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, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-16214 ------------------------ ALBANY INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 14-0462060 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1373 BROADWAY, ALBANY, NEW YORK 12204 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 518-445-2200 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Class A Common Stock ($0.001 par value) New York Stock Exchange and Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports,) and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of Class A Common Stock held on February 9, 1998 by non-affiliates of the registrant was $557,192,783. The registrant had 24,280,216 shares of Class A Common Stock and 5,615,563 shares of Class B Common Stock outstanding as of February 9, 1998.
DOCUMENTS INCORPORATED BY REFERENCE PART - ---------------------------------------------------------------------------------------------- ----------- Registrant's Annual Report to Shareholders for the year ended December 31, 1997. II Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 1998. III
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Albany International Corp. ("the Company") designs, manufactures and markets paper machine clothing for each section of the paper machine. It 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 design and material composition of paper machine clothing can have a considerable effect on the quality of paper products produced and the efficiency of the paper machines on which it is used. The Registrant produces a substantial portion of its monofilament requirements. Practically all press fabrics are woven tubular or endless from monofilament yarns. After weaving, the base press fabric goes to a needling operation where a thick fiber layer, called a batt, is laid on the base just before passing through the needling machine. The needles are equipped with tiny barbs that grab batt fibers locking them into the body of the fabric. After needling, the fabrics are usually washed, and water is removed. The fabric then is heat set, treatments may be applied, and it is measured and trimmed. The Registrant's manufacturing process is similar for forming fabrics and drying fabrics, except that there is normally no needling operation in the construction of those fabrics. Monofilament screens are woven on a loom. The fabrics are seamed to produce an endless loop, and heat stabilized by running them around two large cylinders under heat and drawn out by tension. After heat setting, the fabrics are seamed and boxed. In addition to paper machine clothing, the Registrant manufactures other engineered fabrics which include fabrics for the non-woven industry, corrugator belts, filtration media and high performance industrial doors. The Nomafa Door Division, a manufacturer of Rapid Roll Doors-Registered Trademark-, is the operation of the Company which developed high speed, high performance industrial doors, which grew from the application of the Company's coated fabric technology to its woven fabrics. Since the inception of Rapid Roll Doors in the early 1980's, manufacturing operations in North America and Europe have supplied approximately 100,000 installations worldwide. In November 1996, the Registrant acquired Schieffer Door Systems, a manufacturer of high-speed, high-performance industrial doors. Schieffer's technology and leadership position in Germany has significantly enhanced the Registrant's industrial door operations. INDUSTRY FACTORS There are approximately 1,200 paper machines in the United States located in approximately 600 paper mills. It is estimated that, excluding China, there are about 7,200 paper machines in the world and approximately 1,500, mostly very small, paper machines in China. Demand for paper machine clothing is tied to the volume of paper production, which in turn reflects economic growth. According to published data, world production volumes have grown at an annual rate in excess of 3% over the last ten years. The Registrant anticipates continued growth for the long-term in world paper production. The profitability of the paper machine clothing business has generally been less cyclical than the profitability of the papermaking industry. Because the paper industry has been characterized by an evolving but essentially stable manufacturing technology based on the wet forming papermaking process, which requires a very large capital investment, the Registrant does not believe that a commercially feasible substitute technology that does not employ paper machine clothing is likely to be developed and incorporated into the paper 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, South Korea, 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. MARKETING, CUSTOMERS AND BACKLOG Paper machine clothing is custom designed for each user depending upon the type, size and speed of the papermaking machine, the machine section, the grade of paper being produced, and the quality of the pulp stock used. Technical expertise, judgment and experience are critical in designing the appropriate clothing for each position on the machine. As a result, the Registrant employs highly skilled sales and technical service personnel in 25 countries who work directly with paper mill operating management. The Registrant's technical service program in the United States gives its service engineers field access to the measurement and analysis equipment needed for troubleshooting and application engineering. Sales, service and technical expenses are major cost components of the Registrant. The Registrant employs approximately 1,000 people in the sales and technical functions combined, many of whom have engineering degrees or paper mill experience. The Registrant's market leadership position reflects the Company's commitment to technological innovation. Typically, the Registrant experiences its highest quarterly sales levels in the fourth quarter of each fiscal year and its lowest levels in the first quarter. The Registrant believes that this pattern only partially reflects seasonal shifts in demand for its products but is more directly related to purchasing policies of the Registrant's customers. Payment terms granted to customers reflect general competitive practices. Terms vary with product and competitive conditions, but generally require payment within 30 to 90 days, depending on the country of operation. Historically, bad debts have been insignificant. No single customer, or group of related customers, accounted for more than 5% of the Registrant's sales of paper machine clothing in 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, 1997 and 1996 were approximately $528 million and $502 million, respectively. Orders recorded at December 31, 1997 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 $23.1 million in 1997, $21.9 million in 1996 and $19.7 million in 1995. 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-, BEL-PLANE-Registered Trademark-, AEROLINE-TM- and AEROGRIP-TM- which are dryer fabrics. Technical expenditures, primarily at the plant level, totaled $26.9 million in 1997, $26.8 million in 1996 and $25.3 million in 1995. Technical expenditures are focused on design, quality assurance and customer support. Although the Registrant has focused most of its research and development efforts on paper machine clothing products and design, the Registrant also has made progress in developing non-paper machine clothing products. Through its major research facility in Mansfield, Massachusetts, the Registrant conducts research under contract for the U.S. government and major corporations. In addition to its Mansfield facility, the Registrant has four other research and development centers located at manufacturing locations in Halmstad, Sweden; Selestat, France; Albany, New York; and Menasha, Wisconsin. The Registrant holds a number of patents, trademarks and licenses, none of which are material to the continuation of the Registrant's business. The Registrant has licensed some of its patents to one or more competitors, mainly to enhance customer acceptance of the new products. The revenue from such licenses is less than 1% of consolidated net sales. RAW MATERIALS AND INVENTORY Primary raw materials for the Registrant's products are synthetic fibers, which are generally available from a number of suppliers. The Registrant, therefore, is not required to maintain inventories in excess of its current needs to assure availability. In addition, the Registrant manufactures monofilament, a basic raw material for all types of paper machine clothing, at its facility in Homer, New York, which supplies approximately 40% of its world-wide monofilament requirements. This manufacturing capability assists the Registrant in its negotiations with monofilament producers for the balance of its supply requirements, and enhances the ability of the Registrant to develop proprietary products. COMPETITION While there are more than 50 paper machine clothing suppliers worldwide, only six major paper machine clothing companies compete on a global basis. Market shares vary depending on the country and the type of paper machine clothing produced. In the paper machine clothing market, the Registrant believes that it has a market share of approximately 29% in the United States and Canadian markets, taken together, 20% in the rest of the world and approximately 23% in the world overall. Together, the United States and Canada constitute approximately 36% of the total world market for paper machine clothing. Competition is intense in all areas of the Registrant's business. While price competition is, of course, a factor, the primary bases for competition are the performance characteristics of the Registrant's products, which are principally technology-driven, and the quality of customer service. The Registrant, like its competitors, provides diverse services to customers through its sales and technical service personnel including: (1) consulting on performance of the paper machine; (2) consulting on paper machine configurations, both new and rebuilt; (3) selection and custom manufacture of the appropriate paper machine clothing; and (4) storing fabrics for delivery to the user. 4 EMPLOYEES The Registrant employs 5,881 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........ 72 Chairman of the Board and Director Francis L. McKone.......... 63 President, CEO and Director Frank R. Schmeler.......... 58 Executive Vice President and Chief Operating Officer--PMC and Director Edward Walther............. 54 Executive Vice President--Management and Technology Michael C. Nahl............ 55 Senior Vice President and Chief Financial Officer J. Weldon Cole............. 61 Senior Vice President--Corporate Planning and Business Development Michel J. Bacon............ 48 Senior Vice President--Canada and Pacific William M. McCarthy........ 47 Senior Vice President--Europe Thomas H. Hagoort.......... 65 General Counsel and Secretary Richard A. Carlstrom....... 54 Vice President--Controller William H. Dutt............ 62 Vice President--Technical Edward R. Hahn............. 53 Vice President--Research and Development Hugh A. McGlinchey......... 58 Vice President--Information Systems Kenneth C. Pulver.......... 54 Vice President--Corporate Communications John C. Treanor............ 59 Treasurer Charles J. Silva, Jr....... 38 Assistant General Counsel and Assistant Secretary
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. He is a director of Albank, FSB and Thermo Fibergen, Inc. FRANK R. SCHMELER joined the Registrant in 1964. He has served the Registrant as Executive Vice President and Chief Operating Officer since 1997 and as Senior Vice President from 1988 to 1997, as Vice 5 President and General Manager of the Felt Division from 1984 to 1988, as Division Vice President and General Manager, Albany International Canada from 1978 to 1984 and as Vice President of Marketing, Albany International Canada from 1976 to 1978. He has been a Director of the Registrant since 1997. EDWARD WALTHER joined the Registrant in 1994. He has served the Registrant as Executive Vice President since 1997 and as Senior Vice President from 1995 to 1997 and as Vice President and General Manager--Continental Europe since 1994. Prior to joining the Registrant, he held various marketing and managerial positions with a company in the paper machine clothing business. MICHAEL C. NAHL joined the Registrant in 1981. He has served the Registrant as Senior Vice President and Chief Financial Officer since 1983 and prior to 1983 as Group Vice President. J. WELDON COLE joined the Registrant as Senior Vice President in 1995. From 1988 until December 1994 he held various management positions, most recently as President and Director of an international manufacturer of pulp and papermaking equipment. MICHEL J. BACON joined the Registrant in 1978. He has served the Registrant as Senior Vice President since 1996 and as Vice President and General Manager of Albany International Canada from 1991 to 1996, as Vice President of Operations, Albany International Canada Press Division from 1989 to 1991 and as Vice President of Marketing, Albany International Canada from 1987 to 1989. WILLIAM M. MCCARTHY joined the Registrant in 1977. He has served the Registrant as Senior Vice President since 1997 and since 1991 has held various positions for Press Fabrics U.S. including Vice President and General Manager, Vice President-Marketing and Technical Director. From 1988 to 1991 he was Technical Director for Continental Europe-Press Fabrics. THOMAS H. HAGOORT joined the Registrant in 1991. He has served the Registrant as General Counsel and Secretary since 1997 and as General Counsel from 1991 to 1997. From 1968 until December 31, 1990 he was a partner in Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in New York City, to which he became of counsel on January 1, 1991. RICHARD A. CARLSTROM joined the Registrant in 1972. He has served the Registrant as Vice President-Controller since 1993, as Controller since 1980, as Controller of a U.S. division from 1975 to 1980, and prior to 1975 as Financial Controller of Albany International Pty. in Australia. WILLIAM H. DUTT joined the Registrant in 1958. He has served the Registrant since 1983 as Vice President-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. KENNETH C. PULVER joined the Registrant in 1968. He has served the Registrant as Vice President-Corporate Communications since 1997 and as Vice President of Operations for Primaloft from 1992 to 1997. From 1984 to 1992 he served in various marketing positions with Albany Engineered Systems. JOHN C. TREANOR joined the Registrant in 1970. He has served the Registrant as Treasurer since 1997, as Controller of Albany International Europe from 1992 to 1997 and as Controller of Albany International Canada from 1985 to 1992. 6 CHARLES J. SILVA, JR. joined the Registrant in 1994. He has served the Registrant as Assistant General Counsel and Assistant Secretary since 1996 and as Assistant General Counsel from 1994 to 1996. Prior to 1994, he was an associate in Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in New York City. The Registrant believes it is in compliance with all Federal, State and local provisions which have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, and does not have knowledge of environmental regulations which do or might have a material effect on future capital expenditures, earnings, or competitive position. The Registrant is incorporated under the laws of the State of Delaware and is the successor to a New York corporation which was originally incorporated in 1895 and which was merged into the Registrant in August 1987 solely for the purpose of changing the domicile of the corporation. Upon such merger, each outstanding share of Class B Common Stock of the predecessor New York corporation was changed into one share of Class B Common Stock of the Registrant. References to the Registrant that relate to any time prior to the August 1987 merger should be understood to refer to the predecessor New York corporation. ITEM 2. PROPERTIES The Registrant's principal manufacturing facilities are located in the United States, Canada, Europe, Brazil, Mexico, Australia, South Korea and China. The aggregate square footage of the Registrant's facilities in the United States and Canada is approximately 2,456,000, of which 2,338,000 square feet are owned and 118,000 square feet are leased. The Registrant's facilities located outside the United States and Canada comprise approximately 2,721,000 square feet, of which 2,542,000 square feet are owned and 179,000 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 1998. The Registrant's expected 1998 capital expenditures 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 $213 million on new plants and equipment or upgrading existing facilities. 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 1997 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 38 of the Annual Report are incorporated herein by reference. Restrictions on dividends and other distributions are described in Note 6, on pages 25 and 26 of the Annual Report. Such description is incorporated herein by reference. 7 ITEM 6. SELECTED FINANCIAL DATA "Eleven Year Summary" on pages 36 and 37 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 33 to 35 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 18 to 32 in the Annual Report, are incorporated herein by reference: Consolidated Statements of Income and Retained Earnings--years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Cash Flows--years ended December 31, 1997, 1996 and 1995 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 1997 and Year-End Values", "Pension Plan Table", "Compensation and Stock Option Committee Report on Executive Compensation", "Compensation and Stock Option Committee Interlocks and Insider Participation", "Stock Performance Graph", and "Directors' Fees" is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set out in the section captioned "Share Ownership" of the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 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, 1997 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, 1997. 9
(3) EXHIBITS 3(a)- Certificate of Incorporation of Registrant. (3) 3(b)- Bylaws of Registrant. (1) 4(a)- Article IV of Certificate of Incorporation of Registrant (included in Exhibit 3(a)). 4(b)- Specimen Stock Certificate for Class A Common Stock. (1) MORGAN CREDIT AGREEMENT 10(i)(i)- Amended and restated Credit Agreement, dated as of February 29, 1996, among the Registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent. (6) STOCK OPTIONS 10(m)(i)- Form of Stock Option Agreement, dated as of August 1, 1983, between the Registrant and each of five employees, together with schedule showing the names of such employees and the material differences among the Stock Option Agreements with such employees. (1) 10(m)(ii)- Form of Amendment of Stock Option Agreement, dated as of July 1, 1987, between the Registrant and each of the five employees identified in the schedule referred to as Exhibit 10(m)(i). (1) 10(m)(iii)- 1988 Stock Option Plan. (2) 10(m)(iv)- 1992 Stock Option Plan. (4) 10(m)(v)- 1997 Executive Stock Option Agreement. EXECUTIVE COMPENSATION 10(n)- Pension Equalization Plan adopted April 16, 1986, naming two current executive officers and one former executive officer of Registrant as "Participants" thereunder. (1) 10(n)(i)- Supplemental Executive Retirement Plan. (5) 10(o)(i)- Form of Executive Deferred Compensation Plan adopted September 1, 1985, and Forms of Election Agreement. (1) 10(o)(ii)- Form of Directors' Deferred Compensation Plan adopted September 1, 1985, and Form of Election Agreement. (1) 10(o)(iii)- Executive Deferred Compensation Plan. (2) 10(o)(iv)- Directors' Deferred Compensation Plan. (2) 10(o)(v)- Deferred Compensation Plan of Albany International Corp. (6) 10(o)(vi)- Centennial Deferred Compensation Plan. (6)
10
(3) EXHIBITS OTHER AGREEMENTS 11- Schedule of Computation of Net Income Per Share and Diluted Net Income Per Share. 13- Annual Report to Security Holders for the year ended December 31, 1997. 21- Subsidiaries of Registrant. 23- Consent of Coopers & Lybrand L.L.P. 24 - Powers of Attorney. 27- Financial Data Schedule.
All other schedules and exhibits are not required or are inapplicable and, therefore, have been omitted. - ------------------------ (1) Previously filed as an Exhibit to the Company's Registration Statement on Form S-1, No. 33-16254, as amended, declared effective by the Securities and Exchange Commission on September 30, 1987, which previously-filed Exhibit is incorporated by reference herein. (2) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated August 8, 1988, which previously-filed Exhibit is incorporated by reference herein. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form 8-A, File No. 1-10026, declared effective by the Securities and Exchange Commission on August 26, 1988 (as to The Pacific Stock Exchange, Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.), which previously-filed Exhibit is incorporated by reference herein. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 18, 1993, which previously-filed Exhibit is incorporated by reference herein. (5) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 30, 1994, which previously-filed Exhibit is incorporated by reference herein. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated March 15, 1996, which previously-filed Exhibit is incorporated by reference herein. 11 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------------------ -------------------------------------- ----------------- * ------------------------------------------- Chairman of the Board and Director March 16, 1998 (J. Spencer Standish) * ------------------------------------------- President and Director March 16, 1998 (Francis L. McKone) (Chief Executive Officer) /s/ MICHAEL C. NAHL Senior Vice President and Chief ------------------------------------------- Financial Officer March 16, 1998 (Michael C. Nahl) (Principal Financial Officer) * ------------------------------------------- Vice President-Controller March 16, 1998 (Richard A. Carlstrom) (Principal Accounting Officer) * ------------------------------------------- Director March 16, 1998 (Thomas R. Beecher, Jr.) * ------------------------------------------- Director March 16, 1998 (Charles B. Buchanan) * ------------------------------------------- Director March 16, 1998 (Dr. Joseph G. Morone) * Executive Vice President and ------------------------------------------- Chief Operating Officer-PMC and March 16, 1998 (Frank R. Schmeler) Director * ------------------------------------------- Director March 16, 1998 (Christine L. Standish) * ------------------------------------------- Director March 16, 1998 (Allan Stenshamn) * ------------------------------------------- Director March 16, 1998 (Barbara P. Wright)
*By /s/ MICHAEL C. NAHL --------------------------------------- Michael C. Nahl Attorney-in-fact

12 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 16th day of March, 1998. ALBANY INTERNATIONAL CORP. By: /s/ MICHAEL C. NAHL ------------------------------------------ Michael C. Nahl PRINCIPAL FINANCIAL OFFICER SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

13 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 18 of the 1997 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 9 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 22, 1998 SCHEDULE II ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
COLUMN B COLUMN C ----------- ----------- COLUMN E COLUMN A BALANCE AT ADDITIONS COLUMN D ------------- - ---------------------------------------------------------- BEGINNING CHARGED TO --------------- BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS (A) END OF PERIOD - ---------------------------------------------------------- ----------- ----------- --------------- ------------- Allowance for doubtful accounts Year ended December 31: 1997.................................................. $ 4,962 $ 1,298 $ 1,036 $ 5,224 1996.................................................. $ 5,010 $ 1,036 $ 1,084 $ 4,962 1995.................................................. $ 4,618 $ 963 $ 571 $ 5,010
- ------------------------ (A) Includes accounts written off as uncollectible, recoveries and the effect of currency exchange rates.
INDEX TO EXHIBITS - ---------------- 3(a) - Certificate of Incorporation of Registrant. (3) 3(b) - Bylaws of Registrant. (1) 4(a) - Article IV of Certificate of Incorporation of Registrant (included in Exhibit 3(a)). 4(b) - Specimen Stock Certificate for Class A Common Stock. (1) MORGAN CREDIT AGREEMENT 10(i)(i) - Amended and restated Credit Agreement, dated as of February 29, 1996, among the Registrant, certain banks listed therein, and Morgan Guaranty Trust Company of New York, as Agent. (6) STOCK OPTIONS 10(m)(i) - Form of Stock Option Agreement, dated as of August 1, 1983, between the Registrant and each of five employees, together with schedule showing the names of such employees and the material differences among the Stock Option Agreements with such employees. (1) 10(m)(ii) - Form of Amendment of Stock Option Agreement, dated as of July 1, 1987, between the Registrant and each of the five employees identified in the schedule referred to as Exhibit 10(m)(i). (1) 10(m)(iii) - 1988 Stock Option Plan. (2) 10(m)(iv) - 1992 Stock Option Plan. (4) 10(m)(v) - 1997 Executive Stock Option Agreement. EXECUTIVE COMPENSATION 10(n) - Pension Equalization Plan adopted April 16, 1986, naming two current executive officers and one former executive officer of Registrant as "Participants" thereunder. (1) 10(n)(i) - Supplemental Executive Retirement Plan. (5) 10(o)(i) - Form of Executive Deferred Compensation Plan adopted September 1, 1985, and Forms of Election Agreement. (1) 10(o)(ii) - Form of Directors' Deferred Compensation Plan adopted September 1, 1985, and Form of Election Agreement. (1) 10(o)(iii) - Executive Deferred Compensation Plan. (2) 10(o)(iv) - Directors' Deferred Compensation Plan. (2) 10(o)(v) - Deferred Compensation Plan of Albany International Corp. (6) 10(o)(vi) - Centennial Deferred Compensation Plan. (6) OTHER AGREEMENTS 11 - Schedule of Computation of Net Income Per Share and Diluted Net Income Per Share. 13 - Annual Report to Security Holders for the year ended December 31, 1997. 21 - Subsidiaries of Registrant. 23 - Consent of Coopers & Lybrand L.L.P. 24 - Powers of Attorney. 27 - Financial Data Schedule.
- ------------------------ (1) Previously filed as an Exhibit to the Company's Registration Statement on Form S-1, No. 33-16254, as amended, declared effective by the Securities and Exchange Commission on September 30, 1987, which previously-filed Exhibit is incorporated by reference herein. (2) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated August 8, 1988, which previously-filed Exhibit is incorporated by reference herein. (3) Previously filed as an Exhibit to the Registrant's Registration Statement on Form 8-A, File No. 1-10026, declared effective by the Securities and Exchange Commission on August 26, 1988 (as to The Pacific Stock Exchange, Inc.), and on September 7, 1988 (as to The New York Stock Exchange, Inc.), which previously-filed Exhibit is incorporated by reference herein. (4) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated January 18, 1993, which previously-filed Exhibit is incorporated by reference herein. (5) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated June 30, 1994, which previously-filed Exhibit is incorporated by reference herein. (6) Previously filed as an Exhibit to the Registrant's Current Report on Form 8-K dated March 15, 1996, which previously-filed Exhibit is incorporated by reference herein.

EXHIBIT 10(m)(v) OPTION AGREEMENT AGREEMENT, dated November 5, 1997, by and between ALBANY INTERNATIONAL CORP., a Delaware corporation ("AI") and MICHAEL C. NAHL ("the Optionee"), an officer of AI. WHEREAS, as an incentive to encourage the Optionee to remain in the employ of AI and its subsidiaries by affording the Optionee a greater interest in the success of AI and its subsidiaries, AI desires to grant to the Optionee an option to purchase shares of its Class A Common Stock; WHEREAS, the Optionee desires to obtain such option on the terms and conditions provided for herein; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable considerations receipt of which is hereby acknowledged, AI and the Optionee hereby agree as follows: 1. GRANT OF OPTION. Subject to the terms and conditions set, AI hereby grants to the Optionee the right and option ("the Option") to purchase 250,000 treasury shares (subject to adjustments as provided in paragraph 6 hereof) of Class A Common Stock of AI ("the Optioned Shares"). 2. PURCHASE PRICE. The purchase price of the Optioned Shares shall be $25-9/16 per share (subject to adjustment as provided in paragraph 6 hereof). 3. TERM. The term of the Option shall be for a period of twenty years from the date hereof; provided, however, that the term of the Option may be terminated at any time by the Committee if the Committee determines that the Optionee has engaged in a Competing Activity (as hereinafter defined) without the specific written consent of AI; PROVIDED, FURTHER, THAT THE COMMITTEE MAY AT ANY TIME ACCELERATE THE EXPIRATION OF THE TERM OF THE OPTION TO A DATE NOT LESS THAN TEN YEARS FROM THE DATE HEREOF PROVIDED THAT SUCH DATE SHALL NOT BE EARLIER THAN SIX MONTHS AFTER THE DATE WHEN WRITTEN NOTICE OF SUCH ACCELERATION SHALL HAVE BEEN RECEIVED BY THE OPTIONEE. 4. EXERCISABILITY. The Option shall become exercisable only if, prior to the termination of employment of the Optionee by AI and its subsidiaries, the average per share composite closing price for Class A Common Stock of AI, as shown by the Wall Street Journal, for any five successive trading days after the date of this Agreement shall have equaled or exceeded $48 (subject to adjustment as provided in paragraph 6 hereof). Upon the satisfaction of this condition ("the Market Condition"), the Option shall become exercisable as to a number of shares of Class A Common Stock of AI calculated by multiplying 25,000 times the number of full years that shall have elapsed from the date of this Agreement to the date when the Market Condition shall have been satisfied. After the date when the Market Condition is satisfied, the Option shall become exercisable, on each anniversary date of the date of this Agreement until, but including the tenth anniversary date, as to an additional 25,000 shares, but only if, on such anniversary date, the Optionee continues to be an employee of AI or a subsidiary. Notwithstanding the foregoing, this Option shall not be exercised or exercisable at any given time if and to the extent that exercise at such time would result in compensation to the Optionee that is not deductible by AI as a result of the provisions of Section 162(m) of the Internal Revenue Code, or the regulations thereunder, in each case as amended from time to time, or any comparable tax law provisions hereinafter adopted. 5. EFFECT OF TERMINATION OF EMPLOYMENT. (a) In the event that, during the term of the Option, the employment of the Optionee by AI and its subsidiaries shall be terminated by Voluntary Termination (as hereinafter defined) after the Optionee has attained age 62 or by death, Disability (as hereinafter defined) or Involuntary Termination (as hereinafter defined), (i) if the Market Condition shall not have occurred prior to such termination, the Option shall terminate as to all of the Optioned Shares at the time of termination; and (ii) if the Market Condition shall have occurred prior to such termination, (A) the Option shall become exercisable, at the time of such termination, as to 50% of any Optioned Shares as to which the Option has not yet become exercisable at such time and shall remain exercisable, as to such 50% and as to all Optioned Shares to which the Option had become exercisable prior to such termination, until the earlier of (I) the expiration of the period of five years following the date of such termination, and (II) the expiration of the term of the Option, at which time the Option shall terminate; and (B) the Option shall terminate as to 50% of any Optioned Shares as to which the Option has not yet become exercisable at the time of such termination. (b) In the event that, during the term of the Option, the employment of the Optionee by AI and its subsidiaries shall be terminated by Voluntary Termination before the Optionee has attained age 62, (i) if the Market Condition shall not have occurred prior to such termination, the Option shall terminate as to all of the Optioned Shares at the time of such termination; and (ii) if the Market Condition shall have occurred prior to such termination, (A) the Option shall remain exercisable as to all Optioned Shares as to which the Option had become exercisable prior to such termination, until the earlier of (I) the expiration of the period of five years following the date of such termination, and (II) the expiration of the term of the Option at which time the Option shall terminate; and (B) the Option shall terminate as to all Optioned Shares as to which the Option has not yet become exercisable at the time of such termination. 2 (c) In the event that, during the term of the Option, the employment of the Optionee by AI and its subsidiaries shall be terminated for Cause (as hereinafter defined), (i) if the Market Condition shall not have occurred prior to such termination, the Option shall terminate as to all of the Optioned Shares at the time of termination; and (ii) if the Market Condition shall have occurred prior to such termination, (A) the Option shall terminate at the time of such termination as to all Optioned Shares at the time of such termination, and (B) the Option shall remain exercisable as to those of the Optioned Shares as to which the Option had become exercisable prior to such termination until the earlier of (I) the expiration of the period of sixty days following the date of such termination, and (II) the expiration of the term of the Option, at which time the Option shall terminate. 6. RECAPITALIZATION, ETC. Notwithstanding any other provision of this Agreement, in the event of any change in the outstanding common stock of AI by reason of a stock dividend, recapitalization, merger, consolidation, split-up, combination or exchange of shares or the like, the number and class of shares subject to the Option, the purchase price of the Optioned Shares and the per share price included in the Market Condition may be appropriately adjusted by the Committee, whose determination shall be conclusive. No fractional shares shall be issued hereunder and any fractional shares resulting from computations pursuant to this paragraph 6 shall be eliminated from the Option. 7. METHOD OF EXERCISING OPTION. Subject to the terms and conditions hereof, the Option may be exercised (to the extent then exercisable) by written notice delivered to AI and signed by the Optionee or other person or persons entitled to exercise the Option. Such notice shall state the number of Optioned Shares in respect of which the Option is being exercised and shall include such written representations as the Committee may from time to time determine to be desirable in connection with compliance with securities and other laws and regulations. Such notice shall be accompanied by delivery of the full purchase price of such Optioned Shares in cash or by check payable to the order of AI, unless the Committee shall have determined to accept or withhold, in full or partial payment of such purchase price, shares of Class A Common Stock of AI. Such notice shall also be accompanied by payment, in cash or by check payable to the order of AI, of the minimum amount of any taxes required by law to be withheld by AI in respect of such exercise, unless the Committee shall have determined to accept or withhold, in full or partial payment of such taxes, shares of Class A Common Stock of AI. In the event the Option shall be exercised by any person or persons other than the Optionee, such notice shall, in addition, be accompanied by proof satisfactory to AI of the right of such person or persons to exercise the Option. If and when all of the foregoing conditions have been fully satisfied, AI shall, as soon as practicable thereafter (including such time as may be required pursuant to the last sentence of this paragraph), deliver a stock certificate representing the Optioned Shares in respect of which the Option is being exercised (less any shares withheld in payment of the purchase price or taxes), registered in the name of the person or persons exercising the Option. 3 Such stock certificate may bear any legend which the Committee determines to be desirable in connection with compliance with securities and other laws and regulations. Shares acquired upon the exercise of the Option as provided herein shall be fully paid and non-assessable. Such shares shall be issued shares of Class A Common Stock reacquired in any manner by AI. AI agrees that in the event that, at the time of receipt of a notice of exercise hereunder, it does not have sufficient treasury shares to satisfy the option exercise, it will, no later than 20 trading days after receipt of such notice, acquire the required number of treasury shares. 8. NON-TRANSFERABILITY. During the lifetime of the Optionee the Option shall be exercisable only by the Optionee (or the Optionee's guardian or legal representative) or by a Permitted Transferee to whom the Option has been transferred by gift, in which case it shall be exercisable only by such Permitted Transferee. No option shall be assignable or transferable by the Optionee, and no other person shall acquire any rights therein other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, 26 U.S.C. Section 1 et. seq. (the "Internal Revenue Code") or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, except that an option may be transferred by gift to any Permitted Transferee of such Optionee. The Optionee shall give the Company prompt written notice of any such transfer and shall provide the Company with such evidence as the Company may reasonably request to establish that the transfer is permitted hereunder. "Permitted Transferee" of any Optionee shall mean any child or grandchild of such Optionee, or any trust for the benefit of such child or grandchild. Except as specifically permitted above in this paragraph 8, the Option and this Agreement shall not be pledged, hypothecated, sold, assigned or otherwise disposed of, encumbered or transferred, in whole or in part. Any purported pledge, hypothecation, sale, assignment or other disposition, encumbrance or transfer of the Option or this Agreement (other than a transfer specifically permitted by this paragraph 8) and any levy of any execution, attachment or similar process upon the Option or this Agreement, in whole or in part, shall be null and void and without effect. 9. NO RIGHTS AS STOCKHOLDER. The Optionee shall not be deemed for any purpose to be, or have any right as, a stockholder of AI except to the extent the Optionee shall exercise the Option and a share certificate shall be issued therefor, and then only from the date such certificate is issued. No adjustment shall be made for dividends or distributions or other rights the record date for which is prior to the date on which such share certificate is issued. 10. DEFINITIONS. As used herein, the following terms shall have the meanings specified below: (a) "Cause" shall be deemed to exist if a majority of the members of the Board of Directors of AI determine that the Optionee has: (i) caused substantial harm to AI with intent to do so or as a result of gross negligence in the performance of his duties; (ii) not made a good faith effort to carry out his or her duties; (iii) wrongfully and substantially enriched himself or herself at the expense of AI; or (iv) been convicted of a felony. 4 (b) "Committee" shall mean the Board of Directors, the Compensation and Stock Option Committee of the Board of Directors or such other committee of the Board of Directors as the Board may from time to time designate to exercise the powers conferred upon "the Committee" by this Agreement. (c) The Optionee shall be deemed to be engaging in a "Competing Activity" if he or she is: (i) a director of a corporation or a member of a partnership, or a trustee of a business trust, or an officer, employee representative or agent of, or a consultant to, a corporation, partnership, business trust or other entity or organization engaged in a Competing Business (as defined below); or (ii) a direct or indirect investor in a Competing Business and the investment (whether made by loan, advance, contribution to capital, purchase of stock or otherwise) constitutes more than 10% of (A) the total capital of such business, (B) the equity capital of such business or (C) the voting power for the election of the Board of Directors or other governing body of such business. (d) A business shall be a "Competing Business" at any time if at such time it is engaging in a business activity which is, at such time, being conducted by AI, or by a subsidiary of AI, or a company controlled by AI or a subsidiary or subsidiaries of AI and in or for the conduct of which the Optionee is or was involved or bore responsibility as an employee of AI or a subsidiary of AI. (e) "Disability" shall be deemed to exist if: (i) by reason of mental or physical illness the Optionee has not performed his or her duties for a period of six consecutive months; and (ii) the Optionee does not return to the performance of his or her duties within thirty days after written notice is given by AI that the Optionee has been determined by the Committee to be "Disabled" under the Company's long term disability policy. (f) "Involuntary Termination" shall mean a termination of the employment of the Optionee by AI for any reason other than Cause. (g) "Voluntary Termination" shall mean a termination of the employment of the Optionee for any reason other than death, Disability, Cause or Involuntary Termination. 11. NOTICES. Any notice required or permitted under this Agreement shall be in writing and shall be deemed properly given (a) in the case of notice to AI, if delivered in person to the Secretary of AI, or mailed to AI to the attention of the Secretary by registered mail (return receipt requested) at P.O. Box 1907, Albany, New York 12201, or at such other address as AI may from time to time hereafter designate by written notice to the Optionee; and 5 (b) in the case of notice to the Optionee, if delivered to him or her in person, or mailed to him or her by registered mail (return receipt requested) at 111 Menands Road Menands, New York 12204 or at such other address as the Optionee may from time to time hereafter designate by written notice to AI. 12. AMENDMENT AND WAIVER. Neither this Agreement nor any provision hereof may be amended, modified, changed, discharged, terminated or waived orally, by any course of dealing or purported course of dealing or by any other means except an agreement in writing signed by AI and by the Optionee (or, following the death of the Optionee, by such person or persons as are then entitled hereunder to exercise the Option). No such agreement shall extend to or affect any provision of this Agreement not expressly amended, modified, changed, discharged, terminated or waived or impair any right consequent on such a provision. The waiver of or failure to enforce any breach of this Agreement shall not be deemed to be a waiver of or acquiescence in any other breach hereof. 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, AI and the Optionee have duly executed this Agreement as of the date hereof. ALBANY INTERNATIONAL CORP. By /s/ J. Spencer Standish -------------------------------- /s/ Michael C. Nahl -------------------------------- Michael C. Nahl 6

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) NET INCOME PER SHARE:
FOR THE THREE MONTHS FOR THE YEARS ENDED DECEMBER 31, ENDED DECEMBER 31, - --------------------------- ------------------------------- RESTATED RESTATED 1997 (1) 1996 (1) 1997 (1) 1996 (1) - ------------ ------------ -------------- -------------- 30,710,296 30,464,625 Common stock outstanding at end of period 30,710,296 30,464,625 Adjustments to ending shares to arrive at weighted average for the period: (22,638) (21,904) Shares contributed to E.S.O.P. (2) (79,227) (95,099) (4,725) (8,539) Shares issued under option or to Directors(2) (166,202) (19,112) 218,496 -- Treasury shares purchased (2) 283,952 13,814 - ------------ ------------ -------------- -------------- 30,901,429 30,434,182 Weighted average number of shares 30,748,819 30,364,228 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- -------------- $ 13,281 $ 15,410 Income before extraordinary item $ 49,059 $ 49,602 -- -- Extraordinary loss on early extinguishment of -- $ 1,296 debt, net of tax of $828 - ------------ ------------ -------------- -------------- $ 13,281 $ 15,410 Net income $ 49,059 $ 48,306 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- -------------- $ 0.43 $ 0.51 Income per share before extraordinary item $ 1.60 $ 1.63 -- -- Extraordinary loss on early extinguishment of debt -- ($ 0.04) - ------------ ------------ -------------- -------------- $ 0.43 $ 0.51 Net income per share $ 1.60 $ 1.59 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- --------------
- ------------------------ (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 ADJUSTMENTS TO ENDING SHARES:
NUMBER OF DAYS IN PERIOD ------------------------ THREE MONTHS YEAR ------------ -------- ~~1996 92 366 1997 92 365 -- --- -- ---~~

RECIPROCAL DAYS SHARES ADJUSTMENT - ------------------- ---------------------- THREE MONTHS YEAR SHARES THREE MONTHS YEAR - ------------ ---- ------------------- ------- 1996 ---- Shares Contributed to ESOP: --------------------------- -- 30 31-Jan-96 12,969 -- 1,063 -- 59 29-Feb-96 136,670 -- 22,032 -- 90 31-Mar-96 11,616 -- 2,856 -- 120 30-Apr-96 10,790 -- 3,538 -- 151 31-May-96 12,658 -- 5,222 -- 181 30-Jun-96 10,383 -- 5,135 -- 212 31-Jul-96 12,253 -- 7,097 -- 243 31-Aug-96 13,016 -- 8,642 -- 273 30-Sep-96 11,067 -- 8,255 30 304 31-Oct-96 12,492 4,074 10,376 60 334 30-Nov-96 11,398 7,433 10,401 91 365 31-Dec-96 10,511 10,397 10,482 ------------ ------- Totals 21,904 95,099 ------------ ------- ------------ -------
ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
RECIPROCAL DAYS SHARES ADJUSTMENT - ------------------- ---------------------- THREE MONTHS YEAR SHARES THREE MONTHS YEAR - ------------ ---- ------------------- ------- Shares Issued Under Option or to Directors: ------------------------------------------- -- 140 20-May-96 2,255 -- 863 -- 142 22-May-96 6,000 -- 2,328 9 283 10-Oct-96 1,400 137 1,083 21 295 22-Oct-96 9,000 2,054 7,254 43 317 13-Nov-96 3,000 1,402 2,598 91 365 31-Dec-96 5,000 4,946 4,986 ------------ ------- Totals 8,539 19,112 ------------ ------- ------------ ------- Treasury Shares Purchased: -------------------------------------------------- -- 16 17-Jan-96 91,000 -- 3,978 -- 72 13-Mar-96 50,000 -- 9,836 ------------ ------- Totals -- 13,814 ------------ ------- ------------ ------- 1997 ---- Shares Contributed to ESOP: --------------------------- -- 30 31-Jan-97 12,002 -- 986 -- 58 28-Feb-97 58,773 -- 9,339 -- 89 31-Mar-97 12,126 -- 2,957 -- 119 30-Apr-97 12,380 -- 4,036 -- 150 31-May-97 12,193 -- 5,011 -- 180 30-Jun-97 11,243 -- 5,544 -- 211 31-Jul-97 10,555 -- 6,102 -- 242 31-Aug-97 9,406 -- 6,236 -- 272 30-Sep-97 10,061 -- 7,498 30 303 31-Oct-97 11,876 3,873 9,859 60 333 30-Nov-97 10,752 7,012 9,809 91 364 31-Dec-97 11,882 11,753 11,849 ------------ ------- Totals 22,638 79,227 ------------ ------- ------------ ------- Shares Issued Under Option or to Directors: ------------------------------------------- -- 1 02-Jan-97 200 -- 1 -- 2 03-Jan-97 3,600 -- 20 -- 5 06-Jan-97 10,000 -- 137 -- 6 07-Jan-97 900 -- 15 -- 7 08-Jan-97 5,000 -- 96 -- 29 30-Jan-97 37,300 -- 2,964 -- 33 03-Feb-97 20,000 -- 1,808 -- 37 07-Feb-97 5,000 -- 507 -- 42 12-Feb-97 27,000 -- 3,107 -- 43 13-Feb-97 1,400 -- 165 -- 44 14-Feb-97 28,600 -- 3,448 -- 48 18-Feb-97 10,000 -- 1,315 -- 91 02-Apr-97 1,800 -- 449 -- 110 21-Apr-97 2,922 -- 881 -- 159 09-Jun-97 2,500 -- 1,089 -- 162 12-Jun-97 17,900 -- 7,945 -- 163 13-Jun-97 10,200 -- 4,555 -- 168 18-Jun-97 8,700 -- 4,004 -- 169 19-Jun-97 19,200 -- 8,890 -- 175 25-Jun-97 5,000 -- 2,397
ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
RECIPROCAL DAYS SHARES ADJUSTMENT - ------------------- ---------------------- THREE MONTHS YEAR SHARES THREE MONTHS YEAR - ------------ ---- ------------------- ------- -- 176 26-Jun-97 14,000 -- 6,751 -- 202 22-Jul-97 5,100 -- 2,822 -- 204 24-Jul-97 22,000 -- 12,296 -- 205 25-Jul-97 60,000 -- 33,699 -- 211 31-Jul-97 26,800 -- 15,493 -- 212 01-Aug-97 600 -- 348 -- 216 05-Aug-97 16,800 -- 9,942 -- 217 06-Aug-97 1,000 -- 595 -- 218 07-Aug-97 1,000 -- 597 -- 219 08-Aug-97 12,500 -- 7,500 -- 223 12-Aug-97 2,500 -- 1,527 -- 225 14-Aug-97 500 -- 308 -- 229 18-Aug-97 1,800 -- 1,129 -- 230 19-Aug-97 800 -- 504 -- 231 20-Aug-97 3,400 -- 2,152 -- 233 22-Aug-97 1,800 -- 1,149 -- 236 25-Aug-97 4,300 -- 2,780 -- 237 26-Aug-97 1,800 -- 1,169 -- 244 02-Sep-97 1,000 -- 668 -- 245 03-Sep-97 600 -- 403 -- 246 04-Sep-97 1,000 -- 674 -- 247 05-Sep-97 4,400 -- 2,978 -- 253 11-Sep-97 1,000 -- 693 -- 254 12-Sep-97 8,300 -- 5,776 -- 257 15-Sep-97 5,300 -- 3,732 16 289 17-Oct-97 2,400 417 1,900 77 350 17-Dec-97 2,500 2,092 2,397 79 352 19-Dec-97 400 343 386 82 355 22-Dec-97 2,100 1,872 2,042 ------------ ------- Totals 4,725 166,202 ------------ ------- ------------ ------- Treasury Shares Purchased: -------------------------- -- 26 27-Jan-97 57,500 -- 4,096 -- 120 01-May-97 4,400 -- 1,447 43 316 13-Nov-97 20,000 9,348 17,315 49 322 19-Nov-97 27,200 14,487 23,996 54 327 24-Nov-97 35,600 20,896 31,894 55 328 25-Nov-97 40,000 23,913 35,945 70 343 10-Dec-97 50,000 38,043 46,986 79 352 19-Dec-97 27,000 23,185 26,038 82 355 22-Dec-97 48,600 43,317 47,268 83 356 23-Dec-97 49,000 44,207 47,792 84 357 24-Dec-97 1,000 913 978 86 359 26-Dec-97 200 187 197 ------------ ------- 218,496 283,952 ------------ ------- ------------ -------
ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA) DILUTED NET INCOME PER SHARE:
FOR THE THREE MONTHS FOR THE YEARS ENDED DECEMBER 31, ENDED DECEMBER 31, - --------------------------- ------------------------------- RESTATED RESTATED 1997 (1) 1996 (1) 1997 (1) 1996 (1) - ------------ ------------ -------------- -------------- 30,901,429 30,434,182 Weighted average number of shares 30,748,819 30,364,228 461,893 372,653 Incremental shares of unexercised options (3) 426,445 281,226 - ------------ ------------ -------------- -------------- 31,363,322 30,806,835 Adjusted weighted average number of shares 31,175,264 30,645,454 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- -------------- $ 13,281 $ 15,410 Income before extraordinary item $ 49,059 $ 49,602 -- -- Extraordinary loss on early extinguishment of -- $ 1,296 debt, net of tax of $828 - ------------ ------------ -------------- -------------- $ 13,281 $ 15,410 Net income $ 49,059 $ 48,306 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- -------------- $ 0.43 $ 0.50 Income per share before extraordinary item $ 1.57 $ 1.62 -- -- Extraordinary loss on early extinguishment of debt -- ($ 0.04) - ------------ ------------ -------------- -------------- $ 0.43 $ 0.50 Diluted net income per share $ 1.57 $ 1.58 - ------------ ------------ -------------- -------------- - ------------ ------------ -------------- --------------
- ------------------------ (3) Incremental shares of unexercised options are calculated based on the average price of the Company's stock for the respective period. The calculation includes all options that are dilutive to earnings per share.

EXHIBIT 13 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. /s/J. Spencer Standish J. Spencer Standish Chairman of the Board /s/Francis L. McKone Francis L. McKone President and Chief Executive Officer /s/Michael C. Nahl 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, in 1997 the Company changed its method of valuing United States inventories from last in--first out to the average cost method. [COOPERS & LYBRAND SIG] Albany, New York January 22, 1998 18 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS ALBANY INTERNATIONAL CORP.
For the Years Ended December 31, 1997 1996 1995 -------------------------------- ---- ---- ---- (in thousands, except per share amounts) Restated Statements of Income Net sales $ 710,079 $ 692,760 $ 652,645 Cost of goods sold 404,982 399,311 379,696 - ------------------------------------------------------------------------------------- Gross profit 305,097 293,449 272,949 Selling and general expenses 155,515 147,929 139,102 Technical and research expenses 49,963 48,735 45,020 - ------------------------------------------------------------------------------------- Operating income 99,619 96,785 88,827 Interest income (646) (1,180) (114) Interest expense 16,113 17,013 20,123 Other expense/(income), net 4,521 12 (1,024) - ------------------------------------------------------------------------------------- Income before income taxes 79,631 80,940 69,842 Income taxes 31,055 31,570 27,208 - ------------------------------------------------------------------------------------- Income before associated companies 48,576 49,370 42,634 Equity in earnings of associated companies 483 232 377 - ------------------------------------------------------------------------------------- Income before extraordinary item 49,059 49,602 43,011 Extraordinary loss on early extinguishment of debt, net of tax of $828 -- 1,296 -- - ------------------------------------------------------------------------------------- Net income 49,059 48,306 43,011 Retained Earnings Retained earnings, beginning of period, as previously reported 206,308 171,082 139,740 Cumulative effect on prior years of retroactive restatement for accounting change for inventory 3,567 2,646 2,685 Retained earnings, beginning of period, restated 209,875 173,728 142,425 Less dividends 12,921 12,159 11,708 - ------------------------------------------------------------------------------------- Retained earnings, end of period $ 246,013 $ 209,875 $ 173,728 - ------------------------------------------------------------------------------------- Net Income/(Loss) Per Share: Income before extraordinary item $ 1.60 $ 1.63 $ 1.42 Extraordinary loss on early extinguishment of debt -- (0.04) -- - ------------------------------------------------------------------------------------- Net income $ 1.60 $ 1.59 $ 1.42 Diluted Net Income/(Loss) Per Share: Income before extraordinary item $ 1.57 $ 1.62 $ 1.35 Extraordinary loss on early extinguishment of debt -- (0.04) -- - ------------------------------------------------------------------------------------- Net income $ 1.57 $ 1.58 $ 1.35 - -------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 19 CONSOLIDATED BALANCE SHEETS ALBANY INTERNATIONAL CORP.
At December 31, 1997 1996 --------------- ---- ---- (in thousands) Restated Assets Current assets: Cash and cash equivalents $ 2,546 $ 8,034 Accounts receivable, less allowance for doubtful accounts ($5,224, 1997; $4,962, 1996) 171,886 179,516 Inventories Finished goods 106,259 105,822 Work in process 38,904 40,568 Raw material and supplies 35,288 33,808 Deferred taxes and prepaid expenses 18,440 16,879 - ------------------------------------------------------------------------------------------ Total current assets 373,323 384,627 - ------------------------------------------------------------------------------------------ Property, plant and equipment, at cost, net 321,611 339,461 Investments in associated companies 2,444 2,060 Intangibles 36,080 44,954 Deferred taxes 22,826 27,756 Other assets 40,613 33,059 - ------------------------------------------------------------------------------------------ Total assets $ 796,897 $ 831,917 - ------------------------------------------------------------------------------------------ Liabilities Current liabilities: Notes and loans payable $ 76,095 $ 65,165 Accounts payable 25,786 32,813 Accrued liabilities 56,743 59,755 Current maturities of long-term debt 1,703 2,295 Income taxes payable and deferred 10,113 16,718 - ------------------------------------------------------------------------------------------ Total current liabilities 170,440 176,746 - ------------------------------------------------------------------------------------------ Long-term debt 173,654 187,100 Other noncurrent liabilities 74,075 97,579 Deferred taxes and other credits 35,620 38,162 - ------------------------------------------------------------------------------------------ Total liabilities 453,789 499,587 - ------------------------------------------------------------------------------------------ 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; 25,375,413 issued in 1997 and 24,865,573 in 1996 25 25 Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,615,563 in 1997 and 1996 6 6 Additional paid in capital 187,831 177,412 Retained earnings 246,013 209,875 Translation adjustments (84,351) (42,340) Pension liability adjustment -- (12,483) - ------------------------------------------------------------------------------------------ 349,524 332,495 Less treasury stock, at cost 6,416 165 - ------------------------------------------------------------------------------------------ Total shareholders' equity 343,108 332,330 - ------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 796,897 $ 831,917 - ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 20 CONSOLIDATED STATEMENTS OF CASH FLOWS ALBANY INTERNATIONAL CORP.
For the Years Ended December 31, 1997 1996 1995 -------------------------------- ---- ---- ---- (in thousands) Restated Operating Activities Net income $ 49,059 $ 48,306 $ 43,011 Adjustments to reconcile net cash provided by operating activities: Equity in earnings of associated companies (483) (232) (377) Depreciation and amortization 44,991 45,189 43,087 Accretion of convertible subordinated debentures -- 353 1,628 Provision for deferred income taxes, other credits and long-term liabilities (3,828) 755 6,739 Increase in cash surrender value of life insurance, net of premiums paid (851) (751) (654) Unrealized currency transaction losses/(gains) 3,571 (1,459) (1,469) Loss/(gain) on disposition of assets 382 683 (754) Shares contributed to ESOP 4,336 5,227 3,454 Loss on early extinguishment of debt -- 1,296 -- Changes in operating assets and liabilities: Accounts receivable 4,009 (7,444) (13,926) Inventories (557) (8,674) (18,997) Prepaid expenses (55) (1,408) 386 Accounts payable (7,026) (2,449) 4,658 Accrued liabilities (922) 1,543 1,527 Income taxes payable (4,365) 2,844 (113) Other, net (1,699) (884) (747) - ------------------------------------------------------------------------------------- Net cash provided by operating activities 86,562 82,895 67,453 - ------------------------------------------------------------------------------------- Investing Activities Purchases of property, plant and equipment (50,804) (53,473) (41,921) Purchased software (2,318) (1,909) (2,215) Proceeds from sale of assets 496 27,112 1,762 Acquisitions, net of cash acquired -- (25,587) (11,312) Investment in associated and other companies (4,000) -- (915) Premiums paid for life insurance (1,190) (1,193) (1,196) - ------------------------------------------------------------------------------------- Net cash used in investing activities (57,816) (55,050) (55,797) - ------------------------------------------------------------------------------------- Financing Activities Proceeds from borrowings 55,030 220,200 21,348 Principal payments on debt (54,847) (229,799) (14,542) Proceeds from options exercised 7,000 401 4,408 Tax benefit of options exercised 1,089 25 581 Purchases of treasury shares (8,257) (2,552) (2,883) Dividends paid (12,724) (12,144) (11,305) - ------------------------------------------------------------------------------------- Net cash used in financing activities (12,709) (23,869) (2,393) - ------------------------------------------------------------------------------------- Effect of exchange rate changes on cash flows (21,525) (3,551) (1,882) - ------------------------------------------------------------------------------------- (Decrease)/increase in cash and cash equivalents (5,488) 425 7,381 Cash and cash equivalents at beginning of year 8,034 7,609 228 - ------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 2,546 $ 8,034 $ 7,609 - -------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements. 21 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." In 1997, the Company purchased less than a 20% interest in Spectra Science Corporation. The original cost of the investment is included in "Other assets". Revenue Recognition The Company records sales when products are shipped to customers pursuant to orders or contracts. Sales terms are in accordance with industry practice in markets served. The Company limits the concentration of credit risk in receivables from the paper manufacturing industry by closely monitoring credit and collection policies. The allowance for doubtful accounts is adequate to absorb estimated losses. Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Translation of Financial Statements Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from translating non-U.S. currency financial statements are accumulated in a separate component of shareholders' equity. For operations in countries that are considered to have highly inflationary economies, gains and losses from translation and transactions are determined using a combination of current and historical rates and are included in net income. Gains or losses resulting from currency transactions denominated in a currency other than the entity's local currency, forward exchange contracts which are not designated as hedges for accounting purposes and futures contracts are generally included in income. Changes in value of forward exchange contracts which are effective as hedges for accounting purposes are generally reported, net of tax, in shareholders' equity in the caption "Translation adjustments." Research Expense Research expense, which is charged to operations as incurred, was $23,070,000 in 1997, $21,945,000 in 1996 and $19,700,000 in 1995. Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less. Inventories Inventories are stated at the lower of cost or market and are valued at average cost. During 1997, the Company changed its method of determining the cost of United States inventories from the last-in, first-out (LIFO) method to the average cost method. The Company believes that the average cost method results in a closer matching of revenues and expenses during periods of increased productivity and changes in product mix. This change in accounting method has been applied retroactively and financial information for all periods presented has been restated to apply the average cost method. Income before extraordinary item and net income was increased/(decreased) by $921,000, 3 cents per share, and ($39,000), less than 1 cent per share, for the years ended December 31, 1996 and 1995, respectively, as a result of this change. There was no effect on 1997 income. Retained earnings has been adjusted, net of tax of $3,650,000, $3,061,000 and $3,086,000 in 1997, 1996 and 1995, respectively, for the effect of retroactive application of the new method. 22 Property, Plant and Equipment Depreciation is recorded using the straight-line method over the estimated useful lives of the assets for financial reporting purposes; accelerated methods are used for income tax purposes. Significant additions or improvements extending assets' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. The cost of fully depreciated assets remaining in use are included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses are included in net income. Intangibles and Other Assets The excess purchase price over fair values assigned to assets acquired is amortized on a straight-line basis over either 25 or 40 years. Patents, at cost, are amortized on a straight-line basis over either 8 or 10 years. Computer software purchased for internal use, at cost, is amortized on a straight-line basis over 5 years and is included in "Other assets". Derivatives Gains or losses on forward exchange contracts that function as an economic hedge against currency fluctuation effects on future revenue streams are recorded in "Other expense/(income), net". Gains or losses on forward exchange contracts that are designated a hedge of a foreign operation's net assets and/or long-term intercompany loans are recorded in "Translation adjustments", a separate component of shareholders' equity. These contracts reduce the risk of currency exposure on foreign currency net assets and do not exceed the foreign currency amount being hedged. To the extent the above criteria are not met, or the related assets are sold, extinguished, or terminated, activity associated with such hedges is recorded in "Other expense/(income), net". All open positions on forward exchange contracts are valued at fair value using the estimated forward rate of a matching contract. Gains or losses on futures contracts are recorded in "Other expense/(income), net". Open positions are valued at fair value using quoted market rates. The Company values swap agreements at market by estimating the cost of entering into one or more inverse swap transactions on such date that would neutralize the original transactions. The cost is estimated by obtaining the market swap rate for fixed-rate contracts of similar duration. Gains or losses on swaps are recorded in "Other expense/(income), net". Income Taxes The Company accounts for taxes in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes," which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. Under FAS No. 109, the effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. It is the Company's policy to accrue appropriate U.S. and non-U.S. income taxes on earnings of subsidiary companies which are intended to be remitted to the parent company in the near future. The provision for taxes is reduced by investment and other tax credits in the years such credits become available. Pension Plans Substantially all employees are covered under either Company or government sponsored pension plans. For principal Company sponsored plans, pension plan expenses are based on actuarial determinations. The plans are generally trusteed or insured and accrued amounts are funded as required in accordance with governing laws and regulations. Earnings Per Share Effective December 31, 1997, the Company adopted Financial Accounting Standard No. 128, "Earnings Per Share". In accordance with this Standard, net income/(loss) per share is computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. Diluted net income/(loss) per share includes the effect of all 23 potentially dilutive securities. Earnings per share amounts for all periods presented have been computed in accordance with this Standard. 2. EARNINGS PER SHARE The amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potentially dilutive securities are as follows:
- -------------------------------------------------------------- (in thousands) 1997 1996 1995 - -------------------------------------------------------------- Income before extraordinary item: Income before extraordinary item and available to common stockholders $49,059 $49,602 $43,011 5.25% convertible subordinated debentures -- -- 5,794 - -------------------------------------------------------------- Income available to common stockholders after assumed conversion of debentures $49,059 $49,602 $48,805 - -------------------------------------------------------------- Weighted average number of shares: Weighted average number of shares used in net income/ (loss) per share 30,749 30,364 30,202 Effect of dilutive secu- rities: Stock options 426 281 358 5.25% convertible subordinated debentures -- -- 5,712 - -------------------------------------------------------------- Weighted average number of shares used in diluted net income/(loss) per share 31,175 30,645 36,272 - --------------------------------------------------------------
Options to purchase 250,000 shares of common stock at $25.5625 per share were outstanding at December 31, 1997 but were not included in the computation of diluted net income/(loss) per share because the options' exercise price was greater than the average market price of the common shares. 3. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are summarized below:
- ------------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------- Land $ 22,487 $ 26,659 Buildings 154,803 165,162 Machinery and equipment 447,749 449,874 - ------------------------------------------------------- 625,039 641,695 - ------------------------------------------------------- Accumulated depreciation 303,428 302,234 - ------------------------------------------------------- $321,611 $339,461 - -------------------------------------------------------
Construction in progress was approximately $127,000 in 1997 and $2,684,000 in 1996. Depreciation expense was $41,750,000 in 1997, $42,390,000 in 1996 and $41,375,000 in 1995. Expenditures for maintenance and repairs are charged to income as incurred and amounted to $18,167,000 in 1997, $17,367,000 in 1996 and $15,129,000 in 1995. Capital expenditures were $50,804,000 in 1997, $53,473,000 in 1996 and $41,921,000 in 1995. At the end of 1997, the Company was committed to $30,136,000 of future expenditures for new equipment and facilities. 4. INTANGIBLES The components of intangibles are summarized below:
- ----------------------------------------------------- (in thousands) 1997 1996 - ----------------------------------------------------- Excess purchase price over fair value $48,019 $49,417 Patents 10,403 10,429 Accumulated amortization (22,342) (20,788) Deferred unrecognized pen- sion cost (see Note 12) -- 5,896 - ----------------------------------------------------- $36,080 $44,954 - -----------------------------------------------------
Amortization expense was $1,554,000 in 1997, $1,109,000 in 1996 and $796,000 in 1995. 5. ACCRUED LIABILITIES Accrued liabilities consist of:
- ----------------------------------------------------- (in thousands) 1997 1996 - ----------------------------------------------------- Salaries and wages $18,467 $19,125 Employee benefits 16,082 20,053 Returns and allowances 4,330 4,286 Interest 773 767 Restructuring costs 326 612 Acquisition obligation -- 4,081 Other 16,765 10,831 - ----------------------------------------------------- $56,743 $59,755 - -----------------------------------------------------
24 6. FINANCIAL INSTRUMENTS Notes and loans payable at December 31, 1997 and 1996 were short-term debt instruments with banks, denominated in local currencies with a weighted average interest rate of 6.31% in 1997 and 5.93% in 1996. Long-term debt at December 31, 1997 and 1996, principally to banks and bondholders, exclusive of amounts due within one year, consists of:
- ------------------------------------------------------- (in thousands) 1997 1996 - ------------------------------------------------------- $300 million revolving credit agreement which terminates in 2002 with LIBOR borrow- ings outstanding at an aver- age interest of 5.89% in 1997 and 5.73% in 1996. $138,000 $139,000 Various notes and mortgages relative to operations principally outside the United States, at an average interest of 6.67% in 1997 and 6.56% in 1996, due in varying amounts through 2004. 20,538 33,575 Industrial revenue financings at an average interest of 5.65% in 1997 and 5.67% in 1996, due in varying amounts through 2009. 15,116 14,525 - ------------------------------------------------------- $173,654 $187,100 - -------------------------------------------------------
The weighted average interest rates for all debt was 6.08% in 1997 and 5.97% in 1996. Principal payments due on long-term debt are: 1998, $1,703,000; 1999, $19,377,000; 2000, $851,000; 2001, $878,000; 2002, $139,064,000. Interest paid was $16,107,000 in 1997, $19,318,000 in 1996, and $20,076,000 in 1995. The Company's revolving credit agreement provides that the Company may borrow up to $300,000,000 until 2001 and then $150,000,000 until 2002 at which time the banks' commitment to lend is terminated. The terms of the revolving credit agreement include a facility fee and allow the Company to select from various loan pricing options. The interest rate margin over LIBOR is determined by the Company's cash flow to debt ratio. New borrowings under the revolving credit facility are conditional on the absence of material adverse changes in the business, financial position, results of operations and prospects of the Company and its consolidated subsidiaries taken as a whole. In the event of nonperformance by any bank on its commitment to extend credit, the Company could not borrow the full amount of the facility. However, the Company does not anticipate nonperformance by any bank. The revolving credit agreement contains various covenants which include limits on: the disposition of assets, minimum consolidated tangible net worth, interest coverage and cash flow to debt ratios, cash dividends, or certain restricted investments unless the required consolidated tangible net worth, as defined, is maintained. At December 31, 1997, $51,773,000 was permitted for the payment of cash dividends. Under the revolving credit agreement and formal and informal agreements with other financial institutions, the Company could have borrowed an additional $200,000,000 at December 31, 1997. During March 1992, the Company sold original issue discount 5.25% convertible subordinated debentures due 2002 which, if held to maturity, would yield 7.0% to the original purchaser. The proceeds to the Company, net of original issue discount and expenses, were $128,430,000. The original issue discount was amortized over the term of the debentures. When issued, the debentures were convertible into 5,712,450 shares of Class A Common Stock. In 1995, two debentures were converted into 76 shares of Class A Common Stock. On March 15, 1996, the Company redeemed the debentures at a redemption price of 91.545%. The redemption resulted in a one-time extraordinary non-cash charge to income of $1,296,000, net of tax, of $828,000. The Company has been a party to swap agreements wherein on a notional amount of $250,000,000 the Company paid a periodic floating rate based upon an index of yields of high-grade, tax-exempt bond issues published by Kenny Information Systems. The counterparty was obligated to make payments to the Company calculated at an average of 70% of LIBOR. In April 1997, the Company closed-out its position in these agreements. Included in the "Interest rate protection agreements" component of "Other expense/(income), net" (see Note 9) is income of approximately $682,000, $1,099,000 and $1,026,000 related to the net cash received as part of these agreements in 1997, 1996 and 1995, respectively. Also included in "Interest rate protection agreements" is the change in the valuation which resulted in income of approximately $46,000, $236,000 and $304,000 in 1997, 1996 and 1995, respectively. 25 At December 31, 1997, the Company had various forward exchange contracts maturing during 1998. For each closed position, a sale contract of a particular currency was matched with a purchase contract for the same currency at the same amount, counterparty and settlement date. The foreign currency positions, both open and closed, as of December 31, 1997, by major currency, are:
- ------------------------------------------------------------------ Buy Contracts Sell Contracts Currency or Fair Value or Fair Value - ------------------------------------------------------------------ (in thousands) Brazilian Real $10,193 $10,000 Canadian Dollar 9,962 10,000 Dutch Guilder 9,598 10,000 German Mark 104,543 105,405 Swedish Krona 10,058 10,133 - ------------------------------------------------------------------ Total $144,354 $145,538 - ------------------------------------------------------------------
Periodically, the Company also enters into futures contracts primarily to hedge in the short-term against interest rate fluctuations. At December 31, 1997, the Company was not a party to any such contracts. The "Interest rate protection agreements" component of "Other expense/(income), net" includes gains on futures contracts, based on fair value, of $32,000 in 1997. All financial instruments are held for purposes other than trading. For all positions there is risk from the possible inability of the counterparties (major financial institutions) to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates which may reduce the benefit of the contracts. However, for most closed forward exchange contracts, both the purchase and sale sides of the Company's exposures were with the same financial institution. The Company seeks to control off balance sheet risk by evaluating the credit worthiness of counterparties and by monitoring the currency exchange and interest rate markets, hedging risks in compliance with internal guidelines and reviewing all principal economic hedging contracts with designated directors of the Company. At December 31, 1997 the estimated fair value of the Company's long-term debt excluding current maturities approximates $175,528,000. The estimate is based on the present value of future cash flows of fixed rate debt based upon changes in the general level of interest rates, and on the assumption that carrying value approximates fair value for variable rate debt. 7. LEASES Total rental expense amounted to $22,990,000, $20,800,000, and $16,673,000 for 1997, 1996, and 1995, 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, 1997 are: 1998, $18,427,000; 1999, $16,620,000; 2000, $12,185,000; 2001, $10,128,000; 2002, $8,254,000 and thereafter, $9,821,000. 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, 1997, 9,154,463 shares of Class A Common Stock were reserved for the conversion of Class B Common Stock and the exercise of stock options. In 1989, the Board of Directors authorized the purchase of up to an aggregate of 2,000,000 shares of the Company's Class A Common Stock. In January 1998, the Board authorized the purchase of an additional 3,000,000 shares of Class A Common Stock, in the open market or otherwise, at such prices as management may from time to time consider to be advantageous to the Company's shareholders. The Company purchased 360,500 shares of Class A Common Stock during 1997, and an additional 829,800 shares in January 1998. The Company may purchase up to 2,815,500 more shares without further public announcement. For 1997, 1996 and 1995, the Board authorized the payment of dividends totalling $.42, $.40 and $.3875 per common share per year respectively. 26 Changes in shareholders' equity for 1997, 1996, and 1995 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, 1995 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 Shares contributed to ESOP -- -- -- -- 635 (266) (4,542) Purchases of treasury shares -- -- -- -- -- 141 2,552 Options exercised 25 -- -- -- 426 -- -- Shares issued to Directors -- -- -- -- 6 (2) (44) - ----------------------------------------------------------------------------------------------- Balance: December 31, 1996 24,866 $25 5,616 $6 $177,412 17 $ 165 Shares contributed to ESOP 89 -- -- -- 2,299 (93) (1,977) Purchases of treasury shares -- -- -- -- -- 361 8,257 Options exercised 420 -- -- -- 8,089 -- -- Shares issued to Directors -- -- -- -- 31 (4) (29) - ----------------------------------------------------------------------------------------------- Balance: December 31, 1997 25,375 $25 5,616 $6 $187,831 281 $6,416 - -----------------------------------------------------------------------------------------------
9. OTHER EXPENSE/(INCOME) NET The components of other expense/(income), net, as further described in Note 6, are:
- ---------------------------------------------------------------- (in thousands) 1997 1996 1995 - ---------------------------------------------------------------- Currency transactions $(2,010) $(2,323) $(3,281) Interest rate protection agreements (760) (1,335) (1,330) Amortization of debt issuance costs and loan origination fees 937 998 837 Strategic planning costs 1,333 -- -- Other 5,021 2,672 2,750 - --------------------------------------------------------------- $ 4,521 $ 12 $(1,024) - ---------------------------------------------------------------
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) 1997 1996 1995 - -------------------------------------------------------------- Current: U.S. Federal $12,799 $ 6,671 $ 6,255 U.S. State 1,463 695 860 Non-U.S. 12,336 18,942 5,304 - -------------------------------------------------------------- 26,598 26,308 12,419 - -------------------------------------------------------------- Deferred: U.S. Federal (3,511) 4,504 5,402 U.S. State (401) 515 617 Non-U.S. 8,369 243 8,770 - -------------------------------------------------------------- 4,457 5,262 14,789 - -------------------------------------------------------------- $31,055 $31,570 $27,208 - --------------------------------------------------------------
U.S. income before income taxes was $29,973,000 in 1997, $30,522,000 in 1996, and $32,472,000 in 1995. Taxes paid, net of refunds, were $22,210,000 in 1997, $18,066,000 in 1996 and $9,269,000 in 1995. A comparison of the federal statutory rate to the Company's effective rate is as follows:
- ------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------- U.S. statutory rate 35.0% 35.0% 35.0% State taxes 1.9 1.8 2.7 Non-U.S. tax rates, repatriation of earnings, and other net charges associated with prior years 5.6 2.6 (.3) Other (3.5) (.4) 1.6 - ------------------------------------------------------------- Effective tax rate 39.0% 39.0% 39.0% - -------------------------------------------------------------
The significant components of deferred income tax (benefit)/expense attributed to income from operations for the years ended December 31, 1997, 1996, and 1995 are as follows:
- --------------------------------------------------------------- (in thousands) 1997 1996 1995 - --------------------------------------------------------------- Deferred tax (benefit)/expense $(1,448) $ 1,630 $ 9,113 Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates 136 -- 4,500 Utilization of operating loss carryforwards 5,769 3,632 1,176 - --------------------------------------------------------------- $ 4,457 $ 5,262 $ 14,789 - ---------------------------------------------------------------
Investment tax credits and other credits utilized for financial reporting purposes were not material. 27 Undistributed earnings of subsidiaries outside the United States for which no provision for U.S. taxes has been made amounted to approximately $90,487,000 at December 31, 1997. 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, 1997 and 1996 are presented below:
U.S. Non-U.S. ---------------- ---------------- (in thousands) 1997 1996 1997 1996 - ----------------------------------------------------------------------- Accounts receivable, princi- pally due to allowance for doubtful accounts $ 180 $ 284 $ 15 $ (107) Inventories, principally due to additional costs inventoried for tax purposes, pursuant to the Tax Reform Act of 1986 4,863 1,509 14 272 Tax loss carryforwards -- -- 4,570 5,043 Other 2,262 3,174 712 935 - ----------------------------------------------------------------------- Total current deferred tax assets 7,305 4,967 5,311 6,143 - ----------------------------------------------------------------------- Sale lease back transaction 2,128 1,208 -- -- Deferred compensation 7,724 6,555 -- -- Tax loss carryforwards -- -- 10,552 18,353 Plant, equipment and depre- ciation (6,709) (6,358) (165) (1,724) Postretirement benefits 12,403 11,498 (660) (686) Other (2,316) (1,247) (131) 157 - ----------------------------------------------------------------------- Total noncurrent deferred tax assets 13,230 11,656 9,596 16,100 - ----------------------------------------------------------------------- Total deferred tax assets $20,535 $16,623 $14,907 $22,243 - ----------------------------------------------------------------------- Total current deferred tax liabilities -- -- $ 3,819 $ 2,409 - ----------------------------------------------------------------------- Plant, equipment and depre- ciation -- -- 22,815 23,409 Other -- -- (1,153) (198) - ----------------------------------------------------------------------- Total noncurrent deferred tax liabilities -- -- 21,662 23,211 - ----------------------------------------------------------------------- Total deferred tax liabilities -- -- $25,481 $25,620 - -----------------------------------------------------------------------
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 27% is expected to be used in 1997 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 two industry segments. The Engineered Fabrics segment includes developing, manufacturing, marketing and servicing custom designed engineered fabrics and related products used in the manufacture of paper, paperboard and products in other process industries. The Company's other segment includes manufacturing, marketing and servicing high performance industrial doors. The Company sells its products on a worldwide basis with its principal markets listed in the table below. The following table shows data by industry segment:
- ----------------------------------------------------------------------------------- (in thousands) 1997 % 1996 % 1995 % - ----------------------------------------------------------------------------------- Net Sales Engineered Fabrics $626,796 88 $634,067 92 $602,981 92 High Performance Industrial Doors 83,283 12 58,693 8 49,664 8 - ----------------------------------------------------------------------------------- Total $710,079 100 $692,760 100 $652,645 100 - ----------------------------------------------------------------------------------- Operating Income Engineered Fabrics $ 91,035 91 $ 91,802 95 $ 84,951 96 High Performance Industrial Doors 8,584 9 4,983 5 3,876 4 - ----------------------------------------------------------------------------------- Total $ 99,619 100 $ 96,785 100 $ 88,827 100 - ----------------------------------------------------------------------------------- Assets Engineered Fabrics $743,697 93 $776,212 93 $782,120 97 High Performance Industrial Doors 53,200 7 55,705 7 20,112 3 - ----------------------------------------------------------------------------------- Total $796,897 100 $831,917 100 $802,232 100 - ----------------------------------------------------------------------------------- Depreciation and Amortization Engineered Fabrics $ 43,662 97 $ 44,529 99 $ 42,830 99 High Performance Industrial Doors 1,329 3 660 1 257 1 - ----------------------------------------------------------------------------------- Total $ 44,991 100 $ 45,189 100 $ 43,087 100 - ----------------------------------------------------------------------------------- Capital Expenditures Engineered Fabrics $ 49,820 98 $ 53,197 99 $ 41,771 99 High Performance Industrial Doors 984 2 276 1 150 1 - ----------------------------------------------------------------------------------- Total $ 50,804 100 $ 53,473 100 $ 41,921 100 - -----------------------------------------------------------------------------------
Amounts reported for associated companies are related to the Engineered Fabrics segment. 28 The following table shows data by geographic area:
- ----------------------------------------------------------------------------------- (in thousands) 1997 % 1996 % 1995 % - ----------------------------------------------------------------------------------- Net Sales United States $286,528 40 $276,973 40 $258,974 40 Canada 67,794 10 68,971 10 65,203 10 Europe 267,521 38 256,205 37 240,663 37 Rest of World 88,236 12 90,611 13 87,805 13 - ----------------------------------------------------------------------------------- Total $710,079 100 $692,760 100 $652,645 100 - ----------------------------------------------------------------------------------- Operating Income United States $ 54,932 55 $ 46,432 48 $ 41,485 47 Canada 8,819 9 12,026 12 12,815 14 Europe 28,603 29 26,882 28 23,119 26 Rest of World 7,265 7 11,445 12 11,408 13 - ----------------------------------------------------------------------------------- Total $ 99,619 100 $ 96,785 100 $ 88,827 100 - ----------------------------------------------------------------------------------- Assets United States $279,023 35 $289,475 35 $303,304 38 Canada 70,210 9 73,353 9 67,638 8 Europe 297,187 37 331,717 40 307,728 39 Rest of World 150,477 19 137,372 16 123,562 15 - ----------------------------------------------------------------------------------- Total $796,897 100 $831,917 100 $802,232 100 - -----------------------------------------------------------------------------------
Sales among geographic areas and export sales are not material. 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) 1997 1996 1997 1996 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $(118,521) $(28,118) $(11,934) $ (97,202) Accumulated (125,245) (30,642) (13,396) (101,916) Projected (150,766) (39,042) (19,357) (123,868) Plan assets at fair value, primarily listed stocks and bonds 143,980 38,895 -- 83,324 - ----------------------------------------------------------------------------- Projected benefit obligation in excess of plan assets (6,786) (147) (19,357) (40,544) Unrecognized net loss 27,392 2,868 2,130 35,545 Prior service cost not yet recognized in net periodic pension cost 6,013 738 -- 5,896 Remaining unrecognized net (asset) obligation (3,184) (76) 510 (3,970) Recognized unaccrued pension expense -- -- (698) (19,632) - ----------------------------------------------------------------------------- Accrued pension asset (liability) $ 23,435 $ 3,383 $(17,415) $ (22,705) - -----------------------------------------------------------------------------
The expected long-term rate of return for U.S. plans was 10% for 1997, 1996 and 1995. The weighted average discount rate was 7.6% for 1997, 8.0% for 1996 and 7.8% for 1995. In 1997, 1996 and 1995, the rate of increase in future compensation levels for salaried and hourly employees was 5.1% and 5.9%, respectively. The weighted average expected long-term rate of return for non-U.S. plans was 7.2% for 1997, 7.5% for 1996 and 8.0% for 1995. The weighted average discount rate was 6.9% for 1997, 7.3% for 1996 and 7.9% for 1995. The weighted average rate of increase in future compensation levels was 4.4% for 1997, 4.8% for 1996 and 5.3% for 1995. The Company was required to accrue an additional minimum liability for those plans for which accumulated plan benefits exceeded plan assets. The liability at December 31, 1996 of $18,379,000 was offset by an asset amounting to $5,896,000 (included in intangibles) and a direct charge to equity of $12,483,000. There was no additional liability required at December 31, 1997. The vested benefit obligation has been determined based upon the actuarial present value of 29 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) 1997 1996 1995 - -------------------------------------------------------------- Service cost $ 5,751 $ 5,462 $ 4,093 Interest cost on projected benefit obligation 11,948 11,761 11,425 Actual return on assets (10,807) (10,057) (9,553) Net amortization and deferral 487 838 (544) - -------------------------------------------------------------- Net periodic pension cost $ 7,379 $ 8,004 $ 5,421 - --------------------------------------------------------------
Annual pension cost charged to operating expense for all Company plans was $11,221,000 for 1997, $12,579,000 for 1996 and $8,342,000 for 1995. 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) 1997 1996 - ----------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $28,195 $21,330 Fully eligible active plan participants 4,758 4,096 Other active participants 13,433 13,955 - ----------------------------------------------------- 46,386 39,381 Unrecognized gain 8,088 13,930 - ----------------------------------------------------- Accrued postretirement cost $54,474 $53,311 - -----------------------------------------------------
Net periodic postretirement benefit cost included the following:
- ----------------------------------------------------------- (in thousands) 1997 1996 1995 - ----------------------------------------------------------- Service cost of benefits earned $ 856 $ 954 $ 699 Interest cost on accumulated postretirement benefit obligation 3,300 2,940 3,264 Amortization of unrecognized net gain (418) (537) (613) - ----------------------------------------------------------- Net periodic postretirement benefit cost $3,738 $3,357 $3,350 - -----------------------------------------------------------
For measuring the expected postretirement benefit obligation, an annual rate of increase in the per capita claims cost of 6.5% is assumed for 1997. This rate is assumed to decrease gradually to 5.5% by 1999 and remain at that level thereafter. The weighted average discount rate was 7.6% for 1997, 8.0% for 1996 and 7.8% for 1995. A one percentage point increase in the health care cost trend rate would result in a $5,830,000 increase in the accumulated postretirement benefit obligation as of December 31, 1997 and an increase of $605,000 in the aggregate service and interest cost components of the net periodic postretirement benefit cost for 1997. 14. TRANSLATION ADJUSTMENTS The Consolidated Statements of Cash Flows were affected by translation as follows:
- --------------------------------------------------------------- (in thousands) 1997 1996 1995 - --------------------------------------------------------------- Change in cumulative translation adjustments $42,011 $11,760 $ (5,828) Other noncurrent liabilities 2,742 568 (1,095) Deferred taxes 3,419 271 (1,421) Long-term debt 1,014 (1,289) (565) Investments in associated companies (100) (537) 81 Net fixed assets (22,959) (6,146) 10,863 Other assets (4,602) (1,076) (153) - --------------------------------------------------------------- Effect of exchange rate changes $21,525 $ 3,551 $ 1,882 - ---------------------------------------------------------------
30 Shareholders' equity was affected by translation as follows: decrease/(increase) from translation of non-U.S. financial statements of $30,979,000, $6,354,000 and $(462,000); from remeasurement of loans of $11,032,000, $4,932,000 and $(7,379,000) in 1997, 1996, and 1995, respectively; and by losses on designated hedges, net of tax, of $474,000 and $2,013,000 in 1996 and 1995, respectively. In 1997, 1996 and 1995, net translation losses included in operations in Brazil and Mexico were $499,000, $233,000 and $354,000 respectively, and were included in cost of goods sold. 15. STOCK OPTIONS AND INCENTIVE PLANS During 1988 and 1992, the shareholders approved stock option plans for key employees. The 1988 and 1992 plans each provide for granting of up to 2,000,000 shares of Class A Common Stock. In addition, in 1997 the Board of Directors granted one option outside these plans for 250,000 shares of Class A Common Stock. Options are exercisable in five cumulative annual amounts beginning 12 months after date of grant. The option issued by the Board in 1997 is not exercisable unless the Company's share price reaches $48 per share and is then limited to 10% of the total number of shares multiplied by the number of full years of employment elapsed since the grant date. Option exercise prices are not less than the market value of the shares on the date of grant. Unexercised options generally terminate twenty years after date of grant for all plans. For the purpose of applying Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", the fair value of each option granted is estimated on the grant date using the Black-Scholes Single Option model. No adjustments were made for certain factors which are generally recognized to reduce the value of option contracts. These factors include limited transferability, a 20% per year vesting schedule, a share price threshold with vesting based on years of employment and the risk of forfeiture of the non-vested portion if employment is terminated. The dividend yield was 1.8% for 1997, 1996 and 1995. The expected volatility was 24.1% in 1997, 24.6% in 1996 and 25.0% in 1995. The expected life of the options varies based on employee group and ranges from 8 to 19 years. The risk-free interest rate ranges from 5.8% to 6.1% in 1997, 6.6% to 7.0% in 1996 and 5.7% to 6.2% in 1995. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", in accounting for the stock option plans. Accordingly, no compensation cost has been recognized in 1997, 1996 or 1995. Had compensation cost and fair value been determined pursuant to FAS 123, net income would decrease from $49,059,000 to $47,727,000 in 1997, from $48,306,000 to $47,511,000 in 1996 and from $43,011,000 to $42,686,000 in 1995. Earnings per share would decrease from $1.60 to $1.55 in 1997, from $1.59 to $1.56 in 1996 and from $1.42 to $1.41 in 1995. Diluted earnings per share would decrease from $1.57 to $1.53 in 1997, from $1.58 to $1.55 in 1996 and from $1.35 to $1.34 in 1995. The weighted average fair value of options granted during 1997, 1996 and 1995, for the purposes of FAS 123, is $10.37, $10.34 and $9.88 per share, respectively. Activity with respect to these plans is as follows:
- -------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------- Shares under option at January 1 3,057,400 2,799,650 2,630,400 Options granted 695,500 415,250 436,250 Options cancelled 23,900 133,100 7,800 Options exercised 420,000 24,400 259,200 - -------------------------------------------------------------------- Shares under option at December 31 3,309,000 3,057,400 2,799,650 Options exercisable at December 31 1,930,900 2,068,750 1,896,050 Shares available for options 229,900 651,500 933,650 - -------------------------------------------------------------------- The weighted average exercise price is as follows: - -------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------- Shares under option at January 1 $18.00 $17.38 $16.49 Options granted 21.84 22.25 22.25 Options cancelled 20.49 18.78 17.72 Options exercised 16.72 16.49 17.00 Shares under option at December 31 18.95 18.00 17.38 Options exercisable at December 31 17.08 16.59 16.29 - --------------------------------------------------------------------
31 The following is a summary of the status of options outstanding at December 31, 1997:
- ------------------------------------------------------------------- Outstanding Options -------------------------------- Exercisable Options Weighted -------------------- Average Weighted Weighted Remaining Average Average Exercise Contractual Exercise Exercise Price Range Number Life Price Number Price - ------------------------------------------------------------------- $15.00 125,000 15.11 $15.00 100,000 $15.00 15.50 700,000 10.34 15.50 700,000 15.50 16.25 174,950 15.41 16.25 139,500 16.25 16.75 517,000 12.07 16.75 517,000 16.75 17.63-18.75 301,800 15.49 18.56 227,200 18.50 19.75 443,000 19.29 19.75 -- -- 22.25 797,250 17.89 22.25 247,200 22.25 25.56 250,000 19.85 25.56 -- -- - -------------------------------------------------------------------
The Company's voluntary deferred compensation plans provide that a portion of certain employees' salaries are deferred in exchange for amounts payable upon their retirement, disability or death. The repayment terms are selected by the participants in accordance with the provisions of each plan. The Company is the beneficiary of life insurance policies on the lives of certain plan participants. The Company's expense for all plans, net of the increase in cash surrender value, was $1,795,000 in 1997, $1,523,000 in 1996 and $1,240,000 in 1995. The increase in cash value, net of premiums, was $851,000 in 1997, $751,000 in 1996 and $654,000 in 1995. 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 $3,288,000 in 1997, $3,129,000 in 1996 and $2,906,000 in 1995. The Company's profit-sharing plan covers substantially all employees in the United States. At the beginning of each year, the Board of Directors announces the formula that it expects to utilize in determining the amount of the profit-sharing contribution for that year. The profit-sharing contributions will only be made to current active participants in Prosperity Plus in the form of cash or the Company's Class A Common Stock. The expense recorded for this plan was $206,000 in 1997, $1,388,000 in 1996 and $2,279,000 in 1995. 16. ACQUISITIONS AND RESTRUCTURING In November 1996, the Company acquired substantially all of the assets of Schieffer Door Systems, a manufacturer of high-speed, high-performance industrial doors located in Germany, for approximately $25,000,000. 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 paid in 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 have been consolidated with the Company's Nomafa Door Division. All acquisitions were accounted for as purchases and, accordingly, the Company included in its financial statements the results of operations of the acquired entities as of the respective acquisition dates. In 1993, the Company recorded restructuring charges which included $2,200,000 for asset write offs, $2,500,000 for lease obligations related to an unoccupied facility and $2,300,000 for termination costs related to downsizing certain operations. Lease obligation payments will continue until 1999. The components of accrued restructuring costs consist of:
- ----------------------------------------------------------- (in thousands) 1997 1996 1995 - ----------------------------------------------------------- Lease obligations $ 628 $1,119 $1,693 Termination costs -- -- 317 Asset write offs -- -- 275 - ----------------------------------------------------------- $ 628 $1,119 $2,285 - -----------------------------------------------------------
The decrease in accrued balances are the result of actual payments for terminations or incurred expenses and the disposal of written down equipment. 32 FINANCIAL REVIEW Review of Operations - --1997 VS. 1996 Net sales increased $17.3 million or 2.5% as compared with 1996. Net sales were decreased by $32.1 million from the effect of a stronger U.S. dollar as compared to 1996. As discussed below, the Company acquired Schieffer Door Systems ("Schieffer") in 1996. Schieffer added $24.6 million to 1997 net sales. Excluding the effect of the stronger U.S. dollar and Schieffer, 1997 net sales increased 3.6% over 1996. Net sales in the United States increased 3.5% in 1997 as compared to 1996, while sales in Canada decreased 1.7% over the same period. The decrease in Canadian sales was due in part to lower sales to Asia. The effect of price increases to customers in 1997 was small. European sales increased 4.4% in 1997 as compared to 1996. Excluding the acquisition of Schieffer and the effect of the stronger U.S. dollar, net sales in Europe increased 5.8%. Sales in the Rest of World segment decreased 2.6%. Gross profit continued to improve and was 43.0% of net sales in 1997 as compared to 42.4% in 1996. Excluding the effect of Schieffer, gross profit margin would have been 43.2%. Selling, technical, general and research expenses, excluding Schieffer, increased 1.4% in 1997 as compared to 1996. Excluding the additional effect of the stronger U.S. dollar, these costs increased 5.6%. A large part of the increase is due to higher wages and benefit costs. The increase in other expense/(income), net as compared to 1996, was partially due to lower income from currency transactions and interest rate protection agreements. Income from those transactions was $2.8 million in 1997 as compared to $3.7 million in 1996. The increase in 1997 was also due to one time strategic planning costs of $1.3 million. Currency transactions and interest rate protection agreements income generally results from economic hedges which can have either a positive or negative effect on other expense/ (income), net in any particular period. The specific hedges in place are changed from time to time depending on market conditions and cash flow forecasts of various non-U.S. operations and are intended to partially offset the effects of translation on operating income (see Notes 6 and 9 of Notes to Consolidated Financial Statements). Interest expense decreased $.9 million or 5.3% as compared with 1996. This decrease is primarily due to lower average debt balances. For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency Translation", to economies that cease to be highly inflationary, effective January 1, 1998, the functional currency for the Company's Brazilian operations will change from the U.S. dollar to the Brazilian Real. Management does not expect a significant impact on reported results. - --1996 VS. 1995 Net sales increased $40.1 million or 6.1% as compared with 1995. Net sales were decreased by $3.1 million from the effect of a stronger U.S. dollar as compared to 1995. Excluding this effect, 1996 net sales increased 6.6% over 1995. Net sales in the United States increased 7.0% in 1996 as compared to 1995. This increase is due primarily to new products introduced during 1995 and 1996 and was made despite almost no increase in paper and board production during the year in the United States. Canadian sales increased 5.8% in 1996 as compared to 1995. The effect of price increases to customers in 1996 was small. European sales increased 6.5% in 1996 as compared to 1995. Excluding the effect of the stronger U.S. dollar, net sales in Europe increased 6.9%. Sales in the Rest of World segment increased 3.2% as compared to 1995. As a result of cost containment programs, which were partially offset by a change in product mix, gross profit continued to improve and was 42.4% of net sales in 1996 as compared to 41.8% in 1995. Selling, technical, general and research expenses increased 6.8% in 1996 as compared to 1995. Excluding the effect of translation of non-U.S. currencies into U.S. dollars, these expenses would have increased 7.2%. Increased wages and benefit costs and additional costs generated by acquisitions made in the second half of 1995 and 1996 accounted for a significant portion of the increase. The increase in other expense/(income), net as compared to 1995, was due to lower income from currency transactions and interest rate protection agreements. Income from those transactions was $3.7 million in 1996 as compared to $4.6 million in 1995. 33 Interest expense decreased $3.1 million or 15.5% as compared with 1995. The decrease is primarily due to a lower average interest rate in 1996 of 6.0% as compared to 7.1% in 1995. In November 1996, the Company acquired substantially all of the assets of Schieffer, a manufacturer of high-speed, high-performance industrial doors located in Germany, for approximately $25 million. The acquisition was accounted for as a purchase and, accordingly, the Company has included Schieffer's results of operations in its financial statements as of November 1, 1996. Reported results were not significant. For purposes of applying Financial Accounting Standard No. 52, "Foreign Currency Translation", to highly inflationary economies, effective January 1, 1997, the functional currency for the Company's Mexican operations was changed from the Mexican peso to the U.S. dollar. International Activities The Company conducts more than half of its business in countries outside of the United States. As a result, the Company experiences transaction and translation gains and losses because of currency fluctuations. The Company periodically enters into foreign currency contracts to hedge this exposure (see Notes 6, 9 and 14 of Notes to Consolidated Financial Statements). The Company believes that the risks associated with its operations and locations outside the United States are not other than those normally associated with operations in such locations. The profitability in the Company's geographic regions in 1997 as compared to 1996 increased in the United States and Europe and decreased in the other geographic areas (see Note 11 of Notes to Consolidated Financial Statements). Total operating income increased 2.9% as compared to 1996. Excluding the effect of the stronger U.S. dollar, operating income would have been 8.7% higher as compared to 1996. Operating income as a percent of net sales for the United States was 19.2% in 1997, 16.8% in 1996 and 16.0% in 1995; and for Canada was 13.0% in 1997, 17.4% in 1996 and 19.7% in 1995; for Europe was 10.7% in 1997, 10.5% in 1996 and 9.6% in 1995; and for Rest of World was 8.2% in 1997, 12.6% in 1996 and 13.0% in 1995. Liquidity and Capital Resources At December 31, 1997 the Company's order backlog was $528.0 million, an increase of $25.8 million from the prior year-end. Accounts receivable decreased $7.6 million from December 31, 1996. Excluding the effect of the stronger U.S. dollar, accounts receivable increased $4.6 million. Inventories were flat as compared to December 31, 1996, after restatement for the change in accounting for inventory as discussed below. Excluding the effect of the stronger U.S. dollar, inventories increased $9.1 million. During 1997, the Company changed its method of determining the cost of United States inventories from the last-in, first-out (LIFO) method to the average cost method. The Company believes that the average cost method results in a closer matching of revenues and expenses during periods of increased productivity and changes in product mix. This change in accounting method has been applied retroactively and financial information for all periods presented has been restated to apply the average cost method. Income before extraordinary item and net income was increased/ (decreased) by $.9 million, 3 cents per share, and $(.1) million, less than 1 cent per share, for the years ended December 31, 1996 and 1995, respectively, as a result of this change. There was no effect on 1997 income. Retained earnings has been adjusted for the effect of retroactive application of the new method. Cash flow provided from operating activities was $86.6 million in 1997 compared with $82.9 million in 1996 and $67.5 million in 1995. Capital expenditures were $50.8 million for 1997, $53.5 million for 1996 and $41.9 million for 1995. Capital expenditures in 1998 are expected to be about $45 million. The Company will continue to finance these expenditures with cash from operations and existing credit facilities. The Company is currently assessing the potential impact of the year 2000 on its existing computer programs. The assessment is expected to be complete, with a formal action plan put in place, by mid-1998 with all necessary modifications done by mid-1999. The Company presently believes that the year 2000 issue will be mitigated by the completion of the company-wide implementation of new software. The Company currently has a $300 million revolving credit agreement with its principal banks in the United States. The banks' commitment will decline to $150 million in 2001 with the final maturity in 2002. The terms of the revolving credit agreement include a facility fee and allow the Company to select from various loan pricing options. The Company's current debt structure, which is mostly floating-rate, has resulted in lower interest expense and currently provides approximately $200 million in committed and available 34 unused debt capacity with financial institutions. Management believes that the unused line, in combination with informal commitments and expected free cash flows, should be sufficient to meet operating requirements and for business opportunities and most acquisitions which support corporate strategies. In 1998, it is possible that the Company will fix interest rates on a portion of the Company's total debt. It is anticipated that this will increase the Company's interest rate during 1998 and reduce the Company's exposure to higher interest rates. On March 15, 1996, the Company redeemed the $150 million, 5.25% convertible subordinated debentures at a redemption price of 91.545%. The redemption resulted in a one-time extraordinary non-cash charge to income of $1.3 million, net of tax of $.8 million. Cash dividends of $.105 per share were declared in each of the four quarters of 1997. 35 ELEVEN YEAR SUMMARY ALBANY INTERNATIONAL CORP. - --------------------------------------------------------------------------------
The amounts ---------------------------- 1997 1996 1995 1994 ------------------------------------------------------------------------------------- (in thousands, except per share amounts) Summary of Operations Net sales $710,079 $692,760 $652,645 $567,583 Cost of goods sold 404,982 399,311 379,696 338,991 Operating income (1),(2),(7) 99,619 96,785 88,827 62,821 Interest expense, net 15,467 15,833 20,009 16,820 Income before income taxes 79,631 80,940 69,842 41,677 Income taxes 31,055 31,570 27,208 17,921 Income before associated companies 48,576 49,370 42,634 23,756 Net income/(loss) (3),(4),(6) 49,059 48,306 43,011 23,882 Net income/(loss) per share 1.60 1.59 1.42 0.80 Diluted net income/(loss) per share 1.57 1.58 1.35 0.79 Average number of shares outstanding 30,749 30,364 30,202 29,953 Capital expenditures 50,804 53,473 41,921 36,322 Dividends declared 12,921 12,159 11,708 10,488 Per Class A common share 0.42 0.40 0.3875 0.3500 Per Class B common share 0.42 0.40 0.3875 0.3500 Financial Position Current assets $373,323 $384,627 $364,207 $319,947 Current liabilities 170,440 176,746 126,945 115,863 Current ratio 2.2 2.2 2.9 2.8 Property, plant and equipment, net 321,611 339,461 342,150 320,719 Total assets 796,897 831,917 802,232 727,157 Long-term debt 173,654 187,100 245,265 232,767 Shareholders' equity 343,108 332,330 304,942 274,632 Per share 11.17 10.91 10.06 9.14 Total capital (5) 594,560 586,890 567,460 525,119 Total debt to total capital 42.3% 43.4% 46.3% 47.7% Return on shareholders' equity 14.3% 14.5% 14.1% 8.7% Number of Employees 5,881 5,854 5,658 5,404
---------------------------------------- (1) The Company adopted Financial Accounting Standard (FAS) No. 87 "Employers' Accounting for Pensions", with respect to its non-U.S. retirement plans in 1989, which reduced pension cost by $1,077,000. (2) Included in 1990 is a charge to income of $8,500,000 for an early retirement window and terminations which were part of a world wide cost containment program. (3) 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. 36 --------------------------------------------------------------------
reported for 1987 - 1996 have been restated to reflect accounting change --------------------------------------------------------------------------- 1993 1992 1991 1990 1989 1988 1987 - -------------------------------------------------------------------------------------- $ 546,120 $ 561,084 $ 557,218 $ 556,104 $ 505,474 $ 461,246 $ 402,203 345,468 366,756 359,184 358,697 299,287 267,374 236,883 40,051 18,893 44,488 31,661 67,627 73,755 63,745 16,115 18,829 20,090 18,450 19,857 16,637 14,908 24,566 3,282 19,752 14,421 76,272 53,333 47,320 9,679 1,247 10,803 7,538 33,487 18,954 22,263 14,887 2,035 8,949 6,883 42,785 34,379 25,057 15,003 (3,114) 10,794 8,269 44,896 36,521 25,682 0.56 (0.12) 0.42 0.33 1.77 1.47 1.17 0.56 (0.12) 0.42 0.33 1.76 1.47 1.15 26,679 25,559 25,415 25,312 25,408 24,779 21,992 30,940 20,219 40,067 110,729 82,252 58,601 40,216 9,361 8,950 8,903 7,518 5,775 4,674 1,082 0.3500 0.3500 0.3500 0.3500 0.3125 0.2625 0.0625 0.3500 0.3500 0.3500 0.1313 -- -- -- $ 270,034 $ 256,422 $ 259,917 $ 277,622 $ 246,144 $ 209,635 $ 179,919 101,069 112,955 106,220 106,904 100,810 86,489 88,156 2.7 2.3 2.4 2.6 2.4 2.4 2.0 302,829 308,618 362,456 365,558 260,907 214,807 182,232 661,314 652,745 680,706 708,212 569,968 480,143 420,220 208,620 239,732 250,423 262,042 145,493 157,833 130,745 247,223 193,975 247,231 245,004 240,285 179,545 147,069 8.27 7.57 9.70 9.66 9.32 7.15 6.05 467,320 456,773 551,240 574,977 452,567 392,707 320,060 47.1% 57.5% 48.2% 49.3% 38.8% 48.1% 47.5% 6.1% (1.6%) 4.4% 3.4% 18.7% 20.3% 17.5% 5,286 5,678 5,726 6,144 6,090 5,659 5,244
(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. 37 QUARTERLY FINANCIAL DATA (unaudited) - --------------------------------------------------------------------------------
(in millions except per share amounts) 1st 2nd 3rd 4th - -------------------------------------------------------------------------------- 1997 - -------------------------------------------------------------------------------- Net sales $171.8 $181.9 $171.8 $ 184.6 Gross profit 71.8 78.7 73.9 80.7 Net income 10.9 13.5 11.4 13.3 Net income per share .36 .44 .37 .43 Diluted net income per share .35 .43 .36 .43 Dividends per share .105 .105 .105 .105 Class A Common Stock prices: High 24.5 24.0 27.4375 26.5625 Low 20.625 19.75 22.5 22.25 - -------------------------------------------------------------------------------- 1996 (Restated) - -------------------------------------------------------------------------------- Net sales $168.1 $172.1 $169.8 $ 182.8 Gross profit 70.1 72.7 72.0 78.6 Net income 8.1 12.3 12.5 15.4 Net income per share .27 .40 .41 .51 Diluted net income per share .27 .40 .41 .50 Dividends per share .10 .10 .10 .10 Class A Common Stock prices: High 20.375 22.625 22.5 23.125 Low 17.25 19.50 18.0 21.625 - -------------------------------------------------------------------------------- 1995 (Restated) - -------------------------------------------------------------------------------- Net sales $154.1 $166.8 $162.0 $ 169.7 Gross profit 63.2 71.2 68.1 70.4 Net income 7.9 11.8 11.8 11.5 Net income per share .26 .39 .39 .38 Diluted net income per share .26 .37 .36 .36 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 - --------------------------------------------------------------------------------
Stock and Shareholders The Company's Class A Common Stock is traded principally on the New York Stock Exchange. At December 31, 1997 there were approximately 7,000 shareholders. 38

EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
Percent Percent Direct Indirect Ownership Ownership Jurisdiction ------------- ----------- ---------------- Albany International Pty.,Ltd............... 100 Australia Nomafa Austria.............................. 100 Austria Albany International Feltros e Telas Industriais Ltda.......................... 100 Brazil Albany International Canada Inc............. 100 Canada 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 T.I.S. S.A.................................. 100 France Schieffer Tor-und Schutzsysteme GmbH........ 100 Germany Nordiskafilt Maschinenbespannung GmbH....... 100 Germany Albany International GmbH Goppingen......... 100 Germany Nomafa GmbH................................. 100 Germany 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 International Industrial Fabrics & Filters, 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 Nordiska S.A......................... 100 Spain Albany Nordiskafilt AB...................... 100 Sweden Nordiska Maskinfilt Aktiebolag.............. 100 Sweden Nordiskafilt Aktiebolag..................... 100 Sweden Dewa Consulting AB.......................... 100 Sweden Nomafa Aktiebolag........................... 100 Sweden Albany Wallbergs AB......................... 100 Sweden Nordiska Industrie Produkte AG.............. 100 Switzerland Albany International AG..................... 100 Switzerland Albany International Ltd.................... 100 United Kingdom Albany International Research Co............ 100 United States

EXHIBIT 23 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 22, 1998, on our audits of the consolidated financial statements and financial statements schedules of Albany International Corp. as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996, and 1995, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Albany, New York March 16, 1998

EXHIBIT 24 Power of Attorney KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Albany International Corp., a Delaware corporation ("the Company") which contemplates that from time to time it will file with the Securities and Exchange Commission ("the SEC") under, or in connection with, the provisions of the Securities Exchange Act of 1934, as amended, or rules and regulations promulgated thereunder, reports (including, without limitation, reports on Forms 8-K, 10-Q and 10-K), statements and other documents (such reports, statements and other documents, together with amendments, supplements and exhibits thereto, are collectively hereinafter referred to as "1934 Act Reports"), hereby constitutes and appoints J. Spencer Standish, Francis L. McKone, Michael C. Nahl, Richard A. Carlstrom, Thomas H. Hagoort, John C. Treanor and Charles J. Silva, and each of them with full power to act without the others, his or her true and lawful attorneys-in-fact and agents, with full and several power of substitution, for him and her and in his or her name, place and stead, in any and all capacities, to sign any or all 1934 Act Reports and any or all other documents relating thereto, with power where appropriate to affix the corporate seal of the Company thereto and to attest said seal, and to file any or all 1934 Act Reports, together with any and all other information and documents in connection therewith, with the SEC, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. The appointment of any attorney-in-fact and agent hereunder shall automatically terminate at such time as such attorney-in-fact and agent ceases to be an officer of the Company. Any of the undersigned may terminate the appointment of any of his or her attorneys-in-fact and agents hereunder by delivering written notice thereof to the Company. IN WITNESS WHEREOF, the undersigned have duly executed this Power of Attorney this 6th day of November, 1997. /s/ J. Spencer Standish /s/ Francis L. McKone - --------------------------------- ------------------------------- J. Spencer Standish Francis L. McKone Chairman of the Board and Director President and Director (Chief Executive Officer) /s/ Michael C. Nahl /s/ Richard A. Carlstrom - --------------------------------- ------------------------------- Michael C. Nahl Richard A. Carlstrom Senior Vice President and Controller Chief Financial Officer (Principal Accounting Officer) /s/ Charles B. Buchanan /s/ Thomas R. Beecher, Jr. - --------------------------------- ------------------------------- Charles B. Buchanan Thomas R. Beecher, Jr. Director Director /s/ Allan Stenshamn /s/ Barbara P. Wright - --------------------------------- ------------------------------- Allan Stenshamn Barbara P. Wright Director Director /s/ Joseph G. Morone, Ph.D. /s/ Christine L. Standish - --------------------------------- ------------------------------- Joseph G. Morone, Ph.D. Christine L. Standish Director Director /s/ Frank R. Schmeler - --------------------------------- Frank R. Schmeler Executive Vice President, Chief Operating Officer and Director

5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALBANY INTERNATIONAL CORP.'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 2,546 0 177,110 5,224 180,451 373,323 625,039 303,428 796,897 170,440 173,654 31 0 0 343,077 796,897 710,079 710,079 404,982 609,162 4,521 1,298 15,467 79,631 31,055 49,059 0 0 0 49,059 1.60 1.57