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, 1995 ----------------- 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, ALBANY, NEW YORK 12204 ------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 518-445-2200 -------------- 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 March 4, 1996 by non- affiliates of the registrant was $479,666,851. The registrant had 24,756,223 shares of Class A Common Stock and 5,615,563 shares of Class B Common Stock outstanding as of March 4, 1996. DOCUMENTS INCORPORATED BY REFERENCE PART Registrant's Annual Report to Shareholders for the year ended December 31, 1995. II Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 14, 1996. III PART I ITEM 1. BUSINESS The Registrant designs, manufactures and markets paper machine clothing for each section of the paper machine. It is the largest producer of paper machine clothing in the world. 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 Registrant produces a substantial portion of its monofilament requirements. 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. 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 Rapid Roll Doors-Registered Trademark-. Nomafa, our Rapid Roll Door company, grew from the application of our coated fabric technology to industrial doors. Since Nomafa's inception in the early 1980's, manufacturing operations in North America and Europe have supplied over 60,000 installations worldwide and with the acquisition of Kelley Door Systems in December 1995, our U.S. distribution network will be enhanced. Another innovative engineered fabric development unrelated to paper machine clothing is Primaloft -Registered Trademark- down which is believed to have properties superior to goose down. This product continues to gain acceptance in the marketplace for cold weather clothing and bedding. INDUSTRY FACTORS There are approximately 1,250 paper machines in the United States located in approximately 600 paper mills. It is estimated that, excluding China, there are about 7,300 paper machines in the world and approximately 7,000, 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 in excess of 3% annually 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 production process by paper manufacturers in the foreseeable future. Accordingly, the prospects for continued growth of industry demand for paper machine clothing appear excellent. 2 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, Holland, Mexico, Sweden and the United States. The Registrant has a 50% interest in two related entities in South Africa which are engaged primarily in the paper machine clothing 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. In countries in which the Registrant operates that have experienced high inflation rates, the Registrant frequently reprices its products. This practice has enabled the Registrant to quickly pass on to its customers most of the increased costs due to local inflation. 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. 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 900 people in the sales and technical functions combined, many of whom have engineering degrees or paper mill experience. The Registrant's market leadership position in forming and pressing fabrics reflects the Registrant'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 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, 1995 and 1994 were approximately $492 million and $446 million, respectively. Orders recorded at December 31, 1995 are expected to be invoiced during the next 12 months. 3 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 $19.7 million in 1995, $18.4 million in 1994 and $17.6 million in 1993. 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, for which the technology has been licensed to several competitors, 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-, a dryer fabric. Technical expenditures, primarily at the plant level, totaled $25.3 million in 1995, $22.5 million in 1994 and $21.4 million in 1993. 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 percent of consolidated net sales. 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 28% in the United States and Canadian markets, taken together, 17% in the rest of the world and approximately 21% in the world overall. Together, the United States and Canada constitute approximately 38% 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. 4 EMPLOYEES The Registrant employs 5,658 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 J. Spencer Standish 70 Chairman of the Board and Director Francis L. McKone 61 President, CEO and Director Michael C. Nahl 53 Senior Vice President and Chief Financial Officer Michel J. Bacon 46 Senior Vice-President - Canada and Pacific J. Weldon Cole 59 Senior Vice President - Administration and Development Frank R. Schmeler 56 Senior Vice President - U.S. and Latin America Edward Walther 52 Senior Vice President - Europe Thomas H. Hagoort 63 General Counsel Charles B. Buchanan 64 Vice President, Secretary and Director Richard A. Carlstrom 52 Vice President - Controller William H. Dutt 60 Vice President - Technical Edward R. Hahn 51 Vice President - Research and Development Hugh A. McGlinchey 56 Vice President - Information Systems James W. Sherrer 60 Vice President - Industrial Products Ervin D. Johnson 52 Treasurer Charles J. Silva, Jr. 36 Assistant General Counsel and Assistant Secretary 5 J. SPENCER STANDISH joined the Registrant in 1952. He has served the Registrant as Chairman of the Board since 1984, Vice Chairman from 1976 to 1984, Executive Vice President from 1974 to 1976, and Vice President from 1972 to 1974. He has been a Director of the Registrant since 1958. He is a director of Berkshire Life Insurance Company. FRANCIS L. MCKONE joined the Registrant in 1964. He has served the Registrant as 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. 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. 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. J. WELDON COLE joined the Registrant as Senior Vice President on January 1, 1995. From 1988 until December 1994 he held various management positions, most recently as President and Director of Beloit Corporation, an international manufacturer of pulp and papermaking equipment. FRANK R. SCHMELER joined the Registrant in 1964. He has served the Registrant as Senior Vice President since 1988, 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. EDWARD WALTHER joined the Registrant in 1994. He has served the Registrant as Senior Vice President since 1995 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. THOMAS H. HAGOORT joined the Registrant as General Counsel on January 1, 1991. 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. CHARLES B. BUCHANAN joined the Registrant in 1957. He has served the Registrant as Vice President and Secretary since 1980 and as Vice President and Assistant to the President from 1976 to 1980. He has been a Director of the Registrant since 1969. He is a Director of Fox Valley Corporation. 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-Technical, 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 JAMES W. SHERRER joined the Registrant in 1992. He has served the Registrant as Vice President-Industrial Products since 1996, as Vice President- Administration from 1993 to 1996 and as Vice President from 1992 to 1993. Prior to joining the Registrant, he held various technical and managerial positions with a company in the paper machine clothing business. ERVIN D. JOHNSON joined the Registrant in 1974. He has served the Registrant as Treasurer since 1996 and as Controller of Press Fabrics U.S. from 1991 to 1996. Prior to 1991 he served in various financial positions, including Controller of Appleton Wire Division and Operations Manager for Nomafa Door Division. 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. 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 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. 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 and China. The aggregate square footage of the Registrant's facilities in the United States and Canada is approximately 2,414,000, of which 2,337,000 square feet are owned and 77,000 square feet are leased. The Registrant's facilities located outside the United States and Canada comprise approximately 2,586,000 square feet, of which 2,389,000 square feet are owned and 197,000 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 1996. The Registrant's expected 1996 capital expenditures, excluding the new facility in South Korea, 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 $169 million on new plants and equipment or upgrading existing facilities, including the completion of new forming and press fabric plants in Sweden. 7 ITEM 3. LEGAL PROCEEDINGS There are no 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 1995 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 26 of the Annual Report are incorporated herein by reference. Restrictions on dividends and other distributions are described in Note 6, on pages 13 and 14 of the Annual Report. Such description is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Eleven Year Summary" on pages 24 and 25 of the Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Review of Operations" on pages 21 to 23 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 7 to 20 in the Annual Report, are incorporated herein by reference: Consolidated Statements of Income and Retained Earnings - years ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Cash Flows - years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Accountants ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 8 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 1995 and Year-End Values", "Pension Plan Table", "Compensation and Stock Option Committee Report on Executive Compensation" and "Stock Performance Graph" 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, 1995 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, 1995. 10 (3) EXHIBITS 3(a) - Certificate of Incorporation of Registrant. (4) 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) EAST GREENBUSH 10(f)(i) - Installment Sale Agreement, dated as of July 1, 1987, between the Registrant and Rensselaer County Industrial Development Authority. (1) 10(f)(ii) - Letter of Credit Agreement, dated as of July 1, 1987, between the Registrant and Norstar Bank of Upstate NY. (1) 10(f)(iii) - Letter Agreement, undated, between the Registrant and Norstar Bank of Upstate NY, amending the Letter of Credit Agreement referred to as Exhibit 10(f)(ii). (2) 10(f)(iv) - Letter Agreement, dated May 10, 1990, between the Registrant and Norstar Bank of Upstate NY, further amending the Letter of Credit Agreement referred to as Exhibit 10(f)(ii). (8) 10(g)(i) - Loan Agreement, dated April 27, 1989, between the Registrant and New York State Urban Development Corporation. (6) D.I.A.L. LOAN 10(h)(i) - Loan Agreement, dated August 31, 1988, between the Registrant and The Chase Manhattan Bank (National Association). (5) 10(h)(ii) - Letter Agreement, dated as of February 1, 1991, between the Registrant and Harris Trust and Savings Bank, amending the Loan Agreement referred to as Exhibit 10(h)(i). (9) 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. (15)

11 EQUIPMENT LEASES 10(k)(i) - Equipment Lease Agreement, dated December 29, 1988, between Registrant and Fleet Credit Corporation. (6) 10(k)(ii) - Master Lease Agreement, dated August 17, 1987, between Registrant and BancBoston Leasing. (6) 10(k)(iii) - Master Lease of Personal Property, dated November 19, 1987, between Registrant and Security Pacific Equipment Leasing, Inc. (6) 10(k)(iv) - Master Lease of Personal Property No. 20910, dated August 31, 1989, between the Registrant and Security Pacific Equipment Leasing, Inc. (7) PARENT GUARANTEES 10(l)(i) - Guarantee, dated June 15, 1989, delivered by Registrant to Bank of Montreal related to Albany International Canada, Inc. (6) 10(l)(ii) - Guarantee, dated August 10, 1989, delivered by Registrant to National Australia Bank Limited related to Albany International Pty Ltd. (6) 10(l)(iii) - Limited Guaranty, dated as of December 5, 1989, delivered by the Registrant to The First National Bank of Boston, guarantying certain repayment obligations of six subsidiaries of the Company. (9) 10(l)(iv) - Corporate Continuing Guaranty, dated August 8, 1990, delivered by the Registrant to Citicorp and/or Citibank, N.A., guarantying certain repayment obligations of seven subsidiaries of the Company. (9) 10(l)(v) - Corporate Continuing Guaranty, dated September 20, 1990, delivered by the Registrant to Citicorp and/or Citibank, N.A., guarantying certain repayment obligations of Albany International S.A. De C.V. (9)

12 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. (3) 10(m)(iv) - 1992 Stock Option Plan (13) 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. (14) 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. (3) 10(o)(iv) - Directors' Deferred Compensation Plan. (3) 10(o)(v) - Deferred Compensation Plan of Albany International Corp. (15) 10(o)(vi) - Centennial Deferred Compensation Plan. (15) OTHER AGREEMENTS 10(q) - Merchandise Orders Purchase and Sale Agreement, dated as of January 28, 1991, among the Registrant, CXC Incorporated and Citicorp North America, Inc., as Agent. (10)

13 10(q)(i) - Amendment No. 1 to Merchandise Orders Purchase and Sale Agreement, dated as of April 26, 1991, among the Registrant, CXC Incorporated and Citicorp North America, Inc., as Agent, amending the Merchandise Orders Purchase and Sale Agreement referred to as Exhibit 10(q). (11) 11 - Schedule of Computation of Primary and Fully Diluted Net Income Per Share. 13 - Annual Report to Security Holders for the year ended December 31, 1995. 21 - Subsidiaries of Registrant. 23 - Consent of Coopers & Lybrand L.L.P. 24 - Powers of Attorney. (12) 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 Company's Registration Statement on Form S-1, No. 33-20650, declared effective by the Securities and Exchange Commission on March 29, 1988, which previously-filed Exhibit is incorporated by reference herein. (3) 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. (4) 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. (5) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 6, 1989, which previously-filed Exhibit is incorporated by reference herein. 14 (6) Previously filed as an Exhibit to the Registrant's Registration Statement on Form S-1, No. 33-30581, declared effective by the Securities and Exchange Commission on September 26, 1989, which previously-filed Exhibit is incorporated by reference herein. (7) Previously filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, which previously-filed Exhibit is incorporated by reference herein. (8) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 29, 1990, which previously-filed Exhibit is incorporated by reference herein. (9) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated February 28, 1991, which previously-filed Exhibit is incorporated by reference herein. (10) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated April 8, 1991, which previously-filed Exhibit is incorporated by reference herein. (11) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated May 28, 1991, which previously-filed Exhibit is incorporated by reference herein. (12) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form 10Q dated November 8, 1991, which previously-filed Exhibit is incorporated by reference herein. (13) 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. (14) 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. (15) 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. 15 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 26th day of March, 1996. ALBANY INTERNATIONAL CORP. by /s/ Michael C. Nahl ------------------- Michael C. Nahl Principal Financial Officer Senior Vice President and Chief Financial Officer 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 March 26, 1996 (J. Spencer Standish) and Director * _______________________ President and Director March 26, 1996 (Francis L. McKone) (Chief Executive Officer) /s/Michael C. Nahl Senior Vice President and - ----------------------- Chief Financial Officer March 26, 1996 (Michael C. Nahl) (Principal Financial Officer) * _______________________ Vice President-Controller March 26, 1996 (Richard A. Carlstrom) (Principal Accounting Officer) * _______________________ Vice President, Secretary and March 26, 1996 (Charles B. Buchanan) Director * ________________________ Director March 26, 1996 (Thomas R. Beecher, Jr.,) * _______________________ Director March 26, 1996 (Stanley I. Landgraf) * _______________________ Director March 26, 1996 (Dr. Joseph G. Morone) * _______________________ Director March 26, 1996 (Allan Stenshamn) * _______________________ Director March 26, 1996 (Barbara P. Wright) *By /s/Michael C. Nahl ------------------ Michael C. Nahl Attorney-in-fact 16 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE To The Shareholders and Board of Directors Albany International Corp. Our report on the consolidated financial statements of Albany International Corp. has been incorporated by reference in this form 10-K from page 7 of the 1995 Annual Report to Shareholders of Albany International Corp. In connection with our audits of such financial statements, we have also audited the related financial statements schedule listed in the index on page 10 of this Form 10-K. In our opinion, the financial statements schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Albany, New York January 25, 1996 S-1 SCHEDULE II ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
- ---------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------- Balance at Additions Beginning Charged to Balance at Description of Period Expense Deductions (A) End of Period - ---------------------------------------------------------------------------------------------- Allowance for doubtful accounts Year ended December 31: 1995 $4,618 $963 $571 $5,010 1994 $4,579 $597 $558 $4,618 1993 $4,800 $1,667 $1,888 $4,579
(A) Includes accounts written off as uncollectible, recoveries and the effect of currency exchange rates. S-2

EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) PRIMARY EARNINGS PER SHARE:
For the three months For the year ended ended December 31, December 31, 1995 (1) 1994 (1) 1995 (1) 1994 (1) - ------------ ----------- -------------- ------------- 30,313,147 30,033,929 Common stock outstanding at end of period 30,313,147 30,033,929 Adjustments to ending shares to arrive at weighted average for the period: (23,553) (24,052) Shares contributed to E.S.O.P. (2) (75,763) (78,940) (72) - Shares issued under option (2) (133,024) (1,643) 55,435 - Treasury shares purchased (2) 97,561 - (26) - Shares issued due to conversion of (63) - debt (2) - ------------ ----------- --------------- ----------- 30,344,931 30,009,877 Weighted average number of shares 30,201,858 29,953,346 - ------------ ----------- --------------- ----------- - ------------ ----------- --------------- ----------- $12,118 $8,383 Net income $43,050 $23,952 - ------------ ----------- --------------- ----------- - ------------ ----------- --------------- ----------- $0.40 $0.28 Net income per share (3) $1.43 $0.80 - ------------ ----------- --------------- ----------- - ------------ ----------- --------------- -----------
(1) Includes Class A and Class B Common Stock (2) Calculated as follows: number of shares multiplied by the reciprocal of the number of days outstanding (or the reciprocal of the number of days held in treasury for treasury stock purchases) divided by the number of days in the period SHARES CONTRIBUTED TO E.S.O.P.: For the year: January 31, 1994 10,831 * (30/365) 890 February 28, 1994 11,120 * (58/365) 1,767 March 31 1994 11,090 * (89/365) 2,704 April 12, 1994 56 * (101/365) 15 April 30, 1994 11,683 * (119/365) 3,809 May 31, 1994 11,882 * (150/365) 4,883 June 30, 1994 12,440 * (180/365) 6,135 July 31, 1994 12,977 * (211/365) 7,502 August 31, 1994 12,679 * (242/365) 8,406 September 30, 1994 13,090 * (272/365) 9,755 October 31, 1994 10,963 * (303/365) 9,101 November 14, 1994 39 * (317/365) 34 November 30, 1994 12,996 * (333/365) 11,857 December 31, 1994 12,114 * (364/365) 12,082 ------ 78,940 ------ ------ January 31, 1995 12,346 * (30/365) 1,015 February 23, 1995 656 * (53/365) 95 February 28, 1995 13,324 * (58/365) 2,117 February 28, 1995 37,040 * (58/365) 5,886 March 31, 1995 12,697 * (89/365) 3,096 April 30, 1995 9,968 * (119/365) 3,250 May 31, 1995 10,301 * (150/365) 4,233

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) June 30, 1995 10,217 * (180/365) 5,039 July 18, 1995 32 * (198/365) 17 July 31, 1995 8,382 * (211/365) 4,845 August 31, 1995 10,146 * (242/365) 6,727 September 30, 1995 9,729 * (272/365) 7,250 October 31, 1995 10,943 * (303/365) 9,084 November 30, 1995 11,614 * (333/365) 10,596 December 31, 1995 12,547 * (364/365) 12,513 ------ 75,763 ------ ------ For the three months: October 31, 1994 10,963 * (30/92) 3,575 November 14, 1994 39 * (44/92) 19 November 30, 1994 12,996 * (60/92) 8,476 December 31, 1994 12,114 * 91/92) 11,982 ------ 24,052 ------ ------ October 31, 1995 10,943 * (30/92) 3,568 November 30, 1995 11,614 * (60/92) 7,574 December 31, 1995 12,547 * (91/92) 12,411 ------ 23,553 ------ ------ SHARES ISSUED UNDER OPTION: For the year: March 22, 1994 7,500 * (80/365) 1,643 ------ ------ April 12, 1995 25,000 * (101/365) 6,918 April 27, 1995 5,000 * (116/365) 1,589 May 1, 1995 20,000 * (120/365) 6,575 June 2, 1995 7,500 * (152/365) 3,123 June 6, 1995 14,000 * (156/365) 5,983 June 14, 1995 600 * (164/365) 270 July 10, 1995 1,200 * (190/365) 625 July 12, 1995 15,000 * (192/365) 7,890 July 13, 1995 10,000 * (193/365) 5,288 July 19, 1995 15,000 * (199/365) 8,178 July 20, 1995 10,000 * (200/365) 5,479 July 26, 1995 7,500 * (206/365) 4,233 July 27, 1995 5,000 * (207/365) 2,836 July 28, 1995 28,800 * (208/365) 16,412 July 31, 1995 55,000 * (211/365) 31,794 August 4, 1995 3,000 * (215/365) 1,767 August 7, 1995 10,000 * (218/365) 5,973 August 10, 1995 3,700 * (221/365) 2,240 August 23, 1995 6,200 * (234/365) 3,975 September 1, 1995 1,200 * (243/365) 799 September 12, 1995 1,200 * (254/365) 835 September 15, 1995 10,000 * (257/365) 7,041 September 26, 1995 2,500 * (268/365) 1,836 October 2, 1995 1,200 * (274/365) 901 October 10, 1995 600 * (282/365) 464 ------ 133,024 ------ ------

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) For the three months: October 2, 1995 1,200 * (1/92) 13 October 10, 1995 600 * (9/92) 59 ------ 72 ------ ------ TREASURY SHARES PURCHASED: For the year: February 16, 1995 15,000 * (46/365) 1,890 March 14, 1995 35,000 * (72/365) 6,904 November 21, 1995 100,000 * (324/365) 88,767 ------ 97,561 ------ ------ For the three months: November 21, 1995 100,000 * (51/92) 55,435 ------ ------ SHARES ISSUED DUE TO CONVERSION OF DEBT: For the year: November 1, 1995 76 * (304/365) 63 ------ ------ For the three months: November 1, 1995 76 * (31/92) 26 ------ ------

(3) Dilutive common stock equivalents are not material and therefore are not included in the calculation of primary earnings per share. FULLY DILUTED EARNINGS PER SHARE:
For the three months For the year ended ended December 31, December 31, 1995 1994 1995 1994 - -------------- ------------ ------------- ------------- 30,344,931 30,009,877 Weighted average number of shares 30,201,858 29,953,346 308,801 284,046 Incremental shares of unexercised 340,227 284,046 options (4) 5,712,374 5,712,450 Convertible shares of subordinated 5,712,374 5,712,450 - -------------- ------------ debentures (5) ------------- ------------- 36,366,106 36,006,373 Adjusted weighted average number of 36,254,459 35,949,842 - -------------- ------------ shares ------------- ------------- - -------------- ------------ ------------- ------------- $13,567 $9,505 Net income (including after-tax income $48,846 $28,440 - -------------- ------------ adjustment) (5) ------------- ------------- - -------------- ------------ ------------- ------------- $0.37 $0.26 Fully diluted net income per share $1.35 $0.79 - -------------- ------------ ------------- ------------- - -------------- ------------ ------------- -------------
(4) Incremental shares of unexercised options are calculated based on the higher of the average price of the Company's stock or the ending price for the respective period. The calculation includes all options whose exercise price is below the higher of the average or ending stock price. (5) The original subordinated debentures are convertible into 5,712,450 shares of the Company's Class A Common Stock. Two debentures were converted into 76 shares as of December 31, 1995. Upon any conversion, the Company would realize an after-tax income adjustment based on the effective interest expense on the bonds less the corresponding income tax deduction. The remaining amount of the shares and the income adjustment will be included in the calculation only when they cause dilution to net income per share.

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 Coopers & Lybrand L.L.P., 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. [SIG] J. Spencer Standish CHAIRMAN OF THE BOARD [SIG] Francis L. McKone PRESIDENT AND CHIEF EXECUTIVE OFFICER [SIG] Michael C. Nahl SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALBANY INTERNATIONAL CORP. We have audited the accompanying consolidated balance sheets of Albany International Corp. as of December 31, 1995 and 1994, and the related consolidated statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1995. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Albany International Corp. as of December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. [COOPERS & LYBRAND SIG] Albany, New York January 25, 1996, except for Notes 6 and 17, for which the date is February 13, 1996 7 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS ALBANY INTERNATIONAL CORP.
- ------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF INCOME Net sales $ 652,645 $ 567,583 $ 546,120 Cost of goods sold 379,632 338,868 344,609 - ------------------------------------------------------------------------------------- Gross profit 273,013 228,715 201,511 Selling and general expenses 139,102 124,883 123,496 Technical and research expenses 45,020 40,888 38,968 Restructuring of operations and termination benefits -- -- (1,863) - ------------------------------------------------------------------------------------- Operating income 88,891 62,944 40,910 Interest income (114) (317) (365) Interest expense 20,123 17,137 16,480 Other (income)/expense, net (1,024) 4,324 (630) - ------------------------------------------------------------------------------------- Income before income taxes 69,906 41,800 25,425 Income taxes 27,233 17,974 10,017 - ------------------------------------------------------------------------------------- Income before associated companies 42,673 23,826 15,408 Equity in earnings of associated companies 377 126 116 - ------------------------------------------------------------------------------------- Net income 43,050 23,952 15,524 RETAINED EARNINGS Retained earnings, beginning of period 139,740 126,276 120,113 Less dividends 11,708 10,488 9,361 - ------------------------------------------------------------------------------------- Retained earnings, end of period $ 171,082 $ 139,740 $ 126,276 - ------------------------------------------------------------------------------------- NET INCOME PER SHARE Primary $ 1.43 $ 0.80 $ 0.58 Fully diluted $ 1.35 $ 0.80 $ 0.58 - -------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 CONSOLIDATED BALANCE SHEETS ALBANY INTERNATIONAL CORP.
- --------------------------------------------------------------------------------------- AT DECEMBER 31, 1995 1994 (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 7,609 $ 228 Accounts receivable, less allowance for doubtful accounts ($5,010, 1995; $4,618, 1994) 170,415 154,140 Inventories Finished goods 88,378 78,501 Work in process 42,480 37,665 Raw material and supplies 30,523 26,364 Deferred taxes and prepaid expenses 19,095 17,278 - --------------------------------------------------------------------------------------- Total current assets 358,500 314,176 - --------------------------------------------------------------------------------------- Property, plant and equipment, at cost, net 342,150 320,719 Investments in associated companies 2,366 992 Intangibles 31,682 20,495 Deferred taxes 28,537 40,251 Other assets 33,290 24,753 - --------------------------------------------------------------------------------------- Total assets $ 796,525 $ 721,386 - --------------------------------------------------------------------------------------- LIABILITIES Current liabilities: Notes and loans payable $ 16,268 $ 16,676 Accounts payable 35,262 30,236 Accrued liabilities 59,301 53,750 Current maturities of long-term debt 985 1,044 Income taxes payable and deferred 12,067 11,071 - --------------------------------------------------------------------------------------- Total current liabilities 123,883 112,777 - --------------------------------------------------------------------------------------- Long-term debt 245,265 232,767 Other noncurrent liabilities 100,268 81,176 Deferred taxes and other credits 24,812 22,719 - --------------------------------------------------------------------------------------- Total liabilities 494,228 449,439 - --------------------------------------------------------------------------------------- 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; 24,841,173 issued in 1995 and 24,564,033 in 1994 25 25 Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,615,563 in 1995 and 5,633,427 in 1994 6 6 Additional paid in capital 176,345 170,539 Retained earnings 171,082 139,740 Translation adjustments (30,580) (36,408) Pension liability adjustment (12,382) -- - --------------------------------------------------------------------------------------- 304,496 273,902 Less treasury stock, at cost 2,199 1,955 - --------------------------------------------------------------------------------------- Total shareholders' equity 302,297 271,947 - --------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 796,525 $ 721,386 - ---------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 CONSOLIDATED STATEMENTS OF CASH FLOWS ALBANY INTERNATIONAL CORP.
- ------------------------------------------------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 43,050 $ 23,952 $ 15,524 Adjustments to reconcile net cash provided by operating activities: Equity in earnings of associated companies (377) (126) (116) Distributions received from associated companies -- 42 407 Depreciation and amortization 43,087 38,649 41,969 Accretion of convertible subordinated debentures 1,628 1,519 1,419 Provision for deferred income taxes, other credits and long-term liabilities 6,739 (2,395) (8,455) Increase in cash surrender value of life insurance, net of premiums paid (654) (468) (452) Unrealized currency transaction gains (1,469) (1,271) (998) (Gain)/loss on disposition of assets (754) 1,280 (6,967) Treasury shares contributed to ESOP 3,454 2,671 2,344 Changes in operating assets and liabilities: Accounts receivable (13,926) (30,021) 3,272 Inventories (19,061) (15,046) (815) Prepaid expenses 386 586 470 Accounts payable 4,658 6,527 212 Accrued liabilities 1,527 (5,054) (6,715) Income taxes payable (88) 2,124 4,587 Other, net (747) 140 (507) - ------------------------------------------------------------------------------------ Net cash provided by operating activities 67,453 23,109 45,179 - ------------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchases of property, plant and equipment (41,921) (36,322) (30,940) Purchased software (2,215) (2,053) -- Proceeds from sale of assets 1,762 1,855 27,750 Acquisitions, net of cash acquired (11,312) 526 (55,356) Investment in associated company (915) -- -- Premiums paid for life insurance (1,196) (1,196) (1,198) - ------------------------------------------------------------------------------------ Net cash used in investing activities (55,797) (37,190) (59,744) - ------------------------------------------------------------------------------------ FINANCING ACTIVITIES Proceeds from borrowings 21,348 51,484 65,205 Principal payments on debt (14,542) (23,490) (107,090) Proceeds from options exercised 4,408 126 -- Tax benefit of options exercised 581 12 -- Purchases of treasury shares (2,883) -- -- Proceeds from sale of common stock -- -- 68,690 Dividends paid (11,305) (10,474) (8,990) - ------------------------------------------------------------------------------------ Net cash (used)/provided by financing activities (2,393) 17,658 17,815 - ------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (1,882) (4,730) (5,874) - ------------------------------------------------------------------------------------ Increase/(decrease) in cash and cash equivalents 7,381 (1,153) (2,624) Cash and cash equivalents at beginning of year 228 1,381 4,005 - ------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 7,609 $ 228 $ 1,381 - ------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 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 a 50% interest in two related entities in South Africa. The consolidated financial statements include the Company's original investment in the South African entities, plus its share of undistributed earnings, in the account "Investments in associated companies." The Company had 40% equity interests in companies in Mexico, Brazil and Argentina until the first quarter of 1994 when it exchanged its 40% equity interests in Brazil and Argentina for the remaining 60% equity interest in Mexico. 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 $19,700,000 in 1995, $18,388,000 in 1994 and $17,605,000 in 1993. 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. The cost of United States inventories is based on the last-in, first-out (LIFO) method; all other inventories 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, at cost, is amortized on a straight-line basis over 5 years and is included in "Other assets." 11 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 costs 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 Primary earnings per share on common stock are computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. Options granted under the Company's stock option plans were not dilutive to primary earnings per share during 1995, 1994 and 1993. The 5.25% convertible subordinated debentures issued in March 1992 are not common stock equivalents and are therefore not considered in the calculation of primary earnings per share. The weighted average number of common shares outstanding during 1995, 1994 and 1993 was 30,201,858, 29,953,346 and 26,679,361, respectively. For purposes of calculating fully diluted earnings per share, conversion of the subordinated debentures, interest savings, net of income taxes, and the exercise of options assuming the purchase of treasury shares with the proceeds, are considered. The weighted average number of shares outstanding, assuming full dilution, in 1995 was 36,254,459 and net income was $48,800,000. The options and the convertible subordinated debentures were not dilutive during 1994 and 1993. 2. INVENTORIES The cost of inventories valued under the LIFO method is $67,872,000 at December 31, 1995 and $67,251,000 at December 31, 1994. Had the Company's inventory been valued at average cost (which approximates replacement cost), inventories would have been $5,707,000 higher in 1995 and $5,771,000 higher in 1994. 3. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are summarized below:
- ------------------------------------------------------- (IN THOUSANDS) 1995 1994 - ------------------------------------------------------- Land $ 23,107 $ 22,467 Buildings 160,476 147,439 Machinery and equipment 441,536 386,034 - ------------------------------------------------------- 625,119 555,940 - ------------------------------------------------------- Accumulated depreciation 282,969 235,221 - ------------------------------------------------------- $342,150 $320,719 - -------------------------------------------------------
Construction in progress was approximately $363,000 in 1995 and $3,339,000 in 1994. Depreciation expense was $41,375,000 in 1995, $37,554,000 in 1994, and $41,286,000 in 1993. Expenditures for maintenance and repairs are charged to income as incurred and amounted to $15,129,000 in 1995, $14,400,000 in 1994, and $15,138,000 in 1993. Capital expenditures were $41,921,000 in 1995, $36,322,000 in 1994, and $30,940,000 in 1993. At the end of 1995, the Company was committed to $25,592,000 of future expenditures for new equipment. 4. INTANGIBLES The components of intangibles are summarized below:
- ----------------------------------------------------- (IN THOUSANDS) 1995 1994 - ----------------------------------------------------- Excess purchase price over fair value $34,643 $29,049 Patents 10,440 10,329 Accumulated amortization (19,679) (18,883) Deferred unrecognized pension cost (see Note 12) 6,278 -- - ----------------------------------------------------- $31,682 $20,495 - -----------------------------------------------------
Amortization expense was $796,000 in 1995 and $683,000 in 1994 and 1993. 12 5. ACCRUED LIABILITIES Accrued liabilities consist of:
- ----------------------------------------------------- (IN THOUSANDS) 1995 1994 - ----------------------------------------------------- Salaries and wages $18,622 $14,853 Employee benefits 15,967 13,895 Returns and allowances 4,326 2,744 Interest 3,072 3,325 Restructuring costs 1,039 2,852 Acquisition obligation 5,000 -- Other 11,275 16,081 - ----------------------------------------------------- $59,301 $53,750 - -----------------------------------------------------
6. FINANCIAL INSTRUMENTS Notes and loans payable at December 31, 1995 and 1994 were short-term debt instruments with banks, denominated in local currencies with a weighted average interest rate of 13.2% (7.63% excluding Brazil) in 1995 and 6.7% in 1994. Long-term debt at December 31, 1995 and 1994, principally to banks and bondholders, exclusive of amounts due within one year, consists of:
- ------------------------------------------------------- (IN THOUSANDS) 1995 1994 - ------------------------------------------------------- $150 million 5.25% converti- ble subordinated debentures due 2002, yielding 7.0%. $136,963 $135,338 $150 million revolving credit agreement which terminates in 2000 with LIBOR borrow- ings outstanding at an aver- age interest of 6.15% in 1995 and 4.85% in 1994. 64,000 50,000 Various notes, mortgages and debentures relative to operations principally outside the United States, at an average interest of 6.92% in 1995 and 6.11% in 1994, due in varying amounts through 2015. 29,774 30,287 Industrial revenue financings at an average interest of 5.89% in 1995 and 5.43% in 1994, due in varying amounts through 2015. 14,528 17,142 - ------------------------------------------------------- $245,265 $232,767 - -------------------------------------------------------
Principal payments due on long-term debt are: 1996, $985,000; 1997, $6,134,000; 1998, $10,545,000; 1999, $1,079,000; 2000, $64,354,000. Interest paid was $20,076,000 in 1995, $16,708,000 in 1994, and $16,634,000 in 1993. The Company's revolving credit agreement provides that the Company may borrow up to $150,000,000 until March 31, 2000 at which time the banks' commitment to lend is terminated. In 1996, the revolving credit agreement was renegotiated to increase the banks' commitment to $300 million, of which $150 million will mature in 2001 and the remainder 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 maximum 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, 1995, $39,806,000 was available 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 $159,000,000 at December 31, 1995. 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 is amortized over the term of the debentures. When issued, the debentures were convertible into 5,712,450 shares of Class A Common Stock. At December 31, 1995, two debentures have been converted into 76 shares of Class A Common Stock. On February 13, 1996, the Company notified the holders of the debentures that the debentures would be redeemed on March 15, 1996 at a redemption price of 91.545%. A one-time extraordinary non-cash charge to income of approximately $1,200,000, net of tax, will be recorded in the first quarter of 1996. The Company has swap agreements wherein on a notional amount of $250,000,000 the Company will pay a periodic floating rate based upon an index of yields of high-grade, tax-exempt bond issues published by Kenny Information Systems. The counterparty is obligated to make payments 13 to the Company calculated at an average of 70% of LIBOR. As of December 31, 1995 and 1994, the average blended rates payable on the long-term swap agreements were 4.24% and 4.14%, respectively, and the blended rates receivable were 4.33% and 4.21%, respectively. The swap agreements expire during 2000. The practical effect of these swaps is to partially hedge the potential effect of higher tax rates after August 1990. The Company values these contracts at market (approximately $282,000) 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. Included in the "Interest rate protection agreements" component of "Other (income)/expense, net", see Note 9, is (income)/expense of approximately $(1,026,000), $(557,000) and $220,000 related to the net cash (received)/paid as part of these agreements in 1995, 1994 and 1993, respectively. Also included in "Interest rate protection agreements" is the change in the valuation which resulted in income of approximately $(304,000) and $(297,000) in 1995 and 1994, respectively. At December 31, 1995, the Company had various forward exchange contracts maturing during 1996. 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. Open positions were valued at fair value using the estimated forward exchange rate of a matching contract as of December 31, 1995. The foreign currency positions, both open and closed, as of December 31, 1995, by major currency, are:
- ------------------------------------------------------------------ Buy Contracts Sell Contracts Currency or Fair Value or Fair Value - ------------------------------------------------------------------ (IN THOUSANDS) Dutch Guilder $24,748 $25,206 German Mark 25,179 25,135 Swedish Krona 26,917 24,738 - ------------------------------------------------------------------ Total $76,844 $75,079 - ------------------------------------------------------------------
The primary purpose of these contracts was to either provide an economic hedge against currency fluctuation effects on future revenue streams or to hedge the net assets and intercompany loans related to foreign operations. Forward exchange contracts that are designated hedges are typically entered into at currency amounts up to an amount equal to the net assets of the related foreign operation and any intercompany loan balance in that foreign currency. Periodically, the Company also enters into futures contracts primarily to hedge in the short-term against interest rate fluctuations. At December 31, 1995 and 1994, the Company was not a party to any such contracts. The "Interest rate protection agreements" component of "Other (income)/expense, net" includes losses on futures contracts, based on fair value, of $917,000 and $222,000 in 1994 and 1993, 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 are 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. The Company has an agreement under which it may sell to a financial institution up to $40,000,000 of the Company's right to receive certain payments for goods ordered from the Company. At December 31, 1995 and 1994, there were no amounts sold under this agreement. At December 31, 1995 the estimated fair value of the Company's long-term debt excluding current maturities approximates $243,774,000. The estimate is based on the quoted market price for the 5.25% convertible subordinated debentures, 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. 14 7. LEASES Total rental expense amounted to $16,673,000, $15,527,000, and $21,488,000 for 1995, 1994, and 1993, 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, 1995 are: 1996, $17,400,000; 1997, $14,837,000; 1998, $10,215,000; 1999, $8,039,000; 2000 $4,587,000; and thereafter, $3,336,000. 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 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, 1995, 15,061,237 shares of Class A Common Stock were reserved for the conversion of Class B Common Stock, the exercise of stock options and the conversion of 5.25% convertible subordinated debentures. 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 the open market. The Company has purchased 853,200 shares of its Class A Common Stock since 1990 and may purchase up to 1,146,800 more shares without further advance public announcement. The Board authorized the payment of dividends totalling $.3875 per common share during 1995 and $.35 per common share per year during 1994 and 1993. Changes in shareholders' equity for 1995, 1994, and 1993 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, 1993 20,429 $20 5,659 $6 $101,395 445 $6,649 Shares contributed to ESOP -- -- -- -- 32 (138) (2,312) Public offering 4,102 4 -- -- 68,685 -- -- Other -- 1 -- -- -- -- -- - ----------------------------------------------------------------------------------------------- Balance: December 31, 1993 24,531 $25 5,659 $6 $170,112 307 $4,337 Shares contributed to ESOP -- -- -- -- 289 (143) (2,382) Conversion of Class B shares to Class A shares 26 -- (26) -- -- -- -- Options exercised 7 -- -- -- 138 -- -- - ----------------------------------------------------------------------------------------------- Balance: December 31, 1994 24,564 $25 5,633 $6 $170,539 164 $1,955 Shares contributed to ESOP -- -- -- -- 815 (170) (2,639) Conversion of Class B shares to Class A shares 18 -- (18) -- -- -- -- Conversion of subordinated debentures -- -- -- -- 2 -- -- Purchases of treasury shares -- -- -- -- -- 150 2,883 Options exercised 259 -- -- -- 4,989 -- -- Other -- -- 1 -- -- -- -- - ----------------------------------------------------------------------------------------------- Balance: December 31, 1995 24,841 $25 5,616 $6 $176,345 144 $2,199 - -----------------------------------------------------------------------------------------------
15 9. OTHER (INCOME)/EXPENSE, NET The components of other (income)/expense, net, as further described in Note 6, are:
- ------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - ------------------------------------------------------------- Currency transactions $(3,281) $2,590 $(5,515) Interest rate protection agreements (1,330) 63 442 Pre-receivable sales 93 (214) 2,348 Amortization of debt issuance costs and loan origination fees 837 804 804 Other 2,657 1,081 1,291 - ------------------------------------------------------------- $(1,024) $4,324 $ (630) - -------------------------------------------------------------
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) 1995 1994 1993 - -------------------------------------------------------------- Current: U.S. Federal $ 6,280 $14,920 $10,132 U.S. State 860 948 1,305 Non-U.S. 5,304 5,835 8,699 - -------------------------------------------------------------- 12,444 21,703 20,136 - -------------------------------------------------------------- Deferred: U.S. Federal 5,402 (5,772) (4,694) U.S. State 617 (660) (536) Non-U.S. 8,770 2,703 (4,889) - -------------------------------------------------------------- 14,789 (3,729) (10,119) - -------------------------------------------------------------- $27,233 $17,974 $10,017 - --------------------------------------------------------------
U.S. income before income taxes was $32,472,000 in 1995, $18,097,000 in 1994, and $31,405,000 in 1993. Taxes paid, net of refunds, were $9,269,000 in 1995, $19,639,000 in 1994, and $3,657,000 in 1993. A comparison of the federal statutory rate to the Company's effective rate is as follows:
- ------------------------------------------------------------- 1995 1994 1993 - ------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State taxes 2.7 2.4 6.8 Non-U.S. tax rates, repatriation of earnings, and other net charges associated with prior years (.3) 5.9 (1.4) Other 1.4 (.3) (1.0) - ------------------------------------------------------------- Effective tax rate 38.8% 43.0% 39.4% - -------------------------------------------------------------
The significant components of deferred income tax expense/(benefit) attributed to income from operations for the years ended December 31, 1995, 1994, and 1993 are as follows:
- --------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - --------------------------------------------------------------- Deferred tax expense/(benefit) $ 9,113 $(6,603) $(10,518) Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates 4,500 (1,584) (1,983) Utilization of operating loss carryforwards 1,176 4,458 2,382 - --------------------------------------------------------------- $14,789 $(3,729) $(10,119) - ---------------------------------------------------------------
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 $80,897,000 at December 31, 1995. 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, 1995 and 1994 are presented below: -----------------------------------------------
U.S. Non-U.S. ---------------- ---------------- (IN THOUSANDS) 1995 1994 1995 1994 - ----------------------------------------------------------------------- Accounts receivable, princi- pally due to allowance for doubtful accounts $ 369 $ 273 $ (134) $ (521) Inventories, principally due to additional costs inventoried for tax purposes, pursuant to the Tax Reform Act of 1986 6,591 4,919 (18) 2 Tax loss carryforwards -- -- 4,587 3,851 Other 2,307 3,063 1,032 975 - ----------------------------------------------------------------------- Total current deferred tax assets 9,267 8,255 5,467 4,307 - ----------------------------------------------------------------------- Sale lease back transaction 1,208 1,537 -- -- Deferred compensation 5,557 4,707 -- -- Tax loss carryforwards -- -- 16,486 21,645 Plant, equipment and depreciation (8,309) (3,814) 260 (150) Postretirement benefits other than pensions 14,200 17,105 -- -- Other (281) (129) (584) (650) - ----------------------------------------------------------------------- Total noncurrent deferred tax assets 12,375 19,406 16,162 20,845 - ----------------------------------------------------------------------- Total deferred tax assets $21,642 $27,661 $21,629 $25,152 - ----------------------------------------------------------------------- Total current deferred tax liabilities -- -- $ 2,835 $ 1,685 - ----------------------------------------------------------------------- Plant, equipment and depreciation -- -- 20,996 19,425 Other -- -- 1,328 (811) - ----------------------------------------------------------------------- Total noncurrent deferred tax liabilities -- -- 22,324 18,614 - ----------------------------------------------------------------------- Total deferred tax liabilities -- -- $25,159 $20,299 - -----------------------------------------------------------------------
16 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. net deferred tax asset relates to tax loss carryforwards of which approximately 15% is expected to be used in 1996 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. 11. BUSINESS SEGMENT AND GEOGRAPHIC DATA The Company operates primarily in one industry segment which includes developing, manufacturing, marketing and servicing custom designed engineered fabrics and related products used in the manufacture of paper and paperboard. The Company sells its products on a worldwide basis with its principal markets listed in the table below. The following table shows data by geographic area and in 1993 includes restructuring of operations and termination benefits and the gain related to the sale of the Engineered Systems Division:
- ----------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - ----------------------------------------------------------------- NET SALES United States $258,974 $239,755 $240,853 Canada 65,203 57,459 58,015 Europe 240,663 191,883 177,688 Rest of World 87,805 78,486 69,564 - ----------------------------------------------------------------- Total $652,645 $567,583 $546,120 - ----------------------------------------------------------------- OPERATING INCOME/ (LOSS) United States $ 41,549 $ 31,400 $ 38,668 Canada 12,815 7,333 5,506 Europe 23,119 15,233 (7,881) Rest of World 11,408 8,978 4,617 - ----------------------------------------------------------------- Total $ 88,891 $ 62,944 $ 40,910 - ----------------------------------------------------------------- ASSETS United States $297,597 $270,143 $251,318 Canada 67,638 59,280 55,714 Europe 307,728 283,499 251,722 Rest of World 123,562 108,464 96,666 - ----------------------------------------------------------------- Total $796,525 $721,386 $655,420 - -----------------------------------------------------------------
Sales among geographic areas and export sales are not significant. Operating income includes an allocation of corporate expenses because such costs are incurred principally for the benefit of operating companies. Assets exclude intercompany accounts. 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. The following table sets forth the Plans' funded status and amounts recognized in the Company's balance sheet. Amounts are shown at September 30, for U.S. pension plans. Amounts for non-U.S. plans are projected to December 31 from the most recent valuation.
- ----------------------------------------------------------------------------- Plans in Which Plans in Which Assets Exceed Accumulated Accumulated Benefits Exceed Benefits Assets ------------------- ------------------- (IN THOUSANDS) 1995 1994 1995 1994 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $ (26,979) $(88,180) $(94,095) $ (9,419) Accumulated (29,348) (93,576) (99,364) (10,973) Projected (37,138) (112,125) (116,643) (14,487) Plan assets at fair value, primarily listed stocks and bonds 35,787 100,369 75,628 -- - ----------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (1,351) (11,756) (41,015) (14,487) Unrecognized net loss 4,321 17,377 33,239 2,472 Prior service cost not yet recognized in net periodic pension cost 760 7,585 6,278 -- Remaining unrecognized net (asset) obligation (199) (7,626) (5,164) 315 Recognized unaccrued pension expense -- -- (19,320) -- - ----------------------------------------------------------------------------- Accrued pension asset (liability) $ 3,531 $ 5,580 $(25,982) $ (11,700) - -----------------------------------------------------------------------------
The expected long-term rate of return for U.S. plans was 10% for 1995, 1994, and 1993. The weighted average discount rate was 7.8% for 1995, 9.5% for 1994, and 7.8% for 1993. The rate of increase in future compensation levels for salaried and hourly employees was 5.1% and 5.9%, respectively in 1995, 5.9% and 6.0%, respectively in 1994, and 4.4% and 4.5%, respectively in 1993. 17 The weighted average expected long-term rate of return for non-U.S. plans was 8.0% for 1995, 7.4% for 1994, and 8.0% for 1993. The weighted average discount rate was 7.9% for 1995, 8.5% for 1994, and 7.3% for 1993. The weighted average rate of increase in future compensation levels was 5.3% for 1995, 5.7% for 1994, and 4.8% for 1993. The Company was required to accrue an additional minimum liability in 1995 for those plans for which accumulated plan benefits exceeded plan assets. The liability at December 31, 1995 of $18,660,000 was offset by an asset amounting to $6,278,000 (included in intangibles) and a direct charge to equity of $12,382,000. No additional minimum liability was required to be accrued for 1994. The vested benefit obligation has been determined based upon the actuarial present value of the vested benefits to which an employee is currently entitled, based on the employee's expected date of separation or retirement. Net pension cost included the following components:
- -------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - -------------------------------------------------------------- Service cost $ 4,093 $ 4,276 $ 4,311 Interest cost on projected benefit obligation 11,425 9,709 9,780 Actual return on assets (9,553) (7,197) (9,341) Net amortization and deferral (544) (1,837) 1,158 - -------------------------------------------------------------- Net periodic pension cost $ 5,421 $ 4,951 $ 5,908 - --------------------------------------------------------------
Annual pension cost charged to operating expense for all Company plans was $8,342,000 for 1995, $8,529,000 for 1994, and $7,840,000 for 1993. 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) 1995 1994 - ----------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $24,905 $22,890 Fully eligible active plan participants 4,198 3,131 Other active participants 15,536 9,740 - ----------------------------------------------------- 44,639 35,761 Unrecognized gain 7,757 15,586 - ----------------------------------------------------- Accrued postretirement cost $52,396 $51,347 - -----------------------------------------------------
Net periodic postretirement benefit cost included the following:
- ----------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - ----------------------------------------------------------- Service cost of benefits earned $ 699 $ 935 $ 804 Interest cost on accumulated postretirement benefit obligation 3,264 3,163 3,475 Amortization of unrecognized net gain (613) (141) (96) - ----------------------------------------------------------- Net periodic postretirement benefit cost $3,350 $3,957 $4,183 - -----------------------------------------------------------
For measuring the expected postretirement benefit obligation, an annual rate of increase in the per capita claims cost of 7.5% is assumed for 1995. This rate is assumed to decrease gradually to 5.5% by 1999 and remain at that level thereafter. The weighted average discount rate was 7.8% for 1995, 9.5% for 1994 and 7.8% for 1993. A one percentage point increase in the health care cost trend rate would result in a $5,808,000 increase in the accumulated postretirement benefit obligation as of December 31, 1995 and an increase of $582,000 in the aggregate service and interest cost components of the net periodic postretirement benefit cost for 1995. 18 14. TRANSLATION ADJUSTMENTS The Consolidated Statements of Cash Flows were affected by translation as follows:
- --------------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - --------------------------------------------------------------- Change in cumulative translation adjustments $(5,828) $(9,350) $ 21,860 Other noncurrent liabilities (1,095) (2,117) 2,531 Deferred taxes (1,421) (51) (101) Long-term debt (565) (459) 1,038 Investments in associated companies 81 (278) (198) Net fixed assets 10,863 17,046 (19,408) Other assets (153) (61) 152 - --------------------------------------------------------------- Effect of exchange rate changes $ 1,882 $ 4,730 $ 5,874 - ---------------------------------------------------------------
Shareholders' equity was affected by translation as follows: (increase)/decrease from translation of non-U.S. financial statements of $(462,000), $(1,853,000) and $9,577,000; from remeasurement of loans of $(7,379,000), $(11,023,000) and $9,518,000 in 1995, 1994, and 1993, respectively; and by losses on designated hedges, net of tax, of $2,013,000, $3,526,000 and $2,765,000 in 1995, 1994 and 1993, respectively. In 1995 and 1994, net translation losses/(gains) included in operations in Brazil were $354,000 and $(532,000), respectively, and were included in cost of goods sold. Net translation losses related to operations in Brazil and Mexico in 1993 were $1,316,000 with amounts included in cost of goods sold. 15. STOCK OPTIONS AND INCENTIVE PLANS During 1988 and during 1992, the shareholders approved stock option plans which each provide for granting of up to 2,000,000 shares of Class A Common Stock to key employees. Options are generally exercisable in five cumulative annual amounts beginning 12 months after date of grant. 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 both the 1988 and 1992 plans. Prices per share for shares under option at December 31, 1995 range from $15.00 to $22.25. In 1995 and 1994, options were exercised at prices that range from $16.25 to $18.75. Activity with respect to these plans is as follows:
- -------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------- Shares under option at January 1 2,630,400 2,417,850 2,087,500 Options granted 436,250 244,500 380,250 Options cancelled 7,800 24,450 49,900 Options exercised 259,200 7,500 -- - -------------------------------------------------------------------- Shares under option at December 31 2,799,650 2,630,400 2,417,850 Options exercisable at December 31 1,896,050 1,837,700 1,601,400 Shares available 933,650 1,362,100 1,582,150 - --------------------------------------------------------------------
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 $1,240,000 in 1995, $1,211,000 in 1994 and $1,002,000 in 1993. The increase in cash value, net of premiums, was $654,000 in 1995, $468,000 in 1994 and $452,000 in 1993. 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 3% to 15% of their regular wages which under Section 401(k) are tax deferred. The Company matches 50% 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 $2,906,000 in 1995, $2,771,000 in 1994 and $2,400,000 in 1993. In 1994, the Company adopted a profit-sharing plan covering 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 $2,279,000 in 1995 and $1,161,000 in 1994. 19 In 1996, the Company intends to adopt the required disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation". 16. ACQUISITIONS, DIVESTITURE AND RESTRUCTURING In May 1995, the Company acquired substantially all of the assets of Panyu South Fabrics Industrial Company, a manufacturer of paper machine clothing located in China, for approximately $7,000,000. In September 1995, the Company concluded the purchase of all of the outstanding capital stock and land and buildings used in the business of Technical Service Industries, a supplier of engineered fabrics to the nonwovens industry. The purchase price was approximately $10,000,000, with $900,000 paid at closing, $5,000,000 due January 1, 1996 and the balance deferred up to 10 years. In December 1995, the Company completed the acquisition of Kelley Door Systems for approximately $4,000,000. Kelley operations will be consolidated with the Company's Nomafa Door Division. All 1995 acquisitions were accounted for as purchases and, accordingly, the Company has included in its financial statements the results of operations of the acquired entities as of the respective acquisition dates. As part of the Company's previously announced program to restructure operations in order to focus on the core paper machine clothing industry, the Company completed on June 30, 1993 the sale of its Albany Engineered Systems Division (AES) for $27,400,000. The Company realized an $8,900,000 gain on the sale. At the same time, 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. The asset write offs and termination costs will continue until 1996 and lease obligation payments will continue until 1999. The components of accrued restructuring costs consist of:
- ----------------------------------------------------------- (IN THOUSANDS) 1995 1994 1993 - ----------------------------------------------------------- Termination costs $ 317 $1,490 $2,329 Asset write offs 275 1,087 1,358 Lease obligations 1,693 1,873 2,500 Other -- -- 12 - ----------------------------------------------------------- $2,285 $4,450 $6,199 - -----------------------------------------------------------
The decrease in accrued balances are the result of actual payments for terminations or incurred expenses and the disposal of written down equipment. 17. SUBSEQUENT EVENT In February 1996, the Company announced that it had received approval from the Korean government to establish a 100% owned paper machine clothing manufacturing operation in South Korea. The Company expects to construct a new facility on approximately nine acres of land in Chungju Industrial Park located about 75 miles southeast from Seoul at an initial cost of approximately $16,000,000, with shipments expected to begin in late 1997. 20 FINANCIAL REVIEW REVIEW OF OPERATIONS - --1995 VS. 1994 Net sales increased $85.1 million or 15.0% as compared with 1994. Net sales were increased by $8.1 million from the effect of a weaker U.S. dollar as compared to 1994. Excluding this effect, 1995 net sales increased 13.6% over 1994. Net sales in the United States increased 8.0% in 1995 as compared to 1994. In the U.S., the robust performance of all paper grades in 1995 was slowed in the fourth quarter due to papermakers' temporary shutdowns, particularly for containerboard inventory correction. Canadian sales increased 13.5% due in part to higher export sales to Asian markets. European sales increased 25.4% in 1995 as compared to 1994. Excluding the effect of the weaker U.S. dollar, net sales in Europe increased 11.9%. Sales in the Rest of World segment increased 11.9% as compared to 1994. The Company continued to gain market share in all product lines due to good customer acceptance and excellent performance of new products on all three sections of the paper machine. In December 1995, a price increase of 5% for the United States was announced commencing in January 1996. In addition, 1996 price increases were announced in selective European markets and Canada. Management anticipates that the average effect of price increases for 1996 will be between 2% and 3%. Gross profit continued to improve and was 41.8% of net sales in 1995 as compared to 40.3% in 1994. Variable costs as a percent of net sales increased to 32.9% in 1995 from 32.4% in 1994 due mainly to increased sales of product lines with higher cost to sales dollar ratios. Selling, technical, general and research expenses increased 11.1% in 1995 as compared to 1994. Excluding the effect of translation of non-U.S. currencies into U.S. dollars, these expenses would have increased 9.9%. Temporary increases associated with the introduction of new products, increased wages and benefit costs and higher sales commissions were the principal reasons for this increase. Operating income as a percent of net sales increased to 13.6% as compared to 11.1% in 1994. Management anticipates that operating income as a percent of net sales should continue to improve in 1996. The increase in other (income)/expense, net as compared to 1994, was due to currency transactions which resulted in $5.9 million more income in 1995. Currency transaction income results from economic hedges which can have either a positive or negative effect on other (income)/expense, net in any particular quarter. 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 offset the effects of translation on operating income (see Notes 6 and 9 of Notes to Consolidated Financial Statements). The effective tax rate for 1995 is approximately 39% as compared to 43% for 1994. The 1994 rate included an accrual of net charges associated with prior years resulting from both U.S. and non-U.S. examinations. Management anticipates that the 1996 effective tax rate will be approximately 39%. In May 1995, the Company acquired substantially all of the assets of Panyu South Fabrics Industrial Company, a manufacturer of paper machine clothing located in China, for approximately $7 million. Management anticipates that this purchase and additional investments in China will total approximately $15 million by the end of 1996. In September 1995, the Company concluded the purchase of all of the outstanding capital stock and land and buildings used in the business of Technical Service Industries, a supplier of engineered fabrics to the nonwovens industry. The purchase price was approximately $10 million, with $.9 million paid at closing, $5.0 million due January 1, 1996 and the balance deferred up to 10 years. In December 1995, the Company completed the acquisition of Kelley Door Systems for approximately $4 million. Kelley operations will be consolidated with the Company's Nomafa Door Division. Additional expenditures in early 1996 for equipment and inventories will approximate $1 million. All 1995 acquisitions were accounted for as purchases and, accordingly, the Company has included in its financial statements the results of operations of the acquired entities as of the respective acquisition dates. Reported results were not significant. In February 1996, the Company announced that it had received approval from the Korean government to establish a 100% owned paper machine clothing manufacturing operation in South Korea. The Company expects to construct a new facility on approximately nine acres of land in Chungju Industrial Park located about 75 miles southeast from Seoul at an initial cost of approximately $16 million, with shipments expected to begin in late 1997. - --1994 VS. 1993 Net sales increased $21.5 million or 3.9% as compared with 1993. Net sales were increased by $4.2 million from the effect of a weaker U.S. dollar 21 as compared to 1993 and were decreased by $20.5 million resulting from the divestiture of the Company's equipment division (AES) in mid-1993. Excluding these factors, 1994 net sales increased 7.2% over 1993. Net sales in the United States were comparable to the prior year's sales. Selective price concessions for customers entering into Continuous Supply agreements for the Company's products tended to reduce selling prices and had a slight negative impact on sales. Management believes that Continuous Supply agreements are part of an effort by paper manufacturers to reduce the number of suppliers of paper machine clothing and that this will be beneficial to the Company in the long term. Canadian sales approximated prior year's sales and increased significantly during the last six months of 1994 reflecting improved economic and paper industry operating conditions. European sales increased 8.0% in 1994 as compared to 1993 reversing a three year decline which began in 1991. Sales growth rates in the Nordic region and Continental Europe were strongest in the second half of 1994. Sales in the Rest of World segment increased 12.8% as compared to 1993. The Company continued to gain market share in Forming Fabrics and Dryer Fabrics and retain its Press Fabrics market share. There were no significant price increases that took effect in 1994, except for new products and upgrades. Price increases announced in December 1994 for the United States, Canada and parts of Europe became effective during 1995. Gross profit continued to improve and was 43.7% of net sales for the three months ended December 31, 1994 as compared to 39.2% for the same period in 1993 increasing the full year result to 40.3% for 1994 as compared to 36.9% for 1993. Variable costs as a percent of net sales decreased to 32.4% in 1994 from 34.0% in 1993 due mainly to plant closings and workforce reductions, principally in Europe, and the divestiture of AES in June 1993. In addition, the Company's Total Quality Assurance program resulted in improved product quality and efficiencies, both of which have contributed to lower costs. Selling, technical, general and research expenses increased 2.0% in 1994 as compared to 1993. Excluding the effect of translation of non-U.S. currencies into U.S. dollars and the sale of AES, these expenses would have increased 6.2%. The Company did not reduce its sales and service efforts as there was increasing customer demand for service. Operating income as a percent of net sales increased to 11.1% as compared to 7.5% in 1993. The capacity expansion and upgrades over the last several years, along with the restructuring program, should position the Company to capitalize on future opportunities for sales and earnings growth as world economies and markets continue to improve. The decrease in other (income)/expense, net as compared to 1993, was due to currency transactions which resulted in $8.1 million less income in 1994 and no pre-receivable sales in 1994 which resulted in $2.6 million less expense in 1994. The Company's 1994 effective tax rate was 43.0% as compared to 39.4% for the comparable period in 1993. The rate increase was due principally to the accrual of net charges associated with prior years resulting from both U.S. and non-U.S. examinations. During February 1994 the Company exchanged its 40% equity interests in Brazil and Argentina for the remaining 60% interest in Mexico. The transaction was accounted for as a purchase, and accordingly, the Company included the results of operations in its financial statements as of January 1, 1994. Reported results of Mexico were not significant. The Company's only remaining equity interests are 50% ownership in two related entities in South Africa. (See Note 1 of Notes to Consolidated Financial Statements). 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. In countries in which the Company operates that have experienced high inflation rates, the Company frequently reprices its products. This practice has enabled the Company to quickly pass on to its customers most of the increased costs due to local inflation. The profitability in the Company's geographic regions in 1995 as compared to 1994 increased in all regions (see Note 11 of Notes to Consolidated Financial Statements). Total operating income increased 41.2% as compared to 1994. Operating income/(loss) as a percent of net sales, after excluding restructuring of operations and termination benefits, for the United States was 16.0% in 1995, 13.1% in 1994 and 10.8 % in 1993; and for Canada was 19.7% in 1995, 12.8% in 1994 and 10.5% in 1993; for Europe was 9.6% in 1995, 7.9% in 1994 and (.1%) in 1993 and for Rest of World was 13.0% in 1995, 12.0% in 1994 and 10.1% in 22 1993. The increase in all geographic regions in 1995 were due to higher sales and continued cost controls. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1995 the Company's order backlog was $492.2 million, an increase of $46.2 million from the prior year-end. Inventories increased $18.9 million during 1995 due to the weakening U.S. dollar and high orders which resulted in some building of inventory in anticipation of future sales. As a result of a weaker U.S. dollar and the increase in net sales, accounts receivable increased $16.3 million or 10.6% in 1995. Cash flow provided from operating activities was $67.5 million in 1995 compared with $23.1 million in 1994 and $45.2 million in 1993. Capital expenditures were $41.9 million for 1995, $36.3 million for 1994 and $30.9 million for 1993. Capital expenditures in 1996 are expected to be about $45.0 million, excluding acquisitions and new ventures. The Company will continue to finance these expenditures with cash from operations and existing credit facilities. Total debt increased $12.0 million during 1995 caused principally by the monies borrowed to finance the acquisitions, as discussed above. In March 1995, the Company amended its existing $125 million revolving credit agreement, with its principal banks in the United States, to increase the banks' commitment to $150 million and to extend the maturity to the year 2000 with more favorable terms. Pricing will be based on a margin over floating rate cost of banks' funding and varies depending upon the Company's performance. In 1996, the revolving credit agreement was renegotiated to increase the banks' commitment to $300 million, of which $150 million will mature in 2001 and the remainder in 2002. Management believes that the unused line, in combination with expected free cash flows, will be sufficient to meet operating requirements and for normal business opportunities. As described in Note 6 of Notes to Consolidated Financial Statements, on February 13, 1996 the Company notified the holders of the $150 million 5.25% convertible subordinated debentures that the debentures would be redeemed on March 15, 1996 at a redemption price of 91.545%. A one-time extraordinary non-cash charge to income of approximately $1.2 million, net of tax, will be recorded in the first quarter of 1996. Cash dividends of $.0875 per share were paid in the first quarter and $.10 in the second, third and fourth quarters of 1995. During the second quarter of 1993 the Company recorded certain costs related to restructuring of operations which totaled $7.0 million. (See Note 16 of Notes to Consolidated Financial Statements). Actual restructuring costs have approximated management's original estimates. The 1993 provision for asset write offs and termination payments will be utilized in 1996 and lease obligation payments will continue until 1999. The Company intends to focus on its core paper machine clothing business and will consider acquiring other paper machine clothing companies where such acquisitions support corporate strategies to enhance value to customers and shareholders. 23 ELEVEN YEAR SUMMARY ALBANY INTERNATIONAL CORP. - --------------------------------------------------------------------------------
1995 1994 1993 1992 ------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY OF OPERATIONS Net sales $652,645 $567,583 $546,120 $561,084 Cost of goods sold 379,632 338,868 344,609 367,516 Operating income (1),(2),(7) 88,891 62,944 40,910 18,133 Interest expense, net 20,009 16,820 16,115 18,829 Income before income taxes 69,906 41,800 25,425 2,522 Income taxes 27,233 17,974 10,017 958 Income before associated companies 42,673 23,826 15,408 1,564 Net income/(loss) (3),(4),(6) 43,050 23,952 15,524 (3,585) Per share: Primary 1.43 0.80 0.58 (0.14) Fully diluted 1.35 0.80 0.58 (0.14) Average number of shares outstanding 30,202 29,953 26,679 25,559 Capital expenditures 41,921 36,322 30,940 20,219 Dividends declared 11,708 10,488 9,361 8,950 Per Class A common share 0.3875 0.3500 0.3500 0.3500 Per Class B common share 0.3875 0.3500 0.3500 0.3500 FINANCIAL POSITION Current assets $358,500 $314,176 $264,140 $249,669 Current liabilities 123,883 112,777 97,930 109,477 Current ratio 2.9 2.8 2.7 2.3 Property, plant and equipment, net 342,150 320,719 302,829 308,618 Total assets 796,525 721,386 655,420 645,992 Long-term debt 245,265 232,767 208,620 239,732 Shareholders' equity 302,297 271,947 244,468 190,700 Per share 9.97 9.05 8.18 7.44 Total capital (5) 564,815 522,434 464,565 453,498 Total debt to total capital 46.5% 47.9% 47.4% 57.9% Return on shareholders' equity 14.2% 8.8% 6.4% (1.9)% NUMBER OF EMPLOYEES 5,658 5,404 5,286 5,678
---------------------------------------- (1) The Company adopted Financial Accounting Standard (FAS) No. 87 "Employers' Accounting for Pensions", with respect to its U.S. retirement plans in December 1986 retroactive to January 1, 1986. The adoption of FAS 87 reduced pension cost for 1986 by $2,541,000. In 1989, the Company adopted the Standard for non-U.S. plans 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) Included in 1987 is a charge to income for the difference between the amount accrued under Incentive Stock Unit (ISU) agreements and the appraised value of the 1,534,256 Class B common shares which were issued to the holders of the ISU's. The amount of this charge was $2,195,000. (4) 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. 24 - --------------------------------------------------------------------------------
1991 1990 1989 1988 1987 1986 1985 - -------------------------------------------------------------------------------------- $ 557,218 $ 556,104 $ 505,474 $ 461,246 $ 402,203 $ 336,393 $ 301,830 360,251 359,997 300,007 267,782 237,708 198,569 174,972 43,421 30,361 66,907 73,347 62,920 53,060 55,041 20,090 18,450 19,857 16,637 14,908 16,625 20,705 18,685 13,121 75,552 52,925 46,495 32,575 25,764 10,219 6,858 33,171 18,809 21,875 19,427 16,352 8,466 6,263 42,381 34,116 24,620 13,148 9,412 10,311 7,649 44,492 36,258 25,245 14,717 11,365 0.41 0.30 1.75 1.46 1.15 0.59 0.45 0.41 0.30 1.75 1.46 1.11 0.59 0.45 25,415 25,312 25,408 24,779 21,992 24,947 25,094 40,067 110,729 82,252 58,601 40,216 23,712 24,213 8,903 7,518 5,775 4,674 1,082 -- -- 0.3500 0.3500 0.3125 0.2625 0.0625 -- -- 0.3500 0.1313 -- -- -- -- -- $ 253,924 $ 272,696 $ 242,518 $ 206,729 $ 177,421 $ 150,264 $ 130,734 103,031 104,299 98,885 84,880 86,691 69,529 54,374 2.5 2.6 2.4 2.4 2.0 2.2 2.4 362,456 365,558 260,907 214,807 182,232 152,669 140,866 674,713 703,286 566,342 477,237 417,722 359,727 325,999 250,423 262,042 145,493 157,833 130,745 173,041 159,809 244,427 242,683 238,584 178,248 146,036 67,135 65,662 9.59 9.57 9.26 7.10 6.01 3.06 2.62 548,436 572,656 450,866 391,410 319,027 271,426 251,571 48.4% 49.5% 38.9% 48.3% 47.7% 70.4% 70.0% 4.2% 3.2% 21.3% 22.4% 23.7% 22.2% 19.6% 5,726 6,144 6,090 5,659 5,244 5,122 5,017
(5) 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. (6) 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. (7) 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. 25 QUARTERLY FINANCIAL DATA (UNAUDITED) - --------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH - -------------------------------------------------------------------------------- 1995 - -------------------------------------------------------------------------------- Net sales $154.1 $166.8 $162.0 $ 169.7 Gross profit 62.9 70.9 67.8 71.4 Net income 7.7 11.7 11.6 12.1 Net income per share: Primary .26 .38 .39 .40 Fully diluted .26 .36 .36 .37 Dividends per share .0875 .10 .10 .10 Class A Common Stock prices: High 19.625 23.875 26.50 23.625 Low 17.125 18.75 22.875 17.875 - -------------------------------------------------------------------------------- 1994 - -------------------------------------------------------------------------------- Net sales $131.4 $139.6 $145.2 $ 151.4 Gross profit 50.2 54.5 57.8 66.2 Net income 3.7 5.9 6.0 8.4 Net income per share: Primary .12 .20 .20 .28 Fully diluted .12 .20 .20 .26 Dividends per share .0875 .0875 .0875 .0875 Class A Common Stock prices: High 21.25 20.375 19.50 20.00 Low 18.00 17.75 16.125 16.25 - -------------------------------------------------------------------------------- 1993 - -------------------------------------------------------------------------------- Net sales $137.1 $149.6 $125.6 $ 133.8 Gross profit 47.5 54.8 46.8 52.4 Net income .1 4.6 4.4 6.4 Net income per share: Primary .01 .17 .18 .22 Fully diluted .01 .17 .18 .22 Dividends per share .0875 .0875 .0875 .0875 Class A Common Stock prices: High 16.625 17.875 19.00 19.25 Low 14.25 15.50 16.50 17.50 - --------------------------------------------------------------------------------
STOCK AND SHAREHOLDERS The Company's Class A Common Stock is traded principally on the New York Stock Exchange. At December 31, 1995 there were approximately 5,200 shareholders. 26

EXHIBIT 21 SUBSIDIARIES OF REGISTRANT SUBSIDIARIES OF REGISTRANT
Percent Percent Direct Indirect Ownership Ownership Jurisdiction --------- --------- ------------ Albany International Pty.,Ltd. 100 Australia Albany International Feltros e Telas Industriais Ltda. 100 Brazil Albany International Canada Inc. 100 Canada Albany International (China) Co., Ltd. 100 China Albany Fennofelt Oy AB 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 Nomafa Betriebsschutzeinrichtungen GmbH 100 Germany Nordiskafilt GmbH 100 Germany Albany International GmbH Ahlen 100 Germany Albany International GmbH Goppingen 100 Germany Albany International Nederland B.V. 100 Netherlands Nomafa B.V. 100 Netherlands Albany International B.V. 100 Netherlands 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 Nordiskafilt AS 100 Norway Albany International Korea, Inc. 100 South Korea Albany International Korea, Inc. 100 South Korea 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

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 25, 1996, except for Notes 6 and 17, for which the date is February 13, 1996, on our audits of the consolidated financial statements and financial statements schedules of Albany International Corp. as of December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Albany, New York March 26, 1996

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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 7,609 0 175,425 5,010 161,381 358,500 625,119 282,969 796,525 123,883 245,265 0 0 31 302,266 796,525 652,645 652,645 379,632 562,791 (1,024) 963 20,009 69,906 27,233 43,050 0 0 0 43,050 1.43 1.35