Albany International Corp. (NYSE:AIN) reported fourth-quarter net income per share of $0.18 after reductions of $0.19 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 $0.09 per share. A change in the income tax rate decreased earnings per share by $0.07, while discrete tax items decreased earnings per share by $0.17. The net effect of these items was to reduce net income by $0.34 per share (see non-GAAP disclosure below in Table 5).

For the fourth quarter of 2008, net loss per share was $2.73, after a reduction of $2.18 from a goodwill impairment charge and additional reductions that totaled $0.98 from net restructuring charges, idle-capacity costs related to restructuring, and costs related to performance-improvement initiatives. Other items, including a loss on sale of discontinued operations, a gain from the sale of a building, and income tax adjustments, had the effect of increasing earnings per share by $0.16. The net effect of all such items was to reduce net income by $3.00 per share (see non-GAAP disclosure below in Table 6). The Q4 2008 loss also included a charge of $0.22 per share related to the Eclipse Aviation bankruptcy.

Net sales for Q4 2009 were $231.4 million, an increase of 6.2 percent compared to the third quarter of 2009, and a decrease of 7.2 percent compared to the fourth quarter of 2008. Excluding the effect of changes in currency translation rates, net sales in the fourth quarter of 2009 decreased 12.5 percent as compared to Q4 2008, as shown below:

Table 1

 Exception caught in main. 

Gross profit was 35.0 percent of net sales in the fourth quarter of 2009, compared to 30.0 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 $8.0 million in Q4 2009 and $8.7 million in Q4 2008. Cost of goods sold for the fourth quarter of 2008 also included a charge of $3.2 million for the write-off of inventory and equipment related to Eclipse Aviation.

Selling, technical, general, and research (STG&R) expenses were $66.6 million, or 28.8 percent of net sales, in the fourth quarter of 2009. Q4 2009 STG&R included expenses of $1.5 million from the revaluation of non-functional currency assets and liabilities and $1.1 million related to performance-improvement initiatives. Compared to the fourth quarter of 2008, changes in currency translation rates had the effect of increasing STG&R by $4.4 million.

STG&R expenses were $70.4 million in the fourth quarter of 2008, or 28.2 percent of net sales, including provisions totaling $13.5 million for bad debts, and $2.7 million related to performance-improvement initiatives, which were partially offset by a gain of $5.2 million from the revaluation of non-functional currency assets and liabilities, a gain of $2.2 million related to a building sale, and a $2.8 million reduction in incentive compensation expense reflecting changes to the Company’s share price.

Operating income was $16.5 million in the fourth quarter of 2009, compared to a loss of $92.7 million for the same period of 2008.

The following table presents fourth-quarter segment operating income:

Table 2

 Exception caught in main. 

Fourth-quarter segment operating income included the following expenses associated with restructuring and performance-improvement initiatives:

Table 3

 Exception caught in main. 

Q4 2009 restructuring and other costs, net, was a $2.1 million reduction of expense, including $8.9 million of restructuring-related benefit plan gains. Q4 2009 net restructuring costs also included $5.0 million for severance and other employee-related costs and $1.8 million to write down property, plant, and equipment related to previously announced plant closures.

Q4 2009 performance-improvement and idle-capacity expenses of $9.1 million included $8.0 million of expenses reported in cost of goods sold and $1.1 million in STG&R expenses. Charges to cost of goods sold included $4.0 million for equipment relocation. Performance-improvement costs reported as STG&R expenses were related to the ongoing implementation of SAP. Q4 2009 idle-capacity costs included $0.2 million of depreciation expense.

Q4 2008 costs for restructuring and performance-improvement initiatives amounted to $36.2 million, of which $24.8 million was reported as restructuring, $8.7 million was included in cost of goods sold, and $2.7 million was included in STG&R expenses.

Q4 2009 other income/expense, net, was income of $4.8 million, including a $4.6 million ($0.09 per share) gain on extinguishment of debt, and income of $1.6 million related to revaluation of non-functional currency intercompany balances. Other income/expense, net, in Q4 2008 was income of $0.8 million, including income of $0.2 million related to revaluation of non-functional currency intercompany balances.

Adjusted EBITDA was $40.9 million in the fourth quarter of 2009, compared to $34.1 million in the third quarter of 2009 and $31.3 million in the fourth quarter of 2008 (see non-GAAP disclosure below in Table 4). Write-offs related to Eclipse Aviation reduced Adjusted EBITDA in Q4 2008 by $10.6 million. The improvement compared to Q3 2009 reflects higher sales and the positive impact of the Company’s restructuring and performance-improvement program.

Fourth-quarter 2009 income tax expense includes expense of $1.8 million related to the gain on extinguishment of debt. Additionally, Q4 2009 includes $5.3 million of expense for discrete tax adjustments, and $2.1 million of expense related to a change in the income tax rate that results from variations in the estimated amount and geographical distribution of income and loss.

Fourth-quarter 2008 income tax expense reflected a benefit of $7.1 million that resulted from a change in the estimated income tax rate, which was partially offset by discrete tax adjustments that reduced earnings by $2.9 million.

Net cash from operating activities was ($5.8) million in the fourth quarter of 2009, compared to $23.0 million in the third quarter of 2009, and $52.2 million for the fourth quarter of 2008. Net cash from operating activities in the fourth quarter of 2009 includes payments of approximately $27 million for severance and other restructuring-related costs and a $15 million tax payment related to an ongoing appeal in Germany.

Capital spending was $5.1 million for the fourth quarter of 2009, and $38.3 million for the full year. Depreciation and amortization were $15.3 million and $2.1 million for the fourth quarter of 2009 and $60.3 million and $8.6 million for the full year 2009.

CEO Comments

President and CEO Joe Morone said, “In Q4 2009, sales grew 6 percent compared to Q3, the first significant sequential quarter growth since Q2 2008. The growth was led by Asia and South America PMC, which grew 23 and 25 percent respectively, and by Albany Door Systems (ADS), which grew 20 percent. Q4 Adjusted EBITDA grew to $41 million, compared to $34 million in Q3.

“In our Q3 earnings release, we reported that most of the cost reductions associated with the restructuring of the past three years had already flowed through earnings. The improvement in Q4 Adjusted EBITDA reflects the impact of higher sales flowing through the now fundamentally lower cost structure.

“The obvious question for investors is whether this level of performance is sustainable in the near term. As we reported last quarter, we expect our pension costs to rise by $2 million per quarter in 2010. And in Albany Engineered Composites (AEC), to keep up with the accelerating, steep scale-up of the business, we expect STG&R expenses to increase by $1.5 million per quarter. As we also reported last quarter, we expect some residual restructuring-related expenses to continue into 2010: roughly $3 million in equipment relocation over the course of the first half of 2010, and $1 million per quarter in SAP implementation costs, which will extend through the first quarter of 2011.

“The short-term outlook for sales is complicated by seasonal fluctuations, which had a significant impact on Q4 results. The 20 percent increase in ADS sales accounted for nearly half of our consolidated sales growth for the quarter. The surge appears to have been driven by normal end-of-year seasonal effects. We therefore expect ADS sales in the first half of 2010 to fall back to Q3 levels, and to grow above these levels only when European, and especially German, GNP begins to recover.

“Seasonal effects have always had an impact on revenue in PMC. While the Q4 seasonal slowdown was not as pronounced as it has been in the past, we expect the slowdown in shipments at the end of the year to lead to a sluggish start to Q1. Moreover, as China accounts for an increasingly large fraction of global PMC sales, the seasonal impact of the slowdown in production associated with the Chinese New Year will also increase.

“But apart from such seasonal fluctuations, sales and order trends in Q4 suggest that our markets are stabilizing, and that the residual risk of another step-down in sales, which we had expressed concern about in previous quarters, is diminishing.

“We saw similar patterns in Q4 sales and orders in our other businesses. Markets appear to have stabilized, the effects of recession are receding, and most of the remaining uncertainty in the short-term outlook is about the pace and shape of recovery. AEC and PrimaLoft