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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:June 30, 2020
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: 1-10026
ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

216 Airport DriveRochesterNew Hampshire
(Address of principal executive offices)

14-0462060
(IRS Employer Identification No.)

03867
(Zip Code)

603-330-5850
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareAINThe New York Stock Exchange (NYSE)
Class B Common Stock, $0.001 par value per shareAINThe New York Stock Exchange (NYSE)

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  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
The registrant had 30.7 million shares of Class A Common Stock and 1.6 million shares of Class B Common Stock outstanding as of July 21, 2020.



ALBANY INTERNATIONAL CORP.
TABLE OF CONTENTS
Page No.


Index

ITEM 1. FINANCIAL STATEMENTS

ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Net sales$225,990  $273,949  $461,754  $525,321  
Cost of goods sold123,010  168,767  269,302  328,368  
Gross profit102,980  105,182  192,452  196,953  
Selling, general, and administrative expenses38,543  40,816  78,649  81,761  
Technical and research expenses8,873  9,242  18,003  19,491  
Restructuring expenses, net2,837  899  3,479  1,383  
Operating income52,727  54,225  92,321  94,318  
Interest expense, net3,823  4,631  7,800  9,048  
Other expense/(income), net1,091  930  16,660  (278) 
Income before income taxes47,813  48,664  67,861  85,548  
Income tax expense15,364  14,405  27,818  21,881  
Net income32,449  34,259  40,043  63,667  
Net (loss)/income attributable to the noncontrolling interest95  205  (1,420) 423  
Net income attributable to the Company$32,354  $34,054  $41,463  $63,244  
Earnings per share attributable to Company shareholders - Basic$1.00  $1.05  $1.28  $1.96  
Earnings per share attributable to Company shareholders - Diluted$1.00  $1.05  $1.28  $1.96  
Shares of the Company used in computing earnings per share:
Basic32,328  32,299  32,320  32,286  
Diluted32,336  32,311  32,328  32,298  
Dividends declared per share, Class A and Class B$0.19  $0.18  $0.38  $0.36  
The accompanying notes are an integral part of the consolidated financial statements
3

Index
ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Net income$32,449  $34,259  $40,043  $63,667  
Other comprehensive income/(loss), before tax:
Foreign currency translation and other adjustments8,753  (50) (16,202) (2,202) 
Pension/postretirement settlements and curtailments378    378    
Amortization of pension liability adjustments:
Prior service credit(1,114) (1,105) (2,228) (2,210) 
Net actuarial loss1,232  1,118  2,476  2,239  
Payments and amortization related to interest rate swaps included in earnings1,116  (420) 1,523  (872) 
Derivative valuation adjustment(1,366) (5,887) (12,130) (9,264) 
Income taxes related to items of other comprehensive income/(loss):
Pension/postretirement settlements and curtailments(113)   (113)   
Amortization of pension liability adjustment(30) (4) (62) (9) 
Payments and amortization related to interest rate swaps included in earnings(286) 108  (390) 223  
Derivative valuation adjustment349  1,504  3,102  2,367  
Comprehensive income41,368  29,523  16,397  53,939  
Comprehensive income/(loss) attributable to the noncontrolling interest247  207  (1,159) 417  
Comprehensive income/(loss) attributable to the Company$41,121  $29,316  $17,556  $53,522  
The accompanying notes are an integral part of the consolidated financial statements
4

Index
ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
June 30, 2020December 31, 2019
ASSETS
Cash and cash equivalents
$204,037  $195,540  
Accounts receivable, net
202,612  218,271  
Contract assets, net
96,092  79,070  
Inventories
115,532  95,149  
Income taxes prepaid and receivable
5,998  6,162  
Prepaid expenses and other current assets
26,209  24,142  
Total current assets
$650,480  $618,334  
Property, plant and equipment, net
443,046  466,462  
Intangibles, net
49,706  52,892  
Goodwill
181,302  180,934  
Deferred income taxes
40,999  51,621  
Noncurrent receivables, net
36,901  41,234  
Other assets
59,526  62,891  
Total assets
$1,461,960  $1,474,368  
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable
$50,181  $65,203  
Accrued liabilities
115,458  125,885  
Current maturities of long-term debt
17  20  
Income taxes payable
11,546  11,611  
Total current liabilities
177,202  202,719  
Long-term debt
435,000  424,009  
Other noncurrent liabilities
134,898  132,725  
Deferred taxes and other liabilities
8,702  12,226  
Total liabilities
755,802  771,679  
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; 39,112,722 issued in 2020 and 39,098,792 in 201939  39  
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 1,617,998 in 2020 and 20192  2  
Additional paid in capital
432,738  432,518  
Retained earnings
726,233  698,496  
Accumulated items of other comprehensive income:
Translation adjustments
(139,635) (122,852) 
Pension and postretirement liability adjustments
(48,962) (49,994) 
Derivative valuation adjustment
(11,030) (3,135) 
Treasury stock (Class A), at cost; 8,394,022 shares in 2020 and 8,408,770 shares in 2019(256,074) (256,391) 
Total Company shareholders' equity
703,311  698,683  
Noncontrolling interest
2,847  4,006  
Total equity
706,158  702,689  
Total liabilities and shareholders' equity
$1,461,960  $1,474,368  
The accompanying notes are an integral part of the consolidated financial statements
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ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
OPERATING ACTIVITIES
Net income$32,449  $34,259  $40,043  $63,667  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation15,498  15,345  31,004  30,987  
Amortization2,456  2,409  5,020  4,723  
Change in deferred taxes and other liabilities3,543  319  9,360  (746) 
Provision for write-off of property, plant and equipment36  720  233  1,106  
Non-cash interest expense20  152  171  303  
Compensation and benefits paid or payable in Class A Common Stock1,198  1,170  516  623  
Fair value adjustment on foreign currency option    64    
Provision for credit losses from uncollected receivables and contract assets114  219  1,769  804  
Foreign currency remeasurement loss/(gain) on intercompany loans194  100  15,581  (1,607) 
Changes in operating assets and liabilities that provided/(used) cash:
Accounts receivable11,511  14,215  8,117  2,006  
Contract assets(11,169) 3,528  (20,009) 3,047  
Inventories(4,878) (1,505) (24,628) (18,167) 
Prepaid expenses and other current assets(301) (1,384) (2,457) (4,188) 
Income taxes prepaid and receivable29  (316) (208) 358  
Accounts payable(9,337) (14,276) (10,383) 7,474  
Accrued liabilities4,171  (1,074) (10,901) (12,169) 
Income taxes payable5,526  5,724  1,955  7,230  
Noncurrent receivables628  (46) 397  (340) 
Other noncurrent liabilities(464) (481) (524) (2,160) 
Other, net(552) (548) (1,086) 145  
Net cash provided by operating activities50,672  58,530  44,034  83,096  
INVESTING ACTIVITIES
Purchases of property, plant and equipment(9,212) (14,606) (21,971) (35,404) 
Purchased software  (27) (46) (49) 
Net cash used in investing activities(9,212) (14,633) (22,017) (35,453) 
FINANCING ACTIVITIES
Proceeds from borrowings    70,000  20,000  
Principal payments on debt(56,005) (9,004) (59,011) (37,008) 
Principal payments on finance lease liabilities(329) (178) (6,463) (578) 
Taxes paid in lieu of share issuance    (490) (971) 
Proceeds from options exercised20  28  20  72  
Dividends paid(6,141) (5,813) (12,280) (11,621) 
Net cash used in financing activities(62,455) (14,967) (8,224) (30,106) 
Effect of exchange rate changes on cash and cash equivalents2,352  (1,082) (5,296) (59) 
Increase/(decrease) in cash and cash equivalents(18,643) 27,848  8,497  17,478  
Cash and cash equivalents at beginning of period222,680  187,385  195,540  197,755  
Cash and cash equivalents at end of period$204,037  $215,233  $204,037  $215,233  
The accompanying notes are an integral part of the consolidated financial statements
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ALBANY INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Significant Accounting Policies
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary for a fair presentation of results for such periods. Albany International Corp. (Albany, the Registrant, the Company, we, us, or our) consolidates the financial results of its subsidiaries for all periods presented. The results for any interim period are not necessarily indicative of results for the full year.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in Albany International Corp.’s Consolidated Financial Statements and accompanying Notes. Actual results could differ materially from those estimates.
The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Albany International Corp.’s Annual Report on Form 10-K for the year ended December 31, 2019.
Effective January 1, 2020, we adopted the provisions of ASC 326Current Expected Credit Losses (CECL), using the effective date (or modified retrospective) approach for transition. Under this transition method, periods prior to 2020 were not restated. The pre-tax cumulative effect of initially applying the new standard was an increase in credit loss reserves of $1.8 million, primarily for Accounts receivable and Contract assets. Including tax effects, Retained earnings was reduced by $1.4 million as a result of transitioning to the new standard. The effect of the application of CECL during the first quarter of 2020 is further described in Notes 11 and 12.

2. Reportable Segments
In accordance with applicable disclosure guidance for enterprise segments and related information, the internal organization that is used by management for making operating decisions and assessing performance is used as the basis for our reportable segments.
The Machine Clothing (“MC”) segment supplies permeable and impermeable belts used in the manufacture of paper, paperboard, tissue and towel, nonwovens, fiber cement and several other industrial applications. We sell our MC products directly to customer end-users in countries across the globe. Our products, manufacturing processes, and distribution channels for MC are substantially the same in each region of the world in which we operate.
We design, manufacture, and market paper machine clothing (used in the manufacturing of paper, paperboard, tissue and towel) for each section of the paper machine and for every grade of paper. Paper machine clothing products are customized, consumable products of technologically sophisticated design that utilize polymeric materials in a complex structure.
The Albany Engineered Composites (“AEC”) segment, including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group (“Safran”) owns a 10 percent noncontrolling interest, provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries. AEC’s largest program relates to CFM International’s LEAP engine. Under this program, AEC through ASC, is the exclusive supplier of advanced composite fan blades and cases under a long-term supply contract. The manufacturing spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the Company due to the cost-plus nature of the supply agreement. In the fourth quarter of 2019, Safran leased manufacturing space from AEC for the GE9X program. Rent paid by Safran under this lease amounted to $0.5 million for the first six months of 2020. AEC net sales to Safran, substantially all of which were through ASC, were $57.0 million and $116.3 million in the first six months of 2020 and 2019, respectively.
The total of Accounts receivable, Contract assets and Noncurrent receivables due from Safran amounted to $105.4 million and $114.5 million as of June 30, 2020 and December 31, 2019, respectively. Other significant programs by AEC include the F-35, Boeing 787, Sikorsky CH-53K and JASSM, as well as the fan case for the GE9X engine. In 2019, approximately 25 percent of AEC sales were related to U.S. government contracts or programs.
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The following tables show data by reportable segment, reconciled to consolidated totals included in the financial statements:
Three months ended June 30,Six months ended June 30,
(in thousands)
2020201920202019
Net sales
Machine Clothing
$153,433  $155,016  $290,035  $299,349  
Albany Engineered Composites
72,557  118,933  171,719  225,972  
Consolidated total
$225,990  $273,949  $461,754  $525,321  
Operating income/(loss)
Machine Clothing
$56,543  $49,538  $103,718  $93,781  
Albany Engineered Composites
8,299  17,732  15,922  27,254  
Corporate expenses
(12,115) (13,045) (27,319) (26,717) 
Operating income
$52,727  $54,225  $92,321  $94,318  
Reconciling items:
Interest income
(348) (587) (795) (1,186) 
Interest expense
4,171  5,218  8,595  10,234  
Other expense/(income), net
1,091  930  16,660  (278) 
Income before income taxes
$47,813  $48,664  $67,861  $85,548  

There were no material changes in the total assets of the reportable segments in the first six months of 2020.
The table below presents restructuring costs by reportable segment (also see Note 5):
Three months ended June 30, Six months ended June 30,
(in thousands)2020201920202019
Machine Clothing$388  $935  $1,030  $1,336  
Albany Engineered Composites2,248  (32) 2,248  51  
Corporate expenses201  (4) 201  (4) 
Total$2,837  $899  $3,479  $1,383  

Products and services provided under long-term contracts represent a significant portion of sales in the Albany Engineered Composites segment and we account for these contracts using the percentage of completion (actual cost to estimated cost) method. That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change. When adjustments in estimated contract revenues or costs are required, any changes from prior estimates are included in earnings in the period the change occurs. In 2020, net adjustments to the estimated profitability of long-term contracts increased gross profit by $7.4 million and $6.4 million for the three and six month periods,respectively, ended June 30, 2020. In 2019, net adjustments to the estimated profitability of long-term contracts increased gross profit by $5.0 million and $5.6 million for the three and six month periods, respectively, ended June 30, 2019.


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We disaggregate revenue earned from contracts with customers for each of our business segments and product groups based on the timing of revenue recognition, and groupings used for internal review purposes.
The following table disaggregates revenue for each product group by timing of revenue recognition:
Three months ended June 30, 2020
(in thousands)