ALBANY, N.Y., Feb. 1 /PRNewswire-FirstCall/ -- Albany International Corp. reported fourth-quarter net income of $0.21 per share, compared to $0.44 per share for the same period last year. Net income per share for the fourth quarter of 2006 was reduced by the previously announced change in contract terms with a major customer ($0.07 per share), income tax adjustments ($0.03 per share), costs related to performance-improvement initiatives ($0.06 per share), and a cumulative correction related to postretirement obligations ($0.05 per share), as a result of adopting Securities and Exchange Commission Staff Accounting Bulletin No. 108 (SAB 108). Net income for the fourth quarter of 2005 included expenses of $0.05 per share related to residual effects of consolidating manufacturing operations, while income tax adjustments increased net income by $0.03 per share.
Net sales increased $7.9 million, or 3.2 percent, compared to the fourth quarter of 2005. Net sales for the fourth quarter of 2006 were reduced by $7.6 million related to the change in contract terms. Excluding the effect of that change and the additional effect of changes in currency translation rates, net sales increased 2.4 percent. The following table presents net sales by segment:
Percent
Change
Impact of excluding
Net Sales Changes in Contract
Three Months Currency Terms
ended Trans- Impact Change and
December 31, Percent lation of Contract Currency
(in thousands) 2006 2005 Change Rates Terms Change Rate Effect
Paper
Machine
Clothing $180,502 $183,844 -1.8% $6,538 -$7,587 -1.2%
Applied
Technologies 38,894 31,283 24.3% 941 21.3%
Albany Door
Systems 36,371 32,783 10.9% 2,082 4.6%
Total $255,767 $247,910 3.2% $9,561 -$7,587 2.4%
Gross profit was 35.2 percent of net sales in the fourth quarter of 2006, compared to 37.5 percent for the fourth quarter of 2005. The gross profit percentage was negatively affected by lower European PMC sales and the continued ramp-up of manufacturing and engineering in Albany Engineered Composites, a business in the Applied Technologies segment.
Selling, technical, general, and research expenses increased from $69.5 million (28.0 percent of net sales) in the fourth quarter of 2005, to $77.8 million (30.4 percent of net sales) for the same period of 2006. The increase includes $2.1 million resulting from the adoption of SAB 108, $2.0 million related to the effect of changes in currency translation rates on accounts receivable and other balances held in currencies other than local currencies, and $1.8 million related to performance-improvement initiatives.
Operating income was $12.2 million in the fourth quarter of 2006, compared to $23.4 million in the same period of 2005. The decline in operating income was due to the above-discussed decline in gross profit and increased selling, technical, general, and research expenses.
In the fourth quarter of 2006, the Company income tax expense increased by $0.9 million ($0.03 per share) related to changes in estimated tax liabilities and changes in contingent tax reserves and valuation allowances. Income tax expense for the fourth quarter of 2005 included favorable adjustments to deferred tax valuation allowances that reduced income tax expense by $1.1 million and resulted in an increase to fourth-quarter 2005 net income of $0.03 per share.
In the fourth quarter of 2006, the Company adopted the provisions of FAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). Adoption of this Standard did not have any impact on net income for the quarter but did result in a $59.6 million increase in pension liabilities and a $41.5 million decrease in shareholders' equity.
Full-year net sales increased $32.7 million, or 3.3 percent, compared to the same period last year. Following is a table of net sales by segment:
Percent
Change
Impact of excluding
Changes in Contract
Net Sales Currency Terms
Year ended Trans- Impact Change and
December 31, Percent lation of Contract Currency
(in thousands) 2006 2005 Change Rates Terms Change Rate Effect
Paper Machine
Clothing $737,070 $732,918 0.6% 6,903 -$7,587 0.7%
Applied
Technologies 149,742 129,303 15.8% 1,318 14.8%
Albany Door
Systems 124,646 116,489 7.0% 1,106 6.1%
Total $1,011,458 $978,710 3.3% 9,327 -$7,587 3.2%
Full-year gross profit was 38.7 percent in 2006, compared to 40.1 percent for 2005. Full-year gross profit was negatively affected by lower European PMC sales, higher materials costs, and the continued ramp-up of manufacturing and engineering in Albany Engineered Composites.
Full-year operating income was $90.3 million in 2006, compared to $116.0 million in 2005. The decline in operating income was attributable to the above-discussed decline in gross profit and increased selling, technical, general, and research expenses.
Liquidity and Capital Resources
Net cash provided by operating activities was $30.9 million for the fourth quarter of 2006, compared to $25.9 million for the same period of 2005.
Capital spending during the fourth quarter of 2006 was $30.1 million and was $84.5 million for the full year. The Company expects 2007 capital spending to be in the range of $160 to $180 million, including approximately $100 million related to the previously announced PMC expansion in Asia and Latin America, approximately $35 million for strategic initiatives in the emerging businesses, and the balance for ongoing operations. Capital spending in 2008 is expected to be $100 million, and will substantially complete the previously announced PMC expansion. Beyond 2008, the Company expects annual capital spending to be approximately $50 to $60 million, including currently foreseen opportunities for strategic growth investments in the emerging businesses. Full-year depreciation was $55.1 million and amortization was $4.4 million in 2006, and are expected to be approximately $60 million and $4 million, respectively, in 2007.
Paper Machine Clothing
This segment includes Paper Machine Clothing and Process Belts (PMC) used in the manufacture of paper and paperboard products.
Compared to the fourth quarter of 2005, PMC net sales decreased 1.8 percent, and decreased 1.2 percent after excluding the effect of changes in currency translation rates and the change in the contract terms of a major customer. Compared to the third quarter of 2006, which included reductions in total PMC sales due to a sharp decline in net sales in Europe, net sales increased 5.5 percent excluding the above-mentioned change in contract terms. For the full year, net sales increased 0.6 percent compared to 2005, and 0.7 percent after excluding the effect of changes in currency translation rates and the change in the contract terms of a major customer.
Applied Technologies
This segment includes the emerging businesses that apply our core competencies in advanced textiles and materials to other industries including insulation for personal outerwear and home furnishings (PrimaLoft(R)); specialty materials and composite structures for aircraft and other applications (Albany Engineered Composites); specialty filtration products for wet and dry applications (Albany Filtration Technologies); industrial belts for Tannery, Textile, and Corrugator applications (Albany Industrial Process Belts); and fabrics, wires, and belting products for the nonwovens and pulp industries (Albany Engineered Fabrics).
Led by strong performance in Albany Engineered Composites, Albany Engineered Fabrics, and Industrial Process Belts, fourth-quarter Applied Technologies segment net sales increased 24.3 percent compared to the same period in 2005, and 21.3 percent excluding the effect of changes in currency translation rates. For the full year, sales in this segment increased 15.8 percent compared to 2005, and 14.8 percent excluding the effect of changes in currency translation rates, the third consecutive year of strong sales growth.
Albany Door Systems
This segment includes sales and service of High Performance Doors and after-market sales to a variety of industrial customers.
Fourth-quarter Door Systems net sales increased 10.9 percent compared to the same period last year, and 4.6 percent excluding the effect of changes in currency translation rates. Sales of new products continued to accelerate, with solid improvements in after-market sales in Europe. For the full year, sales in this segment increased 7.0 percent compared to 2005, and 6.1 percent excluding the effect of changes in currency translation rates.
Comments on Current and Planned Activities
President and CEO Joe Morone commented, "Our third-quarter 2006 financial release suggested that, excluding the effects of any special charges, we were hopeful that the trend forward would be for gradual improvement in revenue and operating income and that the operating income impact from the decline in European PMC revenue would be fully offset by the fourth quarter of 2007. The operating results and market conditions that we experienced in Q4 reinforce this view and suggest that we are on the trend toward gradual improvement.
"In our view, what is most important about Q4 is the evidence of progress in each of the three primary factors that we identified in the Q3 release as contributing to this gradual improvement.
"First, excluding the effect of the previously announced change in contract terms with a major customer, PMC revenue grew by 5.5% from Q3 to Q4. In the Q3 release, we indicated that we expected the pricing gap in Europe to narrow, and volumes to increase, and that we were cautiously optimistic that the combined effect should lead to flat or slight improvements in European PMC revenue over the next few quarters. With most major contract negotiations in Europe now completed, these expectations have not changed. Sales in Western Europe grew by 9% in Q4 compared to Q3 2006. Orders in all three corridors provide further evidence of the trend toward gradual improvement. This order picture is reinforced by continued market share growth in the Americas, where major contract negotiations have also been concluded, a promising array of new products in each product line, an increasingly strong R&D pipeline, and good progress toward completion of the Asian capacity expansion. One important caveat regarding PMC revenue is the continuing closures of paper machines in North America and Western Europe. The resulting pressure on the top line, which clearly affected PMC revenue in 2006, is likely to continue in 2007.
"A second key factor that strengthened in Q4 and that should continue to contribute to gradual improvement was significant, company-wide progress on the cost reduction and process improvement initiatives referred to in the Q3 release. We expect that the initial benefit of these activities will take effect by late Q1 2007, and that the magnitude of the benefit will gradually grow through the year. These performance-improvement initiatives reduced net income in the fourth quarter by $0.06 per share. The more significant charges related to these activities will likely be incurred in the first half of 2007.
"The third key factor driving the trend toward gradual improvement is the continuing growth of the emerging businesses. In the Applied Technologies segment, Albany Engineered Composites sales grew by 17% in Q4 compared to Q3, and considerable progress was made toward building our manufacturing and engineering infrastructure, developing new business opportunities, and in positioning the business for profitable growth. The remainder of the Applied Technologies segment, comprising the cluster of businesses that apply our advanced textiles and materials technology to process industries outside of paper, grew a combined 9% compared to Q3. During Q4, as part of our continuing effort to build critical mass and global capacity in these businesses, we merged Engineered Fabrics and Industrial Process Belts. Orders in each of the Applied Technologies segment businesses are strong, suggesting a continuation of the sales growth trend into 2007.
"As for the Doors segment, Q4 is historically the strongest quarter of the year. Sales in Q4 2006 grew by 11% compared to Q4 2005, and by 24% compared to Q3 2006. As with all of our businesses, door orders are strong, and perhaps most significantly for the doors business, considerable progress is being made in mapping out our strategy for approaching the aftermarket.
"In sum, we enter 2007 with a continued sense of cautious optimism, as we appear to be on track for the gradual recovery of revenue and operating income that we discussed in the Q3 release."
The Company plans a live webcast to discuss fourth-quarter and full-year 2006 financial results on Friday, February 2, 2007, at 9:00 a.m. Eastern Time. For access, go to http://www.albint.com/.
Albany International is the world's largest producer of custom-designed paper machine fabrics and process belts that are essential to the manufacture of paper and paperboard. In its family of businesses, Albany applies its core competencies in advanced textiles and materials to other industries. Founded in 1895, the Company is headquartered in Albany, New York, and employs approximately 6,100 people worldwide. Our plants are strategically located to serve our global customers. Additional information about the Company and its businesses and products is available at http://www.albint.com/.
This release contains certain items that may be considered to be non-GAAP financial measures. Such items are provided because management believes that, when presented together with the GAAP items to which they relate, they can provide additional useful information to investors regarding the registrant's financial condition, results of operations, and cash flows.
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.
Forward-looking statements in this release or in the webcast, including statements about future economic conditions, materials costs, growth in PMC sales and operating income during the next several quarters, growth expectations for the Company's emerging businesses, the amount and timing of anticipated costs and savings associated with cost-reduction, performance- improvement, and process improvement initiatives, the accretive effect on earnings of TCI, pension contributions, pricing conditions in the PMC industry, market share, paper industry outlook, the amount and timing of capital expenditures, tax rates, and depreciation and amortization are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations and are subject to various risks and uncertainties, including, but not limited to, economic conditions affecting the paper industry and other risks and uncertainties set forth in the Company's 2005 Annual Report to Shareholders and subsequent filings with the U.S. Securities and Exchange Commission. 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.
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands except per share data)
Three Months Ended Years Ended
December 31, December 31,
(unaudited) (unaudited) (unaudited)
2006 2005 2006 2005
$255,767 $247,910 Net sales $1,011,458 $978,710
165,744 155,051 Cost of goods sold 620,149 586,700
90,023 92,859 Gross profit 391,309 392,010
77,779 69,489 Selling, technical,
general and
research expenses 301,022 276,011
12,244 23,370 Operating income 90,287 115,999
2,854 1,921 Interest expense, net 9,183 10,583
(162) 3,737 Other (income)
/expense, net 2,779 4,653
9,552 17,712 Income before
income taxes 78,325 100,763
3,540 3,637 Income tax expense 20,530 29,420
6,012 14,075 Income before
associated companies 57,795 71,343
197 9 Equity in earnings of
associated companies 244 509
6,209 14,084 Net income 58,039 71,852
538,312 483,844 Retained earnings,
beginning of period 495,018 434,057
(2,919) (2,910) Dividends declared (11,455) (10,891)
$541,602 $495,018 Retained earnings,
end of period $541,602 $495,018
Earnings per share:
$0.21 $0.44 Basic $1.95 $2.25
$0.21 $0.43 Diluted $1.91 $2.22
Shares used in computing
earnings per share:
29,168 32,306 Basic 29,803 31,921
29,632 32,745 Diluted 30,324 32,403
$0.10 $0.09 Dividends per share $0.39 $0.34
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
December 31, December 31,
2006 2005
ASSETS
Cash and cash equivalents $68,237 $72,771
Accounts receivable, net 209,907 132,247
Note receivable - 17,827
Inventories 224,210 194,398
Deferred taxes 16,290 11,270
Prepaid expenses 10,552 7,892
Total current assets 529,196 436,405
Property, plant and equipment, net 397,521 335,446
Investments in associated companies 6,634 6,403
Intangibles 9,343 12,076
Goodwill 172,890 153,001
Deferred taxes 112,280 86,617
Cash surrender value of life
insurance policies 41,197 37,778
Other assets 37,486 19,321
Total assets $1,306,547 $1,087,047
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and loans payable $12,510 $6,151
Accounts payable 46,717 36,775
Accrued liabilities 113,633 116,395
Current maturities of long-term debt 11,167 1,009
Income taxes payable and deferred 20,099 14,793
Total current liabilities 204,126 175,123
Long-term debt 354,587 162,597
Other noncurrent liabilities 211,633 144,905
Deferred taxes and other credits 37,076 29,504
Total liabilities 807,422 512,129
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 34,518,870 in 2006 and 34,176,010
in 2005 35 34
Class B Common Stock, par value $.001
per share; authorized 25,000,000 shares;
issued and outstanding 3,236,098 in 2006
and 3,236,476 in 2005 3 3
Additional paid in capital 316,164 319,372
Retained earnings 541,602 495,018
Accumulated items of other
comprehensive income:
Translation adjustments (18,348) (71,205)
Pension liability adjustment (81,071) (40,340)
758,385 702,882
Less treasury stock (Class A), at
cost (8,540,882 shares in 2006 and
5,050,159 shares in 2005) 259,260 127,964
Total shareholders' equity 499,125 574,918
Total liabilities and
shareholders' equity $1,306,547 $1,087,047
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
December 31,
(unaudited)
2006 2005
OPERATING ACTIVITIES
Net income $58,039 $71,852
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in earnings of associated companies (244) (509)
Depreciation 55,100 51,339
Amortization 4,350 4,106
Provision for deferred income taxes, other
credits and long-term liabilities (9,403) 10,787
Provision for write-off of equipment 1,010 2,827
Increase in cash surrender value
of life insurance (2,397) (2,171)
Unrealized currency transaction
gains and losses 1,368 (4,520)
Shares contributed to ESOP 6,215 5,357
Stock option expense 1,543 -
Tax benefit of options exercised (362) 3,469
Changes in operating assets and liabilities,
net of business acquisition:
Accounts receivable (60,897) 4,550
Note receivable 17,827 1,128
Inventories (19,034) (17,155)
Prepaid expenses (2,036) 2,285
Accounts payable 4,181 (421)
Accrued liabilities 392 (445)
Income taxes payable 2,218 (5,617)
Other, net (5,847) (4,490)
Net cash provided by operating activities 52,023 122,372
INVESTING ACTIVITIES
Purchases of property, plant and equipment (84,452) (43,293)
Purchased software (8,822) (2,533)
Proceeds from sale of assets - 5,067
Acquisitions, net of cash acquired (15,918) -
Premiums paid for life insurance policies (1,022) (1,022)
Net cash used in investing activities (110,214) (41,781)
FINANCING ACTIVITIES
Proceeds from borrowings 222,735 176,430
Principal payments on debt (16,933) (235,455)
Purchase of treasury shares (131,499) (1,576)
Purchase of call options on common stock (47,688) -
Sale of common stock warrants 32,961 -
Proceeds from options exercised 3,227 14,455
Tax benefit of options exercised 362 -
Debt issuance costs (5,434) -
Dividends paid (11,446) (10,489)
Net cash provided by/(used in)
financing activities 46,285 (56,635)
Effect of exchange rate changes on cash flows 7,372 (10,167)
(Decrease)/increase in cash and cash equivalents (4,534) 13,789
Cash and cash equivalents at beginning of year 72,771 58,982
Cash and cash equivalents at end of period $68,237 $72,771
