transactions.

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During the fourth quarter of 2018, we commenced active steps towards remediating the material weakness. These efforts include:

(a) Improving our risk assessment process related to pre-production and post-implementation testing and documentation of conclusions for significant systems development changes affecting financial reporting and internal controls; and,

(b) Revising our financial reporting processes and related reconciliation controls over the unbilled accounts receivable and inventory accounts related to those point-in-time transactions.

We are working to remediate the material weakness as quickly and efficiently as possible and believe that such efforts will effectively remediate the reported material weakness by the end of 2019. However, the material weakness will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Notwithstanding the material weakness described above, our management has concluded that the financial statements included elsewhere in this quarterly report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

(b) 

Changes in internal control over financial reporting.

 

In the first quarter of 2019, the Company implemented additional controls related to accounting for leases and the Company’s adoption of ASC 842, Leases.

Other than the items noted above, no changes occurred in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information set forth above under Note 17 in Item 1, “Notes to Consolidated Financial Statements” is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes in risks since December 31, 2018. For discussion of risk factors, refer to Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We made no share purchases during the first quarter of 2019. We remain authorized by the Board of Directors to purchase up to 2 million shares of our Class A Common Stock.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

 

Exhibit No. Description

 

10 (u)(ii)Second amendment, dated March 15, 2019, to amend the employment agreement between the Company and Olivier Jarrault.

 

10 (l)(xii)Form of Restricted Stock Unit Award for units granted on April 1, 2019.

 

10 (n)(iii)Form of Incentive Award granted April 1, 2019.

 

31.1Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.

 

31.2Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.

 

32.1Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code).

 

99.1Quantitative and qualitative disclosures about market risks as reported at March 31, 2019.

 

101The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, formatted in extensible Business Reporting Language (XBRL), filed herewith:

 

(i)Consolidated Statements of Income for the three months ended March 31, 2019 and 2018.

 

(ii)Consolidated Statements of Comprehensive Income/(Loss) for the three months ended March 31, 2019 and 2018.

 

(iii)Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

 

(iv)Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018.

 

(v)Notes to Consolidated Financial Statements.

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As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act and Section 18 of the Securities Exchange Act or otherwise subject to liability under those sections. 

The following exhibit list was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. However, certain hyperlinks in that filing were nonfunctioning.  Accordingly, in accordance with Instruction 2 to Rule 105(d) of Regulation S-T, we have included below that exhibit list the appropriate [corrected] hyperlinks.

 

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      Incorporated by Reference
Exhibit
Number
Exhibit Description Filed Herewith Form Period Ending Filing Date
3 (a) Amended and Restated Certificate of Incorporation of Company   8-K   6/2/15
3 (b) Bylaws of Company   8-K   2/23/11
4 (a) Article IV of Certificate of Incorporation of Company   8-K   6/2/15
4 (b) Specimen Stock Certificate for Class A Common Stock   S-1, No. 33-16254   9/30/87
Credit Agreement        
10(k)(xix)

$685 Million Five-Year Revolving Credit Facility Agreement among Albany International Corp., the other Borrowers named therein, the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of November 7, 2017

  8-K   11/7/17
Restricted Stock Units        
10(l)(viii) 2011 Performance Phantom Stock Plan as adopted on May 26, 2011 (42)   10-Q 6/30/11 8/9/11
10(l)(i) 2003 Restricted Stock Unit Plan, as adopted November 13, 2003   10-K   3/11/04
10(l)(x) Form of Restricted Stock Unit Award for units granted on March 2, 2018   8-K   3/6/18
10(l)(xi) Form of Restricted Stock Unit Award for units granted on August 28, 2018   8-K   9/4/18
Stock Options          
10(m)(i) 1992 Stock Option Plan   8-K   1/18/93
10(m)(ii) 1997 Executive Stock Option Agreement   10-K 12/31/97 3/13/98
10(m)(iii) 2011 Incentive Plan   8-K   6/1/11
10(m)(iv) Form of 2011 Annual Performance Bonus Agreement   8-K   3/29/11
10(m)(v) Form of 2011 Multi-Year Performance Bonus Agreement   8-K   3/29/11
Executive Compensation        
10(n)(i) Supplemental Executive Retirement Plan, adopted as of January 1, 1994, as amended and restated as of January 1, 2008   8-K   1/2/08
10(n)(ii) Annual Bonus Program, as amended and restated as of March 29, 2017   Def 14A   3/29/17
10(o)(iv) Directors’ Annual Retainer Plan, as amended and restated as of February 23, 2018   8-K   5/16/18
10(o)(viii) Form of Severance Agreement between Albany International Corp. and certain corporate officers or key executives   8-K   1/4/16
10(p) Code of Ethics   10-K 12/31/03 3/11/04
10(q) Directors Pension Plan, amendment dated as of January 12, 2005   8-K   1/13/05
10(r) Employment agreement, dated May 12, 2005, between the Company and Joseph G. Morone   8-K   5/18/05
10(s) Form of Indemnification Agreement   8-K   4/12/06
10(u) Employment agreement, dated March 2, 2018, between the Company and Olivier M. Jarrault   10-Q   5/08/18
10(u)(i) First Amendment, dated July 9, 2018, to amend employment agreement between the Company and Olivier M. Jarrault   10-Q   8/07/18

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      Incorporated by Reference
Exhibit Number Exhibit Description Filed Herewith Form Period Ending Filing Date
10.2 Amended and restated LLC operating agreement by and between Albany Engineered Composites and Safran Aerospace Composites, Inc. 10% equity interest in ASC for $28 million   10-K 12/31/13 2/26/14
2.1 Stock Purchase Agreement by and between Albany International Corp. and Harris Corporation, dated as of February 27, 2016   8-K   3/1/16
11 Statement of Computation of Earnings per share (provided in Footnote 8 to the Consolidated Financial Statements)   10-K 12/31/18 3/14/19
21 Subsidiaries of Company   10-K 12/31/18 3/14/19
23 Consent of Independent Registered Public Accounting Firms   10-K 12/31/18 3/14/19
24 Powers of Attorney   10-K 12/31/18 3/14/19
31(a) Certification of Olivier M. Jarrault required pursuant to Rule 13a-14(a) or Rule 15d-14(a)   10-K 12/31/18 3/14/19
31(b) Certification of John B. Cozzolino required pursuant to Rule 13a-14(a) or Rule 15d-14(a)   10-K 12/31/18 3/14/19
32(a) Certification of Olivier M. Jarrault and John B. Cozzolino required pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code   10-K 12/31/18 3/14/19
The following information from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in eXtensible Business Reporting Language (XBRL), filed herewith:
101(i) Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016   10-K 12/31/18 3/14/19
101(ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017, and 2016   10-K 12/31/18 3/14/19
101(iii) Consolidated Balance Sheets as of December 31, 2018 and 2017   10-K 12/31/18 3/14/19
101(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016   10-K 12/31/18 3/14/19
101(v) Notes to Consolidated Financial Statements   10-K 12/31/18 3/14/19
* As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Sections 11 and 12 of the Securities Act and Section 18 of the Securities Exchange Act or otherwise subject to liability under those sections.

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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 1, 2019

  By /s/ Stephen M. Nolan
    Stephen M. Nolan
    Chief Financial Officer and Treasurer
    (Principal Financial Officer)

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