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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999
OR
<TABLE>
<S> <C>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-16214
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ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 14-0462060
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1373 BROADWAY, 12204
ALBANY, NEW YORK (Zip Code)
(Address of principal executive
offices)
</TABLE>
518-445-2200
Registrant's telephone number, including area code
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>
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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. /X/
The aggregate market value of Class A Common Stock held on February 15, 2000 by
non-affiliates of the registrant was $365,879,775.
The registrant had 24,619,515 shares of Class A Common Stock and 5,869,457
shares of Class B Common Stock outstanding as of February 15, 2000.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE PART
<S> <C>
Registrant's Annual Report to Shareholders for the year
ended December 31, 1999. II
Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 4, 2000. 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 manufactures
and sells more paper machine clothing worldwide than any other company. In 1999,
to enhance that position, the Company purchased the paper machine clothing
business of the Geschmay group. 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 and coatings 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 products for the non-woven industry, corrugator belts, filtration
media and high performance doors. The High Performance Door Division, which
includes Rapid Roll Doors-Registered Trademark-, is the operation of the Company
which developed high speed, high performance 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 over 100,000 installations
worldwide. Since 1996, the Registrant has acquired Schieffer Door Systems and
Jansen Tortechnik in Germany, Burwell Door Systems in Australia and M&I Door
Systems in Canada to enhance the high performance 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 7,100 paper machines in the world and approximately 1,600, 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
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production process by paper manufacturers in the foreseeable future.
Accordingly, the prospects for continued demand for paper machine clothing
appear excellent.
Over the last few years, paper manufacturers have generally reduced the
number of suppliers of paper machine clothing per machine position. This trend
has increased opportunities for market leaders, including the Registrant, to
expand their market share.
INTERNATIONAL OPERATIONS
The Registrant maintains wholly-owned manufacturing facilities in Australia,
Brazil, Canada, China, Finland, France, Germany, Great Britain, Italy, Mexico,
The Netherlands, South Korea, Sweden and the United States. The Registrant has
50% interests in an entity in South Africa and an entity in Russia which are
engaged primarily in the engineered fabrics business. The Registrant also has a
50% interest in an entity in England which is engaged in the high performance
door 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, from the date of invoice, 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
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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, 1999 and 1998 were
approximately $503 million and $474 million, respectively. Orders recorded at
December 31, 1999 are generally expected to be invoiced during the next
12 months.
RESEARCH AND DEVELOPMENT
The Registrant invests heavily in research, new product development and
technical analysis to maintain its leadership in the paper machine clothing
industry. The Registrant's expenditures fall into two primary categories,
research and development and technical expenditures. Research and development
expenses totaled $23.6 million in 1999, $23.7 million in 1998 and $23.1 million
in 1997. 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 TRIOTEX-Registered Trademark-, PRINTEX-TM-,
KRAFTEX-Registered Trademark- and MICROTEX-Registered Trademark- forming
fabrics, SEAMTECH-Registered Trademark-, the patented on-machine-seamed press
fabric, DYNATEX-Registered Trademark-, a unique multi-layer press fabric,
APERTECH-TM-, a new class of porous, polymeric press fabrics, process belts such
as TRANSBELT-Registered Trademark-, VENTABELT-Registered Trademark- and
GLOSSBELT-TM-, and Thermonetics-Registered Trademark-, AERO2000-TM-,
AEROLINE-Registered Trademark- and AEROGRIP-Registered Trademark- which are
dryer fabrics. Technical expenditures totaled $24.5 million in 1999, $26.3
million in 1998, and $26.9 million in 1997. 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 subsidiary, Albany International Research Co. located in
Mansfield, Massachusetts, the Registrant conducts research under contract for
the U.S. government and major corporations. In addition to Albany International
Research Co., the Registrant has another significant research facility in
Halmstad, Sweden and four other development centers located at manufacturing
locations in Selestat, France; Goppingen, Germany; 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 raw materials 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 approximately 50 paper machine clothing suppliers worldwide,
only four 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 36% in the United States and
Canadian
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markets, taken together, 26% in the rest of the world and approximately 30% 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.
EMPLOYEES
The Registrant employs 7,164 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>
Francis L. McKone 65 Chairman of the Board, CEO and Director
Frank R. Schmeler 61 President, COO and Director
Edward Walther 56 Executive Vice President
Michael C. Nahl 57 Senior Vice President and Chief Financial Officer
William M. McCarthy 49 Senior Vice President-Europe
Michel J. Bacon 50 Senior Vice President-Canada, Pacific and Latin America
Edward R. Hahn 55 Senior Vice President-Chief Technical Officer
Thomas H. Hagoort 67 General Counsel and Secretary
Richard A. Carlstrom 56 Vice President-Controller
Thomas H. Curry 51 Vice President--Sales and Marketing United States
Hugh A. McGlinchey 60 Vice President-Information Systems
David C. Michaels 44 Vice President-Treasury and Tax
Kenneth C. Pulver 56 Vice President--Corporate Communications
John C. Treanor 61 Treasurer
Charles J. Silva, Jr. 40 Assistant General Counsel and Assistant Secretary
</TABLE>
FRANCIS L. MCKONE joined the Registrant in 1964. He has served the
Registrant as Chairman of the Board and Chief Executive Officer since 1998,
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-
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Papermaking Products U.S. He has been a Director of the Registrant since 1983.
He is a Director of Thermo Fibergen, Inc., Thermo Fibertek, Inc. and a member of
the Advisory Board of Albank, a division of Charter One Bank.
FRANK R. SCHMELER joined the Registrant in 1964. He has served the
Registrant as President and Chief Operating Officer since 1998, Executive Vice
President and Chief Operating Officer since 1997 and as Senior Vice President
from 1988 to 1997, as Vice President and General Manager of the Felt Division
from 1984 to 1988, as Division Vice President and General Manager, Albany
International Canada from 1978 to 1984 and as Vice President of Marketing,
Albany International Canada from 1976 to 1978. 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. From 1965 to 1979 he served in marketing,
financial, logistical, analytical and management positions for the Exxon
Corporation and from 1979 to 1981 he was with General Refractories Corporation
as Director of Strategic Planning, Vice President and Chief Financial Officer.
He is a Director of UCAR International Inc.
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.
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.
EDWARD R. HAHN joined the Registrant in 1971. He has served the Registrant
as Senior Vice President since 2000 and as Vice President-Research and
Development and Executive Director of Albany International Research Company from
1995 to 2000, 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.
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.
THOMAS H. CURRY joined the Registrant in 1992. He has served the Registrant
as Vice President-Sales and Marketing U.S. since 1999 and from 1995 to 1999 held
various positions for Press Fabrics U.S. including Vice President and General
Manager and Vice President-Marketing and from 1992 to 1995 held various sales
and marketing positions for the U.S. Dryer Division.
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
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he served as Director-Corporate Information and Communications Systems for Avery
Dennison Corporation.
DAVID C. MICHAELS joined the registrant in 1987. He has served the
Registrant as Vice President-Treasury and Tax since 2000 and previously served
as Director of Tax. Prior to 1987, he held various financial and tax positions
at Veeco Instruments, Inc.
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.
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 3,005,000, of which 2,779,000 square feet are owned
and 226,000 square feet are leased. The Registrant's facilities located outside
the United States and Canada comprise approximately 4,219,000 square feet, of
which 3,353,000 square feet are owned and 866,000 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 2000. The Registrant's
expected 2000 capital expenditures, including leases, of about $35 million will
provide sufficient capacity for anticipated growth.
The Registrant believes it has modern, efficient production equipment. In
the last five years, excluding acquisitions, it has spent $220 million on new
plants and equipment or upgrading existing facilities.
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ITEM 3. LEGAL PROCEEDINGS
The Registrant was initially named as a defendant in two actions in state
court in Louisiana, seeking damages from the Registrant and numerous other
defendants for injuries allegedly suffered by hundreds of employees at two paper
mills in Bogalusa and St. Francisville, Louisiana, due to exposure to asbestos.
Liberty Mutual, the underwriter of insurance coverage applicable to these
claims, has been defending these matters on the Registrant's behalf, subject to
the standard reservation of any rights under the applicable policies.
The Registrant is one of a group of paper machine clothing manufacturers who
at one time produced dryer felts containing asbestos. (Mount Vernon Mills, from
whom the Registrant acquired the Albany Mount Vernon dryer business assets, and
Brandon Dryer Fabrics, a subsidiary of Geschmay Corp. (formerly Wangner Systems
Corporation) acquired in 1999, are also named as separate defendants.) There are
currently over fifty other corporate defendants, including primary suppliers of
asbestos, asbestos abatement and removal companies, paper machine builders, pump
manufacturers, insulation and building materials suppliers, boiler manufacturers
and other suppliers of products used in these mills that are alleged to have
contained asbestos.
In the Bogalusa proceeding, the Registrant was initially served with a
discovery request late in 1996, to which it responded initially in March 1997,
and continued to respond supplementally during 1997 and 1998. Discovery of paper
machine clothing dryer fabrics defendants in the St. Francisville proceeding
commenced during 1999 and is ongoing.
The information identified during the discovery process suggests that the
Registrant's production of asbestos-containing products was limited to certain
synthetic dryer fabrics marketed during the period from 1967 to 1976. It is the
position of the Registrant and the other paper machine clothing defendants that
there was insufficient exposure to asbestos from paper machine clothing to cause
asbestos-related injury in any plaintiff.
Discovery by both plaintiffs and defendants in the Bogalusa proceeding was
essentially completed in late 1998. The first trial, involving six plaintiffs,
commenced in January 1999. The claims of these six plaintiffs against all but
three of the defendants, including those against the Registrant, were settled
prior to that time. A unanimous jury verdict in favor of the three remaining
defendants (including two dryer fabric producers) was returned in early March. A
second trial, involving four plaintiffs, may commence in mid-summer 2000.
Discovery in the St. Francisville proceeding is scheduled to conclude in the
fall of 2000, with the initial trial of approximately 30 plaintiffs expected to
commence in late 2000 or early 2001.
During 1999, the Registrant, as well as Brandon Drying Fabrics, Inc., was
named as a defendant, together with many of the other defendants in the
Louisiana proceedings, in additional asbestos proceedings. These proceedings
comprise claims asserted by approximately 150 individuals (and, in some case,
their spouses) alleging injury as the result of exposure to various
asbestos-containing products. Most of these proceedings are pending in North
Carolina and Ohio.
The Registrant, in addition to being named as a direct defendant in the
above proceedings, has also been named separately as the "successor-in-interest"
to Mount Vernon Mills in many of these proceedings. The Registrant denies any
liability for products sold by Mount Vernon Mills prior to the acquisition of
the Mount Vernon assets, and the Registrant's motion to be dismissed as a
successor to Mount Vernon has been granted in Bogalusa and several other
proceedings before the first trial. Similar motions will be filed in the St.
Francisville proceedings.
The Registrant believes that any judgment or settlement relating to these
proceedings will be well within existing insurance coverage limits.
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Brandon Drying Fabrics, Inc. is also a party to the above asbestos
proceedings in the United States. Brandon Drying Fabrics, Inc. is also a
defendant in a number of additional individual cases in Washington, California,
Texas, Alabama, Georgia, North Carolina and Mississippi.
Brandon Drying Fabrics, Inc. was created in 1978 in connection with the
purchase of certain assets from Abney Mills, a South Carolina textile
manufacturing entity. Brandon Sales, Inc. was a wholly-owned subsidiary of Abney
and its assets were among those purchased from Abney Mills. After the purchase,
Brandon Drying Fabrics, Inc. manufactured drying fabrics under its own name,
none of which contained asbestos. It is believed that Abney Mills ceased
production of asbestos-containing products prior to the 1978 purchase.
Affidavits obtained from former Abney Mills employees confirm that belief.
Under the terms of the Assets Purchase Agreement between Brandon Drying
Fabrics, Inc. and Abney Mills, Abney Mills agreed to indemnify, defend and hold
harmless from any actions or claims on account of products manufactured by Abney
Mills and its related corporations prior to the date of the sale whether or not
the product was sold subsequent to the date of the sale. It appears that Abney
Mills has since been dissolved. Nevertheless, a representative of this dissolved
entity has been notified of the pendency of these actions and demand has been
made that it assume the defense of these actions.
Geschmay Corp.'s insurance carriers have agreed to indemnification and
defense costs related to these proceedings of 88.2% of the total, subject to the
standard reservation of rights. The remaining 11.8% is being sought from an
insurance company that denies that it issued a policy. Geschmay Corp.'s internal
records demonstrate otherwise, and a lawsuit to establish coverage is being
pursued. Geschmay Corp. believes the suit will be successful.
There are no other 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 1999 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 44 of the
Annual Report are incorporated herein by reference.
Restrictions on dividends and other distributions are described in Note 6,
on pages 27 to 29 of the Annual Report. Such description is incorporated herein
by reference.
ITEM 6. SELECTED FINANCIAL DATA
"Eleven Year Summary" on pages 42 and 43 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 38 to 41 of the Annual Report is
incorporated herein by reference.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and its
subsidiaries, included on pages 20 to 37 in the Annual Report, are incorporated
herein by reference:
Consolidated Statements of Income and Retained Earnings--years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income--years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Cash Flows--years ended December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) DIRECTORS. The information set out in the section captioned "Election
of Directors" of the Proxy Statement is incorporated herein by reference.
b) EXECUTIVE OFFICERS OF REGISTRANT. Information about the officers of the
Registrant is set forth in Item 1 above.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the sections of the Proxy Statement captioned
"Executive Compensation", "Summary Compensation Table", "Option/SAR Grants in
Last Fiscal Year", "Option/ SAR Exercises during 1999 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.
10
<PAGE>
a)(2) SCHEDULE. The following consolidated financial statements schedule
for each of the three years in the period ended December 31, 1999 is included
pursuant to Item 14(d):
Report of Independent Accountants on Financial Statements Schedule
Schedule II--Valuation and Qualifying Accounts
a)(3)(b) A report on Form 8-K was filed on November 8, 1999 (Item 7.
Financial Statements and Exhibits).
(3) EXHIBITS
<TABLE>
<S> <C> <C>
3(a) - Certificate of Incorporation of Registrant. (3)
3(b) - Bylaws of Registrant. (10)
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)
CREDIT AGREEMENT
10(i)(i) - Credit Agreement, dated as of August 11, 1999 among the
Registrant, certain banks listed therein, The Chase
Manhattan Bank, as Administrative Agent, Chase Manhattan
International Limited, as London Agent, Citibank N.A., as
Syndication Agent and Banc One Capital Markets, Inc., as
Documentation Agent. (9)
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. (7)
10(m)(vi) - 1998 Stock Option Plan. (8)
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)
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
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, 1999.
21 - Subsidiaries of Registrant.
23 - Consent of PricewaterhouseCoopers LLP.
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.
(7) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-K dated March 16, 1998, which previously-filed Exhibit is incorporated by
reference herein.
(8) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-Q dated August 10, 1998, which previously-filed Exhibit is incorporated
by reference herein.
(9) Previously filed as an Exhibit to the Registrant's Current Report on form
8-K dated September 21, 1999, which previously-filed Exhibit is incorporated
by reference herein.
(10) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-Q dated November 10, 1999, which previously-filed Exhibit is incorporated
by reference herein.
12
<PAGE>
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 22, 2000
(Francis L. McKone) (Chief Executive Officer)
Senior Vice President and
/s/ MICHAEL C. NAHL Chief Financial Officer
------------------------------------------- (Principal Financial March 22, 2000
(Michael C. Nahl) Officer)
* Vice President-Controller
------------------------------------------- (Principal Accounting March 22, 2000
(Richard A. Carlstrom) Officer)
*
------------------------------------------- Director March 22, 2000
(Thomas R. Beecher, Jr.)
*
------------------------------------------- Director March 22, 2000
(Charles B. Buchanan)
*
------------------------------------------- Director March 22, 2000
(Erland E. Kailbourne)
*
------------------------------------------- Director March 22, 2000
(Dr. Joseph G. Morone)
*
------------------------------------------- President and Director March 22, 2000
(Frank R. Schmeler) (Chief Operating Officer)
*
------------------------------------------- Director March 22, 2000
(Christine L. Standish)
*
------------------------------------------- Director March 22, 2000
(Allan Stenshamn)
*
------------------------------------------- Director March 22, 2000
(Barbara P. Wright)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ MICHAEL C. NAHL
--------------------------------------
Michael C. Nahl
ATTORNEY-IN-FACT
</TABLE>
13
<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 22nd day of
March, 2000.
<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>
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENTS SCHEDULE
To The Shareholders and Board of Directors
Albany International Corp.
Our audits of the consolidated financial statements referred to in our
report dated January 27, 2000 appearing in the 1999 Annual Report to
Shareholders of Albany International Corp. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on form
10-K) also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Albany, New York
January 27, 2000
<PAGE>
Schedule
<PAGE>
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- --------------------------- ------------- -------------
ADDITIONS
BALANCE AT ---------------------------
BEGINNING CHARGED TO CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSE INTANGIBLES(A) DEDUCTIONS(B) END OF PERIOD
----------- ---------- ---------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
Allowance for doubtful accounts
Year ended December 31:
1999 5,504 2,071 2,838 1,645 8,768
<S> <C> <C> <C> <C> <C>
1998 $5,224 $1,312 $ -- $1,032 $5,504
1997 $4,962 $1,298 $ -- $1,036 $5,224
</TABLE>
(A) Represents the allowance for doubful accounts opening balance sheet amount
for the Geschmay group, which was acquired in 1999.
(B) Includes accounts written off as uncollectible, recoveries and the effect
of currency exchange rates.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S> <C>
3(a) -- Certificate of Incorporation of Registrant. (3)
3(b) -- Bylaws of Registrant. (10)
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)
CREDIT AGREEMENT
10(i)(i) -- Credit Agreement, dated as of August 11, 1999 among the
Registrant, certain banks listed therein, The Chase
Manhattan Bank, as Administrative Agent, Chase Manhattan
International Limited, as London Agent, Citibank N.A., as
Syndication Agent and Banc One Capital Markets, Inc., as
Documentation Agent. (9)
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. (7)
10(m)(vi) -- 1998 Stock Option Plan. (8)
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, 1999.
21 -- Subsidiaries of Registrant.
23 -- Consent of PricewaterhouseCoopers LLP.
24 -- Powers of Attorney.
27 -- Financial Data Schedule.
</TABLE>
<PAGE>
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.
(7) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-K dated March 16, 1998, which previously-filed Exhibit is incorporated by
reference herein.
(8) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-Q dated August 10, 1998, which previously-filed Exhibit is incorporated
by reference herein.
(9) Previously filed as an Exhibit to the Registrant's Current Report on form
8-K dated September 21, 1999, which previously-filed Exhibit is incorporated
by reference herein.
(10) Previously filed as an Exhibit to the Registrant's Current Report on Form
10-Q dated November 10, 1999, which previously-filed Exhibit is incorporated
by reference herein.
<PAGE>
Exhibit 11
SCHEDULE OF COMPUTATION OF
NET INCOME PER SHARE AND
DILUTED NET INCOME PER SHARE
<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>
For the three months For the years
ended December 31, ended December 31,
1999 (1) 1998 (1) 1999 (1) 1998 (1)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net (loss)/income ($ 950) ($ 945) $ 30,222 $ 31,772
============ ============ ============ ============
Weighted average number of shares 30,428,606 30,189,814 30,339,938 31,073,493
Effect of potentially dilutive securities:
Stock options (2) 1,495 110,988 142,584 334,128
------------ ------------ ------------ ------------
Weighted average number shares,
including the effect of potentially dilutive securities 30,430,101 30,300,802 30,482,522 31,407,621
============ ============ ============ ============
Net (loss)/income per share ($ 0.03) ($ 0.03) $ 1.00 $ 1.02
============ ============ ============ ============
Diluted net (loss)/income per share ($ 0.03) ($ 0.03) $ 0.99 $ 1.01
============ ============ ============ ============
</TABLE>
Calculation of Weighted Average Number of Shares (3):
<TABLE>
<CAPTION>
Weighted Average Shares
-------------------------------------------------------
Days For the three months For the years
Shares ------------------------- ended December 31, ended December 31,
Activity Outstanding (1) Year to Date Quarter 1999 1998 1999 1998
- ------------------------------------------------------------------------- ------------- ------------- ------------- ------------
1998
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning balance 32,271,301 8 707,316
Treasury shares - 5,000 32,266,047 6 530,401
Options - 2,500 shares 32,268,674 1 88,407
Treasury shares - 411,100 31,836,677 7 610,566
Treasury shares - 400,000 31,416,345 7 602,505
Treasury shares - 13.700 31,401,949 1 86,033
ESOP shares - 12,783 31,415,382 25 2,151,738
Treasury shares - 26,000 31,388,060 3 257,984
ESOP shares - 41,378 31,431,541 13 1,119,480
Options - 600 shares 31,432,172 5 430,578
Options - 20,000 shares 31,453,189 9 775,558
Options - 8,000 shares 31,461,595 4 344,785
Options - 9,500 shares and
ESOP shares - 10,011 31,482,098 2 172,505
Options - 4,400 shares 31,486,722 1 86,265
Options - 8,000 shares 31,495,128 3 258,864
Options - 16,600 shares 31,512,572 15 1,295,037
Options - 1,600 shares 31,514,253 3 259,021
Options - 5,400 shares 31,519,928 4 345,424
Options - 1,500 shares 31,521,504 2 172,721
ESOP shares - 10,443 31,532,478 1 86,390
Options - 500 shares 31,533,003 10 863,918
Options - 7,400 shares 31,540,779 4 345,652
Directors shares - 2,004 31,542,885 4 345,675
Options - 600 shares 31,543,516 1 86,421
Options - 3,000 shares 31,546,668 2 172,858
Options - 1,200 shares 31,547,929 5 432,163
Options - 600 shares 31,548,560 4 345,738
ESOP shares - 9,096 31,558,118 3 259,382
Options - 10,000 shares 31,568,626 2 172,979
Options - 10,000 shares 31,579,135 3 259,555
Options - 2,500 shares 31,581,762 1 86,525
Options - 500 shares 31,582,287 9 778,741
Options - 3,000 shares 31,585,440 1 86,535
Treasury shares - 6,900 31,578,189 3 259,547
Options - 550 shares 31,578,767 3 259,552
Treasury shares - 120,000 31,452,667 5 430,858
ESOP shares - 11,371 31,465,010 22 1,896,521
Treasury shares - 72,200 31,389,518 1 85,999
Treasury shares - 33,700 31,354,281 1 85,902
Treasury shares - 50,000 31,302,001 7 600,312
ESOP shares - 13,945 31,316,582 4 343,195
Treasury shares - 52,000 31,262,211 3 256,950
Treasury shares - 64,800 31,194,456 4 341,857
<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)
Treasury shares - 7,800 31,186,300 2 170,884
Treasury shares - 63,700 31,119,695 4 341,038
Treasury shares - 16,800 31,102,129 2 170,423
Treasury shares - 60,000 31,039,393 1 85,039
Treasury shares - 14,400 31,024,336 1 84,998
Treasury shares - 50,000 30,972,056 5 424,275
Treasury shares - 40,100 30,930,127 1 84,740
Treasury shares - 5,000 30,924,899 4 338,903
ESOP shares - 13,856 30,939,387 2 169,531
Treasury shares - 36,000 30,901,746 1 84,662
Treasury shares - 152,000 30,742,814 1 84,227
Treasury shares - 200,000 30,533,694 5 418,270
Treasury shares - 100,000 30,429,133 1 83,367
Treasury shares - 15,000 30,413,449 5 416,623
Treasury shares - 35,000 30,376,853 1 83,224
Treasury shares - 44,900 30,329,906 9 747,861
Treasury shares - 63,600 30,263,406 5 414,567
ESOP shares - 14,678 30,280,048 1 82,959
Treasury shares - 102,500 30,173,407 30 30 9,839,155 2,480,006
ESOP shares - 16,039 30,190,094 30 30 9,844,596 2,481,378
ESOP shares - 13,789 30,204,440 31 31 10,177,583 2,565,309
ESOP shares - 15,612 30,220,223 1 1 328,481 82,795
------------ ------------
Totals 30,189,814 31,073,493
============ ============
1999
Beginning balance 30,220,223 30 2,483,854
ESOP shares - 13,772 30,234,271 28 2,319,341
ESOP shares - 15,530 30,250,111 31 2,569,188
ESOP shares - 49,234 30,300,330 20 1,660,292
Options - 2,400 shares 30,302,778 10 830,213
ESOP shares - 13,350 30,316,395 6 498,352
Stock dividend adjust. - 1,592 30,318,019 4 332,252
Directors shares - 2,884 30,320,961 2 166,142
Options - 1,550 shares 30,322,542 1 83,075
Options - 1,400 shares 30,323,970 4 332,317
Options - 1,000 shares 30,324,990 4 332,329
Options - 400 shares 30,325,398 10 830,833
ESOP shares - 12,335 30,337,979 14 1,163,649
Options - 1,800 shares 30,339,815 16 1,329,965
ESOP shares - 13,827 30,353,919 31 2,578,004
ESOP shares - 16,877 30,371,133 31 2,579,466
ESOP shares - 16,925 30,388,397 30 2,497,676
ESOP shares - 20,754 30,409,566 31 30 9,916,163 2,582,730
ESOP shares - 18,686 30,428,626 30 30 9,922,378 2,500,983
ESOP shares - 16,805 30,445,767 31 31 10,258,900 2,585,805
ESOP shares - 21,465 30,467,186 1 1 331,165 83,472
------------ ------------
Totals 30,428,606 30,339,938
============ ============
</TABLE>
(1) Includes Class A and Class B Common Stock
(2) 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.
(3) Weighted average number of shares have been retroactively restated to
reflect the stock dividend issued on January 12, 2000 (2.0%). Each change
in the total share balance is comprised of the transaction noted plus the
retroactive effect of the stock dividend.
<PAGE>
EXHIBIT 13
1999 ANNUAL REPORT
<PAGE>
REPORT OF MANAGEMENT
Management of Albany International Corp. is responsible for the integrity and
objectivity of the accompanying financial statements and related information.
These statements have been prepared in conformity with generally accepted
accounting principles, and include amounts that are based on our best judgments
with due consideration given to materiality.
Management maintains a system of internal accounting controls designed to
provide reasonable assurance, at reasonable cost, that assets are safeguarded
and that transactions and events are recorded properly. A program of internal
audits and management reviews provides a monitoring process that allows the
Company to be reasonably sure the system of internal accounting controls
operates effectively.
The financial statements have been audited by PricewaterhouseCoopers LLP,
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/ Francis L. McKone
Francis L. McKone
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
/s/ Frank R. Schmeler
Frank R. Schmeler
PRESIDENT AND CHIEF OPERATING OFFICER
/s/ Michael C. Nahl
Michael C. Nahl
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF ALBANY INTERNATIONAL CORP.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings, of comprehensive income
and of cash flows present fairly, in all material respects, the financial
position of Albany International Corp. and its subsidiaries at December 31, 1999
and 1998, and the results of their operations and cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Albany, New York
January 27, 2000
20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
STATEMENTS OF INCOME
Net sales $778,366 $722,653 $710,079
Cost of goods sold 458,930 417,375 404,982
- ----------------------------------------------------------------------------------------------
Gross profit 319,436 305,278 305,097
Selling and general expenses 177,481 164,481 155,515
Technical and research expenses 48,096 49,998 49,963
Restructuring of operations:
Termination benefits and other costs 14,496 20,191 --
Losses on disposal of fixed assets 2,376 -- --
- ----------------------------------------------------------------------------------------------
Operating income 76,987 70,608 99,619
Interest income (1,248) (598) (646)
Interest expense 26,800 19,908 16,113
Other (income)/expense, net (481) (406) 4,521
- ----------------------------------------------------------------------------------------------
Income before income taxes 51,916 51,704 79,631
Income taxes 22,325 20,163 31,055
- ----------------------------------------------------------------------------------------------
Income before associated companies 29,591 31,541 48,576
Equity in earnings of associated companies 631 231 483
- ----------------------------------------------------------------------------------------------
Net income 30,222 31,772 49,059
RETAINED EARNINGS
Retained earnings, beginning of period 255,586 246,013 209,875
Less dividends 9,254 22,199 12,921
- ----------------------------------------------------------------------------------------------
Retained earnings, end of period $276,554 $255,586 $246,013
- ----------------------------------------------------------------------------------------------
Net income per share $ 1.00 $ 1.02 $ 1.52
Diluted net income per share $ 0.99 $ 1.01 $ 1.50
- ----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
21
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
NET INCOME $ 30,222 $ 31,772 $ 49,059
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments (37,141) 615 (42,011)
Pension liability adjustments 12,965 (16,868) 12,483
Income taxes related to items of other comprehensive
income/(loss) -- -- --
- ---------------------------------------------------------------------------------------------
Comprehensive income $ 6,046 $ 15,519 $ 19,531
- ---------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
22
<PAGE>
CONSOLIDATED BALANCE SHEETS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AT DECEMBER 31, 1999 1998
- --------------------------------------------------------------------------------------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,025 $ 5,868
Accounts receivable, less allowance for doubtful accounts
($8,768, 1999; $5,504, 1998) 235,303 184,748
Inventories
Finished goods 131,749 115,740
Work in process 61,200 43,523
Raw material and supplies 42,733 37,646
Deferred taxes and prepaid expenses 30,063 22,188
- --------------------------------------------------------------------------------------
Total current assets 508,073 409,713
- --------------------------------------------------------------------------------------
Property, plant and equipment, at cost, net 435,172 325,109
Investments in associated companies 4,389 4,054
Intangibles 197,953 60,800
Deferred taxes 10,871 27,193
Other assets 50,384 39,497
- --------------------------------------------------------------------------------------
Total assets $1,206,842 $866,366
- --------------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Notes and loans payable $ 36,839 $112,828
Accounts payable 42,647 25,838
Accrued liabilities 86,008 66,791
Current maturities of long-term debt 6,174 5,178
Income taxes payable and deferred 5,296 9,403
- --------------------------------------------------------------------------------------
Total current liabilities 176,964 220,038
- --------------------------------------------------------------------------------------
Long-term debt 521,257 181,137
Other noncurrent liabilities 124,847 113,282
Deferred taxes and other credits 58,367 37,059
- --------------------------------------------------------------------------------------
Total liabilities 881,435 551,516
- --------------------------------------------------------------------------------------
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; 26,803,721 issued in 1999 and
26,082,438 in 1998 27 26
Class B Common Stock, par value $.001 per share; authorized
25,000,000 shares; issued and outstanding 5,869,457 in
1999 and 5,785,282 in 1998 6 6
Additional paid in capital 219,443 206,428
Retained earnings 276,554 255,586
Accumulated items of other comprehensive income:
Translation adjustments (120,877) (83,736)
Pension liability adjustment (3,903) (16,868)
- --------------------------------------------------------------------------------------
371,250 361,442
Less treasury stock, at cost 45,843 46,592
- --------------------------------------------------------------------------------------
Total shareholders' equity 325,407 314,850
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,206,842 $866,366
- --------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
23
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALBANY INTERNATIONAL CORP.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 30,222 $ 31,772 $ 49,059
Adjustments to reconcile net cash provided by
operating activities:
Equity in earnings of associated companies (631) (231) (483)
Depreciation and amortization 55,874 48,827 44,991
Provision for deferred income taxes, other
credits and long-term liabilities (1,127) 11,460 (3,828)
Increase in cash surrender value of life
insurance, net of premiums paid (1,110) (1,017) (851)
Unrealized currency transaction (gains)/losses (5,802) (1,911) 3,571
Losses on disposition of assets 2,914 368 382
Shares contributed to ESOP 4,337 4,064 4,336
Changes in operating assets and liabilities:
Accounts receivable (1,179) (6,769) 4,009
Inventories 13,300 (12,685) (557)
Prepaid expenses (1,368) 774 (55)
Accounts payable (511) (1,527) (7,026)
Accrued liabilities 3,938 14,975 (922)
Income taxes payable (2,588) (4,487) (4,365)
Other, net 1,821 3,237 (1,699)
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 98,090 86,850 86,562
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (34,953) (38,825) (50,804)
Purchased software (2,929) (1,763) (2,318)
Proceeds from sale of assets 464 484 496
Acquisitions, net of cash acquired (247,236) (24,032) --
Loan to other company (3,000) -- --
Investments in associated and other companies -- (2,025) (4,000)
Distributions from associated companies 148 195 --
Premiums paid for life insurance (1,187) (1,187) (1,190)
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities (288,693) (67,153) (57,816)
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from borrowings 581,064 138,011 55,030
Principal payments on debt (366,503) (97,982) (54,847)
Proceeds from options exercised 165 2,105 7,000
Tax benefit of options exercised 8 281 1,089
Debt issuance costs (4,905) -- --
Purchases of treasury shares -- (47,077) (8,257)
Dividends paid -- (6,387) (12,724)
- ---------------------------------------------------------------------------------------------
Net cash provided by/(used in) financing
activities 209,829 (11,049) (12,709)
- ---------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash flows (18,069) (5,326) (21,525)
- ---------------------------------------------------------------------------------------------
Increase/(decrease) in cash and cash equivalents 1,157 3,322 (5,488)
Cash and cash equivalents at beginning of year 5,868 2,546 8,034
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,025 $ 5,868 $ 2,546
- ---------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
24
<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 50% interests in an entity in South Africa,
an entity in England and an entity in Russia. The consolidated financial
statements include the Company's original investment in these entities,
plus its share of undistributed earnings or losses, in the account
"Investments in associated companies."
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 recorded in "Other comprehensive
income" and 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 "Other comprehensive income" and in
shareholders' equity in the caption "Translation adjustments."
RESEARCH EXPENSE
Research expense, which is charged to operations as incurred, was
$23,567,000 in 1999, $23,732,000 in 1998, and $23,070,000 in 1997.
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.
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 20 to 40 years.
Patents, trade names and technology, at cost, are amortized on a
straight-line basis over 8 to 12 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."
25
<PAGE>
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 (income)/expense, 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 (income)/expense, 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
(income)/expense, net". Open positions are valued at fair value using
quoted market rates.
Gains or losses on interest rate swap agreements, that are entered into to
hedge part of the Company's interest rate exposure, are recorded in
"Interest expense, net". Unrealized gains or losses related to changes in
the fair value of the contracts are not recognized.
The Company values other 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 these swaps are recorded in "Other
(income)/expense, 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
Net income 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 per share includes the effect of all potentially
dilutive securities.
26
<PAGE>
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) 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
INCOME AVAILABLE TO
COMMON STOCK-
HOLDERS:
Income available to
common stockhold-
ers $30,222 $31,772 $49,059
- -------------------------------------------------------
WEIGHTED AVERAGE
NUMBER OF SHARES:
Weighted average
number of shares
used in net income
per share 30,340 31,073 32,312
Effect of dilutive
securities:
Stock options 143 334 426
- -------------------------------------------------------
Weighted average
number of shares
used in diluted net
income per share 30,483 31,407 32,738
- -------------------------------------------------------
</TABLE>
Options to purchase 1,809,600 shares of common stock at prices ranging from
$19.375 to $25.5625 per share, were outstanding at December 31, 1999 but
were not included in the computation of diluted net income 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) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Land $ 30,345 $ 23,542
Buildings 189,967 162,948
Machinery and equipment 563,008 474,638
- ------------------------------------------------------
783,320 661,128
- ------------------------------------------------------
Accumulated depreciation 348,148 336,019
- ------------------------------------------------------
$435,172 $325,109
- ------------------------------------------------------
</TABLE>
Construction in progress was approximately $2,488,000 in 1999 and
$1,012,000 in 1998.
Depreciation expense was $47,669,000 in 1999, $44,362,000 in 1998, and
$41,750,000 in 1997.
Expenditures for maintenance and repairs are charged to income as incurred
and amounted to $17,305,000 in 1999, $16,560,000 in 1998, and $18,167,000
in 1997.
Capital expenditures were $34,953,000 in 1999, $38,825,000 in 1998, and
$50,804,000 in 1997. At the end of 1999, the Company was committed to
$14,399,000 of future expenditures for new equipment and facilities.
4. INTANGIBLES
The components of intangibles are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Excess purchase price over
fair value $199,227 $ 70,114
Patents, trade names and
technology 20,320 10,410
Accumulated amortization (29,709) (24,536)
Deferred unrecognized pen-
sion cost (see Note 12) 8,115 4,812
- ------------------------------------------------------
$197,953 $ 60,800
- ------------------------------------------------------
</TABLE>
Amortization expense was $5,173,000 in 1999, $2,194,000 in 1998, and
$1,554,000 in 1997.
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Salaries and wages $22,647 $20,619
Employee benefits 21,597 19,413
Returns and allowances 6,164 3,649
Interest 1,044 2,271
Restructuring costs 16,953 6,734
Other 17,603 14,105
- ------------------------------------------------------
$86,008 $66,791
- ------------------------------------------------------
</TABLE>
6. FINANCIAL INSTRUMENTS
Notes and loans payable at December 31, 1999 and 1998 were short-term debt
instruments with banks, denominated in local currencies with a weighted
average interest rate of 5.68% in 1999 and 7.45% in 1998.
27
<PAGE>
Long-term debt at December 31, 1999 and 1998, principally to banks and
bondholders, exclusive of amounts due within one year, consists of:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
$750 million credit agreement
which terminates in 2004
with borrowings
outstanding at an average
interest of 6.61% in 1999
($300 million credit
agreement at an average
interest of 5.78% in
1998). $487,000 $149,000
Various notes and mortgages
relative to operations
principally outside the
United States, at an
average interest of 5.72%
in 1999 and 6.64% in 1998,
due in varying amounts
through 2008. 20,264 17,547
Industrial revenue
financings at an average
interest of 5.49% in 1999
and 5.38% in 1998, due in
varying amounts through
2009. 13,993 14,590
- ------------------------------------------------------
$521,257 $181,137
- ------------------------------------------------------
</TABLE>
The weighted average interest rates for all debt was 6.36% in 1999 and
6.38% in 1998.
Principal payments due on long-term debt are: 2000, $6,174,000; 2001,
$45,140,000; 2002, $65,611,000; 2003, $73,177,000; 2004, $320,281,000.
Interest paid was $26,779,000 in 1999, $17,812,000 in 1998, and $16,107,000
in 1997.
In August 1999, the Company entered into a new $750 million credit
agreement with its banks. This facility includes a $250 million term loan
with $40 million due in 2001, $60 million in 2002, $70 million in 2003 and
$80 million in 2004. The remaining $500 million is a revolving loan with
the banks' commitment to lend terminating in 2004. This agreement includes
commitment fees and variable interest rates based on various loan pricing
methods. The interest rate margin is determined by the Company's leverage
ratio. The credit agreement contains various covenants which include limits
on the disposition of assets, cash dividends, the Company's ability to
purchase its Common Stock, and interest coverage and also contains a
maximum leverage ratio, as well as mandatory prepayments out of excess cash
flow and proceeds from asset sales and debt offerings. The December 31,
1999 leverage ratio precludes the current payment of cash dividends. The
Company cannot purchase its Common Stock or pay cash dividends until the
leverage ratio, as defined in the credit agreement, does not exceed 2.75.
Borrowings are collateralized by a pledge of shares of, and intercompany
loans to, certain subsidiaries of the Company. 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.
Under the credit agreement and formal and informal agreements with other
financial institutions, the Company could have borrowed an additional
$140,000,000 at December 31, 1999.
The Company has been a party to swap agreements that hedge a portion of its
interest rate exposure. On a notional amount of $100,000,000, the Company
paid a fixed rate while the counterparties paid a floating rate based upon
LIBOR. In February 1999, the Company closed-out its position in these
agreements and had a total gain of approximately $67,000.
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 (income)/expense,
net" (see Note 9) is income of approximately $682,000 related to the net
cash received as part of these agreements in 1997. Also included in
"Interest rate protection agreements" is the change in the valuation which
resulted in income of approximately $46,000 in 1997.
At December 31, 1999, the Company had no forward exchange contracts
maturing during 2000. Periodically, the Company also enters into futures
contracts primarily to hedge in the short-term against interest rate
fluctuations. At December 31, 1999, the Company had no open positions on
these contracts. The "Interest rate protection agreements" component of
"Other (income)/expense, net" includes losses/(gains) on futures contracts,
based on fair value, of $1,125,000, ($1,018,000) and ($32,000) in 1999,
1998 and 1997, respectively.
All financial instruments are held for purposes other than trading. For all
positions there is risk from the possible inability of the counterparties
28
<PAGE>
(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, 1999 the estimated fair value of the Company's long-term
debt excluding current maturities is considered to be the carrying value on
the basis that the significant components are variable rate debt.
In June 1998, Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued. This Standard
establishes a new model for accounting for derivatives and hedging
activities. All derivatives will be required to be recognized as either
assets or liabilities and measured at fair value. Each hedging relationship
must be designated and accounted for pursuant to this Standard. Since the
Company already records forward exchange and futures contracts at fair
value, this Standard is not expected to have a material effect on the
accounting for these transactions. The Company plans to adopt this Standard
on its effective date of January 1, 2001.
7. LEASES
Total rental expense amounted to $23,298,000, $22,296,000, and $22,990,000
for 1999, 1998, and 1997, 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, 1999 are: 2000, $21,725,000; 2001, $18,032,000; 2002,
$14,222,000; 2003, $9,845,000; 2004, $5,874,000; and thereafter,
$12,586,000.
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, 1999, 10,273,857 shares of Class A Common Stock were reserved
for the conversion of Class B Common Stock and the exercise of stock
options.
In January 1998, the Board authorized the purchase of 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. Since January 1998, the Company has purchased
1,616,900 shares of its Class A Common Stock pursuant to this authorization
and of the shares purchased, none were purchased during 1999.
For 1998 and 1997, the Board authorized the payment of cash dividends
totalling $.105 and $.42, per common share per year respectively.
As discussed in Note 6, the Company cannot purchase its Common Stock or pay
cash dividends until the leverage ratio, as defined in the credit
agreement, does not exceed 2.75.
During 1999, the Company declared a 2.0% stock dividend which resulted in a
subsequent distribution of 483,621 shares of Class A Common Stock and
115,081 shares of Class B Common Stock. As a result of the stock dividend,
additional paid-in capital increased $9,215,000, treasury stock decreased
$39,000 and retained earnings decreased $9,254,000. All references in the
accompanying financial statements to the weighted average number of common
shares and per-share amounts have been restated to reflect the stock
dividend.
29
<PAGE>
Changes in shareholders' equity for 1999, 1998, and 1997 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, 1997 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
Shares contributed to ESOP -- -- -- -- (195) (183) (4,199)
Purchases of treasury shares -- -- -- -- -- 2,262 47,077
Options exercised 118 -- -- -- 2,386 -- --
Stock dividends 589 1 169 -- 16,392 (118) (2,656)
Shares issued to Directors -- -- -- -- 14 (2) (46)
- --------------------------------------------------------------------------------------------------------------------------------
Balance: December 31, 1998 26,082 $26 5,785 $6 $206,428 2,240 $ 46,592
Shares contributed to ESOP 199 -- -- -- 3,622 (29) (646)
Options exercised 8 -- -- -- 173 -- --
Stock dividends 484 1 115 -- 9,215 (2) (39)
Shares issued to Directors -- -- -- -- 5 (3) (64)
Conversion of Class B shares to Class A shares 31 -- (31) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Balance: December 31, 1999 26,804 $27 5,869 $6 $219,443 2,206 $ 45,843
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. OTHER (INCOME)/EXPENSE, NET
The components of other (income)/expense, net, as further described in
Note 6, are:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Currency Transactions $(5,807) $(3,785) $(2,010)
Interest rate
protection
agreements 1,125 (1,018) (760)
Amortization of debt
issuance costs and
loan origination
fees 1,624 721 937
Strategic planning
costs -- -- 1,333
Other 2,577 3,676 5,021
- --------------------------------------------------------
$ (481) $ (406) $ 4,521
- --------------------------------------------------------
</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) 1999 1998 1997
- -------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $ 2,959 $14,858 $12,799
U.S. State 1,303 1,699 1,463
Non-U.S. 23,068 7,352 12,336
- -------------------------------------------------------
27,330 23,909 26,598
- -------------------------------------------------------
Deferred:
U.S. Federal 1,407 (11,960) (3,511)
U.S. State 143 (1,367) (401)
Non-U.S. (6,555) 9,581 8,369
- -------------------------------------------------------
(5,005) (3,746) 4,457
- -------------------------------------------------------
$22,325 $20,163 $31,055
- -------------------------------------------------------
</TABLE>
U.S. income before income taxes was $8,625,000 in 1999, $8,317,000 in 1998,
and $29,973,000 in 1997.
Taxes paid, net of refunds, were $23,711,000 in 1999, $23,627,000 in 1998,
and $22,210,000 in 1997.
30
<PAGE>
A comparison of the federal statutory rate to the Company's effective rate
is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
U.S. statutory rate 35.0% 35.0% 35.0%
State taxes 1.6 2.2 1.9
Non-U.S. tax rates,
repatriation of earnings, and
other net charges associated
with prior years 5.4 1.5 5.6
Other 1.0 .3 (3.5)
- ----------------------------------------------------------
Effective tax rate 43.0% 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, 1999,
1998, and 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax benefit $(3,138) $(10,453) $(1,448)
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws
and rates 112 113 136
(Benefit)/utilization of
operating loss
carryforwards (1,979) 6,594 5,769
- ------------------------------------------------------------------
$(5,005) $ (3,746) $ 4,457
- ------------------------------------------------------------------
</TABLE>
Investment tax credits and other credits utilized for financial reporting
purposes were not material.
Undistributed earnings of subsidiaries outside the United States for which
no provision for U.S. taxes has been made amounted to approximately
$144,115,000 at December 31, 1999. 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, 1999
and 1998 are presented below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
U.S. Non-U.S.
----------------- -----------------
(IN THOUSANDS) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
Accounts receivable,
principally due to
allowance for doubtful
accounts $ 785 $ 121 $ 995 $ (363)
Inventories, principally
due to additional costs
inventoried for tax
purposes, pursuant to the
Tax Reform Act of 1986 3,979 7,014 271 92
Tax loss carryforwards -- -- 287 1,187
Other 14,226 7,642 1,988 1,286
- ------------------------------------------------------------------------
Total current deferred tax
assets 18,990 14,777 3,541 2,202
- ------------------------------------------------------------------------
Sale lease back
transaction 642 575 -- --
Deferred compensation 10,232 9,094 -- --
Tax loss carryforwards -- -- 3,723 7,275
Plant, equipment and
depreciation (23,482) (11,671) (160) (172)
Postretirement benefits 15,842 14,936 -- --
Other 3,890 6,151 184 1,005
- ------------------------------------------------------------------------
Total noncurrent deferred
tax assets 7,124 19,085 3,747 8,108
- ------------------------------------------------------------------------
Total deferred tax assets $26,114 $33,862 $ 7,288 $10,310
- ------------------------------------------------------------------------
Total current deferred tax
liabilities -- -- $ 5,558 $ 7,287
- ------------------------------------------------------------------------
Plant, equipment and
depreciation -- -- 49,209 24,394
Other -- -- (3,027) (446)
- ------------------------------------------------------------------------
Total noncurrent deferred
tax liabilities -- -- 46,182 23,948
- ------------------------------------------------------------------------
Total deferred tax
liabilities -- -- $51,740 $31,235
- ------------------------------------------------------------------------
</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. deferred tax asset
relates to tax loss carryforwards of which approximately 7% is expected to
be used in 2000 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.
31
<PAGE>
11. OPERATING SEGMENT AND GEOGRAPHIC DATA
In accordance with Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information", the internal
organization that is used by management for making operating decisions and
assessing performance is used as the source of the Company's reportable
segments. The accounting policies of the segments are the same as those
described in the "Accounting Policies" footnote.
The primary segment of the Company is Engineered Fabrics which includes
developing, manufacturing, marketing and servicing custom designed
engineered fabrics used in the manufacture of paper, paperboard and
products in other process industries. Another segment of the Company is an
aggregation of the Company's operations that manufacture, market and
service high performance doors. "All other segments" is made up of
operations that manufacture products outside of the core business of the
Company.
The following table shows data by operating segment, reconciled to
consolidated totals included in the financial statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Engineered Fabrics $ 633,373 $ 583,857 $ 593,395
High Performance
Doors 104,354 101,768 83,283
All other 40,639 37,028 33,401
- ----------------------------------------------------------------
Consolidated total $ 778,366 $ 722,653 $ 710,079
- ----------------------------------------------------------------
DEPRECIATION AND
AMORTIZATION
Engineered Fabrics $ 46,890 $ 41,202 $ 38,084
High Performance
Doors 2,304 1,561 1,329
All other 3,402 3,129 2,887
Corporate 3,278 2,935 2,691
- ----------------------------------------------------------------
Consolidated total $ 55,874 $ 48,827 $ 44,991
- ----------------------------------------------------------------
- ----------------------------------------------------------------
OPERATING INCOME
Engineered Fabrics $ 138,658 $ 131,047 $ 134,057
Restructuring of
operations:
Termination
benefits and
other costs (14,496) (20,191) --
Losses on
disposal of
fixed assets (2,376) -- --
- ----------------------------------------------------------------
121,786 110,856 134,057
High Performance
Doors 6,520 11,138 9,845
All other 4,802 4,759 4,311
Research expense (23,567) (23,732) (23,070)
Unallocated
expenses (32,554) (32,413) (25,524)
- ----------------------------------------------------------------
Operating income
before
reconciling items 76,987 70,608 99,619
Reconciling items:
Interest income 1,248 598 646
Interest expense (26,800) (19,908) (16,113)
Other income/
(expense), net 481 406 (4,521)
- ----------------------------------------------------------------
Consolidated income
before income taxes $ 51,916 $ 51,704 $ 79,631
- ----------------------------------------------------------------
OPERATING ASSETS
Engineered Fabrics $1,368,167 $1,006,458 $ 945,296
High Performance
Doors 64,040 67,075 52,459
All other 89,945 81,461 68,777
Reconciling items:
Accumulated
depreciation (348,148) (336,019) (303,428)
Deferred tax
assets 33,402 44,171 35,442
Investments in
associated
companies 4,389 4,054 2,444
Other (4,953) (834) (4,093)
- ----------------------------------------------------------------
Consolidated total
assets $1,206,842 $ 866,366 $ 796,897
- ----------------------------------------------------------------
CAPITAL EXPENDITURES
Engineered Fabrics $ 28,757 $ 33,158 $ 45,738
High Performance
Doors 1,638 881 983
All other 4,302 4,027 3,447
Corporate 256 759 636
- ----------------------------------------------------------------
Consolidated total $ 34,953 $ 38,825 $ 50,804
- ----------------------------------------------------------------
</TABLE>
32
<PAGE>
The following table shows data by geographic area. Net sales are based on
the location of the operation recording the final sale to the customer.
<TABLE>
- -------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
United States $310,070 $289,434 $286,528
Canada 58,060 62,329 67,794
Sweden 83,714 88,612 94,102
Germany 69,375 50,467 42,264
Other countries 257,147 231,811 219,391
- -------------------------------------------------------------------
Consolidated total $778,366 $722,653 $710,079
- -------------------------------------------------------------------
PROPERTY, PLANT AND
EQUIPMENT, AT COST, NET
United States $133,127 $ 95,487 $ 97,455
Canada 22,916 22,935 26,558
Sweden 51,778 58,476 60,278
Germany 64,004 6,347 6,212
Other countries 163,347 141,864 131,108
- -------------------------------------------------------------------
Consolidated total $435,172 $325,109 $321,611
- -------------------------------------------------------------------
</TABLE>
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. In October 1998, the U.S.
noncontributory, qualified defined benefit pension plan was closed to new
participants.
The following table sets forth the components of amounts recognized in the
Company's balance sheet.
<TABLE>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Projected benefit
obligation in excess of
plan assets $(48,116) $(54,983)
Unrecognized net loss 22,040 44,556
Prior service cost not yet
recognized in net periodic
pension cost 8,292 5,293
Remaining unrecognized net
obligation/(asset) 99 (1,080)
Contributions made in the
4th quarter 626 18
- ------------------------------------------------------
Accrued pension liability $(17,059) $ (6,196)
- ------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit
obligation in excess of plan assets were $158,755,000, $138,107,000, and
$111,480,000, respectively, for 1999 and $155,168,000, $128,355,000, and
$102,258,000, respectively for 1998.
The weighted average expected long-term rate of return for these plans was
9.1% for 1999 and 1998. The weighted average discount rate was 7.1% for
1999 and 6.9% for 1998. In 1999 and 1998, the weighted average rate of
increase in future compensation levels was 4.7% and 4.8%, respectively.
The following table sets forth the reconciliation of beginning and ending
balances of benefit obligations and fair value of plan assets, and the
funded status of the plans.
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Change in benefit
obligation:
Benefit obligation at
beginning of year $199,160 $170,123
Service cost 6,927 6,841
Interest cost 13,775 14,375
Participant contributions 1,447 838
Plan amendments 3,766 48
Effect of curtailment -- 2,365
Benefits paid (11,769) (8,604)
Acquisitions/divestitures 9,795 --
Special termination
benefits -- 7,148
Actuarial (gain)/loss (16,195) 6,877
Exchange rate loss (2,780) (851)
- ------------------------------------------------------
Benefit obligation at end
of year $204,126 $199,160
- ------------------------------------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year $144,177 $143,980
Actual return on plan
assets 18,918 3,558
Employer contributions 5,435 5,343
Participant contributions 1,447 1,038
Benefits paid (11,610) (8,604)
Acquisitions/divestitures 210 --
Administrative expenses (1,229) (741)
Exchange rate loss (1,338) (397)
- ------------------------------------------------------
Fair value of plan assets
at end of year $156,010 $144,177
- ------------------------------------------------------
</TABLE>
Amounts recognized in the balance sheet are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Accrued pension liability $(29,077) $(27,876)
Intangible asset 8,115 4,812
Accumulated other
comprehensive income 3,903 16,868
- ------------------------------------------------------
Net amount recognized at
year-end $(17,059) $ (6,196)
- ------------------------------------------------------
</TABLE>
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, 1999 and 1998 respectively, of $12,018,000 and
$21,680,000 was offset by an asset amounting to
33
<PAGE>
$8,115,000 and $4,812,000 (included in intangibles) and a direct charge to
equity of $3,903,000 and $16,868,000.
Net pension cost included the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Service cost $ 6,927 $ 6,423
Interest cost on projected
benefit obligation 13,775 12,319
Actual return on assets (12,557) (12,431)
Net amortization and deferral 1,287 981
- ------------------------------------------------------
Net periodic pension cost $ 9,432 $ 7,292
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
Annual pension cost, including the 1998 enhanced retirement program,
charged to operating expense for all Company plans, including all statutory
and defined contribution plans, was $13,518,000 for 1999, $25,455,000 for
1998, and $11,221,000 for 1997.
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.
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) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $51,220 $46,386
Service cost 1,357 1,112
Interest cost 4,389 3,446
Plan participants'
contribution 455 485
Actuarial loss 10,874 3,419
Benefits paid (5,906) (3,628)
- ------------------------------------------------------
Benefit obligation at end
of year $62,389 $51,220
- ------------------------------------------------------
- ------------------------------------------------------
Change in plan assets:
Fair value of plan assets
at beginning of year -- --
Employer contributions 5,451 3,143
Plan participants'
contributions 455 485
Benefits paid (5,906) (3,628)
- ------------------------------------------------------
Fair value of plan assets
at end of year -- --
- ------------------------------------------------------
Funded status 62,389 51,220
Unrecognized net (loss)/gain (6,364) 4,449
- ------------------------------------------------------
Accrued postretirement cost $56,025 $55,669
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost included the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Service cost of benefits
earned $ 1,357 $ 1,112
Interest cost on accumulated
postretirement benefit
obligation 4,389 3,446
Amortization of unrecognized
net loss/(gain) 60 (219)
- ------------------------------------------------------
Net periodic postretirement
benefit cost $ 5,806 $ 4,339
- ------------------------------------------------------
- ------------------------------------------------------
</TABLE>
For measuring the expected postretirement benefit obligation, an annual
rate of increase in the per capita claims cost of 5.5% is assumed for 1999.
This rate is assumed to remain at 5.5%.
The weighted average discount rate was 7.5% for 1999 and 7.2% for 1998.
A one percentage point increase in the health care cost trend rate would
result in a $7,841,000 increase in the accumulated postretirement benefit
obligation as of December 31, 1999 and an increase of $836,000 in the
aggregate service and interest cost components of the net periodic
postretirement benefit cost for 1999.
14. TRANSLATION ADJUSTMENTS
The Consolidated Statements of Cash Flows were affected by translation as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- ------------------------------------------------------------
<S> <C> <C> <C>
Change in cumulative
translation adjustments $ 37,141 $ (615) $42,011
Other noncurrent
liabilities 1,756 431 2,742
Deferred taxes 3,816 1,075 3,419
Long-term debt 549 674 1,014
Investments in
associated
companies (167) (452) (100)
Net fixed assets (16,900) 3,417 (22,959)
Other assets (8,126) 796 (4,602)
- ------------------------------------------------------------
Effect of exchange rate
changes $ 18,069 $ 5,326 $21,525
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
34
<PAGE>
Shareholders' equity was affected by translation as follows:
decrease/(increase) from translation of non-U.S. financial statements of
$34,982,000, $(2,736,000), and $30,979,000 and from remeasurement of loans
of $2,159,000, $2,121,000 and $11,032,000 in 1999, 1998, and 1997
respectively.
In 1998 and 1997 net translation losses included in operations in Brazil
and Mexico were $2,217,000 and $499,000 respectively, and were included in
cost of goods sold.
15. STOCK OPTIONS AND INCENTIVE PLANS
During 1988, 1992 and 1998, 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 while the 1998 plan currently
provides for the granting of up to 5,500,000 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 cash
dividend yield was 1.8% for 1997. The expected volatility was 25.5% in
1999, 24.6% in 1998, and 24.1% in 1997. The expected life of the options
varies based on employee group and ranges from 6 to 20 years. The risk-free
interest rate ranges from 6.6% to 6.9% in 1999, 4.7% to 5.6% in 1998, and
5.8% to 6.1% in 1997. 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 1999, 1998 or 1997. Had compensation cost and fair value been
determined pursuant to FAS 123, net income would decrease from $30,222,000
to $28,567,000 in 1999, $31,772,000 to $30,119,000 in 1998, and from
$49,059,000 to $47,727,000 in 1997. Earnings per share would decrease from
$1.00 to $0.94 in 1999, $1.02 to $0.97 in 1998, and from $1.52 to $1.48 in
1997. Diluted earnings per share would decrease from $0.99 to $0.94 in
1999, $1.01 to $0.96 in 1998, and $1.50 to $1.46 in 1997. The weighted
average fair value of options granted during 1999, 1998 and 1997, for the
purposes of FAS 123, is $10.98, $7.52, and $10.37 per share, respectively.
Activity with respect to these plans is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at
January 1 3,550,750 3,309,000 3,057,400
Options granted 411,750 423,000 695,500
Options cancelled 26,300 63,300 23,900
Options exercised 8,550 117,950 420,000
- ------------------------------------------------------------------
Shares under option at
December 31 3,927,650 3,550,750 3,309,000
Options exercisable at
December 31 2,518,950 2,191,900 1,930,900
Shares available for
options 476,750 370,200 229,900
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
The weighted average exercise price is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option at
January 1 $19.00 $18.95 $18.00
Options granted 15.69 19.38 21.84
Options cancelled 19.76 20.90 20.49
Options exercised 19.26 17.85 16.72
Shares under option at
December 31 18.65 19.00 18.95
Options exercisable at
December 31 17.97 17.58 17.08
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
35
<PAGE>
The following is a summary of the status of options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Exercisable
Outstanding Options 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 13.11 $15.00 125,000 $15.00
15.50 700,000 8.34 15.50 700,000 15.50
15.69 410,750 19.86 15.69 -- --
16.25 163,700 13.41 16.25 163,700 16.25
16.75 461,500 10.33 16.75 461,500 16.75
17.63-18.75 257,100 13.67 18.62 257,100 18.62
19.38 410,500 18.84 19.38 86,900 19.38
19.75 406,600 17.29 19.75 181,000 19.75
22.25 742,500 15.89 22.25 543,750 22.25
25.56 250,000 17.85 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 $2,037,000 in 1999,
$1,957,000 in 1998, and $1,795,000 in 1997. The increase in cash value, net
of premiums, was $1,110,000 in 1999, $1,017,000 in 1998, and $851,000 in
1997.
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 1% to 15% of their regular wages which under Section 401(k) are tax
deferred. The Company matches between 50% and 100% 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 $3,774,000 in 1999, $3,597,000 in 1998, and
$3,288,000 in 1997.
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 $581,000 in 1999, $1,281,000 in
1998, and $206,000 in 1997.
16. ACQUISITIONS AND RESTRUCTURING
1999 ACQUISITIONS
In April, the Company purchased all of the shares of Jansen Tortechnik, a
manufacturer of high quality sectional overhead doors located in Surwold,
Germany for approximately $7,700,000.
In August, the Company completed the purchase of all of the outstanding
capital stock of the paper machine clothing business of the Geschmay group
for approximately $250,000,000. Geschmay's principal operations are located
in Europe and the United States. The fair market value of assets and
liabilities was determined by valuations and appraisals completed in
December 1999. The excess purchase price over fair market value is
amortized on a straight-line basis over 20 years.
1998 ACQUISITIONS
In January, the Company acquired substantially all of the assets of Burwell
Door Systems located in Sydney, Australia for approximately $3,500,000.
In March, the Company purchased all of the outstanding capital stock of
Techniweave, Inc., a specialty fabricator of high performance textiles and
composites. The purchase price was approximately $8,900,000 with $3,300,000
paid at closing and $5,600,000 deferred for up to ten years.
Also in March, the Company purchased all of the outstanding capital stock
of Metco Form Oy, a Finnish supplier of forming fabrics and other
engineered fabrics for pulp mills and other chemical process industries.
The purchase price was approximately $10,800,000.
In April, the Company purchased all of the outstanding capital stock of M&I
Door Systems located in Barrie, Ontario, Canada for approximately
$8,100,000.
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. Except for
the Geschmay group, as described below, pro-forma financial information in
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations", is
36
<PAGE>
not included since the operating results of these acquisitions would not be
material for this purpose.
The unaudited pro-forma information below presents results of operations as
if the acquisition of the Geschmay group in August 1999 had occurred at the
beginning of 1998. The unaudited pro-forma information is not necessarily
indicative of the results of operations of the consolidated company had
these events occurred at the beginning of 1998, nor is it necessarily
indicative of future results.
<TABLE>
<CAPTION>
- --------------------------------------------------------
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------
<S> <C> <C>
Net sales $877,111 $881,486
Net income 13,417 9,920
Net income per share $ 0.44 $ 0.32
Diluted net income per share $ 0.44 $ 0.32
- --------------------------------------------------------
- --------------------------------------------------------
</TABLE>
In 1998, the Company announced the first steps of a global restructuring
plan. In 1999 and 1998, the Company recorded a charge for restructuring of
operations of $16,872,000 and $20,191,000, respectively. The 1999 charge
includes $12,956,000 for termination benefits, $1,540,000 for plant
rationalization costs and $2,376,000 for losses on disposal of fixed
assets. The 1998 charge includes $15,792,000 for an enhanced retirement
program and $4,399,000 for plant rationalization costs.
The components of accrued restructuring costs, excluding amounts added to
pension liabilities (see Note 12), consist of:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------
<S> <C> <C> <C>
Lease obligations $ -- $ 296 $ 628
Termination costs 17,394 4,243 --
Plant rationalization
costs 1,070 4,399 --
- --------------------------------------------------------
$18,464 $8,938 $ 628
- --------------------------------------------------------
</TABLE>
The change in accrued balances is the result of further costs associated
with the global restructuring plan, reversals of prior year accruals and
actual payments for lease obligations.
37
<PAGE>
FINANCIAL REVIEW
REVIEW OF OPERATIONS
- --1999 VS. 1998
Net sales increased $55.7 million or 7.7% as compared with 1998. Net sales were
reduced by $7.0 million from the effect of a stronger U.S. dollar as compared to
1998. Acquisitions completed in 1999 and 1998, as discussed below, added
$74.2 million to net sales. Excluding these two factors, net sales decreased
1.6% as compared to 1998.
Net sales in the United States increased 7.1% in 1999 as compared to 1998, and
excluding the acquisition of Geschmay increased 1.9% over the same period. Net
sales in Canada decreased 6.8% while European sales increased 11.2% in 1999 as
compared to 1998. Excluding the effect of the stronger U.S. dollar and the
acquisition of Geschmay, net sales in Europe increased 1.2%.
Gross profit was 41.0% of net sales in 1999 as compared to 42.2% in 1998.
Excluding the effect of the 1999 and 1998 acquisitions, gross profit margin
would have been 42.7%.
Selling, technical, general and research expenses, excluding acquisitions,
decreased 2.6% in 1999 as compared to 1998. Excluding the additional effect of
the stronger U.S. dollar, these costs decreased 1.5%.
In 1998, the Company announced the first steps of a global restructuring plan.
In 1999 and 1998, the Company recorded a pre-tax charge for restructuring of
operations of $16.9 million and $20.2 million, respectively. The 1999 charge
includes $13.0 million for termination benefits, $1.5 million for plant
rationalization costs and $2.4 million for losses on disposal of fixed assets.
The 1998 charge includes $15.8 million for an enhanced retirement program and
$4.4 million for plant rationalization costs. Excluding the effect of
restructuring charges, net income per share and diluted net income per share
were both $1.31 in 1999 and $1.42 and $1.40, respectively, in 1998. As part of
this plan, additional nonrecurring operating expenses of approximately
$8 million, related to losses on disposal of fixed assets and equipment
relocation costs, are expected to be incurred during 2000. The Company has
closed plants and sales offices in the United States, Germany and Asia, is in
the process of closing plants in the United States and Mexico, is planning to
close additional plants outside of North and South America and announced a 3.5%
reduction of payroll-related costs. During 1999, cost savings were approximately
$11 million and management expects that when these actions are complete by the
end of 2000, the combined cumulative annual cost savings will approximate
$50 million.
Other (income)expense, net includes the net effect of currency transactions and
interest rate protection agreements. These amounts were flat as compared to
1998. Income or losses from currency transactions and interest rate protection
agreements generally result from economic hedges which can have either a
positive or negative effect on other (income)/expense, 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).
In June 1998, Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities", was issued. This Standard establishes a new
model for accounting for derivatives and hedging activities. All derivatives
will be recognized as either assets or liabilities and measured at fair value.
Each hedging relationship must be designated and accounted for pursuant to this
Standard. Since the Company already records forward exchange and futures
contracts at fair value, this Standard is not expected to have a material effect
on the accounting for these transactions. The Company plans to adopt this
Standard on its effective date of January 1, 2001.
Interest expense increased $6.9 million as compared with 1998. This increase was
due to higher total debt and interest rates resulting from the new credit
agreement, as discussed below, entered into to finance the acquisition of
Geschmay.
The tax rate for 1999 was 43%, compared to 39% in 1998, due principally to the
nondeductibility of certain expenses related to acquisitions and restructuring.
Management expects the tax rate for 2000 to be 43%.
In April 1999, the Company purchased all of the shares of Jansen Tortechnik, a
manufacturer of high quality sectional overhead doors located in Surwold,
Germany for approximately $7.7 million.
In August 1999, the Company completed the purchase of all of the outstanding
capital stock of the paper machine clothing business of the Geschmay group for
approximately $250 million. Geschmay's principal operations are located in
Europe and the United States. The fair market value of assets and liabilities
was determined by valuations and appraisals completed in December 1999.
38
<PAGE>
All of the above 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 (see Note 16 for
the pro forma effects of the Geschmay acquisition).
For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency
Translation", to economies that cease to be highly inflationary, effective
January 1, 1999, the functional currency for the Company's Mexican operations
changed from the U.S. dollar to the Mexican Peso. This change did not have a
significant effect on operations.
- --1998 VS. 1997
Net sales increased $12.6 million or 1.8% as compared with 1997. Net sales were
decreased by $20.8 million from the effect of a stronger U.S. dollar as compared
to 1997. Acquisitions completed in 1998, as discussed below, added
$20.2 million to net sales. Excluding these two factors, net sales increased
1.9% as compared to 1997.
Net sales in the United States increased 1.0% in 1998 as compared to 1997, while
sales in Canada decreased 8.1% over the same period. Net sales in Canada were
lower principally due to the effect of the stronger U.S. dollar.
European sales increased 1.9% in 1998 as compared to 1997. Excluding the effect
of the stronger U.S. dollar, net sales in Europe increased 4.5%.
Gross profit was 42.2% of net sales in 1998 as compared to 43.0% in 1997.
Excluding the effect of the 1998 acquisitions, gross profit margin would have
been 42.6%.
Selling, technical, general and research expenses, excluding the 1998
acquisitions, increased 2.0% in 1998 as compared to 1997. Excluding the
additional effect of the stronger U.S. dollar, these costs increased 4.4%. This
increase was principally due to higher wages and benefit costs, the unfavorable
change in the remeasurement of foreign currency transactions incurred
principally in Europe and costs related to the installation of a new information
system.
The change in other (income)expense, net as compared to 1997, was due
principally to $2.0 million higher income from currency transactions and
interest rate protection agreements and a $1.3 million decrease in strategic
planning costs.
Interest expense increased $3.8 million or 23.6% as compared with 1997. This
increase was due to higher total debt during 1998 as a result of acquisitions
and the Company's purchase of 2,560,800 shares of its own stock since
November 1997.
In late 1997, the Company finished the construction of a new paper machine
clothing plant located in Chungju, South Korea for a total cost of approximately
$22 million. The first shipments to customers were made in February 1998.
In January 1998, the Company acquired substantially all of the assets of Burwell
Door Systems located in Sydney, Australia for approximately $3.5 million.
In March 1998, the Company purchased all of the outstanding capital stock of
Techniweave, Inc., a specialty fabricator of high performance textiles and
composites. The purchase price was approximately $8.9 million with $3.3 million
paid at closing and $5.6 million deferred for up to ten years.
In March 1998, the Company purchased all of the outstanding capital stock of
Metco Form Oy, a Finnish supplier of forming fabrics and other engineered
fabrics for pulp mills and other chemical process industries. The purchase price
was approximately $10.8 million.
In April 1998, the Company purchased all of the outstanding capital stock of M&I
Door Systems located in Barrie, Ontario, Canada for approximately $8.1 million.
All of the above 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. These acquisitions
did not have a significant impact on 1998 operating results.
In March 1998, the Company purchased a 50% interest in SARA (Loading Bay
Specialists, Ltd.), a distributor of high performance industrial doors located
in England for approximately $2.0 million. This investment is being accounted
for on an equity basis and is included in "Investments in Associated Companies".
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
39
<PAGE>
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.
Operating margins related to the Company's geographic regions in 1999 as
compared to 1998 increased in Canada and decreased in the United States and
Europe. Total operating income, after the restructuring charges, increased 9.0%
as compared to 1998. Excluding the effect of the stronger U.S. dollar and
acquisitions, operating income would have increased 8.3% as compared to 1998.
Excluding the combined effect of the U.S. dollar, acquisitions and the
restructuring charges, operating income increased 2.8% as compared to 1998.
Operating income, before the restructuring charges, as a percent of net sales
for the United States was 16.9% in 1999, 17.6% in 1998 and 19.2% in 1997; for
Canada was 17.6% in 1999, 13.5% in 1998 and 13.0% in 1997; for Europe was 7.1%
in 1999, 9.0% in 1998 and 10.7% in 1997; and combined for the rest of the
countries where the Company has operations the percentages were 8.8% in 1999,
7.3% in 1998 and 8.2% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999 the Company's order backlog was $503.4 million, an increase
of $29.4 million from the prior year-end.
Accounts receivable increased $50.6 million from December 31, 1998. Excluding
the effect of the stronger U.S. dollar and the Geschmay acquisition, accounts
receivable increased $7.3 million. Inventories increased $38.8 million from
December 31, 1998. Excluding the factors noted above, inventories decreased
$1.7 million.
Cash flow provided from operating activities was $98.1 million in 1999 compared
with $86.9 million in 1998 and $86.6 million in 1997. Capital expenditures were
$35.0 million in 1999, $38.8 million in 1998 and $50.8 million in 1997. Capital
expenditures in 2000, including leases, are expected to be about $35 million as
capacity acquired in the Geschmay acquisition should allow the Company to reduce
capital expenditures. The Company will continue to finance these expenditures
with cash from operations and existing credit facilities.
In August 1999, the Company entered into a new $750 million credit agreement
with its banks. This facility includes a $250 million term loan with
$40 million due in 2001, $60 million in 2002, $70 million in 2003 and
$80 million in 2004. The remaining $500 million is a revolving loan with the
banks' commitment to lend terminating in 2004. This agreement includes
commitment fees and variable interest rates based on various loan pricing
methods. The interest rate margin is determined by the Company's leverage ratio.
The credit agreement contains various covenants which include limits on the
disposition of assets, cash dividends, the Company's ability to purchase its
Common Stock, and interest coverage and also contains a maximum leverage ratio,
as well as mandatory prepayments out of excess cash flow and proceeds from asset
sales and debt offerings. Borrowings are collateralized by a pledge of shares
of, and intercompany loans to, certain subsidiaries of the Company.
During 1999, the Company declared a 2.0% stock dividend which resulted in a
subsequent distribution of 483,621 shares of Class A Common Stock and 115,081
shares of Class B Common Stock. As a result of the stock dividend, additional
paid-in capital increased $9.2 million, treasury stock decreased $0.1 million
and retained earnings decreased $9.3 million.
A cash dividend of $.105 per share was declared in the first quarter of 1998.
During the remainder of 1998, the Company declared two 0.5% stock dividends and
one 2.0% stock dividend which resulted in a subsequent distribution of 706,900
shares of Class A Common Stock and 169,719 shares of Class B Common Stock. As a
result of the stock dividends, additional paid-in capital increased
$16.4 million, treasury stock decreased $2.6 million and retained earnings
decreased $19.0 million.
All references in the accompanying financial statements to the weighted average
number of common shares and per-share amounts have been restated to reflect the
stock dividends.
YEAR 2000
In 1997, the Company began a program to assess, test and remedy its computer and
manufacturing systems to assure that these systems will properly recognize the
year 2000 and therefore substantially eliminate the risk of date-related
computer shutdowns. Total external expenditures related to the year 2000 program
were approximately $1.0 million with $0.3 million paid for consultants,
$0.5 million for hardware and $0.2 million for software. Subsequent to
December 31, 1999, the Company has not experienced any significant disruptions
attributed to the year 2000 issue.
EURO
Effective January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency ("euro"). Since the Company does business in
these member countries, issues involved with the introduction of the euro
continue to be addressed. These issues include the conversion of
40
<PAGE>
data processing systems, assessing currency risk and the impact on the Company's
marketing strategy in Europe.
MARKET RISK SENSITIVITY
The Company has market risk with respect to foreign currency exchange rates and
interest rates. The market risk is the potential loss arising from adverse
changes in these rates as discussed below.
The Company has manufacturing plants in 15 countries and sales worldwide and
therefore is subject to foreign currency risk. This risk is composed of both
potential losses from the translation of foreign currency financial statements
and the remeasurement of foreign currency transactions. To manage this risk, the
Company periodically enters into forward exchange contracts to either hedge the
net assets of a foreign investment or to provide an economic hedge against
future cash flows (see Note 6 for further information regarding these
contracts). The total net assets of foreign operations and foreign currency,
long-term intercompany loans subject to potential loss amount to
$555.9 million. The potential loss in fair value resulting from a hypothetical
10% adverse change in quoted foreign currency exchange rates amounts to
$55.6 million. Furthermore, related to foreign currency transactions, the same
10% change would cause an additional loss of $4.9 million. Actual results may
differ.
As discussed above, the Company's current debt structure is mostly
floating-rate. The Company also periodically enters into futures contracts to
hedge in the short-term against interest rate fluctuations (see Note 6 for
further information regarding these contracts). At December 31, 1999, the fair
value of the Company's long-term debt is estimated to be the carrying value as
the significant components are variable rate debt. Therefore, a hypothetical 50
basis point decrease in interest rates should not change the fair value of debt.
FORWARD-LOOKING STATEMENTS
This annual report contains "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. These statements include
statements about such matters as global restructuring, estimated impact of
actions upon future earnings, annual cost savings, industry trends, capital
expenditures, income tax rate, operating efficiency and profitability. Actual
future events and circumstances (including future performance, results and
trends) could differ materially from those set forth in such statements due to
various factors. These factors include even more competitive marketing
conditions resulting from customer consolidations, possible softening of
customer demand, unanticipated events or circumstances related to recently
acquired businesses, the occurrence of unanticipated events or difficulties
relating to divestiture, joint venture, operating, capital, global integration
and other projects, changes in currency exchange rates, changes in general
economic and competitive conditions, technological developments, and other risks
and uncertainties, including those detailed in the Company's filings with the
Securities and Exchange Commission.
41
<PAGE>
ELEVEN YEAR SUMMARY
ALBANY INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 778,366 $722,653 $710,079 $692,760
Cost of goods sold 458,930 417,375 404,982 399,311
Operating income (1),(2),(6) 76,987 70,608 99,619 96,785
Interest expense, net 25,552 19,310 15,467 15,833
Income before income taxes 51,916 51,704 79,631 80,940
Income taxes 22,325 20,163 31,055 31,570
Income before associated companies 29,591 31,541 48,576 49,370
Net income/(loss) (3),(5),(7) 30,222 31,772 49,059 48,306
Net income/(loss) per share 1.00 1.02 1.52 1.51
Diluted net income/(loss) per share 0.99 1.01 1.50 1.50
Average number of shares outstanding 30,340 31,073 32,312 31,907
Capital expenditures 34,953 38,825 50,804 53,473
Cash dividends declared -- 3,140 12,921 12,159
Per Class A common share -- 0.105 0.42 0.40
Per Class B common share -- 0.105 0.42 0.40
FINANCIAL POSITION
Current assets $ 508,073 $409,713 $373,323 $384,627
Current liabilities 176,964 220,038 170,440 176,746
Current ratio 2.9 1.9 2.2 2.2
Property, plant and equipment, net 435,172 325,109 321,611 339,461
Total assets 1,206,842 866,366 796,897 831,917
Long-term debt 521,257 181,137 173,654 187,100
Shareholders' equity 325,407 314,850 343,108 332,330
Per share 10.68 10.42 10.63 10.38
Total capital (4) 889,677 613,993 594,560 586,890
Total debt to total capital 63.4% 48.7% 42.3% 43.4%
Return on shareholders' equity 9.3% 10.1% 14.3% 14.5%
NUMBER OF EMPLOYEES 7,164 6,011 5,881 5,854
</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) 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.
(4) 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.
42
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$652,645 $567,583 $546,120 $561,084 $557,218 $556,104 $505,474
379,696 338,991 345,468 366,756 359,184 358,697 299,287
88,827 62,821 40,051 18,893 44,488 31,661 67,627
20,009 16,820 16,115 18,829 20,090 18,450 19,857
69,842 41,677 24,566 3,282 19,752 14,421 76,272
27,208 17,921 9,679 1,247 10,803 7,538 33,487
42,634 23,756 14,887 2,035 8,949 6,883 42,785
43,011 23,882 15,003 (3,114) 10,794 8,269 44,896
1.36 0.76 0.54 (0.12) 0.40 0.31 1.68
1.29 0.76 0.53 (0.12) 0.40 0.31 1.68
31,737 31,476 28,035 26,858 26,707 26,599 26,699
41,921 36,322 30,940 20,219 40,067 110,729 82,252
11,708 10,488 9,361 8,950 8,903 7,518 5,775
0.3875 0.35 0.35 0.35 0.35 0.3500 0.3125
0.3875 0.35 0.35 0.35 0.35 0.1313 --
$364,207 $319,947 $270,034 $256,422 $259,917 $277,622 $246,144
126,945 115,863 101,069 112,955 106,220 106,904 100,810
2.9 2.8 2.7 2.3 2.4 2.6 2.4
342,150 320,719 302,829 308,618 362,456 365,558 260,907
802,232 727,157 661,314 652,745 680,706 708,212 569,968
245,265 232,767 208,620 239,732 250,423 262,042 145,493
304,942 274,632 247,223 193,975 247,231 245,004 240,285
9.57 8.70 7.87 7.20 9.23 9.20 8.87
567,460 525,119 467,320 456,773 551,240 574,977 452,567
46.3% 47.7% 47.1% 57.5% 48.2% 49.3% 38.8%
14.1% 8.7% 6.1% (1.6%) 4.4% 3.4% 18.7%
5,658 5,404 5,286 5,678 5,726 6,144 6,090
</TABLE>
(5) 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.
(6) 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.
(7) In 1996, the Company recorded a one-time, extraordinary, non-cash
charge to income of $1,296,000, net of tax of $828,000, related
to the redemption of 5.25% convertible subordinated debentures.
43
<PAGE>
QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1999
- -----------------------------------------------------------------------------------------------------------
Net sales $ 181.6 $ 175.8 $ 196.6 $ 224.4
Gross profit 75.0 73.7 78.4 92.3
Net income/(loss) 11.2 9.3 10.7 (1.0)
Net income/(loss) per share .37 .31 .35 (.03)
Diluted net income/(loss) per share .37 .30 .35 (.03)
Cash dividends per share -- -- -- --
Class A Common Stock prices: (1)
High 22.25 25.0 23.0625 17.3125
Low 17.625 18.6875 14.8125 13.8125
- -----------------------------------------------------------------------------------------------------------
1998
- -----------------------------------------------------------------------------------------------------------
Net sales $ 176.2 $ 179.6 $ 176.3 $ 190.6
Gross profit 74.8 78.0 73.3 79.2
Net income/(loss) 11.1 10.6 11.1 (1.0)
Net income/(loss) per share .35 .34 .36 (.03)
Diluted net income/(loss) per share .35 .33 .36 (.03)
Cash dividends per share .105 -- -- --
Class A Common Stock prices: (1)
High 27.063 30.188 24.50 20.563
Low 20.313 23.0 17.875 16.063
- -----------------------------------------------------------------------------------------------------------
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 .34 .42 .35 .41
Diluted net income per share .34 .41 .35 .40
Cash dividends per share .105 .105 .105 .105
Class A Common Stock prices: (1)
High 24.5 24.0 27.4375 26.5625
Low 20.625 19.75 22.5 22.25
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A Common Stock prices are not restated to reflect the effect
of stock dividends.
STOCK AND SHAREHOLDERS
The Company's Class A Common Stock is traded principally on the
New York Stock Exchange. At December 31, 1999 there were
approximately 6,500 shareholders.
44
<PAGE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
<PAGE>
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Percent Percent
Direct Indirect
Ownership Ownership Jurisdiction
--------- --------- ------------
<S> <C> <C> <C>
Albany International Pty.,Ltd. 100 Australia
Nomafa Austria 100 Austria
Albany International Feltros e Telas Industriais Ltda. 100 Brazil
Albany International Canada Inc. 100 Canada
M&I Door Systems 100 Canada
Geschmay Canada, Inc. 100 Canada
AI Finance Canada, Inc. 100 Canada
Albany International (China) Co., Ltd. 100 China
Albany Fennofelt Oy AB 100 Finland
Metco Form Oy 100 Finland
Albany International Holding S.A. 100 France
Albany International S.A. 100 France
Martel Catala S.A. 100 France
Nomafa S.A.R.L. 100 France
T.I.S. S.A. 100 France
Cofpa, S.A. 100
Schieffer Tor-und Schutzsysteme GmbH 100 Germany
Albany International GmbH, Eschenbach 100 Germany
Nomafa GmbH 100 Germany
Albany International Germany One GmbH 100 Germany
Albany International Germany Two GmbH 100 Germany
Albany International Germany Three GmbH 100 Germany
Albany Germany Gmbh & Co. KG 100 Germany
Geschmay Research GmbH 100 Germany
Wurttembergische Filztuchfabrik D. Geschmay GmbH 100 Germany
AI Financial Services Company 100 Ireland
Feltrificio Veneto 100 Italy
Albany International Italia S.p.A. 100 Italy
Albany 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, 100 Mexico
S.A.de C.V.
Nomafa B.V. 100 Netherlands
Albany International B.V. 100 Netherlands
Albany Nordiskafilt AS 100 Norway
Geschmay Asia Private Limited 100 Singapore
Albany International Korea, Inc. 100 South Korea
Albany Nordiska S.A. 100 Spain
Albany Nordiskafilt Aktiebolag 100 Sweden
Nomafa Aktiebolag 100 Sweden
Albany Wallbergs AB 100 Sweden
Nordiska Industrie Produkte AG 100 Switzerland
Nomafa AG 100 Switzerland
Albany International Ltd. 100 United Kingdom
Albany International Research Co. 100 United States
Albany International Techniweave, Inc. 100 United States
Albany International Holdings One, Inc. 100 United States
Albany International Holdings Two, Inc. 100 United States
Geschmay Corp. 100 United States
Geschmay Export Corp. 100 U.S. Virgin Islands
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-23163, 33-28028, 33-33048 and 333-90069) of
Albany International Corp. of our report dated January 27, 2000 relating to the
financial statements, which appear in the Annual Report to Shareholders, which
is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 27, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Albany, New York
March 22, 2000
<PAGE>
Exhibit 24
POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of Albany International Corp., a Delaware corporation ("the
Company") which contemplates that from time to time it will file with the
Securities and Exchange Commission ("the SEC") under, or in connection with, the
provisions of the Securities Exchange Act of 1934, as amended, or rules and
regulations promulgated thereunder, reports (including, without limitation,
reports on Forms 8-K, 10-Q and 10-K), statements and other documents (such
reports, statements and other documents, together with amendments, supplements
and exhibits thereto, are collectively hereinafter referred to as "1934 Act
Reports"), hereby constitutes and appoints Francis L. McKone, Frank R. Schmeler,
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 23rd day of February, 1999.
/s/ FRANCIS L. MCKONE /s/ FRANK R. SCHMELER
- ------------------------------------- ---------------------------------
Francis L. McKone Frank R. Schmeler
Chairman of the Board and Director President and Director
(Chief Executive Officer) (Chief Operating Officer)
/s/ MICHAEL C. NAHL /s/ RICHARD A. CARLSTROM
- ------------------------------------- ---------------------------------
Michael C. Nahl Richard A. Carlstrom
Senior Vice President 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/ ERLAND E. KAILBOURNE
- -------------------------------------
Erland E. Kailbourne
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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,025
<SECURITIES> 0
<RECEIVABLES> 244,071
<ALLOWANCES> 8,768
<INVENTORY> 235,682
<CURRENT-ASSETS> 508,073
<PP&E> 783,320
<DEPRECIATION> 348,148
<TOTAL-ASSETS> 1,206,842
<CURRENT-LIABILITIES> 176,964
<BONDS> 521,257
0
0
<COMMON> 33
<OTHER-SE> 325,374
<TOTAL-LIABILITY-AND-EQUITY> 1,206,842
<SALES> 778,366
<TOTAL-REVENUES> 778,366
<CGS> 458,930
<TOTAL-COSTS> 699,308
<OTHER-EXPENSES> (481)
<LOSS-PROVISION> 2,071
<INTEREST-EXPENSE> 25,552
<INCOME-PRETAX> 51,916
<INCOME-TAX> 22,325
<INCOME-CONTINUING> 30,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,222
<EPS-BASIC> 1.00<F1>
<EPS-DILUTED> 0.99<F1>
<FN>
<F1> Earnings per share reflect the impact of a 2.0% stock dividend that was
distributed on January 12, 2000. Prior Financial Data Schedules have not been
restated to reflect this dividend.
</FN>
</TABLE>
