(Source: Business Wire)
Albany International Corp. (NYSE:AIN) reported a third-quarter net loss
per share of $0.20 after reductions of $0.62 from net restructuring
charges, related idle-capacity costs, and costs related to continuing
performance-improvement initiatives. A gain on extinguishment of debt
increased earnings by $0.16 per share, while out-of-period charges
decreased earnings by $0.04 per share. A change in the estimated income
tax rate decreased earnings per share by $0.01. The net effect of these
special items was to reduce net income by $0.51 per share. (See non-GAAP
disclosure below.)
For the third quarter of 2008, net income per share was $0.00, after
reductions of $0.48 from net restructuring charges, idle-capacity costs
related to restructuring, and costs related to performance-improvement
initiatives. A gain on the sale of a discontinued business increased
earnings per share by $0.21, while income tax adjustments reduced net
income by $0.20 per share. The net effect of these special items was to
reduce net income by $0.47 per share. (See non-GAAP disclosure below.)
Net sales for the quarter were $217.9 million, an increase of 2.5
percent compared to Q2 2009 and a decrease of 18.4 percent compared to
the third quarter of 2008. Excluding the effect of changes in currency
translation rates, net sales in Q3 2009 decreased 16.5 percent as
compared to Q3 2008, as shown below:
Exception caught in main.
Gross profit was 33.9 percent of net sales in the third quarter of 2009,
compared to 33.4 percent in the same period of 2008. The improvement was
principally due to cost-reduction initiatives and a decrease in
idle-capacity and performance-improvement costs, which more than offset
the effect on gross margin of lower sales. As described in the
paragraphs that follow Table 3, cost of goods sold included costs
associated with idle-capacity and performance-improvement initiatives of
$3.0 million in Q3 2009 and $5.9 million in Q3 2008.
Selling, technical, general, and research (STG&R) expenses were $61.2
million, or 28.1 percent of net sales, in the third quarter of 2009, in
comparison to $78.3 million, or 29.3 percent of net sales, in the third
quarter of 2008. Changes in currency translation rates had the effect of
decreasing STG&R expenses by $2.0 million in comparison to Q3 2008.
Third-quarter STG&R expenses included costs related to
performance-improvement initiatives totaling $1.5 million in 2009 and
$4.8 million in 2008. The revaluation of non-functional currency assets
and liabilities increased STG&R by $1.6 million in Q3 2009 and decreased
STG&R by $1.8 million in Q3 2008.
STG&R expenses were $64.6 million, or 30.4 percent of net sales, in the
second quarter of 2009. Second-quarter 2009 STG&R expenses included
costs related to performance-improvement initiatives totaling $1.4
million and the revaluation of non-functional currency assets and
liabilities increased STG&R by $1.7 million.
Operating income/loss was a loss of $8.5 million in the third quarter of
2009, compared to income of $4.1 million for the same period of 2008.
The following table presents third-quarter segment operating income:
Exception caught in main.
Third-quarter segment operating income included the following expenses
associated with restructuring and performance-improvement initiatives:
Table 3
Q3 2009 Q3 2008
(in thousands) Restructuringand Other, Net Idle-capacityCosts Performance-improvementInitiatives Total RestructuringandPerformance-improvementInitiatives
Paper Machine Clothing $18,356 $2,623 $505 $21,484 $13,298
Albany Door Systems 1,515 - (94 ) 1,421 227
Engineered Fabrics 168 - - 168 -
Engineered Composites 157 - - 157 366
Research expenses - - - - (191 )
Unallocated expenses 35 - 1,484 1,519 3,734
Total $20,231 $2,623 $1,895 $24,749 $17,434
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Q3 2009 restructuring costs totaled $20.2 million and included $11.7
million for non-cash charges to write down property, plant and equipment
related to restructuring in the Paper Machine Clothing segment. Q3 2009
idle-capacity costs of $2.6 million were related to previously announced
restructuring at PMC plants in the U.S. and Europe.
Q3 2009 performance-improvement initiatives totaled $1.9 million, of
which $0.4 million was reported in cost of goods sold, and $1.5 million
was reported in STG&R expenses. Included in idle-capacity costs was $0.2
million of depreciation expense. Performance-improvement costs reported
as STG&R expenses included $1.3 million related to the ongoing
implementation of SAP.
Q3 2008 costs for restructuring and performance-improvement initiatives
amounted to $17.4 million, of which $6.7 million was reported as
restructuring, $5.9 million was included in cost of goods sold, and $4.8
million was included in STG&R expenses.
Other income/expense, net was income of $8.1 million in Q3 2009,
including a $7.9 million ($0.16 per share) gain on extinguishment of
debt, and income of $0.8 million related to revaluation of
non-functional currency intercompany balances. Other income/expense, net
was income of $0.7 million for Q3 2008, including income of $1.5 million
related to revaluation of non-functional currency intercompany balances.
Q2 2009 Other income/expense, net was income of $37.2 million, including
a $36.6 million gain on extinguishment of debt and income of $1.2
million related to revaluation of non-functional currency intercompany
balances.
Adjusted EBITDA was $34.1 million in the third quarter of 2009, compared
to $28.3 million in the second quarter of 2009 and $37.4 million in the
third quarter of 2008 (see non-GAAP disclosure below). The improvement
compared to Q2 2009 reflects the positive impact resulting from
previously announced restructuring and performance-improvement
initiatives.
Third-quarter 2009 income tax benefit/expense includes expense of $3.1
million related to the gain on extinguishment of debt. Additionally, Q3
2009 includes a charge of $0.5 million due to an out-of-period
adjustment to correct deferred tax asset balances originating in a prior
year. The corrected item has no impact on EBITDA or cash flows in any
period presented. Third-quarter 2008 income tax expense includes income
tax adjustments that decreased net income by $5.9 million ($0.20 per
share).
Net cash from operating activities was $23.0 million in the third
quarter of 2009, compared to $8.2 million in the second quarter of 2009,
and $9.2 million for the third quarter of 2008. Net cash from operating
activities in the third quarter of 2009 was reduced by a voluntary
contribution of $20 million to the United States pension plan.
Capital spending during the third quarter of 2009 was $7.6 million,
bringing the year-to-date total to $33.9 million. The Company is on
track with its estimate for 2009 capital spending of $50 million.
Depreciation and amortization were $15.8 million and $2.1 million for
the third quarter of 2009 and are estimated to total $60 million and $9
million for 2009.
Paper Machine Clothing (PMC)
This segment includes Paper Machine Clothing and Process Belts used
in the manufacture of paper and paperboard products.
Q3 2009 global net sales decreased 14.0 percent compared to the third
quarter of 2008, but increased 6.0 percent compared to the second
quarter of 2009. Compared to the second quarter of 2009, trade sales
increased 36.6 percent in Asia, while sales in the Americas and Europe
were roughly flat.
Q3 2009 operating income was $13.6 million and included expenses of
$21.5 million for restructuring and performance-improvement initiatives.
In comparison, Q3 2008 operating income was $22.4 million and included
expenses of $13.3 million for restructuring and performance-improvement
initiatives.
Albany Door Systems (ADS)
This segment includes products, parts, and service sales of High
Performance Doors to a variety of industrial customers.
Compared to the third quarter of 2008, net sales in Europe (in euros)
were down 30.7 percent; net sales in North America decreased 32.4
percent, and net sales in Asia decreased 24.2 percent. Compared to the
second quarter of 2009, net sales in Europe were down 2.0 percent; in
North America, down 1.3 percent; and in Asia-Pacific, up 6.7 percent.
Sales trends for the aftermarket were similar to those for products.
Ongoing cost-reduction initiatives resulted in a Q3 restructuring charge
of $1.5 million.
Albany Engineered Composites (AEC)
This segment includes sales of specialty materials and composite
structures for aerospace and defense applications.
Net sales were $8.1 million in Q3 2009, compared to $12.0 million in Q3
2008 and $7.5 million in Q2 2009. AEC reported an operating loss of $2.6
million in the third quarter of 2009, including an out-of-period
non-cash charge of $1.0 million for the write-off of an intangible asset
related to Eclipse Aviation. The Company does not believe that the
out-of-period charge is or was material to any previously issued annual
or quarterly financial statements.
Albany Engineered Fabrics (EF)
This segment includes sales of a variety of products similar to PMC
for application in the corrugator, pulp, nonwovens, building products,
tannery, and textile industries.
Compared to the third quarter of 2008, net sales decreased 12.9 percent,
while sales were 2.9 percent lower than the second quarter of 2009.
Sales were down in each product line, except corrugators, compared to Q3
2008. Compared to Q2 2009, sales improved in the fiber prep and tannery
and textile product lines.
PrimaLoft® Products
This segment includes sales of insulation for outdoor clothing,
gloves, footwear, sleeping bags, and home furnishings.
Net sales decreased 33.7 percent compared to the same period last year.
Compared to Q3 2008, net sales in North America decreased 40.0 percent
and in Europe (in euros) decreased 8.5 percent.
CEO Comments
President and CEO Joe Morone said, "For the past few quarters, we have
emphasized that our near-term objective is to generate strong free cash
flow in 2010, even if sales remain as much as 20 percent below 2008
levels. The results of Q3 2009 provide further evidence that we are on
track to meet this objective.
"For the second consecutive quarter, overall sales improved. While still
18 percent below the comparable period in 2008, Q3 sales were 3 percent
higher than Q2 and 4 percent higher than Q1. All of the improvement was
accounted for by significantly higher PMC sales in Asia.
"The sequential improvement in profitability was even more encouraging.
Adjusted EBITDA improved from $28 million in Q2 to $34 million in Q3.
The primary reason for the earnings improvement was lower costs due to
previously announced restructuring. Gross margins improved and STG&R as
a percent of sales declined. Most of the improvement in profitability
was the direct result of previously announced restructuring in European
PMC combined with the successful ramp-up of production in Asia. We
expect another $3 million of cost reductions from previously announced
restructuring activities to be fully realized by Q3 2010. The amount of
these additional cost reductions that will actually flow through to
earnings depends of course on a variety of variables, especially sales,
currency, and inflation.
"The three-year restructuring and performance-improvement program is now
almost completely behind us. We are still on schedule to ramp down PMC
production in Portland, Tennessee, and Engineered Fabrics production in
Gosford, Australia, by the second quarter of 2010. Relocation of
equipment will also continue through much of 2010 and will likely result
in additional expenses of up to $3 million. Idle-capacity costs, which
were $2.6 million in Q3, should decline significantly over the next few
quarters. The only other related activity that will continue into 2010
is the SAP conversion project. PMC and Engineered Fabrics in North
America, AEC, and ADS have all successfully converted from their old ERP
systems. PMC Brazil is in the process of converting, and should be
completed by Q2 2010, and PMC Eurasia is scheduled to go live in Q2 of
2011. The incremental quarterly expense of SAP conversion activities was
$1.3 million in Q3, and should continue at this level through completion.
"Turning to the outlook for each of our businesses, in PMC, most of the
available evidence continues to indicate L-shaped recoveries in the
Americas and Europe, and a V-shaped recovery in Asia. We said last
quarter that seasonal and inventory effects had contributed to a
downturn in Q2 PMC orders. While Q3 orders showed some improvement in
many markets over Q2, we still believe that inventory effects in North
America are likely to temporarily dampen sales, as should the normal,
seasonal December slowdown in both the Americas and Europe. Apart from
these short-term effects, our end markets in these two regions appear to
have stabilized. In the Americas, we look for the continuing erosion of
the newsprint and Canadian markets to be offset by anticipated recovery
in tissue and kraft and growth in South America. In Europe, the outlook
for paper production beyond Q4 is less clear and there remains some risk
of further declines in the first half of 2010. And while prices of PMC
orders in Europe continue to be stable, the underlying conditions
conducive to price erosion remain in place. Meanwhile, in Asia-Pacific,
which accounted for 18 percent of our total Q3 PMC sales, our plants are
now fully operational and producing high-quality products, orders are
strong, and sales in Q3 2009 were 13 percent higher than in Q3 2008.
"In our other businesses, as our confidence grows that sales have
stabilized and that we have taken the steps necessary to improve income
at fundamentally lower sales levels, we are starting to shift our focus
back to the challenge of managing growth.
"The shift is most apparent in Albany Engineered Composites. Sales have
the potential to double over Q3 levels in the next eight to ten
quarters. The largest contributors to growth in the next two years will
be production for Messier-Dowty (a part of the SAFRAN group) of the
composite braces for Boeing 787 landing gear; production for Snecma
(also part of the SAFRAN group) of composite components for the current
CFM56 engine and development of fan blades and other composite
components for Snecma for the next generation CFM LEAP-X engine; and
production for Rolls-Royce of composite components for use in the
LiftFan on the F-35 Joint Strike Fighter and in the BR725 engine. We
also continue to be optimistic about the potential for additional growth
beyond 2011, the rate of which will depend on continuing ramp-up of
these programs, coupled with how successful we are in converting current
development projects into commercial production.
"The short-term outlook for Albany Door Systems is for a much
smaller-than-normal seasonal upturn in Q4. In 2010, sales should
gradually improve when and as North American and European GNP and
capital spending increase. Earnings should grow faster than sales in
2010, as cost-reduction measures take full effect. Also in 2010, we
expect to resume our efforts to accelerate growth in Doors by expanding
our product offerings, opening new sales and service networks in Europe,
and ramping up a new production facility and establishing a sales and
distribution network in China.
"Recovery in Engineered Fabrics will depend on market segment. In
nonwovens, the largest product line in this segment, we now expect a
V-shaped recovery, with sales returning to their pre-recession levels
during the next twelve to eighteen months. In the fiber prep and
corrugator product lines, which are tightly tied to the paper industry,
we expect slower recovery, with any improvements in sales driven more by
share gain than by market growth. In the building products and fiber
cement product lines, we expect L-shaped recoveries until we see
sustained growth in commercial and residential construction. By far the
most important growth markets for Engineered Fabrics are in Asia, where
to date, we do not have a significant presence. In 2010, we plan to
launch a concerted effort to grow EF in Asia.
"As for the outlook for PrimaLoft, this is a seasonal business, both in
the sense that the sales cycle is much stronger in the first half of the
year than the second, and in the sense that the strength of its sales
cycle depends on the severity of each winter, which drives outerwear
retail sales. We expect a weak fourth quarter; but given a normal winter
in North America and Europe, and an improved macro-economic environment,
2010 sales and earnings could return to close to their 2008 levels.
"In sum, Q3 2009 marks a turning point for Albany International. Sales
have stabilized, EBITDA and cash flow are recovering, and the three-year
restructuring program is nearly complete.
