SEC Filing | Albany International Corp

- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1998 OR / / 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: 0-16214 ------------------------ ALBANY INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 14-0462060 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1373 BROADWAY, 12204 ALBANY, NEW YORK (Zip Code) (Address of principal executive offices) 518-445-2200 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered CLASS A COMMON STOCK ($0.001 PAR VALUE) NEW YORK STOCK EXCHANGE AND PACIFIC STOCK EXCHANGE ------------------------ Securities registered pursuant to Section 12(g) of the Act: NONE (Title of Class) ------------------------ 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. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of Class A Common Stock held on February 18, 1999 by non-affiliates of the registrant was $474,279,536. The registrant had 23,856,160 shares of Class A Common Stock and 5,785,282 shares of Class B Common Stock outstanding as of February 18, 1999. DOCUMENTS INCORPORATED BY REFERENCE PART Registrant's Annual Report to Shareholders for the year ended December 31, 1998. II Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 1999. III - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

PART I ITEM 1. BUSINESS Albany International Corp. ("the Company") designs, manufactures and markets paper machine clothing for each section of the paper machine. It manufactures and sells more paper machine clothing worldwide than any other company. Paper machine clothing consists of large continuous belts of custom designed and custom manufactured, engineered fabrics that are installed on paper machines and carry the paper stock through each stage of the paper production process. Paper machine clothing is a consumable product of technologically sophisticated design that is made with synthetic monofilament and fiber materials. 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. The Registrant produces a substantial portion of its monofilament requirements. Practically all press fabrics are woven tubular or endless from monofilament yarns. After weaving, the base press fabric goes to a needling operation where a thick fiber layer, called a batt, is laid on the base just before passing through the needling machine. The needles are equipped with tiny barbs that grab batt fibers locking them into the body of the fabric. After needling, the fabrics are usually washed, and water is removed. The fabric then is heat set, treatments may be applied, and it is measured and trimmed. The Registrant's manufacturing process is similar for forming fabrics and drying fabrics, except that there is normally no needling operation in the construction of those fabrics. Monofilament screens are woven on a loom. The fabrics are seamed to produce an endless loop, and heat stabilized by running them around two large cylinders under heat and drawn out by tension. After heat setting, the fabrics are seamed and boxed. In addition to paper machine clothing, the Registrant manufactures other engineered fabrics which include fabrics for the non-woven industry, corrugator belts, filtration media and high performance industrial doors. The Nomafa Door Division, a manufacturer of Rapid Roll Doors-Registered Trademark-, is the operation of the Company which developed high speed, high performance industrial doors, which grew from the application of the Company's coated fabric technology to its woven fabrics. Since the inception of Rapid Roll Doors in the early 1980's, manufacturing operations in North America and Europe have supplied over 100,000 installations worldwide. In November 1996, the Registrant acquired Schieffer Door Systems, a manufacturer of high-speed, high-performance industrial doors. Also, in 1998, the Registrant acquired Burwell Door Systems in Australia and M&I Door Systems in Canada. Schieffer's technology and leadership position in Germany, and the 1998 acquisitions, have significantly enhanced the Registrant's industrial door operations. INDUSTRY FACTORS There are approximately 1,200 paper machines in the United States located in approximately 600 paper mills. It is estimated that, excluding China, there are about 7,200 paper machines in the world and approximately 1,500, mostly very small, paper machines in China. Demand for paper machine clothing is tied to the volume of paper production, which in turn reflects economic growth. According to published data, world production volumes have grown at an annual rate in excess of 3% over the last ten years. The Registrant anticipates continued growth for the long-term in world paper production. The profitability of the paper machine clothing business has generally been less cyclical than the profitability of the papermaking industry. Because the paper industry has been characterized by an evolving but essentially stable manufacturing technology based on the wet forming papermaking process, which requires a very large capital investment, the Registrant does not believe that a commercially feasible substitute technology that does not employ paper machine clothing is likely to be developed and incorporated into the paper 2

production process by paper manufacturers in the foreseeable future. Accordingly, the prospects for continued growth of industry demand for paper machine clothing appear excellent. Over the last few years, paper manufacturers have generally reduced the number of suppliers of paper machine clothing per machine position. This trend has increased opportunities for market leaders, including the Registrant, to expand their market share. INTERNATIONAL OPERATIONS The Registrant maintains wholly-owned manufacturing facilities in Australia, Brazil, Canada, China, Finland, France, Germany, Great Britain, The Netherlands, Mexico, South Korea, Sweden and the United States. The Registrant has a 50% interest in two related entities in South Africa and one entity in Russia which are engaged primarily in the engineered fabrics business. The Registrant also has a 50% interest in an entity in England which is engaged in the high performance industrial door business (see Note 1 of Notes to Consolidated Financial Statements). The Registrant's geographically diversified operations allow it to serve the world's paper markets more efficiently and to provide superior technical service to its customers. The Registrant benefits from the transfer of research and development product innovations between geographic regions. The worldwide scope of the Registrant's manufacturing and marketing efforts also limits the impact on the Registrant of economic downturns that are limited to a geographic region. The Registrant's widespread presence subjects it to certain risks, including controls on foreign exchange and the repatriation of funds. However, the Registrant has been able to repatriate earnings in excess of working capital requirements from each of the countries in which it operates without substantial governmental restrictions and does not foresee any material changes in its ability to continue to do so in the future. In addition, the Registrant believes that the risks associated with its operations and locations outside the United States are those normally associated with doing business in these locations. MARKETING, CUSTOMERS AND BACKLOG Paper machine clothing is custom designed for each user depending upon the type, size and speed of the papermaking machine, the machine section, the grade of paper being produced, and the quality of the pulp stock used. Technical expertise, judgment and experience are critical in designing the appropriate clothing for each position on the machine. As a result, the Registrant employs highly skilled sales and technical service personnel in 25 countries who work directly with paper mill operating management. The Registrant's technical service program in the United States gives its service engineers field access to the measurement and analysis equipment needed for troubleshooting and application engineering. Sales, service and technical expenses are major cost components of the Registrant. The Registrant employs approximately 1,000 people in the sales and technical functions combined, many of whom have engineering degrees or paper mill experience. The Registrant's market leadership position reflects the Company's commitment to technological innovation. Typically, the Registrant experiences its highest quarterly sales levels in the fourth quarter of each fiscal year and its lowest levels in the first quarter. The Registrant believes that this pattern only partially reflects seasonal shifts in demand for its products but is more directly related to purchasing policies of the Registrant's customers. Payment terms granted to customers reflect general competitive practices. Terms vary with product and competitive conditions, but generally require payment within 30 to 90 days, depending on the country of operation. Historically, bad debts have been insignificant. No single customer, or group of related customers, accounted for more than 5% of the Registrant's sales of paper machine clothing in 3

any of the past three years. Management does not believe that the loss of any one customer would have a material adverse effect on the Registrant's business. The Registrant's order backlogs at December 31, 1998 and 1997 were approximately $474 million and $468 million, respectively. Orders recorded at December 31, 1998 are expected to be invoiced during the next 12 months. RESEARCH AND DEVELOPMENT The Registrant invests heavily in research, new product development and technical analysis to maintain its leadership in the paper machine clothing industry. The Registrant's expenditures fall into two primary categories, research and development and technical expenditures. Research and development expenses totaled $23.7 million in 1998, $23.1 million in 1997, and $21.9 million in 1996. While most research activity supports existing products, the Registrant engages in research for new products. New product research has focused primarily on more sophisticated paper machine clothing and has resulted in a stream of products such as DUOTEX-Registered Trademark- and TRIOTEX-TM-forming fabrics, PRINTEX-TM- forming fabrics, DURAFORM -Registered Trademark- SR, an enhanced single-layer forming fabric, SEAMTECH-TM-, the patented on-machine-seamed press fabric, DYNATEX-TM-, a unique multi-layer press fabric, long nip press belts which are essential to water removal in the press section and Thermonetics-TM-, BEL-PLANE -Registered Trademark-, AEROLINE-TM- and AEROGRIP-TM- which are dryer fabrics. Technical expenditures totaled $26.3 million in 1998, $26.9 million in 1997 and $26.8 million in 1996. Technical expenditures are focused on design, quality assurance and customer support. Although the Registrant has focused most of its research and development efforts on paper machine clothing products and design, the Registrant also has made progress in developing non-paper machine clothing products. Through its major research facility in Mansfield, Massachusetts, the Registrant conducts research under contract for the U.S. government and major corporations. In addition to its Mansfield facility, the Registrant has four other research and development centers located at manufacturing locations in Halmstad, Sweden; Selestat, France; Albany, New York; and Menasha, Wisconsin. The Registrant holds a number of patents, trademarks and licenses, none of which are material to the continuation of the Registrant's business. The Registrant has licensed some of its patents to one or more competitors, mainly to enhance customer acceptance of the new products. The revenue from such licenses is less than 1% of consolidated net sales. RAW MATERIALS AND INVENTORY Primary raw materials for the Registrant's products are synthetic fibers, which are generally available from a number of suppliers. The Registrant, therefore, is not required to maintain raw materials inventories in excess of its current needs to assure availability. In addition, the Registrant manufactures monofilament, a basic raw material for all types of paper machine clothing, at its facility in Homer, New York, which supplies approximately 40% of its world-wide monofilament requirements. This manufacturing capability assists the Registrant in its negotiations with monofilament producers for the balance of its supply requirements, and enhances the ability of the Registrant to develop proprietary products. COMPETITION While there are more than 50 paper machine clothing suppliers worldwide, only six major paper machine clothing companies compete on a global basis. Market shares vary depending on the country and the type of paper machine clothing produced. In the paper machine clothing market, the Registrant believes that it has a market share of approximately 29% in the United States and Canadian markets, taken together, 20% in the rest of the world and approximately 23% in the world overall. 4

Together, the United States and Canada constitute approximately 36% of the total world market for paper machine clothing. Competition is intense in all areas of the Registrant's business. While price competition is, of course, a factor, the primary bases for competition are the performance characteristics of the Registrant's products, which are principally technology-driven, and the quality of customer service. The Registrant, like its competitors, provides diverse services to customers through its sales and technical service personnel including: (1) consulting on performance of the paper machine; (2) consulting on paper machine configurations, both new and rebuilt; (3) selection and custom manufacture of the appropriate paper machine clothing; and (4) storing fabrics for delivery to the user. EMPLOYEES The Registrant employs 6,011 persons, of whom approximately 75% are engaged in manufacturing the Registrant's products. Wages and benefits are competitive with those of other manufacturers in the geographic areas in which the Registrant's facilities are located. The Registrant considers its relations with its employees in general to be excellent. EXECUTIVE OFFICERS OF REGISTRANT The following table sets forth certain information with respect to the executive officers of the Registrant: NAME AGE POSITION - ---------------------------------- --- --------------------------------------------------------------------- Francis L. McKone 64 Chairman of the Board, CEO and Director Frank R. Schmeler 59 President, COO and Director Edward Walther 55 Executive Vice President Michael C. Nahl 56 Senior Vice President and Chief Financial Officer Michel J. Bacon 49 Senior Vice President--Canada, Pacific and Latin America William M. McCarthy 48 Senior Vice President--Europe Thomas H. Hagoort 66 General Counsel and Secretary Richard A. Carlstrom 55 Vice President--Controller William H. Dutt 63 Vice President--Chief Technical Officer Edward R. Hahn 54 Vice President--Research and Development Hugh A. McGlinchey 59 Vice President--Information Systems Kenneth C. Pulver 55 Vice President--Corporate Communications John C. Treanor 60 Treasurer Charles J. Silva, Jr. 39 Assistant General Counsel and Assistant Secretary FRANCIS L. MCKONE joined the Registrant in 1964. He has served the Registrant as Chairman of the Board and Chief Executive Officer since 1998, Chief Executive Officer since 1993, President since 1984, Executive Vice President from 1983 to 1984, Group Vice President-Papermaking Products Group from 1979 to 1983, and prior to 1979 as a Vice President of the Registrant and Division President-Papermaking Products U.S. He has been a Director of the Registrant since 1983. He is a Director of Albank, FSB and Thermo Fibergen, Inc. 5

FRANK R. SCHMELER joined the Registrant in 1964. He has served the Registrant as President and Chief Operating Officer since 1998, Executive Vice President and Chief Operating Officer since 1997 and as Senior Vice President from 1988 to 1997, as Vice President and General Manager of the Felt Division from 1984 to 1988, as Division Vice President and General Manager, Albany International Canada from 1978 to 1984 and as Vice President of Marketing, Albany International Canada from 1976 to 1978. He has been a Director of the Registrant since 1997. EDWARD WALTHER joined the Registrant in 1994. He has served the Registrant as Executive Vice President since 1997 and as Senior Vice President from 1995 to 1997 and as Vice President and General Manager--Continental Europe since 1994. Prior to joining the Registrant, he held various marketing and managerial positions with a company in the paper machine clothing business. MICHAEL C. NAHL joined the Registrant in 1981. He has served the Registrant as Senior Vice President and Chief Financial Officer since 1983 and prior to 1983 as Group Vice President. From 1965 to 1979 he served in marketing, financial, logistical, analytical and management positions for the Exxon Corporation and from 1979 to 1981 he was with General Refractories Corporation as Director of Strategic Planning, Vice President and Chief Financial Officer. He is a Director of UCAR International Inc. MICHEL J. BACON joined the Registrant in 1978. He has served the Registrant as Senior Vice President since 1996 and as Vice President and General Manager of Albany International Canada from 1991 to 1996, as Vice President of Operations, Albany International Canada Press Division from 1989 to 1991 and as Vice President of Marketing, Albany International Canada from 1987 to 1989. WILLIAM M. MCCARTHY joined the Registrant in 1977. He has served the Registrant as Senior Vice President since 1997 and since 1991 has held various positions for Press Fabrics U.S. including Vice President and General Manager, Vice President-Marketing and Technical Director. From 1988 to 1991 he was Technical Director for Continental Europe-Press Fabrics. THOMAS H. HAGOORT joined the Registrant in 1991. He has served the Registrant as General Counsel and Secretary since 1997 and as General Counsel from 1991 to 1997. From 1968 until December 31, 1990 he was a partner in Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in New York City, to which he became of counsel on January 1, 1991. RICHARD A. CARLSTROM joined the Registrant in 1972. He has served the Registrant as Vice President-Controller since 1993, as Controller since 1980, as Controller of a U.S. division from 1975 to 1980, and prior to 1975 as Financial Controller of Albany International Pty. in Australia. WILLIAM H. DUTT joined the Registrant in 1958. He has served the Registrant since 1983 as Vice President-Chief Technical Officer, and prior to 1983 he served in various technical, engineering, and research capacities including Director of Research and Development and Vice President-Operations for Albany Felt. EDWARD R. HAHN joined the Registrant in 1971. He has served the Registrant since 1995 as Vice President-Research and Development and Executive Director of Albany International Research Company, as Vice President and General Manager of Press Fabrics U.S. from 1990 to 1995, as Vice President of Euroscan Press and Dryer Divisions from 1987 to 1990 and as Vice President of Operations for Nordiskafilt from 1986 to 1987. HUGH A. MCGLINCHEY joined the Registrant in 1991. He has served the Registrant as Vice President-Information Systems since 1993 and from 1991 to 1993 as Director-Information Systems. Prior to 1991 he served as Director-Corporate Information and Communications Systems for Avery Dennison Corporation. 6

KENNETH C. PULVER joined the Registrant in 1968. He has served the Registrant as Vice President-Corporate Communications since 1997 and as Vice President of Operations for Primaloft from 1992 to 1997. From 1984 to 1992 he served in various marketing positions with Albany Engineered Systems. JOHN C. TREANOR joined the Registrant in 1970. He has served the Registrant as Treasurer since 1997, as Controller of Albany International Europe from 1992 to 1997 and as Controller of Albany International Canada from 1985 to 1992. CHARLES J. SILVA, JR. joined the Registrant in 1994. He has served the Registrant as Assistant General Counsel and Assistant Secretary since 1996 and as Assistant General Counsel from 1994 to 1996. Prior to 1994, he was an associate in Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in New York City. The Registrant believes it is in compliance with all Federal, State and local provisions which have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, and does not have knowledge of environmental regulations which do or might have a material effect on future capital expenditures, earnings, or competitive position. The Registrant is incorporated under the laws of the State of Delaware and is the successor to a New York corporation which was originally incorporated in 1895 and which was merged into the Registrant in August 1987 solely for the purpose of changing the domicile of the corporation. Upon such merger, each outstanding share of Class B Common Stock of the predecessor New York corporation was changed into one share of Class B Common Stock of the Registrant. References to the Registrant that relate to any time prior to the August 1987 merger should be understood to refer to the predecessor New York corporation. ITEM 2. PROPERTIES The Registrant's principal manufacturing facilities are located in the United States, Canada, Europe, Brazil, Mexico, Australia, South Korea and China. The aggregate square footage of the Registrant's facilities in the United States and Canada is approximately 2,558,000, of which 2,361,000 square feet are owned and 197,000 square feet are leased. The Registrant's facilities located outside the United States and Canada comprise approximately 2,725,000 square feet, of which 2,504,000 square feet are owned and 221,000 square feet are leased. The Registrant considers these facilities to be in good condition and suitable for their purpose. The capacity associated with these facilities is adequate to meet production levels required and anticipated through 1999. The Registrant's expected 1999 capital expenditures, including leases, of about $45 million will provide sufficient capacity for anticipated growth. The Registrant believes it has modern, efficient production equipment. In the last five years, it has spent $221 million on new plants and equipment or upgrading existing facilities. ITEM 3. LEGAL PROCEEDINGS The Registrant is a defendant in two actions in state court in Louisiana, seeking damages from the Registrant and numerous other defendants for injuries allegedly suffered by hundreds of employees at two former Crown-Zellerbach paper mills in Bogalusa and St. Francisville, Louisiana, due to exposure to asbestos. Liberty Mutual, the underwriter of insurance coverage applicable to these claims, is defending these matters on the Registrant's behalf. The Registrant is one of a group of paper machine clothing manufacturers who at one time produced dryer felts containing asbestos. (Mount Vernon Mills, from whom the Registrant acquired the Albany Mount Vernon dryer business assets, is also named as a separate defendant.) There are currently over fifty other corporate defendants, including primary suppliers of asbestos, asbestos 7

abatement and removal companies, paper machine builders, pump manufacturers, insulation and building materials suppliers, boiler manufacturers and other suppliers of products used in these mills that are alleged to have contained asbestos. In the Bogalusa proceeding, the Registrant was initially served with a discovery request late in 1996, to which it responded initially in March 1997, and continued to respond supplementally during 1997 and 1998. Discovery of paper machine clothing dryer fabrics defendants has not yet begun in the St. Francisville proceeding. The information identified during the discovery process suggests that the Registrant's production of asbestos-containing products was limited to certain synthetic dryer fabrics produced during the period from 1964/5 to 1974/5. It is the position of the Registrant and the other paper machine clothing defendants that there was insufficient exposure to asbestos from paper machine clothing to cause asbestos-related injury in any plaintiff. Discovery by both plaintiffs and defendants in the Bogalusa proceeding was essentially completed in late 1998. The first trial, involving six plaintiffs, commenced in January 1999 and resulted in a unanimous jury verdict in favor of the defendants on all claims in early March. All claims against the Registrant in this first trial had been settled by Liberty Mutual earlier in the proceeding. Further trials have not yet been scheduled. The Registrant, in addition to being named as a direct defendant in these proceedings, was initially also named separately as the "successor-in-interest" to Mount Vernon Mills. However, the Registrant denied any liability for products sold by Mount Vernon Mills prior to the acquisition of the Mount Vernon assets, and the Registrant's motion to be dismissed as a successor to Mount Vernon was granted in the Bogalusa proceeding before the first trial. A similar motion will be filed in the St. Francisville proceeding. The Registrant believes that any judgment or settlement relating to these proceedings will be well within existing insurance coverage limits. There are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the fourth quarter of 1998 to a vote of security holders. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Stock and Shareholders" and "Quarterly Financial Data" on page 34 of the Annual Report are incorporated herein by reference. Restrictions on dividends and other distributions are described in Note 6, on pages 17 to 19 of the Annual Report. Such description is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Eleven Year Summary" on pages 32 and 33 of the Annual Report is incorporated herein by reference. 8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Review of Operations" on pages 28 to 31 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and its subsidiaries, included on pages 10 to 27 in the Annual Report, are incorporated herein by reference: Consolidated Statements of Income and Retained Earnings--years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Comprehensive Income--years ended December 31, 1998, 1997 and 1996 Consolidated Balance Sheets--December 31, 1998 and 1997 Consolidated Statements of Cash Flows--years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements Report of Independent Accountants ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a) DIRECTORS. The information set out in the section captioned "Election of Directors" of the Proxy Statement is incorporated herein by reference. b) EXECUTIVE OFFICERS OF REGISTRANT. Information about the officers of the Registrant is set forth in Item 1 above. ITEM 11. EXECUTIVE COMPENSATION The information set forth in the sections of the Proxy Statement captioned "Executive Compensation", "Summary Compensation Table", "Option/SAR Grants in Last Fiscal Year", "Option/ SAR Exercises during 1998 and Year-End Values", "Pension Plan Table", "Compensation and Stock Option Committee Report on Executive Compensation", "Compensation and Stock Option Committee Interlocks and Insider Participation", "Stock Performance Graph", and "Directors' Fees" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set out in the section captioned "Share Ownership" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 9

PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE AND REPORTS ON FORM 8-K a)(1) FINANCIAL STATEMENTS. The consolidated financial statements included in the Annual Report are incorporated by reference in Item 8. a)(2) SCHEDULE. The following consolidated financial statements schedule for each of the three years in the period ended December 31, 1998 is included pursuant to Item 14(d): Report of Independent Accountants on Financial Statements Schedule Schedule II--Valuation and Qualifying Accounts a)(3)(b) No reports on Form 8-K were filed during the quarter ended December 31, 1998. 10

(3) EXHIBITS 3(a) - Certificate of Incorporation of Registrant. (3) 3(b) - Bylaws of Registrant. (1) 4(a) - Article IV of Certificate of Incorporation of Registrant (included in Exhibit 3(a)). 4(b) - Specimen Stock Certificate for Class A Common Stock. (1) MORGAN CREDIT AGREEMENT 10(i)(i) - Amended and restated Credit Agreement, dated as of February 29, 1996, among the Registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent. (6) STOCK OPTIONS 10(m)(i) - Form of Stock Option Agreement, dated as of August 1, 1983, between the Registrant and each of five employees, together with schedule showing the names of such employees and the material differences among the Stock Option Agreements with such employees. (1) 10(m)(ii) - Form of Amendment of Stock Option Agreement, dated as of July 1, 1987, between the Registrant and each of the five employees identified in the schedule referred to as Exhibit 10(m)(i). (1) 10(m)(iii) - 1988 Stock Option Plan. (2) 10(m)(iv) - 1992 Stock Option Plan. (4) 10(m)(v) - 1997 Executive Stock Option Agreement. (7) 10(m)(vi) - 1998 Stock Option Plan. (8) EXECUTIVE COMPENSATION 10(n) - Pension Equalization Plan adopted April 16, 1986, naming two current executive officers and one former executive officer of Registrant as "Participants" thereunder. (1) 10(n)(i) - Supplemental Executive Retirement Plan. (5) 10(o)(i) - Form of Executive Deferred Compensation Plan adopted September 1, 1985, and Forms of Election Agreement. (1) 10(o)(ii) - Form of Directors' Deferred Compensation Plan adopted September 1, 1985, and Form of Election Agreement. (1) 10(o)(iii) - Executive Deferred Compensation Plan. (2) 10(o)(iv) - Directors' Deferred Compensation Plan. (2) 10(o)(v) - Deferred Compensation Plan of Albany International Corp. (6) 10(o)(vi) - Centennial Deferred Compensation Plan. (6) OTHER AGREEMENTS 11 - Schedule of Computation of Net Income Per Share and Diluted Net Income Per Share. 13 - Annual Report to Security Holders for the year ended December 31, 1998. 11

21 - Subsidiaries of Registrant. 23 - Consent of PricewaterhouseCoopers LLP. 24 - Powers of Attorney. 27 - Financial Data Schedule. All other schedules and exhibits are not required or are inapplicable and, therefore, have been omitted. - ------------------------ (1) Previously filed as an Exhibit to the Company's Registration Statement on Form S-1, No. 33-16254, as amended, declared effective by the Securities and Exchange Commission on September 30, 1987, which previously-filed Exhibit is incorporated by reference herein. (2) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated August 8, 1988, which previously-filed Exhibit is incorporated by reference herein. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form 8-A, File No. 1-10026, declared effective by the Securities and Exchange Commission on August 26, 1988 (as to The Pacific Stock Exchange, Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.), which previously-filed Exhibit is incorporated by reference herein. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 18, 1993, which previously-filed Exhibit is incorporated by reference herein. (5) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 30, 1994, which previously-filed Exhibit is incorporated by reference herein. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated March 15, 1996, which previously-filed Exhibit is incorporated by reference herein. (7) Previously filed as an Exhibit to the Registrant's Current Report on Form 10-K dated March 16, 1998, which previously-filed Exhibit is incorporated by reference herein. (8) Previously filed as an Exhibit to the Registrant's Current Report on Form 10-Q dated August 10, 1998, which previously-filed Exhibit is incorporated by reference herein. 12

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- Chairman of the Board and * Director - ------------------------------ (Chief Executive March 19, 1999 (Francis L. McKone) Officer) Senior Vice President and /s/ MICHAEL C. NAHL Chief Financial Officer - ------------------------------ (Principal Financial March 19, 1999 (Michael C. Nahl) Officer) * Vice President-Controller - ------------------------------ (Principal Accounting March 19, 1999 (Richard A. Carlstrom) Officer) * - ------------------------------ Director March 19, 1999 (Thomas R. Beecher, Jr.) * - ------------------------------ Director March 19, 1999 (Charles B. Buchanan) * - ------------------------------ Director March 19, 1999 (Erland E. Kailbourne) * - ------------------------------ Director March 19, 1999 (Dr. Joseph G. Morone) * President and Director - ------------------------------ (Chief Operating March 19, 1999 (Frank R. Schmeler) Officer) * - ------------------------------ Director March 19, 1999 (Christine L. Standish) * - ------------------------------ Director March 19, 1999 (Allan Stenshamn) * - ------------------------------ Director March 19, 1999 (Barbara P. Wright) *By: /s/ MICHAEL C. NAHL ------------------------- Michael C. Nahl ATTORNEY-IN-FACT 13

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 19th day of March, 1999. ALBANY INTERNATIONAL CORP. By: /S/ MICHAEL C. NAHL ----------------------------------------- Michael C. Nahl PRINCIPAL FINANCIAL OFFICER SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 14

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE To The Shareholders and Board of Directors Albany International Corp. Our audits of the consolidated financial statements referred to in our report dated January 28, 1999 appearing in the 1998 Annual Report to Shareholders of Albany International Corp. (which report and consolidated financial statements are incorporated by reference in this Annual Report on form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Albany, New York January 28, 1999

SCHEDULE II ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS) COLUMN B COLUMN C ----------- ----------- COLUMN E COLUMN A BALANCE AT ADDITIONS COLUMN D ------------- - --------------------------------------- BEGINNING CHARGED TO ------------- BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS(A) END OF PERIOD - --------------------------------------- ----------- ----------- ------------- ------------- Allowance for doubtful accounts Year ended December 31: 1998 $ 5,224 $ 1,312 $ 1,032 $ 5,504 1997 $ 4,962 $ 1,298 $ 1,036 $ 5,224 1996 $ 5,010 $ 1,036 $ 1,084 $ 4,962 (A) Includes accounts written off as uncollectible, recoveries and the effect of currency exchange rates.

INDEX TO EXHIBITS EXHIBITS - ----------- 3(a) -- Certificate of Incorporation of Registrant. (3) 3(b) -- Bylaws of Registrant. (1) 4(a) -- Article IV of Certificate of Incorporation of Registrant (included in Exhibit 3(a)). 4(b) -- Specimen Stock Certificate for Class A Common Stock. (1) MORGAN CREDIT AGREEMENT 10(i)(i) -- Amended and restated Credit Agreement, dated as of February 29, 1996, among the Registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent. (6) STOCK OPTIONS 10(m)(i) -- Form of Stock Option Agreement, dated as of August 1, 1983, between the Registrant and each of five employees, together with schedule showing the names of such employees and the material differences among the Stock Option Agreements with such employees. (1) 10(m)(ii) -- Form of Amendment of Stock Option Agreement, dated as of July 1, 1987, between the Registrant and each of the five employees identified in the schedule referred to as Exhibit 10(m)(i). (1) 10(m)(iii) -- 1988 Stock Option Plan. (2) 10(m)(iv) -- 1992 Stock Option Plan. (4) 10(m)(v) -- 1997 Executive Stock Option Agreement. (7) 10(m)(vi) -- 1998 Stock Option Plan. (8) EXECUTIVE COMPENSATION 10(n) -- Pension Equalization Plan adopted April 16, 1986, naming two current executive officers and one former executive officer of Registrant as "Participants" thereunder. (1) 10(n)(i) -- Supplemental Executive Retirement Plan. (5) 10(o)(i) -- Form of Executive Deferred Compensation Plan adopted September 1, 1985, and Forms of Election Agreement. (1) 10(o)(ii) -- Form of Directors' Deferred Compensation Plan adopted September 1, 1985, and Form of Election Agreement. (1) 10(o)(iii) -- Executive Deferred Compensation Plan. (2) 10(o)(iv) -- Directors' Deferred Compensation Plan. (2) 10(o)(v) -- Deferred Compensation Plan of Albany International Corp. (6) 10(o)(vi) -- Centennial Deferred Compensation Plan. (6) OTHER AGREEMENTS 11 -- Schedule of Computation of Net Income Per Share and Diluted Net Income Per Share. 13 -- Annual Report to Security Holders for the year ended December 31, 1998. 21 -- Subsidiaries of Registrant. 23 -- Consent of PricewaterhouseCoopers LLP. 24 -- Powers of Attorney. 27 -- Financial Data Schedule.

- ------------------------ (1) Previously filed as an Exhibit to the Company's Registration Statement on Form S-1, No. 33-16254, as amended, declared effective by the Securities and Exchange Commission on September 30, 1987, which previously-filed Exhibit is incorporated by reference herein. (2) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated August 8, 1988, which previously-filed Exhibit is incorporated by reference herein. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form 8-A, File No. 1-10026, declared effective by the Securities and Exchange Commission on August 26, 1988 (as to The Pacific Stock Exchange, Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.), which previously-filed Exhibit is incorporated by reference herein. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 18, 1993, which previously-filed Exhibit is incorporated by reference herein. (5) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 30, 1994, which previously-filed Exhibit is incorporated by reference herein. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated March 15, 1996, which previously-filed Exhibit is incorporated by reference herein. (7) Previously filed as an Exhibit to the Registrant's Current Report on Form 10-K dated March 16, 1998, which previously-filed Exhibit is incorporated by reference herein. (8) Previously filed as an Exhibit to the Registrant's Current Report on Form 10-Q dated August 10, 1998, which previously-filed Exhibit is incorporated by reference herein.

EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE MONTHS FOR THE YEARS ENDED DECEMBER 31, ENDED DECEMBER 31, 1998 (1) 1997 (1) 1998 (1) 1997 (1) --------------- --------------- --------------- --------------- Net (loss)/income ($945) $13,281 $31,772 $49,059 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Weighted average number of 29,597,857 31,835,440 30,464,208 31,678,217 shares Effect of potentially dilutive securities: Stock options (2) 110,988 461,893 334,128 426,445 --------------- --------------- --------------- --------------- Weighted average number shares, including the effect of 29,708,845 32,297,333 30,798,336 32,104,662 potentially dilutive securities --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Net (loss)/income per share ($0.03) $0.42 $1.04 $1.55 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Diluted net (loss)/income per share ($0.03) $0.41 $1.03 $1.53 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Calculation of Weighted Average Number of Shares (3): WEIGHTED AVERAGE SHARES ----------------------------------------------- DAYS FOR THE THREE MONTHS FOR THE YEARS SHARES ---------------------- ENDED DECEMBER 31, ENDED DECEMBER 31, ACTIVITY OUTSTANDING (1) YEAR TO DATE QUARTER 1998 1997 1998 1997 - -------------------------- --------------- ------------ ------- ---------- --------- ---------- -------- 1997 Beginning balance 31,385,434 1 85,987 Options - 200 shares 31,385,640 1 85,988 Options - 3,600 shares 31,389,348 3 257,995 Options - 10,000 shares 31,399,651 1 86,026 Options - 900 shares 31,400,578 1 86,029 Options - 5,000 shares 31,405,729 19 1,634,819 Treasury shares - 57,500 31,346,491 3 257,642 Options - 37,300 shares 31,384,918 1 85,986 ESOP shares - 12,002 31,397,283 3 258,060 Options - 20,000 shares 31,417,888 4 344,306 Options - 5,000 shares 31,423,039 5 430,453 Options - 27,000 shares 31,450,855 1 86,167 Options - 1,400 shares 31,452,297 1 86,171 Options - 28,600 shares 31,481,762 4 345,006 Options - 10,000 shares 31,492,064 10 862,796 ESOP shares - 58,773 31,552,613 31 2,679,811 ESOP shares - 12,126 31,565,106 2 172,959 Options - 1,800 shares 31,566,960 19 1,643,212 Directors shares - 2,922 31,569,971 9 778,438 ESOP shares - 12,380 31,582,725 1 86,528 Treasury shares - 4,400 31,578,192 30 2,595,468 ESOP shares - 12,193 31,590,753 9 778,950 Options - 2,500 shares 31,593,329 3 259,671 Options - 17,900 shares 31,611,770 1 86,608 Options - 10,200 shares 31,622,278 5 433,182 Options - 8,700 shares 31,631,241 1 86,661 Options - 19,200 shares 31,651,022 6 520,291 Options - 5,000 shares 31,656,173 1 86,729 Options - 14,000 shares 31,670,596 4 347,075 ESOP shares - 11,243 31,682,179 22 1,909,611 Options - 5,100 shares 31,687,433 2 173,630 Options - 22,000 shares 31,710,098 1 86,877 Options - 60,000 shares 31,771,911 6 522,278 Options - 26,800 shares and ESOP shares - 10,555 31,810,395 1 87,152 Options - 600 shares 31,811,013 4 348,614

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) Options - 16,800 shares 31,828,321 1 87,201 Options - 1,000 shares 31,829,352 1 87,204 Options - 1,000 shares 31,830,382 1 87,207 Options - 12,500 shares 31,843,260 4 348,967 Options - 2,500 shares 31,845,835 2 174,498 Options - 500 shares 31,846,350 4 349,001 Options - 1,800 shares 31,848,205 1 87,255 Options - 800 shares 31,849,029 1 87,258 Options - 3,400 shares 31,852,532 2 174,534 Options - 1,800 shares 31,854,386 3 261,817 Options - 4,300 shares 31,858,816 1 87,284 Options - 1,800 shares 31,860,670 5 436,448 ESOP shares - 9,406 31,870,361 2 174,632 Options - 1,000 shares 31,871,391 1 87,319 Options - 600 shares 31,872,009 1 87,321 Options - 1,000 shares 31,873,039 1 87,323 Options - 4,400 shares 31,877,572 6 524,015 Options - 1,000 shares 31,878,602 1 87,339 Options - 8,300 shares 31,887,153 3 262,086 Options - 5,300 shares 31,892,614 15 1,310,655 ESOP shares - 10,061 31,902,979 17 16 5,548,344 1,485,892 Options - 2,400 shares 31,905,451 14 14 4,855,177 1,223,771 ESOP shares - 11,876 31,917,686 13 13 4,510,108 1,136,794 Treasury shares - 20,000 31,897,082 6 6 2,080,244 524,336 Treasury shares - 27,200 31,869,059 5 5 1,732,014 436,562 Treasury shares - 35,600 31,832,383 1 1 346,004 87,212 Treasury shares - 40,000 31,791,174 5 5 1,727,781 435,496 ESOP shares - 10,752 31,802,251 10 10 3,456,766 871,295 Treasury shares - 50,000 31,750,740 7 7 2,415,817 608,918 Options - 2,500 shares 31,753,316 2 2 690,289 173,991 Treasury shares and options - 26,600 shares 31,725,912 3 3 1,034,541 260,761 Treasury shares and options - 46,500 shares 31,678,006 1 1 344,326 86,789 Treasury shares - 49,000 31,627,525 1 1 343,777 86,651 Treasury shares - 1,000 31,626,495 2 2 687,532 173,296 Treasury shares - 200 31,626,289 5 5 1,718,820 433,237 ESOP shares - 11,882 31,638,530 1 1 343,897 86,681 ---------- ---------- Totals 31,835,440 31,678,217 ---------- ---------- ---------- ---------- 1998 Beginning balance 31,638,530 8 693,447 Treasury shares - 5,000 31,633,379 6 520,001 Options - 2,500 shares 31,635,954 1 86,674 Treasury shares - 411,100 31,212,429 7 598,595 Treasury shares - 400,000 30,800,339 7 590,691 Treasury shares - 13.700 30,786,224 1 84,346 ESOP shares - 12,783 30,799,394 25 2,109,548 Treasury shares - 26,000 30,772,608 3 252,926 ESOP shares - 41,378 30,815,237 13 1,097,529 Options - 600 shares 30,815,855 5 422,135 Options - 20,000 shares 30,836,459 9 760,351 Options - 8,000 shares 30,844,701 4 338,024 Options - 9,500 shares and ESOP shares - 10,011 30,864,802 2 169,122 Options - 4,400 shares 30,869,335 1 84,574 Options - 8,000 shares 30,877,577 3 253,788 Options - 16,600 shares 30,894,678 15 1,269,644 Options - 1,600 shares 30,896,327 3 253,942 Options - 5,400 shares 30,901,890 4 338,651 Options - 1,500 shares 30,903,435 2 169,334 ESOP shares - 10,443 30,914,194 1 84,696

Options - 500 shares 30,914,709 10 846,978 Options - 7,400 shares 30,922,333 4 338,875 Directors shares - 2,004 30,924,397 4 338,898 Options - 600 shares 30,925,015 1 84,726 Options - 3,000 shares 30,928,106 2 169,469 Options - 1,200 shares 30,929,342 5 423,690 Options - 600 shares 30,929,961 4 338,958 ESOP shares - 9,096 30,939,331 3 254,296 Options - 10,000 shares 30,949,634 2 169,587 Options - 10,000 shares 30,959,936 3 254,465 Options - 2,500 shares 30,962,512 1 84,829 Options - 500 shares 30,963,027 9 763,472 Options - 3,000 shares 30,966,117 1 84,839 Treasury shares - 6,900 30,959,009 3 254,458 Options - 550 shares 30,959,575 3 254,462 Treasury shares - 120,000 30,835,948 5 422,410 ESOP shares - 11,371 30,848,049 22 1,859,334 Treasury shares - 72,200 30,774,037 1 84,312 Treasury shares - 33,700 30,739,491 1 84,218 Treasury shares - 50,000 30,688,236 7 588,542 ESOP shares - 13,945 30,702,531 4 336,466 Treasury shares - 52,000 30,649,226 3 251,911 Treasury shares - 64,800 30,582,800 4 335,154 Treasury shares - 7,800 30,574,804 2 167,533 Treasury shares - 63,700 30,509,505 4 334,351 Treasury shares - 16,800 30,492,283 2 167,081 Treasury shares - 60,000 30,430,777 1 83,372 Treasury shares - 14,400 30,416,016 1 83,332 Treasury shares - 50,000 30,364,761 5 415,956 Treasury shares - 40,100 30,323,654 1 83,079 Treasury shares - 5,000 30,318,529 4 332,258 ESOP shares - 13,856 30,332,733 2 166,207 Treasury shares - 36,000 30,295,829 1 83,002 Treasury shares - 152,000 30,140,014 1 82,575 Treasury shares - 200,000 29,934,994 5 410,068 Treasury shares - 100,000 29,832,484 1 81,733 Treasury shares - 15,000 29,817,107 5 408,454 Treasury shares - 35,000 29,781,229 1 81,592 Treasury shares - 44,900 29,735,202 9 733,197 Treasury shares - 63,600 29,670,005 5 406,438 ESOP shares - 14,678 29,686,322 1 81,332 Treasury shares - 102,500 29,581,772 30 30 9,646,230 2,431,378 ESOP shares - 16,039 29,598,132 30 30 9,651,565 2,432,723 ESOP shares - 13,789 29,612,196 31 31 9,978,023 2,515,008 ESOP shares - 15,612 29,627,670 1 1 322,040 81,172 ---------- ---------- Totals 29,597,857 30,464,208 ---------- ---------- ---------- ---------- (1) Includes Class A and Class B Common Stock (2) Incremental shares of unexercised options are calculated based on the average price of the Company's stock for the respective period. The calculation includes all options that are dilutive to earnings per share. (3) Weighted average number of shares have been retroactively restated to reflect the stock dividends issued on July 3, 1998 (0.5%), October 5, 1998 (0.5%) and January 6, 1999 (2.0%). Each change in the total share balance is comprised of the transaction noted plus the retroactive effect of the stock dividends.

EXHIBIT 13 1998 ANNUAL REPORT

REPORT OF MANAGEMENT Management of Albany International Corp. is responsible for the integrity and objectivity of the accompanying financial statements and related information. These statements have been prepared in conformity with generally accepted accounting principles, and include amounts that are based on our best judgments with due consideration given to materiality. Management maintains a system of internal accounting controls designed to provide reasonable assurance, at reasonable cost, that assets are safeguarded and that transactions and events are recorded properly. A program of internal audits and management reviews provides a monitoring process that allows the Company to be reasonably sure the system of internal accounting controls operates effectively. The financial statements have been audited by PricewaterhouseCoopers LLP, independent accountants. Their role is to express an opinion as to whether management's financial statements present fairly, in accordance with generally accepted accounting principles, the Company's financial condition and operating results. Their opinion is based on procedures which include reviewing and evaluating certain aspects of selected systems, procedures and internal accounting controls, and conducting such tests as they deem necessary. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent accountants, management and internal audit to review their work and confirm that they are properly discharging their responsibilities. In addition, the independent accountants are free to meet with the Audit Committee without the presence of management to discuss results of their work and observations on the adequacy of internal financial controls, the quality of financial reporting and other relevant matters. /s/ Francis L. McKone - -------------------------- Francis L. McKone CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER /s/ Frank R. Schmeler - -------------------------- Frank R. Schmeler PRESIDENT AND CHIEF OPERATING OFFICER /s/ Michael C. Nahl - -------------------------- Michael C. Nahl SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALBANY INTERNATIONAL CORP. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and retained earnings, comprehensive income and cash flows present fairly, in all material respects, the financial position of Albany International Corp. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Albany, New York January 28, 1999 10

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS ALBANY INTERNATIONAL CORP. FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF INCOME Net sales $ 722,653 $ 710,079 $ 692,760 Cost of goods sold 417,375 404,982 399,311 - ------------------------------------------------------------------------------------- Gross profit 305,278 305,097 293,449 Selling and general expenses 164,481 155,515 147,929 Technical and research expenses 49,998 49,963 48,735 Restructuring of operations and termination benefits 20,191 -- -- - ------------------------------------------------------------------------------------- Operating income 70,608 99,619 96,785 Interest income (598) (646) (1,180) Interest expense 19,908 16,113 17,013 Other (income)/expense, net (406) 4,521 12 - ------------------------------------------------------------------------------------- Income before income taxes 51,704 79,631 80,940 Income taxes 20,163 31,055 31,570 - ------------------------------------------------------------------------------------- Income before associated companies 31,541 48,576 49,370 Equity in earnings of associated companies 231 483 232 - ------------------------------------------------------------------------------------- Income before extraordinary item 31,772 49,059 49,602 Extraordinary loss on early extinguishment of debt, net of tax of $828 -- -- 1,296 - ------------------------------------------------------------------------------------- Net income 31,772 49,059 48,306 RETAINED EARNINGS Retained earnings, beginning of period 246,013 209,875 173,728 Less dividends 22,199 12,921 12,159 - ------------------------------------------------------------------------------------- Retained earnings, end of period $ 255,586 $ 246,013 $ 209,875 - ------------------------------------------------------------------------------------- NET INCOME/(LOSS) PER SHARE: Income before extraordinary item $ 1.04 $ 1.55 $ 1.58 Extraordinary loss on early extinguishment of debt -- -- (0.04) - ------------------------------------------------------------------------------------- Net income $ 1.04 $ 1.55 $ 1.54 DILUTED NET INCOME/(LOSS) PER SHARE: Income before extraordinary item $ 1.03 $ 1.53 $ 1.57 Extraordinary loss on early extinguishment of debt -- -- (0.04) - ------------------------------------------------------------------------------------- Net income $ 1.03 $ 1.53 $ 1.53 - ------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 11

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ALBANY INTERNATIONAL CORP. FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 (IN THOUSANDS) Net income $ 31,772 $ 49,059 $ 48,306 Other comprehensive income/(loss), before tax: Foreign currency translation adjustments 615 (42,011) (12,063) Pension liability adjustments (16,868) 12,483 (101) Income taxes related to items of other comprehensive income/(loss) -- -- 303 - ------------------------------------------------------------------------------------- Comprehensive income $ 15,519 $ 19,531 $ 36,445 - ------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 12

CONSOLIDATED BALANCE SHEETS ALBANY INTERNATIONAL CORP. AT DECEMBER 31, 1998 1997 (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 5,868 $ 2,546 Accounts receivable, less allowance for doubtful accounts ($5,504, 1998; $5,224, 1997) 184,748 171,886 Inventories Finished goods 115,740 106,259 Work in process 43,523 38,904 Raw material and supplies 37,646 35,288 Deferred taxes and prepaid expenses 22,188 18,440 - ------------------------------------------------------------------------------------------ Total current assets 409,713 373,323 - ------------------------------------------------------------------------------------------ Property, plant and equipment, at cost, net 325,109 321,611 Investments in associated companies 4,054 2,444 Intangibles 60,800 36,080 Deferred taxes 27,193 22,826 Other assets 39,497 40,613 - ------------------------------------------------------------------------------------------ Total assets $ 866,366 $ 796,897 - ------------------------------------------------------------------------------------------ LIABILITIES Current liabilities: Notes and loans payable $ 112,828 $ 76,095 Accounts payable 25,838 25,786 Accrued liabilities 66,791 56,743 Current maturities of long-term debt 5,178 1,703 Income taxes payable and deferred 9,403 10,113 - ------------------------------------------------------------------------------------------ Total current liabilities 220,038 170,440 - ------------------------------------------------------------------------------------------ Long-term debt 181,137 173,654 Other noncurrent liabilities 113,282 74,075 Deferred taxes and other credits 37,059 35,620 - ------------------------------------------------------------------------------------------ Total liabilities 551,516 453,789 - ------------------------------------------------------------------------------------------ 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; 26,082,438 issued in 1998 and 25,375,413 in 1997 26 25 Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,785,282 in 1998 and 5,615,563 in 1997 6 6 Additional paid in capital 206,428 187,831 Retained earnings 255,586 246,013 Accumulated items of other comprehensive income: Translation adjustments (83,736) (84,351) Pension liability adjustment (16,868) -- - ------------------------------------------------------------------------------------------ 361,442 349,524 Less treasury stock, at cost 46,592 6,416 - ------------------------------------------------------------------------------------------ Total shareholders' equity 314,850 343,108 - ------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 866,366 $ 796,897 - ------------------------------------------------------------------------------------------ THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 13

CONSOLIDATED STATEMENTS OF CASH FLOWS ALBANY INTERNATIONAL CORP. FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 31,772 $ 49,059 $ 48,306 Adjustments to reconcile net cash provided by operating activities: Equity in earnings of associated companies (231) (483) (232) Depreciation and amortization 48,827 44,991 45,189 Accretion of convertible subordinated debentures -- -- 353 Provision for deferred income taxes, other credits and long-term liabilities 11,460 (3,828) 755 Increase in cash surrender value of life insurance, net of premiums paid (1,017) (851) (751) Unrealized currency transaction (gains)/losses (1,911) 3,571 (1,459) Loss on disposition of assets 368 382 683 Shares contributed to ESOP 4,064 4,336 5,227 Loss on early extinguishment of debt -- -- 1,296 Changes in operating assets and liabilities: Accounts receivable (6,769) 4,009 (7,444) Inventories (12,685) (557) (8,674) Prepaid expenses 774 (55) (1,408) Accounts payable (1,527) (7,026) (2,449) Accrued liabilities 14,975 (922) 1,543 Income taxes payable (4,487) (4,365) 2,844 Other, net 3,237 (1,699) (884) - ------------------------------------------------------------------------------------- Net cash provided by operating activities 86,850 86,562 82,895 - ------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of property, plant and equipment (38,825) (50,804) (53,473) Purchased software (1,763) (2,318) (1,909) Proceeds from sale of assets 484 496 27,112 Acquisitions, net of cash acquired (24,032) -- (25,587) Investments in associated and other companies (2,025) (4,000) -- Distributions from associated companies 195 -- -- Premiums paid for life insurance (1,187) (1,190) (1,193) - ------------------------------------------------------------------------------------- Net cash used in investing activities (67,153) (57,816) (55,050) - ------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings 138,011 55,030 220,200 Principal payments on debt (97,982) (54,847) (229,799) Proceeds from options exercised 2,105 7,000 401 Tax benefit of options exercised 281 1,089 25 Purchases of treasury shares (47,077) (8,257) (2,552) Dividends paid (6,387) (12,724) (12,144) - ------------------------------------------------------------------------------------- Net cash used in financing activities (11,049) (12,709) (23,869) - ------------------------------------------------------------------------------------- Effect of exchange rate changes on cash flows (5,326) (21,525) (3,551) - ------------------------------------------------------------------------------------- Increase/(decrease) in cash and cash equivalents 3,322 (5,488) 425 Cash and cash equivalents at beginning of year 2,546 8,034 7,609 - ------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 5,868 $ 2,546 $ 8,034 - ------------------------------------------------------------------------------------- THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS. 14

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 after elimination of intercompany transactions. The Company has 50% interests in two related entities in South Africa, an entity in England and an entity in Russia. The consolidated financial statements include the Company's original investment in these entities, plus its share of undistributed earnings or losses, in the account "Investments in associated companies." REVENUE RECOGNITION The Company records sales when products are shipped to customers pursuant to orders or contracts. Sales terms are in accordance with industry practice in markets served. The Company limits the concentration of credit risk in receivables from the paper manufacturing industry by closely monitoring credit and collection policies. The allowance for doubtful accounts is adequate to absorb estimated losses. ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates. TRANSLATION OF FINANCIAL STATEMENTS Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from translating non-U.S. currency financial statements are accumulated in a separate component of shareholders' equity. For operations in countries that are considered to have highly inflationary economies, gains and losses from translation and transactions are determined using a combination of current and historical rates and are included in net income. Gains or losses resulting from currency transactions denominated in a currency other than the entity's local currency, forward exchange contracts which are not designated as hedges for accounting purposes and futures contracts are generally included in income. Changes in value of forward exchange contracts which are effective as hedges for accounting purposes are generally reported, net of tax, in shareholders' equity in the caption "Translation adjustments." RESEARCH EXPENSE Research expense, which is charged to operations as incurred, was $23,732,000 in 1998, $23,070,000 in 1997, and $21,945,000 in 1996. 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. INVENTORIES Inventories are stated at the lower of cost or market and are valued at average cost. PROPERTY, PLANT AND EQUIPMENT Depreciation is recorded using the straight-line method over the estimated useful lives of the assets for financial reporting purposes; 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 are included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses are included in net income. INTANGIBLES AND OTHER ASSETS The excess purchase price over fair values assigned to assets acquired is amortized on a straight-line basis over either 25 or 40 years. Patents, at cost, are amortized on a straight-line basis over either 8 or 10 years. Computer software purchased for internal use, at cost, is amortized on a straight-line basis over 5 years and is included in "Other assets." 15

DERIVATIVES Gains or losses on forward exchange contracts that function as an economic hedge against currency fluctuation effects on future revenue streams are recorded in "Other (income)/expense, net". Gains or losses on forward exchange contracts that are designated a hedge of a foreign operation's net assets and/or long-term intercompany loans are recorded in "Translation adjustments", a separate component of shareholders' equity. These contracts reduce the risk of currency exposure on foreign currency net assets and do not exceed the foreign currency amount being hedged. To the extent the above criteria are not met, or the related assets are sold, extinguished, or terminated, activity associated with such hedges is recorded in "Other (income)/expense, net". All open positions on forward exchange contracts are valued at fair value using the estimated forward rate of a matching contract. Gains or losses on futures contracts are recorded in "Other (income)/expense, net". Open positions are valued at fair value using quoted market rates. Gains or losses on interest rate swap agreements, that are entered into to hedge part of the Company's interest rate exposure, are recorded in "Interest expense, net". Unrealized gains or losses related to changes in the fair value of the contracts are not recognized. The Company values other swap agreements at market by estimating the cost of entering into one or more inverse swap transactions on such date that would neutralize the original transactions. The cost is estimated by obtaining the market swap rate for fixed-rate contracts of similar duration. Gains or losses on these swaps are recorded in "Other (income)/expense, net". INCOME TAXES The Company accounts for taxes in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes," which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. Under FAS No. 109, the effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. It is the Company's policy to accrue appropriate U.S. and non-U.S. income taxes on earnings of subsidiary companies which are intended to be remitted to the parent company in the near future. The provision for taxes is reduced by investment and other tax credits in the years such credits become available. PENSION PLANS Substantially all employees are covered under either Company or government sponsored pension plans. For principal Company sponsored plans, pension plan expenses are based on actuarial determinations. The plans are generally trusteed or insured and accrued amounts are funded as required in accordance with governing laws and regulations. EARNINGS PER SHARE Net income/(loss) per share is computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. Diluted net income/(loss) per share includes the effect of all potentially dilutive securities. 16

2. EARNINGS PER SHARE The amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potentially dilutive securities are as follows: - -------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - -------------------------------------------------------------- INCOME BEFORE EXTRAORDINARY ITEM: Income before extraordinary item and available to common stockholders $31,772 $49,059 $49,602 - -------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF SHARES: Weighted average number of shares used in net income/ (loss) per share 30,464 31,678 31,282 Effect of dilutive secu- rities: Stock options 334 426 281 - -------------------------------------------------------------- Weighted average number of shares used in diluted net income/(loss) per share 30,798 32,104 31,563 - -------------------------------------------------------------- Options to purchase 250,000 shares of common stock at $25.5625 per share were outstanding at December 31, 1998 but were not included in the computation of diluted net income/(loss) per share because the options' exercise price was greater than the average market price of the common shares. 3. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are summarized below: - ------------------------------------------------------- (IN THOUSANDS) 1998 1997 - ------------------------------------------------------- Land $ 23,542 $ 22,487 Buildings 162,948 154,803 Machinery and equipment 474,638 447,749 - ------------------------------------------------------- 661,128 625,039 - ------------------------------------------------------- Accumulated depreciation 336,019 303,428 - ------------------------------------------------------- $325,109 $321,611 - ------------------------------------------------------- Construction in progress was approximately $1,012,000 in 1998 and $127,000 in 1997. Depreciation expense was $44,362,000 in 1998, $41,750,000 in 1997, and $42,390,000 in 1996. Expenditures for maintenance and repairs are charged to income as incurred and amounted to $16,560,000 in 1998, $18,167,000 in 1997, and $17,367,000 in 1996. Capital expenditures were $38,825,000 in 1998, $50,804,000 in 1997, and $53,473,000 in 1996. At the end of 1998, the Company was committed to $24,607,000 of future expenditures for new equipment and facilities. 4. INTANGIBLES The components of intangibles are summarized below: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Excess purchase price over fair value $70,114 $48,019 Patents 10,410 10,403 Accumulated amortization (24,536) (22,342) Deferred unrecognized pen- sion cost (see Note 12) 4,812 -- - ----------------------------------------------------- $60,800 $36,080 - ----------------------------------------------------- Amortization expense was $2,194,000 in 1998, $1,554,000 in 1997, and $1,109,000 in 1996. 5. ACCRUED LIABILITIES Accrued liabilities consist of: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Salaries and wages $20,619 $18,467 Employee benefits 19,413 16,082 Returns and allowances 3,649 4,330 Interest 2,271 773 Restructuring costs 6,734 326 Other 14,105 16,765 - ----------------------------------------------------- $66,791 $56,743 - ----------------------------------------------------- 6. FINANCIAL INSTRUMENTS Notes and loans payable at December 31, 1998 and 1997 were short-term debt instruments with banks, denominated in local currencies with a weighted average interest rate of 7.45% in 1998 and 6.31% in 1997. 17

Long-term debt at December 31, 1998 and 1997, principally to banks and bondholders, exclusive of amounts due within one year, consists of: - ------------------------------------------------------- (IN THOUSANDS) 1998 1997 - ------------------------------------------------------- $300 million revolving credit agreement which terminates in 2002 with LIBOR borrow- ings outstanding at an aver- age interest of 5.78% in 1998 and 5.89% in 1997. $149,000 $138,000 Various notes and mortgages relative to operations principally outside the United States, at an average interest of 6.64% in 1998 and 6.67% in 1997, due in varying amounts through 2008. 17,547 20,538 Industrial revenue financings at an average interest of 5.38% in 1998 and 5.65% in 1997, due in varying amounts through 2009. 14,590 15,116 - ------------------------------------------------------- $181,137 $173,654 - ------------------------------------------------------- The weighted average interest rates for all debt was 6.38% in 1998 and 6.08% in 1997. Principal payments due on long-term debt are: 1999, $5,178,000; 2000, $6,199,000; 2001, $5,370,000; 2002, $151,844,000; 2003, $1,873,000. Interest paid was $17,812,000 in 1998, $16,107,000 in 1997, and $19,318,000 in 1996. The Company's revolving credit agreement provides that the Company may borrow up to $300,000,000 until 2001 and then $150,000,000 until 2002 at which time the banks' commitment to lend is terminated. The terms of the revolving credit agreement include a facility fee and allow the Company to select from various loan pricing options. The interest rate margin over LIBOR is determined by the Company's cash flow to debt ratio. New borrowings under the revolving credit facility are conditional on the absence of material adverse changes in the business, financial position, results of operations and prospects of the Company and its consolidated subsidiaries taken as a whole. In the event of nonperformance by any bank on its commitment to extend credit, the Company could not borrow the full amount of the facility. However, the Company does not anticipate nonperformance by any bank. The revolving credit agreement contains various covenants which include limits on: the disposition of assets, minimum consolidated tangible net worth, interest coverage and cash flow to debt ratios, cash dividends, or certain restricted investments unless the required consolidated tangible net worth, as defined, is maintained. At December 31, 1998, $24,192,000 was permitted for the payment of cash dividends. Under the revolving credit agreement and formal and informal agreements with other financial institutions, the Company could have borrowed an additional $100,000,000 at December 31, 1998. During March 1992, the Company sold original issue discount 5.25% convertible subordinated debentures due 2002 which, if held to maturity, would yield 7.0% to the original purchaser. The proceeds to the Company, net of original issue discount and expenses, were $128,430,000. The original issue discount was amortized over the term of the debentures. When issued, the debentures were convertible into 5,712,450 shares of Class A Common Stock. In 1995, two debentures were converted into 76 shares of Class A Common Stock. On March 15, 1996, the Company redeemed the debentures at a redemption price of 91.545%. The redemption resulted in a one-time extraordinary non-cash charge to income of $1,296,000, net of tax, of $828,000. Effective December 1998, the Company has swap agreements that hedge a portion of its interest rate exposure. On a notional amount of $100,000,000, the Company will pay a fixed rate while the counterparties are obligated to pay a floating rate based upon LIBOR. As of December 31, 1998, the average blended rate payable on the long-term swap agreements was 5.87% and the blended rate receivable was 5.22%. No gains or losses related to these agreements were recorded in 1998. The Company has been a party to swap agreements wherein on a notional amount of $250,000,000 the Company paid a periodic floating rate based upon an index of yields of high-grade, tax-exempt bond issues published by Kenny Information Systems. The counterparty was obligated to make payments to the Company calculated at an average of 70% of LIBOR. In April 1997, the Company closed-out its position in these agreements. Included in the "Interest rate protection agreements" component of "Other (income)/expense, net" (see Note 9) is income of approximately $682,000 and $1,099,000 related to the net cash received as part of these agreements in 1997 and 1996, respectively. Also included in "Interest rate protection agreements" is the change in the 18

valuation which resulted in income of approximately $46,000 and $236,000 in 1997 and 1996, respectively. At December 31, 1998, the Company had various forward exchange contracts maturing during 1999. For each closed position, a sale contract of a particular currency was matched with a purchase contract for the same currency at the same amount, counterparty and settlement date. The foreign currency positions, both open and closed, as of December 31, 1998, by major currency, are: - ------------------------------------------------------------------ Buy Contracts Sell Contracts Currency or Fair Value or Fair Value - ------------------------------------------------------------------ (IN THOUSANDS) Japanese Yen $40,169 $40,000 Swedish Krona 10,059 10,324 - ------------------------------------------------------------------ Total $50,228 $50,324 - ------------------------------------------------------------------ Periodically, the Company also enters into futures contracts primarily to hedge in the short-term against interest rate fluctuations. At December 31, 1998, the Company recorded a liability of approximately $237,000 related to open positions on these contracts. The "Interest rate protection agreements" component of "Other (income)/expense, net" includes gains on futures contracts, based on fair value, of $1,018,000 and $32,000 in 1998 and 1997, respectively. All financial instruments are held for purposes other than trading. For all positions there is risk from the possible inability of the counterparties (major financial institutions) to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates which may reduce the benefit of the contracts. However, for most closed forward exchange contracts, both the purchase and sale sides of the Company's exposures were with the same financial institution. The Company seeks to control off balance sheet risk by evaluating the credit worthiness of counterparties and by monitoring the currency exchange and interest rate markets, hedging risks in compliance with internal guidelines and reviewing all principal economic hedging contracts with designated directors of the Company. At December 31, 1998 the estimated fair value of the Company's long-term debt excluding current maturities approximates $183,011,000. The estimate is based on the present value of future cash flows of fixed rate debt based upon changes in the general level of interest rates, and on the assumption that carrying value approximates fair value for variable rate debt. In June 1998, Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This Standard establishes a new model for accounting for derivatives and hedging activities. All derivatives will be recognized as either assets or liabilities and measured at fair value. Each hedging relationship must be designated and accounted for pursuant to this Standard. Since the Company already records forward exchange and futures contracts at fair value, this Standard is not expected to have a material effect on the accounting for these transactions. In accordance with this Standard, interest rate swaps that hedge interest rate exposure will be measured at fair value with the initial asset or liability recognized in "Other comprehensive income". Actual amounts paid or received on these contracts will be reclassified from "Other comprehensive income" to "Interest expense, net". Other swap agreements will be measured at fair value with gains and losses recorded in "Other (income)/expense, net". The accounting for the Company's interest rate swaps has not yet been determined. The Company plans to adopt this Standard on its effective date of January 1, 2000. 7. LEASES Total rental expense amounted to $22,296,000, $22,990,000, and $20,800,000 for 1998, 1997, and 1996, respectively. Principal leases are for machinery and equipment, vehicles and real property. Certain leases contain renewal and purchase option provisions at fair market values. There were no significant capital leases. Future rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1998 are: 1999, $22,367,000; 2000, $17,706,000; 2001, $14,173,000; 2002, $11,035,000; 2003, $7,137,000 and thereafter, $8,566,000. 8. SHAREHOLDERS' EQUITY The Company has two classes of Common Stock, Class A Common Stock, par value $.001 and Class B Common Stock, par value $.001 which have equal liquidation rights. Each share of the Company's Class A Common Stock is entitled to one vote on all matters submitted to shareholders and each share of Class B Common Stock is entitled to ten votes. Class A and 19

Class B Common Stock will receive equal dividends as the Board of Directors may determine from time to time. The Class B Common Stock is convertible into an equal number of shares of Class A Common Stock at any time. At December 31, 1998, 9,706,232 shares of Class A Common Stock were reserved for the conversion of Class B Common Stock and the exercise of stock options. In 1989, the Board of Directors authorized the purchase of up to an aggregate of 2,000,000 shares of the Company's Class A Common Stock. In January 1998, the Board authorized the purchase of an additional 3,000,000 shares of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be advantageous to the Company's shareholders. The Company purchased 2,262,200 shares of Class A Common Stock during 1998, and may purchase up to 1,383,100 more shares without further public announcement. For 1998, 1997, and 1996, the Board authorized the payment of cash dividends totalling $.105, $.42, and $.40 per common share per year respectively. During 1998, the Company declared two 0.5% stock dividends and one 2.0% stock dividend which resulted in a subsequent distribution of 706,900 shares of Class A Common Stock and 169,719 shares of Class B Common Stock. As a result of the stock dividends, additional paid-in capital increased $16,392,000, treasury stock decreased $2,656,000 and retained earnings decreased $19,048,000. All references in the accompanying financial statements to the number of common shares and per-share amounts have been restated to reflect the stock dividends. Changes in shareholders' equity for 1998, 1997, and 1996 are as follows: - ----------------------------------------------------------------------------------------------- Class A Class B Treasury Stock Common Stock Common Stock Additional (Class A) -------------- -------------- Paid in -------------- (IN THOUSANDS) Shares Amount Shares Amount Capital Shares Amount - ----------------------------------------------------------------------------------------------- Balance: January 1, 1996 24,841 $25 5,616 $6 $176,345 144 $2,199 Shares contributed to ESOP -- -- -- -- 635 (266) (4,542) Purchases of treasury shares -- -- -- -- -- 141 2,552 Options exercised 25 -- -- -- 426 -- -- Shares issued to Directors -- -- -- -- 6 (2) (44) - ----------------------------------------------------------------------------------------------- Balance: December 31, 1996 24,866 $25 5,616 $6 $177,412 17 $ 165 Shares contributed to ESOP 89 -- -- -- 2,299 (93) (1,977) Purchases of treasury shares -- -- -- -- -- 361 8,257 Options exercised 420 -- -- -- 8,089 -- -- Shares issued to Directors -- -- -- -- 31 (4) (29) - ----------------------------------------------------------------------------------------------- Balance: December 31, 1997 25,375 $25 5,616 $6 $187,831 281 $6,416 Shares contributed to ESOP -- -- -- -- (195) (183) (4,199) Purchases of treasury shares -- -- -- -- -- 2,262 47,077 Options exercised 118 -- -- -- 2,386 -- -- Stock dividends 589 1 169 -- 16,392 (118) (2,656) Shares issued to Directors -- -- -- -- 14 (2) (46) - ----------------------------------------------------------------------------------------------- Balance: December 31, 1998 26,082 $26 5,785 $6 $206,428 2,240 $46,592 - ----------------------------------------------------------------------------------------------- 9. OTHER (INCOME)/EXPENSE NET The components of other (income)/expense, net, as further described in Note 6, are: - ------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - ------------------------------------------------------------- Currency transactions $(3,785) $(2,010) $(2,323) Interest rate protection agreements (1,018) (760) (1,335) Amortization of debt issuance costs and loan origination fees 721 937 998 Strategic planning costs -- 1,333 -- Other 3,676 5,021 2,672 - ------------------------------------------------------------- $ (406) $4,521 $ 12 - ------------------------------------------------------------- 20

10. INCOME TAXES Income taxes currently payable are provided on taxable income at the statutory rate applicable to such income. The components of income taxes are: - -------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - -------------------------------------------------------------- Current: U.S. Federal $14,858 $12,799 $ 6,671 U.S. State 1,699 1,463 695 Non-U.S. 7,352 12,336 18,942 - -------------------------------------------------------------- 23,909 26,598 26,308 - -------------------------------------------------------------- Deferred: U.S. Federal (11,960) (3,511) 4,504 U.S. State (1,367) (401) 515 Non-U.S. 9,581 8,369 243 - -------------------------------------------------------------- (3,746) 4,457 5,262 - -------------------------------------------------------------- $20,163 $31,055 $31,570 - -------------------------------------------------------------- U.S. income before income taxes was $8,317,000 in 1998, $29,973,000 in 1997, and $30,522,000 in 1996. Taxes paid, net of refunds, were $23,627,000 in 1998, $22,210,000 in 1997, and $18,066,000 in 1996. A comparison of the federal statutory rate to the Company's effective rate is as follows: - ------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State taxes 2.2 1.9 1.8 Non-U.S. tax rates, repatriation of earnings, and other net charges associated with prior years 1.5 5.6 2.6 Other .3 (3.5) (.4) - ------------------------------------------------------------- Effective tax rate 39.0% 39.0% 39.0% - ------------------------------------------------------------- The significant components of deferred income tax expense/(benefit) attributed to income from operations for the years ended December 31, 1998, 1997, and 1996 are as follows: - --------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - --------------------------------------------------------------- Deferred tax expense/(benefit) $(10,453) $(1,448) $ 1,630 Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates 113 136 -- Utilization of operating loss carryforwards 6,594 5,769 3,632 - --------------------------------------------------------------- $(3,746) $ 4,457 $ 5,262 - --------------------------------------------------------------- Investment tax credits and other credits utilized for financial reporting purposes were not material. Undistributed earnings of subsidiaries outside the United States for which no provision for U.S. taxes has been made amounted to approximately $123,550,000 at December 31, 1998. In the event earnings of foreign subsidiaries are remitted, foreign tax credits may be available to offset U.S. taxes. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1998 and 1997 are presented below: ----------------------------------------------- U.S. Non-U.S. ---------------- ---------------- (IN THOUSANDS) 1998 1997 1998 1997 - ----------------------------------------------------------------------- Accounts receivable, princi- pally due to allowance for doubtful accounts $ 121 $ 180 $ (363) $ 15 Inventories, principally due to additional costs inventoried for tax purposes, pursuant to the Tax Reform Act of 1986 7,014 4,863 92 14 Tax loss carryforwards -- -- 1,187 4,570 Other 7,642 2,262 1,286 712 - ----------------------------------------------------------------------- Total current deferred tax assets 14,777 7,305 2,202 5,311 - ----------------------------------------------------------------------- Sale lease back transaction 575 2,128 -- -- Deferred compensation 9,094 7,724 -- -- Tax loss carryforwards -- -- 7,275 10,552 Plant, equipment and depre- ciation (11,671) (6,709) (172) (165) Postretirement benefits 14,936 12,403 -- (660) Other 6,151 (2,316) 1,005 (131) - ----------------------------------------------------------------------- Total noncurrent deferred tax assets 19,085 13,230 8,108 9,596 - ----------------------------------------------------------------------- Total deferred tax assets $33,862 $20,535 $10,310 $14,907 - ----------------------------------------------------------------------- Total current deferred tax liabilities -- -- $ 7,287 $ 3,819 - ----------------------------------------------------------------------- Plant, equipment and depre- ciation -- -- 24,394 22,815 Other -- -- (446) (1,153) - ----------------------------------------------------------------------- Total noncurrent deferred tax liabilities -- -- 23,948 21,662 - ----------------------------------------------------------------------- Total deferred tax liabilities -- -- $31,235 $25,481 - ----------------------------------------------------------------------- In the U.S., the Company has had a substantial tax liability for each of the past three years and expects to pay taxes in the future at this or greater levels. Substantially all of the non-U.S. deferred tax asset relates to tax loss carryforwards of which approximately 14% is expected to be used in 1999 and the remainder of the noncurrent loss carryforward has no expiration. The Company has restructured its operations to reduce or eliminate losses and has reorganized in certain countries to ensure that losses will be offset against the profits of companies with long-term earnings histories. Accordingly, the Company expects to realize the benefit of its U.S. and non-U.S. deferred tax assets in the future. 21

11. OPERATING SEGMENT AND GEOGRAPHIC DATA Effective December 31, 1998, the Company adopted Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information". In accordance with this Standard, the internal organization that is used by management for making operating decisions and assessing performance is used as the source of the Company's reportable segments. The accounting policies of the segments are the same as those described in the "Accounting Policies" footnote. The primary segment of the Company is Engineered Fabrics which includes developing, manufacturing, marketing and servicing custom designed engineered fabrics used in the manufacture of paper, paperboard and products in other process industries. Another segment of the Company is an aggregation of the Company's operations that manufacture, market and service high performance industrial doors. "All other" is made up of operations that manufacture products related to the core business of the Company. The following table shows data by operating segment, reconciled to consolidated totals included in the financial statements. - ----------------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - ----------------------------------------------------------------------- NET SALES Engineered Fabrics $ 583,857 $593,395 $600,099 High Performance Industrial Doors 101,768 83,283 58,693 All other 37,028 33,401 33,968 - ----------------------------------------------------------------------- Consolidated total $ 722,653 $710,079 $692,760 - ----------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION Engineered Fabrics $ 41,202 $ 38,084 $ 39,391 High Performance Industrial Doors 1,561 1,329 660 All other 3,129 2,887 2,980 Corporate 2,935 2,691 2,158 - ----------------------------------------------------------------------- Consolidated total $ 48,827 $ 44,991 $ 45,189 - ----------------------------------------------------------------------- OPERATING INCOME Engineered Fabrics $ 131,047 $134,057 $129,444 Restructuring of operations and termination benefits (20,191) -- -- - ----------------------------------------------------------------------- 110,856 134,057 129,444 High Performance Industrial Doors 11,138 9,845 5,892 All other 4,759 4,311 4,234 Research expense (23,732) (23,070) (21,945) Unallocated expenses (32,413) (25,524) (20,840) - ----------------------------------------------------------------------- Operating income before reconciling items 70,608 99,619 96,785 Reconciling items: Interest income 598 646 1,180 Interest expense (19,908) (16,113) (17,013) Other income/ (expense), net 406 (4,521) (12) - ----------------------------------------------------------------------- Consolidated income before income taxes $ 51,704 $ 79,631 $ 80,940 - ----------------------------------------------------------------------- OPERATING ASSETS Engineered Fabrics $1,006,458 $945,296 $973,658 High Performance Industrial Doors 67,075 52,459 57,175 All other 81,461 68,777 73,143 Reconciling items: Accumulated depreciation (336,019) (303,428) (302,234) Deferred tax assets 44,171 35,442 38,886 Investments in associated companies 4,054 2,444 2,060 Other (834) (4,093) (10,771) - ----------------------------------------------------------------------- Consolidated total assets $ 866,366 $796,897 $831,917 - ----------------------------------------------------------------------- CAPITAL EXPENDITURES Engineered Fabrics $ 33,158 $ 45,738 $ 49,036 High Performance Industrial Doors 881 983 276 All other 4,027 3,447 2,552 Corporate 759 636 1,609 - ----------------------------------------------------------------------- Consolidated total $ 38,825 $ 50,804 $ 53,473 - ----------------------------------------------------------------------- The following table shows data by geographic area. Net sales are based on the location of the assets producing the revenues. - ----------------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - ----------------------------------------------------------------------- NET SALES United States $ 289,434 $286,528 $276,973 Canada 62,329 67,794 68,971 Sweden 88,612 94,102 103,697 Other countries 282,278 261,655 243,119 - ----------------------------------------------------------------------- Consolidated total $ 722,653 $710,079 $692,760 - ----------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, AT COST, NET United States $ 95,487 $ 97,455 $101,045 Canada 22,935 26,558 28,329 Sweden 58,476 60,278 70,038 Other countries 148,211 137,320 140,049 - ----------------------------------------------------------------------- Consolidated total $ 325,109 $321,611 $339,461 - ----------------------------------------------------------------------- 22

12. PENSION PLANS The Company has a noncontributory, qualified defined benefit pension plan covering U.S. employees, a noncontributory, nonqualified pension plan covering certain U.S. executives and both contributory and noncontributory pension plans covering non-U.S. employees. Employees are covered primarily by plans which provide pension benefits that are based on the employee's service and average compensation during the three to five years before retirement or termination of employment. In October 1998, the U.S. noncontributory, qualified defined benefit pension plan was closed to new participants. In 1998, Financial Accounting Standard No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" was issued. The Company adopted this statement effective December 31, 1998, and modified disclosures relating to its pension plans and postretirement benefits (See Note 13) accordingly. This adoption had no effect on the Company's results of operations or financial position. The following table sets forth the components of amounts recognized in the Company's balance sheet. - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Projected benefit obligation in excess of plan assets $(54,983) $(26,143) Unrecognized net loss 44,556 29,522 Prior service cost not yet recognized in net periodic pension cost 5,293 6,013 Remaining unrecognized net asset (1,080) (2,674) Contributions made in the 4th quarter 18 -- - ----------------------------------------------------- Accrued pension (liability) asset $(6,196) $ 6,718 - ----------------------------------------------------- The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligation in excess of plan assets were $155,168,000, $128,355,000 and $102,258,000, respectively for 1998, and $19,357,000, $13,396,000 and none, respectively for 1997. The weighted average expected long-term rate of return for these plans was 9.1% for 1998 and 1997. The weighted average discount rate was 6.9% for 1998 and 7.4% for 1997. In 1998 and 1997, the weighted average rate of increase in future compensation levels was 4.8% and 5.2%, respectively. The following table sets forth the reconciliation of beginning and ending balances of benefit obligations and fair value of plan assets, and the funded status of the plans. - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $170,123 $162,910 Service cost 6,841 5,267 Interest cost 14,375 11,856 Participant contributions 838 651 Plan amendments 48 -- Effect of curtailment 2,365 -- Benefits paid (8,604) (8,663) Special termination benefits 7,148 -- Acturial loss 6,877 4,859 Exchange rate loss (851) (6,757) - ----------------------------------------------------- Benefit obligation at end of year $199,160 $170,123 - ----------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year $143,980 $122,219 Actual return on plan assets 3,558 22,723 Employer contributions 5,343 12,394 Participant contributions 1,038 691 Benefits paid (8,604) (8,810) Administrative expenses (741) (631) Exchange rate loss (397) (4,606) - ----------------------------------------------------- Fair value of plan assets at end of year $144,177 $143,980 - ----------------------------------------------------- Amounts recognized in the balance sheet are as follows: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Accrued pension (liability) asset $(27,876) $ 6,718 Intangible asset 4,812 -- Accumulated other comprehensive income 16,868 -- - ----------------------------------------------------- Net amount recognized at year-end $(6,196) $ 6,718 - ----------------------------------------------------- The Company was required to accrue an additional minimum liability for those plans for which accumulated plan benefits exceeded plan assets. The liability at December 31, 1998 of $21,680,000 was offset by an asset amounting to $4,812,000 (included in intangibles) and a direct charge to equity of $16,868,000. There was no additional liability required at December 31, 1997. 23

Net pension cost included the following components: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Service cost $ 6,423 $ 5,751 Interest cost on projected benefit obligation 12,319 11,948 Actual return on assets (12,431) (10,807) Net amortization and deferral 981 487 - ----------------------------------------------------- Net periodic pension cost $ 7,292 $ 7,379 - ----------------------------------------------------- Annual pension cost, including the 1998 enhanced retirement program, charged to operating expense for all Company plans, including all statutory and defined contribution plans, was $25,455,000 for 1998, $11,221,000 for 1997, and $12,579,000 for 1996. 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, the Company provides certain medical, dental and life insurance benefits for its retired United States employees. Substantially all of the Company's U.S. employees may become eligible for these benefits, which are subject to change, if they reach normal retirement age while working for the Company. Retirees share in the cost of these benefits. The Company's non-U.S. operations do not offer such benefits to retirees. In accordance with Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", the Company accrues the cost of providing postretirement benefits during the active service period of the employees. The Company currently funds the plan as claims are paid. The following table reflects the status of the postretirement benefit plan: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $46,386 $39,381 Service cost 1,112 856 Interest cost 3,446 3,300 Plan participants' contribution 485 476 Actuarial loss 3,419 5,425 Benefits paid (3,628) (3,052) - ----------------------------------------------------- Benefit obligation at end of year $51,220 $46,386 - ----------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year -- -- Employer contributions 3,143 2,576 Plan participants' contributions 485 476 Benefits paid (3,628) (3,052) - ----------------------------------------------------- Fair value of plan assets at end of year -- -- - ----------------------------------------------------- Funded status 51,220 46,386 Unrecognized net gain 4,449 8,088 - ----------------------------------------------------- Accrued postretirement cost $55,669 $54,474 - ----------------------------------------------------- Net periodic postretirement benefit cost included the following: - ----------------------------------------------------- (IN THOUSANDS) 1998 1997 - ----------------------------------------------------- Service cost of benefits earned $ 1,112 $ 856 Interest cost on accumulated postretirement benefit obligation 3,446 3,300 Amortization of unrecognized net gain (219) (418) - ----------------------------------------------------- Net periodic postretirement benefit cost $ 4,339 $ 3,738 - ----------------------------------------------------- For measuring the expected postretirement benefit obligation, an annual rate of increase in the per capita claims cost of 6.0% is assumed for 1998. This rate is assumed to decrease to 5.5% in 1999 and remain at that level thereafter. The weighted average discount rate was 7.2% for 1998 and 7.6% for 1997. A one percentage point increase in the health care cost trend rate would result in a $6,439,000 increase in the accumulated postretirement benefit obligation as of December 31, 1998 and an increase of $664,000 in the aggregate service and interest cost components of the net periodic postretirement benefit cost for 1998. 14. TRANSLATION ADJUSTMENTS The Consolidated Statements of Cash Flows were affected by translation as follows: - --------------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - --------------------------------------------------------------- Change in cumulative translation adjustments $ (615) $42,011 $ 11,760 Other noncurrent liabilities 431 2,742 568 Deferred taxes 1,075 3,419 271 Long-term debt 674 1,014 (1,289) Investments in associated companies (452) (100) (537) Net fixed assets 3,417 (22,959) (6,146) Other assets 796 (4,602) (1,076) - --------------------------------------------------------------- Effect of exchange rate changes $ 5,326 $21,525 $ 3,551 - --------------------------------------------------------------- 24

Shareholders' equity was affected by translation as follows: (increase)/decrease from translation of non-U.S. financial statements of $(2,736,000), $30,979,000, and $6,354,000; from remeasurement of loans of $2,121,000, $11,032,000, and $4,932,000 in 1998, 1997, and 1996 respectively; and by losses on designated hedges, net of tax, of $474,000 in 1996. In 1998, 1997 and 1996, net translation losses included in operations in Brazil and Mexico were $2,217,000, $499,000, and $233,000 respectively, and were included in cost of goods sold. 15. STOCK OPTIONS AND INCENTIVE PLANS During 1988, 1992 and 1998, the shareholders approved stock option plans for key employees. The 1988 and 1992 plans each provide for granting of up to 2,000,000 shares of Class A Common Stock while the 1998 plan currently provides for the granting of up to 5,500,000 shares of Class A Common Stock. In addition, in 1997 the Board of Directors granted one option outside these plans for 250,000 shares of Class A Common Stock. Options are exercisable in five cumulative annual amounts beginning twelve months after date of grant. The option issued by the Board in 1997 is not exercisable unless the Company's share price reaches $48 per share and is then limited to 10% of the total number of shares multiplied by the number of full years of employment elapsed since the grant date. Option exercise prices are not less than the market value of the shares on the date of grant. Unexercised options generally terminate twenty years after date of grant for all plans. For the purpose of applying Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", the fair value of each option granted is estimated on the grant date using the Black-Scholes Single Option model. No adjustments were made for certain factors which are generally recognized to reduce the value of option contracts. These factors include limited transferability, a 20% per year vesting schedule, a share price threshold with vesting based on years of employment and the risk of forfeiture of the non-vested portion if employment is terminated. The cash dividend yield was 1.8% for 1997 and 1996. The expected volatility was 24.6% in 1998, 24.1% in 1997 and 24.6% in 1996. The expected life of the options varies based on employee group and ranges from 7 to 19 years. The risk-free interest rate ranges from 4.7% to 5.6% in 1998, 5.8% to 6.1% in 1997 and 6.6% to 7.0% in 1996. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting for the stock option plans. Accordingly, no compensation cost has been recognized in 1998, 1997 or 1996. Had compensation cost and fair value been determined pursuant to FAS 123, net income would decrease from $31,772,000 to $30,119,000 in 1998, from $49,059,000 to $47,727,000 in 1997 and from $48,306,000 to $47,511,000 in 1996. Earnings per share would decrease from $1.04 to $0.99 in 1998, from $1.55 to $1.51 in 1997 and from $1.54 to $1.52 in 1996. Diluted earnings per share would decrease from $1.03 to $0.98 in 1998, $1.53 to $1.49 in 1997 and from $1.53 to $1.51 in 1996. The weighted average fair value of options granted during 1998, 1997 and 1996, for the purposes of FAS 123, is $7.52, $10.37 and $10.34 per share, respectively. Activity with respect to these plans is as follows: - -------------------------------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------- Shares under option at January 1 3,309,000 3,057,400 2,799,650 Options granted 423,000 695,500 415,250 Options cancelled 63,300 23,900 133,100 Options exercised 117,950 420,000 24,400 - -------------------------------------------------------------------- Shares under option at December 31 3,550,750 3,309,000 3,057,400 Options exercisable at December 31 2,191,900 1,930,900 2,068,750 - -------------------------------------------------------------------- Shares available for options 370,200 229,900 651,500 - -------------------------------------------------------------------- The weighted average exercise price is as follows: - -------------------------------------------------------------------- 1998 1997 1996 - -------------------------------------------------------------------- Shares under option at January 1 $18.95 $18.00 $17.38 Options granted 19.38 21.84 22.25 Options cancelled 20.90 20.49 18.78 Options exercised 17.85 16.72 16.49 Shares under option at December 31 19.00 18.95 18.00 Options exercisable at December 31 17.58 17.08 16.59 - -------------------------------------------------------------------- 25

The following is a summary of the status of options outstanding at December 31, 1998: - ------------------------------------------------------------------- Outstanding Options -------------------------------- Exercisable Options Weighted -------------------- Average Weighted Weighted Remaining Average Average Exercise Contractual Exercise Exercise Price Range Number Life Price Number Price - ------------------------------------------------------------------- $15.00 125,000 14.11 $15.00 125,000 $15.00 15.50 700,000 9.34 15.50 700,000 15.50 16.25 165,100 14.41 16.25 165,100 16.25 16.75 461,500 11.33 16.75 461,500 16.75 17.63-18.75 262,700 14.66 18.62 227,000 18.60 19.38 421,000 19.84 19.38 2,000 19.38 19.75 413,100 18.29 19.75 102,300 19.75 22.25 752,350 16.89 22.25 409,000 22.25 25.56 250,000 18.85 25.56 -- -- - ------------------------------------------------------------------- The Company's voluntary deferred compensation plans provide that a portion of certain employees' salaries are deferred in exchange for amounts payable upon their retirement, disability or death. The repayment terms are selected by the participants in accordance with the provisions of each plan. The Company is the beneficiary of life insurance policies on the lives of certain plan participants. The Company's expense for all plans, net of the increase in cash surrender value, was $1,957,000 in 1998, $1,795,000 in 1997, and $1,523,000 in 1996. The increase in cash value, net of premiums, was $1,017,000 in 1998, $851,000 in 1997, and $751,000 in 1996. The Company maintains a voluntary savings plan covering substantially all employees in the United States. The Plan, known as "Prosperity Plus," is a 401(k) plan under the U.S. Internal Revenue Code. Employees may contribute from 1% to 15% of their regular wages which under Section 401(k) are tax deferred. The Company matches between 50% and 100% of each dollar contributed by employees up to 10% of their wages in the form of Class A Common Stock which is contributed to an Employee Stock Ownership Plan. The investment of employee contributions to the plan is self directed. The cost of the plan amounted to $3,597,000 in 1998, $3,288,000 in 1997, and $3,129,000 in 1996. The Company's profit-sharing plan covers substantially all employees in the United States. At the beginning of each year, the Board of Directors announces the formula that it expects to utilize in determining the amount of the profit-sharing contribution for that year. The profit-sharing contributions will only be made to current active participants in Prosperity Plus in the form of cash or the Company's Class A Common Stock. The expense recorded for this plan was $1,281,000 in 1998, $206,000 in 1997, and $1,388,000 in 1996. 16. ACQUISITIONS AND RESTRUCTURING In January 1998, the Company acquired substantially all of the assets of Burwell Door Systems located in Sydney, Australia for approximately $3,500,000. In March 1998, the Company purchased all of the outstanding capital stock of Techniweave, Inc., a specialty fabricator of high performance textiles and composites. The purchase price was approximately $8,900,000 with $3,300,000 paid at closing and $5,600,000 deferred for up to ten years. In March 1998, the Company purchased all of the outstanding capital stock of Metco Form Oy, a Finnish supplier of forming fabrics and other engineered fabrics for pulp mills and other chemical process industries. The purchase price was approximately $10,800,000. In April 1998, the Company purchased all of the outstanding capital stock of M&I Door Systems located in Barrie, Ontario, Canada for approximately $8,100,000. In November 1996, the Company acquired substantially all of the assets of Schieffer Door Systems, a manufacturer of high-speed, high-performance industrial doors located in Germany, for approximately $25,000,000. All acquisitions were accounted for as purchases and, accordingly, the Company included in its financial statements the results of operations of the acquired entities as of the respective acquisition dates. Pro-forma financial information in accordance with Accounting Principles Board Opinion No. 16, "Business Combinations", is not included since the operating results of these acquisitions would not be material for this purpose. In 1998, the Company recorded a charge for restructuring of operations and termination benefits of $20,191,000. The global restructuring plan is focused on the Company's United States and European operations and includes an enhanced retirement program and a rationalization of manufacturing operations. The total charge includes $15,792,000 for the enhanced retirement program and $4,399,000 for plant rationalization costs. 26

In 1993, the Company recorded restructuring charges which included $2,200,000 for asset write offs, $2,500,000 for lease obligations related to an unoccupied facility and $2,300,000 for termination costs related to downsizing certain operations. Lease obligation payments will continue until 1999. The components of accrued restructuring costs, excluding amounts added to pension liabilities (see Note 12), consist of: - ----------------------------------------------------------- (IN THOUSANDS) 1998 1997 1996 - ----------------------------------------------------------- Lease obligations $ 296 $ 628 $1,119 Termination costs 4,243 -- -- Plant rationalization costs 4,399 -- -- - ----------------------------------------------------------- $8,938 $ 628 $1,119 - ----------------------------------------------------------- The change in accrued balances is the result of the 1998 global restructuring plan and actual payments for lease obligations. 27

FINANCIAL REVIEW Review of Operations - --1998 VS. 1997 Net sales increased $12.6 million or 1.8% as compared with 1997. Net sales were decreased by $20.8 million from the effect of a stronger U.S. dollar as compared to 1997. Acquisitions completed in 1998, as discussed below, added $20.2 million to net sales. Excluding these two factors, net sales increased 1.9% as compared to 1997. Net sales in the United States increased 1.0% in 1998 as compared to 1997, while sales in Canada decreased 8.1% over the same period. Net sales in Canada were lower principally due to the effect of the stronger U.S. dollar. European sales increased 1.9% in 1998 as compared to 1997. Excluding the effect of the stronger U.S. dollar, net sales in Europe increased 4.5%. Gross profit was 42.2% of net sales in 1998 as compared to 43.0% in 1997. Excluding the effect of the 1998 acquisitions, gross profit margin would have been 42.6%. Selling, technical, general and research expenses, excluding the 1998 acquisitions, increased 2.0% in 1998 as compared to 1997. Excluding the additional effect of the stronger U.S. dollar, these costs increased 4.4%. This increase was principally due to higher wages and benefit costs, the unfavorable change in the remeasurement of foreign currency transactions incurred principally in Europe and costs related to the installation of a new information system. In 1998, the Company recorded a charge for restructuring of operations and termination benefits of $20.2 million. The global restructuring plan is focused on the Company's United States and European operations and includes an enhanced retirement program and a rationalization of manufacturing operations. The total charge includes $15.8 million for the enhanced retirement program and $4.4 million for plant rationalization costs. The change in other (income)expense, net as compared to 1997, was due principally to $2.0 million higher income from currency transactions and interest rate protection agreements and a $1.3 million decrease in strategic planning costs. Income or losses from currency transactions and interest rate protection agreements generally result from economic hedges which can have either a positive or negative effect on other (income)/expense, net in any particular period. The specific hedges in place are changed from time to time depending on market conditions and cash flow forecasts of various non-U.S. operations and are intended to partially offset the effects of translation on operating income (see Notes 6 and 9 of Notes to Consolidated Financial Statements). In June 1998, Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This Standard establishes a new model for accounting for derivatives and hedging activities. All derivatives will be recognized as either assets or liabilities and measured at fair value. Each hedging relationship must be designated and accounted for pursuant to this Standard. Since the Company already records forward exchange and futures contracts at fair value, this Standard is not expected to have a material effect on the accounting for these transactions. In accordance with this Standard, interest rate swaps, that hedge interest rate exposure, will be measured at fair value with the initial asset or liability recognized in "Other comprehensive income". Actual amounts paid or received on these contracts will be reclassified from "Other comprehensive income" to "Interest expense, net". Other swap agreements will be measured at fair value with gains and losses recorded in "Other (income)/expense, net". Accounting for the Company's interest rate swaps has not yet been determined. The Company plans to adopt this Standard on its effective date of January 1, 2000. Interest expense increased $3.8 million or 23.6% as compared with 1997. This increase was due to higher total debt during 1998 as a result of acquisitions and the Company's purchase of 2,560,800 shares of its own stock since November 1997. In late 1997, the Company finished the construction of a new paper machine clothing plant located in Chungju, South Korea for a total cost of approximately $22 million. The first shipments to customers were made in February 1998. In January 1998, the Company acquired substantially all of the assets of Burwell Door Systems located in Sydney, Australia for approximately $3.5 million. In March 1998, the Company purchased all of the outstanding capital stock of Techniweave, Inc., a specialty fabricator of high performance textiles and composites. The purchase price was approximately $8.9 million with $3.3 million paid at closing and $5.6 million deferred for up to ten years. In March 1998, the Company purchased all of the outstanding capital stock of Metco Form Oy, a Finnish supplier of forming fabrics and other 28

engineered fabrics for pulp mills and other chemical process industries. The purchase price was approximately $10.8 million. In April 1998, the Company purchased all of the outstanding capital stock of M&I Door Systems located in Barrie, Ontario, Canada for approximately $8.1 million. All of the above acquisitions were accounted for as purchases and, accordingly, the Company included in its financial statements the results of operations of the acquired entities as of the respective acquisition dates. These acquisitions did not have a significant impact on 1998 operating results. In March 1998, the Company purchased a 50% interest in SARA (Loading Bay Specialists, Ltd.), a distributor of high performance industrial doors located in England for approximately $2.0 million. This investment is being accounted for on an equity basis and is included in "Investments in Associated Companies". For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency Translation", to economies that cease to be highly inflationary, effective January 1, 1999, the functional currency for the Company's Mexican operations will change from the U.S. dollar to the Mexican Peso. Management does not expect a significant impact on reported results. - --1997 VS. 1996 Net sales increased $17.3 million or 2.5% as compared with 1996. Net sales were decreased by $32.1 million from the effect of a stronger U.S. dollar as compared to 1996. As discussed below, the Company acquired Schieffer Door Systems ("Schieffer") in 1996. Schieffer added $24.6 million to 1997 net sales. Excluding the effect of the stronger U.S. dollar and Schieffer, 1997 net sales increased 3.6% over 1996. Net sales in the United States increased 3.5% in 1997 as compared to 1996, while sales in Canada decreased 1.7% over the same period. The decrease in Canadian sales was due in part to lower sales to Asia. The effect of price increases to customers in 1997 was small. European sales increased 4.4% in 1997 as compared to 1996. Excluding the acquisition of Schieffer and the effect of the stronger U.S. dollar, net sales in Europe increased 5.8%. Gross profit continued to improve and was 43.0% of net sales in 1997 as compared to 42.4% in 1996. Excluding the effect of Schieffer, gross profit margin would have been 43.2%. Selling, technical, general and research expenses, excluding Schieffer, increased 1.4% in 1997 as compared to 1996. Excluding the additional effect of the stronger U.S. dollar, these costs increased 5.6%. A large part of the increase is due to higher wages and benefit costs. The change in other (income)/expense, net as compared to 1996, was partially due to $0.9 million lower income from currency transactions and interest rate protection agreements and to strategic planning costs of $1.3 million. Interest expense decreased $0.9 million or 5.3% as compared with 1996. This decrease is primarily due to lower average debt balances. For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency Translation", to economies that cease to be highly inflationary, effective January 1, 1998, the functional currency for the Company's Brazilian operations changed from the U.S. dollar to the Brazilian Real. INTERNATIONAL ACTIVITIES The Company conducts more than half of its business in countries outside of the United States. As a result, the Company experiences transaction and translation gains and losses because of currency fluctuations. The Company periodically enters into foreign currency contracts to hedge this exposure (see Notes 6, 9 and 14 of Notes to Consolidated Financial Statements). The Company believes that the risks associated with its operations and locations outside the United States are not other than those normally associated with operations in such locations. The profitability in the Company's geographic regions in 1998 as compared to 1997 increased in Canada and decreased in the United States and Europe. Total operating income, after the restructuring charge, decreased 29.1% as compared to 1997. Excluding the effect of the stronger U.S. dollar, operating income would have decreased 25.8% as compared to 1997. Excluding the combined effect of the U.S. dollar and the restructuring charge, operating income decreased 5.5% as compared to 1997. Operating income, before the restructuring charge, as a percent of net sales for the United States was 17.6% in 1998, 19.2% in 1997 and 16.8% in 1996; for Canada was 13.5% in 1998, 13.0% in 1997 and 17.4% in 1996; for Europe was 9.0% for 1998, 10.7% in 1997 and 10.5% in 1996; and combined for the rest of the countries where the Company has operations the percentages were 7.3% in 1998, 8.2% in 1997 and 12.6% in 1996. 29

LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998 the Company's order backlog was $474.0 million, an increase of $6.4 million from the prior year-end. Accounts receivable increased $12.9 million from December 31, 1997. Excluding the effect of the stronger U.S. dollar, acquisitions and the new Korean plant, accounts receivable increased $3.9 million. Inventories increased $16.5 million from December 31, 1997. Excluding the factors noted above, inventories increased $7.2 million. Cash flow provided from operating activities was $86.9 million in 1998 compared with $86.6 million in 1997 and $82.9 million in 1996. Capital expenditures were $38.8 million for 1998, $50.8 million for 1997 and $53.5 million for 1996. Capital expenditures, including leases, in 1999 are expected to be about $45 million. The Company will continue to finance these expenditures with cash from operations and existing credit facilities. The Company currently has a $300 million revolving credit agreement with its principal banks in the United States. The banks' commitment will decline to $150 million in 2001 with the final maturity in 2002. The terms of the revolving credit agreement include a facility fee and allow the Company to select from various loan pricing options. The Company's current debt structure, which is mostly floating-rate, has resulted in favorable interest rates and currently provides approximately $100 million in committed and available unused debt capacity with financial institutions. Management believes that the unused line, in combination with informal commitments and expected free cash flows, should be sufficient to meet operating requirements and for business opportunities and most acquisitions which support corporate strategies in the foreseeable future. Effective December 31, 1998, the Company has swap agreements that hedge a portion of its interest rate exposure. On a notional amount of $100 million, the Company will pay a fixed rate while the counterparties are obligated to pay a floating rate based upon LIBOR. It is anticipated that this will increase the Company's interest rate during 1999 and reduce the Company's exposure to higher interest rates. A cash dividend of $.105 per share was declared in the first quarter of 1998. During the remainder of 1998, the Company declared two 0.5% stock dividends and one 2.0% stock dividend which resulted in a subsequent distribution of 706,900 shares of Class A Common Stock and 169,719 shares of Class B Common Stock. As a result of the stock dividends, additional paid-in capital increased $16.4 million, treasury stock decreased $2.6 million and retained earnings decreased $19.0 million. All references in the accompanying financial statements to the number of common shares and per-share amounts have been restated to reflect the stock dividends. YEAR 2000 In 1997, the Company began a program to assess, test and remedy its computer and manufacturing systems to assure that these systems will properly recognize the year 2000 and therefore substantially eliminate the risk of date-related computer shutdowns. The most significant area to assess under this program is the Company's business system, which includes the Company's information system, the hardware and software associated with its network of personal computers and its telecommunications infrastructure. Most of the Company's operations have completed the assessment phase of the program and have begun testing and remediation. Currently, the implementation of a new information system is in progress and has not been accelerated as a result of the year 2000 issue. Each of the Company's operations are at a different level of completion. In some cases, the existing system which is being replaced is not year 2000 compliant. If the implementation of the new system for these operations is not expected to be complete by the year 2000, a contingency plan which includes upgrading the existing software or the temporary use of manual processes will be put in place. Management does not expect any significant issues related to year 2000 compliance. The Company's manufacturing process involves some use of computers and embedded chips in process equipment. Each operation has been assigned a coordinator to oversee the planning, testing and remediation of this equipment. While management does not expect any year 2000 related shutdowns, it believes that any problems that do occur would be isolated. In these cases, production can be moved to other operations within the Company until the problem is corrected. Management expects to remediate any undiscovered year 2000 equipment problems within a matter of days, with no material impact on overall production. The Company depends on customers and suppliers for its daily operations. Disruptions due to year 2000 problems in their operations could have a significant impact on the Company. The Company is currently monitoring the status of its customers and suppliers to determine risks and contingency plans. Total external expenditures related to the year 2000 program are estimated to be $1.0 million and are expected to be funded from cash from operations. Of the $1.0 million, $0.3 million is for 30

consultants, $0.5 million for hardware and $0.2 million for software. As of December 31, 1998, $0.3 million has been spent on consultants and $0.1 million has been spent on hardware. EURO Effective January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency ("euro"). Since the Company does business in these member countries, issues involved with the introduction of the euro are being addressed. These issues include the conversion of data processing systems, assessing currency risk and the impact on the Company's marketing strategy in Europe. MARKET RISK SENSITIVITY The Company has 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. The Company has manufacturing plants in 14 countries and sales worldwide and therefore is 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, the Company periodically enters into forward exchange contracts to either hedge the net assets of a foreign investment or to provide an economic hedge against future cash flows (see Note 6 for further information regarding these contracts). The total net assets of foreign operations and foreign currency, long-term intercompany loans subject to potential loss amount to $354.2 million. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounts to $35.4 million. Furthermore, related to foreign currency transactions, the same 10% change would cause an additional loss of $3.4 million. Actual results may differ. As discussed above, the Company's current debt structure is mostly floating-rate. To partially hedge interest rate exposure, the Company has entered into interest rate swap agreements on a notional amount of $100 million, effectively fixing the interest rate on that portion of debt. The Company also periodically enters into futures contracts to hedge in the short-term against interest rate fluctuations (see Note 6 for further information regarding these contracts). At December 31, 1998, the fair value of the Company's long-term debt is estimated to be $183 million. The potential increase in the fair value of the debt resulting from a hypothetical 50 basis point decrease in interest rates amounts to $1.8 million. FORWARD-LOOKING STATEMENTS This annual report contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements include statements about such matters as global restructuring, estimated impact of actions upon future earnings, year 2000 compliance, EVA, industry trends, operating efficiency and profitability. Actual future events and circumstances (including future performance, results and trends) could differ materially from those set forth in such statements due to various factors. One factor is the risk to completing the year 2000 plan, which includes the Company's ability to discover and correct year 2000 problems within its systems and the ability of its customers and suppliers to bring their systems into year 2000 compliance. Other factors include even more competitive marketing conditions resulting from customer consolidations, possible softening of customer demand, unanticipated events or circumstances related to recently acquired businesses, the occurrence of unanticipated events or difficulties relating to divestiture, joint venture, operating, capital, global integration and other projects, changes in currency exchange rates, changes in general economic and competitive conditions, technological developments, and other risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. 31

ELEVEN YEAR SUMMARY ALBANY INTERNATIONAL CORP. - -------------------------------------------------------------------------------- 1998 1997 1996 1995 ------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY OF OPERATIONS Net sales $722,653 $710,079 $692,760 $652,645 Cost of goods sold 417,375 404,982 399,311 379,696 Operating income (1),(2),(6) 70,608 99,619 96,785 88,827 Interest expense, net 19,310 15,467 15,833 20,009 Income before income taxes 51,704 79,631 80,940 69,842 Income taxes 20,163 31,055 31,570 27,208 Income before associated companies 31,541 48,576 49,370 42,634 Net income/(loss) (3),(5) 31,772 49,059 48,306 43,011 Net income/(loss) per share 1.04 1.55 1.54 1.38 Diluted net income/(loss) per share 1.03 1.53 1.53 1.31 Average number of shares outstanding 30,464 31,678 31,282 31,115 Capital expenditures 38,825 50,804 53,473 41,921 Cash dividends declared 3,140 12,921 12,159 11,708 Per Class A common share 0.105 0.42 0.40 0.3875 Per Class B common share 0.105 0.42 0.40 0.3875 FINANCIAL POSITION Current assets $409,713 $373,323 $384,627 $364,207 Current liabilities 220,038 170,440 176,746 126,945 Current ratio 1.9 2.2 2.2 2.9 Property, plant and equipment, net 325,109 321,611 339,461 342,150 Total assets 866,366 796,897 831,917 802,232 Long-term debt 181,137 173,654 187,100 245,265 Shareholders' equity 314,850 343,108 332,330 304,942 Per share 10.34 10.84 10.59 9.76 Total capital (4) 613,993 594,560 586,890 567,460 Total debt to total capital 48.7% 42.3% 43.4% 46.3% Return on shareholders' equity 10.1% 14.3% 14.5% 14.1% NUMBER OF EMPLOYEES 6,011 5,881 5,854 5,658 ---------------------------------------- (1) The Company adopted Financial Accounting Standard (FAS) No. 87 Employers' Accounting for Pensions, with respect to its non-U.S. retirement plans in 1989, which reduced pension cost by $1,077,000. (2) Included in 1990 is a charge to income of $8,500,000 for an early retirement window and terminations which were part of a world wide cost containment program. (3) In January 1989, the Company sold its property and facilities in Halmstad, Sweden for approximately $51,000,000 in cash and notes with a resulting net gain of approximately $23,000,000. (4) 1991 and prior includes all debt, deferred taxes and other credits and shareholders' equity. Following the adoption of FAS No. 109 Accounting for Income Taxes in 1992, total capital includes all debt and shareholders' equity. 32

-------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 - -------------------------------------------------------------------------------------- $ 567,583 $ 546,120 $ 561,084 $ 557,218 $ 556,104 $ 505,474 $ 461,246 338,991 345,468 366,756 359,184 358,697 299,287 267,374 62,821 40,051 18,893 44,488 31,661 67,627 73,755 16,820 16,115 18,829 20,090 18,450 19,857 16,637 41,677 24,566 3,282 19,752 14,421 76,272 53,333 17,921 9,679 1,247 10,803 7,538 33,487 18,954 23,756 14,887 2,035 8,949 6,883 42,785 34,379 23,882 15,003 (3,114) 10,794 8,269 44,896 36,521 0.77 0.55 (0.12) 0.41 0.32 1.72 1.43 0.77 0.54 (0.12) 0.41 0.32 1.71 1.43 30,858 27,485 26,332 26,183 26,077 26,176 25,528 36,322 30,940 20,219 40,067 110,729 82,252 58,601 10,488 9,361 8,950 8,903 7,518 5,775 4,674 0.35 0.35 0.35 0.35 0.3500 0.3125 0.2625 0.35 0.35 0.35 0.35 0.1313 -- -- $ 319,947 $ 270,034 $ 256,422 $ 259,917 $ 277,622 $ 246,144 $ 209,635 115,863 101,069 112,955 106,220 106,904 100,810 86,489 2.8 2.7 2.3 2.4 2.6 2.4 2.4 320,719 302,829 308,618 362,456 365,558 260,907 214,807 727,157 661,314 652,745 680,706 708,212 569,968 480,143 232,767 208,620 239,732 250,423 262,042 145,493 157,833 274,632 247,223 193,975 247,231 245,004 240,285 179,545 8.88 8.03 7.34 9.42 9.38 9.05 6.94 525,119 467,320 456,773 551,240 574,977 452,567 392,707 47.7% 47.1% 57.5% 48.2% 49.3% 38.8% 48.1% 8.7% 6.1% (1.6%) 4.4% 3.4% 18.7% 20.3% 5,404 5,286 5,678 5,726 6,144 6,090 5,659 (5) In 1992, the Company elected to adopt FAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective January 1, 1992, and recognize the accumulated liability. This adoption resulted in a charge of $27,431,000, net of tax of $16,813,000, and a reduction of 1992 operating income of $2,798,000. The Company's election to adopt FAS No. 109, as of January 1, 1992, resulted in an increase to 1992 income of $20,142,000. During the fourth quarter of 1992, the Company elected an early payment of a $3,000,000 tax exempt financing for $1,357,000 which resulted in an extraordinary gain of $1,019,000, net of tax. (6) In 1992, the Company reported a charge of $12,045,000 for restructuring of certain operations, including plant closings in Norway and Germany and other workforce reductions. 33

QUARTERLY FINANCIAL DATA (unaudited) - -------------------------------------------------------------------------------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH - -------------------------------------------------------------------------------- 1998 - -------------------------------------------------------------------------------- Net sales $176.2 $179.6 $176.3 $190.6 Gross profit 74.8 78.0 73.3 79.2 Net income/(loss) 11.1 10.6 11.1 (1.0) Net income/(loss) per share .36 .34 .37 (.03) Diluted net income/(loss) per share .36 .34 .36 (.03) Cash dividends per share .105 -- -- -- Class A Common Stock prices: High 27.063 30.188 24.50 20.563 Low 20.313 23.00 17.875 16.063 - -------------------------------------------------------------------------------- 1997 - -------------------------------------------------------------------------------- Net sales $171.8 $181.9 $171.8 $184.6 Gross profit 71.8 78.7 73.9 80.7 Net income 10.9 13.5 11.4 13.3 Net income per share .35 .43 .35 .42 Diluted net income per share .35 .42 .35 .41 Cash dividends per share .105 .105 .105 .105 Class A Common Stock prices: High 24.5 24.0 27.4375 26.5625 Low 20.625 19.75 22.5 22.25 - -------------------------------------------------------------------------------- 1996 - -------------------------------------------------------------------------------- Net sales $168.1 $172.1 $169.8 $182.8 Gross profit 70.1 72.7 72.0 78.6 Net income 8.1 12.3 12.5 15.4 Net income per share .26 .39 .40 .49 Diluted net income per share .25 .39 .40 .49 Cash dividends per share .10 .10 .10 .10 Class A Common Stock prices: High 20.375 22.625 22.5 23.125 Low 17.25 19.50 18.0 21.625 - -------------------------------------------------------------------------------- STOCK AND SHAREHOLDERS The Company's Class A Common Stock is traded principally on the New York Stock Exchange. At December 31, 1998 there were approximately 7,000 shareholders. 34

EXHIBIT 21 SUBSIDIARIES OF REGISTRANT

SUBSIDIARIES OF REGISTRANT PERCENT PERCENT DIRECT INDIRECT OWNERSHIP OWNERSHIP JURISDICTION --------- --------- ------------ Albany International Pty.,Ltd. 100 Australia Nomafa Austria 100 Austria Albany International Feltros e Telas Industriais Ltda. 100 Brazil Albany International Canada Inc. 100 Canada M&I Door Systems 100 Canada Albany International (China) Co., Ltd. 100 China Albany Fennofelt Oy AB 100 Finland Metco Form Oy 100 Finland Albany International Holding S.A. 100 France Albany International S.A. 100 France Martel Catala S.A. 100 France Toiles Franck S.A. 100 France Nomafa S.A.R.L. 100 France T.I.S. S.A. 100 France Schieffer Tor-und Schutzsysteme GmbH 100 Germany Nordiskafilt Maschinenbespannung GmbH 100 Germany Albany International GmbH, Eschenbach 100 Germany Nomafa GmbH 100 Germany Nomafa B.V. 100 Netherlands Albany International B.V. 100 Netherlands Albany Nordiskafilt Kabushiki Kaisha 100 Japan Albany International S.A. de C.V. 100 Mexico Martel Wire, S.A. de C.V. 100 Mexico Telas Industriales de Mexico, S.A. de C.V. 100 Mexico Albany International Industrial Fabrics & Filters, 100 Mexico S.A.de C.V. Albany Nordiskafilt AS 100 Norway Albany International Korea, Inc. 100 South Korea Albany International Korea, Inc. 100 South Korea Albany Nordiska S.A. 100 Spain Albany Nordiskafilt AB 100 Sweden Nordiska Maskinfilt Aktiebolag 100 Sweden Nordiskafilt Aktiebolag 100 Sweden Dewa Consulting AB 100 Sweden Nomafa Aktiebolag 100 Sweden Albany Wallbergs AB 100 Sweden Nordiska Industrie Produkte AG 100 Switzerland Albany International AG 100 Switzerland Albany International Ltd. 100 United Kingdom Albany International Research Co. 100 United States Albany International Techniweave, Inc. 100 United States M&I Door Systems USA, Inc. 100 United States

Exhibit 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS

CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Albany International Corp. on Form S-8 (File Nos. 33-23163, 33-28028 and 33-33048) of our report dated January 28, 1999, on our audits of the consolidated financial statements and financial statements schedules of Albany International Corp. as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997, and 1996, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Albany, New York March 19, 1999

EXHIBIT 24 POWERS OF ATTORNEY

POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Albany International Corp., a Delaware corporation ("the Company") which contemplates that from time to time 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, reports (including, without limitation, reports on Forms 8-K, 10-Q and 10-K), statements and other documents (such reports, statements and other documents, together with amendments, supplements and exhibits thereto, are collectively hereinafter referred to as "1934 Act Reports"), hereby constitutes and appoints Francis L. McKone, Frank R. Schmeler, Michael C. Nahl, Richard A. Carlstrom, Thomas H. Hagoort, John C. Treanor and Charles J. Silva, 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 and her and in his or her name, place and stead, in any and all capacities, to sign any or all 1934 Act Reports and any or all other documents relating thereto, with power where appropriate to affix the corporate seal of the Company thereto and to attest said seal, and to file any or all 1934 Act Reports, 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 Company. 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 Company.

IN WITNESS WHEREOF, the undersigned have duly executed this Power of Attorney this 23rd day of February, 1999. /s/ Francis L. McKone /s/ Frank R. Schmeler - ----------------------------------- ------------------------------- Francis L. McKone Frank R. Schmeler Chairman of the Board and Director President and Director (Chief Executive Officer) (Chief Operating Officer) /s/ Michael C. Nahl /s/ Richard A. Carlstrom - ----------------------------------- ------------------------------- Michael C. Nahl Richard A. Carlstrom Senior Vice President Controller (Chief Financial Officer) (Principal Accounting Officer) /s/ Charles B. Buchanan /s/ Thomas R. Beecher, Jr. - ----------------------------------- ------------------------------- Charles B. Buchanan Thomas R. Beecher, Jr. Director Director /s/ Allan Stenshamn /s/ Barbara P. Wright - ----------------------------------- ------------------------------- Allan Stenshamn Barbara P. Wright Director Director /s/ Joseph G. Morone, Ph.D. /s/ Christine L. Standish - ----------------------------------- ------------------------------- Joseph G. Morone, Ph.D. Christine L. Standish Director Director /s/ Erland E. Kailbourne - ----------------------------------- Erland E. Kailbourne Director

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALBANY INTERNATIONAL CORP.'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 5,868 0 190,252 5,504 196,909 409,713 661,128 336,019 866,366 220,038 181,137 0 0 32 314,818 866,366 722,653 722,653 417,375 650,733 (406) 1,312 19,310 51,704 20,163 31,772 0 0 0 31,772 1.04

1.03 Earnings per share reflect the impact of a 2.0% stock dividend that was distributed on January 6, 1999. Prior Financial Data Schedules have not been restated to reflect this dividend.