machine
CLOTHING
2012 Annual Report & 10-K
engineered
COMPOSITES
albany
INTERNATIONAL
our investment proposition
A small cap with the cash generation potential of a value stock combined with
the revenue potential of a growth stock.
our strategy
Focus and lead. Focus on markets in which our core capabilities in advanced
textiles and materials provide the basis for sustainable advantage, and in those
markets, strive for total leadership – best products and services first to market,
with the highest quality and reliability, and at the lowest costs of operation possible.
our near-term objective
Execute. Maintain market leadership and financial performance in Machine Clothing.
Prepare for the ramp in AEC.
our long-term objective
Cash flow and grow. Year over year, steadily improving earnings coupled with a strong
balance sheet and excess cash flow.
Albany International is a global advanced textiles and materials processing
company, with two core businesses. Machine Clothing is the world’s leading producer
of custom-designed fabrics and belts essential to production in the paper, nonwovens,
and other process industries. Albany Engineered Composites is a rapidly growing
supplier of highly engineered composite parts for the aerospace industry. Albany
International is headquartered in Rochester, New Hampshire, operates 18 plants in
11 countries, employs 4,000 people worldwide, and is listed on the New York Stock
Exchange (Symbol AIN). Additional information about the Company and its products
and services can be found at www.albint.com.
financial
HIGHLIGHTS
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Net sales:
Machine Clothing
Engineered Composites
2012 Q1 2012 Q2 2012 Q3 2012 Q4
$164.3
15.8
$180.1
$177.1
14.8
$191.9
$177.5
17.1
$194.6
$174.3
20.0
$194.3
Operating income
Earnings per share - basic
Earnings per share - diluted
($ 0.9) ($ 86.0)
$ 19.7
1.50 (1.08) 0.30 0.27
1.49 (1.08) 0.30 0.26
$ 23.1
US $ million, except per share data
2010 2011 2012
Net sales
Gross profit
Operating income/(loss)
Net income
Earnings per share - basic
Earnings per share - diluted
$742.9 $787.3 $760.9
282.0
64.7
37.6
1.21
1.21
314.2
74.6
34.9
1.12
1.11
305.4
(44.1)
31.0
0.99
0.97
table of
CONTENTS
pg2
pg12
1. Financial Highlights 2. Letter to Shareholders 6. Machine Clothing
12. Engineered Composites 18. Global Locations 19. Form 10-K
pg18
pg6
1
letter to
SHAREHOLDERS
Joseph G. Morone
President & Chief Executive Officer
cash and
grow
(US$ million)
net sales
2010 2011
2012
742.9
787.3 760.9
Albany International saw another strong year in 2012.
market leader, with twice the market share of the
Despite a particularly challenging environment in
next largest competitor, a significant price premium
Europe, and a disappointingly slow start to the year,
in most markets, a broad and deep product portfolio
adjusted EBITDA grew almost 3 percent, both
and technology pipeline, a global manufacturing
businesses performed well, and the balance sheet
footprint with world-class capacity in the geographic
strengthened dramatically, with net debt declining
segments that are growing (Asia and South America),
to $129 million from $256 million at the end of 2011,
and disproportionate strength in the product
and unfunded pension liabilities to $45 million from
segments that are growing (tissue, packaging, pulp,
$101 million.
and nonwovens). For all of these reasons, we view
Machine Clothing as a long-term core business
In many respects, the short-term performance of
with potential for strong margins and steady
our two businesses in 2012 mirrored their long-term
adjusted EBITDA and cash generation, but at
potential. As I have written before and discussed
continuing risk of little or negative sales growth,
with many of you at investor conferences, while
due mainly to downward pressure on revenue in
the market for Machine Clothing offers little if any
Europe as the result of overcapacity in the paper
potential for growth, Albany is the industry’s clear
and machine clothing industries.
2
. . . I do not foresee any significant changes to
the objectives or strategy that we pursued in
2012. We are confident that the optimal path
to creation of shareholder value is to
stay the course in 2013 and beyond.
adjusted EBITDA*
long-term debt
2010 2011 2012
2010 2011 2012
115.5 141.3 145.4
423.6 373.1 235.9
All of these long-term attributes were on display in
For Albany Engineered Composites, 2012 was all
2012. Sales, adjusted EBITDA, and cash generation
about building capacity for rapid future growth.
were steady around the world except for Europe,
AEC revenue grew from $48 million in 2011 to
which, for all the familiar reasons, ended the year
$68 million in 2012. Half of this total revenue and
with sales 15 percent lower than 2011. Global
virtually all of the growth were associated with
market share grew; market share among the
development of new opportunities. Development
leading papermakers in each region of the world
activities associated with the LEAP fan module
held steady or improved; the R&D and product
accounted for a third of total 2012 revenue, and
pipeline strengthened and then was further
two-thirds of the growth.
enhanced with our decision late in the year to
invest $15 million in a rapid scale-up facility for
One of the highlights of this accelerating
new technology in our plant in Kaukauna,
development effort was the launch of construction
Wisconsin; and Albany was again selected by
of two manufacturing facilities for the production
Procter & Gamble as one of its top eight suppliers,
of parts for the LEAP engine. Plant 1, which is
out of a base of some 75,000 suppliers.
located in Rochester, New Hampshire, is scheduled
* EBITDA from continuing operations, excluding restructuring charges, revaluation effects, pension settlement charges, and gains from
building sales.
3
Our objective in AEC is to establish Albany as
the leading Tier 2 supplier of highly engineered
composites to the aerospace industry, and to realize
its growth potential of $300 million to $500 million
in revenue by 2020.
for start-up in the fourth quarter of 2013; start-up of
Outlook
Plant 2, in Commercy, France, is scheduled for 2014.
As I write this letter in March 2013, I do not foresee
Other highlights included production of LEAP parts
any significant changes to the objectives or strategy
for testing by Safran; continued maturation of the
that we pursued in 2012. We are confident that the
production process for the LEAP program; continued
optimal path to creation of shareholder value is to
development of the AEC organization, processes,
stay the course in 2013 and beyond. For the
and systems; great success in hiring new staff,
foreseeable future:
particularly in manufacturing and engineering; the
completion of a 45,000-square-foot R&D rapid
• Our objective in Machine Clothing is stable adjusted
prototyping facility; and the further advancement
EBITDA, year over year; our strategy combines (a)
and expansion of the portfolio of new business
a continued focus on and investment in differentiating
opportunities beyond the four parts currently being
ourselves through superior products and field
developed for the LEAP fan module. The most
service with the leading papermakers in the growing
promising of these opportunities are several potential
product segments and regions around the world,
additional parts for subsequent versions of the LEAP
and (b) continued efforts to match capacity to
engine, extrapolations of the LEAP fan module to
demand around the world and to steadily and
larger and smaller engine configurations, the ceramic
incrementally enhance productivity.
matrix composite engine exhaust nozzle for Boeing,
and a number of other airframe applications.
• Our objective in AEC is to establish Albany as
the leading Tier 2 supplier of highly engineered
composites to the aerospace industry, and to
realize its growth potential of $300 million to
4
U.S. Vice President Joe Biden listens as Albany President & CEO Joe Morone explains the benefits of the company’s
composite technology. Also pictured (left to right) are AEC Senior Vice President Brian Coffenberry, former New
Hampshire Governor John Lynch, Great Bay Community College President Will Arvelo, and Safran Group Chairman
& CEO Jean-Paul Herteman.
$500 million in revenue by 2020; our strategy is
equally intense process of preparing for a ramp
to (a) continue to build the organization, talent,
up of a new technology at a pace and scale never
systems, and processes required to ramp up
experienced in the history of commercial aviation.
production of parts for the LEAP engine on time,
During 2012, we managed to meet both challenges,
with high yield and healthy margins, and (b)
while further strengthening our balance sheet. I am
continue to expand the pipeline of growth
hopeful that we will continue to do so in the months
opportunities beyond the first wave of parts
and years ahead.
for the LEAP engine.
My optimism is grounded in a simple reality, which
• In pursuing these two sets of objectives, we
was in full view in 2012: This Company comprises
intend to utilize our strong balance sheet and
an outstanding group of professionals. To my 4,000
cash flow to take full advantage of the organic
colleagues around the world, many of whom are
growth opportunities in AEC, sustain our global
themselves shareholders, thank you for your fine
product leadership in Machine Clothing, and
efforts, year in and year out, on behalf of your
continue to return capital to our shareholders
fellow shareholders.
in the form of incrementally growing dividends.
Each of our two businesses faces its own unique
set of challenges and risks; for the one, it is the
never-ending journey of extending market leader-
ship and preserving margins in a mature industry
with downward price pressure; for the other, it is the
Joseph G. Morone
President & Chief Executive Officer
5
machine
CLOTHING
The global paper industry is forecast to grow over the next five years in South America and Asia and in the
packaging and tissue grades, locations and segments where Albany International is well positioned. Brazilian
papermaker Santher produces 170,000 tons of tissue a year, which ranks it among the world’s 15 top global tissue
6
companies. The company works with Albany Brazil to achieve its aim of excellence in its products and processes.
Santher’s PM-12 in Bragança Paulista, shown here, produces 28,000 tons of tissue per year.
7
The Machine Clothing segment includes
two product families of solution-focused,
custom-designed fabrics and belts:
Paper Machine Clothing (PMC) and
Engineered Fabrics.
Albany International is the world’s leading
producer of PMC, which is critical for the
formation and transport of the paper sheet
through the paper machine. Although PMC
represents a small portion (approximately
two percent) of the total cost to manufacture
paper, paperboard, pulp, or tissue, it can
have a significant impact on the quality of
the paper, the efficiency of a machine, and
machine production rates.
Today’s world-class paper machine is more
than ten meters wide and is capable of
machine
CLOTHING
Albany customer Propapier PM2 in Eisenhϋttenstadt, Germany, has
set three 24-hour world speed records since its March 2010 start-up,
becoming the first containerboard machine to break the 100 km/h
milestone. PM2 produces lightweight and ultralightweight container-
Our value commitment
Albany’s market share with the world’s top
papermakers in every major region of the world
strengthened or held in 2012. The foundation
of that success is our Value Commitment to our
customers: innovative product technology with
highest quality; consistent delivery, planning, and
customer service; and our teams of application
and field resources that deliver solutions to meet
and exceed customers’ expectations.
Investing in New Technology
Extending our technology leadership is at the
forefront of Albany’s Value Commitment. Dur-
ing the last several years, while we continued to
introduce a steady stream of new products and
enhancements, we have been developing an
entirely new, proprietary technology platform that
offers the potential for an array of new products
across all of our product segments. In 2013, we
8
Albany’s Total Clothing Management (TCM) is a
component of our Value Commitment focused on
helping our customers choose, utilize, and maintain
paper machine clothing to optimize productivity and
efficiency. In the five-part TCM seminar, we share best
practices for enhanced paper machine performance
and reduced energy consumption.
speeds in excess of 1,900 meters per
minute. This demanding papermaking
environment requires the precise design
and application of PMC to create sustainable
solutions. Albany’s paper machine clothing
is custom-engineered to meet each
unique specification required by our
global customers.
We are also a leading supplier of
Engineered Fabrics. These products are
utilized in a range of process industries
other than papermaking including non-
wovens (such as diapers and personal
care and household wipes), fiber cement
and other building products, boxboard,
and the tannery and textile industries.
board using waste paper as a raw material. Industry expert RISI, Inc.
has forecast significant growth in the packaging grade over the next
From PDF
five years.
(Photo: Knut Leeder; Propapier Eisenhüttenstadt Germany)
will begin construction of a $15 million facility
capable of producing full-scale prototypes of new
products based on this new technology platform at
our plant in Kaukauna, Wisconsin. This investment
will enable us to accelerate the cycle of explora-
tion, development, scale-up, testing, and market
introduction of this new generation of products.
On the Front Lines
Albany’s Process Analysis Group (PAG) is a
global team of papermaking specialists and
technical experts that works closely with our
customers to optimize their operations. The
PAG utilizes a wide range of diagnostic tools
focused on energy optimization, variability
reduction, improved efficiency, and continuous
improvement. From Total Solution Projects—
a two-week to two-month intensive process—to
energy audits, from Six Sigma analysis to crew
training, the Process Analysis Group helps our
customers reduce their total cost of operations
and improve paper quality.
Business partner
of the year
In 2012, Procter & Gamble Company (P&G)
recognized Albany International Corp. as a
“Business Partner of the Year,” a testament
to the commitment of the entire Albany team
to help our customers achieve business
excellence.
Of P&G’s more than 75,000 suppliers and
agencies, only eight received this highest honor, with
Albany International achieving this recognition for the
second consecutive year. In addition, the Company has
received four consecutive Excellence Awards from P&G.
Albany International is an exclusive supplier to a propri-
etary P&G process related to the production of the P&G
Charmin®, Bounty®, and Puff’s® brands.
9
our products &
PAPERMAKING
Forming
Pressing
A sheet of paper begins in the
forming section, where a mix-
ture of 99% water and 1%
cellulose fiber is introduced
evenly across a forming fabric,
which acts as both a sheet
conveyor and a dewatering
device. It is here that the paper
sheet is formed and the initial
water removal occurs.
As the fabric moves, water
drains through it, while the
fibers and fillers that form the
sheet remain on top. Today,
forming fabrics have an
average operating life of 45 to
60 days. Multilayer technology
offered by Albany International
is the standard today on
world-class high-speed
machines.
In the press section, additional
water is mechanically removed
from the newly formed sheet.
In the simplest press, the
sheet is carried continuously
by a large press fabric be-
tween two rolls, where water
is squeezed out of the sheet
at high pressure. Average
operating life of a press fabric
is 40 to 50 days.
Albany International’s innova-
tion in seam fabrics, multiaxial
constructions, and advanced
materials provides exceptional
benefits for our customers.
10
Drying
Process Belts
In the dryer section, the paper
sheet travels around large-
diameter heated cylinders,
where the balance of the water
is removed by evaporation.
Dryer fabrics hold the sheet
tightly in contact with the cylin-
ders through the dryer section.
Constructed of monofilaments,
dryer fabrics must be heat re-
sistant, rugged, and designed
for both drying efficiency and
runnability. Dryer fabrics last
much longer than forming and
pressing fabrics—from 6 to
18 months. Albany Interna-
tional leads the industry in the
design and application of dryer
products, including the pin
seam, active air handling, and
heat-resistant fabrics.
In the press section of to-
day’s new and rebuilt paper
machines, a shoe press has
replaced the conventional
press. The shoe press increas-
es dryness and enhances
sheet properties by lengthen-
ing the time the sheet is under
pressure. In response to the
demand for improved water
removal at higher speeds,
Albany International devel-
oped the first shoe press belt,
a grooved belt that provides
maximum water removal, and
a product to overcome the
problem of sheet handling in
open draws.
Additional new belt products
have been developed with
machine builders to produce
better sheet surface charac-
teristics.
11
engineered
COMPOSITES
AEC’s unique 3D composite technology enables our customers to replace metallic components with high-
strength composites that are significantly lower weight and thus more fuel efficient than metals, while also
more damage tolerant and durable than conventional 2D composites.
12
Our new 45,000-square-foot Research & Technology Center extends our ability to advance new technologies and
products from concept to production with capabilities that include, among others, internally developed analytical
design, simulation, and product evaluation tools, shown in use here with a LEAP fan blade.
13
Albany Engineered Composites
(AEC) designs, develops, and
manufactures advanced composite
components using innovative
technologies that leverage 50+
years of engineered textiles,
advanced materials, and process
automation experience from Albany’s
Machine Clothing business.
Our customers are able to replace
metallic components with high-
strength, lightweight components
that can significantly improve fuel
efficiency, among other benefits.
AEC’s most significant growth
opportunities are in the aerospace
industry, where our customers
include OEMs, prime contractors,
and T1 suppliers.
engineered
COMPOSITES
An operator monitors processes on automated weaving system
during LEAP fan case production.
LEAP:
Next-Generation Engine
for Single-Aisle Aircraft
The most prominent example of these
opportunities is the family of advanced
composite parts for CFM’s LEAP engine,
including fan blades and fan case. (CFM
International is a 50/50 joint venture between
Snecma (Safran Group) and GE.) The LEAP
is expected to improve fuel efficiency by 15%,
with an equivalent reduction in CO2 emissions
compared to the current generation of engines;
CFM estimates that the use of AEC composites
on the LEAP engine will reduce the weight of
each plane by as much as 1,000 pounds.
14
©CFM
The LEAP engine program currently anticipates annual production rates
of approximately 1600 engines by the end of the decade, for which AEC
would be delivering approximately 100,000 parts per year.
Upper photo: New LEAP production facility under construction in Rochester,
New Hampshire. Lower photo: Architects’ rendering of new LEAP facility
under construction in Commercy, France. Far right photo: An engineer
inspects molded fan blade surface during the production process.
Since 2006, AEC has had an exclusive relationship with
Safran Group to develop and manufacture compo-
nents for the LEAP engine and other platforms.
The LEAP program currently anticipates annual
production rates of approximately 1,600 engines
by the end of the decade, for which AEC would
be delivering approximately 100,000 parts per
year. AEC is also working with Safran on the
development of new composite products for
future upgrades to the LEAP engine.
The LEAP engine is scheduled to enter into service in
2016. Two new plants to support LEAP production are under
construction: a 353,000-square-foot facility in Rochester, New
Hampshire, and its sister operation in Commercy, France, at
approximately 250,000 square feet.
The Rochester plant is scheduled for completion in mid-2013,
with Commercy in 2014. AEC will be co-located in these facilities
with Safran Aerospace Composites.
Fan case and fan blade
manufactured by AEC for
CFM’s LEAP engine.
15
©Boeing
From Concept to Production
AEC began joint development with
Snecma (Safran Group) of the
composite components for the
fan module of what is now
the LEAP engine more
than a decade ago and
early in the product
development cycle.
This joint develop-
ment effort illustrates
AEC’s capabilities
in rapid concept
development, product
evaluation, and analytical
design and simulation.
engineered
COMPOSITES
Design and simulation tools are used to program complex
weave architectures on looms, while tools such as microCT
are used to evaluate products in development nondestructively
and enable engineers to further refine designs.
Current
development
programs
Another example of partnering early
in development is AEC’s work with
Boeing’s Continuous Lower Energy
Emissions Noise (CLEEN) program.
One of the emerging technologies
to be flight-tested by Boeing is
a ceramic matrix composite
acoustic engine nozzle
(shown at right) that offers
the potential for lower weight,
longer life, and greater noise
abatement than current
metallic engine nozzles.
16
©Boeing
AEC’s new 45,000-square-foot
Research & Technology (R&T) Center
in Rochester extends these develop-
ment capabilities by providing a fully
dedicated facility for rapid prototype
and new technology development.
The new R&T Center is equipped with a broad array of composite
fabrication technologies.
AEC was selected by Boeing as the supplier of a ceramic matrix
composite substrate for the new engine nozzle concept. The nozzle
underwent ground tests on a full-scale engine during Q1 2013, and
flight tests are scheduled for later this year.
A third notable example is our work with Snecma on their open
rotor engine concept, developed as part of the Clean Sky Joint
Technology Initiative, a public-private partnership between the
European Commission and industry aimed at noise reduction
and increased fuel efficiency for aircraft and aircraft engines.
The photographs at right illustrate the size of the larger
open rotor blade compared to the LEAP fan blade, along
with an image of the open rotor engine assembly.
©Snecma
17
our global
LOCATIONS
Corporate
Rochester, New Hampshire, USA (Headquarters)
Albany, New York, USA
Research and Development Center
Halmstad, Sweden
Menasha, Wisconsin, USA
Sélestat, France
Albany Engineered Composites
Boerne, Texas, USA
Commercy, France (under construction)
Rochester, New Hampshire, USA (Headquarters)
Machine Clothing
Ballò di Mirano (VE), Italy
Bury, Lancashire, England
Chungju, South Korea
Cowansville, Québec, Canada
Cuautitlán, Mexico
Ettalong Beach, Australia
Göppingen, Germany
Halmstad, Sweden
Hangzhou, China
Helsinki, Finland
Homer, New York, USA
Indaial, Brazil
Jakarta, Indonesia
Kaukauna, Wisconsin, USA
Menasha, Wisconsin, USA
Neuhausen, Switzerland (Headquarters)
Panyu, China
Perth, Ontario, Canada
St. Junien, France
St. Stephen, South Carolina, USA
Sapporo, Japan
Sélestat, France
Westville, South Africa
18
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:55) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2012
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 1-10026
ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
216 Airport Drive, Rochester, New Hampshire
(Address of principal executive offices)
14-0462060
(IRS Employer
Identification No.)
03867
(Zip Code)
Registrant’s telephone number, including area code 603-330-5850
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock ($0.001 par value)
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:55) No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:55)
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 (cid:55) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:55) No (cid:133)
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. (cid:133)
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small
reporting company.
Large accelerated filer (cid:55)
Non-accelerated filer(cid:133)
Accelerated filer (cid:133)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:55)
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 29, 2012, the last business day of
the registrant’s most recently completed second quarter, computed by reference to the price at which Common Stock was last sold on such
a date, was $520.8 million.
The registrant had 28.2 million shares of Class A Common Stock and 3.2 million shares of Class B Common Stock outstanding as
of December 31, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 17, 2013
PART
III
19
TABLE OF CONTENTS
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.
22
27
33
33
33
35
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
37
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
58
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . 102
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . 106
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
PART IV
20
Forward-Looking Statements
This annual report and the documents incorporated or deemed to be incorporated by reference in this
annual report contain statements concerning future results and performance and other matters that are “forward-
looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,”
“estimate,”, “plan,” “project,” “may”, “will,” “should,” and variations of such words or similar expressions are
intended, but are not the exclusive means, to identify forward-looking statements. Because forward-looking
statements are subject to risks and uncertainties, actual results may differ materially from those expressed or
implied by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors that could cause actual results to
differ materially from the forward-looking statements, including, but not limited to:
• Conditions in the industries in which our Machine Clothing segment competes, including the paper
industry, along with general risks associated with economic downturns;
• Failure to remain competitive in the industries in which our Machine Clothing segment competes;
• Failure to have achieve or maintain anticipated profitable growth in our Engineered Composites segment;
and
• Other risks and uncertainties detailed in this report.
Further information concerning important factors that could cause actual events or results to be materially
different from the forward-looking statements can be found in Item 1A — “Risk Factors”, as well as in the
“Outlook” and “Business Environment and Trends” sections in the business segment discussions in Item 7 of
this annual report. Statements expressing our assessments of the growth potential of the Engineered Composites
segment are not intended as forecasts of actual future growth, and should not be relied on as such. While we
believe such assessments to have a reasonable basis, such assessments are, by their nature, inherently uncertain.
This report sets forth a number of assumptions regarding these assessments, including projected timing and
volume of demand for aircraft and for LEAP aircraft engines. Such assumptions could prove incorrect. Although
we believe the expectations reflected in our forward-looking statements are based on reasonable assumptions, it
is not possible to foresee or identify all factors that could have a material and negative impact on our future
performance. The forward-looking statements included or incorporated by reference in this annual report are
made on the basis of our assumptions and analyses, as of the time the statements are made, in light of our
experience and perception of historical conditions, expected future developments, and other factors believed to
be appropriate under the circumstances.
Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statement contained or incorporated by
reference in this annual report to reflect any change in our expectations with regard thereto or any change in
events, conditions, or circumstances on which any such statement is based.
21
PART I
Item 1.
BUSINESS
Albany International Corp. (the Registrant, the Company, we, us, or our) and its subsidiaries are engaged in
two business segments.
The Machine Clothing segment includes paper machine clothing — engineered fabrics and belts used in the
manufacture of paper and paperboard — as well as engineered fabrics and belts used in many other industrial
applications.
We design, manufacture, and market paper machine clothing for each section of the paper machine. We
manufacture and sell more paper machine clothing worldwide than any other company. Paper machine clothing
consists of large permeable and non-permeable 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 products are consumable products of technologically sophisticated
design that utilize polymeric materials in a complex structure. 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. Principal products in the paper machine clothing segment include
forming, pressing, and dryer fabrics, and process belts. A forming fabric assists in paper sheet formation and
conveys the very wet sheet (more than 75% water) through the forming section. Press fabrics are designed to
carry the sheet through the press section, where water is pressed from the sheet as it passes through the press
nip. In the dryer section, dryer fabrics manage air movement and hold the sheet against heated cylinders to
enhance drying. Process belts are used in the press section to increase dryness and enhance sheet properties, as
well as in other sections of the machine to improve runnability and enhance sheet qualities.
The Machine Clothing segment also supplies consumable fabrics used to process paper pulp, as well as
engineered fabrics used in a range of industries other than papermaking. These other products include belts used
to make nonwovens, fiber cement building products, roofing shingles, and corrugated sheets used in boxboard,
as well as belts used in tannery and textile applications.
We sell our Machine Clothing products directly to customer end-users, which include paper industry
companies, nonwovens manufacturers, and building products companies, some of which operate in multiple
regions of the world. Our products, manufacturing processes, and distribution channels for Machine Clothing are
substantially the same in each region of the world in which we operate. The sales of forming, pressing, and dryer
fabrics, individually and in the aggregate, accounted for more than 10% of our consolidated net sales during one
year or more of the last three years.
The Engineered Composites segment (AEC) provides custom-designed advanced composite structures
based on proprietary technology to customers in the aerospace and defense industries. AEC’s largest current
development program relates to the LEAP engine being developed by CFM International. Under this program,
AEC is developing a family of composite parts, including fan blades, to be incorporated into the LEAP engine
under a long-term supply contract. In 2012, approximately 25% of this segment’s sales were related to U.S.
government contracts or programs.
See “Business Environment and Trends” under Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, for a discussion of general segment developments in recent years.
Following is a table of net sales by segment for 2012, 2011, and 2010.
(in thousands)
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
2011
___________________
$739,211
48,076
_______________
$787,287
_______________
_______________
2010
___________________
$701,020
41,867
_______________
$742,887
_______________
_______________
The table setting forth certain sales, operating income, and balance sheet data that appears in Note 3,
“Reportable Segments and Geographic Data,” of the Financial Statements, included under Item 8 of this
Form 10-K, is incorporated herein.
22
International Operations
We maintain manufacturing facilities in Brazil, Canada, China, France, Germany, Italy, Mexico, South
Korea, Sweden, the United Kingdom, and the United States. We also have a 50% interest in a company in Russia
(see Note 1 of Notes to Consolidated Financial Statements).
Our geographically diversified operations allow us to serve our markets efficiently and to provide extensive
technical services to our customers. We benefit from the transfer of research and development and product
innovations between geographic regions. The worldwide scope of our manufacturing and marketing efforts helps
to mitigate the impact of economic downturns that are limited to a geographic region.
Our global presence subjects us to certain risks, including controls on foreign exchange and the repatriation
of funds. We have a cash repatriation strategy that targets a certain amount of foreign current year earnings that
are not permanently reinvested. To date, we have been able to make such repatriations without substantial
governmental restrictions and do not foresee any material changes in our ability to continue to do so in the
future. In addition, we believe that the risks associated with our operations outside the United States are no
greater than those normally associated with doing business in those locations.
Technology, Working Capital, Customers, Seasonality, and Backlog
Machine Clothing is custom-designed for each user, depending on the type, size, and speed of the machine,
and the products being produced. Product design is also a function of the machine section, the grade of product
being produced, and the quality of the stock used. Technical expertise, judgment, and experience are critical in
designing the appropriate clothing for machine, position, and application. As a result, we employ highly skilled
sales and technical service personnel who work directly with each customer’s plant operating management. Our
technical service programs give our service engineers field access to the measurement and analysis equipment
needed for troubleshooting and application engineering in many areas. Sales, service, and technical expenses are
major cost components of the Company. Many employees in sales and technical functions have engineering
degrees, paper mill experience, or other manufacturing experience in the markets in which they operate. Our
market leadership position reflects our commitment to technological innovation.
Payment terms granted to paper industry and other machine clothing customers reflect general competitive
practices. Terms vary with product, competitive conditions, and the country of operation. In some markets,
customer agreements require us to maintain significant amounts of finished goods inventories to assure
continuous availability of our products.
In addition to supplying paper companies, the Machine Clothing segment is a leading supplier to the
nonwovens industry (which includes the manufacture of products such as diapers, personal care and household
wipes, and fiberglass-reinforced roofing shingles), the wood and cement-based building products industry, and
the pulp industry. These non-paper industries have a wide range of customers, with markets that vary from
industrial applications to consumer use.
Albany Engineered Composites primarily serves customers in commercial and military aircraft engine and
airframe markets. Sales and Accounts receivable rose sharply in 2012. Additionally, we anticipate intensive
growth in the future which could lead to further increases in working capital levels.
In the Machine Clothing segment, we typically experience lower sales in the first quarter of the year, as a
result of seasonal downtime taken by customers in the fourth quarter of the year. Seasonality is not a significant
factor in the Engineered Composites segment.
Backlog in the Machine Clothing segment was $267.8 million at December 31, 2012, compared to
$342.9 million at December 31, 2011. The decrease reflects market weakness in Europe and, additionally,
shorter order-to-delivery times. Backlog in the Engineered Composites segment was $33.2 million at
December 31, 2012 compared to $28.8 million at December 31, 2011. The backlog is generally expected to be
invoiced during the next 12 months.
23
Research and Development
We invest in research, new product development, and technical analysis with the objective of maintaining
our technological leadership in each business segment. While much research activity supports existing products,
we also engage in research for new products and product enhancements. New product research has focused
primarily on more sophisticated paper machine clothing and engineered fabrics and has resulted in a stream of
new products and enhancements such as HYDROCROSS, AEROPOINT, SEAM HYDROCROSS,
AEROPULSE, SEAMPLANE, KMX, and EVM BELTS.
Product engineering and research and development expenses totaled $28.5 million in 2012, $31.1 million
in 2011, and $29.3 million in 2010. In 2012, these costs were 3.75% of total company net sales, including
$8.0 million or 11.9% of net sales spent in our AEC segment.
We conduct our major research and development in Halmstad, Sweden; Manchester, England; Menasha,
Wisconsin and Rochester, New Hampshire. Additionally, we conduct process and product design development
activities at locations in Quebec, Canada; Menasha, Wisconsin; and St. Stephen, South Carolina.
We have developed, and continue to develop, proprietary intellectual property germane to the industries we
serve. Our intellectual property takes many forms, including patents, trademarks and domains, and trade secrets.
Our trade secrets include, among other things, manufacturing know-how and unique processes and equipment.
Because intellectual property in the form of patents is published, we often forgo patent protection and preserve
the intellectual property as trade secrets. We aggressively protect our proprietary intellectual property, pursuing
patent protection when appropriate. Our active portfolio currently contains well over 2,100 patents, and more
than 300 new patents are typically granted each year. While we consider our total portfolio of intellectual
property, including our patents, to be an important competitive advantage, we do not believe that any single
patent is critical to the continuation of our business. All brand names and product names are trade names of
Albany International Corp. or its subsidiaries. We have from time to time licensed some of our patents and/or
know-how to one or more competitors, and have been licensed under some competitors’ patents, in each case
mainly to enhance customer acceptance of new products. The revenue from such licenses is less than 1% of
consolidated net sales.
The Engineered Composites segment participates in both Company-sponsored and customer-funded
research and development. Some customer-funded research and development may be on a cost-sharing basis, in
which case amounts charged to the customer are credited against research and development expense. Expenses
were reduced by $0.8 million in 2012 and $0.3 million in 2011 as a result of such arrangements. For customer-
funded research and development in which we anticipate funding to exceed expenses, we include amounts
charged to the customer in net sales. Through 2012, revenue earned under these arrangements has been
insignificant.
Raw Materials
Primary raw materials for our Machine Clothing Products are polymer monofilaments and fibers, which
have generally been available from a number of suppliers. Therefore, we have not needed to maintain raw
material inventories in excess of our current needs to assure availability. In addition, we manufacture polymer
monofilaments, a basic raw material for all types of Machine Clothing, at our facility in Homer, New York,
which supplies approximately 50% of our worldwide monofilament requirements. This manufacturing enhances
our ability to develop proprietary products and helps balance the total supply requirements for monofilaments.
Polymer monofilaments are petroleum-based products and are therefore sensitive to changes in the price of
petroleum and petroleum intermediates. Carbon fiber and other raw materials used by AEC are available from a
number of suppliers, subject to material qualification requirements for specific customer programs.
Competition
The industries in which our Machine Clothing segment competes include several companies that compete
in all global markets, along with other companies that compete primarily on a regional basis. In the paper
machine clothing market, we believe that we had a worldwide market share of approximately 30% in 2012,
while the two largest competitors each had a market share of approximately half of ours.
24
While some competitors in the Machine Clothing segment tend to compete more on the basis of price, and
others attempt to compete more on the basis of technology, both are significant competitive factors in this
industry. Some of the Company’s paper machine clothing competitors also supply paper machines and
papermaking equipment, and endeavor to compete by bundling clothing and equipment sales. We, like our
competitors, provide technical support to customers through our sales and technical service personnel, including
(1) consulting on performance of the machine, (2) consulting on machine configurations, both new and rebuilt,
(3) selection and custom manufacture of the appropriate machine clothing, and (4) storing fabrics for delivery to
the user. Revenues earned from these services are reflected in the prices charged for our products.
The primary competitive factor in the markets in which our Albany Engineered Composites segment
competes is product performance. Achieving lower weight without sacrificing strength is the key to improving
fuel efficiency, and is a critical performance requirement in the aerospace industry. Our unique, proprietary
capabilities in composites enable us to offer customers the opportunity to displace metal components and, in
some cases, conventional composites with lower-weight, high-strength, and potentially high-temperature
composites. The dominant competitive factor is how the customer weighs these performance benefits, which
include fuel savings due to lower weight, against the possible cost advantage of more traditional metal and
composite components.
Employees
We employ approximately 4,000 persons, of whom 69% are engaged in manufacturing our products. Wages
and benefits are competitive with those of other manufacturers in the geographic areas in which our facilities are
located. In general, we consider our relations with employees to be excellent.
We have two employees in Menands, New York that are subject to collective bargaining agreements that
will remain in effect until mid-2013. A number of hourly employees outside of the United States are also
members of various unions.
Executive Officers of the Registrant
The following table sets forth certain information with respect to the executive officers of the Company as
of March 1, 2013:
Name
____________________________________________________________________
Joseph G. Morone . . . . . . . . . . . .
John B. Cozzolino . . . . . . . . . . . .
Ralph M. Polumbo . . . . . . . . . . .
Age
________
59
46
61
Daniel A. Halftermeyer . . . . . . . .
Robert A. Hansen . . . . . . . . . . . .
David M. Pawlick . . . . . . . . . . . .
Charles J. Silva, Jr. . . . . . . . . . . .
Dawne H. Wimbrow . . . . . . . . . .
Joseph M. Gaug . . . . . . . . . . . . .
51
55
51
53
55
49
Position
_____________________________________________________________________________________________________________________
President and Chief Executive Officer
Chief Financial Officer and Treasurer
Senior Vice President — Chief Operating Officer,
Albany Engineered Composites
President — Machine Clothing
Senior Vice President and Chief Technology Officer
Vice President — Controller
Vice President — General Counsel and Secretary
Vice President — Global Information Services and Chief
Information Officer
Associate General Counsel and Assistant Secretary
Joseph G. Morone joined the Company in 2005. He has served the Company as President and Chief
Executive Officer since January 1, 2006, and President since August 1, 2005. He has been a director of the
Company since 1996. From 1997 to July 2005, he served as President of Bentley University in Waltham,
Massachusetts. Prior to joining Bentley, he served as the Dean of the Lally School of Management and
Technology at Rensselaer Polytechnic Institute, where he also held the Andersen Consulting Professorship of
Management. He currently serves as the Presiding Director of Transworld Entertainment Corporation.
John B. Cozzolino joined the Company in 1994. He has served the Company as Chief Financial Officer and
Treasurer since February 2011. From September 2010 to February 2011, he served as Vice President —
Corporate Treasurer and Strategic Planning/Acting Chief Financial Officer, from February 2009 to September
25
2010, he served as Vice President — Corporate Treasurer and Strategic Planning, and from 2007 to February
2009, he served the Company as Vice President — Strategic Planning. From 2000 until 2007 he served as
Director — Strategic Planning, and from 1994 to 2000 he served as Manager — Corporate Accounting.
Ralph M. Polumbo joined the Company in 2006. He has served as Chief Operating Officer, Albany
Engineered Composites, since December 2010. He previously served the Company as Chief Administrative
Officer (CAO) from September 2008 to December 2010, and as Senior Vice President — Human Resources
from 2006 to 2008. From 2004 to April 2006 he served as Head of Human Capital for Deephaven Capital
Management. From 1999 to 2004 he served as Vice President — Human Resources and Business Integration for
MedSource Technologies. Prior to MedSource, he held the positions of Vice President — Integration and Vice
President — Human Resources for Rubbermaid. From 1974 to 1994, he held various management and executive
positions for The Stanley Works.
Daniel A. Halftermeyer joined the Company in 1987. He has served the Company as President — Machine
Clothing since February 2012. He previously served the Company as President — Paper Machine Clothing and
Engineered Fabrics from August 2011 to February 2012, as President — Paper Machine Clothing from January
2010 until August 2011, Group Vice President — Paper Machine Clothing Europe from 2005 to August 2008,
Vice President and General Manager — North American Dryer Fabrics from 1997 to March 2005, and Technical
Director — Dryer Fabrics from 1993 to 1997. He held various technical and management positions in St.
Stephen, South Carolina, and Sélestat, France, from 1987 to 1993.
Robert A. Hansen joined the Company in 1981. He has served the Company as Senior Vice President and
Chief Technology Officer since January 2010, Vice President — Corporate Research and Development from
April 2006 to January 2010, and Director of Technical and Marketing — Europe Press Fabrics from 2004 to
April 2006. From 2000 to 2004, he served as Technical Director — Press Fabrics, Göppingen, Germany.
Previously he had the position of Technical Director in Dieren, The Netherlands, and had also held technical
management and research and development positions in the Company’s Järvenpää, Finland, and Albany, New
York facilities.
David M. Pawlick joined the Company in 2000. He has served the Company as Vice President —
Controller since March 2008, and as Director of Corporate Accounting from 2000 to 2008. From 1994 to 2000
he served as Director of Finance and Controller for Ahlstrom Machinery, Inc. in Glens Falls, New York. Prior to
1994, he was employed as an Audit Manager for Coopers & Lybrand.
Charles J. Silva Jr. joined the Company in 1994. He has served the Company as Vice President — General
Counsel and Secretary since 2002. He served as Assistant General Counsel from 1994 until 2002. Prior to 1994,
he was an associate with Cleary, Gottlieb, Steen and Hamilton, an international law firm with headquarters in
New York City.
Dawne H. Wimbrow joined the Company in 1993. She has served the Company as Vice President — Global
Information Services and Chief Information Officer since September 2005. She previously served the Company
in various management positions in the Global Information Systems organization. From 1980 to 1993, she
worked as a consultant supporting the design, development, and implementation of computer systems for various
textile, real estate, insurance, and law firms.
Joseph M. Gaug joined the Company in 2004. He has served the Company as Associate General Counsel
since 2004 and as Assistant Secretary since 2006. Prior to 2004, he was a principal with McNamee, Lochner,
Titus & Williams, P.C., a law firm located in Albany, New York.
We are incorporated under the laws of the State of Delaware and are the successor to a New York
corporation originally incorporated in 1895, which was merged into the Company in August 1987 solely for the
purpose of changing the domicile of the corporation. References to the Company that relate to any time prior to
the August 1987 merger should be understood to refer to the predecessor New York corporation.
Our Corporate Governance Guidelines, Business Ethics Policy, and Code of Ethics for the Chief Executive
Officer, Chief Financial Officer, and Controller, and the charters of the Audit, Compensation, and Governance
Committees of the Board of Directors are available at the Corporate Governance section of our website
(www.albint.com).
26
Our current reports on Form 8-K, quarterly reports on Form 10-Q, and annual reports on Form 10-K are
electronically filed with the Securities and Exchange Commission (SEC), and all such reports and amendments
to such reports filed subsequent to November 15, 2002, have been and will be made available, free of charge,
through our website (www.albint.com) as soon as reasonably practicable after such filing. The public may read
and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 450 Fifth
Street, NW, Washington, D.C. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC0330. The SEC maintains a website (www.sec.gov) that contains reports,
proxy, information statements, and other information regarding issuers that file electronically with the SEC.
Item 1A. RISK FACTORS
The Company’s business, operations, and financial condition are subject to various risks. Some of these
risks are described below and in the documents incorporated by reference, and investors should take these risks
into account in evaluating any investment decision involving the Company. This section does not describe all
risks applicable to the Company, its industry or business, and it is intended only as a summary of certain
material factors.
A number of factors have had, and in future periods could have, an adverse impact on sales, profitability and
cash flow in the Company’s Machine Clothing segment
Significant consolidation and rationalization in the paper industry in recent years has reduced global
consumption of paper machine clothing in certain markets. Developments in digital media have adversely
affected demand for newsprint and for printing and writing grades of paper in North America and Europe, which
has had, and could continue to have, an adverse effect on demand for paper machine clothing in those markets.
At the same time, technological advances in papermaking, including in paper machine clothing, while
contributing to the papermaking efficiency of customers, have in some cases lengthened the useful life of our
products and reduced the number of pieces required to produce the same volume of paper. These factors have
had, and in future are likely to have, an adverse effect on paper machine clothing sales, and to keep the rate of
any future growth in paper machine clothing sales lower than the rate of growth in paper production.
The market for paper machine clothing in recent years has been characterized by increased price
competition, especially in Europe, which has negatively affected our net sales and operating results. We expect
price competition to remain intense in all paper machine clothing markets, especially during periods of customer
consolidation, plant closures, or when major contracts are being renegotiated.
The basic papermaking process, while it has undergone dramatic increases in efficiency and speed, has
always relied on paper machine clothing. In the event that a paper machine builder or other person was to
develop a commercially viable manner of paper manufacture that did not require paper machine clothing, sales
of our products in this segment could be expected to decline significantly. A significant decline in Machine
Clothing sales and operating income could have an adverse impact on the Company’s ability to fund the growth
of Albany Engineered Composites.
Some of the Company’s competitors in the Machine Clothing segment have the capability to make and sell
paper machines and papermaking equipment as well as other engineered fabrics
Although customers historically have tended to view the purchase of paper machine clothing and the
purchase of paper machines as separate purchasing decisions, the ability to coordinate research and development
efforts, and to market machines and fabrics together, could provide a competitive advantage. This underscores
the importance of our ability to maintain the technological competitiveness and value of our products, and a
failure to do so could have a material adverse effect on our business, financial condition, and results of
operations.
Moreover, we cannot predict how the nature of competition in this segment may continue to evolve as a
result of future consolidation among our competitors, or consolidation involving our competitors and other
suppliers to our customers.
27
The Standish family has a significant influence on our Company and could prevent transactions that might
be in the best interests of our other stockholders
As of December 31, 2012, J. Spencer Standish and related persons (including Christine L. Standish and
John C. Standish, both directors of the Company) held in the aggregate shares entitling them to cast
approximately 53% of the combined votes entitled to be cast by all stockholders of the Company. The Standish
family has significant influence over the management and affairs of the Company and matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions. The
Standish family currently has, in the aggregate, sufficient voting power to elect all of our directors and determine
the outcome of any shareholder action requiring a majority vote. This could have the effect of delaying or
preventing a change in control or a merger, consolidation, or other business combination at a premium price,
even though it might be in the best interest of our other stockholders.
We are a “controlled company” within the meaning of the Corporate Governance Rules of the New York
Stock Exchange (the “NYSE”) and qualify for, and rely on, certain exemptions from corporate governance
requirements applicable to other listed companies
As a result of the greater than 50% voting power of the Standish family described above, we are a
“controlled company” within the meaning of the rules of the NYSE. Therefore, we are not required to comply
with certain corporate governance rules that would otherwise apply to us as a listed company on the NYSE.
Specifically, we have elected to avail ourselves of the provision exempting a controlled company from the
requirement that the Board of Directors include a majority of “independent” directors (as defined by the rules of
the NYSE) and the requirement that the Compensation and Governance Committees each be composed entirely
of “independent” directors. Should the interests of the Standish family differ from those of other stockholders,
the other stockholders would not be afforded such protections as might otherwise exist if our Board of Directors,
or these Committees, were controlled by directors who were independent of the Standish family or our
management.
There can be no assurance that the expected sales growth in the Engineered Composites segment will be
realized
The expected size and steep growth rate of the market for LEAP engines will put significant growth
pressure on AEC in the short- and medium-term. In the short term, AEC must fulfill critical product and process
design and test milestones, establish key elements of the supply chain, complete the first LEAP composites plant
and begin construction on the second, and continue to hire and train employees required to staff the LEAP
operation. In the medium-term, AEC will be required to ramp up these new operations to full production. AEC’s
ability to realize the full growth potential of the LEAP program will depend on how effectively it accomplishes
these goals.
Future growth and long-term success of AEC beyond the LEAP program will depend, in part, on the
success of new commercial and military aircraft programs. AEC is currently working with customers on projects
to supply components for a number of commercial, general aviation, and military aircraft programs. AEC may
not be successful in obtaining contracts, or may not be successful in the execution of contracts it obtains.
Contract or program termination, cancellations, delays or other changes could result in material write-offs in
the Engineered Composites segment
In cases in which AEC secures contracts, the reduction or delay of orders by our customers under these
contracts, or the termination of such contracts or orders, including those relating to the LEAP program, could also
have a material adverse effect on revenues and earnings in this segment in any period. Such events could also
result in the write-off of deferred charges that have been accumulated in anticipation of future revenue streams.
Conditions in the paper industry have required, and could further require, the Company to reorganize its
operations, which could result in significant expense and could pose risks to the Company’s operations
During the last several years, we have engaged in significant restructuring that included the closing of a
number of manufacturing operations in North America, Europe, and Australia. These restructuring activities
were intended to match manufacturing capacity to shifting global demand, and also to improve the efficiency of
28
manufacturing and administrative processes. Future shifting of customer demand, the need to reduce costs, or
other factors could cause us to determine in the future that additional restructuring steps are required.
Restructuring involves risks such as employee work stoppages, slowdowns, or strikes, which can threaten
uninterrupted production, maintenance of high product quality, meeting of customers’ delivery deadlines, and
maintenance of administrative processes. Increases in output in remaining manufacturing operations can likewise
impose stress on these remaining facilities as they undertake the manufacture of greater volume and, in some
cases, a greater variety of products. Competitors can be quick to attempt to exploit these situations. Although we
consider these risks, we plan each step of the process carefully, and work to reassure customers who could be
affected by any such matters that their requirements will continue to be met, we could lose customers and
associated revenues if we fail to plan properly, or if the foregoing tactics are ineffective.
The Company may experience supply constraints due to a limited number of suppliers of certain raw materials
There are a limited number of suppliers of polymer fiber and monofilaments, key raw materials used in the
manufacture of Machine Clothing, and of carbon fiber and carbon resin, key raw materials used by Albany
Engineered Composites. For our Machine Clothing production in Europe and Asia, we purchase most of our
monofilament from third parties. For our Machine Clothing production in North America, we currently produce
a significant portion of our own monofilament needs. While we have always been able to meet our raw material
needs, the limited number of producers of these materials creates the potential for disruptions in supply. Lack of
supply, delivery delays, or quality problems relating to supplied raw materials could harm our production
capacity and make it difficult to supply our customers with products on time, which could have a negative
impact on our business, financial condition, and results of operations.
Economic recession had a significant impact on our customers and our business during 2008 and 2009; a
recurrence, or lingering effects of general economic uncertainty, could negatively affect our customers and
adversely affect our results of operations
The global recession of 2008/2009 had a significant negative effect on the Company and the markets in
which it competes. More recently, the weakness of the European economy in 2012 led to a significant decrease
in year-over-year sales in that region. Deterioration of current global economic conditions could have an adverse
impact on the Company’s business and results of operations.
The Company identifies in this section a number of risks, the effects of which may be exacerbated by an
unfavorable economic climate. For example, unfavorable global economic and paper industry conditions may
lead to greater consolidation and rationalization within the paper industry, further reducing global consumption
of paper machine clothing. Reduced consumption of paper machine clothing could in turn increase the risk of
greater price competition within the paper machine clothing industry, and greater efforts by competitors to gain
market share at the expense of the Company. Sales of the Company’s other Machine Clothing products, as well
as in the Company’s AEC business segment, may also be adversely affected by unfavorable economic
conditions.
Weak or unstable economic conditions also increase the risk that one or more of our customers could be
unable to pay outstanding accounts receivable, whether as the result of bankruptcy or an inability to obtain
working capital financing from banks or other lenders. In such a case, we could be forced to write off such
accounts, which could have a material adverse effect on our operating results, financial condition, and/or
liquidity. Furthermore, many of our businesses design and manufacture products that are custom-designed for a
specific customer application, at a specific location. In the event of a customer liquidity issue, the Company
could also be required to write off amounts that are included in inventories.
Inflation as a result of changes in prices of commodities and labor costs may adversely impact our financial
results of operations
The Company is a significant user of petroleum-based products required for the manufacture of our
products. The Company also relies on the labor market in many regions of the world to meet our operational
requirements. Increases in the prices of such commodities or in labor costs, particularly in regions that are
experiencing higher-levels of inflation, could increase our costs, and we may not be able to fully offset the
effects through price increases, productivity improvements, and cost-reduction programs.
29
Fluctuations in currency exchange rates could adversely affect the Company’s business, financial condition,
and results of operations
We operate our business in many regions of the world, and currency rate movements can have a significant
effect on operating results. Changes in exchange rates can result in revaluation gains and losses that are recorded
in Selling, Technical, General and Research expenses or Other income/expense, net. Revaluation gains and
losses occur when our business units have intercompany or third-party trade receivable or payable balances in a
currency other than their local reporting (or functional) currency. Operating results can also be affected by the
translation of sales and costs, for each non-U.S. subsidiary, from the local functional currency to the U.S. dollar.
The translation effect on the income statement is dependent on our net income or expense position in each non-U.S.
currency in which we do business. A net income position exists when sales realized in a particular currency
exceed expenses paid in that currency; a net expense position exists if the opposite is true.
The Company may fail to adequately protect its proprietary technology, which would allow competitors or
others to take advantage of its research and development efforts
Proprietary trade secrets are a source of competitive advantage in each of our segments. If our trade secrets
were to become available to competitors, it could have a negative impact on our competitive strength. We
employ measures to maintain the confidential nature of these secrets, including maintaining employment and
confidentiality agreements; maintaining clear policies intended to protect such trade secrets; educating our
employees about such policies; clearly identifying proprietary information subject to such agreements and
policies; and vigorously enforcing such agreements and policies. Despite such measures, our employees,
consultants, and third parties to whom such information may be disclosed in the ordinary course of our business
may breach their obligations not to reveal such information, and any legal remedies available to us may be
insufficient to compensate our damages.
At December 31, 2012, the Company had outstanding short-term debt of $83.9 million and long-term debt of
$235.9 million. The Company may not be able to repay its outstanding debt in the event that default
provisions are triggered due to a breach of loan covenants
Existing borrowing agreements contain a number of covenants and financial ratios that the Company is
required to satisfy. The most restrictive of these covenants pertain to prescribed leverage and interest coverage
ratios and asset dispositions. Any breach of any such covenants or restrictions would result in a default under
such agreements that would permit the lenders to declare all borrowings under such agreements to be
immediately due and payable and, through cross-default provisions, could entitle other lenders to accelerate their
loans. In such an event, the Company would need to modify or restructure all or a portion of such indebtedness.
Depending on prevailing economic conditions at the time, the Company might find it difficult to modify or
restructure on attractive terms, or at all.
We may incur a substantial amount of additional indebtedness in the future. As of December 31, 2012, we
had borrowed $132.0 million under our $390 million revolving credit facility. Incurrence of additional
indebtedness could increase the risks associated with higher leverage. These risks include limiting our ability to
make acquisitions or capital expenditures to grow our business, limiting our ability to withstand business and
economic downturns, limiting our ability to invest operating cash flow in our business, and limiting our ability to
pay dividends. In addition, any such indebtedness could contain terms that are more restrictive than our current
facilities.
The Company must successfully maintain and/or upgrade its information technology systems
We rely on various information technology systems to manufacture and ship our products, manage our
assets, inventory and employees, process business transactions, prepare financial and other reports, and conduct
other business functions that are critical to our operations. We recently completed a multi-year process of
Company-wide modifications and upgrades to our systems, including the replacement of legacy systems,
modifications to legacy systems, and the acquisition of new systems with new functionality. Despite these
efforts, we may be subject to system failures or disruptions due to power failures, interruptions in
telecommunications, natural disasters, viral attacks, or other similar events. Measures that we have adopted to
mitigate these risks may, despite our efforts, prove to be ineffective in addressing such failures or disruptions,
which could have a materially adverse effect on our ability to conduct these critical business functions.
30
The Company is subject to legal proceedings and legal compliance risks, and has been named as defendant in
a large number of suits relating to the actual or alleged exposure to asbestos-containing products
We are subject to a variety of legal proceedings. Pending proceedings that the Company determines are
material are disclosed in Item 3, Legal Proceedings, of this annual report. Litigation is an inherently
unpredictable process and unanticipated negative outcomes are always possible. An adverse outcome in any
period could have an adverse impact on the Company’s operating results for that period.
We are also subject to a variety of legal compliance risks. While we believe that we have adopted
appropriate risk management and compliance programs, the global and diverse nature of our operations means
that legal compliance risks will continue to exist and related legal proceedings and other contingencies, the
outcome of which cannot be predicted with certainty, are likely to arise from time to time. Failure to resolve
successfully any legal proceedings related to compliance matters could have an adverse impact on our results in
any period.
Changes in performance of pension plan assets and assumptions used to estimate our pension and
postretirement benefit costs and liabilities could adversely affect our liabilities and net income
We have pension and postretirement benefit costs and liabilities that are developed from actuarial
valuations. In 2012, we incurred charges of $119.7 million as part of our strategy to significantly reduce and, in
some cases, permanently settle pension plan liabilities. If we were to take actions to settle additional pension or
postretirement plan liabilities in the future, we could incur significant additional charges in the periods in which
such actions were taken.
Although we were able to reduce pension liabilities by a significant amount during 2012, as of December
31, 2012, remaining net liabilities under our defined benefit pension plans exceeded plan assets by $45.1 million
($15.5 million for the U.S. plan, $29.6 million for non-U.S. plans). Additionally, the liability for unfunded
postretirement welfare benefits, principally in the United States, totaled $84.4 million. Annual expense
associated with these plans, as well as annual cash contributions, are subject to a number of variables, including
discount rates and return on plan assets, actuarial assumptions, and differences between actuarial assumptions
and actual future experience.
Weakness in investment returns on plan assets, changes in discount rates or actuarial assumptions, and
actual future experience could result in higher benefit plan expense and the need to increase pension plan
contributions in future years, which could have a material effect on our financial condition and results of
operations in future periods.
The Company is exposed to the risk of increased expense in health-care related costs
We are largely self-insured for some employee and business risks, including health care and workers’
compensation programs in the United States. Losses under all of these programs are accrued based upon
estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with
assistance from third-party actuaries and service providers. However, these liabilities are difficult to assess and
estimate due to unknown factors, including the severity of an illness or injury and the number of incidents not
reported. The accruals are based upon known facts and historical trends, and management believes such accruals
to be adequate. The Company also maintains stop-loss insurance policies to protect against catastrophic claims
above certain limits. If actual results significantly differ from estimates, our financial condition, results of
operations, and cash flows could be materially impacted by losses under these programs, as well as higher
stop-loss premiums in future periods.
Changes in or interpretations of tax rules, structures, country profitability mix, and regulations may adversely
affect our effective tax rates
We are a United States-based multinational company subject to tax in the United States and foreign tax
jurisdictions. Unanticipated changes in our tax rates, or tax policies of the countries in which we operate, could
affect our future results of operations. Our future effective tax rates could be unfavorably affected by changes in
31
or interpretation of tax rules and regulations in the jurisdictions in which we do business, by structural changes
in the Company’s businesses, by unanticipated decreases in the amount of revenue or earnings in countries with
low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities.
The Company has substantial deferred tax assets that could become impaired and result in a charge to
earnings
The Company has deferred tax assets in several tax jurisdictions, including a U.S. asset of approximately
$88.7 million at December 31, 2012. Realization of this and other deferred tax assets is dependent upon many
factors, including generation of future income in specific countries. Lower than expected operating results,
organizational changes, or changes in tax laws could result in those deferred tax assets becoming impaired, thus
resulting in a charge to earnings.
Our business could be adversely affected by adverse outcomes of pending tax matters
The Company is currently under audit in U.S. and non-U.S. taxing jurisdictions, and the Company’s
positions on certain tax matters are being contested by tax authorities in those countries. (These matters are
discussed in Note 7 of Notes to Consolidated Financial Statements.) While the Company believes that its
positions are correct and that it has reserved adequately for such matters, a final adverse outcome with respect to
one or more of these matters could have a material adverse impact on the Company’s results in any period in
which they occur.
The Company’s insurance coverage may be inadequate to cover other significant risk exposures
In addition to asbestos-related claims, the Company may be exposed to other liabilities related to the
products and services we provide. AEC is engaged in designing, developing, and manufacturing components for
commercial jet aircraft and defense and technology systems and products. We expect this portion of the business
to grow in future periods. Although we maintain insurance for the risks associated with this business, there can
be no assurance that the amount of our insurance coverage will be adequate to cover all claims or liabilities. In
addition, there can be no assurance that insurance coverage will continue to be available to us in the future at a
cost that is acceptable. Any material liability not covered by insurance could have a material adverse effect on
our business, financial condition, and results of operations.
In addition to the general risks that the Company already faces outside the U.S., the Company now conducts
more of its manufacturing operations in emerging markets than it did in the past, which could involve many
uncertainties
We currently have manufacturing facilities outside the U.S. In 2012, 57.3% of consolidated net sales were
generated by our non-U.S. subsidiaries. Operations outside of the U.S. are subject to a number of risks and
uncertainties, including: governments may impose limitations on our ability to repatriate funds; governments
may impose withholding or other taxes on remittances and other payments from our non-U.S. operations, or the
amount of any such taxes may increase; an outbreak or escalation of any insurrection or armed conflict may
occur; governments may seek to nationalize our assets; or governments may impose or increase investment
barriers or other restrictions affecting our business. In addition, emerging markets pose other uncertainties,
including the protection of our intellectual property, pressure on the pricing of our products, and risks of political
instability. The occurrence of any of these conditions could disrupt our business or prevent us from conducting
business in particular countries or regions of the world.
The Company is subject to laws and regulations worldwide, changes to which could increase our costs and
have a material adverse effect on our financial condition or results of operations
The Company is subject to laws and regulations relating to employment practices and benefits, taxes,
import and export matters, corruption, foreign-exchange controls, competition, workplace health and safety,
intellectual property, health-care, the environment and other areas. These laws and regulations have a significant
impact on our domestic and international operations.
32
We incur significant expenses to comply with laws and regulations. Changes or additions to laws and
regulations, including those related to climate change, could increase these expenses, which could have an
adverse impact on our financial condition and results of operations. Such changes could also have an adverse
impact on our customers and suppliers, which in turn could adversely impact the Company.
While we have implemented policies and training programs designed to ensure compliance, there can be no
assurance that our employees or agents will not violate such laws, regulations or policies, which could have a
material adverse impact on our financial condition or results of operations.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Our principal manufacturing facilities are located in Brazil, Canada, China, France, Germany, Italy,
Mexico, South Korea, Sweden, the United Kingdom, and the United States. The aggregate square footage of
our operating facilities in the United States and Canada is approximately 1.8 million square feet, of which
1.6 million square feet are owned and 0.2 million square feet are leased. Our facilities located outside the United
States and Canada comprise approximately 2.6 million square feet, of which 2.5 million square feet are owned
and 0.1 million square feet are leased. We consider these facilities to be in good condition and suitable for our
purpose. The capacity associated with these facilities is adequate to meet production levels required and
anticipated through 2013.
Item 3.
LEGAL PROCEEDINGS
Asbestos Litigation
Albany International Corp. is a defendant in suits brought in various courts in the United States by
plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing
products that we previously manufactured. We produced asbestos-containing paper machine clothing synthetic
dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics
generally had a useful life of three to twelve months.
We were defending 4,463 claims as of January 30, 2013.
The following table sets forth the number of claims filed, the number of claims settled, dismissed or
otherwise resolved, and the aggregate settlement amount during the periods presented:
Year ended December 31,
___________________________________________________________________________
2005 . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Opening
Number
of Claims
_________________
29,411
24,451
19,416
18,798
18,385
8,945
5,170
4,446
Claims
Dismissed,
Settled, or
Resolved
___________________
6,257
6,841
808
523
9,482
3,963
789
90
Closing
Number
of Claims
_________________
24,451
19,416
18,798
18,385
8,945
5,170
4,446
4,463
Amounts Paid
(thousands)
to Settle
or Resolve
__________________________
$ 504
3,879
15
52
88
159
1,111
$ 530
New Claims
_____________________
1,297
1,806
190
110
42
188
65
107
We anticipate that additional claims will be filed against the Company and related companies in the future,
but are unable to predict the number and timing of such future claims.
Exposure and disease information sufficient to meaningfully estimate a range of possible loss of a
particular claim is typically not available until late in the discovery process, and often not until a trial date is
imminent and a settlement demand has been received. For these reasons, we do not believe a meaningful
estimate can be made regarding the range of possible loss with respect to pending or future claims.
33
While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts
we consider reasonable given the facts and circumstances of each case. Our insurer, Liberty Mutual, has
defended each case and funded settlements under a standard reservation of rights. As of January 30, 2013, we
had resolved, by means of settlement or dismissal, 36,370 claims. The total cost of resolving all claims was
$8.6 million. Of this amount, almost 100% was paid by our insurance carrier. The Company has over
$125 million in confirmed insurance coverage that should be available with respect to current and future
asbestos claims, as well as additional insurance coverage that we should be able to access.
Brandon Drying Fabrics, Inc. (“Brandon”), a subsidiary of Geschmay Corp., which is a subsidiary of the
Company, is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant.
Brandon was defending against 7,867 claims as of January 30, 2013.
The following table sets forth the number of claims filed, the number of claims settled, dismissed or
otherwise resolved, and the aggregate settlement amount during the periods presented:
Year ended December 31,
___________________________________________________________________________
2005 . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . .
Opening
Number
of Claims
_________________
9,985
9,566
9,114
8,740
8,664
7,907
7,869
7,877
Claims
Dismissed,
Settled, or
Resolved
___________________
642
1,182
462
86
760
47
3
12
Closing
Number
of Claims
_________________
9,566
9,114
8,740
8,664
7,907
7,869
7,877
7,867
Amounts Paid
(thousands)
to Settle
or Resolve
__________________________
$0
0
0
0
0
0
0
$0
New Claims
_____________________
223
730
88
10
3
9
11
2
We acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a
wholly owned subsidiary of Geschmay Corp. In 1978, Brandon acquired certain assets from Abney Mills
(“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon from Abney were
assets of Abney’s wholly owned subsidiary, Brandon Sales, Inc. which had sold, among other things, dryer
fabrics containing asbestos made by its parent, Abney. Although Brandon manufactured and sold dryer fabrics
under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Because Brandon
did not manufacture asbestos-containing products, and because it does not believe that it was the legal successor
to, or otherwise responsible for obligations of Abney with respect to products manufactured by Abney, it
believes it has strong defenses to the claims that have been asserted against it. As of January 30, 2013, Brandon
has resolved, by means of settlement or dismissal, 9,733 claims for a total of $0.2 million. Brandon’s insurance
carriers initially agreed to pay 88.2% of the total indemnification and defense costs related to these proceedings,
subject to the standard reservation of rights. The remaining 11.8% of the costs had been borne directly by
Brandon. During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and defense costs,
subject to policy limits and the standard reservation of rights, and to reimburse Brandon for all indemnity and
defense costs paid directly by Brandon related to these proceedings.
For the same reasons set forth above with respect to Albany’s claims, as well as the fact that no amounts
have been paid to resolve any Brandon claims since 2001, we do not believe a meaningful estimate can be made
regarding the range of possible loss with respect to these remaining claims.
In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in
interest” to Mount Vernon Mills (“Mount Vernon”). We acquired certain assets from Mount Vernon in 1993.
Certain plaintiffs allege injury caused by asbestos-containing products alleged to have been sold by Mount
Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company
against any liability arising out of such products. We deny any liability for products sold by Mount Vernon prior
to the acquisition of the Mount Vernon assets. Pursuant to its contract ual indemnification obligations, Mount
Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a
number of actions.
Although we do not believe, based on currently available information and for the reasons stated above, that
a meaningful estimate of a range of possible loss can be made with respect to such claims, based on our
understanding of the insurance policies available, how settlement amounts have been allocated to various
34
policies, our settlement experience, the absence of any judgments against the Company or Brandon, the ratio of
paper mill claims to total claims filed, and the defenses available, we currently do not anticipate any material
liability relating to the resolution of the aforementioned pending proceedings in excess of existing insurance
limits. Consequently, we currently do not anticipate, based on currently available information, that the ultimate
resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results
of operations, or cash flows of the Company. Although we cannot predict the number and timing of future
claims, based on the foregoing factors and the trends in claims against us to date, we do not anticipate that
additional claims likely to be filed against us in the future will have a material adverse effect on our financial
position, results of operations, or cash flows. We are aware that litigation is inherently uncertain, especially
when the outcome is dependent primarily on determinations of factual matters to be made by juries.
NAFTA Audits
The Company’s affiliate in Mexico was notified in November 2010 that Mexican customs authorities
expected to issue demands for duties on certain imports of paper machine clothing from the Company and the
Company’s affiliate in Canada for which the Company has claimed duty-free treatment under the North
American Free Trade Agreement (“NAFTA”).
The notices result from a decision by the Mexican Servicio de Administración Tributaria (“SAT”) to
invalidate NAFTA certificates provided by the Company on products shipped to its Mexican affiliate during the
years 2006 through 2008. The Demand Notices arose from an SAT audit during 2010, at the conclusion of which
the SAT determined that the Company had failed to provide documentation sufficient to show that the
certificates were validly issued, and declared the certificates issued during this period to be invalid. The
Company believes that the certificates of origin were valid and properly issued and therefore commenced
administrative appeals with SAT disputing its resolutions.
In December 2011, while these appeals were pending, SAT revoked its earlier declarations of invalidation
with respect to the certificates of origin at issue in 28 of the 36 open audits, and ordered a further review of
such certificates. To date, the Company has been informed by SAT that it has completed its review of 19 of the
28 audits, concluded that the certificates of origin in 19 of those 28 audits were valid, and that the shipments
identified in those 19 audits were entitled to NAFTA’s duty-free treatment. SAT is continuing to review the
certificates of origin in the remaining 9 open audits where the original declaration was revoked. SAT is also still
considering the Company’s appeal with regard to the 8 open audits where the original declaration invalidating
the certificates of origin have not yet been revoked.
Based on discussions with SAT, the Company currently expects that it will be given an opportunity to
present evidence to SAT officials to establish the origin for NAFTA purposes of all of the shipments covered by
the above-described audits still under review, and that it will be able to establish that a very high percentage of
the shipments at issue were entitled to NAFTA treatment. For the small percentage of shipments for which the
Company may not be able to establish qualification for duty-free treatment under NAFTA, the Company may be
required to pay duties and penalties. The Company currently does not expect any such amounts to be material.
The Company also does not believe that it faces any material risk of certificates being invalidated with respect to
any period other than the 2006 through 2008 audit period. For this reason, the Company does not feel that this
matter is likely to have a material adverse effect on the Company’s financial position, results of operations and
cash flows.
Item 4.
MINE SAFETY DISCLOSURES
None.
35
PART II
Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with a
par value of $0.001 and equal liquidation rights. Our Class A Common Stock is principally traded on the New
York Stock Exchange under the symbol AIN. As of December 31, 2012, there were approximately 5,500
beneficial owners of our Class A Common Stock, including employees owning shares through our 401(k) defined
contribution plan. Our Class B Common Stock does not trade publicly. As of December 31, 2012, there were 17
holders of Class B Common Stock. Dividends are paid equally on shares of each class. Our cash dividends, and
the high and low prices per share of our Class A Common Stock, were as follows for the periods presented:
Quarter Ended
__________________________________________________________________________________________________
2012
Cash dividends per share . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
March 31
_________________
June 30
_______________
September 30
________________________
December 31
_______________________
$ 0.13
$ 0.14
$ 0.14
$ 0.14
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25.90
$22.35
$24.70
$17.15
$22.78
$17.66
$22.68
$20.11
2011
Cash dividends per share . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.12
$ 0.13
$ 0.13
$ 0.13
$25.09
$21.84
$27.90
$23.54
$27.68
$17.82
$25.70
$17.24
Restrictions on dividends and other distributions are described in Note 12 of the Notes to Consolidated
Financial Statements (see Item 8).
Disclosures of securities authorized for issuance under equity compensation plans and the performance
graph are included under Item 12 of this Form 10-K.
In August 2006, we announced that the Board of Directors authorized management to purchase up to
2 million additional shares of our Class A Common Stock. The Board’s action authorized management to
purchase shares from time to time, in the open market or otherwise, whenever it believes such purchase to be
advantageous to our shareholders, and it is otherwise legally permitted to do so. Management has made no share
purchases under that authorization.
36
Item 6.
SELECTED FINANCIAL DATA
The following selected historical financial data have been derived from our Consolidated Financial
Statements (see Item 8). The data should be read in conjunction with those financial statements and
Management’s Discussion and Analysis of Financial Condition and Results of Operations (see Item 7).
(in thousands, except per share amounts)
______________________________________________________________________________
Summary of Operations
Net sales(1) . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold (1)(3) . . . . . . . . . . . . .
Restructuring and other(3) . . . . . . . . . . .
Goodwill and intangible impairment
charge (4) . . . . . . . . . . . . . . . . . . . . . .
Pension settlement charges(2) . . . . . . . .
Operating income/(loss)(1) . . . . . . . . . .
Interest expense, net(5) . . . . . . . . . . . . .
Income/(loss) from continuing
2012
_______________________
2011
_______________________
2010
_______________________
2009
_______________________
2008
_______________________
$ 760,941
455,545
7,061
$ 787,287
473,121
9,317
$ 742,887
460,914
3,747
$ 718,629
474,196
68,113
$ 875,751
584,043
37,526
—
119,735
(44,136)
16,601
—
—
74,608
18,121
—
—
64,709
17,240
—
—
(39,720)
20,627
73,316
—
(84,897)
24,253
operations(7) . . . . . . . . . . . . . . . . . . .
(40,843)
21,266
27,423
(23,532)
(93,745)
Income/(loss) from discontinued
operations(1)(6) . . . . . . . . . . . . . . . . . .
Net income/(loss) . . . . . . . . . . . . . . . .
Basic income/(loss) from continuing
operations per share . . . . . . . . . . . . .
Basic net income/(loss) per share . . . .
Diluted net income/(loss) per share . .
Dividends declared per share . . . . . . .
Weighted average number of shares
71,820
30,977
13,672
34,938
10,213
37,636
(9,926)
(33,458)
16,299
(77,446)
(1.30)
0.99
0.97
0.55
0.68
1.12
1.11
0.51
0.88
1.21
1.21
0.48
(0.77)
(1.09)
(1.09)
0.48
(3.15)
(2.60)
(2.60)
0.47
outstanding — basic . . . . . . . . . . . .
31,356
31,262
31,072
30,612
29,786
Capital expenditures, including
software . . . . . . . . . . . . . . . . . . . . . .
37,207
27,428
30,957
41,827
139,790
Financial position
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . .
Total assets(1)(5) . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Total noncurrent liabilities(5) . . . . . . . .
Total liabilities(1)(5) . . . . . . . . . . . . . . . .
Shareholders’ equity(5) . . . . . . . . . . . . .
$ 190,718
420,154
1,156,697
235,788
235,877
427,398
663,186
493,511
$ 118,909
438,953
1,230,928
170,711
373,125
644,367
815,078
415,850
$ 117,925
480,711
1,278,293
165,856
423,634
686,178
852,034
426,259
$
94,139
505,833
1,345,149
188,164
483,894
734,372
922,536
422,613
$ 103,998
526,613
1,404,118
210,177
530,176
775,352
985,529
418,589
(1)
(2)
In 2012, we sold our Albany Door Systems and PrimaLoft® businesses resulting in a pre-tax gain of
$92.3 million. Previously reported data for net sales, cost of sales, operating income and liabilities for years
prior to 2012 have been adjusted to reflect only the activity from continuing operations. In 2008, we sold our
Filtration Technologies business. Previously reported data for net sales, cost of sales, and operating income
for 2008 have been adjusted to reflect only the activity from continuing operations.
In 2012, we took action to settle certain pension plan liabilities in the United States, Canada, and Sweden
which led to charges totaling $119.7 million.
(3) During the period 2008 through 2012, we recorded restructuring and other charges related to cost reduction
(4)
(5)
initiatives.
In 2008, a Goodwill impairment charge of $72.3 million was recorded, as well as an Intangible impairment
charge of $1.0 million for customer contracts.
In 2009, we adopted new accounting guidance for convertible debt instruments that may be settled in cash
upon conversion, which required certain retrospective adjustments to the years 2008 and 2007. During 2009,
we entered into agreements to exchange a portion of these convertible debt instruments for cash plus an
equivalent amount of our Senior Notes (“New Notes”). In each case, we simultaneously entered into
37
(6)
(7)
additional agreements to purchase the New Notes, which resulted in $52.0 million of pretax gains on early
retirement of debt.
In 2009, we recorded a charge of $10.0 million for a purchase price adjustment related to the sale of the
Filtration business, which was also paid during the year.
Income tax expense in 2011 includes a favorable adjustment of $3.5 million to correct errors from periods
prior to 2006. The Company does not believe that the corrected item is or was material to 2011 or any
previously reported quarterly or annual financial statements. As a result, the Company has not restated its
previously issued annual or quarterly financial statements.
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of
operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read
in conjunction with, our Consolidated Financial Statements and the accompanying Notes.
Overview
Our reportable segments: Machine Clothing (MC) and Engineered Composites (AEC) draw on many of the
same advanced textiles and materials processing capabilities, and compete on the basis of proprietary, product-
based advantage that is grounded in those core capabilities. As a result, technology and manufacturing advances
in one tend to benefit the other.
Machine Clothing is the Company’s long-established core business and primary generator of cash. While
the paper and paperboard industry in our traditional geographic markets has suffered from well-documented
overcapacity in publication grades, especially newsprint, the industry is still expected to grow on a global basis,
driven by demand for packaging and tissue grades, as well as the expansion of paper consumption and
production in Asia and South America. Although we do not consider the market for Machine Clothing as having
significant growth potential, we do believe it provides the Company with significant prospects for long-term
cash generation. We feel we are now well-positioned in these markets, with high-quality, low-cost production in
growth markets, substantially lower fixed costs in mature markets, and continued strength in new product
development, field services, and manufacturing technology. We seek to maintain the cash-generating potential of
this business by maintaining the low costs that we achieved through restructuring, and competing vigorously by
using our differentiated products and services to reduce our customers’ total cost of operation and improve their
paper quality.
We believe that AEC provides the greatest growth potential, both near and long term, for our Company.
Our strategy is to grow organically by focusing our proprietary technology on high-value aerospace and defense
applications that cannot be served effectively by conventional composites. AEC supplies a number of customers
in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group, and the most significant
program is the production of fan blades and other components for the LEAP engine. AEC is also developing
other new and potentially significant composite products for aerospace (engine and airframe) applications.
Consolidated Results of Operations
Net sales
The following table summarizes our net sales by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2011
___________________
$739,211
48,076
_______________
$787,287
_______________
_______________
2010
___________________
$701,020
41,867
_______________
$742,887
_______________
_______________
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . .
-3.3%
6.0%
2012 vs. 2011
• Changes in currency translation rates had the effect of decreasing net sales by $15.4 million during 2012
as compared to 2011.
• Excluding the effect of changes in currency translation rates, 2012 net sales decreased 1.4% as compared
to 2011.
• Compared to 2011, 2012 sales in Western Europe declined approximately 15% due to economic
weakness and customer overcapacity.
39
• Excluding the effect of changes in currency translation rates:
• Net sales in MC decreased 4.1 %.
• Net sales in Engineered Composites increased 41.0%
2011 vs. 2010
• Changes in currency translation rates had the effect of increasing net sales by $15.7 million during 2011
as compared to 2010.
• Excluding the effect of changes in currency translation rates, 2011 net sales increased 3.9% as compared
to 2010.
• Sales volume in 2011 increased in all of our business segments as worldwide economic conditions
improved.
• Excluding the effect of changes in currency translation rates:
• Net sales in MC increased 3.2%.
• Net sales in Engineered Composites increased 14.8%
Backlog
Backlog in the Machine Clothing segment was $267.8 million at December 31, 2012, compared to $342.9
million at December 31, 2011. The decrease reflects market weakness in Europe and, additionally, shorter order-
to-delivery times. Backlog in the Engineered Composites segment was $33.2 million at December 31, 2012
compared to $28.8 million at December 31, 2011. Backlog in both segments is generally expected to be invoiced
during the next 12 months.
Gross Profit
The following table summarizes gross profit by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2011
___________________
$317,984
507
(4,325)
_______________
$314,166
_______________
_______________
2012
___________________
$303,801
5,627
(4,032)
_______________
$305,396
_______________
_______________
2010
___________________
$290,426
(2,608)
(5,845)
_______________
$281,973
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40.1%
39.9%
38.0%
The decrease in gross profit during 2012 was principally due to the net effect of the following:
• $5.9 million increase due to higher gross profit margin in MC resulting from high plant utilization in the
Americas, favorable geographic sales mix, and the cumulative effect of restructuring initiatives.
• $19.8 million decrease due to lower sales in MC, principally in Western Europe.
• An increase of $5.1 million in Engineered Composites, principally due to higher sales related to the
LEAP program.
The increase in gross profit during 2011 was principally due to the net effect of the following:
• $11.2 million increase due to higher gross profit margin in MC.
• $15.8 million increase due to higher sales in MC.
• $3.1 million increase in Engineered Composites gross profit, of which $1.6 million was due to inventory
write-offs in 2010 that did not recur in 2011.
• $1.5 million improvement in Unallocated expenses principally due to 2010 write-offs of $1.6 million in
our MC machinery building operation in France. Expenses associated with the U.S. postretirement
medical plan represent the majority of the Unallocated expenses in 2012, 2011 and 2010.
40
Selling, Technical, General, and Research (STG&R)
The following table summarizes STG&R by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2011
___________________
$135,545
4,654
29,007
61,035
_______________
$230,241
_______________
_______________
2012
___________________
$132,542
6,467
27,616
56,111
_______________
$222,736
_______________
_______________
2010
___________________
$120,002
5,638
26,064
61,813
_______________
$213,517
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.3%
29.2%
28.7%
STG&R expenses for 2012 decreased $7.5 million in comparison with 2011, principally due to the net
effect of the following:
• Currency translation decreased STG&R by $7.1 million as compared to 2011.
• Revaluation of nonfunctional currency assets and liabilities resulted in losses of $1.6 million in 2012 and
gains of $2.7 million in 2011.
• Pension expense decreased by $3.4 million as a result of settlement of certain pension plan liabilities.
• We completed our global SAP implementation in 2011. Implementation charges in 2011 were
$2.9 million. No similar expense was incurred in 2012.
STG&R expenses for 2011 increased $16.7 million in comparison with 2010, principally due to the net
effect of the following:
• Currency translation increased STG&R by $6.3 million as compared to 2010.
• MC STG&R included the benefit of gains on the sale of former manufacturing facilities totaling
$9.4 million in 2010 and $1.0 million in 2011.
• Research and development costs increased $2.9 million, largely due to increased research activities at
AEC.
• Revaluation of nonfunctional currency assets and liabilities resulted in gains of $2.7 million in 2011 and
$0.4 million in 2010.
• SAP implementation charges were $2.9 million in 2011 and $4.5 million in 2010.
Operating Income
The following table summarizes operating income/(loss) by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Research expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Settlement Expense
(in thousands)
_______________________________________________________________________________
2011
___________________
$176,759
(4,204)
(29,007)
(68,940)
_______________
$74,608
_______________
_______________
2012
___________________
$163,873
(840)
(27,616)
(179,553)
_______________
($44,136)
_______________
_______________
2010
___________________
$165,662
(9,176)
(26,064)
(65,713)
_______________
$64,709
_______________
_______________
In 2012, we took actions to settle certain pension plan liabilities in the U.S., Canada, and Sweden leading
to charges totaling $119.7 million, which were included in Unallocated Expenses. No similar charges were
incurred in 2011 or 2010.
In addition to the items discussed above affecting gross profit, STG&R, and pension settlement charges,
operating income was affected by restructuring costs.
41
Restructuring Expense
The following table summarizes restructuring expense by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2011
___________________
5,680
$
57
3,580
_______________
$
9,317
_______________
_______________
2012
___________________
7,386
$
—
(325)
_______________
$
7,061
_______________
_______________
2010
___________________
4,762
$
930
(1,945)
_______________
$ 3,747
_______________
_______________
Restructuring expenses in 2012 were principally related to a reduction in workforce in Sweden and France,
and the previously announced curtailment of manufacturing in New York and Wisconsin. The restructuring
activities were related to the lower demand for paper machine clothing. Those costs were partially offset by a
reduction in accruals related to the Company’s headquarters. Restructuring costs totaled $7.1 million, including a
reduction to expense of $0.7 million that resulted from the sale of property in Albany, New York.
In November 2012, we announced that our subsidiary in France had initiated discussions with the employee
works council regarding a proposal to restructure operations at the Company’s Machine Clothing production
facilities in Selestat and St. Junien. The consultation will be completed in accordance with applicable French
legislation. No accrual has been recorded in regard to the proposed actions.
Restructuring expenses for 2010 and 2011 were the result of restructuring and performance improvement
plans affecting each of our reportable segments. The restructuring activities were driven by the need for us to
balance our manufacturing capacity with anticipated demand, to improve efficiency in all aspects of our
business, and to strengthen our competitive position. We also took actions to reduce costs and to create process
efficiencies within administrative functions.
Restructuring actions taken in 2010, 2011 and 2012 have resulted in cost reductions in line with Company
expectations, and have helped to maintain or improve gross profit margins, or reduce STG&R expenses.
Other Earnings Items
Years ended December 31,
__________________________________________________________________________________________________________________
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . .
Interest Expense, net
(in thousands)
_______________________________________________________________________________
2011
___________________
$18,121
2,639
32,582
13,672
2012
___________________
$ 16,601
7,629
(27,523)
71,820
2010
___________________
$17,240
(976)
21,022
10,213
Interest expense, net, decreased $1.5 million in 2012 principally due to a decline in net debt. Interest
expense, net, increased $0.9 million in 2011 due to the effect of higher interest rates under the new revolving
credit agreement that we entered into during 2010, which offset the effect of lower average debt. See the Capital
Resources section below for further discussion of borrowings and interest rates.
Other Expense/(Income), net
Other expense/(income), net included the following:
• Foreign currency revaluations of intercompany balances resulted in losses of $5.7 million in 2012 and
gains of $0.1 million in 2011, and $4.6 million in 2010. The revaluation effects were principally due to
the euro’s relative strength against the U.S. dollar, Canadian dollar, Australian dollar, and Japanese yen.
• Bank fees and amortization of debt issuance costs were $2.4 million, $1.8 million, and $1.7 million in
2012, 2011, and 2010, respectively.
• Fees for a letter-of-credit (LOC) were $1.0 million, $1.5 million, and $1.8 million in 2012, 2011, and
2010, respectively. The fees were associated with an LOC required by the Canadian government for tax
contingencies that were resolved in 2012.
42
Income Tax
The Company has operations which constitute a taxable presence in 16 countries outside of the United
States. All of these countries except one had income tax rates that were lower than the United States federal tax
rate of 35% during the periods reported. The jurisdictional location of earnings is a significant component of our
effective tax rate each year, and therefore on our overall income tax expense.
The Company’s effective tax rate for fiscal years 2012, 2011 and 2010 was 40.3%, 60.5% and 43.5%,
respectively. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and in non-U.S.
jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs
on foreign earnings that have been or will be repatriated to the U.S., and by discrete items that may occur in any
given year but are not consistent from year to year.
Significant items that impacted the 2012 tax rate included the following (percentages reflect the effect of
each item as a percentage of Income before income taxes):
• A $39.5 million (57.7%) discrete income tax benefit related to pension settlements in the U.S., Canada
and Sweden.
• A discrete tax benefit of $7.1 million (10.3%) related to the settlement of a tax audit in Canada.
• A $0.8 million (1.1%) net tax benefit related to other discrete items.
• A net tax rate reduction of 1.7% was recognized in 2012 from rate differences between non-U.S. and
U.S. jurisdictions. The tax rate benefit from earnings in Switzerland and Brazil that are taxed at lower
rates was offset by pension settlement and restructuring charges recognized outside the U.S. that resulted
in a lower tax benefit, as compared to the benefit calculated using the U.S. notional tax rate of 35%.
• The income tax rate on continuing operations, excluding discrete items, was 39%.
Significant items that impacted the 2011 tax rate included the following:
• $22.8 million (42.1%) of expense for valuation allowances, principally in Germany, that resulted from
the Company’s sale of Albany Door Systems.
• A favorable tax adjustment of $3.5 million (6.4%) to correct errors from periods prior to 2006. The
Company does not believe that the corrected item was material to 2011 or any of the previously reported
quarterly or annual financial statements. As a result, the Company has not restated its previously issued
financial statements.
• A $3.3 million (6.2%) reduction in expense resulting from a change in the applicable tax regime in
Mexico.
• A $1.2 million (2.2%) net tax benefit related to the settlement of certain audits and other discrete tax
matters.
• A net tax rate reduction of 14.3% was recognized from rate differences between non-U.S. and U.S.
jurisdictions. Earnings in Switzerland and Brazil, where tax rates are lower than the U.S. notional rate of
35%, contributed to the majority of the reduction noted. U.S. tax costs on foreign earnings and foreign
withholdings offset the tax rate benefits gained from operating in low tax jurisdictions by 12.8%.
• The income tax rate on continuing operations, excluding discrete items, was 33%.
Significant items that impacted the 2010 tax rate included the following:
• $9.4 million (19.4%) of expense due to the redemption of our company-owned life insurance policies.
• $2.3 million (4.7%) of discrete tax benefit due to the repatriation of prior year’s earnings from our
subsidiary in Mexico.
• $0.5 million tax benefit resulting from other discrete income tax adjustments.
43
• A net tax rate reduction of 28.2% was recognized from rate differences between non-U.S. and U.S.
jurisdictions. Earnings in Switzerland and Brazil, where tax rates are lower than the U.S. notional rate of
35%, contributed to the majority of the reduction noted. U.S. tax costs on foreign earnings and foreign
withholdings offset the tax rate benefits gained from operating in low tax jurisdictions by 7.7%.
• The income tax rate on continuing operations, excluding discrete items, was 30%.
Discontinued Operations
In October, 2011 we entered into a contract to sell the assets and liabilities of our Albany Door Systems
business to Assa Abloy AB for $130 million. Closing on the transaction occurred on January 11, 2012, and the
Company recorded a pre-tax gain of $57.4 million as a result of that sale. Additionally, in March 2012, we
agreed with the purchaser on certain post-closing adjustments, and in April 2012 we received a payment of
$5.0 million to reflect that agreement. Under the terms of the contract, Assa Abloy AB acquired our equity
ownership of Albany Doors Systems GmbH in Germany, Albany Door Systems AB in Sweden, and other
affiliates in Germany, France, the Netherlands, Turkey, Poland, Belgium, New Zealand, and other countries, as
well as the remaining business assets, most of which were located in the United States, Australia, China, and
Italy. In the second quarter of 2012, the purchaser completed certain legal registration activities in China,
allowing the parties to complete the transfer of assets and liabilities of the business in that country.
The initial purchase price of $130 million included $13 million to be paid in July 2013. We recorded the
value of that consideration on a present value basis and, as of December 31, 2012, we had a receivable of
$12.8 million included in Accounts receivable.
In May 2012, we announced an agreement to sell our PrimaLoft® Products business and that transaction
closed on June 29, 2012. Under the terms of the agreement, the purchaser acquired all of the assets of that
business, which were located in the United States, Italy and Germany. The purchase of $38.0 million included
$3.8 million held in escrow accounts, and which is expected to be received in 2013. The Company recorded a
pre-tax gain of $34.9 million as result of that sale.
We have provided customary representations and warranties in the sale of both of these businesses but we
do not expect any material negative financial consequence will result from these arrangements. In accordance
with the applicable accounting guidance for discontinued businesses, the associated results of operations and
financial position are reported separately in the accompanying Consolidated Statements of Income and Balance
Sheets. Cash flows of the discontinued operation were combined with cash flows from continuing operations in
the Consolidated Statements of Cash Flows.
With the sale of both businesses completed in 2012, there are no remaining discontinued businesses as of
December 31, 2012.
Segment Results of Operations
Machine Clothing Segment
Business Environment and Trends
Machine Clothing is our primary business segment and accounted for nearly 91% of our consolidated
revenues during 2012. Machine clothing is purchased primarily by manufacturers of paper and paperboard.
According to RISI, Inc., global production of paper and paperboard is expected to grow at an annual rate of
2-3% over the next five years, driven primarily by secular demand increases in the Asia and South America, with
stabilization in the mature markets of Europe and North America.
Shifting demand for paper, across different paper grades as well as across geographical regions, continues
to drive the elimination of papermaking capacity in areas with significant established capacity, primarily in the
mature markets of Europe and North America. At the same time, the newest, most efficient machines were being
installed in areas of growing demand, including Asia and South America generally, as well as tissue and towel
paper grades in all regions. Recent technological advances in Paper Machine Clothing, while contributing to the
papermaking efficiency of customers, have lengthened the useful life of many of our products and had an
adverse impact on overall paper machine clothing demand. These factors help to explain why Paper Machine
Clothing revenue growth grows at a lesser rate than growth in paper production.
44
The Company’s manufacturing and product platforms position us well to meet these shifting demands
across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow
share in all markets, with new products and technology, and to maintain our manufacturing footprint to align
with global demand, while we offset the effects of inflation through continuous productivity improvement.
We have incurred significant restructuring charges in recent periods as we reduced Paper Machine Clothing
manufacturing capacity in the United States, Canada, Germany, Finland, France, the Netherlands, Sweden, and
Australia.
Review of Operations
Years ended December 31,
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
2012 vs. 2011
(in thousands, except percentages)
_______________________________________________________________________________
2011
___________________
$739,211
2010
___________________
$701,020
2012
___________________
$693,176
-6.2%
5.4%
303,801
317,984
290,426
43.8%
43.0%
41.4%
163,873
176,759
165,662
• Changes in currency translation rates had the effect of decreasing 2012 sales by $15.4 million.
• Excluding the effect of changes in currency translation rates, 2012 sales decreased 4.1% as compared to
2011.
• The decrease in 2012 sales was principally due to a decline of approximately 15% in Western Europe due
to economic weakness and customer overcapacity.
• Sales remained relatively stable in the Americas and China.
2011 vs. 2010
• Changes in currency translation rates had the effect of increasing 2011 sales by $15.7 million.
• Excluding the effect of changes in currency translation rates, 2011 sales increased 3.9% as compared to
2010.
• The increase in 2011 sales was primarily in Asia and South America.
• Sales were relatively flat in North America and Europe.
Gross Profit
The decrease in 2012 gross profit was principally due to the net effect of the following:
• A $5.9 million increase due to higher gross profit margin in MC.
• A $19.8 million decrease due to lower sales in MC.
The increase in 2011 gross profit was principally due to the net effect of the following:
• A $15.8 million increase due to higher sales.
• A $5.5 million increase due to restructuring-related equipment relocation costs in 2010 that did not recur
in 2011.
• A $2.6 million increase due to 2010 idle and underutilized plant capacity related to cost reduction
initiatives which did not recur in 2011.
45
Operating Income
The decrease in 2012 operating income was principally due to the net effect of the following:
• Lower gross profit, as described above.
• Revaluation of nonfunctional currency assets and liabilities resulted in losses of $1.6 million in 2012
compared to gains of $1.7 million in 2011.
The increase in 2011 operating income was principally due to the net effect of the following:
• An increase of $27.5 million due to higher gross profit.
• An $8.4 million decrease due to lower gains on sale of buildings.
• A decrease of $0.9 million due to higher restructuring costs.
• STG&R expenses, excluding effects of currency translation and the gains on sale of buildings, increased
$5.0 million, principally due to higher travel expense.
Outlook
For both the near and long term, we continue to view this as a business with the potential for flat, year-
over-year Adjusted EBITDA. Because of seasonal effects, we expect Q1 2013 to be weak, although it is unlikely
to be as weak as Q1 2012.
Engineered Composites Segment
Business Environment and Trends
The Engineered Composites segment (AEC) provides custom-designed advanced composite structures
based on proprietary technology to customers in the aerospace and defense industries. AEC’s largest current
development program relates to the LEAP engine being developed by CFM International. Under this program,
AEC is developing a family of composite parts, including fan blades, to be incorporated into the LEAP engine.
In 2012, approximately 25% of this segment’s sales were related to U.S. government contracts or programs.
Review of Operations
Years ended December 31,
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
(in thousands, except percentages)
_______________________________________________________________________________
2011
___________________
$48,076
2010
___________________
$41,867
2012
___________________
$67,765
41.0%
5,627
8.3%
(840)
14.8%
507
1.1%
(4,204)
(2,608)
-6.2%
(9,176)
• The increase in 2012 sales over 2011 was principally due to LEAP program activities.
• The increase in 2011 sales over 2010 was principally due to the ramp-up of the LEAP program.
Gross Profit
The increase in 2012 gross profit included the following:
• A $4.2 million increase due to higher sales related to the LEAP program.
• Ongoing improvements in the manufacturing processes also contributed to an increase in gross profit.
The increase in 2011 gross profit included the following:
• An increase of $1.6 million due to write-offs in 2010 related to obsolete equipment and materials which
did not recur in 2011.
• Ongoing improvements in the manufacturing processes also contributed to an increase in gross profit.
46
Operating Income
2012 operating income improved principally due to the increase in gross profit as described above.
2011 operating income improved principally due to the following:
• A $3.1 million increase due to higher gross profit.
• An increase of $0.8 million due to lower restructuring costs.
Outlook
We expect continued year-over-year strong growth in 2013. If recently proposed accelerations to the LEAP
production schedule are realized, AEC capital spending would also be accelerated.
Liquidity and Capital Resources
Cash Flow Summary
For the years ended December 31,
__________________________________________________________________________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Changes in working capital . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of assets . . . . . . . . . . . . . . . . . . . .
Changes in long-term liabilities, deferred
taxes and other credits . . . . . . . . . . . . . . . . . . . . . . .
Write-off of pension liability adjustment . . . . . . . . . . .
Other operating items . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . .
Net cash provided by/(used in) investing activities . . . . .
Net cash (used in) financing activities . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash flows . . . . . . . .
Increase in cash and cash equivalents . . . . . . . . . . . . . . .
Change in cash balances of discontinued operations . . .
Cash and cash equivalents at beginning of year . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2011
___________________
$ 34,938
66,385
(1,086)
(1,022)
2012
___________________
$ 30,977
63,235
34,085
(92,457)
2010
___________________
$ 37,636
62,996
(14,610)
(9,404)
(123,887)
118,350
4,204
________________
34,507
113,447
(76,064)
(81)
________________
71,809
—
118,909
________________
$ 190,718
________________
________________
237
—
5,817
_______________
105,269
(25,820)
(65,923)
(3,373)
_______________
10,153
(9,169)
117,925
_______________
$118,909
_______________
_______________
13,125
—
9,829
_______________
99,572
28,065
(93,517)
(9,285)
_______________
24,835
(1,049)
94,139
_______________
$117,925
_______________
_______________
Operating activities
The decrease in cash provided by operating activities in 2012 was principally due to contributions to
pension plans, which is included in Changes in long-term liabilities, deferred taxes and other credits in the above
table. As part of the Company’s previously disclosed plan to fund or settle part of our pension liabilities in the
U.S., Canada, and Sweden, $30 million of cash was used to settle Swedish pension liabilities in Q1 2012, we
contributed $30 million in Q1 and $20 million in Q2 to the U.S. pension plan, and subsequently settled two-
thirds of our U.S. pension obligations, and $18 million was contributed in Q2 to the plan in Canada to fully fund
the plan and settle about half of the plan obligation. As a result of the settlement activities, we recorded total
settlement expense of $119.7 million in 2012, which included the write-off of $118.4 million of deferred pension
charges. The Company’s global net unfunded net pension liability decreased from $101.2 million at December
31, 2011 to $45.1 million at December 31, 2012. With the completion of this plan, $249.7 million of pension
plan obligations were settled.
Changes in working capital provided cash flow of $34.1 million in 2012, compared to a net use of cash in
2011 and 2010. The improvement in 2012 reflects lower Machine Clothing sales and ongoing efforts in the
Machine Clothing segment to optimize inventory levels, which helped to offset increases in accounts receivable
and inventory in the Engineered Composites segment.
47
At December 31, 2012, we had $190.7 million of cash and cash equivalents, of which $178.2 million was
held by subsidiaries outside of the United States. As disclosed in Note 7 of the Notes to Consolidated Financial
Statements, we determined that all but $19.4 million of this amount (which represents the amount of 2012
earnings expected to be repatriated to the United States at some point in the future) is intended to be utilized by
these non-U.S. operations for an indefinite period of time. Our current plans do not anticipate that we will need
funds generated from foreign operations to fund our domestic operations or satisfy debt obligations in the United
States. In the event that such funds were to be needed to fund operations in the U.S., and if associated accruals
for U.S. tax have not already been provided, we would be required to accrue and pay additional U.S. taxes to
repatriate these funds.
Cash payments for income taxes, net of refunds, on continuing operations were $15.1 million,
$13.7 million, and $9.2 million in 2012, 2011, and 2010.
Investing Activities
Total capital expenditures for continuing operations, including purchased software, were $37.2 million in
2012, compared to $28.7 million in 2011 and $31.6 million in 2010, respectively. The increase in 2012 reflects
investments in the Engineered Composites business, for which capital expenditures were $19.0 million in 2012,
compared to $9.7 million in 2011 and $6.6 million in 2010, respectively. We expect average annual capital
expenditures over the five year period 2012 to 2016 to be approximately $70 million, as the Engineered
Composites business ramps-up to meet LEAP production requirements. In 2013, we also plan to begin
construction of a $15 million facility in Wisconsin for our Machine Clothing business that will be capable of
producing full-scale prototypes of new products.
In January 2012, the Company completed the sale of Albany Door Systems, and in March 2012, we
finalized certain postclosing adjustments that increased the sale price by $5 million. As of December 31, 2012,
$122 million of the total $135 million sale price had been received, with the remainder expected to be received
in July 2013. During Q2 2012, the Company completed the sale of PrimaLoft® Products. Of the $38 million sale
price, $34 million was received in June, with the remainder, subject to any post-closing adjustments, expected to
be received in December 2013.
We actively manage our global portfolio of real estate that is available for sale due to prior restructuring
activities. In 2012, we sold one property for $1.3 million, with proceeds from that sale expected in 2013 and
2015. In 2011, we sold two properties located in the United States for $2.9 million in cash. In 2010 we sold two
other properties located in the United States for $12.3 million in cash proceeds. Proceeds received from any sale
in the future should help to offset a portion of capital expenditures, although the amount or timing of the
proceeds to be realized cannot yet be predicted accurately.
During Q2 2010, we liquidated all of our holdings in life insurance policies, which provided cash of
$49.3 million and led to a discrete tax charge of $9.4 million. During Q1 2010, we acquired certain assets and
liabilities of Envico Ltd., which is part of the discontinued Albany Doors segment, for approximately
$1.9 million.
Financing Activities
Cash dividends paid were $21.3 million, $15.6 million, and $14.9 million in 2012, 2011, and 2010,
respectively. The total for 2012 includes five quarterly dividend payments as the Board of Directors elected to
pay before year end dividends that were declared in December 2012. Dividends have been declared each quarter
since the fourth quarter of 2001. Decisions with respect to whether a dividend will be paid, and the amount of
the dividend, are made by the Board of Directors each quarter. To the extent the Board declares cash dividends
in the future, we expect to pay such dividends out of operating cash flows. Future cash dividends will also
depend on debt covenants and on the Board’s assessment of our ability to generate sufficient cash flows.
48
Capital Resources
We finance our business activities primarily with cash generated from operations and borrowings, largely
through our revolving credit agreement as discussed below. Our subsidiaries outside of the United States may
also maintain working capital lines with local banks, but borrowings under such local facilities tend not to be
significant. Substantially all of our cash balance at December 31, 2012 was held by non-U.S. subsidiaries. Based
on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to operate
for the foreseeable future. We were in compliance with all debt covenants as of December 31, 2012.
On July 16, 2010, we entered into a $390 million unsecured five-year revolving credit facility agreement
under which $132 million of borrowings were outstanding as of December 31, 2012. The applicable interest rate
for borrowings under the agreement, as well as under the former agreement, is LIBOR plus a spread, based on
our leverage ratio at the time of borrowing.
Our ability to borrow additional amounts under the agreement is conditional upon the absence of any
defaults, as well as the absence of any material adverse change. Based on our maximum leverage ratio and our
consolidated EBITDA (as defined in the agreement), and without modification to any other credit agreements as
of December 31, 2012, we would have been able to borrow an additional $258 million under our agreement.
Also on July 16, 2010, we entered into interest rate hedging transactions that have the effect of fixing the
LIBOR portion of the effective interest rate (before addition of the spread) on $105 million of the indebtedness
drawn under the new agreement at the rate of 2.04% for the next five years. Under the terms of these
transactions, we pay the fixed rate of 2.04% and the counterparties pay a floating rate based on the three-month
LIBOR rate at each quarterly calculation date, which on October 12, 2012 was 0.34%. The net effect is to fix the
effective interest rate on $105 million of indebtedness at 2.04%, plus the applicable spread, until these swap
agreements expire on July 16, 2015. On October 16, 2012 the applicable spread was 2.25%, yielding an effective
annual rate of 4.29%. This interest rate swap is accounted for as a hedge of future cash flows, as further
described in Note 13 of the Notes to Consolidated Financial Statements.
We have a $150.0 million borrowing from the Prudential Insurance Company of America, for which the
agreement was amended and restated during 2010. The principal is due in three installments of $50.0 million
each in 2013, 2015, and 2017, and the interest rate is fixed at 6.84%.
We are currently required to maintain a leverage ratio of not greater than 3.50 to 1.00 and minimum interest
coverage of 3.00 to 1.00 under the new credit agreement and the Prudential agreement.
As of December 31, 2012, our leverage ratio was 1.06 to 1.00 and our interest coverage ratio was 13.29 to
1.00. We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below
3.50 to 1.00, and may make acquisitions with cash provided our leverage ratio would not exceed 3.00 to 1.00
after giving pro forma effect to the acquisition.
In March 2006, we issued $180 million principal amount of 2.25% convertible notes. As of December 31,
2012, the fair value of the balance of Notes outstanding was approximately $28.4 million, which was measured
using quoted prices in active markets.
On January 25, 2013, the Company announced the redemption, at 100 percent of principal, of all
remaining 2.25% Convertible Senior Notes due 2026, for which we have a current liability of $28.3 million at
December 31, 2012.
Off-Balance Sheet Arrangements
As of December 31, 2012, we have no off-balance sheet arrangements required to be disclosed pursuant to
Item 303(a)(4) of Regulation S-K.
49
Contractual Obligations
As of December 31, 2012, we have the following cash flow obligations:
(in millions)
____________________
Total debt . . . . . . . . . . . . . . . . . . . . . . .
Interest payments (a) . . . . . . . . . . . . . . .
Pension plan contributions (b) . . . . . . . .
Other postretirement benefits (c) . . . . . .
Restructuring accruals . . . . . . . . . . . . .
Other noncurrent liabilities (d) . . . . . . .
Operating leases . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
______________
$319.7
42.9
4.6
51.0
4.9
—
8.4
___________
$431.5
___________
___________
Payments Due by Period
____________________________________________________________________________________________________________
Less than
one year
__________________
$ 83.8
15.5
4.6
5.6
4.9
—
3.5
___________
$117.9
___________
___________
One to
three years
____________________
$185.8
21.4
—
10.7
—
—
3.8
___________
$221.7
___________
___________
Three to
five years
_________________
$50.0
6.0
—
10.1
—
—
0.8
_________
$66.9
_________
_________
After
five years
_________________
$ 0.1
—
—
24.6
—
—
0.3
_________
$25.0
_________
_________
(a) The terms of variable-rate debt arrangements, including interest rates and maturities, are included in Note 12
of Notes to Consolidated Financial Statements. The interest payments are based on the assumption that we
maintain $132.0 million of variable rate debt until the July 2010 credit agreement matures on July 16, 2015,
and the rate as of December 31, 2012 (3.92%) continues until maturity.
(b) Our 2013 contribution to defined benefit pension plans is estimated to be $4.6 million. However, that estimate
is subject to revision based on many factors. The amount of contributions after 2013 is subject to many
variables, including return of pension plan assets, interest rates, and tax and employee benefit laws. Therefore,
contributions beyond 2012 are not included in this schedule.
(c) Estimated cash outflow for other postretirement benefits is consistent with the expected benefit payments as
presented in Note 4 of Notes to Consolidated Financial Statements.
(d) Estimated payments for deferred compensation, taxes, and other noncurrent liabilities are not included in this
table due to the uncertain timing of the ultimate cash settlement. Also, this table does not reflect unrecognized
tax benefits of $24.4 million, the timing of which is uncertain. Refer to Note 7 of Notes to Consolidated
Financial Statements for additional discussion on unrecognized tax benefits.
The foregoing table should not be deemed to represent all of our future cash requirements, which will vary
based on our future needs. While the cash required to satisfy the obligations set forth in the table is reasonably
determinable in advance, many other cash needs, such as raw materials costs, payroll, and taxes, are dependent
on future events and are harder to predict. In addition, while the contingencies described in Note 15 of Notes to
Consolidated Financial Statements are not currently anticipated to have a material adverse effect on our
Company, there can be no assurance that this may not change. Subject to the foregoing, we currently expect that
cash from operations and the other sources of liquidity described above will be sufficient to enable us to meet
the foregoing cash obligations, as well as to meet our other cash requirements.
Recent Accounting Pronouncements
On February 5, 2013, the Financial Accounting Standards Board (FASB) issued authoritative guidance
related to reporting of amounts reclassified out of accumulated other comprehensive income. This
pronouncement affects the reporting of reclassification adjustments from accumulated other comprehensive
income. The new requirements will take effect for quarterly and annual reporting periods beginning after
December 15, 2012. We are required to adopt these provisions in the first quarter of 2013. The guidance affects
financial statement presentation only, and we do not expect the adoption of these requirements to have a material
effect on our financial statements.
In June and December 2011, the FASB issued guidance that eliminates the option to report other
comprehensive income and its components in the statement of changes in stockholders’ equity, and requires an
entity to present the total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement, or in two separate but consecutive statements.
This pronouncement is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance concerns presentation and disclosure only, and did not have a
material impact on our financial statements.
50
In September 2011, the FASB issued guidance intended to reduce the cost and complexity of the annual
goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine
whether further impairment testing is necessary. Annually, the Company performs a qualitative assessment for
each of its reporting units to determine if the two step process for impairment testing is required. If the
Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, the Company evaluates the recoverability of goodwill using a two-step impairment test approach at the
reporting unit level. This pronouncement is effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. The Company adopted this approach in 2012, and it did not
have a material effect on our financial statements.
Critical Accounting Policies and Assumptions
The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto.
The Company’s discussion and analysis of its financial condition and results of operations are based on the
Company’s consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The preparation of these financial
statements requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Some of these
estimates require judgments about matters that are inherently uncertain.
Revenue Recognition
We record sales when persuasive evidence of an arrangement exists, delivery has occurred, title has been
transferred, the selling price is fixed, and collectability is reasonably assured. We include in revenue any
amounts invoiced for shipping and handling. The timing of revenue recognition is dependent upon the
contractual arrangement with customers. These arrangements, which may include provisions for transfer of title
and guarantees of workmanship, are specific to each customer. Some of these contracts provide for a transfer of
title upon delivery, or upon reaching a specific date, while other contracts provide for title transfer to occur upon
consumption of the product.
Products and services provided under long-term contracts represent a significant portion of sales in the
Engineered Composites segment. We use the percentage of completion (actual cost to estimated cost) method for
accounting for these projects. That method requires significant judgment and estimation, which could be
considerably different if the underlying circumstances were to change. When adjustments in estimated contract
revenues or costs are required, any changes from prior estimates are included in earnings in the current period.
The Engineered Composites segment also has some long-term aerospace contracts under which there are
two phases: a phase during which the production part is designed and tested, and a phase of supplying
production parts. Certain costs are capitalized during the first phase, such as costs for engineering, equipment,
and inventory, where recovery is probable. Revenue will be recognized during the second phase using a
percentage of completion method. Accumulated capitalized costs are written-off when those costs are
determined to be unrecoverable. Depending on the type of contract, we determine our percentage of completion
using either the cost to cost method, or the units of delivery method.
We limit the concentration of credit risk in receivables by closely monitoring credit and collection policies.
We record allowances for sales returns as a deduction in the computation of net sales. Such provisions are
recorded on the basis of written communication with customers and/or historical experience. Any value added
taxes that are imposed on sales transactions are excluded from net sales.
Restructuring Charges
We may incur expenses related to restructuring of our operations, which could include employee
termination costs, costs to consolidate or close facilities, or costs to terminate contractual relationships.
Employee termination costs include the severance pay and social costs for periods after employee service is
completed. Termination costs related to an ongoing benefit arrangement are recognized when the amount
becomes probable and estimable. Termination costs related to a one-time benefit arrangement are recognized at
the communication date to employees. Costs related to contract termination, relocation of employees, and the
consolidation or the closure of facilities, are recognized when incurred.
51
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable includes trade receivables and revenue in excess of progress billings on Engineered
Composites contracts accounted for under the percentage of completion method. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. The Company determines the allowance based on historical write-off experience, customer
specific facts and economic conditions. If the financial condition of the Company’s customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Reserves for Inventory Impairment
The Company maintains reserves for possible impairment in the value of inventories. Such reserves can be
specific to certain inventory, or general based on judgments about the overall condition of the inventory. General
reserves are established based on percentage write-downs applied to aged inventories, or for inventories that are
slow-moving. If actual results differ from estimates, additional inventory write-downs may be necessary. These
general reserves for aged inventory are relieved through income only when the inventory is sold.
Property, Plant, and Equipment (PP&E)
PP&E is recorded at cost, which is generally objectively quantifiable when assets are purchased singly.
However, when assets are purchased in groups, as would be the case for a business acquisition, costs assigned to
PP&E are based on an estimate of fair value of each asset at the date of acquisition. These estimates are based
on assumptions about asset condition, remaining useful life, and market conditions. The Company may employ
appraisers to aid in allocating cost to assets purchased as a group. Included in the cost basis of PP&E are those
costs that substantially increase the useful lives or capacity of existing PP&E. Significant judgment is needed to
determine which costs should be capitalized under these criteria, and which should be expensed as repairs and
maintenance costs. Economic useful life is the duration of time an asset is expected to be productively employed
by the Company, which may be less than its physical life. Management’s estimate of useful life is monitored to
determine its appropriateness, especially in light of changed business circumstances. Changes in these estimates
that affect PP&E could have a significant impact on the Company’s financial statements. However, significant
adjustments have not been required in recent years. Management also monitors changes in business conditions
and events such as a plant closure that could indicate that PP&E asset values are impaired. The determination of
asset impairment involves significant judgment about market values and future cash flows.
Goodwill
Goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. Assessments of
possible impairment of goodwill are made when events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable through future operations. Additionally, testing for possible
impairment of recorded goodwill and certain intangible asset balances is required annually. The amount and
timing of any impairment charges based on these assessments require the estimation of future cash flows and the
fair market value of the related assets based on management’s best estimates of certain key factors, including
future selling prices and volumes; operating, raw material, energy, and freight costs; and various other projected
operating and economic factors. When testing, fair values of the reporting units and the related implied fair
values of their respective goodwill are established using public company analysis and discounted cash flows. In
performing our annual goodwill assessment in 2012, we performed the qualitative assessment as described above
in Recent Accounting Pronouncements.
Health Care Liabilities
The Company is self-insured for some employee and business risks, including health care and workers’
compensation programs in the United States. Losses under all of these programs are accrued based on estimates
of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with assistance
from third-party actuaries and service providers. However, these liabilities are difficult to assess and estimate
due to unknown factors, including the severity of an illness or injury and the number of incidents not reported.
The accruals are based upon known facts and historical trends, and management believes such accruals to be
adequate. If actual results significantly differ from estimates used to calculate the liability, the Company’s
financial condition, results of operations and cash flows could be materially impacted by losses under these
programs, as well as higher stop-loss premiums in future periods.
52
Pension and Postretirement Liabilities
The Company has pension and postretirement benefit costs and liabilities that are developed from actuarial
valuations. Inherent in these valuations are key assumptions, including discount rates and expected return on
plan assets, which are updated on an annual basis. As of December 31, 2012, net liabilities under our defined
benefit pension plans exceeded plan assets by $45.1 million, of which $29.6 million was for plans outside of the
U.S. Additionally, at December 31, 2012 postretirement liabilities totaled $84.4 million, substantially all of
which related to our U.S plan. As of December 31, 2012, we have unrecognized net losses of $85.3 million for
pension plans, and $17.6 million for postretirement benefit plans that will be amortized into expense in future
periods. The unrecognized net loss in pension plans is primarily attributable to recent declines in interest rates
and unfavorable investment returns in 2008.
We are required to consider current market conditions, including changes in interest rates, in making these
assumptions. We anticipate 2013 employer contributions of $4.6 million for pension plans and $5.6 million for
postretirement benefit plans. Changes in the related pension and postretirement benefit costs or credits may
occur in the future due to changes in the assumptions. The amount of annual pension plan funding and annual
expense is subject to many variables, including the investment return on pension plan assets and interest rates,
and actual contributions could vary significantly. Assumptions used for determining pension plan liabilities and
expenses are evaluated and updated at least annually.
Income Taxes
We record deferred income tax assets and liabilities for the tax consequences of differences between
financial statement and tax bases of existing assets and liabilities. A tax valuation allowance is established, as
needed, to reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more
likely than not that some or all of the deferred tax asset allowances will not be needed, the valuation allowance
will be adjusted. Management judgment is required to determine income tax expense and the related balance
sheet amounts.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We
assess our income tax positions and record tax benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances and information available at the reporting date. For those
tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the amount
of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be
sustained, no tax benefit has been recognized in the financial statements. See Notes 1 and 7 to the Consolidated
Financial Statements for further discussion.
Contingencies
We have contingent liabilities for litigation, claims, and assessments that result from the ordinary course of
business. These matters are more fully described in Note 15 to the Consolidated Financial Statements.
Financial Assets and Liabilities
We have certain financial assets and liabilities that are measured at fair value on a recurring basis, in
accordance with the applicable accounting guidance. Fair values are based on assumptions that market
participants would use in pricing an asset or liability, which include review of observable inputs, market quotes,
and assumptions of expected cash flows. In certain cases this determination of value may require some level of
valuation analysis, interpretation of information, and judgment. As these key observable inputs and assumptions
change in future periods, the Company will update its valuation to reflect market conditions.
We may enter into hedging transactions from time to time in order to mitigate volatility in cash flows,
which can be caused by changes in currency exchange rates. To qualify for hedge accounting under the
applicable accounting guidance, the hedging relationship between the hedging instrument and the hedged item
must be effective in achieving the offset of changes that are attributable to the hedged risk, both at the inception
of the hedge and on a continuing basis until maturity or settlement of the hedging instrument. Hedge
53
effectiveness, which would be tested by the Company periodically, is dependent upon market factors and
changes in currency exchange rates, which are unpredictable. In the event that the hedged item falls below the
hedging instrument, any gains or losses related to the ineffective portion of the hedge will be recognized in the
current period in earnings.
Non-GAAP Measures
This Form 10-K contains certain items, such as earnings before interest, taxes, depreciation and amortization
(EBITDA), EBITDA from continuing operations, Adjusted EBITDA, sales excluding currency effects, effective
income tax rate exclusive of income tax adjustments, net debt, and certain income and expense items on a per share
basis, that could be considered non-GAAP financial measures. Such items are provided because management
believes that, when presented together with the GAAP items to which they relate, they provide additional useful
information to investors regarding the Company’s operational performance. Presenting increases or decreases in
sales, after currency effects are excluded, can give management and investors insight into underlying sales trends.
An understanding of the impact in a particular period of specific restructuring costs, or other gains and losses, on
operating income or EBITDA can give management and investors additional insight into performance, especially
when compared to periods in which such items had a greater or lesser effect, or no effect.
The effect of changes in currency translation rates is calculated by converting amounts reported in local
currencies into U.S. dollars at the exchange rate of a prior period. That amount is then compared to the U.S. dollar
amount reported in the current period. The Company calculates its effective Income tax rate, exclusive of Income
tax adjustments, by removing discrete Income tax adjustments from total Income tax expense, then dividing that
result by Income before tax. The Company calculates EBITDA by adding Interest expense net, Income taxes,
Depreciation and Amortization to Net income. Adjusted EBITDA is calculated by adding EBITDA, costs
associated with restructuring and pension settlement charges, and then adding or subtracting revaluation losses or
gains and subtracting building sale gains. The Company believes that EBITDA and Adjusted EBITDA provide
useful information to investors because they provide an indication of the strength and performance of the
Company’s ongoing business operations, including its ability to fund discretionary spending such as capital
expenditures and strategic investments, as well as its ability to incur and service debt. While depreciation and
amortization are operating costs under GAAP, they are non-cash expenses equal to current period allocation of
costs associated with capital and other long-lived investments made in prior periods. While restructuring expenses,
foreign currency revaluation losses or gains, pension settlement charges, and building sale gains have an impact
on the Company’s net income, removing them from EBITDA can provide, in the opinion of the Company, a better
measure of operating performance. EBITDA is also a calculation commonly used by investors and analysts to
evaluate and compare the periodic and future operating performance and value of companies. EBITDA, as defined
by the Company, may not be similar to EBITDA measures of other companies. Such EBITDA measures may not
be considered measurements under GAAP, and should be considered in addition to, but not as substitutes for, the
information contained in the Company’s Statements of Income.
The following tables show the calculation of EBITDA from continuing operations, Adjusted EBITDA from
continuing operations excluding restructuring charges, currency revaluation effects, and gains from the sale of
buildings and pension settlement charges:
Years ended December 31,
_____________________________________________________________________________________________________________________________
(Loss)/income from continuing operations . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit)/expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA from continuing operations . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses/(gains) . . . . . . . . . . . . . . .
(Gain) on sale of former manufacturing facilities . . . . . . . . . .
Pension settlement expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA from continuing operations . . . . . . . . . . . .
54
(in thousands)
_______________________________________________________________________________
2011
___________________
$ 21,266
18,121
32,582
63,812
_______________
135,781
9,317
(2,761)
(1,008)
—
_______________
$141,329
_______________
_______________
2012
___________________
$ (40,843)
16,601
(27,523)
63,067
_______________
11,302
7,061
7,350
—
119,735
_______________
$145,448
_______________
_______________
2010
___________________
$ 27,423
17,240
21,022
60,444
_______________
126,129
3,747
(5,010)
(9,400)
—
_______________
$115,466
_______________
_______________
Year ended December 31, 2012
_____________________________________________________
Income/(loss) from continuing operations . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA from continuing operations . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses/(gains) . . . . . . . . .
Pension settlement expense . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA from continuing operations . . . . . .
Year ended December 31, 2011
_____________________________________________________
Income/(loss) from continuing operations . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA from continuing operations . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . .
(Gain) on sale of former manufacturing facilities . . . . .
Adjusted EBITDA from continuing operations . . . . . .
Year ended December 31, 2010
_____________________________________________________
Income/(loss) from continuing operations . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA from continuing operations . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . .
(Gain) on sale of former manufacturing facilities . . . . .
Adjusted EBITDA from continuing operations . . . . . .
(in thousands)
_________________________________________________________________________________________________________
Machine
Clothing
___________________
$163,873
—
—
46,843
____________________
210,716
7,386
1,633
—
____________________
$219,735
____________________
____________________
AEC
_______________
$ (840)
—
—
5,920
______________
5,080
—
2
—
______________
$5,082
______________
______________
Research and
Unallocated
________________________
$(203,876)
16,601
(27,523)
10,304
____________________
(204,494)
(325)
5,715
119,735
____________________
$ (79,369)
____________________
____________________
Total Company
__________________________
$ (40,843)
16,601
(27,523)
63,067
____________________
11,302
7,061
7,350
119,735
____________________
$145,448
____________________
____________________
(in thousands)
_________________________________________________________________________________________________________
Machine
Clothing
___________________
$176,759
—
—
48,181
____________________
224,940
5,680
(2,685)
—
____________________
$227,935
____________________
____________________
AEC
_______________
($4,204)
—
—
4,959
______________
755
57
1
—
______________
$ 813
______________
______________
Research and
Unallocated
________________________
($151,289)
18,121
32,582
10,672
____________________
(89,914)
3,580
(77)
(1,008)
____________________
($87,419)
____________________
____________________
Total Company
__________________________
$ 21,266
18,121
32,582
63,812
____________________
135,781
9,317
(2,761)
(1,008)
____________________
$141,329
____________________
____________________
(in thousands)
_________________________________________________________________________________________________________
Machine
Clothing
___________________
$165,662
—
—
49,036
____________________
214,698
4,762
(397)
(9,400)
____________________
$209,663
____________________
____________________
AEC
_______________
($9,176)
—
—
4,277
______________
(4,899)
930
7
—
______________
($3,962)
______________
______________
Research and
Unallocated
________________________
($129,063)
17,240
21,022
7,131
____________________
(83,670)
(1,945)
(4,620)
—
____________________
($90,235)
____________________
____________________
Total Company
__________________________
$27,423
17,240
21,022
60,444
____________________
126,129
3,747
(5,010)
(9,400)
____________________
$115,466
____________________
____________________
We disclose certain income and expense items on a per share basis. We believe that such disclosures
provide important insight into the underlying quarterly earnings and are financial performance metrics
commonly used by investors. We calculate the per share amount for items included in continuing operations by
using the effective tax rate utilized during the applicable reporting period and the weighted average number of
shares outstanding for the period.
55
The following tables show the earnings per share effect of certain income and expense items:
Year ended December 31, 2012
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Foreign currency revaluation losses . . .
Pension settlement expense . . . . . . . . .
Net favorable discrete tax
adjustments . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Foreign currency revaluation gains . . .
Gain on sale of buildings . . . . . . . . . . .
Net unfavorable discrete tax
adjustments . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Gain on sale of building . . . . . . . . . . . .
Foreign currency revaluation gains . . .
Net unfavorable discrete tax
(in thousands, except per share amounts)
________________________________________________________________________________________________________________________________________
Per Share
After tax
Effect
Effect
_________________
_________________
$0.14
$ 4,343
0.14
4,520
2.56
80,275
Shares
Outstanding
______________________
31,356
31,356
31,356
Tax
Effect
_________________
$ 2,718
2,830
39,460
Pre tax
Amounts
_________________
7,061
$
7,350
119,735
—
7,833
7,833
31,356
0.25
(in thousands, except per share amounts)
________________________________________________________________________________________________________________________________________
Per Share
After tax
Effect
Effect
_________________
_________________
$0.20
$6,233
0.06
1,847
0.02
674
Shares
Outstanding
______________________
31,262
31,262
31,262
Pre tax
Amounts
_________________
$9,317
2,761
1,008
Tax
Effect
_________________
$3,084
914
334
14,768
14,768
31,262
0.47
(in thousands, except per share amounts)
________________________________________________________________________________________________________________________________________
Per Share
After tax
Effect
Effect
_________________
_________________
$0.08
$2,634
0.21
6,608
0.11
3,522
Shares
Outstanding
______________________
31,072
31,072
31,072
Pre tax
Amounts
_________________
$3,747
9,400
5,010
Tax
Effect
_________________
$1,113
2,792
1,488
adjustments . . . . . . . . . . . . . . . . . . . .
—
6,641
6,641
31,072
0.21
The following table contains the calculation of net debt:
(in thousands)
________________________
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012
_________________________________
December 31, 2011
_________________________________
$
586
83,276
235,877
319,739
190,718
$129,021
$
424
1,263
373,125
374,812
118,909
$255,903
Item 7a.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have market risk with respect to foreign currency exchange rates and interest rates. The market risk is
the potential loss arising from adverse changes in these rates as discussed below.
Foreign Currency Exchange Rate Risk
We have manufacturing plants and sales transactions worldwide and therefore are subject to foreign
currency risk. This risk is composed of both potential losses from the translation of foreign currency financial
statements and the remeasurement of foreign currency transactions. To manage this risk, we periodically enter
into forward exchange contracts either to hedge the net assets of a foreign investment or to provide an economic
hedge against future cash flows. The total net assets of non-U.S. operations and long-term intercompany loans
denominated in nonfunctional currencies subject to potential loss amount to approximately $626.2 million. The
potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency
exchange rates amounts to $62.6 million. Furthermore, related to foreign currency transactions, we have
exposure to various nonfunctional currency balances totaling $180.4 million. This amount includes, on an
absolute basis, exposures to assets and liabilities held in currencies other than our local entity’s functional
currency. On a net basis, we had $88.0 million of foreign currency liabilities as of December 31, 2012. As
currency rates change, these nonfunctional currency balances are revalued, and the corresponding adjustment is
recorded in the income statement. A hypothetical change of 10% in currency rates could result in an adjustment
to the income statement of approximately $8.8 million. Actual results may differ.
56
Interest Rate Risk
We are exposed to interest rate fluctuations with respect to our variable rate debt, depending on general
economic conditions.
On December 31, 2012, we had the following variable rate debt:
(in thousands, except interest rates)
_____________________________________________________________
Short-term debt
Notes payable, end of period interest rate of 1.30% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
586
Long-term debt
Credit agreement with borrowings outstanding, net of $105.0 million fixed rate portion,
at an end of period interest rate of 2.47% in 2012, due in 2015 . . . . . . . . . . . . . . . . . . . . . .
27,000
Various notes and mortgages relative to operations principally outside the
United States, at an average end of period rate of 3.02% in 2012, due in
varying amounts through 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,750
_____________
$36,336
_____________
_____________
Assuming borrowings were outstanding for an entire year, an increase/decrease of one percentage point in
weighted average interest rates would increase/decrease interest expense by $0.1 million. To manage interest rate
risk, we may periodically enter into interest rate swap agreements to effectively fix the interest rates on variable
debt to a specific rate for a period of time.
57
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
59
Consolidated Statements of Income for the years ended
December 31, 2012, 2011, and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2012, 2011, and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2012 and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended
December 31, 2012, 2011, and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
61
62
63
64
58
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albany International Corp.:
In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all
material respects, the financial position of Albany International Corp. and its subsidiaries at December 31, 2012
and 2011, and the results of their operations, comprehensive income, and their cash flows for each of the three
years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement schedule listed in the index
appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2012, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these
financial statements and financial statement schedule, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control over Financial Reporting under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial statement schedule and on the Company’s
internal control over financial reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Albany, New York
March 1, 2013
59
Albany International Corp.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
(in thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and general expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Technical, product engineering, and research expenses . . . . . .
Restructuring and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income before income taxes . . . . . . . . . . . . . . . . . . .
Income tax (benefit)/expense . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income from continuing operations . . . . . . . . . . . . . .
Income from operations of discontinued businesses . . . . . . . .
Gain on sale of discontinued businesses . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — Basic
(Loss)/income from continuing operations . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share — Diluted
(Loss)/income from continuing operations* . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
___________________
$760,941
455,545
_______________
305,396
169,774
52,962
7,061
119,735
_______________
(44,136)
(1,517)
18,118
7,629
_______________
(68,366)
(27,523)
_______________
(40,843)
_______________
4,776
92,296
25,252
_______________
71,820
_______________
$ 30,977
_______________
_______________
$
(1.30)
2.29
_______________
$
0.99
_______________
_______________
(1.30)
$
2.27
_______________
$
0.97
_______________
_______________
$
0.55
_______________
_______________
2011
___________________
$787,287
473,121
_______________
314,166
174,395
55,846
9,317
—
_______________
74,608
(2,027)
20,148
2,639
_______________
53,848
32,582
_______________
21,266
_______________
24,101
—
10,429
_______________
13,672
_______________
$ 34,938
_______________
_______________
$
0.68
0.44
_______________
$
1.12
_______________
_______________
0.67
$
0.44
_______________
$
1.11
_______________
_______________
$
0.51
_______________
_______________
2010
___________________
$742,887
460,914
_______________
281,973
160,126
53,391
3,747
—
_______________
64,709
(1,165)
18,405
(976)
_______________
48,445
21,022
_______________
27,423
_______________
16,073
—
5,860
_______________
10,213
_______________
$ 37,636
_______________
_______________
$
0.88
0.33
_______________
$
1.21
_______________
_______________
0.88
$
0.33
_______________
$
1.21
_______________
_______________
$
0.48
_______________
_______________
*
Due to a loss from continuing operations, year ended 2012 diluted loss per share is equal to the basic per share
calculation.
The accompanying notes are an integral part of the consolidated financial statements.
60
Albany International Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31,
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . .
Pension settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement plan remeasurement . . . . . . . . .
Amortization of pension liability adjustments:
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(credit) . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . .
Income taxes related to items of other comprehensive
(loss)/income:
Pension settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement plan remeasurement . . . . . . . . .
Amortization of pension liability adjustment . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss), after tax . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
___________________
$ 30,977
2011
___________________
$ 34,938
2010
___________________
$37,636
11,865
118,350
(48,233)
79
(3,631)
7,438
(467)
(39,146)
14,711
(1,360)
182
_______________
59,788
_______________
$ 90,765
_______________
_______________
(13,070)
327
(28,375)
83
(3,629)
8,694
(3,799)
(72)
6,382
(1,159)
1,481
_______________
(33,137)
_______________
$ 1,801
_______________
_______________
(10,208)
(1,048)
(19,645)
94
(3,650)
7,661
(452)
160
3,002
(626)
176
_______________
(24,536)
_______________
$13,100
_______________
_______________
The accompanying notes are an integral part of the consolidated financial statements.
61
Albany International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except share and per share data)
2012
____________________
2011
_____________________
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less allowance for doubtful accounts . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable and deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Current liabilities:
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable and deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and other credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; issued 36,642,204 in 2012 and 36,540,842 in 2011 . . . . . . .
Class B Common Stock, par value $.001 per share; authorized
25,000,000 shares; issued and outstanding 3,236,098 in 2012 and 2011 . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated items of other comprehensive income/(loss):
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (Class A), at cost; 8,467,873 shares in 2012 and
8,479,487 shares in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 190,718
171,535
119,183
20,594
10,435
—
__________________
512,465
420,154
848
76,522
123,886
22,822
—
__________________
$1,156,697
__________________
$
586
35,117
103,257
83,276
13,552
—
__________________
235,788
235,877
136,012
55,509
—
__________________
663,186
__________________
—
—
37
3
395,381
435,775
(7,659)
(69,484)
(2,878)
$ 118,909
147,511
129,803
30,010
13,349
67,351
__________________
506,933
438,953
1,079
75,469
134,644
23,383
50,467
__________________
$1,230,928
__________________
$
424
32,708
105,104
1,263
8,766
22,446
__________________
170,711
373,125
185,596
71,529
14,117
__________________
815,078
__________________
—
—
37
3
391,495
422,044
(19,111)
(118,104)
(2,594)
(257,664)
__________________
493,511
__________________
$1,156,697
__________________
__________________
(257,920)
__________________
415,850
__________________
$1,230,928
__________________
__________________
The accompanying notes are an integral part of the consolidated financial statements.
62
Albany International Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in long-term liabilities, deferred taxes and other credits . . . . . . . .
Provision for write-off of property, plant and equipment . . . . . . . . . . . . . .
Write-off of pension liability adjustment . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable
in Class A Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of business
acquisitions and divestitures:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Purchased software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Cash received from life insurance policy terminations . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) investing activities . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in)/provided by financing activities . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . .
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in cash balances of discontinued operations . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
_________________
2011
_________________
2010
_________________
$ 30,977
$ 34,938
$ 37,636
56,769
6,466
1,027
(123,887)
427
118,350
(92,457)
(40)
57,502
8,883
753
237
2,345
—
(1,022)
(93)
54,447
8,549
753
13,125
4,630
—
(9,404)
(450)
2,790
2,812
4,896
(4,990)
11,565
592
9,472
3,298
7,616
7,308
(776)
_________________
34,507
_________________
(37,046)
(161)
—
150,654
—
—
_________________
113,447
_________________
46,028
(102,128)
1,311
40
—
(21,315)
_________________
(76,064)
_________________
(81)
_________________
71,809
—
118,909
_________________
$ 190,718
_________________
_________________
(12,082)
7,105
314
(3,747)
(1,677)
6,124
2,422
455
________________
105,269
________________
(24,988)
(3,692)
2,860
—
—
—
________________
(25,820)
________________
14,386
(65,575)
789
93
—
(15,616)
________________
(65,923)
________________
(3,373)
________________
10,153
(9,169)
117,925
________________
$118,909
________________
________________
(9,509)
16,639
(2,031)
997
(7,700)
(16,776)
1,009
2,761
________________
99,572
________________
(27,334)
(4,257)
12,256
—
49,302
(1,902)
________________
28,065
________________
17,712
(92,448)
125
450
(4,471)
(14,885)
________________
(93,517)
________________
(9,285)
________________
24,835
(1,049)
94,139
________________
$117,925
________________
________________
The accompanying notes are an integral part of the consolidated financial statements.
63
ALBANY INTERNATIONAL CORP.
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 (the Company, we, us, or our) after elimination of intercompany transactions. We have a 50%
interest in an entity in Russia. The consolidated financial statements include our original investment in the entity,
plus our share of undistributed earnings or losses, in the account “Other Assets.”
Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America 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. Estimates are used in accounting for, among other things, allowances for doubtful accounts, rebates and
sales allowances, inventory allowances, pension benefits, goodwill and intangible assets, contingencies and other
accruals. Our estimates are based on historical experience and on various other assumptions, which are believed
to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual
results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed
periodically, and the effect of any revisions are reflected in the consolidated financial statements in the period
they are determined to be necessary.
Revenue Recognition
We record sales when persuasive evidence of an arrangement exists, delivery has occurred, title has been
transferred, the selling price is fixed, and collectability is reasonably assured. We include in revenue any
amounts invoiced for shipping and handling. The timing of revenue recognition is dependent upon the
contractual arrangement with customers. These arrangements, which may include provisions for transfer of title
and guarantees of workmanship, are specific to each customer. Some of these contracts provide for a transfer of
title upon delivery, or upon reaching a specific date, while other contracts provide for title transfer to occur upon
consumption of the product.
Products and services provided under long-term contracts represent a significant portion of sales in the
Engineered Composites segment. We use the percentage of completion (actual cost to estimated cost) method for
accounting for these projects. That method requires significant judgment and estimation, which could be
considerably different if the underlying circumstances were to change. When adjustments in estimated contract
revenues or costs are required, any changes from prior estimates are included in earnings in the current period.
The Engineered Composites segment also has long-term aerospace contracts under which there are two
phases: a phase during which the production part is designed and tested, and a phase of supplying production
parts. Certain costs are capitalized during the first phase, such as costs for engineering, equipment, and
inventory, where recovery is probable. Revenue will be recognized during the second phase using a percentage
of completion method. Accumulated capitalized costs are written off when those costs are determined to be
unrecoverable. Depending on the type of contract, we determine our percentage of completion using either the
cost to cost method, or the units of delivery method.
We limit the concentration of credit risk in receivables by closely monitoring credit and collection policies.
We record allowances for sales returns as a deduction in the computation of net sales. Such provisions are
recorded on the basis of written communication with customers and/or historical experience. Any value added
taxes that are imposed on sales transactions are excluded from net sales.
64
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
Cost of Goods Sold
Cost of goods sold includes the cost of materials, provisions for obsolete inventories, labor and supplies,
shipping and handling costs, depreciation of manufacturing facilities and equipment, purchasing, receiving,
warehousing, and other expenses.
Selling, General, Technical, Product Engineering, and Research Expenses
Selling, general, technical, and product engineering expenses are primarily comprised of wages, benefits,
travel, professional fees, revaluation of trade foreign currency balances, and other costs, and are expensed as
incurred. Provisions for bad debts are included in selling expense. Research expenses are charged to operations
as incurred and consist primarily of compensation, supplies, and professional fees incurred in connection with
intellectual property.
The Engineered Composites segment participates in both Company-sponsored, and customer-funded
research and development. Some customer-funded research and development may be on a cost-sharing basis, in
which case amounts charged to the customer are credited against research and development expense. Expenses
were reduced by $0.8 million in 2012 and $0.3 million in 2011 as a result of such arrangements. For customer
funded research and development in which we anticipate funding to exceed expenses, we include amounts
charged to the customer in net sales. Through 2012, revenue earned under these arrangements has been
insignificant. Total Company research expense was $27.6 million in 2012, $29.0 million in 2011, and
$26.1 million in 2010.
Restructuring Expense
We may incur expenses related to restructuring of our operations, which could include employee
termination costs, costs to consolidate or close facilities, or costs to terminate contractual relationships.
Employee termination costs include the severance pay and social costs for periods after employee service is
completed. Termination costs related to an ongoing benefit arrangement are recognized when the amount
becomes probable and estimable. Termination costs related to a one-time benefit arrangement are recognized at
the communication date to employees. Costs related to contract termination, relocation of employees, and the
consolidation or the closure of facilities, are recognized when incurred.
Income Taxes
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. The effect of tax rate changes on deferred taxes is recognized in the income tax
provision in the period that includes the enactment date. A tax valuation allowance is established, as needed, to
reduce net deferred tax assets to the amount expected to be realized. In the event it becomes more likely than not
that some or all of the deferred tax asset allowances will not be needed, the valuation allowance will be adjusted.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We
assess our income tax positions and record tax benefits for all years subject to examination based upon
management’s evaluation of the facts, circumstances, and information available at the reporting date. For those
tax positions where it is more likely than not that a tax benefit will be sustained, we have determined the amount
of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all
relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will
be sustained, no tax benefit has been recognized in the financial statements. Where applicable, associated
interest and penalties has also been recognized. We recognize accrued interest and penalties related to
unrecognized tax benefits as a component of income tax expense.
65
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
Discontinued Operations
The income/(loss) from discontinued operations includes operating income and expenses previously
attributed to businesses that were sold in 2012 and, additionally, amounts previously reported as Unallocated
expenses, and Other income/expense that were directly related to the divested businesses. Unallocated expenses
attributed to the discontinued business include expenses related to global information systems. Interest expense
is attributed to the discontinued business only when such expense results from direct third-party borrowings.
Earnings Per Share
Net income or loss per share is computed using the weighted average number of shares of Class A
Common Stock and Class B Common Stock outstanding during each year. Diluted net income per share includes
the effect of all potentially dilutive securities. If we report a net loss, or net loss from continuing operations, the
diluted loss is equal to the basic earnings per share calculation.
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 recorded in other comprehensive income and accumulated in
shareholders’ equity in the caption Translation adjustments.
Gains or losses resulting from short-term intercompany loans and balances denominated in a currency other
than the entity’s local currency, forward exchange contracts that are not designated as hedges for accounting
purposes, and futures contracts are generally included in income in Other (income)/expense, net. Gains and
losses on long-term intercompany loans not intended to be repaid in the foreseeable future are recorded in other
comprehensive income. Gains and losses resulting from other balances denominated in a currency other than the
entity’s local currency are recorded in Selling and general expenses.
The following table summarizes foreign currency transaction gains and losses recognized in the income
statement:
(in thousands)
__________________________________________________________________________________________________________________
Losses/(gains) included in:
Selling and general expenses . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . .
Total transaction losses/(gains) . . . . . . . . . . . . . . . . . . . .
2012
________________
2011
________________
2010
________________
$1,642
5,708
____________
$7,350
____________
____________
$(2,677)
(84)
_____________
$(2,761)
_____________
_____________
$ (384)
(4,626)
_____________
$(5,010)
_____________
_____________
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.
Accounts Receivable
Accounts receivable includes trade receivables and revenue in excess of progress billings on Engineered
Composites contracts accounted for under the percentage of completion method. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make
required payments. The Company determines the allowance based on historical write-off experience, customer
specific facts and economic conditions. If the financial condition of the Company’s customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
66
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
As of December 31, 2012 and 2011, Accounts receivable consisted of the following:
(in thousands)
__________________________________________________________________________________________________________________________________________
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue in excess of progress billings . . . . . . . . . . . . . . . . . . . . . . . .
Receivables related to the sale of discontinued businesses . . . . . . . .
Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .
Total Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
__________________
$149,737
17,105
16,555
(11,862)
_______________
$171,535
_______________
_______________
2011
__________________
$152,009
6,231
—
(10,729)
_______________
$147,511
_______________
_______________
Inventories
Inventories are stated at the lower of cost or market, and are valued at average cost, net of reserves. We
record a provision for obsolete inventory based on the age and category of the inventories. As of December 31,
2012 and 2011, inventories consisted of the following:
(in thousands)
__________________________________________________________________________________________________________________________________________
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
__________________
$ 25,082
44,866
49,235
_______________
$119,183
_______________
_______________
2011
__________________
$ 28,711
39,552
61,540
_______________
$129,803
_______________
_______________
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is recorded using the straight-line method
over the estimated useful lives of the assets for financial reporting purposes; in some cases, 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 is included in the respective asset and accumulated depreciation accounts. When items are sold
or retired, related gains or losses are included in net income.
Computer software purchased for internal use, at cost, is amortized on a straight-line basis over five to
eight years, depending on the nature of the asset, after being placed into service, and is included in property,
plant, and equipment. In 2006, we initiated a project to migrate our global enterprise resource planning (ERP)
system to SAP and the implementation was completed in 2011. We capitalize internal and external costs
incurred related to the software development stage. Capitalized salaries, travel, and consulting costs related to
the software development amounted to $0.4 million in 2012 and $2.3 million in 2011.
We review the carrying value of property, plant and equipment and other long-lived assets for impairment
whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and eventual disposition.
Goodwill, Intangibles, and Other Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment
at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired in each business combination. Our reporting units are consistent with our
operating segments.
Determining the fair value of a reporting unit requires the use of significant estimates and assumptions,
including revenue growth rates, operating margins, discount rates, and future market conditions, among others.
We perform an annual evaluation of goodwill during the second quarter of each year. In 2012, we applied the
qualitative assessment approach as described in “Recent Accounting Pronouncements” below. In addition,
goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant changes
in the business climate, plant closures, changes in product offerings, or other circumstances indicate that the
carrying amount may not be recoverable. We are continuing to amortize certain patents, trade names, customer
contracts, and technology assets that have finite lives.
67
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
We have an investment in a company that is accounted for under the equity method of accounting and is
included in Other assets. We perform regular reviews of the financial condition of the investee to determine if
our investment is other than temporarily impaired. If the financial condition of the investee were to no longer
support their valuation, we would record an impairment provision.
Stock-Based Compensation
As described in Note 17, we have stock-based compensation plans for key employees. Stock options are
accounted for in accordance with applicable guidance for the modified prospective transition method of
share-based payments. No options have been granted since 2002.
In 2011, shareholders approved the Albany International 2011 Incentive Plan, replacing the similar 2005
Incentive Plan approved by shareholders in 2005. Awards granted to date under these plans provide key members
of management with incentive compensation based on achieving certain performance targets. Awards under these
plans have had performance periods of from one to three years. Awards with one-year performance periods have
been payable in full after the performance period, or over a three-year period following the performance period,
partly in cash and partly in shares of Class A Common Stock. Awards with a three-year performance period have
been payable in full after the performance period. These awards are measured at fair value as of the end of each
reporting period. If a person terminates employment prior to the award becoming fully vested, the person will
forfeit all or a portion of the incentive compensation award. Expense associated with this these awards is
recognized over the vesting period, which includes the year for which performance targets are measured and
may, if payment is made over three years, include the two subsequent years.
Derivatives
We use derivatives from time to time to reduce potentially large adverse effects from changes in currency
exchange rates and interest rates. We monitor our exposure to these risks and evaluate, on an ongoing basis, the
risk of potentially large adverse effects versus the costs associated with hedging such risks.
We use interest rate swaps in the management of interest rate exposures and foreign currency derivatives in
the management of foreign currency exposure related to assets and liabilities (including net investments in
subsidiaries located outside the U.S.) denominated in foreign currencies. When we enter into a derivative
contract, we make a determination whether the transaction is deemed to be a hedge for accounting purposes. For
those contracts deemed to be a hedge, we formally document the relationship between the derivative instrument
and the risk being hedged. In this documentation, we specifically identify the asset, liability, forecasted
transaction, cash flow, or net investment that has been designated as the hedged item, and evaluate whether the
derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria
are not met, we do not use hedge accounting for the derivative.
All derivative contracts are recorded in the balance sheet at fair value. For transactions that are designated
as hedges, we perform an evaluation of the effectiveness of the hedge. To the extent that the hedge is effective,
changes in the fair value of the hedge are recorded, net of tax, in other comprehensive income. We measure the
effectiveness of hedging relationships both at inception and on an ongoing basis. The ineffective portion of a
hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in Other
(income)/expense, net.
For derivatives that are designated and qualify as hedges of net investments in subsidiaries located outside
the United States, changes in the fair value of derivatives are reported in other comprehensive income as part of
the Cumulative translation adjustment.
68
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
Pension and Postretirement Benefit Plans
As described in Note 4, we have pension and postretirement benefit plans covering substantially all
employees. Our defined benefit pension plan in the United States was closed to new participants as of October
1998 and, as of February 2009, benefits accrued under this plan were frozen. Effective January 2005, our
postretirement benefit plan was closed to new participants, except for certain life insurance benefits, and in
September 2008, we changed the cost sharing arrangement under this program such that increases in health care
costs are the responsibility of plan participants. The plans are generally trusteed or insured, and accrued amounts
are funded as required in accordance with governing laws and regulations. We have provided certain postretirement
medical, dental, and life insurance benefits to certain retirees in the United States and Canada. The annual expense
and liabilities recognized for defined benefit pension plans and postretirement benefit plans are developed from
actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected return
on plan assets, which are updated on an annual basis at the beginning of each fiscal year. We consider current
market conditions, including changes in interest rates, in making these assumptions. Discount rate assumptions are
based on the population of plan participants and a mixture of high-quality fixed-income investments for which the
average maturity approximates the average remaining service period of plan participants. The assumption for
expected return on plan assets is based on historical and expected returns on various categories of plan assets.
Reportable Segments
In accordance with applicable disclosure guidance for enterprise segments and related information, the
internal organization that is used by management for making operating decisions and assessing performance is
used as the basis for our reportable segments. The reportable segments, which are described in more detail in
Note 3, are Machine Clothing and Engineered Composites. In the determination of segment operating income,
we exclude expenses for Research and Development, and Unallocated expenses, which consist primarily of
corporate headquarters and global information systems costs.
Recent Accounting Pronouncements
On February 5, 2013, the Financial Accounting Standards Board (FASB) issued authoritative guidance related
to reporting of amounts reclassified out of accumulated other comprehensive income. This pronouncement affects
the reporting of reclassification adjustments from accumulated other comprehensive income. The new requirements
will take effect for quarterly and annual reporting periods beginning after December 15, 2012. We are required to
adopt these provisions in the first quarter of 2013. The guidance affects financial statement presentation only, and
we do not expect the adoption of these requirements to have a material effect on our financial statements.
In June and December 2011, the FASB issued guidance that eliminates the option to report other
comprehensive income and its components in the statement of changes in stockholders’ equity and requires an
entity to present the total of comprehensive income, the components of net income and the components of other
comprehensive income either in a single continuous statement or in two separate but consecutive statements.
This pronouncement is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The adoption of this guidance concerns presentation and disclosure only and did not have a
material impact on our financial statements.
In September 2011, the FASB issued guidance intended to reduce the cost and complexity of the annual
goodwill impairment test by providing entities an option to perform a “qualitative” assessment to determine
whether further impairment testing is necessary. Annually, the Company performs a qualitative assessment for
each of its reporting units to determine if the two step process for impairment testing is required. If the
Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, the Company evaluates the recoverability of goodwill using a two-step impairment test approach at the
reporting unit level. This pronouncement is effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. The Company adopted this approach in 2012, and it did not
have a material effect on our financial statements.
69
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Discontinued Operations
In October, 2011 we entered into a contract to sell the assets and liabilities of our Albany Door Systems
business to Assa Abloy AB for $130 million. Closing on the transaction occurred on January 11, 2012, and the
Company recorded a pre-tax gain of $57.4 million as a result of that sale. Additionally, in March 2012 we agreed
with the purchaser on certain post-closing adjustments and in April 2012, we received a payment of $5.0 million
to reflect that agreement. Under the terms of the contract, Assa Abloy AB acquired our equity ownership of
Albany Doors Systems GmbH in Germany, Albany Door Systems AB in Sweden, and other affiliates in
Germany, France, the Netherlands, Turkey, Poland, Belgium, New Zealand, and other countries, as well as the
remaining business assets, most of which were located in the United States, Australia, China, and Italy. In the
second quarter of 2012, the purchaser completed certain legal registration activities in China, allowing the
parties to complete the transfer of assets and liabilities of the business in that country.
The initial purchase price of $130 million included $13 million to be paid in July 2013. We recorded the
value of that consideration on a present value basis and, as of December 31, 2012, we had a receivable of
$12.8 million included in Accounts receivable.
In May 2012, we announced an agreement to sell our PrimaLoft® Products business and that transaction
closed on June 29, 2012. Under the terms of the agreement, the purchaser acquired all of the assets of that
business, which were located in the United States, Italy and Germany. The purchase of $38.0 million included
$3.8 million held in escrow accounts, and which is expected to be received in 2013. The Company recorded a
pre-tax gain of $34.9 million as result of that sale.
We have provided customary representations and warranties in the sale of both of these businesses but we
do not expect any material negative financial consequence will result from these arrangements. In accordance
with the applicable accounting guidance for discontinued businesses, the associated results of operations and
financial position are reported separately in the accompanying Consolidated Statements of Income and Balance
Sheets. Cash flows of the discontinued operation were combined with cash flows from continuing operations in
the Consolidated Statements of Cash Flows.
The table below summarizes operating results of the discontinued operations:
(in thousands)
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations of discontinued
business before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of discontinued operations . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
___________________
$19,774
2011
___________________
$211,551
2010
___________________
$171,469
4,776
92,296
25,252
24,101
—
10,429
16,073
—
5,860
Income tax expense includes a charge of $5.4 million in 2012 and $2.6 million in 2011 pertaining to cash
repatriations that occurred in 2012 as a result of the sale of the Albany Doors business.
70
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Discontinued Operations – (continued)
The table below summarizes major categories of assets and liabilities for the discontinued businesses:
(in thousands)
__________________________________________________________________________________________________________________________________________________________________
Assets of Discontinued Operations:
December 31, 2011
________________________________
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current and noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets of discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities of Discontinued Operations:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities for defined benefit pension plans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities of discontinued operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,545
36,458
16,507
6,907
39,227
5,174
___________________
$117,818
___________________
___________________
$
9,255
11,428
1,763
9,513
4,604
___________________
$ 36,563
___________________
___________________
3. Reportable Segments and Geographic Data
In accordance with applicable disclosure guidance for enterprise segments and related information, the
internal organization that is used by management for making operating decisions and assessing performance is
used as the basis for our reportable segments.
The accounting policies of the segments are the same as those described in Note 1. We do not allocate
research costs and other Unallocated expenses to the segments because the decision-making for the majority of
these expenses does not reside within the segments. Unallocated expenses include wages and benefits for
Corporate headquarters personnel, costs related to information systems development and support, and
professional fees related to legal, audit, and other activities.
Machine Clothing:
The Machine Clothing segment includes paper machine clothing — engineered fabrics and belts used in the
manufacture of paper and paperboard — as well as engineered fabrics and belts used in many other industrial
applications. We sell our Machine Clothing products directly to customer end-users, which include paper
industry companies, nonwovens manufacturers, and building products companies, some of which operate in
multiple regions of the world. Our products, manufacturing processes, and distribution channels for Machine
Clothing are substantially the same in each region of the world in which we operate.
We design, manufacture, and market paper machine clothing for each section of the paper machine. We
manufacture and sell more paper machine clothing worldwide than any other company. Paper machine clothing
consists of large permeable and non-permeable 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 products are consumable products of technologically sophisticated
design that utilize polymeric materials in a complex structure.
The Machine Clothing segment also supplies consumable fabrics used to process paper pulp, as well as
engineered fabrics used in a range of industries other than papermaking. These other products include belts used
to make nonwovens, fiber cement building products, roofing shingles, and corrugated sheets used in boxboard,
as well as belts used in tannery and textile applications.
71
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data – (continued)
Engineered Composites:
The Engineered Composites segment (AEC) provides custom-designed advanced composite structures
based on proprietary technology to customers in the aerospace and defense industries. AEC’s largest current
development program relates to the LEAP engine being developed by CFM International. Under this program,
AEC is developing a family of composite parts, including fan blades, to be incorporated into the LEAP engine
under a long-term supply contract.
The following tables show data by reportable segment, reconciled to consolidated totals included in the
financial statements:
(in thousands)
__________________________________________________________________________________________________________________
Net sales
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Research expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Research expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss)/income before reconciling items . . . . . .
Reconciling items:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/ (income), net . . . . . . . . . . . . . . . . . . . .
(Loss)/income from continuing operations
2012
____________________
2011
____________________
2010
____________________
$693,176
67,765
_______________
$760,941
_______________
$ 46,843
5,920
1,252
9,052
_______________
$ 63,067
_______________
$163,873
(840)
(27,616)
(179,553)
_______________
(44,136)
(1,517)
18,118
7,629
_______________
$739,211
48,076
_______________
$787,287
_______________
$ 48,181
4,959
1,314
9,358
_______________
$ 63,812
_______________
$176,759
(4,204)
(29,007)
(68,940)
_______________
74,608
(2,027)
20,148
2,639
_______________
$701,020
41,867
_______________
$742,887
_______________
$ 49,036
4,277
1,226
5,905
_______________
$ 60,444
_______________
$165,662
(9,176)
(26,064)
(65,713)
_______________
64,709
(1,165)
18,405
(976)
_______________
before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (68,366)
_______________
$ 53,848
_______________
$ 48,445
_______________
The table below presents pension settlement and restructuring costs by reportable segment (also see Note 5):
(in thousands)
__________________________________________________________________________________________________________________
Pension settlement
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
____________________
2011
____________________
2010
____________________
$119,735
_______________
$
—
_______________
$
—
_______________
$
7,386
—
(325)
_______________
$
7,061
_______________
_______________
$
5,680
57
3,580
_______________
$
9,317
_______________
_______________
$
4,762
930
(1,945)
_______________
$
3,747
_______________
_______________
72
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data – (continued)
In the measurement of assets utilized by each reportable segment, we include accounts receivable,
inventories, net property, plant and equipment, intangibles and goodwill. Excluded from segment assets are cash,
tax related assets, prepaid and other current assets, other assets, and assets from discontinued businesses. The
following table presents assets and capital expenditures by reportable segment:
(in thousands)
__________________________________________________________________________________________________________________
Segment assets
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable and deferred . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets of discontinued operations . . . . . . . . . . . . . .
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures and purchased software
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Research expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
____________________
2011
____________________
2010
____________________
$ 660,595
109,717
$ 713,142
80,916
$ 773,135
74,332
190,718
144,480
51,187
—
__________________
$1,156,697
__________________
__________________
$
14,717
18,979
1,493
2,018
__________________
$
37,207
__________________
__________________
118,909
164,654
34,670
118,637
__________________
$1,230,928
__________________
__________________
$
11,141
9,684
2,052
4,551
__________________
$
27,428
__________________
__________________
117,925
179,535
30,771
102,595
__________________
$1,278,293
__________________
__________________
$ 19,234
6,559
1,084
4,080
__________________
$
30,957
__________________
__________________
The increase in Other assets in the above table includes $16.6 million of receivables related to the sale of
discontinued operations.
Additionally, capital expenditures in the discontinued operations were $1.3 million in 2011 and $0.7
million in 2010. The following table shows data by geographic area. Net sales are based on the location of the
operation recording the final sale to the customer.
(in thousands)
__________________________________________________________________________________________________________________
Net sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost, net
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
____________________
2011
____________________
2010
____________________
$ 324,764
203,478
58,755
39,929
36,182
97,833
__________________
$ 760,941
__________________
__________________
$ 137,405
114,037
38,266
27,396
26,269
23,397
53,384
__________________
$ 420,154
__________________
__________________
$ 306,371
245,562
61,493
34,977
40,422
98,462
__________________
$ 787,287
__________________
__________________
$ 133,651
126,072
34,102
29,650
27,196
26,210
62,072
__________________
$ 438,953
__________________
__________________
$ 296,265
223,443
61,410
25,171
36,804
99,794
__________________
$ 742,887
__________________
__________________
$ 140,601
133,851
40,473
34,149
28,425
32,630
70,582
__________________
$ 480,711
__________________
__________________
73
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans
Pension Plans
The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The U.S.
qualified defined benefit pension plan has been closed to new participants since October 1998 and, as of
February 2009, benefits accrued under this plan were frozen. As a result of the freeze, employees covered by the
pension plan will receive, at retirement, benefits already accrued through February 2009, but no new benefits
accrue after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan (“SERP”) were
similarly frozen. The U.S. pension plan accounts for 48% of consolidated pension plan assets, and 45% of
consolidated pension plan obligations. The eligibility, benefit formulas, and contribution requirements for plans
outside of the U.S. vary by location.
Other Postretirement Benefits
In addition to providing pension benefits, the Company provides various medical, dental, and life insurance
benefits for certain retired United States employees. U.S. employees hired prior to 2005 may become eligible for
these benefits if they reach normal retirement age while working for the Company. Benefits provided under this plan
are subject to change. Retirees share in the cost of these benefits. Effective January 2005, any new employees who
wish to be covered under this plan will be responsible for the full cost of such benefits, except for life insurance
benefits, which continue to be provided. In September 2008, we changed the cost sharing arrangement under this
program such that increases in health care costs are the responsibility of plan participants.
The Company also provides certain postretirement life insurance benefits to retired employees in Canada.
As of December 31, 2012, the accrued postretirement liability was $83.2 million in the U.S. and $1.2 million in
Canada. 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.
Accounting guidance requires the recognition of the funded status of each defined benefit and other
postretirement benefit plan. Each overfunded plan is recognized as an asset and each underfunded plan is
recognized as a liability. Company pension plan data for U.S. and non-U.S. plans has been combined for both
2012 and 2011, except where indicated below.
The Company’s pension and postretirement benefit costs and benefit obligations are based on actuarial
valuations that are affected by many assumptions, the most significant of which are the assumed discount rate,
expected rate of return on pension plan assets, and mortality. Each of the assumptions is reviewed and updated
annually, as appropriate. The assumed rates of return for pension plan assets are determined for each major asset
category based on historical rates of return for assets in that category and expectations of future rates of return
based, in part, on simulated future capital market performance. The assumed discount rate is based on yields
from a portfolio of currently available high-quality fixed-income investments with durations matching the
expected future payments, based on the demographics of the plan participants and the plan provisions.
The benefit obligation for the U.S. plans as of December 31, 2012 was calculated using the IRS 2013 mortality
table. The benefit obligation as of December 31, 2011, as well as pension expense for 2012, was calculated using the
IRS 2012 mortality table. For U.S. pension funding purposes, the Company uses the plan’s IRS-basis current liability
as its funding target, which is determined based on mandated assumptions. Weak investment returns and low interest
rates could result in higher than expected contributions to pension plans in future years.
Gains and losses arise from changes in the assumptions used to measure the benefit obligations, and
experience different from what had been assumed, including asset returns different than what had been expected.
The Company amortizes gains and losses in excess of a “corridor” over the average future service of the plan’s
current participants. The corridor is defined as 10% of the greater of the plan’s projected benefit obligation or
market-related value of plan assets. The market-related value of plan assets is also used to determine the
expected return on plan assets component of net periodic cost. The Company’s market-related value for its U.S.
plan is measured by first determining the absolute difference between the actual and the expected return on the
plan assets. The absolute difference in excess of 5% of the expected return is added to the market-related value
over two years; the remainder is added to the market-related value immediately.
74
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
To the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the
amount recognized through accumulated other comprehensive income, are not reduced by future favorable plan
experience, they will be recognized as a component of the net periodic cost in future years. The Company’s
unrecognized net loss in its pension plans is primarily attributable to recent declines in interest rates and
unfavorable investment returns in 2008.
The following table sets forth the plan benefit obligations:
(in thousands)
____________________________________________________________________________________________________
Benefit obligation, beginning of year . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . .
Actuarial loss/(gain) . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special / Contractual Termination Benefits . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency changes . . . . . . . . . . . . . . . . .
Benefit obligation, end of year . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . .
Weighted average assumptions used to
determine benefit obligations, end of year:
Discount rate — U.S. plan . . . . . . . . . . . . . . . .
Discount rate — non-U.S. plans . . . . . . . . . . .
Compensation increase — U.S. plan . . . . . . . .
Compensation increase — non-U.S. plans . . . .
As of December 31, 2012
________________________________________________
Other
postretirement
benefits
_________________________
$79,009
_____________
1,071
3,691
—
6,343
(5,778)
—
—
—
32
_____________
$84,368
_____________
_____________
Pension plans
_______________________
$405,880
_______________
3,486
12,180
344
49,582
(14,909)
(249,709)
—
571
11,113
_______________
$218,538
_______________
$202,917
_______________
As of December 31, 2011
___________________________________________________
Other
postretirement
benefits
__________________________
$72,137
_____________
931
3,869
—
6,977
(5,823)
—
—
945
(27)
_____________
$79,009
_____________
—
_____________
Pension plans
_______________________
$374,115
_______________
3,117
19,958
387
39,712
(26,598)
(891)
233
—
(4,153)
_______________
$405,880
_______________
— $391,457
_______________
4.28%
4.09%
—
3.26%
3.93%
4.00%
3.00%
3.00%
4.82%
4.48%
—
3.19%
4.86%
4.20%
3.00%
3.00%
The following sets forth information about plan assets:
(in thousands)
____________________________________________________________________________________________________
Fair value of plan assets, beginning of year . . . .
Actual return on plan assets, net of expenses . . .
Employer contributions . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency changes . . . . . . . . . . . . . . . . . .
Fair value of plan assets, end of year . . . . . . . . . .
As of December 31, 2012
________________________________________________
Other
postretirement
benefits
Pension plans
_________________________
_______________________
$ — $262,376
—
34,176
4,961
37,174
817
387
(5,778)
(26,562)
—
(891)
—
(2,002)
_______________
_____________
$ — $304,658
_______________
_____________
As of December 31, 2011
___________________________________________________
Other
postretirement
benefits
__________________________
$ —
—
5,823
1,319
(7,142)
—
—
_____________
$ —
_____________
Pension plans
_______________________
$304,658
19,493
110,172
344
(14,909)
(249,709)
3,385
_______________
$173,434
_______________
75
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
The funded status of the plans was as follows:
(in thousands)
____________________________________________________________________________________________________
Fair value of plan assets . . . . . . . . . . . . . . . . . . . .
Benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . .
Funded status . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued benefit cost, end of year . . . . . . . . . . . .
Amounts recognized in the statement of
financial position consist of the following:
Noncurrent asset . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liability . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liability . . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . .
Amounts recognized in accumulated other
comprehensive income consist of:
As of December 31, 2012
________________________________________________
Other
postretirement
benefits
Pension plans
_________________________
_______________________
$
— $ 304,658
84,368
405,880
_________________
_______________
$(84,368) $(101,222)
_________________
_______________
$(84,368) $(101,222)
_________________
_______________
As of December 31, 2011
___________________________________________________
Other
postretirement
benefits
__________________________
—
$
79,009
_______________
$(79,009)
_______________
$(79,009)
_______________
Pension plans
_______________________
$ 173,434
218,538
_________________
$ (45,104)
_________________
$ (45,104)
_________________
$
7,034
(2,318)
(49,820)
_________________
$ (45,104)
_________________
$
— $
7,779
(5,547)
(3,576)
(78,821)
(105,425)
_________________
_______________
$(84,368) $(101,222)
_________________
_______________
$
—
(5,949)
(73,060)
_______________
$(79,009)
_______________
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(credit) . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . .
$ 84,784
405
70
_________________
$ 85,259
_________________
$ 57,966
(40,329)
—
_______________
$ 17,637
_______________
$ 164,246
432
138
_________________
$ 164,816
_________________
$ 54,835
(43,995)
—
_______________
$ 10,840
_______________
76
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
The composition of the net periodic benefit plan cost for the years ended December 31, 2012, 2011 and
2010, was as follows:
(in thousands)
______________________________________________________________
Components of net periodic
benefit cost:
Service cost . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . .
Other adjustments . . . . . . . . . . . .
Expected return on assets . . . . . .
Amortization of prior service
cost/(credit) . . . . . . . . . . . . . . .
Amortization of transition
obligation . . . . . . . . . . . . . . . . .
Amortization of net actuarial
loss . . . . . . . . . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . .
Curtailment (gain)/loss . . . . . . . .
Special / contractual termination
benefits . . . . . . . . . . . . . . . . . . .
Net periodic benefit cost . . . . . . .
Weighted average assumptions
used to determine net cost:
Discount rate — U.S. plan . . . . .
Discount rate — non -U.S. plan . .
Expected return on plan assets
— U.S. plans . . . . . . . . . . . . . .
Expected return on plan assets
— non-U.S. plans . . . . . . . . . .
Rate of compensation increase
— U.S. plan . . . . . . . . . . . . . . .
Rate of compensation increase
— non-U.S. plans . . . . . . . . . .
Health care cost trend rate
(U.S. and non-U.S. plans):
Initial rate . . . . . . . . . . . . . . . . . . .
Ultimate rate . . . . . . . . . . . . . . . .
Years to ultimate . . . . . . . . . . . . .
Pension plans
_________________________________________________________________
2010
2011
2012
________________
________________
________________
Other postretirement benefits
_________________________________________________________________
2010
2011
2012
________________
________________
________________
$
3,486
12,180
—
(11,799)
$ 3,117
19,958
—
(15,858)
$ 3,572
19,644
—
(15,127)
$ 1,071
3,691
—
—
$
931
3,869
945
—
$
910
4,054
—
—
35
79
4,223
119,986
—
37
83
5,672
327
—
16
94
4,738
839
34
(3,666)
(3,666)
(3,666)
—
3,215
—
—
—
3,022
—
—
—
2,923
—
(1,921)
—
_________________
$128,190
_________________
233
_______________
$ 13,569
_______________
—
_______________
$ 13,810
_______________
—
______________
$ 4,311
______________
—
_____________
$ 5,101
_____________
—
_____________
$ 2,300
_____________
4.82%
4.48%
4.82%
6.26%
5.59%
5.29%
5.80%
5.84%
4.86%
4.20%
5.55%
—
5.70%
—
5.80%
6.10%
6.80%
6.91%
—
—
—
—
—
—
—
—
—
3.00%
3.00%
3.00%
3.19%
3.47%
3.42%
3.00%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other changes in plan assets and benefit obligations recognized in other comprehensive income during
2012 were as follows:
(in thousands)
____________________________________________________________________________________________________________________________________________
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset/liability loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service (cost)/credit . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition (obligation) . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in other comprehensive income . . . . . . . . . . . . . . . .
Total recognized in net periodic benefit cost and other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension
plan
______________________
$(118,350)
41,889
(4,223)
(35)
(79)
2,877
________________
$ (77,921)
________________
Other
postretirement
benefits
__________________________
$ —
6,344
(3,215)
3,666
—
3
_____________
$ 6,798
_____________
$ 50,269
________________
$11,109
_____________
77
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
The estimated amounts that will be amortized from accumulated other comprehensive income into net
periodic benefit cost in 2013 are as follows:
(in thousands)
_____________________________________________________________________________________________________________________________________________
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
pension
__________________
$3,185
35
70
___________
$3,290
___________
___________
Total
postretirement
benefits
__________________________
$ 3,514
(3,666)
—
____________
$ (152)
____________
____________
Investment Strategy
Our investment strategy for pension assets differs for the various countries in which we have defined
benefit pension plans. Some of our defined benefit plans do not require funded trusts and, in those arrangements,
the Company funds the plans on a “pay as you go” basis. The largest of the funded defined benefit plans is the
United States plan, which accounts for 48% of the Company’s pension plan assets.
United States plan:
During 2009, we changed our investment strategy for the United States pension plan by adopting a
liability-driven investment strategy. Under this arrangement, the Company seeks to invest in assets that track
closely to the discount rate that is used to measure the plan liabilities. Accordingly, the plan assets are primarily
debt securities. The change in investment strategy is reflective of the Company’s 2008 decision to freeze benefit
accruals under the plan.
Non United States plans:
For the countries in which the Company has funded pension trusts, the investment strategy is to achieve a
competitive, total investment return, achieving diversification between and within asset classes and managing
other risks. Investment objectives for each asset class are determined based on specific risks and investment
opportunities identified. Actual allocations to each asset class vary from target allocations due to periodic
investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment
allocation positions, and the timing of benefit payments and contributions.
Fair-Value Measurements
The following tables present plan assets as of December 31, 2012 and 2011, using the fair-value hierarchy,
which has three levels based on the reliability of inputs used, as described in Note 13:
(in thousands)
___________________________________________________________________________________________
Common stocks . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . .
Total fair
value at
December 31,
2012
________________________
$ 46,625
114,136
2,542
7,556
536
2,039
_______________
$173,434
_______________
_______________
Quoted prices Significant other
in active
markets
(Level 1)
________________________
$46,625
—
—
—
—
2,039
_____________
$48,664
_____________
_____________
observable
inputs
(Level 2)
_____________________________
—
$
114,136
—
—
—
—
_______________
$114,136
_______________
_______________
Significant
unobservable
inputs
(Level 3)
_______________________
$ —
—
2,542
7,556
536
—
_____________
$10,634
_____________
_____________
78
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
(in thousands)
___________________________________________________________________________________________
Common stocks . . . . . . . . . . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . .
Total fair
value at
December 31,
2011
________________________
$ 48,993
243,839
2,361
8,676
557
232
_______________
$304,658
_______________
_______________
Quoted prices Significant other
in active
markets
(Level 1)
________________________
$48,993
—
—
—
—
232
_____________
$49,225
_____________
_____________
observable
inputs
(Level 2)
_____________________________
—
$
243,839
—
—
—
—
_______________
$243,839
_______________
_______________
Significant
unobservable
inputs
(Level 3)
_______________________
$ —
—
2,361
8,676
557
—
_____________
$11,594
_____________
_____________
The following tables present a reconciliation of Level 3 assets held during the years ended December 31,
2012 and 2011:
(in thousands)
_____________________________________________
Insurance contracts . . . .
Limited partnerships . . .
Hedge funds . . . . . . . . .
Total . . . . . . . . . . . . . . .
December 31, Net realized Net unrealized
gains/(losses)
(losses)/ gains
2011
_________________________
_______________________
_______________________
$ 39
$ —
$ 2,361
521
—
8,676
32
—
557
________
_______
_____________
$592
$ —
$11,594
________
_______
_____________
________
_______
_____________
(in thousands)
_____________________________________________
Insurance contracts . . . .
Limited partnerships . . .
Hedge funds . . . . . . . . .
Total . . . . . . . . . . . . . . .
December 31, Net realized Net unrealized
gains/(losses)
(losses)/ gains
2010
_________________________
_______________________
_______________________
$ 85
$ —
$ 2,050
235
107
9,115
(132)
(19)
10,699
_________
_______
_____________
$ 188
$ 88
$21,864
_________
_______
_____________
_________
_______
_____________
Net
purchases,
issuances
and
settlements
________________________
142
(1,641)
(53)
____________
$(1,552)
____________
____________
$
Net
purchases,
issuances
and
settlements
________________________
$226
—
—
________
$226
________
________
Net
transfers
(out of)
Level 3
_______________________
$ —
—
—
_______
$ —
_______
_______
$
Net
transfers
(out of)
Level 3
_______________________
—
(781)
(9,991)
______________
$(10,772)
______________
______________
December 31,
2012
_______________________
$ 2,542
7,556
536
_____________
$10,634
_____________
_____________
December 31,
2011
_______________________
$ 2,361
8,676
557
_____________
$11,594
_____________
_____________
The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2012 and 2011, and the target
allocation for 2013, by asset category, are as follows:
Asset category
________________________________________________
Equity securities . . . . . . .
Debt securities . . . . . . . . .
Real estate . . . . . . . . . . . .
Other (1) . . . . . . . . . . . . .
United States Plan
________________________________________________________________________
Percentage of plan assets
at plan measurement date
_____________________________________________
2012
2011
__________________
__________________
—
5%
92%
88%
2%
4%
6%
3%
______
______
100%
100%
______
______
______
______
Target
Allocation
__________________
2013
__________________
—
100%
—
—
______
100%
______
______
Target
Allocation
__________________
2013
__________________
36%
56%
4%
4%
______
100%
______
______
Non-U.S. Plans
________________________________________________________________________
Percentage of plan assets
at plan measurement date
______________________________________________
2011
2012
__________________
__________________
50%
43%
3%
4%
______
100%
______
______
49%
45%
3%
3%
______
100%
______
______
(1) Other includes hedged equity and absolute return strategies, and private equity. The Company has procedures
to closely monitor the performance of these investments and compares asset valuations to audited financial
statements of the funds.
The targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset
classes, and an analysis of the expected rate of return, risk, and other investment characteristics of various
investment asset classes.
79
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4 . Pensions and Other Postretirement Benefit Plans – (continued)
At the end of 2012 and 2011, the projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with projected benefit obligation and an accumulated benefit obligation in
excess of plan assets were as follows:
(in thousands)
________________________________________________________________________________________________________________________________________________
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
________________________________________________________________________________________________________________________________________________
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans with projected
benefit obligation in
excess of plan assets
__________________________________________________
2011
2012
____________________
____________________
$183,765
$376,595
169,396
363,228
131,626
267,594
Plans with accumulated
benefit obligation
in excess of plan assets
__________________________________________________
2011
2012
____________________
____________________
$136,329
$376,595
132,396
363,228
86,835
267,594
Information about expected cash flows for the pension and other benefit obligations are as follows:
(in thousands)
________________________________________________________________________________________________________________________________________________
Expected employer contributions in the next fiscal year . . . . . . . . . . . . .
Expected benefit payments
Pension
plans
_____________________
$ 4,560
_____________
Other
postretirement
benefits
__________________________
$ 5,592
_____________
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,786
5,548
5,938
6,542
8,168
44,506
$ 5,592
5,434
5,245
5,091
4,976
24,617
5. Restructuring
Restructuring expenses in 2012 were principally related to a reduction in workforce in Sweden and France,
and the previously announced curtailment of manufacturing in New York and Wisconsin. The restructuring
activities were related to the lower demand for paper machine clothing. Those costs were partially offset by a
reduction in accruals related to the Company’s headquarters. Restructuring costs totaled $7.1 million, including a
reduction to expense of $0.7 million that resulted from the sale of property in Albany, New York.
In November 2012, we announced that our subsidiary in France had initiated discussions with the employee
Works Council regarding a proposal to restructure operations at the Company’s Machine Clothing production
facilities in Selestat and St. Junien. The consultation will be completed in accordance with applicable French
legislation. No accrual has been recorded in regard to the proposed actions.
Restructuring expenses for 2010 and 2011 were the result of restructuring and performance improvement
plans affecting each of our reportable segments. The restructuring activities were driven by the need for us to
balance our manufacturing capacity with anticipated demand, to improve efficiency in all aspects of our
business, and to strengthen our competitive position. We also took actions to reduce costs and to create process
efficiencies within administrative functions.
80
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Restructuring – (continued)
The following table summarizes charges reported in the Statements of Income under “Restructuring
and other”:
Year ended December 31, 2012
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2011
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2010
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
restructuring
costs incurred
__________________________
$7,386
—
(325)
___________
$7,061
___________
___________
Total
restructuring
costs incurred
__________________________
$5,680
57
3,580
___________
$9,317
___________
___________
Total
restructuring
costs incurred
__________________________
$4,762
930
(1,945)
___________
$3,747
___________
___________
Termination
and other
costs
_____________________
$7,386
—
380
___________
$7,766
___________
___________
Termination
and other
costs
_____________________
$5,484
57
1,830
___________
$7,371
___________
___________
Termination
and other
costs
_____________________
$2,767
930
—
___________
$3,697
___________
___________
Impairment of Benefit plan
curtailment/
settlement
______________________
$ —
—
—
____________
$ —
____________
____________
plant and
equipment
_________________________
$ —
—
(705)
___________
$ (705)
___________
___________
Impairment of Benefit plan
curtailment/
settlement
______________________
196
$
—
—
____________
$
196
____________
____________
plant and
equipment
_________________________
$ —
—
1,750
___________
$1,750
___________
___________
Impairment of Benefit plan
curtailment/
settlement
______________________
752
$
—
(1,945)
____________
$(1,193)
____________
____________
plant and
equipment
_________________________
$1,243
—
—
___________
$1,243
___________
___________
We expect that substantially all accruals for restructuring liabilities will be paid within one year. The table
below presents the changes in restructuring liabilities:
(in thousands)
_________________________________________________________
Termination costs . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
(in thousands)
_________________________________________________________
Termination costs . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
December 31,
2011
_______________________
$6,979
___________
$6,979
___________
___________
December 31,
2010
_______________________
$2,809
___________
$2,809
___________
___________
Restructuring
charges
accrued
________________________
$7,617
___________
$7,617
___________
___________
Restructuring
charges
accrued
________________________
$6,890
___________
$6,890
___________
___________
Payments
_______________________
$(9,672)
____________
$(9,672)
____________
____________
Payments
_______________________
$(2,707)
____________
$(2,707)
____________
____________
Currency
translation/
other
_______________________
$ 23
_______
$ 23
_______
_______
Currency
translation/
other
_______________________
$(13)
_______
$(13)
_______
_______
December 31,
2012
_______________________
$4,947
___________
$4,947
___________
___________
December 31,
2011
_______________________
$6,979
___________
$6,979
___________
___________
81
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
6. Other Expense/(Income), net
The components of other expense/(income), net, are:
(in thousands)
__________________________________________________________________________________________________________________
Currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank fees and amortization of debt issuance costs . . . . .
Letter of credit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Income Taxes
2012
____________________
$ 5,708
2,385
963
(1,427)
____________
$ 7,629
____________
____________
2011
____________________
$ (84)
1,837
1,479
(593)
___________
$2,639
___________
___________
2010
____________________
$(4,626)
1,704
1,831
115
____________
$ (976)
____________
____________
The following tables present components of income tax (benefit)/expense and (loss)/income before income
taxes on continuing operations:
(in thousands)
__________________________________________________________________________________________________________________
Income tax based on income from continuing
operations, at estimated tax rates of 39%, 33%,
and 30%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan settlements . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of life insurance policies . . . . . . . . . . . . . . .
Income tax before discrete items . . . . . . . . . . . . . . . . . . .
Discrete tax (benefit)/expense:
Provision for/resolution of tax audits and
contingencies, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to prior period tax liabilities . . . . . . . . . .
Enacted legislation change . . . . . . . . . . . . . . . . . . . . . .
Provision for/adjustment to beginning of year
valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . .
Change in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repatriation of non-U.S. prior years’ earnings . . . . . .
Adjustment to correct a prior year error . . . . . . . . . . .
Other discrete tax adjustments, net . . . . . . . . . . . . . . .
Total income tax (benefit)/expense . . . . . . . . . . . . . . . . .
2012
____________________
2011
____________________
2010
____________________
$ 19,769
(39,460)
—
______________
(19,691)
$17,814
—
—
_____________
17,814
(2,747)
(1,471)
(973)
(2,442)
—
—
—
(199)
______________
$(27,523)
______________
______________
289
(1,624)
115
22,798
(3,344)
—
(3,553)
87
_____________
$32,582
_____________
_____________
$14,381
—
9,382
_____________
23,763
—
100
324
—
(161)
(2,262)
—
(742)
_____________
$21,022
_____________
_____________
Income tax expense in 2011 includes a favorable adjustment of $3.5 million to correct errors from periods
prior to 2006. The Company does not believe that the corrected item is or was material to 2011 or any
previously reported quarterly or annual financial statements. As a result, the Company has not restated its
previously issued annual or quarterly financial statements.
82
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes – (continued)
(in thousands)
__________________________________________________________________________________________________________________
(Loss)/income before income taxes:
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision for income taxes . . . . . . . . . . . . . . . . . . .
2012
____________________
2011
____________________
2010
____________________
$(84,624)
16,258
______________
$(68,366)
______________
$ (9,748)
63,596
_____________
$53,848
_____________
$ (1,481)
49,926
_____________
$48,445
_____________
$(20,123)
(1,212)
12,413
______________
$ (8,922)
______________
$(12,851)
(1,538)
(4,212)
______________
$(18,601)
______________
$(27,523)
______________
______________
$ (9,288)
120
17,879
_____________
$ 8,711
_____________
$ 3,519
113
20,239
_____________
$23,871
_____________
$32,582
_____________
_____________
The significant components of deferred income tax (benefit)/expense are as follows:
(in thousands)
__________________________________________________________________________________________________________________
Net effect of temporary differences . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impact to operating loss carryforwards . . . . . . . . . . .
Enacted changes in tax laws and rates . . . . . . . . . . . . . . .
Adjustments to beginning-of-the-year valuation
allowance balance for changes in circumstances . . . . .
Changes in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of deferred gain on extinguished debt . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
____________________
$ (7,557)
9,468
(18,337)
1,240
(973)
(2,442)
—
—
______________
$(18,601)
______________
______________
2011
____________________
$ 1,593
(5,668)
5,119
3,258
115
22,798
(3,344)
—
_____________
$23,871
_____________
_____________
$ (2,469)
75
9,306
_____________
$ 6,912
_____________
$11,838
1,893
379
_____________
$14,110
_____________
$21,022
_____________
_____________
2010
____________________
$ 12,035
(14,262)
3,216
26,341
324
—
(161)
(13,383)
______________
$ 14,110
______________
______________
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as
follows:
U.S. federal statutory tax rate . . . . . . . . . . . . . . . . . . . . .
State taxes, net of federal benefit . . . . . . . . . . . . . . . . . . .
Non-U.S. local income taxes . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. tax on non-U.S. earnings and
2012
____________________
35.0%
3.5
0.5
(1.7)
2011
____________________
35.0%
0.3
0.4
(14.3)
2010
____________________
35.0%
3.3
0.8
(28.2)
foreign withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.2)
12.8
7.7
Provision for/resolution of beginning of
year tax contingencies . . . . . . . . . . . . . . . . . . . . . . . . .
Net Change in valuation allowances . . . . . . . . . . . . . . . .
Change in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to correct prior year error . . . . . . . . . . . . . . .
Officers life insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
4.0
(3.7)
—
—
—
3.9
__________
40.3%
__________
__________
0.5
42.1
(6.2)
(6.4)
—
(3.7)
__________
60.5%
__________
__________
0.0
14.5
(0.3)
—
17.4
(6.7)
____________
43.5%
____________
____________
83
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes – (continued)
The Company has operations which constitute a taxable presence in 16 countries outside of the United
States. All of these countries except one had income tax rates that were lower than the United States federal tax
rate during the periods reported. The jurisdictional location of earnings is a significant component of our
effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S.
earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as
a result of operating fluctuations in the normal course of business, as well as the extent and location of other
income and expense items, such as pension settlement and restructuring charges. The foreign income tax rate
differential that is included above in the reconciliation of the effective tax rate includes the difference between
tax expense calculated at the U.S. federal statutory tax rate of 35% and the expense accrued based on lower
statutory tax rates that apply in the jurisdictions where the income or loss is earned.
During the periods reported, income outside of the U.S. was heavily concentrated within Switzerland
(8% tax rate) and Brazil (25% tax rate) and as a result, the foreign income tax rate differential was primarily
attributable to these tax rate differences. Also, in 2012 the income tax rate differential was significantly reduced
by the pension settlement and restructuring charges outside of the U.S. that resulted in a lower tax rate benefit,
as compared to the benefit calculated using the higher U.S. tax rate.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
certain assets and liabilities for financial reporting and the amounts used for income tax expense purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
(in thousands)
______________________________________________________________________________________________________________
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current deferred tax assets . . . . . . . . . . . . . .
Noncurrent deferred tax assets:
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred tax assets
before valuation allowance . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred tax assets . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred tax liabilities:
Unrepatriated foreign earnings . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current deferred tax liabilities . . . . . . . . . . . . . . .
Noncurrent deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . . . . . . .
Postretirement benefits . . . . . . . . . . . . . . . . . . . . . . .
Branch losses subject to recapture . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred tax liabilities . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . .
84
U.S.
_____________________________________________
2011
2012
________________
_________________
Non-U.S.
___________________________________________
2011
2012
________________
________________
$ 1,733
1,589
3,000
3,413
________________
9,735
________________
5,668
5,004
38,632
1,032
24,504
4,119
________________
78,959
—
________________
78,959
________________
________________
$88,694
________________
________________
$ 1,521
—
—
________________
1,521
________________
15,296
—
—
68
________________
15,364
________________
16,885
________________
$71,809
________________
________________
$
1,713
3,049
—
3,815
___________________
8,577
___________________
5,420
—
45,547
2,002
36,868
5,469
___________________
$ 2,437
2,052
—
6,370
__________________
10,859
__________________
—
2,958
4,480
78,968
1,561
557
__________________
$ 2,279
1,919
—
7,351
__________________
11,549
__________________
—
2,502
8,984
70,510
3,980
259
__________________
95,306
(739)
___________________
94,567
___________________
___________________
$103,144
___________________
___________________
88,524
(60,348)
__________________
28,176
__________________
__________________
$ 39,035
__________________
__________________
86,235
(62,674)
__________________
23,561
__________________
__________________
$ 35,110
__________________
__________________
$
— $
$
3,672
—
—
___________________
3,672
___________________
17,139
—
—
471
___________________
17,610
___________________
21,282
___________________
$ 81,862
___________________
___________________
1,383
12
__________________
1,395
__________________
10,106
4,726
12,959
2,473
__________________
30,264
__________________
31,659
__________________
$ 7,376
__________________
__________________
—
1,514
215
__________________
1,729
__________________
10,953
1,854
14,176
—
__________________
26,983
__________________
28,712
__________________
$ 6,398
__________________
__________________
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes – (continued)
Deferred income tax assets, net of valuation allowances, are expected to be realized through the reversal of
existing taxable temporary differences and future taxable income. In 2012, the Company recorded a net decrease
in its valuation allowance of $3.1 million.
At December 31, 2012, the Company had available approximately $633.8 million of net operating loss
carryforwards, for which we have a deferred tax asset of $80.0 million, with expiration dates ranging from one
year to indefinite that may be applied against future taxable income. Included in the net operating loss
carryforwards is approximately $31.4 million of state net operating loss carryforwards that are subject to various
business apportionment factors and multiple jurisdictional requirements when utilized. In addition, the Company
had available a foreign tax credit carryforward of $19.2 million that will begin to expire in 2015, research and
development credit carryforwards of $7.0 million that will begin to expire in 2023, and alternative minimum tax
credit carryforwards of $1.3 million with no expiration date.
The Company reported a U.S. net deferred tax asset of $71.8 million at December 31, 2012, which
contained $28.5 million of tax attributes with limited lives. Although the Company is in a cumulative book
income position over the evaluation period (three-year period ending December 31, 2012), management has
evaluated its ability to utilize these tax attributes during the carryforward period. The Company’s future profits
from operations coupled with the repatriation of non-U.S. earnings will generate income of sufficient character
to utilize the remaining tax attributes. Accordingly, no valuation allowance has been established for the
remaining U.S. net deferred tax assets.
The Company records the residual U.S. and foreign taxes on certain amounts of current foreign earnings
that have been targeted for repatriation to the U.S. As a result, such amounts are not considered to be
permanently reinvested, and the Company accrued for the residual taxes on these earnings to the extent they
cannot be repatriated in a tax-free manner.
At December 31, 2012 the Company reported a deferred tax liability of $1.5 million on $19.4 million of
non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts are
$0.5 million of tax expense on approximately $12.1 million of foreign earnings that were generated in 2012.
The accumulated undistributed earnings of the Company’s foreign operations were approximately
$375.0 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes
have been provided on these earnings at December 31, 2012. If these earnings were distributed, the Company
would be subject to both foreign withholding taxes and U.S. income taxes that may not be fully offset by foreign
tax credits. A reasonable estimate of the deferred tax liability on these earnings is not practicable at this time.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, in accordance with
applicable accounting guidance, is as follows:
(in thousands)
__________________________________________________________________________________________________________________
Unrecognized tax benefits balance at January 1 . . . . . . .
Increase in gross amounts of tax positions related to
2012
________________
$27,053
2011
________________
$23,467
2010
________________
$22,513
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,454
8,040
23
Decrease in gross amounts of tax positions related to
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(37)
(690)
Increase in gross amounts of tax positions related to
current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease due to settlements with tax authorities . . . . . . .
Decrease due to lapse in statute of limitations . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits balance at December 31 . . . .
381
(13,099)
(20)
617
_____________
$24,386
_____________
1,005
(4,576)
—
(846)
_____________
$27,053
_____________
1,043
—
(76)
654
_____________
$23,467
_____________
At December 31, 2012, we had gross tax-effected unrecognized tax benefits of $24.4 million, all of which,
if recognized, would impact the effective tax rate.
85
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes – (continued)
The Company recognizes interest and penalties related to unrecognized tax benefits within its global
operations as a component of income tax expense. The Company recognized interest and penalties
(income)/expense of ($6.4) million, $1.1 million and $0.3 million in the Statements of Income in 2012, 2011 and
2010, respectively. The 2012 amount includes the reversal of $4.4 million of interest and penalties related to the
settlement of audits. As of December 31, 2012 and 2011, the Company had approximately $1.4 million and
$7.6 million, respectively, of accrued interest and penalties related to uncertain tax positions.
We conduct business globally and, as a result, the Company or one or more of our subsidiaries files income
tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of
business we are subject to examination by taxing authorities throughout the world, including major jurisdictions
as the United States, Brazil, Canada, France, Germany, Italy, Mexico, and Switzerland. Open tax years in these
jurisdictions range from 2000 to 2012. We are currently under audit in the U.S. and non-U.S. tax jurisdictions,
including but not limited to Canada, Germany, and France.
It is reasonably possible that over the next twelve months the amount of unrecognized tax benefits may
change within a range of a net increase of $0 million to a net decrease of $13.9 million, from the reevaluation of
uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes.
Not included in the range is $22.5 million of tax benefits in Germany related to a 1999 reorganization that have
been challenged by the German tax authorities in the course of an audit of tax years 2000-2003. In 2008 the
German Federal Tax Court (FTC) denied tax benefits to other taxpayers in a case involving German tax laws
relevant to our reorganization. One of these cases involved a non-German party, and in the ruling in that case,
the FTC acknowledged that the German law in question may be violative of European Union (EU) principles
and referred the issue to the European Court of Justice (ECJ) for its determination on this issue. In September
2009, the ECJ issued an opinion in this case that is generally favorable to the other taxpayer and referred the
case back to the FTC for further consideration. In May 2010 the FTC released its decision, in which it resolved
certain tax issues that may be relevant to our audit and remanded the case to a lower court for further
development. In 2012, the lower court decided in favor of the taxpayer and the government appealed the findings
to the FTC. Although we were required to pay approximately $13.2 million to the German tax authorities in
order to continue to pursue the position; when taking into consideration the ECJ decision, the latest FTC
decision and the lower court decision, we believe that it is more likely than not that the relevant German law is
violative of EU principles and accordingly we have not accrued tax expense on this matter. As we continue to
monitor developments, it may become necessary for us to accrue tax expense and related interest.
As of December 31, 2012 and 2011, current income taxes receivable and deferred consisted of the
following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes receivable and deferred . . . . . . . . . . . . . . . .
2012
__________________
$
—
20,594
_______________
$ 20,594
_______________
_______________
2011
__________________
$
9,884
20,126
_______________
$ 30,010
_______________
_______________
As of December 31, 2012 and 2011, noncurrent taxes receivable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred taxes and taxes receivable . . . . . . . . . . . . . . .
2012
__________________
$ 16,751
107,135
_______________
$123,886
_______________
_______________
2011
__________________
$ 16,516
118,128
_______________
$134,644
_______________
_______________
As of December 31, 2012 and 2011, current taxes payable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes payable and deferred . . . . . . . . . . . . . . . . . .
2012
__________________
$ 10,636
2,916
_______________
$ 13,552
_______________
_______________
2011
__________________
$
3,365
5,401
_______________
$
8,766
_______________
_______________
86
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes – (continued)
Taxes paid, net of refunds, amounted to $15.1 million in 2012, $13.7 million in 2011, and $9.2 million in
2010.
8. Earnings Per Share
The amounts used in computing earnings per share and the weighted average number of shares of
potentially dilutive securities are as follows:
(in thousands, except market price data)
__________________________________________________________________________________________________________________
Net income available to common shareholders . . . . . . . .
Weighted average number of shares:
Weighted average number of shares used in
2012
___________________
$30,977
_____________
2011
___________________
$34,938
_____________
2010
___________________
$37,636
_____________
calculating basic net income/(loss) per share . . . . . .
31,356
31,262
31,072
Effect of dilutive stock-based compensation plans:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in
57
223
_____________
104
144
_____________
44
93
_____________
calculating diluted net income per share . . . . . . . . . . .
31,636
_____________
31,510
_____________
31,209
_____________
Effect of stock-based compensation plans that were
not included in the computation of diluted earnings
per share because to do so would have been
antidilutive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average market price of common stock used for
—
—
—
calculation of dilutive shares . . . . . . . . . . . . . . . . . . . .
$ 21.51
_____________
$ 23.44
_____________
$ 20.49
_____________
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
*$
0.99
0.97
$
$
1.12
1.11
$
$
1.21
1.21
As of December 31, 2012, 2011, and 2010, there was no dilution resulting from the convertible debt
instrument, purchased call option, and warrant that are described in Note 13.
*
Due to a loss from continuing operations in 2012, the calculation of diluted income per share cannot be
calculated by dividing net income by the diluted shares in the table above. See Statement of Income.
Shares outstanding, net of treasury shares, were 31.4 million as of December 31, 2012, 31.3 million as of
December 31, 2011, and 31.2 million as of December 31, 2010.
9. Property, Plant and Equipment
The components of property, plant and equipment are summarized below:
(in thousands)
_______________________________________________________________________________________________
Land and land improvements . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . .
Computer and other equipment . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, gross . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . .
2012
_______________________
26,985
$
244,104
863,811
7,249
11,946
47,576
______________________
1,201,671
(781,517)
______________________
$ 420,154
______________________
______________________
2011
_______________________
28,145
$
247,214
831,974
9,211
11,237
50,673
______________________
1,178,454
(739,501)
______________________
$ 438,953
______________________
______________________
Estimated useful life
______________________________________________________
25 years for improvements
25 to 40 years
10 years
5 years
3 to 10 years
5 to 8 years
Expenditures for maintenance and repairs are charged to income as incurred and amounted to $17.0 million
in 2012, $20.0 million in 2011, and $20.8 million in 2010.
87
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. Property, Plant and Equipment – (continued)
Depreciation expense was $56.6 million in 2012, $56.1 million in 2011, and $53.0 million in 2010.
Software amortization is recorded in Selling and general expense and was $5.8 million in 2012 and 2011, and
$5.6 million in 2010. Capital expenditures, including capitalized software, were $37.2 million in 2012,
$27.5 million in 2011, and $31.0 million in 2010. Unamortized software cost was $22.4 million and
$27.7 million as of December 31, 2012 and 2011, respectively.
10. Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment
at least annually. Goodwill represents the excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired in each business combination. Our reporting units are consistent with our
operating segments.
Determining the fair value of a reporting unit requires the use of significant estimates and assumptions,
including revenue growth rates, operating margins, discount rates, and future market conditions, among others.
Goodwill and other long-lived assets are reviewed for impairment whenever events, such as significant changes
in the business climate, plant closures, changes in product offerings, or other circumstances indicate that the
carrying amount may not be recoverable.
To determine fair value, we utilize two market-based approaches and an income approach. Under the
market-based approaches, we utilize information regarding the Company as well as publicly available industry
information to determine earnings multiples and sales multiples. Under the income approach, we determine fair
value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average
cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an
outside investor would expect to earn.
The entire balance of goodwill on our books is attributable to the Machine Clothing business. In the second
quarter of 2012 the Company applied the qualitative assessment approach (See Recent Accounting
Pronouncements under Note 1) in performing its annual evaluation of goodwill and concluded that no
impairment provision was required. In addition, there were no amounts at risk due to the large spread between
the fair and carrying values.
We are continuing to amortize certain patents, trade names, customer contracts and technology assets that
have finite lives. The changes in intangible assets and goodwill from December 31, 2010 to December 31, 2012,
were as follows:
(in thousands)
__________________________________________________________________________________________
Amortized intangible assets:
AEC trade names . . . . . . . . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . . .
AEC technology . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . .
Unamortized intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
__________________________________________________________________________________________
Amortized intangible assets:
PMC technology rights . . . . . . . . . . . . . . .
AEC trade names . . . . . . . . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . . .
AEC technology . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . .
Unamortized intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88
Balance at
Balance at
December 31, 2011 Amortization Translation December 31, 2012
________________________________
_________________________________
Currency
___________________
_______________________
$43
808
228
_____________
$ 1,079
_____________
$75,469
_____________
_____________
$
(5)
(202)
(24)
_________
$(231)
_________
$ —
—
—
____________
$ —
____________
$
38
606
204
_____________
848
$
_____________
$ —
_________
_________
$1,053
____________
____________
$76,522
_____________
_____________
Balance at
Balance at
December 31, 2010 Amortization Translation December 31, 2011
________________________________
_________________________________
Currency
___________________
_______________________
$222
48
1,055
253
_____________
$ 1,578
_____________
$77,196
_____________
_____________
$(231)
(5)
(247)
(25)
_________
$(508)
_________
$
9
—
—
—
____________
$
9
____________
$ —
43
808
228
_____________
$ 1,079
_____________
$ —
_________
_________
$(1,727)
____________
____________
$75,469
_____________
_____________
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Goodwill and Other Intangible Assets – (continued)
As of December 31, 2012, the balance of goodwill was $76.5 million and was completely attributable to
our Machine Clothing reportable segment.
Estimated amortization expense of intangibles for the years ending December 31, 2013 through 2017, is
as follows:
Year
____________________________________________________________________________________________________________________________________________________
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
____________________________
$231
231
231
29
29
11. Accrued Liabilities
Accrued liabilities consist of:
(in thousands)
________________________________________________________________________________________________________________________________________________
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for compensated absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability – current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement medical benefits – current portion . . . . . . . . . . . . . . . . . .
Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
___________________
$ 18,007
12,985
9,627
2,318
5,547
19,536
3,062
4,947
—
2,924
4,920
3,173
1,073
15,138
_______________
$103,257
_______________
_______________
2011
___________________
$ 18,066
12,931
9,356
3,576
5,949
15,609
3,426
6,979
4,069
3,244
1,881
4,214
1,583
14,221
_______________
$105,104
_______________
_______________
12. Financial Instruments
Long-term debt, principally to banks and bondholders, consists of:
(in thousands, except interest rates)
________________________________________________________________________________________________________________________________________________
Convertible notes, par value $28,437, issued in March 2006 with
2012
___________________
2011
___________________
fixed contractual interest rates of 2.25%, due in 2026 . . . . . . . . . . . . .
$ 28,261
$ 27,228
Private placement with a fixed interest rate of 6.84%, due in 2013
through 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
150,000
150,000
Credit agreement with borrowings outstanding at an end of period
interest rate of 3.92% in 2012 and 3.61% in 2011, due in 2015 . . . . .
Various notes and mortgages relative to operations principally outside
the United States, at an average end of period rate of 3.06% in 2012
and 3.05% in 2011, due in varying amounts through 2021 . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
132,000
187,000
8,892
_______________
319,153
(83,276)
_______________
$235,877
_______________
10,160
_______________
374,388
(1,263)
_______________
$373,125
_______________
89
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Financial Instruments– (continued)
Principal payments due on long-term debt are: 2013, $83.3 million; 2014, $3.8 million; 2015,
$182.0 million; 2017, $50.0 million. Total principal payments in 2016, 2018 and thereafter total $0.1 million.
Cash payments of interest amounted to $18.4 million in 2012, $20.2 million in 2011, and $17.4 million in 2010.
The note agreement and guaranty (“the Prudential agreement”) was entered into in October 2005 and was
amended and restated as of July 16, 2010, 2010, with the Prudential Insurance Company of America, and certain
other purchasers, in an aggregate principal amount of $150 million, with interest at 6.84% and a maturity date of
October 25, 2017. There are mandatory payments of $50 million on October 25, 2013, and October 25, 2015. At
the noteholders’ election, certain prepayments may also be required in connection with certain asset dispositions
or financings. The notes may not otherwise be prepaid without a premium, under certain market conditions. The
note agreement contains customary terms, as well as affirmative covenants, negative covenants, and events of
default comparable to those in our current principal credit facility. For disclosure purposes, we are required to
measure the fair value of outstanding debt on a recurring basis. As of December 31, 2012, the fair value of the
note agreement was approximately $171.9 million, which was measured using active market interest rates.
On July 16, 2010, we entered into a $390 million unsecured five-year revolving credit facility agreement
under which $132 million of borrowings were outstanding as of December 31, 2012. The applicable interest rate
for borrowings under the agreement, as well as under the former agreement, is LIBOR plus a spread, based on
our leverage ratio at the time of borrowing.
Our ability to borrow additional amounts under the agreement is conditional upon the absence of any
defaults, as well as the absence of any material adverse change. Based on our maximum leverage ratio and our
consolidated EBITDA (as defined in the agreement), and without modification to any other credit agreements as
of December 31, 2012, we would have been able to borrow an additional $258 million under our agreement.
Also on July 16, 2010, we entered into interest rate hedging transactions that have the effect of fixing the
LIBOR portion of the effective interest rate (before addition of the spread) on $105 million of the indebtedness
drawn under the new agreement at the rate of 2.04% for the next five years. Under the terms of these
transactions, we pay the fixed rate of 2.04% and the counterparties pay a floating rate based on the three-month
LIBOR rate at each quarterly calculation date, which on October 12, 2012 was 0.34%. The net effect is to fix the
effective interest rate on $105 million of indebtedness at 2.04%, plus the applicable spread, until these swap
agreements expire on July 16, 2015. On October 16, 2012, the applicable spread was 2.25%, yielding an
effective annual rate of 4.29%. This interest rate swap is accounted for as a hedge of future cash flows, as further
described in Note 13 of the Notes to Consolidated Financial Statements.
We are currently required to maintain a leverage ratio of not greater than 3.50 to 1.00 and minimum interest
coverage of 3.00 to 1.00 under the new credit agreement and the Prudential agreement.
As of December 31, 2012, our leverage ratio was 1.06 to 1.00 and our interest coverage ratio was 13.29 to
1.00. We may purchase our Common Stock or pay dividends to the extent our leverage ratio remains at or below
3.50 to 1.00, and may make acquisitions with cash provided our leverage ratio would not exceed 3.00 to 1.00
after giving pro forma effect to the acquisition.
On January 25, 2013, the Company announced the redemption, at 100 percent of principal, of all remaining
2.25% Convertible Senior Notes due 2026 (“the Notes”). As of December 31, 2012, the fair value of the balance
of the Notes outstanding was approximately $28.4 million, which was measured using quoted prices in active
markets.
Holders were entitled to convert their Notes at any time on or after February 15, 2013. Before February 15,
2013, a holder may have converted Notes during the five-business-day period immediately after any period of
five consecutive trading days in which the trading price per Note for each of such five days was less than 103%
of the product of the last reported sale price of our Class A common stock and the conversion rate on such day.
Additionally, holders were entitled to convert prior to February 15, 2013, if we elected to distribute to all or
90
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Financial Instruments – (continued)
substantially all of our Class A shareholders (a) rights or warrants to purchase shares of Class A common stock
for less than their trading value, or (b) assets, debt securities, or rights to purchase securities, which distribution
has a per share value exceeding 15% of the current trading value of the Class A common stock.
Converting holders are entitled to receive, upon conversion of their Notes, (1) an amount in cash equal to
the lesser of the principal amount of the Note and the Note’s conversion value, and (2) if the conversion value of
the Note exceeds the principal amount, shares of our Class A common stock in respect of the excess conversion
value. The conversion rate of the Notes (subject to adjustment upon the occurrence of certain events) is 23.2078
shares per $1,000 principal amount of Notes (equivalent to a conversion price of $43.09 per share of Class A
common stock). The exact amount payable upon conversion would be determined in accordance with the terms
of the indenture pursuant to which the Notes were issued and will be based on a daily conversion value
calculated on a proportionate basis by reference to the volume-weighted average price of our Class A common
stock for each day during a twenty-five day period relating to the conversion.
In connection with the sale of the Notes, we entered into hedge and warrant transactions with respect to our
Class A common stock. These transactions are intended to reduce the potential dilution upon conversion of the
Notes by providing us with the option, subject to certain exceptions, to acquire shares in an amount equal to the
number of shares that we would be required to deliver upon conversion of the Notes. These transactions had the
economic effect to the Company of increasing the conversion price of the Notes to $52.25 per share.
Pursuant to the hedge transactions, if we deliver notice to the counterparties of any conversion of the Notes
on or prior to March 15, 2013, the counterparties are in the aggregate obligated to deliver to the Company the
number of shares of Class A common stock that we are obligated to deliver to the holders of the Notes with
respect to such conversion, exclusive of any shares deliverable by the Company by reason of any additional (or
“make whole”) premium relating to the Notes or by reason of any election by the Company to unilaterally
increase the conversion rate. The Note hedge and warrant transactions had a net cost of $14.7 million.
Pursuant to the warrant transactions, we sold a total of 4.1 million warrants, each exercisable to buy a
single share of Class A common stock at an initial strike price of $52.25 per share. The warrants are
American-style warrants (exercisable at any time), and expire over a period of sixty trading days beginning on
September 15, 2013. If the warrants are exercised when they expire, we may choose either net cash or net share
settlement. If the warrants are exercised before they expire, they must be net share settled. If we elect to net cash
settle the warrants, we will pay cash in an amount equal to, for each exercise of warrants, (i) the number of
warrants exercised multiplied by (ii) the excess of the volume weighted average price of our Class A common
stock on the expiration date of such warrants (the “settlement price”) over the strike price. Under net share
settlement, we will deliver to the warrant holders a number of shares of our Class A common stock equal to, for
each exercise of warrants, the amount payable upon net cash settlement divided by the settlement price.
As of December 31, 2012, the carrying amounts of the debt and equity components of our bifurcated
convertible debt instrument were $28.2 million and $25.5 million, respectively. The equity component is
included in additional paid-in capital in the equity section of the balance sheet.
The convertible feature of the Notes, the convertible note hedge, and the warrant transactions each meet the
requirements of the applicable accounting guidance to be accounted for as equity instruments. As such, the
convertible feature of the Notes has not been accounted for as a derivative (which would be marked to market
each reporting period) and in the event the debt is converted, no gain or loss is recognized, as the cash payment
of principal reduces the recorded liability and the issuance of common shares would be recorded in
stockholders’ equity.
In addition, the amount paid for the call option and the premium received for the warrant were recorded as
additional paid-in capital in the accompanying consolidated balance sheet and are not accounted for as
derivatives (which would be marked to market each reporting period). Incremental net shares for the convertible
note feature and the warrant agreement will be included in future diluted earnings per share calculations for
91
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Financial Instruments – (continued)
those periods in which our average common stock price exceeds $43.09 per share in the case of the Senior Notes
and $49.20 per share in the case of the warrants. The purchased call option is antidilutive and is excluded from
the diluted earnings per share calculation.
Indebtedness under the Prudential note and guaranty agreement, the convertible Notes, and the credit
agreement is ranked equally in right of payment to all unsecured senior debt.
We were in compliance with all debt covenants as of December 31, 2012.
13. Fair-Value Measurements
In accordance with fair value reporting standards, we categorize our financial assets and liabilities in three
general levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities; Level 2 inputs
include data points that are observable, such as quoted prices for similar assets or liabilities in active markets,
quoted prices for identical assets or similar assets or liabilities in markets that are not active, and inputs (other
than quoted prices) such as interest rates and yield curves that are observable for the asset and liability, either
directly or indirectly; Level 3 inputs are unobservable data points for the asset or liability, and include situations
in which there is little, if any, market activity for the asset or liability.
As of December 31, 2012 and 2011, we had no Level 3 financial assets or liabilities. The following table
presents the fair-value hierarchy for our Level 1 and 2 financial assets and liabilities measured at fair value on a
recurring basis:
(in thousands)
__________________________________________________________________________________________________________________
Year ended December 31, 2012
Assets:
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock of foreign public company . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Total fair
value at
year end
___________________
Quoted prices
in active
markets
(Level 1)
`________________________
Significant
other
observable
inputs
(Level 2)
___________________
$33,171
562
—
$33,171
562
—
$ —
—
—
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,718)
—
(4,718)
Year ended December 31, 2011
Assets:
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock of foreign public company . . . . . . . . .
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
$30,287
577
1
$30,287
577
—
$ —
—
1
Liabilities:
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,251)
—
(4,251)
During 2012 and 2011 there were no transfers between levels 1, 2, and 3.
Cash equivalents include short-term securities that are considered to be highly liquid and easily tradable.
These securities are valued using inputs observable in active markets for identical securities.
The common stock of a foreign public company is traded in an active market exchange. The shares are
measured at fair value using closing stock prices and are recorded in the Consolidated Balance Sheets as Other
assets. The securities are classified as available for sale, and as a result any gain or loss is recorded in the
Shareholders’ Equity section of the Consolidated Balance Sheets rather than in the Consolidated Statements of
Income. When the security is sold or impaired, gains and losses are reported on the Consolidated Statements
of Income. Investments are considered to be impaired when a decline in fair value is judged to be other
than temporary.
92
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
13. Fair-Value Measurements – (continued)
Foreign currency instruments are entered into periodically, and consist of foreign currency option contracts
or forward contracts that are valued using quoted prices in active markets obtained from independent pricing
sources.
These instruments are measured using market foreign exchange prices and are recorded in the Consolidated
Balance Sheets as Other current assets. Changes in fair value of these instruments are recorded as gains or losses
within Other (income)/expense, net. Gains totaled $0.0 million during 2012, and losses totaled $0.6 million
during 2011.
When exercised, the foreign currency instruments are net settled with the same financial institution that
bought or sold them. For all positions, whether options or forward contracts, there is risk from the possible
inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in
interest and currency rates, which may reduce the value of the instruments. We seek to control risk by evaluating
the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while
reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.
We operate our business in many regions of the world, and currency rate movements can have a significant
effect on operating results.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, General,
Technical, Product Engineering, and Research expenses or Other income/expense, net. Revaluation gains and
losses occur when our business units have intercompany or third-party trade receivable or payable balances in a
currency other than their local reporting (or functional) currency.
Operating results can also be affected by the translation of sales and costs, for each non-U.S. subsidiary,
from the local functional currency to the U.S. dollar. The translation effect on the income statement is dependent
on our net income or expense position in each non-U.S. currency in which we do business. A net income
position exists when sales realized in a particular currency exceed expenses paid in that currency; a net expense
position exists if the opposite is true.
In order to mitigate foreign exchange volatility in the financial statements, we periodically enter into
foreign currency financial instruments from time to time. There were no foreign currency financial instruments
designated as hedging instruments at December 31, 2012.
As described in Note 12 of the Notes to Consolidated Financial Statements, on July 16, 2010, we entered
into a $390 million unsecured five-year revolving credit facility agreement. The applicable interest rate for
borrowings under the agreement is LIBOR plus a spread, based on our leverage ratio at the time of borrowing.
Interest rate changes on this variable rate debt cause changes in cash flows, and in order to mitigate this cash
flow risk we have fixed a portion of the effective interest rate on part of the indebtedness drawn under the
agreement by entering into interest rate hedging transactions on July 16, 2010. This interest rate swap locked in
our interest rate on the forecasted outstanding borrowings of $105 million at 2.04% plus the credit spread on the
debt for a five-year period. The credit spread is based on the pricing grid, which can go as low as 2.0% or as
high as 2.75%, based on our leverage ratio.
The interest rate swap is accounted for as a hedge of future cash flows. The fair value of our interest rate
swap is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate
curve, and is recorded in the Consolidated Balance Sheets as of December 31, 2012, as Other noncurrent
liabilities of $4.7 million. Unrealized gains and losses on the swap will flow through the caption Derivative
valuation adjustment in the Shareholders’ equity section of the Consolidated Balance Sheets, to the extent that
the hedge is highly effective. Gains and losses related to the ineffective portion of the hedge will be recognized
in the current period in earnings. Amounts accumulated in Other comprehensive income are reclassified as
Interest expense, net when the related interest payments (that is, the hedged forecasted transactions) affect
earnings. Interest expense related to the swap totaled $1.7 million for 2012, and $1.9 million for 2011.
93
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
13. Fair-Value Measurements – (continued)
Fair value amounts of derivative instruments were as follows:
(in thousands)
_________________________________________________________________________________________________________________
Asset Derivatives
Derivatives not designated as hedging instruments:
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . .
Total asset derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability Derivatives
Derivatives designated as hedging instruments:
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liability derivatives . . . . . . . . . . . . . . . . . . . . . . . . .
Balance
sheet caption
________________________
2012
________________
2011
________________
Other assets
$ —
_____________
$ —
_____________
_____________
1
$
_____________
$
1
_____________
_____________
Other
noncurrent
liabilities
$(4,718)
_____________
$(4,718)
_____________
_____________
$(4,251)
_____________
$(4,251)
_____________
_____________
Gains/(losses) on changes in fair value of derivative instruments were as follows:
(in thousands)
________________________________________________________________________________________________________________________________________________
Derivatives designated as hedging instruments
Years ended December 31,
_____________________________________________
2011
2012
_______________
________________
Interest rate swap(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(285)
$(2,317)
Derivatives not designated as hedging instruments
Forward exchange options(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward currency contracts(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
—
(210)
(383)
(1) Unrealized losses are recognized in Other comprehensive income, net of tax. This derivative was a 100%
effective hedge of interest rate cash flow risk for the year ended December 31, 2012.
(2) Gains/(losses) are recognized in Other expense, net.
14. Other Noncurrent Liabilities
Other noncurrent liabilities consist of:
(in thousands)
________________________________________________________________________________________________________________________________________________
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
__________________
$ 49,820
78,821
4,718
2,087
566
_______________
$136,012
_______________
_______________
2011
___________________
$105,425
73,060
4,251
2,234
626
_______________
$185,596
_______________
_______________
15. Commitments and Contingencies
Principal leases are for machinery and equipment, vehicles, and real property. Certain leases contain
renewal and purchase option provisions at fair values. There were no significant capital leases entered into
during 2012. Total rental expense amounted to $5.8 million in 2012 and 2011, and $7.4 million in 2010.
Future rental payments required under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year, as of December 31, 2012 are: 2013, $3.5 million; 2014, $2.3 million; 2015,
$1.5 million; 2016, $0.8 million and 2017 and thereafter, $0.3 million.
94
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Commitments and Contingencies – (continued)
Asbestos Litigation
Albany International Corp. is a defendant in suits brought in various courts in the United States by
plaintiffs who allege that they have suffered personal injury as a result of exposure to asbestos-containing
products that we previously manufactured. We produced asbestos-containing paper machine clothing synthetic
dryer fabrics marketed during the period from 1967 to 1976 and used in certain paper mills. Such fabrics
generally had a useful life of three to twelve months.
We were defending 4,463 claims as of January 30, 2013.
The following table sets forth the number of claims filed, the number of claims settled, dismissed or
otherwise resolved, and the aggregate settlement amount during the periods presented:
Year ended December 31,
_________________________________________________________
2005 . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
___________________
29,411
24,451
19,416
18,798
18,385
8,945
5,170
4,446
Claims
Dismissed,
Settled, or
Resolved
___________________
6,257
6,841
808
523
9,482
3,963
789
90
New Claims
______________________
1,297
1,806
190
110
42
188
65
107
Closing
Number of
Claims
___________________
24,451
19,416
18,798
18,385
8,945
5,170
4,446
4,463
Amounts Paid
(thousands) to
Settle or
Resolve
_________________________
$ 504
3,879
15
52
88
159
1,111
$ 530
We anticipate that additional claims will be filed against the Company and related companies in the future,
but are unable to predict the number and timing of such future claims.
Exposure and disease information sufficient to meaningfully estimate a range of possible loss of a
particular claim is typically not available until late in the discovery process, and often not until a trial date is
imminent and a settlement demand has been received. For these reasons, we do not believe a meaningful
estimate can be made regarding the range of possible loss with respect to pending or future claims.
While we believe we have meritorious defenses to these claims, we have settled certain claims for amounts
we consider reasonable given the facts and circumstances of each case. Our insurer, Liberty Mutual, has
defended each case and funded settlements under a standard reservation of rights. As of January 30, 2013, we
had resolved, by means of settlement or dismissal, 36,370 claims. The total cost of resolving all claims was $8.6
million. Of this amount, almost 100% was paid by our insurance carrier. The Company has over $125 million in
confirmed insurance coverage that should be available with respect to current and future asbestos claims, as well
as additional insurance coverage that we should be able to access.
Brandon Drying Fabrics, Inc. (“Brandon”), a subsidiary of Geschmay Corp., which is a subsidiary of the
Company, is also a separate defendant in many of the asbestos cases in which Albany is named as a defendant.
Brandon was defending against 7,867 claims as of January 30, 2013.
95
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Commitments and Contingencies – (continued)
The following table sets forth the number of claims filed, the number of claims settled, dismissed or
otherwise resolved, and the aggregate settlement amount during the periods presented:
Year ended December 31,
_________________________________________________________
2005 . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
___________________
9,985
9,566
9,114
8,740
8,664
7,907
7,869
7,877
Claims
Dismissed,
Settled, or
Resolved
___________________
642
1,182
462
86
760
47
3
12
New Claims
______________________
223
730
88
10
3
9
11
2
Closing
Number of
Claims
___________________
9,566
9,114
8,740
8,664
7,907
7,869
7,877
7,867
Amounts Paid
(thousands) to
Settle or
Resolve
_________________________
0
0
0
0
0
0
0
0
We acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a
wholly owned subsidiary of Geschmay Corp. In 1978, Brandon acquired certain assets from Abney Mills
(“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon from Abney were
assets of Abney’s wholly owned subsidiary, Brandon Sales, Inc. which had sold, among other things, dryer
fabrics containing asbestos made by its parent, Abney. Although Brandon manufactured and sold dryer fabrics
under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Because Brandon
did not manufacture asbestos-containing products, and because it does not believe that it was the legal successor
to, or otherwise responsible for obligations of Abney with respect to products manufactured by Abney, it
believes it has strong defenses to the claims that have been asserted against it. As of January 30, 2013, Brandon
has resolved, by means of settlement or dismissal, 9,733 claims for a total of $0.2 million. Brandon’s insurance
carriers initially agreed to pay 88.2% of the total indemnification and defense costs related to these proceedings,
subject to the standard reservation of rights. The remaining 11.8% of the costs had been borne directly by
Brandon. During 2004, Brandon’s insurance carriers agreed to cover 100% of indemnification and defense costs,
subject to policy limits and the standard reservation of rights, and to reimburse Brandon for all indemnity and
defense costs paid directly by Brandon related to these proceedings.
For the same reasons set forth above with respect to Albany’s claims, as well as the fact that no amounts
have been paid to resolve any Brandon claims since 2001, we do not believe a meaningful estimate can be made
regarding the range of possible loss with respect to these remaining claims.
In some of these asbestos cases, the Company is named both as a direct defendant and as the “successor in
interest” to Mount Vernon Mills (“Mount Vernon”). We acquired certain assets from Mount Vernon in 1993.
Certain plaintiffs allege injury caused by asbestos-containing products alleged to have been sold by Mount
Vernon many years prior to this acquisition. Mount Vernon is contractually obligated to indemnify the Company
against any liability arising out of such products. We deny any liability for products sold by Mount Vernon prior
to the acquisition of the Mount Vernon assets. Pursuant to its contractual indemnification obligations, Mount
Vernon has assumed the defense of these claims. On this basis, we have successfully moved for dismissal in a
number of actions.
Although we do not believe, based on currently available information and for the reasons stated above, that
a meaningful estimate of a range of possible loss can be made with respect to such claims, based on our
understanding of the insurance policies available, how settlement amounts have been allocated to various
policies, our settlement experience, the absence of any judgments against the Company or Brandon, the ratio of
paper mill claims to total claims filed, and the defenses available, we currently do not anticipate any material
liability relating to the resolution of the aforementioned pending proceedings in excess of existing insurance
limits. Consequently, we currently do not anticipate, based on currently available information, that the ultimate
resolution of the aforementioned proceedings will have a material adverse effect on the financial position, results
of operations, or cash flows of the Company. Although we cannot predict the number and timing of future
claims, based on the foregoing factors and the trends in claims against us to date, we do not anticipate that
96
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Commitments and Contingencies – (continued)
additional claims likely to be filed against us in the future will have a material adverse effect on our financial
position, results of operations, or cash flows. We are aware that litigation is inherently uncertain, especially
when the outcome is dependent primarily on determinations of factual matters to be made by juries.
NAFTA Audits
The Company’s affiliate in Mexico was notified in November 2010 that Mexican customs authorities
expected to issue demands for duties on certain imports of paper machine clothing from the Company and the
Company’s affiliate in Canada for which the Company has claimed duty-free treatment under the North
American Free Trade Agreement (“NAFTA”).
The notices result from a decision by the Mexican Servicio de Administración Tributaria (“SAT”) to
invalidate NAFTA certificates provided by the Company on products shipped to its Mexican affiliate during the
years 2006 through 2008. The Demand Notices arose from an SAT audit during 2010, at the conclusion of which
the SAT determined that the Company had failed to provide documentation sufficient to show that the
certificates were validly issued, and declared the certificates issued during this period to be invalid. The
Company believes that the certificates of origin were valid and properly issued and therefore commenced
administrative appeals with SAT disputing its resolutions.
In December 2011, while these appeals were pending, SAT revoked its earlier declarations of invalidation
with respect to the certificates of origin at issue in 28 of the 36 open audits, and ordered a further review of such
certificates. To date, the Company has been informed by SAT that it has completed its review of 19 of the 28
audits, concluded that the certificates of origin in 19 of those 28 audits were valid, and that the shipments
identified in those 19 audits were entitled to NAFTA’s duty-free treatment. SAT is continuing to review the
certificates of origin in the remaining 9 open audits where the original declaration was revoked. SAT is also still
considering the Company’s appeal with regard to the 8 open audits where the original declaration invalidating
the certificates of origin have not yet been revoked.
Based on discussions with SAT, the Company currently expects that it will be given an opportunity to
present evidence to SAT officials to establish the origin for NAFTA purposes of all of the shipments covered by
the above-described audits still under review, and that it will be able to establish that a very high percentage of
the shipments at issue were entitled to NAFTA treatment. For the small percentage of shipments for which the
Company may not be able to establish qualification for duty-free treatment under NAFTA, the Company may be
required to pay duties and penalties. The Company currently does not expect any such amounts to be material.
The Company also does not believe that it faces any material risk of certificates being invalidated with respect to
any period other than the 2006 through 2008 audit period. For this reason, the Company does not feel that this
matter is likely to have a material adverse effect on the Company’s financial position, results of operations and
cash flows.
97
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
16. Translation Adjustments
The Consolidated Statements of Cash Flows were affected by translation as follows:
(in thousands)
__________________________________________________________________________________________________________________
Change in cumulative translation adjustments . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . .
2012
_________________
$18,287
1,352
(7,895)
(1,119)
(779)
(7,859)
(1,053)
(1,015)
_____________
$
(81)
_____________
_____________
The change in cumulative translation adjustments includes the following:
(in thousands)
__________________________________________________________________________________________________________________
Translation of non-U.S. subsidiaries . . . . . . . . . . . . . . . .
Gain/(loss) on long-term intercompany loans . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . .
2012
_________________
$16,589
1,698
_____________
$18,287
_____________
_____________
2011
_________________
$(13,070)
(1,209)
1,204
4,284
2,756
2,789
2,449
(2,576)
______________
$ (3,373)
______________
______________
2011
_________________
$(17,061)
3,991
______________
$(13,070)
______________
______________
2010
_________________
$(10,208)
877
2,562
2,066
(218)
(8,626)
4,665
(403)
______________
$ (9,285)
______________
______________
2010
_________________
$ 17,364
(27,572)
______________
$(10,208)
______________
______________
17. Stock Options and Incentive Plans
We recognized no stock option expense during 2012, 2011 or 2010 and there are currently no remaining
unvested options for which stock-option compensation costs will be recognized in future periods.
There have been no stock options granted since November 2002 and we have no stock option plan under
which options may be granted. Options issued under previous plans and still outstanding were exercisable in five
cumulative annual amounts beginning twelve months after date of grant. Option exercise prices were normally
equal to and were not permitted to be less than the market value on the date of grant. Unexercised options
generally terminate twenty years after the date of grant for all plans, and must be exercised within ten years of
retirement.
Activity with respect to these plans is as follows:
Shares under option January 1 . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares under option at December 31 . . . . . . . . . . . . . . . .
Options exercisable at December 31 . . . . . . . . . . . . . . . .
The weighted average exercise price is as follows:
Shares under option January 1 . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares under option December 31 . . . . . . . . . . . . . . . . . .
Options exercisable December 31 . . . . . . . . . . . . . . . . . .
2012
_____________
597,313
23,300
66,700
_____________
507,313
507,313
_____________
2012
_____________
$19.54
—
21.23
19.65
___________
19.45
19.45
___________
2011
_____________
639,163
400
41,450
_____________
597,313
597,313
_____________
2011
_____________
$19.51
—
20.54
19.03
___________
19.54
19.54
___________
2010
_____________
651,143
4,750
7,230
_____________
639,163
639,163
_____________
2010
_____________
$19.50
—
21.98
17.66
___________
19.51
19.51
___________
As of December 31, 2012, the aggregate intrinsic value of vested options was $1.4 million. The aggregate
intrinsic value of options exercised was $0.2 million in 2012, $0.3 million in 2011, and was insignificant in 2010.
98
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. Stock Options and Incentive Plans – (continued)
In 2011, shareholders approved the Albany International 2011 Incentive Plan, replacing the similar 2005
Incentive Plan approved by shareholders in 2005. Awards granted to date under these plans provide key members
of management with incentive compensation based on achieving certain performance targets over a three year
period. Such awards are paid out partly in cash and partly in shares of Class A Common Stock. In March 2012
we issued 6,727 shares and made cash payments totaling $0.2 million, and in March 2011, we issued 32,177
shares and made cash payments totaling $0.8 million, and in March 2010, we issued 22,844 shares and made
cash payments totaling $1.1 million under these plans. Shares that are expected to be paid out are included in the
calculation of diluted earnings per share. If a person terminates employment prior to the award becoming fully
vested, the person may forfeit all or a portion of the incentive compensation award. Expense associated with this
these awards is recognized over the vesting period, which includes the year for which performance targets are
measured and may, if payment is made over three years, include the two subsequent years. In connection with
this plan, we recognized expense of $2.4 million in 2012 and 2011, and $1.5 million in 2010.
In 2011, the Board of Directors modified the annual incentive plan for executive management whereby
40% of the earned incentive compensation will be paid in the form of shares of Class A Common Stock. In
March 2012, the Company issued 27,768 shares and made cash payments totaling $1.5 million as a result of
performance in 2011. Expense recorded for this plan was $3.4 million in 2012 and $2.7 million in 2011.
In 2003, the Company adopted a Restricted Stock Program under which certain key employees are awarded
restricted stock units. Such units vest over a five-year period and are paid annually in cash based on current
market prices of the Company’s stock. The amount of compensation expense is subject to changes in the market
price of the Company’s stock. The amount of compensation cost attributable to such units is recorded in Selling
and general expenses and was $1.9 million in 2012, $2.5 million in 2011, and $2.8 million in 2010. The
Company has not awarded new restricted stock units since November 2010. However, awards up to that time
will continue to vest until 2015.
In 2012, the Company adopted a Phantom Stock Plan that replaces the Restricted Stock Program. Awards
under this program also vest over a five-year period and are paid annually in cash based on current market prices
of the Company’s stock. Under this program, employees may earn more or less than the target award based on
the Company’s results in the year of the award. We recognized expense of $0.5 million in 2012 for this plan.
In 2008, the Company granted restricted stock units to certain executives. Upon vesting, each restricted
stock unit is payable in cash. These grants vested in 2011 and 2012. Expense recognized for these grants was
$0.5 million in 2012, $1.3 million in 2011, and $1.5 million in 2010. In 2012, the Company granted additional
restricted stock units to two executives. The amount of compensation expense is subject to changes in the market
price of the Company’s stock and is recorded in Selling and general expenses. These grants will vest various
periods from 2015 to 2017. Expense recognized for these grants was $0.4 million in 2012.
The Company maintains a voluntary savings plan covering substantially all employees in the United States.
The Plan, known as the ProsperityPlus Savings Plan, is a qualified plan under section 401(k) of the U.S. Internal
Revenue Code. Under the plan, employees may make contributions of 1% to 15% of their wages, subject to
contribution limitations specified in the Internal Revenue Code. The Company matches between 50% and 100%
of each dollar contributed by employees up to a maximum of 5% of pretax income. Prior to February 2011, the
Company match was in the form of Class A Common Stock, but the Company has made matching contributions
in cash since that date. The investment of employee contributions to the plan is self-directed. The Company’s
cost of the plan amounted to $3.8 million for 2012, and $3.7 million for 2011 and 2010.
The Company’s profit-sharing plan covers substantially all employees in the United States. After the close
of each year, the Board of Directors determines the amount of the profit-sharing contribution. Through 2010,
profit sharing contributions were made in the form of Class A Common Stock, but contributions have been made
in cash since 2010. The expense recorded for this plan was $1.8 million in 2012, and $2.3 million in 2011 and 2010.
99
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. Shareholders’ Equity
We have two classes of Common Stock, Class A Common Stock and Class B Common Stock, each with a
par value of $0.001 and equal liquidation rights. Each share of our 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, 2012, 3.7 million shares of Class A Common Stock were reserved for the
conversion of Class B Common Stock and the exercise of stock options.
In August 2006, we announced that the Board of Directors authorized management to purchase up to
2.0 million additional shares of our Class A Common Stock. The Board’s action authorizes management to
purchase shares from time to time, in the open market or otherwise, whenever it believes such purchase to be
advantageous to our shareholders, and it is otherwise legally permitted to do so. We have made no share
purchases under the August 2006 authorization. Activity in shareholders’ equity for 2010, 2011, and 2012 is
presented below:
Additional
Accumulated
items of other
Class B
Class A
paid-in Retained comprehensive
Common Stock Common Stock
earnings
capital
____________________________
____________________________
Shares Amount Shares Amount Amount Amount
______________
_____________
___________
______________
___________
__________________
$380,335
$3
3,236
$36
36,149
$382,674
_______________
____
_________
______
___________
_______________
—
—
—
—
286
4,659
—
—
—
—
7
576
—
—
—
—
—
(33)
—
—
—
—
—
37,636
— (14,923)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_______________
_______________
____
_________
______
___________
$403,048
$387,876
$3
3,236
$36
36,442
_______________
_______________
____
_________
______
___________
—
2,712
—
—
1
57
—
883
—
—
—
42
—
24
—
—
—
—
—
—
—
—
—
34,938
— (15,942)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_______________
_______________
____
_________
______
___________
$422,044
$391,495
$3
3,236
$37
36,541
_______________
_______________
____
_________
______
___________
—
2,573
—
—
—
34
—
1,352
—
—
—
67
—
(39)
—
—
—
—
—
—
—
—
—
30,977
— (17,246)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_______________
_______________
____
_________
______
___________
$435,775
$395,381
$3
3,236
$37
36,642
_______________
_______________
____
_________
______
___________
income
Amount
_________________________
$ (82,136)
________________
—
—
—
—
—
(10,208)
(14,052)
(276)
________________
$(106,672)
________________
—
—
—
—
—
(13,070)
(17,749)
(2,318)
________________
$(139,809)
________________
—
—
—
—
—
11,452
79,204
(30,584)
(284)
________________
$ (80,021)
________________
Treasury Stock
Class A
____________________________
Shares Amount
____________
______________
8,497 $(258,299)
________________
_________
—
—
—
268
(12)
—
—
—
—
—
—
—
—
—
—
_________
________________
8,485 $(258,031)
________________
_________
—
—
—
111
(5)
—
—
—
—
—
—
—
—
—
—
_________
________________
8,480 $(257,920)
________________
_________
—
—
—
256
(12)
—
—
—
—
—
—
—
—
—
—
—
—
_________
________________
8,468 $(257,664)
________________
_________
(in thousands)
_______________________________________________
Balance: January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable in shares . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued to Directors . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustments . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . .
Balance: December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable in shares . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued to Directors . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustments . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . .
Balance: December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable in shares . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued to Directors . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustments . . . . . . . . . . . . . . . . . .
Settlement of certain pension plan liabilities . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . .
Balance: December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . .
100
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Quarterly Financial Data (unaudited)
(in millions, except per share amounts)
___________________________________________________________________________________________________
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . .
Basic (losses)/earnings per share . . . . . . . . . . . . .
Diluted (losses)/earnings per share . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st
______________
2nd
_____________
3rd
_____________
4th
______________
$180.1
68.3
47.0
1.50
1.49
0.13
25.90
22.35
$200.0
85.2
16.7
0.54
0.53
0.12
25.09
21.84
$174.5
61.8
5.6
0.18
0.18
0.12
23.27
18.32
$191.9
78.5
(33.7)
(1.08)
(1.08)
0.14
24.70
17.15
$189.7
73.9
8.8
0.28
0.28
0.13
27.90
23.54
$185.6
69.6
7.9
0.25
0.25
0.12
25.73
16.00
$194.6
79.7
9.5
0.30
0.30
0.14
22.78
17.66
$200.3
78.1
16.7
0.53
0.53
0.13
27.68
17.82
$186.6
71.9
3.6
0.12
0.12
0.12
20.89
15.06
$194.3
79.0
8.2
0.27
0.26
0.14
22.68
20.11
$197.4
77.0
(7.2)
(0.23)
(0.23)
0.13
25.70
17.24
$196.3
78.6
20.5
0.66
0.66
0.12
25.62
18.68
In 2012, earnings per share includes pension plan settlement charges per share of $0.22 in the first quarter
and $2.34 in the second quarter.
In Q1 2012 income tax expense includes a favorable discrete adjustment for a Canadian audit settlement of
$0.23 per share.
In 2012, restructuring charges reduced earnings per share by $0.01 in the first quarter, $0.06 in the second
quarter, $0.05 in the third quarter, and $0.02 in the fourth quarter.
Income tax expense in the fourth quarter of 2011 includes a favorable adjustment of $0.11 per share to
correct errors from periods prior to 2006. The Company does not believe that the corrected item is or was
material to 2011 or any previously reported quarterly or annual financial statements. As a result, the Company
has not restated its previously issued annual or quarterly financial statements.
In 2011, restructuring charges reduced earnings per share by $0.00 in the first quarter, $0.04 in the second
quarter, $0.06 in the third quarter, and $0.10 in the fourth quarter.
In 2010, restructuring charges reduced earnings per share by $0.03 in the first quarter, $0.01 in the second
quarter, $0.02 in the third quarter, and $0.02 in the fourth quarter.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of
December 31, 2012, there were approximately 5,500 beneficial owners of the Company’s common stock,
including employees owning shares through the Company’s 401(k) defined contribution plan.
101
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company, with the participation of its management, including its Chief Executive Officer and Chief
Financial Officer, has carried out an evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15) as of the end of the
period covered by this annual report, to ensure:
a. We have maintained disclosure controls and procedures (as defined in paragraph (e) of this section) and
internal control over financial reporting (as defined in paragraph (f) of this section);
b. We have evaluated the effectiveness of disclosure controls and procedures, as of the end of each fiscal
quarter;
c. We have evaluated the effectiveness, as of the end of each fiscal year, of internal control over financial
reporting. The framework on which evaluation of internal control over financial reporting is based is a
suitable, recognized control framework that is established by a body or group that has followed due-
process procedures, including the broad distribution of the framework for public comment;
d. We have evaluated any change in internal control over financial reporting, that occurred during each
fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the internal control
over financial reporting;
e.
f.
For purposes of this section, the term disclosure controls and procedures means controls and other
procedures that are designed to ensure that information required to be disclosed in reports under the Act
(15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed under
the Act is accumulated and communicated to management, including the Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure;
The term internal control over financial reporting is defined as a process designed by, or under the
supervision of, the principal executive and principal financial officers, or persons performing similar
functions, and effected by the board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
1.
2.
3.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures are being made only in accordance with authorizations of management and
directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of assets that could have a material effect on the financial statements.
Based upon and as of the date of that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the disclosure controls and procedures of the Company were effective in ensuring that the
information required to be disclosed in the periodic reports is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms and ensuring that information required to
be disclosed in reports is accumulated and communicated to the management of the Company, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
102
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The
Company’s internal control system is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States of America.
Because of its limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.
Management of the Company assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated
Framework. Based on that assessment, management concluded that, as of December 31, 2012, the Company’s
internal control over financial reporting was effective at a reasonable assurance level based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in
their report included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth fiscal quarter of
2012 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
/s/ Joseph G. Morone, Ph.D.
__________________________________________________________________________
Joseph G. Morone, Ph.D.
President and
Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ John B. Cozzolino
____________________________________________________________________
John B. Cozzolino
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
/s/ David M. Pawlick
______________________________________________________________________
David M. Pawlick
Vice President and
Controller
(Principal Accounting Officer)
Item 9B.
OTHER INFORMATION
None.
103
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
a) Directors. The information set out in the section captioned “Election of Directors” in the Proxy
Statement is incorporated herein by reference.
b)
c)
Executive Officers.
Information about the officers of the Company is set forth in Item 1 above.
Significant Employees. Same as Executive Officers.
d) Nature of any family relationship between any director, executive officer, person nominated or chosen
to become a director or executive officer. The information set out in the section captioned “Certain
Business Relationships and Related Person Transactions” in the Proxy Statement is incorporated
herein by reference.
e) Business experience, during the past five years, of each director, executive officer, person nominated
Information about the
or chosen to become director or executive officer, and significant employees.
officers of the Company is set forth in Item 1 above and the information set out in the section
captioned “Election of Directors” in the Proxy Statement is incorporated herein by reference.
f)
Involvement in certain legal proceedings by any director, person nominated to become a director or
executive officer. The information set out in the section captioned “Election of Directors” in the
Proxy Statement is incorporated herein by reference.
g) Certain promoters and control persons. None.
h) Audit Committee Financial Expert. The information set out in the section captioned “Corporate
Governance” in the Proxy Statement is incorporated herein by reference.
i)
Code of Ethics. The Company has adopted a Code of Ethics that applies to its Chief Executive
Officer, Chief Financial Officer and Controller. A copy of the Code of Ethics is filed as Exhibit 10(p)
and is available at the Corporate Governance section of the Company’s website (www.albint.com). A
copy of the Code of Ethics may be obtained, without charge, by writing to: Investor Relations
Department, Albany International Corp., 216 Airport Drive, Rochester, New Hampshire 03867. Any
amendment to the Code of Ethics will be disclosed by posting the amended Code of Ethics on the
Company’s website. Any waiver of any provision of the Code of Ethics will be disclosed by the filing
of a Form 8-K.
Item 11.
EXECUTIVE COMPENSATION
The information set forth in the sections of the Proxy Statement captioned “Executive Compensation,”
“Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards At Fiscal
Year-End,” “Option Exercises and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,”
“Director Compensation,” “Compensation Committee Report,” “Compensation Discussion and Analysis,” and
“Compensation Committee Interlocks and Insider Participation” is incorporated herein by reference.
104
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information set forth in the section captioned “Share Ownership” in the Proxy Statement is
incorporated herein by reference.
Equity Compensation Plan Information
Plan Category
________________________________________________________________________________________________
Number of securities Weighted average
exercise price of
outstanding
options, warrants,
and rights
________________________________
(b)
to be issued upon
exercise of
outstanding options,
warrants, and rights
____________________________________
(a)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
______________________________________________
(c)
Equity compensation plans approved
by security holders . . . . . . . . . . . . . . . . . . . . .
507,313(1)
Equity compensation plans not approved
by security holders . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
_____________
507,313(1)
_____________
_____________
$19.45
—
___________
$19.45
___________
___________
465,338(2,3,4)
—
_____________
465,338(2,3,4)
_____________
_____________
(1) Does not include 121,524, 46,330, and 35,967 shares that may be issued pursuant to 2010, 2011 and 2012,
respectively, performance incentive awards granted to certain executive officers pursuant to the 2005 and
2011 Incentive Plans. Such awards are not “exercisable,” but will be paid out to the recipients in
accordance with their terms, subject to certain conditions.
(2) Reflects the number of shares that may be issued pursuant to future awards under the 2011 Incentive Plan.
Additional shares of Class A Common Stock are available for issuance under the 2011 Incentive Plan (see
note 3 below), as well as under the Directors’ Annual Retainer Plan (see note 5 below). No additional
shares are available under any of the stock option plans pursuant to which outstanding options were
granted.
(3) 465,338 shares available for future issuance under the 2011 Incentive Plan. The 2011 Incentive Plan allows
the Board from time to time to increase the number of shares that may be issued pursuant to awards
granted under that Plan, provided that the number of shares so added may not exceed 500,000 in any one
calendar year, and provided further that the total number of shares then available for issuance under the
Plan shall not exceed 1,000,000 at any time. Shares of Common Stock covered by awards granted under the
2011 Incentive Plan are only counted as used to the extent they are actually issued and delivered.
Accordingly, if an award is settled for cash, or if shares are withheld to pay any exercise price or to satisfy
any tax-withholding requirement, only shares issued (if any), net of shares withheld, will be deemed
delivered for purposes of determining the number of shares available under the Plan. If shares are issued
subject to conditions that may result in the forfeiture, cancellation, or return of such shares to the Company,
any shares forfeited, canceled, or returned shall be treated as not issued. If shares are tendered to the
Company in payment of any obligation in connection with an award, the number of shares tendered shall
be added to the number of shares available under the 2005 Incentive Plan. Assuming full exercise by the
Board of its power to increase annually the number of shares available under the 2011 Incentive Plan, the
maximum number of additional shares that could yet be issued pursuant to the Plan awards (including those
set forth in column (c) above) would be 4,965,338.
(4) The Directors’ Annual Retainer Plan provides that the aggregate dollar amount of the annual retainer
payable for service as a member of the Company’s Board of Directors is $100,000, $50,000 of which is
required to be paid in shares of Class A Common Stock, the exact number of shares to be paid for any year
being determined on the basis of the per share closing price of such stock on the day of the Annual Meeting
at which the election of the directors for such year occurs, as shown in the composite index published for
such day in the Wall Street Journal, rounded down to the nearest whole share.
105
The following graph compares the cumulative 5-year total return to shareholders on Albany International
Corp.’s common stock relative to the cumulative total returns of the S&P 500 index and the Dow Jones US Paper
index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in the
Company’s common stock and in each of the indexes on 12/31/2007, and its relative performance is tracked
through 12/31/2012.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Albany International Corp., the S&P 500 Index, and the Dow Jones US Paper Index
$140
$120
$100
$80
$60
$40
$20
$0
12/07
12/08
12/09
12/10
12/11
12/12
Albany International Corp.
S&P 500
Dow Jones US Paper
*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2013 Dow Jones & Co. All rights reserved.
Item 13.
CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information set out in the section captioned “Election of Directors” in the Proxy Statement is
incorporated herein by reference.
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth in the section captioned “Independent Auditors” in the Proxy Statement is
incorporated herein by reference.
106
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
_______________________
3(a)
Exhibit Description
__________________________________
Certificate of Incorporation of Company
Filed
Herewith
________________
X
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
9/7/88
Form
__________________________
8-A, File
No. 1-10026
Bylaws of Company
8-K
2/23/11
3(b)
4(a)
4(b)
4.1
4.2
4.3
Article IV of Certificate of Incorporation of Company
Specimen Stock Certificate for Class A Common Stock
Indenture, dated as of March 13, 2006, between the
Company and JPMorgan Chase Bank, N.A.
Form of 2.25% convertible senior subordinated note
due 2026
Registration Rights Agreement, dated as of March 13,
2006, between J.P. Morgan Securities, Inc., Banc of
America Securities LLC, other initial purchasers, and
the Company
Credit Agreement
10(k)(i)
10(k)(ii)
10(k)(iii)
10(k)(iv)
10(k)(v)
10(k)(vi)
10(k)(vii)
10(k)(viii)
Note Agreement and Guaranty between the Company
and the Prudential Insurance Company of America and
certain other purchasers named therein, dated as of
October 25, 2005
First Amendment, dated as of November 13, 2006, to
Note Agreement and Guaranty
Second Amendment, dated as of April 27, 2007, to
Note Agreement and Guaranty
Third Amendment, dated as of December 16, 2008, to
Note Agreement and Amendment to Notes
Fourth Amendment, dated as of October 22, 2009, to
Note Agreement and Amendment to Notes
Fifth Amendment, dated as of February 10, 2010, to
Note Agreement and Amendment to Notes
Sixth Amendment, dated as of September 17, 2010, to
Note Agreement, amending and restating the Note
Agreement as of July 16, 2010 (the “Amended and
Restated Note Agreement”)
$390 Million Five-Year Revolving Credit Facility
Agreement among Albany International Corp., the
other Borrowers named therein, the Lenders Party
thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent, JPMorgan Chase Bank, N.A., Toronto Branch,
as Canadian Agent and J.P.Morgan Europe Limited, as
London Agent, dated as of July 16, 2010
8-A, File
No. 1-10026
S-1,
No. 33-16254
8-K
8-K
8-K
9/7/88
9/30/87
3/15/06
3/15/06
3/15/06
8-K
10/26/05
8-K
8-K
8-K
8-K
8-K
8-K
8-K
11/17/06
5/3/07
12/19/08
2/12/10
2/12/10
9/23/10
7/19/10
107
Exhibit
Number
_______________________
10(k)(ix)
Exhibit Description
__________________________________
First Amendment, dated as of February 6, 2012, to
Five-Year Revolving Credit Facility Agreement
Filed
Herewith
________________
10(k)(x)
First Amendment, dated as of February 17, 2012, to
Amended and Restated Note Agreement
Restricted Stock Units
10(l)(i)
10(l)(ii)
10(l)(iii)
10(l)(iv)
10(l)(v)
10(l)(vi)
10(l)(vii)
10(l)(viii)
10(l)(ix)
2003 Restricted Stock Unit Plan, as adopted
November 13, 2003
2003 Form of Restricted Stock Unit Award, as adopted
November 13, 2003
Amendment No. 1, dated as of November 30, 2005, to
the 2003 Restricted Stock Unit Plan
Amendment No. 2, dated as of February 15, 2006, to
the 2003 Restricted Stock Unit Plan
Form of Restricted Stock Unit Award for units granted
on February 15, 2008
Amended and Restated 2003 Restricted Stock Unit
Plan as adopted on May 7, 2008
Form of Restricted Stock Unit Award for units granted
on July 8, 2009
2011 Performance Phantom Stock Plan as adopted on
May 26, 2011. (42)
Form of Restricted Stock Unit Award for units granted
on February 17, 2012
Stock Options
10(m)(i)
10(m)(ii)
Form of Stock Option Agreement, dated as of August 1,
1983, between the Company 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
Form of Amendment of Stock Option Agreement,
dated as of July 1, 1987, between the Company and
each of the five employees identified in the schedule
referred to as Exhibit 10(m)(i)
10(m)(iii)
1992 Stock Option Plan
10(m)(iv)
1997 Executive Stock Option Agreement
10(m)(v)
1998 Stock Option Plan
10(m)(vi)
1998 Stock Option Plan, as amended and restated as
of August 7, 2003
10(m)(vii)
2005 Incentive Plan
10(m)(viii)
2011 Incentive Plan
10(m)(ix)
Amendment No. 1, dated as of December 5, 2007, to
the Albany International Corp. 2005 Incentive Plan
108
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
2/9/12
Form
__________________________
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
2/22/12
1/2/08
11/5/04
12/6/05
2/21/06
2/21/08
5/13/08
7/2/09
10-Q
6/30/11
8/9/11
8-K
2/24/12
S-1,
No. 33-16254
9/30/87
S-1,
No. 33-16254
9/30/87
8-K
10-K
10-Q
8-K
8-K
8-K
8-K
1/18/93
12/31/97 3/16/98
6/30/98
8/10/98
12/23/09
5/18/05
6/1/11
12/5/07
Exhibit
Number
_______________________
10(m)(x)
Exhibit Description
__________________________________
Form of 2008 Performance Bonus Agreement
Filed
Herewith
________________
10(m)(xi)
Form of 2009 Performance Bonus Agreement
10(m)(xii)
Form of 2010 Annual Performance Bonus Agreement
10(m)(xiii)
Form of 2010 Multi-Year Performance Bonus Agreement
10(m)(xiv)
Form of 2011 Annual Performance Bonus Agreement
10(m)(xv)
Form of 2011 Multi-Year Performance Bonus Agreement
Executive Compensation
10(n)(i)
10(n)(ii)
Pension Equalization Plan adopted April 16, 1986,
naming two current executive officers and one former
executive officer of Company as “Participants”
thereunder
Supplemental Executive Retirement Plan, adopted as
of January 1, 1994, as amended and restated as of
January 1, 2008
10(n)(iii)
Annual Bonus Program
10(o)(i)
10(o)(ii)
10(o)(iii)
10(o)(iv)
10(o)(v)
10(o)(vi)
Form of Executive Deferred Compensation Plan
adopted September 1, 1985, as amended and restated
as of August 8, 2001
Form of Directors’ Deferred Compensation Plan
adopted September 1, 1985, as amended and restated
as of August 8, 2001
Deferred Compensation Plan of Albany International
Corp., as amended and restated as of August 8, 2001
Centennial Deferred Compensation Plan, as amended
and restated as of August 8, 2001
Directors’ Annual Retainer Plan, as amended and
restated as of December 8, 2009
Excerpt from the Company’s Corporate Governance
Guidelines describing director compensation
10(o)(vii)
Excerpt from the Company’s Corporate Governance
Guidelines describing director compensation
10(o)(viii)
Severance Agreement between Albany International
Corp. and Michael Burke
10(o)(ix)
10(o)(x)
10(o)(xi)
Executive Separation Agreement between Albany
International Corp. and Michael C. Nahl
Executive Separation Agreement between Albany
International Corp. and Michael J. Joyce
Form of Severance Agreement between Albany
International Corp. and certain corporate officers or
key executives
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
2/21/08
Form
__________________________
8-K
8-K
8-K
8-K
8-K
8-K
S-1,
No. 33-16254
3/4/09
3/31/10
3/31/10
3/29/11
3/29/11
9/30/87
8-K
1/2/08
S-1,
No. 33-16254
9/30/87
10-Q
9/30/01 11/12/01
10-Q
9/30/01 11/12/01
10-K
12/31/02 3/21/03
10-Q
9/30/01 11/12/01
8-K
12/23/09
10-Q
3/31/11
5/6/11
8-K
8-K
5/15/08
7/2/09
10-Q
6/30/09
8/7/09
8-K
8-K
11/1/11
1/3/13
109
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
Form
__________________________
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
1/2/08
1/13/05
5/18/05
2/23/11
3/15/06
3/29/06
3/15/06
3/29/06
10-Q
3/31/09
5/8/09
10-Q
3/31/09
5/8/09
10-Q
3/31/09
5/8/09
10-Q
3/31/09
5/8/09
10-Q
3/31/09
5/8/09
10-Q
3/31/09
5/8/09
Exhibit
Number
_______________________
Other Exhibits
Exhibit Description
__________________________________
Filed
Herewith
________________
Code of Ethics
Directors Pension Plan, amendment dated as of
January 12, 2005
Employment agreement, dated May 12, 2005,
between the Company and Joseph G. Morone
Form of Indemnification Agreement
Convertible note hedge transaction confirmations,
dated as of March 7, 2006, by and between JPMorgan
Chase Bank, N.A., Bank of America, N.A., and the
Company
Amendments, dated March 23, 2006, to convertible
note hedge transaction confirmations, dated as of
March 7, 2006, by and between JPMorgan Chase Bank,
N.A., Bank of America, N.A., and the Company
Warrant transaction confirmations, dated as of March 7,
2006, by and between JPMorgan Chase Bank, N.A.,
Bank of America, N.A., and the Company
Amendments, dated March 23, 2006, to warrant
transaction confirmations, dated as of March 7, 2006,
by and between JPMorgan Chase Bank, N.A., Bank of
America, N.A., and the Company
Securities Purchase Agreement between Albany
International Corp. and J.P. Morgan Securities Inc.,
dated April 3, 2009
Securities Exchange Agreement between Albany
International Corp. and J.P. Morgan Securities Inc.,
dated April 3, 2009
Amendment to Securities Purchase Agreement between
J.P. Morgan Securities Inc. and Albany International
Corp., dated April 6, 2009
Amendment to Securities Exchange Agreement by and
between J.P. Morgan Securities Inc. and Albany
International Corp., dated April 6, 2009
Second Amendment to Securities Purchase Agreement
by and between J.P. Morgan Securities Inc. and Albany
International Corp., dated April 6, 2009 (the “Second
Amendment”), under the Securities Purchase Agreement,
dated April 3, 2009 (the “Purchase Agreement”), as
amended by the Amendment Agreement, dated April 6,
2009 (the “Amended Purchase Agreement”)
Second Amendment to Securities Exchange Agreement
by and between J.P. Morgan Securities Inc. and
Albany International Corp., dated April 6, 2009 (the
“Second Amendment”), under the Exchange Agreement,
dated April 3, 2009 (the “Exchange Agreement”), as
amended by the Amendment Agreement, dated April 6,
2009 (the “Amended Exchange Agreement”)
10(p)
10(q)
10(r)
10(s)
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
110
Incorporated by Reference
_____________________________________________________________________
Form
__________________________
10-Q
Period
Ending
__________________
6/30/09
Filing
Date
__________________
8/7/09
10-Q
6/30/09
8/7/09
8-K
11/1/11
Exhibit
Number
_______________________
10.11
10.12
10.13
11
13
21
23
24
31(a)
31(b)
32(a)
Exhibit Description
__________________________________
Securities Purchase Agreement between Albany
International Corp. and Citadel Equity Fund Ltd.,
dated May 21, 2009
Securities Exchange Agreement between Albany
International Corp. and Citadel Equity Fund Ltd.,
dated May 21, 2009
Stock and Asset Purchase Agreement by and between
Albany International Corp. and ASSA ABLOY AB,
dated as of October 27, 2011
Statement of Computation of Earnings per share
(provided in Footnote 8 to the Consolidated Financial
Statements)
Annual Report to Security Holders for the year ended
December 31, 2012
Subsidiaries of Company
Consent of PricewaterhouseCoopers LLP
Powers of Attorney
Filed
Herewith
________________
X
X
X
X
X
Certification of Joseph G. Morone required pursuant to X
Rule 13a-14(a) or Rule 15d-14(a)
Certification of John B. Cozzolino required pursuant to X
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Joseph G. Morone and John B.
Cozzolino required pursuant to Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18
of the United States Code
X
The following information from the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2012, formatted in eXtensible Business Reporting Language (XBRL), filed herewith:
101(i)
101(ii)
101(iii)
101(iv)
Consolidated Statements of Income and Retained
Earnings for the years ended December 31, 2012, 2011
and 2010
Consolidated Statements of Comprehensive Income
for years ended December 31, 2012, 2011, and 2010
X
X
Consolidated Balance Sheets as of December 31, 2012 X
and 2011
Consolidated Statements of Cash Flows for the years
ended December 31, 2012, 2011, and 2010
101(v)
Notes to Consolidated Financial Statements
X
X
*
As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of
Sections 11 and 12 of the Securities Act and Section 18 of the Securities Exchange Act or otherwise subject
to liability under those sections.
111
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 1st
day of March, 2013.
ALBANY INTERNATIONAL CORP.
by
/s/ John B. Cozzolino
______________________________________________________________________
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature
________________________________________________________________________
Title
________________________________________________________________________________________________________
Date
_______________________________________
*
Joseph G. Morone
President and Chief Executive Officer and Director
(Principal Executive Officer)
February 21, 2013
/s/ John B. Cozzolino
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
*
David M. Pawlick
Vice President–Controller
(Principal Accounting Officer)
February 21, 2013
February 21, 2013
Chairman of the Board and Director
February 21, 2013
Vice Chairman of the Board and Director
February 21, 2013
Director
Director
Director
Director
Director
February 21, 2013
February 21, 2013
February 21, 2013
February 21, 2013
February 21, 2013
*
Erland E. Kailbourne
*
John C. Standish
*
John F. Cassidy, Jr.
*
Paula H.J. Cholmondeley
*
Edgar G. Hotard
*
John R. Scannell
*
Christine L. Standish
*By /s/ John B. Cozzolino
John B. Cozzolino
Attorney-in-fact
112
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Column A
_______________________
Description
_______________________
Allowance for doubtful accounts
Year ended December 31:
Column B
_______________________
Balance at
beginning of
period
_______________________
Column C
_______________________
Column D
_______________________
Charge to
expense
_______________________
Other (A)
_______________________
Column E
_______________________
Balance at
end of the
period
_______________________
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,729
12,331
10,794
$ 1,411
3,081
1,842
$
(278)
(4,683)
(305)
$11,862
10,729
12,331
Allowance for sales returns
Year ended December 31:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,609
14,208
13,959
$19,911
18,942
16,447
$(15,984)
(17,541)
(16,198)
$19,536
15,609
14,208
Valuation allowance deferred tax assets
Year ended December 31:
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,413
42,140
32,438
$ (4,131)
18,529
6,892
$ 1,066
2,744
2,810
$60,348
63,413
42,140
(A) Amounts sold, written off, or recovered, and the effect of changes in currency translation rates, are included
in Column D.
113
CORPORATE INFORMATION
Investor Relations
The Company’s Investor Relations Department may be contacted at:
Investor Relations Department
Albany International Corp.
216 Airport Drive
Rochester, NH 03867
Telephone: (603) 330-5850
Fax: (603) 994-3974
E-mail: investor.relations@albint.com
Transfer Agent and Registrar
Computershare
P.O. Box 43006
Providence, RI 02940-3006
Telephone (toll-free): 1-877-277-9931
Web: www.computershare.com/investor
Shareholder Services
As an Albany International shareholder, you are invited to take advantage of our convenient shareholder
services.
Computershare maintains the records for our registered shareholders and can help you with a variety of
shareholder-related services at no charge, including:
• Change of name and/or address
• Consolidation of accounts
• Duplicate mailings
• Dividend reinvestment enrollment
• Lost stock certificates
• Transfer of stock to another person
• Additional administrative services
Access your investor statements online 24 hours a day, 7 days a week with MLinkSM. For more information,
go to www.computershare.com/investor.
Notice of Annual Meeting
The Annual Meeting of the Company s shareholders will be held on Friday, May 17, 2013, at 9:00 a.m. at
the Hilton Garden Inn, 100 High St., Portsmouth, New Hampshire 03801.
Stock Listing
Albany International is listed on the New York Stock Exchange (Symbol AIN). Stock tables in newspapers
and financial publications list Albany International as “AlbanyInt.”
114
Equal Employment Opportunity
Albany International, as a matter of policy, does not discriminate against any employee or applicant for
employment because of race, color, religion, sex, national origin, age, physical or mental disability, or status as a
disabled or Vietnam-era veteran. This policy of nondiscrimination is applicable to matters of hiring, upgrading,
promotions, transfers, layoffs, terminations, rates of pay, selection for training, recruitment, and recruitment
advertising. The Company maintains affirmative action programs to implement its EEO policy.
Directors and Officers
Directors
Erland E. Kailbourne, Chairman1
Retired – Chairman and Chief Executive Officer,
Fleet National Bank (New York Region)
John C. Standish,2 Vice Chairman
President, J.S. Standish Company
John F. Cassidy, Jr.2
Retired – Senior Vice President,
Science and Technology, United Technologies Corp.
Paula H. J. Cholmondeley1,3
Retired – Vice President and General Manager,
Sappi Fine Papers, North America
Edgar G. Hotard1,3
Operating Partner - HAO Capital
Joseph G. Morone
President and Chief Executive Officer
Christine L. Standish3
Chairperson, J.S. Standish Company
John R. Scannell2
Chief Executive Officer, Moog Inc.
1 Member, Audit Committee
2 Member, Compensation Committee
3 Member, Governance Committee
Officers
Joseph G. Morone
President and Chief Executive Officer
John B. Cozzolino
Chief Financial Officer and Treasurer
Ralph M. Polumbo
Senior Vice President – Chief Operating Officer,
Albany Engineered Composites
David M. Pawlick
Vice President – Controller
Daniel A. Halftermeyer
President – Machine Clothing
Charles J. Silva, Jr.
Vice President – General Counsel and Secretary
Robert A. Hansen
Senior Vice President and Chief Technology Officer
Dawne H. Wimbrow
Vice President – Global Information Services and Chief
Information Officer
Joseph M. Gaug
Associate General Counsel and Assistant Secretary
115
SUBSIDIARIES OF REGISTRANT
Exhibit 21
Affiliate
______________________________________________________________________________________________________________________________
Albany International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holdings Two, Inc. . . . . . . . . . . . . . . . . .
Albany International Research Co. . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites, Inc. . . . . . . . . . . . . . . . . . . . .
Geschmay Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Dritek Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Felt Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AIC Sales Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transamerican Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . .
Transglobal Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
47 Albany Troy Road Corporation . . . . . . . . . . . . . . . . . . . . . .
Brandon Drying Fabrics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Forming Fabrics Corp. . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Wet Felts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Pty., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Asia Pty., Ltd. . . . . . . . . . . . . . . . . . . . . .
Albany International Tecidos Tecnicos Ltda. . . . . . . . . . . . . . .
Albany International Canada Corp. . . . . . . . . . . . . . . . . . . . . . .
Albany International (China) Co., Ltd. . . . . . . . . . . . . . . . . . . .
Albany International Engineered Textiles
(Hangzhou) Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Oy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International France, S.A.S. . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites, S.A.S. . . . . . . . . . . . . . . . . . .
Albany International Germany Holding GmbH . . . . . . . . . . . .
Albany International GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wurttembergische Filztuchfabrik D. Geschmay GmbH . . . . . .
Albany International Italia S.r.l. . . . . . . . . . . . . . . . . . . . . . . . .
Albany Nordiskafilt Kabushiki Kaisha . . . . . . . . . . . . . . . . . . .
Albany International Korea, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Albany International de Mexico S.A. de C.V. . . . . . . . . . . . . . .
Albany International B.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevo-Cloth Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International S.A. Pty. Ltd. . . . . . . . . . . . . . . . . . . . . . .
Albany International AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holding AB . . . . . . . . . . . . . . . . . . . . . . .
Dewa Consulting AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nordiska Maskinfilt Aktiebolag . . . . . . . . . . . . . . . . . . . . . . . .
Albany International (Switzerland) GmbH . . . . . . . . . . . . . . . .
Albany International Holding (Switzerland) AG . . . . . . . . . . .
Albany International Europe GmbH . . . . . . . . . . . . . . . . . . . . .
Albany International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James Kenyon & Sons Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites, Ltd. . . . . . . . . . . . . . . . . . . . .
Percent
Ownership
________________________
Direct
Percent
Ownership
________________________
Indirect
Country of
Incorporation
____________________________________
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Australia
Australia
Brazil
Canada
China
China
Finland
France
France
Germany
Germany
Germany
Italy
Japan
Korea
Mexico
Netherlands
Russia
South Africa
Sweden
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
116
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File Nos.
333-140995, 333-76078, 033-28028, 333-90069, 033-60767) of Albany International Corp. of our report dated
March 1, 2013, relating to the financial statements, financial statement schedule, and the effectiveness of internal
control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Albany, New York
March 1, 2013
117
Powers of Attorney
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and officers of Albany
International Corp., a Delaware corporation (“the Registrant”), which contemplates that 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, an Annual Report on Form
10-K for the year ended December 31, 2012 (such report, together with any amendments, supplements, and
exhibits thereto, is collectively hereinafter referred to as “Form 10-K”), hereby constitutes and appoints Joseph
G. Morone, David M. Pawlick, Charles J. Silva Jr., John B. Cozzolino, and Joseph M. Gaug, 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 or her in his or her name, place, and stead, in any and all capacities, to
sign the Form 10-K and any or all other documents relating thereto, with power where appropriate to affix the
corporate seal of the Registrant thereto and to attest said seal, and to file the Form 10-K, together with any and
all other information and documents in connection therewith, with the SEC, hereby granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
The appointment of any attorney-in-fact and agent hereunder shall automatically terminate at such time as
such attorney-in-fact and agent ceases to be an officer of the Registrant. Any of the undersigned may terminate
the appointment of any of his or her attorneys-in-fact and agents hereunder by delivering written notice thereof
to the Registrant.
IN WITNESS WHEREOF, the undersigned have duly executed this Power of Attorney this 15th day of
/s/ Joseph G. Morone
________________________________________________________________________
Joseph G. Morone
President and Chief Executive
Officer and Director
(Principal Executive Officer)
________________________________________________________________________
/s/ David M. Pawlick
David M. Pawlick
Vice President - Controller
(Principal Accounting Officer)
________________________________________________________________________
/s/ Christine L. Standish
Christine L. Standish
Director
________________________________________________________________________
/s/ Paula H. J. Cholmondeley
Paula H. J. Cholmondeley
Director
________________________________________________________________________
/s/ Edgar G. Hotard
Edgar G. Hotard
Director
February, 2013.
/s/ Erland E. Kailbourne
________________________________________________________________________
Erland E. Kailbourne
Chairman of the Board and Director
/s/ John B. Cozzolino
________________________________________________________________________
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ John C. Standish
________________________________________________________________________
John C. Standish
Vice Chairman of the Board and Director
/s/ John R. Scannell
________________________________________________________________________
John R. Scannell
Director
/s/ John F. Cassidy, Jr.
________________________________________________________________________
John F. Cassidy, Jr.
Director
118
Certification of the Chief Executive Officer
Exhibit 31(a)
I, Joseph G. Morone, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Albany International Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 1, 2013
By /s/ Joseph G. Morone
______________________________________________________________________
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
119
Certification of the Chief Financial Officer
Exhibit 31(b)
I, John B. Cozzolino, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Albany International Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 1, 2013
120
By /s/ John B. Cozzolino
______________________________________________________________________
John B. Cozzolino
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Exhibit 32
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code), Joseph G. Morone, the Chief Executive Officer, and John B.
Cozzolino, the Chief Financial Officer and Treasurer, of Albany International Corp., a Delaware corporation
(“the Company”), do each hereby certify, to such officer’s knowledge, that the annual report on Form 10-K for
the fiscal year ended December 31, 2012 (“the Form 10K”) of the Company fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in
the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the
Company for the period covered by the report.
Dated: March 1, 2013
/s/
/s/
Joseph G. Morone
______________________________________________________________________
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
John B. Cozzolino
______________________________________________________________________
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
121
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216 Airport Drive, Rochester, NH 03867 USA
Tel: 603 330 5850 • Fax: 603 994 3835 • www.albint.com • investor.relations@albint.com