SEC Filing | Albany International Corp

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: September 30, 1999 ----------------------------------------- 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 Identification No.) incorporation or organization) 1373 Broadway, Albany, New York 12204 - ------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 518-445-2200 ------------ 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 The registrant had 24,058,924 shares of Class A Common Stock and 5,754,376 shares of Class B Common Stock outstanding as of September 30, 1999.

ALBANY INTERNATIONAL CORP. INDEX Part I Financial information Item 1. Financial Statements Page No. ------- Consolidated statements of income and retained earnings - three and nine months ended September 30, 1999 and 1998 1 Consolidated balance sheets - September 30, 1999 and December 31, 1998 2 Consolidated statements of cash flows - nine months ended September 30, 1999 and 1998 3 Notes to consolidated financial statements 4-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II Other information Item 6. Exhibits and Reports on Form 8-K 11

Item 1. Financial Statements ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (unaudited) (in thousands except per share data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - ------------------ ----------------- ------------------ ----------------- $196,566 $176,346 Net sales $553,960 $532,130 118,197 103,016 Cost of goods sold 326,849 306,024 - ------------------ ----------------- ------------------ ----------------- 78,369 73,330 Gross profit 227,111 226,106 54,474 52,573 Selling, technical and general 161,030 158,596 - ------------------ ----------------- expenses ------------------ ----------------- 23,895 20,757 Operating income 66,081 67,510 6,489 4,973 Interest expense, net 15,227 14,267 (555) (2,315) Other income, net (231) (77) - ------------------ ----------------- ------------------ ----------------- 17,961 18,099 Income before income taxes 51,085 53,320 7,507 7,056 Income taxes 20,426 20,792 - ------------------ ----------------- ------------------ ----------------- 10,454 11,043 Income before associated companies 30,659 32,528 213 24 Equity in earnings of associated 513 189 - ------------------ ----------------- companies ------------------ ----------------- 10,667 11,067 Net income 31,172 32,717 276,091 260,034 Retained earnings, beginning of period 255,586 246,013 - 3,067 Less dividends - 10,696 - ------------------ ----------------- ------------------ ----------------- $286,758 $268,034 Retained earnings, end of period $286,758 $268,034 ================== ================= ================== ================= $0.36 $0.37 Net income per share $1.05 $1.07 ================== ================= ================== ================= $0.36 $0.36 Diluted net income per share $1.04 $1.06 ================== ================= ================== ================= - - Cash dividends per common share - $0.105 ================== ================= ================== ================= 29,776,046 30,378,244 Weighted average number of shares 29,715,743 30,756,166 ================== ================= ================== ================= The accompanying notes are an integral part of the financial statements. 1

ALBANY INTERNATIONAL CORP. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) September 30, December 31, 1999 1998 ------------------- --------------------- ASSETS Cash and cash equivalents $24,983 $5,868 Accounts receivable, net 227,419 184,748 Inventories: Finished goods 133,285 115,740 Work in process 63,396 43,523 Raw material and supplies 45,690 37,646 ------------------- --------------------- 242,371 196,909 Deferred taxes and prepaid expenses 26,418 22,188 ------------------- --------------------- Total current assets 521,191 409,713 Property, plant and equipment, net 377,409 325,109 Investments in associated companies 4,389 4,054 Intangibles 233,223 60,800 Deferred taxes 31,304 27,193 Other assets 51,916 39,497 ------------------- --------------------- Total assets $1,219,432 $866,366 =================== ===================== LIABILITIES AND SHAREHOLDERS' EQUITY Notes and loans payable $28,850 $112,828 Accounts payable 37,776 25,838 Accrued liabilities 82,778 66,791 Current maturities of long-term debt 4,455 5,178 Income taxes payable and deferred 4,688 9,403 ------------------- --------------------- Total current liabilities 158,547 220,038 Long-term debt 554,219 181,137 Other noncurrent liabilities 135,616 113,282 Deferred taxes and other credits 42,062 37,059 ------------------- --------------------- Total liabilities 890,444 551,516 ------------------- --------------------- SHAREHOLDERS' EQUITY Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued - - Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; issued 26,264,916 in 1999 and 26,082,438 in 1998 26 26 Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,754,376 in 1999 and 5,785,282 in 1998 6 6 Additional paid in capital 209,344 206,428 Retained earnings 286,758 255,586 Accumulated items of other comprehensive income: Translation adjustments (104,435) (83,736) Pension liability adjustment (16,868) (16,868) ------------------- --------------------- 374,831 361,442 Less treasury stock (Class A), at cost (2,205,992 shares in 1999;2,240,050 shares in 1998) 45,843 46,592 ------------------- --------------------- Total shareholders' equity 328,988 314,850 ------------------- --------------------- Total liabilities and shareholders' equity $1,219,432 $866,366 =================== ===================== The accompanying notes are an integral part of the financial statements. 2

ALBANY INTERNATIONAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 ----------------- ----------------- OPERATING ACTIVITIES Net income $31,172 $32,717 Adjustments to reconcile net cash provided by operating activities: Equity in earnings of associated companies (513) (189) Depreciation and amortization 38,662 35,026 Provision for deferred income taxes, other credits and long-term 6,335 2,587 liabilities Increase in cash surrender value of life insurance, net of premiums paid (869) (466) Unrealized currency transaction gains (3,206) (2,988) Loss on disposition of assets 31 63 Shares contributed to ESOP 3,489 3,214 Debt issuance costs (4,905) - Changes in operating assets and liabilities: Accounts receivable 4,810 1,365 Inventories 6,573 (16,287) Prepaid expenses (3,121) (1,918) Accounts payable (5,402) (2,647) Accrued liabilities (1,203) 2,841 Income taxes payable (4,792) 640 Other, net (314) 778 ----------------- ----------------- Net cash provided by operating activities 66,747 54,736 ----------------- ----------------- INVESTING ACTIVITIES Purchases of property, plant and equipment (23,255) (28,490) Purchased software (1,369) (1,310) Proceeds from sale of assets 60 77 Premiums paid for life insurance (1,187) (1,187) Acquisitions, net of cash acquired (241,591) (24,135) Loan to other company (3,000) - Distributions from associated companies 75 - Investment in associated companies - (2,025) ----------------- ----------------- Net cash used in investing activities (270,267) (57,070) ----------------- ----------------- FINANCING ACTIVITIES Proceeds from borrowings 573,306 131,068 Principal payments on debt (336,828) (74,101) Proceeds from options exercised 165 2,105 Tax benefit of options exercised 11 281 Purchases of treasury shares - (45,227) Dividends paid - (6,387) ----------------- ----------------- Net cash provided by financing activities 236,654 7,739 ----------------- ----------------- Effect of exchange rate changes on cash flows (14,019) (3,512) ----------------- ----------------- Increase in cash and cash equivalents 19,115 1,893 Cash and cash equivalents at beginning of year 5,868 2,546 ----------------- ----------------- Cash and cash equivalents at end of period $24,983 $4,439 ================= ================= The accompanying notes are an integral part of the financial statements. 3

ALBANY INTERNATIONAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Management Opinion In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of results for such periods. The results for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements should be read in conjunction with financial statements and notes thereto for the year ended December 31, 1998. 2. Accounting for 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, 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, 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 have been recorded in "Other income, net". Open positions have been valued at fair value using quoted market rates. 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 required to 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. The Company plans to adopt this Standard on its effective date of January 1, 2001. 3. Other Income, Net Included in other income, net for the nine months ended September 30 are: currency transactions, $3.2 million income in 1999 and $4.0 million income in 1998; amortization of debt issuance costs and loan origination fees, $0.9 million in 1999 and $0.5 million in 1998 and other miscellaneous items, none of which are significant, in 1999 and 1998. 4

Included in other income, net for the three months ended September 30 are: currency transactions, $1.2 million income in 1999 and $3.3 million income in 1998; amortization of debt issuance costs and loan organization fees, $0.4 million in 1999 and $0.2 million in 1998 and other miscellaneous items, none of which are significant, in 1999 and 1998. 4. Earnings Per Share In accordance with Financial Accounting Standard No. 128, "Earnings Per Share", net income per share is computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during the period. Diluted net income per share includes the effect of all potentially dilutive securities. The amounts used in computing earnings per share, including the effect on income and the weighted average number of shares of potentially dilutive securities, are as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months Ended Three Months Ended September 30, September 30, (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Income available to common stockholders: Income available to common stockholders $31,172 $32,717 $10,667 $11,067 ------- ------- ------- ------- Weighted average number of shares: Weighted average number of shares used in net income per share 29,716 30,756 29,776 30,378 Effect of dilutive securities: Stock options 202 446 75 265 --- --- -- --- Weighted average number of shares used in diluted net income per share 29,918 31,202 29,851 30,643 ------ ------ ------ ------ Options excluded from the computation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares for the period were as follows: - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months Ended Three Months Ended September 30, 1999 September 30, 1999 Exercise Exercise Options Price Options Price Outstanding Per Share Outstanding Per Share - ------------------------------------------------------------------------------------------------------------------------------------ - - 23,500 $17.625 - - 57,200 18.625 - - 176,600 18.75 - - 412,000 19.375 - - 409,500 19.75 746,200 $22.25 746,200 22.25 250,000 25.5625 250,000 25.5625 - ------------------------------------------------------------------------------------------------------------------------------------ 5

5. Comprehensive Income Total comprehensive income consists of: - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months Ended Three Months Ended September 30, September 30, (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $31,172 $32,717 $10,667 $11,067 Other comprehensive (loss)/income, before tax: Foreign currency translation adjustments (20,699) (866) 3,296 4,280 Income tax related to items of other comprehensive loss - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income $10,473 $31,851 $13,963 $15,347 - ------------------------------------------------------------------------------------------------------------------------------------ 6. Operating Segment Data The following table shows data by operating segment, reconciled to consolidated totals included in the financial statements: - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months Ended Three Months Ended September 30, September 30, - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net Sales Engineered Fabrics $450,217 $433,363 $160,125 $142,423 High Performance Industrial Doors 72,280 71,127 25,506 24,600 All other 31,463 27,640 10,935 9,323 - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated Total $553,960 $532,130 $196,566 $176,346 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income Engineered Fabrics $101,011 $96,955 $37,336 $30,758 High Performance Industrial Doors 3,446 6,585 814 1,955 All other 4,000 4,085 808 1,217 Research expense (16,710) (17,392) (5,534) (5,681) Unallocated expenses (25,666) (22,723) (9,529) (7,492) - ------------------------------------------------------------------------------------------------------------------------------------ Operating income before reconciling items 66,081 67,510 23,895 20,757 Reconciling items: Interest expense, net (15,227) (14,267) (6,489) (4,973) Other income, net 231 77 555 2,315 - ------------------------------------------------------------------------------------------------------------------------------------ Consolidated income before income taxes $51,085 $53,320 $17,961 $18,099 - ------------------------------------------------------------------------------------------------------------------------------------ 7. Income Taxes The Company's effective tax rate for the nine months ended September 30, 1999 and 1998 was 40% and 39% respectively. The effective tax rate for the full year 1999 is anticipated to be 43%. 6

8. Supplementary Cash Flow Information Interest paid for the nine months ended September 30, 1999 and 1998 was $15.3 million and $13.8 million, respectively. Taxes paid for the nine months ended September 30, 1999 and 1998 was $20.7 million and $19.7 million, respectively. 9. Acquisitions In April 1999, the Company purchased all of the shares of Jansen Tortechnik, a manufacturer of high quality sectional overhead doors located in Surwold, Germany. The purchase price was approximately $7.7 million and was accounted for as a purchase. Accordingly, the results of operations are included in the financial statements since the acquisition date. In August 1999, the Company completed the purchase of all of the outstanding capital stock of the paper machine clothing business of the Geshmay group for approximately $250 million. Geshmay's principal operations are located in Europe and the United States. The transaction is being accounted for as a purchase. The fair market value of assets and liabilities are being determined by valuations and appraisals that are not yet complete. Therefore, the allocation of the total purchase cost has been estimated at September 30, 1999. The results of operations are included in the financial statements since the acquisition date. 10. Debt In August 1999, the Company entered into a new $750 million credit agreement with its banks. $250 million of this facility is a term loan with $40 million due in 2001, $60 million in 2002, $70 million in 2003 and $80 million in 2004. The remaining $500 million is a revolving loan with the banks' commitment to lend terminating in 2004. This agreement includes commitment fees and variable interest rates based on various loan pricing methods. The credit agreement contains various covenants which include limits on the disposition of assets and interest coverage and a maximum leverage ratio, as well as mandatory prepayments out of excess cash flow and proceeds from asset sales and debt offerings. Borrowings are secured by a pledge of shares of, and intercompany loans to, certain subsidiaries of the Company. 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three and Nine Months Ended September 30, 1999 The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS: Net sales increased to $196.6 million for the three months ended September 30, 1999 as compared to $176.3 million for the three months ended September 30, 1998. The effect of the stronger U.S. dollar as compared to the third quarter of 1998 was to decrease net sales by $1.1 million. Acquisitions made in 1999 (as discussed below) added $19.0 million to third quarter 1999 net sales. Excluding these two factors, 1999 net sales were up 1.3% as compared to 1998. Net sales for the nine months ended September 30, 1999 increased to $554.0 million as compared to $532.1 million for the same period in 1998. The effect of the stronger U.S. dollar as compared to the first nine months of 1998 was to decrease net sales by $3.9 million. Acquisitions made in 1999 and 1998 added $25.7 million to 1999 net sales. Excluding these two factors, 1999 net sales were flat as compared to 1998. In the United States, net sales in the third quarter of 1999 increased 2.5% resulting in a year to date decrease of 1.0% as compared to the same period in 1998. Net sales for the nine months ended September 30, 1999, as compared to the same period in 1998, decreased in Canada and were higher in Asia. European sales increased in local currencies and were down 1.6% in U.S. dollars. Gross profit was 39.9% of net sales for the three months ended September 30, 1999 as compared to 41.6% for the same period in 1998 bringing the nine month result to 41.0% for 1999 as compared to 42.5% for 1998. Year to date variable costs as a percent of net sales increased to 34.2% in 1999 from 33.6% for the same period in 1998. Excluding the effect of the stronger U.S. dollar and acquisitions, variable costs as a percent of net sales were 34.2% in 1999. The decrease in gross profit margin is the result of acquisitions and pricing pressures from major paper machine clothing customers. Improvements in profitability at the paper-manufacturing base should translate to price stability in the paper machine clothing industry. Selling, technical, general and research expenses, excluding the effect of the stronger U.S. dollar and acquisitions, decreased 1.0% for the nine months ended September 30, 1999 as compared to the same period in 1998. Operating income as a percentage of net sales decreased to 11.9% for the nine months ended September 30, 1999 from 12.7% for the comparable period in 1998 due to items discussed above. Excluding the effect of the stronger U.S. dollar and acquisitions, operating income as a percentage of net sales was 12.2% in 1999. Interest expense for the first nine months of 1999, as compared to 1998, increased $1.0 million due to higher total debt as a result of acquisitions, as noted below. Management anticipates interest expense, at current rates, to be approximately $10 million per quarter beginning in the fourth quarter of 1999. The tax rate for the first nine months of 1999 was 40%. The tax rate for the full year 1999 is expected to be 43% due to the Geschmay acquisition, as noted below. This will result in an unusually high tax rate in the fourth quarter of 1999, which is not expected to continue in future quarters. 8

The Company is on schedule to achieve slightly more than the expected 1999 cost reduction of $10 million resulting from the global restructuring plan announced in January 1999. In 1999, as part of this plan, the Company announced the closing of plants in Weaverville, North Carolina, Ahlen, Germany and a press fabrics plant in Simpsonville, South Carolina. This plan will result in cumulative annual cost savings of $22 million in 2000 and $25 million in 2001. The acquisition of Geschmay, as discussed below, has created synergistic opportunities that should result in additional cost reductions of $25 million, for a total of $50 million when all restructuring plans are complete. The first steps of this integration plan were announced in October 1999 and included the closing of a dryer fabrics plant in Simpsonville, South Carolina, a reduction of the combined sales force in the United States and the closing of the Geschmay sales offices in Singapore and Canada. In April 1999, the Company purchased all of the shares of Jansen Tortechnik, a manufacturer of high quality sectional overhead doors located in Surwold, Germany. The purchase price was approximately $7.7 million and was accounted for as a purchase. Accordingly, the results of operations are included in the financial statements since the acquisition date. In August 1999, the Company completed the purchase of all of the outstanding capital stock of the paper machine clothing business of the Geschmay group for approximately $250 million. Geschmay's principal operations are located in Europe and the United States. The transaction is being accounted for as a purchase. The fair market value of assets and liabilities are being determined by valuations and appraisals that are not yet complete. Therefore, the allocation of the total purchase cost has been estimated at September 30, 1999. The results of operations are included in the financial statements since the acquisition date. Reasons for the changes in operating results for the three month period ended September 30, 1999 as compared to the corresponding period in 1998 are similar to those which affected the nine month comparisons, except where specifically noted. LIQUIDITY AND CAPITAL RESOURCES: Accounts receivable increased $42.7 million since December 31, 1998. Excluding the effect of the stronger U.S. dollar and the Geschmay acquisition, accounts receivable were flat. Inventories increased $45.5 million during the nine months ended September 30, 1999. Excluding the items noted above, inventories decreased $1.4 million. In order to fund the Geschmay acquisition, in August 1999, the Company entered into a new $750 million credit agreement with its banks. $250 million of this facility is a term loan with $40 million due in 2001, $60 million in 2002, $70 million in 2003 and $80 million in 2004. The remaining $500 million is a revolving loan with the banks' commitment to lend terminating in 2004. $515 million of this facility was used as of September 30, 1999. This agreement includes commitment fees and variable interest rates based on various loan pricing methods. The credit agreement contains various covenants which include limits on the disposition of assets and interest coverage and a maximum leverage ratio, as well as mandatory prepayments out of excess cash flow and proceeds from asset sales and debt offerings. Borrowings are secured by a pledge of shares of, and intercompany loans to, certain subsidiaries of the Company. Capital expenditures for the nine months ended September 30, 1999, including leases to the extent they are required to be capitalized, were $23.3 million as compared to $28.5 million for the same period last year. The Company anticipates that capital expenditures, including leases, will be approximately $45 million. These expenditures will be financed with cash from operations and existing credit facilities. 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 required to 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. The Company plans to adopt this Standard on its effective date of January 1, 2001. 9

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 from internal operations. 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 substantially completed the assessment, testing and remediation phases of this program. 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 internal 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. As of September 30, 1999, total external expenditures related to the year 2000 program are approximately $1.0 million and have been funded from cash from operations. Of the $1.0 million, $0.3 million was for consultants, $0.4 million for hardware, $0.2 million for software and $0.1 million for communications equipment. Future expenditures for this program are not expected to be significant. FORWARD-LOOKING STATEMENTS This Form 10-Q 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, product pricing, interest expense, annual cost savings, future sales, estimated impact of actions upon future earnings, year 2000 expenditures and compliance, 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. 10

Part II - Other Information Item 6. Exhibits and Reports on Form 8-K Reports on Form 8-K were filed on September 8, 1999 (Item 2. Acquisition or Disposition of Assets) and September 21, 1999 (exhibit only). Exhibit No. Description ----------- ----------- 3(b). Bylaws of Registrant 11. Schedule of computation of net income per share and diluted net income per share 27. Financial data schedule 11

SIGNATURES Pursuant to the requirements 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. ALBANY INTERNATIONAL CORP. -------------------------- (Registrant) Date: November 10, 1999 by /s/Michael C. Nahl --------------------- Michael C. Nahl Sr. Vice President and Chief Financial Officer

EXHIBIT 3(b) Bylaws of Registrant

[Revised By Laws adopted by the Board of Directors on May 6, 1999] ALBANY INTERNATIONAL CORP. -------------------------- BY LAWS ------- ARTICLE I MEETINGS OF STOCKHOLDERS ------------------------ SECTION 1. An annual meeting of the stockholders for the election of directors and such other business as may properly come before such meeting shall be held on such date prior to September 1 of each year, and at such place and time, as shall be designated by the Board of Directors or by such person or persons as the Board of Directors shall authorize. SECTION 2. Special meetings of stockholders may be called at any time by a majority of the whole number of members of the Board of Directors. It shall also be the duty of the Chairman of the Board, or, if there is no Chairman of the Board, the President, to call a special meeting whenever requested in writing to do so by stockholders holding shares of common stock of the Company entitling such stockholders to cast a majority of the votes for the election of directors. Any such request shall state the purpose or purposes for which the meeting is to be called. No business shall be transacted at a special meeting of stockholders other than business stated in the notice of such meeting as the purpose or purposes for which the meeting is called. SECTION 3. Written notice of each meeting of stockholders shall be given to each stockholder entitled to vote thereat, stating the place, date and hour or the meeting, and, in the case of a special meeting, the purpose or purposes of the meeting. Such notice may be given by mail or by such other means as is permitted by law. SECTION 4. At all meetings of stockholders, shares of common stock of the corporation entitling the holders thereof to cast a majority of the votes for the election of directors, present in person or by proxy, shall constitute a quorum. SECTION 5. At all meetings of stockholders, only such persons shall be entitled to vote, in person or by proxy, as appear as stockholders on the books of the corporation on the record date for such meeting. The Board of Directors may fix a record date for a meeting as permitted by law. SECTION 6. The Chairman of the Board of Directors shall preside at all meetings of stockholders. If the Chairman of the Board of Directors is absent or that office is vacant, the President shall preside. If the Chairman of the Board of Directors and the President are absent, or those offices are vacant, the longest serving member of the Board of Directors present shall preside at the meeting unless otherwise determined by the Board of Directors. SECTION 7. Proposals of stockholders, including nominations of persons for election to the Board of Directors of the corporation, shall not be presented, considered or voted upon at an annual meeting of stockholders of the corporation, or at any adjournment thereof, unless (i) notice of the proposal has been received by mail directed to the Secretary of the corporation at its principal executive offices at P.O., Box 1907, Albany, New York,12201 not less than 100 days nor more than 180 days prior to the anniversary date of the last preceding annual meeting of stockholders and (ii) the stockholder giving such notice is a stockholder of record on the date of the giving of such notice and on the record date for the determination of stockholders entitled to vote at such annual meeting. Each such notice shall set forth (i) the proposal desired to be brought before the annual meeting and the reasons for presenting such proposal at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder making such proposal, (iii) the number and class of shares owned beneficially

or of record by such stockholder, (iv) any material interest of such stockholder in the proposal and (iv) such other information with respect to the proposal and such stockholder as is required to be disclosed in solicitation of proxies to vote upon such proposal, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended ("the Proxy Rules"). In the case of proposed nominations of persons for election to the Board of Directors, each such notice shall also (i) set forth such information with respect to such nominees and the stockholder proposing the nominations as is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, pursuant to the Proxy Rules and (ii) be accompanied by the written consent of each proposed nominee to being named in the corporation's proxy statement as a nominee and to serving as a director if elected and by written confirmation by each such nominee of the information relating to such nominee contained in the notice. ARTICLE II DIRECTORS --------- SECTION 1. Until changed by the Board of Directors as hereinafter provided, the number of directors shall be nine. The number of directors may be changed by the Board of Directors to such number, not less than three, as the Board of Directors may determine from time to time. No decrease in the number of directors shall shorten the term of any incumbent director. Each director shall hold office until the next annual meeting of stockholders, or the delivery of a consent or consents in lieu thereof, and until his or her successor has been elected and qualified. No person shall be elected a director of the corporation after he or she shall have reached the age of 72 years; but any person who shall, while a director, reach the age of 72 years may continue to serve until the next annual meeting, or the delivery of a consent or consents in lieu thereof, and until his or her successor has been elected and qualified. SECTION 2. Newly created directorships resulting from an increase in the number of directors, and vacancies occurring in the Board of Directors for any reason, may be filled by vote of a majority of the directors then in office, although less than a quorum exists, or by a sole remaining director. SECTION 3. The Board of Directors may hold meetings at such times and places as it may from time to time determine. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board of Directors, by the President or by any three directors. Notice of each regular or special meeting of the Board of Directors, stating the time and place thereof, shall be given, orally or in writing, personally, by mail, telephone, facsimile or other electronic means or by any other reasonable method at least 48 hours prior to such meeting. A director may waive such notice in writing, either before or after the meeting. Attendance in person at any meeting of the Board of Directors shall be deemed to constitute waiver of notice by a director. SECTION 4. The Board of Directors may provide for compensation to, and expenses of, its members for attendance at meetings of the Board and any committees thereof. The Board of Directors may also provide for compensation to, and expenses of, committees of stockholders. SECTION 5. The Board of Directors may designate one or more committees consisting of one or more members of the Board of Directors. Such committees shall have and may exercise all of the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including the power to authorize the seal of the corporation to be affixed to documents, as the Board of Directors may provide in the resolution establishing such committee or by other action taken from time to time. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. No committee shall have power or authority to (i) approve, adopt or recommend to the stockholders any action or matter expressly required by the Delaware General Corporation Law to be submitted to the stockholders for approval or (ii) amend the By Laws of the corporation. 2

SECTION 6. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all of the members of the Board or such committee consent thereto in writing, and the writing or writings are filed with the minutes of the Board or Committee. SECTION 7. Members of the Board of Directors, or any committee, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment that permits all persons participating in the meeting to hear each other participant, and participation in a meeting in such manner shall constitute presence in person at the meeting. SECTION 8. The Chairman of the Board shall preside at all meetings of the Board of Directors. If the Chairman of the Board is absent or that office is vacant, the President shall preside. If the Chairman of the Board and the President are absent, or those offices are vacant, the longest serving member of the Board of Directors present shall preside at the meeting unless otherwise determined by the Board of Directors. ARTICLE III OFFICERS -------- The Board of Directors may elect or appoint a Chairman of the Board, a President, one or more Vice Presidents, a Secretary and a Treasurer and such other officers as the Board of Directors may from time to time determine. Any two or more offices may be held by the same person. Each officer shall have such authority, and perform such duties, as usually devolve upon his or her office or as may otherwise be determined from time to time by the Board of Directors or provided for in the By Laws of the corporation. ARTICLE IV INDEMNIFICATION --------------- SECTION 1. The corporation shall indemnify any person who is a party, or is threatened to be made a party, or who is called or threatened to be called to give testimony (whether during pre-trial discovery, at trial or otherwise) in connection with any threatened, pending or completed action, suit or proceeding of any kind, whether civil, criminal or investigative, including an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against costs, expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if (i) such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, (ii) such person did not personally gain, as a result of the acts or omissions to which such action, suit or proceeding relates, a financial profit or other financial advantage to which such person was not legally entitled and, (iii) with respect to any criminal action or proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not meet the standards of conduct set forth in the preceding sentence. SECTION 2. Any person entitled to indemnification under Section 1 of this Article IV shall, upon delivery to the corporation of the undertaking described in the following sentence, be entitled to require the corporation to pay, in advance of the final disposition 3

of any action, suit or proceeding in respect of which indemnification is required hereunder, the costs and expenses (including attorneys fees) reasonably incurred by such person from time to time in connection with such action, suit or proceeding. The undertaking referred to above shall be a valid, written agreement of such person to repay all amounts paid to such person by the corporation pursuant to the preceding sentence if it shall ultimately be determined that such person is not entitled to indemnification by the corporation under this Article. SECTION 3. In the event the corporation refuses to indemnify any person and an action, suit or proceeding is commenced in order to determine whether such indemnification is required under this Article IV, or in the event of any action, suit or proceeding to enforce any undertaking referred to in Section 2 of this Article, (i) the corporation, and any other participant in such an action, suit or proceeding who asserts that such person is not entitled to indemnification by the corporation under this Article, shall have the burden of proof to establish that such person is not entitled to indemnification under this Article, and (ii) if, as a result of such action, suit or proceeding, such person is held to be entitled to indemnification under this Article, or if the corporation and all other participants asserting such claim cease to pursue the claim that such person is not entitled to indemnification, then the corporation shall, in addition to the indemnification otherwise required under Section 1 of this Article, indemnify such person against the costs and expenses (including attorneys fees) reasonably incurred by such person in connection with the action, suit or proceeding in which such person's right to indemnification was disputed. SECTION 4. (a) The Board of Directors of the corporation may authorize the purchase and maintenance by the corporation of insurance for the benefit of any person or persons entitled to indemnification under this Article covering risks of the kind to which such indemnification relates. Such insurance coverage may exceed the scope of such indemnification. (b) If, at any time, any person receives proceeds from an insurance policy referred to in the preceding subsection (a) on account of any matter with respect to which such person is entitled to indemnification under this Article, the indemnification obligations of the corporation under this Article shall be reduced by the amount of such proceeds so received. (c) Upon payment by the corporation of any amount as indemnification under this Article, the corporation will be subrogated, to the extent of such amount, to the rights, if any, of the indemnified person under any insurance policy covering risks of the kind to which indemnification under this Article relates, and the indemnified person will cooperate to facilitate the corporation's enforcement of such subrogation rights. SECTION 5. Indemnification rights provided under this Article IV shall be deemed to be contract rights. No modification or termination of any provision of this Article or of the rights provided hereunder shall diminish or change any right of any person to indemnification under this Article with respect to any action, suit or proceeding which relates to acts or omissions of such person occurring prior to the time when such person receives written notice that such modification or termination has occurred. SECTION 6. The Board of Directors of the corporation may authorize the execution and delivery by the corporation of agreements with persons who are or who become beneficiaries of the indemnification rights provided under this Article, such agreements to contain provisions substantially in accordance with the provisions of this Article. SECTION 7. The rights of indemnification provided in this Article IV are not intended to be exclusive of any other rights of indemnification to which any person may be or become entitled, whether by reason of law, contract, action by the Board of Directors or otherwise. 4

SECTION 8. For purposes of this Article IV: references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonable believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" for purposes of this Article. SECTION 9. The rights of indemnification provided in this Article IV (including, without limitation, rights to advancement of costs and expenses) shall continue as to a person who has ceased to be a director, officer, employee or agent of the corporation with respect to acts or omissions occurring while such person was a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person with respect to such acts or omissions. ARTICLE V AMENDMENT OF BY LAWS -------------------- SECTION 1. These By Laws may be amended at any time, and from time to time, by the Board of Directors or by the stockholders of the corporation. 5

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 nine months ended September 30, ended September 30, 1999 (1) 1998 (1) 1999 (1) 1998 (1) ------------ ------------- ------------ ------------ Net income $10,667 $11,067 $31,172 $32,717 ============ ============= ============ ============ Weighted average number of shares 29,776,046 30,378,244 29,715,743 30,756,166 Effect of potentially dilutive securities: Stock options (2) 75,190 265,494 201,856 445,730 ------------ ------------- ------------ ------------ Weighted average number shares, including the effect of potentially dilutive securities 29,851,236 30,643,738 29,917,599 31,201,896 ============ ============= ============ ============ Net income per share $0.36 $0.37 $1.05 $1.07 ============ ============= ============ ============ Diluted net income per share $0.36 $0.36 $1.04 $1.06 ============ ============= ============ ============ Calculation of Weighted Average Number of Shares: Weighted Average Shares ---------------------------------------------------------------- For the three months For the nine months Shares Days ended September 30, ended September 30, ------------------- Activity Outstanding (1)Year to Date Quarter 1999 1998 1999 1998 - ------------------------------------------------------------------ ----------- ------------- ------------ ------------ 1998 Beginning balance 31,638,530 8 927,136 Treasury shares - 5,000 31,633,379 6 695,239 Options - 2,500 shares 31,635,954 1 115,883 Treasury shares - 411,100 31,212,429 7 800,319 Treasury shares - 400,000 30,800,339 7 789,752 Treasury shares - 13.700 30,786,224 1 112,770 ESOP shares - 12,783 30,799,394 25 2,820,457 Treasury shares - 26,000 30,772,608 3 338,161 ESOP shares - 41,378 30,815,237 13 1,467,392 Options - 600 shares 30,815,855 5 564,393 Options - 20,000 shares 30,836,459 9 1,016,587 Options - 8,000 shares 30,844,701 4 451,937 Options - 9,500 shares and ESOP shares - 10,011 30,864,802 2 226,116 Options - 4,400 shares 30,869,335 1 113,074 Options - 8,000 shares 30,877,577 3 339,314 Options - 16,600 shares 30,894,678 15 1,697,510 Options - 1,600 shares 30,896,327 3 339,520 Options - 5,400 shares 30,901,890 4 452,775 Options - 1,500 shares 30,903,435 2 226,399 ESOP shares - 10,443 30,914,194 1 113,239 Options - 500 shares 30,914,709 10 1,132,407 Options - 7,400 shares 30,922,333 4 453,074 Directors shares - 2,004 30,924,397 4 453,105 Options - 600 shares 30,925,015 1 113,278 Options - 3,000 shares 30,928,106 2 226,580 Options - 1,200 shares 30,929,342 5 566,471 Options - 600 shares 30,929,961 4 453,186 ESOP shares - 9,096 30,939,331 3 339,993 Options - 10,000 shares 30,949,634 2 226,737 Options - 10,000 shares 30,959,936 3 340,219 Options - 2,500 shares 30,962,512 1 113,416 Options - 500 shares 30,963,027 9 1,020,759 Options - 3,000 shares 30,966,117 1 113,429 Treasury shares - 6,900 30,959,009 3 340,209 Options - 550 shares 30,959,575 3 340,215 Treasury shares - 120,000 30,835,948 5 564,761 ESOP shares - 11,371 30,848,049 22 21 7,041,403 2,485,923 Treasury shares - 72,200 30,774,037 1 1 334,500 112,725 Treasury shares - 33,700 30,739,491 1 1 334,125 112,599 Treasury shares - 50,000 30,688,236 7 7 2,334,974 786,878 ESOP shares - 13,945 30,702,531 4 4 1,334,893 449,854 Treasury shares - 52,000 30,649,226 3 3 999,431 336,805 Treasury shares - 64,800 30,582,800 4 4 1,329,687 448,100

Treasury shares - 7,800 30,574,804 2 2 664,670 223,991 Treasury shares - 63,700 30,509,505 4 4 1,326,500 447,026 Treasury shares - 16,800 30,492,283 2 2 662,876 223,387 Treasury shares - 60,000 30,430,777 1 1 330,769 111,468 Treasury shares - 14,400 30,416,016 1 1 330,609 111,414 Treasury shares - 50,000 30,364,761 5 5 1,650,259 556,131 Treasury shares - 40,100 30,323,654 1 1 329,605 111,076 Treasury shares - 5,000 30,318,529 4 4 1,318,197 444,228 ESOP shares - 13,856 30,332,733 2 2 659,407 222,218 Treasury shares - 36,000 30,295,829 1 1 329,302 110,974 Treasury shares - 152,000 30,140,014 1 1 327,609 110,403 Treasury shares - 200,000 29,934,994 5 5 1,626,902 548,260 Treasury shares - 100,000 29,832,484 1 1 324,266 109,276 Treasury shares - 15,000 29,817,107 5 5 1,620,495 546,101 Treasury shares - 35,000 29,781,229 1 1 323,709 109,089 Treasury shares - 44,900 29,735,202 9 9 2,908,878 980,281 Treasury shares - 63,600 29,670,005 5 5 1,612,500 543,407 ESOP shares - 14,678 29,686,322 1 1 322,677 108,741 ------------- ------------ Totals 30,378,244 30,756,166 ============= ============ 1999 Beginning balance 29,627,670 30 3,255,788 ESOP shares - 13,772 29,641,442 28 3,040,148 ESOP shares - 15,530 29,656,972 31 3,367,642 ESOP shares - 49,234 29,706,206 20 2,176,279 Options - 2,400 shares 29,708,606 10 1,088,227 ESOP shares - 13,350 29,721,956 6 653,230 Stock dividend adjust. - 1,592 29,723,548 4 435,510 Directors shares - 2,884 29,726,432 2 217,776 Options - 1,550 shares 29,727,982 1 108,894 Options - 1,400 shares 29,729,382 4 435,595 Options - 1,000 shares 29,730,382 4 435,610 Options - 400 shares 29,730,782 10 1,089,040 ESOP shares - 12,335 29,743,117 14 1,525,288 Options - 1,800 shares 29,744,917 16 1,743,292 ESOP shares - 13,827 29,758,744 31 30 9,703,938 3,379,198 ESOP shares - 16,877 29,775,621 31 31 10,033,090 3,381,114 ESOP shares - 16,925 29,792,546 30 30 9,714,961 3,273,906 ESOP shares - 20,754 29,813,300 1 1 324,058 109,206 ------------ ------------ Totals 29,776,046 29,715,743 ============ ============ (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.

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALBANY INTERNATIONAL CORP'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 SEP-30-1999 24,983 0 235,691 8,272 242,371 521,191 724,162 346,753 1,219,432 158,547 554,219 0 0 32 328,956 1,219,432 553,960 553,960 326,849 488,048 (231) (169) 15,227 51,085 20,426 31,172 0 0 0 31,172 1.05 1.04