The accompanying notes are
an integral part of the consolidated financial statements
The accompanying notes are
an integral part of the consolidated financial statements
The accompanying notes are
an integral part of the consolidated financial statements
The accompanying notes are
an integral part of the consolidated financial statements
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, consisting of only
normal recurring adjustments and elimination of intercompany transactions necessary for a fair presentation of results for such
periods. Albany International Corp. (“Albany”) 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, 2015.
Except
as described herein, there has been no material change to the accounting policies applied to our consolidated results and footnote
disclosures. In accordance with the accounting guidance for business combinations, we use the acquisition method of accounting
to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at
the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities
assumed are recognized as goodwill. The valuations of acquired assets and liabilities will impact the determination of future
operating results. In addition to using management estimates and negotiated amounts, we use a variety of information sources to
determine the estimated fair values of the assets and liabilities, including third-party appraisals for the estimated value and
lives of identifiable intangible assets and property and equipment. The business and technical judgment of management is used
in determining the useful lives of finite-lived intangible assets in accordance with the accounting guidance for goodwill and
intangible assets.
2.
Business Acquisition
On April
8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business for cash
of $187 million, plus the assumption of certain liabilities. The Company funded the cash payable at closing by utilizing proceeds
from a $550 million, unsecured credit facility agreement that was completed April 8, 2016 (see Note 14). The seller has provided
representations, warranties and indemnities customary for acquisition transactions, including indemnities for certain customer
claims identified before closing. The acquired entity has been renamed Albany Aerostructures Composites LLC (“AAC”),
and is part of the Albany Engineered Composites (“AEC”) segment.
The following table summarizes the
provisional allocation of the purchase price of AAC to the fair value of the assets and liabilities acquired:
(in thousands)
|
|
April 8 , 2016
|
Assets acquired
|
|
|
|
Accounts receivable
|
|
$16,264
|
|
Inventories
|
|
29,739
|
|
Prepaid expenses and other current assets
|
|
402
|
|
Property, plant and equipment
|
|
85,802
|
|
Intangibles
|
|
59,360
|
|
Goodwill
|
|
31,327
|
|
Total assets acquired
|
|
$222,894
|
|
|
|
|
|
Liabilities assumed
|
|
|
|
Accounts payable
|
|
$8,745
|
|
Accrued liabilities
|
|
2,364
|
|
Capital lease obligation
|
|
23,815
|
|
Other noncurrent liabilities
|
|
970
|
|
Total liabilities assumed
|
|
$35,894
|
|
|
|
|
|
Net assets acquired
|
|
$187,000
|
|
Whereas the acquisition occurred
during this quarterly reporting period, the Company is continuing to perform procedures to verify the value of all assets and liabilities
acquired, and the useful lives of amortizable assets. Accordingly, adjustments to the values in the above table may be required
in future periods. The Company has attributed the goodwill of $31.3 million which is assigned to the AEC segment. Management believes
that the acquisition broadens and deepens AEC’s products, experience and manufacturing capabilities, and significantly increases
opportunities for future growth. The goodwill is expected to be non-deductible for tax purposes.
The following tables presents operational
results of AAC that are included in the Consolidated Statements of Income:
(in thousands, except per share amounts)
|
|
April 8 to
June 30,
2016
|
Net sales
|
|
$25,636
|
|
Operating income
|
|
1,709
|
|
Income before income taxes
|
|
1,266
|
|
Net Income attributable to the Company
|
|
760
|
|
|
|
|
|
Earnings per share:
|
|
|
|
Basic
|
|
$0.02
|
|
Diluted
|
|
$0.02
|
|
The Consolidated Statements of Income
reflect operational activity of AAC for only the period subsequent to the closing, which affects comparability of results. The
following table shows total Company pro forma statements of operations for the three- and six-month periods ended June 30, 2016
and 2015, as if the acquisition had occurred on January 1, 2015. This pro forma information does not purport to represent what
the Company’s actual results would have been if the acquisitions had occurred as of the date indicated, or what such results
would be for any future periods.
|
|
Unaudited - Pro forma
|
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands, except per share amounts)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Combined Net sales
|
|
$204,371
|
|
|
$192,508
|
|
|
$397,706
|
|
|
$392,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined Income/(loss) before income taxes
|
|
$15,765
|
|
|
($1,798
|
)
|
|
$38,915
|
|
|
$19,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition expenses
|
|
3,771
|
|
|
-
|
|
|
5,367
|
|
|
-
|
|
Purchase accounting depreciation and amortization expense
|
|
(119
|
)
|
|
(1,541
|
)
|
|
(1,660
|
)
|
|
(3,081
|
)
|
Interest expense
|
|
(99
|
)
|
|
(1,283
|
)
|
|
(1,382
|
)
|
|
(2,567
|
)
|
Income/(loss) before income taxes
|
|
19,318
|
|
|
(4,622
|
)
|
|
41,240
|
|
|
13,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income/(loss) attributable to the Company
|
|
$12,289
|
|
|
($3,380
|
)
|
|
$26,748
|
|
|
$7,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings/(loss) per share attributable to Company shareholders:
|
Basic
|
|
$0.38
|
|
|
($0.11
|
)
|
|
$0.83
|
|
|
$0.23
|
|
Diluted
|
|
$0.38
|
|
|
($0.11
|
)
|
|
$0.83
|
|
|
$0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Reportable Segments
The following tables show data by
reportable segment, reconciled to consolidated totals included in the financial statements:
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$148,934
|
|
|
$150,561
|
|
|
$294,197
|
|
|
309,055
|
|
Albany Engineered Composites
|
|
54,256
|
|
|
21,728
|
|
|
81,324
|
|
|
44,558
|
|
Consolidated total
|
|
$203,190
|
|
|
$172,289
|
|
|
$375,521
|
|
|
$353,613
|
|
Operating income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$35,405
|
|
|
$33,323
|
|
|
$72,543
|
|
|
$69,013
|
|
Albany Engineered Composites
|
|
(5,848
|
)
|
|
(18,633
|
)
|
|
(9,553
|
)
|
|
(22,444
|
)
|
Corporate expenses
|
|
(11,700
|
)
|
|
(11,652
|
)
|
|
(22,864
|
)
|
|
(23,382
|
)
|
Operating income
|
|
17,857
|
|
|
3,038
|
|
|
40,126
|
|
|
23,187
|
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(547
|
)
|
|
(437
|
)
|
|
(673
|
)
|
|
(777
|
)
|
Interest expense
|
|
4,238
|
|
|
3,139
|
|
|
6,602
|
|
|
6,155
|
|
Other income, net
|
|
(2,017
|
)
|
|
2,820
|
|
|
(2,345
|
)
|
|
(465
|
)
|
Income before income taxes
|
|
$16,183
|
|
|
($2,484
|
)
|
|
$36,542
|
|
|
$18,274
|
|
Total assets of the AEC segment
increased by approximately $223 million during the second quarter of 2016 due to the acquisition of AAC.
Total capital expenditures for the
first six months of 2016 were $30.9 million, including amounts that were included in Accounts payable. In the Consolidated Statements
of Cash Flows, capital expenditures and accounts payable were each adjusted by $2.1 million to reflect the non-cash nature of the
transactions.
During the first six months of 2016,
the Company recorded expenses of $5.4 million for acquisition-related costs. These costs are included in Selling, general and administrative
expenses of the AEC segment.
The table below presents restructuring
costs by reportable segment (also see Note 5):
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Restructuring expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine Clothing
|
|
$5,434
|
|
|
$1,211
|
|
|
$6,132
|
|
|
$10,212
|
|
Albany Engineered Composites
|
|
1,147
|
|
|
-
|
|
|
1,147
|
|
|
-
|
|
Corporate expenses
|
|
67
|
|
|
-
|
|
|
48
|
|
|
-
|
|
Consolidated total
|
|
$6,648
|
|
|
$1,211
|
|
|
$7,327
|
|
|
$10,212
|
|
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, as of February 2009, benefits accrued under this plan were frozen. As a result of the
freeze, employees covered by the pension plan will receive, at retirement, only those benefits
accrued
through February 2009. 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 life insurance benefits to retired employees in Canada. The Company accrues the cost
of providing postretirement benefits during the active service period of the employees. The Company currently funds the plan as
claims are paid.
The
composition of the net periodic benefit plan cost for the six months ended June 30, 2016 and 2015 was as follows:
|
|
Pension plans
|
|
Other postretirement benefits
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
Service cost
|
|
$1,319
|
|
|
$1,529
|
|
|
$127
|
|
|
$166
|
|
Interest cost
|
|
4,049
|
|
|
3,895
|
|
|
1,221
|
|
|
1,220
|
|
Expected return on assets
|
|
(4,482
|
)
|
|
(4,326
|
)
|
|
-
|
|
|
-
|
|
Amortization of prior service cost/(credit)
|
|
19
|
|
|
24
|
|
|
(2,244
|
)
|
|
(2,244
|
)
|
Amortization of net actuarial loss
|
|
1,164
|
|
|
1,297
|
|
|
1,410
|
|
|
1,669
|
|
Net periodic benefit cost
|
|
$2,069
|
|
|
$2,419
|
|
|
$514
|
|
|
$811
|
|
5.
Restructuring
During
the first quarter of 2016 the Company announced the initiation of discussions with the relevant employee Works Council regarding
a proposal to discontinue R&D activities at its Machine Clothing production facility in Sélestat, France. In May 2016,
we reached agreement with the Works Council on the restructuring plan, and R&D activities are expected to discontinue during
the third quarter of 2016. Approximately 25 positions will be terminated under this plan, and we recorded $2.4 million of restructuring
expense in the second quarter 2016 as our estimate of the cost for severance, outplacement, and the write-off of equipment. Cost
savings associated with this action will reduce research and development expenses in future periods.
Machine
Clothing restructuring charges for the second quarter of 2016 also include $1.8 million for the relocation of equipment from our
former manufacturing facility in Germany.
Albany
Engineered Composites restructuring expenses in 2016 were principally related to the consolidation of the Company’s legacy
programs into Boerne, Texas.
Machine
Clothing restructuring costs in 2015 were principally related to plant closure costs in Göppingen, Germany.
The
following table summarizes charges reported in the Consolidated Statements of Income under “Restructuring expenses, net”:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Machine Clothing
|
|
$5,434
|
|
|
$1,211
|
|
|
$6,132
|
|
|
$10,212
|
|
Albany Engineered Composites
|
|
1,147
|
|
|
-
|
|
|
1,147
|
|
|
-
|
|
Corporate Expenses
|
|
67
|
|
|
-
|
|
|
48
|
|
|
-
|
|
Total
|
|
$6,648
|
|
|
$1,211
|
|
|
$7,327
|
|
|
$10,212
|
|
Six months ended June 30,2016
|
|
Total restructuring costs incurred
|
|
Termination and other costs
|
|
Impairment of plant and equipment
|
(in thousands)
|
|
|
|
|
|
|
Machine Clothing
|
|
$6,132
|
|
|
$5,832
|
|
|
$300
|
|
Albany Engineered Composites
|
|
1,147
|
|
|
921
|
|
|
226
|
|
Corporate Expenses
|
|
48
|
|
|
48
|
|
|
-
|
|
Total
|
|
$7,327
|
|
|
$6,801
|
|
|
$526
|
|
Six
months ended June 30, 2015
|
|
Total
restructuring costs incurred
|
|
Termination
and other costs
|
|
Impairment
of plant and equipment
|
(in thousands)
|
|
|
|
|
|
|
Machine Clothing
|
|
$10,212
|
|
|
$10,212
|
|
|
$-
|
|
Albany Engineered Composites
|
|
-
|
|
|
-
|
|
|
-
|
|
Corporate Expenses
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$10,212
|
|
|
$10,212
|
|
|
$-
|
|
We expect
that approximately $10.2 million of Accrued liabilities for restructuring at June 30, 2016 will be paid within one year and approximately
$2.0 million will be paid in the following year. The table below presents the year-to-date changes in restructuring liabilities
for 2016 and 2015, all of which related to termination costs:
|
December 31,
|
Restructuring
|
|
Currency
|
June 30,
|
(in thousands)
|
2015
|
charges accrued
|
Payments
|
translation /other
|
2016
|
|
|
|
|
|
|
Total termination costs
|
$10,177
|
$6,801
|
($6,835)
|
$13
|
$10,156
|
|
December 31,
|
Restructuring
|
|
Currency
|
June 30,
|
(in thousands)
|
2014
|
charges accrued
|
Payments
|
translation /other
|
2015
|
|
|
|
|
|
|
Total termination costs
|
$1,874
|
$10,212
|
($9,229)
|
($192)
|
$2,665
|
6.
Other Income, net
The
components of other (income)/expense, net are:
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Currency transaction (gains)/losses
|
|
($1,571
|
)
|
|
$1,878
|
|
|
($2,049
|
)
|
|
($549
|
)
|
Bank fees and amortization of debt issuance costs
|
|
394
|
|
|
234
|
|
|
546
|
|
|
545
|
|
Gain on sale of investment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(872
|
)
|
Other
|
|
(840
|
)
|
|
708
|
|
|
(842
|
)
|
|
411
|
|
Total
|
|
($2,017
|
)
|
|
$2,820
|
|
|
($2,345
|
)
|
|
($465
|
)
|
In March
2015, the Company sold its total equity investment in an unaffiliated company, resulting in a gain of $0.9 million. The value
of the investment had been written off in 2004.
7.
Income Taxes
The
following table presents components of income tax expense for the three and six months ended June 30, 2016 and 2015:
|
|
Three months
ended June 30,
|
|
Six months
ended June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Income tax based on income/(loss) from continuing operations, at estimated tax rates of 38.7% and 43.5%, respectively
|
|
$6,258
|
|
|
($1,080
|
)
|
|
$14,131
|
|
|
$7,956
|
|
Effect of change in estimated tax rate
|
|
(203
|
)
|
|
736
|
|
|
-
|
|
|
-
|
|
Income tax expense/(benefit) before discrete items
|
|
6,055
|
|
|
(344
|
)
|
|
14,131
|
|
|
7,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discrete tax expense/(benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for/resolution of tax audits and contingencies, net
|
|
-
|
|
|
85
|
|
|
(825
|
)
|
|
168
|
|
Adjustments to prior period tax liabilities
|
|
-
|
|
|
(105
|
)
|
|
(243
|
)
|
|
(60
|
)
|
Other discrete tax adjustments, net
|
|
27
|
|
|
-
|
|
|
62
|
|
|
-
|
|
Enacted tax legislation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
91
|
|
Total income tax expense/(benefit)
|
|
$6,082
|
|
|
($364
|
)
|
|
$13,125
|
|
|
$8,155
|
|
The
second quarter estimated income tax rate based on continuing operations was 38.7 percent in 2016, compared to 43.5 percent for
the same period in 2015.
The
Company records the residual U.S. and foreign taxes on certain amounts of current year foreign earnings that have been targeted
for repatriation to the U.S. As a result, such amounts are not considered to be permanently reinvested, and the income tax provision
before discrete items includes the residual taxes on these earnings to the extent they cannot be repatriated in a tax-free manner.
As of June 30, 2016, the Company has recorded a deferred tax liability on $59.0 million of prior year non-U.S. earnings that have
been targeted for future repatriation to the U.S.
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 we are subject to examination by taxing authorities throughout
the world and we are currently under audit in various jurisdictions, including Canada and Italy. The open tax years range from
2007 to 2015.
It is
reasonably possible that over the next twelve months the amount of unrecognized tax benefits may change within a range of $0.0
to a net decrease of $2.3 million, from the reevaluation of uncertain tax positions arising in examinations, in appeals, or in
the courts, or from the closure of tax statutes.
In the
first quarter of 2016, the Company reached a settlement with the German tax authorities over matters that had been outstanding
for many years. The German Tax Authority had denied tax positions taken by the Company related to a 1999 reorganization. In 2009,
the Company made a payment of $14.5 million in order to appeal the German Tax Authority decision, and we recorded that payment
as an income tax receivable. As additional information became available in recent years, we wrote down the receivable by
$6.3 million in 2014 and $6.4 million in 2015 ($5.8 million in the third quarter and $0.6 million in the fourth quarter). In April
2016, we received $3.7 million representing the final settlement of this matter, and accordingly, we adjusted our income tax receivable
as of March 31, 2016 to that amount, and recorded a discrete tax benefit of $0.5 million for the first quarter of 2016.
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
June 30,
|
|
Six months ended
June 30,
|
(in thousands, except market price and earnings per share)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to the Company
|
|
$10,367
|
|
|
($2,172
|
)
|
|
$23,868
|
|
|
$10,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
|
|
|
calculating basic net income per share
|
|
32,093
|
|
|
31,999
|
|
|
32,067
|
|
|
31,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock-based compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
38
|
|
|
-
|
|
|
39
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
|
|
|
|
|
|
|
|
|
|
|
|
|
calculating diluted net income per share
|
|
32,131
|
|
|
31,999
|
|
|
32,106
|
|
|
32,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares related to stock-based compensation plans that were not included in the computation of diluted earnings per share because to do so would be antidilutive
|
|
-
|
|
|
56
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average market price of common stock used
|
|
|
|
|
|
|
|
|
|
|
|
|
for calculation of dilutive shares
|
|
$39.47
|
|
|
$40.12
|
|
|
$37.40
|
|
|
$38.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share attributable to Company shareholders:
|
|
|
|
|
|
|
Basic
|
|
$0.32
|
|
|
($0.07
|
)
|
|
$0.74
|
|
|
$0.31
|
|
Diluted
|
|
$0.32
|
|
|
($0.07
|
)
|
|
$0.74
|
|
|
$0.31
|
|
9.
Noncontrolling Interest
The
table below presents a reconciliation of income attributable to the noncontrolling interest and noncontrolling equity:
|
|
Six months ended June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
Net (loss)/income of Albany Safran Composites (ASC)
|
|
($4,033
|
)
|
|
$1,282
|
|
Less: Return attributable to the Company's preferred holding
|
|
480
|
|
|
507
|
|
Net (loss)/income of ASC available for common ownership
|
|
($4,513
|
)
|
|
$775
|
|
Ownership percentage of noncontrolling shareholder
|
|
10
|
%
|
|
10
|
%
|
Net (loss)/income attributable to noncontrolling interest
|
|
($451
|
)
|
|
$78
|
|
|
|
|
|
|
|
|
Noncontrolling interest, beginning of year
|
|
$3,690
|
|
|
$3,699
|
|
Net (loss)/income attributable to noncontrolling interest
|
|
(451
|
)
|
|
78
|
|
Changes in other comprehensive income attributable to noncontrolling interest
|
|
(1
|
)
|
|
1
|
|
Noncontrolling interest
|
|
$3,238
|
|
|
$3,778
|
|
10.
Accumulated Other Comprehensive Income (AOCI)
The
table below presents changes in the components of AOCI for the period December 31, 2015 to June 30, 2016:
(in thousands)
|
|
Translation adjustments
|
|
Pension and postretirement liability adjustments
|
|
Derivative valuation adjustment
|
|
Total Other Comprehensive Income
|
December
31, 2015
|
|
($108,655
|
)
|
|
($48,725
|
)
|
|
($1,464
|
)
|
|
($158,844
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
2,393
|
|
|
12
|
|
|
(4,608
|
)
|
|
(2,203
|
)
|
Pension/postretirement plan remeasurements, net of tax
|
|
-
|
|
|
105
|
|
|
-
|
|
|
105
|
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
-
|
|
|
-
|
|
|
363
|
|
|
363
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
-
|
|
|
244
|
|
|
-
|
|
|
244
|
|
Net current period other comprehensive income/(loss)
|
|
2,393
|
|
|
361
|
|
|
(4,245
|
)
|
|
(1,491
|
)
|
June
30, 2016
|
|
($106,262
|
)
|
|
($48,364
|
)
|
|
($5,709
|
)
|
|
($160,335
|
)
|
The
table below presents changes in the components of AOCI for the period December 31, 2014 to June 30, 2015:
(in thousands)
|
|
Translation adjustments
|
|
Pension and postretirement liability adjustments
|
|
Derivative valuation adjustment
|
|
Total Other Comprehensive Income
|
December
31, 2014
|
|
($55,240
|
)
|
|
($51,666
|
)
|
|
($861
|
)
|
|
($107,767
|
)
|
Other comprehensive income/(loss) before reclassifications
|
|
(26,023
|
)
|
|
1,125
|
|
|
(744
|
)
|
|
(25,642
|
)
|
Interest expense related to swaps reclassified to the Statement of Income, net of tax
|
|
-
|
|
|
-
|
|
|
581
|
|
|
581
|
|
Pension and postretirement liability adjustments reclassified to Statement of Income, net of tax
|
|
-
|
|
|
485
|
|
|
-
|
|
|
485
|
|
Net current period other comprehensive income/(loss)
|
|
(26,023
|
)
|
|
1,610
|
|
|
(163
|
)
|
|
(24,576
|
)
|
June
30, 2015
|
|
($81,263
|
)
|
|
($50,056
|
)
|
|
($1,024
|
)
|
|
($132,343
|
)
|
The
table below presents the expense/(income) amounts reclassified, and the line items of the Consolidated Statements of Income that
were affected for the periods ended June 30, 2016 and 2015.
|
|
Three months ended
June 30,
|
|
Six months ended
June 30,
|
(in thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Pretax Derivative valuation reclassified from Accumulated Other Comprehensive Income:
|
|
|
|
|
|
|
Payments made on interest rate swaps included in Income
before taxes(a)
|
|
$305
|
|
|
$467
|
|
|
$586
|
|
|
$953
|
|
Income tax effect
|
|
(116
|
)
|
|
(182
|
)
|
|
(223
|
)
|
|
(372
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$189
|
|
|
$285
|
|
|
$363
|
|
|
$581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax pension and postretirement liabilities reclassified from Accumulated Other Comprehensive Income:
|
|
|
|
Amortization of prior service credit
|
|
($1,112
|
)
|
|
($1,111
|
)
|
|
($2,225
|
)
|
|
($2,220
|
)
|
Amortization of net actuarial loss
|
|
1,296
|
|
|
1,461
|
|
|
2,574
|
|
|
2,966
|
|
Total pretax amount reclassified (b)
|
|
184
|
|
|
350
|
|
|
349
|
|
|
746
|
|
Income tax effect
|
|
(56
|
)
|
|
(122
|
)
|
|
(105
|
)
|
|
(261
|
)
|
Effect on net income due to items reclassified from Accumulated Other Comprehensive Income
|
|
$128
|
|
|
$228
|
|
|
$244
|
|
|
$485
|
|
|
(a)
|
Included in Interest expense.
|
|
(b)
|
These accumulated other comprehensive income/(loss) components are included
in the computation of net periodic pension cost (see Note 4).
|
11.
Accounts Receivable
Accounts
receivable includes trade receivables, and revenue in excess of progress billings on long-term contracts in the AEC segment. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. The Company determines allowances 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
June 30, 2016 and December 31, 2015, Accounts receivable consisted of the following:
(in thousands)
|
|
June 30,
2016
|
|
December 31,
2015
|
Trade and other accounts receivable
|
|
$150,232
|
|
|
$123,179
|
|
Bank promissory notes
|
|
15,017
|
|
|
15,845
|
|
Revenue in excess of progress billings
|
|
19,326
|
|
|
15,889
|
|
Allowance for doubtful accounts
|
|
(8,239
|
)
|
|
(8,530
|
)
|
Total accounts receivable
|
|
$176,336
|
|
|
$146,383
|
|
In connection
with certain sales in Asia Pacific, 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.
12.
Inventories
Inventories
are stated at the lower of cost or market, with cost determined using the first-in-first out method. The Company writes down the
inventory for estimated obsolescence and to lower of cost or market value based upon assumptions about future demand and market
conditions. If actual 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 inventory allowance represents the new
cost basis of such inventories. The AEC segment has long-term contracts under which we incur engineering and development costs
that are allocable to parts that will be delivered over multiple years. These costs are included in Work in process in the table
below.
As of
June 30, 2016 and December 31, 2015, inventories consisted of the following:
(in thousands)
|
|
June 30,
2016
|
|
December 31, 2015
|
Raw materials
|
|
$36,612
|
|
|
$27,636
|
|
Work in process
|
|
68,142
|
|
|
41,823
|
|
Finished goods
|
|
40,617
|
|
|
36,947
|
|
Total inventories
|
|
$145,371
|
|
|
$106,406
|
|
13.
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 reporting units 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.
On April
8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite aerostructures business. Management
is in the process of determining the fair value of assets and liabilities acquired. Our preliminary estimate is that we acquired
amortizable intangible assets of $59.4 million and goodwill of $31.3 million. The amounts are subject to change as management
completes its review of assets and liabilities acquired.
Prior
to the acquisition, the entire balance of goodwill on our books was attributable to the Machine Clothing business. In the second
quarter of 2016, the Company applied the qualitative assessment approach in performing its annual evaluation of Machine Clothing
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.
We are
continuing to amortize certain patents, trade names and technology assets that have finite lives. The changes in intangible assets
and goodwill from December 31, 2015 to June 30, 2016, were as follows:
(in thousands)
|
|
December 31,
2015
|
|
Assets acquired April 8, 2016
|
|
Amortization
|
|
Currency Translation
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AEC trade names
|
|
$25
|
|
|
$-
|
|
|
$(2
|
)
|
|
$-
|
|
|
$23
|
|
AEC technology
|
|
129
|
|
|
-
|
|
|
(12
|
)
|
|
-
|
|
|
117
|
|
Customer relationships
|
|
-
|
|
|
40,740
|
|
|
(495
|
)
|
|
-
|
|
|
40,245
|
|
Customer contracts
|
|
-
|
|
|
16,900
|
|
|
(650
|
)
|
|
-
|
|
|
16,250
|
|
Other intangibles
|
|
-
|
|
|
1,720
|
|
|
(30
|
)
|
|
-
|
|
|
1,690
|
|
Total amortized intangible assets
|
|
$154
|
|
|
$59,360
|
|
|
($1,189
|
)
|
|
$-
|
|
|
$58,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MC Goodwill
|
|
$66,373
|
|
|
$-
|
|
|
$-
|
|
|
$866
|
|
|
$67,239
|
|
AEC Goodwill
|
|
-
|
|
|
31,327
|
|
|
-
|
|
|
-
|
|
|
31,327
|
|
Total unamortized intangible assets:
|
|
$66,373
|
|
|
$31,327
|
|
|
$-
|
|
|
$866
|
|
|
$98,566
|
|
The
estimated useful lives for intangibles acquired during the second quarter of 2016 are 19 years for customer relationships, 6 years
for customer contracts, and 7 to 22 years for other intangibles. The estimate of intangible amortization expense for 2016 and
beyond is significantly influenced by the preliminary valuation of intangibles acquired in the second quarter of 2016 and is subject
to adjustment when the valuation work is completed. Based on the preliminary valuation, estimated amortization expense of intangibles
for the years ending December 31, 2016 through 2020, is as follows:
|
Annual amortization
|
Year
|
(in thousands)
|
2016
|
$3,850
|
2017
|
5,100
|
2018
|
5,100
|
2019
|
5,100
|
2020
|
5,100
|
14.
Financial Instruments
Long-term
debt, principally to banks and bondholders, consists of:
(in thousands, except interest rates)
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
|
Private placement with a fixed interest rate of 6.84%, due 2017
|
|
$50,000
|
|
|
$50,000
|
|
|
|
|
|
|
|
|
Credit agreement with borrowings outstanding at an end of period interest rate of 2.53% in 2016 and 2.27% in 2015 (including the effect of interest rate hedging transactions, as described below)
|
|
412,000
|
|
|
215,000
|
|
|
|
|
|
|
|
|
Various notes and mortgages relative to operations principally outside the United States, at an average end of period rate of 5.50% in 2016 and 2015, due in varying amounts through 2021
|
|
88
|
|
|
96
|
|
|
|
|
|
|
|
|
Obligation under capital lease, matures 2027
|
|
23,693
|
|
|
-
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
485,781
|
|
|
265,096
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
(566
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
$485,215
|
|
|
$265,080
|
|
A note
agreement and guaranty (“Prudential Agreement”) was originally entered into in October 2005 with the Prudential Insurance
Company of America, and certain other purchasers, with interest at 6.84% and a maturity date of October 25, 2017. The remaining
principal under the Prudential Agreement is $50 million, and is due on October 25, 2017. At the noteholders’ election, certain
prepayments may also be required in connection with certain asset dispositions or financings. The notes may not otherwise be prepaid
without a premium, under certain market conditions. The Prudential Agreement contains customary terms, as well as affirmative
covenants, negative covenants, and events of default, comparable to those in our current principal credit facility agreement (as
described below). The Prudential Agreement has been amended a number of times, most recently in April 2016, in order to maintain
terms comparable to our current principal credit facility. For disclosure purposes, we are required to measure the fair value
of outstanding debt on a recurring basis. As of June 30, 2016, the fair value of this debt was approximately $54.1 million, and
was measured using active market interest rates, which would be considered Level 2 for fair value measurement purposes.
On April
8, 2016, we entered into a $550 million unsecured Five-Year Revolving Credit Facility Agreement (the “Credit Agreement”)
which amends and restates the prior $400 million Agreement, entered into on June 18, 2015 (the “Prior Agreement”).
Under the Credit Agreement, $412 million of borrowings were outstanding as of June 30, 2016. 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
June 16, 2016, the spread was 1.50%. The spread was based on a pricing grid, which ranged from 1.25% to 1.75%, 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 June 30, 2016, we would have been able to borrow an additional $138 million under the Agreement.
The
Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default 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).
In connection
with the acquisition of AAC, the Company has a long-term capital lease obligation for real property in Salt Lake City, Utah. The
lease has an implied interest rate of 8% and matures in 2027.
The
following schedule presents future minimum annual lease payments under the capital
lease obligation and the present value of the minimum lease payments,
as of June 30, 2016.
Years ending December 31,
|
(in thousands)
|
|
|
2016
|
$1,213
|
2017
|
2,425
|
2018
|
2,473
|
2019
|
2,473
|
2020
|
2,520
|
Thereafter
|
18,754
|
Total minimum lease payments
|
29,858
|
Less: Amount representing interest
|
6,165
|
|
|
Present value of minimum lease payments
|
$23,693
|
On May
6, 2016, we terminated our interest rate swap agreements that had effectively fixed the interest rate on up to $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 May
9, 2016, we entered into interest rate hedging for the period May 16, 2016 through March 16, 2021. These transactions have the
effect of fixing the LIBOR portion of the effective interest rate (before addition of the spread) on $300 million of indebtedness
drawn under the Credit Agreement at the rate of 1.245% during the period. Under the terms of these transactions, we pay the fixed
rate of 1.245% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date,
which on June 16, 2016 was 0.450%. The net effect is to fix the effective interest rate on $300 million of indebtedness at 1.245%,
plus the applicable spread, during the swap period. On June 16, 2016, the all-in-rate on the $300 million of debt was 2.745%.
These
interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 15 of the Notes to Consolidated
Financial Statements. No cash collateral was received or pledged in relation to the swap agreements.
Under
the Credit Agreement and Prudential Agreement, we are currently required to maintain a leverage ratio (as defined in the agreements)
of not greater than 3.50 to 1.00 and minimum interest coverage (as defined) of 3.00 to 1.00.
As of
June 30, 2016, our leverage ratio, including the pro-forma effect of the acquisition, was 2.31 to 1.00 and our interest coverage
ratio was 14.18 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 would not exceed 3.50 to 1.00 after giving pro forma
effect to the acquisition.
Indebtedness
under each of the Prudential Agreement and 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 June 30, 2016.
15.
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. In 2015 we reclassified land and building related to the former manufacturing facility
in Germany as Asset held for sale in the accompanying Consolidated Balance Sheets. As of June 30, 2016 and December 31, 2015,
we have Level 3 financial assets of $5.2 million and $5.0 million, respectively. The value as of June 30, 2016 was determined
based on preliminary offers from active market participants.
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, and Level 3 non-financial measured at fair value:
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Quoted
prices in active markets
|
|
|
Significant
other observable inputs
|
|
|
Unobservable
inputs
|
|
|
Quoted prices in active markets
|
|
|
Significant other observable inputs
|
|
|
Unobservable inputs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$16,366
|
|
|
$-
|
|
|
$-
|
|
|
$5,189
|
|
|
$-
|
|
|
$-
|
|
Asset held for sale
|
|
-
|
|
|
-
|
|
|
5,078
|
|
|
-
|
|
|
-
|
|
|
4,988
|
|
Prepaid expenses and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency options
|
|
-
|
|
|
366
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock of unaffiliated foreign public company
|
|
744
|
(a)
|
|
-
|
|
|
-
|
|
|
819
|
|
|
-
|
|
|
-
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
-
|
|
|
4,336
|
(b)
|
|
|
|
|
-
|
|
|
(2,400
|
)
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Original cost basis $0.5 million
|
|
(b)
|
Net of $13.4 million receivable floating leg and $17.8 million liability
fixed leg
|
|
(c)
|
Net of $7.4 million receivable floating leg and $9.8 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. The securities are classified
as available for sale, and as a result any unrealized gain or loss is recorded in the Shareholders’ Equity section of the
Consolidated Balance Sheets rather than in the Consolidated Statements of Income. When the security is sold or impaired, gains
and losses are reported on the Consolidated Statements of Income. Investments are considered to be impaired when a decline in
fair value is judged to be other than temporary.
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 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)/expenses, 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 control 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.
We operate
our business in many regions of the world, and currency rate movements can have a significant effect on operating results.
Changes
in exchange rates can result in revaluation gains and losses that are recorded in Selling, General and Administrative expenses
or Other (income)/expenses, net. Revaluation gains and losses occur when our business units have cash, intercompany (recorded
in Other (income)/expenses, 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, to the
extent that the hedges are highly effective. As of June 30, 2016, these interest rate swaps were determined to be highly effective
hedges of interest rate cash flow risk. Any gains and losses related to the ineffective portion of the hedges will be recognized
in the current period in earnings. 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 the current swaps totaled $0.6 million for the six month period ended June 30, 2016
and $1.0 million for the six month period ended June 30, 2015. Interest expense related to the swap buyouts totaled $0.1 million
for the six month period ended June 30, 2016 and $0.0 million for the six month period ended June 30, 2015.
Gains/(losses)
related to changes in fair value of derivative instruments that were recognized in Other (income)/expenses, net in the Consolidated
Statements of Income were as follows:
|
Three months ended
June 30,
|
Six months ended
June 30,
|
(in thousands)
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
Foreign currency options
|
$250
|
($92)
|
$455
|
$125
|
16.
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 products that we previously manufactured. We produced
asbestos-containing paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain
paper mills. Such fabrics generally had a useful life of three to twelve months.
We were
defending 3,814 claims as of June 30, 2016.
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
|
2005
|
29,411
|
6,257
|
1,297
|
24,451
|
$504
|
2006
|
24,451
|
6,841
|
1,806
|
19,416
|
3,879
|
2007
|
19,416
|
808
|
190
|
18,798
|
15
|
2008
|
18,798
|
523
|
110
|
18,385
|
52
|
2009
|
18,385
|
9,482
|
42
|
8,945
|
88
|
2010
|
8,945
|
3,963
|
188
|
5,170
|
159
|
2011
|
5,170
|
789
|
65
|
4,446
|
1,111
|
2012
|
4,446
|
90
|
107
|
4,463
|
530
|
2013
|
4,463
|
230
|
66
|
4,299
|
78
|
2014
|
4,299
|
625
|
147
|
3,821
|
437
|
2015
|
3,821
|
116
|
86
|
3,791
|
164
|
As of June 30, 2016
|
3,791
|
45
|
68
|
3,814
|
$47
|
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.
Exposure
and disease information sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available
until late in the discovery process, and often not until a trial date is imminent and a settlement demand has been received. For
these reasons, we do not believe a meaningful estimate can be made regarding the range of possible loss with respect to 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 insurer, Liberty Mutual, has defended each case and funded settlements under a standard
reservation of rights. As of June 30, 2016 we had resolved, by means of settlement or dismissal, 37,386 claims. The total cost
of resolving all claims was $9.45 million. Of this amount, almost 100% was paid by our insurance carrier. The Company’s
insurer has confirmed that although the coverage limits under two (of approximately 23) primary insurance policies have been exhausted,
there still remains approximately $3 million in coverage limits under other applicable primary policies, and $140 million in coverage
under excess umbrella coverage policies that should be available with respect to current and future asbestos claims.
Brandon
Drying Fabrics, Inc. (“Brandon”), a subsidiary of Geschmay Corp., which is a subsidiary of the Company, is also a
separate defendant in many of the asbestos cases in which Albany is named as a defendant. Brandon was defending against 7,707
claims as of June 30, 2016.
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
|
2005
|
9,985
|
642
|
223
|
9,566
|
$-
|
2006
|
9,566
|
1,182
|
730
|
9,114
|
-
|
2007
|
9,114
|
462
|
88
|
8,740
|
-
|
2008
|
8,740
|
86
|
10
|
8,664
|
-
|
2009
|
8,664
|
760
|
3
|
7,907
|
-
|
2010
|
7,907
|
47
|
9
|
7,869
|
-
|
2011
|
7,869
|
3
|
11
|
7,877
|
-
|
2012
|
7,877
|
12
|
2
|
7,867
|
-
|
2013
|
7,867
|
55
|
3
|
7,815
|
-
|
2014
|
7,815
|
87
|
2
|
7,730
|
-
|
2015
|
7,730
|
18
|
1
|
7,713
|
-
|
As of June 30, 2016
|
7,713
|
6
|
-
|
7,707
|
$-
|
We acquired
Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a wholly owned subsidiary of Geschmay Corp.
In 1978, Brandon acquired certain assets from Abney Mills (“Abney”), a South Carolina textile manufacturer. Among
the assets acquired by Brandon from Abney were assets of Abney’s wholly owned subsidiary, Brandon Sales, Inc. which had
sold, among other things, dryer fabrics containing asbestos made by its parent, Abney. Although Brandon manufactured and sold
dryer fabrics under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Because Brandon did
not manufacture asbestos-containing products, and because it does not believe that it was the legal successor to, or otherwise
responsible for obligations of Abney with respect to products manufactured by Abney, it believes it has strong defenses to the
claims that have been asserted against it. As of June 30, 2016, Brandon has resolved, by means of settlement or dismissal, 9,899
claims for a total of $0.2 million. Brandon’s insurance carriers initially agreed to pay 88.2% of the total indemnification
and defense costs related to these proceedings, subject to the standard reservation of rights. The remaining 11.8% of the costs
had been borne directly by Brandon. During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and
defense costs, subject to policy limits and the standard reservation of rights, and to reimburse Brandon for all indemnity and
defense costs paid directly by Brandon related to these proceedings.
For
the same reasons set forth above with respect to Albany’s claims, as well as the fact that no amounts have been paid to
resolve any Brandon claims since 2001, we do not believe a meaningful estimate can be made regarding the range of possible loss
with respect to these remaining claims.
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 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.
Although
we do not believe, based on currently available information and for the reasons stated above, that a meaningful estimate of a
range of possible loss can be made with respect to such claims, based on our understanding of the insurance policies available,
how settlement amounts have been allocated to various policies, our settlement experience, the absence of any judgments against
the Company or Brandon, the ratio of paper mill claims to total claims filed, and the defenses available, we currently do not
anticipate any material liability relating to the resolution of the aforementioned pending proceedings in excess of existing insurance
limits.
Consequently,
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 and the trends in claims against us to date,
we do not anticipate that additional claims likely to be filed against us in the future will have a material adverse effect on
our financial position, results of operations, or cash flows. We are aware that litigation is inherently uncertain, especially
when the outcome is dependent primarily on determinations of factual matters to be made by juries.
17.
Changes in Shareholders’ Equity
The
following table summarizes changes in Shareholders’ Equity:
(in thousands)
|
|
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, 2015
|
|
$40
|
|
|
$423,108
|
|
|
$491,950
|
|
|
($158,844
|
)
|
|
($257,391
|
)
|
|
$3,690
|
|
|
$502,553
|
|
Net income
|
|
-
|
|
|
-
|
|
|
23,868
|
|
|
-
|
|
|
-
|
|
|
(451
|
)
|
|
23,417
|
|
Compensation and benefits paid or payable in shares
|
|
-
|
|
|
1,152
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,152
|
|
Options exercised
|
|
-
|
|
|
495
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
495
|
|
Shares issued to Directors'
|
|
-
|
|
|
166
|
|
|
-
|
|
|
-
|
|
|
214
|
|
|
-
|
|
|
380
|
|
Dividends declared
|
|
-
|
|
|
-
|
|
|
(10,911
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,911
|
)
|
Cumulative translation adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,393
|
|
|
-
|
|
|
(1
|
)
|
|
2,392
|
|
Pension and postretirement liability adjustments
|
|
-
|
|
|
-
|
|
|
-
|
|
|
361
|
|
|
-
|
|
|
-
|
|
|
361
|
|
Derivative valuation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,245
|
)
|
|
-
|
|
|
-
|
|
|
(4,245
|
)
|
June
30, 2016
|
|
$40
|
|
|
$424,921
|
|
|
$504,907
|
|
|
($160,335
|
)
|
|
($257,177
|
)
|
|
$3,238
|
|
|
$515,594
|
|
18. Recent
Accounting Pronouncements
In May
2014, an accounting update was issued that replaces the existing revenue recognition framework regarding contracts with customers.
There have been several revisions to the update, the latest occurring in May 2016. This accounting update is effective for reporting
periods beginning after December 31, 2017. Early adoption is permitted but not before the original effective date, which is for
reporting periods beginning after December 31, 2016. We have not determined the impact of this update on our financial statements.
In February
2015, amended accounting guidance was issued which changes the evaluation of variable interest entities regarding whether they
should consolidate limited partnerships and similar entities, or whether fees are paid to a decision maker or service provider,
or whether they are held by related parties. We adopted this provision as of January 1, 2016 and it did not affect our financial
statements.
In April
2015 and August 2015, accounting updates were issued which require that debt issuance costs related to certain types of recognized
debt liability be presented in the balance sheet as a direct deduction of that debt, which could result in a minor netting down
of assets and liabilities. We adopted this provision as of January 1, 2016 and it did not affect our financial statements.
In May
2015, an accounting update was issued which eliminates the requirement to categorize investments in the fair value hierarchy if
their fair value is measured at net asset value (NAV) per share. We adopted this provision as of January 1, 2016 and it did not
affect our financial statements.
In July
2015, an accounting update was issued simplifying the measurement of inventory from the lower of cost or market to lower of cost
or net realizable value. This accounting update eliminates the requirement for consideration of replacement cost or net realizable
value less normal profit margin measurements. This accounting update is effective for reporting periods beginning after December
15, 2016. We do not expect the adoption of this update to have a significant effect on our financial statements.
In September
2015, an accounting update was issued which eliminates the requirement for an acquirer to retrospectively adjust the financial
statements for measurement-period adjustments that occur in periods after a business combination is consummated. This accounting
update was adopted January 1, 2016. The Company’s acquisition in the second quarter of 2016 could give rise to adjustments
that would be accounted for in accordance with this update.
In January
2016, an accounting update was issued which requires entities to present separately in Other comprehensive income the portion
of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk if the entity
has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This accounting
update is effective for reporting periods beginning after December 15, 2017. We have not determined the impact of this update
on our financial statements.
In February
2016, an accounting update was issued which requires lessees to recognize most leases on the balance sheet. The update may significantly
increase reported assets and liabilities. This accounting update is effective for reporting periods beginning after December 15,
2018. We have not determined the impact of this update on our financial statements.
In March
2016, an accounting update was issued which clarifies that a change in counterparty to a derivative contract, through novation,
that is part of a hedge accounting relationship does not, by itself, require de-designation of that relationship, as long as all
other hedge accounting criteria continue to be met. This accounting update is effective for reporting periods beginning after
December 15, 2016. We do not expect the adoption of this update to have a significant effect on our financial statements.
In March
2016, an accounting update was issued which simplifies the transition to the equity method of accounting by eliminating the requirement
for an investor to retroactively apply the equity method when its increase in ownership interest, or degree of influence, triggers
equity method accounting. This accounting update is effective for reporting periods beginning after December 15, 2016. We do not
expect the adoption of this update to have a significant effect on our financial statements.
In March
2016, an accounting update was issued which simplifies several aspects related to the accounting for share-based payment transactions,
including the income tax consequences, statutory tax withholding requirements, and classification of excess tax benefits on the
statements of cash flows. This accounting update is effective for reporting periods beginning after December 15, 2016. Early adoption
is permitted. Adoption of this accounting update could increase the volatility of income tax expense. We have not determined the
effect of this update on our financial statements.