First-Quarter Highlights
Net loss per share was $0.05, after reductions of $0.36 from net
restructuring charges, idle-capacity costs related to restructuring,
and costs related to continuing performance-improvement initiatives.
Discrete income tax adjustments reduced net income by $0.13 per share.
Net income per share for Q1 2007 was $0.32, after expenses related to
restructuring and performance-improvement initiatives reduced net
income per share by $0.24.
Net sales from continuing operations were $273.2 million, an increase
of 9.0 percent compared to the same period last year.
Net sales in the Paper Machine Clothing (PMC) segment increased 2.5
percent compared to the same period last year. PMC net sales in North
America decreased 12.9 percent compared to the same period last year.
Net sales in the Engineered Composites segment increased 42.6 percent
compared to the same period last year. The Q1 2008 operating loss was
$1.8 million, compared to a $0.6 million loss in Q1 2007.
Compared to the same period last year, net sales in the Door Systems
and Engineered Fabrics segments increased 30.8 percent and 10.1
percent, respectively.
The Company has entered into an agreement to sell its Filtration
Technologies business for $45 million, and has reported the activities
of that business as a discontinued operation in the first-quarter
financial statements.
Albany International Corp. (NYSE:AIN) reported a first-quarter net loss
per share of $0.05, after reductions of $0.36 from net restructuring
charges, idle-capacity costs related to restructuring, and costs related
to continuing performance-improvement initiatives. Discrete income tax
adjustments reduced net income by $0.13 per share.
Net income per share for Q1 2007 was $0.32, after expenses related to
restructuring and performance-improvement initiatives reduced net income
per share by $0.24.
On May 4, 2008, the Company announced that it had entered into an
agreement to sell its Filtration Technologies business for $45 million,
subject to contractual closing adjustments. Filtration Technologies’
principal operations are in Gosford, Australia, and Zhangjiagang, China.
In Q1 2008, net sales were $10.5 million, an increase of 47% compared to
Q1 2007. The activities of this business are reported as a discontinued
operation in the first-quarter financial statements and accordingly are
excluded from Tables 1, 2, and 3, below.
Net sales from continuing operations increased $22.6 million, or 9.0
percent compared to the same period last year. Excluding the effect of
changes in currency translation rates, net sales increased 1.3 percent.
The following table, which reflects changes in the Company’s
reportable segments, presents net sales and the effect of changes in
currency translation rates:
Table 1
(in thousands)
Net Sales
Three Months ended
March 31,
Percent
Change
Impact of Changes
in Currency
Translation Rates
Percent Change
excluding Currency Rate Effect
2008
2007
Paper Machine Clothing
$183,015
$178,631
2.5%
$11,946
-4.2%
Albany Door Systems
45,132
34,494
30.8%
5,082
16.1%
Engineered Fabrics
28,110
25,531
10.1%
2,280
1.2%
Engineered Composites
11,088
7,775
42.6%
-
42.6%
PrimaLoft® Products
5,863
4,183
40.2%
110
37.5%
Total
$273,208
$250,614
9.0%
$19,418
1.3%
Gross profit was 34.7 percent of net sales in the first quarter of 2008,
compared to 38.6 percent in the same period of 2007. The difference is
principally due to decreases in PMC net sales, particularly in North
America, and costs associated with performance-improvement initiatives.
Selling, technical, general, and research (STG&R) expenses were 30.2
percent of net sales in the first quarter of 2008 compared to 29.4
percent in the first quarter of 2007. STG&R expenses were $82.4 million
in the first quarter of 2008, in comparison to $73.7 million in the
first quarter of 2007. Q1 2008 STG&R expenses included $5.8 million
related to the effect of changes in currency translation rates and $5.1
million of expenses related to performance-improvement initiatives. Q1
2007 STG&R expenses included $1.6 million related to
performance-improvement initiatives.
Operating income was $7.2 million in the first quarter of 2008, compared
to $15.5 million for the same period of 2007.
The following table presents segment operating income:
Table 2
(in thousands)
Operating Income
Three Months ended
March 31,
2008
2007
Paper Machine Clothing
$18,550
$26,542
Albany Door Systems
2,836
1,732
Engineered Fabrics
5,569
4,424
Engineered Composites
(1,826)
(615)
Primaloft® Products
1,078
510
Research expenses
(5,871)
(5,011)
Unallocated expenses
(13,156)
(12,061)
Total
$7,180
$15,521
First-quarter segment operating income included the following expenses
associated with restructuring and performance-improvement initiatives:
Table 3
2008
2007
(in thousands)
Restructuring and Other, Net
Idle- capacity Costs at Plants Closing
Performance- improvement Initiatives
Total
Restructuring and Performance- improvement Initiatives
Paper Machine Clothing
$6,402
$684
$3,323
$10,409
$6,846
Albany Door Systems
-
-
135
135
-
Unallocated expenses
(1,040)
-
3,948
2,908
2,469
Total
$5,362
$684
$7,406
$13,452
$9,315
The Q1 2008 net restructuring charges of $5.4 million ($0.14 per share)
were principally due to costs associated with the closure of the Company’s
Montgomery, Alabama, plant that was announced in the first quarter of
2008 and other restructuring activities. In addition, idle-capacity
costs of $0.7 million related to previously announced plant closures,
and $7.4 million of expenses related to ongoing performance-improvement
initiatives increased cost of goods sold by $3.0 million ($0.08 per
share), and STG&R expenses by $5.1 million ($0.14 per share). The
increased STG&R expenses are principally due to the non-capitalized
portion of SAP project costs, costs related to the implementation of the
global procurement initiative, and termination costs. Cost of goods sold
during the quarter includes additional costs related to the start-up of
the greenfield PMC plant in China and equipment relocation expenses.
Performance-improvement costs in the first quarter of 2007 amounted to
$1.7 million, of which $1.6 million was included in STG&R expenses.
The effective first-quarter income tax rate before discrete tax items
was 20 percent in 2008 and 25 percent in 2007. Included in first-quarter
2008 income tax expense are discrete tax adjustments that decreased net
income by $0.13 per share.
Net cash provided by operating activities was $7.4 million in the first
quarter of 2008, compared to $17.3 million for the same period of 2007.
Capital spending during the first quarter of 2008 was $31.6 million. The
Company expects capital spending in 2008 to be approximately $140
million and continues to expect that capital spending in 2009 will be
approximately $70 million. Depreciation and amortization were $14.8
million and $1.2 million, respectively, for the first quarter of 2008.
Depreciation and amortization are estimated to be $68 million and $7
million for 2008, and $72 million and $10 million for 2009.
Paper Machine Clothing (PMC)
This segment includes Paper Machine Clothing and Process Belts used
in the manufacture of paper and paperboard products.
Compared to the first quarter of 2007, trade sales in the Americas
Business Corridor declined 8.3 percent. Trade sales in South America
increased 10.5 percent, while sales in North America declined 12.9
percent. Volume in North America was negatively affected by paper mill
closures, reduced capacity utilization rates in some paper grades, and
longer running life of paper machine clothing.
Orders in the Americas Business Corridor during the quarter were 14.7
percent ahead of very strong first-quarter 2007 orders. Cost-reduction
activities in North America are proceeding on schedule. Headcount has
dropped 9 percent compared to the first quarter of 2007, and lower costs
are beginning to become apparent in lower average production costs in
finished goods inventories.
In Western Europe, compared to the first quarter of 2007, trade sales in
euros declined 5.8 percent due to lower sales volume and lower average
prices. While prices were lower than the first quarter of 2007, they
were relatively stable compared to recent quarters and based on current
orders are likely to remain stable for the rest of the year. While
volume was lower than in the first quarter of 2007, reflecting a
weakened European paper industry, market share increased and orders are
strong. Restructuring activities in Europe have resulted in a 13 percent
reduction in headcount, which nearly offset the effect of lower sales.
Trade sales in the Pacific Business Corridor were 9.9 percent higher
than the first quarter of 2007. Orders are strong and the new capacity
in Asia is beginning to come on stream as planned.
Albany Door Systems (ADS)
This segment includes products, parts, and service sales of High
Performance Doors to a variety of industrial customers.
Trade sales in Europe in euros were up 13.8 percent, and orders were up
10.5 percent compared to the first quarter of 2007. Much of this
increase was due to strong product sales. Compared to last year,
operating margins improved due to the 2007 consolidation of European
manufacturing operations.
In North America, trade sales increased 33.7 percent and orders
increased 39.0 percent compared to the same period last year. Most of
this increase was due to the second-quarter 2007 R-Bac acquisition.
Sales were negatively affected by the construction slowdown in the U.S.
Albany Engineered Composites (AEC)
This segment includes sales of specialty materials and composite
structures for aircraft and other applications.
Net sales increased 42.6 percent compared to the first quarter of 2007.
As expected, AEC generated an operating loss of $1.8 million during the
quarter, but by the end of the quarter showed significant improvement in
operating efficiencies.
Albany Engineered Fabrics
This segment includes sales of a variety of products similar to PMC
for application in the corrugator, pulp, nonwovens, building products,
tannery, and textile industries.
Excluding the effect of changes in currency translation rates, net sales
compared to the first quarter of 2007 increased 1.2 percent. Sales in
the North American building products market were negatively affected by
the downturn in the U.S. economy and the related decline in new
construction. Some of the weakness in this area has been offset by
growth in sales to Asia. Compared to Q1 2007, operating income improved
25.9 percent due to increased efficiencies in Europe and the new
facility in Kaukauna, Wisconsin.
PrimaLoft® Products
This segment includes sales of insulation for outdoor clothing,
gloves, footwear, sleeping bags, and home furnishings.
Net sales increased 40.2 percent compared to the same period last year.
While outerwear sales in North America and Europe showed good growth,
home furnishings sales in North America were down significantly due to
weakness in the retail market.
CEO Comments
President and CEO Joe Morone said, “Q1 2008
results were depressed by a slowdown in all of our North American
operations, except for Engineered Composites. By far the largest effect
was in PMC. Despite continuing strength in market share, the successful
conclusion of several important contract negotiations in 2007, and
unusually strong orders, sales in North America were down 12.9 percent
compared to the same period in 2007. This decline in sales reduced
operating income by an estimated $3.5 million. There are a number of
reasons for this decline, the most significant of which was the impact
of the general economic slowdown on an already weakened paper industry.
In most publication grades, paper mill operating rates dropped well
below their 2007 levels. At the same time, some mills ran their paper
machine clothing longer than is customary. The net effect was lower
consumption of paper machine clothing. The weakness in PMC sales was
most pronounced in the third month of the quarter, just as it was in Q4
2007.
“We saw further evidence of this economic
weakness in sales of Engineered Fabrics to the U.S. building products
and fiber cement industries, sales of PrimaLoft®
products to the U.S. home furnishings retail market, and sales of doors
to some construction-sensitive market segments in the U.S.
“Apart from this economic weakness in North
America, there were no significant deviations from our expectations for
Q1. Each of the emerging businesses performed to plan. Albany Engineered
Composites increased net sales by 43 percent compared to Q1 2007, made
excellent progress in manufacturing efficiencies, and continues on trend
toward becoming profitable in Q3. Fueled by continuing growth in the
European market, Doors had another strong quarter in both sales and
orders; and Engineered Fabrics was strong across the board, except for
its North American construction-oriented product lines.
“As for the three-year process of internal
restructuring, launched in Q3 2006, it continued on plan in Q1, with the
announced closures of the Mansfield, Massachusetts, and Montgomery,
Alabama, operations. The effects of this process are beginning to become
apparent: combined headcount in North American and European PMC is down
11 percent; gross margins are increasing in the PMC product lines where
the most significant restructuring has taken place–dryers
in the Americas and press in Europe; and average cost of finished goods
inventories in those product lines is declining. Meanwhile, several new
products in the R&D pipeline are approaching market trials, or had
successful initial trials during the quarter; the expansions in Asia and
South America remain on schedule; and we are progressing toward the
toughest and most important milestone in our SAP implementation, the
July 2008 go-live for the North American PMC and Engineered Fabrics
operations. We thus remain on trend toward the strong cash generation
that we have been projecting for 2009.
“Looking forward to Q2 and the balance of the
year, the economic slowdown in North America, coupled with the
possibility of a European slowdown later in the year, adds an element of
uncertainty to our short-term outlook. Orders are strong across all of
our businesses. Market share in PMC is strong and getting stronger, and
based on current orders, we expect our PMC pricing to be stable in
Europe through the rest of 2008. And even though the increases in oil
prices are putting upward pressure on our materials costs, we expect to
mitigate the effect of those increases through the balance of the year.
With all of these positive factors at work, we would ordinarily be
optimistic about the prospects for the next few quarters. But the
continuing economic weakness in North America tempers our optimism about
the short-term outlook.
“Finally, today we announced that we have
agreed to sell our filtration business, which manufactures filtration
products for a variety of industrial processes, most notably power
generation. We have reached the point in the growth of our emerging
businesses when we are starting to make choices in how we allocate
capital among them. While the filtration business has very appealing
growth prospects, its basis for competitive advantage, and thus for
sustainable profitable growth, is not as tightly connected to Albany’s
core competencies as that of our other emerging businesses. We will use
the proceeds of the sale to fund planned capital expenditures outside of
the U.S. and for general working capital purposes.”
The Company plans a live webcast to discuss first-quarter 2008 financial
results on Monday, May 5, 2008, at 9:00 a.m. Eastern Time. For access,
go to www.albint.com.
Albany International is a global advanced textiles and materials
processing company. Its core business is the world’s
leading producer of custom-designed fabrics and belts essential to the
production of paper and paperboard. Albany’s
family of emerging businesses extends its advanced textiles and
materials capabilities into a variety of other industries, most notably
aerospace composites, nonwovens, building products, and high-performance
industrial doors. Additional information about the Company and its
businesses and products is available at www.albint.com.
This release contains certain items, such as sales excluding currency
effects and costs associated with restructuring and
performance-improvement initiatives that could be considered non-GAAP
financial measures. Such items are provided because management believes
that, when presented together with the GAAP items to which they relate,
they provide additional useful information to investors regarding the
registrant’s financial condition, results of
operations, and cash flows. Presenting increases or decreases in sales,
after currency effects are excluded, can give management and investors
insight into underlying sales trends. An understanding of the impact in
a particular quarter of specific restructuring and
performance-improvement measures, and in particular of the costs
associated with the implementation of such measures, on the Company’s
net income or operating income, or the operating income of a business
segment, can give management and investors additional insight into
quarterly performance, especially when compared to quarters in which
such measures had a greater or lesser effect, or no effect.
The effect of changes in currency translation rates is calculated by
converting amounts reported in local currencies into U.S. dollars at the
exchange rate of a prior period. That amount is then compared to the
U.S. dollar amount reported in the current period.
This press release may contain statements, estimates or projections
that constitute “forward-looking statements”
as defined under U.S. federal securities laws. Generally, the words “believe,”
“expect,” “intend,”
“estimate,” “anticipate,”
“project,” “will”
and similar expressions identify forward-looking statements, which
generally are not historical in nature. Forward-looking statements are
subject to certain risks and uncertainties (including, without
limitation, those set forth in the Company’s
Annual Report on Form 10-K) that could cause actual results to differ
materially from the Company’s historical
experience and our present expectations or projections.
Forward-looking statements in this release or in the webcast,
include, without limitation, statements about future economic and paper
industry conditions, materials costs, PMC sales and operating income
during the next several quarters, revenue growth and income expectations
for the Company’s emerging businesses, the
amount and timing of anticipated costs and savings associated with
cost-reduction and performance-improvement initiatives, pricing
conditions in the PMC industry, the amount and timing of capital
expenditures, tax rates, and depreciation and amortization. Furthermore,
a change in any one or more of the foregoing factors could have a
material effect on the Company’s financial
results in any period. Such statements are based on current
expectations, and the Company undertakes no obligation to publicly
update or revise any forward-looking statements.
Statements expressing management’s
assessments of the growth potential of various businesses, or referring
to earlier assessments of such potential, are not intended as forecasts
of actual future growth, and should not be relied on as such. While
management believes such assessments to have a reasonable basis, such
assessments are, by their nature, inherently uncertain. This release and
earlier releases set forth a number of assumptions regarding these
assessments, including historical results and independent forecasts
regarding the markets in which these businesses operate. Historical
growth rates are no guarantee of future growth, and such independent
forecasts could prove incorrect.
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(unaudited)
Three Months Ended
March 31,
2008
2007
Net sales
$273,208
$250,614
Cost of goods sold
178,278
153,817
Gross profit
94,930
96,797
Selling, technical, general and research expenses
82,388
73,667
Restructuring and other, net
5,362
7,609
Operating income
7,180
15,521
Interest expense, net
4,319
3,265
Other (income), net
(274)
(327)
Income from continuing operations before income taxes
3,135
12,583
Income tax expense
4,551
3,172
(Loss)/Income before associated companies
(1,416)
9,411
Equity in (losses) of associated companies
(303)
(285)
(Loss)/income from continuing operations
(1,719)
9,126
Discontinued operations:
Income from operations of discontinued business
260
204
Income tax expense
33
25
Income from discontinued operations
227
179
Net (loss)/income
($1,492)
$9,305
(Loss)/income from continuing operations:
Basic
($0.06)
$0.31
Diluted
($0.06)
$0.30
Income from discontinued operations:
Basic
$0.01
$0.01
Diluted
$0.01
$0.01
Net (loss)/income per share:
Basic
($0.05)
$0.32
Diluted
($0.05)
$0.31
Dividends per share
$0.11
$0.10
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
March 31,
December 31,
2008
2007
ASSETS
Cash and cash equivalents
$72,350
$73,305
Accounts receivable, net
234,239
232,440
Inventories
236,201
247,043
Income taxes receivable and deferred
34,803
26,734
Prepaid expenses and other current assets
21,943
22,832
Current assets of discontinued operations
27,330
-
Total current assets
626,866
602,354
Property, plant and equipment, net
523,101
499,540
Investments in associated companies
5,365
5,373
Intangibles
10,903
11,217
Goodwill
206,552
194,660
Deferred taxes
104,939
100,604
Cash surrender value of life insurance policies
44,632
43,701
Other assets
71,014
69,528
Noncurrent assets of discontinued operations
7,172
-
Total assets
$1,600,544
$1,526,977
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and loans payable
$35,137
$32,030
Accounts payable
80,192
82,157
Accrued liabilities
117,956
120,267
Current maturities of long-term debt
386
1,146
Income taxes payable and deferred
5,501
2,970
Current liabilities of discontinued operations
1,249
-
Total current liabilities
240,421
238,570
Long-term debt
472,331
446,433
Other noncurrent liabilities
203,703
188,621
Deferred taxes and other credits
57,911
53,682
Total liabilities
974,366
927,306
Commitments and Contingencies
-
-
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
34,974,850 in 2008 and 34,865,744 in 2007.
35
35
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and
outstanding 3,236,098 in 2008 and 2007
3
3
Additional paid in capital
330,246
326,608
Retained earnings
539,477
544,228
Accumulated items of other comprehensive income:
Translation adjustments
78,541
42,208
Pension liability adjustment
(58,647)
(55,953)
Derivative valuation adjustment
(4,454)
1,565
885,201
858,694
Less treasury stock (Class A), at cost (8,530,066 shares
in 2008 and 2007)
259,023
259,023
Total shareholders' equity
626,178
599,671
Total liabilities and shareholders' equity
$1,600,544
$1,526,977
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
2008
2007
OPERATING ACTIVITIES
Net (loss)/income
($1,492)
$9,305
Adjustments to reconcile net (loss)/income to net cash provided by
operating activities:
Equity in losses of associated companies
303
285
Depreciation
14,788
14,187
Amortization
1,223
1,131
Provision for deferred income taxes, other credits and long-term
liabilities
(2,322)
915
Provision for write-off of equipment
485
66
Increase in cash surrender value of life insurance
(931)
(902)
Unrealized currency transaction gains and losses
(2,272)
169
Shares contributed to ESOP
2,545
1,961
Stock option expense
42
200
Tax benefit of options exercised
(74)
(145)
Issuance of shares under long-term incentive plan
624
937
Changes in operating assets and liabilities:
Accounts receivable
5,019
5,185
Inventories
(2,604)
(13,641)
Prepaid expenses
(366)
(2,446)
Accounts payable
(4,064)
(6,041)
Accrued liabilities
(5,877)
11,809
Income taxes payable
3,069
(4,727)
Other, net
(679)
(899)
Net cash provided by operating activities
7,417
17,349
INVESTING ACTIVITIES
Purchases of property, plant and equipment
(31,649)
(23,206)
Purchased software
(3,903)
(2,683)
Net cash (used in) investing activities
(35,552)
(25,889)
FINANCING ACTIVITIES
Proceeds from borrowings
28,596
10,532
Principal payments on debt
(2,857)
(10,437)
Proceeds from options exercised
354
603
Tax benefit of options exercised
74
145
Dividends paid
(3,252)
(2,919)
Net cash provided by/(used in) financing activities
22,915
(2,076)
Effect of exchange rate changes on cash flows
4,265
(1,195)
(Decrease) in cash and cash equivalents
(955)
(11,811)
Cash and cash equivalents at beginning of year
73,305
68,237
Cash and cash equivalents at end of period
$72,350
$56,426
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