Albany International Reports First-Quarter Results

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Albany International Reports First-Quarter Results

First-quarter Financial Highlights

  • Net sales were $186.7 million, compared to $180.1 million in Q1 2012, an increase of 3.7 percent.
  • Adjusted EBITDA for Q1 2013 was $33.8 million, compared to $25.6 million in Q1 2012 (see Tables 4 and 5).
  • Q1 2013 income from continuing operations was $0.37 per share. These results include restructuring charges of $0.01, foreign currency revaluation gains of $0.02, a gain on the sale of a former manufacturing facility of $0.08, and net unfavorable discrete income tax adjustments of $0.01 (see Table 6).
  • Q1 2012 income from continuing operations was $0.00 per share. These results included restructuring charges of $0.01, foreign currency revaluation losses of $0.11, a pension settlement charge of $0.19, and net favorable discrete income tax adjustments of $0.22 (see Table 7).
  • During Q1 2013, the Company entered into a new, $330 million five-year revolving credit facility agreement, replacing the previous $390 million facility agreement. Additionally, we completed the redemption of all remaining Convertible Senior Notes that were due in 2026.

ROCHESTER, N.H.--(BUSINESS WIRE)-- Albany International Corp. (NYS: AIN) , a global advanced textiles and materials processing company with core businesses in machine clothing and engineered composites, reported Q1 2013 income from continuing operations of $11.5 million. These results include restructuring charges of $0.6 million, foreign currency revaluation gains of $0.7 million, a gain on the sale of a former manufacturing facility of $3.8 million, and net unfavorable discrete income tax adjustments of $0.2 million (see Table 6).


Q1 2012 income from continuing operations was a loss of $0.1 million. These results included restructuring charges of $0.3 million, foreign currency revaluation losses of $5.6 million, a pension settlement charge of $9.2 million, and net favorable discrete income tax adjustments of $6.7 million (see Table 7).

Table 1 summarizes net sales and the effect of changes in currency translation rates:

Table 1

        

 

 

 


 

 

Net Sales

Three Months ended

March 31,

 

 

 

Percent

 

Impact of

Changes

in Currency


Translation

 

Percent

Change

excluding


Currency

(in thousands)

 

2013

 

2012

 

Change

 

Rates

 

Rate Effect

Machine Clothing (MC) $167,409 $164,288 1.9% ($388) 2.1%
Engineered Composites (AEC) 19,245 15,789 21.9% -  21.9%
Total $186,654 $180,077 3.7% ($388) 3.9%
 

Q1 2013 gross profit was $72.8 million, or 39.0 percent of net sales, compared to $68.3 million, or 37.9 percent of net sales, in the same period of 2012. The increase in gross profit percentage was attributable to results in Machine Clothing, where gross profit margins increased from 41.4 percent in 2012 to 44.2 percent in 2013, reflecting continued strong performance in the Americas and the cumulative effect of productivity improvements and restructuring. AEC gross profit was negatively affected by inventory write-offs and other losses associated with a legacy program at the Company's Boerne, Texas, facility.

Selling, technical, general, and research (STG&R) expenses were $49.6 million, or 26.6 percent of net sales, in the first quarter of 2013. STG&R expenses reflect lower pension expense related to the settlement of certain pension liabilities in 2012. STG&R expenses also include gains of $0.7 million related to the revaluation of non-functional-currency assets and liabilities, and a gain of $3.8 million related to the sale of a former manufacturing facility. In the first quarter of 2012, STG&R expenses were $59.8 million, or 33.2 percent of net sales, including losses of $1.8 million related to the revaluation of non-functional-currency assets and liabilities.

The following table summarizes first-quarter operating income:

Table 2

  

 

 

 

 

Operating Income/(loss)

Three Months ended

March 31,

(in thousands)

 

2013

 

2012

Machine Clothing $42,908  $30,845 
Engineered Composites (2,063) 29 
Research expenses (6,991) (6,065)
Pension settlement charge - Unallocated -  (9,175)

Unallocated expenses - other

 (11,336) (16,543)
Total $22,518  ($909)
 

Operating results were affected by restructuring, currency revaluation, and building sale gains, as described below:

Table 2a

     

 

 

 

Expenses/(income) in Q1

2013 resulting from

  

Expenses/(income) in Q1

2012 resulting from

 

(in thousands)

 

Restructuring

 

Revaluation

 

Building

Gain

  

Restructuring

 

Revaluation

Machine Clothing $193 ($743) -   $673  $1,766
Engineered Composites 443 -  -   -  -
Unallocated expenses - 2  (3,763)  (415) 2
Total $636 ($741) ($3,763)  $258  $1,768
   

Q1 2013 Other income/expense, net, was expense of $0.7 million. Other income/expense, net, in Q1 2012 was expense of $4.5 million, including losses of $3.8 million related to the revaluation of non-functional-currency intercompany balances.

The following table summarizes currency revaluation effects on certain financial metrics:

Table 3

  

 

 

 


 

 

Income/(loss) attributable

to currency revaluation

Three Months ended


March 31,

(in thousands)

 

2013

 

2012

Operating income $741  ($1,768)
Other income/(expense), net (9) (3,832)
Total $732  ($5,600)
 

The Company's effective income tax rate, exclusive of discrete tax items, was 34.0 percent for the first quarter of 2013. Q1 2013 income tax expense included a discrete tax charge of $0.2 million. For Q1 2012, income tax was a benefit of $10.0 million, which included a discrete tax benefit of $6.7 million related to the resolution of certain tax contingencies, as well as a tax benefit of $3.3 million related to the pension settlement charge.

The following tables summarize Adjusted EBITDA:

Table 4

        

Three Months ended March 31, 2013

 

(in thousands)

 

 

Machine
Clothing

 

 

Engineered
Composites

 

Research
and
Unallocated

 

 

Total
Company

Income/(loss) from continuing operations $42,908  ($2,063) ($29,334) $11,511 
Interest expense, net -  -  4,025  4,025 
Income tax expense -  -  6,248  6,248 
Depreciation and amortization 11,561  1,701  2,612  15,874 
EBITDA 54,469  (362) (16,449) 37,658 
Restructuring and other, net 193  443  -  636 
Foreign currency revaluation losses/(gains) (743) -  11  (732)
Gain on sale of former manufacturing facility -  -  (3,763) (3,763)
Adjusted EBITDA $53,919  $81  ($20,201) $33,799 
    

Table 5

        

Three Months ended March 31, 2012

 

(in thousands)

 

 

Machine
Clothing

 

 

Engineered
Composites

 

Research
and
Unallocated

 

 

Total
Company

Income/(loss) from continuing operations $30,845  $29  ($31,003) 

($129

)

Interest expense, net -  -  4,644  4,644 

Income tax (benefit)

 -  -  (9,972) (9,972)
Depreciation and amortization 12,053  1,405  2,569  16,027 
EBITDA 42,898  1,434  (33,762) 10,570 
Restructuring and other, net 673  -  (415) 258 
Foreign currency revaluation losses 1,766  -  3,834  5,600 
Pension settlement charge -  -  9,175  9,175 
Adjusted EBITDA $45,337  $1,434  ($21,168) $25,603 
 

Capital spending for equipment and software was $13.3 million for the first quarter of 2013, including $9.2 million for the Engineered Composites segment and its expansion associated with the LEAP program. Depreciation and amortization was $15.9 million for Q1 2013, compared to $16.0 million for Q1 2012.

CEO Comments

President and Chief Executive Officer Joe Morone said, "Q1 2013 was another solid quarter for Albany International, as the Company continues to execute, in both the near- and long-term, our cash flow-and-grow strategy. Compared to Q1 2012, sales improved by 4 percent (excluding currency effects) and Adjusted EBITDA by 32 percent. Also during Q1, the Company entered into a new, unsecured five-year credit agreement, which lowers our borrowing rate by almost 1 percent.

"Both AEC and MC again performed well. AEC sales grew by 22 percent compared to Q1 2012, and although EBITDA declined because of write-offs and losses associated with a legacy program in Boerne, the business remains on track for profitable growth. Construction of both LEAP plants and production of parts for testing are on schedule; maturation and industrialization of our production process, systems, and organization continue to advance; and development work on new advanced composite parts for both engine and airframe applications are also proceeding as planned.

"MC performance in the Americas was once again exceptional across the board. In Europe, sales and orders were stable, suggesting once again that the sharp declines that we experienced last year have given way to the more gradual erosion consistent with long-term trends. Only Asia did not perform to expectations; while our share appears to be holding, or even improving incrementally, softness in paper markets in China and Japan contributed to lower sales compared to Q1 of last year.

"Our 2013 outlook for both businesses remains unchanged. As we have stated many times, we view MC as a business with the potential to generate steady year-over-year Adjusted EBITDA. So even though Q1 Adjusted EBITDA was sharply higher than the comparable period a year ago, we continue to expect Adjusted EBITDA for the full-year 2013 to be comparable to 2012. We view the macro-economy as the primary source of short-term risk to this outlook -- both upside risk and down.

"In AEC, the revenue outlook for the foreseeable future will continue to be driven by growth in the LEAP program. For the balance of 2013, the focus in LEAP will remain on development engineering and production of test parts. We expect AEC's revenue run-rate of the past two quarters to continue through the balance of the year and then to grow steadily for the next several years as our two LEAP plants enter into production.

"In short, performance in Q1 by both businesses was largely consistent with our expectations, and based on that performance, our outlook for the balance of the year and beyond remains unchanged."

CFO Comments

CFO and Treasurer John Cozzolino commented, "During Q1, the Company completed two important debt-related transactions. First, the Company utilized its bank credit facility to complete the redemption of all remaining 2.25 percent Convertible Senior Notes due 2026, of which an aggregate of $28.4 million in principal amount was outstanding. Second, on March 26, 2013, the Company reached an agreement with its banks to amend and extend our revolving credit agreement. Under the new agreement, which is now extended to March 26, 2018, the total amount available for borrowings was reduced from $390 million to $330 million, bringing it more in line with our expected borrowing needs. In addition, the interest rate margins over LIBOR were significantly reduced. At our current leverage ratio, the margin has been reduced from 2.25 percent to 1.375 percent. The primary terms, covenants, and conditions are similar to those contained in the last credit agreement. On the same date, we also amended our $150 million note agreement with Prudential to conform it to the new credit agreement. The total cost for the amendments to both facilities was $1.6 million. At current debt levels the total annual savings in interest and associated fees would be approximately $1.9 million.

"Despite good operating results, net debt increased $5.6 million, as compared to the end of 2012, to $134.6 million (see Table 8). As displayed in our cash flow statement, changes in our operating assets and liabilities mostly resulted in uses of cash. The most significant change was the $9 million reduction in accrued liabilities, which was mostly due to the payment of 2012 incentive compensation awards.

"Capital expenditures during the quarter were $13 million. As we discussed last quarter, capital expenditure activity (both payments and commitments) has increased significantly with the acceleration of the LEAP program. As we previously stated, we continue to expect that average capital spending, for the entire Company, during the five-year period 2012 to 2016 will be approximately $70 million per year. During the quarter, the Company also completed the sale of its production facility in Gosford, Australia, resulting in net proceeds of about $6.3 million.

"Our income tax rate for Q1 2013, exclusive of discrete tax adjustments, was approximately 34 percent. We expect the full-year tax rate for 2013 to remain in the mid-30 percent range. Including the utilization of net operating loss carry-forwards and other deferred tax assets, cash paid for income taxes this quarter was $7.4 million and is expected to be about $25 million for the full year."

The Company plans a webcast to discuss first-quarter 2013 financial results on Thursday, May 2, 2013, at 9:00 a.m. Eastern Time. For access, go to www.albint.com.

About Albany International Corp.

Albany International is a global advanced textiles and materials processing company, with two core businesses. Machine Clothing 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 18 plants in 11 countries, employs 4,000 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.

This release contains certain items, such as earnings before interest, taxes, depreciation and amortization (EBITDA), Adjusted EBITDA, sales excluding currency effects, effective income tax rate exclusive of income tax adjustments, net debt, and certain income and expense items on a per share basis that could be considered non-GAAP financial measures. Such items are provided because management believes that, when presented together with the GAAP items to which they relate, they provide additional useful information to investors regarding the Company's operational performance. Presenting increases or decreases in sales, after currency effects are excluded, can give management and investors insight into underlying sales trends. An understanding of the impact in a particular quarter of specific restructuring costs, or other gains and losses, on operating income or EBITDA can give management and investors additional insight into quarterly performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. All non-GAAP financial measures in this release relate to the Company's continuing operations.

The effect of changes in currency translation rates is calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. That amount is then compared to the U.S. dollar amount reported in the current period. The Company calculates Income tax adjustments by adding discrete tax items to the effect of a change in tax rate for the reporting period. The Company calculates its effective Income tax rate, exclusive of Income tax adjustments, by removing Income tax adjustments from total Income tax expense, then dividing that result by Income before tax. The Company calculates EBITDA by adding Interest expense net, Income taxes, and Depreciation and Amortization to Net income. Adjusted EBITDA is calculated by adding to EBITDA, costs associated with restructuring and pension settlement charges, and then adding or subtracting revaluation losses or gains and subtracting building share gains. The Company believes that EBITDA and Adjusted EBITDA provide useful information to investors because they provide an indication of the strength and performance of the Company's ongoing business operations, including its ability to fund discretionary spending such as capital expenditures and strategic investments, as well as its ability to incur and service debt. While depreciation and amortization are operating costs under GAAP, they are non-cash expenses equal to current period allocation of costs associated with capital and other long-lived investments made in prior periods. While restructuring expenses, foreign currency revaluation losses or gains, pension settlement charges, and building sale gains have an impact on the Company's net income, removing them from EBITDA can provide, in the opinion of the Company, a better measure of operating performance. EBITDA is also a calculation commonly used by investors and analysts to evaluate and compare the periodic and future operating performance and value of companies. EBITDA, as defined by the Company, may not be similar to EBITDA measures of other companies. Such EBITDA measures may not be 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 Company discloses certain income and expense items on a per share basis. The Company believes that such disclosures provide important insight into underlying quarterly 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

effective tax rate utilized for the most recent reporting period, the full-year tax rate for the comparable period of the prior year, and the weighted average number of shares outstanding for each period.

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