19annual report & 10-K
our investment proposition
A small cap that combines the cash generation potential
of a value stock with the revenue potential of a growth stock.
our strategy
Focus on markets in which we have the basis for sustainable
competitive advantage, and in those markets, through investment in
talent and technology, strive to deliver to our customers the highest
value combination of performance and price possible.
our objective, near- and long-term
Hold Machine Clothing cash flow steady for as long as possible,
while growing AEC as rapidly as possible.
Albany International is a global advanced textiles and materials
processing company, with two core businesses. The Machine Clothing
segment is the world’s leading producer of custom-designed fabrics
and belts essential to production in the paper, nonwovens, and other
process industries. Albany Engineered Composites is a rapidly growing
supplier of highly engineered composite parts for the aerospace industry.
Albany International is headquartered in Rochester, New Hampshire,
operates 23 plants in 11 countries, employs approximately 4,600 people
worldwide, and is listed on the New York Stock Exchange (Symbol AIN).
Additional information about the Company and its products and services
can be found at www.albint.com.
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4,600
EMPLOYEES
23
PLANTS
11
COUNTRIES
AIN
(NYSE)
19
Q1 Q2 Q3 Q4
$155.0
118.9
$273.9
$151.3
119.8
$271.1
$144.3
107.1
$251.4
$150.6
107.1
$257.7
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2019
US $ million, except per share
Net sales:
Machine Clothing
Albany Engineered Composites
Operating income
Net income attributable
to the Company
Earnings per share - basic
Earnings per share - diluted
Years ended
US $ million,
except per
share data
Dec
31
$ 40.1 $ 54.2
$ 55.7
$ 43.6
29.2
0.90
0.90
34.1
1.05
1.05
40.0
1.24
1.24
29.1
0.91
0.91
2017
2018
2019
$863.7
Net sales
296.3
Gross profit
Operating income
78.7
Net income attributable to the Company 33.1
1.03
Earnings per share - basic
1.03
Earnings per share - diluted
$982.5 $1,054.1
397.7
349.7
193.6
137.4
132.4
82.9
4.10
2.57
4.10
2.57
Table Of
CONTENTS 2 CEO LETTER 6 GLOBAL LOCATIONS 7 FORM 10-K
1
Letter to Shareholders
19CEO
$130 million in free cash flow (cash from
A. William Higgins
President & Chief Executive Officer
2019 was an exceptional year for Albany
International. The company surpassed
a billion dollars in revenue and achieved
over $265 million in Adjusted EBITDA. I am
particularly pleased with the operational
performance in both business segments.
operations, less capital expenditures) and the
Engineered Composites segment delivered
positive free cash flow for the first time since
beginning on its growth trajectory years ago.
It was a great year, and I would like to thank
our employees across the globe for their
contributions to this growth and success.
Machine Clothing (MC) and Albany Engineered
We enter 2020 with a strong balance sheet,
Composites (AEC) each attained record
operating income. Both segments expanded
low debt and on a solid footing with our
customers in both segments. We are
margins from 2018, delivering adjusted EBITDA
committed to sustaining our market-leading
margins of 35.9% in Machine Clothing and
22.5% in Engineered Composites. I am
also happy with the company’s cash flow
performance: the company generated over
position in machine clothing, and we are
steadily building a portfolio of aerospace
growth programs in our engineered
composites business.
2
we will continue to solidify and build upon our
leadership position in the Machine Clothing
19 Our strategy has two main components: first,
objectives remain steadfast. Most important,
Boeing 737 MAX fleet and the effects of the
customers. We expect to continue to invest
contract with SAFRAN, to support both the
continued ramp on the LEAP-1A engine for
While there are the near-term challenges of
we must continue to perform on our LEAP
managing through the grounding of the
coronavirus, our longer-term vision and
machine clothing (PMC) market based on our
We will continue to innovate and advance our
in this business consistent with past R&D and
segment. We are the clear leader in the paper
capital investment levels.
Second, we will continue to invest to grow our
and valuable machine clothing solutions to our
technology and the strength of our offerings to
engineered composites business in aerospace.
technology so we can provide the most reliable
our customers. That said, we cannot stand still.
the Airbus A320neo family, and to be prepared
for the ramp that will return for the LEAP-1B
engine once the Boeing 737 MAX returns to
production. SAFRAN is a critical customer of
ours with whom we have an almost twenty
year history. We deeply value this relationship
and will continue to grow it. Concurrently, we
are expanding the balance of our engineered
composites business, by ramping existing
programs and platforms, by winning new
business, and by expanding the use of our
industry-leading composite technologies in
the next generation of commercial aircraft.
Late in 2019, Albany was selected to
participate in Airbus’ Wing of Tomorrow
collaborative development effort. This
collaboration illustrates the potential of our
3D woven composite material to change the
industry by becoming the next-generation,
light-weight solution for demanding structural
components in future aircraft.
Our business strategy has served our share-
holders well. Today, we have two strong,
profitable businesses. In 2019, our Machine
Clothing segment performed extraordinarily
well, delivering an even higher level of Adjusted
EBITDA than we had expected after a very
strong 2018. The Engineered Composites
business, even with the challenges caused
by the 737 MAX situation in the back-half
of the year, produced over $100 million of
Adjusted EBITDA and, as mentioned earlier,
delivered positive free cash flow.
‘‘
Machine
Clothing and
Albany
Engineered
Composites each
attained record
operating income.
Both segments
expanded margins
from 2018
‘‘
3
We continue to believe that, at this time, given
drive the improvement in our financial results.
the technology overlap and resource sharing
We are fortunate to have two strong
of people, ideas, and funding between the two
operational leaders, who themselves are
businesses, we are strong as One Albany.
supported by strong teams. Daniel
With that continuation of our existing strategy
as the back-drop, our priorities for the business
in 2020 are threefold.
First, we will continue the focus on
operational improvement. This focus on
Halftermeyer has a long history of driving
continuous improvement across the Machine
Clothing segment. The impressive margins
that the segment has delivered demonstrate
his team’s commitment building shareholder
value. Leading the Engineered Composites
continuous improvement and LEAN has helped
segment, we are fortunate to have Greg
net sales
USD MILLIONS
2017
2018
2019
863.7
982.5
1054.1
adjusted EBITDA (1)
USD MILLIONS
2017
2018
2019
169.4
228.9
265.4
(1) EBITDA from continuing operations, excluding restructuring charges, revaluation effects,
acquisition expenses, pension settlement/curtailment, retention expense, write-off of inven-
tory in discontinued businesses, sale of buildings or investments, insurance recovery gains in
excess of previous losses, and pretax income attributable to noncontolling interest, see item
7 in the 10-K included in in the Annual Report for a reconciliation of Adjusted EBITDA to Net
Income.
4
Harwell who joined us late last year.
Greg brings extensive experience leading
and operating global aerospace businesses.
I am confident that both these leaders have
the ability to continue to drive operational
improvements in their respective businesses.
Second, we will continue to focus on growth,
with a renewed focus on winning new business
in the Engineered Composites segment. Not
too long ago, we were in a position where we
had won so much business on the SAFRAN
LEAP engines, on the F-35 Joint Strike
Fighter, on the Boeing 787, and on the
Sikorsky Helicopter CH-53K, that we had to
demonstrate our ability to operationalize those
programs before expecting our customers to
trust us with additional work. We have made
a lot of progress, and we are now actively
pursuing and winning new business.
Third, we will continue to focus on technology
development. Our long-term vision is to bring
the next generation of advanced composite
materials to the marketplace. We are
excited by the opportunities in aerospace
and beyond for our 3D woven composite
materials. Similarly, in Machine Clothing our
technological innovation is critical to maintain
‘‘
We enter 2020 with a strong
balance sheet, low debt and
on a solid footing with our
customers in both segments.
‘‘
our leadership position and underpins the
value-added benefits we provide customers.
We believe that successfully executing
on our vision represents a tremendous
opportunity for our shareholders. We will
continue to deploy return-seeking capital
to maintain our leadership positions and to
drive organic growth.
In addition to organic growth, we have the
balance sheet and wherewithal to complete
I appreciate that Erland “Erkie” Kailborne
has stepped in as Chairman of the Board
to maintain continuity at the board level in
2020. I look forward to your support as we
grow this great company.
With warm regards,
acquisitions that support our strategy. In fact,
Bill Higgins
President and Chief Executive Officer
Albany International Corp.
we recently completed a small, high tech
acquisition in Germany – CirComp – which
brings us new material technologies and
capabilities. That said, our growth strategy
does not depend on completing acquisitions,
and we will be careful stewards of our
shareholders’ capital.
Our 2019 results are a strong indication that
our strategy remains sound and that the
long-term outlook for the business remains
strong. I am honored to serve as President
and CEO of Albany and look forward to
continuing to execute our strategy.
5
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France
Commercy AEC
St. Junien MC
GERMANY
Kaiserlautern AEC
Switzerland
Neuhausen MC HQ
Sweden
Halmstad MC R&D
CANADA
Cowansville, Québec MC
Perth, Ontario MC
ENGLAND
Bury, Lancashire MC R&D
Rochester, NH
Albany, NY
USA
CORPORATE OFFICES
MEXICO
Cuautitlán MC
Querétaro AEC
ITALY
Ballò di Mirano (VE) MC
19
Boerne, Texas AEC
Homer, New York MC R&D
Kaukauna, Wisconsin MC R&D
Menasha, Wisconsin MC
Rochester, New Hampshire AEC R&D
St. Stephen, South Carolina MC
Salt Lake City, Utah AEC
BRAZIL
Indaial MC
6
CHINA
Hangzhou MC
Panyu MC
S. KOREA
Chungju MC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2019
OR
M TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission file number: 1-10026
ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
216 Airport Drive, Rochester, New Hampshire
(Address of principal executive offices)
Delaware
(State or other jurisdiction of
incorporation or organization)
14-0462060
(IRS Employer
Identification No.)
03867
(Zip Code)
Registrant’s telephone number, including area code 603-330-5850
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, $0.001
par value per share
Class B Common Stock, $0.001
par value per share
Trading Symbol(s)
AIN
Name of each exchange on which registered
The New York Stock Exchange (NYSE)
AIN
The New York Stock Exchange (NYSE)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes A No M
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes M No A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Y es A No M
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Y es A No M
Indicate by check mark whether the Registrant is a large accelerated filer , an accelerated filer , a non-accelerated filer , a small reporting
company, or an emerging growth company. See the definitions of “lar ge accelerated filer ,” “accelerated filer ,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer A
Non-accelerated filer M
Accelerated filer M
Smaller reporting company M
Emerging growth company M
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. M
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes M No A
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 30, 2019, the last business day of
the registrant’s most recently completed second quarter, computed by reference to the price at which Common Stock was last sold on such a
date, was $2.5 billion.
The registrant had 30.7 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock outstanding as of
February 19, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 2020.
PART
III
7
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
15
25
25
25
25
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
26
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
48
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . 112
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Item 13. Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . . . 117
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
PART IV
8
Forward-Looking Statements
This annual report and the documents incorporated or deemed to be incorporated by reference in this
annual report contain statements concerning our future results and performance and other matters that are
“forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “plan,” “project,” “may,” “will,”
“should,” and variations of such words or similar expressions are intended, but are not the exclusive means, to
identify forward-looking statements. Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors that could cause actual results to
differ materially from the forward-looking statements, including, but not limited to:
• Conditions in the industries in which our Machine Clothing and Albany Engineered Composites
segments compete, along with the general risks associated with macroeconomic conditions;
• In the Machine Clothing segment, greater than anticipated declines in the demand for publication
grades of paper, or lower than anticipated growth in other paper grades, and continuation of
coronavirus effects for an extended period;
• In the Albany Engineered Composites segment, further delays in the Boeing 737 MAX return to
service, or unanticipated reductions in demand, delays, technical difficulties or cancellations in other
aerospace programs that are expected to drive growth;
• Failure to achieve or maintain anticipated profitable growth in our Albany Engineered Composites
segment; and
• Other risks and uncertainties detailed in this report and other periodic reports.
Further information concerning important factors that could cause actual events or results to be materially
different from the forward-looking statements can be found in “Business Environment Overview and Trends”
as well as in Item 1A - “Risk Factors”, in Item 7 of this annual report. Although we believe the expectations
reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to
foresee or identify all factors that could have a material and negative impact on our future performance. The
forward-looking statements included or incorporated by reference in this annual report are made on the basis
of our assumptions and analyses, as of the time the statements are made, in light of our experience and
perception of historical conditions, expected future developments, and other factors believed to be appropriate
under the circumstances.
Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking
to publicly release any updates or revisions to any forward-looking statement contained or incorporated by
reference in this annual report to reflect any change in our expectations with regard thereto or any change in
events, conditions, or circumstances on which any such statement is based.
9
Item 1.
Business
PART I
Albany International Corp. (the Registrant, the Company, we, us, or our) and its subsidiaries are engaged
in two business segments.
The Machine Clothing (“MC”) segment supplies permeable and impermeable belts used in the manufacture of
paper, paperboard, tissue and towel, pulp, nonwovens, fiber cement and several other industrial applications.
We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard,
tissue, and towel) for each section of the paper machine and for every grade of paper. We manufacture and sell
approximately twice as much paper machine clothing worldwide than any other company. Paper machine clothing
products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a
complex structure. The design and material composition of paper machine clothing can have a considerable effect on the
quality of paper products produced and the efficiency of the paper machines on which it is used. Principal paper machine
clothing products include forming, pressing, and drying fabrics, and process belts. A forming fabric assists in paper sheet
formation and conveys the very wet sheet (more than 75 percent water) through the forming section. Pressing fabrics are
designed to carry the sheet through the press section, where water is pressed from the sheet as it passes through the press
nip. In the drying section, drying fabrics manage air movement and hold the sheet against heated cylinders to enhance
drying. Process belts are used in the press section to increase dryness and enhance sheet properties, as well as in other
sections of the machine to improve runnability and enhance sheet qualities.
The MC segment also supplies customized, consumable fabrics used in the manufacturing process in the pulp,
corrugator, nonwovens, fiber cement, building products, and tannery and textile industries.
The MC segment sells its products directly to customer end-users in countries across the globe. MC products,
manufacturing processes, and distribution channels are substantially the same in each region of the world in which we
operate. The sales of paper machine clothing forming, pressing, and drying fabrics, individually and in the aggregate,
accounted for more than 10 percent of our consolidated net sales during one or more of the last three years. No
individual customer accounted for as much as 10 percent of MC segment net sales in any of the periods presented. A
majority of our MC segment’s net sales in the year ended December 31, 2019 were for use in the production of the
growing tissue, containerboard and other paper categories, while less than 25% of our MC segment’s net sales were for
the production of the declining newsprint and printing and writing papers categories.
The Albany Engineered Composites (“AEC”) segment, including Albany Safran Composites, LLC (“ASC”), in
which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered, advanced
composite structures to customers in the commercial and defense aerospace industries. AEC’s largest aerospace customer
is the SAFRAN Group and sales to SAFRAN (consisting primarily of fan blades and cases for CFM’s LEAP engine)
accounted for approximately 22 percent of the Company’s consolidated net sales in 2019. AEC, through ASC, is the
exclusive supplier to this program of advanced composite fan blades and cases under a long-term supply contract. The
LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets, the latter of which is currently under
a grounding order. Other significant programs served by AEC include the F-35, Boeing 787, Sikorsky CH-53K, and
JASSM programs. AEC also supplies vacuum waste tanks for the Boeing 7-Series programs, and specialty components
for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine. In 2019, approximately 25 percent
of the AEC segment’s sales were related to U.S. government contracts or programs.
See “Business Environment Overview and Trends” under Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, for a discussion of general segment developments in recent years.
Following is a table of Net sales by segment for 2019, 2018, and 2017.
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 601,254
452,878
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,054,132
2018
$611,858
370,621
$982,479
2017
$590,357
273,360
$863,717
The table setting forth certain sales, operating income, and balance sheet data that appears in Note 3,
“Reportable Segments and Geographic Data,” of the Consolidated Financial Statements, included under Item 8
of this Form 10-K, is incorporated herein.
10
International Operations
Our Machine Clothing business segment maintains manufacturing facilities in Brazil, Canada, China,
France, Italy, Mexico, South Korea, Sweden, the United Kingdom, and the United States. Our AEC business
segment maintains manufacturing facilities in the United States, France, Mexico, and Germany.
Our global presence subjects us to certain risks, including tariffs and other restrictions on trade, and
controls on foreign exchange and the repatriation of funds. While the direct impact to date of recent
developments in global trade and tariff policy has not been significant, there is a risk that the impact of such
developments on companies in our supply chain will be reflected in higher costs from af fected suppliers. We
have a cash repatriation strategy that targets a certain amount of foreign current year earnings that are not
indefinitely reinvested. While, to date, we have been able to make such repatriations without substantial
governmental restrictions, changes in the trade or regulatory compliance in any country that we have
significant cash balances could make it more difficult to repatriate foreign earnings cost-ef
fectively in
the future.
Working Capital, Customers, Seasonality, and Backlog
Payment terms granted to paper industry and other machine clothing customers reflect general
competitive practices. Terms vary with product, competitive conditions, and the country of operation. In some
markets, customer agreements require us to maintain significant amounts of finished goods inventories to
assure continuous availability of our products.
In addition to supplying paper, paperboard, and tissue companies, the MC segment is a leading supplier
to the nonwovens (which includes the manufacture of products such as diapers, personal care and household
wipes), building products, and tannery and textile industries. These non-paper industries have a wide range of
customers, with markets that vary from industrial applications to consumer use products.
The AEC segment primarily serves customers in the commercial and defense aerospace market through
both engine and airframe applications. Sales and working capital rose sharply in the last few years in this
segment. Additionally, growth in the future could lead to further increases in working capital levels.
In the MC segment, the Chinese New Year, summer months, and the end of the year are often periods of
lower production for some of our customers, which, in the past contributed to seasonal variation in sales and
orders. In recent years, shorter order cycles and lower inventory levels throughout the supply chain have
become a more significant factor in quarterly sales. The impact of these combined factors on any quarter can
be difficult to predict, and can make quarterly comparisons less meaningful than annual comparisons. While
seasonality is generally not a significant factor in the Albany Engineered Composites segment, the commercial
terms of the supply agreement governing the LEAP program resulted in fourth quarter sales volatility in
recent years.
Backlog in the MC segment was $165.6 million at December 31, 2019, compared to $170.5 million at
December 31, 2018. Backlog in the AEC segment decreased to $288.1 million at December 31, 2019,
compared to $393.3 million at December 31, 2018. The decrease reflects the grounding of the Boeing 737
MAX. All of the backlog in MC and approximately 95% of the AEC backlog is expected to be invoiced
during the next 12 months.
Research and Development and Technology
We invest in research, new product development, and technical analysis with the objective of maintaining
our technological leadership in each business segment. While much of our research activity supports existing
products, we also engage in significant research and development activities for new technology platforms,
products and product enhancements.
MC segment products are custom-designed for each user, depending on the type, size, and speed of the
machine, and the products being produced. Product design is also a function of the machine section, the grade
of product being produced, and the quality of the stock used. Technical expertise, judgment, and experience
are critical in designing the appropriate clothing for machine, position, and application. As a result, many
employees in sales and technical functions have engineering degrees, paper mill experience, or other
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manufacturing experience in the markets in which they operate. Our market leadership position reflects our
commitment to technological innovation. This innovation has resulted in a continuing stream of new MC
products and enhancements across all of our product lines.
Albany Engineered Composites designs, develops and manufactures advanced composite parts for
complex aerospace applications, using a range of core technologies, including its proprietary 3D-woven
reinforced composites technology, traditional 2D laminated composite structures, automated material
placement, filament winding, through-thickness reinforcement and braiding, and thermoplastic pultrusion.
In addition to continuous significant investment in core research and development activities in pursuit of
new proprietary products and manufacturing processes, experienced research and development employees in
each business segment also work collaboratively with customers, OEMs and suppliers on targeted
development efforts to introduce new products and applications in their respective markets.
Company-funded research expenses totaled $26.9 million in 2019, $29.8 million in 2018, and
$30.7 million in 2017. In 2019, these costs were 2.6 percent of total Company Net sales, including
$10.5 million, or 2.3 percent of Net sales, in our AEC segment. Research and development in the AEC
segment includes both Company-sponsored and customer-funded activities. Some customer funded research
and development may be on a cost sharing basis, in which case, amounts charged to the collaborating entity
are credited against research and development costs. For customer-funded research and development in which
we anticipate funding to exceed expenses, we include amounts charged to the customer in Net sales. Cost of
sales associated with customer-funded research was $6.8 million in 2019, $3.5 million in 2018, and
$4.7 million in 2017.
We have developed, and continue to develop, proprietary intellectual property germane to the industries
we serve. Our intellectual property takes many forms, including patents, trademarks, trade names and
domains, and trade secrets. Our trade secrets include, among other things, manufacturing know-how and
unique processes and equipment. Because intellectual property in the form of patents is published, we often
forgo patent protection and preserve the intellectual property as trade secrets. We aggressively protect our
proprietary intellectual property, pursuing patent protection when appropriate. Our active portfolio currently
contains over 2,400 patents, and approximately 250 new patents are typically granted each year. While we
consider our total portfolio of intellectual property, including our patents, to be an important competitive
advantage, we do not believe that any single patent is critical to the continuation of our business. All brand
names and product names are trade names of Albany International Corp. or its subsidiaries. We have from
time to time licensed some of our patents and/or know-how to one or more competitors, and have been
licensed under some competitors’ patents, in each case mainly to enhance customer acceptance of new
products. The revenue from such licenses is less than 1 percent of consolidated net sales.
Raw Materials
Primary raw materials for our MC products are polymer monofilaments and fibers, which have generally
been available from a number of suppliers. In addition, we manufacture polymer monofilaments, a basic raw
material for all types of machine clothing, at our facility in Homer, New York, which supplies approximately
30 percent of our worldwide monofilament requirements. In the AEC segment, the primary raw materials are
carbon fiber and resin. While there are a number of potential suppliers of carbon fiber and other raw materials
used by AEC, the use of certain suppliers may be mandated by customer agreements, and alternative suppliers
would be subject to material qualification or other requirements that may preclude or delay their availability .
In the case of mandated suppliers, AEC endeavors to enter into long-term supply agreements to help mitigate
price and availability risks. Currently, the primary raw materials used in each segment are derived from
petroleum, and are therefore sensitive to changes in the price of petroleum and petroleum intermediates.
Competition
In the paper machine clothing market, we believe that we had a worldwide market share of
approximately 30 percent in 2019, while the two largest competitors each had a market share of
approximately half of ours.
While some competitors in the MC segment tend to compete more on the basis of price, and others
attempt to compete more on the basis of technology, both are significant competitive factors in this industry .
Albany’s Machine Clothing product portfolio is broad and deep, with products for every part of the machine
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and a wide range of machine types and paper grades. The Company’s research and development team works
closely with the sales and technical organization to develop new products to meet changes in customer needs,
and also pursues targeted joint development activities with customers and equipment manufacturers to create
new products. Albany’s experienced sales and technical team members – many of whom have worked in the
industries that we serve - work closely with each customer to acquire deep understanding of the customer’s
combination of raw materials, manufacturing equipment, manufacturing processes, and paper, pulp, nonwovens
or other product being produced – a combination that is unique to each customer, plant and machine. This
experience and knowledge, combined with knowledge of and experience with the Company’s own extensive
product portfolio, allows the sales and technical teams to ensure that the appropriate machine clothing
products are being supplied for each part of the machine, to customize those products as needed for best
performance, and to continuously propose new products that offer each customer the possibility of even better
performance and increased savings. These efforts – which effectively integrate the Company’s experience and
technological expertise into each product we sell – are reflected in the Company’ s strong competitive position
in the marketplace. Some of the Company’s paper machine clothing competitors also supply paper machines,
papermaking equipment, and aftermarket parts and services, and often bundle clothing with original or rebuilt
machines and/or aftermarket services.
The primary competitive factors in the markets in which our Albany Engineered Composites segment
competes is product performance and price. Achieving lower weight without sacrificing strength is the key to
improving fuel efficiency , and is a critical performance requirement in the aerospace industry. Our broad array
of capabilities in composites enable us to offer customers the opportunity to displace metal components and,
in some cases, conventional composites with lower-weight, high-strength, and potentially high-temperature
resistant composites. The dominant competitive factor is how the customer weighs these performance benefits,
which include fuel savings due to lower weight, against the possible cost advantage of more traditional metal
and composite components.
Employees
We employ approximately 4,600 persons, of whom approximately 70 percent are engaged in the
manufacturing of our products. Wages and benefits are competitive with those of other manufacturers in the
geographic areas in which our facilities are located. In general, we consider our relations with employees to
be excellent.
A number of hourly employees outside of the United States are members of various unions.
Executive Officers of the Registrant
The following table sets forth certain information with respect to the executive officers of the Company
as of February 28, 2020:
A. William Higgins, 61, President and Chief Executive Officer , joined the Company in 2020. He has
served the Company as President and Chief Executive Officer since January 2020. He has been a director of
the Company since 2016 and served as Chairman of the Board from February 2019 until January 2020. From
2005 to 2012 he served CIRCOR International, Inc. in a variety of senior organizational positions, including
Chief Executive Officer and Chairman. Prior to joining CIRCOR, he held a variety of senior management
positions with Honeywell International and AlliedSignal.
Stephen M. Nolan, 50, Chief Financial Officer and T reasurer, joined the Company in 2019. He has
served the Company as Chief Financial Officer and Treasurer since April 2019. Prior to joining the Company,
he served as Chief Financial Officer of Esterline and previously held the same role at Vista Outdoor, Inc. He
previously worked in a number of strategic and operational management roles at ATK, including Senior Vice
President for Strategy and Business Development and several business unit leadership positions. Earlier in his
career, Mr. Nolan served in corporate development and strategy roles at Raytheon Company and as a strategy
consultant at McKinsey & Company.
Daniel A. Halftermeyer, 58, President – Machine Clothing, joined the Company in 1987. He has served
the Company as President – Machine Clothing since February 2012. He previously served the Company as
President – Paper Machine Clothing and Engineered Fabrics from August 2011 to February 2012, as
President – Paper Machine Clothing from January 2010 until August 2011, Group Vice President – Paper
Machine Clothing Europe from 2005 to August 2008, Vice President and General Manager – North American
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Dryer Fabrics from 1997 to March 2005, and Technical Director – Dryer Fabrics from 1993 to 1997. He held
various technical and management positions in St. Stephen, South Carolina, and Sélestat, France, from 1987
to 1993.
Greg Harwell, 56, President – Albany Engineered Composites, joined the Company in 2019. He has
served the Company as President - Albany Engineered Composites since November 2019. Prior to joining the
company, he served as President of Aerostructures for Precision Castparts (PCC) managing all aspects of the
organization for the Aerostructures division. He also served as Vice President and General Manager in charge
of Global Operations Strategy at Alcoa Fastening Systems and Rings, and before November 2014 served in a
number of operational positions within Alcoa Fastening Systems. Since March 2019, Mr. Harwell was a
consultant to Arlington Capital Partners, providing M&A advisory services.
Alice McCarvill, 55, Executive Vice President- Human Resources and Chief Human Resources Officer ,
joined the Company in 2018. She has served the Company as Executive Vice President- Human Resources
and Chief Human Resources Officer since February 2019 . She joined the Company in March 2018 as
Executive Vice President- Human Resources. Prior to 2018 she was Group VP Human Resources for Arconic
Engineered Products and Solutions.
Robert A. Hansen, 62, Senior Vice President and Chief Technology Officer , joined the Company in 1981.
He has served the Company as Senior Vice President and Chief Technology Officer since January 2010. He
previously served as Vice President – Corporate Research and Development from April 2006 to January 2010,
and Director of Technical and Marketing – Europe Press Fabrics from 2004 to April 2006. From 2000 to
2004, he served as Technical Director – Press Fabrics, Göppingen, Germany. Before 2000, he served the
Company in a number of technical management and research and development positions in Europe and
the U.S.
David M. Pawlick, 58, Vice President – Controller, joined the Company in 2000. He has served the
Company as Vice President – Controller since 2008, and as Director of Corporate Accounting from 2000 to
2008. From 1994 to 2000 he served as Director of Finance and Controller for Ahlstrom Machinery, Inc. in
Glens Falls, New York. Prior to 1994, he was employed as an Audit Manager for Coopers & Lybrand.
We are incorporated under the laws of the State of Delaware and are the successor to a New York
corporation originally incorporated in 1895, which was merged into the company in August 1987 solely for
the purpose of changing the domicile of the corporation. References to the Company that relate to any time
prior to the August 1987 merger should be understood to refer to the predecessor New York corporation.
Our Corporate Governance Guidelines, Business Ethics Policy, and Code of Ethics for the Chief
Executive Officer , Chief Financial Officer , and Controller, and the charters of the Audit, Compensation, and
Governance Committees of the Board of Directors are available at the Corporate Governance section of our
website (www.albint.com).
Our current reports on Form 8-K, quarterly reports on Form 10-Q, and annual reports on Form 10-K are
electronically filed with the Securities and Exchange Commission (the “SEC”), and all such reports and
amendments to such reports filed subsequent to November 15, 2002, have been and will be made available,
free of charge, through our website (www.albint.com) as soon as reasonably practicable after such filing. The
public may read and copy any materials filed by the Company with the SEC at the SEC’ s Public Reading
Room at 100 F Street, N.E., Room 1580, Washington, D.C. The public may obtain information on the
operation of the Public Reading Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
(www.sec.gov) that contains reports, proxy, information statements, and other information regarding issuers
that file electronically with the SEC.
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Item 1A. RISK FACTORS
The Company’s business, operations, and financial condition ar e subject to various risks. Some of these
risks are described below and in the documents incorporated by reference, and investors should take these
risks into account when evaluating any investment decision involving the Company. This section does not
describe all risks applicable to the Company, its industry or business, and it is intended only as a summary of
certain material factors.
A number of industry factors have had, and in future periods could have, an adverse impact on sales,
profitability and cash flow in the Company’
s MC and AEC segments
Significant consolidation and rationalization in the paper industry in recent years have reduced global
consumption of paper machine clothing in certain markets. Developments in digital media have adversely
affected demand for newsprint and for printing and writing grades of paper, which has had, and is likely to
continue to have, an adverse effect on demand for paper machine clothing in those markets. At the same time,
technological advances in papermaking, including in paper machine clothing, while contributing to the
papermaking efficiency of customers, have in some cases lengthened the useful life of our products and
reduced the number of pieces required to produce the same volume of paper. These factors have had, and in
future are likely to have, an adverse effect on paper machine clothing sales.
The market for paper machine clothing in recent years has been characterized by continuous pressure to
provide more favorable commercial terms, which has unfavorably affected our operating results. We expect
such pressure to remain intense in all paper machine clothing markets, especially during periods of customer
consolidation, plant closures, or when major contracts are being renegotiated. The emergence of Chinese
competitors exacerbates this risk.
Similar pressures exist in the markets in which AEC competes. A number of countries, including the
United States, have issued orders grounding Boeing 737 MAX aircraft. If these groundings cause a further
decrease in demand in production for this aircraft, it could have an adverse impact on demand for LEAP
engines which, in turn, could have an adverse impact on demand for our LEAP engine parts.
The LEAP long-term supply agreement contains certain events of default that, if triggered, could result in
termination of the agreement by the customer, which would also have a material adverse impact on segment
sales and profitability . Additionally, many of AEC’s customers, as well as the companies supplied by our
customers are under pressure to achieve acceptable returns on their substantial investments in recent years in
new technologies, new programs and new product introductions. This has contributed to a relentless focus on
reducing costs, resulting in continuous pressure for cost reduction and pricing improvement throughout the
supply chain. The recent wave of consolidation in the aerospace industry could continue or intensify
these pressures.
AEC is subject to significant execution risk related to the ramp up of key programs in the short and
medium term
AEC has a number of programs that are expected to grow in the next several years, including airframe
components for the F-35, forward fuselage frames for the Boeing 787, and sponsons, tail-rotor pylons,
horizontal stabilizers and struts for the CH-53K helicopter. AEC will be required to execute all of these
program ramp-ups while continuing to maintain and improve performance on legacy programs. AEC’s ability
to realize its full growth potential will depend on how effectively it accomplishes these goals. Failure to
accomplish these goals could have a material adverse impact on the amount and timing of anticipated AEC
revenues, income, and cash flows, which could in turn have a material adverse impact on our consolidated
financial results.
AEC is subject to significant financial risk related to potential quality escapes that could cause customer
recalls, or production shortfalls that could cause delays in customer deliveries
In the short term, AEC must continue to ramp up and mature its manufacturing capacity while meeting
increasingly demanding quality, delivery, and cost targets across a broad spectrum of programs and facilities.
In addition to LEAP, these programs include airframe components for the F-35, forward fuselage frames for
the Boeing 787, and sponsons, tail-rotor pylons, horizontal stabilizers and struts for the CH-53K helicopter.
AEC’s ability to realize its full financial objectives will depend on how ef fectively it meets these challenges.
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Failure to accomplish these customer quality, delivery, and cost targets on any key program could result in
material losses to the Company and have a material adverse impact on the amount and timing of anticipated
AEC revenues, income, and cash flows, which could in turn have a material adverse impact on our
consolidated financial results.
The long-term organic growth prospects of AEC are subject to a number of risks
The prospect of future successful organic growth in AEC depends in large part on its ability to maintain
and grow a healthy pipeline of potential new products and applications for its technologies, to transform a
sufficient number of those potential opportunities into commercial supply agreements, and to then execute its
obligations under such agreements. In addition, existing and future supply agreements, especially for
commercial and defense aerospace, are subject to the same curtailment or cancellation risks as the programs
they support.
AEC is currently working on a broad portfolio of potential new product applications in the aerospace
industry. These development projects may or may not result in commercial supply opportunities. In the event
that AEC succeeds in developing products and securing contracts to manufacture and supply them, it will face
the same industrialization and manufacturing ramp-up risks that it currently faces in its existing contracts, and
AEC may or may not be successful in meeting its obligations under these contracts. Failure to manage these
development, commercialization and execution risks could have a material adverse impact on AEC’s prospects
for revenue growth.
In addition to dealing with these development and manufacturing execution risks, future AEC growth
will likely require increasingly larger amounts of cash to fund the investments in equipment, capital, and
development efforts needed to achieve this growth. While AEC is starting to generate increasing amounts of
cash, it is not yet generating sufficient cash to fund this growth. Until that time, absent the incurrence of
additional indebtedness to fund this growth, AEC will remain dependent on the MC segment’s ability to
generate cash, and a significant decline in MC sales, operating income or cash flows could therefore have a
material adverse impact on AEC’s growth.
Long-term supply contracts in our Albany Engineered Composites segment pose certain risks
AEC has a number of long-term contracts with fixed pricing, and is likely to enter into similar contracts
in the future. While long-term contracts provide an opportunity to realize steady and reliable revenues for
extended periods, they pose a number of risks, such as program cancellations, reductions or delays in orders
by AEC’s customers under these contracts, the termination of such contracts or orders, or the occurrence of
similar events over which AEC has no or limited control. The occurrence of one or more of these events
could have a material adverse effect on AEC revenues and earnings in any period. Such events could also
result in the write-off of deferred charges that have been accumulated in anticipation of future revenues.
While long-term fixed-price contracts also provide AEC with the opportunity to enjoy increased profits as
the result of cost reductions and efficiencies, their profitability is dependent on estimates and assumptions
regarding contract performance costs over the life of the contract, which in some cases can last for many
years. Such estimates and assumptions are subject to many variables, and may prove over time to have been
inaccurate when made, or may become inaccurate over time, which can lead to volatility of AEC’s earnings in
the any period. Additionally, many of the parts AEC agrees to develop and produce have highly complex
designs, and challenging technical, quality, and engineering specifications. Manufacturing or development
challenges, disagreements over technical, quality or other contract requirements, and other variables may arise
during development or production that result in higher costs, or an inability to achieve required specifications.
If actual production and/or development costs should prove higher, or revenues prove lower, than AEC’s
estimates, our expected profits may be reduced, or if such costs should exceed contract prices, we may be
required to recognize losses for current or future periods. One or more of these events could have a material
adverse effect on AEC’s revenues or operating results in any period. Such events could also result in the
write-off of deferred charges that have been or could be accumulated in anticipation of future revenues.
In the second quarter of 2017, AEC recorded a charge of $15.8 million related to the revision in the
estimated profitability of its BR725 and A380 programs. The charge was driven primarily by a reduction in
the estimated future demand in these long-term contracts. Each quarter, the Company updates its outlook for
each of its long-term contracts and records the effect of the change in estimated profitability . While the
16
Company believes its estimates on long-term contracts to be accurate based on available information, new
information may become available in future periods, or other changes in the program could occur, which may
lead to additional program losses, which could have a material effect on operating results in future periods.
Sales of components for a number of programs that are currently considered to be important to the future
sales growth of AEC are pursuant to short-term purchase orders for a finite period or number of parts, or
short-term supply agreements with terms of one to four years. Such programs include airframe components for
the F-35, forward fuselage frames for the Boeing 787, and sponsons, tail-rotor pylons, horizontal stabilizers
and struts for the CH-53K helicopter. As a result, while AEC reasonably expects to continue as a supplier on
these programs as long as it meets its obligations, there can be no assurance that this will be the case, or that,
in programs where it is currently a sole supplier that this sole supplier status will continue even if it continues
as a supplier. Even if AEC’s status as a supplier is extended or renewed, there can be no assurance that such
extension or renewal will be on the same or similar commercial or other terms. Any failure by AEC to
maintain its current supplier status under these programs, or any material change in their commercial or other
terms, could have a material adverse effect on AEC’s future sales and operating income.
AEC is subject to significant risks related to the potential manufacture and sale of defective or
non-conforming products
AEC manufactures and sells products that are incorporated into commercial and military aircraft. If AEC
were to supply products with manufacturing defects, or products that failed to conform to contractual
requirements, we could be required to recall and/or replace them, and could also be subject to substantial
contractual damages or warranty claims from our customers. AEC could also be subject to product liability
claims if such failures were to cause death, injury or losses to third parties, or damage claims resulting from
the grounding of aircraft into which such defective or non-conforming products had been incorporated. While
we maintain product liability insurance and other insurance at levels we believe to be prudent and consistent
with industry practice to help mitigate these risks, these coverages may not be sufficient to fully cover AEC’s
exposure for such risks, which could have a material adverse effect on AEC’s results of operations and
cash flows.
Deterioration of current global economic conditions could have an adverse impact on the Company’s
business and results of operations
The Company identifies in this section a number of risks, the ef fects of which may be exacerbated by an
unfavorable economic climate. For example, a recession could lead to lower consumption in all paper grades
including tissue and packaging, which would not only reduce consumption of paper machine clothing but
could also increase the risk of greater price competition in the machine clothing industry.
Similarly, in the Company’s AEC segment, a decline in global or regional economic conditions could
result in lower orders for aircraft or aircraft engines, or the cancellation of existing orders, which would in
turn result in reduced demand for the AEC components utilized on such aircraft or engines. Demand for
AEC’s light-weight composite aircraft components is driven by demand for the lighter, more fuel-efficient
aircraft engine and other applications into which they are incorporated, such as the CFM LEAP engine. Fuel
costs are a significant part of operating costs for airlines and, in many cases, may constitute a carrier ’s single
largest operating expense. A sustained drop in oil prices, and related decline in the price of jet fuel, could
prompt airlines to defer orders or delivery dates for such newer, more fuel-efficient airframes and aircraft
engines, as the urgency to reduce fuel consumption may be lessened. In addition, any economic conditions
that led to sustained high interest rates could affect the airline’s ability to finance new aircraft and
engine orders.
Weak or unstable economic conditions also increase the risk that one or more of our customers could be
unable to pay outstanding accounts receivable, whether as the result of bankruptcy or an inability to obtain
working capital financing from banks or other lenders. In such a case, we could be forced to write of f such
accounts, which could have a material adverse effect on our business, financial condition, or operating results.
Furthermore, both the MC and AEC business segments manufacture products that are custom-designed for a
specific customer application. In the event of a customer liquidity issue, the Company could also be required
to write off amounts that are included in Contract assets or Inventories. In the case of AEC, such write-offs
could also include investments in equipment, tooling, and non-recurring engineering, some of which could be
significant depending on the program.
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AEC derives a significant portion of its revenue from contracts with the U.S. government, which are subject
to unique risks
The funding of U.S. government programs is subject to congressional appropriations. Many of the U.S.
government programs in which we participate may last several years, but they are normally funded annually.
Changes in military strategy and priorities may affect future opportunities and/or existing programs.
Long-term government contracts and related orders are subject to cancellation, delay or restructure, if
appropriations for subsequent performance periods are not made. The termination or reduction of funding for
existing or new U.S. government programs could result in a material adverse effect on our earnings, cash flow
and financial position.
Additionally, our business with the U.S. government is subject to specific procurement regulations and
our contract costs are subject to audits by U.S. government agencies. U.S. government representatives may
audit our compliance with government regulations, and such audits could result in adjustments to our contract
costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs
already reimbursed must be refunded. If any audit uncovers improper or illegal activities, we may be subject
to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S.
government, which could result in a material adverse effect on our earnings, cash flow and financial position.
The loss of one or more major customers could have a material adverse effect on sales and profitability
One customer (Safran) accounted for approximately 50 percent of Net sales in the AEC segment in 2019,
substantially all of which was under an exclusive long-term supply agreement relating to parts for the LEAP
engine. Although we are an exclusive supplier of such parts, our customer is not obligated to purchase any
minimum quantity of parts, and cancellation or significant reduction in demand for the LEAP program would
have a material adverse impact on segment sales and profitability . LEAP engines are currently used on the
Boeing 737 MAX, Airbus A320neo and COMAC aircraft. The grounding of the Boeing 737 MAX noted
above led to lower deliveries of parts in 2019 and could result in significantly lower revenue in future periods
than previously expected.
The LEAP long-term supply agreement contains certain events of default that, if triggered, could result in
termination of the agreement by the customer, which would also have a material adverse impact on segment
sales and profitability .
AEC’s short- and medium-term non-LEAP future sales growth is currently limited to and dependent upon
a small number of customers and programs. Unlike the 3D-woven composite components supplied by ASC,
parts supplied for such non-LEAP programs are capable of being made by a number of other suppliers. Such
programs include airframe components for the F-35, forward fuselage frames for the Boeing 787, and
sponsons, tail-rotor pylons, horizontal stabilizers and struts for the CH-53K helicopter. Any failure by AEC to
maintain its current supplier status under these programs, or any material change in their commercial or other
terms, could have a material adverse effect on AEC’s future sales and operating income.
Our top ten customers in the MC segment accounted for a significant portion of our Net sales in 2019.
The loss of one or more of these customers, or a significant decrease in the amount of machine clothing they
purchase from us, could have a material adverse impact on segment sales and profitability . We could also be
subject to similar impacts if one or more such customers were to suffer financial difficulties and be unable to
pay us for products they have purchased. While we normally enter into long-term supply agreements with
significant MC customers, the agreements generally do not obligate the customer to purchase any products
from us, and may be terminated by the customer at any time with appropriate notice.
The Company may experience supply constraints due to a limited number of suppliers of certain raw
materials and equipment
There are a limited number of suppliers of polymer fiber and monofilaments, key raw materials used in
the manufacture of Machine Clothing, and of carbon fiber and carbon resin, key raw materials used by AEC.
In addition, there are a limited number of suppliers of some of the equipment used in each of the MC and
AEC segments. While we have always been able to meet our raw material and equipment needs, the limited
number of suppliers of these items creates the potential for disruptions in supply. AEC currently relies on
single suppliers to meet the carbon fiber and carbon resin requirements for the LEAP program. Lack of
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supply, delivery delays, or quality problems relating to supplied raw materials or for our key manufacturing
equipment could harm our production capacity, and could require the Company to attempt to qualify one or
more additional suppliers, which could be a lengthy, expensive and uncertain process. Such disruptions could
make it difficult to supply our customers with products on time, which could have a negative impact on our
business, financial condition, and results of operations.
Some of the Company’s competitors in the MC segment have the capability to make and sell paper
machines and papermaking equipment as well as other engineered fabrics
Although customers historically have tended to view the purchase of paper machine clothing and the
purchase of paper machines as separate purchasing decisions, the ability to bundle fabrics with new machines
and after-market services could provide an advantage to our competitors. This underscores the importance of
our ability to maintain the technological competitiveness and value of our products, and a failure to do so
could have a material adverse effect on our business, financial condition, and results of operations.
Moreover, we cannot predict how the nature of competition in this segment may continue to evolve as a
result of future consolidation among our competitors, or consolidation involving our competitors and other
suppliers to our customers.
Conditions in the paper industry have required, and could further require, the Company to reorganize its
operations, which could result in significant expense and could pose risks to the Company’ s operations
During the last several years, we have engaged in significant restructuring that included the closing of
manufacturing operations. These restructuring activities were intended to match manufacturing capacity to
shifting global demand, and also to improve the efficiency of manufacturing and administrative processes.
Future shifting of customer demand, the need to reduce costs, or other factors could cause us to determine in
the future that additional restructuring steps are required. Restructuring involves risks such as employee work
stoppages, slowdowns, or strikes, which can threaten uninterrupted production, maintenance of high product
quality, meeting of customers’ delivery deadlines, and maintenance of administrative processes. Increases in
output in remaining manufacturing operations can likewise impose stress on these remaining facilities as they
undertake the manufacture of greater volume and, in some cases, a greater variety of products. Competitors
can be quick to attempt to exploit these situations. Although we plan each step of the process carefully, and
work to reassure customers who could be affected that their requirements will continue to be met, we could
lose customers and associated revenues if we fail to execute properly.
Natural disasters at one or more of our facilities could make it difficult for us to meet our supply
obligations to our customers
AEC’s production of LEAP engine components is currently located in three facilities. A natural disaster
at any of these locations would have a significant adverse ef fect on AEC’s ability to timely satisfy orders for
LEAP components. Production of almost all of AEC’s other legacy and growth programs – including
components for the F-35, fuselage components for the Boeing 787, components for the CH-53K helicopter,
vacuum waste tanks for Boeing 7-Series aircraft, and missile bodies for Lockheed Martin’s JASSM
air-to-surface missiles – is located primarily in facilities in Salt Lake City, Utah or Boerne, Texas.
Significant consolidation of manufacturing operations in our MC segment over the past decade has
reduced the number of facilities available to produce our products, and increased utilization significantly at
remaining facilities. Not all product lines are produced at, or capable of being produced at, all facilities. We
have Machine Clothing facilities located near Mexico City, which has been identified as an area vulnerable to
flood, storm sur ge and earthquake risks, and in the Pearl River Delta area of China, which has been identified
as vulnerable to flood, storm and storm sur ge risks. Additionally, the recent outbreak of the coronavirus has
impacted our two manufacturing plants in China.
A significant interruption in the operation of any one or more of our plants, whether as the result of a
natural disaster or other causes, could significantly impair our ability to timely meet our supply obligations to
customers being supplied from an affected facility. While the occurrence of a natural disaster or other business
interruption event in an area where we have a facility may not result in any direct damage to the facility
itself, it may cause disruptions in local transportation and public utilities on which such locations are reliant,
19
and may also hinder the ability of affected employees to report for work. Although we carry property and
business interruption insurance to help mitigate the risk of property loss or business interruption that could
result from the occurrence of such events, such coverage may not be adequate to compensate us for all loss or
damage that we may incur.
The Company is increasingly dependent on information technology and our business, systems, assets and
infrastructure face certain risks, including cybersecurity and data leakage risks. The failure to prevent
attacks on our operational systems or infrastructure could result in disruptions to our businesses, or the
loss or disclosure of confidential and proprietary intellectual property or other assets
As our dependence on information technology and communication systems has increased, so have the
risks associated with cyber-attacks from third parties attempting to gain access to our systems, data, or assets
using varied means, from electronic “hacking” to traditional social engineering aimed at our employees. The
Company has been, and will likely continue to be, the target of such attacks, none of which have, individually
or in the aggregate, been material to the Company.
Any significant breakdown, invasion, destruction or interruption of our business systems by employees,
others with authorized access to our systems, or unauthorized persons could negatively impact operations.
There is also a risk that we could experience a business interruption, theft of information or other assets, or
reputational damage. While we have made, and will continue to make, significant investments in business
systems, information technology infrastructure, internal controls systems and employee training to attempt to
reduce these risks, there can be no assurance that our efforts will prevent breakdowns, losses or breaches that
could have a material adverse effect on our business, financial position and results of operations.
Inflation as a result of changes in prices of commodities and labor costs may adversely impact our
financial results of operations
The Company is a significant user of raw materials that are based on petroleum or petroleum derivatives.
Increases in the prices of petroleum or petroleum derivatives, particularly in regions that are experiencing
higher levels of inflation, could increase our costs, and we may not be able to fully of fset the effects through
price increases, productivity improvements, and cost-reduction programs.
The Company also relies on the labor market in many regions of the world to meet our operational
requirements, advance our technology and differentiate products. Low rates of unemployment in key
geographic areas in which the Company operates can lead to high rates of turnover and loss of critical talent,
which could in turn lead to higher labor costs.
Fluctuations in currency exchange rates could adversely affect the Company’s business, financial condition,
and results of operations
We operate our business in many regions of the world, and currency rate movements can have a
significant ef fect on operating results. The effect of currency rate changes on gross profit in the MC segment
can be difficult to anticipate because we use a global sourcing and manufacturing model. Under this model,
while some non-U.S. sales and associated costs are in the same currency, other non-U.S. sales are
denominated in currencies other than the currency in which most costs of such sales are incurred. At the same
time, the geographic sources of materials purchased (and the currencies in which these purchases are
denominated) can vary depending on market forces, and the Company may also shift production of its
products between manufacturing locations, which can result in a change in the currency in which certain costs
to produce such products are incurred.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, general
and administrative expenses or Other expense, net. Revaluation gains and losses occur when our business
units have cash, intercompany or third-party trade receivable or payable balances in a currency other than
their local reporting (or functional) currency. Operating results can also be affected by the translation of sales
and costs, for each non-U.S. subsidiary, from the local functional currency to the U.S. dollar. The translation
effect on the income statement is dependent on our net income or expense position in each non-U.S. currency
in which we do business. A net income position exists when sales realized in a particular currency exceed
expenses paid in that currency; a net expense position exists if the opposite is true.
As a result of these exposures to foreign currency transactions and balances, changes in currency rates
could adversely affect the Company’s business, financial condition or results of operations.
20
The Company may fail to adequately protect its proprietary technology, which would allow competitors or
others to take advantage of its research and development efforts
Proprietary trade secrets are a source of competitive advantage in each of our segments. If our trade
secrets were to become available to competitors, it could have a negative impact on our competitive strength.
We employ measures to maintain the confidential nature of these secrets, including maintaining employment
and confidentiality agreements; maintaining clear policies intended to protect such trade secrets; educating our
employees about such policies; clearly identifying proprietary information subject to such agreements and
policies; and vigorously enforcing such agreements and policies. Despite such measures, our employees,
consultants, and third parties to whom such information may be disclosed in the ordinary course of our
business may breach their obligations not to reveal such information, and any legal remedies available to us
may be insufficient to compensate our damages.
We have a substantial amount of indebtedness. At December 31, 2019, the Company had outstanding
long-term debt of $424 million
At December 31, 2019, our leverage ratio (as defined in our primary borrowing agreement) was 1.35
to 1, and we had borrowed $424 million under our $685 million revolving credit facility. While we feel that
we generate sufficient cash from operations and have sufficient borrowing capacity to make required capital
expenditures to maintain and grow our business, any decrease in our cash generation could result in higher
leverage. Higher leverage could hinder our ability to make acquisitions, capital expenditures, or other
investments in our businesses, pay dividends, or withstand business and economic downturns. Our primary
borrowing agreement contains a number of covenants and financial ratios that the Company is required to
satisfy. The most restrictive of these covenants pertain to prescribed leverage and interest coverage ratios and
asset dispositions. Any breach of any such covenants or restrictions would result in a default under such
agreement that would permit the lenders to declare all borrowings under such agreement to be immediately
due and payable and, through cross-default provisions, could entitle other lenders to accelerate their loans. In
such an event, the Company would need to modify or restructure all or a portion of such indebtedness.
Depending on prevailing economic conditions at the time, the Company might find it difficult to modify or
restructure the debt on attractive terms, or at all.
We use interest rate swap agreements to help manage the interest cost associated with our borrowings.
We account for those swaps as a hedge of future cash flows and, accordingly , changes in the fair value of the
swaps are recorded in Other comprehensive income. Borrowings under the revolving credit facility and the
interest rate swaps are currently based on LIBOR, which is expected to be phased out and replaced by the end
of 2021. Future changes in the interest rate benchmark could affect the Company’s cash flows, or the
effectiveness of the swap agreements, which could have an effect on net income.
As of December 31, 2019, we had approximately $261 million of additional borrowing capacity under
our $685 million revolving credit facility. Incurrence of additional indebtedness could increase the
above-described risks associated with higher leverage. In addition, any such indebtedness could contain terms
that are more restrictive than our current facilities.
The Company is subject to legal proceedings and legal compliance risks, and has been named as defendant
in a large number of suits relating to the actual or alleged exposure to asbestos-containing products
We are subject to a variety of legal proceedings. Pending proceedings that the Company determines are
material are disclosed in Note 21 to the Consolidated Financial Statements in Item 8, which is incorporated
herein by reference. Litigation is an inherently unpredictable process and unanticipated negative outcomes are
always possible. An adverse outcome in any period could have an adverse impact on the Company’s operating
results for that period.
We are also subject to a variety of legal compliance risks. While we believe that we have adopted
appropriate risk management and compliance programs, the global and diverse nature of our operations means
that legal compliance risks will continue to exist and related legal proceedings and other contingencies, the
outcome of which cannot be predicted with certainty, are likely to arise from time to time. Failure to resolve
successfully any legal proceedings related to compliance matters could have an adverse impact on our results
in any period.
21
Changes in actuarial assumptions and differences between actual experience and assumptions could
adversely affect our pension and postretirement benefit costs and liabilities
Although we have reduced pension liabilities by a significant amount during the past few years, as of
December 31, 2019, remaining net liabilities under our defined benefit pension plans exceeded plan assets by
$15.5 million ($7.5 million for the U.S. plan, $8.0 million for non-U.S. plans). Additionally, the liability for
unfunded postretirement welfare benefits, principally in the United States, totaled $54.4 million. Annual
expense associated with these plans, as well as annual cash contributions, are subject to a number of variables,
including discount rates, return on plan assets, mortality, and differences between actuarial assumptions and
actual experience. Those liabilities include $74.6 million of deferred costs which are included in Accumulated
other comprehensive income. The deferred costs will be amortized into expense in future periods, or a
significant char ge could be recorded if we were to settle pension or postretirement obligations.
Although the Company has taken actions to hedge certain pension plan assets to the pension liabilities,
weakness in investment returns on plan assets, changes in discount rates or actuarial assumptions, and actual
future experience could result in higher benefit plan expense and the need to increase pension plan
contributions in future years.
The Company is exposed to the risk of increased expense in health-care related costs
We are largely self-insured for some employee and business risks, including health care and workers’
compensation programs in the United States. Losses under all of these programs are accrued based upon
estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with
assistance from third-party actuaries and service providers. However, these liabilities are difficult to assess and
estimate due to unknown factors, including the severity of an illness or injury and the number of incidents not
reported. The accruals are based upon known facts and historical trends, and management believes such
accruals to be adequate. The Company also maintains stop-loss insurance policies to protect against
catastrophic claims above certain limits. If actual results significantly dif fer from estimates, our financial
condition, results of operations, and cash flows could be materially impacted by losses under these programs,
as well as higher stop-loss premiums in future periods.
Changes in or interpretations of tax rules, structures, country profitability mix, and regulations may
adversely affect our effective tax rate
We are a United States-based multinational company subject to tax in the United States and foreign tax
jurisdictions. Unanticipated changes in tax rates, or tax policies in the countries in which we operate, could
affect our future results of operations. Our future effective tax rate could be unfavorably affected by changes
in or interpretation of tax rules and regulations in the jurisdictions in which we do business, by structural
changes in the Company’s businesses, by unanticipated decreases in the amount of revenue or earnings in
countries with low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities.
Additionally, changes in the tax laws in any country may be difficult to interpret without additional guidance,
which could lead to future adjustments to our financial statements.
The Company has substantial deferred tax assets that could become impaired, resulting in a charge to
earnings
The Company has substantial deferred tax assets in several tax jurisdictions, including the U.S.
Realization of deferred tax assets is dependent upon many factors, including generation of future taxable
income in specific countries. (See Note 7 to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference, for a discussion of this matter.) Lower than expected operating results,
organizational changes, or changes in tax laws could result in those deferred tax assets becoming impaired,
thus resulting in a charge to earnings.
Our business could be adversely affected by adverse outcomes of pending or future tax audits
The Company is currently under audit in certain jurisdictions and could be audited in other jurisdictions
in the future. While the Company believes its tax filings to be correct, a final adverse outcome with respect to
pending or future audits could have a material adverse impact on the Company’s results in any period in
which it occurs.
22
The Company’s insurance coverage may be inadequate to cover other significant risk exposures
In addition to asbestos-related claims, the Company may be exposed to other liabilities related to the
products and services we provide. AEC is engaged in designing, developing, and manufacturing components
for commercial jet aircraft and defense and technology systems and products. We expect this portion of the
business to grow in future periods. Although we maintain insurance for the risks associated with this business,
there can be no assurance that the amount of our insurance coverage will be adequate to cover all claims or
liabilities. In addition, there can be no assurance that insurance coverage will continue to be available to us in
the future at a cost that is acceptable. Any material liability not covered by insurance could have a material
adverse effect on our business, financial condition, and results of operations.
The Company has significant manufacturing operations outside of the U.S., which could involve many
uncertainties
We currently have manufacturing facilities outside the U.S. In 2019, 46 percent of consolidated Net sales
were generated by our non-U.S. subsidiaries. Operations outside of the U.S. are subject to a number of risks
and uncertainties, including: governments may impose limitations on our ability to repatriate funds;
governments may impose withholding or other taxes on remittances and other payments from our non-U.S.
operations, or the amount of any such taxes may increase; an outbreak or escalation of any insurrection or
armed conflict may occur; governments may seek to nationalize our assets; or governments may impose or
increase investment barriers or other restrictions affecting our business. In addition, emerging markets pose
other uncertainties, including the protection of our intellectual property, pressure on the pricing of our
products, and risks of political instability. The occurrence of any of these conditions could disrupt our
business or prevent us from conducting business in particular countries or regions of the world.
We have significant manufacturing operations in Mexico, Canada and China. Changes in U.S. trade
policy with these countries, or other changes in U.S. laws and policies governing foreign trade, as well as any
responsive or retaliatory changes in regulations or policies by such countries, could have an adverse impact on
our business, either directly or in the form of increased costs due to their impacts on our supply chain. While
the direct impact to date of recent developments in global trade and tariff policy has not been significant,
there is a risk that the impact of such developments on companies in our supply chain will be reflected in
higher costs from affected suppliers. In addition, the Company has manufacturing operations in the United
Kingdom that could be impacted by uncertainties surrounding Brexit.
Our global presence subjects us to certain risks, including controls on foreign exchange and the
repatriation of funds. While we have been able to repatriate current earnings in excess of working capital
requirements from certain countries in which we operate without substantial governmental restrictions, there
can be no assurance that we will be able to cost effectively repatriate foreign earnings in the future.
The Company is subject to laws and regulations worldwide, changes to which could increase our costs and
have a material adverse effect on our financial condition or results of operations
The Company is subject to laws and regulations relating to employment practices and benefits, taxes,
import and export matters, corruption, foreign-exchange controls, competition, workplace health and safety,
intellectual property, health-care, the environment and other areas. These laws and regulations have a
significant impact on our domestic and international operations.
We incur significant expenses to comply with laws and regulations. Changes or additions to laws and
regulations could increase these expenses, which could have an adverse impact on our financial condition and
results of operations. Such changes could also have an adverse impact on our customers and suppliers, which
in turn could adversely impact the Company.
While we have implemented policies and training programs designed to ensure compliance, there can be
no assurance that our employees or agents will not violate such laws, regulations or policies, which could
have a material adverse impact on our financial condition or results of operations.
23
The Standish Family continues to have considerable influence over the management and af fairs of the
Company and matters requiring stockholder approval
As of May 8, 2019, the Standish Family held in the aggregate shares entitling them to cast approximately
52.7 percent of the combined votes entitled to be cast by all stockholders of the Company. After a public
offering of a portion of their shares, the Standish Family now holds in the aggregate shares entitling them to
cast approximately 34.5 percent of the combined votes entitled to be cast by all stockholders of the Company.
As a result, we are no longer a “controlled company” within the meaning of the corporate governance
requirements of the NYSE. Pursuant to these requirements, our Compensation Committee and Governance
Committee are now required to be composed entirely of “independent directors” (as defined by NYSE listing
rules), and a majority of our board of directors are required to be independent. Even before such offering, a
majority of our board of directors and these two committees consisted of directors that our board of directors
had determined to be independent. Even though we are no longer a “controlled company” under NYSE listing
rules, the Standish Family will continue to have considerable influence over the management and af fairs of the
Company and matters requiring stockholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or preventing a change in control or a
merger, consolidation, or other business combination at a premium price, even if such transaction were
favored by our other stockholders.
Certain provisions of our Certificate of Incorporation, our Bylaws and Delaware law could hinder , delay or
prevent a change in control of us that you might consider favorable, which could also adversely affect the
price of our Class A Common Stock
Certain provisions under our Certificate of Incorporation, our Bylaws and Delaware law could
discourage, delay or prevent a transaction involving a change in control of the Company, even if doing so
would benefit our stockholders. These provisions could delay or prevent a change in control and could limit
the price that investors might be willing to pay in the future for shares of our Class A Common Stock.
Our Certificate of Incorporation authorizes our board of directors to issue new series of preferred stock
without stockholder approval. Depending on the rights and terms of any new series created, and the reaction
of the market to the series, the rights or value of our Class A Common Stock could be negatively affected.
For example, subject to applicable law, our board of directors could create a series of preferred stock with
superior voting rights to our existing common stock. The ability of our board of directors to issue this new
series of preferred stock could also prevent or delay a third party from acquiring us, even if doing so would
be beneficial to our stockholders.
We may not pay cash dividends on our Class A Common Stock
It is our current practice to pay cash dividends on our common stock. There can be no assurance,
however, that we will pay dividends in the future in the amounts that we have in the past, or at all. Our board
of directors may change the timing and amount of any future dividend payments or eliminate the payment of
future dividends in its sole discretion, without any prior notice to our stockholders. Our ability to pay
dividends will depend upon many factors, including our financial position and liquidity , results of operations,
legal requirements, restrictions that may be imposed by the terms of our current and future credit facilities and
other debt obligations and other factors deemed relevant by our board of directors. For example, we have a
substantial amount of indebtedness and while we feel that we generate sufficient cash from operations and
have sufficient borrowing capacity to make required capital expenditures to maintain and grow our business,
any decrease in our cash generation could result in higher leverage. Higher leverage could hinder our ability
to make acquisitions, capital expenditures, or other investments in our businesses, pay dividends, or withstand
business and economic downturns.
In the future, we may also enter into other credit agreements or other borrowing arrangements or issue
debt securities that, in each case, restrict or limit our ability to pay cash dividends on our Class A Common
Stock. In addition, since a significant portion of our cash is generated from operations of our subsidiaries, our
ability to pay dividends is in part dependent on the ability of our subsidiaries – some of which are located
outside of the United States – to make distributions to us. Such distributions will be subject to their operating
results, cash requirements and financial condition, as well as our ability to repatriate cash held by non-U.S.
subsidiaries. Any change in the level of our dividends or the suspension of the payment thereof could
adversely affect the market price of our Class A Common Stock.
24
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research
about our business, our stock price and trading volume could decline
The trading market for our Class A Common Stock depends in part on the research and reports that
securities or industry analysts publish about us or our business. If one or more of the analysts who covers us
downgrades our Class A Common Stock or publishes inaccurate or unfavorable research about our business,
our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish
reports on us regularly, demand for our Class A Common Stock could decrease, which could cause our stock
price and trading volume to decline.
Future sales of shares by us or our existing stockholders could cause our stock price to decline
Sales of substantial amounts of our common stock in the public market, or the perception that these sales
could occur, could cause the market price of our common stock to decline or might make it more difficult for
us to sell equity securities in the future at a time and at a price that we deem appropriate.
As of February 19, 2020 we had 30,690,022 shares of Class A Common Stock outstanding and 1,617,998
shares of Class B Common Stock outstanding, each of which is convertible at any time into an equal number
of shares of Class A Common Stock. In addition, shares of Class A Common Stock are issuable upon the
exercise of outstanding stock options or the vesting of outstanding equity awards, and certain shares are
reserved for future issuance under our equity compensation plans.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Our principal manufacturing facilities are located in Brazil, Canada, China, France, Germany, Italy,
Mexico, South Korea, Sweden, the United Kingdom, and the United States. The aggregate square footage of
our operating facilities in the United States is approximately 2.0 million square feet, of which 1.1 million
square feet are owned and 0.9 million square feet are leased. Our facilities located outside the United States
comprise approximately 3.6 million square feet, of which 3.1 million square feet are owned and 0.5 million
square feet are leased. We consider these facilities to be in good condition and suitable for our purpose. The
capacity associated with these facilities is adequate to meet production levels required and anticipated
through 2020.
Item 3.
LEGAL PROCEEDINGS
The information set forth above under Note 21 to the Consolidated Financial Statements in Item 8, which
is incorporated herein by reference.
Item 4.
MINE SAFETY DISCLOSURES
None.
25
PART II
Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with
a par value of $0.001 and equal liquidation rights. Our Class A Common Stock is principally traded on the
New York Stock Exchange under the symbol AIN. According to Broadridge, as of December 31, 2019, there
were over 20,000 beneficial owners of our Class A Common Stock, including employees owning shares
through our 401(k) defined contribution plan. Our Class B Common Stock does not trade publicly . As of
December 31, 2019, there were 6 holders of Class B Common Stock. Dividends are paid equally on shares of
each class. Our cash dividends, and the high and low prices per share of our Class A Common Stock, were as
follows for the periods presented:
Quarter Ended
2019
Cash dividends per share . . . . . . . . . . . . . . .
Class A Common Stock prices:
March 31
June 30
September 30
December 31
$ 0.18
$ 0.18
$ 0.18
$ 0.19
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78.45
$60.82
$82.91
$69.29
$91.51
$78.41
$90.30
$75.92
2018
Cash dividends per share . . . . . . . . . . . . . . .
Class A Common Stock prices:
$ 0.17
$ 0.17
$ 0.17
$ 0.18
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$67.30
$60.05
$65.45
$58.35
$81.40
$60.70
$78.31
$58.41
26
The graph below matches the cumulative 5-Year total return of holders of Albany International Corp.’s
common stock with the cumulative total returns of the Russell 2000 index and a customized peer group of
twenty three companies that includes: Actuant Corp, Astronics Corp, Barnes Group Inc., Circor International
Inc., Curtiss-wright Corp, Ducommun Inc., Enpro Industries Inc., Esco Technologies Inc., Heico Corp, Hexcel
Corp, Idex Corp, Kadant Inc., National Presto Industries Inc., Neenah Inc., Nordson Corp, OMNOVA
Solutions Inc., P H Glatfelter Co, Raven Industries Inc., Rogers Corp, Schweitzer-Mauduit International Inc.,
Tredegar Corp, Trimas Corp and Watts Water Technologies Inc. The graph assumes that the value of the
investment in our common stock, in each index, and in the peer group (including reinvestment of dividends)
was $100 on December 31, 2014 and tracks it through December 31, 2019.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Albany International Corp., the Russell 2000 Index,
and a Peer Group
*$100 invested on 12/31/14 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31. Copyright© 2020 Russell Investment Group. All rights reserved.
December 31,
Albany International Corp. . . . . . . . . . . .
Russell 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
100.00
100.00
100.00
2015
98.03
95.59
90.46
2016
126.25
115.95
122.80
2017
169.79
132.94
157.45
2018
174.31
118.30
138.10
2019
214.02
148.49
185.25
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
Restrictions on dividends and other distributions are described in Note 17 of the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
Disclosures of securities authorized for issuance under equity compensation plans are included under
Item 12 of this Form 10-K.
27
In August 2006, we announced that the Board of Directors had authorized management to purchase up to
2 million additional shares of our Class A Common Stock. The Board’s action authorized management to
purchase shares from time to time, in the open market or otherwise, whenever it believes such purchase to be
advantageous to our shareholders, and it is otherwise legally permitted to do so. Management has made no
share purchases under this authorization.
Item 6.
SELECTED FINANCIAL DATA
The following selected historical financial data have been derived from our Consolidated Financial
Statements in Item 8, which is incorporated herein by reference. The data should be read in conjunction with
those financial statements and Management’ s Discussion and Analysis of Financial Condition and Results of
Operations in Item 7, which is incorporated herein by reference.
2019
2018
(in thousands, except per share amounts)
Summary of Operations
Net sales(2)(3)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,054,132 $ 982,479 $ 863,717 $ 779,839 $ 709,868
Cost of goods sold(2)(3)(4)(5)
429,929
. . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other(5)(9) . . . . . . . . . . . . . . . . . . . . . . .
23,846
Operating income/(loss)(2)(4) . . . . . . . . . . . . . . . . . . . . . . .
67,128
9,984
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57,265
Income/(loss) from continuing operations . . . . . . . .
Net income attributable to the Company . . . . . . . . .
57,279
Earnings per share attributable to Company
478,555
8,376
94,132
13,464
52,812
52,733
656,431
2,905
193,576
16,921
133,383
132,398
567,434
13,491
78,676
17,091
32,585
33,111
632,730
15,570
137,408
18,124
83,019
82,891
2017
2015
2016
Shareholders – Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.10
2.57
1.03
1.64
1.79
Earnings per share attributable to Company
1.79
0.67
4.10
0.73
2.57
0.69
1.03
0.68
1.64
0.68
32,296
67,955
Shareholders – Diluted . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares outstanding –
basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures, including software . . . . . . . . . .
Financial position
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195,540 $ 197,755 $ 183,727 $ 181,742 $ 185,113
Asset held for sale(7)(10) . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,988
Property, plant and equipment, net(1)(2)(7) . . . . . . . . . .
357,470
Total assets(1)(2)(3)(5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,009,562
Current liabilities(1)(2)(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,231
Long-term debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
265,080
Total noncurrent liabilities(1)(2)(8)
380,778
. . . . . . . . . . . . . . . . . .
Total liabilities(1)(2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
507,009
Total equity(1)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
502,553
—
462,055
1,417,992
189,306
523,707
620,406
809,712
608,280
—
422,564
1,263,433
200,009
432,918
552,134
752,143
511,290
—
454,302
1,361,198
161,517
514,120
626,666
788,183
573,015
515
466,462
1,474,368
202,719
424,009
568,960
771,679
702,689
31,978
50,595
32,086
73,492
32,252
82,886
32,169
87,637
In 2019, we adopted the provisions of ASC 842, “Leases”, using the modified retrospective (or
cumulative effect) method for transition. Under this transition method, periods prior to 2019 have not
been restated and the cumulative effect of initially applying the new standard was recorded as an
adjustment to Retained earnings at January 1, 2019.
In 2019, we acquired the outstanding shares of CirComp GmbH for net cash of $36.3 million, which
includes approximately $5.5 million of deferred payments. The table above includes operational results
of the acquired entity from November 20, 2019 to December 31, 2019.
In 2018, we adopted the provisions of ASC 606, “Revenue from contracts with customers”, using the
modified retrospective (or cumulative ef fect) method for transition. Under this transition method,
periods prior to 2018 have not been restated and the cumulative effect of initially applying the new
standard was recorded as an adjustment to Retained earnings at January 1, 2018.
In 2018, we adopted the provisions of ASU 2017-07, “Compensation – Retirement Benefits: improving
the presentation of net periodic pension cost and net periodic postretirement benefit cost”. This update
resulted in some pension costs being presented on different line items in the Consolidated Statement of
Income. As required by that update, we have reclassified pension costs for periods prior to 2018.
(1)
(2)
(3)
(4)
28
(5)
(6)
(7)
(8)
In 2017, we discontinued the Bear Claw® line of hydraulic fracturing components used in the oil and
gas industry, which led to a charge of $2.8 million to Cost of goods sold for the write-off of inventory,
and a non-cash restructuring charge of $4.5 million for the write-off of equipment and intangibles.
In 2016, we acquired the outstanding shares of Harris Corporation’s composite aerostructures business
for cash of $187 million, plus the assumption of certain liabilities. The table above includes operational
results from April 8, 2016 to December 31, 2016 and for full years 2017 through 2019.
In 2018, we discontinued operations at the Company’s MC production facility in Sélestat, France, and
wrote down the land and building to its estimated fair market value. The value of $0.5 million as of
December 31, 2019 reflects the estimated selling price. We anticipate the sale of the property to occur
in 2020.
In 2015, we adopted the provisions of ASU 2015-17, “Income Taxes” using the prospective transition
method. This accounting update affected the amount and classification of deferred tax assets and
liabilities.
(9) During the period 2015 through 2019, we recorded restructuring charges related to organizational
changes and cost reduction initiatives.
(10)
In 2015, we discontinued operations at the Company’s pressing fabric manufacturing facility in
Germany, and recorded a charge of $3.3 million related to the write down of the land and building to
their estimated fair market value. This asset was reclassified from Property , plant, and equipment to
Asset held for sale.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is
intended to help the reader understand the results of operations and financial condition of the Company .
MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial
Statements and the accompanying Notes, in Item 8.
Business Environment Overview and Trends
Our reportable segments, Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”) draw
on the same advanced textiles and materials processing capabilities, and compete on the basis of
product-based advantage that is grounded in those core capabilities.
The MC segment is the Company’s long-established core business and primary generator of cash. While
it has suffered from well-documented declines in publication grades in the Company’s traditional markets, the
paper and paperboard industry is still expected to grow slightly on a global basis, driven by demand for
packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South
America. We feel we are well-positioned in key markets, with high-quality, low-cost production in growth
markets, substantially lower fixed costs in mature markets, and continued strength in new product
development, technical product support, and manufacturing technology. Because of pricing pressures and
industry overcapacity, the machine clothing and paper industries will continue to face top line pressure.
Despite continued market pressure on revenue, the business retains the potential for maintaining stable
earnings in the future. It has been a significant generator of cash, and we seek to maintain the cash-generating
potential of this business by maintaining the low costs that we have achieved through continuous focus on
cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior
products to reduce our customers’ total cost of operation and improve their paper quality.
The AEC segment provides significant growth potential for our Company both near and long term. Our
strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology
capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time
performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites,
LLC (“ASC”), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest) supplies a
number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group and
sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine)
accounted for approximately 22 percent of the Company’s consolidated net sales in 2019. The LEAP engine is
used on the Airbus A320neo and Boeing 737 MAX family of jets, the latter of which is currently under a
29
grounding order. AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine.
AEC’s current portfolio of non-3D programs includes components for the F-35, fuselage components for the
Boeing 787, components for the CH-53K helicopter, vacuum waste tanks for Boeing 7-Series aircraft, and
missile bodies for Lockheed Martin’s JASSM air-to-surface missiles. AEC is actively engaged in research to
develop new applications in both commercial and defense aircraft engine and airframe markets.
Consolidated Results of Operations
Net sales
The following table summarizes our Net sales by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change
2019 vs. 2018
(in thousands, except percentages)
2019
$ 601,254
452,878
$1,054,132
2018
$611,858
370,621
$982,479
2017
$590,357
273,360
$863,717
—
7.3%
13.8%
• Changes in currency translation rates had the effect of decreasing 2019 Net sales by $14.8 million
(1.4% of Net sales) compared to 2018. That currency translation effect was principally due to the
weaker euro and Chinese renminbi in 2019, as compared to 2018.
• Excluding the effect of changes in currency translation rates:
• Consolidated Net sales increased 8.8%.
• Net sales in MC were flat compared to 2018, as increases in sales for tissue and packaging grades
were offset by decreases in sales for publication grades.
• Net sales in AEC increased 23.4%, driven by growth in the LEAP, F-35, CH-53K and Boeing 787
programs.
2018 vs. 2017
Effective January 1, 2018, the Company adopted the provisions of ASC 606, “Revenue from contracts with
customers”, using the modified retrospective (or cumulative ef fect) method for transition. Under this transition method,
periods prior to 2018 were not restated, which affects comparability of results for 2018 and 2017. The following table
summarizes the effect on various financial statement line items that resulted from the adoption of ASC 606:
Increase/(decrease) attributable to adoption of
ASC 606 for the year ended December 31, 2018
(in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
Selling, technical, general and research
Machine
Clothing
$(3,970)
(1,617)
Albany
Engineered
Composites
$(3,150)
4,930
Income tax
and
noncontrolling
interest effects
$ —
—
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12)
—
Operating income and Income before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the noncontrolling
(1,605)
—
(1,605)
4,930
—
4,930
—
—
877
(877)
Total
Company
$(7,120)
3,313
(12)
3,325
877
2,448
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company . . . . . . . .
• Changes in currency translation rates had the effect of increasing Net sales by $8.5 million (0.9% of
Net sales), compared to 2017. That currency translation effect was principally due to the euro being
stronger in 2018, as compared to 2017.
—
$(1,605)
129
$(1,006)
129
$ 2,319
—
$ 4,930
• Excluding the effect of changes in currency translation rates:
• Consolidated Net sales increased 12.8%. Excluding the additional effect of applying ASC 606 in
2018, but not 2017, Net sales increased 13.6%.
30
• Net sales in MC increased 2.6%. Excluding the additional effect of applying ASC 606 in 2018,
Net sales increased 3.3%, principally due to global growth in sales for packaging and tissue
grades.
• Net sales in AEC increased 34.7%. Excluding the additional effect of applying ASC 606 in 2018,
Net sales increased 35.9%, primarily driven by growth in the LEAP, Boeing 787, F-35, and
CH-53K programs.
Backlog
Backlog in the MC segment was $165.6 million at December 31, 2019, compared to $170.5 million at
December 31, 2018. Backlog in the AEC segment decreased to $288.1 million at December 31, 2019,
compared to $393.3 million at December 31, 2018. The decrease reflects the grounding of the Boeing 737
MAX aircraft. All of the backlog in MC and approximately 95% of the AEC backlog is expected to be
invoiced during the next 12 months.
Gross Profit
The following table summarizes Gross profit by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
2018
$297,416
52,550
(217)
$349,749
2019
$309,641
88,060
—
$397,701
2017
$280,686
15,875
(278)
$296,283
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
37.7%
35.6%
34.3%
The increase in 2019 Gross profit, as compared to 2018, was principally due to the net ef fect of the
following individually significant items:
• The increase in MC Gross profit of $12.2 million, was principally due to a $9.0 million reduction in
depreciation expense that resulted principally from significant investments made approximately ten
years ago that have become fully depreciated.
• The increase in AEC Gross profit of $35.5 million, was principally due to the ef fect of the following
individually significant items:
• Favorable adjustments to the estimated profitability of long-term contracts increased Gross profit by
$10.8 million in 2019, compared to a decrease of $2.0 million in 2018.
• The Net sales increase in 2019, as described above, increased Gross profit by approximately
$12 million.
• AEC Gross profit was also increased as a result of productivity improvements.
The increase in 2018 Gross profit, as compared to 2017, was principally due to the net ef fect of the
following individually significant items:
• The increase in MC Gross profit of $16.7 million, was principally due to the ef fect of the following
individually significant items:
• Higher sales in MC generated an increase in gross profit of approximately $10 million.
• Changes in currency translation rates, principally the Brazilian real, had the effect of increasing
MC Gross profit by approximately $5 million.
• MC Gross profit was also increased as a result of productivity improvements, which include the
impact of continuous cost reduction initiatives.
• The increase in AEC Gross profit of $36.7 million was principally due to the ef fect of the following
individually significant items:
• Changes in the estimated profitability of long-term contracts decreased Gross profit by $2.0 million
in 2018, and by $11.5 million in 2017. As further described below, the 2017 effect principally
related to manufacturing contracts for the BR725 and A380 programs.
31
• During the third quarter of 2017, the Company decided to discontinue the Bear Claw® line of
hydraulic fracking components used in the oil and gas industry, which was part of the 2016
business acquisition. That decision resulted in a $2.8 million charge to Cost of goods sold for the
write-off of inventory.
• The Net sales increase in 2018, as described above, increased Gross profit by approximately
$10 million.
• The remaining 2018 increase in AEC Gross profit was principally due to improved productivity
resulting from the deployment of a disciplined standardized operational system across AEC plants,
as well as the favorable impact of continuous improvement programs.
Selling, Technical, General, and Research (STG&R)
Selling, technical, general and research (STG&R) expenses include selling, general, administrative,
technical, product engineering and research expenses.
The following table summarizes STG&R by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
2018
$115,305
32,855
48,611
$196,771
2017
$123,277
37,470
43,369
$204,116
2019
$116,546
30,707
53,967
$201,220
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.1%
20.0%
23.6%
The increase in STG&R expenses in 2019 compared to 2018, was principally due to the following
individually significant items:
• MC revaluation of nonfunctional currency assets and liabilities resulted in losses of $0.6 million in
2019 and gains of $0.8 million in 2018.
• AEC STG&R expenses decreased $2.1 million principally due to lower spending on research and
development in 2019, as compared to 2018.
• Corporate STG&R expenses increased principally due to costs in 2019 for terminations and
professional fees associated with various initiatives.
The decrease in STG&R expenses in 2018 compared to 2017, was principally due to the following
individually significant items:
• MC revaluation of nonfunctional currency assets and liabilities resulted in gains of $0.8 million in
2018 and losses of $3.9 million in 2017.
• Changes in currency translation rates increased MC STG&R expenses by $0.4 million, principally due
to the stronger euro, which more than offset decreases that resulted from the weaker Brazilian real.
• AEC STG&R expenses decreased $4.6 million principally due to restructuring and other organization
changes.
• Corporate STG&R expenses increased by $5.2 million principally due to higher costs to support
continued growth in AEC.
32
Research and Development
The following table is a subset of the STG&R table above and summarizes expenses associated with
internally funded research and development by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$16,412
10,521
$26,933
(in thousands)
2018
$17,474
12,278
$29,752
2017
$18,483
12,188
$30,671
Restructuring
In addition to the items discussed above affecting gross profit, and STG&R expenses, operating income
was affected by restructuring costs of $2.9 million in 2019, $15.6 million in 2018, and $13.5 million in 2017.
The following table summarizes Restructuring expense, net by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$1,129
1,833
(57)
$2,905
(in thousands)
2018
$12,278
3,048
244
$15,570
2017
$ 3,429
10,062
—
$13,491
In 2017, the Company announced a proposal to close its MC production facility in Sélestat, France, and
the proposal was approved by the French Labor Ministry in 2018. The restructuring program was driven by
the Company’s need to balance manufacturing capacity with demand. We recorded restructuring expense of
$1.1 million in 2017 and $10.7 million in 2018, which included severance and outplacement costs for the
approximately 50 positions that were terminated under this plan. To date, we have recorded $12.7 million of
restructuring charges related to these actions. Annual cost savings associated with this action principally
resulted in lower Cost of goods sold in 2019.
In 2016, the Company discontinued research and development activities at its MC facility in Sélestat,
France, which resulted in $2.2 million of restructuring expense in 2016. In 2017 and 2018, we recorded
additional restructuring charges of $1.6 million and $1.0 million, related to a 2016 restructuring at the same
location. Total restructuring costs for that initiative, including 2016, was $3.9 million.
In 2017, the Company initiated work force reductions and facility rationalization in AEC locations in Salt
Lake City, Utah and Rochester, New Hampshire. Restructuring charges include expenses of $0.1 million in
2019, $1.1 million in 2018, and $5.0 million in 2017. To date, we have recorded $6.2 million of restructuring
charges related to these actions.
In 2018, the Company discontinued certain manufacturing processes at its AEC facility in Salt Lake City,
Utah, which resulted in $1.9 million of restructuring in 2018, which included a non-cash restructuring charge
of $1.7 million, and an additional $0.2 million for severance. The non-cash restructuring charge resulted from
writing down manufacturing equipment used in that line of business to its estimated value. In 2019, the
Company wrote off the remaining $1.2 million book value of that equipment as the Company has been unable
to sell it.
In 2017, the Company decided to discontinue the Bear Claw® line of hydraulic fracturing components
used in the oil and gas industry. This decision resulted in a non-cash restructuring charge of $4.5 million for
the write-off of intangible assets and equipment, and a $2.8 million charge to Cost of goods sold for the
write-off of inventory.
For more information on our restructuring charges, see Note 5 to the Consolidated Financial Statements
in Item 8, which is incorporated herein by reference.
33
Operating Income
The following table summarizes operating income/(loss) by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$191,965
55,520
(53,909)
$193,576
(in thousands)
2018
$169,836
16,647
(49,075)
$137,408
2017
$153,980
(31,657)
(43,647)
$ 78,676
Other Earnings Items
Years ended December 31,
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income)/expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) attributable to the noncontrolling
2019
$16,921
(1,557)
44,829
(in thousands)
2018
$18,124
4,037
32,228
2017
$17,091
6,877
22,123
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
985
128
(526)
Interest Expense
Interest expense, net, decreased $1.2 million in 2019 principally due to lower debt balances resulting
from higher cash flow in the AEC business and lower interest rates as a result of lower market rates and a
lower margin from a lowered leverage ratio. See “Liquidity and Capital Resources” for further discussion of
borrowings and interest rates.
Other (income)/expense, net
The change in Other (income)/expense, net included the following individually significant items:
• In 2019, we recorded a $0.5 million charge related to the freezing of defined benefit plan accruals in
the United Kingdom.
• In 2018, we recorded a $2.2 million charge related to the settlement of a portion of our non-U.S.
defined benefit pension plan liabilities and a curtailment gain of $0.7 million related to the
restructuring in Sélestat, France.
• Foreign currency revaluations of cash and intercompany balances resulted in net gains of $4.5 million
in 2019, and $0.1 million in 2018, and net losses of $4.6 million in 2017.
• In 2017, we recorded a gain of $2.0 million based on an insurance settlement related to a theft in
2016.
Income Taxes
The Company has operations which constitute a taxable presence in 18 countries outside of the United
States. The majority of these countries had income tax rates that are above the United States federal tax rate
of 21% in 2019. The jurisdictional location of earnings is a significant component of our ef fective tax rate
each year and, therefore, on our overall income tax expense.
The Company’s effective tax rate for fiscal years 2019, 2018 and 2017 was 25.2%, 28.0% and 40.4%,
respectively.
The tax rate is affected by recurring items, such as the income tax rate in the U.S. and in non-U.S.
jurisdictions and the mix of income earned in those jurisdictions and discrete items that may occur in any
given year but are not consistent from year to year.
Significant items that impacted the 2019 ef fective tax rate included the following (percentages reflect the
effect of each item as a percentage of income before income taxes):
• A tax benefit of $0.1 million (-0.1%) related to foreign tax rate changes.
• A tax benefit of $1.5 million (-0.9%) related to U.S. and Non-U.S. return to provision adjustments.
34
• A tax benefit of $1.4 million (-0.8%) related to changes in the opening valuation allowances.
• A tax expense of $0.9 million (0.5%) related to the creation of a valuation allowance.
• A net effective tax rate expense of 0.5% was recognized from income tax rate differences between
non-U.S. and U.S. jurisdictions. U.S. tax costs on foreign earnings that have been or will be
repatriated and foreign withholdings resulted in an increase of 0.8% to the effective tax rate.
• A tax benefit of $2.9 million (-1.6%) related to the settlement of audits throughout the year .
• A tax benefit of $0.2 million (-0.1%) related to amended tax return adjustments.
• Income tax rate on continuing operations, excluding discrete items, was 28.0%.
Significant items that impacted the 2018 ef fective tax rate included the following (percentages reflect the
effect of each item as a percentage of income before income taxes):
• A tax benefit of $1.0 million (-0.9%) related to the impact of the adjustment to the 2017 mandatory
deemed repatriation provision.
• A tax charge of $1.6 million (1.4%) related to the impact of the adjustment to the 2017
re-measurement of U.S. net deferred tax assets.
• A tax charge of $0.4 million (0.4%) related to foreign tax rate changes.
• A tax benefit of $1.3 million (-1.1%) related to U.S. and Non-U.S. return to provision adjustments.
• A tax benefit of $4.9 million (-4.2%) related to changes in the opening valuation allowances.
• A net effective tax rate expense of 0.2% was recognized from income tax rate differences between
non-U.S. and U.S. jurisdictions. U.S. tax costs on foreign earnings that have been or will be
repatriated and foreign withholdings resulted in an increase of 3.9% to the effective tax rate.
• A tax charge of $1.3 million (1.1%) related to the settlement of audits throughout the year.
• Income tax rate on continuing operations, excluding discrete items, was 31.3%.
Significant items that impacted the 2017 ef fective tax rate included the following (percentages reflect the
effect of each item as a percentage of income before income taxes):
• A tax charge of $5.8 million (10.5%) related to the impact of the mandatory deemed repatriation.
• A tax charge of $1.9 million (3.4%) related to U.S. and Non-U.S. tax rate changes.
• A tax benefit of $0.8 million (-1.5%) related to U.S. and Non-U.S. return to provision adjustments.
• A tax benefit of $3.5 million (-6.4%) related to changes in the opening valuation allowances.
• A net effective tax rate reduction of 10.5% was recognized from income tax rate differences between
non-U.S. and U.S. jurisdictions. Earnings in Brazil, Switzerland, Mexico and China, where tax rates
are lower than the U.S. notional rate of 35%, contributed to the majority of the reduction noted. U.S.
tax costs on foreign earnings that have been or will be repatriated and foreign withholdings resulted in
an increase of 1.4% to the effective tax rate.
• A tax charge of $1.4 million (2.4%) related to the settlement of audits throughout the year.
• Income tax rate on continuing operations, excluding discrete items, was 32%.
Segment Results of Operations
Machine Clothing Segment
Machine Clothing is our primary business segment and accounted for 57 percent of our consolidated
revenues during 2019. MC products are purchased primarily by manufacturers of paper and paperboard.
According to RISI, Inc., global production of paper and paperboard is expected to grow at an annual rate
of approximately 1 percent over the next five years, driven primarily by global growth in packaging and
tissue, which is expected to be greater than expected declines in publication grades.
While the MC business has suffered from well-documented declines in publication grades in the
Company’s traditional markets, the paper and paperboard industry is still expected to grow slightly on a global
basis, driven by demand for packaging and tissue grades, as well as the expansion of paper consumption and
production in Asia and South America. We feel we are well-positioned in these markets, with high-quality,
35
low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued
strength in new product development, technical product support, and manufacturing technology. Recent
technological advances in paper machine clothing, while contributing to the papermaking efficiency of
customers, have lengthened the useful life of many of our products and had an adverse impact on overall
paper machine clothing demand.
The Company’s manufacturing and product platforms position us well to meet these shifting demands across
product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in
all markets, with new products and technology, and to maintain our manufacturing footprint to align with global
demand, while we offset the effects of inflation through continuous productivity improvement.
We have incurred significant restructuring char ges in recent periods as we reduced MC manufacturing
capacity and administrative positions in various countries.
Review of Operations
Years ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STG&R expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
2019 vs. 2018
(in thousands, except percentages)
2018
$611,858
2019
$601,254
-1.7%
3.6%
309,641
297,416
2017
$590,357
—
280,686
51.5%
48.6%
47.5%
116,546
191,965
115,305
169,836
123,277
153,980
• Changes in currency translation rates had the effect of decreasing 2019 sales by $10.5 million
compared to 2018. That currency translation effect was principally due to the weaker euro and
Chinese renminbi in 2019, compared to 2018.
• Excluding the effect of changes in currency translation rates, Net sales in MC were flat compared to
2018, as increases in sales for tissue and packaging grades were offset by decreases in sales for
publication grades.
2018 vs. 2017
• Changes in currency translation rates had the effect of increasing 2018 sales by $6.1 million compared
to 2017. That currency translation effect was principally due to the euro being stronger in 2018 than
in 2017.
• Excluding the effect of changes in currency translation rates, Net sales in MC increased 2.6%.
Excluding the additional effect of applying ASC 606 in 2018, but not 2017, Net sales increased 3.3%,
principally due to global growth in sales for the packaging and tissue grades.
Gross Profit
2019 vs. 2018
• MC Gross profit increased principally due to a reduction of $9.0 million in depreciation expense due
primarily to a number of significant investments made approximately ten years ago, that have become
fully depreciated.
2018 vs. 2017
• Higher sales in MC generated an increase in gross profit of approximately $10 million.
• Changes in currency translation rates, principally the Brazilian real, had the effect of increasing MC
gross profit approximately $5 million.
• MC Gross profit was also increased as a result of productivity improvements, which include the ef fect
of continuous cost reduction initiatives.
36
Operating Income
2019 vs. 2018
The increase in Operating income was principally due to the net effect of the following individually
significant items:
• Gross profit increased $12.2 million, principally due to lower depreciation expense as described above.
• STG&R expenses increased $1.2 million, principally due to year-over-year changes in foreign
currency revaluation gains and losses, as described above.
• Restructuring charges were $1.1 million in 2019, compared to $12.3 million in 2018.
2018 vs. 2017
The increase in Operating income was principally due to the net effect of the following individually
significant items:
• Gross profit increased $16.7 million due to higher sales, resulting from changes in currency translation
rates, as described above.
• STG&R expenses decreased $8.0 million, principally due to year-over-year changes in foreign
currency revaluation gains and losses, as described above.
• Restructuring charges were $12.3 million in 2018, compared to $3.4 million in 2017.
Albany Engineered Composites Segment
The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC),
in which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered
advanced composite structures to customers primarily in the aerospace (both commercial and defense)
industry. AEC’s largest program relates to CFM International’s LEAP engine. AEC, through ASC, is the
exclusive supplier of advanced composite fan blades and cases for this program under a long-term supply
contract. The LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets, the latter of
which is currently under a grounding order. Other significant AEC programs include components for the F-35,
fuselage frames for the Boeing 787, components for the CH-53K helicopter, and the fan case for the
GE9X engine.
On November 20, 2019, the Company acquired CirComp GmbH, a privately-held developer and
manufacturer of high-performance composite components located in Kaiserslautern, Germany for
$32.4 million. The Company also agreed to pay approximately $5.5 million that will become due, as certain
post-closing obligations are performed. Expense related to that agreement will be recognized over the
five-year performance period. As the acquisition occurred during the year, the Company’s 2019 results of
operations include only a portion of the year, which can affect comparability amongst periods. The acquired
entity is part of the AEC segment. Management believes that the acquisition complements and expands
Albany’s portfolio of proprietary, advanced manufacturing technologies for composite components, increases
the Company’s position as a leading innovator in advanced materials processing and automation and opens a
geographic footprint in Europe to better serve our global customer base.
The following table presents operational results of the acquired entity that are included in the
Consolidated Statements of Income:
(in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
Selling, technical, general and research expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 20 to
December 31, 2019
$485
27
189
—
(162)
37
Review of Operations
Years ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STG&R expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
2019 vs. 2018
(in thousands, except percentages)
2018
$370,621
2019
$452,878
22.2%
88,060
19.4%
30,707
55,520
35.6%
52,550
14.2%
32,855
16,647
2017
$273,360
—
15,875
5.8%
37,470
(31,657)
The increase in Net sales was principally due to the net effect of the following individually significant
items:
• Excluding the effect of changes in currency translation rates, Net sales increased 23.4%, primarily
driven by growth in the LEAP, F-35, CH-53K and Boeing 787 programs.
2018 vs. 2017
The increase in Net sales was principally due to the net effect of the following individually significant
items:
• Excluding the effect of changes in currency translation rates, Net sales increased 34.7%. Excluding the
impact of applying ASC 606 in 2018, but not 2017, Net sales increased 35.9%, primarily driven by
growth in the LEAP, Boeing 787, F-35, and CH-53K programs.
Gross Profit
2019 vs. 2018
The increase in AEC Gross profit in 2019 was principally due to the net ef fect of the following
individually significant items:
• Favorable adjustments to the estimated profitability of long-term contracts increased Gross profit by
$10.8 million in 2019, compared to a decrease of $2.0 million in 2018.
• The Net sales increase in 2019, as described above, increased Gross profit by approximately $12
million.
• AEC Gross profit was also increased in 2019 by productivity improvements.
2018 vs. 2017
The increase in AEC Gross profit in 2018 was principally due to the net ef fect of the following
individually significant items:
• Changes in the estimated profitability of long-term contracts decreased Gross profit by $2.0 million in
2018, and by $11.5 million in 2017. As further described below, the 2017 effect principally related to
manufacturing contracts for the BR725 and A380 programs.
• During the third quarter of 2017, the Company decided to discontinue the Bear Claw® line of
hydraulic fracking components used in the oil and gas industry, which was part of the 2016 SLC
acquisition. That decision resulted in a $2.8 million charge to Cost of goods sold for the write-off of
inventory.
• The Net sales increase in 2018, as described above, increased Gross profit by approximately
$10 million.
• The remaining 2018 increase in AEC Gross profit was principally due to improved productivity
resulting from the deployment of a disciplined standardized operational system across AEC plants, as
well as the favorable impact of continuous improvement programs.
38
Long-term contracts
AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is
determined by a cost-plus-fee arrangement. Revenue earned under these arrangements accounted for
approximately 49 percent of segment revenue in 2019 and 2018, and 44 percent in 2017. LEAP engines are
currently used on the Boeing 737 MAX, Airbus A320neo and COMAC aircraft. A number of countries,
including the United States, have issued orders grounding Boeing 737 MAX aircraft. If these groundings
cause a continued reduction in production of this aircraft, this would have an adverse impact on demand for
our LEAP engine parts. Such a decrease could, in turn, trigger an increase in demand for A320neo aircraft,
which could somewhat offset this negative impact.
In addition, AEC has long-term contracts in which the selling price is fixed. In accounting for those
contracts, we estimate the profit mar gin expected at the completion for the contract and recognize a pro-rata
share of that profit during the course of the contract using a cost-to-cost approach. Changes in estimated
contract profitability will af fect revenue and gross profit when the change occurs, which could have a
significant favorable or unfavorable ef fect on revenue and gross profit in any reporting period. For contracts
with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against
income in the period in which the loss becomes known. Contract losses are determined considering all direct
and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are
treated as period expenses. Expected losses on projects include losses on contract options that are probable of
exercise, excluding profitable options that often follow .
The sum of net adjustments to the estimated profitability of long-term contracts increased AEC operating
income by $10.8 million in 2019, decreased AEC operating income by $2.0 million in 2018, and decreased
AEC operating income by $11.5 million in 2017. The favorable effects in 2019 were largely attributable to
efficiency improvements during the ramp-up of several programs.
The unfavorable effect for 2017 was driven by an AEC contract for the manufacture of composite
components for the Rolls-Royce BR725 engine, which powers Gulfstream’s G-650 business jet. The contract
obligates AEC to supply these components for the life of the BR725 program. During the second quarter of
2017, the Company revised its estimate of the profitability of this contract and we recorded a char ge of
$10.2 million as a provision for anticipated losses through the end of the program. The charge was driven
primarily by a reduction in the estimated future demand for these components. The SLC business had a
contract for the manufacture of composite struts for the Airbus A380, under which it supplied composite wing
box struts. During the second quarter of 2017, the Company revised its estimate of the profitability of this
contract and determined that a charge of $5.6 million should be recorded as a provision for anticipated losses
through contract completion. The revision was driven by a decrease in estimated demand for these
components during the contract term, as well as by program inefficiencies. In the fourth quarter of 2017, we
amended a long-term agreement with a licensor for the A380 program, which resulted in a $4.9 million
decrease to Cost of goods sold.
Selling, Technical, General, and Research (STG&R)
2019 vs. 2018
STG&R expenses decreased $2.2 million principally due to lower spending on research and development
in 2019, as compared to 2018.
2018 vs. 2017
STG&R expenses decreased $4.6 million principally due to restructuring and other organization changes.
Operating Income/(Loss)
2019 vs. 2018
The increase in Operating income of $38.9 million in 2019 was principally due to the net effect of the
following individually significant items:
• An increase in Net sales and strong productivity, as described above.
• A decrease of $1.2 million in Restructuring expenses, as described above.
39
2018 vs. 2017
The increase in Operating income of $48.3 million in 2018 was principally due to the net effect of the
following individually significant items:
• An increase in Net sales and strong productivity, as described above.
• The $15.8 million charge recorded in the second quarter of 2017, as described above.
• The $2.8 million charge to Cost of goods sold in 2017 for the write-off of Bear Claw® inventory.
• A decrease of $7.0 million in Restructuring expenses, as described above.
Liquidity and Capital Resources
Cash Flow Summary
For the years ended December 31,
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in working capital(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in long-term liabilities, deferred taxes and other
2019
$ 133,383
70,795
(8,011)
(in thousands)
2018
$ 83,019
79,036
(21,034)
2017
$ 32,585
71,956
(15,859)
credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,129
3,493
(11,409)
Write-off of pension liability adjustment due to settlement/
curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450
1,494
—
Write-off of intangible assets in a discontinued product
line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash flows
. . . . . . . . . . . . . . . .
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . .
—
(3,394)
200,352
(98,748)
(100,307)
(3,512)
(2,215)
197,755
$ 195,540
—
(13,523)
132,485
(82,886)
(27,258)
(8,313)
14,028
183,727
$197,755
4,149
(17,206)
64,216
(87,637)
12,867
12,539
1,985
181,742
$183,727
(a)
Includes Accounts receivable, Contract assets, Inventories, and Accounts payable.
Operating activities
Cash provided by operating activities was $200.4 million in 2019, compared to $132.5 million in 2018,
and $64.2 million in 2017. The net increase in cash provided by operating activities in 2019 was due to
increased profitability in both MC and AEC. The growth in MC profitability was due to productivity
improvements and cost-reduction initiatives. The growth in AEC profitability was due to an increase in Net
sales and favorable adjustments to long-term contracts. Cash flow for Contract assets and Inventories was a
use of $28.1 million principally due to a slowdown of production for the Boeing 737 MAX aircraft.
Additionally, the Noncurrent receivables held by AEC resulted in a use of cash of $1.3 million in 2019,
$12.2 million in 2018 and $18.8 million in 2017. Changes in long-term liabilities, deferred taxes and other
liabilities resulted in an increase to cash flows of $7.1 million in 2019, $3.5 million in 2018, and a use of cash
of $11.4 million in 2017. The amount reported for 2017 was principally due to an amendment to a long-term
agreement with a licensor for the A380 program. That agreement resulted in a $3.0 million cash payment, plus
a $4.9 million reduction in the present value of the obligation to the supplier. Cash paid for income taxes was
$25.9 million, $28.1 million, and $23.7 million in 2019, 2018, and 2017, respectively.
At December 31, 2019, the Company had $195.5 million of cash and cash equivalents, of which
$156.9 million was held by subsidiaries outside of the United States. As disclosed in Note 7 of the
Consolidated Financial Statements in Item 8, we determined that all but $94.4 million of this amount (which
represents the amount of cumulative earnings expected to be repatriated to the United States at some point in
the future) is intended to be utilized by these non-U.S. operations for an indefinite period of time. Our current
40
plans do not anticipate that we will need funds generated from foreign operations to fund our domestic
operations or satisfy debt obligations in the United States. In the event that such funds were to be needed to
fund operations in the U.S., and if associated accruals for taxes have not already been provided, we would be
required to record additional tax expense.
Investing Activities
On November 20, 2019, the Company acquired CirComp GmbH, a privately-held developer and
manufacturer of high-performance composite components located in Kaiserslautern, Germany for net cash of
$30.8 million. Total capital expenditures for continuing operations, including purchased software, were
$68.0 million in 2019, compared to $82.9 million in 2018, and $87.6 million in 2017. In the AEC segment,
capital expenditures were $48.8 million in 2019, compared to $60.1 million in 2018, and $63.9 million in
2017. We currently estimate capital expenditures to be $75 million to $85 million in 2020.
Financing Activities and Capital Resources
We finance our business activities primarily with cash generated from operations and borrowings, lar gely
through our revolving credit agreement as discussed below. Our subsidiaries outside of the United States may
also maintain working capital lines with local banks, but borrowings under such local facilities tend not to be
significant. The majority of our cash balance at December 31, 2019 was held by non-U.S. subsidiaries. Based
on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to
operate for the foreseeable future. We were in compliance with all debt covenants as of December 31, 2019.
On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility
Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered
into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement, $424 million of borrowings were
outstanding as of December 31, 2019. The applicable interest rate for borrowings was LIBOR plus a spread,
based on our leverage ratio at the time of borrowing. At the time of the last borrowing on December 30,
2019, the spread was 1.375%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%,
based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and
without modification to any other credit agreements, as of December 31, 2019, we would have been able to
borrow an additional $261 million under the Agreement.
For more information, see Note 17 to the Consolidated Financial Statements in item 8, which is
incorporated herein by reference.
Off-Balance Sheet Arrangements
As of December 31, 2019, we have no off-balance sheet arrangements required to be disclosed pursuant
to Item 303(a)(4) of Regulation S-K.
41
Contractual Obligations
As of December 31, 2019, we have the following cash flow obligations:
(in millions)
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payments(a) . . . . . . . . . . . . . . . . . . . .
Pension plan contributions(b)
. . . . . . . . . .
Other postretirement benefits (c) . . . . . . . .
Restructuring accruals . . . . . . . . . . . . . . . . .
Other noncurrent liabilities(d) . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$424.0
41.4
2.4
54.4
2.0
—
21.3
32.9
$578.4
Less than
one year
$ —
14.8
2.4
3.8
1.3
—
5.2
3.3
$30.8
Payments Due by Period
Three to
One to
five years
three years
$ —
$424.0
—
26.6
—
—
7.2
7.4
—
0.7
—
—
3.6
7.2
7.1
6.7
$17.9
$472.6
After five
years
$ —
—
—
36.0
—
—
5.3
15.8
$57.1
(a)
The terms of variable-rate debt arrangements, including interest rates and maturities, are included in
Note 17 of the Consolidated Financial Statements in Item 8. The interest payments are based on the
assumption that we maintain $74 million of variable rate debt until the November 2017 Credit
Agreement matures on November 7, 2022, and the rate as of December 31, 2019 (3.43%) continues
until October 17, 2022, then continues at 3.19% until maturity. Both rates include the effects of interest
rate hedging transactions.
(b) We estimate the total of pension benefits to be paid directly by the Company and pension contributions
to be $2.4 million in 2020. However, that estimate is subject to revision based on many factors. The
Company may also make voluntary contributions to pension trusts that exist in certain countries. The
amount of contributions after 2020 is subject to many variables, including return of pension plan assets,
interest rates, and tax and employee benefit laws. Therefore, contributions beyond 2020 are not included
in this schedule.
Estimated cash outflow for other postretirement benefits is consistent with the expected benefit
payments as presented in Note 4 of the Consolidated Financial Statements in Item 8 for the next five
years. Beyond five years, expected benefit payments are not consistent with those presented in Note 4,
due to the many variables associated with this estimate.
Estimated payments for deferred compensation, interest rate swap agreements, and other noncurrent
liabilities are not included in this table due to the uncertain timing of the ultimate cash settlement. Also,
this table does not reflect unrecognized tax benefits, the timing of which is uncertain. Refer to Note 7 of
the Consolidated Financial Statements in Item 8, for additional discussion on unrecognized tax benefits.
(c)
(d)
The foregoing table should not be deemed to represent all of our future cash requirements, which will
vary based on our future needs. While the cash required to satisfy the obligations set forth in the table is
reasonably determinable in advance, many other cash needs, such as raw materials costs, payroll, and taxes,
are dependent on future events and are harder to predict. In addition, while the contingencies described in
Note 21 of the Consolidated Financial Statements in Item 8 are not currently anticipated to have a material
adverse effect on our Company, there can be no assurance that this may not change. Subject to the foregoing,
we currently expect that cash from operations and the other sources of liquidity described above will be
sufficient to enable us to meet the foregoing cash obligations, as well as to meet our other cash requirements.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is set forth in Item 8 Financial Statements and
Supplementary Data, Note 1, which is incorporated herein by reference.
Critical Accounting Policies and Estimates
For the discussion of our accounting policies, see Item 8 Financial Statements and Supplementary Data,
Note 1, which is incorporated herein by reference. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make
assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements.
42
Each of these assumptions is subject to uncertainties and changes in those assumptions or judgments can
affect our results of operations. In addition to the accounting policies stated in Item 8, financial statement
amounts and disclosures are significantly influenced by market factors, judgments and estimates as
described below.
Revenue Recognition
Effective January 1, 2018, the Company adopted the provisions of ASC 606, Revenue from contracts
with customers. The standard replaces numerous requirements in U.S. GAAP, including industry-specific
requirements, and provides companies with a single model for recognizing revenue from contracts with
customers. See additional information in Item 8.
Contracts with customers in the Machine Clothing segment have various terms that can affect the point
in time when revenue is recognized. The contractual terms are closely monitored in order to ensure revenue is
recognized in the proper period.
Products and services provided under long-term contracts represent a significant portion of sales in the
Albany Engineered Composites segment. AEC’s largest source of revenue is derived from the LEAP contract
under a cost-plus-fee agreement. Beginning in 2018, the fee is variable based on our success in achieving
certain cost targets. Revenue is recognized over time as costs are incurred. Under this contract, there is
significant judgment involved in determining applicable contract costs and the amount of revenue to
be recognized.
We also have fixed price long-term contracts, for which we use the percentage of completion (actual cost
to estimated cost) method. That method requires significant judgment and estimation, which could be
considerably different if the underlying circumstances were to change. When adjustments in estimated contract
revenues or costs are required, any changes from prior estimates are included in earnings in the period the
change occurs.
The Albany Engineered Composites segment also has some long-term aerospace contracts under which
there are two phases: a phase during which the production part is designed and tested, and a phase of
supplying production parts. During the design and testing phases, we perform pre-production or nonrecurring
engineering services, which are normally considered a fulfillment activity , rather than a performance
obligation. Fulfillment activities that create resources that will be used in satisfying performance obligations in
the future, and are expected to be recovered, are capitalized in Other assets. The capitalized costs are
amortized into Cost of goods sold over the period over which the asset is expected to contribute to future cash
flows which includes anticipated renewal periods. Accumulated capitalized costs are written-off when those
costs are determined to be unrecoverable.
For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is
charged against income in the period in which the loss becomes known. Contract loss provisions include
contract options that are probable of exercise, excluding any profitable options that might be expected to
follow. Contract losses are determined considering all direct and indirect contract costs, exclusive of any
selling, general or administrative cost allocations, which are treated as period expenses. Under the new
standard, we are required to limit our estimate of contract values to the period of the legally enforceable
contract, which in many cases is considerably shorter than the contract period used under the former standard.
While certain contracts are expected to be profitable over the course of the program life when including
expected renewals, under the new standard, our estimate of contract revenues and costs is limited to the
estimated value of enforceable rights and obligations, excluding anticipated renewals. In some cases, this
shorter contract period may result in a loss contract provision at the inception of the contract. Also, refer to
information under Long-term Contracts in Item 7, Management’s Discussion and Analysis of this Form 10-K,
which is incorporated herein by reference.
Pension and Postretirement Liabilities
The Company has pension and postretirement benefit costs and liabilities that are developed from
actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected
return on plan assets, which are updated on an annual basis. As of December 31, 2019, total liabilities under
our defined benefit pension plans (including unfunded plans) exceeded plan assets by $15.5 million, of which
$8.0 million was for plans outside of the U.S. Additionally, at December 31, 2019, other postretirement
43
liabilities totaled $54.4 million, substantially all of which related to our U.S. plan. As of December 31, 2019,
we have unrecognized pretax net losses of $63.9 million for pension plans and $10.7 million for other
postretirement benefit plans that may be amortized into earnings in future periods.
We are required to consider current market conditions, including changes in interest rates, in making
these assumptions. For 2020, we anticipate pension contributions and direct payments to retirees to total
$2.4 million, and payments for other postretirement benefit plans to be $3.8 million. Changes in the related
pension and other postretirement benefit costs or credits may occur in the future due to changes in the
assumptions. The amount of annual pension plan funding and annual expense is subject to many variables,
including the investment return on pension plan assets and interest rates, and actual contributions could vary
significantly . Assumptions used for determining pension and other postretirement plan liabilities and expenses
are evaluated and updated at least annually.
Income Taxes
In the ordinary course of business, there is inherent uncertainty in determining assets and liabilities
related to income tax balances. We exercise significant judgment in order to estimate taxes payable or
receivable in future periods. Tax-related balances may also be impacted by organizational changes or changes
in the tax laws of any country in which we operate. We assess our income tax positions and record tax assets
and liabilities for all years subject to examination based upon management’s evaluation of the facts,
circumstances, and information available at the reporting date. For those tax positions where it is more likely
than not that a tax benefit will be sustained, we have determined the amount of the tax benefit to be
recognized by estimating the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information.
Deferred tax assets are expected to be realized through the reversal of existing temporary differences and
future taxable income. A valuation allowance is established, as needed, to reduce net deferred tax assets to the
amount expected to be realized. In the event it becomes more likely than not that some or all of the deferred
tax asset valuation allowances will not be needed, the valuation allowance will be adjusted.
In late 2017, new tax legislation was enacted in the United States which resulted in significant char ges to
income tax expense. Charges associated with the Tax Reform Act were recorded in 2017 and represent the
Company’s best estimates and provisional amounts. Adjustments recorded to the provisional amounts through
the fourth quarter of 2018 are included in Income tax expense.
Goodwill and Intangible assets
Goodwill is not amortized, but is tested for impairment at least annually. Estimating the fair value of
reporting units requires the use of estimates and significant judgments that are based on a number of factors
including expected future operating results. It is possible that these judgments and estimates could change in
future periods.
The determination of the fair value of intangible assets acquired in a business acquisition, including the
Company’s acquisitions in 2019 and 2016, is subject to many estimates and assumptions. We review
amortizable intangible asset groups for impairment whenever events or changes in circumstances indicate that
the related carrying amounts may not be recoverable.
Non-GAAP Measures
This Form 10-K contains certain non-GAAP metrics, including: net sales, and percent change in net
sales, excluding the impact of currency translation effects (for each segment and on a consolidated basis);
EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis, represented in dollars or as a
percentage of net sales); Net debt; and Adjusted earnings per share (or Adjusted EPS). Such items are
provided because management believes that they provide additional useful information to investors regarding
the Company’s operational performance.
Presenting sales and increases or decreases in Net sales, after currency effects are excluded, can give
management and investors insight into underlying sales trends. EBITDA, Adjusted EBITDA and Adjusted EPS
are performance measures that relate to the Company’s continuing operations. EBITDA, or net income with
interest, taxes, depreciation, and amortization added back, is a common indicator of financial performance
44
used, among other things, to analyze and compare core profitability between companies and industries because
it eliminates effects due to differences in financing, asset bases and taxes. An understanding of the impact in a
particular period of specific restructuring costs, acquisition and related retention agreement expenses, currency
revaluation, pension settlement/curtailment charges, inventory write-offs associated with discontinued
businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating
income or EBITDA can give management and investors additional insight into core financial performance,
especially when compared to periods in which such items had a greater or lesser effect, or no effect.
Restructuring expenses in the MC segment, while frequent in recent years, are reflective of significant
reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the
profitability of the business going forward as restructured. Net debt, is, in the opinion of the Company , helpful
to investors wishing to understand what the Company’s debt position would be if all available cash were
applied to pay down indebtedness. EBITDA, Adjusted EBITDA, and Adjusted earnings per share are
performance measures that relate to the Company’s continuing operations.
Net sales, or percent changes in net sales, excluding currency rate effects, are calculated by converting
amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts
are then compared to the U.S. dollar amount as reported in the current period. The Company calculates
EBITDA by removing the following from Net income: Interest expense net, Income tax expense, and
Depreciation and amortization expense. Adjusted EBITDA is calculated by: adding to EBITDA costs
associated with restructuring, inventory write-offs associated with discontinued businesses, adding charges and
credits related to pension plan settlements and curtailments; adding (or subtracting) revaluation losses (or
gains); subtracting (or adding) gains (or losses) from the sale of buildings or investments; subtracting
insurance recovery gains in excess of previously recorded losses; adding acquisition and related retention
agreement expenses and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in
Albany Safran Composites (ASC). Adjusted earnings per share is calculated by adding to (or subtracting from)
net income attributable to the Company per share, on an after-tax basis: restructuring charges; inventory
write-offs associated with discontinued businesses; pension settlements/curtailments; the effect of changes in
the income tax rate; foreign currency revaluation losses (or gains); acquisition-related expenses; and losses (or
gains) from the sale of investments.
EBITDA, Adjusted EBITDA, and Adjusted earnings per share as defined by the Company , may not be
similar to similarly named measures of other companies. Such measures are not considered measurements
under GAAP, and should be considered in addition to, but not as substitutes for, the information contained in
the Company’s statements of income.
The following tables show the calculation of EBITDA and Adjusted EBITDA:
Consolidated results
Years ended December 31,
Operating income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest, taxes, other income/(expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement/curtailment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention agreement expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of inventory in a discontinued product line . . . . . . . . . . . . . . .
Pre-tax (income)/loss attributable to noncontrolling interest in
2019
$193,576
(60,193)
133,383
16,921
44,829
70,795
265,928
2,905
(3,190)
478
501
120
—
(in thousands)
2018
$137,408
(54,389)
83,019
18,124
32,228
79,036
212,407
15,570
(341)
1,494
—
—
—
2017
$ 78,676
(46,091)
32,585
17,091
22,123
71,956
143,755
13,491
8,761
—
—
—
2,800
ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,308)
$265,434
(197)
$228,933
567
$169,374
45
Machine
Clothing
$191,965
—
191,965
—
—
21,876
213,841
1,129
630
—
—
—
—
$215,600
Machine
Clothing
$169,836
—
169,836
—
—
30,813
200,649
12,278
(826)
—
—
$212,101
Machine
Clothing
$153,980
—
153,980
—
—
33,527
187,507
3,429
3,903
(in thousands)
Albany
Engineered
Composites
$ 55,520
—
55,520
—
—
44,670
100,190
1,833
643
—
301
120
Corporate
expenses and
other
$ (53,909)
(60,193)
(114,102)
16,921
44,829
4,249
(48,103)
(57)
(4,463)
478
200
—
Total
Company
$193,576
(60,193)
133,383
16,921
44,829
70,795
265,928
2,905
(3,190)
478
501
120
(1,308)
$101,779
—
$ (51,945)
(1,308)
$265,434
(in thousands)
Albany
Engineered
Composites
$16,647
—
16,647
—
—
43,205
59,852
3,048
547
—
Corporate
expenses and
other
$ (49,075)
(54,389)
(103,464)
18,124
32,228
5,018
(48,094)
244
(62)
1,494
Total
Company
$137,408
(54,389)
83,019
18,124
32,228
79,036
212,407
15,570
(341)
1,494
(197)
$63,250
—
$ (46,418)
(197)
$228,933
(in thousands)
Albany
Engineered
Composites
$(31,657)
—
(31,657)
—
—
33,533
1,876
10,062
214
Corporate
expenses and
other
$(43,647)
(46,091)
(89,738)
17,091
22,123
4,896
(45,628)
—
4,644
Total
Company
$ 78,676
(46,091)
32,585
17,091
22,123
71,956
143,755
13,491
8,761
—
2,800
—
2,800
—
$194,839
567
$ 15,519
—
$(40,984)
567
$169,374
Year ended December 31, 2019
Operating income/(loss) (GAAP) . . . . . . . . . . . . . . .
Interest, taxes, other income/(expense) . . . . . . . . .
Net income/(loss) (GAAP) . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net
. . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . .
Pension curtailment expense . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention agreement expense . . . . . . . . . . . . . . . . . . .
Pre-tax (income) attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . .
Year ended December 31, 2018
Operating income/(loss) (GAAP) . . . . . . . . . . . . . . .
Interest, taxes, other income/(expense) . . . . . . . . .
Net income/(loss) (GAAP) . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net
Foreign currency revaluation (gains)/losses . . . . .
Pension settlement/curtailment expense . . . . . . . .
Pretax (income) attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . .
Year ended December 31, 2017
Operating income/(loss) (GAAP) . . . . . . . . . . .
Interest, taxes, other income/(expense) . . . . . .
Net income/(loss) (GAAP) . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . .
Write-off of inventory in a discontinued
product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax loss attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . .
46
The Company discloses certain income and expense items on a per-share basis. The Company believes
that such disclosures provide important insight into the underlying earnings and are financial performance
metrics commonly used by investors. The Company calculates the per-share amount for items included in
continuing operations by using the income tax rate based on income from continuing operations and the
weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are
determined by adding the amounts calculated at each reporting period.
The following tables show the earnings per share effect of certain income and expense items:
Year ended December 31, 2019
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . .
Pension curtailment charge . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retention agreement expense . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2018
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . .
Net Pension settlement/curtailment charge . . . . . . . . . . .
Year ended December 31, 2017
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . .
Write-off of inventory in a discontinued product
(in thousands, except per share amounts)
Pre tax
Amounts
$ 2,905
(3,190)
478
501
120
Tax
Effect
$ 824
(904)
91
120
36
After tax
Effect
$ 2,081
(2,286)
387
381
84
(in thousands, except per share amounts)
Pre tax
Amounts
$15,570
(341)
1,494
Tax
Effect
$4,904
3
348
After tax
Effect
$10,666
(344)
1,146
(in thousands, except per share amounts)
Pre tax
Amounts
$13,491
8,761
Tax
Effect
$4,768
3,107
After tax
Effect
$8,723
5,654
Per Share
Effect
$ 0.06
(0.07)
0.01
0.01
—
Per Share
Effect
$ 0.34
(0.01)
0.04
Per Share
Effect
$0.27
0.18
line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,800
1,036
1,764
0.05
The following table contains the calculation of full-year Adjusted EPS, excluding adjustments:
Years ended December 31,
Earnings per share (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments, after tax:
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . . . . . . . . . . .
Write-off of inventory in a discontinued product line . . . . . . . . .
Pension settlement/curtailment charge . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted earnings per share (non-GAAP) . . . . . . . . . . . . . . . . . . . .
The following table contains the calculation of net debt:
Per share amounts (Basic)
2018
$ 2.57
2019
$ 4.10
2017
$1.03
0.06
(0.07)
—
0.01
0.01
$ 4.11
0.34
(0.01)
—
0.04
—
$ 2.94
0.27
0.18
0.05
—
—
$1.53
As of December 31,
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$
—
20
424,009
424,029
195,540
$228,489
(in thousands)
2018
$
—
1,224
523,707
524,931
197,755
$327,176
2017
$
262
1,799
514,120
516,181
183,727
$332,454
47
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market risk with respect to foreign currency exchange rates and interest rates. The market risk
is the potential loss arising from adverse changes in these rates as discussed below.
Foreign Currency Exchange Rate Risk
We have manufacturing plants and sales transactions worldwide and therefore are subject to foreign
currency risk. This risk is composed of both potential losses from the translation of foreign currency financial
statements and the remeasurement of foreign currency transactions. To manage this risk, we periodically enter
into forward exchange contracts either to hedge the net assets of a foreign investment or to provide an
economic hedge against future cash flows. The total net assets of non-U.S. operations and long-term
intercompany loans denominated in nonfunctional currencies subject to potential loss amount to approximately
$570.2 million. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in
quoted foreign currency exchange rates amounts to $57.0 million. Furthermore, related to foreign currency
transactions, we have exposure to various nonfunctional currency balances totaling $77.9 million. This amount
includes, on an absolute basis, exposures to assets and liabilities held in currencies other than our local
entity’s functional currency. On a net basis, we had $25.4 million of foreign currency assets as of
December 31, 2019. As currency rates change, these nonfunctional currency balances are revalued, and the
corresponding adjustment is recorded in the income statement. A hypothetical change of 10 percent in
currency rates could result in an adjustment to the income statement of approximately $2.5 million. Actual
results may differ.
Interest Rate Risk
We are exposed to interest rate fluctuations with respect to our variable rate debt, depending on general
economic conditions.
On December 31, 2019, we had the following variable rate debt:
(in thousands, except interest rates)
Long-term debt
Credit agreement with borrowings outstanding, net of fixed rate portion, at an end of
period interest rate of 3.185% in 2019, due in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74,000
Assuming borrowings were outstanding for an entire year, an increase of one percentage point in
weighted average interest rates would increase/decrease interest expense by $0.7 million. To manage interest
rate risk, we may periodically enter into interest rate swap agreements to effectively fix the interest rates on
variable debt to a specific rate for a period of time. (See Note 18 to the Consolidated Financial Statements in
Item 8).
48
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Consolidated Statements of Income for the years ended December 31, 2019, 2018, and 2017 . . . . . . . . . . . 54
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019,
2018, and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Consolidated Balance Sheets as of December 31, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017 . . . . . . . 57
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Albany International Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Albany International Corp. and subsidiaries
(the Company) as of December 31, 2019 and 2018, the related consolidated statements of income,
comprehensive income, and cash flows for each of the years in the three-year period ended December 31,
2019, and the related notes and financial statement Schedule II – Valuation and Qualifying Accounts
(collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2020 expressed an
unqualified opinion on the ef fectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Notes 1 and 2 to the consolidated financial statements, the Company has changed its method
of accounting for revenue as of January 1, 2018 due to the adoption of Accounting Standards Codification
Topic 606, Revenue from Contracts with Customers.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’ s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which they relate.
50
Evaluation of estimated total contract costs at completion for Albany Engineered Composites revenue
recognition
As discussed in Note 2 to the consolidated financial statements, the Albany Engineered Composites
(AEC) segment had net sales of $452.9 million for the year ended December 31, 2019 of which $424.3
million was recognized over time as costs are incurred. Under the cost-to-cost measure of progress, the
extent of progress toward completion is measured based on the ratio of costs incurred to date to the total
estimated costs at completion of the performance obligation. Revenue, including profit, is recorded
proportionally as costs are incurred.
We identified the evaluation of estimated total contract costs at completion to recognize revenue for
certain AEC contracts as a critical audit matter because of the varied nature and inherent complexities of
the contractual performance obligations. A high degree of auditor judgment was required to evaluate the
estimates of total contract costs, primarily material and labor, at completion for those contracts.
The primary procedures we performed to address this critical audit matter included the following. We
tested certain controls over the Company’s estimated costs at completion process, including controls
related to developing forecasted material and labor costs. We read relevant agreements, including
amendments, to identify significant contract terms and compared the terms to the Company’ s recognition
of revenue for these contracts. We inspected the Company’s analysis of the contract’s status, including
forecasted costs, which we compared against historical costs, and assessed changes to gross margin.
Evaluation of the Machine Clothing revenue recognized at a point in time
As discussed in Note 2 to the consolidated financial statements, the Machine Clothing (MC) segment had
net sales of $601.3 million for the year ended December 31, 2019. Contracts with customers in the MC
segment have various terms that can affect the point-in-time when revenue is recognized. The Company
recognizes revenue within the MC segment when the performance obligation related to the manufacture
and delivery of a product has been satisfied, generally determined based on arrival at the location
specified by the customer in accordance with the contract terms. The contractual terms must be closely
monitored by the Company in order to ensure revenue is recognized in the proper period.
We identified the evaluation of the MC segment revenue recognized at a point-in-time for certain
contracts as a critical audit matter. While our report dated February 28, 2020 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019, during a portion of the year, controls over certain point-in-time revenue transactions
were ineffective. As a result, a high degree of auditor judgment was required to evaluate when revenue
should be recognized due to the variability of contractual terms affecting when the performance
obligation has been satisfied, specifically when the satisfaction of the performance obligation occurs close
to the end of the reporting period.
The primary procedures we performed to address this critical audit matter included the following. We
tested certain internal controls over the Company’s MC segment revenue process, including controls
related to assessing when performance obligations have been satisfied. Specifically
, we tested controls
over sales orders for the relevance and reliability of certain financial information and review of proof of
delivery. We evaluated the timing of revenue recognition by examining a sample of MC segment revenue
transactions and comparing relevant information to source documentation, such as proof of delivery. We
confirmed the location and existence of certain MC segment products held at third parties to assess when
the Company had satisfied its performance obligations.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Albany, New York
February 28, 2020
51
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Albany International Corp.:
Opinion on Internal Control Over Financial Reporting
We have audited Albany International Corp. and subsidiaries’ (the Company) internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and
2018, the related consolidated statements of income, comprehensive income, and cash flows for each of the
years in the three-year period ended December 31, 2019, and the related notes and financial statement
Schedule II – Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our
report dated February 28, 2020 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired CirComp GmbH (CirComp) during 2019, and management excluded from its
assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31,
2019, CirComp’s internal control over financial reporting associated with total assets of $41.1 million and total
net sales of $0.5 million included in the consolidated financial statements of the Company as of and for the
year ended December 31, 2019. Our audit of internal control over financial reporting of the Company also
excluded an evaluation of the internal control over financial reporting of CirComp.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A). Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Contr ol Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
52
Because of its inherent 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 or procedures may deteriorate.
/s/ KPMG LLP
Albany, New York
February 28, 2020
53
Albany International Corp.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
(in thousands, except per share amounts)
2019
Gross profit
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,054,132
656,431
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
397,701
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
163,651
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
37,569
Technical and research expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,905
Restructuring expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
193,576
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,729)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,650
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,557)
Other (income)/expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
178,212
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,829
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
133,383
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) attributable to the noncontrolling interest . . . . . . . . .
985
Net income attributable to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132,398
2018
$982,479
632,730
349,749
156,189
40,582
15,570
137,408
(2,118)
20,242
4,037
115,247
32,228
83,019
128
$ 82,891
2017
$863,717
567,434
296,283
162,942
41,174
13,491
78,676
(1,511)
18,602
6,877
54,708
22,123
32,585
(526)
$ 33,111
Earnings per share attributable to Company shareholders —
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.10
Earnings per share attributable to Company shareholders —
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Dividends declared per share, Class A and Class B . . . . . . . . . . . . . . . . . . $
4.10
0.73
$
$
$
2.57
2.57
0.69
$
$
$
1.03
1.03
0.68
The accompanying notes are an integral part of the consolidated financial statements.
54
Albany International Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31,
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss), before tax:
Foreign currency translation and other adjustments . . . . . . . . . . . . . . . . . .
Pension settlements and curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of pension and postretirement liability adjustments:
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments and amortization related to interest rate swaps included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes related to items of other comprehensive income/(loss):
Pension settlements and curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of pension and postretirement liability adjustments . . . .
Payments and amortization related to interest rate swaps included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income/(loss) attributable to the noncontrolling
2019
$133,383
2018
2017
$ 83,019 $32,585
(8,747)
450
(1,796)
(4,420)
4,480
(1,011)
(9,512)
(74)
359
(13)
(27,383)
1,494
851
44,162
—
2,955
(4,454)
5,175
(4,453)
5,439
(146)
3,832
1,490
325
(348)
(408)
(158)
—
(918)
(22)
259
2,432
115,790
37
(979)
60,532
(566)
(124)
80,873
interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to the Company . . . . . . . . . . . . . . . . . . .
975
$114,815
111
(520)
$ 60,421 $81,393
The accompanying notes are an integral part of the consolidated financial statements.
55
Albany International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except per share data)
2019
2018
$ 197,755
223,176
57,447
85,904
7,473
21,294
593,049
462,055
49,206
164,382
62,622
45,061
41,617
$1,417,992
$
52,246
129,030
1,224
6,806
189,306
523,707
88,277
8,422
809,712
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 195,540
218,271
79,070
95,149
6,162
24,142
618,334
466,462
52,892
180,934
51,621
41,234
62,891
$1,474,368
$
65,203
125,885
20
11,611
202,719
424,009
132,725
12,226
771,679
Liabilities
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies
Shareholders’ Equity
Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none
issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class A Common Stock, par value $.001 per share; authorized 100,000,000
shares; issued 39,098,792 in 2019 and 37,450,329 in 2018 . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares;
issued and outstanding 1,617,998 in 2019 and 3,233,998 in 2018 . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated items of other comprehensive income:
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (Class A), at cost; 8,408,770 shares in 2019 and 8,418,620 shares
—
39
—
37
2
432,518
698,496
3
430,555
589,645
(122,852)
(49,994)
(3,135)
(115,976)
(47,109)
4,697
in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(256,391)
698,683
4,006
702,689
$1,474,368
(256,603)
605,249
3,031
608,280
$1,417,992
The accompanying notes are an integral part of the consolidated financial statements.
56
Albany International Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands)
2019
2018
2017
$ 133,383
$ 83,019
$ 32,585
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . . .
Provision for write-off of property, plant and equipment . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of pension liability adjustment due to
settlement/curtailment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable in Class A Common
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of intangible assets in a discontinued product line . . . . .
Changes in operating assets and liabilities that provided/(used)
cash, net of impact of business acquisition:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . .
Purchased software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
62,085
8,710
13,702
3,119
605
450
2,063
—
9,587
(19,199)
(8,923)
(2,291)
1,390
10,524
(7,393)
3,979
(1,341)
(6,573)
(3,525)
200,352
(30,793)
(67,358)
(597)
(98,748)
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on finance lease liabilities
. . . . . . . . . . . . . . . . . . . .
Debt acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received to settle swap agreements . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid in lieu of share issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Net cash (used in)/provided by financing activities
Effect of exchange rate changes on cash and cash equivalents . . . . . .
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,000
(120,017)
(1,180)
—
—
(971)
112
(23,251)
(100,307)
(3,512)
(2,215)
197,755
$ 195,540
68,800
10,236
8,972
3,707
459
1,494
2,203
—
(19,139)
(10,267)
(968)
(5,815)
(1,402)
9,340
8,209
(824)
(12,249)
(5,479)
(7,811)
132,485
—
(81,579)
(1,307)
(82,886)
26,031
(29,913)
—
—
—
(1,652)
202
(21,926)
(27,258)
(8,313)
14,028
183,727
$197,755
61,517
10,439
(1,264)
2,870
660
—
2,133
4,149
(21,859)
—
3,090
(4,989)
(941)
2,910
5,303
(799)
(18,766)
(10,145)
(2,677)
64,216
—
(85,510)
(2,127)
(87,637)
115,334
(84,047)
—
(2,130)
6,346
(1,364)
597
(21,869)
12,867
12,539
1,985
181,742
$183,727
The accompanying notes are an integral part of the consolidated financial statements.
57
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Albany International Corp. and its
subsidiaries (the Company, Albany, we, us, or our) after elimination of intercompany transactions. We have a
50 percent interest in an entity in Russia. The consolidated financial statements include our original
investment in the entity, plus our share of undistributed earnings or losses, in the account “Other Assets.”
The Company owns 90 percent of the common equity of Albany Safran Composites, LLC (ASC) which
is reported within the Albany Engineered Composites (AEC) segment. Additional information regarding that
entity is included in Note 10.
Estimates
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Estimates are used in accounting for, among other things, revenue recognition, contract
profitability , allowances for doubtful accounts, rebates and sales allowances, inventory allowances, pension
benefits, goodwill and intangible assets, contingencies, income tax related balances, and other accruals. Our
estimates are based on historical experience and on various other assumptions, which are believed to be
reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual
results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed
periodically, and the effects of any revisions are reflected in the consolidated financial statements in the period
they are determined to be necessary.
Revenue Recognition
Effective January 1, 2018, the Company adopted the provisions of ASC 606, Revenue from contracts with
customers, using the modified retrospective (or cumulative ef fect) method for transition. Under this transition
method, periods prior to 2018 were not restated and the cumulative effect of initially applying the new standard
was recorded as an adjustment to Retained earnings at January 1, 2018. The standard replaces numerous
requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single model
for recognizing revenue from contracts with customers. We applied the new accounting standard to contracts which
were not completed by December 31, 2017.
In our Machine Clothing (MC) business segment, prior to 2018, we recorded revenue from the sale of a
product when persuasive evidence of an arrangement existed, delivery had occurred, title was transferred, the
selling price was fixed, and collectability was reasonably assured. Under the new standard, we recognize MC
revenue when we satisfy our performance obligations related to the manufacture and delivery of a product, which,
in certain cases, results in earlier recognition of revenue associated with these contracts.
In our Albany Engineered Composites (AEC) business segment, revenue from a number of long-term
contracts was, prior to 2018, recorded on the basis of the units-of-delivery method, which is considered an output
method. Under the new standard, revenue from most of these contracts is recognized over time using an input
method as the measure of progress, which generally results in earlier recognition of revenue. Prior to adoption of
the new standard, the classification of revenue in excess of progress billings on long-term contracts was included in
Accounts receivable. Under the new standard, such assets are considered Contract assets, which are rights to
consideration that are conditional on something other than the passage of time, such as completion of remaining
performance obligations. As a result of adoption of the new standard, such assets were reclassified at transition
from Accounts receivable to Contract assets. In addition, under the new standard, we are required to limit our
estimate of contract values to the period of the legally enforceable contract, which in many cases is considerably
shorter than the contract period used under the former standard. While certain contracts are expected to be
58
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
profitable over the course of the program life when including expected renewals, under the new standard, our
estimate of contract revenues and costs is limited to the estimated value of enforceable rights and obligations,
excluding anticipated renewals. In some cases, this shorter contract period may result in a loss contract
provision at contract inception. Expected losses on projects include losses on contract options that are
probable of exercise, excluding profitable options that often follow .
Products and services provided under long-term contracts represent a significant portion of sales in the
Albany Engineered Composites segment. We have a contract with a major customer for which revenue is
recognized under a cost-plus-fee agreement. We also have fixed price long-term contracts, for which we use
the percentage of completion (actual cost to estimated cost) method. That method requires significant
judgment and estimation, which could be considerably different if the underlying circumstances were to
change. When adjustments in estimated contract revenues or costs are required, any changes from prior
estimates are included in earnings in the period the change occurs. The sum of net adjustments to the
estimated profitability of long-term contracts increased AEC operating income by $10.8 million in 2019,
decreased AEC operating income by $2.0 million in 2018, and decreased AEC operating income by
$11.5 million in 2017. The favorable effects in 2019 were largely attributable to efficiency improvements
during the ramp-up of several programs. The unfavorable effects in 2017 included charges on the BR725 and
A380 programs. For contracts with anticipated losses, a provision for the entire amount of the estimated
remaining loss is charged against income in the period in which the loss becomes known. Contract losses are
determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative
cost allocations, which are treated as period expenses.
Additional accounting policies related to revenue from contracts with customers are set forth in Note 2.
We limit the concentration of credit risk in receivables by closely monitoring credit and collection
policies. We record allowances for sales returns as a deduction in the computation of net sales. Such
provisions are recorded on the basis of written communication with customers and/or historical experience.
Any value added taxes that are imposed on sales transactions are excluded from net sales.
Cost of Goods Sold
Cost of goods sold includes the cost of materials, provisions for obsolete inventories, labor and supplies,
shipping and handling costs, depreciation of manufacturing facilities and equipment, purchasing, receiving,
warehousing, and other expenses. Cost of goods sold also includes provisions for loss contracts and charges
for the write-off of inventories that result from an exit activity.
Selling, General, Administrative, Technical, and Research Expenses
Selling, general, administrative, and technical expenses are primarily comprised of wages, benefits, travel,
professional fees, revaluation of trade foreign currency balances, and other costs, and are expensed as
incurred. Selling expense includes provisions for bad debts and costs related to contract acquisition. Research
expenses are charged to operations as incurred and consist primarily of compensation, supplies, and
professional fees incurred in connection with intellectual property. Total company research expense was $26.9
million in 2019, $29.8 million in 2018, and $30.7 million in 2017.
The Albany Engineered Composites segment participates in both company-sponsored, and
customer-funded research and development. Some customer-funded research and development may be on a
cost-sharing basis and considered to be a collaborative arrangement, in which case both parties are active
participants and are exposed to the risks and rewards dependent on the success of the activity. In such cases,
amounts charged to the collaborating entity are credited against research and development expense. For
customer-funded research and development in which we anticipate funding to exceed expenses, we include
amounts charged to the customer in Net sales, while expenses are included in Cost of goods sold.
59
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
Restructuring Expense
We may incur expenses related to exiting a line of business or restructuring of our operations, which
could include employee termination costs, costs to consolidate or close facilities, or costs to terminate
contractual relationships. Restructuring expenses may also include impairment of Property, plant and
equipment, as described below under “Property, Plant and Equipment”. Employee termination costs include
the severance pay and social costs for periods after employee service is completed. Termination costs related
to an ongoing benefit arrangement are recognized when the amount becomes probable and estimable.
Termination costs related to a one-time benefit arrangement are recognized at the communication date to
employees. Costs related to contract termination, relocation of employees, outplacement and the consolidation
or the closure of facilities, are recognized when incurred.
Income Taxes
Deferred income taxes are recognized for the tax consequences of temporary differences and tax
attributes by applying enacted statutory tax rates applicable for future years to differences between existing
assets and liabilities for financial reporting and income tax return purposes. The effect of tax rate changes on
deferred taxes is recognized in the income tax provision in the period that includes the enactment date. A
valuation allowance is established, as needed, to reduce net deferred tax assets to the amount expected to be
realized. In the event it becomes more likely than not that some or all of the deferred tax asset valuation
allowances will not be needed, the valuation allowance will be adjusted.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.
We assess our income tax positions and record tax benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances, and information available at the reporting date. For those
tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the
amount of the tax benefit to be recognized by estimating the lar gest amount of tax benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that
a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where
applicable, associated interest and penalties have also been recognized. We recognize accrued interest and
penalties related to unrecognized tax benefits as a component of income tax expense.
Earnings Per Share
Basic net income or loss per share is computed using the weighted average number of shares of Class A
Common Stock and Class B Common Stock outstanding during each year. Diluted net income per share
includes the effect of all potentially dilutive securities. If we report a net loss from continuing operations, the
diluted loss is equal to the basic earnings per share calculation.
Translation of Financial Statements
Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income
statement accounts are translated at average exchange rates. Gains or losses resulting from translating
non-U.S. currency financial statements into U.S. dollars are recorded in other comprehensive income and
accumulated in Shareholders’ equity in the caption “Translation adjustments”.
Selling, general, and administrative expenses include foreign currency gains and losses resulting from
third party balances, such as receivables and payables, which are denominated in a currency other than the
entity’s functional currency. Gains or losses resulting from cash and short-term intercompany loans and
balances denominated in a currency other than the entity’s functional currency, and foreign currency options
are generally included in Other expense, net. Gains and losses on long-term intercompany loans not intended
to be repaid in the foreseeable future are recorded in other comprehensive income. There were no such
intercompany loans during 2019 and 2018.
60
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
The following table summarizes foreign currency transaction gains and losses recognized in the income
statement:
(in thousands)
(Gains)/losses included in:
2019
2018
2017
Selling, general, and administrative expenses . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net
Total transaction (gains)/losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,281
(4,471)
$(3,190)
$(274)
(67)
$(341)
$4,127
4,634
$8,761
The following table presents foreign currency gains on long-term intercompany loans that were recognized in
Other comprehensive income:
(in thousands)
Gain on long-term intercompany loans . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ —
2018
$ —
2017
$1,867
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of
three months or less.
Accounts Receivable
Accounts receivable includes trade receivables and bank promissory notes. In connection with certain sales in
Asia Pacific, the Company accepts a bank promissory note as customer payment. The notes may be presented for
payment at maturity, which is less than one year.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company determines the allowance based on historical write-off
experience, customer-specific facts and economic conditions. If the financial condition of the Company’
were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances could be
required.
s customers
The Company also has Noncurrent receivables in the AEC segment that represent revenue earned which have
extended payment terms. The Noncurrent receivables will be invoiced to the customer, with 2% interest, over a
10-year period starting in 2020.
See additional information set forth in Notes 2 and 11.
Contract Assets and Contract Liabilities
Contract assets includes unbilled amounts typically resulting from sales under contracts when the cost-to-cost
method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer.
Contract assets are transferred to Accounts receivable, net, when the entitlement to payment becomes unconditional.
Contract liabilities include advance payments and billings in excess of revenue recognized. Contract liabilities are
included in Accrued liabilities in the Consolidated Balance Sheet.
See additional information set forth in Notes 2 and 12.
Inventories
Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead.
Raw material inventories are valued on an average cost basis. Other inventory cost elements are valued at
cost, using the first-in, first-out method. The Company writes down the inventories for estimated obsolescence,
and to lower of cost or net realizable value based upon assumptions about future demand and market
conditions. Write-downs of inventories are charged to Cost of goods sold. If actual demand or market
conditions are less favorable than those projected by the Company, additional inventory write-downs may be
required. Once established, the original cost of the inventory less the related write-down represents the new
cost basis of such inventories.
61
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
See additional information set forth in Notes 2 and 13.
Leases
Effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the effective date (or
modified retrospective) approach for transition. Under this transition method, periods prior to 2019 have not
been restated, and the cumulative effect of initially applying the new standard was recorded as an adjustment
to Retained earnings at January 1, 2019.
The new standard is intended to increase transparency and comparability among organizations by
requiring the recognition of right of use (“ROU”) assets and lease liabilities on the balance sheet. Most
prominent among the changes under the new standard is the recognition of ROU assets and lease liabilities by
lessees for those leases classified as operating leases. Under the new standard, disclosures are required to meet
the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash
flows arising from leases. We applied the new accounting standard to leases existing at the date of initial
application of January 1, 2019.
We elected the available package of practical expedients, which permitted us to not reassess under the
new standard our prior conclusions about lease identification, lease classification and initial direct costs. We
implemented processes and internal controls to enable the preparation of financial information related to this
standard.
The most significant impacts resulting from the adoption of the new standard was the recognition of
ROU assets and lease liabilities for operating leases on our balance sheet for our real estate and automobile
operating leases, as well as to the derecognition and reassessment of assets and liabilities related to our
primary manufacturing facility in Salt Lake City, Utah (SLC lease), which had been accounted for as a
build-to-suit lease with a failed sale-leaseback. For that lease, transitional guidance required the derecognition
of existing assets and liabilities and a reassessment of lease classification. We determined that the lease met
the criteria for recording as a finance lease and we determined the January 1, 2019 values of the ROU asset
and lease liability on the basis of that reassessment. The change in the SLC lease-related assets and liabilities
resulted in a $0.3 million pre-tax reduction to Retained earnings at the date of adoption.
We have certain lease agreements with lease and non-lease components. For most of these leases, we
account for the lease and non-lease components as a single lease component, in accordance with the practical
expedient that is available for ongoing accounting. Additionally, for certain other leases, such as for vehicles,
we apply a portfolio approach. Such new leases are classified as financing or operating, with classification
affecting the pattern and classification of expense recognition in the income statement. Expenses related to
operating leases are recognized on a straight-line basis, while those determined to be financing leases are
recognized following a front-loaded expense profile, in which interest and amortization are presented
separately in the income statement.
Operating lease ROU assets are included in Other assets in the Consolidated Balance Sheets, while
finance lease ROU assets are included in Property , plant, and equipment, net. Lease liabilities for both
operating and finance leases are included in Accrued liabilities and Other noncurrent liabilities in the
Consolidated Balance Sheets.
See additional information set forth in Note 20.
62
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, or if acquired as part of a business combination, at
fair value. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets
for financial reporting purposes. In some cases, accelerated methods are used for income tax purposes.
Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and
repair costs are expensed as incurred. The cost of fully depreciated assets remaining in use is included in the
respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses
are included in net income.
Computer software purchased for internal use, at cost, is amortized on a straight-line basis over five to
eight years, depending on the nature of the asset, after being placed into service, and is included in property,
plant, and equipment. We capitalize internal and external costs incurred related to the software development
stage. Capitalized salaries, travel, and consulting costs related to the software development were immaterial in
2019 and 2018.
We review the carrying value of property, plant and equipment and other long-lived assets for
impairment whenever events and circumstances indicate that the carrying value of an asset group may not be
recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
See additional information set forth in Note 14.
Goodwill, Intangibles, and Other Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for
impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the
net tangible and identifiable intangible assets acquired in each business combination. Our reportable segments
are consistent with our operating segments. See additional information set forth in Note 15.
Intangible assets acquired in a business combination are recognized at fair value and amortized to Cost
of goods sold or Selling, general and administrative expenses over the estimated useful lives of the assets. We
review amortizable intangible asset groups for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
We have an investment in a company in Russia that is accounted for under the equity method of
accounting and is included in Other assets, amounting to $0.5 million in 2019 and $0.4 million in 2018. We
perform regular reviews of the financial condition of the investee to determine if our investment is other than
temporarily impaired. If the financial condition of the investee were to no longer support their valuation, we
would record an impairment provision.
For some AEC contracts, we perform pre-production or nonrecurring engineering services. These costs
are normally considered a fulfillment activity , rather than a performance obligation. Fulfillment activities that
create resources that will be used in satisfying performance obligations in the future, and are expected to be
recovered, are capitalized to Other assets, which is classified as a noncurrent asset in the Consolidated Balance
Sheets. The capitalized costs are amortized into Cost of goods sold over the period over which the asset is
expected to contribute to future cash flows, which includes anticipated renewal periods.
Included in Other assets is $21.3 million in 2019 and $14.2 million in 2018 for defined benefit pension
plans where plan assets exceed the projected benefit obligations. Other assets also includes financial assets of
$0.8 million in 2019 and $5.3 million in 2018. See additional information set forth in Note 18.
63
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
Stock-Based Compensation
We have stock-based compensation plans for key employees. Stock options are accounted for in
accordance with applicable guidance for the modified prospective transition method of share-based payments.
No options have been granted since 2002. See additional information set forth in Note 22.
Derivatives
We use derivatives from time to time to reduce potentially large adverse effects from changes in currency
exchange rates and interest rates. We monitor our exposure to these risks and evaluate, on an ongoing basis,
the risk of potentially large adverse effects versus the costs associated with hedging such risks.
We may use interest rate swaps in the management of interest rate exposures and foreign currency
derivatives in the management of foreign currency exposure related to assets and liabilities (including net
investments in subsidiaries located outside the U.S.) denominated in foreign currencies. When we enter into a
derivative contract, we make a determination whether the transaction is deemed to be a hedge for accounting
purposes. For those contracts deemed to be a hedge, we formally document the relationship between the
derivative instrument and the risk being hedged. In this documentation, we specifically identify the asset,
liability, forecasted transaction, cash flow , or net investment that has been designated as the hedged item, and
evaluate whether the derivative instrument is expected to reduce the risks associated with the hedged item. To
the extent these criteria are not met, we do not use hedge accounting for the derivative.
All derivative contracts are recorded at fair value, as a net asset or a net liability. Changes in the fair
value of the hedge are recorded, net of tax, in other comprehensive income. For transactions that are
designated as hedges, we perform an evaluation of the effectiveness of the hedge. We measure the
effectiveness of hedging relationships both at inception and on an ongoing basis.
For derivatives that are designated and qualify as hedges of net investments in subsidiaries located
outside the United States, changes in the fair value of derivatives are reported in other comprehensive income
as part of the Cumulative translation adjustment.
Pension and Postretirement Benefit Plans
As described in Note 4, we have pension and postretirement benefit plans covering substantially all
employees. Our defined benefit pension plan in the United States was closed to new participants as of October
1998 and, as of February 2009, benefits accrued under this plan were frozen.
We have liabilities for postretirement benefits in the U.S. and Canada. Substantially all of the liability
relates to the U.S. plan. Effective January 2005, our postretirement benefit plan in the U.S. was closed to new
participants, except for certain life insurance benefits. In September 2008, we changed the cost sharing
arrangement under this program such that increases in health care costs are the responsibility of plan
participants and, in August 2013, we reduced the life insurance benefit for retirees and eliminated that benefit
for active employees.
The pension plans are generally trusteed or insured, and accrued amounts are funded as required in
accordance with governing laws and regulations. The annual expense and liabilities recognized for defined
benefit pension plans and postretirement benefit plans are developed from actuarial valuations. Inherent in
these valuations are key assumptions, including discount rates and expected return on plan assets, which are
updated on an annual basis. We consider current market conditions, including changes in interest rates, in
making these assumptions. Discount rate assumptions are based on the population of plan participants and a
mixture of high-quality fixed-income investments with durations that match expected future payments. The
assumption for expected return on plan assets is based on historical and expected returns on various categories
of plan assets.
64
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
Recent Accounting Pronouncements
In June 2016, an accounting update was issued which replaces the incurred loss impairment methodology
under current GAAP with a methodology that reflects expected credit losses and requires consideration of a
broader range of reasonable and supportable information to inform credit loss estimates. The measurement of
expected credit losses under the current expected losses (CECL) methodology is applicable to financial assets
measured at amortized cost, which includes Short-term securities, Trade receivables, Contract assets, and
Noncurrent receivables. The Company is required to estimate a CECL allowance using relevant available
information. Historical credit loss experience will provide the basis for the estimation of expected credit
losses, and adjustments may be made for differences in current asset-specific risk characteristics. A CECL
allowance for credit losses will be measured on a collective (pool) basis when similar risk characteristics
exist. Where financial instruments do not share risk characteristics, they will be evaluated on an individual
basis. The principal effect on the Company’s financial statements will be an increase in credit loss reserve on
financial instruments, which the Company does not expect to be material. The Company will adopt the new
standard using a modified retrospective transition approach as of January 1, 2020, which will be our date of
initial application. Consequently, financial information will not be updated and the disclosures required under
the new standard will not be provided for dates and periods before January 1, 2020. Additionally, the
Company is evaluating changes to our accounting policies, processes and internal controls to ensure we meet
the standard’s reporting and disclosure requirements.
In August 2018, an accounting update was issued which aims to improve the overall usefulness of
disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value
measurement disclosures. We will adopt the new standard as of January 1, 2020 and do not expect the
adoption to significantly impact our financial statements.
In August 2018, an accounting update was issued which aims to improve the overall usefulness of
disclosures to financial statement users and reduce unnecessary costs to companies when preparing defined
benefit plan disclosures. We plan to adopt the new standard effective January 1, 2021. We do not expect the
adoption of this update to significantly impact our financial statements.
In November 2018, an accounting update was issued which clarifies when transactions between
collaborative arrangement participants are in the scope of ASC 606. The update also provides some guidance
on presentation of transactions not in the scope of ASC 606. We will adopt the new standard as of January 1,
2020 and do not expect the adoption to significantly impact our financial statements.
In December 2019, an accounting update was issued which removes certain exceptions for recognizing
deferred taxes for investments and performing intra-period tax allocations. The update also adds guidance to
reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes
to members of a consolidated group. We plan to adopt the new standard as of January 1, 2021 and we are
assessing the potential impact on our financial statements.
2. Revenue Recognition
Effective January 1, 2018, the Company adopted the provisions of ASC 606, Revenue from contracts
with customers, using the modified retrospective (or cumulative ef fect) method for transition. Under this
transition method, periods prior to 2018 were not restated and the cumulative effect of initially applying the
new standard was recorded as an adjustment to Retained earnings at January 1, 2018.
65
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Revenue Recognition — (continued)
For periods ending after December 31, 2017, we account for a contract when it has approval and
commitment from both parties, the rights of the parties are identified, payment terms are identified, the
contract has commercial substance, and collectability of consideration is probable. Revenue is measured based
on the consideration specified in the contract with the customer , and excludes any amounts collected on behalf
of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a
product or service, or a series of distinct goods or services, to the customer which occurs either at a point in
time, or over time, depending on the performance obligation in the contract. A performance obligation is a
promise in the contract to transfer a distinct good or service to the customer, and is the unit of account under
ASC 606. “Control” refers to the ability to direct the use of, and obtain substantially all of the remaining
benefits from the product. A contract’s transaction price is allocated to each material distinct performance
obligation and is recognized as revenue when, or as, the performance obligation is satisfied.
In our MC segment, our primary performance obligation in most contracts is to provide solution-based,
custom-designed fabrics and belts to the customer. We satisfy this performance obligation upon transferring
control of the product to the customer at a specific point in time. Contracts with customers in the MC segment
have various terms that can affect the point in time when revenue is recognized. Generally, the customer
obtains control when the product has been received at the location specified by the customer , at which time
the only remaining obligations under the contract may be fulfillment costs, in the form of shipping and
handling, which are accrued when control of the product is transferred.
In the MC segment, contracts with certain customers may also obligate us to provide various
product-related services at no additional cost to the customer. When this obligation is material in the context
of the contract with the customer, we recognize a separate performance obligation and allocate revenue to
those services on a relative estimated standalone selling price basis. The standalone selling price for these
services is determined based upon an analysis of the services offered and an assessment of the price we might
charge for such services as a separate offering. As we typically provide such services on a stand-ready basis,
we recognize this revenue over time. Revenue allocated to such service performance obligations is the only
MC revenue that is recognized over time.
In our AEC segment, we primarily enter into contracts to manufacture and deliver highly engineered advanced
composite products to our customers. A significant portion of AEC revenue is earned under short duration,
firm-fixed-price orders that are placed under a master agreement containing general terms and conditions applicable
to all orders placed under the master agreement. To determine the proper revenue recognition method, we evaluate
whether two or more orders or contracts should be combined and accounted for as one single contract, and whether
the combined or single contract contains single or multiple performance obligations. This evaluation requires
significant judgment, and the decision to combine a group of contracts, or to allocate revenue from the combined or
single contract among multiple performance obligations, could have a significant impact on the amount of revenue
and profit recorded in a given period. For most AEC contracts, the nature of our promise (or our performance
obligation) to the customer is to manage the contract and provide a significant service of integrating a complex set
of tasks and components into a single project or capability, which will often result in the delivery of multiple
highly interdependent and interrelated units.
At the inception of a contract, we estimate the transaction price based on our current rights, and do not
contemplate future modifications (including unexercised options) or follow-on contracts until they become
legally enforceable. Many AEC contracts are subsequently modified to include changes in specifications,
requirements or price, which may create new or change existing enforceable rights and obligations. Depending
on the nature of the modification, we consider whether to account for the modification as an adjustment to the
existing contract or as a separate contract. Generally, we are able to conclude that such modifications are not
distinct from the existing contract, due to the significant integration of the obligations, and the interrelated
nature of tasks, provided for in the modification and the existing contract. Therefore, such modifications are
accounted for as if they were part of the existing contract, and we accumulate the values of such
modifications in our estimates of contract value.
66
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Revenue Recognition — (continued)
Revenue is recognized over time for a large portion of our contracts in AEC as most of our contracts
have provisions that, under the guidance in ASC 606, are deemed to transfer control to the customer over
time. Revenue is recognized based on the extent of progress towards completion of the performance
obligation. The selection of the method to measure progress toward completion requires judgment and is
based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of
progress for our contracts because it best depicts the transfer of assets to the customer which occurs as we
incur costs to produce the contract deliverables. Under the cost-to-cost measure of progress, the extent of
progress toward completion is measured based on the ratio of costs incurred to date to the total estimated
costs at completion of the performance obligation. Revenue, including profit, is recorded proportionally as
costs are incurred. Accounting for long-term contracts requires significant judgment and estimation, which
could be considerably different if the underlying circumstances were to change. When any adjustments of
estimated contract revenue or costs are required, any changes from prior estimates are included in revenues or
earnings in the period in which the change occurs.
In other AEC contracts, revenue is recognized at a point in time because the products are offered to
multiple customers, or we do not have an enforceable right to payment until the product is shipped or
delivered to the location specified by the customer in the contract.
AEC’s largest source of revenue is derived from the LEAP contract (see Note 10) under a cost-plus-fee
agreement. Beginning in 2018, the fee is variable based on our success in achieving certain cost targets.
Revenue is recognized over time as costs are incurred. Under this contract, there is significant judgment
involved in determining applicable contract costs and expected margin, and therefore, in determining the
amount of revenue to be recognized.
Payment terms granted to MC and AEC customers reflect general competitive practices. Terms vary with
product, competitive conditions, and the country of operation.
The following table provides a summary of the composition of each business segment:
Segment
Product Group
Principal Product or Service
Principal Locations
Machine Clothing
(MC)
Machine Clothing
Albany Safran
Composites (ASC)
Paper machine clothing: Permeable and
impermeable belts used in the
manufacture of paper, paperboard, tissue
and towel, and pulp
Engineered fabrics: Belts used in the
manufacture of nonwovens, fiber cement
and several other industrial applications
3D-woven, injected composite
components for aircraft engines
Albany Engineered
Composites (AEC)
Airframe and
engine Components
(Other AEC)
Composite airframe and engine
components for military and commercial
aircraft
World-wide
Rochester, NH
Commercy, France
Queretaro, Mexico
Salt Lake City, UT
Boerne, TX
Queretaro, Mexico
Kaiserslautern,
Germany
67
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Revenue Recognition — (continued)
We disaggregate revenue earned from contracts with customers for each of our business segments and
product groups based on the timing of revenue recognition, and groupings used for internal review purposes.
The following table presents disaggregated revenue for each product group by timing of revenue
recognition:
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites
ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other AEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Albany Engineered Composites . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites
ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other AEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Albany Engineered Composites . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended
December 31, 2019
Over Time
Revenue
Recognition
3,200
$
Point in Time
Revenue
Recognition
$598,054
—
28,584
28,584
$626,638
220,188
204,106
424,294
$427,494
For the year ended
December 31, 2018
Over Time
Revenue
Recognition
3,200
$
Point in Time
Revenue
Recognition
$608,658
—
21,614
21,614
$630,272
182,699
166,308
349,007
$352,207
Total
$ 601,254
220,188
232,690
452,878
$1,054,132
Total
$611,858
182,699
187,922
370,621
$982,479
The following table disaggregates MC segment revenue by significant product groupings (paper machine
clothing (PMC) and engineered fabrics), and, for PMC, the geographical region to which the paper machine
clothing was sold:
(in thousands)
Americas PMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eurasia PMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Fabrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Machine Clothing Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$316,355
210,961
73,938
$601,254
2018
$303,768
227,493
80,597
$611,858
For the years ended December 31,
In accordance with ASC 606-10-50-14, we do not disclose the value of unsatisfied performance obligations
for contracts with an original expected duration of one year or less. Contracts in the MC segment are generally for
periods of less than a year. Most contracts in the AEC segment are short duration firm-fixed-price orders
representing performance obligations with an original maturity of less than one year. Remaining performance
obligations on contracts that had an original duration of greater than one year totaled $82 million as of both
December 31, 2019 and 2018, and related primarily to firm contracts in the AEC segment. Of the remaining
performance obligations as of December 31, 2019 we expect to recognize as revenue approximately $67 million
during 2020, with the remainder to be recognized in 2021.
68
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data
In accordance with applicable disclosure guidance for enterprise segments and related information, the
internal organization that is used by management for making operating decisions and assessing performance is
used as the basis for our reportable segments.
The accounting policies of the segments are the same as those described in Note 1. Corporate expenses
include wages and benefits for corporate headquarters personnel, costs related to information systems
development and support, and professional fees related to legal, audit, and other activities. These costs are not
allocated to the reportable segments because the decision-making for these functions lies outside of the
segments.
Machine Clothing:
The Machine Clothing (“MC”) segment supplies permeable and impermeable belts used in the
manufacture of paper, paperboard, tissue and towel nonwovens, fiber cement and several other industrial
applications. We sell our MC products directly to customer end-users in countries across the globe. Our
products, manufacturing processes, and distribution channels for MC are substantially the same in each region
of the world in which we operate.
We design, manufacture, and market paper machine clothing (used in the manufacturing of paper,
paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper
machine clothing products are customized, consumable products of technologically sophisticated design that
utilize polymeric materials in a complex structure.
Albany Engineered Composites:
The Albany Engineered Composites (“AEC”) segment, including Albany Safran Composites, LLC
(“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest,
provides highly engineered, advanced composite structures to customers in the commercial and defense
aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program,
AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term
supply contract. The manufacturing spaces used for the production of parts under the long-term supply
agreement are owned by Safran, and leased to the Company at either a market rent or a minimal cost. All
lease expense is reimbursable by Safran to the Company due to the cost-plus nature of the supply agreement.
In 2019, Safran leased manufacturing space from AEC for the GE9X program. Rent paid by Safran under this
lease amount to $0.2 million in 2019. AEC Net sales to Safran were $226.8 million in 2019, $186.3 million in
2018, and $119.2 million in 2017. The total of Accounts receivable, Contract assets and Noncurrent receivable
due from Safran amounted to $114.5 million and $96.2 million as of December 31, 2019 and 2018,
respectively. Other significant programs served by AEC include the F-35, Boeing 787, Sikorsky CH-53K and
JASSM, as well as the fan case for the GE9X engine. In 2019, approximately 25 percent of AEC sales were
related to U.S. government contracts or programs.
69
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data — (continued)
As described in Note 2, effective January 1, 2018, the Company adopted the provisions of ASC 606,
“Revenue from contracts with customers”, using the cumulative effect method for translation. Periods prior to
2018 have not been restated. The following tables show data by reportable segment, reconciled to consolidated
totals included in the financial statements:
(in thousands)
Net Sales
Machine Clothing . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . .
. . . . . . . . . . . . . . . . . . . .
Consolidated total
Depreciation and amortization
Machine Clothing . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Consolidated total
Operating income/(loss)
Machine Clothing . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . .
Reconciling items:
2019
2018
2017
$ 601,254
452,878
$1,054,132
$611,858 $590,357
273,360
$982,479 $863,717
370,621
21,875
44,670
4,250
70,795
30,813
43,205
5,018
33,527
33,533
4,896
$ 79,036 $ 71,956
$
191,965
55,520
(53,909)
$ 193,576
169,836
16,647
(49,075)
153,980
(31,657)
(43,647)
$137,408 $ 78,676
Interest income . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . .
(2,729)
19,650
(1,557)
$ 178,212
(2,118)
20,242
4,037
(1,511)
18,602
6,877
$115,247 $ 54,708
Year ended
December 31, 2018
Increase/(decrease)
attributable to
application of ASC 606
$(3,970)
(3,150)
$(7,120)
—
—
—
$ —
(1,605)
4,930
—
$ 3,325
—
—
—
$ 3,325
The table below presents restructuring costs by reportable segment (also see Note 5):
(in thousands)
Restructuring expenses, net
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
$1,129
1,833
(57)
$2,905
$12,278
3,048
244
$15,570
$ 3,429
10,062
—
$13,491
In the measurement of assets utilized by each reportable segment, we include Inventories, Accounts
receivable, net, Contract assets, Noncurrent receivables, Property, plant and equipment, net, Intangibles, net
and Goodwill. On November 20, 2019, the Company acquired CirComp GmbH, resulting in a $35.3 million
increase in AEC assets.
70
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data — (continued)
The following table presents assets and capital expenditures by reportable segment:
(in thousands)
Segment assets
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid, receivable and deferred . . . . . . . . . . . . . . . . . . .
Prepaid and Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
$ 441,072
693,799
$ 453,836
633,394
$ 464,468
584,076
195,540
57,783
86,174
$1,474,368
197,755
70,095
62,912
$1,417,992
183,727
74,914
54,013
$1,361,198
Capital expenditures and purchased software
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total
$
$
16,707
48,753
2,495
67,955
$
$
20,230
60,121
2,535
82,886
$
$
20,522
63,865
3,250
87,637
At the January 1, 2018 date of adoption of ASC 606, MC assets increased by $22.5 million, and AEC
assets decreased by $14.1 million. Excluded from segment assets are cash, tax related assets, prepaid and
other current assets, and certain other assets not directly associated with segment operations.
In 2018, AEC finalized a modification to the lease of its primary manufacturing facility in Salt Lake City
Utah, which increased the manufacturing space and extended the minimum lease period until December 31,
2029. The lease modification resulted in a non-cash increase of $12.7 million to both Property , plant and
equipment, net, and to Long-term debt in the Consolidated Balance Sheets in 2018. Effective January 1, 2019,
we adopted the provisions of ASC 842, Leases, which resulted in changes to the amount and classification of
the associated assets and liabilities, as depicted in Note 20. Due to the non-cash nature of the modification and
subsequent adoption of the new Lease accounting standard, changes during both 2018 and 2019 are excluded
from amounts reported in the Consolidated Statements of Cash Flows.
,
71
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data — (continued)
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 . Net sales recorded by our entity in Switzerland are derived from
products sold throughout Europe and Asia, and are invoiced in various currencies.
(in thousands)
Net sales
United States
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost, net
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea
Germany (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
$ 574,063
146,571
91,783
73,039
64,666
48,586
55,424
$1,054,132
$ 275,965
45,640
43,986
41,799
11,047
10,795
10,577
9,509
17,144
$ 466,462
$519,349
157,339
85,386
48,534
62,093
50,923
58,855
$982,479
$272,584
40,343
50,245
48,686
12,042
12,396
27
8,154
17,578
$462,055
$459,525
147,601
57,195
31,902
60,535
48,920
58,039
$863,717
$252,639
22,981
58,196
61,840
14,256
14,558
39
10,230
19,563
$454,302
(a)
In 2019, the Company acquired CirComp GmbH, which resulted in an increase in Property, plant and
equipment of $10.6 million.
4. 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 and, as of
February 2009, benefits accrued under this plan were frozen. As a result of the freeze, employees covered by
the pension plan will receive, at retirement, benefits accrued through February 2009, but no benefits accrue
after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan (“SERP”), which is
an unfunded plan, were similarly frozen. The U.S. pension plan accounts for 45 percent of consolidated
pension plan assets, and 46 percent of consolidated pension plan obligations. The eligibility, benefit formulas,
and contribution requirements for plans outside of the U.S. vary by location.
The December 31, 2019 benefit obligations for the U.S. pension and postretirement plans were calculated
using the Pri-2012 mortality table with MP-2017 generational projection. 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.
72
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. 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. U.S. employees hired prior to 2005 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. Any new
employees hired after January 2005 who wish to be covered under this plan will be responsible for the full
cost of such benefits. In September 2008, we changed the cost-sharing arrangement under this program such
that increases in health care costs are the responsibility of plan participants. In August 2013, we reduced the
life insurance benefit for retirees and eliminated the benefit for active employees.
The Company also provides certain postretirement life insurance benefits to retired employees in Canada.
As of December 31, 2019, the accrued postretirement liability was $53.2 million in the U.S. and $1.2 million
in Canada. The Company accrues the cost of providing postretirement benefits during the active service period
of the employees. The Company currently funds the plans as claims are paid.
Accounting guidance requires 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. Company pension plan data for U.S. and non-U.S. plans has been combined for both
2019 and 2018, 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 rates of return for pension plan assets are determined for each major
asset category based on historical rates of return for assets in that category and expectations of future rates of
return based, in part, on simulated future capital market performance. The 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.
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. The corridor is defined as 10 percent 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 dif ference between the actual and the
expected return on the plan assets. The absolute difference in excess of 5 percent of the expected return is
added to the market-related value over two years; the remainder is added to the market-related value
immediately.
To the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the
amount recognized through accumulated other comprehensive income, are not reduced by future favorable
plan experience, they will be recognized as a component of the net periodic cost in future years.
73
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The following table sets forth the plan benefit obligations:
(in thousands)
Benefit obligation, beginning of year
. . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . .
Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements and curtailments . . . . . . . . . . . . . . .
Plan amendments and other . . . . . . . . . . . . . . . .
Foreign currency changes . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Benefit obligation, end of year
Accumulated benefit obligation
Weighted average assumptions used to
determine benefit obligations, end of year:
As of December 31, 2019
As of December 31, 2018
Other
postretirement
benefits
$51,127
189
2,115
—
4,686
(3,782)
—
—
49
$54,384
$ —
Other
postretirement
benefits
$58,531
232
2,024
—
(6,100)
(3,473)
—
—
(87)
$51,127
$ —
Pension plans
$230,911
2,723
7,217
228
(10,666)
(7,814)
(13,807)
534
(7,876)
$201,450
$193,870
Pension plans
$201,450
2,543
7,216
243
22,645
(8,404)
(1,768)
152
3,134
$227,211
$218,006
Discount rate — U.S. plan . . . . . . . . . . . . . . . . .
Discount rate — non-U.S. plans . . . . . . . . . . . .
Compensation increase — U.S. plan . . . . . . . .
Compensation increase — non-U.S. plans . .
3.40%
2.31%
—
2.81%
3.27%
3.05%
3.00%
3.00%
4.41%
2.98%
—
3.02%
4.31%
3.65%
3.00%
3.00%
The following sets forth information about plan assets:
As of December 31, 2019
As of December 31, 2018
(in thousands)
Fair value of plan assets, beginning of year . . . $178,942
Pension plans
Actual return on plan assets, net of
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency changes . . . . . . . . . . . . . . . . . .
32,367
4,670
243
(8,404)
(260)
4,197
Fair value of plan assets, end of year . . . . . . . . . $211,755
Other
postretirement
benefits
$ —
Other
postretirement
benefits
$ —
Pension plans
$205,586
—
3,782
—
(3,782)
—
—
$ —
(8,449)
10,071
228
(7,813)
(13,029)
(7,652)
$178,942
—
3,474
14
(3,488)
—
—
$ —
74
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The funded status of the plans was as follows:
As of December 31, 2019
As of December 31, 2018
(in thousands)
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit cost, end of year
. . . . . . . . . . . . .
Amounts recognized in the consolidated
balance sheet consist of the following:
Noncurrent asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . .
Amounts recognized in accumulated other
comprehensive income consist of:
Pension plans
$211,755
227,211
$ (15,456)
$ (15,456)
$ 21,337
(2,155)
(34,638)
$ (15,456)
Other
postretirement
benefits
$
Pension plans
— $178,942
201,450
$ (22,508)
$ (22,508)
54,384
$(54,384)
$(54,384)
$
— $ 14,206
(2,124)
(34,590)
$ (22,508)
(3,808)
(50,576)
$(54,384)
Other
postretirement
benefits
$
—
51,127
$(51,127)
$(51,127)
$
—
(3,890)
(47,237)
$(51,127)
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(credit) . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . . .
$ 63,240
639
$ 63,879
$ 28,119
(17,434)
$ 10,685
$ 68,110
1,020
$ 69,130
$ 25,660
(21,922)
$ 3,738
The composition of the net pension plan funded status as of December 31, 2019 was as follows:
(in thousands)
Pension plans with pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plans without pension assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. plan
$(660)
(6,799)
$(7,459)
Non-U.S. plans
$17,546
(25,543)
$(7,997)
Total
$16,886
(32,342)
$(15,456)
The net underfunded balance in the U.S. principally relates to the Supplemental Executive Retirement
Plan.
75
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The composition of the net periodic benefit plan cost for the years ended December 31, 2019, 2018, and
2017, was as follows:
(in thousands)
Components of net periodic benefit
cost:
Pension plans
2018
2017
2019
Other postretirement benefits
2017
2018
2019
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,543
7,216
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8,285)
Expected return on assets . . . . . . . . . . . . . . .
Amortization of prior service
cost/(credit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . .
Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment (gain)/loss . . . . . . . . . . . . . . . . . .
Net periodic benefit cost
68
2,253
(16)
466
. . . . . . . . . . . . . . . . $ 4,245
$ 2,723
7,217
(8,873)
$ 2,720
7,476
(8,152)
$
189
2,114
—
$
232
2,024
—
$
244
2,214
—
34
2,219
2,246
(752)
$ 4,814
36
2,628
—
—
$ 4,708
(4,488)
2,227
—
—
42
$
(4,488)
2,956
—
—
724
$
(4,488)
2,811
—
—
781
$
Weighted average assumptions used to
determine net cost:
Discount rate — U.S. plan . . . . . . . . . . . . . .
Discount rate — non-U.S. plans . . . . . . . .
Expected return on plan assets — U.S.
4.41% 3.70% 4.20% 4.31% 3.59% 4.00%
2.98% 2.83% 2.98% 3.65% 3.40% 3.70%
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.57% 3.87% 4.40%
Expected return on plan assets —
non-U.S. plans . . . . . . . . . . . . . . . . . . . . . . .
4.45% 4.83% 4.46%
Rate of compensation increase — U.S.
—
—
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
3.00%
—
—
—
—
—
—
Rate of compensation increase —
non-U.S. plans . . . . . . . . . . . . . . . . . . . . . . .
3.02% 3.04% 3.29% 3.00% 3.00% 3.00%
Pretax (gains)/losses on plan assets and benefit obligations recognized in other comprehensive income for
the years ended December 31, 2019, 2018, and 2017, was as follows:
(in thousands)
Settlements/curtailments . . . . . . . . . . . . . . . . $ (450) $(1,494) $ — $ — $ — $ —
2,743
Asset/liability loss/(gain) . . . . . . . . . . . . . . . .
Amortization of actuarial (loss) . . . . . . . . .
(2,811)
Amortization of prior service
(6,100)
(2,956)
6,411
(2,219)
(2,794)
(2,253)
(4,408)
(2,628)
4,685
(2,227)
2017
2019
Pension plans
2018
Other postretirement benefits
2017
2018
2019
cost/(credit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . .
Cost/(benefit) in Other comprehensive
(68)
316
(34)
(1,389)
(36)
1,930
4,488
—
4,488
—
4,488
2
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(5,249) $ 1,275
$(5,142) $ 6,946
$(4,568) $ 4,422
76
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The estimated amounts that will be amortized from accumulated other comprehensive income into net
periodic benefit cost in 2020 are as follows:
(in thousands)
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(benefit)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pension
$2,409
32
$2,441
Total
postretirement
benefits
$ 2,592
(4,488)
$(1,896)
Investment Strategy
Our investment strategy for pension assets differs for the various countries in which we have defined
benefit pension plans. Some of our defined benefit plans do not require funded trusts and, in those
arrangements, the Company funds the plans on a “pay as you go” basis. The largest of the funded defined
benefit plans is the United States plan.
United States plan:
During 2009, we changed our investment strategy for the United States pension plan by adopting a
liability-driven investment strategy. Under this arrangement, the Company seeks to invest in assets that track
closely to the discount rate that is used to measure the plan liabilities. Accordingly, the plan assets are
primarily debt securities. The change in investment strategy is reflective of the Company’ s 2008 decision to
freeze benefit accruals under the plan.
Non-United States plans:
For the countries in which the Company has funded pension trusts, the investment strategy may also be liability
driven or, in other cases, to achieve a competitive, total investment return, achieving diversification between and within
asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks
and investment opportunities identified. Actual allocations to each asset class vary from target allocations due to periodic
investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment
allocation positions, and the timing of benefit payments and contributions.
Fair-Value Measurements
The following tables present plan assets as of December 31, 2019, and 2018, using the fair-value
hierarchy, which has three levels based on the reliability of inputs used, as described in Note 17. Certain
investments that are measured at fair value using net asset value (NAV) as a practical expedient are not
required to be categorized in the fair value hierarchy table. The total fair value of these investments is
included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the
funded status table above. As of December 31, 2019 and 2018, there were no investments expected to be sold
at a value materially different than NAV.
77
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
(in thousands)
Common Stocks and equity funds . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . . . . .
Total investments in the fair value hierarchy . . .
Investments at net asset value:
Common Stocks and equity funds . . . . . . . . . . . . . .
Fixed income funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Common Stocks and equity funds . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . . . .
Total investments in the fair value hierarchy . . .
Investments at net asset value:
Common Stocks and equity funds . . . . . . . . . . .
Fixed income funds . . . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets at Fair Value as of December 31, 2019
Significant
Significant other
unobservable
observable
inputs Level 3
inputs Level 2
$ —
—
3,244
—
$3,244
Quoted prices in
active markets
Level 1
$ 216
—
—
2,793
$3,009
—
—
$ —
$92,721
92,721
Assets at Fair Value as of December 31, 2018
Significant other
observable inputs
Level 2
$ —
78,523
—
—
$78,523
Quoted prices in
active markets
Level 1
$ 284
—
—
3,016
$3,300
Significant
unobservable
inputs Level 3
$ —
—
2,890
—
$2,890
$
Total
216
92,721
3,244
2,793
98,974
56,846
52,751
3,184
$211,755
$
Total
284
78,523
2,890
3,016
84,713
42,852
47,534
3,843
$178,942
The following tables present a reconciliation of Level 3 assets held during the years ended December 31,
2019 and 2018:
(in thousands)
Insurance contracts -
total level 3 assets . . . . . . . . . . . . . .
December 31,
2018
Net
realized
gains
Net
unrealized
gains
Net
purchases,
issuances
and
settlements
Net
transfers
(out of)
Level 3
December 31,
2019
$2,890
$ —
$20
$334
$ —
$3,244
(in thousands)
Insurance contracts -
total level 3 assets . . . . . . . . . . . . . .
December 31,
2017
Net
realized
gains
Net
unrealized
gains
Net
purchases,
issuances
and
settlements
Net
transfers
(out of)
Level 3
December 31,
2018
$2,407
$ —
$(45)
$528
$ —
$2,890
78
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2019 and 2018, and the
target allocation, by asset category, are as follows:
Asset category
Equity securities . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . .
United States Plan
Percentage of plan assets at
plan measurement date
2019
2018
1%
96%
2%
1%
100%
1%
94%
4%
1%
100%
Non-U.S. Plans
Percentage of plan assets at
plan measurement date
2019
13%
80%
1%
6%
100%
2018
19%
74%
1%
6%
100%
Target
Allocation
13%
82%
1%
4%
100%
Target
Allocation
—%
100%
—%
—%
100%
(1) Other includes hedged equity and absolute return strategies, and private equity. The Company has
procedures to closely monitor the performance of these investments and compares asset valuations to
audited financial statements of the funds.
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 2019 and 2018, the projected benefit obligation, accumulated benefit obligation, and fair value of plan
assets for pension plans with projected benefit obligation and an accumulated benefit obligation in excess of plan assets
were as follows:
(in thousands)
Projected benefit obligation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans with projected
benefit obligation in
excess of plan assets
2018
2019
$123,261
$137,123
86,547
100,330
Plans with accumulated
benefit obligation in
excess of plan assets
2018
2019
$120,869
$134,737
86,062
100,330
Information about expected cash flows for the pension and other benefit obligations are as follows:
(in thousands)
Expected employer contributions and direct employer
Pension plans
Other
postretirement
benefits
payments in the next fiscal year
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,446
Expected benefit payments
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025-2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,905
8,537
8,755
9,068
9,531
53,652
$ 3,808
$ 3,808
3,738
3,683
3,631
3,555
16,569
79
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Restructuring
In 2017, the Company announced a proposal to discontinue operations at its MC production facility in
Sélestat, France. The restructuring program was driven by the Company’s need to balance manufacturing capacity
with demand. During 2017, we incurred $1.1 million of restructuring expense associated with this proposal but
were unable to reasonably estimate the total costs for severance and other charges associated with the proposal as
there was no assurance, at that time, that approval for the proposal would be obtained. In 2018, the plan was
approved by the French Labor Ministry which led to restructuring expense of $10.7 million in 2018, which
includes severance and outplacement costs for the approximately 50 positions that were terminated under this plan.
In 2019, restructuring charges were $0.9 million. Since 2017, we have recorded $12.7 million of restructuring
charges related to this action. As a result of this action, we recorded a pension plan curtailment gain of $0.7 million
in 2018 which is recorded in Other expense, net.
In 2016, the Company discontinued research and development activities at its MC facility in Sélestat,
France as part of a plan to reduce research and development costs. This initiative resulted in 2016 expense of
$2.2 million for severance, outplacement, and the write-off of equipment. In 2017 and 2018, we recorded
additional restructuring charges of $1.6 million and $1.0 million respectively, related to a 2016 restructuring at
the same location. Total restructuring costs for that initiative, including 2016, was $3.9 million.
In 2017, the Company initiated work force reductions and facility rationalization in AEC locations in Salt
Lake City, Utah and Rochester, New Hampshire. Restructuring charges include expenses of $0.1 million in
2019, $1.1 million in 2018, and $5.0 million in 2017. To date, we have recorded $6.2 million of restructuring
charges related to these actions.
In 2018, the Company discontinued certain manufacturing processes at its AEC facility in Salt Lake City,
Utah, which resulted in $1.9 million of restructuring in 2018, which included a non-cash restructuring charge
of $1.7 million, and an additional $0.2 million for severance. The non-cash restructuring charge resulted from
writing down manufacturing equipment used in that line of business to its estimated value. In 2019, the
Company wrote off the remaining $1.2 million book value of that equipment as the Company has been unable
to sell it. To date, we have recorded $3.1 million of restructuring charges related to these actions.
In 2017, the Company decided to discontinue the Bear Claw® line of hydraulic fracturing components
used in the oil and gas industry, which was part of the AEC business. This decision resulted in a non-cash
restructuring charge of $4.5 million in 2017 for the write-off of intangible assets and equipment, and a $2.8
million charge to Cost of goods sold for the write-off of inventory.
The following table summarizes charges reported in the Consolidated Statements of Income under
“Restructuring expenses, net”:
Year ended December 31, 2019
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2018
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
restructuring
costs incurred
$1,129
1,833
(57)
$2,905
Total
restructuring
costs incurred
$12,278
3,048
244
$15,570
Termination
and other
costs
$ 667
659
(57)
$1,269
Termination
and other
costs
$11,890
1,286
244
$13,420
Impairment
of assets
$ 462
1,174
—
$1,636
Impairment
of assets
$ 388
1,762
—
$2,150
80
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Restructuring — (continued)
Year ended December 31, 2017
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
restructuring
costs incurred
$ 3,429
10,062
—
$13,491
Termination
and other
costs
$2,945
5,004
—
$7,949
Impairment
of assets
$ 484
5,058
—
$5,542
We expect that approximately $1.3 million of Accrued liabilities for restructuring at December 31, 2019
will be paid within one year and approximately $0.7 million will be paid the following year.
The table below presents the changes in restructuring liabilities for 2019 and 2018, all of which related
to termination costs:
(in thousands)
Total termination and other
December 31,
2018
Restructuring
charges
accrued
Payments
Currency
translation/
other
December 31,
2019
costs . . . . . . . . . . . . . . . . . . . . . . .
$5,570
$1,269
$(5,084)
$287
$2,042
(in thousands)
Total termination and other
December 31,
2017
Restructuring
charges
accrued
Payments
Currency
translation/
other
December 31,
2018
costs . . . . . . . . . . . . . . . . . . . . . . .
$3,326
$13,420
$(10,696)
$(480)
$5,570
6. Other (income)/expense, net
The components of Other (income)/expense, net, are:
(in thousands)
Currency transactions
Bank fees and amortization of debt issuance costs . . . . . . . . . . . . . . . . . .
Pension settlements and curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of net periodic pension and postretirement cost other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,473)
348
450
2019
1,105
than service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,013
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,557)
2018
$ (67)
417
1,494
1,089
—
1,104
$4,037
2017
$ 4,634
487
—
2,525
(2,000)
1,231
$ 6,877
In 2019, the Company took actions to freeze accrued benefits under the United Kingdom defined benefit
pension plan, which resulted in a curtailment charge of $0.5 million.
In 2018, the Company took actions to settle a portion of its non-U.S. defined benefit pension plan
liabilities, which resulted in a settlement charge of $2.2 million.
In 2018, the Company recorded a pension curtailment gain of $0.7 million related to the restructuring in
Sélestat, France.
In 2017, we recorded a gain of $2.0 million based on an insurance settlement related to a theft in 2016.
81
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes
The following tables present components of income tax expense/(benefit) and income before income
taxes on continuing operations:
(in thousands)
Income tax based on income from continuing operations, at
estimated tax rates of 28%, 31%, and 32%, respectively . . .
Income tax before discrete items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete tax expense/(benefit):
Net impact of mandatory deemed repatriation . . . . . . . . . . . . . .
Provision for/resolution of tax audits and contingencies,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to prior period tax liabilities . . . . . . . . . . . . . . . . . .
Provision for/adjustment to beginning of year valuation
2019
2018
2017
$49,977
49,977
$36,044
36,044
$17,519
17,519
—
(1,003)
5,758
(2,874)
(1,637)
1,286
(1,284)
1,329
(840)
allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enacted tax legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(525)
(112)
$44,829
(4,882)
2,067
$32,228
(3,522)
1,879
$22,123
(in thousands)
Income/(loss) before income taxes:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
2017
$ 76,024
102,188
$178,212
$ 41,875
73,372
$115,247
$ (5,865)
60,573
$54,708
Income tax provision
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
780
6,357
25,255
$ 32,392
$ 10,583
253
1,601
$ 12,437
$ 44,829
$
304
4,996
21,557
$ 26,857
$ 10,700
(338)
(4,991)
$
5,371
$ 32,228
The significant components of deferred income tax expense/(benefit) are as follows:
(in thousands)
Net effect of temporary differences . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement benefits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impact to operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Enacted changes in tax laws and rates . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to beginning-of-the-year valuation allowance
$
2019
(18)
12,530
(752)
1,314
(112)
2018
$(4,657)
9,437
2,360
1,046
2,067
$ 1,551
1,770
19,282
$22,603
$ 1,881
(1,237)
(1,124)
$ (480)
$22,123
2017
$(5,774)
8,340
(502)
(900)
1,878
balance for changes in circumstances . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(525)
$12,437
(4,882)
$ 5,371
(3,522)
$ (480)
82
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as
follows:
U.S. federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit
Non-U.S. local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US permanent adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign permanent adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net U.S. tax on non-U.S. earnings and foreign withholdings . . . .
Provision for/resolution of tax audits and contingencies, net . . . . .
Research and development and other tax credits . . . . . . . . . . . . . . . . .
Provision for/adjustment to beginning of year valuation
allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enacted tax legislation and rate change . . . . . . . . . . . . . . . . . . . . . . . . . .
Return to provision and other adjustments . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
21.0%
3.0
4.4
—
0.4
0.5
0.3
(1.6)
(0.3)
(0.3)
(0.1)
(2.1)
25.2%
2018
21.0%
2.9
3.3
(0.3)
(0.4)
0.2
5.7
1.1
(0.1)
(4.2)
1.8
(3.0)
28.0%
2017
35.0%
0.4
5.9
0.5
0.4
(10.5)
11.9
2.4
(1.5)
(6.4)
3.0
(0.7)
40.4%
The Company has operations which constitute a taxable presence in 18 countries outside of the United
States. The majority of these countries had income tax rates that are above the United States federal tax rate
of 21% during 2019. The jurisdictional location of earnings is a significant component of the Company’ s
effective tax rate each year. The rate impact of this component is influenced by the specific location of
non-U.S. earnings and the level of the Company’s total earnings. From period to period, the jurisdictional mix
of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the
extent and location of other income and expense items, such as pension settlement and restructuring charges.
The foreign income tax rate differential that is included above in the reconciliation of the effective tax rate
includes the difference between tax expense calculated at the U.S. federal statutory tax rate of 21% and the
expense accrued based on the different statutory tax rates that apply in the jurisdictions where the income or
loss is earned.
During the periods reported, income outside of the U.S. was heavily concentrated within Brazil (blended
34% tax rate), China (25% tax rate), and Mexico (30% tax rate). The foreign rate differential of these
jurisdictions was partially offset by Switzerland (7.8% tax rate). As a result, the foreign income tax rate
differential was primarily attributable to these tax rate differences.
Deferred income taxes reflect the net tax ef fects of temporary differences between the carrying amounts
of certain assets and liabilities for financial reporting purposes and income tax return purposes. Significant
components of the Company’s deferred tax assets and liabilities are as follows:
83
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
(in thousands)
Noncurrent deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . .
Postretirement benefits
. . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred tax assets before valuation
allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred tax assets . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred tax liabilities:
Unrepatriated foreign earnings . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . .
Postretirement benefits
. . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flow-through DTL’s . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred tax liabilities . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
Non-U.S.
2019
2018
2019
2018
$
823
636
4,730
—
14,885
2,266
15,931
1,411
2,953
2,417
—
46,052
—
46,052
$46,052
$ 1,050
1,231
1,386
4,892
1,048
21,467
936
$
686
442
4,460
—
—
14,759
1,199
30,523
3,954
3,556
516
60,095
—
—
—
—
—
60,095
$60,095
32,010
(9,102)
22,908
$22,908
$ —
—
—
—
—
—
8,492
3,137
$11,629
$11,629
$11,279
—
3,762
1,162
2,192
—
—
$23,992
$23,992
$36,103
$ 1,224
829
1,053
4,252
1,667
21,890
1,197
—
—
—
990
33,102
(8,389)
24,713
$24,713
$ —
—
—
—
—
—
5,740
—
$ 5,740
$ 5,740
$18,973
$ 2,202
4,404
$ 4,028
12,848
—
3,391
—
6,205
—
510
$16,712
$16,712
$29,340
Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal
of existing taxable temporary differences and future taxable income. In 2019, the Company recorded the
following movements in its valuation allowance: the Company recorded a valuation allowance of $0.8 million
for one of its Mexican subsidiaries, and the Company also recorded a $0.1 million decrease in a valuation
allowance due to a net reduction in the related deferred tax assets. Additionally, the Company recorded a $1.3
million out-of-period immaterial adjustment related to a German tax valuation allowance that was released in
2018.
At December 31, 2019, the Company had available approximately $112.9 million of net operating loss
carryforwards, for which the Company has a deferred tax asset of $24.3 million, with expiration dates ranging
from one year to indefinite that may be applied against future taxable income. The Company believes that it is
more likely than not that certain benefits from these net operating loss carryforwards will not be realized and,
accordingly, the Company has recorded a valuation allowance of $9.1 million as of December 31, 2019.
Additionally, management has evaluated its ability to utilize its other non-U.S. tax attributes during the
various carryforward periods and has concluded that the Company will more likely than not be able to utilize
the remaining non-U.S. tax attributes. Included in the net operating loss carryforward is approximately
$38.8 million of state net operating loss carryforwards that are subject to various business apportionment
84
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
factors and multiple jurisdictional requirements when utilized. In addition, the Company had available a
foreign tax credit carryforward of $11.7 million that will begin to expire in 2025, U.S. and non-U.S. research
and development credit carryforwards of $8.0 million and $0.9 million, respectively, that will begin to expire
in 2025.
The Company reported a U.S. net deferred tax asset of $29.3 million at December 31, 2019, which
contained $22.6 million of tax attributes with limited lives. Although the Company is in a cumulative book
income position for the three-year period ending December 31, 2019, management has evaluated its ability to
utilize these tax attributes during the carryforward period. The Company’s future profits from operations,
available tax elections and tax planning opportunities more likely than not will generate income of sufficient
character to utilize the remaining tax attributes. Accordingly, no valuation allowance has been established for
the U.S. net deferred tax assets.
The Company records the residual U.S. and foreign taxes on certain amounts of foreign earnings that
have been targeted for repatriation to the U.S. These amounts are not considered to be indefinitely reinvested,
and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a
tax-free manner. The Company has targeted for repatriation $94.4 million of current year and prior year
earnings of the Company’s foreign operations. If these earnings were distributed, the Company would be
subject to foreign withholding taxes of $1.2 million and state income taxes of $1.0 million which have already
been recorded.
The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation
to the U.S. were approximately $169.1 million, and are intended to remain indefinitely invested in foreign
operations.
No additional income taxes have been provided on the indefinitely invested foreign earnings at
December 31, 2019. If these earnings were distributed, the Company could be subject to income taxes and
additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability related to
any additional outside basis difference in these entities is not practical.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax
benefits, $1.0 million of which, if recognized, would impact the ef fective tax rate:
(in thousands)
Unrecognized tax benefits balance at January 1st
Increase in gross amounts of tax positions related to
. . . . . . .
2019
$ 3,790
2018
$ 4,509
2017
$4,183
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,874
2,008
Decrease in gross amounts of tax positions related to
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,239)
(358)
Increase in gross amounts of tax positions related to
current years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease due to settlements with tax authorities . . . . . . . .
Decrease due to lapse in statute of limitations . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits balance at December 31 . . . . .
—
—
(626)
35
$ 5,834
—
(1,626)
(479)
(264)
$ 3,790
480
(50)
—
(381)
(29)
306
$4,509
The Company recognizes interest and penalties related to unrecognized tax benefits within its global
operations as a component of income tax expense. The Company recognized interest and penalties related to
the unrecognized tax benefits noted above of $0.2 million or less in each of 2019, 2018 and 2017. As of
December 31, 2019, 2018 and 2017, the Company had approximately $0.1 million, $0.1 million, and
$0.4 million respectively, of accrued interest and penalties related to unrecognized tax benefits.
85
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
The Company conducts business globally and, as a result, files income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is
subject to examination by taxing authorities throughout the world, including major jurisdictions such as the
United States, Brazil, Canada, France, Germany, Italy, Mexico and Switzerland. The open tax years in these
jurisdictions range from 2007 to 2019. The Company is currently under audit in non-U.S. tax jurisdictions,
including but not limited to Canada and Italy. In 2019, the Company recorded a net decrease of $2.2 million
for tax audit settlements with Canada. The Canadian Revenue Agency agreed to accept the Company’s appeal
of all protested issues. The Company has received the refunds from the Canadian Revenue Agency and
Ontario for taxes that were pre-paid at the time of protests. As such, during the first quarter , the Company
determined that it was more likely than not that the liability for unrecognized tax benefits of $2.2 million that
was recorded as of December 31, 2018 was no longer warranted and thus it was reduced in the first quarter of
2019, resulting in a $2.2 million discrete tax benefit.
As of December 31, 2019, and 2018, current income taxes prepaid and receivable consisted of the
following:
(in thousands)
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$4,399
1,763
$6,162
2018
$4,859
2,614
$7,473
As of December 31, 2019, and 2018, noncurrent deferred taxes and other liabilities consisted of the
following:
(in thousands)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . .
2019
$11,002
1,224
$ 12,226
2018
$7,547
875
$ 8,422
Taxes paid, net of refunds, amounted to $25.9 million in 2019, $28.1 million in 2018 and $23.7 million
in 2017.
8. Earnings Per Share
The amounts used in computing earnings per share and the weighted average number of shares of
potentially dilutive securities are as follows:
(in thousands, except market price and earnings per share)
Net income attributable to the Company . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares:
Weighted average number of shares used in calculating
2019
$132,398
2018
$82,891
2017
$33,111
basic net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,296
32,252
32,169
Effect of dilutive stock-based compensation plans:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in calculating diluted
net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average market price of common stock used for calculation of
dilutive shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
14
15
28
30
45
32,322
32,295
32,244
$
$
$
78.13
$ 66.95
$ 52.19
4.10
4.10
$
$
2.57
2.57
$
$
1.03
1.03
Shares outstanding, net of treasury shares, were 32.3 million as of December 31, 2019 and 2018, and
were 32.2 million as of December 31, 2017.
86
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. Accumulated Other Comprehensive Income (AOCI)
The table below presents changes in the components of AOCI from January 1, 2017 to December 31, 2019:
(in thousands)
January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement .
Interest expense related to swaps
reclassified to the Statements of Income,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
Translation
adjustments
$(133,298)
Pension and
postretirement
liability
adjustments
$(51,719)
Derivative
valuation
adjustment
828
$
Total Other
Comprehensive
Income
$(184,189)
45,980
—
(1,818)
2,037
201
—
44,363
2,037
—
—
924
924
—
964
—
964
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
45,980
(87,318)
1,183
(50,536)
1,125
1,953
48,288
(135,901)
Other comprehensive income/(loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
(28,658)
Pension/postretirement settlements and
curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement .
Interest expense related to swaps
reclassified to the Statements of Income,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
1,275
1,146
443
2,853
(24,530)
—
—
1,146
443
—
—
—
—
(109)
(109)
—
563
—
563
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . .
(28,658)
(115,976)
3,427
(47,109)
2,744
4,697
(22,487)
(158,388)
Other comprehensive income/(loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6,876)
(525)
(10,523)
(17,924)
Pension/postretirement settlements and
curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement .
Interest expense related to swaps
reclassified to the Statements of Income,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment related to prior period change
—
—
376
(1,437)
—
—
376
(1,437)
—
—
2,691
2,691
—
47
—
47
in opening valuation allowance . . . . . . . . . . .
—
(1,346)
—
(1,346)
Net current period other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . .
(6,876)
$(122,852)
(2,885)
$(49,994)
(7,832)
$ (3,135)
(17,593)
$(175,981)
87
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. Accumulated Other Comprehensive Income (AOCI) — (continued)
The components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of
Income relate to our pension and postretirement plans and interest rate swaps.
The table below presents the expense/(income) amounts reclassified, and the line items of the Statement
of Income that were affected for the years ended December 31, 2019, 2018, and 2017.
(in thousands)
Pretax Derivative valuation reclassified fr om Accumulated
Other Comprehensive Income:
Expense related to interest rate swaps included in Income
2019
2018
2017
before taxes(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,011)
259
$ (146)
37
$ 1,490
(566)
Effect on net income due to items reclassified from
Accumulated Other Comprehensive Income . . . . . . . . . . . . . . . . . . .
$ (752)
$ (109)
$
924
Pretax pension and postretirement liabilities reclassified
from Accumulated Other Comprehensive Income:
Pension/postretirement settlements and curtailments . . . . . . . . . . .
Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pretax amount reclassified (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on net income due to items reclassified from
$
450
(4,420)
4,480
510
(87)
$ 1,494
(4,454)
5,175
2,215
(506)
$ —
(4,453)
5,439
986
(22)
Accumulated Other Comprehensive Income . . . . . . . . . . . . . . . . . . .
$
423
$ 1,709
$
964
(a)
(b)
Included in interest expense, net are payments related to the interest rate swap agreements and
amortization of swap buyouts (see Notes 17 and 18).
These accumulated other comprehensive income components are included in the computation of net
periodic pension cost (see Note 4).
10. Noncontrolling Interest
Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany
subsidiary, Albany Safran Composites, LLC (ASC). Under the terms of the transaction agreements, ASC will
be the exclusive supplier to Safran of advanced 3D-woven composite parts for use in aircraft and rocket
engines, thrust reversers and nacelles, and aircraft landing and braking systems (the “Safran Applications”).
AEC may develop and supply parts other than advanced 3D-woven composite parts for all aerospace
applications, as well as advanced 3D-woven composite parts for any aerospace applications that are not Safran
Applications (such as airframe applications) and any non-aerospace applications.
The agreement provides Safran an option to purchase Albany’s remaining 90 percent interest upon the
occurrence of certain bankruptcy or performance default events, or if Albany’s Engineered Composites
business is sold to a direct competitor of Safran. The purchase price is based initially on the same valuation of
ASC used to determine Safran’s 10 percent equity interest, and increases over time as LEAP production
increases.
In accordance with the operating agreement, Albany received a $28 million preferred holding in ASC
which includes a preferred return based on the Company’s revolving credit agreement. The common shares of
ASC are owned 90 percent by Albany and 10 percent by Safran.
88
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Noncontrolling Interest — (continued)
The table below presents a reconciliation of income attributable to the noncontrolling interest and
noncontrolling equity in the Company’s subsidiary Albany Safran Composites, LLC, and the impact of
transitioning to ASC 606:
(in thousands, except percentages)
Net income of Albany Safran Composites (ASC) . . . . . . . . . . . . . . . . . . . . . .
Less: Return attributable to the Company’s preferred holding . . . . . . . . . .
Net income of ASC available for common ownership . . . . . . . . . . . . . . . . .
Ownership percentage of noncontrolling shareholder . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . .
2019
$11,140
1,291
$ 9,849
2018
$2,578
1,299
$1,279
10%
10%
$
985
$ 128
Noncontrolling interest, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease attributable to 2018 adoption of ASC 606 . . . . . . . . . . . . . . . . . . . .
Net income/(loss) attributable to noncontrolling interest . . . . . . . . . . . . . . .
Changes in other comprehensive income attributable to noncontrolling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,031
—
985
(10)
$ 4,006
$3,247
(327)
128
(17)
$3,031
11. Accounts Receivable
As of December 31, 2019 and 2018, Accounts receivable consisted of the following:
(in thousands)
Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank promissory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
$201,427
18,563
(1,719)
$218,271
December 31,
2018
$211,244
19,269
(7,337)
$223,176
The 2019 decrease in Allowance for doubtful accounts was principally due to the write-off of Accounts
receivables related to ongoing bankruptcy proceedings for certain Machine Clothing customers in Europe,
which had been fully reserved as of December 31, 2018.
The Noncurrent receivables will be invoiced to the customer over a 10-year period, beginning in 2020.
Accordingly, $5.2 million was reclassified from Noncurrent receivables to Trade and other accounts receivable
during 2019. As of December 31, 2019 and December 31, 2018, Noncurrent receivables were as follows:
(in thousands)
Noncurrent receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
$41,234
December 31,
2018
$45,061
12. Contract Assets and Liabilities
Contract assets and Contract liabilities (included in Accrued liabilities) are reported on the Consolidated
Balance Sheets in a net position on a contract-by-contract basis at the end of each reporting period. Contract
assets and contract liabilities were as follows:
(in thousands)
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
$79,070
5,656
December 31,
2018
$57,447
9,025
Contract assets increased $21.6 million during the year ended December 31, 2019. The increase was primarily
due to an increase in unbilled revenue related to the satisfaction of performance obligations for the LEAP contract,
in excess of the amounts billed. There were no impairment losses related to our Contract assets during the years
ended December 31, 2019 and 2018.
89
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Contract Assets and Liabilities — (continued)
Contract liabilities decreased $3.4 million during the year ended December 31, 2019, primarily due to revenue
recognition from satisfied performance obligations exceeding the amounts invoiced to customers for contracts that
were in a contract liability position. Revenue recognized for the years ended December 31, 2019 and 2018 that was
included in the Contract liability balance at the beginning of the year was $6.0 million and $3.2 million,
respectively.
13. Inventories
As of December 31, 2019 and 2018, inventories consisted of the following:
(in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2019
$52,960
31,744
10,445
$95,149
December 31,
2018
$40,489
33,181
12,234
$85,904
14. Property, Plant and Equipment
The table below sets forth the components of property, plant and equipment as of December 31, 2019
and 2018:
2019
14,168 $
2018
14,287
245,805
(in thousands)
Land and land improvements . . . . . . . . . . . . . . . . . $
227,875
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,686
989,925
Machinery and equipment . . . . . . . . . . . . . . . . . . . . 1,020,348
8,091
Furniture and fixtures
8,126
. . . . . . . . . . . . . . . . . . . . . . . . .
16,473
18,808
Computer and other equipment . . . . . . . . . . . . . . .
60,182
60,995
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,749
Capital expenditures in progress . . . . . . . . . . . . . .
45,588
1,381,512
Property, plant and equipment, gross . . . . . . . . . 1,412,594
Accumulated depreciation and amortization . .
(919,457)
(946,132)
. . . . . . . . . . . $ 466,462 $ 462,055
Property, plant and equipment, net
Estimated useful life
25 years for improvements
15 to 40 years
— 10 to 15 years
5 to 15 years
5 years
3 to 10 years
5 to 8 years
Depreciation expense was $62.1 million in 2019, $68.8 million in 2018, and $61.5 million in 2017.
Software amortization is recorded in Selling, general, and administrative expense and was $2.4 million in
2019, $3.2 million in 2018, and $3.6 million in 2017.
Capital expenditures, including purchased software, were $68.0 million in 2019, $82.9 million in 2018,
and $87.6 million in 2017. Unamortized software cost was $5.3 million in 2019, $6.9 million and $7.6 million
as of December 31, 2018 and 2017, respectively. Expenditures for maintenance and repairs are charged to
income as incurred and amounted to $19.8 million in 2019, $19.4 million in 2018, and $19.1 million in 2017.
In 2019, the Company acquired CirComp GmbH, which resulted in an increase of $10.6 million to
Property, plant and equipment, of which $5.7 million is a finance lease included in the above table as a Right
of use asset as of December 31, 2019.
90
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Property, Plant and Equipment — (continued)
The capitalized value of our primary manufacturing facility in Salt Lake City, Utah (SLC lease), which
was accounted for as a build-to-suit lease with a failed sale-leaseback, was included in Buildings in the above
table during 2018. AEC finalized a modification to the lease during 2018, which included additional
manufacturing space, extended the minimum lease period until December 31, 2029 and resulted in an increase
of $12.7 million to Property, plant and equipment, net (see discussion of Finance obligation in Note 17). As
described in Note 20, effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the
effective date (or modified retrospective) approach for transition, which resulted in the derecognition and
reassessment of assets and liabilities related to our SLC lease. We determined that the original leased space
met the criteria for recording as a finance lease, and is included as a Right of use asset in the above table. The
incremental expansion space added in the modification met the criteria for recording as an Operating lease and
is included in Other assets.
15. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for
impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the
net tangible and identifiable intangible assets acquired in each business combination. Our reportable segments
are consistent with our operating segments.
Determining the fair value of a reporting unit requires the use of significant estimates and assumptions,
including revenue growth rates, operating margins, discount rates, and future market conditions, among others.
Goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant
changes in the business climate, plant closures, changes in product offerings, or other circumstances indicate
that the carrying amount may not be recoverable.
To determine fair value, we utilize two market-based approaches and an income approach. Under the
market-based approaches, we utilize information regarding the Company as well as publicly available industry
information to determine earnings multiples and sales multiples. Under the income approach, we determine
fair value based on estimated future cash flows of each reporting unit, discounted by an estimated
weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the
rate of return an outside investor would expect to earn.
In the second quarter of 2019, the Company applied the qualitative assessment approach in performing
its annual evaluation of goodwill and concluded that no impairment provision was required. There were no
amounts at risk due to the large spread between the fair and carrying values, of each reporting unit.
On November 20, 2019, the Company acquired CirComp GmbH, a privately-held developer and
manufacturer of high-performance composite components located in Kaiserslautern, Germany. The assets
acquired include amortizable intangible assets of $10.0 million and goodwill of $17.3 million.
91
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Goodwill and Other Intangible Assets — (continued)
We are continuing to amortize certain patents, trademarks and names, customer contracts, relationships
and technology assets that have finite lives. The changes in intangible assets and goodwill from December 31,
2017 to December 31, 2019, were as follows:
(in thousands, except for years)
Amortized intangible assets:
Amortization
life in years
Balance at
December 31,
2018
Aquisition Amortization
Currency
Translation
Balance at
December 31,
2019
6-15
10-15
15
6
8-15
5
AEC trademarks and trade names . . .
AEC technology . . . . . . . . . . . . . . . . . . . . .
AEC Intellectual property . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . .
AEC customer relationships . . . . . . . . .
AEC other intangibles . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . .
Unamortized intangible assets:
MC Goodwill . . . . . . . . . . . . . . . . . . . . . . . .
AEC Goodwill . . . . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . .
$
68 $
11 $
56
—
9,456
39,538
145
(6)
(73)
(7)
(2,912)
(3,247)
(64)
$ 49,206 $ 9,973 $(6,309)
5,821
1,250
—
2,834
—
$ — $
—
—
—
22
—
73
5,804
1,243
6,544
39,147
81
$ 52,892
$ 22
$ 68,652 $ — $ —
—
$164,382 $17,343 $ —
95,730 17,343
$(980)
189
$(791)
$ 67,672
113,262
$180,934
(in thousands, except for years)
Amortized intangible assets:
AEC trademarks and trade names . . . . . . . .
AEC technology . . . . . . . . . . . . . . . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . . . . . . .
AEC customer relationships . . . . . . . . . . . . . .
AEC other intangibles . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . . . . .
Unamortized intangible assets:
MC Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AEC Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . . . . .
Amortization
life in years
Balance at
December 31,
2017
Amortization
Currency
Translation
Balance at
December 31,
2018
15
15
6
15
5
$
15
80
12,369
42,767
210
$ 55,441
$
(4)
(24)
(2,913)
(3,229)
(65)
$(6,235)
$ —
—
—
—
—
$ —
$
11
56
9,456
39,538
145
$ 49,206
$ 71,066
95,730
$166,796
$ —
—
$ —
$(2,414)
—
$(2,414)
$ 68,652
95,730
$164,382
As of December 31, 2019, the gross carrying amount and accumulated amortization of amortized
intangible assets was $76.7 million and $23.8 million, respectively.
92
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Goodwill and Other Intangible Assets — (continued)
Amortization expense related to intangible assets was reported in the Consolidated Statement of Income
as follows: $3.0 million in Cost of goods sold and $3.3 million in Selling, general and administrative expenses
in 2019; $2.9 million in Cost of goods sold and $3.3 million in Selling, general and administrative expenses
in 2018; and $3.3 million in Cost of goods sold and $3.6 million in Selling, general and administrative
expenses in 2017. Estimated amortization expense of intangibles for the years ending December 31, 2020
through 2024, is as follows:
Year
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual amortization
(in thousands)
$7,141
7,071
4,856
4,135
4,135
16. Accrued Liabilities
Accrued liabilities consist of:
(in thousands)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract loss reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for compensated absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liability - Operating lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liability - Financing lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement medical benefits – current portion
. . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability – current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 22,878
17,190
14,235
11,249
10,445
6,139
5,656
4,023
1,835
3,808
1,342
2,999
2,155
1,982
790
517
18,642
$125,885
2018
$ 20,821
20,708
12,316
11,343
10,636
5,808
9,025
—
—
3,890
5,534
2,575
2,124
1,794
974
901
20,581
$129,030
As described in Note 20, the Company adopted ASC 842, Leases effective January 1, 2019, which
required the recognition of right of use assets, representing our right to use the underlying asset for the lease
term, and lease liabilities, representing our obligation to make lease payments over the lease term, on the
balance sheet. The cumulative effect of initially applying the new standard increased accrued liabilities $5.0
million.
93
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. Financial Instruments
Long-term debt, principally to banks and noteholders, consists of:
(in thousands, except interest rates)
Revolving credit agreement with borrowings outstanding at an end of
period interest rate of 3.43% in 2019 and 3.69% in 2018 (including
the effect of interest rate hedging transactions, as described below),
due in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt, at an average end of period rate of 5.50% in both 2019 and
2018, due in varying amounts through 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
2018
$424,000
—
$499,000
25,886
29
424,029
(20)
$424,009
45
524,931
(1,224)
$523,707
Principal payments of $424 million are due on long-term debt in 2022. Cash payments of interest
amounted to $17.4 million in 2019, $18.8 million in 2018 and $16.0 million in 2017.
On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility
Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered
into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement, $424 million of borrowings were
outstanding as of December 31, 2019. The applicable interest rate for borrowings was LIBOR plus a spread,
based on our leverage ratio at the time of borrowing. At the time of the last borrowing on December 30,
2019, the spread was 1.375%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%,
based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and
without modification to any other credit agreements, as of December 31, 2019, we would have been able to
borrow an additional $261 million under the Agreement.
The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants
and events of default that are comparable to those in the Prior Agreement. The Borrowings are guaranteed by
certain of the Company’s subsidiaries.
Our ability to borrow additional amounts under the Credit Agreement is conditional upon the absence of
any defaults, as well as the absence of any material adverse change (as defined in the Credit Agreement).
Due to the implementation of ASC 842, Leases, on January 1, 2019, as further described in Note 20, the
finance obligation that had a balance of $25.9 million as of December 31, 2018, was eliminated and replaced
with a finance lease obligation that is included in Other noncurrent liabilities and Accrued liabilities.
On November 27, 2017, we terminated our interest rate swap agreements, originally entered into on
May 9, 2016, that had effectively fixed the interest rate on $300 million of revolving credit borrowings, in
order to enter into a new interest rate swap with a greater notional amount, and the same maturity as the
Credit Agreement. We received $6.3 million when the swap agreements were terminated and that payment
will be amortized into interest expense through March 2021.
On May 6, 2016, we terminated other interest rate swap agreements that had effectively fixed the interest
rate on $120 million of revolving credit borrowings, in order to enter into a new interest rate swap with a
greater notional amount, and the same maturity as the Credit Agreement. We paid $5.2 million to terminate
the swap agreements and that cost will be amortized into interest expense through June 2020.
94
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. Financial Instruments — (continued)
On November 28, 2017, we entered into interest rate swap agreements for the period December 18, 2017
through October 17, 2022. These transactions have the effect of fixing the LIBOR portion of the ef fective
interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit
Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate
of 2.11% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly
calculation date, which on December 16, 2019 was 1.74%, during the swap period. On December 16, 2019,
the all-in-rate on the $350 million of debt was 3.485%.
These interest rate swaps are accounted for as a hedge of future cash flows, as further described in
Note 18. No cash collateral was received or pledged in relation to the swap agreements.
Under the Credit Agreement, we are currently required to maintain a leverage ratio (as defined in the
agreement) of not greater than 3.50 to 1.00 and minimum interest coverage (as defined) of 3.00 to 1.00.
As of December 31, 2019, our leverage ratio was 1.35 to 1.00 and our interest coverage ratio was 14.21
to 1.00. We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or
below 3.50 to 1.00, and may make acquisitions with cash provided our leverage ratio does not exceed the
limits noted above.
Indebtedness under the Credit Agreement is ranked equally in right of payment to all unsecured senior
debt.
We were in compliance with all debt covenants as of December 31, 2019.
95
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. Fair-Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. Accounting principles establish a hierarchy for inputs used in
measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that the most observable inputs be used when available. Level 3 inputs are unobservable data points for
the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability.
We had no Level 3 financial assets or liabilities at December 31, 2019, or at December 31, 2018.
The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial and non-financial
assets and liabilities, which are measured at fair value on a recurring basis:
(in thousands)
Fair Value
Assets:
December 31, 2019
December 31, 2018
Quoted prices in
active markets
(Level 1)
Significant other
observable inputs
(Level 2)
Quoted prices in
active markets
(Level 1)
Significant other
observable inputs
(Level 2)
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
$16,375
$ —
$14,234
$ —
Other Assets:
Common stock of unaffiliated
foreign public company (a)
. . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . .
Liabilities:
Other noncurrent liabilities: . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . .
839
—
—
—
—
(5,518)(b)
731
—
—
—
4,548(c)
—
(a)
(b)
(c)
Original cost basis $0.5 million.
Net of $15.2 million receivable floating leg and $20.7 million liability fixed leg.
Net of $32.0 million receivable floating leg and $27.5 million liability fixed leg.
Cash equivalents include short-term securities that are considered to be highly liquid and easily tradable.
These securities are valued using inputs observable in active markets for identical securities.
96
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. Fair-Value Measurements — (continued)
The common stock of the unaffiliated foreign public company is traded in an active market exchange. The
shares are measured at fair value using closing stock prices and are recorded in the Consolidated Balance Sheets as
Other assets. Changes in the fair value of the investment are reported in the Consolidated Statements of Income.
We operate our business in many regions of the world, and currency rate movements can have a significant
effect on operating results. Foreign currency instruments are entered into periodically, and consist of foreign
currency option contracts and forward contracts that are valued using quoted prices in active markets obtained from
independent pricing sources. These instruments are measured using market foreign exchange prices and are
recorded in the Consolidated Balance Sheets as Other current assets and Accounts payable, as applicable. Changes
in fair value of these instruments are recorded as gains or losses within Other (income)/expense, net.
When exercised, the foreign currency instruments are net settled with the same financial institution that
bought or sold them. For all positions, whether options or forward contracts, there is risk from the possible inability
of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in interest and
currency rates, which may reduce the value of the instruments. We seek to mitigate risk by evaluating the
creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while
reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, general
and administrative expenses or Other (income)/expense, net. Revaluation gains and losses occur when our
business units have cash, intercompany (recorded in Other (income)/expense, net) or third-party trade
(recorded in selling, general and administrative expenses) receivable or payable balances in a currency other
than their local reporting (or functional) currency.
Operating results can also be affected by the translation of sales and costs, for each non-U.S. subsidiary,
from the local functional currency to the U.S. dollar. The translation effect on the Consolidated Statements of
Income is dependent on our net income or expense position in each non-U.S. currency in which we do
business. A net income position exists when sales realized in a particular currency exceed expenses paid in
that currency; a net expense position exists if the opposite is true.
The interest rate swaps are accounted for as hedges of future cash flows. The fair value of our interest
rate swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest
rate curve, and is included in Other assets and/or Other noncurrent liabilities in the Consolidated Balance
Sheets. Unrealized gains and losses on the swaps flow through the caption Derivative valuation adjustment in
the Shareholders’ equity section of the Consolidated Balance Sheets. As of December 31, 2019, these interest
rate swaps were determined to be highly effective hedges of interest rate cash flow risk. Amounts accumulated
in Other comprehensive income are reclassified as Interest expense, net when the related interest payments
(that is, the hedged forecasted transactions), and amortization related to the swap buyouts, affect earnings.
Interest (income)/expense related to payments under the active swap agreements totaled ($0.6) million in
2019, $0.5 million in 2018 and $0.8 million in 2017. Additionally, non-cash interest income related to the
amortization of swap buyouts totaled $0.5 million in 2019, $0.6 million in 2018, and $0.7 million in 2017,
and is expected to reduce interest expense by $1.3 million in 2020.
Gains/(losses) related to changes in fair value of derivative instruments not designated as a hedge that
were recognized in Other (income)/expense, net in the Consolidated Statements of Income were as follows:
(in thousands)
Derivatives not designated as hedging instruments
Years ended December 31,
2018
2017
2019
Foreign currency options gains/(losses) . . . . . . . . . . . . . .
$ —
$(61)
$(131)
97
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Other Noncurrent Liabilities
As of December 31, 2019 and 2018, Other Noncurrent Liabilities consisted of the following:
(in thousands)
Postretirement benefits other than pensions
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive and deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019
$ 50,576
34,638
22,700
14,386
5,518
2,925
1,282
700
$132,725
2018
$47,237
34,590
—
—
—
3,810
2,540
100
$88,277
The increase in Other Noncurrent liabilities in 2019 was in part due to the cumulative effect of adopting
ASC 842 (see Note 20) which upon adoption, increased Other Noncurrent liabilities by $28.0 million. For the
year ended December 31, 2019 lease liabilities included in Other noncurrent liabilities are comprised of
Finance and Operating leases, and account for an increase over December 31, 2018 of $37.1 million.
Our interest rate swap agreements which are accounted for as a hedge of future cash flows and are
further described in Note 18, Fair-Value Measurements, are measured at fair value each period. As of
December 31, 2019 the fair value was a liability of $5.5 million, which is reflected in Other noncurrent
liabilities, and as of December 31, 2018 the fair value was an asset of $4.5 million, which is reflected in
Other assets.
20. Leases
Effective January 1, 2019, we adopted the provisions of ASC 842, Leases, using the effective date (or
modified retrospective) approach for transition. Under this transition method, periods prior to 2019 have not
been restated and the cumulative effect of initially applying the new standard was recorded as an adjustment
to Retained earnings at January 1, 2019.
The most significant impact resulting from the adoption of the new standard was the recognition of right
of use assets and lease liabilities for operating leases on our balance sheet for our real estate and automobile
operating leases, in addition to the derecognition and reassessment of assets and liabilities related to our
primary manufacturing facility in Salt Lake City, Utah (SLC lease), which had been accounted for as a
build-to-suit lease with a failed sale leaseback. For that lease, transitional guidance required the derecognition
of existing assets and liabilities and a reassessment of lease classification. We determined that the lease met
the criteria for recording as a finance lease and we determined the January 1, 2019 values of the ROU asset
and lease liability on the basis of that reassessment. The change in the SLC lease-related assets and liabilities
resulted in a $0.3 million pre-tax reduction to retained earnings at the date of adoption.
98
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Leases — (continued)
The table below presents the cumulative effect of changes made to our December 31, 2018 Balance
Sheet as a result of the adoption of ASC 842, Leases:
As previously
reported at
December 31, 2018
Adjustments Increase/
(decrease)
Opening balance, as
adjusted, January 1,
2019
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ EQUITY
Preferred stock, par value $5.00 per share;
authorized 2,000,000 shares; none issued . . . . . . . . . . . . . . . . . . . .
Class A Common Stock, par value $.001 per share;
authorized 100,000,000 shares; issued 37,450,329 in 2018
and 37,395,753 in 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and
outstanding 3,233,998 in 2018 and 2017 . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated items of other comprehensive income:
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment
Treasury stock (Class A), at cost 8,418,620 shares in 2018
and 8,431,335 shares in 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . .
$ 197,755
223,176
57,447
85,904
7,473
21,294
$ 593,049
462,055
49,206
164,382
62,622
45,061
41,617
$1,417,992
$
—
52,246
129,030
1,224
6,806
189,306
523,707
88,277
8,422
809,712
—
37
3
430,555
589,645
(115,976)
(47,109)
4,697
(256,603)
605,249
3,031
608,280
$1,417,992
$ —
—
—
—
—
(370)
(370)
$
(6,144)
—
—
(20)
—
13,615
$ 7,081
$ —
—
4,964
(1,206)
—
3,758
(24,680)
27,968
—
7,046
—
—
—
—
35
—
—
—
—
35
—
35
$ 7,081
Adoption of the standard had no impact to our Consolidated Statements of Cash Flows.
$ 197,755
223,176
57,447
85,904
7,473
20,924
$ 592,679
455,911
49,206
164,382
62,602
45,061
55,232
$1,425,073
$
—
52,246
133,994
18
6,806
193,064
499,027
116,245
8,422
816,758
—
37
3
430,555
589,680
(115,976)
(47,109)
4,697
(256,603)
605,284
3,031
608,315
$1,425,073
99
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Leases — (continued)
Significant changes to our accounting policies as a result of adopting the new standard are discussed below .
We determine if an arrangement is a lease at inception. A contract is, or contains a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
To assess whether a contract conveys the right to control the use of an identified asset, we assess whether:
• The contract involves the use of an identified asset. This may be specified explicitly or implicitly , and
should be physically distinct or represent substantially all of the capacity of a physically distinct asset,
• The lessee has the right to obtain substantially all of the economic benefits from use of the asset
throughout the period of use, and
• The lessee has the right to direct the use of the asset, which is demonstrated when the lessee has
decision-making rights that are most relevant to changing how and for what purpose the asset is used.
Judgment is required in the application of ASC 842, including the determination of whether a contract
contains a lease, the appropriate classification, allocation of consideration, and the determination of the
discount rate for the lease. Key estimates and judgments include how the Company determines (1) the
discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and
(3) lease payments.
We are generally the lessee in our lease transactions. For periods ending after December 31, 2018,
lessees are required to recognize a lease liability and a right of use asset for leases with terms greater than
12 months, in accordance with the practical expedient that is available for ongoing accounting.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent
an obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized on the commencement date based on the present value of lease payments over the lease term,
using the rate implicit in the lease. If that rate is not readily determinable, the rate is based on the Company’s
incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and
excludes lease incentives. Our lease terms may include options to extend or terminate the lease. Our ROU
assets include the values associated with the additional periods when it is reasonably certain that we will
exercise the option. We review the carrying value of ROU assets for impairment whenever events and
circumstances indicate that the carrying value of an asset group may not be recoverable from the estimated
future cash flows expected to result from its use and eventual disposition.
We have operating and finance leases for offices, manufacturing facilities, warehouses, vehicles, and
certain equipment. Our leases have remaining lease terms of 1 year to 15 years, some of which include
options to extend the leases for up to 10 years, and some of which include options to terminate the leases
within 1 year.
The components of lease expense were as follows:
(in thousands)
Finance lease
Amortization of right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease
Fixed lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year
ended
December 31,
2019
$ 997
1,563
5,063
35
1,283
$ 8,941
100
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Leases — (continued)
Lease expense for the years ended December 31, 2018 and 2017 was $8.4 million and $9.7 million,
respectively.
Supplemental cash flow information related to leases was as follows:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right-of-use assets obtained in exchange for lease obligations:
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year
ended
December 31,
2019
$ 4,932
1,563
1,180
$ 9,250
5,686
The initial recognition of each ROU asset and lease liability at lease commencement is a noncash
transaction that is excluded from amounts reported in the Consolidated Statements of Cash Flows.
Supplemental balance sheet information related to leases was as follows:
(in thousands)
Operating leases
Right of use assets included in Other assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities included in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases
Right-of-use assets included in Property, plant and equipment, net . . . . . . . . . . . . . . . . . .
Lease liabilities included in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total finance lease liabilities
December 31,
2019
$18,223
$ 4,023
14,386
$ 18,409
$ 15,689
$ 1,835
22,700
$24,535
Additional information for leases existing at December 31, 2019 was as follows:
Weighted average remaining lease term
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average discount rate
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 years
10 years
4.9%
6.7%
101
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Leases — (continued)
Maturities of lease liabilities as of December 31, 2019 were as follows:
(in thousands)
Year ending December 31,
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases
Finance leases
$ 5,153
4,133
3,096
2,128
1,496
5,332
21,338
(2,929)
$ 18,409
$ 3,347
3,347
3,394
3,560
3,560
15,692
32,900
(8,365)
$ 24,535
As of December 31, 2018, future rental payments required under operating leases with initial or
remaining non-cancelable lease terms in excess of one year, were: 2019, $4.6 million; 2020, $3.2 million;
2021, $2.1 million; 2022, $1.5 million; and 2023 and thereafter, $6.5 million.
The following schedule presents future minimum annual payments under the SLC lease finance
obligation, and the present value of the minimum payments as of December 31, 2018:
Year ending December 31,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$ 2,451
2,974
2,990
3,054
3,277
18,930
33,676
(7,790)
$25,886
As of December 31, 2018, the capitalized value associated with the SLC lease was included in Property,
plant, and equipment, net at a value of $17.3 million, which included a gross cost of $20.8 million, and
Accumulated depreciation of $3.6 million.
21. Commitments and Contingencies
Asbestos Litigation
Albany International Corp. 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 paper machine
clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills.
We were defending 3,708 claims as of December 31, 2019.
102
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
21. Commitments and Contingencies — (continued)
The following table sets forth the number of claims filed, the number of claims settled, dismissed or otherwise
resolved, and the aggregate settlement amount during the periods presented:
Year ended December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
4,299
3,821
3,791
3,745
3,730
3,684
Claims
Dismissed,
Settled, or
Resolved
625
116
148
105
152
51
New
Claims
147
86
102
90
106
75
Closing
Number of
Claims
3,821
3,791
3,745
3,730
3,684
3,708
Amounts
Paid
(thousands)
to Settle or
Resolve
$437
164
758
55
100
$ 25
We anticipate that additional claims will be filed against the Company and related companies in the future, but
are unable to predict the number and timing of such future claims. Due to the fact that information sufficient to
meaningfully estimate a range of possible loss of a particular claim is typically not available until late in the
discovery process, we do not believe a meaningful estimate can be made regarding the range of possible loss with
respect to pending or future claims and therefore are unable to estimate a range of reasonably possible loss in
excess of amounts already accrued for pending or future claims.
While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts
we consider reasonable given the facts and circumstances of each case. Our insurance carrier has defended each
case and funded settlements under a standard reservation of rights. As of December 31, 2019 we had resolved, by
means of settlement or dismissal, 37,797 claims. The total cost of resolving all claims was $10.3 million. Of this
amount, almost 100% was paid by our insurance carrier, who has confirmed that we have approximately $140
million of remaining coverage under primary and excess policies that should be available with respect to current
and future asbestos claims.
The Company’s subsidiary, Brandon Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in
many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any
fabrics containing asbestos. While Brandon was defending against 7,710 claims as of December 31, 2019,
only twelve claims have been filed against Brandon since January 1, 2012, and no settlement costs have been
incurred since 2001. Brandon was acquired by the Company in 1999, and has its own insurance policies
covering periods prior to 1999. Since 2004, Brandon’s insurance carriers have covered 100% of
indemnification and defense costs, subject to policy limits and a standard reservation of rights.
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”). We 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. We deny 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, we have successfully
moved for dismissal in a number of actions.
We currently do 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 we cannot predict the number and timing of future
claims, based on the foregoing factors, the trends in claims filed against us, and available insurance, we also
do not currently anticipate that potential future claims will have a material adverse effect on our financial
position, results of operations, or cash flows.
103
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
22. Stock Options and Incentive Plans
We recognized no stock option expense during 2019, 2018, or 2017 and there are currently no remaining
unvested options for which stock-option compensation costs will be recognized in future periods.
There have been no stock options granted since November 2002 and we have no stock option plan under
which options may be granted, although options may be granted under the Company’s 2011 incentive plan.
Options issued under previous plans and still outstanding were exercisable in five cumulative annual amounts
beginning twelve 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. Unexercised options generally terminate
twenty years after the date of grant for all plans, and must be exercised within ten years of retirement.
Activity with respect to these plans is as follows:
Shares under option January 1 . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares under option at December 31 . . . . . . . . . . . . . . . . . . .
Options exercisable at December 31 . . . . . . . . . . . . . . . . . . . .
The weighted average exercise price is as follows:
Shares under option January 1 . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares under option December 31 . . . . . . . . . . . . . . . . . . . . . .
Options exercisable December 31 . . . . . . . . . . . . . . . . . . . . . .
2019
18,940
—
6,990
11,950
11,950
2019
$17.87
—
16.06
18.93
18.93
2018
29,340
—
10,400
18,940
18,940
2018
$18.40
—
19.38
17.87
17.87
2017
62,390
150
32,900
29,340
29,340
2017
$18.28
20.63
18.16
18.40
18.40
As of December 31, 2019, the aggregate intrinsic value of vested options was $0.7 million. The
aggregate intrinsic value of options exercised was $0.4 million in 2019, $0.5 million in 2018, and $1.1 million
in 2017.
Executive Management share-based compensation:
In 2011, shareholders approved the Albany International 2011 Incentive Plan under which awards were
granted through 2017. The multi-year awards granted to date under this Plan provide key members of
management with incentive compensation based on achieving certain performance targets over a three year
period. Such awards are paid out partly in cash and partly in shares of Class A Common Stock. Participants
may elect to receive shares net of applicable income taxes. In March 2019, we issued 25,473 shares and made
cash payments totaling $1.0 million. In March 2018, we issued 33,425 shares and made cash payments
totaling $1.3 million. In March 2017, we issued 25,899 shares and made cash payments totaling $1.0 million.
If a person terminates employment prior to the award becoming fully vested, the person may forfeit all or a
portion of the incentive compensation award. The grant date share price is determined when the awards are
approved each year and that price is used for measuring the cost for the share-based portion of the award.
Expense associated with these awards is recognized over the three year vesting period. In connection with this
plan, we recognized an insignificant amount of expense in 2019, $0.8 million in 2018, and $2.6 million in
2017. There are no unvested share-based awards in this Plan that are dependent on performance after 2019.
Therefore, we do not expect to record additional compensation expense in future periods.
104
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
22. Stock Options and Incentive Plans — (continued)
During 2016 and 2017, the Company had an annual incentive plan for executive management whereby
40 to 50 percent of the earned incentive compensation was payable in the form of shares of Class A Common
Stock. Participants could elect to receive shares net of applicable income taxes. In March 2018, the Company
issued 10,751 shares and made cash payments totaling $1.4 million as a result of performance in 2017. In
March 2017, the Company issued 18,784 shares and made cash payments totaling $1.9 million as a result of
performance in 2016. The allocation of the award between cash and shares is determined by an average share
price after the year of performance. Expense recorded for this plan was $2.6 million in 2017, and $3.3 million
in 2016.
In 2017, shareholders approved the Albany International 2017 Incentive Plan. This plan provides key
members of management with incentive compensation based on achieving certain performance or service
measures. Awards can be paid in cash, shares of Class A Common Stock, Options, or other stock-based or
incentive compensation awards pursuant to the Plan. Participants may elect to receive shares net of applicable
income taxes. The first awards were granted in 2018, under this plan, with a performance period of one year ,
with cash payments made in March 2019 totaling $1.5 million as a result of performance in 2018. Awards that
were granted in 2018 and 2019, with a performance period of three years, have payments scheduled for March
2021 and 2022. If a participant terminates employment prior to the award becoming fully vested, the person
may forfeit all or a portion of the incentive compensation award. The grant date share price is determined
when the awards are approved each year and that price is used for measuring the cost for the share-based
portion of an award. Expense associated with these awards is recognized over the vesting period of the
performance period which is generally one to three years.
In connection with the 2017 Incentive Plan, we recognized expense of $4.9 million in 2019 and $3.4
million in 2018. For share-based awards that are dependent on performance after 2019, we expect to record
additional compensation expense of approximately $0.4 million in 2020 and $0.2 million in 2021. Shares
payable under these plans generally vest immediately prior to payment.
As of December 31, 2019, there were 1,115,472 shares of Company stock authorized for the payment of
awards under these plans. Information with respect to these plans is presented below:
Shares potentially payable at January 1, 2017 . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2017 performance . . . . . . . . . . . . . . . . . .
Shares potentially payable at December 31, 2017 . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2018 performance . . . . . . . . . . . . . . . . . .
Shares potentially payable at December 31, 2018 . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2019 performance . . . . . . . . . . . . . . . . . .
Shares potentially payable at December 31, 2019 . . . . . . . . . . . .
Weighted
average grant
date value per
share
$36.90
—
$36.35
$48.26
$40.30
$39.90
$70.59
$49.96
—
$36.74
$92.12
$65.06
Number of
shares
189,418
—
(75,545)
43,532
157,405
—
(79,762)
34,822
112,465
—
(45,689)
14,936
81,712
Year-end
intrinsic
value
(000’s)
$6,989
$6,343
$5,619
$5,316
105
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
22. Stock Options and Incentive Plans — (continued)
Other Management share-based compensation:
In 2012, the Company adopted a Phantom Stock plan whereby awards under this program vest over a
five-year period and are paid annually in cash based on current market prices of the Company’ s stock. Under
this program, employees may earn more or less than the target award based on the Company’s results in the
year of the award. Expense recognized for this plan amounted to $6.3 million in 2019, $4.8 million in 2018,
and $4.9 million in 2017. Based on awards outstanding at December 31, 2019, we expect to record
approximately $11 million of compensation cost from 2020 to 2023. The weighted average period for
recognition of that cost is approximately 2 years.
The determination of compensation expense for other management share-based compensation plans is based
on the number of outstanding share units, the end-of-period share price, and Company performance. Information
with respect to these plans is presented below:
Share units potentially payable at January 1, 2017 . . . . . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2017 . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2018 . . . . . . . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2019 . . . . . . . . . . .
Weighted
average
value per
share
Cash paid
for share
based
liabilities
(000’s)
$46.64
$4,160
$62.69
$4,736
$70.67
$5,528
Number of
shares
261,145
96,505
(11,891)
(89,190)
(20,473)
236,096
65,370
14,343
(75,545)
(12,963)
227,301
58,878
21,740
(69,912)
(22,935)
215,072
In 2018 and 2019, the Company granted restricted stock units to four executives. The amount of
compensation expense is subject to change in the market price of the Company’s stock and was recorded in
Selling, general, and administrative expenses. The vesting and payments due under these grants will occur in
various periods from 2019 to 2022. Expense recognized for these grants was $1.1 million in 2019 and $0.5 million
in 2018. Based on awards outstanding at December 31, 2019, we expect to record approximately $1.5 million of
compensation cost from 2020 to 2023.
On January 20, 2020, the Board of Directors of the Company appointed A. William Higgins as President
and Chief Executive Officer ef fective January 20, 2020 to succeed Olivier M. Jarrault, who resigned by
mutual agreement with the Board on this date. Mr. Jarrault will receive severance payments and accelerated
vesting of 50% of his unvested restricted stock units. The Company expects to record a charge of
approximately $3.0 million in 2020 related to these termination benefits.
106
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
22. Stock Options and Incentive Plans — (continued)
The Company maintains a voluntary savings plan covering substantially all employees in the United States.
The Plan, known as the Prosperity Plus Savings Plan, is a qualified plan under section 401(k) of the U.S. Internal
Revenue Code. The Company matches, in the form of cash, between 50 percent and 100 percent of employee
contributions up to a defined maximum. The investment of employee contributions to the plan is self-directed. The
Company’s cost of the plan amounted to $6.8 million in 2019, $6.3 million in 2018, and $5.9 million in 2017.
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. Company contributions
to the plan are in the form of cash. The expense recorded for this plan was $3.7 million in 2019, $3.2 million in
2018, and $2.6 million in 2017.
23. Shareholders’ Equity
We have two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with a
par value of $0.001 and equal liquidation rights. Each share of our 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.
In 2019, a public offering of a portion of the Standish Family shares reduced the number of Class A Common
Stock reserved for the conversion of Class B shares, by 1.6 million. At December 31, 2019, 1.6 million shares of
Class A Common Stock were reserved for the conversion of Class B Common Stock and the exercise of stock
options.
In August 2006, we announced that the Board of Directors authorized management to purchase up to 2
million additional shares of our 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 our shareholders, and it is otherwise legally permitted to do so. We have made no share purchases under the
August 2006 authorization. Activity in Shareholders’ equity for 2017, 2018, and 2019 is presented below:
107
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
23. Shareholders’ Equity — (continued)
(in thousands)
Class B
Class A
Common Stock
Common Stock
Shares Amount Shares Amount
January 1, 2017 . . . . . . . . . . . . 37,319
Net income . . . . . . . . . . . . . . .
—
Compensation and benefits paid
$37
—
3,234
—
$3
—
—
—
—
—
—
—
—
—
$3
—
—
—
—
—
—
—
—
—
—
$3
—
—
—
—
—
—
—
or payable in shares
. . . . . .
Options exercised . . . . . . . . . . .
Shares issued to Directors’ . . . .
Dividends declared
Class A Common Stock,
$0.68 per share . . . . . . .
Class B Common Stock,
$0.68 per share . . . . . . .
Cumulative translation
adjustments
. . . . . . . . . . . .
44
33
—
—
—
—
Pension and postretirement
liability adjustments
—
. . . . . .
Derivative valuation adjustment .
—
December 31, 2017 . . . . . . . . . 37,396
Net income . . . . . . . . . . . . . . .
—
Adoption of accounting
standards (a),(b)
. . . . . . . . . . .
Compensation and benefits paid
or payable in shares
. . . . . .
Options exercised . . . . . . . . . . .
Shares issued to Directors’ . . . .
Dividends declared
Class A Common Stock,
$0.69 per share . . . . . . .
Class B Common Stock,
$0.69 per share . . . . . . .
Cumulative translation
adjustments
. . . . . . . . . . . .
—
44
10
—
—
—
—
Pension and postretirement
liability adjustments
—
. . . . . .
Derivative valuation adjustment .
—
December 31, 2018 . . . . . . . . . 37,450
Net income . . . . . . . . . . . . . . .
—
Adoption of accounting
standards (c)
. . . . . . . . . . . .
Compensation and benefits paid
or payable in shares
. . . . . .
Options exercised . . . . . . . . . . .
Shares issued to Directors’ . . . .
Dividends declared
Class A Common Stock,
$0.73 per share . . . . . . .
Class B Common Stock,
$0.73 per share . . . . . . .
Conversion of Class B shares to
Class A shares (d) . . . . . . . . .
Cumulative translation
—
26
7
—
—
—
—
—
—
—
—
—
—
—
$37
—
—
—
—
—
—
—
—
—
—
$37
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,234
—
—
—
—
—
—
—
—
—
—
3,234
—
—
—
—
—
—
—
1,616
2
(1,616)
(1)
adjustments
. . . . . . . . . . . .
—
—
—
Pension and postretirement
liability adjustments
—
. . . . . .
Derivative valuation adjustment .
—
December 31, 2019 . . . . . . . . . 39,099
—
—
$39
—
—
1,618
—
—
—
$2
—
—
—
—
—
—
—
—
—
—
—
Additional
paid-in
capital
$425,953
—
Retained
earnings
$522,855
33,111
Accumulated
items of other
comprehensive
income
$(184,189)
—
Class A
Treasury Stock Noncontrolling
Shares Amount
8,443 $(257,136)
—
Interest
$3,767
(526)
—
1,564
597
309
—
—
—
— (19,685)
(2,199)
—
—
—
45,980
—
—
(12)
—
—
—
—
—
260
—
—
—
—
—
—
—
—
6
—
—
$428,423
—
—
—
$534,082
82,891
1,183
1,125
$(135,901)
—
—
—
—
—
8,431 $(256,876)
—
—
Total
Equity
$511,290
32,585
1,564
597
569
(19,685)
(2,199)
45,986
—
(5,068)
1,437
201
494
—
—
—
— (20,029)
—
—
—
(12)
—
—
—
—
—
—
273
—
—
—
(2,231)
—
—
—
(28,658)
—
—
$430,555
—
—
$589,645
— 132,398
3,427
2,744
$(158,388)
—
—
—
—
—
8,419 $(256,603)
—
—
—
1,311
112
540
35
—
—
—
— (21,818)
—
—
—
(1,763)
(1)
—
—
—
—
—
—
—
—
(6,876)
—
—
—
(10)
—
—
—
—
—
—
—
212
—
—
—
—
—
—
$3,247
128
1,183
1,125
$573,015
83,019
(327)
(5,395)
—
—
—
—
—
1,437
201
767
(20,029)
(2,231)
(17)
(28,675)
—
—
$3,031
985
3,427
2,744
$608,280
133,383
—
—
—
—
—
—
—
35
1,311
112
752
(21,818)
(1,763)
—
(10)
(6,886)
—
—
$432,518
—
—
$698,496
(2,885)
(7,832)
$(175,981)
—
—
—
—
8,409 $(256,391)
—
—
$4,006
(2,885)
(7,832)
$702,689
(a)
As described in Note 2, the Company adopted ASC 606 effective January 1, 2018, which resulted in a
decrease to Retained earnings of $5.6 million and a $0.3 million decrease to Noncontrolling interest.
108
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
23. Shareholders’ Equity — (continued)
(b)
(c)
(d)
The Company adopted ASU 2016-16 effective January 1, 2018, which resulted in a $0.5 million
increase to Retained earnings.
As described in Note 20, the Company adopted ASC 842, Leases effective January 1, 2019, which
resulted in an increase to Retained earnings of less than $0.1 million.
In the second quarter of 2019, Standish Family Holdings, LLC executed a secondary offering of Albany
shares. As a result of the offering, 1.6 million shares of Class B Common Stock previously owned by
Standish Family Holdings, LLC were converted to Class A Common Stock and then sold to third
parties. Costs associated with the offering were charged directly to Standish Family Holdings, LLC.
24. Business Acquisition
On November 20, 2019, the Company acquired CirComp GmbH, a privately-held developer and
manufacturer of high-performance composite components located in Kaiserslautern, Germany for $32.4
million. The Company also agreed to pay approximately $5.5 million that will become due, as certain
post-closing obligations are performed. Expense related to that agreement will be recognized over the
five-year performance period. The Company funded the acquisition using a combination of cash on hand and
funds drawn on its revolving credit facility (see Note 17). The Company has also agreed to purchase the
primary operating facility in Germany for approximately $5.6 million. The purchase of the facility is expected
to occur in 2020.
The seller provided representations, warranties and indemnities customary for acquisition transactions,
including indemnities for certain customer claims identified, before closing. The acquired entity is part of the
AEC segment. CirComp specializes in designing and manufacturing customized engineered composite
components for aerospace and other demanding industrial applications.
The following table summarizes the provisional allocation of the purchase price to the fair value of the
assets and liabilities acquired:
(in thousands)
Assets acquired
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Right of use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortizable intangible assets (see Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 20, 2019
$ 1,607
986
2,269
525
452
5,686
4,884
9,973
17,343
$43,725
$
65
2,249
502
3,325
5,184
$11,325
$32,400
$30,793
109
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
24. Business Acquisition — (continued)
As a result of the acquisition occurring late in the year, the Company is continuing to perform
procedures to verify the value of assets and liabilities acquired, particularly Contract assets, amortizable
intangible assets and deferred income taxes. Accordingly, adjustments to the values in the above table may be
required in future periods. Acquired Goodwill of $17.3 million reflects the Company’ s belief that the
acquisition complements and expands Albany’s portfolio of proprietary, advanced manufacturing technologies
for composite components, increases the Company’s position as a leading innovator in advanced materials
processing and automation, and opens a geographic footprint in Europe to better serve our global customer
base. The acquisition significantly increases the Company’ s opportunities for future growth. The goodwill is
non-deductible for tax purposes.
The following table presents operational results of the acquired entity that are included in the
Consolidated Statements of Income (unaudited):
(in thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
November 20 to
December 31, 2019
$ 485
(162)
(199)
(324)
Loss per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(0.01)
$(0.01)
Results in the above table include $0.1 million of expenses related to the $5.5 million of deferred
payments noted above. In addition to the amounts reported in the above table, the Company incurred
approximately $0.5 million of expenses, principally professional fees, related to the acquisition. The
Consolidated Statements of Income reflect operational activity of the acquired business for only the period
subsequent to the closing, which has an effect, however insignificant, on the comparability of results.
110
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
25. Quarterly Financial Data (unaudited)
Presented below is certain unaudited quarterly consolidated statement of operations data from continuing
operations for each of the quarters in the years ended December 31, 2019, 2018, and 2017. The information
has been prepared on substantially the same basis as the audited consolidated financial statements contained in
this report. Fourth quarter results presented below may vary from our quarterly earnings report in order to
agree to the full year totals. The results of operations for any quarter are not necessarily indicative of the
results to be expected for any future period.
1st
2nd
3rd
4th
Total
$251.4
91.8
$273.9
105.2
$271.1
104.1
$257.7
96.6
$1,054.1
397.7
(in millions, except per share amounts)
2019
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . .
Diluted earnings per share
. . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . .
Class A Common Stock prices:
29.2
0.90
0.90
0.18
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78.45
60.82
2018
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company . .
. . . . . . . . . . . . . . . . .
Basic earnings per share
Diluted earnings per share
. . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
$223.6
77.7
7.7
0.24
0.24
0.17
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
67.30
60.05
2017
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company . .
. . . . . . . . . . . . . . . . .
Basic earnings per share
. . . . . . . . . . . . . . .
Diluted earnings per share
Cash dividends per share . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
$199.3
76.0
10.8
0.34
0.34
0.17
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49.05
43.90
34.1
1.05
1.05
0.18
82.91
69.29
$255.4
91.7
29.9
0.93
0.93
0.17
65.45
58.35
$215.6
63.2
1.1
0.03
0.03
0.17
53.40
43.90
40.0
1.24
1.24
0.18
91.51
78.41
$251.9
92.4
27.7
0.86
0.86
0.17
81.40
60.70
$222.1
79.6
15.3
0.47
0.47
0.17
57.60
50.25
29.1
0.91
0.91
0.19
90.30
75.92
$251.6
87.9
17.6
0.54
0.54
0.18
78.31
58.41
$226.7
77.5
5.9
0.19
0.19
0.17
65.25
56.45
132.4
4.10
4.10
0.73
$ 982.5
349.7
82.9
2.57
2.57
0.69
$ 863.7
296.3
33.1
1.03
1.03
0.68
In 2019, restructuring charges (decreased)/increased earnings per share by ($0.01) in the first quarter ,
($0.02) in the second quarter, $0.01 in the third quarter, and ($0.04) in the fourth quarter. The charges were
primarily related to the closure of the MC Facility in Sélestat, France.
In 2019, discrete income tax adjustments, increased/(decreased) earnings per share by $0.10 in the first
quarter, ($0.03) in the second quarter, $0.02 in the third quarter, and $0.06 in the fourth quarter.
In 2018, restructuring charges reduced earnings per share by $0.18 in the first quarter , $0.06 in the
second quarter, $0.06 in the third quarter, and $0.04 in the fourth quarter. The charges are primarily related to
the closure of the MC Facility in Sélestat, France and discontinuation of certain manufacturing processes in
Salt Lake City.
111
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
25. Quarterly Financial Data (unaudited) — (continued)
In 2018, discrete income tax adjustments, increased/(decreased) earnings per share by $0.01 in the first
quarter, $0.12 in the second quarter, $0.00 in the third quarter, and ($0.01) in the fourth quarter.
In 2017, restructuring charges reduced earnings per share by $0.05 in the first quarter , $0.04 in the
second quarter, $0.11 in the third quarter, and $0.07 in the fourth quarter. The amount recognized in the third
quarter was primarily non-cash charges associated with the decision to exit a discontinued product line.
In 2017, discrete income tax adjustments, increased/(decreased) earnings per share by ($0.03) in the first
quarter, ($0.02) in the second quarter, $0.12 in the third quarter, and ($0.21) in the fourth quarter. The amount
recognized in the fourth quarter was primarily from changes in U.S. tax laws.
In 2017, we recorded a write-off of inventory in a discontinued product line in the third quarter. The
write-off (decreased)/increased earnings per share by ($0.06) in the third quarter and $0.01 in the fourth
quarter.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of
December 31, 2019, there were over 20,000 beneficial owners of the Company’ s common stock, including
employees owning shares through the Company’s 401(k) defined contribution plan.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of 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
December 31, 2019. Such disclosure controls and procedures are designed to ensure that information required
to be disclosed in reports under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Commission’s rules and forms, and to ensure that information required to be
disclosed under the Exchange Act is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer
, as appropriate to allow timely decisions regarding required
disclosure.
Based on and as of the date of this evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that the Company’ s disclosure controls and procedures were effective as of such date.
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 and includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the
112
Company are being made only in accordance with authorizations of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial
statements.
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.
Management, under the supervision of the Company’s Chief Executive Officer and Chief Financial
Officer , and oversight of the Board of Directors, conducted an assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2019 using the criteria set forth by the
2013 Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework.
During 2019, the Company acquired CirComp GmbH, a privately-held developer and manufacturer of
high-performance composite components located in Kaiserslautern, Germany. Management has excluded from
its assessment of effectiveness of the Company’s internal control over financial reporting as of December 31,
2019, CirComp GmbH’s internal control over financial reporting associated with total assets of $41.1 million
and total revenues of $0.5 million included in the consolidated financial statements of the Company as of and
for the year ended December 31, 2019.
Based on management’s assessment, we have concluded that our internal control over financial reporting
was effective at December 31, 2019. Our independent registered accounting firm has issued a report on the
effectiveness of our internal control over financial reporting which is included under Item 8.
Remediation of Prior Material Weaknesses
As disclosed in Form 10-K for the year ended December 31, 2018, we identified the following material
weaknesses in our internal controls: The Company did not conduct an effective risk assessment process over
the design and implementation of the systems development plan affecting the financial reporting process and
process level controls impacted by the adoption of ASC 606, Revenue from contracts with customers, for
certain revenue transactions in the Company’s Machine Clothing business that are recognized at a
point-in-time. In addition, the Company did not have effective reconciliation controls over the unbilled
accounts receivable and inventory accounts related to those point-in-time transactions.
When the material weaknesses were identified, management immediately commenced actions to
remediate the material weaknesses. To accomplish this the Company initiated comprehensive remediation
efforts to ensure that the deficiencies that contributed to the material weakness were remediated such that
these controls would operate effectively. These efforts included improving our risk assessment process related
to pre-production and post-implementation testing and documentation of conclusions for significant systems
development changes affecting financial reporting and internal controls; and, revising our financial reporting
processes and related reconciliation controls over the unbilled accounts receivable and inventory accounts
related to those point-in-time transactions.
113
As part of our assessment of internal control over financial reporting as of December 31, 2019,
management tested and evaluated whether these controls were designed and operating effectively for a
sufficient period of time. Based on this assessment, management concluded that the material weaknesses were
remediated.
Changes in Internal Control over Financial Reporting
Other than the efforts described above, there were no changes in our internal control over financial
reporting during our fourth fiscal quarter of 2019 that have materially af fected, or are reasonably likely to
materially affect, our internal control over financial reporting.
/s/ A. William Higgins
A. William Higgins
President and
Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
/s/ David M. Pawlick
David M. Pawlick
Vice President and
Controller
(Principal Accounting Officer)
Item 9B. OTHER INFORMATION
None.
114
PART III
The information required by Items 10, 11, 12, 13, and 14 is set forth under the headings below and when
applicable is incorporated herein by reference to the Company’s 2020 Proxy Statement (“Proxy Statement”) to
be filed with the SEC within 120 days after December 31, 2019 in connection with the solicitation of proxies
for the Company’s 2020 annual meeting of shareholders.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
b)
a) Directors. The information set out in the section captioned “Election of Directors”, will be filed
within the Proxy Statement. On January 20, 2020 Erland E. Kailbourne, will return to his role
as Chairman of the Board, succeeding A. William Higgins. The Company also reduced the size
of the Board from ten to nine members and the size of the audit committee from five to four
members. Mr. Higgins has resigned from the audit committee and will not serve on any Board
committees.
Executive Officers. On January 20, 2020, the Board of Directors of the Company appointed A.
William Higgins as President and Chief Executive Officer ef fective January 20, 2020 to
succeed Olivier M. Jarrault, who resigned by mutual agreement with the Board on this date.
See Note 22, of the Consolidated Financial Statements in Item 8 for details regarding
separation agreement terms. Additional information about the officers of the Company is set
forth in Item 1.
Significant Employees. Same as Executive Officers.
c)
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”, will be filed
within in the Proxy Statement.
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.
Involvement in certain legal proceedings by any director, person nominated to become a
director or executive officer . The information set out in the section captioned “Election of
Directors”, will be filed within the Proxy Statement.
f)
g) Certain promoters and control persons. None.
h) Audit Committee Financial Expert. The information set out in the section captioned “Corporate
i)
Governance”, will be filed within the Proxy Statement.
Code of Ethics. The Company has adopted a Code of Ethics that applies to all of its
employees, directors, and officers, including the Chief Executive Officer
Officer and Vice President- 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), within the investor materials section. A copy of the Code of Ethics may be
obtained, without charge, by writing to: Investor Relations Department, Albany International
Corp., 216 Airport Drive, Rochester, New Hampshire 03867. 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 8-K.
, Chief Financial
Item 11.
EXECUTIVE COMPENSATION
The information required by this item is set forth in the sections of the Company’s 2020 Proxy Statement
captioned “Executive Compensation Earned,” “Summary Compensation Table,” “CEO Pay Ratio,” “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.
115
Item 12.
AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth in the section captioned “Share Ownership” in the
Company’s 2020 Proxy Statement is incorporated herein by reference.
Equity Compensation Plan Information
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants, and
rights
(a)
11,950(1)
Weighted
average exercise
price of
outstanding
options,
warrants, and
rights
(b)
$18.93
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
(c)
1,115,472(2),(3),(4),(5)
—
11,950(1)
—
$18.93
—
1,115,472(2),(3),(4),(5)
Plan Category
Equity compensation plans approved by security holders . . . .
Equity compensation plans not approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2)
(3)
(1) Does not include 20,579, 31,222, and 18,771 shares that may be issued pursuant to 2017, 2018 and
2019, respectively, performance incentive awards granted to certain executive officers pursuant to the
2011 Incentive Plan and the 2017 Incentive Plan. Such awards are not “exercisable,” but will be paid
out to the recipients in accordance with their terms, subject to certain conditions.
Reflects the number of shares that may be issued pursuant to future awards under the 2011 Incentive
Plan and 2017 Incentive Plan. Additional shares of Class A Common Stock are available for issuance
under the 2011 Incentive Plan (see note 3 below) as well as under the Directors’ Annual Retainer Plan
(see note 5 below). No additional shares are available under any of the stock option plans pursuant to
which outstanding options were granted.
115,472 shares available for future issuance under the 2011 Incentive Plan. The 2011 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 2011 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. Assuming full exercise by the Board of its power to increase annually the number of shares
available under the 2011 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 1,615,472.
No new shares have been awarded under this plan during 2018 or 2019.
1,000,000 shares available for future issuance under the 2017 Incentive Plan. Shares of Common Stock
covered by awards granted under the 2017 Incentive Plan are only counted as used to the extent they
are actually issued and delivered, including shares withheld to satisfy tax requirement. Accordingly, if
an award is settled for cash, or if shares are withheld to pay any exercise price, 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. The Plan awards (including those set forth in column (c) above) would be
1,000,000.
(4)
116
(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 $160,000, $90,000 of which 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 the Wall Street Journal, rounded down to the nearest whole share.
Directors are expected to hold shares with a value of $480,000 or three times the value of the annual
retainer. Directors may elect to receive, in stock, all of the retainer payable in shares of Common Stock.
A director and related persons, who owns shares of Common Stock with a value of at least $480,000
may elect to receive, in cash, all or any portion of the retainer otherwise payable in shares of Common
Stock.
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item is set forth in the section captioned “Election of Directors” in the
Company’s 2020 Proxy Statement is incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth in the section captioned “Independent Auditors” in the
Company’s 2020 Proxy Statement is incorporated herein by reference.
117
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
Exhibit
Number
3 (a)
3 (b)
4 (a)
4 (b)
Exhibit Description
Amended and Restated Certificate of Incorporation of
Company
Bylaws of Company
Article IV of Certificate of Incorporation of Company
Specimen Stock Certificate for Class A Common Stock
Filed
Herewith
Credit Agreement
10(k)(xix)
$685 Million Five-Year Revolving Credit Facility
Agreement among Albany International Corp., the other
Borrowers named therein, the Lenders Party thereto,
JPMorgan Chase Bank, N.A., as Administrative Agent,
dated as of November 7, 2017
2011 Performance Phantom Stock Plan as adopted on
May 26, 2011
2003 Restricted Stock Unit Plan, as amended May 7,
2008
Form of Restricted Stock Unit Award for units granted
on March 2, 2018
Form of Restricted Stock Unit Award for units granted
on August 28, 2018
Form of Restricted Stock Unit Award for units granted
on April 1, 2019
Form of Restricted Stock Unit Award for units granted
on November 4, 2019
Form of 2011 Performance Stock Bonus agreement
Restricted Stock Units
10(l)(viii)
10(l)(vi)
10(l)(x)
10(l)(xi)
10(l)(xii)
10(l)(xiii)
10(l)(xiv)
Stock Options
10(m)(i)
10(m)(vii)
1992 Stock Option Plan
1998 Stock Option Plan, as amended and restated as of
August 7, 2003
2011 Incentive Plan
10(m)(ix)
10(m)(xvii) Form of 2011 Annual Performance Bonus Agreement
10(m)(xviii) Form of 2011 Multi-Year Performance Bonus
Agreement
Executive Compensation
10(l)(viii)
10(n)(i)
10(n)(ii)
10(n)(iii)
10(n)(iv)
10(n)(v)
10(o)(iv)
10(p)
Form of Severance Agreement between the Company
and certain corporate officers or key executives
Supplemental Executive Retirement Plan, adopted as of
January 1, 1994, as amended and restated as of
January 1, 2008
2017 Incentive Plan
Form of Incentive Award, dated April 1, 2019, between
the Company and Stephen M. Nolan
Form of Sign on Bonus Agreement, dated November 4,
2019, between the Company and Greg Harwell
Form of Retention Bonus Agreement, dated January 21,
2020, between the Company and Stephen M. Nolan
Directors’ Annual Retainer Plan, as amended and
restated as of February 23, 2018
Code of Ethics
118
Incorporated by Reference
Period
Ending
Form
Filing Date
8-K
8-K
8-K
S-1, No.
33-16254
6/02/15
2/23/11
6/02/15
9/30/87
8-K
11/07/17
10-Q
6/30/11
8/09/11
8-K
8-K
8-K
10-Q
10-K
10-K
8-K
10-Q
8-K
8-K
8-K
8-K
8-K
Def 14A
10-Q
10-K
8-K
X
X
X
5/13/08
3/06/18
9/04/18
3/31/19
5/01/19
12/31/19
12/31/19
9/30/03
2/28/20
2/28/20
1/18/93
11/06/03
6/01/11
3/29/11
3/29/11
1/04/16
1/02/08
3/29/17
3/31/19
5/01/19
12/31/19
2/28/20
Def 14A
10-K
12/31/03
1/23/20
3/28/18
3/11/04
Exhibit
Number
10(q)
10(t)
10(u)
10(u)
10(u)(ii)
10(u)(iii)
10(u)(iv)
10(u)(v)
10(u)(vi)
10(u)(vii)
1.1
10.1
10.2
11
21
23
24
31(a)
31(b)
32(a)
Exhibit Description
Directors Pension Plan, amendment dated as of
January 12, 2005
Form of Indemnification Agreement
Employment agreement, dated March 2, 2018, between
the Company and Olivier M. Jarrault
First Amendment, dated July 9, 2018, to amend the
employment agreement between the Company and
Olivier M. Jarrault
Second Amendment, dated March 15, 2019, to amend
employment the agreement between the Company and
Olivier M. Jarrault
Third Amendment, dated November 8, 2019, to amend
employment the agreement between the Company and
Olivier M. Jarrault
Executive separation agreement, dated December 12,
2019, between the Company and Charles J. Silva, Jr.
Executive separation agreement, dated March 29, 2019,
between the Company and John Cozzolino
Executive separation agreement, dated January 20,
2020, between the Company and Olivier M. Jarrault
Employment agreement, dated January 21, 2020,
between the Company and A. William Higgins
Underwriting Agreement, dated May 30, 2019 by and
among Albany International Corp., J.P Morgan
Securities LLC and BofA Securities Inc., as
representatives of the several underwriters named in
the agreement.
Fee side letter agreement between Albany International
Corp. and Standish Family Holdings, LLC and J.S.
Standish Company, dated May 28, 2019
Amended and restated LLC operating agreement by
and between Albany Engineered Composites and
Safran Aerospace Composites, Inc. 10% equity interest
in ASC for $28 million
Statement of Computation of Earnings per share
(provided in Footnote 8 to the Consolidated Financial
Statements)
Subsidiaries of Company
Consent of Independent Registered Public Accounting
Firms
Powers of Attorney
Certification of A. William Higgins required pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
Certification of Stephen M. Nolan required pursuant to
Rule 13a-14(a) or Rule 15d-14(a)
Certification of A. William Higgins and Stephen M.
Nolan 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
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
Incorporated by Reference
Period
Ending
Form
Filing Date
8-K
8-K
1/13/05
4/12/06
10-Q
3/31/18
5/08/18
10-Q
6/30/18
8/07/18
10-Q
3/31/19
5/01/19
10-K
10-K
10-K
10-K
10-K
8-K
8-K
12/31/19
2/28/20
12/31/19
2/28/20
12/31/19
2/28/20
12/31/19
2/28/20
12/31/19
2/28/20
6/04/19
5/28/19
10-K
12/31/13
2/26/14
10-K
10-K
10-K
10-K
12/31/19
12/31/19
12/31/19
12/31/19
2/28/20
2/28/20
2/28/20
2/28/20
10-K
12/31/19
2/28/20
10-K
12/31/19
2/28/20
10-K
12/31/19
2/28/20
119
The following information from the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2019, formatted in Inline XBRL (Extensive Business Reporting Language), filed her ewith:
101(i)
101(ii)
101(iii)
101(iv)
101(v)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
X
X
10-K
10-K
2/28/20
12/31/19
12/31/19
Consolidated Statements of Income for the years ended
December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for
the years ended December 31, 2019, 2018, and 2017
Consolidated Balance Sheets as of December 31, 2019
and 2018
Consolidated Statements of Cash Flows for the years
2/28/20
ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
2/28/20
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover page formatted as Inline XBRL and contained in Exhibit 101
12/31/19
12/31/19
10-K
10-K
12/31/19
2/28/20
2/28/20
10-K
X
X
X
*
As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes
of Sections 11 and 12 of the Securities Act and Section 18 of the Securities Exchange Act or otherwise
subject to liability under those sections.
120
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 28th day of February, 2020.
SIGNATURES
ALBANY INTERNATIONAL CORP.
By /s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
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
*
A. William Higgins
President and Chief Executive Officer and Director
(Principal Executive Officer)
February 28, 2020
/s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
*
David M. Pawlick
Vice President–Controller
(Principal Accounting Officer)
February 28, 2020
February 28, 2020
*
Erland E. Kailbourne
*
John F. Cassidy, Jr.
*
Katharine Plourde
*
Mark J. Murphy
*
John R. Scannell
*
Christine L. Standish
*
Kenneth W. Krueger
*
Lee C. Wortham
*By /s/ Stephen M. Nolan
Stephen M. Nolan
Attorney-in-fact
Chairman of the Board and Director
February 28, 2020
Director
Director
Director
Director
Director
Director
Director
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
February 28, 2020
121
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Column A
Description
Allowance for doubtful accounts
Year ended December 31:
Column B
Balance at
beginning of
period
Column C
Column D
Charge to
expense
Other
Column E
Balance at
end of the
period
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,337
7,919
6,952
$
309
579
1,388
$ (5,927)
(1,161)
(421)
$ 1,719
7,337
7,919
Allowance for sales returns
Year ended December 31:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,343
11,370
13,714
$ 7,278
8,372
8,909
$ (7,372)
(8,399)
(11,253)
$11,249
11,343
11,370
Valuation allowance deferred tax assets
Year ended December 31:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,389
16,057
22,821
$
859
(4,882)
(3,552)
$
(146)
(2,786)
(3,212)
$ 9,102
8,389
16,057
(A) Amounts sold, written off, or recovered, and the effect of changes in currency translation rates, are
included in Column D.
122
CORPORATE INFORMATION
Investor Relations
The Company’s Investor Relations Department may be contacted at:
Investor Relations Department
Albany International Corp.
216 Airport Drive
Rochester, NH 03867
Telephone: (603) 330-5850
Fax: (603) 994-3974
E-mail: investor.relations@albint.com
Transfer Agent and Registrar
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Telephone (toll-free): 1-877-277-9931
Web: www.computershare.com/investor
Shareholder Services
As an Albany International shareholder, you are invited to take advantage of our convenient shareholder
services.
Computershare maintains the records for our registered shareholders and can help you with a variety of
shareholder-related services at no charge, including:
• Change of name and/or address
• Consolidation of accounts
• Duplicate mailings
• Dividend reinvestment enrollment
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
Access your investor statements online 24 hours a day, 7 days a week at Investor Center. For more
information, go to www.computershare.com/investor.
Notice of Annual Meeting
The Annual Meeting of the Company’s shareholders will be held on Thursday, May 14, 2020 at 9:00
a.m. at Loews Boston Hotel, 154 Berkeley Street, Boston MA 02116.
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, sexual orientation, 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 .
123
Trademarks and Trade Names
INLINE, KRAFTLINE, PRINTLINE, HYDROCROSS, SEAM HYDROCROSS, SEAMPLANE, Seam
KMX, SPRING, VENTABELT EVM, VENTABELT XTS, VENTABELT XTR, TRANSBELT GX, TRANSBELT
GXM, SPIRALTOP, AEROPULSE, AEROPOINT, DURASPIRAL, TOPSTAT, SUPRASTAT, PROVANTAGE,
PROVANTAGE LC, PACKLINE, PROLUX, KRAFTEX, FIBRETEX, ULTRA XT, DYNATEX, Aeroclean,
SpiralRun, X-COR, K-COR, and NOVALACE are all trade names of Albany International Corp.
Directors and Officers
Directors
Erland E. Kailbourne, Chairman1,3
Retired – Chairman and Chief Executive Officer ,
Fleet National Bank (New York Region)
A. William Higgins
President and Chief Executive Officer
John F. Cassidy, Jr.2,3
Retired – Senior Vice President,
Science and Technology, United Technologies Corp.
Christine L. Standish3
Director and Executive Officer , J.S. Standish Company
Katharine L. Plourde1,3
Retired – Principal and Analyst,
Donaldson, Lufkin & Jenrette, Inc.
Kenneth Krueger1
Chairman of the Board, Manitowoc Company Inc.
Mark J. Murphy1
Chief Financial Officer , Qorvo, Inc.
John R. Scannell2
Chairman and Chief Executive Officer , Moog Inc.
Lee C. Wortham2
Partner and COO, Barrantys LLC
Officers
A. William Higgins
President and Chief Executive Officer
1 Member, Audit Committee
2 Member, Compensation Committee
3 Member, Governance Committee
Stephen M. Nolan
Chief Financial Officer and Treasurer
Daniel A. Halftermeyer
President – Machine Clothing
Greg Harwell
President – Engineered Composites
Alice McCarvill
Executive Vice President Human Resources
and Chief Human Resources Officer
Robert A. Hansen
Senior Vice President and Chief Technology Officer
David M. Pawlick
Vice President – Controller
124
SUBSIDIARIES OF REGISTRANT
Exhibit 21
Affiliate
Percent Ownership
Direct
Percent Ownership
Indirect
Country of Incorporation
100%
100%
100%
100%
100%
100%
100%
Albany International Corp. . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holdings Two, Inc. . . . . . . . . . .
Albany International Research Co. . . . . . . . . . . . . . . . .
Albany Engineered Composites, Inc. . . . . . . . . . . . . . .
Albany Safran Composites, LLC . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Brandon Drying Fabrics, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Corp.
Geschmay Forming Fabrics Corp. . . . . . . . . . . . . . . . . .
Geschmay Wet Felts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Transglobal Enterprises, Inc.
Albany Aerostructures Composites, LLC . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Albany International Pty., Ltd.
Albany International Tecidos Tecnicos Ltda.
. . . . . .
Albany International Canada Corp. . . . . . . . . . . . . . . . .
Albany International (China) Co., Ltd. . . . . . . . . . . . .
Albany International Engineered Textiles
(Hangzhou) Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International OY . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Safran Composites, S.A.S . . . . . . . . . . . . . . . . .
Albany International France, S.A.S. . . . . . . . . . . . . . . .
Albany International Germany GmbH . . . . . . . . . . . . .
CirComp GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ProfileComp Gmbh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Italia S.r.l. . . . . . . . . . . . . . . . . . . .
Albany International Japan Kabushiki Kaisha . . . . .
Albany International Korea, Inc.
. . . . . . . . . . . . . . . . . .
Albany Engineered Composites Mexico, S. de
R.L. de C.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Safran Composites Mexico, S. de R.L. de
C.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites Services
Company, S. de R.L. de C.V. . . . . . . . . . . . . . . . . . . .
Albany Mexico Services, S. de R.L. de C.V. . . . . . .
Albany International de Mexico S.A. de C.V. . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Albany International B.V.
Nevo-Cloth Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International S.A. Pty. Ltd. . . . . . . . . . . . . . . . .
Albany International AB . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holding AB . . . . . . . . . . . . . . . . .
AI (Switzerland) GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holding (Switzerland) AG . . .
Albany International Europe GmbH . . . . . . . . . . . . . . .
Albany Engineered Composites Ltd.
. . . . . . . . . . . . . .
Albany International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Australia
Brazil
Canada
China
China
Finland
France
France
Germany
Germany
Germany
Italy
Japan
Korea
Mexico
Mexico
Mexico
Mexico
Mexico
Netherlands
Russia
South Africa
Sweden
Sweden
Switzerland
Switzerland
Switzerland
United Kingdom
United Kingdom
90%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
The Board of Directors
Albany International Corp.:
We consent to the incorporation by reference in the registration statements (Nos. 333-218122, 333-218121, 333-195269,
333-190774, 333-140995, 333-76078, 333-90069, 033-60767) on Form S-8 and in the registration statement (No. 333-231776)
on Form S-3ASR of Albany International Corp. and subsidiaries (the Company) of our reports dated February 28, 2020, with
respect to the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of income, comprehensive income, and cash flows for each of the years in the three-year period ended
December 31, 2019, and the related notes and financial statement Schedule II - Valuation and Qualifying Accounts
(collectively, the consolidated financial statements), and the ef fectiveness of internal control over financial reporting as of
December 31, 2019, which reports appear in the December 31, 2019 annual report on Form 10-K of the Company.
Our report dated February 28, 2020, on the consolidated financial statements, refers to a change to the method of accounting
for revenue as of January 1, 2018.
Our report dated February 28, 2020, on the effectiveness of internal control over financial reporting as of December 31, 2019,
contains an explanatory paragraph that states that the Company acquired CirComp GmbH (CirComp) during 2019 and
management excluded from its assessment of the effectiveness of internal control over financial reporting as of December 31,
2019, CirComp’s internal control over financial reporting associated with total assets of $41.1 million and total net sales of
$0.5 million included in the consolidated financial statements of the Company as of and for the year ended December 31,
2019, and that our audit of internal control over financial reporting of the Company also excluded an evaluation of the
internal control over financial reporting of CirComp.
/s/ KPMG LLP
Albany, New York
February 28, 2020
Powers of Attorney
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Albany International
Corp., a Delaware corporation (“the Registrant”), which contemplates that it will file with the Securities and Exchange
Commission (“the SEC”) under, or in connection with, the provisions of the Securities Exchange Act of 1934, as amended, or
rules and regulations promulgated thereunder, an Annual Report on Form 10-K for the year ended December 31, 2019 (such
report, together with any amendments, supplements, and exhibits thereto, is collectively hereinafter referred to as “Form
10-K”), hereby constitutes and appoints A. William Higgins, Stephen M. Nolan, David M. Pawlick, and Joseph M. Gaug, and
each of them with full power to act without the others, his or her true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him or her in his or her name, place, and stead, in any and all capacities, to sign the Form
10-K and any or all other documents relating thereto, with power where appropriate to affix the corporate seal of the
Registrant thereto and to attest said seal, and to file the Form 10-K, together with any and all other information and
documents in connection therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
The appointment of any attorney-in-fact and agent hereunder shall automatically terminate at such time as such
attorney-in-fact and agent ceases to be an officer of the Registrant. Any of the undersigned may terminate the appointment of
any of his or her attorneys-in-fact and agents hereunder by delivering written notice thereof to the Registrant.
IN WITNESS WHEREOF, the undersigned have duly executed this Power of Attorney this 28th day of February, 2020.
/s/ Erland E. Kailbourne
Erland E. Kailbourne
Chairman of the Board and Director
/s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ John R. Scannell
John R. Scannell
Director
/s/ John F. Cassidy, Jr.
John F. Cassidy, Jr.
Director
/s/ Kenneth W. Krueger
Kenneth W. Krueger
Director
/s/ Lee C. Wortham
Lee C. Wortham
Director
/s/ A. William Higgins
A. William Higgins
President and Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ David M. Pawlick
David M. Pawlick
Vice President - Controller
(Principal Accounting Officer)
/s/ Christine L. Standish
Christine L. Standish
Director
/s/ Katharine L. Plourde
Katharine L. Plourde
Director
/s/ Mark J. Murphy
Mark J. Murphy
Director
I, A. William Higgins, certify that:
Certification of the Chief Executive Officer
Exhibit 31(a)
1.
I have reviewed this report on Form 10-K of Albany International Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely af fect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2020
By
/s/ A. William Higgins
A. William Higgins
President and Chief Executive Officer
(Principal Executive Officer)
I, Stephen M. Nolan, certify that:
Certification of the Chief Financial Officer
Exhibit 31(b)
1.
I have reviewed this report on Form 10-K of Albany International Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely af fect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2020
By
/s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Exhibit 32(a)
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title
18, United States Code), A. William Higgins, the Chief Executive Officer , and Stephen M. Nolan, the Chief Financial Officer
and Treasurer, of Albany International Corp., a Delaware corporation (“the Company”), do each hereby certify, to such
officer ’s knowledge, that the annual report on Form 10-K for the fiscal year ended December 31, 2019 (“the Form 10-K”) of
the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the
information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company for the period covered by the report.
Dated: February 28, 2020
By
/s/ A. William Higgins
A. William Higgins
President and Chief Executive Officer
(Principal Executive Officer)
By
/s/ Stephen M. Nolan
Stephen M. Nolan
Chief Financial Officer and Treasurer
(Principal Financial Officer)
216 Airport Drive, Rochester, NH 03867 USA
Tel: 603 330 5850 • Fax: 603 994 3835 • www.albint.com • investor.relations@albint.com