Albany Door Systems

          This segment includes sales and service of High Performance Doors and after-market sales to a variety of industrial customers.

          Fourth-quarter Door Systems net sales increased 10.9 percent compared to the same period last year, and 4.6 percent excluding the effect of changes in currency translation rates. Sales of new products continued to accelerate, with solid improvements in after-market sales in Europe. For the full year, sales in this segment increased 7.0 percent compared to 2005, and 6.1 percent excluding the effect of changes in currency translation rates. 

          Comments on Current and Planned Activities

          President and CEO Joe Morone commented, “Our third-quarter 2006 financial release suggested that, excluding the effects of any special charges, we were hopeful that the trend forward would be for gradual improvement in revenue and operating income and that the operating income impact from the decline in European PMC revenue would be fully offset by the fourth quarter of 2007. The operating results and market conditions that we experienced in Q4 reinforce this view and suggest that we are on the trend toward gradual improvement.

          “In our view, what is most important about Q4 is the evidence of progress in each of the three primary factors that we identified in the Q3 release as contributing to this gradual improvement.

          “First, excluding the effect of the previously announced change in contract terms with a major customer, PMC revenue grew by 5.5% from Q3 to Q4. In the Q3 release, we indicated that we expected the pricing gap in Europe to narrow, and volumes to increase, and that we were cautiously optimistic that the combined effect should lead to flat or slight improvements in European PMC revenue over the next few quarters. With most major contract negotiations in Europe now completed, these expectations have not changed. Sales in Western Europe grew by 9% in Q4 compared to Q3 2006. Orders in all three corridors provide further evidence of the trend toward gradual improvement. This order picture is reinforced by continued market share growth in the Americas, where major contract negotiations have also been concluded, a promising array of new products in each product line, an increasingly strong R&D pipeline, and good progress toward completion of the Asian capacity expansion. One important caveat regarding PMC revenue is the continuing closures of paper machines in North America and Western Europe. The resulting pressure on the top line, which clearly affected PMC revenue in 2006, is likely to continue in 2007.

          “A second key factor that strengthened in Q4 and that should continue to contribute to gradual improvement was significant, company-wide progress on the cost reduction and process improvement initiatives referred to in the Q3 release. We expect that the initial benefit of these activities will take effect by late Q1 2007, and that the magnitude of the benefit will gradually grow through the year.  These performance-improvement initiatives reduced net income in the fourth quarter by $0.06 per share. The more significant charges related to these activities will likely be incurred in the first half of 2007.

          “The third key factor driving the trend toward gradual improvement is the continuing growth of the emerging businesses. In the Applied Technologies segment, Albany Engineered Composites sales grew by 17% in Q4 compared to Q3, and considerable progress was made toward building our manufacturing and engineering infrastructure, developing new business opportunities, and in positioning the business for profitable growth. The remainder of the Applied Technologies segment, comprising the cluster of businesses that apply our advanced textiles and materials technology to process industries outside of paper, grew a combined 9% compared to Q3. During Q4, as part of our continuing effort to build critical mass and global capacity in these businesses, we merged Engineered Fabrics and Industrial Process Belts. Orders in each of the Applied Technologies segment businesses are strong, suggesting a continuation of the sales growth trend into 2007.

          “As for the Doors segment, Q4 is historically the strongest quarter of the year. Sales in Q4 2006 grew by 11% compared to Q4 2005, and by 24% compared to Q3 2006. As with all of our businesses, door orders are strong, and perhaps most significantly for the doors business, considerable progress is being made in mapping out our strategy for approaching the aftermarket.