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, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM______ TO ______ COMMISSION FILE NUMBER: 0-16214 --------------------- ALBANY INTERNATIONAL CORP. (Exact name of registrant as specified in its charter) DELAWARE 14-0462060 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1373 BROADWAY, ALBANY, NEW YORK 12204 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 518-445-2200 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which Title of each class registered ~~CLASS A COMMON STOCK NEW YORK STOCK EXCHANGE AND ($0.001 PAR VALUE) 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 10, 1997 by non-affiliates of the registrant was $586,840,552. The registrant had 24,885,564 shares of Class A Common Stock and 5,615,563 shares of Class B Common Stock outstanding as of February 10, 1997.
DOCUMENTS INCORPORATED BY REFERENCE PART Registrant's Annual Report to Shareholders for the year ended December 31, 1996. II Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on April 16, 1997. 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 Registrant produces a substantial portion of its monofilament requirements. The design and material composition of paper machine clothing can have a considerable effect on the quality of paper products produced and the efficiency of the paper machines on which it is used. Practically all press fabrics are woven tubular or endless from monofilament yarns. After weaving, the base press fabric goes to a needling operation where a thick fiber layer, called a batt, is laid on the base just before passing through the needling machine. The needles are equipped with tiny barbs that grab batt fibers locking them into the body of the fabric. After needling, the fabrics are usually washed, and water is removed. The fabric then is heat set, treatments may be applied, and it is measured and trimmed. The Registrant's manufacturing process is similar for forming fabrics and drying fabrics, except that there is normally no needling operation in the construction of those fabrics. Monofilament screens are woven on a loom. The fabrics are seamed to produce an endless loop, and heat stabilized by running them around two large cylinders under heat and drawn out by tension. After heat setting, the fabrics are seamed and boxed. In addition to paper machine clothing, the Registrant manufactures other engineered fabrics which include fabrics for the non-woven industry, corrugator belts, filtration media and Rapid Roll Doors-Registered Trademark-. Nomafa 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 Nomafa's inception in the early 1980's, manufacturing operations in North America and Europe have supplied over 60,000 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 will significantly enhance 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 7,300 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. 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. 2 INTERNATIONAL OPERATIONS The Registrant maintains wholly-owned manufacturing facilities in Australia, Brazil, Canada, China, Finland, France, Germany, Great Britain, Holland, Mexico, Sweden and the United States. In 1996, the Company began construction of a new manufacturing facility in South Korea. 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 Company 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 900 people in the sales and technical functions combined, many of whom have engineering degrees or paper mill experience. The Registrant's market leadership position 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, 1996 and 1995 were approximately $502 million and $492 million, respectively. Orders recorded at December 31, 1996 are expected to be invoiced during the next 12 months. 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 3 primary categories, research and development and technical expenditures. Research and development expenses totaled $21.9 million in 1996, $19.7 million in 1995 and $18.4 million in 1994. 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 $26.8 million in 1996, $25.3 million in 1995 and $22.5 million in 1994. 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. 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, 18% in the rest of the world and approximately 22% in the world overall. Together, the United States and Canada constitute approximately 39% 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. EMPLOYEES The Registrant employs 5,854 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. 4 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 71 Chairman of the Board and Director Francis L. McKone 62 President, CEO and Director Frank R. Schmeler 57 Executive Vice President and Chief Operating Officer -- PMC Edward Walther 53 Executive Vice President -- Management and Technology Michael C. Nahl 54 Senior Vice President and Chief Financial Officer J. Weldon Cole 60 Senior Vice President -- Corporate Planning and Business Development Michel J. Bacon 47 Senior Vice President -- Canada and Pacific William M. McCarthy 46 Senior Vice President -- Europe Thomas H. Hagoort 64 General Counsel and Secretary Richard A. Carlstrom 53 Vice President -- Controller William H. Dutt 61 Vice President -- Technical Edward R. Hahn 52 Vice President -- Research and Development Hugh A. McGlinchey 57 Vice President -- Information Systems Kenneth C. Pulver 53 Vice President -- Corporate Communications Ervin D. Johnson 53 Treasurer Charles J. Silva, Jr. 37 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. 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 President and General Manager of the Felt Division from 1984 to 1988, as Division Vice President and General Manager, Albany International Canada from 1978 to 1984 and as Vice President of Marketing, Albany International Canada from 1976 to 1978. EDWARD WALTHER joined the Registrant in 1994. He has served the Registrant as 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 on January 1, 1995. From 1988 until December 1994 he held various management positions, most recently as President and Director of Beloit Corporation, an international manufacturer of pulp and papermaking equipment. 5 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. ERVIN D. JOHNSON joined the Registrant in 1974. He has served the Registrant as Treasurer since 1996 and as Controller of Press Fabrics U.S. from 1991 to 1996. Prior to 1991 he served in various financial positions, including Controller of Appleton Wire Division and Operations Manager for Nomafa Door Division. CHARLES J. SILVA, JR. joined the Registrant in 1994. He has served the Registrant as Assistant General Counsel and Assistant Secretary since 1996 and as Assistant General Counsel from 1994 to 1996. Prior to 1994, he was an associate in Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in New York City. RAW MATERIALS AND INVENTORY Primary raw materials for the Registrant's products are synthetic fibers, which are generally available from a number of suppliers. The Registrant, therefore, is not required to maintain inventories in excess of its current needs to assure availability. In addition, the Registrant manufactures monofilament, a basic raw material for all types of paper machine clothing, at its facility in Homer, New York, which supplies approximately 40% of its world-wide monofilament requirements. This manufacturing capability assists the Registrant in its negotiations with monofilament producers for the balance of its supply requirements, and enhances the ability of the Registrant to develop proprietary products. 6 The Registrant believes it is in compliance with all Federal, State and local provisions which have been enacted or adopted regarding the discharge of materials into the environment, or otherwise relating to the protection of the environment, and does not have knowledge of environmental regulations which do or might have a material effect on future capital expenditures, earnings, or competitive position. The Registrant is incorporated under the laws of the State of Delaware and is the successor to a New York corporation which was originally incorporated in 1895 and which was merged into the Registrant in August 1987 solely for the purpose of changing the domicile of the corporation. Upon such merger, each outstanding share of Class B Common Stock of the predecessor New York corporation was changed into one share of Class B Common Stock of the Registrant. References to the Registrant that relate to any time prior to the August 1987 merger should be understood to refer to the predecessor New York corporation. ITEM 2. PROPERTIES The Registrant's principal manufacturing facilities are located in the United States, Canada, Europe, Brazil, Mexico, Australia and China. The aggregate square footage of the Registrant's facilities in the United States and Canada is approximately 2,485,000, of which 2,408,000 square feet are owned and 77,000 square feet are leased. The Registrant's facilities located outside the United States and Canada comprise approximately 2,725,000 square feet, of which 2,615,000 square feet are owned and 110,000 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 1997. The Registrant's expected 1997 capital expenditures, including the new facility in South Korea but excluding new operating leases, of about $60 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 $183 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 1996 to a vote of security holders. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS "Stock and Shareholders" and "Quarterly Financial Data" on page 26 of the Annual Report are incorporated herein by reference. Restrictions on dividends and other distributions are described in Note 6, on pages 13 and 14 of the Annual Report. Such description is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Eleven Year Summary" on pages 24 and 25 of the Annual Report is incorporated herein by reference. 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Review of Operations" on pages 21 to 23 of the Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and its subsidiaries, included on pages 7 to 20 in the Annual Report, are incorporated herein by reference: Consolidated Statements of Income and Retained Earnings--years ended December 31, 1996, 1995 and 1994 Consolidated Balance Sheets--December 31, 1996 and 1995 Consolidated Statements of Cash Flows--years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Accountants ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 1996 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. 8 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, 1996 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, 1996.
(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. (8) 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 (6) 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. (7) 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. (8) 10(o)(vi) -- Centennial Deferred Compensation Plan. (8)
9
(3) EXHIBITS OTHER AGREEMENTS 10(q) -- Merchandise Orders Purchase and Sale Agreement, dated as of January 28, 1991, among the Registrant, CXC Incorporated and Citicorp North America, Inc., as Agent. (4) 10(q)(i) -- Amendment No. 1 to Merchandise Orders Purchase and Sale Agreement, dated as of April 26, 1991, among the Registrant, CXC Incorporated and Citicorp North America, Inc., as Agent, amending the Merchandise Orders Purchase and Sale Agreement referred to as Exhibit 10(q). (5) 11 -- Schedule of Computation of Primary and Fully Diluted Net Income Per Share. 13 -- Annual Report to Security Holders for the year ended December 31, 1996. 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 April 8, 1991, 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 May 28, 1991, 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 January 18, 1993, which previously-filed Exhibit is incorporated by reference herein. (7) 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. (8) 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. 10 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 March 14, 1997 (J. Spencer Standish) Director * President and Director - ------------------------------ (Chief Executive March 14, 1997 (Francis L. McKone) Officer) Senior Vice President and /s/ MICHAEL C. NAHL Chief Financial Officer - ------------------------------ (Principal Financial March 14, 1997 (Michael C. Nahl) Officer) * Vice President-Controller - ------------------------------ (Principal Accounting March 14, 1997 (Richard A. Carlstrom) Officer) * - ------------------------------ Director March 14, 1997 (Charles B. Buchanan) * - ------------------------------ Director March 14, 1997 (Thomas R. Beecher, Jr.) * - ------------------------------ Director March 14, 1997 (Stanley I. Landgraf) * - ------------------------------ Director March 14, 1997 (Dr. Joseph G. Morone) * - ------------------------------ Director March 14, 1997 (Allan Stenshamn) * - ------------------------------ Director March 14, 1997 (Barbara P. Wright) /s/ MICHAEL C. NAHL ----------------------------------------- Michael C. Nahl *By Attorney-in-fact 11 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 14th day of March, 1997. ALBANY INTERNATIONAL CORP. by /S/MICHAEL C. NAHL ------------------------------------ Michael C. Nahl Principal Financial Officer Senior Vice President and Chief Financial Officer 12 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE To The Shareholders and Board of Directors Albany International Corp. Our report on the consolidated financial statements of Albany International Corp. has been incorporated by reference in this form 10-K from page 7 of the 1996 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 23, 1997 SCHEDULE II ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ---------------------------------------------------------- ----------- ----------- --------------- ------------- BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS (A) END OF PERIOD - ---------------------------------------------------------- ----------- ----------- --------------- ------------- Allowance for doubtful accounts Year ended December 31: 1996............................................ $ 5,010 $ 1,036 $ 1,084 $ 4,962 1995............................................ $ 4,618 $ 963 $ 571 $ 5,010 1994............................................ $ 4,579 $ 597 $ 558 $ 4,618
- ------------------------ (A) Includes accounts written off as uncollectible, recoveries and the effect of currency exchange rates.

EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) PRIMARY EARNINGS PER SHARE:
For the three months For the years ended ended December 31, December 31, 1996 (1) 1995 (1) 1996 (1) 1995 (1) ----------- ---------- ---------- ----------- 30,464,625 30,313,147 Common stock outstanding at end of period 30,464,625 30,313,147 Adjustments to ending shares to arrive at weighted average for the period: (21,904) (23,553) Shares contributed to E.S.O.P. (2) (95,099) (75,763) (8,539) (72) Shares issued under option or to Directors (2) (19,112) (133,024) - (26) Shares issued due to conversion of debt (2) - (63) - 55,435 Treasury shares purchased (2) 13,814 97,561 ----------- ---------- ---------- ----------- 30,434,182 30,344,931 Weighted average number of shares 30,364,228 30,201,858 ----------- ---------- ---------- ----------- ----------- ---------- ---------- ----------- $15,038 $12,118 Income before extraordinary item $48,681 $43,050 Extraordinary loss on early extinguishment of debt, - - net of tax of $828 $1,296 - ----------- ---------- ---------- ----------- $15,038 $12,118 Net income $47,385 $43,050 ----------- ---------- ---------- ----------- ----------- ---------- ---------- ----------- $0.49 $0.40 Income per share before extraordinary item (3) $1.60 $1.43 - - Extraordinary loss on early extinguishment of debt (3) (0.04) - ----------- ---------- ---------- ----------- $0.49 $0.40 Net income per share (3) $1.56 $1.43 ----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
(1) Includes Class A and Class B Common Stock (2) Calculated as follows: number of shares multiplied by the reciprocal of the number of days outstanding (or the reciprocal of the number of days held in treasury for treasury stock purchases) divided by the number of days in the period SHARES CONTRIBUTED TO E.S.O.P.:
For the year: January 31, 1995................................................. 12,346 * (30/365) 1,015 February 23, 1995................................................ 656 * (53/365) 95 February 28, 1995................................................ 13,324 * (58/365) 2,117 February 28, 1995................................................ 37,040 * (58/365) 5,886 March 31, 1995................................................... 12,697 * (89/365) 3,096 April 30, 1995................................................... 9,968 * (119/365) 3,250 May 31, 1995..................................................... 10,301 * (150/365) 4,233 June 30, 1995.................................................... 10,217 * (180/365) 5,039 July 18, 1995.................................................... 32 * (198/365) 17 July 31, 1995.................................................... 8,382 * (211/365) 4,845 August 31, 1995.................................................. 10,146 * (242/365) 6,727 September 30, 1995............................................... 9,729 * (272/365) 7,250 October 31, 1995................................................. 10,943 * (303/365) 9,084 November 30, 1995................................................ 11,614 * (333/365) 10,596 December 31, 1995................................................ 12,547 * (364/365) 12,513 -------- 75,763 -------- --------
ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) January 31, 1996................................................. 12,969 * (30/366) 1,063 February 29, 1996................................................ 136,670 * (59/366) 22,032 March 31, 1996................................................... 11,616 * (90/366) 2,856 April 30, 1996................................................... 10,790 * (120/366) 3,538 May 31, 1996..................................................... 12,658 * (151/366) 5,222 June 30, 1996.................................................... 10,383 * (181/366) 5,135 July 31, 1996.................................................... 12,253 * (212/366) 7,097 August 31, 1996.................................................. 13,016 * (243/366) 8,642 September 30, 1996............................................... 11,067 * (273/366) 8,255 October 31, 1996................................................. 12,492 * (304/366) 10,376 November 30, 1996................................................ 11,398 * (334/366) 10,401 December 31, 1996................................................ 10,511 * (365/366) 10,482 ------- 95,099 ------- ------- For the three months: October 31, 1995................................................. 10,943 * (30/92) 3,568 November 30, 1995................................................ 11,614 * (60/92) 7,574 December 31, 1995................................................ 12,547 * (91/92) 12,411 ------ 23,553 ------ ------ October 31, 1996................................................. 12,492 * (30/92) 4,074 November 30, 1996................................................ 11,398 * (60/92) 7,433 December 31, 1996................................................ 10,511 * (91/92) 10,397 ------ 21,904 ------ ------ SHARES ISSUED UNDER OPTION OR TO DIRECTORS: For the year: April 12, 1995................................................... 25,000 * (101/365) 6,918 April 27, 1995................................................... 5,000 * (116/365) 1,589 May 1, 1995...................................................... 20,000 * (120/365) 6,575 June 2, 1995..................................................... 7,500 * (152/365) 3,123 June 6, 1995..................................................... 14,000 * (156/365) 5,983 June 14, 1995.................................................... 600 * (164/365) 270 July 10, 1995.................................................... 1,200 * (190/365) 625 July 12, 1995.................................................... 15,000 * (192/365) 7,890 July 13, 1995.................................................... 10,000 * (193/365) 5,288 July 19, 1995.................................................... 15,000 * (199/365) 8,178 July 20, 1995.................................................... 10,000 * (200/365) 5,479 July 26, 1995.................................................... 7,500 * (206/365) 4,233 July 27, 1995.................................................... 5,000 * (207/365) 2,836 July 28, 1995.................................................... 28,800 * (208/365) 16,412 July 31, 1995.................................................... 55,000 * (211/365) 31,794 August 4, 1995................................................... 3,000 * (215/365) 1,767 August 7, 1995................................................... 10,000 * (218/365) 5,973 August 10, 1995.................................................. 3,700 * (221/365) 2,240 August 23, 1995.................................................. 6,200 * (234/365) 3,975 September 1, 1995................................................ 1,200 * (243/365) 799 September 12, 1995............................................... 1,200 * (254/365) 835 September 15, 1995............................................... 10,000 * (257/365) 7,041 September 26, 1995............................................... 2,500 * (268/365) 1,836 October 2, 1995.................................................. 1,200 * (274/365) 901 October 10, 1995................................................. 600 * (282/365) 464 ------ 133,024 ------

ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) May 20, 1996..................................................... 2,255 * (140/366) 863 May 22, 1996..................................................... 6,000 * (142/366) 2,328 October 10, 1996................................................. 1,400 * (283/366) 1,083 October 22, 1996................................................. 9,000 * (295/366) 7,254 November 13, 1996................................................ 3,000 * (317/366) 2,598 December 31, 1996................................................ 5,000 * (365/366) 4,986 ------ 19,112 ------ ------ For the three months: October 2, 1995.................................................. 1,200 * (1/92) 13 October 10, 1995................................................. 600 * (9/92) 59 ------ 72 ------ ------ October 10, 1996................................................. 1,400 * (9/92) 137 October 22, 1996................................................. 9,000 * (21/92) 2,054 November 13, 1996................................................ 3,000 * (43/92) 1,402 December 31, 1996................................................ 5,000 * (91/92) 4,946 ------ 8,539 ------ ------ TREASURY SHARES PURCHASED: For the year: February 16, 1995.............................................. 15,000 * (46/365) 1,890 March 14, 1995................................................. 35,000 * (72/365) 6,904 November 21, 1995.............................................. 100,000 * (324/365) 88,767 ------ 97,561 ------ ------ January 17, 1996............................................... 91,000 * (16/366) 3,978 March 13, 1996................................................. 50,000 * (72/366) 9,836 ------ 13,814 ------ ------ For the three months: November 21, 1995.............................................. 100,000 * (51/92) 55,435 ------ ------ SHARES ISSUED DUE TO CONVERSION OF DEBT: For the year: November 1, 1995............................................... 76 * (304/365) 63 ------ ------ For the three months: November 1, 1995............................................... 76 * (31/92) 26 ------ ------

(3) Dilutive common stock equivalents are not material and therefore are not included in the calculation of primary earnings per common share. ALBANY INTERNATIONAL CORP. EXHIBIT 11 SCHEDULE OF COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER SHARE (in thousands, except per share data) FULLY DILUTED EARNINGS PER SHARE:
For the three months For the years ended ended December 31, December 31, 1996 1995 1996 1995 ----------- ---------- ---------- ---------- 30,434,182 30,344,931 Weighted average number of shares 30,364,228 30,201,858 411,175 308,801 Incremental shares of unexercised options (4) 411,175 340,227 - 5,712,374 Convertible shares of subordinated debentures (5) - 5,712,374 ----------- ---------- ---------- ---------- 30,845,357 36,366,106 Adjusted weighted average number of shares 30,775,403 36,254,459 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- $15,038 $13,567 Income before extraordinary item $48,681 $48,846 Extraordinary loss on early extinguishment of debt, - - net of tax of $828 $1,296 - ----------- ---------- ---------- ---------- $15,038 $13,567 Net income (including after-tax income adjustment) $47,385 $48,846 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- $0.49 $0.37 Income per share before extraordinary item $1.58 $1.35 - - Extraordinary loss on early extinguishment of debt (0.04) - ----------- ---------- ---------- ---------- $0.49 $0.37 Fully diluted net income per share $1.54 $1.35 ----------- ---------- ---------- ---------- ----------- ---------- ---------- ----------
(4) Incremental shares of unexercised options are calculated based on the higher of the average price of the Company's stock or the ending price for the respective period. The calculation includes all options whose exercise price is below the higher of the average or ending stock price. (5) The convertible subordinated debentures were redeemed in March 1996 and therefore removed from the fully diluted calculation. In 1995, the original subordinated debentures were convertible into 5,712,450 shares of the Company's Class A Common Stock. Two debentures were converted into 76 shares as of December 31, 1995. Upon any conversion, the Company would realize an after-tax income adjustment based on the effective interest expense on the bonds less the corresponding income tax deduction. The full amount of the shares and the income adjustment are included in the calculation only when they cause dilution to net income per share.

EXHIBIT 13 1996 ANNUAL REPORT REPORT OF MANAGEMENT Management of Albany International Corp. is responsible for the integrity and objectivity of the accompanying financial statements and related information. These statements have been prepared in conformity with generally accepted accounting principles, and include amounts that are based on our best judgments with due consideration given to materiality. Management maintains a system of internal accounting controls designed to provide reasonable assurance, at reasonable cost, that assets are safeguarded and that transactions and events are recorded properly. A program of internal audits and management reviews provides a monitoring process that allows the Company to be reasonably sure the system of internal accounting controls operates effectively. The financial statements have been audited by Coopers & Lybrand L.L.P., independent accountants. Their role is to express an opinion as to whether management's financial statements present fairly, in accordance with generally accepted accounting principles, the Company's financial condition and operating results. Their opinion is based on procedures which include reviewing and evaluating certain aspects of selected systems, procedures and internal accounting controls, and conducting such tests as they deem necessary. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the independent accountants, management and internal audit to review their work and confirm that they are properly discharging their responsibilities. In addition, the independent accountants are free to meet with the Audit Committee without the presence of management to discuss results of their work and observations on the adequacy of internal financial controls, the quality of financial reporting and other relevant matters. [SIG] J. Spencer Standish CHAIRMAN OF THE BOARD [SIG] Francis L. McKone PRESIDENT AND CHIEF EXECUTIVE OFFICER [SIG] Michael C. Nahl SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALBANY INTERNATIONAL CORP. We have audited the accompanying consolidated balance sheets of Albany International Corp. as of December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. [COOPERS & LYBRAND SIG] Albany, New York January 23, 1997 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS ALBANY INTERNATIONAL CORP.
For the Years Ended December 31, 1996 1995 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENTS OF INCOME Net sales $ 692,760 $ 652,645 $ 567,583 Cost of goods sold 400,821 379,632 338,868 - ------------------------------------------------------------------------------ Gross profit 291,939 273,013 228,715 Selling and general expenses 147,929 139,102 124,883 Technical and research expenses 48,735 45,020 40,888 - ------------------------------------------------------------------------------ Operating income 95,275 88,891 62,944 Interest income (1,180) (114) (317) Interest expense 17,013 20,123 17,137 Other expense/(income), net 12 (1,024) 4,324 - ------------------------------------------------------------------------------ Income before income taxes 79,430 69,906 41,800 Income taxes 30,981 27,233 17,974 - ------------------------------------------------------------------------------ Income before associated companies 48,449 42,673 23,826 Equity in earnings of associated companies 232 377 126 - ------------------------------------------------------------------------------ Income before extraordinary item 48,681 43,050 23,952 Extraordinary loss on early extinguishment of debt, net of tax of $828 1,296 -- -- - ------------------------------------------------------------------------------ Net income 47,385 43,050 23,952 RETAINED EARNINGS Retained earnings, beginning of period 171,082 139,740 126,276 Less dividends 12,159 11,708 10,488 - ------------------------------------------------------------------------------ Retained earnings, end of period $ 206,308 $ 171,082 $ 139,740 - ------------------------------------------------------------------------------ NET INCOME/(LOSS) PER SHARE: Primary: Income before extraordinary item $ 1.60 $ 1.43 $ 0.80 Extraordinary loss on early extinguishment of debt (0.04) -- -- - ------------------------------------------------------------------------------ Net income $ 1.56 $ 1.43 $ 0.80 Fully diluted Income before extraordinary item $ 1.60 $ 1.35 $ 0.80 Extraordinary loss on early extinguishment of debt (0.04) -- -- - ------------------------------------------------------------------------------ Net income $ 1.56 $ 1.35 $ 0.80 - ------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 8 CONSOLIDATED BALANCE SHEETS ALBANY INTERNATIONAL CORP.
At December 31, 1996 1995 (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents $ 8,034 $ 7,609 Accounts receivable, less allowance for doubtful accounts ($4,962, 1996; $5,010, 1995) 179,516 170,415 Inventories Finished goods 98,605 88,378 Work in process 40,568 42,480 Raw material and supplies 33,808 30,523 Deferred taxes and prepaid expenses 16,879 19,095 - ------------------------------------------------------------------------------ Total current assets 377,410 358,500 - ------------------------------------------------------------------------------ Property, plant and equipment, at cost, net 339,461 342,150 Investments in associated companies 2,060 2,366 Intangibles 44,954 31,682 Deferred taxes 27,756 28,537 Other assets 33,059 33,290 - ------------------------------------------------------------------------------ Total assets $ 824,700 $ 796,525 - ------------------------------------------------------------------------------ LIABILITIES Current liabilities: Notes and loans payable $ 65,165 $ 16,268 Accounts payable 32,813 35,262 Accrued liabilities 59,755 59,301 Current maturities of long-term debt 2,295 985 Income taxes payable and deferred 13,068 12,067 - ------------------------------------------------------------------------------ Total current liabilities 173,096 123,883 - ------------------------------------------------------------------------------ Long-term debt 187,100 245,265 Other noncurrent liabilities 97,579 100,268 Deferred taxes and other credits 38,162 24,812 - ------------------------------------------------------------------------------ Total liabilities 495,937 494,228 - ------------------------------------------------------------------------------ SHAREHOLDERS' EQUITY Preferred stock, par value $5.00 per share; authorized 2,000,000 shares; none issued -- -- Class A Common Stock, par value $.001 per share; authorized 100,000,000 shares; 24,865,573 issued in 1996 and 24,841,173 in 1995 25 25 Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares; issued and outstanding 5,615,563 in 1996 and 1995 6 6 Additional paid in capital 177,412 176,345 Retained earnings 206,308 171,082 Translation adjustments (42,340) (30,580) Pension liability adjustment (12,483) (12,382) - ------------------------------------------------------------------------------ 328,928 304,496 Less treasury stock, at cost 165 2,199 - ------------------------------------------------------------------------------ Total shareholders' equity 328,763 302,297 - ------------------------------------------------------------------------------ Total liabilities and shareholders' equity $ 824,700 $ 796,525 - ------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 9 CONSOLIDATED STATEMENTS OF CASH FLOWS ALBANY INTERNATIONAL CORP.
- ------------------------------------------------------------------------------ For the Years Ended December 31, 1996 1995 1994 (IN THOUSANDS) OPERATING ACTIVITIES Net income $ 47,385 $ 43,050 $ 23,952 Adjustments to reconcile net cash provided by operating activities: Equity in earnings of associated companies (232) (377) (126) Distributions received from associated companies -- -- 42 Depreciation and amortization 45,189 43,087 38,649 Accretion of convertible subordinated debentures 353 1,628 1,519 Provision for deferred income taxes, other credits and long-term liabilities 755 6,739 (2,395) Increase in cash surrender value of life insurance, net of premiums paid (751) (654) (468) Unrealized currency transaction gains (1,459) (1,469) (1,271) Loss/(gain) on disposition of assets 683 (754) 1,280 Treasury shares contributed to ESOP 5,227 3,454 2,671 Loss on early extinguishment of debt 1,296 -- -- Changes in operating assets and liabilities: Accounts receivable (7,444) (13,926) (30,021) Inventories (7,164) (19,061) (15,046) Prepaid expenses (1,408) 386 586 Accounts payable (2,449) 4,658 6,527 Accrued liabilities 1,543 1,527 (5,054) Income taxes payable 2,255 (88) 2,124 Other, net (884) (747) 140 - ------------------------------------------------------------------------------ Net cash provided by operating activities 82,895 67,453 23,109 - ------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchases of property, plant and equipment (53,473) (41,921) (36,322) Purchased software (1,909) (2,215) (2,053) Proceeds from sale of assets 27,112 1,762 1,855 Acquisitions, net of cash acquired (25,587) (11,312) 526 Investment in associated company -- (915) -- Premiums paid for life insurance (1,193) (1,196) (1,196) - ------------------------------------------------------------------------------ Net cash used in investing activities (55,050) (55,797) (37,190) - ------------------------------------------------------------------------------ FINANCING ACTIVITIES Proceeds from borrowings 220,200 21,348 51,484 Principal payments on debt (229,799) (14,542) (23,490) Proceeds from options exercised 401 4,408 126 Tax benefit of options exercised 25 581 12 Purchases of treasury shares (2,552) (2,883) -- Dividends paid (12,144) (11,305) (10,474) - ------------------------------------------------------------------------------ Net cash (used)/provided by financing activities (23,869) (2,393) 17,658 - ------------------------------------------------------------------------------ Effect of exchange rate changes on cash (3,551) (1,882) (4,730) - ------------------------------------------------------------------------------ Increase/(decrease) in cash and cash equivalents 425 7,381 (1,153) Cash and cash equivalents at beginning of year 7,609 228 1,381 - ------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 8,034 $ 7,609 $ 228 - ------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of Albany International Corp. and its subsidiaries after elimination of intercompany transactions. The Company has a 50% interest in two related entities in South Africa. The consolidated financial statements include the Company's original investment in the South African entities, plus its share of undistributed earnings, in the account "Investments in associated companies." The Company had 40% equity interests in companies in Mexico, Brazil and Argentina until the first quarter of 1994 when it exchanged its 40% equity interests in Brazil and Argentina for the remaining 60% equity interest in Mexico. REVENUE RECOGNITION The Company records sales when products are shipped to customers pursuant to orders or contracts. Sales terms are in accordance with industry practice in markets served. The Company limits the concentration of credit risk in receivables from the paper manufacturing industry by closely monitoring credit and collection policies. The allowance for doubtful accounts is adequate to absorb estimated losses. ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. TRANSLATION OF FINANCIAL STATEMENTS Assets and liabilities of non-U.S. operations are translated at year-end rates of exchange, and the income statements are translated at the average rates of exchange for the year. Gains or losses resulting from translating non-U.S. currency financial statements are accumulated in a separate component of shareholders' equity. For operations in countries that are considered to have highly inflationary economies, gains and losses from translation and transactions are determined using a combination of current and historical rates and are included in net income. Gains or losses resulting from currency transactions denominated in a currency other than the entity's local currency, forward exchange contracts which are not designated as hedges for accounting purposes and futures contracts are generally included in income. Changes in value of forward exchange contracts which are effective as hedges for accounting purposes are generally reported, net of tax, in shareholders' equity in the caption "Translation adjustments." RESEARCH EXPENSE Research expense, which is charged to operations as incurred, was $21,945,000 in 1996, $19,700,000 in 1995, and $18,388,000 in 1994. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less. INVENTORIES Inventories are stated at the lower of cost or market. The cost of United States inventories is based on the last-in, first-out (LIFO) method; all other inventories are valued at average cost. PROPERTY, PLANT AND EQUIPMENT Depreciation is recorded using the straight-line method over the estimated useful lives of the assets for financial reporting purposes; accelerated methods are used for income tax purposes. Significant additions or improvements extending assets' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. The cost of fully depreciated assets remaining in use are included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses are included in net income. INTANGIBLES AND OTHER ASSETS The excess purchase price over fair values assigned to assets acquired is amortized on a straight-line basis over either 25 or 40 years. Patents, at cost, are amortized on a straight-line basis over either 8 or 10 years. Computer software purchased for internal use, at cost, is amortized on a straight-line basis over 5 years and is included in "Other assets." 11 INCOME TAXES The Company accounts for taxes in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes," which requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between financial statement and tax bases of existing assets and liabilities. Under FAS No. 109, the effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. It is the Company's policy to accrue appropriate U.S. and non-U.S. income taxes on earnings of subsidiary companies which are intended to be remitted to the parent company in the near future. The provision for taxes is reduced by investment and other tax credits in the years such credits become available. PENSION PLANS Substantially all employees are covered under either Company or government sponsored pension plans. For principal Company sponsored plans, pension plan costs are based on actuarial determinations. The plans are generally trusteed or insured and accrued amounts are funded as required in accordance with governing laws and regulations. EARNINGS PER SHARE Primary earnings per share on common stock are computed using the weighted average number of shares of Class A and Class B Common Stock outstanding during each year. The 5.25% convertible subordinated debentures, issued in March 1992 and redeemed in March 1996, were not common stock equivalents and are therefore not considered in the calculation of primary earnings per share. The weighted average number of common shares outstanding during 1996, 1995, and 1994 was 30,364,228, 30,201,858, and 29,953,346, respectively. For purposes of calculating fully diluted earnings per share in 1995 and 1994, conversion of the subordinated debentures, interest savings, net of income taxes, and the exercise of options assuming the purchase of treasury shares with the proceeds, are considered. The weighted average number of shares outstanding, assuming full dilution, in 1995 was 36,254,459 and net income was $48,800,000. The options and the convertible subordinated debentures were not dilutive to primary or fully diluted earnings per share except in 1995 for fully diluted earnings per share. 2. INVENTORIES The cost of inventories valued under the LIFO method is $69,784,000 at December 31, 1996 and $67,872,000 at December 31, 1995. Had the Company's inventory been valued at average cost (which approximates replacement cost), inventories would have been $7,217,000 higher in 1996 and $5,707,000 higher in 1995. 3. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment are summarized below:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------ Land $ 26,659 $ 23,107 Buildings 165,162 160,476 Machinery and equipment 449,874 441,536 - ------------------------------------------------------------------------------ 641,695 625,119 - ------------------------------------------------------------------------------ Accumulated depreciation 302,234 282,969 - ------------------------------------------------------------------------------ $339,461 $342,150 - ------------------------------------------------------------------------------
Construction in progress was approximately $2,684,000 in 1996 and $363,000 in 1995. Depreciation expense was $42,390,000 in 1996, $41,375,000 in 1995, and $37,554,000 in 1994. Expenditures for maintenance and repairs are charged to income as incurred and amounted to $17,367,000 in 1996, $15,129,000 in 1995, and $14,400,000 in 1994. Capital expenditures were $53,473,000 in 1996, $41,921,000 in 1995, and $36,322,000 in 1994. At the end of 1996, the Company was committed to $54,024,000 of future expenditures for new equipment and facilities. 4. INTANGIBLES The components of intangibles are summarized below:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------ Excess purchase price over fair value $49,417 $34,643 Patents 10,429 10,440 Accumulated amortization (20,788) (19,679) Deferred unrecognized pension cost (see Note 12) 5,896 6,278 - ------------------------------------------------------------------------------ $44,954 $31,682 - ------------------------------------------------------------------------------
Amortization expense was $1,109,000 in 1996, $796,000 in 1995 and $683,000 in 1994. 12 5. ACCRUED LIABILITIES Accrued liabilities consist of:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------ Salaries and wages $19,125 $18,622 Employee benefits 20,053 15,967 Returns and allowances 4,286 4,326 Interest 767 3,072 Restructuring costs 612 1,039 Acquisition obligation 4,081 5,000 Other 10,831 11,275 - ------------------------------------------------------------------------------ $59,755 $59,301 - ------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS Notes and loans payable at December 31, 1996 and 1995 were short-term debt instruments with banks, denominated in local currencies with a weighted average interest rate of 5.93% in 1996 and 13.2% (7.63% excluding Brazil) in 1995. Long-term debt at December 31, 1996 and 1995, principally to banks and bondholders, exclusive of amounts due within one year, consists of:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 - ------------------------------------------------------------------------------ $150 million 5.25% convertible subordinated debentures yielding 7.0%. $ -- $136,963 $300 million revolving credit agreement which terminates in 2002 with LIBOR borrowings outstanding at an average interest of 5.73% in 1996 and 6.15% in 1995. 139,000 64,000 Various notes, mortgages and debentures relative to operations principally outside the United States, at an average interest of 6.56% in 1996 and 6.92% in 1995, due in varying amounts through 2004. 33,575 29,774 Industrial revenue financings at an average interest of 5.67% in 1996 and 5.89% in 1995, due in varying amounts through 2009. 14,525 14,528 - ------------------------------------------------------------------------------ $187,100 $245,265 - ------------------------------------------------------------------------------
Principal payments due on long-term debt are: 1997, $2,295,000; 1998, $1,428,000; 1999, $30,456,000; 2000, $1,281,000; 2001, $603,000. Interest paid was $19,318,000 in 1996, $20,076,000 in 1995, and $16,708,000 in 1994. 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 maximum interest rate margin over LIBOR is determined by the Company's cash flow to debt ratio. New borrowings under the revolving credit facility are conditional on the absence of material adverse changes in the business, financial position, results of operations and prospects of the Company and its consolidated subsidiaries taken as a whole. In the event of nonperformance by any bank on its commitment to extend credit, the Company could not borrow the full amount of the facility. However, the Company does not anticipate nonperformance by any bank. The revolving credit agreement contains various covenants which include limits on: the disposition of assets, minimum consolidated tangible net worth, interest coverage and cash flow to debt ratios, cash dividends, or certain restricted investments unless the required consolidated tangible net worth, as defined, is maintained. At December 31, 1996, $52,699,000 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 $227,000,000 at December 31, 1996. 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 swap agreements wherein on a notional amount of $250,000,000 the Company will pay a periodic floating rate based upon an index of yields of high-grade, tax-exempt bond issues published by Kenny Information Systems. The counterparty is obligated to make payments to the Company calculated at an average of 70% of LIBOR. As of December 31, 1996 and 1995, the average blended rates payable on the long-term swap agreements were 3.62% and 4.24%, 13 respectively, and the blended rates receivable were 3.97% and 4.33%, respectively. The swap agreements expire during 2000. The Company values these contracts at market (approximately $46,000) by estimating the cost of entering into one or more inverse swap transactions on such date that would neutralize the original transactions. The cost is estimated by obtaining the market swap rate for fixed-rate contracts of similar duration. Included in the "Interest rate protection agreements" component of "Other expense/(income), net" (see Note 9) is income of approximately $1,099,000, $1,026,000 and $557,000 related to the net cash received as part of these agreements in 1996, 1995 and 1994, respectively. Also included in "Interest rate protection agreements" is the change in the valuation which resulted in income of approximately $236,000, $304,000 and $297,000 in 1996, 1995 and 1994, respectively. At December 31, 1996, the Company had various forward exchange contracts maturing during 1997. For each closed position, a sale contract of a particular currency was matched with a purchase contract for the same currency at the same amount, counterparty and settlement date. Open positions were valued at fair value using the estimated forward exchange rate of a matching contract as of December 31, 1996. The foreign currency positions, both open and closed, as of December 31, 1996, by major currency, are:
- ------------------------------------------------------------------------------ Buy Contracts Sell Contracts Currency or Fair Value or Fair Value - ------------------------------------------------------------------------------ (IN THOUSANDS) ~~German Mark $23,738 $25,000 - ------------------------------------------------------------------------------~~
The Company enters into forward exchange contracts either to provide an economic hedge against currency fluctuation effects on future revenue streams or to hedge the net assets and intercompany loans related to foreign operations. Forward exchange contracts that are designated hedges are typically entered into at currency amounts up to an amount equal to the net assets of the related foreign operation and any intercompany loan balance in that foreign currency. Periodically, the Company also enters into futures contracts primarily to hedge in the short-term against interest rate fluctuations. At December 31, 1996, the Company held open positions on $20,000,000 of U.S. treasury note futures. The futures were valued at fair value (a receivable of approximately $257,000) using the quoted market rate as of the end of the year. At December 31, 1995, the Company was not a party to any such contracts. The "Interest rate protection agreements" component of "Other expense/(income), net" includes losses on futures contracts, based on fair value, of $917,000 in 1994. All financial instruments are held for purposes other than trading. For all positions there is risk from the possible inability of the counterparties (major financial institutions) to meet the terms of the contracts and the risk of unfavorable changes in interest and currency rates which may reduce the benefit of the contracts. However, for most closed forward exchange contracts, both the purchase and sale sides of the Company's exposures are with the same financial institution. The Company seeks to control off balance sheet risk by evaluating the credit worthiness of counterparties and by monitoring the currency exchange and interest rate markets, hedging risks in compliance with internal guidelines and reviewing all principal economic hedging contracts with designated directors of the Company. The Company has an agreement under which it may sell to a financial institution up to $40,000,000 of the Company's right to receive certain payments for goods ordered from the Company. At December 31, 1996 and 1995, there were no amounts sold under this agreement. At December 31, 1996 the estimated fair value of the Company's long-term debt excluding current maturities approximates $188,777,000. 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. 14 7. LEASES Total rental expense amounted to $20,800,000, $16,673,000, and $15,527,000 for 1996, 1995, and 1994, 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, 1996 are: 1997, $21,931,000; 1998, $17,895,000; 1999, $14,355,000; 2000, $10,515,000; 2001, $9,013,000 and thereafter, $14,214,000. 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, 1996, 9,324,463 shares of Class A Common Stock were reserved for the conversion of Class B Common Stock and the exercise of stock options. The Board of Directors authorized the purchase of up to an aggregate of 2,000,000 shares of the Company's Class A Common Stock in the open market. The Company has purchased 994,200 shares of its Class A Common Stock since 1990 and may purchase up to 1,005,800 more shares without further advance public announcement. For 1996, 1995 and 1994, the Board authorized the payment of dividends totalling $.40, $.3875 and $.35 per common share per year respectively.
Changes in shareholders' equity for 1996, 1995, and 1994 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, 1994 24,531 $25 5,659 $6 $170,112 307 $4,337 Shares contributed to ESOP -- -- -- -- 289 (143) (2,382) Conversion of Class B shares to Class A shares 26 -- (26) -- -- -- -- Options exercised 7 -- -- -- 138 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Balance: December 31, 1994 24,564 $25 5,633 $6 $170,539 164 $1,955 Shares contributed to ESOP -- -- -- -- 815 (170) (2,639) Conversion of Class B shares to Class A shares 18 -- (18) -- -- -- -- Conversion of subordinated debentures -- -- -- -- 2 -- -- Purchases of treasury shares -- -- -- -- -- 150 2,883 Options exercised 259 -- -- -- 4,989 -- -- Other -- -- 1 -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Balance: December 31, 1995 24,841 $25 5,616 $6 $176,345 144 $2,199 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 - ---------------------------------------------------------------------------------------------------------------------------------
15 9. OTHER EXPENSE/(INCOME) NET The components of other expense/(income), net, as further described in Note 6, are:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 - ------------------------------------------------------------------------------ Currency transactions $(2,323) $(3,281) $ 2,590 Interest rate protection agreements (1,335) (1,330) 63 Amortization of debt issuance costs and loan origination fees 998 837 804 Other 2,672 2,750 867 - ------------------------------------------------------------------------------ $ 12 $(1,024) $ 4,324 - ------------------------------------------------------------------------------
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) 1996 1995 1994 - ------------------------------------------------------------------------------ Current: U.S. Federal $ 6,082 $ 6,280 $14,920 U.S. State 695 860 948 Non-U.S. 18,942 5,304 5,835 - ------------------------------------------------------------------------------ 25,719 12,444 21,703 - ------------------------------------------------------------------------------ Deferred: U.S. Federal 4,504 5,402 (5,772) U.S. State 515 617 (660) Non-U.S. 243 8,770 2,703 - ------------------------------------------------------------------------------ 5,262 14,789 (3,729) - ------------------------------------------------------------------------------ $30,981 $27,233 $17,974 - ------------------------------------------------------------------------------
U.S. income before income taxes was $36,381,000 in 1996, $32,472,000 in 1995, and $18,097,000 in 1994. Taxes paid, net of refunds, were $18,066,000 in 1996, $9,269,000 in 1995, and $19,639,000 in 1994. A comparison of the federal statutory rate to the Company's effective rate is as follows:
- ------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------ U.S. statutory rate 35.0% 35.0% 35.0% State taxes 1.8 2.7 2.4 Non-U.S. tax rates, repatriation of earnings, and other net charges associated with prior years 2.6 (.3) 5.9 Other (.4) 1.4 (.3) - ------------------------------------------------------------------------------ Effective tax rate 39.0% 38.8% 43.0% - ------------------------------------------------------------------------------
The significant components of deferred income tax expense/(benefit) attributed to income from operations for the years ended December 31, 1996, 1995, and 1994 are as follows:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 - ------------------------------------------------------------------------------ Deferred tax expense/(benefit) $ 1,630 $ 9,113 $ (6,603) Adjustments to deferred tax assets and liabilities for enacted changes in tax laws and rates -- 4,500 (1,584) Utilization of operating loss carryforwards 3,632 1,176 4,458 - ------------------------------------------------------------------------------ $ 5,262 $14,789 $ (3,729) - ------------------------------------------------------------------------------
Investment tax credits and other credits utilized for financial reporting purposes were not material. Undistributed earnings of subsidiaries outside the United States for which no provision for U.S. taxes has been made amounted to approximately $81,269,000 at December 31, 1996. 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, 1996 and 1995 are presented below:
- ------------------------------------------------------------------------------ U.S. Non-U.S. ---------------- ------------------- (IN THOUSANDS) 1996 1995 1996 1995 - ------------------------------------------------------------------------------ Accounts receivable, principally due to allowance for doubtful accounts $ 284 $ 369 $ (107) $ (134) Inventories, principally due to additional costs inventoried for tax purposes, pursuant to the Tax Reform Act of 1986 1,509 6,591 272 (18) Tax loss carryforwards -- -- 5,043 4,587 Other 3,174 2,307 935 1,032 - ------------------------------------------------------------------------------ Total current deferred tax assets 4,967 9,267 6,143 5,467 - ------------------------------------------------------------------------------ Sale lease back transaction 1,208 1,208 -- -- Deferred compensation 6,555 5,557 -- -- Tax loss carryforwards -- -- 18,353 16,486 Plant, equipment and depreciation (6,358) (8,309) (1,724) 260 Postretirement benefits 11,498 14,200 (686) (584) Other (1,247) (281) 157 -- - ------------------------------------------------------------------------------ Total noncurrent deferred tax assets 11,656 12,375 16,100 16,162 - ------------------------------------------------------------------------------ Total deferred tax assets $16,623 $21,642 $22,243 $21,629 - ------------------------------------------------------------------------------ Total current deferred tax liabilities -- -- $ 2,409 $ 2,835 - ------------------------------------------------------------------------------ Plant, equipment and depreciation -- -- 23,409 20,996 Other -- -- (198) 1,328 - ------------------------------------------------------------------------------ Total noncurrent deferred tax liabilities -- -- 23,211 22,324 - ------------------------------------------------------------------------------ Total deferred tax liabilities -- -- $25,620 $25,159 - ------------------------------------------------------------------------------
In the U.S., the Company has had a substantial tax liability for each of the past three years and 16 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 22% 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 one industry segment which includes developing, manufacturing, marketing and servicing custom designed engineered fabrics and related products used in the manufacture of paper and paperboard. The Company sells its products on a worldwide basis with its principal markets listed in the table below. The following table shows data by geographic area:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 % 1995 % 1994 % - ------------------------------------------------------------------------------ NET SALES United States $276,973 40 $258,974 40 $239,755 42 Canada 68,971 10 65,203 10 57,459 10 Europe 256,205 37 240,663 37 191,883 34 Rest of World 90,611 13 87,805 13 78,486 14 - ------------------------------------------------------------------------------ Total $692,760 100 $652,645 100 $567,583 100 - ------------------------------------------------------------------------------ OPERATING INCOME United States $ 44,922 47 $ 41,549 47 $ 31,400 50 Canada 12,026 13 12,815 14 7,333 12 Europe 26,882 28 23,119 26 15,233 24 Rest of World 11,445 12 11,408 13 8,978 14 - ------------------------------------------------------------------------------ Total $ 95,275 100 $ 88,891 100 $ 62,944 100 - ------------------------------------------------------------------------------ ASSETS United States $282,258 34 $297,597 37 $270,143 37 Canada 73,353 9 67,638 8 59,280 8 Europe 331,717 40 307,728 39 283,499 39 Rest of World 137,372 17 123,562 16 108,464 16 - ------------------------------------------------------------------------------ Total $824,700 100 $796,525 100 $721,386 100 - ------------------------------------------------------------------------------
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) 1996 1995 1996 1995 - ----------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested $ (28,118) $(26,979) $(97,202) $ (94,095) Accumulated (30,642) (29,348) (101,916) (99,364) Projected (39,042) (37,138) (123,868) (116,643) Plan assets at fair value, primarily listed stocks and bonds 38,895 35,787 83,324 75,628 - ------------------------------------------------------------------------------ Projected benefit obligation in excess of plan assets (147) (1,351) (40,544) (41,015) Unrecognized net loss 2,868 4,321 35,545 33,239 Prior service cost not yet recognized in net periodic pension cost 738 760 5,896 6,278 Remaining unrecognized net asset (76) (199) (3,970) (5,164) Recognized unaccrued pension expense -- -- (19,632) (19,320) - ------------------------------------------------------------------------------ Accrued pension asset (liability) $ 3,383 $ 3,531 $(22,705) $ (25,982) - ------------------------------------------------------------------------------
The expected long-term rate of return for U.S. plans was 10% for 1996, 1995, and 1994. The weighted average discount rate was 8.0% for 1996, 7.8% for 1995, and 9.5% for 1994. The rate of increase in future compensation levels for salaried and hourly employees was 5.1% and 5.9%, respectively in 1996 and 1995, 5.9% and 6.0%, respectively in 1994. The weighted average expected long-term rate of return for non-U.S. plans was 7.5% for 1996, 8.0% for 1995, and 7.4% for 1994. The weighted average discount rate was 7.3% for 1996, 7.9% for 1995, and 8.5% for 1994. The weighted average rate of increase in future compensation levels was 4.8% for 1996, 5.3% for 1995, and 5.7% for 1994. 17 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 and 1995 respectively, of $18,379,000 and $18,660,000 was offset by an asset amounting to $5,896,000 and $6,278,000 (included in intangibles) and a direct charge to equity of $12,483,000 and $12,382,000. The vested benefit obligation has been determined based upon the actuarial present value of the vested benefits to which an employee is currently entitled, based on the employee's expected date of separation or retirement. Net pension cost included the following components:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost $ 5,462 $ 4,093 $ 4,276 Interest cost on projected benefit obligation 11,761 11,425 9,709 Actual return on assets (10,057) (9,553) (7,197) Net amortization and deferral 838 (544) (1,837) - ------------------------------------------------------------------------------ Net periodic pension cost $ 8,004 $ 5,421 $ 4,951 - ------------------------------------------------------------------------------
Annual pension cost charged to operating expense for all Company plans was $12,579,000 for 1996, $8,342,000 for 1995, and $8,529,000 for 1994. 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) 1996 1995 - ------------------------------------------------------------------------------ Accumulated postretirement benefit obligation: Retirees $21,330 $24,905 Fully eligible active plan participants 4,096 4,198 Other active participants 13,955 15,536 - ------------------------------------------------------------------------------ 39,381 44,639 Unrecognized gain 13,930 7,757 - ------------------------------------------------------------------------------ Accrued postretirement cost $53,311 $52,396 - ------------------------------------------------------------------------------
Net periodic postretirement benefit cost included the following:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 - ------------------------------------------------------------------------------ Service cost of benefits earned $ 954 $ 699 $ 935 Interest cost on accumulated postretirement benefit obligation 2,940 3,264 3,163 Amortization of unrecognized net gain (537) (613) (141) - ------------------------------------------------------------------------------ Net periodic postretirement benefit cost $3,357 $3,350 $3,957 - ------------------------------------------------------------------------------
For measuring the expected postretirement benefit obligation, an annual rate of increase in the per capita claims cost of 7.0% is assumed for 1996. This rate is assumed to decrease gradually to 5.5% by 1999 and remain at that level thereafter. The weighted average discount rate was 8.0% for 1996, 7.8% for 1995, and 9.5% for 1994. A one percentage point increase in the health care cost trend rate would result in a $4,949,000 increase in the accumulated postretirement benefit obligation as of December 31, 1996 and an increase of $567,000 in the aggregate service and interest cost components of the net periodic postretirement benefit cost for 1996. 18 14. TRANSLATION ADJUSTMENTS The Consolidated Statements of Cash Flows were affected by translation as follows:
- ------------------------------------------------------------------------------ (IN THOUSANDS) 1996 1995 1994 - ------------------------------------------------------------------------------ Change in cumulative translation adjustments $11,760 $(5,828) $ (9,350) Other noncurrent liabilities 568 (1,095) (2,117) Deferred taxes 271 (1,421) (51) Long-term debt (1,289) (565) (459) Investments in associated companies (537) 81 (278) Net fixed assets (6,146) 10,863 17,046 Other assets (1,076) (153) (61) - ------------------------------------------------------------------------------ Effect of exchange rate changes $ 3,551 $ 1,882 $ 4,730 - ------------------------------------------------------------------------------
Shareholders' equity was affected by translation as follows: decrease/(increase) from translation of non-U.S. financial statements of $6,354,000, $(462,000) and $(1,853,000); from remeasurement of loans of $4,932,000, $(7,379,000) and $(11,023,000) in 1996, 1995, and 1994, respectively; and by losses on designated hedges, net of tax, of $474,000, $2,013,000 and $3,526,000 in 1996, 1995 and 1994, respectively. In 1996, 1995 and 1994, net translation losses/ (gains) included in operations in Brazil were $233,000, $354,000 and $(532,000), respectively, and were included in cost of goods sold. 15. STOCK OPTIONS AND INCENTIVE PLANS During 1988 and during 1992, the shareholders approved stock option plans which each provide for granting of up to 2,000,000 shares of Class A Common Stock to key employees. Options are generally exercisable in five cumulative annual amounts beginning 12 months after date of grant. Option exercise prices are not less than the market value of the shares on the date of grant. Unexercised options generally terminate twenty years after date of grant for both the 1988 and 1992 plans. 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 and the risk of forfeiture of the non-vested portion if employment is terminated. The dividend yield was 1.8% for 1996 and 1995. The expected volatility was 24.6% in 1996 and 25.0% in 1995. The expected life of the options varies based on employee group and ranges from 9 to 20 years. The risk-free interest rate ranges from 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 1996, 1995 or 1994. Had compensation cost and fair value been determined pursuant to Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", net income would decrease from $47,385,000 to $46,590,000 in 1996 and from $43,050,000 to $42,725,000 in 1995. Primary earnings per share would decrease from $1.56 to $1.53 in 1996 and from $1.43 to $1.41 in 1995. Fully diluted earnings per share would decrease from $1.56 to $1.53 in 1996 and from $1.35 to $1.34 in 1995. The weighted average fair value of options granted during 1996 and 1995, for the purposes of FAS 123, is $10.34 and $9.88 per share, respectively. Activity with respect to these plans is as follows:
- ------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------ Shares under option at January 1 2,799,650 2,630,400 2,417,850 Options granted 415,250 436,250 244,500 Options cancelled 133,100 7,800 24,450 Options exercised 24,400 259,200 7,500 - ------------------------------------------------------------------------------ Shares under option at December 31 3,057,400 2,799,650 2,630,400 Options exercisable at December 31 2,068,750 1,896,050 1,837,700 Shares available for options 651,500 933,650 1,362,100 - ------------------------------------------------------------------------------ The weighted average exercise price is as follows: - ------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------ Shares under option at January 1 $17.38 $16.49 $16.32 Options granted 22.25 22.25 18.75 Options cancelled 18.78 17.72 17.21 Options exercised 16.49 17.00 16.75 Shares under option at December 31 18.00 17.38 16.49 Options exercisable at December 31 16.59 16.29 16.27 - ------------------------------------------------------------------------------
19 The following is a summary of the status of options outstanding at December 31, 1996:
- ------------------------------------------------------------------------------ Outstanding Options Exercisable Options -------------------------------- -------------------- Weighted Average Weighted Weighted Remaining Average Average Exercise Contractual Exercise Exercise Price Range Number Life Price Number Price - ------------------------------------------------------------------------------ $15.00 138,800 16.11 $15.00 88,800 $15.00 15.50 822,200 11.34 15.50 822,200 15.50 16.25 209,950 16.41 16.25 133,850 16.25 16.75 673,000 13.13 16.75 673,000 16.75 17.63-18.75 402,100 15.46 18.50 266,700 18.38 22.25 811,350 18.89 22.25 84,200 22.25 - ------------------------------------------------------------------------------
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 $1,523,000 in 1996, $1,240,000 in 1995, and $1,211,000 in 1994. The increase in cash value, net of premiums, was $751,000 in 1996, $654,000 in 1995, and $468,000 in 1994. 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 $3,129,000 in 1996, $2,906,000 in 1995, and $2,771,000 in 1994. In 1994, the Company adopted a profit-sharing plan covering substantially all employees in the United States. At the beginning of each year, the Board of Directors announces the formula that it expects to utilize in determining the amount of the profit-sharing contribution for that year. The profit-sharing contributions will only be made to current active participants in Prosperity Plus in the form of cash or the Company's Class A Common Stock. The expense recorded for this plan was $1,388,000 in 1996, $2,279,000 in 1995 and $1,161,000 in 1994. 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) 1996 1995 1994 - ------------------------------------------------------------------------------ Lease obligations $1,119 $1,693 $1,873 Termination costs -- 317 1,490 Asset write offs -- 275 1,087 - ------------------------------------------------------------------------------ $1,119 $2,285 $4,450 - ------------------------------------------------------------------------------
The decrease in accrued balances are the result of actual payments for terminations or incurred expenses and the disposal of written down equipment. 20 FINANCIAL REVIEW Review of Operations - --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%. In Europe, total production of paper and board in Western Europe fell in the first six months of 1996, but there is evidence of strengthening during the last six months of the year. 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 42.1% 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 currency transactions which resulted in $.9 million less income in 1996. Currency transaction income results from economic hedges which can have either a positive or negative effect on other expense/(income), net in any particular quarter. The specific hedges in place are changed from time to time depending on market conditions and cash flow forecasts of various non-U.S. operations and are intended to partially offset the effects of translation on operating income (see Notes 6 and 9 of Notes to Consolidated Financial Statements). 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 Door Systems, 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 will change from the Mexican peso to the U.S. dollar. Assuming no material devaluation in the peso against the U.S. dollar, management does not expect a significant impact on reported results. - --1995 VS. 1994 Net sales increased $85.1 million or 15.0% as compared with 1994. Net sales were increased by $8.1 million from the effect of a weaker U.S. dollar as compared to 1994. Excluding this effect, 1995 net sales increased 13.6% over 1994. Net sales in the United States increased 8.0% in 1995 as compared to 1994. In the U.S., the robust performance of all paper grades in 1995 was slowed in the fourth quarter due to papermakers' temporary shutdowns, particularly for containerboard inventory correction. Canadian sales increased 13.5% due in part to higher export sales to Asian markets. European sales increased 25.4% in 1995 as compared to 1994. Excluding the effect of the weaker U.S. dollar, net sales in Europe increased 11.9%. Sales in the Rest of World segment increased 11.9% as compared to 1994. The Company continued to gain market share in all product lines due to good customer acceptance and excellent performance of new products on all three sections of the paper machine. Price increases announced in December 1995 for the United States, Canada and selective European markets became effective during 1996. Gross profit continued to improve and was 41.8% of net sales in 1995 as compared to 40.3% in 1994. Variable costs as a percent of net sales increased 21 to 32.9% in 1995 from 32.4% in 1994 due mainly to increased sales of product lines with higher cost to sales dollar ratios. Selling, technical, general and research expenses increased 11.1% in 1995 as compared to 1994. Excluding the effect of translation of non-U.S. currencies into U.S. dollars, these expenses would have increased 9.9%. Temporary increases associated with the introduction of new products, increased wages and benefit costs and higher sales commissions were the principal reasons for this increase. Operating income as a percent of net sales increased to 13.6% as compared to 11.1% in 1994. The decrease in other expense/(income), net as compared to 1994, was due to currency transactions which resulted in $5.9 million more income in 1995. The Company's effective tax rate for 1995 was 39% as compared to 43% for 1994. The 1994 rate included an accrual of net charges associated with prior years resulting from both U.S. and non-U.S. examinations. In May 1995, the Company acquired substantially all of the assets of Panyu South Fabrics Industrial Company, a manufacturer of paper machine clothing located in China, for approximately $7 million. In September 1995, the Company concluded the purchase of all of the outstanding capital stock and land and buildings used in the business of Technical Service Industries, a supplier of engineered fabrics to the nonwovens industry. The purchase price was approximately $10 million, with $.9 million paid at closing, $5.0 million paid January 1, 1996 and the balance deferred up to 10 years. In December 1995, the Company completed the acquisition of Kelley Door Systems for approximately $4 million. Kelley operations have been consolidated with the Company's Nomafa Door Division. All 1995 acquisitions were accounted for as purchases and, accordingly, the Company included the results of operations of the acquired entities in its financial statements as of the respective acquisition dates. Reported results were not significant. 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 1996 as compared to 1995 increased in the United States and Europe and remained flat in the other geographic areas (see Note 11 of Notes to Consolidated Financial Statements). Total operating income increased 7.2% as compared to 1995. Operating income as a percent of net sales for the United States was 16.2% in 1996, 16.0% in 1995 and 13.1% in 1994; and for Canada was 17.4% in 1996, 19.7% in 1995 and 12.8% in 1994; for Europe was 10.5% in 1996, 9.6% in 1995 and 7.9% in 1994; and for Rest of World was 12.6% in 1996, 13.0% in 1995 and 12.0% in 1994. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996 the Company's order backlog was $502.2 million, an increase of $10 million from the prior year-end. Although inventories, excluding the acquisition of Schieffer, increased $8.2 million during 1996, there was a decrease of $2.9 million in the fourth quarter, a significant improvement over the first nine month's performance. Excluding the acquisition of Schieffer, accounts receivable increased $3.3 million or 1.9% in 1996 while net sales increased 5.1%. Management expects improvements in working capital as a percentage of net sales in 1997. Cash flow provided from operating activities was $82.9 million in 1996 compared with $67.5 million in 1995 and $23.1 million in 1994. Capital expenditures were $53.5 million for 1996, $41.9 million for 1995 and $36.3 million for 1994. Capital expenditures in 1997 are expected to be about $60 million, which includes $14 million for plant construction in South Korea. The Company will continue to finance these expenditures with cash from operations and existing credit facilities. In February 1996, the Company amended its existing $150 million revolving credit agreement, with its principal banks in the United States, to increase the banks' commitment to $300 million with more favorable terms. 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 22 the Company to select from various loan pricing options. Management believes that the unused line, in combination with expected free cash flows, should be sufficient to meet operating requirements and for business opportunities and most acquisitions which support corporate strategies. Total debt decreased $8.0 million during 1996. The Company's current debt structure has resulted in lower interest expense and currently provides approximately $227 million in committed and available unused debt capacity with financial institutions. 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 $.10 per share were paid in each of the four quarters of 1996. 23 ELEVEN YEAR SUMMARY ALBANY INTERNATIONAL CORP.
- ------------------------------------------------------------------------------ 1996 1995 1994 1993 - ------------------------------------------------------------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY OF OPERATIONS Net sales $692,760 $652,645 $567,583 $546,120 Cost of goods sold 400,821 379,632 338,868 344,609 Operating income (1),(2),(7) 95,275 88,891 62,944 40,910 Interest expense, net 15,833 20,009 16,820 16,115 Income before income taxes 79,430 69,906 41,800 25,425 Income taxes 30,981 27,233 17,974 10,017 Income before associated companies 48,449 42,673 23,826 15,408 Net income/(loss) (3),(4),(6) 47,385 43,050 23,952 15,524 Per share: Primary 1.56 1.43 0.80 0.58 Fully diluted 1.56 1.35 0.80 0.58 Average number of shares outstanding 30,364 30,202 29,953 26,679 Capital expenditures 53,473 41,921 36,322 30,940 Dividends declared 12,159 11,708 10,488 9,361 Per Class A common share 0.40 0.3875 0.3500 0.3500 Per Class B common share 0.40 0.3875 0.3500 0.3500 FINANCIAL POSITION Current assets $377,410 $358,500 $314,176 $264,140 Current liabilities 173,096 123,883 112,777 97,930 Current ratio 2.2 2.9 2.8 2.7 Property, plant and equipment, net 339,461 342,150 320,719 302,829 Total assets 824,700 796,525 721,386 655,420 Long-term debt 187,100 245,265 232,767 208,620 Shareholders' equity 328,763 302,297 271,947 244,468 Per share 10.83 9.97 9.05 8.18 Total capital (5) 583,323 564,815 522,434 464,565 Total debt to total capital 43.6% 46.5% 47.9% 47.4% Return on shareholders' equity 14.4% 14.2% 8.8% 6.4% NUMBER OF EMPLOYEES 5,854 5,658 5,404 5,286
- ---------------------------------------- (1) The Company adopted Financial Accounting Standard (FAS) No. 87 "Employers' Accounting for Pensions", with respect to its U.S. retirement plans in December 1986 retroactive to January 1, 1986. The adoption of FAS 87 reduced pension cost for 1986 by $2,541,000. In 1989, the Company adopted the Standard for non-U.S. plans which reduced pension cost by $1,077,000. (2) Included in 1990 is a charge to income of $8,500,000 for an early retirement window and terminations which were part of a world wide cost containment program. (3) Included in 1987 is a charge to income for the difference between the amount accrued under Incentive Stock Unit (ISU) agreements and the appraised value of the 1,534,256 Class B common shares which were issued to the holders of the ISU's.The amount of this charge was $2,195,000. (4) In January 1989, the Company sold its property and facilities in Halmstad, Sweden for approximately $51,000,000 in cash and notes with a resulting net gain of approximately $23,000,000. 24
- ------------------------------------------------------------------------------ 1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------ $ 561,084 $ 557,218 $ 556,104 $ 505,474 $ 461,246 $ 402,203 $ 336,393 367,516 360,251 359,997 300,007 267,782 237,708 198,569 18,133 43,421 30,361 66,907 73,347 62,920 53,060 18,829 20,090 18,450 19,857 16,637 14,908 16,625 2,522 18,685 13,121 75,552 52,925 46,495 32,575 958 10,219 6,858 33,171 18,809 21,875 19,427 1,564 8,466 6,263 42,381 34,116 24,620 13,148 (3,585) 10,311 7,649 44,492 36,258 25,245 14,717 (0.14) 0.41 0.30 1.75 1.46 1.15 0.59 (0.14) 0.41 0.30 1.75 1.46 1.11 0.59 25,559 25,415 25,312 25,408 24,779 21,992 24,947 20,219 40,067 110,729 82,252 58,601 40,216 23,712 8,950 8,903 7,518 5,775 4,674 1,082 -- 0.3500 0.3500 0.3500 0.3125 0.2625 0.0625 -- 0.3500 0.3500 0.1313 -- -- -- -- $ 249,669 $ 253,924 $ 272,696 $ 242,518 $ 206,729 $ 177,421 $ 150,264 109,477 103,031 104,299 98,885 84,880 86,691 69,529 2.3 2.5 2.6 2.4 2.4 2.0 2.2 308,618 362,456 365,558 260,907 214,807 182,232 152,669 645,992 674,713 703,286 566,342 477,237 417,722 359,727 239,732 250,423 262,042 145,493 157,833 130,745 173,041 190,700 244,427 242,683 238,584 178,248 146,036 67,135 7.44 9.59 9.57 9.26 7.10 6.01 3.06 453,498 548,436 572,656 450,866 391,410 319,027 271,426 57.9% 48.4% 49.5% 38.9% 48.3% 47.7% 70.4% (1.9)% 4.2% 3.2% 21.3% 22.4% 23.7% 22.2% 5,678 5,726 6,144 6,090 5,659 5,244 5,122
(5) 1991 and prior includes all debt, deferred taxes and other credits and shareholders' equity. Following the adoption of FAS No. 109 "Accounting for Income Taxes" in 1992, total capital includes all debt and shareholders' equity. (6) In 1992, the Company elected to adopt FAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", effective January 1, 1992, and recognize the accumulated liability. This adoption resulted in a charge of $27,431,000, net of tax of $16,813,000, and a reduction of 1992 operating income of $2,798,000. The Company's election to adopt FAS No. 109, as of January 1, 1992, resulted in an increase to 1992 income of $20,142,000. During the fourth quarter of 1992, the Company elected an early payment of a $3,000,000 tax exempt financing for $1,357,000 which resulted in an extraordinary gain of $1,019,000, net of tax. (7) In 1992, the Company reported a charge of $12,045,000 for restructuring of certain operations, including plant closings in Norway and Germany and other workforce reductions. 25 QUARTERLY FINANCIAL DATA (unaudited)
- ------------------------------------------------------------------------------ (IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH - ------------------------------------------------------------------------------ 1996 - ------------------------------------------------------------------------------ Net sales $168.1 $172.1 $169.8 $ 182.8 Gross profit 69.8 72.4 71.8 77.9 Net income 7.9 12.1 12.3 15.1 Net income per share: Primary .26 .40 .41 .49 Fully diluted .26 .40 .41 .49 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 - ------------------------------------------------------------------------------ Net sales $154.1 $166.8 $162.0 $ 169.7 Gross profit 62.9 70.9 67.8 71.4 Net income 7.7 11.7 11.6 12.1 Net income per share: Primary .26 .38 .39 .40 Fully diluted .26 .36 .36 .37 Dividends per share .0875 .10 .10 .10 Class A Common Stock prices: High 19.625 23.875 26.50 23.625 Low 17.125 18.75 22.875 17.875 - ------------------------------------------------------------------------------ 1994 - ------------------------------------------------------------------------------ Net sales $131.4 $139.6 $145.2 $ 151.4 Gross profit 50.2 54.5 57.8 66.2 Net income 3.7 5.9 6.0 8.4 Net income per share: Primary .12 .20 .20 .28 Fully diluted .12 .20 .20 .26 Dividends per share .0875 .0875 .0875 .0875 Class A Common Stock prices: High 21.25 20.375 19.50 20.00 Low 18.00 17.75 16.125 16.25 - ------------------------------------------------------------------------------
STOCK AND SHAREHOLDERS The Company's Class A Common Stock is traded principally on the New York Stock Exchange. At December 31, 1996 there were approximately 5,800 shareholders. 26

EXHIBIT 21 SUBSIDIARIES OF REGISTRANT 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 B.V. 100 Netherlands Albany International B.V. 100 Netherlands Nordiskafilt Kabushiki Kaisha 100 Japan Albany International S.A. de C.V. 100 Mexico Martel Wire, S.A. de C.V. 100 Mexico Telas Industriales de Mexico, S.A. de C.V. 100 Mexico Albany Nordiskafilt AS 100 Norway Albany International Korea, Inc. 100 South Korea Albany International Korea, Inc. 100 South Korea Albany 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 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 23, 1997, on our audits of the consolidated financial statements and financial statements schedules of Albany International Corp. as of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995, and 1994, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Albany, New York March 14, 1997

EXHIBIT 24 POWERS OF ATTORNEY 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, Ervin D. Johnson and Thomas H. Hagoort, 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 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 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 30 day of December , 1996. /s/ J. Spencer Standish /s/ Francis L. McKone - ------------------------ --------------------------- J. Spencer Standish Francis L. McKone Chairman of the Board and Director President and Director (co-Principal Executive Officer) (co-Principal 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/ Stanley I. Landgraf /s/ Joseph G. Morone, Ph.D. - ----------------------- ---------------------------- Stanley I. Landgraf Joseph G. Morone, Ph.D. Director Director /s/ Allan Stenshamn /s/ Barbara P. Wright - ----------------------- ---------------------------- Allan Stenshamn Barbara P. Wright Director 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, 1996 And Is Qualified In Its Entirety By Reference To Such Financial Statements. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 8,034 0 184,478 4,962 172,981 377,410 641,695 302,234 824,700 173,096 187,100 0 0 31 328,732 824,700 692,760 692,760 400,821 596,449 12 1,036 15,833 79,430 30,981 48,681 0 (1,296) 0 47,385 1,56 1.56