Indebtedness under the Note and Guaranty agreement, the convertible notes, and the revolving credit agreement is ranked equally in right of payment to all unsecured senior debt of the Company.
The Company had open forward exchange contracts with a total unrealized gain of $2,355,000 and $1,050,000 at December 31, 2006 and 2005, 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.
Prior to September 30, 2006, the Company had a program whereby it sold a portion of its North American accounts receivable to a qualified special purpose entity (QSPE). In exchange for the accounts receivable sold, the Company received cash and a note. In September 2006, the Company terminated its accounts receivable securitization program, and repurchased accounts receivable of $58,100,000, for cash and a decrease in the related note receivable. The accounts receivable repurchased were recorded at fair value and there was no gain or loss on the transaction. The Company terminated the program because the financing terms under the revolving credit agreement are more favorable than those included in the receivable sales agreement with the QSPE.
As of December 31, 2006, the QSPE had assets of $826,000 representing a note receivable from the Company, and equity of $826,000. The note carries an interest rate of 5.79%.
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 2006. Total rental expense amounted to $14,991,000, $15,970,000, and $15,619,000 for 2006, 2005, and 2004, respectively.
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
7. Commitments and Contingencies — (Continued)
Future rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year, as of December 31, 2006 are: 2007, $12,217,000; 2008, $9,625,000; 2009, $5,307,000; 2010, $2,042,000; 2011, $502,000; and thereafter, $143,000.
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 produced asbestos-containing paper machine clothing 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 19,388 claims as of February 16, 2007. This compares with 19,416 such claims as of December 31, 2006, 19,283 claims as of October 27, 2006, 24,451 claims as of December 31, 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 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 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 16, 2007, approximately 12,709 of the claims pending against Albany are pending in Mississippi, in either State or Federal courts. As the result of a Mississippi Supreme Court decision rendered in 2004, many of the cases previously filed against the Company in Mississippi State courts have already been dismissed. A large number of the remaining cases had been removed to Federal court. Thus, as of February 16, 2007, approximately 12,042 of the 12,709 claims against Albany pending in Mississippi are now in Federal court, at the multi-district litigation panel (“MDL”), either through removal or original jurisdiction.
The MDL’s current practice is to place all non-malignant claims on an inactive docket until such time as the plaintiff develops a malignant disease; in addition, the MDL has started to administratively dismiss, without prejudice, the claims of any plaintiff whose claim arose as the result of a mass-screening, and who can not otherwise demonstrate that they suffer from an asbestos-related disease. The court continues to exercise jurisdiction over the claims, and will allow the claims to be reinstated on a motion following the diagnosis of an asbestos-related disease. Because these are administrative dismissals, we do not reflect them as reducing the total number of pending claims.
Based on past experience, communications from certain plaintiffs’ counsel and the advice of the Company’s Mississippi counsel, the Company expects the percentage of Mississippi claimants 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 to be considerably lower than the total number of pending claims. However, due to the large number of inactive claims pending in the MDL, the Company does not believe a meaningful estimate can be made regarding the range of possible loss with respect to these 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
70
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
7. Commitments and Contingencies — (Continued)
case. The Company’s insurer, Liberty Mutual, has defended each case and funded settlements under a standard reservation of rights. As of February 16, 2007, the Company had resolved, by means of settlement or dismissal, 20,921 claims. The total cost of resolving all claims was $6,691,000. Of this amount, $6,656,000, or 99%, was paid by the Company’s insurance carrier. The Company has approximately $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., which is a subsidiary of the Company, is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant. Brandon was defending against 9,189 claims as of February 16, 2007. This compares with 9,114 such claims as of December 31, 2006, 8,992 claims as of October 27, 2006, 9,566 claims as of December 31, 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 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 16, 2007, Brandon has resolved, by means of settlement or dismissal, 8,363 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
71
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
7. Commitments and Contingencies — (Continued)
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 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.
8. Other Noncurrent Liabilities
Other noncurrent liabilities consists of:
(in thousands)
| | | | 2006
| | 2005
|
|---|
| Pension liabilities | | | | $ | 102,034 | | | $ | 54,194 | |
| Postretirement benefits other than pensions | | | | | 103,012 | | | | 73,233 | |
| Deferred compensation | | | | | 4,749 | | | | 5,681 | |
| Other | | | | | 9,979 | | | | 11,797 | |
| Total | | | | $ | 219,774 | | | $ | 144,905 | |
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, 2006, 4,561,977 shares of Class A Common Stock were reserved for the conversion of Class B Common Stock and the exercise of stock options.
In December 2005, the Board of Directors increased the number of shares of the Company’s Class A Common Stock that could be purchased to 3,500,000. The Company purchased a total of 3,500,000 shares of its Class A Common Stock under these authorizations during the first and second quarters of 2006.
In August 2006, the Company announced that the Board of Directors authorized management to purchase up to 2,000,000 additional shares of its Class A Common Stock. The Board’s action authorizes management to purchase shares from time to time, in the open market or otherwise, whenever it believes such purchase to be advantageous to the Company’s shareholders, and it is otherwise legally permitted to do so. The Company made no share purchases during the third and fourth quarters of 2006.
Accrued dividends were $2,919,000 and $2,910,000 as of December 31, 2006 and 2005, 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 2004, 2005, and 2006, 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, 2004 | | | | | 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 | |
| Shares contributed to ESOP | | | | | 172 | | | | 1 | | | | — | | | | — | | | | 6,215 | | | | — | | | | — | |
| Purchase of treasury shares | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,500 | | | | 131,499 | |
| Options exercised | | | | | 170 | | | | — | | | | — | | | | — | | | | 3,589 | | | | — | | | | | |
| Shares issued to Directors | | | | | — | | | | — | | | | — | | | | — | | | | 172 | | | | (9 | ) | | | (203 | ) |
| Conversion of Class B shares to Class A shares | | | | | 1 | | | | — | | | | (1 | ) | | | — | | | | — | | | | — | | | | — | |
| Stock option expense | | | | | — | | | | — | | | | — | | | | — | | | | 1,543 | | | | — | | | | — | |
| Purchase of call options on common stock | | | | | — | | | | — | | | | — | | | | — | | | | (47,688 | ) | | | — | | | | — | |
| Sale of common stock warrants | | | | | — | | | | — | | | | — | | | | — | | | | 32,961 | | | | — | | | | — | |
| Balance: December 31, 2006 | | | | | 34,519 | | | $ | 35 | | | | 3,236 | | | $ | 3 | | | $ | 316,164 | | | | 8,541 | | | $ | 259,260 | |
10. Other Expense, Net
The components of other expense, net, are:
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
| Currency transactions (Note 1) | | | | $ | (2,915 | ) | | $ | (2,472 | ) | | $ | 1,559 | |
| Costs associated with sale of accounts receivable (Note 6) | | | | | 2,245 | | | | 2,966 | | | | 2,566 | |
| Investment write-off (Note 1) | | | | | — | | | | — | | | | 4,000 | |
| Debt finance fee write-off | | | | | — | | | | — | | | | 874 | |
| License fee expense, net | | | | | 442 | | | | 992 | | | | 2,428 | |
| Amortization of debt issuance costs and loan origination fees | | | | | 2,016 | | | | 1,553 | | | | 1,099 | |
| Other | | | | | 991 | | | | 1,614 | | | | 1,013 | |
| Total | | | | $ | 2,779 | | | $ | 4,653 | | | $ | 13,539 | |
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)
| | | | 2006
| | 2005
| | 2004
|
|---|
Income/(loss) before income taxes:
| | | | | | | | | | | | | | |
| U.S. | | | | $ | 22,763 | | | $ | 19,777 | | | $ | (10,738 | ) |
| Non-U.S. | | | | | 55,562 | | | | 80,986 | | | | 23,067 | |
| | | | | $ | 78,325 | | | $ | 100,763 | | | $ | 12,329 | |
Income tax provision:
| | | | | | | | | | | | | | |
Current:
| | | | | | | | | | | | | | |
| Federal | | | | $ | 3,220 | | | $ | 5,205 | | | $ | 1,283 | |
| State | | | | | 2,070 | | | | 1,130 | | | | 349 | |
| Non-U.S. | | | | | 15,384 | | | | 23,435 | | | | 10,781 | |
| | | | | | 20,674 | | | | 29,770 | | | | 12,413 | |
Deferred:
| | | | | | | | | | | | | | |
| Federal | | | | | (3,423 | ) | | | 4,263 | | | | (6,444 | ) |
| State | | | | | 409 | | | | 262 | | | | (292 | ) |
| Non-U.S. | | | | | 2,870 | | | | (4,875 | ) | | | (3,227 | ) |
| | | | | | (144 | ) | | | (350 | ) | | | (9,963 | ) |
| Total provision for income taxes | | | | $ | 20,530 | | | $ | 29,420 | | | $ | 2,450 | |
The significant components of deferred income tax expense/(benefit) are as follows:
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
| Net effect of temporary differences | | | | $ | 17 | | | $ | (200 | ) | | $ | (4,608 | ) |
| Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates | | | | | 198 | | | | 244 | | | | 446 | |
| Adjustments to beginning-of-the-year valuation allowance balance for changes in circumstances | | | | | 1,028 | | | | (4,132 | ) | | | — | |
| Net (benefit)/expense of tax loss carryforwards | | | | | (1,387 | ) | | | 3,738 | | | | (5,801 | ) |
| Total | | | | $ | (144 | ) | | $ | (350 | ) | | $ | (9,963 | ) |
A reconciliation of the U.S. Federal statutory tax rate to the Company’s effective tax rate is as follows:
| | | | 2006
| | 2005
| | 2004
|
|---|
| U.S. federal statutory tax rate | | | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State taxes, net of federal benefit | | | | | 1.4 | | | | 0.8 | | | | 2.0 | |
| Non-U.S. tax rates | | | | | (9.1 | ) | | | (11.8 | ) | | | (55.0 | ) |
| Repatriation of non-U.S. earnings | | | | | (0.9 | ) | | | 4.8 | | | | 15.4 | |
| Statutory tax rate changes | | | | | 0.3 | | | | 0.2 | | | | 3.6 | |
Net addition/(reversal) to valuation allowances for
non-U.S. taxes | | | | | 2.6 | | | | (0.7 | ) | | | 55.9 | |
| Net addition/(reversal) for income tax contingencies | | | | | 2.5 | | | | (0.4 | ) | | | (37.4 | ) |
| Nondeductible compensation | | | | | — | | | | — | | | | 14.0 | |
| Research and development and other tax credits | | | | | (2.0 | ) | | | (1.7 | ) | | | (10.9 | ) |
| Other | | | | | (3.6 | ) | | | 3.0 | | | | (2.7 | ) |
| Effective income tax rate | | | | | 26.2 | % | | | 29.2 | % | | | 19.9 | % |
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)
| | | | 2006
| | 2005
| | 2006
| | 2005
|
|---|
Current deferred tax assets:
| | | | | | | | | | | | | | | | | | |
| Accounts receivable | | | | $ | 1,089 | | | $ | 84 | | | $ | 1,326 | | | $ | 1,621 | |
| Inventories | | | | | 898 | | | | 1,017 | | | | 1,019 | | | | — | |
| Tax losses carry-forward | | | | | 1,517 | | | | 683 | | | | — | | | | — | |
| Restructuring costs | | | | | 1,408 | | | | 1,493 | | | | — | | | | — | |
| Deferred compensation | | | | | 481 | | | | 700 | | | | — | | | | — | |
| Other | | | | | 882 | | | | 38 | | | | 7,670 | | | | 5,634 | |
| Total current deferred tax assets | | | | | 6,275 | | | | 4,015 | | | | 10,015 | | | | 7,255 | |
Noncurrent deferred tax assets:
| | | | | | | | | | | | | | | | | | |
| Deferred compensation | | | | | 3,406 | | | | 3,160 | | | | — | | | | — | |
| Depreciation and amortization | | | | | 2,504 | | | | 3,898 | | | | 686 | | | | — | |
| Post-retirement benefits | | | | | 55,423 | | | | 33,770 | | | | 12,030 | | | | 6,228 | |
| Tax loss carry-forward | | | | | 773 | | | | — | | | | 35,773 | | | | 36,209 | |
| Impairment of investment | | | | | 1,560 | | | | 1,560 | | | | — | | | | — | |
| Tax credit carryforwards | | | | | 10,454 | | | | 10,742 | | | | — | | | | — | |
| Other | | | | | 197 | | | | 701 | | | | 1,870 | | | | 641 | |
Noncurrent deferred tax assets before
valuation allowance | | | | | 74,317 | | | | 53,831 | | | | 50,359 | | | | 43,078 | |
| Less: valuation allowance | | | | | — | | | | — | | | | (12,396 | ) | | | (10,292 | ) |
| Total noncurrent deferred tax assets | | | | | 74,317 | | | | 53,831 | | | | 37,963 | | | | 32,786 | |
| Total deferred tax assets | | | | $ | 80,592 | | | $ | 57,846 | | | $ | 47,978 | | | $ | 40,041 | |
Current deferred tax liabilities:
| | | | | | | | | | | | | | | | | | |
| Inventory | | | | $ | — | | | $ | — | | | $ | 571 | | | $ | 112 | |
| Deferred Income | | | | | | | | | | | | | 2,936 | | | | 3,650 | |
| Other | | | | | — | | | | — | | | | 333 | | | | 460 | |
| Total current deferred tax liabilities | | | | | — | | | | — | | | | 3,840 | | | | 4,222 | |
Noncurrent deferred tax liabilities:
| | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | | | — | | | | — | | | | 32,888 | | | | 29,089 | |
| Post-retirement benefits | | | | | | | | | | | | | 2,358 | | | | — | |
| Other | | | | | — | | | | — | | | | 1,830 | | | | 415 | |
| Total noncurrent deferred tax liabilities | | | | | — | | | | — | | | | 37,076 | | | | 29,504 | |
| Total deferred tax liabilities | | | | | — | | | | — | | | $ | 40,916 | | | $ | 33,726 | |
| Net deferred tax asset | | | | $ | 80,592 | | | $ | 57,846 | | | $ | 7,062 | | | $ | 6,315 | |
Deferred income tax assets, net of valuation allowances, will be realized through the reversal of existing taxable temporary differences and future taxable income. In 2006, the Company recorded valuation allowances of $2,140,000 against deferred tax assets for non-U.S. net operating loss carryforwards. In addition, the company reversed $120,000 of valuation allowances established in prior years. The Company intends to maintain valuation allowances for those net operating loss carryforwards until sufficient evidence exists to support the reversal of the valuation allowance.
75
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
11. Income Taxes — (Continued)
At December 31, 2006, the Company had available approximately $38,000,000 of net operating loss carryforwards with expiration dates ranging from one year to indefinite that may be applied against future taxable income. Included in the net operating loss carryforwards is approximately $1,400,000 related to U.S. federal net operating losses. The future utilization of these losses will be limited under section 382 of the Internal Revenue Code. The Company has recorded valuation allowances of approximately $12,400,000 against the loss carryforwards and other foreign deferred tax assets. In addition, the Company had available a foreign tax credit carryforwards of $5,400,000 that will begin to expire in 2012, research and development credit carryforwards of $4,100,000 that will begin to expire in 2023 and alternative minimum tax credit carryforwards of $1,000,000 with no expiration date.
In 2006, the statute of limitations for examining income tax returns expired in a U.S. taxing jurisdiction, and the Company reversed an income tax accrual that reduced the 2006 income tax provision by $434,000. Additional income tax contingencies for non-U.S. taxing jurisdictions were recorded which increased the 2006 income tax provision by $674,000.
The Company is currently under audit in non-U.S. and U.S. taxing jurisdictions. The Company fully cooperates with all audits, but defends their positions vigorously. The audits are in various stages of completion. To provide for potential tax exposures, the Company maintains an allowance for tax contingencies, the balance of which management believes is adequate. Results of audit assessments by taxing authorities could have a material effect on the Company’s quarterly or annual cash flows, as well as the results of operations. However, management does not believe that any of these matters will have a material adverse effect on the Company’s results of operations.
The Company intends to reinvest indefinitely the remaining unrepatriated foreign earnings as of December 31, 2006 of $243,000,000. 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 $24,000,000 in 2006, $29,232,000 in 2005, and $10,231,000 in 2004. Income taxes payable were $16,259,000 and $10,571,000 as of December 31, 2006 and 2005, respectively. Income taxes receivable amounted to $7,300,000 as of December 31, 2006.
12. Reportable 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 Paper Machine Clothing segment includes paper machine clothing and process belts used in the manufacture of paper and paperboard. 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. 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 utilizes polymeric materials in a complex structure.
76
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
12. Reportable Segments and Geographic Data — (Continued)
The Applied Technologies segment includes the businesses that apply the Company’s core competencies in advanced textiles and materials to other industries including specialty materials and composite structures for aircraft and other applications (Albany Engineered Composites); fabrics, wires, and belting products for the nonwovens and pulp industries (Albany Engineered Fabrics); specialty filtration products for wet and dry applications (Albany Filtration Technologies); industrial belts for tannery, textile and corrugator applications (Albany Industrial Process Belts);and a branded synthetic insulation for home furnishings and technical outerwear (PrimaLoft®). In addition, Engineered Fabrics and the Industrial Process Belt businesses, which have similar technology platforms, merged in 2006 into one organization, with a single management, administrative and sales/service team.
Albany Door Systems manufactures, sells, and services high-speed, high-performance industrial doors. The business grew from an internal invention applying the company’s coated fabric technology to produce a rolling fabric door. Albany’s Rapid Roll® doors are produced and sold in Europe, North America, and the Pacific and there are more than 100,000 installations worldwide.
The following tables show data by operating segment, reconciled to consolidated totals included in the financial statements:
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
Net sales
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 737,070 | | | $ | 732,918 | | | $ | 687,885 | |
| Applied Technologies | | | | | 149,742 | | | | 129,303 | | | | 119,144 | |
| Albany Door Systems | | | | | 124,646 | | | | 116,489 | | | | 112,773 | |
| Consolidated total | | | | $ | 1,011,458 | | | $ | 978,710 | | | $ | 919,802 | |
Depreciation and amortization
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 48,691 | | | $ | 45,933 | | | $ | 46,434 | |
| Applied Technologies | | | | | 6,567 | | | | 5,158 | | | | 4,955 | |
| Albany Door Systems | | | | | 1,445 | | | | 1,444 | | | | 1,653 | |
| Corporate | | | | | 2,747 | | | | 2,910 | | | | 2,173 | |
| Consolidated total | | | | $ | 59,450 | | | $ | 55,445 | | | $ | 55,215 | |
Operating income/(loss)
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 138,895 | | | $ | 164,986 | | | $ | 97,553 | |
| Applied Technologies | | | | | 17,398 | | | | 20,545 | | | | 9,774 | |
| Albany Door Systems | | | | | 8,089 | | | | 7,579 | | | | 3,516 | |
| Research expense | | | | | (31,665 | ) | | | (28,059 | ) | | | (27,436 | ) |
| Unallocated expenses | | | | | (42,430 | ) | | | (49,052 | ) | | | (42,903 | ) |
| Operating income before reconciling items | | | | | 90,287 | | | | 115,999 | | | | 40,504 | |
Reconciling items:
| | | | | | | | | | | | | | |
| Interest income | | | | | 3,959 | | | | 2,256 | | | | 2,150 | |
| Interest expense | | | | | (13,142 | ) | | | (12,839 | ) | | | (16,786 | ) |
| Other expense, net | | | | | (2,779 | ) | | | (4,653 | ) | | | (13,539 | ) |
| Consolidated income before income taxes | | | | $ | 78,325 | | | $ | 100,763 | | | $ | 12,329 | |
Restructuring costs included in segment operating income:
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | — | | | $ | — | | | $ | 46,497 | |
| Applied Technologies | | | | | — | | | | — | | | | 6,152 | |
| Albany Door Systems | | | | | — | | | | — | | | | 1,265 | |
| Corporate and other | | | | | — | | | | — | | | | 144 | |
| Consolidated total | | | | $ | — | | | $ | — | | | $ | 54,058 | |
77
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
12. Reportable Segments and Geographic Data — (Continued)
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
Operating assets
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 1,453,351 | | | $ | 1,262,190 | | | $ | 1,372,117 | |
| Applied Technologies | | | | | 194,553 | | | | 133,222 | | | | 134,676 | |
| Albany Door Systems | | | | | 88,042 | | | | 73,019 | | | | 80,340 | |
Reconciling items:
| | | | | | | | | | | | | | |
| Accumulated depreciation | | | | | (633,732 | ) | | | (556,906 | ) | | | (594,594 | ) |
| Deferred tax assets | | | | | 128,570 | | | | 97,887 | | | | 114,374 | |
| Investment in associated companies | | | | | 6,634 | | | | 6,403 | | | | 6,456 | |
| Other | | | | | 69,129 | | | | 71,232 | | | | 42,391 | |
| Consolidated total assets | | | | $ | 1,306,547 | | | $ | 1,087,047 | | | $ | 1,155,760 | |
Capital expenditures
| | | | | | | | | | | | | | |
| Paper Machine Clothing | | | | $ | 73,545 | | | $ | 39,843 | | | $ | 46,890 | |
| Applied Technologies | | | | | 10,036 | | | | 2,716 | | | | 9,474 | |
| Albany Door Systems | | | | | 527 | | | | 634 | | | | 609 | |
| Corporate | | | | | 344 | | | | 100 | | | | 156 | |
| Consolidated total | | | | $ | 84,452 | | | $ | 43,293 | | | $ | 57,129 | |
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)
| | | | 2006
| | 2005
| | 2004
|
|---|
Net sales
| | | | | | | | | | | | | | |
| United States | | | | $ | 355,541 | | | $ | 348,244 | | | $ | 309,517 | |
| Canada | | | | | 71,090 | | | | 73,628 | | | | 67,834 | |
| Sweden | | | | | 101,100 | | | | 85,528 | | | | 86,691 | |
| Germany | | | | | 101,541 | | | | 99,090 | | | | 115,288 | |
| France | | | | | 74,937 | | | | 76,677 | | | | 72,891 | |
| Other countries | | | | | 307,249 | | | | 295,543 | | | | 267,581 | |
| Consolidated total | | | | $ | 1,011,458 | | | $ | 978,710 | | | $ | 919,802 | |
Property, plant and equipment, at cost, net
| | | | | | | | | | | | | | |
| United States | | | | $ | 96,153 | | | $ | 88,548 | | | $ | 82,914 | |
| Canada | | | | | 28,308 | | | | 28,449 | | | | 24,498 | |
| Sweden | | | | | 52,225 | | | | 49,366 | | | | 62,734 | |
| Germany | | | | | 48,446 | | | | 49,341 | | | | 59,342 | |
| France | | | | | 35,385 | | | | 31,527 | | | | 35,906 | |
| Other countries | | | | | 137,004 | | | | 88,215 | | | | 112,776 | |
| Consolidated total | | | | $ | 397,521 | | | $ | 335,446 | | | $ | 378,170 | |
13. Pensions and Other Postretirement Benefit Plans
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 U.S. pension plan accounts for 66% of consolidated pension plan assets, and 55% of consolidated benefit plan obligations. The eligibility, benefit formulas and contribution requirements for plans outside of the U.S. vary by location.
78
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
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.
In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (FAS No.158). FAS No. 158 requires, among other things, the recognition of the funded status of each defined benefit and other postretirement benefit plan. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The initial impact of this Standard due to unrecognized prior service costs or credits and net actuarial gains or losses, as well as subsequent changes in the funded status, is recognized as a component of accumulated comprehensive loss in shareholders’ equity. Additional minimum pension liabilities and related intangible assets were also derecognized upon adoption of FAS No. 158 in the fourth quarter of 2006. The Company’s adoption of FAS No. 158 on December 31, 2006 resulted in the following non-cash adjustments: an increase of $23,758,000 in noncurrent deferred tax assets, a decrease of $5,610,000 in intangible assets, an increase of $59,624,000 in pension liabilities, and an increase of $41,476,000 in accumulated other comprehensive losses. Pension plan data for U.S. and non-U.S. plans has been combined for both 2006 and 2005, except where indicated below.
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, 2006, the measurement date for the pension plans, the largest portion of pension plan assets (48% 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.
For the U.S. pension plan, 2006 pension expense was determined using the 1983 Group Annuity Mortality table. The benefit obligation as of September 30, 2006 was calculated using the RP-2000 Combined Healthy Mortality table projected to 2015 using Scale AA with phase-out and without collar adjustment.
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.
During 2006, the Company became aware that the postretirement benefit obligation was underacrrued by $2,100,000. The underaccrual was related to cash payments made by the Company during in 2004 and 2005 for retiree medical and life insurance benefits. The Company recorded this amount in accordance with Securities and Exchange
79
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
13. Pensions and Other Postretirement Benefit Plans — (Continued)
Commission Staff Accounting Bulletin No. 108. The adjustment had the effect of reducing 2006 net income by $1,470,000, or $0.05 per basic share. The increase in the benefit obligation is included in Actuarial losses.
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 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 through 2002.
The Company has classified $3,153,000 of its accrued pension liability as a current liability at December 31, 2006, reflecting amounts expected to be funded within the next year. Contributions during 2006 totaled $29,857,000. 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. Although no pension funding is currently required, the Company intends to voluntarily contribute $10,000,000 to the U.S. plan in 2007. Weak investment returns and low interest rates could result in equal or greater contributions to the pension plans in future years.
The following table sets forth the plan benefit obligations:
| | | | As of December 31, 2006
| | As of December 31, 2005
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other
Retirement
Benefits
| | Pension Plans
| | Other
Retirement
Benefits
|
|---|
| Benefit obligation, beginning of year | | | | $ | 345,828 | | | $ | 110,370 | | | $ | 349,316 | | | $ | 131,376 | |
| Service cost | | | | | 7,104 | | | | 2,616 | | | | 6,241 | | | | 3,776 | |
| Interest cost | | | | | 18,010 | | | | 5,838 | | | | 18,795 | | | | 7,997 | |
| Plan participants’ contributions | | | | | 968 | | | | 1,440 | | | | 465 | | | | 1,097 | |
| Plan amendments | | | | | — | | | | 4,053 | | | | 226 | | | | (46,254 | ) |
| Actuarial loss/(gain) | | | | | 9,413 | | | | (9,518 | ) | | | 28,494 | | | | 21,869 | |
Liabilities for plans not
previously included | | | | | 2,527 | | | | — | | | | 6,965 | | | | — | |
| Curtailments | | | | | (1,180 | ) | | | — | | | | — | | | | — | |
| Settlements | | | | | — | | | | — | | | | (34,401 | ) | | | — | |
| Special termination benefits | | | | | — | | | | — | | | | — | | | | — | |
| Benefits paid | | | | | (20,994 | ) | | | (6,282 | ) | | | (16,891 | ) | | | (9,492 | ) |
| Federal subsidy on benefits paid | | | | | — | | | | 609 | | | | — | | | | — | |
| Foreign currency changes | | | | | 12,672 | | | | — | | | | (13,383 | ) | | | — | |
| Benefit obligation, end of year | | | | $ | 374,348 | | | $ | 109,126 | | | $ | 345,828 | | | $ | 110,370 | |
| |
| Accumulated benefit obligation | | | | $ | 337,337 | | | | — | | | $ | 310,942 | | | | — | |
| |
Weighted average assumptions used to determine benefit obligations, end of year:
| | | | | | | | | | | | | | | | | | |
| Discount rate | | | | | 5.51 | % | | | 5.90 | % | | | 5.32 | % | | | 5.70 | % |
Weighted average rate of
compensation increase | | | | | 3.63 | % | | | 3.50 | % | | | 3.44 | % | | | 3.50 | % |
Health care cost trend rate:
| | | | | | | | | | | | | | | | | | |
| Initial rate | | | | | — | | | | 10.00 | % | | | — | | | | 11.00 | % |
| Ultimate rate | | | | | — | | | | 5.00 | % | | | — | | | | 5.00 | % |
| Years to ultimate | | | | | — | | | | 5 | | | | — | | | | 6 | |
80
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
13. Pensions and Other Postretirement Benefit Plans — (CONTINUED)
The Company uses a measurement date of September 30 for its pension plans and December 31 for its postretirement benefit plan.
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 on the Company’s postretirement benefit obligation:
| | | | December 31,
| |
|---|
(in thousands)
| | | | 2006
| | 2005
|
|---|
| 1 percentage point increase | | | | $ | 14,873 | | | $ | 14,536 | |
| 1 percentage point decrease | | | | | (12,165 | ) | | | (11,873 | ) |
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, 2006
| | As of December 31, 2005
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other
Postretirement
Benefits
| | Pension Plans
| | Other
Postretirement
Benefits
|
|---|
Fair value of plan assets, beginning
of year | | | | $ | 230,368 | | | $ | — | | | $ | 238,604 | | | $ | — | |
Actual return on plan assets, net
of expenses | | | | | 22,268 | | | | — | | | | 30,653 | | | | — | |
Assets related to plans not
previously included | | | | | 2,057 | | | | — | | | | — | | | | — | |
| Settlements | | | | | — | | | | — | | | | (34,401 | ) | | | — | |
| Employer contributions | | | | | 29,857 | | | | 4,842 | | | | 16,937 | | | | 8,395 | |
| Plan participants’ contributions | | | | | 968 | | | | 1,440 | | | | 465 | | | | 1,097 | |
| Benefits paid | | | | | (20,994 | ) | | | (6,282 | ) | | | (16,801 | ) | | | (9,492 | ) |
| Management expenses | | | | | | | | | — | | | | (90 | ) | | | — | |
| Foreign currency changes | | | | | 4,664 | | | | — | | | | (5,000 | ) | | | — | |
| Fair value of plan assets, end of year | | | | $ | 269,188 | | | $ | — | | | $ | 230,368 | | | $ | — | |
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, 2006
| | As of December 31, 2005
| |
|---|
(in thousands)
| | | | Pension Plans
| | Other
Postretirement
Benefits
| | Pension Plans
| | Other
Postretirement
Benefits
|
|---|
| Fair value of plan ass ets | | | | $ | 269,188 | | | $ | — | | | $ | 230,368 | | | $ | — | |
| Benefit obligation | | | | | 374,348 | | | | (109,127 | ) | | | (345,828 | ) | | | (110,370 | ) |
| Funded status | | | | | (105,160 | ) | | | (109,127 | ) | | | (115,460 | ) | | | (110,370 | ) |
Amounts not yet recognized:
| | | | | | | | | | | | | | | | | | |
| Unrecognized net actuarial loss | | | | | — | | | | — | | | | 98,089 | | | | 82,385 | |
| Unrecognized net transition obligation | | | | | — | | | | — | | | | 162 | | | | — | |
Unrecognized prior service
(credit)/cost | | | | | — | | | | — | | | | 6,500 | | | | (50,974 | ) |
| Fourth quarter contributions | | | | | 2,017 | | | | — | | | | 3,167 | | | | — | |
| Accrued benefit cost, end of year | | | | $ | (103,143 | ) | | $ | (109,127 | ) | | $ | (7,542 | ) | | $ | (78,959 | ) |
| |
Amounts recognized in the statement of financial position consist of the following:
| | | | | | | | | | | | | | | | | | |
| Noncurrent asset | | | | $ | 2,044 | | | $ | — | | | $ | — | | | $ | — | |
| Current liability | | | | | (3,153 | ) | | | (6,115 | ) | | | — | | | | — | |
| Noncurrent liability | | | | | (102,034 | ) | | | (103,012 | ) | | | — | | | | — | |
| Prepaid benefit cost | | | | | — | | | | — | | | | 2,255 | | | | — | |
| Accrued benefit cost | | | | | — | | | | — | | | | (80,727 | ) | | | (78,959 | ) |
| Intangible asset | | | | | — | | | | — | | | | 6,662 | | | | — | |
| Accumulated other comprehensive income before tax | | | | | — | | | | — | | | | 64,268 | | | | — | |
| Net amount recognized | | | | $ | (103,143 | ) | | $ | (109,127 | ) | | $ | (7,542 | ) | | $ | (78,959 | ) |
| |
Amounts recognized in accumulated other comprehensive income consist of:
| | | | | | | | | | | | | | | | | | |
| Net actuarial loss | | | | $ | 42,044 | | | $ | — | | | $ | 66,400 | | | $ | — | |
| Prior service cost/(credit) | | | | | 4,453 | | | | — | | | | (42,369 | ) | | | — | |
| Transition obligation | | | | | 391 | | | | — | | | | — | | | | — | |
| Net amount recognized | | | | $ | 46,888 | | | $ | — | | | $ | 24,031 | | | $ | — | |
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, 2006, 2005, and 2004, was as follows:
| | | | Pension Plans
| | Other Postretirement Benefits
| |
|---|
(in thousands)
| | | | 2006
| | 2005
| | 2004
| | 2006
| | 2005
| | 2004
|
|---|
Components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | | | $ | 7,104 | | | $ | 6,241 | | | $ | 8,135 | | | $ | 2,616 | | | $ | 3,776 | | | $ | 3,180 | |
| Interest cost | | | | | 18,010 | | | | 18,795 | | | | 18,648 | | | | 5,838 | | | | 7,997 | | | | 7,289 | |
| Expected return on assets | | | | | (17,705 | ) | | | (16,875 | ) | | | (14,984 | ) | | | — | | | | — | | | | — | |
| Amortization of prior service cost/(credit) | | | | | 941 | | | | 1,046 | | | | 979 | | | | (4,552 | ) | | | (1,848 | ) | | | (947 | ) |
| Amortization of transition obligation | | | | | 53 | | | | 32 | | | | 110 | | | | — | | | | — | | | | — | |
| Amortization of net actuarial loss | | | | | 5,551 | | | | 5,533 | | | | 5,831 | | | | 4,366 | | | | 4,520 | | | | 3,178 | |
| Settlement | | | | | — | | | | 1,003 | | | | — | | | | — | | | | — | | | | — | |
| Curtailment loss/(gain) | | | | | 81 | | | | — | | | | (347 | ) | | | — | | | | — | | | | — | |
| Net periodic benefit cost | | | | $ | 14,035 | | | $ | 15,776 | | | $ | 18,372 | | | $ | 8,268 | | | $ | 14,445 | | | $ | 12,700 | |
| Special termination benefits | | | | | — | | | | — | | | $ | 785 | | | | — | | | | — | | | | — | |
Weighted average assumptions used to determine net cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate — U.S. and non-U.S. Plans | | | | | 5.32 | % | | | 5.69 | % | | | 5.85 | % | | | 5.70 | % | | | 5.63 | % | | | 6.00 | % |
| Expected return on plan assets — U.S. Plans | | | | | 8.50 | % | | | 8.50 | % | | | 8.50 | % | | | — | | | | — | | | | — | |
| Expected return on plan assets — non-U.S. Plans | | | | | 7.15 | % | | | 7.04 | % | | | 6.52 | % | | | — | | | | — | | | | — | |
| Rate of compensation increase — U.S. and non-U.S. plans | | | | | 3.44 | % | | | 3.44 | % | | | 3.41 | % | | | 3.50 | % | | | 3.50 | % | | | 3.50 | % |
Health care cost trend rate (U.S. and
non-U.S. plans):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Initial rate | | | | | — | | | | — | | | | — | | | | 11.00 | % | | | 12.00 | % | | | 7.00 | % |
| Ultimate rate | | | | | — | | | | — | | | | — | | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % |
| Years to ultimate | | | | | — | | | | — | | | | — | | | | 6 | | | | 7 | | | | 4 | |
The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2007 are, as follows:
(in thousands)
| | | | Total
Pension
| | Total
Postretirement
Benefits
|
|---|
| Actuarial loss | | | | $ | 5,459 | | | $ | 3,747 | |
| Prior service cost/(credit) | | | | | 905 | | | | (4,224 | ) |
| Transition obligation | | | | | 60 | | | | — | |
| Total | | | | $ | 6,424 | | | $ | (477 | ) |
The expected rate of return on plan assets is based on the targeted plan asset allocation and historical returns of various investments.
83
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 the assumed health care cost trend rates would have had the following effect on the total of service and interest cost:
| | | | December 31,
| |
|---|
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
| 1 percentage point increase | | | | $ | 1,330 | | | $ | 2,263 | | | $ | 1,903 | |
| 1 percentage point decrease | | | | | (1,065 | ) | | | (1,786 | ) | | | (1,491 | ) |
The asset allocation for the Company’s U.S. and non-U.S. pension plans as of September 30, 2006 and 2005, and target allocation for 2007, by asset category, are as follows:
| | | | United States Plan
| | Non-U.S. Plans
| |
|---|
| | | | Target
Allocation | | Percentage of plan assets
at plan measurement date | | Target
Allocation | | Percentage of plan assets
at plan measurement date | |
|---|
Asset category
| | | | 2007
| | 2006
| | 2005
| | 2007
| | 2006
| | 2005
|
|---|
| Equity securities | | | | | 45 | % | | | 48 | % | | | 49 | % | | | 73 | % | | | 72 | % | | | 72 | % |
| Debt securities | | | | | 10 | % | | | 5 | % | | | 6 | % | | | 21 | % | | | 21 | % | | | 20 | % |
| Real estate | | | | | 8 | % | | | 8 | % | | | 6 | % | | | 2 | % | | | 2 | % | | | 3 | % |
| Cash | | | | | — | | | | 1 | % | | | 7 | % | | | — | | | | — | | | | 5 | % |
| Other (1) | | | | | 37 | % | | | 38 | % | | | 32 | % | | | 4 | % | | | 5 | % | | | — | |
| | | | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
| (1) | | Includes hedged equity and absolute return strategies, and private equity |
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 2006 and 2005, 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)
| | | | 2006
| | 2005
| | 2006
| | 2005
|
|---|
| Projected benefit obligation | | | | $ | 355,923 | | | $ | 330,864 | | | $ | 355,923 | | | $ | 330,864 | |
| Accumulated benefit obligation | | | | | 320,562 | | | | 297,368 | | | | 320,562 | | | | 297,368 | |
| Fair value of plan assets | | | | | 248,795 | | | | 214,004 | | | | 248,795 | | | | 214,004 | |
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 under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, are as follows:
| | | |
| | Other postretirement benefits
| |
|---|
(in thousands)
| | | | Pension
plans
| | before
subsidy
| | government
subsidy
|
|---|
| Expected employer contributions in the next fiscal year | | | | $ | 18,581 | | | $ | 6,115 | | | $ | 647 | |
Expected benefit payments
| | | | | | | | | | | | | | |
| 2007 | | | | $ | 17,267 | | | $ | 6,115 | | | $ | 647 | |
| 2008 | | | | | 17,853 | | | | 6,304 | | | | 736 | |
| 2009 | | | | | 18,247 | | | | 6,525 | | | | 822 | |
| 2010 | | | | | 18,806 | | | | 6,812 | | | | 902 | |
| 2011 | | | | | 19,657 | | | | 7,203 | | | | 969 | |
| 2012–2016 | | | | | 114,594 | | | | 40,237 | | | | 5,916 | |
14. Translation Adjustments
The Consolidated Statements of Cash Flows were affected by translation as follows:
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
| Change in cumulative translation adjustments | | | | $ | 52,857 | | | $ | (59,494 | ) | | $ | 53,902 | |
| Other noncurrent liabilities | | | | | 8,227 | | | | (9,471 | ) | | | 5,002 | |
| Deferred taxes | | | | | (787 | ) | | | 1,179 | | | | 101 | |
| Long-term debt | | | | | 15 | | | | (40 | ) | | | 36 | |
| Accounts receivable | | | | | (12,203 | ) | | | 12,673 | | | | (11,544 | ) |
| Inventories | | | | | (9,704 | ) | | | 8,287 | | | | (8,644 | ) |
| Investments in associated companies | | | | | 13 | | | | 562 | | | | (672 | ) |
| Property, plant and equipment, net | | | | | (24,605 | ) | | | 27,225 | | | | (24,561 | ) |
| Goodwill and intangibles | | | | | (14,097 | ) | | | 18,882 | | | | (13,130 | ) |
| Other | | | | | 7,656 | | | | (9,970 | ) | | | 7,358 | |
| Effect of exchange rate changes | | | | $ | 7,372 | | | $ | (10,167 | ) | | $ | 7,848 | |
The change in cumulative translation adjustments includes the following:
(in thousands)
| | | | 2006
| | 2005
| | 2004
|
|---|
| Translation of non-U.S. subsidiaries | | | | $ | 62,507 | | | $ | (80,627 | ) | | $ | 52,436 | |
| (Loss)/gain on long-term intercompany loans | | | | | (9,650 | ) | | | 19,476 | | | | 498 | |
| Gain on derivative contracts designated as hedge | | | | | — | | | | 1,657 | | | | 968 | |
| Effect of exchange rate changes | | | | $ | 52,857 | | | $ | (59,494 | ) | | $ | 53,902 | |
15. Stock Options and Incentive Plans
Effective January 1, 2006, the Company began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Financial Accounting Standard No. 123 (Revised) “Share-Based Payment” (FAS No. 123R), as interpreted by SEC Staff Accounting Bulletin No. 107. The Company adopted the modified prospective transition method provided under FAS No. 123R, and, accordingly, has not retroactively adjusted results of prior periods. Under this transition method, compensation cost associated with stock options recognized in 2006 includes amortization related to the remaining unvested portion of all stock option
85
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
15. Stock Options and Incentive Plans — (Continued)
awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FAS No. 123. The Company recognized approximately $1,543,000 in stock-based compensation expense during 2006, all of which was recorded in Selling, technical, general and research expenses. No stock-based compensation cost was recognized prior to January 1, 2006.
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 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 have been no stock options granted since November 2002. For options granted, 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. 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. Prior to 2006, the Company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, in accounting for the stock option plans and, accordingly, no compensation cost was recognized.
Prior to the adoption of FAS 123R, the Company presented all tax benefits for deductions resulting from the exercise of stock options and disqualifying dispositions as operating cash flows in the Consolidated Statement of Cash Flows. FAS 123R requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
If compensation cost of the Company’s stock-based compensation plans had been determined consistent with FAS No. 123 for years prior to 2006, net income and earnings per share would have been adjusted to the following pro forma amounts:
(in thousands, except per share amounts)
| | | | 2006
| | 2005
| | 2004
|
|---|
| Net income, as reported | | | | $ | 58,039 | | | $ | 71,852 | | | $ | 10,385 | |
Deduct:
| | | �� | | | | | | | | | | | |
| Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes | | | | | — | | | | 1,473 | | | | 2,402 | |
| Net income, pro forma | | | | $ | 58,039 | | | $ | 70,379 | | | $ | 7,983 | |
Basic net income per share:
| | | | | | | | | | | | | | |
| As reported | | | | $ | 1.95 | | | $ | 2.25 | | | $ | 0.32 | |
| Pro forma | | | | | 1.95 | | | | 2.20 | | | | 0.25 | |
Diluted earnings per share:
| | | | | | | | | | | | | | |
| As reported | | | | $ | 1.92 | | | $ | 2.22 | | | $ | 0.31 | |
| Pro forma | | | | | 1.92 | | | | 2.17 | | | | 0.24 | |
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:
| | | | 2006
| | 2005
| | 2004
|
|---|
| Shares under option January 1 | | | | | 1,453,120 | | | | 2,345,500 | | | | 2,823,630 | |
| Options granted | | | | | — | | | | — | | | | — | |
| Options canceled | | | | | 23,450 | | | | 50,040 | | | | 27,300 | |
| Options exercised | | | | | 170,524 | | | | 842,340 | | | | 450,830 | |
| Shares under option at December 31 | | | | | 1,259,146 | | | | 1,453,120 | | | | 2,345,500 | |
| Options exercisable at December 31 | | | | | 961,046 | | | | 1,019,420 | | | | 1,673,560 | |
| Shares available for future option grants | | | | | 534,505 | | | | 515,455 | | | | 463,165 | |
The weighted average exercise price is as follows:
| | | | 2006
| | 2005
| | 2004
|
|---|
| Shares under option January 1 | | | | $ | 20.26 | | | $ | 19.13 | | | $ | 19.01 | |
| Options granted | | | | | — | | | | — | | | | — | |
| Options canceled | | | | | 20.57 | | | | 19.50 | | | | 18.50 | |
| Options exercised | | | | | 18.92 | | | | 17.16 | | | | 18.39 | |
| Shares under option December 31 | | | | | 20.43 | | | | 20.26 | | | | 19.13 | |
| Options exercisable December 31 | | | | | 19.09 | | | | 18.90 | | | | 18.12 | |
A summary of the changes in the Company’s nonvested option shares is presented below:
| | | | Option shares
| | Weighted Average
Fair value
|
|---|
| Nonvested at December 31, 2005 | | | | | 233,700 | | | $ | 11.02 | |
| Vested during period | | | | | (114,450 | ) | | | 11.00 | |
| Canceled | | | | | (21,150 | ) | | | 10.32 | |
| Nonvested at December 31, 2006 | | | | | 98,100 | | | $ | 11.65 | |
The following is a summary of the status of options outstanding at December 31, 2006:
| | | |
| | Outstanding Options
| | Exercisable Options
| |
|---|
Exercise Price Range
| | | | Number
| | Weighted
Average
Remaining
Contractual
Life
| | Weighted
Average
Exercise
Price
| | Number
| | Weighted
Average
Exercise
Price
|
|---|
| $10.56 | | | | | 78,920 | | | | 12.1 | | | $ | 10.56 | | | | 78,920 | | | $ | 10.56 | |
| $15.00–$15.69 | | | | | 89,200 | | | | 9.7 | | | | 15.49 | | | | 89,200 | | | | 15.49 | |
| $16.25–$16.79 | | | | | 48,100 | | | | 4.6 | | | | 16.44 | | | | 48,100 | | | | 16.44 | |
| $18.63–$18.79 | | | | | 57,200 | | | | 6.9 | | | | 18.74 | | | | 57,200 | | | | 18.74 | |
| $19.38 | | | | | 80,650 | | | | 9.8 | | | | 19.38 | | | | 80,650 | | | | 19.38 | |
| $19.75 | | | | | 70,900 | | | | 9.7 | | | | 19.75 | | | | 70,900 | | | | 19.75 | |
| $20.45–$20.63 | | | | | 410,150 | | | | 13.2 | | | | 20.55 | | | | 362,050 | | | | 20.53 | |
| $22.25 | | | | | 174,026 | | | | 8.1 | | | | 22.25 | | | | 174,026 | | | | 22.25 | |
| $25.56 | | | | | 250,000 | | | | 10.9 | | | | 25.56 | | | | — | | | | — | |
| | | | | | 1,259,146 | | | | 10.7 | | | $ | 20.43 | | | | 961,046 | | | $ | 19.09 | |
87
Albany International Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)
15. Stock Options and Incentive Plans — (Continued)
As of December 31, 2006, the aggregate intrinsic value of vested and nonvested options was $13,300,000 and $2,400,000, respectively. The aggregate intrinsic value of options exercised during 2006 was $3,000,000.
As of December 31, 2006, there was $2,500,000 of total unrecognized compensation cost related to stock option grants. The Company expects approximately $800,000 of compensation cost to be recognized in 2007, and $170,000 per year from 2008 to 2017.
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 March 2006, cash payments totaling $1,200,000 were made under this plan. Shares that are expected to be paid out are included in the calculation of diluted earnings per share. If a person terminates employment prior to the award becoming fully vested, the person will forfeit a portion of the incentive compensation award. Expense associated with this plan is recognized over the vesting period, which includes the year for which performance targets are measured and the two subsequent years. The amount of compensation expense is subject to changes in the market price of the Company’s stock. In connection with this plan, the Company recognized expense of $2,200,000 and $3,100,000 in 2006 and 2005, respectively.
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 cash based on current market prices of the Company’s stock. The amount of compensation expense is subject to changes in the market price of the Company’s stock. The amount of compensation cost is recorded in Selling and general expenses and was $2,800,000 in 2006, $2,300,000 in 2005 and $2,600,000 in 2004.
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 $4,700,000 and $5,700,000 at December 31, 2006 and 2005, respectively. The Company’s expense for all plans was $500,000 in 2006, $600,000 in 2005, and $900,000 in 2004 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 $15,000 for 2006. 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 $4,400,000 in 2006, $4,300,000 in 2005, and $4,200,000 in 2004.
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 $2,300,000 in 2006, $1,500,000 in 2005, and $1,800,000 in 2004.
88
Quarterly Financial Data
(unaudited)
(in millions except per share amounts)
| | | | 1st
| | 2nd
| | 3rd
| | 4th
|
|---|
2006
| | | | | | | | | | | | | | | | | | |
| Net sales | | | | $ | 251.2 | | | $ | 261.6 | | | $ | 242.8 | | | $ | 255.8 | |
| Gross profit | | | | | 104.0 | | | | 104.0 | | | | 93.3 | | | | 90.0 | |
| Net income | | | | | 18.8 | | | | 18.7 | | | | 14.3 | | | | 6.2 | |
| Basic earnings per share | | | | | 0.60 | | | | 0.63 | | | | 0.49 | | | | 0.21 | |
| Diluted earnings per share | | | | | 0.59 | | | | 0.62 | | | | 0.48 | | | | 0.21 | |
| Cash dividends per share | | | | | 0.09 | | | | 0.10 | | | | 0.10 | | | | 0.10 | |
Class A Common Stock prices:
| | | | | | | | | | | | | | | | | | |
| High | | | | | 38.54 | | | | 42.39 | | | | 42.41 | | | | 34.10 | |
| Low | | | | | 33.69 | | | | 36.15 | | | | 31.82 | | | | 31.20 | |
| |
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 | |
In the fourth quarter of 2006, basic earnings per share were reduced by $0.07 as a result of changes in contract terms with a major customer, and by $0.05 resulting from a cumulative correction to postretirement obligations.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. At December 31, 2006, there were approximately 5,200 shareholders.
89
Item 9. | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) as of the end of the period covered by this annual report. Based upon and as of the date of that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures of the Company were effective in ensuring that information required to be disclosed in the periodic reports that it files or submits under the Exchange Act is accumulated and communicated to the management of the Company, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2006, the company’s internal control over financial reporting is effective based on those criteria.
The Company’s independent registered public accounting firm has audited management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, as stated in their report, which is included herein.
/s/ Joseph G. Morone, Ph.D.
Joseph G. Morone, Ph.D.
President and
Chief Executive Officer
and Director
(Principal Executive Officer) | | | | /s/ Michael C. Nahl
Michael C. Nahl
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) | | /s/ Richard A. Carlstrom
Richard A. Carlstrom
Vice President
and Controller
(Principal Accounting Officer) |
Item 9B. OTHER INFORMATION
None.
90
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
| (a) | | Directors. The information set out in the section captioned “Election of Directors” in the Proxy Statement is incorporated herein by reference. |
| (b) | | Executive Officers. Information about the officers of the Company is set forth in Item 1 above. |
| (c) | | Significant Employees. Same as Executive Officers. |
| (d) | | Nature of any family relationship between any director, executive officer, person nominated or chosen to become a director or executive officer, The information set out in the section captioned “Certain Business Relationships and Related Person Transactions” in the Proxy Statement is incorporated herein by reference. |
| (e) | | Business experience, during the past five years, of each director, executive officer, person nominated or chosen to become director or executive officer, and significant employees. Information about the officers of the Company is set forth in Item 1 above and the information set out in the section captioned “Election of Directors” in the Proxy Statement in incorporated herein by reference. |
| (f) | | Involvement in certain legal proceedings by any director, person nominated to become a director or executive officer. None. |
| (g) | | Certain promoters and control persons. None. |
| (h) | | Audit Committee Financial Expert. The information set out in the section captioned “Corporate Governance” in the Proxy Statement is incorporated herein by reference. |
| (i) | | Code of Ethics. The Company has adopted a Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer and Controller. A copy of the Code of Ethics is filed as Exhibit 10(p) and is available at the Corporate Governance section of the Company’s website (www.albint.com). A copy of the Code of Ethics may be obtained, without charge, by writing to: Investor Relations Department, Albany International Corp., P.O. Box 1907, Albany, New York 12201. Any amendment to the Code of Ethics will be disclosed by posting the amended Code of Ethics on the Company’s website. Any waiver of any provision of the Code of Ethics will be disclosed by the filing of a Form 8K. |
Item 11. EXECUTIVE COMPENSATION
The information set forth in the sections of the Proxy Statement captioned “Executive Compensation,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards At Fiscal Year-End,” “Option Exercises And Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Director Compensation,” “Compensation Committee Report,” “Compensation Discussion And Analysis,” and “Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference.
91
Item 12. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND RELATED STOCKHOLDER MATTERS |
The information set forth in the section captioned “Share Ownership” in the Proxy Statement is incorporated herein by reference.
Equity Compensation Plan Information
Plan Category
| | | | Number of
securities to be
issued upon
exercise of
outstanding options,
warrants, and rights
| | Weighted average
exercise price of
outstanding options,
warrants, and rights
| | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
|
|---|
| | | | (a)
| | (b)
| | (c)
|
|---|
| Equity compensation plans approved by security holders | | | | | 1,009,146 | (1) | | $ | 19.16 | | | | 534,505 | (2)(3)(4) |
| Equity compensation plans not approved by security holders | | | | | 250,000 | | | $ | 25.56 | | | | — | |
| Total | | | | | 1,259,146 | | | $ | 20.43 | | | | 534,505 | (2)(3)(4) |
| (1) | | Does not include 49,001 and 17,732 shares that may be issued pursuant to 2005 and 2006, respectively, performance incentive awards granted to certain executive officers pursuant to the 2005 Incentive Plan. Such awards are not “exercisable”, but will be paid out to the recipients in accordance with their terms, subject to certain conditions. |
| (2) | | Reflects (a) the number of shares for which options may be granted as of January 1, 2006 under the Company’s 1998 Stock Option Plan (“the 1998 Plan”) and (b) the number of shares that may be issued as of January 1, 2006 pursuant to future awards under the 2005 Incentive Plan. Additional shares of Class A Common Stock are available for issuance under the 1998 Plan (see note 3 below) and the 2005 Incentive Plan (see note 4 below), as well as under the Directors’ Annual Retainer Plan (see note 5 below). |
| (3) | | Includes 534,505 shares available for future option grants under the 1998 Plan. The 1998 Plan allows the Board from time to time to increase the amount of shares available for future option grants, provided that it may not be increased by more than 500,000 in any calendar year and that no such increase may cause the total number of shares then available for option to exceed 1,000,000. If options granted under the 1998 Plan expire or are terminated or surrendered without having been exercised, the shares of Class A Common Stock subject thereto may again be optioned. Assuming full exercise by the Board of its power to increase annually the number of shares available for options, the maximum number of additional shares that could yet be issued upon exercise of future option grants pursuant to the 1998 Plan (including those set forth in column (c) above) would be 1,534,505. |
| (4) | | Includes 432,999 shares available for future issuance under the 2005 Incentive Plan. The 2005 Incentive Plan allows the Board from time to time to increase the number of shares that may be issued pursuant to awards granted under that Plan, provided that the number of shares so added may not exceed 500,000 in any one calendar year, and provided further that the total number of shares then available for issuance under the Plan shall not exceed 1,000,000 at any time. Shares of Common Stock covered by awards granted under the 2005 Incentive Plan are only counted as used to the extent they are actually issued and delivered. Accordingly, if an award is settled for cash, or if shares are withheld to pay any exercise price or to satisfy any tax-withholding requirement, only shares issued (if any), net of shares withheld, will be deemed delivered for purposes of determining the number of shares available under the Plan. If shares are issued subject to conditions that may result in the forfeiture, cancellation or return of such shares to the Company, any shares forfeited, canceled, or returned shall be treated as not issued. If shares are tendered to the Company in payment of any obligation in connection with an award, the number of shares tendered shall be added to the number of shares available under the 2005 Incentive Plan. In addition, if the Company uses cash received in payment of the exercise price or purchase price in connection with any award to repurchase shares, the shares so repurchased will be added to the aggregate number of shares available under the 2005 Incentive Plan. Assuming full exercise by the Board of its power to increase annually the number of shares available under the 2005 Incentive Plan, the maximum number of additional shares that could yet be issued pursuant to the Plan awards (including those set forth in column (c) above) would be 4,933,267. |
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| (5) | | The Directors’ Annual Retainer Plan provides that the aggregate dollar amount of the annual retainer payable for service as a member of the Company’s Board of Directors is $90,000 of which, $50,000 is required to be paid in shares of Class A Common Stock, the exact number of shares to be paid for any year being determined on the basis of the per share closing price of such stock on the day of the Annual Meeting at which the election of the directors for such year occurs, as shown in the composite index published for such day in theWall Street Journal, rounded down to the nearest whole share. |
The Company has adopted only one equity compensation “plan” not approved by security holders and required to be disclosed under Item 201(d) of Regulation S-K. In 1997, the Company granted an option exercisable at $25.56 per share for 250,000 shares of Class A Common Stock to Michael C. Nahl, the Company’s Executive Vice President and Chief Financial Officer. The option is not exercisable unless the market price of Class A Common Stock reaches $48 per share while Mr. Nahl is employed by the Company or a subsidiary. When the target price is achieved, the option becomes exercisable as to a number of shares determined by multiplying 25,000 times the number of full years that have elapsed since the grant date. Thereafter, the option becomes exercisable as to an additional 25,000 shares on each anniversary of the grant date while the optionee remains an employee. In the event of termination of the optionee’s employment before the target price has been achieved, the option terminates. In the event of termination after the target price has been achieved, the option terminates as to all shares as to which it is not then exercisable, except that, in the case of voluntary termination after age 62, death, disability, or involuntary termination, the option becomes exercisable, immediately prior to such termination as to 50% of the shares for which it had not yet become exercisable.
The graph below compares the cumulative 5-year total return of holders of Albany International Corp.’s common stock with the cumulative total returns of the S & P 500 index and the Dow Jones US Paper index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from December 31, 2001 to December 31, 2006.
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Item 13. | | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information set out in the section captioned “Election of Directors” in the Proxy Statement is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth in the section captioned “Independent Auditors” in the Proxy Statement is incorporated herein by reference.
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PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a)(1) | | Financial Statements. The consolidated financial statements included in the Annual Report are incorporated in Item 8. |
| (a)(2) | | Schedule. The following financial statement schedule for each of the three years in the period ended December 31, 2006: Schedule II — Valuation and Qualifying Accounts |
| 3(a) | | Certificate of Incorporation of Company. (3) |
| 3(b) | | Bylaws of Company. (9) |
| 4(a) | | Article IV of Certificate of Incorporation of Company (included in Exhibit 3(a)). |
| 4(b) | | Specimen Stock Certificate for Class A Common Stock. (1) |
| 4.1 | | Indenture, dated as of March 13, 2006, between the Company and JPMorgan Chase Bank, N.A. (27) |
| 4.2 | | Form of 2.25% convertible senior subordinated note due 2026. (27) |
| 4.3 | | Registration Rights Agreement, dated as of March 13, 2006, between J.P. Morgan Securities, Inc., Banc of America Securities LLC, other initial purchasers, and the Company. (27) |
Credit Agreement
| 10(i)(i) | | Credit Agreement, dated as of August 11, 1999 (the “Credit Agreement”), among the Company, 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. (8) |
| 10(i)(ii) | | Amendment No. 1, dated as of December 22, 1999, to the Credit Agreement. (10) |
| 10(i)(iii) | | Amendment No. 2, dated as of October 1, 2002, to the Credit Agreement. (11) |
| 10(j)(i) | | Receivables Sale Agreement, dated as of September 28, 2001, among the Company as the Collection Agent, Albany International Receivables Corporation as the Seller, ABN AMRO Bank N.V., as the Agent the Committed Purchasers party thereto, and Amsterdam Funding Corporation. (10) |
| 10(j)(i)(a) | | Amendment No. 1, dated as of September 27, 2002, to the Receivables Sale Agreement. (11) |
| 10(j)(i)(b) | | Amendment No. 2, dated as of October 25, 2002, to the Receivables Sale Agreement. (11) |
| 10(j)(i)(c) | | Amendment No. 3, dated as of September 26, 2003, to the Receivables Sale Agreement. (12) |
| 10(j)(i)(d) | | Amendment No. 4, dated as of December 31, 2003, to the Receivables Sale Agreement. (15) |
| 10(j)(i)(e) | | Amendment No. 5, dated as of September 24, 2004, to the Receivables Sale Agreement. (16) |
| 10(j)(i)(f) | | Amendment No. 6, dated as of November 23, 2004, to the Receivables Sale Agreement. (17) |
| 10(j)(i)(g) | | Amendment No. 7, dated as of September 28, 2005, to the Receivables Sale Agreement. (21) |
| 10(j)(ii) | | Purchase and Sale Agreement, dated as of September 28, 2001, among the Company, Geschmay Corp., Albany International Research Co., Albany International Techniweave, Inc., Albany International Canada Inc., M&I Door Systems Ltd., as Originators, and Albany International Receivables Corporation as Buyer. (11) |
| 10(j)(ii)(a) | | Amendment No. 1, dated as of March 1, 2002, to Exhibit A of the Purchase and Sale Agreement. (11) |
| 10(j)(ii)(b) | | Amendment No. 2, dated as of July 1, 2003, to Exhibit A of the Purchase and Sale Agreement. (12) |
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| 10(j)(ii)(c) | | Amendment No. 3, dated as of May 1, 2005, to Exhibit A of the Purchase and Sale Agreement. (19) |
| 10(k)(i) | | $460 Five-Year Revolving Credit Facility Agreement, dated as of April 14, 2006, between the Company, the Lenders Party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Europe Limited, as London Agent. (13) |
| 10(k)(ii) | | Note Agreement and Guaranty between the Company and the Prudential Insurance Company of America and certain other purchasers named therein, dated as of October 25, 2005. (22) |
| 10(k)(iii) | | First Amendment to Five-Year Revolving Credit Agreement, dated as of April 16, 2006. (29) |
| 10(k)(iv) | | First Amendment, dated as of November 13, 2006, to Note Agreement and Guaranty. (30) |
Restricted Stock Units
| 10(l)(i) | | 2003 Restricted Stock Unit Plan, as adopted November 13, 2003. (15) |
| 10(l)(ii) | | 2003 Form of Restricted Stock Unit Award, as adopted November 13, 2003. (14) |
| 10(l)(iii) | | Amendment No. 1, dated as of November 30, 2005, to the 2003 Restricted Stock Unit Plan. (24) |
| 10(l)(iv) | | Amendment No. 2, dated as of February 15, 2006, to the 2003 Restricted Stock Unit Plan. (25) |
Stock Options
| 10(m)(i) | | Form of Stock Option Agreement, dated as of August 1, 1983, between the Company 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 Company 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. (6) |
| 10(m)(vi) | | 1998 Stock Option Plan. (7) |
| 10(m)(vii) | | 1998 Stock Option Plan, as amended and restated as of August 7, 2003. (12) |
| 10(m)(viii) | | 2005 Incentive Plan. (20) |
| 10(m)(ix) | | Form of 2005 Performance Bonus Agreement. (20) |
| 10(m)(x) | | Form of 2006 Performance Bonus Agreement. (26) |
| 10(m)(xi) | | Form of 2007 Performance Bonus Agreement. (31) |
Executive Compensation
| 10(n) | | Pension Equalization Plan adopted April 16, 1986, naming two current executive officers and one former executive officer of Company as “Participants” thereunder. (1) |
| 10(n)(i) | | Supplemental Executive Retirement Plan, adopted as of January 1, 1994, as amended and restated as of June 30, 2002. (15) |
| 10(n)(ii) | | Annual Bonus Program. (1) |
| 10(o)(I) | | Form of Executive Deferred Compensation Plan adopted September 1, 1985, as amended and restated as of August 8, 2001. (10) |
| 10(o)(ii) | | Form of Directors’ Deferred Compensation Plan adopted September 1, 1985, as amended and restated as of August 8, 2001. (10) |
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| 10(o)(iii) | | Deferred Compensation Plan of Albany International Corp., as amended and restated as of August 8, 2001. (11) |
| 10(o)(iv) | | Centennial Deferred Compensation Plan, as amended and restated as of August 8, 2001. (10) |
| 10(o)(v) | | Directors Annual Retainer Plan, as amended and restated as of May 10, 2001. |
| 10(o)(v) | | Directors Annual Retainer Plan, as amended and restated as of August 7, 2003. |
| 10(o)(v) | | Directors Annual Retainer Plan, as amended and restated as of May 6, 2004. |
| 10(o)(v) | | Directors Annual Retainer Plan, as amended and restated as of May 12, 2006. (12) |
| 10(o)(vi) | | Excerpt from the Company’s Corporate Governance Guidelines describing director compensation. (23) |
Other Exhibits
| 10(p) | | Code of Ethics. (15) |
| 10(q) | | Directors Pension Plan, amendment dated as of January 12, 2005. (18) |
| 10(r) | | Employment agreement, dated May 12, 2005, between the Company and Joseph G. Morone. (20) |
| 10(s) | | Form of Indemnification Agreement. (9) |
| 10.1 | | Convertible note hedge transaction confirmations, dated as of March 7, 2006, by and between JPMorgan Chase Bank, N.A., Bank of America, N.A., and the Company. (27) |
| 10.1 | | Amendments, dated March 23, 2006, to convertible note hedge transaction confirmations, dated as of March 7, 2006, by and between JPMorgan Chase Bank, N.A., Bank of America, N.A., and the Company. (28) |
| 10.2 | | Warrant transaction confirmations, dated as of March 7, 2006, by and between JPMorgan Chase Bank, N.A., Bank of America, N.A., and the Company. (27) |
| 10.2 | | Amendments, dated March 23, 2006, to warrant transaction confirmations, dated as of March 7, 2006, by and between JPMorgan Chase Bank, N.A., Bank of America, N.A., and the Company. (28) |
| 13 | | Annual Report to Security Holders for the year ended December 31, 2005. Filed herewith. |
| 21 | | Subsidiaries of Company. Filed herewith. |
| 23 | | Consent of PricewaterhouseCoopers LLP. Filed herewith. |
| 24 | | Powers of Attorney. Filed herewith. |
| 31(a) | | Certification of Joseph G. Morone required pursuant to Rule 13a-14(a) or Rule 15d-14(a). Filed herewith. |
| 31(b) | | Certification of Michael C. Nahl required pursuant to Rule 13a-14(a) or Rule 15d-14(a). Filed herewith. |
| 32(a) | | Certification of Joseph G. Morone and Michael C. Nahl required pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. Furnished herewith. |
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 Company’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 Company’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 |
97
| | 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 Company’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 Company’s Current Report on Form 8-K dated March 15, 1996, which previously filed Exhibit is incorporated by reference herein. |
| (6) | | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K dated March 16, 1998, which previously filed Exhibit is incorporated by reference herein. |
| (7) | | Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q dated August 10, 1998, which previously filed Exhibit is incorporated by reference herein. |
| (8) | | Previously filed as an Exhibit to the Company’s Current Report on form 8-K dated September 21, 1999, which previously filed Exhibit is incorporated by reference herein. |
| (9) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed April 12, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (10) | | Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q dated November 12, 2001, which previously filed Exhibit is incorporated by reference herein. |
| (11) | | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K dated March 21, 2003, which previously filed Exhibit is incorporated by reference herein. |
| (12) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 16, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (13) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed April 20, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (14) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed November 5, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (15) | | Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K dated March 11, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (16) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed September 27, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (17) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed November 23, 2004, which previously filed Exhibit is incorporated by reference herein. |
| (18) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed January 13, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (19) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 2, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (20) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed May 18, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (21) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed September 29, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (22) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed October 26, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (23) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed February 23, 2006, which previously filed Exhibit is incorporated by reference herein. |
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| (24) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed December 6, 2005, which previously filed Exhibit is incorporated by reference herein. |
| (25) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed February 21, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (26) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed February 22, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (27) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed March 15, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (28) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed March 29, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (29) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed August 30, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (30) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed November 17, 2006, which previously filed Exhibit is incorporated by reference herein. |
| (31) | | Previously filed as an Exhibit to the Company’s Current Report on Form 8-K filed February 23, 2007, which previously filed Exhibit is incorporated by reference herein. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 1st day of March, 2007.
ALBANY INTERNATIONAL CORP.
| by | | /s/ Michael C. Nahl
Michael C. Nahl
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer) |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature
| | | | Title
| | Date
|
|---|
*
Joseph G. Morone
| | | | President and Chief Executive Officer and Director
(Principal Executive Officer) | | March 1, 2007 |
| |
/s/ Michael C. Nahl
Michael C. Nahl
| | | | Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) | | March1, 2007 |
| |
*
Richard A. Carlstrom
| | | | Vice President — Controller
(Principal Accounting Officer) | | March 1, 2007 |
*
Frank R. Schmeler
| | | | Chairman of the Board | | March 1, 2007 |
*
Thomas R. Beecher Jr.
| | | | Director | | March 1, 2007 |
*
John F. Cassidy
| | | | Director | | March 1, 2007 |
*
Paula H.J. Cholmondeley
| | | | Director | | March 1, 2007 |
*
Edgar G. Hotard
| | | | Director | | March 1, 2007 |
*
Erland E. Kailbourne
| | | | Director | | March 1, 2007 |
*
Juhani Pakkala
| | | | Director | | March 1, 2007 |
*
Christine L. Standish
| | | | Director | | March 1, 2007 |
*
John C. Standish
| | | | Director | | March 1, 2007 |
| |
*By /s/ Michael C. Nahl
Michael C. Nahl
Attorney-in-fact
| | | | | | March 1, 2007 |
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SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Column A
| | | | Column B
| | Column C
| | Column D
| | Column E
| |
|---|
Description
| | | | Balance at
Beginning
of Period
| | Charged to
Expense
| | Other (A)
| | Balance at
End of Period
| |
|---|
Allowance for doubtful accounts
| | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31:
| | | | | | | | | | | | | | | | | | | | | | |
| 2006 | | | | $ | 5,848 | | | $ | 1,918 | | | $ | (2,019 | ) | | $ | 5,747 | | | | | |
| 2005 | | | | | 8,308 | | | | 1,027 | | | | (3,487 | ) | | | 5,848 | | | | | |
| 2004 | | | | | 6,968 | | | | 2,130 | | | | (790 | ) | | | 8,308 | | | | | |
Allowance for inventory obsolescence
| | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31:
| | | | | | | | | | | | | | | | | | | | | | |
| 2006 | | | | $ | 6,448 | | | $ | 2,912 | | | $ | (1,978 | ) | | $ | 7,382 | | | | | |
| 2005 | | | | | 7,236 | | | | 2,325 | | | | (3,113 | ) | | | 6,448 | | | | | |
| 2004 | | | | | 8,626 | | | | 2,111 | | | | (3,501 | ) | | | 7,236 | | | | | |
Allowance for sales returns
| | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31:
| | | | | | | | | | | | | | | | | | | | | | |
| 2006 | | | | $ | 11,791 | | | $ | 11,032 | | | $ | (10,284 | ) | | $ | 12,539 | | | | | |
| 2005 | | | | | 9,695 | | | | 9,847 | | | | (7,751 | ) | | | 11,791 | | | | | |
| 2004 | | | | | 8,633 | | | | 10,204 | | | | (9,142 | ) | | | 9,695 | | | | | |
Valuation allowance deferred tax assets
| | | | | | | | | | | | | | | | | | | | | | |
Year ended December 31:
| | | | | | | | | | | | | | | | | | | | | | |
| 2006 | | | | $ | 10,292 | | | $ | 2,019 | | | $ | 85 | | | $ | 12,396 | | | | | |
| 2005 | | | | | 12,455 | | | | 4,100 | | | | (6,263 | ) | | | 10,292 | | | | | |
| 2004 | | | | | 6,793 | | | | 7,100 | | | | (1,438 | ) | | | 12,455 | | | | | |
| (A) | | Amounts sold, written off or recovered, and the effect of changes in currency translation rates, are included in Column D. |
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CORPORATE INFORMATION
Transfer Agent, Dividend Distribution Agent, and Registrar
For assistance with shareholder account questions such as change of address, lost certificates, change of ownership, dividend reinvestment plan, and other similar matters, contact:
For first-class, registered, and certified mail
Computershare Investor Services
PO Box 43036
Providence, RI 02940-3036
For courier/overnight deliveries
Computershare Investor Services
250 Royall Street, Mail Stop 1A
Canton, MA 02021
Telephone: (312) 360-5395
Fax: (312) 601-4332
Email: web.queries@computershare.com
On the Web
Shareholders can access account information and shareholder services online at
www.computershare.com.
Notice of Annual Meeting
The Annual Meeting of the Company’s shareholders will be held on Friday, April 13, 2007, at 10:00 a.m. at the Desmond Hotel and Conference Center, 660 Albany Shaker Road, Albany, NY 12211.
Stock Listing
Albany International is listed on the New York Stock Exchange (Symbol AIN). Stock tables in newspapers and financial publications list Albany International as “AlbanyInt.”
Equal Employment Opportunity
Albany International, as a matter of policy, does not discriminate against any employee or applicant for employment because of race, color, religion, sex, national origin, age, physical or mental disability, or status as a disabled or Vietnam-era veteran. This policy of nondiscrimination is applicable to matters of hiring, upgrading, promotions, transfers, layoffs, terminations, rates of pay, selection for training, recruitment, and recruitment advertising. The Company maintains affirmative action programs to implement its EEO policy.
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Directors and Officers
Directors
Thomas R. Beecher, Jr.2,3
President, Ballynoe Inc.
Paula H. J. Cholmondeley1,2
Retired – Vice President and General Manager, Sappi Fine Papers, North America
Erland E. Kailbourne1,2
Retired – Chairman and Chief Executive
Officer, Fleet National Bank
(New York Region)
Juhani Pakkala1,3
Retired – President and Chief Executive Officer, Metso Paper Inc.
Christine L. Standish3 | | | | John F. Cassidy, Jr.2
Retired – Senior Vice President, Science and Technology, United Technologies Corp.
Edgar G. Hotard2
Retired President and Chief Operating Officer, Praxair, Inc.
Joseph G. Morone
President and Chief Executive Officer
Frank R. Schmeler
Chairman and Retired Chief Executive Officer, Albany International Corp.
John C. Standish
Senior Vice President – Manufacturing, Americas Business Corridor, Albany International Corp.
1 Member, Audit Committee
2 Member, Compensation
3 Member, Governance Committee |
| | | | | | | |
Officers | | | | | | |
Joseph G. Morone
President and Chief Executive Officer
Michael C. Nahl
Executive Vice President and Chief Financial Officer
Michael J. Joyce
Group Vice President – PMC Americas
Frank Kolf
Senior Vice President – Global Procurement and Supply Chain Management
John C. Standish
Senior Vice President – Manufacturing, Americas Business Corridor
Robert A. Hansen
Vice President – Corporate Research and Development
Charles J. Silva, Jr.
Vice President – General Counsel and Secretary
Christopher J. Connally
Corporate Treasurer | | | | William M. McCarthy
Executive Vice President – Global Planning, Engineering, and Procurement
Daniel Halftermeyer
Group Vice President – PMC Europe
David Madden
Group Vice President – PMC Asia and Pacific
Ralph M. Polumbo
Senior Vice President – Human Resources
Richard A. Carlstrom
Vice President – Controller
Kenneth C. Pulver
Vice President – Global Marketing and Communications
Dawne H. Wimbrow
Vice President – Global Information Services and Chief Information Officer
Joseph M. Gaug
Associate General Counsel and Assistant Secretary |
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