<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM______ TO ______
COMMISSION FILE NUMBER: 0-16214
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ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 14-0462060
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1373 BROADWAY, ALBANY, NEW YORK 12204
(Address of principal executive
offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code
518-445-2200
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on which
Title of each class registered
<S> <C>
CLASS A COMMON STOCK NEW YORK STOCK EXCHANGE AND
($0.001 PAR VALUE) PACIFIC STOCK EXCHANGE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports,) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of Class A Common Stock held on February 10, 1997
by non-affiliates of the registrant was $586,840,552.
The registrant had 24,885,564 shares of Class A Common Stock and 5,615,563
shares of Class B Common Stock outstanding as of February 10, 1997.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE PART
<S> <C>
Registrant's Annual Report to Shareholders for the year ended December 31, 1996. II
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April
16, 1997. III
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS
Albany International Corp. ("the Company") designs, manufactures and markets
paper machine clothing for each section of the paper machine. It is the largest
producer of paper machine clothing in the world. Paper machine clothing consists
of large continuous belts of custom designed and custom manufactured, engineered
fabrics that are installed on paper machines and carry the paper stock through
each stage of the paper production process. Paper machine clothing is a
consumable product of technologically sophisticated design that is made with
synthetic monofilament and fiber materials. The Registrant produces a
substantial portion of its monofilament requirements. The design and material
composition of paper machine clothing can have a considerable effect on the
quality of paper products produced and the efficiency of the paper machines on
which it is used.
Practically all press fabrics are woven tubular or endless from monofilament
yarns. After weaving, the base press fabric goes to a needling operation where a
thick fiber layer, called a batt, is laid on the base just before passing
through the needling machine. The needles are equipped with tiny barbs that grab
batt fibers locking them into the body of the fabric. After needling, the
fabrics are usually washed, and water is removed. The fabric then is heat set,
treatments may be applied, and it is measured and trimmed.
The Registrant's manufacturing process is similar for forming fabrics and
drying fabrics, except that there is normally no needling operation in the
construction of those fabrics. Monofilament screens are woven on a loom. The
fabrics are seamed to produce an endless loop, and heat stabilized by running
them around two large cylinders under heat and drawn out by tension. After heat
setting, the fabrics are seamed and boxed.
In addition to paper machine clothing, the Registrant manufactures other
engineered fabrics which include fabrics for the non-woven industry, corrugator
belts, filtration media and Rapid Roll Doors-Registered Trademark-. Nomafa is
the operation of the Company which developed high speed, high performance
industrial doors, which grew from the application of the Company's coated fabric
technology to its woven fabrics. Since Nomafa's inception in the early 1980's,
manufacturing operations in North America and Europe have supplied over 60,000
installations worldwide. In November 1996, the Registrant acquired Schieffer
Door Systems, a manufacturer of high-speed, high-performance industrial doors.
Schieffer's technology and leadership position in Germany will significantly
enhance the Registrant's industrial door operations.
INDUSTRY FACTORS
There are approximately 1,200 paper machines in the United States located in
approximately 600 paper mills. It is estimated that, excluding China, there are
about 7,300 paper machines in the world and approximately 1,500, mostly very
small, paper machines in China. Demand for paper machine clothing is tied to the
volume of paper production, which in turn reflects economic growth. According to
published data, world production volumes have grown at an annual rate in excess
of 3% over the last ten years. The Registrant anticipates continued growth for
the long-term in world paper production. The profitability of the paper machine
clothing business has generally been less cyclical than the profitability of the
papermaking industry.
Because the paper industry has been characterized by an evolving but
essentially stable manufacturing technology based on the wet forming papermaking
process, which requires a very large capital investment, the Registrant does not
believe that a commercially feasible substitute technology that does not employ
paper machine clothing is likely to be developed and incorporated into the paper
production process by paper manufacturers in the foreseeable future.
Accordingly, the prospects for continued growth of industry demand for paper
machine clothing appear excellent.
Over the last few years, paper manufacturers have generally reduced the
number of suppliers of paper machine clothing per machine position. This trend
has increased opportunities for market leaders, including the Registrant, to
expand their market share.
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INTERNATIONAL OPERATIONS
The Registrant maintains wholly-owned manufacturing facilities in Australia,
Brazil, Canada, China, Finland, France, Germany, Great Britain, Holland, Mexico,
Sweden and the United States. In 1996, the Company began construction of a new
manufacturing facility in South Korea. The Registrant has a 50% interest in two
related entities in South Africa which are engaged primarily in the paper
machine clothing business (see Note 1 of Notes to Consolidated Financial
Statements).
The Registrant's geographically diversified operations allow it to serve the
world's paper markets more efficiently and to provide superior technical service
to its customers. The Registrant benefits from the transfer of research and
development product innovations between geographic regions. The worldwide scope
of the Registrant's manufacturing and marketing efforts also limits the impact
on the Company of economic downturns that are limited to a geographic region.
The Registrant's widespread presence subjects it to certain risks, including
controls on foreign exchange and the repatriation of funds. However, the
Registrant has been able to repatriate earnings in excess of working capital
requirements from each of the countries in which it operates without substantial
governmental restrictions and does not foresee any material changes in its
ability to continue to do so in the future. In addition, the Registrant believes
that the risks associated with its operations and locations outside the United
States are those normally associated with doing business in these locations.
MARKETING, CUSTOMERS AND BACKLOG
Paper machine clothing is custom designed for each user depending upon the
type, size and speed of the papermaking machine, the machine section, the grade
of paper being produced, and the quality of the pulp stock used. Technical
expertise, judgment and experience are critical in designing the appropriate
clothing for each position on the machine. As a result, the Registrant employs
highly skilled sales and technical service personnel in 25 countries who work
directly with paper mill operating management. The Registrant's technical
service program in the United States gives its service engineers field access to
the measurement and analysis equipment needed for troubleshooting and
application engineering. Sales, service and technical expenses are major cost
components of the Registrant. The Registrant employs approximately 900 people in
the sales and technical functions combined, many of whom have engineering
degrees or paper mill experience. The Registrant's market leadership position
reflects the Company's commitment to technological innovation.
Typically, the Registrant experiences its highest quarterly sales levels in
the fourth quarter of each fiscal year and its lowest levels in the first
quarter. The Registrant believes that this pattern only partially reflects
seasonal shifts in demand for its products but is more directly related to
purchasing policies of the Registrant's customers.
Payment terms granted to customers reflect general competitive practices.
Terms vary with product and competitive conditions, but generally require
payment within 30 to 90 days, depending on the country of operation.
Historically, bad debts have been insignificant. No single customer, or group of
related customers, accounted for more than 5% of the Registrant's sales of paper
machine clothing in any of the past three years. Management does not believe
that the loss of any one customer would have a material adverse effect on the
Registrant's business.
The Registrant's order backlogs at December 31, 1996 and 1995 were
approximately $502 million and $492 million, respectively. Orders recorded at
December 31, 1996 are expected to be invoiced during the next 12 months.
RESEARCH AND DEVELOPMENT
The Registrant invests heavily in research, new product development and
technical analysis to maintain its leadership in the paper machine clothing
industry. The Registrant's expenditures fall into two
3
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primary categories, research and development and technical expenditures.
Research and development expenses totaled $21.9 million in 1996, $19.7 million
in 1995 and $18.4 million in 1994. While most research activity supports
existing products, the Registrant engages in research for new products. New
product research has focused primarily on more sophisticated paper machine
clothing and has resulted in a stream of products such as
DUOTEX-Registered Trademark- and TRIOTEX-TM- forming fabrics, for which the
technology has been licensed to several competitors,
DURAFORM-Registered Trademark- SR, an enhanced single-layer forming fabric,
SEAMTECH-TM-, the patented on-machine-seamed press fabric, DYNATEX-TM-, a unique
multi-layer press fabric, long nip press belts which are essential to water
removal in the press section and Thermonetics-TM-,
BEL-PLANE-Registered Trademark-, AEROLINE-TM- and AEROGRIP-TM- which are dryer
fabrics. Technical expenditures, primarily at the plant level, totaled $26.8
million in 1996, $25.3 million in 1995 and $22.5 million in 1994. Technical
expenditures are focused on design, quality assurance and customer support.
Although the Registrant has focused most of its research and development
efforts on paper machine clothing products and design, the Registrant also has
made progress in developing non-paper machine clothing products. Through its
major research facility in Mansfield, Massachusetts, the Registrant conducts
research under contract for the U.S. government and major corporations. In
addition to its Mansfield facility, the Registrant has four other research and
development centers located at manufacturing locations in Halmstad, Sweden;
Selestat, France; Albany, New York; and Menasha, Wisconsin.
The Registrant holds a number of patents, trademarks and licenses, none of
which are material to the continuation of the Registrant's business. The
Registrant has licensed some of its patents to one or more competitors, mainly
to enhance customer acceptance of the new products. The revenue from such
licenses is less than 1% of consolidated net sales.
COMPETITION
While there are more than 50 paper machine clothing suppliers worldwide,
only six major paper machine clothing companies compete on a global basis.
Market shares vary depending on the country and the type of paper machine
clothing produced. In the paper machine clothing market, the Registrant believes
that it has a market share of approximately 29% in the United States and
Canadian markets, taken together, 18% in the rest of the world and approximately
22% in the world overall. Together, the United States and Canada constitute
approximately 39% of the total world market for paper machine clothing.
Competition is intense in all areas of the Registrant's business. While
price competition is, of course, a factor, the primary bases for competition are
the performance characteristics of the Registrant's products, which are
principally technology-driven, and the quality of customer service. The
Registrant, like its competitors, provides diverse services to customers through
its sales and technical service personnel including: (1) consulting on
performance of the paper machine; (2) consulting on paper machine
configurations, both new and rebuilt; (3) selection and custom manufacture of
the appropriate paper machine clothing; and (4) storing fabrics for delivery to
the user.
EMPLOYEES
The Registrant employs 5,854 persons, of whom approximately 75% are engaged
in manufacturing the Registrant's products. Wages and benefits are competitive
with those of other manufacturers in the geographic areas in which the
Registrant's facilities are located. The Registrant considers its relations with
its employees in general to be excellent.
4
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EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Registrant:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
J. Spencer Standish 71 Chairman of the Board and Director
Francis L. McKone 62 President, CEO and Director
Frank R. Schmeler 57 Executive Vice President and Chief Operating Officer -- PMC
Edward Walther 53 Executive Vice President -- Management and Technology
Michael C. Nahl 54 Senior Vice President and Chief Financial Officer
J. Weldon Cole 60 Senior Vice President -- Corporate Planning and Business Development
Michel J. Bacon 47 Senior Vice President -- Canada and Pacific
William M. McCarthy 46 Senior Vice President -- Europe
Thomas H. Hagoort 64 General Counsel and Secretary
Richard A. Carlstrom 53 Vice President -- Controller
William H. Dutt 61 Vice President -- Technical
Edward R. Hahn 52 Vice President -- Research and Development
Hugh A. McGlinchey 57 Vice President -- Information Systems
Kenneth C. Pulver 53 Vice President -- Corporate Communications
Ervin D. Johnson 53 Treasurer
Charles J. Silva, Jr. 37 Assistant General Counsel and Assistant Secretary
</TABLE>
J. SPENCER STANDISH joined the Registrant in 1952. He has served the
Registrant as Chairman of the Board since 1984, Vice Chairman from 1976 to 1984,
Executive Vice President from 1974 to 1976, and Vice President from 1972 to
1974. He has been a Director of the Registrant since 1958. He is a director of
Berkshire Life Insurance Company.
FRANCIS L. MCKONE joined the Registrant in 1964. He has served the
Registrant as Chief Executive Officer since 1993, President since 1984,
Executive Vice President from 1983 to 1984, Group Vice President--Papermaking
Products Group from 1979 to 1983, and prior to 1979 as a Vice President of the
Registrant and Division President--Papermaking Products U.S. He has been a
Director of the Registrant since 1983.
FRANK R. SCHMELER joined the Registrant in 1964. He has served the
Registrant as Executive Vice President and Chief Operating Officer since 1997
and as Senior Vice President from 1988 to 1997, as Vice President and General
Manager of the Felt Division from 1984 to 1988, as Division Vice President and
General Manager, Albany International Canada from 1978 to 1984 and as Vice
President of Marketing, Albany International Canada from 1976 to 1978.
EDWARD WALTHER joined the Registrant in 1994. He has served the Registrant
as Executive Vice President since 1997 and as Senior Vice President from 1995 to
1997 and as Vice President and General Manager--Continental Europe since 1994.
Prior to joining the Registrant, he held various marketing and managerial
positions with a company in the paper machine clothing business.
MICHAEL C. NAHL joined the Registrant in 1981. He has served the Registrant
as Senior Vice President and Chief Financial Officer since 1983 and prior to
1983 as Group Vice President.
J. WELDON COLE joined the Registrant as Senior Vice President on January 1,
1995. From 1988 until December 1994 he held various management positions, most
recently as President and Director of Beloit Corporation, an international
manufacturer of pulp and papermaking equipment.
5
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MICHEL J. BACON joined the Registrant in 1978. He has served the Registrant
as Senior Vice President since 1996 and as Vice President and General Manager of
Albany International Canada from 1991 to 1996, as Vice President of Operations,
Albany International Canada Press Division from 1989 to 1991 and as Vice
President of Marketing, Albany International Canada from 1987 to 1989.
WILLIAM M. MCCARTHY joined the Registrant in 1977. He has served the
Registrant as Senior Vice President since 1997 and since 1991 has held various
positions for Press Fabrics U.S. including Vice President and General Manager,
Vice President--Marketing and Technical Director. From 1988 to 1991 he was
Technical Director for Continental Europe-Press Fabrics.
THOMAS H. HAGOORT joined the Registrant in 1991. He has served the
Registrant as General Counsel and Secretary since 1997 and as General Counsel
from 1991 to 1997. From 1968 until December 31, 1990 he was a partner in Cleary,
Gottlieb, Steen and Hamilton, an international law firm with headquarters in New
York City, to which he became of counsel on January 1, 1991.
RICHARD A. CARLSTROM joined the Registrant in 1972. He has served the
Registrant as Vice President-- Controller since 1993, as Controller since 1980,
as Controller of a U.S. division from 1975 to 1980, and prior to 1975 as
Financial Controller of Albany International Pty. in Australia.
WILLIAM H. DUTT joined the Registrant in 1958. He has served the Registrant
since 1983 as Vice President--Technical, and prior to 1983 he served in various
technical, engineering, and research capacities including Director of Research
and Development and Vice President--Operations for Albany Felt.
EDWARD R. HAHN joined the Registrant in 1971. He has served the Registrant
since 1995 as Vice President--Research and Development and Executive Director of
Albany International Research Company, as Vice President and General Manager of
Press Fabrics U.S. from 1990 to 1995, as Vice President of Euroscan Press and
Dryer Divisions from 1987 to 1990 and as Vice President of Operations for
Nordiskafilt from 1986 to 1987.
HUGH A. MCGLINCHEY joined the Registrant in 1991. He has served the
Registrant as Vice President-- Information Systems since 1993 and from 1991 to
1993 as Director--Information Systems. Prior to 1991 he served as
Director--Corporate Information and Communications Systems for Avery Dennison
Corporation.
KENNETH C. PULVER joined the Registrant in 1968. He has served the
Registrant as Vice President-- Corporate Communications since 1997 and as Vice
President of Operations for Primaloft from 1992 to 1997. From 1984 to 1992 he
served in various marketing positions with Albany Engineered Systems.
ERVIN D. JOHNSON joined the Registrant in 1974. He has served the Registrant
as Treasurer since 1996 and as Controller of Press Fabrics U.S. from 1991 to
1996. Prior to 1991 he served in various financial positions, including
Controller of Appleton Wire Division and Operations Manager for Nomafa Door
Division.
CHARLES J. SILVA, JR. joined the Registrant in 1994. He has served the
Registrant as Assistant General Counsel and Assistant Secretary since 1996 and
as Assistant General Counsel from 1994 to 1996. Prior to 1994, he was an
associate in Cleary, Gottlieb, Steen and Hamilton, an international law firm
with headquarters in New York City.
RAW MATERIALS AND INVENTORY
Primary raw materials for the Registrant's products are synthetic fibers,
which are generally available from a number of suppliers. The Registrant,
therefore, is not required to maintain inventories in excess of its current
needs to assure availability. In addition, the Registrant manufactures
monofilament, a basic raw material for all types of paper machine clothing, at
its facility in Homer, New York, which supplies approximately 40% of its
world-wide monofilament requirements. This manufacturing capability assists the
Registrant in its negotiations with monofilament producers for the balance of
its supply requirements, and enhances the ability of the Registrant to develop
proprietary products.
6
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The Registrant believes it is in compliance with all Federal, State and
local provisions which have been enacted or adopted regarding the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, and does not have knowledge of environmental regulations which do
or might have a material effect on future capital expenditures, earnings, or
competitive position.
The Registrant is incorporated under the laws of the State of Delaware and
is the successor to a New York corporation which was originally incorporated in
1895 and which was merged into the Registrant in August 1987 solely for the
purpose of changing the domicile of the corporation. Upon such merger, each
outstanding share of Class B Common Stock of the predecessor New York
corporation was changed into one share of Class B Common Stock of the
Registrant. References to the Registrant that relate to any time prior to the
August 1987 merger should be understood to refer to the predecessor New York
corporation.
ITEM 2. PROPERTIES
The Registrant's principal manufacturing facilities are located in the
United States, Canada, Europe, Brazil, Mexico, Australia and China. The
aggregate square footage of the Registrant's facilities in the United States and
Canada is approximately 2,485,000, of which 2,408,000 square feet are owned and
77,000 square feet are leased. The Registrant's facilities located outside the
United States and Canada comprise approximately 2,725,000 square feet, of which
2,615,000 square feet are owned and 110,000 square feet are leased. The
Registrant considers these facilities to be in good condition and suitable for
their purpose. The capacity associated with these facilities is adequate to meet
production levels required and anticipated through 1997. The Registrant's
expected 1997 capital expenditures, including the new facility in South Korea
but excluding new operating leases, of about $60 million will provide sufficient
capacity for anticipated growth.
The Registrant believes it has modern, efficient production equipment. In
the last five years, it has spent $183 million on new plants and equipment or
upgrading existing facilities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of 1996 to a vote
of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
"Stock and Shareholders" and "Quarterly Financial Data" on page 26 of the
Annual Report are incorporated herein by reference.
Restrictions on dividends and other distributions are described in Note 6,
on pages 13 and 14 of the Annual Report. Such description is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Eleven Year Summary" on pages 24 and 25 of the Annual Report is
incorporated herein by reference.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Review of Operations" on pages 21 to 23 of the Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries, included on pages 7 to 20 in the Annual Report, are incorporated
herein by reference:
Consolidated Statements of Income and Retained Earnings--years ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Cash Flows--years ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) DIRECTORS. The information set out in the section captioned "Election of
Directors" of the Proxy Statement is incorporated herein by reference.
b) EXECUTIVE OFFICERS OF REGISTRANT. Information about the officers of the
Registrant is set forth in Item 1 above.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the sections of the Proxy Statement captioned
"Executive Compensation", "Summary Compensation Table", "Option/SAR Grants in
Last Fiscal Year", "Option/SAR Exercises during 1996 and Year-End Values",
"Pension Plan Table", "Compensation and Stock Option Committee Report on
Executive Compensation", "Compensation and Stock Option Committee Interlocks and
Insider Participation", "Stock Performance Graph", and "Directors' Fees" is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set out in the section captioned "Share Ownership" of the
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE AND REPORTS ON FORM 8-K
a)(1) FINANCIAL STATEMENTS. The consolidated financial statements included
in the Annual Report are incorporated by reference in Item 8.
a)(2) SCHEDULE. The following consolidated financial statements schedule for
each of the three years in the period ended December 31, 1996 is included
pursuant to Item 14(d):
Report of Independent Accountants on Financial Statements Schedule
Schedule II--Valuation and Qualifying Accounts
a)(3)(b) No reports on Form 8-K were filed during the quarter ended December
31, 1996.
<TABLE>
<CAPTION>
(3) EXHIBITS
<S> <C> <C>
3(a) -- Certificate of Incorporation of Registrant. (3)
3(b) -- Bylaws of Registrant. (1)
4(a) -- Article IV of Certificate of Incorporation of Registrant (included in
Exhibit 3(a)).
4(b) -- Specimen Stock Certificate for Class A Common Stock. (1)
MORGAN CREDIT AGREEMENT
10(i)(i) -- Amended and restated Credit Agreement, dated as of February 29, 1996, among
the Registrant, certain banks listed therein, and Morgan Guaranty Trust
Company of New York, as Agent. (8)
STOCK OPTIONS
10(m)(i) -- Form of Stock Option Agreement, dated as of August 1, 1983, between the
Registrant and each of five employees, together with schedule showing the
names of such employees and the material differences among the Stock Option
Agreements with such employees. (1)
10(m)(ii) -- Form of Amendment of Stock Option Agreement, dated as of July 1, 1987,
between the Registrant and each of the five employees identified in the
schedule referred to as Exhibit 10(m)(i). (1)
10(m)(iii) -- 1988 Stock Option Plan. (2)
10(m)(iv) -- 1992 Stock Option Plan (6)
EXECUTIVE COMPENSATION
10(n) -- Pension Equalization Plan adopted April 16, 1986, naming two current
executive officers and one former executive officer of Registrant as
"Participants" thereunder. (1)
10(n)(i) -- Supplemental Executive Retirement Plan. (7)
10(o)(i) -- Form of Executive Deferred Compensation Plan adopted September 1, 1985, and
Forms of Election Agreement. (1)
10(o)(ii) -- Form of Directors' Deferred Compensation Plan adopted September 1, 1985, and
Form of Election Agreement. (1)
10(o)(iii) -- Executive Deferred Compensation Plan. (2)
10(o)(iv) -- Directors' Deferred Compensation Plan. (2)
10(o)(v) -- Deferred Compensation Plan of Albany International Corp. (8)
10(o)(vi) -- Centennial Deferred Compensation Plan. (8)
</TABLE>
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<TABLE>
<CAPTION>
(3) EXHIBITS
<S> <C> <C>
OTHER AGREEMENTS
10(q) -- Merchandise Orders Purchase and Sale Agreement, dated as of January 28,
1991, among the Registrant, CXC Incorporated and Citicorp North America,
Inc., as Agent. (4)
10(q)(i) -- Amendment No. 1 to Merchandise Orders Purchase and Sale Agreement, dated as
of April 26, 1991, among the Registrant, CXC Incorporated and Citicorp North
America, Inc., as Agent, amending the Merchandise Orders Purchase and Sale
Agreement referred to as Exhibit 10(q). (5)
11 -- Schedule of Computation of Primary and Fully Diluted Net Income Per Share.
13 -- Annual Report to Security Holders for the year ended December 31, 1996.
21 -- Subsidiaries of Registrant.
23 -- Consent of Coopers & Lybrand L.L.P.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
</TABLE>
All other schedules and exhibits are not required or are inapplicable and,
therefore, have been omitted.
- ------------------------
(1) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1, No. 33-16254, as amended, declared effective by the Securities and
Exchange Commission on September 30, 1987, which previously-filed Exhibit is
incorporated by reference herein.
(2) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated August 8, 1988, which previously-filed Exhibit is incorporated by
reference herein.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement on
Form 8-A, File No. 1-10026, declared effective by the Securities and
Exchange Commission on August 26, 1988 (as to The Pacific Stock Exchange,
Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.),
which previously-filed Exhibit is incorporated by reference herein.
(4) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated April 8, 1991, which previously-filed Exhibit is incorporated by
reference herein.
(5) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated May 28, 1991, which previously-filed Exhibit is incorporated by
reference herein.
(6) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated January 18, 1993, which previously-filed Exhibit is incorporated
by reference herein.
(7) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated June 30, 1994, which previously-filed Exhibit is incorporated by
reference herein.
(8) Previously filed as an Exhibit to the Registrant's Current Report on Form
8-K dated March 15, 1996, which previously-filed Exhibit is incorporated by
reference herein.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*
- ------------------------------ Chairman of the Board and March 14, 1997
(J. Spencer Standish) Director
* President and Director
- ------------------------------ (Chief Executive March 14, 1997
(Francis L. McKone) Officer)
Senior Vice President and
/s/ MICHAEL C. NAHL Chief Financial Officer
- ------------------------------ (Principal Financial March 14, 1997
(Michael C. Nahl) Officer)
* Vice President-Controller
- ------------------------------ (Principal Accounting March 14, 1997
(Richard A. Carlstrom) Officer)
*
- ------------------------------ Director March 14, 1997
(Charles B. Buchanan)
*
- ------------------------------ Director March 14, 1997
(Thomas R. Beecher, Jr.)
*
- ------------------------------ Director March 14, 1997
(Stanley I. Landgraf)
*
- ------------------------------ Director March 14, 1997
(Dr. Joseph G. Morone)
*
- ------------------------------ Director March 14, 1997
(Allan Stenshamn)
*
- ------------------------------ Director March 14, 1997
(Barbara P. Wright)
/s/ MICHAEL C. NAHL
-----------------------------------------
Michael C. Nahl
*By Attorney-in-fact
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 14th day of
March, 1997.
ALBANY INTERNATIONAL CORP.
by /S/MICHAEL C. NAHL
------------------------------------
Michael C. Nahl
Principal Financial Officer
Senior Vice President
and Chief Financial Officer
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENTS SCHEDULE
To The Shareholders and Board of Directors
Albany International Corp.
Our report on the consolidated financial statements of Albany International
Corp. has been incorporated by reference in this form 10-K from page 7 of the
1996 Annual Report to Shareholders of Albany International Corp. In connection
with our audits of such financial statements, we have also audited the related
financial statements schedule listed in the index on page 9 of this Form 10-K.
In our opinion, the financial statements schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
January 23, 1997
<PAGE>
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS (A) END OF PERIOD
- ---------------------------------------------------------- ----------- ----------- --------------- -------------
Allowance for doubtful accounts
Year ended December 31:
1996............................................ $ 5,010 $ 1,036 $ 1,084 $ 4,962
1995............................................ $ 4,618 $ 963 $ 571 $ 5,010
1994............................................ $ 4,579 $ 597 $ 558 $ 4,618
</TABLE>
- ------------------------
(A) Includes accounts written off as uncollectible, recoveries and the effect of
currency exchange rates.
<PAGE>
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INCOME PER SHARE
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
PRIMARY EARNINGS PER SHARE:
<TABLE>
<CAPTION>
For the three months For the years ended
ended December 31, December 31,
1996 (1) 1995 (1) 1996 (1) 1995 (1)
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
30,464,625 30,313,147 Common stock outstanding at end of period 30,464,625 30,313,147
Adjustments to ending shares to arrive at
weighted average for the period:
(21,904) (23,553) Shares contributed to E.S.O.P. (2) (95,099) (75,763)
(8,539) (72) Shares issued under option or to Directors (2) (19,112) (133,024)
- (26) Shares issued due to conversion of debt (2) - (63)
- 55,435 Treasury shares purchased (2) 13,814 97,561
----------- ---------- ---------- -----------
30,434,182 30,344,931 Weighted average number of shares 30,364,228 30,201,858
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
$15,038 $12,118 Income before extraordinary item $48,681 $43,050
Extraordinary loss on early extinguishment of debt,
- - net of tax of $828 $1,296 -
----------- ---------- ---------- -----------
$15,038 $12,118 Net income $47,385 $43,050
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
$0.49 $0.40 Income per share before extraordinary item (3) $1.60 $1.43
- - Extraordinary loss on early extinguishment of debt (3) (0.04) -
----------- ---------- ---------- -----------
$0.49 $0.40 Net income per share (3) $1.56 $1.43
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
(1) Includes Class A and Class B Common Stock
(2) Calculated as follows: number of shares multiplied by the reciprocal of the
number of days outstanding (or the reciprocal of the number of days held in
treasury for treasury stock purchases) divided by the number of days in the
period
SHARES CONTRIBUTED TO E.S.O.P.:
<TABLE>
<CAPTION>
For the year:
<S> <C> <C>
January 31, 1995................................................. 12,346 * (30/365) 1,015
February 23, 1995................................................ 656 * (53/365) 95
February 28, 1995................................................ 13,324 * (58/365) 2,117
February 28, 1995................................................ 37,040 * (58/365) 5,886
March 31, 1995................................................... 12,697 * (89/365) 3,096
April 30, 1995................................................... 9,968 * (119/365) 3,250
May 31, 1995..................................................... 10,301 * (150/365) 4,233
June 30, 1995.................................................... 10,217 * (180/365) 5,039
July 18, 1995.................................................... 32 * (198/365) 17
July 31, 1995.................................................... 8,382 * (211/365) 4,845
August 31, 1995.................................................. 10,146 * (242/365) 6,727
September 30, 1995............................................... 9,729 * (272/365) 7,250
October 31, 1995................................................. 10,943 * (303/365) 9,084
November 30, 1995................................................ 11,614 * (333/365) 10,596
December 31, 1995................................................ 12,547 * (364/365) 12,513
--------
75,763
--------
--------
</TABLE>
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
January 31, 1996................................................. 12,969 * (30/366) 1,063
February 29, 1996................................................ 136,670 * (59/366) 22,032
March 31, 1996................................................... 11,616 * (90/366) 2,856
April 30, 1996................................................... 10,790 * (120/366) 3,538
May 31, 1996..................................................... 12,658 * (151/366) 5,222
June 30, 1996.................................................... 10,383 * (181/366) 5,135
July 31, 1996.................................................... 12,253 * (212/366) 7,097
August 31, 1996.................................................. 13,016 * (243/366) 8,642
September 30, 1996............................................... 11,067 * (273/366) 8,255
October 31, 1996................................................. 12,492 * (304/366) 10,376
November 30, 1996................................................ 11,398 * (334/366) 10,401
December 31, 1996................................................ 10,511 * (365/366) 10,482
-------
95,099
-------
-------
For the three months:
October 31, 1995................................................. 10,943 * (30/92) 3,568
November 30, 1995................................................ 11,614 * (60/92) 7,574
December 31, 1995................................................ 12,547 * (91/92) 12,411
------
23,553
------
------
October 31, 1996................................................. 12,492 * (30/92) 4,074
November 30, 1996................................................ 11,398 * (60/92) 7,433
December 31, 1996................................................ 10,511 * (91/92) 10,397
------
21,904
------
------
SHARES ISSUED UNDER OPTION OR TO DIRECTORS:
For the year:
April 12, 1995................................................... 25,000 * (101/365) 6,918
April 27, 1995................................................... 5,000 * (116/365) 1,589
May 1, 1995...................................................... 20,000 * (120/365) 6,575
June 2, 1995..................................................... 7,500 * (152/365) 3,123
June 6, 1995..................................................... 14,000 * (156/365) 5,983
June 14, 1995.................................................... 600 * (164/365) 270
July 10, 1995.................................................... 1,200 * (190/365) 625
July 12, 1995.................................................... 15,000 * (192/365) 7,890
July 13, 1995.................................................... 10,000 * (193/365) 5,288
July 19, 1995.................................................... 15,000 * (199/365) 8,178
July 20, 1995.................................................... 10,000 * (200/365) 5,479
July 26, 1995.................................................... 7,500 * (206/365) 4,233
July 27, 1995.................................................... 5,000 * (207/365) 2,836
July 28, 1995.................................................... 28,800 * (208/365) 16,412
July 31, 1995.................................................... 55,000 * (211/365) 31,794
August 4, 1995................................................... 3,000 * (215/365) 1,767
August 7, 1995................................................... 10,000 * (218/365) 5,973
August 10, 1995.................................................. 3,700 * (221/365) 2,240
August 23, 1995.................................................. 6,200 * (234/365) 3,975
September 1, 1995................................................ 1,200 * (243/365) 799
September 12, 1995............................................... 1,200 * (254/365) 835
September 15, 1995............................................... 10,000 * (257/365) 7,041
September 26, 1995............................................... 2,500 * (268/365) 1,836
October 2, 1995.................................................. 1,200 * (274/365) 901
October 10, 1995................................................. 600 * (282/365) 464
------
133,024
------
</TABLE>
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
<TABLE>
<S> <C> <C>
May 20, 1996..................................................... 2,255 * (140/366) 863
May 22, 1996..................................................... 6,000 * (142/366) 2,328
October 10, 1996................................................. 1,400 * (283/366) 1,083
October 22, 1996................................................. 9,000 * (295/366) 7,254
November 13, 1996................................................ 3,000 * (317/366) 2,598
December 31, 1996................................................ 5,000 * (365/366) 4,986
------
19,112
------
------
For the three months:
October 2, 1995.................................................. 1,200 * (1/92) 13
October 10, 1995................................................. 600 * (9/92) 59
------
72
------
------
October 10, 1996................................................. 1,400 * (9/92) 137
October 22, 1996................................................. 9,000 * (21/92) 2,054
November 13, 1996................................................ 3,000 * (43/92) 1,402
December 31, 1996................................................ 5,000 * (91/92) 4,946
------
8,539
------
------
TREASURY SHARES PURCHASED:
For the year:
<S> <C> <C>
February 16, 1995.............................................. 15,000 * (46/365) 1,890
March 14, 1995................................................. 35,000 * (72/365) 6,904
November 21, 1995.............................................. 100,000 * (324/365) 88,767
------
97,561
------
------
January 17, 1996............................................... 91,000 * (16/366) 3,978
March 13, 1996................................................. 50,000 * (72/366) 9,836
------
13,814
------
------
For the three months:
November 21, 1995.............................................. 100,000 * (51/92) 55,435
------
------
SHARES ISSUED DUE TO CONVERSION OF DEBT:
For the year:
November 1, 1995............................................... 76 * (304/365) 63
------
------
For the three months:
November 1, 1995............................................... 76 * (31/92) 26
------
------
</TABLE>
(3) Dilutive common stock equivalents are not material and therefore are not
included in the calculation of primary earnings per common share.
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE
(in thousands, except per share data)
FULLY DILUTED EARNINGS PER SHARE:
<TABLE>
<CAPTION>
For the three months For the years ended
ended December 31, December 31,
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
30,434,182 30,344,931 Weighted average number of shares 30,364,228 30,201,858
411,175 308,801 Incremental shares of unexercised options (4) 411,175 340,227
- 5,712,374 Convertible shares of subordinated debentures (5) - 5,712,374
----------- ---------- ---------- ----------
30,845,357 36,366,106 Adjusted weighted average number of shares 30,775,403 36,254,459
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
$15,038 $13,567 Income before extraordinary item $48,681 $48,846
Extraordinary loss on early extinguishment of debt,
- - net of tax of $828 $1,296 -
----------- ---------- ---------- ----------
$15,038 $13,567 Net income (including after-tax income adjustment) $47,385 $48,846
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
$0.49 $0.37 Income per share before extraordinary item $1.58 $1.35
- - Extraordinary loss on early extinguishment of debt (0.04) -
----------- ---------- ---------- ----------
$0.49 $0.37 Fully diluted net income per share $1.54 $1.35
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
(4) Incremental shares of unexercised options are calculated based on the higher
of the average price of the Company's stock or the ending price for the
respective period. The calculation includes all options whose exercise price
is below the higher of the average or ending stock price.
(5) The convertible subordinated debentures were redeemed in March 1996 and
therefore removed from the fully diluted calculation. In 1995, the original
subordinated debentures were convertible into 5,712,450 shares of the
Company's Class A Common Stock. Two debentures were converted into 76 shares
as of December 31, 1995. Upon any conversion, the Company would realize an
after-tax income adjustment based on the effective interest expense on the
bonds less the corresponding income tax deduction. The full amount of the
shares and the income adjustment are included in the calculation only when
they cause dilution to net income per share.
<PAGE>
EXHIBIT 13
1996 ANNUAL REPORT
<PAGE>
REPORT OF MANAGEMENT
Management of Albany International Corp. is responsible for the integrity and
objectivity of the accompanying financial statements and related information.
These statements have been prepared in conformity with generally accepted
accounting principles, and include amounts that are based on our best judgments
with due consideration given to materiality.
Management maintains a system of internal accounting controls designed to
provide reasonable assurance, at reasonable cost, that assets are safeguarded
and that transactions and events are recorded properly. A program of internal
audits and management reviews provides a monitoring process that allows the
Company to be reasonably sure the system of internal accounting controls
operates effectively.
The financial statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants. Their role is to express an opinion as to whether
management's financial statements present fairly, in accordance with generally
accepted accounting principles, the Company's financial condition and operating
results. Their opinion is based on procedures which include reviewing and
evaluating certain aspects of selected systems, procedures and internal
accounting controls, and conducting such tests as they deem necessary.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the independent accountants, management and
internal audit to review their work and confirm that they are properly
discharging their responsibilities. In addition, the independent accountants are
free to meet with the Audit Committee without the presence of management to
discuss results of their work and observations on the adequacy of internal
financial controls, the quality of financial reporting and other relevant
matters.
[SIG]
J. Spencer Standish
CHAIRMAN OF THE BOARD
[SIG]
Francis L. McKone
PRESIDENT AND CHIEF EXECUTIVE OFFICER
[SIG]
Michael C. Nahl
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALBANY INTERNATIONAL CORP.
We have audited the accompanying consolidated balance sheets of Albany
International Corp. as of December 31, 1996 and 1995, and the related
consolidated statements of income and retained earnings, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Albany
International Corp. as of December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
[COOPERS & LYBRAND SIG]
Albany, New York
January 23, 1997
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1996 1995 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENTS OF INCOME
Net sales $ 692,760 $ 652,645 $ 567,583
Cost of goods sold 400,821 379,632 338,868
- ------------------------------------------------------------------------------
Gross profit 291,939 273,013 228,715
Selling and general expenses 147,929 139,102 124,883
Technical and research expenses 48,735 45,020 40,888
- ------------------------------------------------------------------------------
Operating income 95,275 88,891 62,944
Interest income (1,180) (114) (317)
Interest expense 17,013 20,123 17,137
Other expense/(income), net 12 (1,024) 4,324
- ------------------------------------------------------------------------------
Income before income taxes 79,430 69,906 41,800
Income taxes 30,981 27,233 17,974
- ------------------------------------------------------------------------------
Income before associated companies 48,449 42,673 23,826
Equity in earnings of associated companies 232 377 126
- ------------------------------------------------------------------------------
Income before extraordinary item 48,681 43,050 23,952
Extraordinary loss on early extinguishment
of debt, net of tax of $828 1,296 -- --
- ------------------------------------------------------------------------------
Net income 47,385 43,050 23,952
RETAINED EARNINGS
Retained earnings, beginning of period 171,082 139,740 126,276
Less dividends 12,159 11,708 10,488
- ------------------------------------------------------------------------------
Retained earnings, end of period $ 206,308 $ 171,082 $ 139,740
- ------------------------------------------------------------------------------
NET INCOME/(LOSS) PER SHARE:
Primary:
Income before extraordinary item $ 1.60 $ 1.43 $ 0.80
Extraordinary loss on early
extinguishment of debt (0.04) -- --
- ------------------------------------------------------------------------------
Net income $ 1.56 $ 1.43 $ 0.80
Fully diluted
Income before extraordinary item $ 1.60 $ 1.35 $ 0.80
Extraordinary loss on early
extinguishment of debt (0.04) -- --
- ------------------------------------------------------------------------------
Net income $ 1.56 $ 1.35 $ 0.80
- ------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
At December 31, 1996 1995
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,034 $ 7,609
Accounts receivable, less allowance for doubtful
accounts ($4,962, 1996; $5,010, 1995) 179,516 170,415
Inventories
Finished goods 98,605 88,378
Work in process 40,568 42,480
Raw material and supplies 33,808 30,523
Deferred taxes and prepaid expenses 16,879 19,095
- ------------------------------------------------------------------------------
Total current assets 377,410 358,500
- ------------------------------------------------------------------------------
Property, plant and equipment, at cost, net 339,461 342,150
Investments in associated companies 2,060 2,366
Intangibles 44,954 31,682
Deferred taxes 27,756 28,537
Other assets 33,059 33,290
- ------------------------------------------------------------------------------
Total assets $ 824,700 $ 796,525
- ------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Notes and loans payable $ 65,165 $ 16,268
Accounts payable 32,813 35,262
Accrued liabilities 59,755 59,301
Current maturities of long-term debt 2,295 985
Income taxes payable and deferred 13,068 12,067
- ------------------------------------------------------------------------------
Total current liabilities 173,096 123,883
- ------------------------------------------------------------------------------
Long-term debt 187,100 245,265
Other noncurrent liabilities 97,579 100,268
Deferred taxes and other credits 38,162 24,812
- ------------------------------------------------------------------------------
Total liabilities 495,937 494,228
- ------------------------------------------------------------------------------
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; 24,865,573 issued in
1996 and 24,841,173 in 1995 25 25
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and outstanding
5,615,563 in 1996 and 1995 6 6
Additional paid in capital 177,412 176,345
Retained earnings 206,308 171,082
Translation adjustments (42,340) (30,580)
Pension liability adjustment (12,483) (12,382)
- ------------------------------------------------------------------------------
328,928 304,496
Less treasury stock, at cost 165 2,199
- ------------------------------------------------------------------------------
Total shareholders' equity 328,763 302,297
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 824,700 $ 796,525
- ------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
For the Years Ended December 31, 1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 47,385 $ 43,050 $ 23,952
Adjustments to reconcile net cash provided by
operating activities:
Equity in earnings of associated companies (232) (377) (126)
Distributions received from associated companies -- -- 42
Depreciation and amortization 45,189 43,087 38,649
Accretion of convertible subordinated
debentures 353 1,628 1,519
Provision for deferred income taxes, other
credits and long-term liabilities 755 6,739 (2,395)
Increase in cash surrender value of life
insurance, net of premiums paid (751) (654) (468)
Unrealized currency transaction gains (1,459) (1,469) (1,271)
Loss/(gain) on disposition of assets 683 (754) 1,280
Treasury shares contributed to ESOP 5,227 3,454 2,671
Loss on early extinguishment of debt 1,296 -- --
Changes in operating assets and liabilities:
Accounts receivable (7,444) (13,926) (30,021)
Inventories (7,164) (19,061) (15,046)
Prepaid expenses (1,408) 386 586
Accounts payable (2,449) 4,658 6,527
Accrued liabilities 1,543 1,527 (5,054)
Income taxes payable 2,255 (88) 2,124
Other, net (884) (747) 140
- ------------------------------------------------------------------------------
Net cash provided by operating activities 82,895 67,453 23,109
- ------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (53,473) (41,921) (36,322)
Purchased software (1,909) (2,215) (2,053)
Proceeds from sale of assets 27,112 1,762 1,855
Acquisitions, net of cash acquired (25,587) (11,312) 526
Investment in associated company -- (915) --
Premiums paid for life insurance (1,193) (1,196) (1,196)
- ------------------------------------------------------------------------------
Net cash used in investing activities (55,050) (55,797) (37,190)
- ------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 220,200 21,348 51,484
Principal payments on debt (229,799) (14,542) (23,490)
Proceeds from options exercised 401 4,408 126
Tax benefit of options exercised 25 581 12
Purchases of treasury shares (2,552) (2,883) --
Dividends paid (12,144) (11,305) (10,474)
- ------------------------------------------------------------------------------
Net cash (used)/provided by financing
activities (23,869) (2,393) 17,658
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,551) (1,882) (4,730)
- ------------------------------------------------------------------------------
Increase/(decrease) in cash and cash
equivalents 425 7,381 (1,153)
Cash and cash equivalents at beginning of year 7,609 228 1,381
- ------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,034 $ 7,609 $ 228
- ------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Albany
International Corp. and its subsidiaries after elimination of intercompany
transactions. The Company has a 50% interest in two related entities in South
Africa. The consolidated financial statements include the Company's original
investment in the South African entities, plus its share of undistributed
earnings, in the account "Investments in associated companies." The Company
had 40% equity interests in companies in Mexico, Brazil and Argentina until
the first quarter of 1994 when it exchanged its 40% equity interests in
Brazil and Argentina for the remaining 60% equity interest in Mexico.
REVENUE RECOGNITION
The Company records sales when products are shipped to customers
pursuant to orders or contracts. Sales terms are in accordance with industry
practice in markets served. The Company limits the concentration of credit
risk in receivables from the paper manufacturing industry by closely
monitoring credit and collection policies. The allowance for doubtful
accounts is adequate to absorb estimated losses.
ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
TRANSLATION OF FINANCIAL STATEMENTS
Assets and liabilities of non-U.S. operations are translated at year-end
rates of exchange, and the income statements are translated at the average
rates of exchange for the year. Gains or losses resulting from translating
non-U.S. currency financial statements are accumulated in a separate
component of shareholders' equity.
For operations in countries that are considered to have highly
inflationary economies, gains and losses from translation and transactions
are determined using a combination of current and historical rates and are
included in net income.
Gains or losses resulting from currency transactions denominated in a
currency other than the entity's local currency, forward exchange contracts
which are not designated as hedges for accounting purposes and futures
contracts are generally included in income. Changes in value of forward
exchange contracts which are effective as hedges for accounting purposes are
generally reported, net of tax, in shareholders' equity in the caption
"Translation adjustments."
RESEARCH EXPENSE
Research expense, which is charged to operations as incurred, was
$21,945,000 in 1996, $19,700,000 in 1995, and $18,388,000 in 1994.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid short-term
investments with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
United States inventories is based on the last-in, first-out (LIFO) method;
all other inventories are valued at average cost.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets for financial reporting purposes;
accelerated methods are used for income tax purposes.
Significant additions or improvements extending assets' useful lives are
capitalized; normal maintenance and repair costs are expensed as incurred.
The cost of fully depreciated assets remaining in use are included in
the respective asset and accumulated depreciation accounts. When items are
sold or retired, related gains or losses are included in net income.
INTANGIBLES AND OTHER ASSETS
The excess purchase price over fair values assigned to assets acquired
is amortized on a straight-line basis over either 25 or 40 years.
Patents, at cost, are amortized on a straight-line basis over either 8 or
10 years.
Computer software purchased for internal use, at cost, is amortized on a
straight-line basis over 5 years and is included in "Other assets."
11
<PAGE>
INCOME TAXES
The Company accounts for taxes in accordance with Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which requires the use of
the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable for future years to differences between financial statement
and tax bases of existing assets and liabilities. Under FAS No. 109, the
effect of tax rate changes on deferred taxes is recognized in the income tax
provision in the period that includes the enactment date.
It is the Company's policy to accrue appropriate U.S. and non-U.S.
income taxes on earnings of subsidiary companies which are intended to be
remitted to the parent company in the near future.
The provision for taxes is reduced by investment and other tax credits in
the years such credits become available.
PENSION PLANS
Substantially all employees are covered under either Company or
government sponsored pension plans. For principal Company sponsored plans,
pension plan costs are based on actuarial determinations. The plans are
generally trusteed or insured and accrued amounts are funded as required in
accordance with governing laws and regulations.
EARNINGS PER SHARE
Primary earnings per share on common stock are computed using the
weighted average number of shares of Class A and Class B Common Stock
outstanding during each year. The 5.25% convertible subordinated debentures,
issued in March 1992 and redeemed in March 1996, were not common stock
equivalents and are therefore not considered in the calculation of primary
earnings per share. The weighted average number of common shares outstanding
during 1996, 1995, and 1994 was 30,364,228, 30,201,858, and 29,953,346,
respectively. For purposes of calculating fully diluted earnings per share in
1995 and 1994, conversion of the subordinated debentures, interest savings,
net of income taxes, and the exercise of options assuming the purchase of
treasury shares with the proceeds, are considered. The weighted average
number of shares outstanding, assuming full dilution, in 1995 was 36,254,459
and net income was $48,800,000. The options and the convertible subordinated
debentures were not dilutive to primary or fully diluted earnings per share
except in 1995 for fully diluted earnings per share.
2. INVENTORIES
The cost of inventories valued under the LIFO method is $69,784,000 at
December 31, 1996 and $67,872,000 at December 31, 1995. Had the Company's
inventory been valued at average cost (which approximates replacement cost),
inventories would have been $7,217,000 higher in 1996 and $5,707,000 higher
in 1995.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 26,659 $ 23,107
Buildings 165,162 160,476
Machinery and equipment 449,874 441,536
- ------------------------------------------------------------------------------
641,695 625,119
- ------------------------------------------------------------------------------
Accumulated depreciation 302,234 282,969
- ------------------------------------------------------------------------------
$339,461 $342,150
- ------------------------------------------------------------------------------
</TABLE>
Construction in progress was approximately $2,684,000 in 1996 and
$363,000 in 1995.
Depreciation expense was $42,390,000 in 1996, $41,375,000 in 1995, and
$37,554,000 in 1994.
Expenditures for maintenance and repairs are charged to income as incurred
and amounted to $17,367,000 in 1996, $15,129,000 in 1995, and $14,400,000 in
1994.
Capital expenditures were $53,473,000 in 1996, $41,921,000 in 1995, and
$36,322,000 in 1994. At the end of 1996, the Company was committed to
$54,024,000 of future expenditures for new equipment and facilities.
4. INTANGIBLES
The components of intangibles are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Excess purchase price over fair value $49,417 $34,643
Patents 10,429 10,440
Accumulated amortization (20,788) (19,679)
Deferred unrecognized pension cost (see Note 12) 5,896 6,278
- ------------------------------------------------------------------------------
$44,954 $31,682
- ------------------------------------------------------------------------------
</TABLE>
Amortization expense was $1,109,000 in 1996, $796,000 in 1995 and
$683,000 in 1994.
12
<PAGE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Salaries and wages $19,125 $18,622
Employee benefits 20,053 15,967
Returns and allowances 4,286 4,326
Interest 767 3,072
Restructuring costs 612 1,039
Acquisition obligation 4,081 5,000
Other 10,831 11,275
- ------------------------------------------------------------------------------
$59,755 $59,301
- ------------------------------------------------------------------------------
</TABLE>
6. FINANCIAL INSTRUMENTS
Notes and loans payable at December 31, 1996 and 1995 were short-term
debt instruments with banks, denominated in local currencies with a weighted
average interest rate of 5.93% in 1996 and 13.2% (7.63% excluding Brazil) in
1995.
Long-term debt at December 31, 1996 and 1995, principally to banks and
bondholders, exclusive of amounts due within one year, consists of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
$150 million 5.25% convertible subordinated
debentures yielding 7.0%. $ -- $136,963
$300 million revolving credit agreement which
terminates in 2002 with LIBOR borrowings
outstanding at an average interest of 5.73%
in 1996 and 6.15% in 1995. 139,000 64,000
Various notes, mortgages and debentures relative
to operations principally outside the United
States, at an average interest of 6.56% in 1996
and 6.92% in 1995, due in varying amounts through
2004. 33,575 29,774
Industrial revenue financings at an average
interest of 5.67% in 1996 and 5.89% in 1995,
due in varying amounts through 2009. 14,525 14,528
- ------------------------------------------------------------------------------
$187,100 $245,265
- ------------------------------------------------------------------------------
</TABLE>
Principal payments due on long-term debt are: 1997, $2,295,000; 1998,
$1,428,000; 1999, $30,456,000; 2000, $1,281,000; 2001, $603,000.
Interest paid was $19,318,000 in 1996, $20,076,000 in 1995, and
$16,708,000 in 1994.
The Company's revolving credit agreement provides that the Company may
borrow up to $300,000,000 until 2001 and then $150,000,000 until 2002 at
which time the banks' commitment to lend is terminated. The terms of the
revolving credit agreement include a facility fee and allow the Company to
select from various loan pricing options. The maximum interest rate margin
over LIBOR is determined by the Company's cash flow to debt ratio. New
borrowings under the revolving credit facility are conditional on the absence
of material adverse changes in the business, financial position, results of
operations and prospects of the Company and its consolidated subsidiaries
taken as a whole. In the event of nonperformance by any bank on its
commitment to extend credit, the Company could not borrow the full amount of
the facility. However, the Company does not anticipate nonperformance by any
bank.
The revolving credit agreement contains various covenants which include
limits on: the disposition of assets, minimum consolidated tangible net
worth, interest coverage and cash flow to debt ratios, cash dividends, or
certain restricted investments unless the required consolidated tangible net
worth, as defined, is maintained. At December 31, 1996, $52,699,000 was
permitted for the payment of cash dividends.
Under the revolving credit agreement and formal and informal agreements
with other financial institutions, the Company could have borrowed an
additional $227,000,000 at December 31, 1996.
During March 1992, the Company sold original issue discount 5.25%
convertible subordinated debentures due 2002 which, if held to maturity,
would yield 7.0% to the original purchaser. The proceeds to the Company, net
of original issue discount and expenses, were $128,430,000. The original
issue discount was amortized over the term of the debentures. When issued,
the debentures were convertible into 5,712,450 shares of Class A Common
Stock. In 1995, two debentures were converted into 76 shares of Class A
Common Stock. On March 15, 1996, the Company redeemed the debentures at a
redemption price of 91.545%. The redemption resulted in a one-time
extraordinary non-cash charge to income of $1,296,000, net of tax, of
$828,000.
The Company has swap agreements wherein on a notional amount of
$250,000,000 the Company will pay a periodic floating rate based upon an
index of yields of high-grade, tax-exempt bond issues published by Kenny
Information Systems. The counterparty is obligated to make payments to the
Company calculated at an average of 70% of LIBOR. As of December 31, 1996 and
1995, the average blended rates payable on the long-term swap agreements were
3.62% and 4.24%,
13
<PAGE>
respectively, and the blended rates receivable were 3.97% and 4.33%,
respectively. The swap agreements expire during 2000. The Company values
these contracts at market (approximately $46,000) by estimating the cost of
entering into one or more inverse swap transactions on such date that would
neutralize the original transactions. The cost is estimated by obtaining the
market swap rate for fixed-rate contracts of similar duration. Included in
the "Interest rate protection agreements" component of "Other
expense/(income), net" (see Note 9) is income of approximately $1,099,000,
$1,026,000 and $557,000 related to the net cash received as part of these
agreements in 1996, 1995 and 1994, respectively. Also included in "Interest
rate protection agreements" is the change in the valuation which resulted in
income of approximately $236,000, $304,000 and $297,000 in 1996, 1995 and
1994, respectively.
At December 31, 1996, the Company had various forward exchange contracts
maturing during 1997. For each closed position, a sale contract of a
particular currency was matched with a purchase contract for the same
currency at the same amount, counterparty and settlement date. Open positions
were valued at fair value using the estimated forward exchange rate of a
matching contract as of December 31, 1996. The foreign currency positions,
both open and closed, as of December 31, 1996, by major currency, are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Buy Contracts Sell Contracts
Currency or Fair Value or Fair Value
- ------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
German Mark $23,738 $25,000
- ------------------------------------------------------------------------------
</TABLE>
The Company enters into forward exchange contracts either to provide an
economic hedge against currency fluctuation effects on future revenue streams
or to hedge the net assets and intercompany loans related to foreign
operations. Forward exchange contracts that are designated hedges are
typically entered into at currency amounts up to an amount equal to the net
assets of the related foreign operation and any intercompany loan balance in
that foreign currency. Periodically, the Company also enters into futures
contracts primarily to hedge in the short-term against interest rate
fluctuations. At December 31, 1996, the Company held open positions on
$20,000,000 of U.S. treasury note futures. The futures were valued at fair
value (a receivable of approximately $257,000) using the quoted market rate
as of the end of the year. At December 31, 1995, the Company was not a party
to any such contracts. The "Interest rate protection agreements" component of
"Other expense/(income), net" includes losses on futures contracts, based on
fair value, of $917,000 in 1994.
All financial instruments are held for purposes other than trading. For
all positions there is risk from the possible inability of the counterparties
(major financial institutions) to meet the terms of the contracts and the
risk of unfavorable changes in interest and currency rates which may reduce
the benefit of the contracts. However, for most closed forward exchange
contracts, both the purchase and sale sides of the Company's exposures are
with the same financial institution. The Company seeks to control off balance
sheet risk by evaluating the credit worthiness of counterparties and by
monitoring the currency exchange and interest rate markets, hedging risks in
compliance with internal guidelines and reviewing all principal economic
hedging contracts with designated directors of the Company.
The Company has an agreement under which it may sell to a financial
institution up to $40,000,000 of the Company's right to receive certain
payments for goods ordered from the Company. At December 31, 1996 and 1995,
there were no amounts sold under this agreement.
At December 31, 1996 the estimated fair value of the Company's long-term
debt excluding current maturities approximates $188,777,000. The estimate is
based on the present value of future cash flows of fixed rate debt based upon
changes in the general level of interest rates, and on the assumption that
carrying value approximates fair value for variable rate debt.
14
<PAGE>
7. LEASES
Total rental expense amounted to $20,800,000, $16,673,000, and
$15,527,000 for 1996, 1995, and 1994, respectively. Principal leases are for
machinery and equipment, vehicles and real property. Certain leases contain
renewal and purchase option provisions at fair market values. There were no
significant capital leases.
Future rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year as of December
31, 1996 are: 1997, $21,931,000; 1998, $17,895,000; 1999, $14,355,000; 2000,
$10,515,000; 2001, $9,013,000 and thereafter, $14,214,000.
8. SHAREHOLDERS' EQUITY
The Company has two classes of Common Stock, Class A Common Stock, par
value $.001 and Class B Common Stock, par value $.001 which have equal
liquidation rights. Each share of the Company's Class A Common Stock is
entitled to one vote on all matters submitted to shareholders and each share
of Class B Common Stock is entitled to ten votes. Class A and Class B Common
Stock will receive equal dividends as the Board of Directors may determine
from time to time. The Class B Common Stock is convertible into an equal
number of shares of Class A Common Stock at any time. At December 31, 1996,
9,324,463 shares of Class A Common Stock were reserved for the conversion of
Class B Common Stock and the exercise of stock options.
The Board of Directors authorized the purchase of up to an aggregate of
2,000,000 shares of the Company's Class A Common Stock in the open market.
The Company has purchased 994,200 shares of its Class A Common Stock since
1990 and may purchase up to 1,005,800 more shares without further advance
public announcement.
For 1996, 1995 and 1994, the Board authorized the payment of dividends
totalling $.40, $.3875 and $.35 per common share per year respectively.
<TABLE>
<CAPTION>
Changes in shareholders' equity for 1996, 1995, and 1994 are as follows:
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Class B Treasury Stock
Common Stock Common Stock Additional (Class A)
------------------- ------------------ Paid in --------------
(IN THOUSANDS) Shares Amount Shares Amount Capital Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance: January 1, 1994 24,531 $25 5,659 $6 $170,112 307 $4,337
Shares contributed to ESOP -- -- -- -- 289 (143) (2,382)
Conversion of Class B shares to Class A shares 26 -- (26) -- -- -- --
Options exercised 7 -- -- -- 138 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance: December 31, 1994 24,564 $25 5,633 $6 $170,539 164 $1,955
Shares contributed to ESOP -- -- -- -- 815 (170) (2,639)
Conversion of Class B shares to Class A shares 18 -- (18) -- -- -- --
Conversion of subordinated debentures -- -- -- -- 2 -- --
Purchases of treasury shares -- -- -- -- -- 150 2,883
Options exercised 259 -- -- -- 4,989 -- --
Other -- -- 1 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Balance: December 31, 1995 24,841 $25 5,616 $6 $176,345 144 $2,199
Shares contributed to ESOP -- -- -- -- 635 (266) (4,542)
Purchases of treasury shares -- -- -- -- -- 141 2,552
Options exercised 25 -- -- -- 426 -- --
Shares issued to Directors -- -- -- -- 6 (2) (44)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance: December 31, 1996 24,866 $25 5,616 $6 $177,412 17 $165
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
9. OTHER EXPENSE/(INCOME) NET
The components of other expense/(income), net, as further described in
Note 6, are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Currency transactions $(2,323) $(3,281) $ 2,590
Interest rate protection agreements (1,335) (1,330) 63
Amortization of debt issuance costs
and loan origination fees 998 837 804
Other 2,672 2,750 867
- ------------------------------------------------------------------------------
$ 12 $(1,024) $ 4,324
- ------------------------------------------------------------------------------
</TABLE>
10. INCOME TAXES
Income taxes currently payable are provided on taxable income at the
statutory rate applicable to such income. The components of income taxes are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $ 6,082 $ 6,280 $14,920
U.S. State 695 860 948
Non-U.S. 18,942 5,304 5,835
- ------------------------------------------------------------------------------
25,719 12,444 21,703
- ------------------------------------------------------------------------------
Deferred:
U.S. Federal 4,504 5,402 (5,772)
U.S. State 515 617 (660)
Non-U.S. 243 8,770 2,703
- ------------------------------------------------------------------------------
5,262 14,789 (3,729)
- ------------------------------------------------------------------------------
$30,981 $27,233 $17,974
- ------------------------------------------------------------------------------
</TABLE>
U.S. income before income taxes was $36,381,000 in 1996, $32,472,000 in
1995, and $18,097,000 in 1994.
Taxes paid, net of refunds, were $18,066,000 in 1996, $9,269,000 in
1995, and $19,639,000 in 1994.
A comparison of the federal statutory rate to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes 1.8 2.7 2.4
Non-U.S. tax rates, repatriation of
earnings, and other net charges
associated with prior years 2.6 (.3) 5.9
Other (.4) 1.4 (.3)
- ------------------------------------------------------------------------------
Effective tax rate 39.0% 38.8% 43.0%
- ------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax expense/(benefit)
attributed to income from operations for the years ended December 31, 1996,
1995, and 1994 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense/(benefit) $ 1,630 $ 9,113 $ (6,603)
Adjustments to deferred tax assets
and liabilities for enacted changes
in tax laws and rates -- 4,500 (1,584)
Utilization of operating loss
carryforwards 3,632 1,176 4,458
- ------------------------------------------------------------------------------
$ 5,262 $14,789 $ (3,729)
- ------------------------------------------------------------------------------
</TABLE>
Investment tax credits and other credits utilized for financial
reporting purposes were not material.
Undistributed earnings of subsidiaries outside the United States for
which no provision for U.S. taxes has been made amounted to approximately
$81,269,000 at December 31, 1996. In the event earnings of foreign
subsidiaries are remitted, foreign tax credits may be available to offset
U.S. taxes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
U.S. Non-U.S.
---------------- -------------------
(IN THOUSANDS) 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable, principally due
to allowance for doubtful accounts $ 284 $ 369 $ (107) $ (134)
Inventories, principally due to
additional costs inventoried for tax
purposes, pursuant to the Tax Reform
Act of 1986 1,509 6,591 272 (18)
Tax loss carryforwards -- -- 5,043 4,587
Other 3,174 2,307 935 1,032
- ------------------------------------------------------------------------------
Total current deferred tax assets 4,967 9,267 6,143 5,467
- ------------------------------------------------------------------------------
Sale lease back transaction 1,208 1,208 -- --
Deferred compensation 6,555 5,557 -- --
Tax loss carryforwards -- -- 18,353 16,486
Plant, equipment and depreciation (6,358) (8,309) (1,724) 260
Postretirement benefits 11,498 14,200 (686) (584)
Other (1,247) (281) 157 --
- ------------------------------------------------------------------------------
Total noncurrent deferred tax assets 11,656 12,375 16,100 16,162
- ------------------------------------------------------------------------------
Total deferred tax assets $16,623 $21,642 $22,243 $21,629
- ------------------------------------------------------------------------------
Total current deferred tax liabilities -- -- $ 2,409 $ 2,835
- ------------------------------------------------------------------------------
Plant, equipment and depreciation -- -- 23,409 20,996
Other -- -- (198) 1,328
- ------------------------------------------------------------------------------
Total noncurrent deferred tax liabilities -- -- 23,211 22,324
- ------------------------------------------------------------------------------
Total deferred tax liabilities -- -- $25,620 $25,159
- ------------------------------------------------------------------------------
</TABLE>
In the U.S., the Company has had a substantial tax liability for each of
the past three years and
16
<PAGE>
expects to pay taxes in the future at this or greater levels. Substantially
all of the non-U.S. net deferred tax asset relates to tax loss carryforwards
of which approximately 22% is expected to be used in 1997 and the remainder
of the noncurrent loss carryforward has no expiration. The Company has
restructured its operations to reduce or eliminate losses and has reorganized
in certain countries to ensure that losses will be offset against the profits
of companies with long-term earnings histories. Accordingly, the Company
expects to realize the benefit of its U.S. and non-U.S. deferred tax assets
in the future.
11. BUSINESS SEGMENT AND GEOGRAPHIC DATA
The Company operates primarily in one industry segment which includes
developing, manufacturing, marketing and servicing custom designed engineered
fabrics and related products used in the manufacture of paper and paperboard.
The Company sells its products on a worldwide basis with its principal
markets listed in the table below.
The following table shows data by geographic area:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 % 1995 % 1994 %
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
United States $276,973 40 $258,974 40 $239,755 42
Canada 68,971 10 65,203 10 57,459 10
Europe 256,205 37 240,663 37 191,883 34
Rest of World 90,611 13 87,805 13 78,486 14
- ------------------------------------------------------------------------------
Total $692,760 100 $652,645 100 $567,583 100
- ------------------------------------------------------------------------------
OPERATING INCOME
United States $ 44,922 47 $ 41,549 47 $ 31,400 50
Canada 12,026 13 12,815 14 7,333 12
Europe 26,882 28 23,119 26 15,233 24
Rest of World 11,445 12 11,408 13 8,978 14
- ------------------------------------------------------------------------------
Total $ 95,275 100 $ 88,891 100 $ 62,944 100
- ------------------------------------------------------------------------------
ASSETS
United States $282,258 34 $297,597 37 $270,143 37
Canada 73,353 9 67,638 8 59,280 8
Europe 331,717 40 307,728 39 283,499 39
Rest of World 137,372 17 123,562 16 108,464 16
- ------------------------------------------------------------------------------
Total $824,700 100 $796,525 100 $721,386 100
- ------------------------------------------------------------------------------
</TABLE>
Sales among geographic areas and export sales are not material.
Operating income includes an allocation of corporate expenses because such
costs are incurred principally for the benefit of operating companies. Assets
exclude intercompany accounts.
12. PENSION PLANS
The Company has a noncontributory, qualified defined benefit pension
plan covering U.S. employees, a noncontributory, nonqualified pension plan
covering certain U.S. executives and both contributory and noncontributory
pension plans covering non-U.S. employees. Employees are covered primarily by
plans which provide pension benefits that are based on the employee's service
and average compensation during the three to five years before retirement or
termination of employment.
The following table sets forth the Plans' funded status and amounts
recognized in the Company's balance sheet. Amounts are shown at September 30,
for U.S. pension plans. Amounts for non-U.S. plans are projected to December
31 from the most recent valuation.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Plans in Which Plans in Which
Assets Exceed Accumulated
Accumulated Benefits Exceed
Benefits Assets
------------------- -------------------
(IN THOUSANDS) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested $ (28,118) $(26,979) $(97,202) $ (94,095)
Accumulated (30,642) (29,348) (101,916) (99,364)
Projected (39,042) (37,138) (123,868) (116,643)
Plan assets at fair value, primarily
listed stocks and bonds 38,895 35,787 83,324 75,628
- ------------------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets (147) (1,351) (40,544) (41,015)
Unrecognized net loss 2,868 4,321 35,545 33,239
Prior service cost not yet recognized
in net periodic pension cost 738 760 5,896 6,278
Remaining unrecognized net asset (76) (199) (3,970) (5,164)
Recognized unaccrued pension expense -- -- (19,632) (19,320)
- ------------------------------------------------------------------------------
Accrued pension asset (liability) $ 3,383 $ 3,531 $(22,705) $ (25,982)
- ------------------------------------------------------------------------------
</TABLE>
The expected long-term rate of return for U.S. plans was 10% for 1996,
1995, and 1994. The weighted average discount rate was 8.0% for 1996, 7.8%
for 1995, and 9.5% for 1994. The rate of increase in future compensation
levels for salaried and hourly employees was 5.1% and 5.9%, respectively in
1996 and 1995, 5.9% and 6.0%, respectively in 1994.
The weighted average expected long-term rate of return for non-U.S.
plans was 7.5% for 1996, 8.0% for 1995, and 7.4% for 1994. The weighted
average discount rate was 7.3% for 1996, 7.9% for 1995, and 8.5% for 1994.
The weighted average rate of increase in future compensation levels was 4.8%
for 1996, 5.3% for 1995, and 5.7% for 1994.
17
<PAGE>
The Company was required to accrue an additional minimum liability for
those plans for which accumulated plan benefits exceeded plan assets. The
liability at December 31, 1996 and 1995 respectively, of $18,379,000 and
$18,660,000 was offset by an asset amounting to $5,896,000 and $6,278,000
(included in intangibles) and a direct charge to equity of $12,483,000 and
$12,382,000.
The vested benefit obligation has been determined based upon the
actuarial present value of the vested benefits to which an employee is
currently entitled, based on the employee's expected date of separation or
retirement.
Net pension cost included the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,462 $ 4,093 $ 4,276
Interest cost on projected benefit obligation 11,761 11,425 9,709
Actual return on assets (10,057) (9,553) (7,197)
Net amortization and deferral 838 (544) (1,837)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 8,004 $ 5,421 $ 4,951
- ------------------------------------------------------------------------------
</TABLE>
Annual pension cost charged to operating expense for all Company plans
was $12,579,000 for 1996, $8,342,000 for 1995, and $8,529,000 for 1994.
13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
medical, dental and life insurance benefits for its retired United States
employees. Substantially all of the Company's U.S. employees may become
eligible for these benefits, which are subject to change, if they reach
normal retirement age while working for the Company. Retirees share in the
cost of these benefits. The Company's non-U.S. operations do not offer such
benefits to retirees.
In accordance with Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", 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 following table reflects the status of the postretirement benefit
plan:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $21,330 $24,905
Fully eligible active plan participants 4,096 4,198
Other active participants 13,955 15,536
- ------------------------------------------------------------------------------
39,381 44,639
Unrecognized gain 13,930 7,757
- ------------------------------------------------------------------------------
Accrued postretirement cost $53,311 $52,396
- ------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost included the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 954 $ 699 $ 935
Interest cost on accumulated postretirement benefit
obligation 2,940 3,264 3,163
Amortization of unrecognized net gain (537) (613) (141)
- ------------------------------------------------------------------------------
Net periodic postretirement benefit cost $3,357 $3,350 $3,957
- ------------------------------------------------------------------------------
</TABLE>
For measuring the expected postretirement benefit obligation, an annual
rate of increase in the per capita claims cost of 7.0% is assumed for 1996.
This rate is assumed to decrease gradually to 5.5% by 1999 and remain at that
level thereafter.
The weighted average discount rate was 8.0% for 1996, 7.8% for 1995, and
9.5% for 1994.
A one percentage point increase in the health care cost trend rate would
result in a $4,949,000 increase in the accumulated postretirement benefit
obligation as of December 31, 1996 and an increase of $567,000 in the
aggregate service and interest cost components of the net periodic
postretirement benefit cost for 1996.
18
<PAGE>
14. TRANSLATION ADJUSTMENTS
The Consolidated Statements of Cash Flows were affected by translation
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in cumulative translation adjustments $11,760 $(5,828) $ (9,350)
Other noncurrent liabilities 568 (1,095) (2,117)
Deferred taxes 271 (1,421) (51)
Long-term debt (1,289) (565) (459)
Investments in associated companies (537) 81 (278)
Net fixed assets (6,146) 10,863 17,046
Other assets (1,076) (153) (61)
- ------------------------------------------------------------------------------
Effect of exchange rate changes $ 3,551 $ 1,882 $ 4,730
- ------------------------------------------------------------------------------
</TABLE>
Shareholders' equity was affected by translation as follows:
decrease/(increase) from translation of non-U.S. financial statements of
$6,354,000, $(462,000) and $(1,853,000); from remeasurement of loans of
$4,932,000, $(7,379,000) and $(11,023,000) in 1996, 1995, and 1994,
respectively; and by losses on designated hedges, net of tax, of $474,000,
$2,013,000 and $3,526,000 in 1996, 1995 and 1994, respectively.
In 1996, 1995 and 1994, net translation losses/ (gains) included in
operations in Brazil were $233,000, $354,000 and $(532,000), respectively,
and were included in cost of goods sold.
15. STOCK OPTIONS AND INCENTIVE PLANS
During 1988 and during 1992, the shareholders approved stock option
plans which each provide for granting of up to 2,000,000 shares of Class A
Common Stock to key employees. Options are generally exercisable in five
cumulative annual amounts beginning 12 months after date of grant. Option
exercise prices are not less than the market value of the shares on the date
of grant. Unexercised options generally terminate twenty years after date of
grant for both the 1988 and 1992 plans.
The fair value of each option granted is estimated on the grant date
using the Black-Scholes Single Option model. No adjustments were made for
certain factors which are generally recognized to reduce the value of option
contracts. These factors include limited transferability, a 20% per year
vesting schedule and the risk of forfeiture of the non-vested portion if
employment is terminated. The dividend yield was 1.8% for 1996 and 1995. The
expected volatility was 24.6% in 1996 and 25.0% in 1995. The expected life of
the options varies based on employee group and ranges from 9 to 20 years. The
risk-free interest rate ranges from 6.6% to 7.0% in 1996 and 5.7% to 6.2% in
1995. The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for the stock
option plans. Accordingly, no compensation cost has been recognized in 1996,
1995 or 1994. Had compensation cost and fair value been determined pursuant
to Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation", net income would decrease from $47,385,000 to
$46,590,000 in 1996 and from $43,050,000 to $42,725,000 in 1995. Primary
earnings per share would decrease from $1.56 to $1.53 in 1996 and from $1.43
to $1.41 in 1995. Fully diluted earnings per share would decrease from $1.56
to $1.53 in 1996 and from $1.35 to $1.34 in 1995. The weighted average fair
value of options granted during 1996 and 1995, for the purposes of FAS 123,
is $10.34 and $9.88 per share, respectively.
Activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at January 1 2,799,650 2,630,400 2,417,850
Options granted 415,250 436,250 244,500
Options cancelled 133,100 7,800 24,450
Options exercised 24,400 259,200 7,500
- ------------------------------------------------------------------------------
Shares under option at December 31 3,057,400 2,799,650 2,630,400
Options exercisable at December 31 2,068,750 1,896,050 1,837,700
Shares available for options 651,500 933,650 1,362,100
- ------------------------------------------------------------------------------
The weighted average exercise price is as follows:
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Shares under option at January 1 $17.38 $16.49 $16.32
Options granted 22.25 22.25 18.75
Options cancelled 18.78 17.72 17.21
Options exercised 16.49 17.00 16.75
Shares under option at December 31 18.00 17.38 16.49
Options exercisable at December 31 16.59 16.29 16.27
- ------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
The following is a summary of the status of options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Outstanding Options Exercisable Options
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15.00 138,800 16.11 $15.00 88,800 $15.00
15.50 822,200 11.34 15.50 822,200 15.50
16.25 209,950 16.41 16.25 133,850 16.25
16.75 673,000 13.13 16.75 673,000 16.75
17.63-18.75 402,100 15.46 18.50 266,700 18.38
22.25 811,350 18.89 22.25 84,200 22.25
- ------------------------------------------------------------------------------
</TABLE>
The Company's voluntary deferred compensation plans provide that a
portion of certain employees' salaries are deferred in exchange for amounts
payable upon their retirement, disability or death. The repayment terms are
selected by the participants in accordance with the provisions of each plan.
The Company is the beneficiary of life insurance policies on the lives of
certain plan participants. The Company's expense for all plans, net of the
increase in cash surrender value, was $1,523,000 in 1996, $1,240,000 in 1995,
and $1,211,000 in 1994. The increase in cash value, net of premiums, was
$751,000 in 1996, $654,000 in 1995, and $468,000 in 1994.
The Company maintains a voluntary savings plan covering substantially
all employees in the United States. The Plan, known as "Prosperity Plus," is
a 401(k) plan under the U.S. Internal Revenue Code. Employees may contribute
from 3% to 15% of their regular wages which under Section 401(k) are tax
deferred. The Company matches 50% of each dollar contributed by employees up
to 10% of their wages in the form of Class A Common Stock which is
contributed to an Employee Stock Ownership Plan. The investment of employee
contributions to the plan is self directed. The cost of the plan amounted to
$3,129,000 in 1996, $2,906,000 in 1995, and $2,771,000 in 1994. In 1994, the
Company adopted a profit-sharing plan covering substantially all employees in
the United States. At the beginning of each year, the Board of Directors
announces the formula that it expects to utilize in determining the amount of
the profit-sharing contribution for that year. The profit-sharing
contributions will only be made to current active participants in Prosperity
Plus in the form of cash or the Company's Class A Common Stock. The expense
recorded for this plan was $1,388,000 in 1996, $2,279,000 in 1995 and
$1,161,000 in 1994.
16. ACQUISITIONS AND RESTRUCTURING
In November 1996, the Company acquired substantially all of the assets
of Schieffer Door Systems, a manufacturer of high-speed, high-performance
industrial doors located in Germany, for approximately $25,000,000.
In May 1995, the Company acquired substantially all of the assets of
Panyu South Fabrics Industrial Company, a manufacturer of paper machine
clothing located in China, for approximately $7,000,000.
In September 1995, the Company concluded the purchase of all of the
outstanding capital stock and land and buildings used in the business of
Technical Service Industries, a supplier of engineered fabrics to the
nonwovens industry. The purchase price was approximately $10,000,000, with
$900,000 paid at closing, $5,000,000 paid in 1996 and the balance deferred up
to 10 years.
In December 1995, the Company completed the acquisition of Kelley Door
Systems for approximately $4,000,000. Kelley operations have been
consolidated with the Company's Nomafa Door Division.
All acquisitions were accounted for as purchases and, accordingly, the
Company included in its financial statements the results of operations of the
acquired entities as of the respective acquisition dates.
In 1993, the Company recorded restructuring charges which included
$2,200,000 for asset write offs, $2,500,000 for lease obligations related to
an unoccupied facility and $2,300,000 for termination costs related to
downsizing certain operations. Lease obligation payments will continue until
1999.
The components of accrued restructuring costs consist of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease obligations $1,119 $1,693 $1,873
Termination costs -- 317 1,490
Asset write offs -- 275 1,087
- ------------------------------------------------------------------------------
$1,119 $2,285 $4,450
- ------------------------------------------------------------------------------
</TABLE>
The decrease in accrued balances are the result of actual payments for
terminations or incurred expenses and the disposal of written down equipment.
20
<PAGE>
FINANCIAL REVIEW
Review of Operations
- --1996 VS. 1995
Net sales increased $40.1 million or 6.1% as compared with 1995. Net
sales were decreased by $3.1 million from the effect of a stronger U.S.
dollar as compared to 1995. Excluding this effect, 1996 net sales increased
6.6% over 1995.
Net sales in the United States increased 7.0% in 1996 as compared to
1995. This increase is due primarily to new products introduced during 1995
and 1996 and was made despite almost no increase in paper and board
production during the year in the United States. Canadian sales increased
5.8% in 1996 as compared to 1995. The effect of price increases to customers
in 1996 was small.
European sales increased 6.5% in 1996 as compared to 1995. Excluding the
effect of the stronger U.S. dollar, net sales in Europe increased 6.9%. In
Europe, total production of paper and board in Western Europe fell in the
first six months of 1996, but there is evidence of strengthening during the
last six months of the year. Sales in the Rest of World segment increased
3.2% as compared to 1995.
As a result of cost containment programs, which were partially offset by
a change in product mix, gross profit continued to improve and was 42.1% of
net sales in 1996 as compared to 41.8% in 1995.
Selling, technical, general and research expenses increased 6.8% in 1996
as compared to 1995. Excluding the effect of translation of non-U.S.
currencies into U.S. dollars, these expenses would have increased 7.2%.
Increased wages and benefit costs and additional costs generated by
acquisitions made in the second half of 1995 and 1996 accounted for a
significant portion of the increase.
The increase in other expense/(income), net as compared to 1995, was due
to currency transactions which resulted in $.9 million less income in 1996.
Currency transaction income results from economic hedges which can have
either a positive or negative effect on other expense/(income), net in any
particular quarter. The specific hedges in place are changed from time to
time depending on market conditions and cash flow forecasts of various
non-U.S. operations and are intended to partially offset the effects of
translation on operating income (see Notes 6 and 9 of Notes to Consolidated
Financial Statements).
Interest expense decreased $3.1 million or 15.5% as compared with 1995.
The decrease is primarily due to a lower average interest rate in 1996 of
6.0% as compared to 7.1% in 1995.
In November 1996, the Company acquired substantially all of the assets
of Schieffer Door Systems, a manufacturer of high-speed, high-performance
industrial doors located in Germany, for approximately $25 million. The
acquisition was accounted for as a purchase and, accordingly, the Company has
included Schieffer's results of operations in its financial statements as of
November 1, 1996. Reported results were not significant.
For purposes of applying Financial Accounting Standard No. 52, "Foreign
Currency Translation", to highly inflationary economies, effective January 1,
1997, the functional currency for the Company's Mexican operations will
change from the Mexican peso to the U.S. dollar. Assuming no material
devaluation in the peso against the U.S. dollar, management does not expect a
significant impact on reported results.
- --1995 VS. 1994
Net sales increased $85.1 million or 15.0% as compared with 1994. Net
sales were increased by $8.1 million from the effect of a weaker U.S. dollar
as compared to 1994. Excluding this effect, 1995 net sales increased 13.6%
over 1994.
Net sales in the United States increased 8.0% in 1995 as compared to
1994. In the U.S., the robust performance of all paper grades in 1995 was
slowed in the fourth quarter due to papermakers' temporary shutdowns,
particularly for containerboard inventory correction. Canadian sales
increased 13.5% due in part to higher export sales to Asian markets.
European sales increased 25.4% in 1995 as compared to 1994. Excluding
the effect of the weaker U.S. dollar, net sales in Europe increased 11.9%.
Sales in the Rest of World segment increased 11.9% as compared to 1994.
The Company continued to gain market share in all product lines due to
good customer acceptance and excellent performance of new products on all
three sections of the paper machine. Price increases announced in December
1995 for the United States, Canada and selective European markets became
effective during 1996.
Gross profit continued to improve and was 41.8% of net sales in 1995 as
compared to 40.3% in 1994. Variable costs as a percent of net sales increased
21
<PAGE>
to 32.9% in 1995 from 32.4% in 1994 due mainly to increased sales of product
lines with higher cost to sales dollar ratios.
Selling, technical, general and research expenses increased 11.1% in
1995 as compared to 1994. Excluding the effect of translation of non-U.S.
currencies into U.S. dollars, these expenses would have increased 9.9%.
Temporary increases associated with the introduction of new products,
increased wages and benefit costs and higher sales commissions were the
principal reasons for this increase.
Operating income as a percent of net sales increased to 13.6% as
compared to 11.1% in 1994.
The decrease in other expense/(income), net as compared to 1994, was due
to currency transactions which resulted in $5.9 million more income in 1995.
The Company's effective tax rate for 1995 was 39% as compared to 43% for
1994. The 1994 rate included an accrual of net charges associated with prior
years resulting from both U.S. and non-U.S. examinations.
In May 1995, the Company acquired substantially all of the assets of
Panyu South Fabrics Industrial Company, a manufacturer of paper machine
clothing located in China, for approximately $7 million.
In September 1995, the Company concluded the purchase of all of the
outstanding capital stock and land and buildings used in the business of
Technical Service Industries, a supplier of engineered fabrics to the
nonwovens industry. The purchase price was approximately $10 million, with
$.9 million paid at closing, $5.0 million paid January 1, 1996 and the
balance deferred up to 10 years.
In December 1995, the Company completed the acquisition of Kelley Door
Systems for approximately $4 million. Kelley operations have been
consolidated with the Company's Nomafa Door Division.
All 1995 acquisitions were accounted for as purchases and, accordingly,
the Company included the results of operations of the acquired entities in
its financial statements as of the respective acquisition dates. Reported
results were not significant.
INTERNATIONAL ACTIVITIES
The Company conducts more than half of its business in countries outside
of the United States. As a result, the Company experiences transaction and
translation gains and losses because of currency fluctuations. The Company
periodically enters into foreign currency contracts to hedge this exposure
(see Notes 6, 9 and 14 of Notes to Consolidated Financial Statements). The
Company believes that the risks associated with its operations and locations
outside the United States are not other than those normally associated with
operations in such locations.
The profitability in the Company's geographic regions in 1996 as
compared to 1995 increased in the United States and Europe and remained flat
in the other geographic areas (see Note 11 of Notes to Consolidated Financial
Statements). Total operating income increased 7.2% as compared to 1995.
Operating income as a percent of net sales for the United States was 16.2% in
1996, 16.0% in 1995 and 13.1% in 1994; and for Canada was 17.4% in 1996,
19.7% in 1995 and 12.8% in 1994; for Europe was 10.5% in 1996, 9.6% in 1995
and 7.9% in 1994; and for Rest of World was 12.6% in 1996, 13.0% in 1995 and
12.0% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 the Company's order backlog was $502.2 million, an
increase of $10 million from the prior year-end.
Although inventories, excluding the acquisition of Schieffer, increased
$8.2 million during 1996, there was a decrease of $2.9 million in the fourth
quarter, a significant improvement over the first nine month's performance.
Excluding the acquisition of Schieffer, accounts receivable increased $3.3
million or 1.9% in 1996 while net sales increased 5.1%. Management expects
improvements in working capital as a percentage of net sales in 1997.
Cash flow provided from operating activities was $82.9 million in 1996
compared with $67.5 million in 1995 and $23.1 million in 1994. Capital
expenditures were $53.5 million for 1996, $41.9 million for 1995 and $36.3
million for 1994. Capital expenditures in 1997 are expected to be about $60
million, which includes $14 million for plant construction in South Korea.
The Company will continue to finance these expenditures with cash from
operations and existing credit facilities.
In February 1996, the Company amended its existing $150 million
revolving credit agreement, with its principal banks in the United States, to
increase the banks' commitment to $300 million with more favorable terms. The
banks' commitment will decline to $150 million in 2001 with the final
maturity in 2002. The terms of the revolving credit agreement include a
facility fee and allow
22
<PAGE>
the Company to select from various loan pricing options. Management believes
that the unused line, in combination with expected free cash flows, should be
sufficient to meet operating requirements and for business opportunities and
most acquisitions which support corporate strategies.
Total debt decreased $8.0 million during 1996. The Company's current
debt structure has resulted in lower interest expense and currently provides
approximately $227 million in committed and available unused debt capacity
with financial institutions.
On March 15, 1996, the Company redeemed the $150 million, 5.25%
convertible subordinated debentures at a redemption price of 91.545%. The
redemption resulted in a one-time extraordinary non-cash charge to income of
$1.3 million, net of tax of $.8 million.
Cash dividends of $.10 per share were paid in each of the four quarters
of 1996.
23
<PAGE>
ELEVEN YEAR SUMMARY
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1996 1995 1994 1993
- ------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $692,760 $652,645 $567,583 $546,120
Cost of goods sold 400,821 379,632 338,868 344,609
Operating income (1),(2),(7) 95,275 88,891 62,944 40,910
Interest expense, net 15,833 20,009 16,820 16,115
Income before income taxes 79,430 69,906 41,800 25,425
Income taxes 30,981 27,233 17,974 10,017
Income before associated companies 48,449 42,673 23,826 15,408
Net income/(loss) (3),(4),(6) 47,385 43,050 23,952 15,524
Per share:
Primary 1.56 1.43 0.80 0.58
Fully diluted 1.56 1.35 0.80 0.58
Average number of shares outstanding 30,364 30,202 29,953 26,679
Capital expenditures 53,473 41,921 36,322 30,940
Dividends declared 12,159 11,708 10,488 9,361
Per Class A common share 0.40 0.3875 0.3500 0.3500
Per Class B common share 0.40 0.3875 0.3500 0.3500
FINANCIAL POSITION
Current assets $377,410 $358,500 $314,176 $264,140
Current liabilities 173,096 123,883 112,777 97,930
Current ratio 2.2 2.9 2.8 2.7
Property, plant and equipment, net 339,461 342,150 320,719 302,829
Total assets 824,700 796,525 721,386 655,420
Long-term debt 187,100 245,265 232,767 208,620
Shareholders' equity 328,763 302,297 271,947 244,468
Per share 10.83 9.97 9.05 8.18
Total capital (5) 583,323 564,815 522,434 464,565
Total debt to total capital 43.6% 46.5% 47.9% 47.4%
Return on shareholders' equity 14.4% 14.2% 8.8% 6.4%
NUMBER OF EMPLOYEES 5,854 5,658 5,404 5,286
</TABLE>
- ----------------------------------------
(1) The Company adopted Financial Accounting Standard (FAS) No. 87 "Employers'
Accounting for Pensions", with respect to its U.S. retirement plans in
December 1986 retroactive to January 1, 1986. The adoption of FAS 87
reduced pension cost for 1986 by $2,541,000. In 1989, the Company adopted
the Standard for non-U.S. plans which reduced pension cost by $1,077,000.
(2) Included in 1990 is a charge to income of $8,500,000 for an early
retirement window and terminations which were part of a world wide cost
containment program.
(3) Included in 1987 is a charge to income for the difference between the
amount accrued under Incentive Stock Unit (ISU) agreements and the
appraised value of the 1,534,256 Class B common shares which were
issued to the holders of the ISU's.The amount of this charge was
$2,195,000.
(4) In January 1989, the Company sold its property and facilities in Halmstad,
Sweden for approximately $51,000,000 in cash and notes with a resulting
net gain of approximately $23,000,000.
24
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 561,084 $ 557,218 $ 556,104 $ 505,474 $ 461,246 $ 402,203 $ 336,393
367,516 360,251 359,997 300,007 267,782 237,708 198,569
18,133 43,421 30,361 66,907 73,347 62,920 53,060
18,829 20,090 18,450 19,857 16,637 14,908 16,625
2,522 18,685 13,121 75,552 52,925 46,495 32,575
958 10,219 6,858 33,171 18,809 21,875 19,427
1,564 8,466 6,263 42,381 34,116 24,620 13,148
(3,585) 10,311 7,649 44,492 36,258 25,245 14,717
(0.14) 0.41 0.30 1.75 1.46 1.15 0.59
(0.14) 0.41 0.30 1.75 1.46 1.11 0.59
25,559 25,415 25,312 25,408 24,779 21,992 24,947
20,219 40,067 110,729 82,252 58,601 40,216 23,712
8,950 8,903 7,518 5,775 4,674 1,082 --
0.3500 0.3500 0.3500 0.3125 0.2625 0.0625 --
0.3500 0.3500 0.1313 -- -- -- --
$ 249,669 $ 253,924 $ 272,696 $ 242,518 $ 206,729 $ 177,421 $ 150,264
109,477 103,031 104,299 98,885 84,880 86,691 69,529
2.3 2.5 2.6 2.4 2.4 2.0 2.2
308,618 362,456 365,558 260,907 214,807 182,232 152,669
645,992 674,713 703,286 566,342 477,237 417,722 359,727
239,732 250,423 262,042 145,493 157,833 130,745 173,041
190,700 244,427 242,683 238,584 178,248 146,036 67,135
7.44 9.59 9.57 9.26 7.10 6.01 3.06
453,498 548,436 572,656 450,866 391,410 319,027 271,426
57.9% 48.4% 49.5% 38.9% 48.3% 47.7% 70.4%
(1.9)% 4.2% 3.2% 21.3% 22.4% 23.7% 22.2%
5,678 5,726 6,144 6,090 5,659 5,244 5,122
</TABLE>
(5) 1991 and prior includes all debt, deferred taxes and other credits and
shareholders' equity. Following the adoption of FAS No. 109 "Accounting
for Income Taxes" in 1992, total capital includes all debt and
shareholders' equity.
(6) In 1992, the Company elected to adopt FAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions", effective January 1,
1992, and recognize the accumulated liability. This adoption resulted in
a charge of $27,431,000, net of tax of $16,813,000, and a reduction of
1992 operating income of $2,798,000.
The Company's election to adopt FAS No. 109, as of January 1, 1992,
resulted in an increase to 1992 income of $20,142,000.
During the fourth quarter of 1992, the Company elected an early payment
of a $3,000,000 tax exempt financing for $1,357,000 which resulted in an
extraordinary gain of $1,019,000, net of tax.
(7) In 1992, the Company reported a charge of $12,045,000 for restructuring
of certain operations, including plant closings in Norway and Germany and
other workforce reductions.
25
<PAGE>
QUARTERLY FINANCIAL DATA
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
- ------------------------------------------------------------------------------
Net sales $168.1 $172.1 $169.8 $ 182.8
Gross profit 69.8 72.4 71.8 77.9
Net income 7.9 12.1 12.3 15.1
Net income per share:
Primary .26 .40 .41 .49
Fully diluted .26 .40 .41 .49
Dividends per share .10 .10 .10 .10
Class A Common Stock prices:
High 20.375 22.625 22.5 23.125
Low 17.25 19.50 18.0 21.625
- ------------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------------
Net sales $154.1 $166.8 $162.0 $ 169.7
Gross profit 62.9 70.9 67.8 71.4
Net income 7.7 11.7 11.6 12.1
Net income per share:
Primary .26 .38 .39 .40
Fully diluted .26 .36 .36 .37
Dividends per share .0875 .10 .10 .10
Class A Common Stock prices:
High 19.625 23.875 26.50 23.625
Low 17.125 18.75 22.875 17.875
- ------------------------------------------------------------------------------
1994
- ------------------------------------------------------------------------------
Net sales $131.4 $139.6 $145.2 $ 151.4
Gross profit 50.2 54.5 57.8 66.2
Net income 3.7 5.9 6.0 8.4
Net income per share:
Primary .12 .20 .20 .28
Fully diluted .12 .20 .20 .26
Dividends per share .0875 .0875 .0875 .0875
Class A Common Stock prices:
High 21.25 20.375 19.50 20.00
Low 18.00 17.75 16.125 16.25
- ------------------------------------------------------------------------------
</TABLE>
STOCK AND SHAREHOLDERS
The Company's Class A Common Stock is traded principally on the New York
Stock Exchange. At December 31, 1996 there were approximately 5,800
shareholders.
26
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<PAGE>
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
PERCENT PERCENT
DIRECT INDIRECT
OWNERSHIP OWNERSHIP JURISDICTION
--------- --------- ------------
<S> <C> <C> <C>
Albany International Pty.,Ltd. 100 Australia
Nomafa Austria 100 Austria
Albany International Feltros e
Telas Industriais Ltda. 100 Brazil
Albany International Canada Inc. 100 Canada
Albany International (China) Co., Ltd 100 China
Albany Fennofelt Oy AB 100 Finland
Albany International Holding S.A. 100 France
Albany International S.A. 100 France
Martel Catala S.A. 100 France
Toiles Franck S.A. 100 France
Nomafa S.A.R.L. 100 France
T.I.S. S.A. 100 France
Schieffer Tor-und Schutzsysteme GmbH 100 Germany
Nordiskafilt Maschinenbespannung GmbH 100 Germany
Albany International GmbH Goppingen 100 Germany
Nomafa B.V. 100 Netherlands
Albany International B.V. 100 Netherlands
Nordiskafilt Kabushiki Kaisha 100 Japan
Albany International S.A. de C.V. 100 Mexico
Martel Wire, S.A. de C.V. 100 Mexico
Telas Industriales de Mexico, S.A.
de C.V. 100 Mexico
Albany Nordiskafilt AS 100 Norway
Albany International Korea, Inc. 100 South Korea
Albany International Korea, Inc. 100 South Korea
Albany Nordiska S.A. 100 Spain
Albany Nordiskafilt AB 100 Sweden
Nordiska Maskinfilt Aktiebolag 100 Sweden
Nordiskafilt Aktiebolag 100 Sweden
Dewa Consulting AB 100 Sweden
Nomafa Aktiebolag 100 Sweden
Albany Wallbergs AB 100 Sweden
Nordiska Industrie Produkte AG 100 Switzerland
Albany International AG 100 Switzerland
Albany International Ltd. 100 United Kingdom
Albany International Research Co. 100 United States
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements
of Albany International Corp. on Form S-8 (File Nos. 33-23163, 33-28028 and
33-33048) of our report dated January 23, 1997, on our audits of the
consolidated financial statements and financial statements schedules of Albany
International Corp. as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995, and 1994, which report is incorporated by reference in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
March 14, 1997
<PAGE>
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Albany International Corp., a Delaware corporation ("the Company")
which contemplates that from time to time it will file with the Securities and
Exchange Commission ("the SEC") under, or in connection with, the provisions of
the Securities Exchange Act of 1934, as amended, or rules and regulations
promulgated thereunder, reports (including, without limitation, reports on Forms
8-K, 10-Q and 10-K), statements and other documents (such reports, statements
and other documents, together with amendments, supplements and exhibits thereto,
are collectively hereinafter referred to as "1934 Act Reports"), hereby
constitutes and appoints J. Spencer Standish, Francis L. McKone, Michael C.
Nahl, Richard A. Carlstrom, Ervin D. Johnson and Thomas H. Hagoort, and each of
them with full power to act without the others, his or her true and lawful
attorneys-in-fact and agents, with full and several power of substitution, for
him and her and in his or her name, place and stead, in any and all capacities,
to sign any or all 1934 Act Reports and any or all other documents relating
thereto, with power where appropriate to affix the corporate seal of the Company
thereto and to attest said seal, and to file any or all 1934 Act Reports,
together with any and all other information and documents in connection
therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
The appointment of any attorney-in-fact and agent hereunder shall
automatically terminate at such time as such attorney-in-fact and agent ceases
to be an officer of the Company. Any of the undersigned may terminate the
appointment of any of his attorneys-in-fact and agents hereunder by delivering
written notice thereof to the Company.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Power of
Attorney this 30 day of December , 1996.
/s/ J. Spencer Standish /s/ Francis L. McKone
- ------------------------ ---------------------------
J. Spencer Standish Francis L. McKone
Chairman of the Board and Director President and Director
(co-Principal Executive Officer) (co-Principal Executive Officer)
/s/ Michael C. Nahl /s/ Richard A. Carlstrom
- ----------------------- ----------------------------
Michael C. Nahl Richard A. Carlstrom
Senior Vice President and Controller
Chief Financial Officer (Principal Accounting Officer)
/s/ Charles B. Buchanan /s/ Thomas R. Beecher, Jr.
- ------------------------ ----------------------------
Charles B. Buchanan Thomas R. Beecher, Jr.
Director Director
/s/ Stanley I. Landgraf /s/ Joseph G. Morone, Ph.D.
- ----------------------- ----------------------------
Stanley I. Landgraf Joseph G. Morone, Ph.D.
Director Director
/s/ Allan Stenshamn /s/ Barbara P. Wright
- ----------------------- ----------------------------
Allan Stenshamn Barbara P. Wright
Director Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From Albany
International Corp.'s Consolidated Financial Statements As Of And for The Year
Ended December 31, 1996 And Is Qualified In Its Entirety By Reference To Such
Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,034
<SECURITIES> 0
<RECEIVABLES> 184,478
<ALLOWANCES> 4,962
<INVENTORY> 172,981
<CURRENT-ASSETS> 377,410
<PP&E> 641,695
<DEPRECIATION> 302,234
<TOTAL-ASSETS> 824,700
<CURRENT-LIABILITIES> 173,096
<BONDS> 187,100
0
0
<COMMON> 31
<OTHER-SE> 328,732
<TOTAL-LIABILITY-AND-EQUITY> 824,700
<SALES> 692,760
<TOTAL-REVENUES> 692,760
<CGS> 400,821
<TOTAL-COSTS> 596,449
<OTHER-EXPENSES> 12
<LOSS-PROVISION> 1,036
<INTEREST-EXPENSE> 15,833
<INCOME-PRETAX> 79,430
<INCOME-TAX> 30,981
<INCOME-CONTINUING> 48,681
<DISCONTINUED> 0
<EXTRAORDINARY> (1,296)
<CHANGES> 0
<NET-INCOME> 47,385
<EPS-PRIMARY> 1,56
<EPS-DILUTED> 1.56
</TABLE>
