<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, 1997
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
------------------------
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 Identification No.)
incorporation or organization)
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>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Common Stock ($0.001 par value) New York Stock Exchange and
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 9, 1998 by
non-affiliates of the registrant was $557,192,783.
The registrant had 24,280,216 shares of Class A Common Stock and 5,615,563
shares of Class B Common Stock outstanding as of February 9, 1998.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE PART
- ---------------------------------------------------------------------------------------------- -----------
<S> <C>
Registrant's Annual Report to Shareholders for the year ended December 31, 1997. II
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 12,
1998. 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 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.
The Registrant produces a substantial portion of its monofilament requirements.
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 high performance industrial doors. The Nomafa Door
Division, a manufacturer of Rapid Roll Doors-Registered Trademark-, 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 the inception of Rapid Roll Doors in the early
1980's, manufacturing operations in North America and Europe have supplied
approximately 100,000 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 has
significantly enhanced 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 7,200 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.
2
<PAGE>
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.
INTERNATIONAL OPERATIONS
The Registrant maintains wholly-owned manufacturing facilities in Australia,
Brazil, Canada, China, Finland, France, Germany, Great Britain, Holland, Mexico,
South Korea, Sweden and the United States. 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 Registrant 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 1,000 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, 1997 and 1996 were
approximately $528 million and $502 million, respectively. Orders recorded at
December 31, 1997 are expected to be invoiced during the next 12 months.
3
<PAGE>
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 primary categories,
research and development and technical expenditures. Research and development
expenses totaled $23.1 million in 1997, $21.9 million in 1996 and $19.7 million
in 1995. 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 $26.9
million in 1997, $26.8 million in 1996 and $25.3 million in 1995. 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.
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.
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, 20% in the rest of the world and approximately
23% in the world overall. Together, the United States and Canada constitute
approximately 36% 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.
4
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EMPLOYEES
The Registrant employs 5,881 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.
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........ 72 Chairman of the Board and Director
Francis L. McKone.......... 63 President, CEO and Director
Frank R. Schmeler.......... 58 Executive Vice President and Chief Operating Officer--PMC and Director
Edward Walther............. 54 Executive Vice President--Management and Technology
Michael C. Nahl............ 55 Senior Vice President and Chief Financial Officer
J. Weldon Cole............. 61 Senior Vice President--Corporate Planning and Business Development
Michel J. Bacon............ 48 Senior Vice President--Canada and Pacific
William M. McCarthy........ 47 Senior Vice President--Europe
Thomas H. Hagoort.......... 65 General Counsel and Secretary
Richard A. Carlstrom....... 54 Vice President--Controller
William H. Dutt............ 62 Vice President--Technical
Edward R. Hahn............. 53 Vice President--Research and Development
Hugh A. McGlinchey......... 58 Vice President--Information Systems
Kenneth C. Pulver.......... 54 Vice President--Corporate Communications
John C. Treanor............ 59 Treasurer
Charles J. Silva, Jr....... 38 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. He is a director of Albank, FSB and
Thermo Fibergen, Inc.
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
5
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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. He has been a Director of the Registrant since 1997.
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 in 1995. From
1988 until December 1994 he held various management positions, most recently as
President and Director of an international manufacturer of pulp and papermaking
equipment.
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.
JOHN C. TREANOR joined the Registrant in 1970. He has served the Registrant
as Treasurer since 1997, as Controller of Albany International Europe from 1992
to 1997 and as Controller of Albany International Canada from 1985 to 1992.
6
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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.
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, South Korea and China.
The aggregate square footage of the Registrant's facilities in the United States
and Canada is approximately 2,456,000, of which 2,338,000 square feet are owned
and 118,000 square feet are leased. The Registrant's facilities located outside
the United States and Canada comprise approximately 2,721,000 square feet, of
which 2,542,000 square feet are owned and 179,000 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 1998. The Registrant's
expected 1998 capital expenditures of about $45 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 $213 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 1997 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 38 of the
Annual Report are incorporated herein by reference.
Restrictions on dividends and other distributions are described in Note 6,
on pages 25 and 26 of the Annual Report. Such description is incorporated herein
by reference.
7
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ITEM 6. SELECTED FINANCIAL DATA
"Eleven Year Summary" on pages 36 and 37 of the Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Review of Operations" on pages 33 to 35 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 18 to 32 in the Annual Report, are incorporated
herein by reference:
Consolidated Statements of Income and Retained Earnings--years ended
December 31, 1997, 1996 and 1995
Consolidated Balance Sheets--December 31, 1997 and 1996
Consolidated Statements of Cash Flows--years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
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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 1997 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.
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, 1997 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, 1997.
9
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<TABLE>
<CAPTION>
(3)
EXHIBITS
<S> <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. (6)
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. (4)
10(m)(v)- 1997 Executive Stock Option Agreement.
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. (5)
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. (6)
10(o)(vi)- Centennial Deferred Compensation Plan. (6)
</TABLE>
10
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<TABLE>
<CAPTION>
(3)
EXHIBITS
<S> <C>
OTHER AGREEMENTS
11- Schedule of Computation of Net Income Per Share and Diluted Net Income Per
Share.
13- Annual Report to Security Holders for the year ended December 31, 1997.
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 January 18, 1993, 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 June 30, 1994, 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 March 15, 1996, which previously-filed Exhibit is incorporated by
reference herein.
11
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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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
*
------------------------------------------- Chairman of the Board and Director March 16, 1998
(J. Spencer Standish)
*
------------------------------------------- President and Director March 16, 1998
(Francis L. McKone) (Chief Executive Officer)
/s/ MICHAEL C. NAHL Senior Vice President and Chief
------------------------------------------- Financial Officer March 16, 1998
(Michael C. Nahl) (Principal Financial Officer)
*
------------------------------------------- Vice President-Controller March 16, 1998
(Richard A. Carlstrom) (Principal Accounting Officer)
*
------------------------------------------- Director March 16, 1998
(Thomas R. Beecher, Jr.)
*
------------------------------------------- Director March 16, 1998
(Charles B. Buchanan)
*
------------------------------------------- Director March 16, 1998
(Dr. Joseph G. Morone)
* Executive Vice President and
------------------------------------------- Chief Operating Officer-PMC and March 16, 1998
(Frank R. Schmeler) Director
*
------------------------------------------- Director March 16, 1998
(Christine L. Standish)
*
------------------------------------------- Director March 16, 1998
(Allan Stenshamn)
*
------------------------------------------- Director March 16, 1998
(Barbara P. Wright)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By /s/ MICHAEL C. NAHL
---------------------------------------
Michael C. Nahl
Attorney-in-fact
</TABLE>
12
<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 16th day of
March, 1998.
<TABLE>
<S> <C> <C>
ALBANY INTERNATIONAL CORP.
By: /s/ MICHAEL C. NAHL
------------------------------------------
Michael C. Nahl
PRINCIPAL FINANCIAL OFFICER
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
</TABLE>
13
<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 18 of the
1997 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 22, 1998
<PAGE>
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN B COLUMN C
----------- ----------- COLUMN E
COLUMN A BALANCE AT ADDITIONS COLUMN D -------------
- ---------------------------------------------------------- BEGINNING CHARGED TO --------------- BALANCE AT
DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS (A) END OF PERIOD
- ---------------------------------------------------------- ----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31:
1997.................................................. $ 4,962 $ 1,298 $ 1,036 $ 5,224
1996.................................................. $ 5,010 $ 1,036 $ 1,084 $ 4,962
1995.................................................. $ 4,618 $ 963 $ 571 $ 5,010
</TABLE>
- ------------------------
(A) Includes accounts written off as uncollectible, recoveries and the effect of
currency exchange rates.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO
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. (6)
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. (4)
10(m)(v) - 1997 Executive Stock Option Agreement.
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. (5)
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. (6)
10(o)(vi) - Centennial Deferred Compensation Plan. (6)
OTHER AGREEMENTS
11 - Schedule of Computation of Net Income Per Share and Diluted Net Income Per Share.
13 - Annual Report to Security Holders for the year ended December 31, 1997.
21 - Subsidiaries of Registrant.
23 - Consent of Coopers & Lybrand L.L.P.
24 - Powers of Attorney.
27 - Financial Data Schedule.
</TABLE>
<PAGE>
- ------------------------
(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 January 18, 1993, 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 June 30, 1994, 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 March 15, 1996, which previously-filed Exhibit is incorporated by
reference herein.
<PAGE>
EXHIBIT 10(m)(v)
OPTION AGREEMENT
AGREEMENT, dated November 5, 1997, by and between ALBANY INTERNATIONAL
CORP., a Delaware corporation ("AI") and MICHAEL C. NAHL ("the Optionee"), an
officer of AI.
WHEREAS, as an incentive to encourage the Optionee to remain in the
employ of AI and its subsidiaries by affording the Optionee a greater
interest in the success of AI and its subsidiaries, AI desires to grant to
the Optionee an option to purchase shares of its Class A Common Stock;
WHEREAS, the Optionee desires to obtain such option on the terms and
conditions provided for herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein set forth and other good and valuable considerations receipt of which
is hereby acknowledged, AI and the Optionee hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set, AI
hereby grants to the Optionee the right and option ("the Option") to purchase
250,000 treasury shares (subject to adjustments as provided in paragraph 6
hereof) of Class A Common Stock of AI ("the Optioned Shares").
2. PURCHASE PRICE. The purchase price of the Optioned Shares shall be
$25-9/16 per share (subject to adjustment as provided in paragraph 6 hereof).
3. TERM. The term of the Option shall be for a period of twenty years
from the date hereof; provided, however, that the term of the Option may be
terminated at any time by the Committee if the Committee determines that the
Optionee has engaged in a Competing Activity (as hereinafter defined) without
the specific written consent of AI; PROVIDED, FURTHER, THAT THE COMMITTEE MAY
AT ANY TIME ACCELERATE THE EXPIRATION OF THE TERM OF THE OPTION TO A DATE NOT
LESS THAN TEN YEARS FROM THE DATE HEREOF PROVIDED THAT SUCH DATE SHALL NOT BE
EARLIER THAN SIX MONTHS AFTER THE DATE WHEN WRITTEN NOTICE OF SUCH
ACCELERATION SHALL HAVE BEEN RECEIVED BY THE OPTIONEE.
4. EXERCISABILITY. The Option shall become exercisable only if, prior
to the termination of employment of the Optionee by AI and its subsidiaries,
the average per share composite closing price for Class A Common Stock of AI,
as shown by the Wall Street Journal, for any five successive trading days
after the date of this Agreement shall have equaled or exceeded $48 (subject
to adjustment as provided in paragraph 6 hereof). Upon the satisfaction of
this condition ("the Market Condition"), the Option shall become exercisable
as to a number of shares of Class A Common Stock of AI calculated by
multiplying 25,000 times the number of full years that shall have elapsed
from the date of this Agreement to the date when the Market Condition shall
have been satisfied. After the date when the Market Condition is satisfied,
the Option shall become exercisable, on each anniversary date of the date of
this Agreement until, but including the tenth anniversary date, as to an
additional 25,000 shares, but only if, on such anniversary date, the Optionee
continues to be an employee of AI or a subsidiary.
<PAGE>
Notwithstanding the foregoing, this Option shall not be exercised or
exercisable at any given time if and to the extent that exercise at such time
would result in compensation to the Optionee that is not deductible by AI as
a result of the provisions of Section 162(m) of the Internal Revenue Code, or
the regulations thereunder, in each case as amended from time to time, or any
comparable tax law provisions hereinafter adopted.
5. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) In the event that, during the term of the Option, the employment of
the Optionee by AI and its subsidiaries shall be terminated by Voluntary
Termination (as hereinafter defined) after the Optionee has attained age 62
or by death, Disability (as hereinafter defined) or Involuntary Termination
(as hereinafter defined),
(i) if the Market Condition shall not have occurred prior to such
termination, the Option shall terminate as to all of the Optioned
Shares at the time of termination; and
(ii) if the Market Condition shall have occurred prior to such
termination,
(A) the Option shall become exercisable, at the time of such
termination, as to 50% of any Optioned Shares as to which the
Option has not yet become exercisable at such time and shall remain
exercisable, as to such 50% and as to all Optioned Shares to which
the Option had become exercisable prior to such termination, until
the earlier of
(I) the expiration of the period of five years following
the date of such termination, and
(II) the expiration of the term of the Option, at which
time the Option shall terminate; and
(B) the Option shall terminate as to 50% of any Optioned
Shares as to which the Option has not yet become exercisable at the
time of such termination.
(b) In the event that, during the term of the Option, the employment of
the Optionee by AI and its subsidiaries shall be terminated by Voluntary
Termination before the Optionee has attained age 62,
(i) if the Market Condition shall not have occurred prior to such
termination, the Option shall terminate as to all of the Optioned
Shares at the time of such termination; and
(ii) if the Market Condition shall have occurred prior to such
termination,
(A) the Option shall remain exercisable as to all Optioned
Shares as to which the Option had become exercisable prior to such
termination, until the earlier of
(I) the expiration of the period of five years following
the date of such termination, and
(II) the expiration of the term of the Option at which
time the Option shall terminate; and
(B) the Option shall terminate as to all Optioned Shares as
to which the Option has not yet become exercisable at the time of
such termination.
2
<PAGE>
(c) In the event that, during the term of the Option, the employment of
the Optionee by AI and its subsidiaries shall be terminated for Cause (as
hereinafter defined),
(i) if the Market Condition shall not have occurred prior to such
termination, the Option shall terminate as to all of the Optioned
Shares at the time of termination; and
(ii) if the Market Condition shall have occurred prior to such
termination,
(A) the Option shall terminate at the time of such
termination as to all Optioned Shares at the time of such
termination, and
(B) the Option shall remain exercisable as to those of the
Optioned Shares as to which the Option had become exercisable prior
to such termination until the earlier of
(I) the expiration of the period of sixty days following
the date of such termination, and
(II) the expiration of the term of the Option, at which
time the Option shall terminate.
6. RECAPITALIZATION, ETC. Notwithstanding any other provision of this
Agreement, in the event of any change in the outstanding common stock of AI
by reason of a stock dividend, recapitalization, merger, consolidation,
split-up, combination or exchange of shares or the like, the number and class
of shares subject to the Option, the purchase price of the Optioned Shares
and the per share price included in the Market Condition may be appropriately
adjusted by the Committee, whose determination shall be conclusive. No
fractional shares shall be issued hereunder and any fractional shares
resulting from computations pursuant to this paragraph 6 shall be eliminated
from the Option.
7. METHOD OF EXERCISING OPTION. Subject to the terms and conditions
hereof, the Option may be exercised (to the extent then exercisable) by
written notice delivered to AI and signed by the Optionee or other person or
persons entitled to exercise the Option. Such notice shall state the number
of Optioned Shares in respect of which the Option is being exercised and
shall include such written representations as the Committee may from time to
time determine to be desirable in connection with compliance with securities
and other laws and regulations. Such notice shall be accompanied by delivery
of the full purchase price of such Optioned Shares in cash or by check
payable to the order of AI, unless the Committee shall have determined to
accept or withhold, in full or partial payment of such purchase price, shares
of Class A Common Stock of AI.
Such notice shall also be accompanied by payment, in cash or by check
payable to the order of AI, of the minimum amount of any taxes required by
law to be withheld by AI in respect of such exercise, unless the Committee
shall have determined to accept or withhold, in full or partial payment of
such taxes, shares of Class A Common Stock of AI. In the event the Option
shall be exercised by any person or persons other than the Optionee, such
notice shall, in addition, be accompanied by proof satisfactory to AI of the
right of such person or persons to exercise the Option. If and when all of
the foregoing conditions have been fully satisfied, AI shall, as soon as
practicable thereafter (including such time as may be required pursuant to
the last sentence of this paragraph), deliver a stock certificate
representing the Optioned Shares in respect of which the Option is being
exercised (less any shares withheld in payment of the purchase price or
taxes), registered in the name of the person or persons exercising the
Option.
3
<PAGE>
Such stock certificate may bear any legend which the Committee determines to
be desirable in connection with compliance with securities and other laws and
regulations. Shares acquired upon the exercise of the Option as provided
herein shall be fully paid and non-assessable. Such shares shall be issued
shares of Class A Common Stock reacquired in any manner by AI. AI agrees
that in the event that, at the time of receipt of a notice of exercise
hereunder, it does not have sufficient treasury shares to satisfy the option
exercise, it will, no later than 20 trading days after receipt of such
notice, acquire the required number of treasury shares.
8. NON-TRANSFERABILITY. During the lifetime of the Optionee the
Option shall be exercisable only by the Optionee (or the Optionee's guardian
or legal representative) or by a Permitted Transferee to whom the Option has
been transferred by gift, in which case it shall be exercisable only by such
Permitted Transferee. No option shall be assignable or transferable by the
Optionee, and no other person shall acquire any rights therein other than by
will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986, as
amended, 26 U.S.C. Section 1 et. seq. (the "Internal Revenue Code") or Title
I of the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder, except that an option may be transferred by gift to any
Permitted Transferee of such Optionee. The Optionee shall give the Company
prompt written notice of any such transfer and shall provide the Company with
such evidence as the Company may reasonably request to establish that the
transfer is permitted hereunder. "Permitted Transferee" of any Optionee
shall mean any child or grandchild of such Optionee, or any trust for the
benefit of such child or grandchild. Except as specifically permitted above
in this paragraph 8, the Option and this Agreement shall not be pledged,
hypothecated, sold, assigned or otherwise disposed of, encumbered or
transferred, in whole or in part. Any purported pledge, hypothecation, sale,
assignment or other disposition, encumbrance or transfer of the Option or
this Agreement (other than a transfer specifically permitted by this
paragraph 8) and any levy of any execution, attachment or similar process
upon the Option or this Agreement, in whole or in part, shall be null and
void and without effect.
9. NO RIGHTS AS STOCKHOLDER. The Optionee shall not be deemed for any
purpose to be, or have any right as, a stockholder of AI except to the extent
the Optionee shall exercise the Option and a share certificate shall be
issued therefor, and then only from the date such certificate is issued. No
adjustment shall be made for dividends or distributions or other rights the
record date for which is prior to the date on which such share certificate is
issued.
10. DEFINITIONS. As used herein, the following terms shall have the
meanings specified below:
(a) "Cause" shall be deemed to exist if a majority of the members of
the Board of Directors of AI determine that the Optionee has:
(i) caused substantial harm to AI with intent to do so or as a
result of gross negligence in the performance of his duties;
(ii) not made a good faith effort to carry out his or her duties;
(iii) wrongfully and substantially enriched himself or herself at
the expense of AI; or
(iv) been convicted of a felony.
4
<PAGE>
(b) "Committee" shall mean the Board of Directors, the Compensation and
Stock Option Committee of the Board of Directors or such other committee of
the Board of Directors as the Board may from time to time designate to
exercise the powers conferred upon "the Committee" by this Agreement.
(c) The Optionee shall be deemed to be engaging in a "Competing
Activity" if he or she is:
(i) a director of a corporation or a member of a partnership, or a
trustee of a business trust, or an officer, employee representative or
agent of, or a consultant to, a corporation, partnership, business
trust or other entity or organization engaged in a Competing Business
(as defined below); or
(ii) a direct or indirect investor in a Competing Business and the
investment (whether made by loan, advance, contribution to capital,
purchase of stock or otherwise) constitutes more than 10% of (A) the
total capital of such business, (B) the equity capital of such business
or (C) the voting power for the election of the Board of Directors or
other governing body of such business.
(d) A business shall be a "Competing Business" at any time if at such
time it is engaging in a business activity which is, at such time, being
conducted by AI, or by a subsidiary of AI, or a company controlled by AI or a
subsidiary or subsidiaries of AI and in or for the conduct of which the
Optionee is or was involved or bore responsibility as an employee of AI or a
subsidiary of AI.
(e) "Disability" shall be deemed to exist if:
(i) by reason of mental or physical illness the Optionee has not
performed his or her duties for a period of six consecutive months; and
(ii) the Optionee does not return to the performance of his or her
duties within thirty days after written notice is given by AI that the
Optionee has been determined by the Committee to be "Disabled" under
the Company's long term disability policy.
(f) "Involuntary Termination" shall mean a termination of the
employment of the Optionee by AI for any reason other than Cause.
(g) "Voluntary Termination" shall mean a termination of the employment
of the Optionee for any reason other than death, Disability, Cause or
Involuntary Termination.
11. NOTICES. Any notice required or permitted under this Agreement
shall be in writing and shall be deemed properly given
(a) in the case of notice to AI, if delivered in person to the
Secretary of AI, or mailed to AI to the attention of the Secretary by
registered mail (return receipt requested) at P.O. Box 1907, Albany, New York
12201, or at such other address as AI may from time to time hereafter
designate by written notice to the Optionee; and
5
<PAGE>
(b) in the case of notice to the Optionee, if delivered to him or her
in person, or mailed to him or her by registered mail (return receipt
requested) at
111 Menands Road
Menands, New York 12204
or at such other address as the Optionee may from time to time hereafter
designate by written notice to AI.
12. AMENDMENT AND WAIVER. Neither this Agreement nor any provision
hereof may be amended, modified, changed, discharged, terminated or waived
orally, by any course of dealing or purported course of dealing or by any
other means except an agreement in writing signed by AI and by the Optionee
(or, following the death of the Optionee, by such person or persons as are
then entitled hereunder to exercise the Option). No such agreement shall
extend to or affect any provision of this Agreement not expressly amended,
modified, changed, discharged, terminated or waived or impair any right
consequent on such a provision. The waiver of or failure to enforce any
breach of this Agreement shall not be deemed to be a waiver of or
acquiescence in any other breach hereof.
13. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, AI and the Optionee have duly executed this
Agreement as of the date hereof.
ALBANY INTERNATIONAL CORP.
By /s/ J. Spencer Standish
--------------------------------
/s/ Michael C. Nahl
--------------------------------
Michael C. Nahl
6
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET INCOME PER SHARE:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED DECEMBER 31, ENDED DECEMBER 31,
- --------------------------- -------------------------------
RESTATED RESTATED
1997 (1) 1996 (1) 1997 (1) 1996 (1)
- ------------ ------------ -------------- --------------
<C> <C> <S> <C> <C>
30,710,296 30,464,625 Common stock outstanding at end of period 30,710,296 30,464,625
Adjustments to ending shares to arrive at weighted
average for the period:
(22,638) (21,904) Shares contributed to E.S.O.P. (2) (79,227) (95,099)
(4,725) (8,539) Shares issued under option or to Directors(2) (166,202) (19,112)
218,496 -- Treasury shares purchased (2) 283,952 13,814
- ------------ ------------ -------------- --------------
30,901,429 30,434,182 Weighted average number of shares 30,748,819 30,364,228
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
$ 13,281 $ 15,410 Income before extraordinary item $ 49,059 $ 49,602
-- -- Extraordinary loss on early extinguishment of -- $ 1,296
debt, net of tax of $828
- ------------ ------------ -------------- --------------
$ 13,281 $ 15,410 Net income $ 49,059 $ 48,306
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
$ 0.43 $ 0.51 Income per share before extraordinary item $ 1.60 $ 1.63
-- -- Extraordinary loss on early extinguishment of debt -- ($ 0.04)
- ------------ ------------ -------------- --------------
$ 0.43 $ 0.51 Net income per share $ 1.60 $ 1.59
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
</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
ADJUSTMENTS TO ENDING SHARES:
<TABLE>
<CAPTION>
NUMBER OF DAYS IN PERIOD
------------------------
THREE MONTHS YEAR
------------ --------
<S> <C> <C>
1996 92 366
1997 92 365
-- ---
-- ---
</TABLE>
<TABLE>
<CAPTION>
RECIPROCAL DAYS SHARES ADJUSTMENT
- ------------------- ----------------------
THREE MONTHS YEAR SHARES THREE MONTHS YEAR
- ------------ ---- ------------------- -------
<S> <C> <C> <C> <C> <C>
1996
----
Shares Contributed to ESOP:
---------------------------
-- 30 31-Jan-96 12,969 -- 1,063
-- 59 29-Feb-96 136,670 -- 22,032
-- 90 31-Mar-96 11,616 -- 2,856
-- 120 30-Apr-96 10,790 -- 3,538
-- 151 31-May-96 12,658 -- 5,222
-- 181 30-Jun-96 10,383 -- 5,135
-- 212 31-Jul-96 12,253 -- 7,097
-- 243 31-Aug-96 13,016 -- 8,642
-- 273 30-Sep-96 11,067 -- 8,255
30 304 31-Oct-96 12,492 4,074 10,376
60 334 30-Nov-96 11,398 7,433 10,401
91 365 31-Dec-96 10,511 10,397 10,482
------------ -------
Totals 21,904 95,099
------------ -------
------------ -------
</TABLE>
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RECIPROCAL DAYS SHARES ADJUSTMENT
- ------------------- ----------------------
THREE MONTHS YEAR SHARES THREE MONTHS YEAR
- ------------ ---- ------------------- -------
<S> <C> <C> <C> <C> <C>
Shares Issued Under Option or to Directors:
-------------------------------------------
-- 140 20-May-96 2,255 -- 863
-- 142 22-May-96 6,000 -- 2,328
9 283 10-Oct-96 1,400 137 1,083
21 295 22-Oct-96 9,000 2,054 7,254
43 317 13-Nov-96 3,000 1,402 2,598
91 365 31-Dec-96 5,000 4,946 4,986
------------ -------
Totals 8,539 19,112
------------ -------
------------ -------
Treasury Shares Purchased:
--------------------------------------------------
-- 16 17-Jan-96 91,000 -- 3,978
-- 72 13-Mar-96 50,000 -- 9,836
------------ -------
Totals -- 13,814
------------ -------
------------ -------
1997
----
Shares Contributed to ESOP:
---------------------------
-- 30 31-Jan-97 12,002 -- 986
-- 58 28-Feb-97 58,773 -- 9,339
-- 89 31-Mar-97 12,126 -- 2,957
-- 119 30-Apr-97 12,380 -- 4,036
-- 150 31-May-97 12,193 -- 5,011
-- 180 30-Jun-97 11,243 -- 5,544
-- 211 31-Jul-97 10,555 -- 6,102
-- 242 31-Aug-97 9,406 -- 6,236
-- 272 30-Sep-97 10,061 -- 7,498
30 303 31-Oct-97 11,876 3,873 9,859
60 333 30-Nov-97 10,752 7,012 9,809
91 364 31-Dec-97 11,882 11,753 11,849
------------ -------
Totals 22,638 79,227
------------ -------
------------ -------
Shares Issued Under Option or to Directors:
-------------------------------------------
-- 1 02-Jan-97 200 -- 1
-- 2 03-Jan-97 3,600 -- 20
-- 5 06-Jan-97 10,000 -- 137
-- 6 07-Jan-97 900 -- 15
-- 7 08-Jan-97 5,000 -- 96
-- 29 30-Jan-97 37,300 -- 2,964
-- 33 03-Feb-97 20,000 -- 1,808
-- 37 07-Feb-97 5,000 -- 507
-- 42 12-Feb-97 27,000 -- 3,107
-- 43 13-Feb-97 1,400 -- 165
-- 44 14-Feb-97 28,600 -- 3,448
-- 48 18-Feb-97 10,000 -- 1,315
-- 91 02-Apr-97 1,800 -- 449
-- 110 21-Apr-97 2,922 -- 881
-- 159 09-Jun-97 2,500 -- 1,089
-- 162 12-Jun-97 17,900 -- 7,945
-- 163 13-Jun-97 10,200 -- 4,555
-- 168 18-Jun-97 8,700 -- 4,004
-- 169 19-Jun-97 19,200 -- 8,890
-- 175 25-Jun-97 5,000 -- 2,397
</TABLE>
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
RECIPROCAL DAYS SHARES ADJUSTMENT
- ------------------- ----------------------
THREE MONTHS YEAR SHARES THREE MONTHS YEAR
- ------------ ---- ------------------- -------
<S> <C> <C> <C> <C> <C>
-- 176 26-Jun-97 14,000 -- 6,751
-- 202 22-Jul-97 5,100 -- 2,822
-- 204 24-Jul-97 22,000 -- 12,296
-- 205 25-Jul-97 60,000 -- 33,699
-- 211 31-Jul-97 26,800 -- 15,493
-- 212 01-Aug-97 600 -- 348
-- 216 05-Aug-97 16,800 -- 9,942
-- 217 06-Aug-97 1,000 -- 595
-- 218 07-Aug-97 1,000 -- 597
-- 219 08-Aug-97 12,500 -- 7,500
-- 223 12-Aug-97 2,500 -- 1,527
-- 225 14-Aug-97 500 -- 308
-- 229 18-Aug-97 1,800 -- 1,129
-- 230 19-Aug-97 800 -- 504
-- 231 20-Aug-97 3,400 -- 2,152
-- 233 22-Aug-97 1,800 -- 1,149
-- 236 25-Aug-97 4,300 -- 2,780
-- 237 26-Aug-97 1,800 -- 1,169
-- 244 02-Sep-97 1,000 -- 668
-- 245 03-Sep-97 600 -- 403
-- 246 04-Sep-97 1,000 -- 674
-- 247 05-Sep-97 4,400 -- 2,978
-- 253 11-Sep-97 1,000 -- 693
-- 254 12-Sep-97 8,300 -- 5,776
-- 257 15-Sep-97 5,300 -- 3,732
16 289 17-Oct-97 2,400 417 1,900
77 350 17-Dec-97 2,500 2,092 2,397
79 352 19-Dec-97 400 343 386
82 355 22-Dec-97 2,100 1,872 2,042
------------ -------
Totals 4,725 166,202
------------ -------
------------ -------
Treasury Shares Purchased:
--------------------------
-- 26 27-Jan-97 57,500 -- 4,096
-- 120 01-May-97 4,400 -- 1,447
43 316 13-Nov-97 20,000 9,348 17,315
49 322 19-Nov-97 27,200 14,487 23,996
54 327 24-Nov-97 35,600 20,896 31,894
55 328 25-Nov-97 40,000 23,913 35,945
70 343 10-Dec-97 50,000 38,043 46,986
79 352 19-Dec-97 27,000 23,185 26,038
82 355 22-Dec-97 48,600 43,317 47,268
83 356 23-Dec-97 49,000 44,207 47,792
84 357 24-Dec-97 1,000 913 978
86 359 26-Dec-97 200 187 197
------------ -------
218,496 283,952
------------ -------
------------ -------
</TABLE>
<PAGE>
ALBANY INTERNATIONAL CORP.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DILUTED NET INCOME PER SHARE:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE YEARS
ENDED DECEMBER 31, ENDED DECEMBER 31,
- --------------------------- -------------------------------
RESTATED RESTATED
1997 (1) 1996 (1) 1997 (1) 1996 (1)
- ------------ ------------ -------------- --------------
<C> <C> <S> <C> <C>
30,901,429 30,434,182 Weighted average number of shares 30,748,819 30,364,228
461,893 372,653 Incremental shares of unexercised options (3) 426,445 281,226
- ------------ ------------ -------------- --------------
31,363,322 30,806,835 Adjusted weighted average number of shares 31,175,264 30,645,454
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
$ 13,281 $ 15,410 Income before extraordinary item $ 49,059 $ 49,602
-- -- Extraordinary loss on early extinguishment of -- $ 1,296
debt, net of tax of $828
- ------------ ------------ -------------- --------------
$ 13,281 $ 15,410 Net income $ 49,059 $ 48,306
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
$ 0.43 $ 0.50 Income per share before extraordinary item $ 1.57 $ 1.62
-- -- Extraordinary loss on early extinguishment of debt -- ($ 0.04)
- ------------ ------------ -------------- --------------
$ 0.43 $ 0.50 Diluted net income per share $ 1.57 $ 1.58
- ------------ ------------ -------------- --------------
- ------------ ------------ -------------- --------------
</TABLE>
- ------------------------
(3) Incremental shares of unexercised options are calculated based on the
average price of the Company's stock for the respective period. The
calculation includes all options that are dilutive to earnings per share.
<PAGE>
EXHIBIT 13
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.
/s/J. Spencer Standish
J. Spencer Standish
Chairman of the Board
/s/Francis L. McKone
Francis L. McKone
President and Chief Executive Officer
/s/Michael C. Nahl
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1997 the Company
changed its method of valuing United States inventories from last in--first out
to the average cost method.
[COOPERS & LYBRAND SIG]
Albany, New York
January 22, 1998
18
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
-------------------------------- ---- ---- ----
(in thousands, except per share amounts) Restated
<S> <C> <C> <C>
Statements of Income
Net sales $ 710,079 $ 692,760 $ 652,645
Cost of goods sold 404,982 399,311 379,696
- -------------------------------------------------------------------------------------
Gross profit 305,097 293,449 272,949
Selling and general expenses 155,515 147,929 139,102
Technical and research expenses 49,963 48,735 45,020
- -------------------------------------------------------------------------------------
Operating income 99,619 96,785 88,827
Interest income (646) (1,180) (114)
Interest expense 16,113 17,013 20,123
Other expense/(income), net 4,521 12 (1,024)
- -------------------------------------------------------------------------------------
Income before income taxes 79,631 80,940 69,842
Income taxes 31,055 31,570 27,208
- -------------------------------------------------------------------------------------
Income before associated companies 48,576 49,370 42,634
Equity in earnings of associated companies 483 232 377
- -------------------------------------------------------------------------------------
Income before extraordinary item 49,059 49,602 43,011
Extraordinary loss on early extinguishment of debt,
net of tax of $828 -- 1,296 --
- -------------------------------------------------------------------------------------
Net income 49,059 48,306 43,011
Retained Earnings
Retained earnings, beginning of period, as
previously reported 206,308 171,082 139,740
Cumulative effect on prior years of retroactive
restatement for accounting change for inventory 3,567 2,646 2,685
Retained earnings, beginning of period, restated 209,875 173,728 142,425
Less dividends 12,921 12,159 11,708
- -------------------------------------------------------------------------------------
Retained earnings, end of period $ 246,013 $ 209,875 $ 173,728
- -------------------------------------------------------------------------------------
Net Income/(Loss) Per Share:
Income before extraordinary item $ 1.60 $ 1.63 $ 1.42
Extraordinary loss on early extinguishment of
debt -- (0.04) --
- -------------------------------------------------------------------------------------
Net income $ 1.60 $ 1.59 $ 1.42
Diluted Net Income/(Loss) Per Share:
Income before extraordinary item $ 1.57 $ 1.62 $ 1.35
Extraordinary loss on early extinguishment of
debt -- (0.04) --
- -------------------------------------------------------------------------------------
Net income $ 1.57 $ 1.58 $ 1.35
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
19
<PAGE>
CONSOLIDATED BALANCE SHEETS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
At December 31, 1997 1996
--------------- ---- ----
(in thousands) Restated
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,546 $ 8,034
Accounts receivable, less allowance for doubtful accounts ($5,224,
1997; $4,962, 1996) 171,886 179,516
Inventories
Finished goods 106,259 105,822
Work in process 38,904 40,568
Raw material and supplies 35,288 33,808
Deferred taxes and prepaid expenses 18,440 16,879
- ------------------------------------------------------------------------------------------
Total current assets 373,323 384,627
- ------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, net 321,611 339,461
Investments in associated companies 2,444 2,060
Intangibles 36,080 44,954
Deferred taxes 22,826 27,756
Other assets 40,613 33,059
- ------------------------------------------------------------------------------------------
Total assets $ 796,897 $ 831,917
- ------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Notes and loans payable $ 76,095 $ 65,165
Accounts payable 25,786 32,813
Accrued liabilities 56,743 59,755
Current maturities of long-term debt 1,703 2,295
Income taxes payable and deferred 10,113 16,718
- ------------------------------------------------------------------------------------------
Total current liabilities 170,440 176,746
- ------------------------------------------------------------------------------------------
Long-term debt 173,654 187,100
Other noncurrent liabilities 74,075 97,579
Deferred taxes and other credits 35,620 38,162
- ------------------------------------------------------------------------------------------
Total liabilities 453,789 499,587
- ------------------------------------------------------------------------------------------
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; 25,375,413 issued in 1997 and 24,865,573 in
1996 25 25
Class B Common Stock, par value $.001 per share; authorized
25,000,000 shares; issued and outstanding 5,615,563 in 1997 and
1996 6 6
Additional paid in capital 187,831 177,412
Retained earnings 246,013 209,875
Translation adjustments (84,351) (42,340)
Pension liability adjustment -- (12,483)
- ------------------------------------------------------------------------------------------
349,524 332,495
Less treasury stock, at cost 6,416 165
- ------------------------------------------------------------------------------------------
Total shareholders' equity 343,108 332,330
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 796,897 $ 831,917
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
-------------------------------- ---- ---- ----
(in thousands) Restated
<S> <C> <C> <C>
Operating Activities
Net income $ 49,059 $ 48,306 $ 43,011
Adjustments to reconcile net cash provided by
operating activities:
Equity in earnings of associated companies (483) (232) (377)
Depreciation and amortization 44,991 45,189 43,087
Accretion of convertible subordinated debentures -- 353 1,628
Provision for deferred income taxes, other
credits and long-term liabilities (3,828) 755 6,739
Increase in cash surrender value of life
insurance, net of premiums paid (851) (751) (654)
Unrealized currency transaction losses/(gains) 3,571 (1,459) (1,469)
Loss/(gain) on disposition of assets 382 683 (754)
Shares contributed to ESOP 4,336 5,227 3,454
Loss on early extinguishment of debt -- 1,296 --
Changes in operating assets and liabilities:
Accounts receivable 4,009 (7,444) (13,926)
Inventories (557) (8,674) (18,997)
Prepaid expenses (55) (1,408) 386
Accounts payable (7,026) (2,449) 4,658
Accrued liabilities (922) 1,543 1,527
Income taxes payable (4,365) 2,844 (113)
Other, net (1,699) (884) (747)
- -------------------------------------------------------------------------------------
Net cash provided by operating activities 86,562 82,895 67,453
- -------------------------------------------------------------------------------------
Investing Activities
Purchases of property, plant and equipment (50,804) (53,473) (41,921)
Purchased software (2,318) (1,909) (2,215)
Proceeds from sale of assets 496 27,112 1,762
Acquisitions, net of cash acquired -- (25,587) (11,312)
Investment in associated and other companies (4,000) -- (915)
Premiums paid for life insurance (1,190) (1,193) (1,196)
- -------------------------------------------------------------------------------------
Net cash used in investing activities (57,816) (55,050) (55,797)
- -------------------------------------------------------------------------------------
Financing Activities
Proceeds from borrowings 55,030 220,200 21,348
Principal payments on debt (54,847) (229,799) (14,542)
Proceeds from options exercised 7,000 401 4,408
Tax benefit of options exercised 1,089 25 581
Purchases of treasury shares (8,257) (2,552) (2,883)
Dividends paid (12,724) (12,144) (11,305)
- -------------------------------------------------------------------------------------
Net cash used in financing activities (12,709) (23,869) (2,393)
- -------------------------------------------------------------------------------------
Effect of exchange rate changes on cash flows (21,525) (3,551) (1,882)
- -------------------------------------------------------------------------------------
(Decrease)/increase in cash and cash equivalents (5,488) 425 7,381
Cash and cash equivalents at beginning of year 8,034 7,609 228
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,546 $ 8,034 $ 7,609
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<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." In 1997, the Company purchased less than a 20% interest in
Spectra Science Corporation. The original cost of the investment is
included in "Other assets".
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
$23,070,000 in 1997, $21,945,000 in 1996 and $19,700,000 in 1995.
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 and are valued at
average cost. During 1997, the Company changed its method of determining
the cost of United States inventories from the last-in, first-out (LIFO)
method to the average cost method. The Company believes that the average
cost method results in a closer matching of revenues and expenses during
periods of increased productivity and changes in product mix. This change
in accounting method has been applied retroactively and financial
information for all periods presented has been restated to apply the
average cost method. Income before extraordinary item and net income was
increased/(decreased) by $921,000, 3 cents per share, and ($39,000), less
than 1 cent per share, for the years ended December 31, 1996 and 1995,
respectively, as a result of this change. There was no effect on 1997
income. Retained earnings has been adjusted, net of tax of $3,650,000,
$3,061,000 and $3,086,000 in 1997, 1996 and 1995, respectively, for the
effect of retroactive application of the new method.
22
<PAGE>
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".
Derivatives
Gains or losses on forward exchange contracts that function as an economic
hedge against currency fluctuation effects on future revenue streams are
recorded in "Other expense/(income), net".
Gains or losses on forward exchange contracts that are designated a hedge
of a foreign operation's net assets and/or long-term intercompany loans are
recorded in "Translation adjustments", a separate component of
shareholders' equity. These contracts reduce the risk of currency exposure
on foreign currency net assets and do not exceed the foreign currency
amount being hedged. To the extent the above criteria are not met, or the
related assets are sold, extinguished, or terminated, activity associated
with such hedges is recorded in "Other expense/(income), net".
All open positions on forward exchange contracts are valued at fair value
using the estimated forward rate of a matching contract.
Gains or losses on futures contracts are recorded in "Other
expense/(income), net". Open positions are valued at fair value using
quoted market rates.
The Company values swap agreements at market 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. Gains or
losses on swaps are recorded in "Other expense/(income), net".
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 expenses 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
Effective December 31, 1997, the Company adopted Financial Accounting
Standard No. 128, "Earnings Per Share". In accordance with this Standard,
net income/(loss) per share is computed using the weighted average number
of shares of Class A and Class B Common Stock outstanding during each year.
Diluted net income/(loss) per share includes the effect of all
23
<PAGE>
potentially dilutive securities. Earnings per share amounts for all periods
presented have been computed in accordance with this Standard.
2. EARNINGS PER SHARE
The amounts used in computing earnings per share and the effect on income
and the weighted average number of shares of potentially dilutive
securities are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
(in thousands) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Income before extraordinary
item:
Income before extraordinary
item and available to common
stockholders $49,059 $49,602 $43,011
5.25% convertible
subordinated debentures -- -- 5,794
- --------------------------------------------------------------
Income available to common
stockholders after assumed
conversion of debentures $49,059 $49,602 $48,805
- --------------------------------------------------------------
Weighted average number of
shares:
Weighted average number of
shares used in net income/
(loss) per share 30,749 30,364 30,202
Effect of dilutive secu-
rities:
Stock options 426 281 358
5.25% convertible
subordinated debentures -- -- 5,712
- --------------------------------------------------------------
Weighted average number of
shares used in diluted net
income/(loss) per share 31,175 30,645 36,272
- --------------------------------------------------------------
</TABLE>
Options to purchase 250,000 shares of common stock at $25.5625 per share
were outstanding at December 31, 1997 but were not included in the
computation of diluted net income/(loss) per share because the options'
exercise price was greater than the average market price of the common
shares.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are summarized below:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------
<S> <C> <C>
Land $ 22,487 $ 26,659
Buildings 154,803 165,162
Machinery and equipment 447,749 449,874
- -------------------------------------------------------
625,039 641,695
- -------------------------------------------------------
Accumulated depreciation 303,428 302,234
- -------------------------------------------------------
$321,611 $339,461
- -------------------------------------------------------
</TABLE>
Construction in progress was approximately $127,000 in 1997 and $2,684,000
in 1996.
Depreciation expense was $41,750,000 in 1997, $42,390,000 in 1996 and
$41,375,000 in 1995.
Expenditures for maintenance and repairs are charged to income as incurred
and amounted to $18,167,000 in 1997, $17,367,000 in 1996 and $15,129,000 in
1995.
Capital expenditures were $50,804,000 in 1997, $53,473,000 in 1996 and
$41,921,000 in 1995. At the end of 1997, the Company was committed to
$30,136,000 of future expenditures for new equipment and facilities.
4. INTANGIBLES
The components of intangibles are summarized below:
<TABLE>
<CAPTION>
- -----------------------------------------------------
(in thousands) 1997 1996
- -----------------------------------------------------
<S> <C> <C>
Excess purchase price over
fair value $48,019 $49,417
Patents 10,403 10,429
Accumulated amortization (22,342) (20,788)
Deferred unrecognized pen-
sion cost (see Note 12) -- 5,896
- -----------------------------------------------------
$36,080 $44,954
- -----------------------------------------------------
</TABLE>
Amortization expense was $1,554,000 in 1997, $1,109,000 in 1996 and
$796,000 in 1995.
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
- -----------------------------------------------------
(in thousands) 1997 1996
- -----------------------------------------------------
<S> <C> <C>
Salaries and wages $18,467 $19,125
Employee benefits 16,082 20,053
Returns and allowances 4,330 4,286
Interest 773 767
Restructuring costs 326 612
Acquisition obligation -- 4,081
Other 16,765 10,831
- -----------------------------------------------------
$56,743 $59,755
- -----------------------------------------------------
</TABLE>
24
<PAGE>
6. FINANCIAL INSTRUMENTS
Notes and loans payable at December 31, 1997 and 1996 were short-term debt
instruments with banks, denominated in local currencies with a weighted
average interest rate of 6.31% in 1997 and 5.93% in 1996.
Long-term debt at December 31, 1997 and 1996, principally to banks and
bondholders, exclusive of amounts due within one year, consists of:
<TABLE>
<CAPTION>
- -------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------
<S> <C> <C>
$300 million revolving credit
agreement which terminates
in 2002 with LIBOR borrow-
ings outstanding at an aver-
age interest of 5.89% in
1997 and 5.73% in 1996. $138,000 $139,000
Various notes and mortgages
relative to operations
principally outside the
United States, at an average
interest of 6.67% in 1997
and 6.56% in 1996, due in
varying amounts through
2004. 20,538 33,575
Industrial revenue financings
at an average interest of
5.65% in 1997 and 5.67% in
1996, due in varying amounts
through 2009. 15,116 14,525
- -------------------------------------------------------
$173,654 $187,100
- -------------------------------------------------------
</TABLE>
The weighted average interest rates for all debt was 6.08% in 1997 and
5.97% in 1996.
Principal payments due on long-term debt are: 1998, $1,703,000; 1999,
$19,377,000; 2000, $851,000; 2001, $878,000; 2002, $139,064,000.
Interest paid was $16,107,000 in 1997, $19,318,000 in 1996, and $20,076,000
in 1995.
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 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, 1997, $51,773,000 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 $200,000,000 at December 31, 1997.
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 been a party to swap agreements wherein on a notional
amount of $250,000,000 the Company paid a periodic floating rate based upon
an index of yields of high-grade, tax-exempt bond issues published by Kenny
Information Systems. The counterparty was obligated to make payments to the
Company calculated at an average of 70% of LIBOR. In April 1997, the
Company closed-out its position in these agreements. Included in the
"Interest rate protection agreements" component of "Other expense/(income),
net" (see Note 9) is income of approximately $682,000, $1,099,000 and
$1,026,000 related to the net cash received as part of these agreements in
1997, 1996 and 1995, respectively. Also included in "Interest rate
protection agreements" is the change in the valuation which resulted in
income of approximately $46,000, $236,000 and $304,000 in 1997, 1996 and
1995, respectively.
25
<PAGE>
At December 31, 1997, the Company had various forward exchange contracts
maturing during 1998. 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. The foreign
currency positions, both open and closed, as of December 31, 1997, by major
currency, are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Buy Contracts Sell Contracts
Currency or Fair Value or Fair Value
- ------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Brazilian Real $10,193 $10,000
Canadian Dollar 9,962 10,000
Dutch Guilder 9,598 10,000
German Mark 104,543 105,405
Swedish Krona 10,058 10,133
- ------------------------------------------------------------------
Total $144,354 $145,538
- ------------------------------------------------------------------
</TABLE>
Periodically, the Company also enters into futures contracts primarily to
hedge in the short-term against interest rate fluctuations. At December 31,
1997, the Company was not a party to any such contracts. The "Interest rate
protection agreements" component of "Other expense/(income), net" includes
gains on futures contracts, based on fair value, of $32,000 in 1997.
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 were
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.
At December 31, 1997 the estimated fair value of the Company's long-term
debt excluding current maturities approximates $175,528,000. 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.
7. LEASES
Total rental expense amounted to $22,990,000, $20,800,000, and $16,673,000
for 1997, 1996, and 1995, 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, 1997 are: 1998, $18,427,000; 1999, $16,620,000; 2000, $12,185,000;
2001, $10,128,000; 2002, $8,254,000 and thereafter, $9,821,000.
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, 1997, 9,154,463 shares of Class A Common Stock were reserved for the
conversion of Class B Common Stock and the exercise of stock options.
In 1989, 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
January 1998, the Board authorized the purchase of an additional 3,000,000
shares of Class A Common Stock, in the open market or otherwise, at such
prices as management may from time to time consider to be advantageous to
the Company's shareholders. The Company purchased 360,500 shares of Class A
Common Stock during 1997, and an additional 829,800 shares in January 1998.
The Company may purchase up to 2,815,500 more shares without further public
announcement.
For 1997, 1996 and 1995, the Board authorized the payment of dividends
totalling $.42, $.40 and $.3875 per common share per year respectively.
26
<PAGE>
Changes in shareholders' equity for 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
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, 1995 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
Shares contributed to ESOP 89 -- -- -- 2,299 (93) (1,977)
Purchases of treasury shares -- -- -- -- -- 361 8,257
Options exercised 420 -- -- -- 8,089 -- --
Shares issued to Directors -- -- -- -- 31 (4) (29)
- -----------------------------------------------------------------------------------------------
Balance: December 31, 1997 25,375 $25 5,616 $6 $187,831 281 $6,416
- -----------------------------------------------------------------------------------------------
</TABLE>
9. OTHER EXPENSE/(INCOME) NET
The components of other expense/(income), net, as further described in Note
6, are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Currency transactions $(2,010) $(2,323) $(3,281)
Interest rate protection
agreements (760) (1,335) (1,330)
Amortization of debt issuance
costs and loan origination
fees 937 998 837
Strategic planning costs 1,333 -- --
Other 5,021 2,672 2,750
- ---------------------------------------------------------------
$ 4,521 $ 12 $(1,024)
- ---------------------------------------------------------------
</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) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $12,799 $ 6,671 $ 6,255
U.S. State 1,463 695 860
Non-U.S. 12,336 18,942 5,304
- --------------------------------------------------------------
26,598 26,308 12,419
- --------------------------------------------------------------
Deferred:
U.S. Federal (3,511) 4,504 5,402
U.S. State (401) 515 617
Non-U.S. 8,369 243 8,770
- --------------------------------------------------------------
4,457 5,262 14,789
- --------------------------------------------------------------
$31,055 $31,570 $27,208
- --------------------------------------------------------------
</TABLE>
U.S. income before income taxes was $29,973,000 in 1997, $30,522,000 in
1996, and $32,472,000 in 1995.
Taxes paid, net of refunds, were $22,210,000 in 1997, $18,066,000 in 1996
and $9,269,000 in 1995.
A comparison of the federal statutory rate to the Company's effective rate
is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes 1.9 1.8 2.7
Non-U.S. tax rates,
repatriation of earnings,
and other net charges
associated with prior years 5.6 2.6 (.3)
Other (3.5) (.4) 1.6
- -------------------------------------------------------------
Effective tax rate 39.0% 39.0% 39.0%
- -------------------------------------------------------------
</TABLE>
The significant components of deferred income tax (benefit)/expense
attributed to income from operations for the years ended December 31, 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax
(benefit)/expense $(1,448) $ 1,630 $ 9,113
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws
and rates 136 -- 4,500
Utilization of operating
loss carryforwards 5,769 3,632 1,176
- ---------------------------------------------------------------
$ 4,457 $ 5,262 $ 14,789
- ---------------------------------------------------------------
</TABLE>
Investment tax credits and other credits utilized for financial reporting
purposes were not material.
27
<PAGE>
Undistributed earnings of subsidiaries outside the United States for which
no provision for U.S. taxes has been made amounted to approximately
$90,487,000 at December 31, 1997. 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, 1997
and 1996 are presented below:
<TABLE>
<CAPTION>
U.S. Non-U.S.
---------------- ----------------
(in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable, princi-
pally due to allowance for
doubtful accounts $ 180 $ 284 $ 15 $ (107)
Inventories, principally due
to additional costs
inventoried for tax
purposes, pursuant to the
Tax Reform Act of 1986 4,863 1,509 14 272
Tax loss carryforwards -- -- 4,570 5,043
Other 2,262 3,174 712 935
- -----------------------------------------------------------------------
Total current deferred tax
assets 7,305 4,967 5,311 6,143
- -----------------------------------------------------------------------
Sale lease back transaction 2,128 1,208 -- --
Deferred compensation 7,724 6,555 -- --
Tax loss carryforwards -- -- 10,552 18,353
Plant, equipment and depre-
ciation (6,709) (6,358) (165) (1,724)
Postretirement benefits 12,403 11,498 (660) (686)
Other (2,316) (1,247) (131) 157
- -----------------------------------------------------------------------
Total noncurrent deferred
tax assets 13,230 11,656 9,596 16,100
- -----------------------------------------------------------------------
Total deferred tax assets $20,535 $16,623 $14,907 $22,243
- -----------------------------------------------------------------------
Total current deferred tax
liabilities -- -- $ 3,819 $ 2,409
- -----------------------------------------------------------------------
Plant, equipment and depre-
ciation -- -- 22,815 23,409
Other -- -- (1,153) (198)
- -----------------------------------------------------------------------
Total noncurrent deferred
tax liabilities -- -- 21,662 23,211
- -----------------------------------------------------------------------
Total deferred tax
liabilities -- -- $25,481 $25,620
- -----------------------------------------------------------------------
</TABLE>
In the U.S., the Company has had a substantial tax liability for each of
the past three years and 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 27% 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 two industry segments. The Engineered
Fabrics segment includes developing, manufacturing, marketing and servicing
custom designed engineered fabrics and related products used in the
manufacture of paper, paperboard and products in other process industries.
The Company's other segment includes manufacturing, marketing and servicing
high performance industrial doors. The Company sells its products on a
worldwide basis with its principal markets listed in the table below.
The following table shows data by industry segment:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(in thousands) 1997 % 1996 % 1995 %
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Engineered Fabrics $626,796 88 $634,067 92 $602,981 92
High Performance
Industrial Doors 83,283 12 58,693 8 49,664 8
- -----------------------------------------------------------------------------------
Total $710,079 100 $692,760 100 $652,645 100
- -----------------------------------------------------------------------------------
Operating Income
Engineered Fabrics $ 91,035 91 $ 91,802 95 $ 84,951 96
High Performance
Industrial Doors 8,584 9 4,983 5 3,876 4
- -----------------------------------------------------------------------------------
Total $ 99,619 100 $ 96,785 100 $ 88,827 100
- -----------------------------------------------------------------------------------
Assets
Engineered Fabrics $743,697 93 $776,212 93 $782,120 97
High Performance
Industrial Doors 53,200 7 55,705 7 20,112 3
- -----------------------------------------------------------------------------------
Total $796,897 100 $831,917 100 $802,232 100
- -----------------------------------------------------------------------------------
Depreciation and
Amortization
Engineered Fabrics $ 43,662 97 $ 44,529 99 $ 42,830 99
High Performance
Industrial Doors 1,329 3 660 1 257 1
- -----------------------------------------------------------------------------------
Total $ 44,991 100 $ 45,189 100 $ 43,087 100
- -----------------------------------------------------------------------------------
Capital Expenditures
Engineered Fabrics $ 49,820 98 $ 53,197 99 $ 41,771 99
High Performance
Industrial Doors 984 2 276 1 150 1
- -----------------------------------------------------------------------------------
Total $ 50,804 100 $ 53,473 100 $ 41,921 100
- -----------------------------------------------------------------------------------
</TABLE>
Amounts reported for associated companies are related to the Engineered
Fabrics segment.
28
<PAGE>
The following table shows data by geographic area:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
(in thousands) 1997 % 1996 % 1995 %
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales
United States $286,528 40 $276,973 40 $258,974 40
Canada 67,794 10 68,971 10 65,203 10
Europe 267,521 38 256,205 37 240,663 37
Rest of World 88,236 12 90,611 13 87,805 13
- -----------------------------------------------------------------------------------
Total $710,079 100 $692,760 100 $652,645 100
- -----------------------------------------------------------------------------------
Operating Income
United States $ 54,932 55 $ 46,432 48 $ 41,485 47
Canada 8,819 9 12,026 12 12,815 14
Europe 28,603 29 26,882 28 23,119 26
Rest of World 7,265 7 11,445 12 11,408 13
- -----------------------------------------------------------------------------------
Total $ 99,619 100 $ 96,785 100 $ 88,827 100
- -----------------------------------------------------------------------------------
Assets
United States $279,023 35 $289,475 35 $303,304 38
Canada 70,210 9 73,353 9 67,638 8
Europe 297,187 37 331,717 40 307,728 39
Rest of World 150,477 19 137,372 16 123,562 15
- -----------------------------------------------------------------------------------
Total $796,897 100 $831,917 100 $802,232 100
- -----------------------------------------------------------------------------------
</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) 1997 1996 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested $(118,521) $(28,118) $(11,934) $ (97,202)
Accumulated (125,245) (30,642) (13,396) (101,916)
Projected (150,766) (39,042) (19,357) (123,868)
Plan assets at fair value,
primarily listed stocks and
bonds 143,980 38,895 -- 83,324
- -----------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (6,786) (147) (19,357) (40,544)
Unrecognized net loss 27,392 2,868 2,130 35,545
Prior service cost not yet
recognized in net periodic
pension cost 6,013 738 -- 5,896
Remaining unrecognized net
(asset) obligation (3,184) (76) 510 (3,970)
Recognized unaccrued pension
expense -- -- (698) (19,632)
- -----------------------------------------------------------------------------
Accrued pension asset
(liability) $ 23,435 $ 3,383 $(17,415) $ (22,705)
- -----------------------------------------------------------------------------
</TABLE>
The expected long-term rate of return for U.S. plans was 10% for 1997, 1996
and 1995. The weighted average discount rate was 7.6% for 1997, 8.0% for
1996 and 7.8% for 1995. In 1997, 1996 and 1995, the rate of increase in
future compensation levels for salaried and hourly employees was 5.1% and
5.9%, respectively.
The weighted average expected long-term rate of return for non-U.S. plans
was 7.2% for 1997, 7.5% for 1996 and 8.0% for 1995. The weighted average
discount rate was 6.9% for 1997, 7.3% for 1996 and 7.9% for 1995. The
weighted average rate of increase in future compensation levels was 4.4%
for 1997, 4.8% for 1996 and 5.3% for 1995.
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 of $18,379,000 was offset by an asset
amounting to $5,896,000 (included in intangibles) and a direct charge to
equity of $12,483,000. There was no additional liability required at
December 31, 1997.
The vested benefit obligation has been determined based upon the actuarial
present value of
29
<PAGE>
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) 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,751 $ 5,462 $ 4,093
Interest cost on projected
benefit obligation 11,948 11,761 11,425
Actual return on assets (10,807) (10,057) (9,553)
Net amortization and
deferral 487 838 (544)
- --------------------------------------------------------------
Net periodic pension cost $ 7,379 $ 8,004 $ 5,421
- --------------------------------------------------------------
</TABLE>
Annual pension cost charged to operating expense for all Company plans was
$11,221,000 for 1997, $12,579,000 for 1996 and $8,342,000 for 1995.
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) 1997 1996
- -----------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $28,195 $21,330
Fully eligible active plan
participants 4,758 4,096
Other active participants 13,433 13,955
- -----------------------------------------------------
46,386 39,381
Unrecognized gain 8,088 13,930
- -----------------------------------------------------
Accrued postretirement cost $54,474 $53,311
- -----------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost included the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
(in thousands) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits
earned $ 856 $ 954 $ 699
Interest cost on accumulated
postretirement benefit
obligation 3,300 2,940 3,264
Amortization of unrecognized
net gain (418) (537) (613)
- -----------------------------------------------------------
Net periodic postretirement
benefit cost $3,738 $3,357 $3,350
- -----------------------------------------------------------
</TABLE>
For measuring the expected postretirement benefit obligation, an annual
rate of increase in the per capita claims cost of 6.5% is assumed for 1997.
This rate is assumed to decrease gradually to 5.5% by 1999 and remain at
that level thereafter.
The weighted average discount rate was 7.6% for 1997, 8.0% for 1996 and
7.8% for 1995.
A one percentage point increase in the health care cost trend rate would
result in a $5,830,000 increase in the accumulated postretirement benefit
obligation as of December 31, 1997 and an increase of $605,000 in the
aggregate service and interest cost components of the net periodic
postretirement benefit cost for 1997.
14. TRANSLATION ADJUSTMENTS
The Consolidated Statements of Cash Flows were affected by translation as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Change in cumulative
translation adjustments $42,011 $11,760 $ (5,828)
Other noncurrent liabilities 2,742 568 (1,095)
Deferred taxes 3,419 271 (1,421)
Long-term debt 1,014 (1,289) (565)
Investments in associated
companies (100) (537) 81
Net fixed assets (22,959) (6,146) 10,863
Other assets (4,602) (1,076) (153)
- ---------------------------------------------------------------
Effect of exchange rate
changes $21,525 $ 3,551 $ 1,882
- ---------------------------------------------------------------
</TABLE>
30
<PAGE>
Shareholders' equity was affected by translation as follows:
decrease/(increase) from translation of non-U.S. financial statements of
$30,979,000, $6,354,000 and $(462,000); from remeasurement of loans of
$11,032,000, $4,932,000 and $(7,379,000) in 1997, 1996, and 1995,
respectively; and by losses on designated hedges, net of tax, of $474,000
and $2,013,000 in 1996 and 1995, respectively.
In 1997, 1996 and 1995, net translation losses included in operations in
Brazil and Mexico were $499,000, $233,000 and $354,000 respectively, and
were included in cost of goods sold.
15. STOCK OPTIONS AND INCENTIVE PLANS
During 1988 and 1992, the shareholders approved stock option plans for key
employees. The 1988 and 1992 plans each provide for granting of up to
2,000,000 shares of Class A Common Stock. In addition, in 1997 the Board of
Directors granted one option outside these plans for 250,000 shares of
Class A Common Stock. Options are exercisable in five cumulative annual
amounts beginning 12 months after date of grant. The option issued by the
Board in 1997 is not exercisable unless the Company's share price reaches
$48 per share and is then limited to 10% of the total number of shares
multiplied by the number of full years of employment elapsed since the
grant date. 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 all plans.
For the purpose of applying Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation", 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, a share
price threshold with vesting based on years of employment and the risk of
forfeiture of the non-vested portion if employment is terminated. The
dividend yield was 1.8% for 1997, 1996 and 1995. The expected volatility
was 24.1% in 1997, 24.6% in 1996 and 25.0% in 1995. The expected life of
the options varies based on employee group and ranges from 8 to 19 years.
The risk-free interest rate ranges from 5.8% to 6.1% in 1997, 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 1997, 1996 or 1995. Had compensation cost and fair
value been determined pursuant to FAS 123, net income would decrease from
$49,059,000 to $47,727,000 in 1997, from $48,306,000 to $47,511,000 in 1996
and from $43,011,000 to $42,686,000 in 1995. Earnings per share would
decrease from $1.60 to $1.55 in 1997, from $1.59 to $1.56 in 1996 and from
$1.42 to $1.41 in 1995. Diluted earnings per share would decrease from
$1.57 to $1.53 in 1997, from $1.58 to $1.55 in 1996 and from $1.35 to $1.34
in 1995. The weighted average fair value of options granted during 1997,
1996 and 1995, for the purposes of FAS 123, is $10.37, $10.34 and $9.88 per
share, respectively.
Activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at
January 1 3,057,400 2,799,650 2,630,400
Options granted 695,500 415,250 436,250
Options cancelled 23,900 133,100 7,800
Options exercised 420,000 24,400 259,200
- --------------------------------------------------------------------
Shares under option at
December 31 3,309,000 3,057,400 2,799,650
Options exercisable at
December 31 1,930,900 2,068,750 1,896,050
Shares available for options 229,900 651,500 933,650
- --------------------------------------------------------------------
The weighted average exercise price is as follows:
<CAPTION>
- --------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at
January 1 $18.00 $17.38 $16.49
Options granted 21.84 22.25 22.25
Options cancelled 20.49 18.78 17.72
Options exercised 16.72 16.49 17.00
Shares under option at
December 31 18.95 18.00 17.38
Options exercisable at
December 31 17.08 16.59 16.29
- --------------------------------------------------------------------
</TABLE>
31
<PAGE>
The following is a summary of the status of options outstanding at December
31, 1997:
<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>
$15.00 125,000 15.11 $15.00 100,000 $15.00
15.50 700,000 10.34 15.50 700,000 15.50
16.25 174,950 15.41 16.25 139,500 16.25
16.75 517,000 12.07 16.75 517,000 16.75
17.63-18.75 301,800 15.49 18.56 227,200 18.50
19.75 443,000 19.29 19.75 -- --
22.25 797,250 17.89 22.25 247,200 22.25
25.56 250,000 19.85 25.56 -- --
- -------------------------------------------------------------------
</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 $1,795,000 in 1997,
$1,523,000 in 1996 and $1,240,000 in 1995. The increase in cash value, net
of premiums, was $851,000 in 1997, $751,000 in 1996 and $654,000 in 1995.
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 $3,288,000 in 1997, $3,129,000 in 1996 and $2,906,000 in 1995.
The Company's profit-sharing plan covers 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 $206,000 in 1997, $1,388,000 in 1996
and $2,279,000 in 1995.
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) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Lease obligations $ 628 $1,119 $1,693
Termination costs -- -- 317
Asset write offs -- -- 275
- -----------------------------------------------------------
$ 628 $1,119 $2,285
- -----------------------------------------------------------
</TABLE>
The decrease in accrued balances are the result of actual payments for
terminations or incurred expenses and the disposal of written down
equipment.
32
<PAGE>
FINANCIAL REVIEW
Review of Operations
- --1997 VS. 1996
Net sales increased $17.3 million or 2.5% as compared with 1996. Net sales were
decreased by $32.1 million from the effect of a stronger U.S. dollar as compared
to 1996. As discussed below, the Company acquired Schieffer Door Systems
("Schieffer") in 1996. Schieffer added $24.6 million to 1997 net sales.
Excluding the effect of the stronger U.S. dollar and Schieffer, 1997 net sales
increased 3.6% over 1996.
Net sales in the United States increased 3.5% in 1997 as compared to 1996, while
sales in Canada decreased 1.7% over the same period. The decrease in Canadian
sales was due in part to lower sales to Asia. The effect of price increases to
customers in 1997 was small.
European sales increased 4.4% in 1997 as compared to 1996. Excluding the
acquisition of Schieffer and the effect of the stronger U.S. dollar, net sales
in Europe increased 5.8%. Sales in the Rest of World segment decreased 2.6%.
Gross profit continued to improve and was 43.0% of net sales in 1997 as compared
to 42.4% in 1996. Excluding the effect of Schieffer, gross profit margin would
have been 43.2%.
Selling, technical, general and research expenses, excluding Schieffer,
increased 1.4% in 1997 as compared to 1996. Excluding the additional effect of
the stronger U.S. dollar, these costs increased 5.6%. A large part of the
increase is due to higher wages and benefit costs.
The increase in other expense/(income), net as compared to 1996, was partially
due to lower income from currency transactions and interest rate protection
agreements. Income from those transactions was $2.8 million in 1997 as compared
to $3.7 million in 1996. The increase in 1997 was also due to one time strategic
planning costs of $1.3 million. Currency transactions and interest rate
protection agreements income generally results from economic hedges which can
have either a positive or negative effect on other expense/ (income), net in any
particular period. 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 $.9 million or 5.3% as compared with 1996. This
decrease is primarily due to lower average debt balances.
For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency
Translation", to economies that cease to be highly inflationary, effective
January 1, 1998, the functional currency for the Company's Brazilian operations
will change from the U.S. dollar to the Brazilian Real. Management does not
expect a significant impact on reported results.
- --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%. 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 42.4% 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
lower income from currency transactions and interest rate protection agreements.
Income from those transactions was $3.7 million in 1996 as compared to $4.6
million in 1995.
33
<PAGE>
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, 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 was changed from the
Mexican peso to the U.S. dollar.
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 1997 as compared to
1996 increased in the United States and Europe and decreased in the other
geographic areas (see Note 11 of Notes to Consolidated Financial Statements).
Total operating income increased 2.9% as compared to 1996. Excluding the effect
of the stronger U.S. dollar, operating income would have been 8.7% higher as
compared to 1996. Operating income as a percent of net sales for the United
States was 19.2% in 1997, 16.8% in 1996 and 16.0% in 1995; and for Canada was
13.0% in 1997, 17.4% in 1996 and 19.7% in 1995; for Europe was 10.7% in 1997,
10.5% in 1996 and 9.6% in 1995; and for Rest of World was 8.2% in 1997, 12.6% in
1996 and 13.0% in 1995.
Liquidity and Capital Resources
At December 31, 1997 the Company's order backlog was $528.0 million, an increase
of $25.8 million from the prior year-end.
Accounts receivable decreased $7.6 million from December 31, 1996. Excluding the
effect of the stronger U.S. dollar, accounts receivable increased $4.6 million.
Inventories were flat as compared to December 31, 1996, after restatement for
the change in accounting for inventory as discussed below. Excluding the effect
of the stronger U.S. dollar, inventories increased $9.1 million.
During 1997, the Company changed its method of determining the cost of United
States inventories from the last-in, first-out (LIFO) method to the average cost
method. The Company believes that the average cost method results in a closer
matching of revenues and expenses during periods of increased productivity and
changes in product mix. This change in accounting method has been applied
retroactively and financial information for all periods presented has been
restated to apply the average cost method. Income before extraordinary item and
net income was increased/ (decreased) by $.9 million, 3 cents per share, and
$(.1) million, less than 1 cent per share, for the years ended December 31, 1996
and 1995, respectively, as a result of this change. There was no effect on 1997
income. Retained earnings has been adjusted for the effect of retroactive
application of the new method.
Cash flow provided from operating activities was $86.6 million in 1997 compared
with $82.9 million in 1996 and $67.5 million in 1995. Capital expenditures were
$50.8 million for 1997, $53.5 million for 1996 and $41.9 million for 1995.
Capital expenditures in 1998 are expected to be about $45 million. The Company
will continue to finance these expenditures with cash from operations and
existing credit facilities.
The Company is currently assessing the potential impact of the year 2000 on its
existing computer programs. The assessment is expected to be complete, with a
formal action plan put in place, by mid-1998 with all necessary modifications
done by mid-1999. The Company presently believes that the year 2000 issue will
be mitigated by the completion of the company-wide implementation of new
software.
The Company currently has a $300 million revolving credit agreement with its
principal banks in the United States. 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 the Company to select from
various loan pricing options. The Company's current debt structure, which is
mostly floating-rate, has resulted in lower interest expense and currently
provides approximately $200 million in committed and available
34
<PAGE>
unused debt capacity with financial institutions. Management believes that the
unused line, in combination with informal commitments and expected free cash
flows, should be sufficient to meet operating requirements and for business
opportunities and most acquisitions which support corporate strategies.
In 1998, it is possible that the Company will fix interest rates on a portion of
the Company's total debt. It is anticipated that this will increase the
Company's interest rate during 1998 and reduce the Company's exposure to higher
interest rates.
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 $.105 per share were declared in each of the four quarters of
1997.
35
<PAGE>
ELEVEN YEAR SUMMARY
ALBANY INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The amounts
----------------------------
1997 1996 1995 1994
-------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Summary of Operations
Net sales $710,079 $692,760 $652,645 $567,583
Cost of goods sold 404,982 399,311 379,696 338,991
Operating income (1),(2),(7) 99,619 96,785 88,827 62,821
Interest expense, net 15,467 15,833 20,009 16,820
Income before income taxes 79,631 80,940 69,842 41,677
Income taxes 31,055 31,570 27,208 17,921
Income before associated companies 48,576 49,370 42,634 23,756
Net income/(loss) (3),(4),(6) 49,059 48,306 43,011 23,882
Net income/(loss) per share 1.60 1.59 1.42 0.80
Diluted net income/(loss) per share 1.57 1.58 1.35 0.79
Average number of shares outstanding 30,749 30,364 30,202 29,953
Capital expenditures 50,804 53,473 41,921 36,322
Dividends declared 12,921 12,159 11,708 10,488
Per Class A common share 0.42 0.40 0.3875 0.3500
Per Class B common share 0.42 0.40 0.3875 0.3500
Financial Position
Current assets $373,323 $384,627 $364,207 $319,947
Current liabilities 170,440 176,746 126,945 115,863
Current ratio 2.2 2.2 2.9 2.8
Property, plant and equipment, net 321,611 339,461 342,150 320,719
Total assets 796,897 831,917 802,232 727,157
Long-term debt 173,654 187,100 245,265 232,767
Shareholders' equity 343,108 332,330 304,942 274,632
Per share 11.17 10.91 10.06 9.14
Total capital (5) 594,560 586,890 567,460 525,119
Total debt to total capital 42.3% 43.4% 46.3% 47.7%
Return on shareholders' equity 14.3% 14.5% 14.1% 8.7%
Number of Employees 5,881 5,854 5,658 5,404
</TABLE>
----------------------------------------
(1) The Company adopted Financial Accounting Standard (FAS) No.
87 "Employers' Accounting for Pensions", with respect to its
non-U.S. retirement plans in 1989, 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.
36
<PAGE>
--------------------------------------------------------------------
<TABLE>
<CAPTION>
reported for 1987 - 1996 have been restated to reflect accounting change
---------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 546,120 $ 561,084 $ 557,218 $ 556,104 $ 505,474 $ 461,246 $ 402,203
345,468 366,756 359,184 358,697 299,287 267,374 236,883
40,051 18,893 44,488 31,661 67,627 73,755 63,745
16,115 18,829 20,090 18,450 19,857 16,637 14,908
24,566 3,282 19,752 14,421 76,272 53,333 47,320
9,679 1,247 10,803 7,538 33,487 18,954 22,263
14,887 2,035 8,949 6,883 42,785 34,379 25,057
15,003 (3,114) 10,794 8,269 44,896 36,521 25,682
0.56 (0.12) 0.42 0.33 1.77 1.47 1.17
0.56 (0.12) 0.42 0.33 1.76 1.47 1.15
26,679 25,559 25,415 25,312 25,408 24,779 21,992
30,940 20,219 40,067 110,729 82,252 58,601 40,216
9,361 8,950 8,903 7,518 5,775 4,674 1,082
0.3500 0.3500 0.3500 0.3500 0.3125 0.2625 0.0625
0.3500 0.3500 0.3500 0.1313 -- -- --
$ 270,034 $ 256,422 $ 259,917 $ 277,622 $ 246,144 $ 209,635 $ 179,919
101,069 112,955 106,220 106,904 100,810 86,489 88,156
2.7 2.3 2.4 2.6 2.4 2.4 2.0
302,829 308,618 362,456 365,558 260,907 214,807 182,232
661,314 652,745 680,706 708,212 569,968 480,143 420,220
208,620 239,732 250,423 262,042 145,493 157,833 130,745
247,223 193,975 247,231 245,004 240,285 179,545 147,069
8.27 7.57 9.70 9.66 9.32 7.15 6.05
467,320 456,773 551,240 574,977 452,567 392,707 320,060
47.1% 57.5% 48.2% 49.3% 38.8% 48.1% 47.5%
6.1% (1.6%) 4.4% 3.4% 18.7% 20.3% 17.5%
5,286 5,678 5,726 6,144 6,090 5,659 5,244
</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.
37
<PAGE>
QUARTERLY FINANCIAL DATA
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in millions except per share amounts) 1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
1997
- --------------------------------------------------------------------------------
Net sales $171.8 $181.9 $171.8 $ 184.6
Gross profit 71.8 78.7 73.9 80.7
Net income 10.9 13.5 11.4 13.3
Net income per share .36 .44 .37 .43
Diluted net income per share .35 .43 .36 .43
Dividends per share .105 .105 .105 .105
Class A Common Stock prices:
High 24.5 24.0 27.4375 26.5625
Low 20.625 19.75 22.5 22.25
- --------------------------------------------------------------------------------
1996 (Restated)
- --------------------------------------------------------------------------------
Net sales $168.1 $172.1 $169.8 $ 182.8
Gross profit 70.1 72.7 72.0 78.6
Net income 8.1 12.3 12.5 15.4
Net income per share .27 .40 .41 .51
Diluted net income per share .27 .40 .41 .50
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 (Restated)
- --------------------------------------------------------------------------------
Net sales $154.1 $166.8 $162.0 $ 169.7
Gross profit 63.2 71.2 68.1 70.4
Net income 7.9 11.8 11.8 11.5
Net income per share .26 .39 .39 .38
Diluted net income per share .26 .37 .36 .36
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
- --------------------------------------------------------------------------------
</TABLE>
Stock and Shareholders
The Company's Class A Common Stock is traded principally on the New York
Stock Exchange. At December 31, 1997 there were approximately 7,000
shareholders.
38
<PAGE>
EXHIBIT 21
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 GmbH................................. 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 International Industrial Fabrics &
Filters, 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
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 22, 1998, on our audits of the
consolidated financial statements and financial statements schedules of
Albany International Corp. as of December 31, 1997 and 1996, and for the
years ended December 31, 1997, 1996, and 1995, which report is incorporated
by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
March 16, 1998
<PAGE>
EXHIBIT 24
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,
Thomas H. Hagoort, John C. Treanor and Charles J. Silva, 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 or
her 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 or her 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 6th day of November, 1997.
/s/ J. Spencer Standish /s/ Francis L. McKone
- --------------------------------- -------------------------------
J. Spencer Standish Francis L. McKone
Chairman of the Board and Director President and Director
(Chief 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/ Allan Stenshamn /s/ Barbara P. Wright
- --------------------------------- -------------------------------
Allan Stenshamn Barbara P. Wright
Director Director
/s/ Joseph G. Morone, Ph.D. /s/ Christine L. Standish
- --------------------------------- -------------------------------
Joseph G. Morone, Ph.D. Christine L. Standish
Director Director
/s/ Frank R. Schmeler
- ---------------------------------
Frank R. Schmeler
Executive Vice President, Chief
Operating Officer and 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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<SECURITIES> 0
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<PP&E> 625,039
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31
0
<COMMON> 0
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</TABLE>
