Other comprehensive income. Included in Accrued liabilities for 2004 is $4,565,000, which represented the fair value of the swaps at that time. The liability recorded for interest rate swaps decreased $7,084,000 in 2003 and $9,926,000 in 2004.
The swap agreements had the effect of fixing the Company’s interest rate at 7.17% on $200,000,000 of debt. The total cost of the swap agreements of $3,663,000 in 2005, $10,024,000 in 2004, and $10,440,000 in 2003 was recorded as Interest expense.
In October 2005, the Company entered into a Note Agreement and Guaranty, with the Prudential Insurance Company of America and certain other purchasers, in an aggregate principal amount of $150,000,000. The notes bear interest at a rate of 5.34% and have a maturity date of October 25, 2017, with mandatory prepayments of $50,000,000 on October 25, 2013 and October 25, 2015. At the noteholders’ election, certain prepayments may also be required in connection with certain asset dispositions or financings. The notes may not otherwise be prepaid without a premium. The Note Agreement contains customary terms, as well as affirmative covenants, negative covenants and events of default comparable to those in the Company’s current principal revolving credit facility. Most of the proceeds from this borrowing facility were applied to pay down approximately $127,000,000 under the Company’s principal revolving credit facility. The covenants under this agreement are effectively the same as under the Company’s revolving credit agreement. Based on market conditions at December 31, 2005, and the fact that most of the Company’s fixed rate debt was borrowed in the fourth quarter of 2005, the fair value of debt approximates the recorded value.
The Company had open forward exchange contracts with a total unrealized gain of $1,050,000 and $946,000 at December 31, 2005 and 2004, respectively, that were included in Accounts receivable. For all positions there is risk from the possible inability of the counterparties (major financial institutions) to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates, which may reduce the benefit of the contracts. However, for most closed forward exchange contracts, both the purchase and sale sides of the Company’s exposures were with the same financial institution. The Company seeks to control risk by evaluating the credit-worthiness of counterparties and by monitoring the currency exchange and interest rate markets, hedging risks in compliance with internal guidelines and reviewing all principal economic hedging contracts with designated directors of the Company.
The Company has a program whereby it may sell a portion of its North American accounts receivable to a qualified special purpose entity (QSPE). This form of financing results in a lower current incremental cost of financing than the lowest rate on the Company’s revolving credit agreement, and it broadens the Company’s sources of financing. In exchange for the accounts receivable sold, the Company receives cash and a note. The note is subject to monthly fluctuation based on the amount of receivables sold and bears interest at variable rates. As of December 31, 2005, the interest rate was 4.90% per annum. In the event that the receivables program was terminated or sales to the QSPE discontinued, the Company would not be required to repay any amounts received, but would also not realize any cash proceeds from the collection of additional receivables sold under the program until the obligation to the third party was satisfied. Accounts receivable as reflected in the Consolidated Balance Sheets would increase as new sales were made, and, after the QSPE’s obligations to the third party were satisfied, the note receivable would decrease as sold receivables were collected. These factors would result in a decrease in reported cash flow from operations beginning in the period of termination and continuing in subsequent periods until the sold receivables were collected. The Company might need to borrow from its existing credit facilities or use available cash to make up the difference in cash generated from accounts receivable until collections from new accounts not sold under the program begin to be received.
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Financial Instruments — (Continued)
The following summarizes cash flows between the Company and the QSPE:
(in thousands, except interest rates)
| | | | 2005
| | 2004
| | 2003
|
|---|
Amounts included in the change in Accounts receivable in the Statements of Cash Flows:
| | | | | | | | | | | | | | |
| Proceeds from new securitizations | | | | $ | 411,127 | | | $ | 370,424 | | | $ | 371,957 | |
Amounts recognized in the Balance Sheets:
| | | | | | | | | | | | | | |
| Note receivable from QSPE at year end | | | | $ | 17,827 | | | $ | 18,955 | | | $ | 21,814 | |
| Interest rate on note receivable from QSPE at year end | | | | | 4.90 | % | | | 2.92 | % | | | 1.57 | % |
Amounts recognized in the Statements of Income:
| | | | | | | | | | | | | | |
| Servicing fees received, included in Other expense, net | | | | $ | 35 | | | $ | 34 | | | $ | 37 | |
| Discount expense, included in Other expense, net | | | | $ | 2,966 | | | $ | 2,566 | | | $ | 1,848 | |
The unconsolidated subsidiary receives cash from an unrelated third party in exchange for an undivided ownership interest in the accounts receivable. As of December 31, 2005, the unconsolidated subsidiary had assets of $18,920,000, consisting primarily of $65,932,000 of accounts receivables sold to it by the Company, net of $45,583,000 interest sold to the unrelated third party, and an allowance for doubtful accounts. As of December 31, 2005, the liabilities of the unconsolidated subsidiary were $17,884,000 consisting principally of the note payable to the Company, and equity was $1,036,000.
7. Commitments and Contingencies
Principal leases are for machinery and equipment, vehicles, and real property. Certain leases contain renewal and purchase option provisions at fair values. There were no significant capital leases during 2005. Total rental expense amounted to $15,970,000, $15,619,000, and $19,032,000 for 2005, 2004, and 2003, respectively.
Future rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year, as of December 31, 2005 are: 2006, $13,043,000, 2007; $10,612,000, 2008; $5,629,000, 2009; $2,422,000, 2010; $883,000, and thereafter, $137,000.
In January 2006, the Company announced the acquisition of Texas Composite Inc. (TCI) for approximately $15 million in cash. TCI is a designer and manufacturer of lightweight, high-strength composite structures for aerospace applications and will be a component of the Applied Technologies segment. The acquisition is expected to be completed in two steps, the first step was in January 2006 and the second is expected to occur by the end of 2006. TCI will be consolidated into the Company’s results beginning with the first quarter of 2006.
Albany International Corp. (“Albany”) is a defendant in suits brought in various courts in the United States by plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing products previously manufactured by Albany. Albany’s production of asbestos-containing paper machine clothing products was limited to certain synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics generally had a useful life of three to twelve months.
Albany was defending against 20,023 claims as of February 10, 2006. This compares with 24,451 such claims as of December 31, 2005, 24,406 claims as of October 21, 2005, 29,411 claims as of December 31, 2004, 28,838 claims as of December 31, 2003, 22,593 claims as of December 31, 2002, 7,347 claims as of December 31, 2001, 1,997 claims as of December 31, 2000, and 2,276 claims as of December 31, 1999. These suits allege a variety of lung and other diseases based on alleged exposure to products previously manufactured by Albany.
Albany anticipates that additional claims will be filed against it and the related companies in the future but is unable to predict the number and timing of such future claims. These suits typically involve claims against from twenty to over two hundred defendants, and the complaints usually fail to identify the plaintiffs’ work history or
69
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Commitments and Contingencies — (Continued)
the nature of the plaintiffs’ alleged exposure to Albany’s products. Pleadings and discovery responses in those cases in which work histories have been provided indicate claimants with paper mill exposure in less than 10% of total claims reported; and only a portion of those claimants have alleged time spent in a paper mill to which Albany is believed to have supplied asbestos-containing products.
As of February 10, 2006, approximately 14,378 of the claims pending against Albany are filed in various counties in Mississippi. This compares to 24,314 claims as of February 11, 2005, 23,569 claims as of February 13, 2004, and approximately 18,700 claims as of February 28, 2003.
Changes during 2004 in the application of procedural rules regarding the mass joinder of numerous asbestos claims in a single proceeding against numerous defendants have resulted in the dismissal of a number of claims pending against Albany in Mississippi. As the result of a 2004 ruling of the Mississippi Supreme Court, courts in counties throughout the State began to issue orders severing the individual claims of plaintiffs in mass joinder asbestos cases. Once severed, the courts are requiring the plaintiffs to file amended complaints which include more detailed information regarding their allegations of asbestos exposure, and have begun to dismiss or transfer improperly filed cases. As a consequence, a number of plaintiffs have voluntarily dismissed their claims. As to the plaintiffs filing amended complaints, these cases are being transferred to the proper counties within Mississippi, or, in limited instances, are being removed to federal court. The Company expects more of the remaining claims pending in Mississippi to be dismissed, amended or transferred; and that the only claimants remaining in Mississippi at the conclusion of this process will be those who are residents of, or who allege exposure to asbestos in, that State, and whose amended complaints satisfy the requirement for specific information regarding their exposure claims.
The Company expects that only a portion of these remaining claimants will be able to demonstrate time spent in a paper mill to which Albany supplied asbestos-containing products during a period in which Albany’s asbestos-containing products were in use. Based on past experience, communications from certain plaintiffs’ counsel and the advice of the Company’s Mississippi counsel, the Company expects the percentage of claimants with paper mill exposure in the Mississippi proceedings to be considerably lower than the total number of claims previously asserted. However, due to the fact that the effects of the mandate of the Mississippi Supreme Court are taking time to be fully realized, the Company does not believe a meaningful estimate can be made regarding the expected reduction in claims or the range of possible loss with respect to the remaining claims.
It is the position of Albany and the other paper machine clothing defendants that there was insufficient exposure to asbestos from any paper machine clothing products to cause asbestos-related injury to any plaintiff. Furthermore, asbestos contained in Albany’s synthetic products was encapsulated in a resin-coated yarn woven into the interior of the fabric, further reducing the likelihood of fiber release. While the Company believes it has meritorious defenses to these claims, it has settled certain of these cases for amounts it considers reasonable given the facts and circumstances of each case. The Company’s insurer, Liberty Mutual, has defended each case, and funded settlements under a standard reservation of rights. As of February 10, 2006, the Company had resolved, by means of settlement or dismissal, 18,577 claims. The total cost of resolving all claims was $6,426,000. Of this amount, $6,391,000, or 99%, was paid by the Company’s insurance carrier. The Company has more than $130 million in confirmed insurance coverage that should be available with respect to current and future asbestos claims, as well as additional insurance coverage that it should be able to access.
Brandon Drying Fabrics, Inc.
Brandon Drying Fabrics, Inc. (“Brandon”), a subsidiary of Geschmay Corp., is also a separate defendant in most of the asbestos cases in which Albany is named as a defendant. Brandon was defending against 9,564 claims as of February 10, 2006. This compares with 9,566 such claims as of December 31, 2005, 9,608 claims as of October 21, 2005, 9,985 claims as of December 31, 2004, 10,242 claims as of December 31, 2003, 11,802 claims as of December 31, 2002, 8,759 claims as of December 31, 2001, 3,598 claims as of December 31, 2000, and 1,887 claims as of December 31, 1999. The Company acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a
70
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Commitments and Contingencies — (Continued)
wholly-owned subsidiary of Geschmay Corp. In 1978, Brandon acquired certain assets from Abney Mills (“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon from Abney were assets of Abney’s wholly-owned subsidiary, Brandon Sales, Inc. which, among other things, had sold dryer fabrics containing asbestos made by its parent, Abney. It is believed that Abney ceased production of asbestos-containing fabrics prior to the 1978 transaction. Although Brandon manufactured and sold dryer fabrics under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Under the terms of the Assets Purchase Agreement between Brandon and Abney, Abney agreed to indemnify, defend, and hold Brandon harmless from any actions or claims on account of products manufactured by Abney 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 has since been dissolved. Nevertheless, a representative of Abney has been notified of the pendency of these actions and demand has been made that it assume the defense of these actions. Because Brandon did not manufacture asbestos-containing products, and because it does not believe that it was the legal successor to, or otherwise responsible for obligations of, Abney with respect to products manufactured by Abney, it believes it has strong defenses to the claims that have been asserted against it. In some instances, plaintiffs have voluntarily dismissed claims against it, while in others it has entered into what it considers to be reasonable settlements. As of February 10, 2006, Brandon has resolved, by means of settlement or dismissal, 7,183 claims for a total of $152,499. Brandon’s insurance carriers initially agreed to pay 88.2% of the total indemnification and defense costs related to these proceedings, subject to the standard reservation of rights. The remaining 11.8% of the costs had been borne directly by Brandon. During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and defense costs, subject to policy limits and the standard reservation of rights, and to reimburse Brandon for all indemnity and defense costs paid directly by Brandon related to these proceedings.
Mount Vernon
In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in interest” to Mount Vernon Mills (“Mount Vernon”). The Company acquired certain assets from Mount Vernon in 1993. Certain plaintiffs allege injury caused by asbestos-containing products alleged to have been sold by Mount Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company against any liability arising out of such products. The Company denies any liability for products sold by Mount Vernon prior to the acquisition of the Mount Vernon assets. Pursuant to its contractual indemnification obligations, Mount Vernon has assumed the defense of these claims. On this basis, the Company has successfully moved for dismissal in a number of actions.
While the Company does not believe, based on currently available information and for the reasons stated above, that a meaningful estimate of a range of possible loss can be made with respect to such claims, based on its understanding of the insurance policies available, how settlement amounts have been allocated to various policies, its recent settlement experience, the absence of any judgments against the Company or Brandon, the ratio of paper mill claims to total claims filed, and the defenses available, the Company currently does not anticipate any material liability relating to the resolution of the aforementioned pending proceedings in excess of existing insurance limits. Consequently, the Company currently does not anticipate, based on currently available information, that the ultimate resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results of operations or cash flows of the Company. Although the Company cannot predict the number and timing of future claims, based on the foregoing factors and the trends in claims against it to date, the Company does not anticipate that additional claims likely to be filed against it in the future will have a material adverse effect on its financial position, results of operations or cash flows. However, the Company is aware that litigation is inherently uncertain, especially when the outcome is dependent primarily on determinations of factual matters to be made by juries. The Company is also aware that numerous other defendants in asbestos cases, as well as others who claim to have knowledge and expertise on the subject, have found it difficult to anticipate the outcome of asbestos litigation, the
71
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Commitments and Contingencies — (Continued)
volume of future asbestos claims and the anticipated settlement values of those claims. For these reasons, there can be no assurance that the foregoing conclusions will not change.
Legislation has been introduced in the United States Senate that is intended to address asbestos litigation by creating a privately funded trust to provide compensation to persons injured as the result of exposure to asbestos. The Fairness In Asbestos Injury Resolution Act Of 2005 (“Fair Act”) was introduced on April 19, 2005 and approved by the Senate Judiciary Committee on May 26, 2005. If enacted into law, the Company would be required to make payments of up to $500,000 per year for up to 30 years to the privately funded, publicly administered trust fund. The payments would not be covered by any of the Company’s insurance policies. After floor debate in February 2006, a procedural vote to move the Fair Act closer to a vote failed, and its future is uncertain. A number of Senators have spoken publicly of alternative legislation. The Company cannot predict whether the Fair Act, or any asbestos legislation, will ultimately be enacted into law.
8. Other Noncurrent Liabilities
Other noncurrent liabilities consists of:
(in thousands)
| | | | 2005
| | 2004
|
|---|
| Pension liabilities | | | | $ | 54,194 | | | $ | 56,206 | |
| Postretirement benefits other than pensions | | | | | 73,233 | | | | 65,264 | |
| Deferred compensation (Note 15) | | | | | 5,681 | | | | 9,434 | |
| Other | | | | | 11,797 | | | | 16,364 | |
| | | | | $ | 144,905 | | | $ | 147,268 | |
9. Shareholders’ Equity
The Company has two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with a par value of $.001 and 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, 2005, 4,738,597 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 and November 2004, the Board authorized the purchase of 3,000,000 and 1,000,000 shares, respectively, of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be advantageous to the Company’s shareholders. The Company purchased 2,997,873 shares of its Class A Common Stock under these authorizations and remained authorized to purchase an additional 1,002,127 shares. In December 2005, the Board increased the number of shares that could be purchased to 3,500,000. No additional shares were purchased between the time of this new authorization and December 31, 2005. The Board’s action authorizes management to purchase shares from time to time, in the open market or otherwise, whenever it believes the available price makes such purchase advantageous to the Company’s shareholders. In January 2006, the Registrant purchased 663,700 shares at a cost of $36.20 per share. After this purchase was completed, management remained authorized to purchase an additional 2,836,300 shares of its Class A Common Stock.
Accrued dividends were $2,910,000 and $2,510,000 as of December 31, 2005 and 2004, respectively, and were included in Accrued liabilities.
72
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Shareholders’ Equity — (Continued)
Changes in shareholders’ equity for 2003, 2004, and 2005, were as follows:
| | | | Class A
Common Stock
| | Class B
Common Stock
| |
| | Treasury Stock
Class A
| |
|---|
(in thousands)
| | | | Shares
| | Amount
| | Shares
| | Amount
| | Additional
Paid-in
Capital
| | Shares
| | Amount
|
|---|
| Balance: January 1, 2003 | | | | | 28,983 | | | $ | 29 | | | | 5,608 | | | $ | 6 | | | $ | 255,484 | | | | 2,194 | | | $ | 45,576 | |
| Shares contributed to ESOP | | | | | 209 | | | | — | | | | — | | | | — | | | | 5,398 | | | | — | | | | — | |
| Conversion of Class B shares to Class A shares | | | | | 2,371 | | | | 3 | | | | (2,371 | ) | | | (3 | ) | | | | | | | — | | | | — | |
| Options exercised | | | | | 986 | | | | 1 | | | | — | | | | — | | | | 19,847 | | | | — | | | | — | |
| Shares issued to Directors | | | | | — | | | | — | | | | — | | | | — | | | | 5 | | | | (4 | ) | | | (86 | ) |
| Balance: December 31, 2003 | | | | | 32,549 | | | | 33 | | | | 3,237 | | | | 3 | | | | 280,734 | | | | 2,190 | | | | 45,490 | |
| Shares contributed to ESOP | | | | | 177 | | | | — | | | | — | | | | — | | | | 5,505 | | | | — | | | | — | |
| Purchase of treasury shares | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,820 | | | | 81,135 | |
| Options exercised | | | | | 451 | | | | — | | | | — | | | | — | | | | 9,756 | | | | — | | | | — | |
| Shares issued to Directors | | | | | — | | | | — | | | | — | | | | — | | | | 50 | | | | (6 | ) | | | (129 | ) |
| Balance: December 31, 2004 | | | | | 33,177 | | | | 33 | | | | 3,237 | | | | 3 | | | | 296,045 | | | | 5,004 | | | | 126,496 | |
| Shares contributed to ESOP | | | | | 157 | | | | — | | | | — | | | | — | | | | 5,357 | | | | — | | | | — | |
| Purchase of treasury shares | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 51 | | | | 1,577 | |
| Options exercised | | | | | 842 | | | | 1 | | | | — | | | | — | | | | 17,923 | | | | — | | | | — | |
| Shares issued to Directors | | | | | — | | | | — | | | | — | | | | — | | | | 47 | | | | (5 | ) | | | (109 | ) |
| Balance: December 31, 2005 | | | | | 34,176 | | | $ | 34 | | | | 3,237 | | | $ | 3 | | | $ | 319,372 | | | | 5,050 | | | $ | 127,964 | |
10. Other Expense/(Income), Net
The components of other expense/(income), net, are:
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
| Currency transactions (Note 1) | | | | $ | (2,472 | ) | | $ | 1,559 | | | $ | (8,218 | ) |
| Costs associated with sale of accounts receivable (Note 6) | | | | | 2,966 | | | | 2,566 | | | | 1,848 | |
| Investment write-off (Note 1) | | | | | — | | | | 4,000 | | | | — | |
| Debt finance fee write-off | | | | | — | | | | 874 | | | | — | |
| License fee expense, net | | | | | 992 | | | | 2,428 | | | | 1,086 | |
| Amortization of debt issuance costs and loan origination fees | | | | | 1,553 | | | | 1,099 | | | | 2,790 | |
| Other | | | | | 1,614 | | | | 1,013 | | | | 3,156 | |
| | | | | $ | 4,653 | | | $ | 13,539 | | | $ | 662 | |
73
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Income Taxes
The components of income/(loss) before income taxes and the provision for income taxes are as follows:
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
Income/(loss) before income taxes:
| | | | | | | | | | | | | | |
| U.S. | | | | $ | 19,777 | | | $ | (10,738 | ) | | $ | 2,107 | |
| Non-U.S. | | | | | 80,986 | | | | 23,067 | | | | 67,771 | |
| | | | | $ | 100,763 | | | $ | 12,329 | | | $ | 69,878 | |
Income tax provision/(benefit):
| | | | | | | | | | | | | | |
Current:
| | | | | | | | | | | | | | |
| Federal | | | | $ | 5,205 | | | $ | 1,283 | | | $ | (5,407 | ) |
| State | | | | | 1,130 | | | | 349 | | | | 375 | |
| Non-U.S. | | | | | 23,435 | | | | 10,781 | | | | 17,698 | |
| | | | | | 29,770 | | | | 12,413 | | | | 12,666 | |
Deferred:
| | | | | | | | | | | | | | |
| Federal | | | | | 4,263 | | | | (6,444 | ) | | | 1,588 | |
| State | | | | | 262 | | | | (292 | ) | | | (256 | ) |
| Non-U.S. | | | | | (4,875 | ) | | | (3,227 | ) | | | 1,722 | |
| | | | | | (350 | ) | | | (9,963 | ) | | | 3,054 | |
| Total provision for income taxes | | | | $ | 29,420 | | | $ | 2,450 | | | $ | 15,720 | |
The significant components of deferred income tax (benefit)/expense are as follows:
| Net effect of temporary differences | | | | $ | (200 | ) | | $ | (4,608 | ) | | $ | 7,427 | |
| Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates | | | | | 244 | | | | 446 | | | | 1,321 | |
| Adjustments to beginning of the year valuation allowance balance for changes in circumstances | | | | | (4,132 | ) | | | — | | | | — | |
| Net expense/(benefit) of tax loss carryforwards | | | | | 3,738 | | | | (5,801 | ) | | | (5,694 | ) |
| | | | | $ | (350 | ) | | $ | (9,963 | ) | | $ | 3,054 | |
A reconciliation of the U.S. Federal statutory tax rate to the Company’s effective tax rate is as follows:
| | | | 2005
| | 2004
| | 2003
|
|---|
| U.S. federal statutory tax rate | | | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State taxes, net of federal benefit | | | | | 0.8 | | | | 2.0 | | | | 1.5 | |
| Non-U.S. tax rates | | | | | (11.8 | ) | | | (55.0 | ) | | | (14.5 | ) |
| Repatriation of non-U.S. earnings | | | | | 4.8 | | | | 15.4 | | | | 2.2 | |
| Non-U.S. statutory tax rate changes | | | | | 0.2 | | | | 3.6 | | | | 1.9 | |
Net (reversal)/addition to valuation allowances for
non-U.S. taxes | | | | | (0.7 | ) | | | 55.9 | | | | 6.4 | |
Net favorable resolution of contingencies related to
prior years | | | | | (0.4 | ) | | | (37.4 | ) | | | (7.5 | ) |
| Nondeductible compensation | | | | | — | | | | 14.0 | | | | — | |
| Research and development and other tax credits | | | | | (1.7 | ) | | | (10.9 | ) | | | (1.4 | ) |
| Other | | | | | 3.0 | | | | (2.7 | ) | | | (1.1 | ) |
| Effective income tax rate | | | | | 29.2 | % | | | 19.9 | % | | | 22.5 | % |
74
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Income Taxes — (Continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of certain assets and liabilities for financial reporting and the amounts used for income tax expense purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| | | | U.S.
| | Non-U.S.
| |
|---|
(in thousands)
| | | | 2005
| | 2004
| | 2005
| | 2004
|
|---|
Current deferred tax assets:
| | | | | | | | | | | | | | | | | | |
| Accounts receivable | | | | $ | 84 | | | $ | 74 | | | $ | 1,621 | | | $ | 1,139 | |
| Inventories | | | | | 1,017 | | | | 3,134 | | | | — | | | | — | |
| Tax credits carryforward | | | | | 10,742 | | | | 12,714 | | | | — | | | | — | |
| Tax losses carryforward | | | | | 683 | | | | 683 | | | | — | | | | — | |
| Restructuring costs | | | | | 1,493 | | | | 2,440 | | | | — | | | | — | |
| Deferred compensation | | | | | 700 | | | | 702 | | | | — | | | | — | |
| Other | | | | | 38 | | | | 922 | | | | 5,634 | | | | 4,718 | |
| Total current deferred tax assets | | | | | 14,757 | | | | 20,669 | | | | 7,255 | | | | 5,857 | |
Noncurrent deferred tax assets:
| | | | | | | | | | | | | | | | | | |
| Sale leaseback transaction | | | | | 5 | | | | 1,276 | | | | — | | | | — | |
| Deferred compensation | | | | | 3,160 | | | | 3,651 | | | | — | | | | — | |
| Depreciation and amortization | | | | | 3,898 | | | | 2,423 | | | | — | | | | 1,261 | |
| Postretirement benefits | | | | | 33,770 | | | | 35,555 | | | | 6,228 | | | | 2,097 | |
| Tax loss carryforward | | | | | — | | | | 868 | | | | 36,209 | | | | 41,785 | |
| Impairment of investment | | | | | 1,560 | | | | 1,560 | | | | — | | | | — | |
| Derivative valuation adjustment | | | | | — | | | | 1,780 | | | | — | | | | — | |
| Other | | | | | 696 | | | | 1,945 | | | | 641 | | | | 6,102 | |
| Noncurrent deferred tax assets before valuation allowance | | | | | 43,089 | | | | 49,058 | | | | 43,078 | | | | 51,245 | |
| Less: valuation allowance | | | | | — | | | | — | | | | (10,292 | ) | | | (12,455 | ) |
| Total noncurrent deferred tax assets | | | | | 43,089 | | | | 49,058 | | | | 32,786 | | | | 38,790 | |
| Total deferred tax assets | | | | $ | 57,846 | | | $ | 69,727 | | | $ | 40,041 | | | $ | 44,647 | |
Current deferred tax liabilities:
| | | | | | | | | | | | | | | | | | |
| Inventory | | | | | — | | | | — | | | | 112 | | | | 6,146 | |
| Other | | | | | — | | | | — | | | | 4,110 | | | | 7,204 | |
| Total current deferred tax liabilities | | | | | — | | | | — | | | | 4,222 | | | | 13,350 | |
Noncurrent deferred tax liabilities:
| | | | | | | | | | | | | | | | | | |
| Difference between book and tax depreciation | | | | | — | | | | — | | | | 22,849 | | | | 27,674 | |
| Other | | | | | — | | | | — | | | | 6,655 | | | | 7,208 | |
| Total noncurrent deferred tax liabilities | | | | | — | | | | — | | | | 29,504 | | | | 34,882 | |
| Total deferred tax liabilities | | | | | — | | | | — | | | $ | 33,726 | | | $ | 48,232 | |
| Net deferred tax asset/(liability) | | | | $ | 57,846 | | | $ | 69,727 | | | $ | 6,315 | | | $ | (3,585 | ) |
Deferred income tax assets, net of valuation allowances, will be realized through the reversal of existing taxable temporary differences and future taxable income. In 2005, the Company recorded valuation allowances of $4,100,000 against deferred tax assets for non-U.S. net operating loss carryforwards. In addition, the company reversed $4,800,000 of valuation allowances established in prior years against certain other deferred tax assets. The
75
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Income Taxes — (Continued)
Company intends to maintain valuation allowances for those net operating loss carryforwards until sufficient evidence exists to support the reversal of the valuation allowance.
At December 31, 2005, the Company had available approximately $36,900,000 of net operating loss carryforwards with expiration dates ranging from one year to indefinite that may be applied against future taxable income. The Company has recorded valuation allowances of approximately $10,300,000 against the loss carryforwards. In addition, the Company had available a foreign tax credits carryforward of $6,200,000 that will begin to expire in 2012, research and development credits carryforward of $3,500,000 that will begin to expire in 2023, and alternative minimum tax credits carryforward of $1,000,000 with no expiration date.
In 2005, the statute of limitations for examining income tax returns expired in a non-US taxing jurisdiction and the Company reversed an income tax accrual that reduced the 2005 income tax provision by $1,100,000. In addition, income tax contingencies were favorably resolved in non-U.S. taxing jurisdictions, which resulted in the reversal of income tax accruals that reduced the 2005 income tax provision by $2,200,000.
In September 2005, the Company repatriated approximately $69,600,000 of foreign earnings from its subsidiaries that qualify for the provisions of the American Jobs Creation Act of 2004 (“AJCA”). The total effect on income tax expense for the amount repatriated under the provisions of the AJCA was $3,900,000. The AJCA created a one-time incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations
The Company intends to reinvest indefinitely the remaining unrepatriated foreign earnings as of December 31, 2005, of $166,000,000. The Company has not provided for U.S. income taxes on these undistributed earnings of its foreign subsidiaries because management considers such earnings to be reinvested indefinitely outside of the U.S. If the earnings were distributed, the Company may be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign tax credits. Determination of the amount of this unrecognized deferred income tax liability is not practical.
Taxes paid, net of refunds, amounted to $29,232,000 in 2005, $10,231,000 in 2004, and $18,708,000 in 2003. Income taxes payable were $10,571,000 and $16,270,000 as of December 31, 2005 and 2004, respectively.
12. Operating Segments and Geographic Data
In accordance with FAS 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 Accounting Policies (see Note 1). The Company does not allocate research costs and corporate headquarters expenses to the segments because the decision- making for the majority of these expenses does not reside within the segments.
The Company is engaged in three business segments: Paper Machine Clothing, Applied Technologies and Albany Door Systems.
The Company’s largest segment is Paper Machine Clothing, which includes paper machine clothing and process belts, which are technologically sophisticated consumable products designed, manufactured and marketed for each section of the paper machine. The design and material composition of clothing and belts can have a considerable effect on the quality of paper products produced and the efficiency of paper machines on which they are used. Paper machine clothing and belts have finite lives and must be replaced on a regular basis.
The Applied Technologies segment of the Company is comprised of a wide variety of products, including fabrics, wires and belting products for the nonwovens and pulp industries, engineered composites and structures for aerospace
76
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Operating Segments and Geographic Data — (Continued)
and other markets, specialty filtration products for wet and dry applications, industrial insulation products, high performance materials, and a patented synthetic down for the home furnishings and outerwear markets.
Albany Door Systems produces and services high-performance doors, which are primarily marketed to industrial and commercial enterprises requiring interior or external doors that either involve frequent openings or temperature or environmental contrasts between the two areas separated by the doors. High-performance doors open and close very rapidly, and may utilize electrical systems that assure automatic opening and closing under circumstances desired by customers.
As described in Note 1, in the first quarter of 2006, certain product lines were reclassified from the Paper Machine Clothing segment to the Applied Technologies segment. The tables below include the effect of the reclassification for all periods.
The following tables show data by operating segment, reconciled to consolidated totals included in the financial statements:
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
Net sales
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 732,919 | | | $ | 687,885 | | | $ | 685,391 | |
| Applied Technologies | | | | | 129,304 | | | $ | 119,144 | | | | 101,221 | |
| Albany Door Systems | | | | | 116,487 | | | | 112,773 | | | | 101,331 | |
| Consolidated total | | | | $ | 978,710 | | | $ | 919,802 | | | $ | 887,943 | |
Depreciation and amortization
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 45,075 | | | $ | 45,740 | | | $ | 47,561 | |
| Applied Technologies | | | | | 5,169 | | | | 4,871 | | | | 2,589 | |
| Albany Door Systems | | | | | 1,432 | | | | 1,507 | | | | 1,550 | |
| Corporate | | | | | 3,769 | | | | 3,097 | | | | 4,394 | |
| Consolidated total | | | | $ | 55,445 | | | $ | 55,215 | | | $ | 56,094 | |
Operating income/(loss)
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 164,986 | | | $ | 97,553 | | | $ | 141,114 | |
| Applied Technologies | | | | | 20,546 | | | | 9,774 | | | | 8,390 | |
| Albany Door Systems | | | | | 7,579 | | | | 3,516 | | | | (1,024 | ) |
| Research expense | | | | | (28,059 | ) | | | (27,436 | ) | | | (26,353 | ) |
| Unallocated expenses | | | | | (49,053 | ) | | | (42,903 | ) | | | (36,513 | ) |
| Operating income before reconciling items | | | | | 115,999 | | | | 40,504 | | | | 85,614 | |
Reconciling items:
| | | | | | | | | | | | | | |
| Interest income | | | | | 2,256 | | | | 2,150 | | | | 2,232 | |
| Interest expense | | | | | (12,839 | ) | | | (16,786 | ) | | | (17,306 | ) |
| Other expense, net | | | | | (4,653 | ) | | | (13,539 | ) | | | (662 | ) |
| Consolidated income before income taxes | | | | $ | 100,763 | | | $ | 12,329 | | | $ | 69,878 | |
Restructuring costs included in segment operating income:
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | | — | | | $ | 46,497 | | | $ | 15,908 | |
| Applied Technologies | | | | | — | | | | 6,152 | | | | 2,989 | |
| Albany Door Systems | | | | | — | | | | 1,265 | | | | 2,351 | |
| Corporate and other | | | | | — | | | | 144 | | | | 503 | |
| Consolidated total | | | | | — | | | $ | 54,058 | | | $ | 21,751 | |
77
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Operating Segments and Geographic Data — (Continued)
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
Operating assets
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 1,262,190 | | | $ | 1,372,117 | | | $ | 1,315,118 | |
| Applied Technologies | | | | | 133,222 | | | | 134,676 | | | | 127,157 | |
| Albany Door Systems | | | | | 73,019 | | | | 80,340 | | | | 80,994 | |
Reconciling items:
| | | | | | | | | | | | | | |
| Accumulated depreciation | | | | | (556,906 | ) | | | (594,594 | ) | | | (535,980 | ) |
| Deferred tax assets | | | | | 97,887 | | | | 114,374 | | | | 96,971 | |
| Investment in associated companies | | | | | 6,403 | | | | 6,456 | | | | 5,278 | |
| Other | | | | | 71,232 | | | | 42,391 | | | | 49,385 | |
| Consolidated total assets | | | | $ | 1,087,047 | | | $ | 1,155,760 | | | $ | 1,138,923 | |
Capital expenditures
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 39,843 | | | $ | 46,890 | | | $ | 42,671 | |
| Applied Technologies | | | | | 2,716 | | | | 9,474 | | | | 6,911 | |
| Albany Door Systems | | | | | 634 | | | | 609 | | | | 2,080 | |
| Corporate | | | | | 100 | | | | 156 | | | | 187 | |
| Consolidated total | | | | $ | 43,293 | | | $ | 57,129 | | | $ | 51,849 | |
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.
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
Net sales
| | | | | | | | | | | | | | |
| United States | | | | $ | 348,244 | | | $ | 309,517 | | | $ | 311,254 | |
| Canada | | | | | 73,628 | | | | 67,834 | | | | 62,721 | |
| Sweden | | | | | 85,528 | | | | 86,691 | | | | 78,659 | |
| Germany | | | | | 99,090 | | | | 115,288 | | | | 118,733 | |
| France | | | | | 76,677 | | | | 72,891 | | | | 65,612 | |
| Other countries | | | | | 295,543 | | | | 267,581 | | | | 250,964 | |
| Consolidated total | | | | $ | 978,710 | | | $ | 919,802 | | | $ | 887,943 | |
Property, plant and equipment, at cost, net
| | | | | | | | | | | | | | |
| United States | | | | $ | 88,548 | | | $ | 82,914 | | | $ | 102,262 | |
| Canada | | | | | 28,449 | | | | 24,498 | | | | 15,993 | |
| Sweden | | | | | 49,366 | | | | 62,734 | | | | 52,767 | |
| Germany | | | | | 49,341 | | | | 59,342 | | | | 60,258 | |
| France | | | | | 31,527 | | | | 35,906 | | | | 29,179 | |
| Other countries | | | | | 88,215 | | | | 112,776 | | | | 109,821 | |
| Consolidated total | | | | $ | 335,446 | | | $ | 378,170 | | | $ | 370,280 | |
78
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans
In December 2003, the FASB issued FAS No. 132 (Revised), “Employers’ Disclosures About Pensions and Other Postretirement Benefits — an Amendment of FAS No. 87, 88 and 106 and a revision of FAS No. 132”. This Statement required expanded disclosures about these benefit plans. As permitted by this Statement, pension plan data for U.S. and non-U.S. plans has been combined for both 2005 and 2004, except where indicated below.
Pension Plans
The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The U.S. qualified defined benefit pension plan has been closed to new participants since October 1998. The eligibility and benefit formula for plans outside of the U.S. vary by location.
Other Postretirement Benefits
In addition to providing pension benefits, the Company provides various medical, dental and life insurance benefits for certain retired United States employees. Substantially all of the Company’s U.S. employees may become eligible for these benefits if they reach normal retirement age while working for the Company. Benefits provided under this plan are subject to change. Retirees share in the cost of these benefits. Effective January 1, 2005, any new employees who wish to be covered under this plan will be responsible for the full cost of such 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 Company’s pension and postretirement benefit costs and benefit obligations are based on actuarial valuations that are affected by many assumptions, the most significant of which are the assumed discount rate, expected rate of return on pension plan assets, and mortality. Each of the assumptions is reviewed and updated annually, as appropriate.
The assumed discount rate is based on yields from a portfolio of currently-available high-quality fixed income investments with durations matching the expected future payments, based on the demographics of the plan participants and the plan provisions.
At September 30, 2005, the measurement date for the pension plans, the largest portion of pension plan assets (45% for the U.S. plan and 72% for non-U.S. plans) was invested in equities. The assumed rates of return are determined for each major asset category based on historical rates of return for assets in that category and expectations of future rates of return based, in part, on simulated future capital market performance.
The Company uses the 1983 Group Annuity Mortality Table updated to 1993 as its mortality assumption for the U.S. pension plan (the Company’s largest plan). The Company has studied its actual mortality data for a recent six year period and found it to be consistent with that mortality table.
Gains and losses arise from changes in the assumptions used to measure the benefit obligations, and experience different from what had been assumed, including asset returns different than what had been expected. The Company amortizes gains and losses in excess of a “corridor” over the average future service of the plan’s current participants (11 years for the U.S. pension plan). The corridor is defined as 10% of the greater of the plan’s projected benefit obligation or market-related value of plan assets. The market-related value of plan assets is also used to determine the expected return on plan assets component of net periodic cost. The Company’s market-related value for its U.S. plan is measured by first determining the absolute difference between the actual and the expected return on the plan assets. The absolute difference in excess of 5% of the expected return is added to the market-related value over two years; the remainder is added to the market-related value immediately.
To the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the amount recognized through accumulated other comprehensive income, are not reduced by future favorable plan experience, they will be recognized as a component of the net periodic cost in future years. The Company’s
79
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
unrecognized net loss is primarily attributable to recent declines in interest rates, which has a corresponding effect on the discount rate, and unfavorable investment returns during 2000–2002.
The Company has classified $26,533,000 of its accrued pension liability as a current liability at December 31, 2005, reflecting amounts expected to be funded within the next year. Contributions during 2005 totaled $16,937,000. For U.S. pension funding purposes, the Company uses the plan’s IRS-basis current liability as its funding target, which is determined based on mandated assumptions. As of January 1, 2005, the most recent valuation date, the U.S. Plan was 96% funded on this basis. Although no pension funding is currently required, the Company intends to voluntarily contribute $20,000,000 to the U.S. plan in 2006. Weak investment returns and low interest rates, could result in higher equal or greater contributions to the pension plans in future years. In addition, proposed U.S. pension funding reforms, if enacted, could impact the amount and timing of future contributions.
The following table sets forth the plan benefit obligations:
| | | | As of December 31, 2005
| | As of December 31, 2004
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other Benefits
| | Pension Plans
| | Other Benefits
|
|---|
| Benefit obligation, beginning of year | | | | $ | 349,316 | | | $ | 131,376 | | | $ | 298,777 | | | $ | 116,092 | |
| Service cost | | | | | 6,241 | | | | 3,776 | | | | 8,135 | | | | 3,180 | |
| Interest cost | | | | | 18,795 | | | | 7,997 | | | | 18,648 | | | | 7,289 | |
| Plan participants’ contributions | | | | | 465 | | | | 1,097 | | | | 1,068 | | | | 1,099 | |
| Plan amendments | | | | | 226 | | | | (46,254 | ) | | | — | | | | — | |
| Actuarial loss | | | | | 28,494 | | | | 21,869 | | | | 8,155 | | | | 12,459 | |
| Liabilities for plans not previously included | | | | | 6,965 | | | | — | | | | 26,270 | | | | — | |
| Curtailments | | | | | — | | | | — | | | | (7,299 | ) | | | — | |
| Settlements | | | | | (34,401 | ) | | | — | | | | — | | | | — | |
| Special termination benefits | | | | | — | | | | — | | | | 785 | | | | — | |
| Benefits paid | | | | | (16,891 | ) | | | (9,492 | ) | | | (17,555 | ) | | | (8,743 | ) |
| Foreign currency changes | | | | | (13,383 | ) | | | — | | | | 12,332 | | | | — | |
| Benefit obligation, end of year | | | | $ | 345,828 | | | $ | 110,370 | | | $ | 349,316 | | | $ | 131,376 | |
| |
| Accumulated benefit obligation | | | | $ | 310,942 | | | | — | | | $ | 318,648 | | | | — | |
| |
Weighted average assumptions used to determine benefit obligations, end of year:
| | | | | | | | | | | | | | | | | | |
| Discount rate | | | | | 5.32 | % | | | 5.70 | % | | | 5.69 | % | | | 5.75 | % |
| Weighted average rate of compensation increase | | | | | 3.44 | % | | | 3.50 | % | | | 3.44 | % | | | 3.50 | % |
The Company uses a measurement date of September 30 for its pension plans and December 31 for its postretirement benefit plan.
An 11% annual rate of increase in the per capita cost of covered medical and prescription drug benefits was assumed for 2006. The rate is assumed to decrease 1% per year until reaching 5% for 2012, then remaining at that level thereafter.
80
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effect:
(in thousands)
| | | | 1 percentage
point increase
| | 1 percentage
point decrease
|
|---|
| Effect on postretirement benefit obligation | | | | $ | 14,536 | | | $ | (11,873 | ) |
In May 2004, the Financial Accounting Standards Board (FASB) issued Staff Position No. FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the ”Act“).” The Act introduced a prescription drug benefit under Medicare and also provides that a non-taxable government subsidy will be paid to sponsors of postretirement benefit plans. The Company adopted FSP 106-2 prospectively from July 1, 2004.
In the third quarter of 2005, the Company made several modifications to its Other Benefits program, including increases in the cost sharing provisions and increases in the monthly contribution of plan participants. As a result of these changes, the Company performed a remeasurement of the plan liabilities as of September 30, 2005. The modifications to the plan reduced the accumulated postretirement benefit obligation by $46,254,000.
The following sets forth information about plan assets:
| | | | As of December 31, 2005
| | As of December 31, 2004
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other Benefits
| | Pension Plans
| | Other Benefits
|
|---|
| Fair value of plan assets, beginning of year | | | | $ | 238,604 | | | | — | | | $ | 184,770 | | | | — | |
| Actual return on plan assets, net of expenses | | | | | 30,653 | | | | — | | | | 19,229 | | | | — | |
| Assets related to plans not previously included | | | | | — | | | | — | | | | 16,041 | | | | — | |
| Settlements | | | | | (34,401 | ) | | | — | | | | — | | | | — | |
| Employer contributions | | | | | 16,937 | | | | 8,395 | | | | 28,609 | | | | 7,644 | |
| Plan participants’ contributions | | | | | 465 | | | | 1,097 | | | | 1,068 | | | | 1,099 | |
| Benefits paid | | | | | (16,801 | ) | | | (9,492 | ) | | | (17,384 | ) | | | (8,743 | ) |
| Management expenses | | | | | (90 | ) | | | — | | | | (171 | ) | | | — | |
| Foreign currency changes | | | | | (5,000 | ) | | | — | | | | 6,442 | | | | — | |
| Fair value of plan assets, end of year | | | | $ | 230,368 | | | | — | | | $ | 238,604 | | | | — | |
81
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
The funded status of the plans, reconciled to the amount on the Consolidated Balance Sheet, was as follows:
| | | | As of December 31, 2005
| | As of December 31, 2004
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other Benefits
| | Pension Plans
| | Other Benefits
|
|---|
| Fair value of plan assets | | | | $ | 230,368 | | | $ | — | | | $ | 238,604 | | | $ | — | |
| Benefit obligation | | | | | (345,828 | ) | | | (110,370 | ) | | | (349,316 | ) | | | (131,376 | ) |
| Funded status | | | | | (115,460 | ) | | | (110,370 | ) | | | (110,712 | ) | | | (131,376 | ) |
Amounts not yet recognized:
| | | | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss | | | | | 98,089 | | | | 82,385 | | | | 90,058 | | | | 65,036 | |
| Unrecognized net transition obligation | | | | | 162 | | | | — | | | | 127 | | | | — | |
| Unrecognized prior service cost (credit) | | | | | 6,500 | | | | (50,974 | ) | | | 7,292 | | | | (6,568 | ) |
| Fourth quarter contributions | | | | | 3,167 | | | | — | | | | 2,058 | | | | — | |
| Accrued benefit cost, end of year | | | | $ | (7,542 | ) | | $ | (78,959 | ) | | $ | (11,177 | ) | | $ | (72,908 | ) |
| |
Amounts recognized in the statement of financial position consist of the following:
| | | | | | | | | | | | | | | | | | |
| Prepaid benefit cost | | | | $ | 2,255 | | | $ | — | | | $ | 2,482 | | | $ | — | |
| Accrued benefit cost | | | | | (80,727 | ) | | | (78,959 | ) | | | (83,899 | ) | | | (72,908 | ) |
| Intangible asset | | | | | 6,662 | | | | — | | | | 7,419 | | | | — | |
| Accumulated other comprehensive income before tax | | | | | 64,268 | | | | — | | | | 62,821 | | | | — | |
| Net amount recognized | | | | $ | (7,542 | ) | | $ | (78,959 | ) | | $ | (11,177 | ) | | $ | (72,908 | ) |
82
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
The composition of the net periodic benefit plan cost for the years ended December 31, 2005, 2004, and 2003, was as follows:
| | | | Pension Plans
| | Other Benefits
| |
|---|
(in thousands)
| | | | 2005
| | 2004
| | 2003
| | 2005
| | 2004
| | 2003
|
|---|
Components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | | | $ | 6,241 | | | $ | 8,135 | | | $ | 6,473 | | | $ | 3,776 | | | $ | 3,180 | | | $ | 2,794 | |
| Interest cost | | | | | 18,795 | | | | 18,648 | | | | 16,575 | | | | 7,997 | | | | 7,289 | | | | 6,743 | |
| Expected return on assets | | | | | (16,875 | ) | | | (14,984 | ) | | | (12,491 | ) | | | — | | | | — | | | | — | |
| Amortization of prior service cost (credit) | | | | | 1,046 | | | | 979 | | | | 972 | | | | (1,848 | ) | | | (947 | ) | | | (947 | ) |
| Amortization of transition obligation | | | | | 32 | | | | 110 | | | | 78 | | | | — | | | | — | | | | — | |
| Amortization of net actuarial loss | | | | | 5,533 | | | | 5,831 | | | | 3,338 | | | | 4,520 | | | | 3,178 | | | | 1,943 | |
| Settlement | | | | | 1,003 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Curtailment gain | | | | | — | | | | (347 | ) | | | — | | | | — | | | | — | | | | — | |
| Net periodic benefit cost | | | | $ | 15,776 | | | $ | 18,372 | | | $ | 14,945 | | | $ | 14,445 | | | $ | 12,700 | | | $ | 10,533 | |
| Special termination benefits | | | | | — | | | $ | 785 | | | | — | | | | — | | | | — | | | | — | |
Weighted average assumptions use to determine net cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate — U.S. Plans | | | | | 5.75 | % | | | 6.00 | % | | | 6.75 | % | | | 5.63 | % | | | 6.00 | % | | | 6.75 | % |
| Discount rate — non U.S. Plans | | | | | 4.79 | % | | | 5.61 | % | | | 5.62 | % | | | — | | | | — | | | | — | |
| Expected return on plan assets — U.S. Plans | | | | | 8.50 | % | | | 8.50 | % | | | 8.50 | % | | | — | | | | — | | | | — | |
| Expected return on plan assets — non-U.S. Plans | | | | | 7.04 | % | | | 6.52 | % | | | 6.33 | % | | | — | | | | — | | | | — | |
| Rate of compensation increase — U.S. Plans | | | | | 3.50 | % | | | 3.50 | % | | | 3.50 | % | | | 3.50 | % | | | 3.50 | % | | | 4.50 | % |
| Rate of compensation increase — non-U.S. Plans | | | | | 3.36 | % | | | 3.37 | % | | | 3.27 | % | | | — | | | | — | | | | — | |
The expected rate of return on plan assets is based on the targeted plan asset allocation and historical returns of various investments.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one-percentage point change in the assumed health care cost trend rates would have had the following effect:
(in thousands)
| | | | 1 percentage
point increase
| | 1 percentage
point decrease
|
|---|
| Effect on total of service and interest cost | | | | $ | 2,263 | | | $ | (1,786 | ) |
The asset allocation for the Company’s U.S. and non-U.S. pension plans as of September 30, 2005 and 2004, and target allocation for 2006, by asset category, are as follows:
| | | | United States Plan
| | Non-U.S. Plans
| |
|---|
| | | |
| | Percentage of plan assets
at plan measurement date
| |
| | Percentage of plan assets
at plan measurement date
| |
|---|
Asset category
| | | | Target
Allocation
2006
| | 2005
| | 2004
| | Target
Allocation
2006
| | 2005
| | 2004
|
|---|
| Fixed income | | | | | 10 | % | | | 6 | % | | | 13 | % | | | 20 | % | | | 20 | % | | | 41 | % |
| Equities | | | | | 45 | % | | | 49 | % | | | 52 | % | | | 72 | % | | | 72 | % | | | 55 | % |
| Real Estate | | | | | 8 | % | | | 6 | % | | | 5 | % | | | 3 | % | | | 3 | % | | | 1 | % |
| Cash | | | | | — | | | | 7 | % | | | 2 | % | | | 5 | % | | | 5 | % | | | 3 | % |
| Other (1) | | | | | 37 | % | | | 32 | % | | | 28 | % | | | — | | | | — | | | | — | |
| | | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| (1) | | Includes hedged equity and absolute return strategies, and private equity |
83
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
The targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset classes, and an analysis of the expected rate of return, risk, and other investment characteristics of various investment asset classes.
At the end of 2005 and 2004, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets were as follows:
| | | | Projected benefit obligation
exceeds plan assets
| | Accumulated benefit obligation
exceeds plan assets
| |
|---|
(in thousands)
| | | | 2005
| | 2004
| | 2005
| | 2004
|
|---|
| Projected benefit obligation | | | | $ | 330,864 | | | $ | 301,706 | | | $ | 330,864 | | | $ | 301,706 | |
| Accumulated benefit obligation | | | | | 297,368 | | | | 272,178 | | | | 297,368 | | | | 272,178 | |
| Fair value of plan assets | | | | | 214,004 | | | | 189,470 | | | | 214,004 | | | | 189,470 | |
84
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
Information about expected cash flows for the pension and other benefit obligations, including the expected government subsidy, are as follows:
(in thousands)
| | | | Pension
plans
| | Other
benefits
before
subsidy
| | Other benefits
government
subsidy
|
|---|
| Expected employer contributions in the next fiscal year | | | | $ | 26,533 | | | $ | 5,726 | | | $ | 666 | |
Expected benefit payments
| | | | | | | | | | | | | | |
| 2006 | | | | $ | 17,255 | | | $ | 5,726 | | | $ | 666 | |
| 2007 | | | | | 16,445 | | | | 6,150 | | | | 740 | |
| 2008 | | | | | 17,316 | | | | 6,458 | | | | 828 | |
| 2009 | | | | | 16,968 | | | | 6,741 | | | | 919 | |
| 2010 | | | | | 17,448 | | | | 7,077 | | | | 998 | |
| 2011–2015 | | | | | 100,066 | | | | 40,345 | | | | 6,090 | |
The change in minimum liability of the U.S. pension plans resulted in a pre-tax charge to Other comprehensive income in the amount of $1,448,000 in 2005 and $70,000 in 2004.
14. Translation Adjustments
The Consolidated Statements of Cash Flows were affected by translation as follows:
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
| Change in cumulative translation adjustments | | | | $ | (59,494 | ) | | $ | 53,902 | | | $ | 81,787 | |
| Other noncurrent liabilities | | | | | (9,471 | ) | | | 5,002 | | | | 7,881 | |
| Deferred taxes | | | | | 1,179 | | | | 101 | | | | (382 | ) |
| Long-term debt | | | | | (40 | ) | | | 36 | | | | 128 | |
| Accounts receivable | | | | | 12,673 | | | | (11,544 | ) | | | (23,216 | ) |
| Inventories | | | | | 8,287 | | | | (8,644 | ) | | | (16,636 | ) |
| Investments in associated companies | | | | | 562 | | | | (672 | ) | | | (631 | ) |
| Property, plant and equipment, net | | | | | 27,225 | | | | (24,561 | ) | | | (39,301 | ) |
| Goodwill and intangibles | | | | | 18,882 | | | | (13,130 | ) | | | (23,843 | ) |
| Other | | | | | (9,970 | ) | | | 7,358 | | | | (1,893 | ) |
| Effect of exchange rate changes | | | | $ | (10,167 | ) | | $ | 7,848 | | | $ | (16,106 | ) |
The change in cumulative translation adjustments includes the following:
(in thousands)
| | | | 2005
| | 2004
| | 2003
|
|---|
| Translation of non-U.S. subsidiaries | | | | $ | (80,627 | ) | | $ | 52,436 | | | $ | 83,216 | |
| Gain/(loss) on long-term intercompany loans | | | | | 19,476 | | | | 498 | | | | (1,281 | ) |
| Gain/(loss) on derivative contracts designated as hedge | | | | | 1,657 | | | | 968 | | | | (148 | ) |
| Effect of exchange rate changes | | | | $ | (59,494 | ) | | $ | 53,902 | | | $ | 81,787 | |
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, under which options can no longer be granted, each provided for the granting of up to 2,000,000 shares of Class A Common Stock. The 1998 plan provides for the granting of up to 5,000,000 shares of Class A Common Stock. In addition, in 1997 the Board of Directors granted one option outside these plans for 250,000 shares of
85
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Stock Options and Incentive Plans — (Continued)
Class A Common Stock. Options are normally exercisable in five cumulative annual amounts beginning 12 months after date of grant. Option exercise prices were normally equal to and were not permitted to be less than the market value on the date of grant. The option granted by the Board in 1997 is not exercisable unless the Company’s share price reaches $48 per share and exercise 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. During 2000, the Board of Directors approved an amendment to increase the period after retirement to exercise options from 5 years to 10 years. This amendment, however, does not change the original termination date of each option. Unexercised options generally terminate twenty years after the date of grant for all plans.
There were no stock options granted during 2005, 2004 or 2003. For options granted prior to 2003, the fair value of each option granted was estimated on the grant date using the Black-Scholes option-pricing model. No adjustments were made for certain factors that are generally recognized to reduce the value of option contracts because such impact was not considered material to pro forma data. 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 were terminated. The expected life of the options was based on employee groups and ranged from 11 to 20 years. For those options, the Company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, in accounting for the stock option plans. Accordingly, no compensation cost was recognized in 2002.
In 2003, the Company adopted the prospective method under FAS No. 148. Under this method, the Company does not record expense for options granted prior to 2003 but would record expense for options granted or modified after 2002. As described in Note 1, the Company will adopt FAS No. 123R as of January 1, 2006 and, accordingly, will record compensation expense for options that were unvested as of December 31, 2005.
In accordance with FAS No. 148, the Company will continue to report the pro forma effect of not recording expense for options granted prior to 2003. Had the Company elected to adopt FAS No. 123 for its stock option plans, net income and earnings per share would have been affected by additional compensation cost as indicated by the pro forma amounts below:
(in thousands, except per share amounts)
| | | | 2005
| | 2004
| | 2003
|
|---|
| Net income, as reported | | | | $ | 71,852 | | | $ | 10,385 | | | $ | 54,055 | |
Deduct:
| | | | | | | | | | | | | | |
| Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes | | | | | 1,473 | | | | 2,402 | | | | 2,694 | |
| Net income, pro forma | | | | $ | 70,379 | | | $ | 7,983 | | | $ | 51,361 | |
Basic net income per share:
| | | | | | | | | | | | | | |
| As reported | | | | $ | 2.25 | | | $ | 0.32 | | | $ | 1.64 | |
| Pro forma | | | | | 2.20 | | | | 0.25 | | | | 1.56 | |
Diluted earnings per share:
| | | | | | | | | | | | | | |
| As reported | | | | $ | 2.22 | | | $ | 0.31 | | | $ | 1.61 | |
| Pro forma | | | | | 2.17 | | | | 0.24 | | | | 1.53 | |
86
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Stock Options and Incentive Plans — (Continued)
Activity with respect to these plans is as follows:
| | | | 2005
| | 2004
| | 2003
|
|---|
| Shares under option January 1 | | | | | 2,345,500 | | | | 2,823,630 | | | | 3,834,225 | |
| Options granted | | | | | — | | | | — | | | | — | |
| Options canceled | | | | | 50,040 | | | | 27,300 | | | | 24,460 | |
| Options exercised | | | | | 842,340 | | | | 450,830 | | | | 986,135 | |
| Shares under option at December 31 | | | | | 1,453,120 | | | | 2,345,500 | | | | 2,823,630 | |
| Options exercisable at December 31 | | | | | 1,019,420 | | | | 1,673,560 | | | | 1,846,040 | |
| Shares available for future option grants | | | | | 515,455 | | | | 463,165 | | | | 436,615 | |
The weighted average exercise price is as follows:
| | | | 2005
| | 2004
| | 2003
|
|---|
| Shares under option January 1 | | | | $ | 19.13 | | | $ | 19.01 | | | $ | 18.69 | |
| Options granted | | | | | — | | | | — | | | | — | |
| Options canceled | | | | | 19.50 | | | | 18.50 | | | | 18.15 | |
| Options exercised | | | | | 7.16 | | | | 18.39 | | | | 17.80 | |
| Shares under option December 31 | | | | | 20.26 | | | | 19.13 | | | | 19.01 | |
| Options exercisable December 31 | | | | | 18.90 | | | | 18.12 | | | | 18.28 | |
The following is a summary of the status of options outstanding at December 31, 2005:
| | | |
| | Outstanding Options
| | Exercisable Options
| |
|---|
Exercise Price Range
| | | | Number
| | Weighted
Average
Remaining
Contractual
Life
| | Weighted
Average
Exercise
Price
| | Number
| | Weighted
Average
Exercise
Price
|
|---|
| $10.56 | | | | | 99,870 | | | | 13.3 | | | $ | 10.56 | | | | 99,870 | | | $ | 10.56 | |
| $15.00–$15.69 | | | | | 99,450 | | | | 10.8 | | | | 15.51 | | | | 99,450 | | | | 15.51 | |
| $16.25–$16.75 | | | | | 59,300 | | | | 5.0 | | | | 16.48 | | | | 59,300 | | | | 16.48 | |
| $18.63–$18.75 | | | | | 62,400 | | | | 7.7 | | | | 18.73 | | | | 62,400 | | | | 18.73 | |
| $19.38 | | | | | 91,250 | | | | 10.6 | | | | 19.38 | | | | 91,250 | | | | 19.38 | |
| $19.75 | | | | | 82,200 | | | | 10.1 | | | | 19.75 | | | | 82,200 | | | | 19.75 | |
| $20.45–$20.63 | | | | | 501,100 | | | | 14.4 | | | | 20.55 | | | | 317,400 | | | | 20.53 | |
| $22.25 | | | | | 207,550 | | | | 8.7 | | | | 22.25 | | | | 207,550 | | | | 22.25 | |
| $25.56 | | | | | 250,000 | | | | 11.8 | | | | 25.56 | | | | — | | | | — | |
| | | | | | 1,453,120 | | | | 11.7 | | | $ | 20.26 | | | | 1,019,420 | | | $ | 18.90 | |
In 2005, shareholders approved the Albany International 2005 Incentive Plan. The plan provides key members of management with incentive compensation based on achieving certain performance targets. The incentive compensation award is paid out over three years, partly in cash and partly in shares of Class A Common Stock. In 2005, the Company recognized expense of $3,065,000 in connection with this plan.
In November 2003, the Company adopted a Restricted Stock Program under which certain key employees are awarded restricted stock units. The restricted stock units vest over a five-year period and are paid annually in
87
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Stock Options and Incentive Plans — (Continued)
cash based on current market prices of the Company’s stock. Employees may elect to defer receipt to a later date to the extent permitted by applicable law. The amount of compensation expense is subject to changes in the market price of the Company’s stock. The amount of compensation cost recorded was $2,253,000 in 2005 and $2,615,000 in 2004 and is included in Selling and general expenses.
The Company’s voluntary deferred compensation plans provided that a portion of certain employees’ salaries were deferred in exchange for amounts payable, upon their retirement, disability or death, during a period selected by the participants in accordance with the provisions of each plan. Voluntary withdrawals are permitted under some circumstances. The plans were terminated for active employees during 2002 and remain in effect for retired employees of the Company. The remaining Deferred compensation liability was included in the caption Other noncurrent liabilities and was $5,681,000 and $9,434,000 at December 31, 2005 and 2004, respectively. The Company’s expense for all plans was $609,000 in 2005, $928,000 in 2004, and $1,130,000 in 2003, and is included in Selling and general expenses.
The Company maintains a voluntary savings plan covering substantially all employees in the United States. The Plan, known as Prosperity Plus Savings Plan, is a qualified plan under section 401(k) of the U.S. Internal Revenue Code. Under the plan, employees may make tax-deferred contributions of 1% to 15% of their wages, subject to contribution limitations specified in the Internal Revenue Code, which was $14,000 for 2005. 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 $4,289,000 in 2005, $4,212,000 in 2004, and $4,110,000 in 2003.
The Company’s profit-sharing plan covers substantially all employees in the United States. After the close of each year, the Board of Directors determines the amount of the profit-sharing contribution and whether the contribution will be made in cash or in shares of the Company’s Class A Common Stock. Contributions are only made to current active participants in Prosperity Plus. The expense recorded for this plan was $1,481,000 in 2005, $1,765,000 in 2004, and $2,424,000 in 2003.
16. Restructuring
In January 2003, the Company announced a cost reduction initiative that was part of a continuing effort to match manufacturing capacity to the global demand for paper machine clothing. The restructuring activities associated with this program were completed in 2004. Approximately 94% of cost reductions that resulted from this program were in the Paper Machine Clothing segment; the reductions principally affected Cost of goods sold.
The cost reduction initiative resulted in restructuring charges of $54,058,000 in 2004 and $21,751,000 in 2003. The charges include plant and equipment write-downs of approximately $13,515,000 in 2004 and $12,733,000 in 2003. The majority of these restructuring costs related to the shut-down of the Company’s Paper Machine Clothing segment facilities in South Carolina, France, the Netherlands and discontinuation of dryer fabrics manufacturing at the facility in Bury, England.
88
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. Restructuring — (Continued)
Total restructuring costs incurred, by segment, for this cost reduction program were:
(in thousands)
| | | | Total restructuring
costs incurred
| | Termination and
other costs
| | Plant and equipment
write-downs
|
|---|
| Paper Machine Clothing | | | | $ | 62,405 | | | $ | 39,594 | | | $ | 22,811 | |
| Applied Technologies | | | | | 9,141 | | | | 6,688 | | | | 2,453 | |
| Albany Door Systems | | | | | 3,616 | | | | 2,632 | | | | 984 | |
| Other | | | | | 647 | | | | 647 | | | | — | |
| Total | | | | $ | 75,809 | | | $ | 49,561 | | | $ | 26,248 | |
Pursuant to this cost reduction program, the changes in restructuring accruals during 2005 and 2004 were as follows:
(in thousands)
| | | | December 31,
2004
| | Payments
| | Currency
translation/other
| | December 31,
2005
|
|---|
| Termination costs | | | | $ | 6,270 | | | $ | (3,074 | ) | | $ | (1,833 | ) | | $ | 1,363 | |
| Other restructuring costs | | | | | 646 | | | | (268 | ) | | | (288 | ) | | | 90 | |
| Total | | | | $ | 6,916 | | | $ | (3,342 | ) | | $ | (2,121 | ) | | $ | 1,453 | |
(in thousands)
| | | | January 1,
2004
| | Charged to
expense
| | Payments
| | Currency
translation/other
| | December 31,
2004
|
|---|
| Termination costs | | | | $ | 4,374 | | | $ | 36,387 | | | $ | (34,465 | ) | | $ | (26 | ) | | $ | 6,270 | |
| Other restructuring costs | | | | | 837 | | | | 2,806 | | | | (2,127 | ) | | | (870 | ) | | | 646 | |
| Total | | | | $ | 5,211 | | | $ | 39,193 | | | $ | (36,592 | ) | | $ | (896 | ) | | $ | 6,916 | |
Pursuant to restructuring initiatives announced prior to 2003, the changes in restructuring accruals during 2005 and 2004 were as follows:
(in thousands)
| | | | January 1,
2004
| | Payments
| | Currency
translation/other
| | December 31,
2005
|
|---|
| Termination costs | | | | $ | 1,781 | | | $ | (704 | ) | | $ | (34 | ) | | $ | 1,043 | |
| Lease obligations | | | | | 1,651 | | | | (302 | ) | | | (197 | ) | | | 1,152 | |
| Total | | | | $ | 3,432 | | | $ | (1,006 | ) | | $ | (231 | ) | | $ | 2,195 | |
(in thousands)
| | | | January 1,
2004
| | Payments
| | Currency
translation/other
| | December 31,
2004
|
|---|
| Termination costs | | | | $ | 2,677 | | | $ | (993 | ) | | $ | 97 | | | $ | 1,781 | |
| Plant rationalization costs | | | | | 155 | | | | — | | | | (155 | ) | | | — | |
| Lease obligations | | | | | 1,988 | | | | (1,023 | ) | | | 686 | | | | 1,651 | |
| Total | | | | $ | 4,820 | | | $ | (2,016 | ) | | $ | 628 | | | $ | 3,432 | |
As of December 31, 2005, total restructuring liabilities included $2,997,000 classified as current and $651,000 classified as noncurrent. As of December 31, 2004, total restructuring liabilities included $9,189,000 classified as current and $1,159,000 classified as noncurrent.
89
Quarterly Financial Data
(unaudited)
(in millions except per share amounts)
| | | | 1st
| | 2nd
| | 3rd
| | 4th
|
|---|
2005
| | | | | | | | | | | | | | | | | | |
| Net sales | | | | $ | 241.1 | | | $ | 247.4 | | | $ | 242.3 | | | $ | 247.9 | |
| Gross profit | | | | | 98.3 | | | | 101.2 | | | | 99.6 | | | | 92.9 | |
| Net income | | | | | 18.9 | | | | 20.4 | | | | 18.5 | | | | 14.1 | |
| Basic earnings per share | | | | | 0.60 | | | | 0.64 | | | | 0.58 | | | | 0.44 | |
| Diluted earnings per share | | | | | 0.59 | | | | 0.63 | | | | 0.57 | | | | 0.43 | |
| Cash dividends per share | | | | | 0.08 | | | | 0.08 | | | | 0.09 | | | | 0.09 | |
Class A Common Stock prices:
| | | | | | | | | | | | | | | | | | |
| High | | | | | 34.50 | | | | 33.27 | | | | 37.65 | | | | 39.21 | |
| Low | | | | | 29.80 | | | | 30.00 | | | | 32.25 | | | | 36.01 | |
| |
2004
| | | | | | | | | | | | | | | | | | |
| Net sales | | | | $ | 231.3 | | | $ | 227.2 | | | $ | 222.9 | | | $ | 238.4 | |
| Gross profit | | | | | 91.8 | | | | 88.1 | | | | 87.3 | | | | 94.9 | |
| Restructuring, net | | | | | 11.6 | | | | 31.1 | | | | 2.6 | | | | 8.8 | |
| Net income/(loss) | | | | | 3.3 | | | | (15.4 | ) | | | 10.5 | | | | 12.0 | |
| Basic earnings/(loss) per share | | | | | 0.10 | | | | (0.47 | ) | | | 0.33 | | | | 0.38 | |
| Diluted earnings/(loss) per share | | | | | 0.10 | | | | (0.47 | ) | | | 0.32 | | | | 0.38 | |
| Cash dividends per share | | | | | 0.07 | | | | 0.07 | | | | 0.08 | | | | 0.08 | |
Class A Common Stock prices:
| | | | | | | | | | | | | | | | | | |
| High | | | | | 35.00 | | | | 33.75 | | | | 33.60 | | | | 35.16 | |
| Low | | | | | 26.40 | | | | 27.20 | | | | 28.65 | | | | 28.19 | |
| |
2003
| | | | | | | | | | | | | | | | | | |
| Net sales | | | | $ | 214.7 | | | $ | 228.5 | | | $ | 213.4 | | | $ | 231.3 | |
| Gross profit | | | | | 90.3 | | | | 93.7 | | | | 86.3 | | | | 90.9 | |
| Restructuring, net | | | | | 0.8 | | | | 0.9 | | | | 14.3 | | | | 5.8 | |
| Net income | | | | | 21.0 | | | | 16.0 | | | | 6.6 | | | | 10.5 | |
| Basic earnings per share | | | | | 0.65 | | | | 0.49 | | | | 0.20 | | | | 0.32 | |
| Diluted earnings per share | | | | | 0.64 | | | | 0.48 | | | | 0.19 | | | | 0.31 | |
| Cash dividends per share | | | | | 0.055 | | | | 0.055 | | | | 0.07 | | | | 0.07 | |
Class A Common Stock prices:
| | | | | | | | | | | | | | | | | | |
| High | | | | | 23.67 | | | | 27.76 | | | | 31.82 | | | | 34.20 | |
| Low | | | | | 20.30 | | | | 22.00 | | | | 26.62 | | | | 29.46 | |
| | The Company’s Class A Common Stock is traded principally on the New York Stock Exchange.
|
| | At December 31, 2005, there were approximately 5,400 shareholders. |
90
