Company Quick10K Filing
Albany International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 32 $2,606
10-Q 2019-10-30 Quarter: 2019-09-30
10-Q 2019-07-31 Quarter: 2019-06-30
10-Q 2019-05-01 Quarter: 2019-03-31
10-K 2019-03-14 Annual: 2018-12-31
10-Q 2018-10-31 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-10-31 Quarter: 2017-09-30
10-Q 2017-08-02 Quarter: 2017-06-30
10-Q 2017-05-05 Quarter: 2017-03-31
10-K 2017-03-01 Annual: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-09-30
10-Q 2016-08-02 Quarter: 2016-06-30
10-Q 2016-05-03 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-10-28 Quarter: 2015-09-30
10-Q 2015-08-05 Quarter: 2015-06-30
10-Q 2015-05-05 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-11-04 Quarter: 2014-09-30
10-Q 2014-08-07 Quarter: 2014-06-30
10-Q 2014-05-06 Quarter: 2014-03-31
10-K 2014-02-26 Annual: 2013-12-31
10-Q 2013-11-05 Quarter: 2013-09-30
10-Q 2013-08-02 Quarter: 2013-06-30
10-Q 2013-05-03 Quarter: 2013-03-31
10-K 2013-03-01 Annual: 2012-12-31
10-Q 2012-11-02 Quarter: 2012-09-30
10-Q 2012-08-03 Quarter: 2012-06-30
10-Q 2012-05-09 Quarter: 2012-03-31
10-K 2012-02-28 Annual: 2011-12-31
10-Q 2011-11-04 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-05-06 Quarter: 2011-03-31
10-K 2011-03-02 Annual: 2010-12-31
10-Q 2010-11-05 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-11 Annual: 2009-12-31
8-K 2020-01-20 Officers, Exhibits
8-K 2019-12-10 Officers, Regulation FD
8-K 2019-11-20 Other Events, Exhibits
8-K 2019-11-04 Officers, Exhibits
8-K 2019-10-29 Earnings, Exhibits
8-K 2019-07-30 Earnings, Exhibits
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 Earnings, Exhibits
8-K 2018-02-05 Officers, Exhibits
AIN 2019-09-30
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-31.1 ain10qex31-1.htm
EX-31.2 ain10qex31-2.htm
EX-32.1 ain10qex32-1.htm
EX-99.1 ain10qex99-1.htm

Albany International Earnings 2019-09-30

AIN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
X 2,621 11,291 6,979 14,464 1,689 1,005 1,386 4,284 12% 3.1 9%
AIN 2,606 1,458 807 1,030 378 110 244 2,872 37% 11.8 8%
CSWC 444 668 8 11 0 0 1 362 0% 613.5 0%
UFI 341 592 199 709 66 2 43 430 9% 9.9 0%
CULP 231 224 60 300 53 6 14 186 18% 13.3 3%
CRWS 46 55 13 77 23 6 8 43 30% 5.0 11%
RAND
GLAD
AMAL

ALBANY INTERNATIONAL CORP /DE/
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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 September 30, 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 No. 1-10026

ALBANY INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

Delaware

14-0462060

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

216 Airport Drive, Rochester, New Hampshire

03867

(Address of principal executive offices)

(Zip Code)

603-330-5850

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

AIN

The New York Stock Exchange (NYSE)

Class B Common Stock, $0.001 par value per share

AIN

The New York Stock Exchange (NYSE)

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 ☒

The registrant had 30.7 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock outstanding as of October 20, 2019.


ALBANY INTERNATIONAL CORP.

TABLE OF CONTENTS

Page

Number

Part I Financial information

Item 1.Financial Statements

3

Consolidated statements of income – three and nine months ended September 30, 2019 and 2018

3

Consolidated statements of comprehensive income/(loss) – three and nine months ended September 30, 2019 and 2018

4

Consolidated balance sheets as of September 30, 2019 and December 31, 2018

5

Consolidated statements of cash flows – three and nine months ended September 30, 2019 and 2018

6

Notes to consolidated financial statements

7

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

30

Forward-looking statements

30

Item 3.Quantitative and Qualitative Disclosures about Market Risk

45

Item 4.Controls and Procedures

45

Part II Other Information

Item 1.Legal Proceedings

47

Item 1A.Risk Factors

47

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

48

Item 3.Defaults upon Senior Securities

48

Item 4.Mine Safety Disclosures

48

Item 5.Other Information

48

Item 6.Exhibits

49


Index

ITEM 1. FINANCIAL STATEMENTS

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

$271,133

$251,889

Net sales

$796,454

$730,866

167,026

159,487

Cost of goods sold

495,394

469,039

 

104,107

92,402

Gross profit

301,060

261,827

39,841

39,058

Selling, general, and administrative expenses

121,602

117,646

8,832

9,958

Technical and research expenses

28,323

30,473

(244)

2,552

Restructuring expenses, net

1,139

13,714

 

55,678

40,834

Operating income

149,996

99,994

3,987

4,621

Interest expense, net

13,035

13,530

(1,628)

(3,151)

Other income, net

(1,906)

(973)

 

53,319

39,364

Income before income taxes

138,867

87,437

13,194

11,359

Income tax expense

35,075

21,690

40,125

28,005

Net income

103,792

65,747

116

269

Net income attributable to the noncontrolling interest

539

447

$40,009

$27,736

Net income attributable to the Company

$103,253

$65,300

$1.24

$0.86

Earnings per share attributable to Company shareholders — Basic

$3.20

$2.02

$1.24

$0.86

Earnings per share attributable to Company shareholders — Diluted

$3.20

$2.02

Shares of the Company used in computing earnings per share:

32,306

32,264

Basic

32,293

32,247

32,317

32,280

Diluted

32,305

32,263

$0.18

$0.17

Dividends declared per share, Class A and Class B

$0.54

$0.51

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


3


Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands)

(unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

$40,125

$28,005

Net income

$103,792

$65,747

Other comprehensive income/(loss), before tax:

(22,041)

(7,847)

Foreign currency translation and other adjustments

(24,243)

(21,193)

(232)

Pension/postretirement curtailment gain

(750)

Amortization of pension liability adjustments:

(1,105)

(1,114)

Prior service credit

(3,315)

(3,341)

1,118

1,294

Net actuarial loss

3,357

3,882

(245)

(96)

Payments and amortization related to interest rate swaps included in earnings

(1,117)

138

(1,532)

1,777

Derivative valuation adjustment

(10,796)

9,703

Income taxes related to items of other comprehensive income/(loss):

70

Pension/postretirement curtailment gain

225

(4)

(54)

Amortization of pension liability adjustment

(13)

(162)

62

23

Payments and amortization related to interest rate swaps included in earnings

285

(33)

392

(427)

Derivative valuation adjustment

2,759

(2,329)

16,770

21,399

Comprehensive income

70,709

51,887

103

264

Comprehensive income/(loss) attributable to the noncontrolling interest

520

446

$16,667

$21,135

Comprehensive income attributable to the Company

$70,189

$51,441

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


4


Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

September 30, 2019

December 31, 2018

ASSETS

Cash and cash equivalents

$173,739

$197,755

Accounts receivable, net

224,232

223,176

Contract assets

64,571

57,447

Inventories

105,705

85,904

Income taxes prepaid and receivable

6,774

7,473

Prepaid expenses and other current assets

24,849

21,294

Total current assets

$599,870

$593,049

  

Property, plant and equipment, net

449,299

462,055

Intangibles, net

44,530

49,206

Goodwill

162,075

164,382

Deferred income taxes

51,761

62,622

Noncurrent receivables

45,699

45,061

Other assets

51,488

41,617

Total assets

$1,404,722

$1,417,992

  

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

$60,994

$52,246

Accrued liabilities

122,741

129,030

Current maturities of long-term debt

20

1,224

Income taxes payable

7,787

6,806

Total current liabilities

191,542

189,306

  

Long-term debt

424,012

523,707

Other noncurrent liabilities

118,153

88,277

Deferred taxes and other liabilities

7,934

8,422

Total liabilities

741,641

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 39,098,292 in 2019 and 37,450,329 in 2018

39

37

Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 1,617,998 in 2019 and 3,233,998 in 2018

2

3

Additional paid in capital

431,860

430,555

Retained earnings

675,491

589,645

Accumulated items of other comprehensive income:

Translation adjustments

(139,153)

(115,976)

Pension and postretirement liability adjustments

(48,146)

(47,109)

Derivative valuation adjustment

(4,172)

4,697

Treasury stock (Class A), at cost 8,408,770 shares in 2019 and 8,418,620 shares in 2018

(256,391)

(256,603)

Total Company shareholders' equity

659,530

605,249

Noncontrolling interest

3,551

3,031

Total equity

663,081

608,280

Total liabilities and shareholders' equity

$1,404,722

$1,417,992

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


5


Index

ALBANY INTERNATIONAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOW

(in thousands)

(unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

OPERATING ACTIVITIES

$40,125

$28,005

Net income

$103,792

$65,747

Adjustments to reconcile net income to net cash provided by operating activities:

15,672

17,436

Depreciation

46,659

52,852

1,582

2,366

Amortization

6,305

7,571

13,548

1,199

Change in deferred taxes and other liabilities

12,802

(7,012)

(5)

2,131

Provision for write-off of property, plant and equipment

1,101

3,255

151

150

Non-cash interest expense

454

304

790

543

Compensation and benefits paid or payable in Class A Common Stock

1,413

1,879

(10)

Fair value adjustment on foreign currency option

61

Changes in operating assets and liabilities that provided cash:

(9,950)

(2,813)

Accounts receivable

7,140

(39,954)

(9,605)

3,040

Contract assets

(6,558)

(8,721)

(3,760)

(2,968)

Inventories

(21,927)

(16,408)

131

103

Prepaid expenses and other current assets

(4,057)

(5,117)

304

(551)

Income taxes prepaid and receivable

662

(454)

363

(2,728)

Accounts payable

7,837

6,154

3,407

7,552

Accrued liabilities

(8,762)

12,171

(5,611)

6,766

Income taxes payable

1,619

13,355

(339)

(4,676)

Noncurrent receivables

(679)

(8,846)

(2,251)

(5,102)

Other noncurrent liabilities

(4,411)

(6,333)

(1,055)

(5,728)

Other, net

(2,517)

(9,049)

43,497

44,715

Net cash provided by operating activities

126,593

61,455

INVESTING ACTIVITIES

(13,442)

(21,441)

Purchases of property, plant and equipment

(48,846)

(60,564)

(257)

(78)

Purchased software

(306)

(130)

(13,699)

(21,519)

Net cash used in investing activities

(49,152)

(60,694)

FINANCING ACTIVITIES

3,000

Proceeds from borrowings

20,000

26,031

(58,006)

(10,471)

Principal payments on debt

(95,014)

(24,614)

(298)

Principal payments on finance lease liabilities

(876)

Taxes paid in lieu of share issuance

(971)

(1,652)

33

52

Proceeds from options exercised

105

202

(5,814)

(5,485)

Dividends paid

(17,435)

(16,441)

(64,085)

(12,904)

Net cash used in financing activities

(94,191)

(16,474)

(7,207)

(4,443)

Effect of exchange rate changes on cash and cash equivalents

(7,266)

(7,421)

41,494

5,849

Increase/decrease in cash and cash equivalents

(24,016)

(23,134)

215,233

154,744

Cash and cash equivalents at beginning of period

197,755

183,727

$173,739

$160,593

Cash and cash equivalents at end of period

$173,739

$160,593

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


6


Index

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, and 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, 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 $175.2 million and $136.9 million in the first nine months of 2019 and 2018, respectively. The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $107.5 million and $96.2 million as of September 30, 2019 and December 31, 2018, respectively.


7


Index

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

Three months ended September 30,

Nine months ended September 30,

(in thousands)

2019

2018

2019

2018

Net sales

Machine Clothing

$151,324

$157,608

$450,673

$461,165

Albany Engineered Composites

119,809

94,281

345,781

269,701

Consolidated total

$271,133

$251,889

$796,454

$730,866

Operating income/(loss)

Machine Clothing

$51,906

$49,695

$145,688

$126,952

Albany Engineered Composites

17,345

3,613

44,598

9,980

Corporate expenses

(13,573)

(12,474)

(40,290)

(36,938)

Operating income

$55,678

$40,834

$149,996

$99,994

Reconciling items:

Interest income

(851)

(579)

(2,037)

(1,399)

Interest expense

4,838

5,200

15,072

14,929

Other income, net

(1,628)

(3,151)

(1,906)

(973)

Income before income taxes

$53,319

$39,364

$138,867

$87,437

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

Three months ended September 30,

Nine months ended September 30,

(in thousands)

2019

2018

2019

2018

Machine Clothing

$(211)

$370

$1,125

$10,522

Albany Engineered Composites

(33)

2,189

18

2,968

Corporate expenses

(7)

(4)

224

Total

$(244)

$2,552

$1,139

$13,714

Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment and we account for these contracts using the percentage of completion (actual cost to estimated cost) method. That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs. The sum of net adjustments to the estimated profitability of long-term contracts during the first three quarters increased AEC operating income by $8.8 million and $0.5 million in 2019 and 2018, respectively.

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.


8


Index

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

For the three months ended September 30, 2019

(in thousands)

Point in Time Revenue

Recognition

Over Time Revenue

Recognition

Total

Machine Clothing

$150,524

$800

$151,324

Albany Engineered Composites

ASC

56,414

56,414

Other AEC

6,708

56,687

63,395

Total Albany Engineered Composites

6,708

113,101

119,809

Total revenue

$157,232

$113,901

$271,133

For the nine months ended September 30, 2019

(in thousands)

Point in Time Revenue Recognition

Over Time Revenue Recognition

Total

Machine Clothing

$448,273

$2,400

$450,673

Albany Engineered Composites

ASC

170,551

170,551

Other AEC

22,850

152,380

175,230

Total Albany Engineered Composites

22,850

322,931

345,781

Total revenue

$471,123

$325,331

$796,454

For the three months ended September 30, 2018

(in thousands)

Point in Time Revenue

Recognition

Over Time Revenue

Recognition

Total

Machine Clothing

$156,808

$800

$157,608

Albany Engineered Composites

ASC

47,166

47,166

Other AEC

4,165

42,950

47,115

Total Albany Engineered Composites

4,165

90,116

94,281

Total revenue

$160,973

$90,916

$251,889

For the nine months ended September 30, 2018

(in thousands)

Point in Time Revenue Recognition

Over Time Revenue Recognition

Total

Machine Clothing

$458,765

$2,400

$461,165

Albany Engineered Composites

ASC

134,972

134,972

Other AEC

15,909

118,820

134,729

Total Albany Engineered Composites

15,909

253,792

269,701

Total revenue

$474,674

$256,192

$730,866


9


Index

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:

For the three months ended September 30,

For the nine months ended September 30,

(in thousands)

2019

2018

2019

2018

Americas PMC

$82,763

$79,246

$239,686

$229,072

Eurasia PMC

50,330

59,321

155,849

172,675

Engineered Fabrics

18,231

19,041

55,138

59,418

Total Machine Clothing Net sales

$151,324

$157,608

$450,673

$461,165

In accordance with ASC 606, 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 $81 million and $95 million as of September 30, 2019 and 2018, respectively, and related primarily to firm contracts in the AEC segment. Of the remaining performance obligations as of September 30, 2019 we expect to recognize as revenue approximately $25 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. Other than the impact from adoption, noted above, there were no other material changes in the total assets of the reportable segments in the first nine months of 2019.

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 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.


10


Index

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


Index

Adoption of the standard had no impact to 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 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,

The lessee has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use, and

The lessee has the right to direct the use of the asset, which is demonstrated when the lessee has 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, including the determination of 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 are 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 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 10 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.


12


Index

The components of lease expense were as follows:

(in thousands)

For the three

months ended

September 30, 2019

For the nine

months ended

September 30, 2019

Finance lease

Amortization of right-of-use asset

$249

$748

Interest on lease liabilities

388

1,181

Operating lease

Fixed lease cost

991

3,416

Variable lease cost

59

263

Short-term lease cost

350

1,022

Total lease expense

$2,037

$6,630

Lease expense for the three and nine month periods ended September 30, 2018 was $2.1 million and $6.1 million, respectively.

Supplemental cash flow information related to leases was as follows:

(in thousands)

For the three

months ended

September 30, 2019

For the nine

months ended

September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$974

$3,350

Operating cash flows from finance leases

388

1,181

Financing cash flows from finance leases

298

876

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

$988

$3,990

Finance leases

The initial recognition of each ROU asset and lease liability at lease commencement is a noncash transaction that is excluded from amounts reported in the Consolidated Statements of Cash Flows.

Supplemental balance sheet information related to leases was as follows:

(in thousands)

September 30, 2019

Operating leases

Right of use assets included in Other assets

$13,838

Lease liabilities included in

Accrued liabilities

$3,780

Other noncurrent liabilities

10,131

Total operating lease liabilities

$13,911

Finance leases

Right of use assets included in Property, plant and equipment, net

$10,223

Lease liabilities included in

Accrued liabilities

$1,290

Other noncurrent liabilities

17,900

Total finance lease liabilities

$19,190


13


Index

Additional information for leases existing at September 30, 2019 was as follows:

Weighted average remaining lease term

Operating leases

4 years

Finance leases

10 years

Weighted average discount rate

Operating leases

5.7%

Finance leases

8.0%

Maturities of lease liabilities as of September 30, 2019 were as follows:

(in thousands)

Operating leases

Finance lease

Year ending December 31,

2019

$1,316

$686

2020

4,603

2,790

2021

3,497

2,790

2022

2,471

2,838

2023

1,495

3,004

Thereafter

3,054

15,512

Total lease payments

16,436

27,620

Less imputed interest

(2,525)

(8,430)

Total

$13,911

$ 19,190

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 expect to take control of the additional space during the fourth quarter of 2019, which would be the commencement of this lease component, at which time the lease liability and ROU asset will be recorded. We expect to have control of the additional space through 2029 and the additional space is expected to 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.


14


Index

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.

The composition of the net periodic benefit cost for the nine months ended September 30, 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

$1,892

$2,085

$142

$174

Interest cost

5,368

5,430

1,585

1,520

Expected return on assets

(6,155)

(6,702)

Curtailment gain

(750)

Amortization of prior service cost/(credit)

51

25

(3,366)

(3,366)

Amortization of net actuarial loss

1,687

1,665

1,670

2,217

Net periodic benefit cost

$2,843

$1,753

$31

$545

The amount of net periodic pension cost is determined at the beginning of each year and generally only varies from quarter to quarter when a significant event occurs, such as a curtailment or a settlement. There were no such events in the first nine months of 2019. In 2018, we recorded curtailment gains of $0.5 million in the second quarter and $0.2 million in the third quarter related to restructuring in France.

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 nine months of 2019 and 2018 principally 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 $9.0 million in the first nine months of 2018 for severance and outplacement costs for the approximately 50 positions that were terminated under this plan. In the first nine months of 2019, restructuring charges were $0.3 million. Since 2017, we have recorded $12.0 million of restructuring charges related to this action. As a result of this action, the Company recorded a pension plan curtailment gain of $0.7 million in 2018 which is recorded in Other (income)/expense.

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

AEC restructuring charges in the third quarter of 2018 were principally related to the discontinuation of certain manufacturing processes in Salt Lake City, resulting in a non-cash restructuring charge of $1.7 million, and an additional $0.2 million for severance.


15


Index

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

Three months ended

September 30,

Nine months ended

September 30,

(in thousands)

2019

2018

2019

2018

Machine Clothing

$(211)

$370

$1,125

$10,522

Albany Engineered Composites

(33)

2,189

18

2,968

Corporate expenses

(7)

(4)

224

Total

$(244)

$2,552

$1,139

$13,714

Nine months ended September 30, 2019

(in thousands)

Total restructuring costs incurred

Termination and other costs

Impairment of assets

Impairment of intangible assets

Machine Clothing

$1,125

$1,081

$44

$

Albany Engineered Composites

18

18

Corporate expenses

(4)

(4)

Total

$1,139

$1,095

$44

$

Nine months ended September 30, 2018

(in thousands)

Total restructuring costs incurred

Termination and other costs

Impairment of assets

Impairment of intangible assets

Machine Clothing

$10,522

$11,128

$144

$(750)

Albany Engineered Composites

2,968

1,206

1,762

Corporate expenses

224

224

Total

$13,714

$12,558

$1,906

$(750)

We expect that approximately $0.4 million of Accrued liabilities for restructuring at September 30, 2019 will be paid within one year and approximately $1.7 million will be paid the following year. The table below presents the year-to-date changes in restructuring liabilities for 2019 and 2018, all of which related to termination costs:

(in thousands)

December 31, 2018

Restructuring charges accrued

Payments

Currency translation /other

September 30, 2019

Total termination and other costs

$5,570

$1,095

$(4,195)

$(360)

$2,110

(in thousands)

December 31, 2017

Restructuring charges accrued

Payments

Currency translation/ other

September 30, 2018

Total termination and other costs

$3,326

$12,558

$(9,153)

$(379)

$6,352


16


Index

6. Other (Income)/Expense, net

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

Three months ended September 30,

Nine months ended September 30,

(in thousands)

2019

2018

2019

2018

Currency transaction (gains)/losses

$(2,028)

$(3,611)

$(3,724)

$(2,930)

Bank fees and amortization of debt issuance costs

81

100

262

303

Pension curtailment gain

(232)

(750)

Components of net periodic pension and postretirement cost other than service

278

264

840

789

Other

41

328

716

1,615

Total

$(1,628)

$(3,151)

$(1,906)

$973

7. Income Taxes

The following table presents components of income tax expense for the three and nine months ended September 30, 2019 and 2018:

Three months ended

September 30,

Nine months ended

September 30,

(in thousands, except percentages)

2019

2018

2019

2018

Income tax based on income from continuing operations, at estimated tax rates of 27.5% and 29.7%, respectively

$14,662

$11,691

$38,256

$25,970

Effect of change in estimated tax rate

(692)

(191)

Income tax before discrete items

13,970

11,500

38,256

25,970

Discrete tax expense:

Exercise of U.S. stock options

(55)

(29)

(111)

(155)

Impact of mandatory repatriation

(1,099)

Adjustments to prior period tax liabilities

(160)

(7)

187

(259)

Provision for/resolution of tax audits and contingencies, net

(558)

(168)

(2,785)

2,280

Adjustment related to prior period change in opening valuation allowance

63

(1,366)

(4,923)

Change in valuation allowances

(11)

830

Other

8

64

(124)

Total income tax expense