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4,100
EMPLOYEES
11
COUNTRIES
20 Plants
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
Hold Machine Clothing cash flow, execute the Leap ramp, and advance
the AEC pipeline.
our long-term objective
Cash flow and grow; maintain MC market leadership while growing AEC.
Albany International is a global advanced textiles and materials process-
ing 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 20 plants in 11 countries, employs 4,100 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.
AIN
(NYSE)
On the cover: The two photographs stacked on the left illustrate
activities at the Albany Engineered Composites Research & Technology
Center in Rochester, New Hampshire. Those on the right show production
at the world-class Machine Clothing press fabric plant Hangzhou, China.
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2013
US $ millions, except per share data
Net sales:
Machine Clothing
Engineered Composites
Q1 Q2 Q3 Q4
$167.4
19.3
$186.7
$177.6
20.4
$198.0
$162.8
20.3
$183.1
$166.9
22.7
$189.6
22.5 (3.5)
Operating income/(loss)
Net income attributable to the Company 11.5 (7.4)
Earnings per share - basic
Earnings per share - diluted
$ 19.8
8.7
0.36 (0.23) 0.15 0.27
0.36 (0.23) 0.15 0.27
$ 13.3
4.7
Years ended
US $ millions,
except per
share data
Dec
31
2011 2012
2013
$787.3 $760.9 $757.4
Net sales
314.2
Gross profit
Operating income/(loss)
74.6
Net income attributable to the Company 34.9
1.12
Earnings per share - basic
1.11
Earnings per share - diluted
305.4
(44.1)
31.0
0.99
0.97
290.6
52.1
17.5
0.55
0.55
Table Of
CONTENTS 2 CEO LETTER 6 GLOBAL LOCATIONS 7 FORM 10-K
1
Letter To
Shareholders
Hold Machine Clothing.
By now, our strategy in Machine
Clothing should be as apparent to all of
our investors as it is to our customers and
competitors: focus on the leading paper-
makers in the growth grades and regions,
and deliver superior value on every
dimension of performance: products,
field service, delivery times, quality, and
underlying it all, talent. By these measures,
2013 was another outstanding year for
our global Machine Clothing business, a
performance underscored by Procter &
Gamble, which recognized Albany as an
“External Business Partner of the Year,”
an honor it awarded to only 15 of its more
than 82,000 suppliers. Albany Machine
Clothing has received this recognition for
three consecutive years, one of only three
companies to do so.
Unfortunately, by our financial metrics, 2013
performance fell short of our expectations.
For the full year, Machine Clothing Adjusted
EBITDA declined by 6 percent compared
to 2012. While some of this decline can be
attributed to the impact of the 2012 change
in contract terms with a North American
customer, soft sales in Asia also contributed
to the reduced earnings. Despite continued
strong competitive performance in Asia, our
sales for the year were roughly 9 percent
below 2012 levels.
As we have discussed many times in many
investor forums, we believe we are well
positioned in Machine Clothing for the long
haul. We believe our strength in the growing
markets of South America, and of tissue
and packaging in North America, should
Joseph G. Morone
President & Chief Executive Officer
As we look back on 2013, and forward to
the rest of 2014 and the second half of the
decade, it becomes increasingly clear that
our ability to continue to create shareholder
value is shaped by three imperatives: hold
Machine Clothing cash flow, execute the
LEAP ramp, and advance the Albany
Engineered Composites (AEC) pipeline.
These three imperatives comprise our
corporate strategy, define our standard for
assessing performance, and shape all of
our thinking – from investment to talent
management. Hold Machine Clothing cash
flow, despite the downward pressures of a
mature market and from digital displacement
of the printing and writing grades; execute
the LEAP ramp, despite a LEAP engine
growth rate and order volume that is
unprecedented in the aerospace industry;
and advance the AEC pipeline, both in the
number of new opportunities progressing
toward commercial contracts and in the
breadth of opportunities under exploration
in the earlier stages of R&D.
2
, we believe we are well
positioned in Machine Clothing
for the long haul. We believe our
net sales USD MILLIONS
2011 2012
2013
787.3 760.9 757.4
adjusted EBITDA* USD MILLIONS
2011 2012
2013
141.3
145.4 135.4
TOTAL debt (december 31) USD MILLIONS
2011 2012
2013
374.8 319.7 304.5
Total debt includes notes and loans payable, current and long-term debt.
* EBITDA from continuing operations, excluding restructuring charges, revaluation effects, pension
settlement expense and gains from building sales; see item 7 of Form 10-K for disclosure of
non-GAAP data.
three
These
imperatives com-
prise our corporate strategy, de-
fine our standard for assessing
performance, and shape all
of our thinking – from investment
talent management. Hold
to
Machine Clothing cash
flow, despite the downward pres-
sures of a mature market and from
digital displacement of the printing
and writing grades; execute the
LEAP ramp, despite a LEAP en-
3
be sufficient to offset the inevitable declines
in the North American printing and writing
grades, while our strength in the growing
markets of Asia should be sufficient to
offset the inevitable declines in Europe. For
this reason, we view the macroeconomic
environment, more than structural or
competitive factors, as the primary source
of risk (both upside and down) for Machine
Clothing in the short and medium term. The
impact of the weakening Chinese economy
on our 2013 results underscores this view.
Execute the LEAP Ramp.
If current customer projections hold, the
initial version of the LEAP engine will
enter into service in 2016; by 2020, annual
production should reach 1,700 engines,
or roughly 30,000 fan blades. To put this
in context, it took 30 years for the CFM56,
the best-selling engine in the history of
commercial aviation and predecessor to
LEAP, to reach its current production level
of 1,500 engines per year. As far as we
can determine, the world of aerospace
has never experienced as steep a ramp,
let alone the aggregate volume levels, that
are contemplated for the LEAP engine.
Ordinarily, manufacturing processes in the
aerospace industry are improved as relatively
small volumes gradually increase. But the
steepness of the LEAP ramp curve, and the
rate of required production, mean that we
simply will not have time for such learning
once production begins in earnest. Our
learning “curve” must occur before the
volume spikes.
Our goal is to implement fully a high-yield,
highly repeatable manufacturing process
before the ramp begins. In 2013, we made
very successful first full-engine test. In 2014,
is a very close collaboration with Safran. The most
excellent progress
unique nature
: the plants are joint-
Albany occupies the 60
of the plant, where we weave and inject resin into the
excellent progress toward this goal, highlight-
ed at the end of the year by an on-time and
very successful first full-engine test. In 2014,
we will be simultaneously producing parts
for an array of engine tests, completing the
outfitting of the first modules of the two LEAP
plants, and running initial full-rate production
tests of those modules.
One of the reasons for the excellent
progress to date is a very close collaboration
with Safran. The most visible manifestation
of that collaboration is the unique nature of
our two LEAP production plants: the plants
are jointly occupied by Albany and Safran;
Albany occupies 60 percent of each plant,
where we weave and inject resin into the
parts we are making; the process flow then
continues directly into the Safran portion of
the plants, where the woven and injected
parts are inspected, machined, and finished
before being shipped to the final engine
assembly plant.
Advance the pipeline.
In 2011, as it was becoming clear that the
LEAP project would come to commercial
fruition, we set out to build the R&D
capability required to develop new
generations of advanced composite
parts. We launched construction of a
45,000-square-foot technology development
and rapid prototyping facility, and began to
recruit talent across an array of technology
domains, including modeling and simulation,
high-temperature composites, injection
molding, and weaving and equipment
development (to develop next-generation
weaving systems). By the end of 2013, R&D
spending, both internal and customer-funded,
had grown to $13 million or roughly 16
percent of AEC sales, the R&D team had
grown to roughly 50 professionals, and we
had begun to equip and staff an adjacent
product development center that could
advance products coming out of the rapid
prototyping facility and R&D toward full-scale
production.
We are now experiencing the initial impact of
this wave of investment. In 2012, we worked
on one airframe opportunity: a ceramic matrix
composite (CMC) exhaust nozzle for Boeing.
Today, as we continue to work on this CMC
Initial low-rate production began in late 2013 at the new LEAP manufacturing facility in Rochester, New Hampshire, where
Albany Engineered Composites and Safran Aerospace Composites are collocated. AEC occupies approximately 60% of the
353,000-square-foot plant and has a similar footprint at the sister LEAP facility in Commercy, France, which is expected to be
completed in May 2014.
4
on-time and very successful first full-engine test. In 2014,
we will be simultaneously producing parts for an array of
engine tests, completing the outfitting of the first modules of the
two LEAP plants, and running initial full-rate production tests
of those modules. One of the reasons for the excellent progress
to date is a very close collaboration with Safran. The most
visible manifestation of that collaboration is the unique nature
of our two LEAP production plants: the plants are
jointly occupied by Albany and Safran; Albany occupies 60
percent of each plant, where we weave and inject resin into the
In sum, as we look out toward the second
half of the decade, we see a clear pathway
toward the creation of shareholder value: hold
Machine Clothing Adjusted EBITDA, execute
the LEAP ramp, and advance the pipeline.
This pathway to value-creation generation
will require a bit of patience, but as fellow
shareholders, we have growing confidence
that the upside will be worth the wait.
As always, I close this letter with sincere
thanks to my 4,100 colleagues around the
globe. Because of their commitment to the
Company and to each other, they continue
to propel Albany International forward.
Joseph G. Morone
President & Chief Executive Officer
application, we are at the same time actively
engaged with our customers in exploring
a broad portfolio of additional potential
airframe applications, including components
for commercial aircraft wing, empennage,
fuselage, and nacelle substructures, as well
as components for Department of Defense
rotorcraft and unmanned aerial vehicles. The
revenue potential of these airframe applica-
tions ranges from small (less than $5 million
per year) to large (tens of millions of dollars
per year), with potential for initial production
revenue ranging from later this decade to well
into the next decade. We expect several of
these explorations to lead to jointly funded
R&D projects this year.
To be clear, most of these potential
applications are still in the early stages
of development. But given the rapid
expansion of this airframe pipeline, along
with the work we are doing with Safran on
potential enhancements to LEAP, we continue
to hold to our objective of $300 to $500
million in revenue by 2020. The specific
challenge for 2014 is to move at least some
of these projects closer to commercial
commitments by customers, while at the
same time, continuing to expand the portfolio
of potential customers and applications.
5
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France
Commercy AEC
St. Junien MC
Sélestat MC R&D
GERMANY
Göppingen MC
Switzerland
Neuhausen MC
Sweden
Halmstad MC R&D
CANADA
Cowansville, Québec MC
Perth, Ontario MC
CORPORATE OFFICES
Rochester, NH (HQ)
Albany, NY
ENGLAND
Bury, Lancashire MC
Finland
Helsinki MC
CHINA
Hangzhou MC
Panyu MC
MEXICO
Cuautitlán MC
USA
Boerne, Texas AEC
Homer, New York MC
Kaukauna, Wisconsin MC
Menasha, Wisconsin MC R&D
Rochester, New Hampshire AEC
St. Stephen, South Carolina MC
6
ITALY
Ballò di Mirano (VE) MC
S. KOREA
Chungju MC
BRAZIL
Indaial MC
S. AFRICA
Westville MC
Australia
Ettalong Beach MC
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, 2013
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 28, 2013, 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 $926.3 million.
The registrant had 28.5 million shares of Class A Common Stock and 3.2 million shares of Class B Common Stock outstanding as
of January 31, 2014.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2014
PART
III
7
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.
PART II
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters,
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Item 14.
10
15
21
21
21
21
22
23
24
40
41
87
87
88
89
89
90
91
91
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92
PART IV
8
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
“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.
9
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 (MC) 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
or more of the last three years.
The Albany Engineered Composites segment (AEC), including Albany Safran Composites, LLC (ASC), in
which our customer SAFRAN Group owns a 10% noncontrolling interest, 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 through ASC, is developing a family of composite parts, including fan blades, to be
incorporated into the LEAP engine under a long-term supply contract. In 2013, approximately 10% 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 2013, 2012, and 2011.
(in thousands)
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
___________________
$674,747
82,667
_______________
$757,414
_______________
_______________
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
2011
___________________
$739,211
48,076
_______________
$787,287
_______________
_______________
The table setting forth certain sales, operating income, and balance sheet data that appears in Note 4,
“Reportable Segments and Geographic Data,” of the Consolidated Financial Statements, included under Item 8
of this Form 10-K, is incorporated herein.
10
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 the last couple years. Additionally, we anticipate
intensive growth in the future which could lead to further increases in working capital levels.
In the Machine Clothing segment, the summer months and the end of the year are common periods of
downtime for our customers, which can lead to weak sales periods for the Company. In recent years, broad
industry ramp-ups or slowdowns have resulted in sales being distributed unevenly throughout the year. These
combined factors make seasonal trends less predictable. Seasonality is not a significant factor in the Engineered
Composites segment.
Backlog in the Machine Clothing segment was $225.6 million at December 31, 2013, compared to
$266.8 million at December 31, 2012. The decrease reflects a trend toward shorter order-to-delivery times.
Backlog in the Engineered Composites segment was $21.7 million at December 31, 2013 compared to
$33.2 million at December 31, 2012. The backlog is generally expected to be invoiced during the next
12 months.
11
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 forming fabric INLINE; press fabrics HYDROCROSS, SPRING,
SEAM HYDROCROSS, SEAMPLANE and Seam KMX; shoe press belts VENTABELT EVM and
VENTABELT XTS; TRANSBELT GX; dryer fabric AEROPULSE; corrugator belt DURASPIRAL; and for the
Nonwovens Industry NEOSTAT and SUPRASTAT.
Product engineering and research and development expenses totaled $31.1 million in 2013, $28.5 million
in 2012, and $31.1 million in 2011. In 2013, these costs were 4.1% of total Company net sales, including
$9.4 million or 11.3% of net sales spent in our AEC segment.
We conduct our major research and development in Halmstad, Sweden; Manchester, England; Kaukauna,
Wisconsin and Rochester, New Hampshire. Additionally, we conduct process and product design development
activities at locations in Quebec, Canada; Kaukauna, 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 250 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 $1.4 million in 2013 and $0.8 million in 2012 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.
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. While carbon fiber and other raw materials used by AEC are available
from a number of suppliers, the use of certain suppliers may be mandated by customer agreements and
alternative suppliers would be subject to material qualification or other requirements.
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 2013,
while the two largest competitors each had a market share of approximately half of ours.
12
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 4,100 persons, of whom 67% 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.
A number of hourly employees outside of the United States are 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 February 26, 2014:
Joseph G. Morone, 60, President and Chief Executive Officer, 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, 47, Chief Financial Officer and Treasurer, 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 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, 62, President — Albany Engineered Composites, joined the Company in 2006. He has
served the Company as President — Albany Engineered Composites since November 2013. Prior to that, he
served as Chief Operating Officer, Albany Engineered Composites, from December 2010 to November 2013. He
previously served the Company as Chief Administrative Officer 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.
13
Daniel A. Halftermeyer, 52, President — Machine Clothing, 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, 56, Senior Vice President and Chief Technology Officer, 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, 52, Vice President — Controller, 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., 54, Vice President — General Counsel and Secretary, 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, 56, Vice President — Global Information Services and Chief Information Officer,
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, 50, Associate General Counsel and Assistant Secretary, 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).
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.
14
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.
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.
AEC is subject to significant execution risk related to the LEAP program in the short and medium-term
The expected size and steep growth rate of the market for LEAP engines continues to put significant
pressure on AEC to execute in the short and medium-term. In the short term, AEC must continue to fulfill
critical product and process design and test milestones, continue to ramp production in the first LEAP plant in
Rochester, New Hampshire, meet certain production readiness milestones, and continue the construction,
equipping and staffing of the second LEAP plant in Commercy, France. In the medium-term, AEC will be
required to continue 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. Failure to
accomplish these goals could have a material adverse impact on the amount and timing of anticipated LEAP
program revenues, income, and cash flows, which could in turn have a material adverse impact on our
consolidated financial results.
The long-term growth prospects of AEC are subject to a number of risks
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 develop components for a number of commercial, general aviation, and military aircraft programs. These
development projects may or may not result in supply opportunities. In the event that AEC succeeds in
developing products and securing contracts to manufacture and supply them, it will face the same
industrialization and manufacturing ramp-up risks that it currently faces in the LEAP program, and may or may
not be successful in meeting its obligations under these contracts.
In addition to dealing with these development and manufacturing execution risks, future AEC growth will
likely require increasingly larger amounts of cash to fund the investments likely to be required in equipment,
capital, and development efforts required to achieve this growth. While AEC is starting to generate increasing
amounts of cash, it is likely to be some time before AEC generates sufficient cash to fund, or to obtain financing
to fund, this growth. Until that time, it will remain dependent on the Machine Clothing segment’s ability to
generate cash, and a significant decline in Machine Clothing sales, operating income or cash flows could
therefore have a material adverse impact on AEC’s growth.
15
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.
Fixed-price contracts, contract or program terminations, reductions, cancellations, delays or other changes
could result in losses or material write-offs in the Engineered Composites segment
AEC has a number of long-term or life-of-program fixed price contracts, and is likely to enter into similar
contracts in future. While such contracts enable AEC to enjoy increased profits as the result of cost reductions
and efficiencies, estimations of contract costs and profitability over a long period of time are subject to many
variables, and may prove to be inaccurate. Additionally, many of the parts AEC agrees to develop and produce
have highly complex designs, and technical or quality issues may arise during development or production that
result in higher costs or an inability to achieve required technical specifications. If actual production and/or
development costs should prove higher, or revenues prove lower, than AEC’s estimates, our expected profits may
be reduced, or if such costs should exceed contract prices, we may be required to recognize losses for future
periods, and potentially for the remaining life of the program, which could significantly affect our reported
results.
In addition, the reduction or delay of orders by AEC’s 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 AEC revenues and earnings 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.
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, 2013, 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.
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.
16
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.
The Company may experience supply constraints due to a limited number of suppliers of certain raw
materials and equipment
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 AEC. In
addition, there are a limited number of suppliers of some of the equipment used by AEC. While we have always
been able to meet our raw material and equipment needs, the limited number of suppliers of these items creates
the potential for disruptions in supply. AEC currently relies on single suppliers to meet the carbon fiber and
carbon resin requirements for the LEAP program. Lack of supply, delivery delays, or quality problems relating
to supplied raw materials for our key manufacturing equipment could harm our production capacity, and could
require the Company to attempt to qualify one or more additional suppliers, which could be a lengthy and
uncertain process. Such disruptions could 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.
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
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.
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,
including the requirement that the Compensation and Governance Committees be composed entirely of
“independent” directors (as defined by the NYSE rules). In addition, although we believe that a majority of our
current directors may be deemed independent under the NYSE rules, as a controlled company our Board of
Directors is not required to include a majority of “independent” directors. Should the interests of the Standish
family differ from those of other stockholders, the other stockholders might not be afforded such protections as
might exist if our Board of Directors, or these Committees, were required to have a majority, or be composed
exclusively, of directors who were independent of the Standish family or our management.
17
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.
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 cash, 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, 2013, the Company had outstanding short-term debt of $3.8 million and long-term debt of
$300.1 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, 2013, we
had borrowed $200 million under our $330 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.
18
The Company is increasingly dependent on information technology and our systems and infrastructure face
certain risks, including cyber security and data leakage risks.
We are increasingly dependent on information technology systems and infrastructure. Any significant
breakdown, invasion, destruction or interruption of these systems by employees, others with authorized access to
our systems, or unauthorized persons could negatively impact operations. There is also a risk that we could
experience a business interruption, theft of information, or reputational damage as a result of a cyber-attack,
such as an infiltration of a data center, or data leakage of confidential information either internally or at our
third-party providers. While we have invested heavily in the protection of our data and information technology to
reduce these risks, there can be no assurance that our efforts will prevent breakdowns or breaches. If we
experience such a breach or breakdown, it could have a material adverse effect on our business, financial
position and results of operations.
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 Note 17 to the Consolidated Financial Statements in Item 8, which is incorporated
herein by reference. 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 actuarial assumptions and differences between actual experience and assumptions could
adversely affect our pension and postretirement benefit costs and liabilities
Although we were able to reduce pension liabilities by a significant amount during 2012, as of
December 31, 2013, remaining net liabilities under our defined benefit pension plans exceeded plan assets by
$35.9 million ($11.4 million for the U.S. plan, $24.5 million for non-U.S. plans). Additionally, the liability for
unfunded postretirement welfare benefits, principally in the United States, totaled $61.1 million. Annual
expense associated with these plans, as well as annual cash contributions, are subject to a number of variables,
including discount rates, return on plan assets, mortality, and differences between actuarial assumptions and
actual experience. In 2012, we settled certain pension obligations in the United States, Canada and Sweden,
which led to charges totaling $119.7 million. 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 the Company has taken actions to hedge certain pension plan assets to the pension liabilities,
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
19
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
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
$73.2 million at December 31, 2013. 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 a non-U.S. taxing jurisdiction, and the Company’s position on
certain tax matters are being contested by tax authorities in this country. (This is discussed in Note 8 to the
Consolidated Financial Statements in Item 8, which is incorporated herein by reference.) While the Company
believes that its position is correct and that it has reserved adequately for such matter, a final adverse outcome
with respect to this matter could have a material adverse impact on the Company’s results in any period in which
it occurs.
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 2013, 55.3% 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.
20
Our global presence subjects us to certain risks, including controls on foreign exchange and the repatriation
of funds. However, we have been able to repatriate current earnings in excess of working capital requirements
from certain countries in which we operate 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.
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.
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 2.0 million square feet, of which 1.6 million square feet
are owned and 0.4 million square feet are leased. Our facilities located outside the United States and Canada
comprise approximately 2.6 million square feet, of which 2.4 million square feet are owned and 0.2 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 2014.
Item 3.
LEGAL PROCEEDINGS
The information set forth above under Note 17 to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference.
Item 4.
MINE SAFETY DISCLOSURES
None.
21
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, 2013, there were approximately
6,200 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, 2013, 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
__________________________________________________________________________________________________
2013
Cash dividends per share . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
March 31
_________________
June 30
_______________
September 30
________________________
December 31
_______________________
$ 0.14
$ 0.15
$ 0.15
$ 0.15
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29.87
$23.21
$33.90
$27.48
$36.53
$32.27
$37.25
$33.81
2012
Cash dividends per share . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.13
$ 0.14
$ 0.14
$ 0.14
$25.90
$22.35
$24.70
$17.15
$22.78
$17.66
$22.68
$20.11
Restrictions on dividends and other distributions are described in Note 14 of the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference.
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.
22
Item 6.
SELECTED FINANCIAL DATA
The following selected historical financial data have been derived from our Consolidated Financial
Statements in Item 8, which is incorporated herein by reference. The data should be read in conjunction with
those financial statements and Management’s Discussion and Analysis of Financial Condition and Results of
Operations in Item 7, which is incorporated herein by reference.
(in thousands, except per share amounts)
______________________________________________________________________________
Summary of Operations
Net sales(1) . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold(1)(3) . . . . . . . . . . . . .
Restructuring and other(3) . . . . . . . . . . .
Pension settlement charges(2) . . . . . . . .
Operating income/(loss)(1) . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . .
Income/(loss) from continuing
2013
_______________________
2012
_______________________
2011
_______________________
2010
_______________________
2009
_______________________
$ 757,414
466,860
25,108
—
52,091
13,759
$ 760,941
455,545
7,061
119,735
(44,136)
16,601
$ 787,287
473,121
9,317
—
74,608
18,121
$ 742,887
460,914
3,747
—
64,709
17,240
$ 718,629
474,196
68,113
—
(39,720)
20,627
operations(4)(6) . . . . . . . . . . . . . . . . . .
17,704
(40,843)
21,266
27,423
(23,532)
Income/(loss) from discontinued
operations(1)(5) . . . . . . . . . . . . . . . . . .
(46)
71,820
13,672
10,213
(9,926)
Net income attributable to the
Company . . . . . . . . . . . . . . . . . . . . .
17,517
30,977
34,938
37,636
(33,458)
Basic income/(loss) from continuing
operations per share . . . . . . . . . . . . .
Diluted income/(loss) from continuing
operations per share . . . . . . . . . . . . .
Dividends declared per share . . . . . . .
Weighted average number of shares
0.55
0.55
0.59
(1.30)
(1.30)
0.55
0.68
0.67
0.51
0.88
0.88
0.48
(0.77)
(0.77)
0.48
outstanding — basic . . . . . . . . . . . .
31,649
31,356
31,262
31,072
30,612
Capital expenditures, including
software . . . . . . . . . . . . . . . . . . . . . .
64,457
37,207
27,428
30,957
41,827
Financial position
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . .
Total assets(1)(4) . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Total noncurrent liabilities(4) . . . . . . . .
Total liabilities(1)(4) . . . . . . . . . . . . . . . .
Shareholders’ equity(4)(7) . . . . . . . . . . . .
$ 222,666
418,830
1,166,888
158,508
300,111
460,601
619,109
547,779
$ 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
(1)
(2)
In 2012, we sold our Albany Door Systems and PrimaLoft Products business 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 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 2009 through 2013, we recorded restructuring and other charges related to cost reduction
(4)
(5)
(6)
(7)
initiatives.
In 2009, we adopted new accounting guidance for convertible debt instruments that may be settled in cash
upon conversion, 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 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 expenses and paid $10.0 million for a purchase price adjustment related to the 2008 sale
of the Filtration business.
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.
In 2013, Safran S.A. obtained a 10% noncontrolling equity interest in Albany Safran Composites, LLC (ASC)
resulting in an $18.9 million increase in shareholders’ equity.
23
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. 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. Although we consider the market for
Machine Clothing as having flat growth potential, the business has been a significant generator of cash, and 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 (including Albany Safran
Composites, LLC (“ASC”), in which our customer SAFRAN Group owns a 10% noncontrolling interest)
supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN
Group. Through ASC, AEC develops and sells composite aerospace components to SAFRAN, with the most
significant program at present being the production of fan blades and other components for the LEAP engine.
AEC (through ASC and otherwise) 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)
_______________________________________________________________________________
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
2011
___________________
$739,211
48,076
_______________
$787,287
_______________
_______________
2013
___________________
$674,747
82,667
_______________
$757,414
_______________
_______________
% change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-0.5%
-3.3%
2013 vs. 2012
• Changes in currency translation rates had the effect of increasing net sales by $1.6 million during 2013 as
compared to 2012.
• Excluding the effect of changes in currency translation rates:
• Net sales were down 0.7% compared to 2012.
• Net sales in MC decreased 2.9%.
• Net sales in Engineered Composites increased 22.0%.
24
• 2012 included a change in contract terms with a North American MC customer that increased sales by
$8.0 million.
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:
• Net sales decreased 1.4% as compared to 2011.
• Net sales in MC decreased 4.1%.
• Net sales in Engineered Composites increased 41.0%.
• Compared to 2011, 2012 MC sales in Western Europe declined approximately 15% due to economic
weakness and customer overcapacity.
Backlog
Backlog in the Machine Clothing segment was $225.6 million at December 31, 2013, compared to
$266.8 million at December 31, 2012. The decrease reflects a trend toward shorter order-to-delivery times.
Backlog in the Engineered Composites segment was $21.7 million at December 31, 2013 compared to $33.2
million at December 31, 2012. The backlog 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)
_______________________________________________________________________________
2012
___________________
$303,801
5,627
(4,032)
_______________
$305,396
_______________
_______________
2013
___________________
$289,100
4,799
(3,345)
_______________
$290,554
_______________
_______________
2011
___________________
$317,984
507
(4,325)
_______________
$314,166
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38.4%
40.1%
39.9%
The decrease in gross profit during 2013 was principally due to the net effect of the following:
• $8.1 million decrease due to lower sales in North America for MC, principally due to the 2012 change in
contract terms with a key customer.
• $6.8 million decrease due to lower gross profit margin in MC resulting from lower sales volume.
• AEC 2013 gross margin was negatively affected by inventory write-offs and profitability adjustments
associated with legacy programs at the Company’s Boerne, Texas, facility that resulted in gross profit
losses of $2.3 million in 2013.
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.
25
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 expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2012
___________________
$132,542
6,467
27,616
56,111
_______________
$222,736
_______________
_______________
2013
___________________
$127,835
7,233
30,220
48,067
_______________
$213,355
_______________
_______________
2011
___________________
$135,545
4,654
29,007
61,035
_______________
$230,241
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.2%
29.3%
29.2%
STG&R expenses for 2013 decreased $9.4 million in comparison with 2012, principally due to the net
effect of the following:
• A gain on the sale of a former manufacturing facility in Australia reduced 2013 expenses by $3.8 million.
• Revaluation of nonfunctional currency assets and liabilities resulted in losses of $0.3 million during 2013
and losses of $1.6 million in 2012.
• U.S. pension expense decreased by $1.7 million principally due to the settlement in 2012 of certain
pension plan liabilities.
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.
Pension Plan
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. In the first quarter of 2012,
we recorded a settlement charge of $9.2 million related to the extinguishment of our pension plan liability in
Sweden. In the second quarter of 2012, we recorded settlement charges totaling $110.6 million related to settling
a majority of the defined benefit pension plan liabilities in the United States and Canada. No similar charges
were incurred in 2013 or 2011.
Restructuring
In addition to the items discussed above affecting gross profit, STG&R, and pension settlement charges,
operating income/(loss) was affected by restructuring costs of $25.1 million in 2013, $7.1 million in 2012, and
$1.3 million in 2011.
The following table summarizes restructuring expense by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
(in thousands)
_______________________________________________________________________________
2012
___________________
$7,386
—
(325)
___________
$7,061
___________
___________
2013
___________________
$24,568
540
—
_____________
$25,108
_____________
_____________
2011
___________________
$5,680
57
3,580
___________
$9,317
___________
___________
During the second quarter of 2013, the Company commenced a program to restructure operations at the
Company’s Machine Clothing production facilities in France. The restructuring, when completed, will have
reduced employment by approximately 200 positions at these locations. As of December 31, 2013,
approximately 150 positions had been eliminated.
Under the terms of the restructuring plan, the Company provides training, outplacement and other benefits,
the costs of which are recorded as restructuring when they are incurred. In 2013, the Company recorded a
curtailment gain of $1.1 million related to the elimination of pension accruals, which reduced net restructuring
expense as reflected in the above table. Such curtailment gains are recorded as employees terminate employment
and, accordingly, we expect to record additional curtailment gains in 2014. The total amount of such gains has
not yet been determined, but will be less than the 2013 gain. Remaining costs for this program, net of
curtailment gains, are expected to be between $3 to $5 million, most of which we expect to be incurred in 2014.
We expect the annual cost savings associated with this restructuring to be approximately $10 million. Whereas
most of the affected employees were involved in the production process, the full effect of the cost savings
associated with this restructuring program will not be full realized until mid-2014.
During 2013, the Company incurred some restructuring costs in the Engineered Composites segment that
were related to organizational changes and exiting certain aerospace programs.
Restructuring expenses in 2012 were principally due to a reduction in workforce in Sweden and curtailment
of manufacturing in New York and Wisconsin, driven by lower demand for paper machine clothing. Those costs
were partially offset by a reduction in accruals related to the Company’s headquarters.
Restructuring expenses for 2011 were the result of restructuring and performance improvement plans
affecting each of our reportable segments, and included actions to reduce costs and to create process efficiencies
within administrative functions.
Restructuring actions taken in 2011, 2012 and 2013 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. For
more information on our restructuring charges, see Note 6 to the Consolidated Financial Statements in Item 8,
which is incorporated herein by reference.
Operating Income/(loss)
The following table summarizes operating income/(loss) by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Research expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses-pension settlement . . . . . . . . . . . .
Unallocated expenses-other . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Earnings Items
Years ended December 31,
__________________________________________________________________________________________________________________
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income from discontinued operations, net of tax . .
Net income attributable to the noncontrolling interest . .
Interest Expense, net
(in thousands)
_______________________________________________________________________________
2012
___________________
$163,873
(840)
(27,616)
(119,735)
(60,818)
_______________
($45,136)
_______________
_______________
2013
___________________
$136,698
(2,974)
(30,220)
—
(51,413)
_______________
$52,091
_______________
_______________
2011
___________________
$176,759
(4,204)
(23,000)
—
(74,947)
_______________
$74,608
_______________
_______________
(in thousands)
_______________________________________________________________________________
2012
___________________
$16,601
7,629
(27,523)
71,820
—
2013
___________________
$13,759
7,256
13,372
(46)
141
2011
___________________
$18,121
2,639
32,582
13,672
—
Interest expense, net, decreased $2.8 million in 2013, of which $2.0 million was due to lower interest rates,
and the remainder due to lower average debt. Interest expense, net declined $1.5 million in 2012 principally due
to a decline in net debt. See the Capital Resources section below for further discussion of borrowings and
interest rates.
27
Other Expense/(income), net
Other expense/(income), net included the following:
• Foreign currency revaluations of cash and intercompany balances resulted in losses of $5.2 million in
2013, $5.7 million in 2012, and gains of $0.1 million in 2011. 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 $1.5 million, $2.4 million, and $1.8 million in
2013, 2012, and 2011, respectively.
• Fees for a letter-of-credit (LOC) were $0.0 million, $1.0 million, and $1.5 million in 2013, 2012, and
2011, respectively. The fees were associated with an LOC required by the Canadian government for tax
contingencies that were resolved in 2012.
• In July 2013, the Company’s manufacturing facility in Germany was damaged by severe weather. The
Company expensed the remaining book value of the damaged property, but that value was minimal. We
have filed an insurance claim, but the final amount that the Company will recover has not been
determined. We expect to record a gain for this involuntary conversion when the insurance claim is
settled, but the amount of the gain cannot presently be determined.
Income Taxes
The Company has operations which constitute a taxable presence in 19 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 2013, 2012, and 2011 was 43.0%, 40.3%, and 60.5%,
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 rate is also affected by U.S. tax costs on
foreign earnings that have been or will be repatriated to the U.S., and discrete items that may occur in any given
year but are not consistent from year to year.
Significant items that impacted the 2013 tax rate included the following (percentages reflect the effect of
each item as a percentage of income before income taxes):
• A discrete charge of $1.8 million (5.7%) related to the settlement of a competent authority claim with
U.S. and France.
• A discrete tax benefit of $3.7 million (12.0%) related to the release of a valuation allowance on deferred
tax assets.
• A $0.1 million (0.6%) net tax benefit related to other discrete items.
• A net tax rate increase of 0.2% was recognized in 2013 from rate differences between non-U.S. and U.S.
jurisdictions. Lesser earnings in jurisdictions where tax rates differ substantially from the U.S. tax rate
coupled with lower tax benefits on non-U.S. restructuring charges contributed to the net tax rate increase.
• The income tax rate on continuing operations, excluding discrete items, was 49%.
Significant items that impacted the 2012 tax rate included the following:
• 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%.
28
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%.
Income from Discontinued Operations
In October, 2011 we entered into a contract to sell the assets and liabilities of our Albany Door Systems
(ADS) business to Assa Abloy AB for $130 million. Closing on the transaction occurred on January 11, 2012
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 ADS affiliates in Germany, France, the
Netherlands, Turkey, Poland, Belgium, New Zealand, and other countries, as well as the remaining ADS
business assets, most of which were located in the United States, Australia, China, and Italy. In January 2012,
the Company completed the sale of Albany Door Systems, and in March 2012, we finalized certain post-closing
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 received in July 2013.
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 price of $38.0 million
included $3.8 million held in escrow accounts, and which was received in 2013. The Company recorded a
pre-tax gain of $34.9 million as result of that sale.
We 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.
Segment Results of Operations
Machine Clothing Segment
Business Environment and Trends
Machine Clothing is our primary business segment and accounted for 89% of our consolidated revenues
during 2013. 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
approximately 2% over the next five years, driven primarily by secular demand increases in Asia and South
America, with stabilization in the mature markets of Europe and North America.
29
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.
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 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
2013 vs. 2012
(in thousands, except percentages)
_______________________________________________________________________________
2012
___________________
$693,176
2011
___________________
$739,211
2013
___________________
$674,747
-2.7%
-6.2%
5.4%
289,100
303,801
317,984
42.8%
43.8%
43.0%
136,698
163,873
176,759
• Changes in currency translation rates had the effect of increasing net sales by $1.6 million during 2013 as
compared to 2012.
• Excluding the effect of changes in currency translation rates, 2013 sales decreased 2.9% as compared to
2012. The decrease principally resulted from a change in contract terms with a North American MC
customer that increased 2012 sales by $8.0 million, and from lower 2013 sales in Asia resulting from
very strong sales in the first half of 2012.
2012 vs. 2011
• 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.
Gross Profit
The decrease in 2013 gross profit was principally due to the net effect of the following:
• $8.1 million decrease due to lower sales.
• $6.8 million decrease due to lower gross profit margin, resulting from lower sales volume.
The decrease in 2012 gross profit was principally due to the net effect of the following:
• $5.9 million increase due to higher gross profit margin, 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, principally in Western Europe.
30
Operating Income/(loss)
The decrease in 2013 operating income was principally due to the net effect of the following:
• Restructuring charges of $24.6 million in 2013 compared to $7.4 million in 2012.
• Lower gross profit, as described above.
• Revaluation of nonfunctional currency assets and liabilities resulted in losses of $0.3 million in 2013
compared to $1.6 million in 2012.
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.
Engineered Composites Segment
Business Environment and Trends
The Albany Engineered Composites segment (AEC), including Albany Safran Composites, LLC (ASC), in
which our customer SAFRAN Group owns a 10 percent noncontrolling interest, 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, through ASC, is developing a family of composite parts, including fan
blades, to be incorporated into the LEAP engine. In 2013, approximately 10 percent 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 income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
(in thousands, except percentages)
_______________________________________________________________________________
2012
___________________
$67,765
2011
___________________
$48,076
2013
___________________
$82,667
22.0%
4,799
5.8%
(2,974)
41.0%
5,627
8.3%
(840)
14.8%
507
1.1%
(4,204)
• The increase in 2013 sales over 2012 was principally due to LEAP program activities. The majority of
revenue recognized for the LEAP program was earned under a cost plus fixed fee arrangement.
• The increase in 2012 sales over 2011 was principally due to LEAP program activities.
• AEC uses the percentage of completion method for long-term fixed price contracts. Revenue recognized
for these contracts amounted to $10.4 million in 2013, $19.6 million in 2012, and $22.2 million in 2011.
The decrease in 2013 reflects a lower amount of LEAP program revenue generated by fixed price
contracts.
Gross Profit
2013 vs. 2012
• AEC gross profit for 2013 was negatively affected by inventory write-offs and lower profitability
associated with legacy programs at the Company’s Boerne, Texas facility that resulted in gross profit
losses of $2.3 million in 2013. Those losses were partially offset by increased revenue associated with
the LEAP program.
31
2012 vs. 2011
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.
Long-term contracts
In the accounting for long-term fixed price contracts, we estimate the profit margin expected at the
completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a
cost-to-cost or units of delivery approach. Changes in estimated contract profitability will affect revenue and
gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue
and gross profit in any reporting period. The table below provides a summary of long-term contracts that were in
process at the end of each year.
As of December 31,
__________________________________________________________________________________________________________________
Total value of contracts in process . . . . . . . . . . . . . . . . . .
Revenue recognized to date . . . . . . . . . . . . . . . . . . . . . . .
Revenue to be recognized in future periods . . . . . . . . . .
Operating Income/(loss)
(in thousands)
_______________________________________________________________________________
2012
___________________
$37,937
26,319
11,618
2011
___________________
$37,127
18,456
18,671
2013
___________________
$9,690
7,776
1,914
2013 operating income/(loss) decreased principally due to the decrease in gross profit as described above.
2012 operating income/(loss) improved principally due to the increase in gross profit as described above.
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 provided by/(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)
_______________________________________________________________________________
2012
___________________
$ 30,977
63,235
34,085
(92,457)
2013
___________________
$ 17,658
63,789
(1,511)
(3,763)
2011
___________________
$ 34,938
66,385
(1,086)
(1,022)
(12,261)
—
(1,281)
________________
62,631
(41,392)
3,865
6,844
________________
31,948
—
190,718
________________
$222,666
________________
________________
(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
_______________
_______________
Operating activities
Cash provided by operating activities was $62.6 million in 2013 compared to $34.5 million for 2012. Cash
flow in 2012 was heavily influenced by 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 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 and we contributed $68 million to pension plans in the United States and Canada as
part of settling more than half of those pension liabilities. As a result of the settlement activities, we recorded
32
total settlement expense of $119.7 million in 2012, which included the write-off of $118.4 million of deferred
pension charges that were previously recorded in Other comprehensive income. Changes in working capital used
cash flow of $1.5 million in 2013, compared to cash flow generation of $34.1 million in 2012, principally
resulting from higher payments for income taxes offset by a decrease in Accounts receivable of $8.9 million and
an increase in Inventories of $5.7 million. Cash paid for income taxes was $29.4 million, $15.1 million, and
$13.7 million in 2013, 2012 and 2011, respectively. Cash paid for restructuring was $22.4 million, $9.7 million,
and $2.7 million in 2013, 2012 and 2011, respectively.
At December 31, 2013, the Company had $222.7 million of cash and cash equivalents, of which
$177.7 million was held by subsidiaries outside of the United States. As disclosed in Note 8 of the Notes to
Consolidated Financial Statements in Item 8, which is incorporated herein by reference, we determined that all
but $11.8 million of this amount (which represents the amount of cumulative 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.
Investing Activities
Total capital expenditures for continuing operations, including purchased software, were $64.4 million in
2013, compared to $37.2 million in 2012, and $27.4 million in 2011, respectively. The increase in 2013 reflects
investments in the Engineered Composites segment, for which capital expenditures were $36.9 million in 2013,
compared to $19.0 million in 2012, and $9.7 million in 2011, respectively. We currently expect average annual
capital spending, for the entire Company, to be $60-$75 million in 2014, an average of $55-$65 million in
2015-2016, then growing to an average of $70 million for the balance of the decade. During 2013, the Company
completed the sale of its production facility in Gosford, Australia, resulting in net proceeds of $6.3 million.
In January 2012, the Company completed the sale of Albany Door Systems, and in March 2012, we
finalized certain post-closing 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, and the remaining $13.0 million was
received in July 2013. During Q2 2012, the Company completed the sale of PrimaLoft Products business. Of the
$38 million sale price, $34 million was received in June, with the remainder received in December 2013.
Financing Activities
Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany
subsidiary, Albany Safran Composites, LLC (“ASC”). Under the terms of the transaction agreements, ASC is the
exclusive supplier to Safran of advanced 3D-woven composite parts for use in aircraft and rocket engines, thrust
reversers and nacelles, and aircraft landing and braking systems (the “Safran Applications”). AEC remains free
to develop and supply parts other than advanced 3D-woven composite parts for all aerospace applications, as
well as advanced 3D-woven composite parts for any aerospace applications that are not Safran Applications
(such as airframe applications) and any non-aerospace applications. AEC contributed to ASC its existing assets
and operations currently dedicated to the development and production of LEAP components, and Safran
contributed $28 million in cash.
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. The dividend declared in the fourth quarter of 2012 was also paid during that quarter which resulted
in five dividend payments during 2012 and three dividend payments in 2013. Cash dividends paid were
$13.9 million, $21.3 million, and $15.6 million, in 2013, 2012, and 2011, respectively. 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.
33
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, 2013 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, 2013.
On March 26, 2013, we entered into a $330 million, unsecured Five-Year Revolving Credit Facility
Agreement (“Credit Agreement”), under which $200 million of borrowings were outstanding as of December 31,
2013. The Credit Agreement replaced the previous $390 million five-year Credit Agreement made in 2010. The
applicable interest rate for borrowings under the Credit Agreement, as well as under the former agreement, is
LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on
December 23, 2013, the spread was 1.375%. The spread is based on a pricing grid, which ranges from 1.25% to
1.875%, based on our leverage ratio. The Company also amended its note agreement with Prudential to
substantially conform the financial and other covenants to the Credit Agreement. The total cost for the
amendments was $1.6 million. For more information on our borrowings, see Note 14 to the Consolidated
Financial Statements in Item 8, which is incorporated herein by reference.
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 Credit Agreement at the rate of 2.04% until July 16, 2015. 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 16, 2013 was 0.25%. 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 December 31, 2013, the all-in rate on the $105 million of debt was 3.415%.
On May 20, 2013, we entered into interest rate hedging transactions for the period July 16, 2015 through
March 16, 2018. These transactions have the effect of fixing the LIBOR portion of the effective interest rate
(before addition of the spread) on $110 million of indebtedness drawn under the Credit Agreement at the rate of
1.414% during this period. Under the terms of these transactions, we pay the fixed rate of 1.414% and the
counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which
on December 31, 2013 was 0.17%. The net effect is to fix the effective interest rate on $110 million of
indebtedness at 1.414%, plus the applicable spread, during the swap period. As of December 31, 2013, our
leverage ratio was 1.78 to 1.00 and our interest coverage ratio was 8.85 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 3.50 to 1.00 after giving pro forma effect to
the acquisition.
These interest rate swaps are accounted for as hedges of future cash flows. For more information on our
interest rate swaps, see Note 14 to the Consolidated Financial Statements in item 8, which is incorporated herein
by reference.
Off-Balance Sheet Arrangements
As of December 31, 2013, we have no off-balance sheet arrangements required to be disclosed pursuant to
Item 303(a)(4) of Regulation S-K.
34
Contractual Obligations
As of December 31, 2013, 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
______________
$304.5
39.5
6.4
61.1
9.7
—
10.5
___________
$431.7
___________
___________
Payments Due by Period
____________________________________________________________________________________________________________
Less than
one year
__________________
$ 4.5
12.1
6.4
5.1
9.7
—
4.4
_________
$42.2
_________
_________
One to
three years
____________________
$50.0
19.0
—
9.5
—
—
4.1
_________
$82.6
_________
_________
Three to
five years
_________________
$250.0
8.4
—
8.8
—
—
0.6
___________
$267.8
___________
___________
After
five years
_________________
$ —
—
—
37.7
—
—
1.4
_________
$39.1
_________
_________
(a) The terms of variable-rate debt arrangements, including interest rates and maturities, are included in Note 14
of Notes to Consolidated Financial Statements. The interest payments are based on the assumption that we
maintain $200.0 million of variable rate debt until the March 2013 credit agreement matures on March 26,
2018, and the rate as of December 31, 2013 (2.53%) continues until July 16, 2015, then continues at 2.23%
until maturity. Both rates include the effects of interest rate hedging transactions.
(b) We estimate that our 2014 contributions to defined benefit pension plans and pension benefits to be paid
directly by the company to be $6.4 million. However, that estimate is subject to revision based on many
factors. The amount of contributions after 2014 is subject to many variables, including return of pension plan
assets, interest rates, and tax and employee benefit laws. Therefore, contributions beyond 2014 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 5 of Notes to Consolidated Financial Statements in Item 8.
(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 $12.5 million, the timing of which is uncertain. Refer to Note 8 of the Consolidated Financial
Statements in Item 8, which is incorporated herein by reference, 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 17 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
The information set forth above may be found under Item 8. Financial Statements and Supplementary Data,
Note 1, which is incorporated herein by reference.
Critical Accounting Estimates
For the discussion on our accounting policies, see Item 8. Financial Statements and Supplementary Data,
Note 1, which is incorporated herein by reference. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make
assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements.
Each of these assumptions is subject to uncertainties and changes in those assumptions or judgments can affect
our results of operations. In addition to the accounting policies stated in Item 8. Financial Statements and
Supplementary Data, Note 1, financial statement amounts and disclosures are significantly influenced by market
factors, judgments and estimates as described below.
35
Revenue Recognition
A significant portion of AEC’s revenue is derived from fixed price contracts that are accounted for using
the percentage of completion method. For these contracts, we estimate the profit margin expected at the
completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a
cost-to-cost or units of delivery approach, depending on the type of contract. Changes in estimated contract
profitability will affect revenue and gross profit when the change occurs, which could have a significant
favorable or unfavorable effect on revenue and gross profit in any reporting period. The Engineered Composites
segment 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. Also, refer to information
under Long-term Contracts in Item 7 Management’s Discussion and Analysis of this Form 10-K, which is
incorporated herein by reference.
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.
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, 2013, net liabilities under our defined
benefit pension plans exceeded plan assets by $35.9 million, of which $24.5 million was for plans outside of the
U.S. Additionally, at December 31, 2013 postretirement liabilities totaled $61.1 million, substantially all of
which related to our U.S plan. As of December 31, 2013, we have unrecognized net losses of $74.8 million for
pension plans, and an unrecognized net gain of $3.2 million for postretirement benefit plans that will be
amortized in future periods. The unrecognized net loss in pension plans is primarily attributable to past changes
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 2014 employer contributions and direct employment payments of $6.4 million for
pension plans and $5.1 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.
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 17 of the Consolidated Financial Statements in Item 8.
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,
36
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
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), Adjusted EBITDA, sales excluding currency effects, 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 quarter of specific restructuring costs, or other gains and losses, on
operating income or EBITDA can give management and investors additional insight into quarterly performance,
especially when compared to quarters in which such items had a greater or lesser effect, or no effect. All
non-GAAP financial measures in this release relate to the Company’s continuing operations.
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 Income tax adjustments by adding
discrete tax items to the effect of a change in tax rate for the reporting period. The Company calculates its
Income tax rate, exclusive of Income tax adjustments, by removing Income tax adjustments from total Income
tax expense, then dividing that result by Income before tax. The Company calculates EBITDA by removing the
following from Net income: Interest expense net, Income taxes, Depreciation and Amortization, and Income or
loss from Discontinued Operations. Adjusted EBITDA is calculated by adding to EBITDA, costs associated with
restructuring and pension settlement charges, adding or subtracting revaluation losses or gains, subtracting
building sale gains, and subtracting Income attributable to the noncontrolling interest. 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.
37
The following tables show the calculation of EBITDA and Adjusted EBITDA:
Years ended December 31,
_____________________________________________________________________________________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss/(income) from discontinued operations . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses/(gains) . . . . . . . . . . . . . . .
Gain on sale of former manufacturing facilities . . . . . . . . . . .
Pension settlement expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interest in ASC . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
___________________
$ 17,658
46
13,759
13,372
63,789
_______________
108,624
25,108
5,567
(3,763)
(in thousands)
_______________________________________________________________________________
2012
___________________
$ 30,977
(71,820)
16,601
(27,523)
63,067
_______________
11,302
7,061
7,350
—
119,735
—
_______________
$145,448
_______________
_______________
2011
___________________
$ 34,938
(13,672)
18,121
32,582
63,812
_______________
135,781
9,317
(2,761)
(1,008)
—
—
_______________
$141,329
_______________
_______________
(141)
_______________
$135,395
_______________
_______________
Year ended December 31, 2013
_____________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . . . . . . . .
Gain on sale of former manufacturing facilities . . . . . .
Income attributable to noncontrolling interest in ASC . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2012
_____________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . . . . . . . .
Pension plan settlement charges . . . . . . . . . . . . . . . . . .
Income attributable to noncontrolling interest in ASC . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_________________________________________________________________________________________________________
Machine
Clothing
___________________
$136,698
—
—
—
45,237
___________________
181,935
24,568
295
—
—
___________________
$206,798
___________________
___________________
AEC
_______________
($2,974)
—
—
—
7,640
______________
4,666
540
41
—
(141)
______________
$5,106
______________
______________
Research and
Unallocated
________________________
($116,066)
46
13,759
13,372
10,912
____________________
(77,977)
—
5,231
(3,763)
—
____________________
($76,509)
____________________
____________________
Total Company
__________________________
$17,658
46
13,759
13,372
63,789
___________________
108,624
25,108
5,567
(3,763)
(141)
___________________
$135,395
___________________
___________________
(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
________________________
($132,056)
(71,820)
16,601
(27,523)
10,304
____________________
(204,494)
(325)
5,715
119,735
—
____________________
($79,369)
____________________
____________________
Total Company
__________________________
$30,977
(71,820)
16,601
(27,523)
63,067
___________________
11,302
7,061
7,350
119,735
—
___________________
$145,448
___________________
___________________
38
Year ended December 31, 2011
_____________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation gains . . . . . . . . . . . . . . . .
Gain on sale of former manufacturing facilities . . . . . .
Income attributable to noncontrolling interest in ASC . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_________________________________________________________________________________________________________
Machine
Clothing
___________________
$176,759
AEC
_______________
($4,204)
—
—
48,181
___________________
224,940
5,680
(2,685)
—
—
___________________
$227,935
___________________
___________________
—
—
4,959
______________
755
57
1
—
—
______________
$813
______________
______________
Research and
Unallocated
________________________
($137,617)
(13,672)
18,121
32,582
10,672
____________________
(89,914)
3,580
(77)
(1,008)
—
____________________
($87,419)
____________________
____________________
Total Company
__________________________
$34,938
(13,672)
18,121
32,582
63,812
___________________
135,781
9,317
(2,761)
(1,008)
—
___________________
$141,329
___________________
___________________
We disclose certain income and expense items on a per share basis. We believe that such disclosures
provide important insight into the underlying 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.
The following tables show the earnings per share effect of certain income and expense items:
Year ended December 31, 2013
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Foreign currency revaluation losses . . .
Gain on sale of former
(in thousands, except per share amounts)
________________________________________________________________________________________________________________________________________
Per Share
After tax
Effect
Effect
_________________
_________________
$0.41
$12,855
0.09
2,850
Shares
Outstanding
______________________
31,649
31,649
Tax
Effect
_________________
$12,253
2,717
Pre tax
Amounts
_________________
$ 25,108
5,567
manufacturing facility . . . . . . . . . . . .
3,763
Net favorable discrete tax
adjustments . . . . . . . . . . . . . . . . . . . .
—
1,836
1,800
1,927
31,649
1,800
31,649
0.06
0.06
Year ended December 31, 2012
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Foreign currency revaluation losses . . .
Pension plan settlement charges . . . . . .
Net favorable 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
Pre tax
Amounts
_________________
7,061
$
7,350
119,735
Tax
Effect
_________________
$ 2,718
2,830
39,460
adjustments . . . . . . . . . . . . . . . . . . . .
—
7,833
7,833
31,356
0.25
Year ended December 31, 2011
________________________________________________________________________________
Restructuring and other, net . . . . . . . . .
Foreign currency revaluation gains . . .
Gain on sale of buildings . . . . . . . . . . .
Net unfavorable discrete tax
(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
adjustments . . . . . . . . . . . . . . . . . . . .
—
14,768
14,768
31,262
0.47
39
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, 2013
_________________________________
December 31, 2012
_________________________________
$
625
3,764
300,111
304,500
222,666
$ 81,834
$
586
83,276
235,877
319,739
190,718
$129,021
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 $589.7 million. The
potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency
exchange rates amounts to $59.0 million. Furthermore, related to foreign currency transactions, we have
exposure to various nonfunctional currency balances totaling $121.6 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 $52.9 million of foreign currency liabilities as of December 31, 2013. 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 $5.3 million. Actual results may differ.
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, 2013, we had the following variable rate debt:
(in thousands, except interest rates)
_____________________________________________________________
Short-term debt
Notes payable, end of period interest rate of 1.16% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
625
Long-term debt
Credit agreement with borrowings outstanding, net of $110 million fixed rate portion,
at an end of period interest rate of 1.55% in 2013, due in 2018 . . . . . . . . . . . . . . . . . . . . . .
95,000
Various notes and mortgages relative to operations principally outside the
United States, at an average end of period rate of 3.02% in 2013, due in
varying amounts through 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,750
_____________
$99,375
_____________
_____________
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 $1.0 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.
40
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
Consolidated Statements of Income for the years ended
December 31, 2013, 2012, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2013, 2012, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended
December 31, 2013, 2012, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
45
46
47
41
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albany International Corp.:
In our opinion, the accompanying consolidated balance sheets and consolidated statements of income,
comprehensive income and cash flows present fairly, in all material respects, the financial position of Albany
International Corp. and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2013 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 accompanying index 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, 2013, based on criteria established in Internal Control — Integrated
Framework (1992) 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. 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
February 26, 2014
42
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, general and administrative expenses . . . . . . . . . . . . . .
Technical, product engineering, and research expenses . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) before income taxes . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) from continuing operations . . . . . . . . . . . . . .
(Loss)/income from operations of discontinued businesses . .
Gain/(loss) on sale of discontinued businesses . . . . . . . . . . . .
Income tax (benefit)/expense on discontinued operations . . . .
(Loss)/income from discontinued operations . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the noncontrolling interest . . . . . .
Net income attributable to the Company . . . . . . . . . . . . . . . . .
Earnings per share attributable to Company
shareholders — Basic
Income/(loss) from continuing operations . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income attributable to Company shareholders . . . . . . .
Earnings per share attributable to Company
shareholders — Diluted
Income/(loss) from continuing operations . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income attributable to Company shareholders . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
___________________
$757,414
466,860
_______________
290,554
157,688
55,667
25,108
—
_______________
52,091
(1,468)
15,227
7,256
_______________
31,076
13,372
_______________
17,704
_______________
(75)
—
(29)
_______________
(46)
_______________
17,658
141
_______________
$ 17,517
_______________
_______________
$
0.55
0.00
_______________
$
0.55
_______________
_______________
0.55
$
0.00
_______________
$
0.55
_______________
_______________
$
0.59
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
—
_______________
$ 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
—
_______________
$ 34,938
_______________
_______________
$
0.68
0.44
_______________
$
1.12
_______________
_______________
0.67
$
0.44
_______________
$
1.11
_______________
_______________
$
0.51
The accompanying notes are an integral part of the consolidated financial statements.
43
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 and postretirement settlements and curtailments . .
Pension and postretirement plan remeasurement . . . . . . . . .
Pension and postretirement plan amendments . . . . . . . . . . .
Amortization of pension liability adjustments:
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service (credit)/cost . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to derivatives included in earnings . . . . . .
Derivative valuation adjustment, net of payments . . . . . . . .
Income taxes related to items of other
comprehensive income:
Pension and postretirement settlements and curtailments . .
Pension and postretirement plan remeasurement . . . . . . . . .
Pension and postretirement plan amendments . . . . . . . . . . .
Amortization of pension liability adjustment . . . . . . . . . . . .
Payments related to derivatives included in earnings . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to the
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to the Company . . . . . . .
2013
___________________
$ 17,658
2012
___________________
$ 30,977
2011
___________________
$ 34,938
8,135
46
20,500
7,361
70
(3,905)
6,512
1,900
1,216
(18)
(6,757)
(2,871)
(451)
(741)
(474)
______________
48,181
—
______________
$ 48,181
______________
______________
11,865
118,350
(48,233)
—
79
(3,631)
7,438
1,700
(2,167)
(39,146)
14,711
—
(1,360)
(663)
845
______________
90,765
—
______________
$ 90,765
______________
______________
(13,070)
327
(28,375)
—
83
(3,629)
8,694
1,900
(5,699)
(72)
6,382
—
(1,159)
(741)
2,222
______________
1,801
—
______________
$ 1,801
______________
______________
The accompanying notes are an integral part of the consolidated financial statements.
44
Albany International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except share and per share data)
2013
____________________
2012
_____________________
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable and deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Current liabilities:
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable and deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and other credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 36,996,227 in 2013 and 36,642,204 in 2012 . . . . . . .
Class B Common Stock, par value $.001 per share; authorized 25,000,000 shares;
issued and outstanding 3,236,098 in 2013 and 2012 . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated items of other comprehensive income:
Translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and postretirement liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock (Class A), at cost; 8,463,635 shares in 2013
and 8,467,873 shares in 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 222,666
163,547
112,739
13,873
9,659
__________________
522,484
418,830
616
78,890
119,612
26,456
__________________
$1,166,888
__________________
$
625
36,397
112,331
3,764
5,391
__________________
158,508
300,111
106,014
54,476
__________________
619,109
__________________
—
—
37
3
416,728
434,598
(138)
(48,383)
(977)
(257,571)
__________________
544,297
3,482
__________________
547,779
__________________
$1,166,888
__________________
__________________
$ 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)
(257,664)
__________________
493,511
—
__________________
493,511
__________________
$1,156,697
__________________
__________________
The accompanying notes are an integral part of the consolidated financial statements.
45
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/(used in) 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 due to settlement . . . . . . . . . . . .
Loss/(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 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, net of expenses . . . . . . . . . .
Net cash (used in)/provided by investing activities . . . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received for noncontrolling interest in Albany Safran Composites . . .
Proceeds from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
_________________
2012
_________________
2011
_________________
$ 17,658
$ 30,977
$ 34,938
57,182
6,607
—
(12,261)
619
—
(3,763)
(1,134)
56,769
6,466
1,027
(123,887)
427
118,350
(92,457)
(40)
(766)
2,790
(8,878)
5,739
545
5,731
955
4,628
(7,348)
(2,883)
_________________
62,631
_________________
(61,844)
(2,613)
6,268
16,797
_________________
(41,392)
_________________
117,452
(132,691)
28,000
5,538
1,134
(1,639)
(13,929)
_________________
3,865
_________________
6,844
_________________
31,948
—
190,718
_________________
$222,666
_________________
_________________
(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
________________
________________
57,502
8,883
753
237
2,345
—
(1,022)
(93)
2,812
(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
________________
________________
The accompanying notes are an integral part of the consolidated financial statements.
46
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.”
The Company owns 90 percent of the common equity of Albany Safran Composites (ASC). Additional
information regarding that entity is included in Note 3, which is incorporated herein by reference.
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, revenue recognition, 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 effects 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 have a contract with a major customer for which revenue is recognized
under a cost plus fixed fee arrangement. We use the percentage of completion (actual cost to estimated cost)
method for accounting for other long-term contracts. 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 period the change occurs.
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. Included in Others assets is capitalized cost of $4.1 million
as of December 31, 2013 and $2.5 million as of December 31, 2012, principally for engineering services, that
will be amortized into expense as deliveries are made in the future. Capitalized costs as of December 31, 2013
included $3.9 million for a contract that is expected to go into production in 2014, and $0.2 million for a
contract that is already in the delivery phase.
47
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
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.
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, Administrative, Technical, Product Engineering, and Research Expenses
Selling, general, administrative, 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 $1.4 million in 2013 and $0.8 million in 2012 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. Total Company research expense was $30.2 million in 2013, $27.6 million
in 2012, and $29.0 million in 2011.
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,
outplacement 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
48
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
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.
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 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 cash and 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 expense/(income), 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, general, and administrative expenses.
The following table summarizes foreign currency transaction gains and losses recognized in the income
statement:
(in thousands)
__________________________________________________________________________________________________________________
Losses/(gains) included in:
Selling, general, and administrative expenses . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . .
Total transaction losses/(gains) . . . . . . . . . . . . . . . . . . . .
2013
________________
2012
________________
2011
________________
$ 341
5,227
___________
$5,568
___________
___________
$1,642
5,708
___________
$7,350
___________
___________
($2,677)
(84)
____________
($2,761)
____________
____________
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 long-term
contracts in the Engineered Composites business. 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.
49
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
As of December 31, 2013 and 2012, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
__________________
$154,296
20,525
—
(11,274)
_______________
$163,547
_______________
_______________
2012
__________________
$149,737
17,105
16,555
(11,862)
_______________
$171,535
_______________
_______________
Inventories
Inventories are stated at the lower of cost or market, and are valued at average cost, net of reserves. 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.
As of December 31, 2013 and 2012, inventories consisted of the following:
(in thousands)
__________________________________________________________________________________________________________________________________________
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
__________________
$ 25,754
45,998
40,987
_______________
$112,739
_______________
_______________
2012
__________________
$ 25,082
44,866
49,235
_______________
$119,183
_______________
_______________
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. 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 $1.1
million in 2013 and $0.4 million in 2012.
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. See additional information set forth above under Note 12.
We have an investment in a company in Russia 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.
50
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
Stock-Based Compensation
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. See additional information set forth under Note 19.
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
expense/(income), 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.
Pension and Postretirement Benefit Plans
As described in Note 5, 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. We have liabilities for
postretirement benefits in the U.S. and Canada. Substantially all of the liability relates to the U.S. plan. Effective
January 2005, our postretirement benefit plan was closed to new participants, except for certain life insurance
benefits. 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 and, in August 2013, we reduced the life insurance
benefit for retirees and eliminated that benefit for active employees.
The pension plans are generally trusteed or insured, and accrued amounts are funded as required in
accordance with governing laws and regulations. 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.
51
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
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 4, 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
In February 2013, the Financial Accounting Standards Board (FASB) issued ASU 2013-02 which requires
enhanced disclosures about changes in Accumulated Other Comprehensive Income. We adopted these provisions
in the first quarter of 2013 by adding a Note to the Consolidated Financial Statements that provides the
additional disclosures.
In the first quarter of 2013, the Company adopted the provisions of ASU 2013-01 which requires enhanced
disclosures of the effect or potential effect of netting arrangements on an entity’s financial position. This
includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and
recognized liabilities within the scope of this Update. The Company has interest rate swap agreements that are
within the scope of this Update and we have added additional disclosure in the Notes to Consolidated Financial
Statements about the offsetting asset and liability components of that agreement.
In July 2013, amended accounting guidance was issued regarding the financial statement presentation of an
unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward
exists. This guidance is effective prospectively for annual and interim reporting periods beginning after
December 15, 2013. The adoption of this standard is not expected to have a material effect on the Company’s
financial position, results of operations or cash flows.
2. Discontinued Operations
In October 2011 we entered into a contract to sell the assets and liabilities of our Albany Door Systems
(ADS) business to Assa Abloy AB for $130 million. Closing on the transaction occurred on January 11, 2012.
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 ADS affiliates in Germany, France, the
Netherlands, Turkey, Poland, Belgium, New Zealand, and other countries, as well as the remaining ADS
business assets, most of which were located in the United States, Australia, China, and Italy. In January 2012,
the Company completed the sale of Albany Door Systems, and in March 2012, we finalized certain post-closing
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 received in July 2013.
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 price of $38.0 million
included $3.8 million held in escrow accounts, which was received in 2013. The Company recorded a pre-tax
gain of $34.9 million as result of that sale.
We 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.
52
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Discontinued Operations – (continued)
The table below summarizes operating results of the discontinued operations:
(in thousands)
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income from operations of discontinued
business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposition of discontinued operations . . . . . . .
Income tax (benefit)/expense . . . . . . . . . . . . . . . . . . . . . .
2013
___________________
$ —
2012
___________________
$19,774
2011
___________________
$211,551
(75)
—
(29)
4,776
92,296
25,252
24,101
—
10,429
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 Systems.
3. Noncontrolling Interest
Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in a new Albany
subsidiary, Albany Safran Composites, LLC (ASC). Under the terms of the transaction agreements, ASC will be
the exclusive supplier to Safran of advanced 3D-woven composite parts for use in aircraft and rocket engines,
thrust reversers and nacelles, and aircraft landing and braking systems (the “Safran Applications). AEC will
remain free to develop and supply parts other than advanced 3D-woven composite parts for all aerospace
applications, as well as advanced 3D-woven composite parts for any aerospace applications that are not Safran
Applications (such as airframe applications) and any non-aerospace applications.
Albany contributed to ASC its existing assets and operations currently dedicated to the development and
production of LEAP components, and Safran contributed $28 million in cash. We recorded a $15.5 million
increase to Additional paid-in capital related to the excess of Safran’s contribution over the initial book value of
their equity interest. The agreement provides Safran an option to purchase Albany’s remaining 90 percent
interest upon the occurrence of certain bankruptcy or performance default events, or if Albany’s Engineered
Composites business is sold to a direct competitor of Safran. The purchase price is based initially on the same
valuation of ASC used to determine Safran’s 10% equity interest, and increases over time as LEAP production
increases.
In accordance with the operating agreement, Albany received a $28 million preferred holding in ASC
which includes a preferred return based on the Company’s revolving credit agreement. The common shares of
ASC are owned 90 percent by Albany and 10 percent by Safran.
The table below presents a reconciliation of income attributable to the noncontrolling interest and
noncontrolling equity:
(in thousands)
__________________________________________________________________________________________________________________________________________________________________
Net income of ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Return attributable to the Company’s preferred holding . . . . . . . . . . . . . . .
Net income of ASC available for common ownership . . . . . . . . . . . . . . . . . . . . .
Ownership percentage of noncontrolling shareholder . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest,
year ended December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASC Net assets contributed by Albany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ownership percentage of noncontrolling shareholder . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest at time of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . .
Changes in other comprehensive income attributable to
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest as of December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . .
2013
__________________
$ 1,569
164
_________________
1,405
_________________
10%
$
141
_________________
_________________
$33,414
10%
_________________
3,341
141
—
_________________
$ 3,482
_________________
_________________
53
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. 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 have not allocated
research costs and other Unallocated expenses to the segments because the decision-making for the majority of
these expenses did 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.
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.
54
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Reportable Segments and Geographic Data – (continued)
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 income/(loss) before reconciling items . . . . . .
Reconciling items:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/ (income), net . . . . . . . . . . . . . . . . . . . .
Income/(loss) from continuing operations
2013
____________________
2012
____________________
2011
____________________
$674,747
82,667
_______________
$757,414
_______________
$ 45,237
7,640
2,104
8,808
_______________
$ 63,789
_______________
$136,698
(2,974)
(30,220)
(51,413)
_______________
52,091
(1,468)
15,227
7,256
_______________
$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)
$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
(1,517)
18,118
7,629
_______________
(2,027)
20,148
2,639
_______________
before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31,076
_______________
$ (68,366)
_______________
$ 53,848
_______________
The table below presents pension settlement and restructuring costs by reportable segment (also see
Note 6):
(in thousands)
__________________________________________________________________________________________________________________
Pension settlement
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
____________________
2012
____________________
2011
____________________
$ —
_____________
$119,735
_______________
$ —
___________
$24,568
540
—
_____________
$25,108
_____________
_____________
$
7,386
—
(325)
_______________
$
7,061
_______________
_______________
$5,680
57
3,580
___________
$9,317
___________
___________
55
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
_______________________
2012
_______________________
2011
_______________________
$ 624,388
147,104
$ 660,595
109,717
$ 713,142
80,916
222,666
133,485
39,245
—
__________________
$1,166,888
__________________
__________________
$
14,881
36,928
8,011
4,637
__________________
$
64,457
__________________
__________________
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
__________________
__________________
The decrease in Other assets in the above table includes $16.6 million of receivables related to the sale of
discontinued operations which were received during 2013. Capital expenditures in the discontinued operations
were $1.3 million in 2011.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
____________________
2012
____________________
2011
____________________
$338,729
190,035
62,076
43,265
31,167
92,142
_______________
$757,414
_______________
_______________
$162,380
103,109
35,542
25,246
22,434
19,508
50,611
_______________
$418,830
_______________
_______________
$324,764
203,478
58,755
39,929
36,182
97,833
_______________
$760,941
_______________
_______________
$137,405
114,037
38,266
26,269
27,396
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
27,196
29,650
26,210
62,072
_______________
$438,953
_______________
_______________
56
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. 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 44 percent of consolidated pension plan assets, and
32 percent 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. 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. In August 2013, we reduced the life insurance benefit for retirees
and eliminated the benefit for active employees.
The Company also provides certain postretirement life insurance benefits to retired employees in Canada.
As of December 31, 2013, the accrued postretirement liability was $60.2 million in the U.S. and $0.9 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
2013 and 2012, 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, 2013 was calculated using the IRS 2014
mortality table. The benefit obligation as of December 31, 2012, as well as pension expense for 2013, was
calculated using the IRS 2013 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 percent 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
57
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Pensions and Other Postretirement Benefit Plans – (continued)
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 percent of the expected return is added to the
market-related value over two years; the remainder is added to the market-related value immediately.
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 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 and curtailments . . . . . . . . . . . . . .
Plan Amendments and 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, 2013
________________________________________________
Other
postretirement
benefits
_________________________
$84,368
_____________
875
3,080
—
(13,396)
(5,773)
Pension plans
_______________________
$218,538
_______________
3,662
8,852
331
(17,461)
(5,999)
(2,950)
613
(1,252)
$204,334
_______________
$190,561
_______________
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)
(7,974)
571
(72)
11,113
$61,108
$218,538
_______________
_____________
$ — $202,917
_______________
_____________
5.22%
4.50%
—
3.39%
4.68%
4.75%
——
3.00%
4.28%
4.09%
3.00%
3.26%
3.93%
4.00%
3.00%
The following sets forth information about plan assets:
As of December 31, 2013
________________________________________________
Other
postretirement
Pension plans
benefits
_______________________
_________________________
$ — $304,658
_____________
_______________
—
19,493
4,438
110,172
1,335
344
(5,773)
(14,909)
— (249,709)
—
3,385
_______________
_____________
$ — $173,434
_______________
_____________
As of December 31, 2012
___________________________________________________
Other
postretirement
benefits
__________________________
$ —
_____________
—
4,961
817
(5,778)
—
—
_____________
$ —
_____________
Pension plans
_______________________
$173,434
_______________
(2,292)
6,777
331
(5,999)
(1,650)
(2,211)
_______________
$168,390
_______________
(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 . . . . . . . . . .
58
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. 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:
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(credit) . . . . . . . . . . . . . . . . . . .
Transition obligation . . . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . .
As of December 31, 2013
________________________________________________
Other
postretirement
benefits
_________________________
$
61,108
_______________
$(61,108)
_______________
$(61,108)
_______________
Pension plans
_______________________
$168,390
204,334
________________
(35,944)
________________
(35,944)
________________
As of December 31, 2012
___________________________________________________
Other
postretirement
benefits
__________________________
—
$
84,368
_______________
$(84,368)
_______________
$(84,368)
_______________
Pension plans
_______________________
— $173,434
218,538
________________
$ (45,104)
________________
$ (45,104)
________________
$
7,358
(2,321)
(40,981)
________________
$ (35,944)
________________
$
—
(5,056)
(56,052)
_______________
$(61,108)
_______________
7,034
(2,318)
(49,820)
________________
$ (45,104)
________________
$
—
(5,547)
(78,821)
_______________
$(84,368)
_______________
$ 73,908
866
—
________________
$ 74,774
________________
$ 41,175
(44,364)
_______________
$ (3,189)
_______________
$ 84,784
405
70
________________
$ 85,259
________________
$ 57,966
(40,329)
—
_______________
$ 17,637
_______________
59
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Pensions and Other Postretirement Benefit Plans – (continued)
The composition of the net periodic benefit plan cost for the years ended December 31, 2013, 2012 and
2011, 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
Pension plans
_________________________________________________________________
2011
2012
2013
________________
________________
________________
Other postretirement benefits
_________________________________________________________________
2011
2012
2013
________________
________________
________________
$ 3,662
8,852
—
(8,677)
$
3,486
12,180
—
(11,799)
$ 3,117
19,958
—
(15,858)
$ 875
3,080
—
—
$ 1,071
3,691
—
—
$
931
3,869
945
—
35
70
35
79
3,117
502
(1,143)
4,223
119,986
—
37
83
5,672
327
—
(3,940)
(3,666)
(3,666)
—
3,395
—
—
—
3,215
—
—
—
3,022
—
—
—
____________
$ 6,418
____________
—
_______________
$128,190
_______________
233
_____________
$13,569
_____________
—
____________
$3,410
____________
—
____________
$ 4,311
____________
—
____________
$ 5,101
____________
4.28%
4.09%
4.82%
4.48%
5.59%
5.29%
3.93%
4.00%
4.86%
4.20%
5.55%
—
assets — U.S. plan . . . . . . . . . .
4.61%
4.82%
5.80%
Expected return on plan
assets — non-U.S. plans . . . . .
5.53%
6.26%
6.80%
—
—
—
—
—
—
Rate of compensation
increase — U.S. plan . . . . . . . .
—
—
—
3.00%
3.00%
3.00%
Rate of compensation
increase — non-U.S. plans . . .
3.26%
3.19%
3.47%
3.00%
3.00%
Health care cost trend rate
(U.S. and non-U.S. plans):
Initial rate . . . . . . . . . . . . . . . . . . .
Ultimate rate . . . . . . . . . . . . . . . .
Years to ultimate . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other changes in plan assets and benefit obligations recognized in other comprehensive income during
2013 were as follows:
(in thousands)
____________________________________________________________________________________________________________________________________________
Settlements/curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset/liabilty 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
______________________
(46)
$
(6,492)
(3,117)
(35)
(70)
(726)
______________
$(10,486)
______________
Other
postretirement
benefits
__________________________
$
—
(21,370)
(3,395)
3,940
—
(285)
______________
$(21,110)
______________
$ (4,068)
______________
$(17,700)
______________
60
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. 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 2014 are as follows:
(in thousands)
_____________________________________________________________________________________________________________________________________________
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Strategy
Total
pension
__________________
$2,456
55
___________
$2,511
___________
Total
postretirement
benefits
__________________________
$ 2,908
(4,488)
_____________
$(1,580)
_____________
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.
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, 2013 and 2012, using the fair-value hierarchy,
which has three levels based on the reliability of inputs used, as described in Note 15:
(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,
2013
________________________
$ 33,685
122,699
2,875
7,034
392
1,705
_______________
$168,390
_______________
_______________
Quoted prices Significant other
in active
markets
(Level 1)
________________________
$33,685
—
—
—
—
1,705
_____________
$35,390
_____________
_____________
observable
inputs
(Level 2)
_____________________________
—
$
122,699
—
—
—
—
_______________
$122,699
_______________
_______________
Significant
unobservable
inputs
(Level 3)
_______________________
$ —
—
2,875
7,034
392
—
_____________
$10,301
_____________
_____________
61
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5 . 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,
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
_____________
_____________
The following tables present a reconciliation of Level 3 assets held during the years ended December 31,
2013 and 2012:
(in thousands)
_____________________________________________
Insurance contracts . . . .
Limited partnerships . . .
Hedge funds . . . . . . . . .
Total . . . . . . . . . . . . . . .
December 31, Net realized Net unrealized
gains/(losses)
(losses)/ gains
2012
_________________________
_______________________
_______________________
$ 41
$—
$ 2,542
533
94
7,556
15
—
536
________
______
_____________
$589
$94
$10,634
________
______
_____________
________
______
_____________
(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
________
______
_____________
________
______
_____________
Net
purchases,
issuances
and
settlements
________________________
292
(1,149)
(159)
____________
$(1,016)
____________
____________
$
Net
purchases,
issuances
and
settlements
________________________
142
(1,641)
(53)
____________
$(1,552)
____________
____________
$
Net
transfers
(out of)
Level 3
_______________________
$ —
—
—
_______
$ —
_______
_______
Net
transfers
(out of)
Level 3
_______________________
$ —
—
—
_______
$ —
_______
_______
December 31,
2013
_______________________
$ 2,875
7,034
392
_____________
$10,301
_____________
_____________
December 31,
2012
_______________________
$ 2,542
7,556
536
_____________
$10,634
_____________
_____________
The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2013 and 2012, and the target
allocation for 2014, 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
_____________________________________________
2013
2012
__________________
__________________
5%
88%
5%
2%
______
100%
______
______
Target
Allocation
__________________
2014
__________________
—
100%
—
—
______
100%
______
______
5%
88%
4%
3%
______
100%
______
______
Target
Allocation
__________________
2014
__________________
36%
56%
5%
3%
______
100%
______
______
Non-U.S. Plans
________________________________________________________________________
Percentage of plan assets
at plan measurement date
______________________________________________
2012
2013
__________________
__________________
36%
57%
4%
3%
______
100%
______
______
50%
43%
3%
4%
______
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.
62
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Pensions and Other Postretirement Benefit Plans – (continued)
At the end of 2013 and 2012, 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
__________________________________________________
2012
2013
____________________
____________________
$123,749
$183,765
120,287
169,396
80,447
131,626
Plans with accumulated
benefit obligation in
excess of plan assets
__________________________________________________
2012
2013
____________________
____________________
$123,749
$136,329
120,287
132,396
80,447
86,835
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
_____________________
$ 4,068
_____________
Other
postretirement
benefits
__________________________
$ 5,773
_____________
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,910
6,148
6,585
7,054
7,663
47,269
$ 5,056
4,826
4,639
4,476
4,325
20,088
6. Restructuring
During the second quarter of 2013, the Company commenced a program to restructure operations at the
Company’s Machine Clothing production facilities in France. The restructuring, when completed, will have
reduced employment by approximately 200 positions at these locations. As of December 31, 2013,
approximately 150 positions had been eliminated.
Under the terms of the restructuring plan, the Company provides training, outplacement and other benefits,
the costs of which are recorded as restructuring when they are incurred. In 2013, the Company recorded a
curtailment gain of $1.1 million related to the elimination of pension accruals, which reduced net restructuring
expense as reflected in the above table. Such curtailment gains are recorded as employees terminate employment
and, accordingly, we expect to record additional curtailment gains in 2014. The total amount of such gains has
not yet been determined, but will be less than the 2013 gain. Remaining costs for this program, net of
curtailment gains, are expected to be between $3 to $5 million, most of which we expect to be incurred in 2014.
We expect the annual cost savings associated with this restructuring to be approximately $10 million. Whereas
most of the affected employees were involved in the production process, the full effect of the cost savings
associated with this restructuring program will not be full realized until mid-2014.
During 2013, the Company incurred some restructuring costs in the Engineered Composites segment that
were related to organizational changes and exiting certain aerospace programs.
63
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
6. Restructuring – (continued)
Restructuring expenses in 2012 were principally due to a reduction in workforce in Sweden and curtailment
of manufacturing in New York and Wisconsin, driven by lower demand for paper machine clothing. Those costs
were partially offset by a reduction in accruals related to the Company’s headquarters.
Restructuring expenses for 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.
The following table summarizes charges reported in the Statements of Income under “Restructuring and
other”:
Year ended December 31, 2013
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Engineered Composites . . . . . . . . . . . . . . . . . . . .
Unallocated expenses . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
restructuring
costs incurred
__________________________
$24,568
540
—
_____________
$25,108
_____________
_____________
Total
restructuring
costs incurred
__________________________
$ 7,386
—
(325)
_____________
$ 7,061
_____________
_____________
Total
restructuring
costs incurred
__________________________
$ 5,680
57
3,580
_____________
$ 9,317
_____________
_____________
Termination
and other
costs
_____________________
$25,838
452
—
_____________
$26,290
_____________
_____________
Termination
and other
costs
_____________________
$ 7,386
—
380
_____________
$ 7,766
_____________
_____________
Termination
and other
costs
_____________________
$ 5,484
57
1,830
_____________
$ 7,371
_____________
_____________
Impairment of Benefit plan
curtailment/
settlement
______________________
$(1,270)
—
—
_____________
$(1,270)
_____________
_____________
plant and
equipment
_________________________
$ —
88
—
___________
$88
___________
___________
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
___________
___________
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,
2012
_______________________
$4,947
___________
$4,947
___________
___________
December 31,
2011
_______________________
$6,979
___________
$6,979
___________
___________
Restructuring
charges
accrued
________________________
$26,408
_____________
$26,408
_____________
_____________
Restructuring
charges
accrued
________________________
$ 7,617
_____________
$ 7,617
_____________
_____________
Payments
_______________________
$(22,478)
______________
$(22,478)
______________
______________
Payments
_______________________
$ (9,672)
______________
$ (9,672)
______________
______________
Currency
translation/
other
_______________________
$779
________
$779
________
________
Currency
translation/
other
_______________________
$ 23
________
$ 23
________
________
December 31,
2013
_______________________
$9,656
___________
$9,656
___________
___________
December 31,
2012
_______________________
$4,947
___________
$4,947
___________
___________
64
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
____________________
$5,227
1,542
—
487
___________
$7,256
___________
___________
2012
____________________
$ 5,708
2,385
963
(1,427)
____________
$ 7,629
____________
____________
2011
____________________
$ (84)
1,837
1,479
(593)
___________
$2,639
___________
___________
In July 2013, the Company’s manufacturing facility in Germany was damaged by severe weather. The
Company expensed the remaining book value of the damaged property, but that value was minimal. We have
filed an insurance claim, but the final amount that the Company will recover has not been determined. We expect
to record a gain for this involuntary conversion when the insurance claim is settled, but the amount of the gain
cannot presently be determined.
8. Income Taxes
The following tables present components of income tax expense/(benefit) and income/(loss) before income
taxes on continuing operations:
(in thousands)
__________________________________________________________________________________________________________________
Income tax based on income from continuing
operations, at estimated tax rates of 49%, 39%,
and 33%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan settlements . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax before discrete items . . . . . . . . . . . . . . . . . . .
Discrete tax (benefit)/expense:
Provision for/adjustment to beginning of
2013
____________________
2012
____________________
2011
____________________
$15,172
—
_____________
15,172
$ 19,769
(39,460)
______________
(19,691)
$17,814
—
_____________
17,814
year valuation allowances . . . . . . . . . . . . . . . . . . . . .
(3,741)
(2,442)
22,798
Provision for/resolution of tax audits and
contingencies, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to prior period tax liabilities . . . . . . . . . .
Repatriation of non-U.S. prior years’ earnings . . . . . .
Enacted tax legislation . . . . . . . . . . . . . . . . . . . . . . . . .
Change in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to correct a prior year error . . . . . . . . . . .
Other discrete tax adjustments, net . . . . . . . . . . . . . . .
Total income tax expense/(benefit) . . . . . . . . . . . . . . . . .
2,643
(942)
618
(282)
—
—
(96)
_____________
$13,372
_____________
_____________
(2,747)
(1,471)
—
(973)
—
—
(199)
______________
$(27,523)
______________
______________
289
(1,624)
—
115
(3,344)
(3,553)
87
_____________
$32,582
_____________
_____________
65
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
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.
2013
____________________
2012
____________________
2011
____________________
$ (9,748)
63,596
_____________
$53,848
_____________
$ (9,288)
120
17,879
_____________
$ 8,711
_____________
$ 3,519
113
20,239
_____________
$23,871
_____________
$32,582
_____________
_____________
2011
____________________
$ 1,593
(5,668)
5,119
3,258
115
22,798
(3,344)
_____________
$23,871
_____________
_____________
(in thousands)
__________________________________________________________________________________________________________________
Income/(loss) 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 . . . . . . . . . . . . . . . . . . .
$14,395
16,681
_____________
$31,076
_____________
$(84,624)
16,258
______________
$(68,366)
______________
$ 3,508
2,301
14,957
_____________
$20,766
_____________
$ 1,723
(180)
(8,937)
_____________
$ (7,394)
_____________
$13,372
_____________
_____________
$(20,123)
(1,212)
12,413
______________
$ (8,922)
______________
$(12,851)
(1,538)
(4,212)
______________
$(18,601)
______________
$(27,523)
______________
______________
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
____________________
$ (334)
2,378
1,482
(6,897)
(282)
(3,741)
—
____________
$(7,394)
____________
____________
2012
____________________
$ (7,557)
9,468
(18,337)
1,240
(973)
(2,442)
—
______________
$(18,601)
______________
______________
66
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
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
foreign withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for/resolution of tax audit
and contingencies, net . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for/adustment to beginning of
year valuation allowances . . . . . . . . . . . . . . . . . . . . . . .
Research and development and other tax credits . . . . . . .
Change in tax status . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to correct prior year error . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
2013
____________________
35.0%
4.9
8.7
0.2
2012
____________________
35.0%
3.5
0.5
(1.7)
2011
____________________
35.0%
0.3
0.4
(14.3)
5.3
8.5
(12.0)
(3.8)
—
—
(3.8)
__________
43.0%
__________
__________
(1.2)
4.0
(3.7)
0.9
—
—
3.0
__________
40.3%
__________
__________
12.8
0.5
42.1
(2.2)
(6.2)
(6.4)
(1.5)
____________
60.5%
____________
____________
The Company has operations which constitute a taxable presence in 19 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 or loss 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 2013 and 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.
67
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current deferred tax assets
before valuation allowance . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Branch losses subject to recapture . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred tax liabilities . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S.
_____________________________________________
2012
2013
________________
_________________
Non-U.S.
___________________________________________
2012
2013
________________
________________
$ 1,526
1,432
1,000
2,867
________________
$ 6,825
—
_________________
$ 6,825
_________________
_________________
5,794
4,289
28,038
1,457
23,992
2,834
________________
66,404
—
_________________
66,404
_________________
$73,229
_________________
_________________
$
667
—
—
_________________
667
_________________
_________________
13,169
—
9,013
—
—
_________________
22,182
_________________
22,849
_________________
$50,380
_________________
_________________
$ 1,733
1,589
3,000
3,413
_________________
$ 9,735
—
_________________
$ 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
_________________
_________________
$ 2,397
2,411
—
3,058
_________________
$ 7,866
(818)
_________________
$ 7,048
_________________
_________________
—
3,505
4,540
76,026
1,508
371
_________________
85,950
(49,169)
_________________
36,781
_________________
$43,829
_________________
_________________
$ —
1,366
1,822
_________________
3,188
_________________
_________________
8,357
1,377
—
12,380
2,394
_________________
24,508
_________________
27,696
_________________
$16,133
_________________
_________________
$ 2,437
2,052
—
6,370
________________
$10,859
—
________________
$10,859
________________
________________
—
2,958
4,480
78,968
1,561
557
________________
88,524
(60,348)
________________
28,176
________________
$39,035
________________
________________
$ —
1,383
12
________________
1,395
________________
________________
10,106
4,726
—
12,959
2,473
________________
30,264
________________
31,659
________________
$ 7,376
________________
________________
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 2013, the Company recorded a net decrease
in its valuation allowance of $10.4 million. The reduction in deferred tax valuation allowances in 2013 was
principally due to the utilization of net deferred tax assets and changes in circumstances surrounding the future
utilization of net operating loss carryforwards.
At December 31, 2013, the Company had available approximately $605.0 million of net operating loss
carryforwards, for which we have a deferred tax asset of $77.5 million, with expiration dates ranging from one
year to indefinite that may be applied against future taxable income. We believe that it is more likely than not
that certain benefits from these net operating loss carryforwards will not be realized and, accordingly, we have
recorded a valuation allowance of $49.8 million as of December 31, 2013. Included in the net operating loss
carryforwards is approximately $31.0 million of state net operating loss carryforwards that are subject to various
68
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
business apportionment factors and multiple jurisdictional requirements when utilized. In addition, the Company
had available a foreign tax credit carryforward of $16.8 million that will begin to expire in 2020, research and
development credit carryforwards of $6.9 million that will begin to expire in 2024, and alternative minimum tax
credit carryforwards of $1.2 million with no expiration date.
The Company reported a U.S. net deferred tax asset of $50.4 million at December 31, 2013, which
contained $26.4 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, 2013), 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, 2013 the Company reported a deferred tax liability of $0.7 million on $11.8 million of
non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts are
$0.4 million of tax expense on approximately $7.4 million of foreign earnings that were generated in 2013.
The accumulated undistributed earnings of the Company’s foreign operations were approximately
$369.0 million, and are intended to remain permanently invested in foreign operations. Accordingly, no taxes
have been provided on these earnings at December 31, 2013. 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
2013
________________
$24,386
2012
________________
$27,053
2011
________________
$23,467
to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,121
9,454
8,040
Decrease in gross amounts of tax positions related
to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
(37)
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 . . . .
2,622
(16,721)
—
130
_____________
$12,538
_____________
381
(13,099)
(20)
617
_____________
$24,386
_____________
1,005
(4,576)
—
(846)
_____________
$27,053
_____________
At December 31, 2013, we had gross tax-effected unrecognized tax benefits of $12.5 million, all of which,
if recognized, would impact the effective tax rate.
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 of
($1.3) million, ($6.4) million and $1.1 million in the Statements of Income and Retained Earnings in 2013, 2012
and 2011, respectively. The 2013 and 2012 negative amounts include the reversal of $1.4 million and $7.4
million of interest and penalties related to the settlement of audits, respectively. As of December 31, 2013 and
2012, the Company had approximately $0.1 million and $1.4 million, respectively, of accrued interest and
penalties related to uncertain tax positions.
69
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
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
such as the United States, Brazil, Canada, China, France, Germany, Italy, Mexico, and Switzerland. Open tax
years in these jurisdictions range from 2000 to 2013. We are currently under audit in the U.S. and in other non-
U.S. tax jurisdictions, including but not limited to Canada and Germany.
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 $5.7 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 $23.9 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 which $15.5 million would have a
direct impact on our statement of income if resolved unfavorably. 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 $16.4 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, 2013 and 2012, noncurrent taxes receivable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred taxes and taxes receivable . . . . . . . . . . . . . . .
2013
__________________
$ 16,427
103,185
_______________
$119,612
_______________
_______________
2012
__________________
$ 16,751
107,135
_______________
$123,886
_______________
_______________
As of December 31, 2013 and 2012, current taxes payable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes payable and deferred . . . . . . . . . . . . . . . . . .
2013
__________________
$
1,536
3,855
_______________
$
5,391
_______________
_______________
2012
__________________
$ 10,636
2,916
_______________
$ 13,552
_______________
_______________
Taxes paid, net of refunds, amounted to $29.4 million in 2013, $15.1 million in 2012, and $13.7 million in
2011.
70
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. 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 attributable to the Company . . . . . . . . . . . . .
Weighted average number of shares:
Weighted average number of shares used in
2013
___________________
$17,517
_____________
2012
___________________
$30,977
_____________
2011
___________________
$34,938
_____________
calculating basic net income/(loss) per share . . . . . .
31,649
31,356
31,262
Effect of dilutive stock-based compensation plans:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in
129
156
_____________
57
223
_____________
104
144
_____________
calculating diluted net income per share . . . . . . . . . . .
31,934
_____________
31,636
_____________
31,510
_____________
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 . . . . . . . . . . . . . . . . . . . .
$ 31.85
_____________
$ 21.51
_____________
$ 23.44
_____________
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.55
0.55
$
$
0.99
0.97*
$
$
1.12
1.11
As of December 31, 2013, 2012, and 2011, there was no dilution resulting from the convertible debt
instrument, purchased call option, and warrant that are described in Note 14.
*
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 31.8 million as of December 31, 2013, 31.4 million as of
December 31, 2012, and 31.3 million as of December 31, 2011.
71
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Accumulated Other Comprehensive Income
The Company adopted the provisions of Accounting Standards Update 2013-02 in the first quarter of 2013,
which requires enhanced disclosures of Accumulated Other Comprehensive Income (AOCI).
In the third quarter of 2013, the Company modified certain provisions of its U.S. postretirement plan. The
change in plan benefits decreased pretax liabilities by $8.0 million, resulting in a $4.9 million increase to AOCI.
The table below presents changes in the components of AOCI for the period December 31, 2012 to
December 31, 2013:
(in thousands)
___________________________________________________________________________________________________
Balance, December 31, 2012 . . . . . . . . . . . . . . .
Other comprehensive income before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement plan change in benefits . . . . . . . .
Pension/postretirement plan remeasurement . . . .
Pension plan change in benefits . . . . . . . . . . . . . .
Interest expense related to swaps reclassified
to the Statement of Income, net of tax . . . . . . .
Pension and postretirement liability
adjustments reclassified to Statement of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2013 . . . . . . . . . . . . . . .
Translation
adjustments
______________________
$(7,659)
____________
7,521
Pension and
postretirement
liability
adjustments
_________________________
$(69,484)
_______________
Total Other
Derivative
valuation Comprehensive
adjustment
Income
__________________________
_____________________
$(80,021)
$(2,878)
_______________
_____________
614
4,864
13,771
(374)
742
8,877
4,864
13,771
(374)
1,159
1,159
2,226
2,226
7,521
____________
$ (138)
____________
____________
21,101
_______________
$(48,383)
_______________
_______________
1,901
_____________
$ (977)
_____________
_____________
30,523
_______________
$(49,498)
_______________
_______________
The components of our Accumulated Other Comprehensive Income that are reclassified to the Statement of
Income relate to our pension and postretirement plans and interest rate swaps. The table below presents the
amounts reclassified, and the line items of the Statement of Income that were affected.
Expense/(income)
(in thousands)
__________________________________________________________________________________________________________________________________________________________________
Pretax Derivative valuation reclassified from Accumulated
Other Comprehensive Income:
Swap interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on net income due to items reclassified from Accumulated
Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pretax pension and postretirement liabilities reclassified from
Accumulated Other Comprehensive Income:
Amortization of prior service cost/(credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pretax amount reclassified(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on net income due to items reclassified from Accumulated
Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve months ended
December 31, 2013
_____________________________________
$ 1,900
(741)
_______________
$ 1,159
_______________
$(3,905)
70
6,512
_______________
2,677
(451)
_______________
$ 2,226
_______________
(a) These accumulated other comprehensive income components are included in the computation of net periodic
pension cost (see Note 5).
72
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
11. 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 . . . . . . . . . .
2013
_______________________
27,081
$
240,849
903,037
6,818
12,843
50,246
_______________________
1,240,874
(822,044)
_______________________
$ 418,830
_______________________
_______________________
2012
_______________________
26,985
$
244,104
863,811
7,249
11,946
47,576
_______________________
1,201,671
(781,517)
_______________________
$ 420,154
_______________________
_______________________
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 $17.5 million
in 2013, $17.0 million in 2012, and $20.0 million in 2011.
Depreciation expense was $57.0 million in 2013, $56.6 million in 2012, $56.1 million in 2011. Software
amortization is recorded in Selling, general, and administrative expense and was $6.0 million in 2013, $5.8
million in 2012 and 2011. Capital expenditures, including capitalized software, were $64.5 million in 2013,
$37.2 million in 2012, and $27.4 million in 2011. Unamortized software cost was $19.2 million and $22.4
million as of December 31, 2013 and 2012, respectively.
12. 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 2013, the Company applied the quantitative assessment approach 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.
73
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Goodwill and Other Intangible Assets – (continued)
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, 2011 to December 31, 2013,
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:
AEC trade names . . . . . . . . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . . .
AEC technology . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . .
Unamortized intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at
Balance at
December 31, 2012 Amortization Translation December 31, 2013
________________________________
_________________________________
Currency
___________________
_______________________
$
38
606
204
_____________
848
$
_____________
$76,522
_____________
_____________
$
(5)
(202)
(25)
_________
$(232)
_________
$ —
_________
_________
$ —
—
—
___________
$ —
___________
$2,368
___________
___________
$
33
404
179
_____________
616
$
_____________
$78,890
_____________
_____________
Balance at
Balance at
December 31, 2011 Amortization Translation December 31, 2012
________________________________
_________________________________
Currency
___________________
_______________________
$
43
808
228
_____________
$ 1,079
_____________
$75,469
_____________
_____________
$
(5)
(202)
(24)
_________
$(231)
_________
$ —
_________
_________
$ —
—
—
___________
$ —
___________
$1,053
___________
___________
$
38
606
204
_____________
$
848
_____________
$76,522
_____________
_____________
Estimated amortization expense of intangibles for the years ending December 31, 2014 through 2018, is as
follows:
Year
____________________________________________________________________________________________________________________________________________________
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual
amortization
(in thousands)
____________________________
231
231
29
29
29
13. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
___________________
$ 18,177
12,886
9,960
2,321
5,056
22,428
2,131
9,656
4,765
2,582
7,081
2,486
1,175
11,627
_______________
$112,331
_______________
_______________
2012
___________________
$ 18,562
12,985
9,627
2,318
5,547
19,536
3,062
4,947
—
2,924
4,920
3,173
1,073
14,583
_______________
$103,257
_______________
_______________
74
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Financial Instruments
Long-term debt, principally to banks and bondholders, consists of:
(in thousands, except interest rates)
________________________________________________________________________________________________________________________________________________
Private placement with a fixed interest rate of 6.84%, $50,000
2013
___________________
2012
___________________
paid in October 2013, remaining due 2015 through 2017 . . . . . . . . . .
$100,000
$150,000
Credit agreement with borrowings outstanding at an end of period
interest rate of 2.53% in 2013 and 3.92% in 2012 (including the
effect of interest rate hedging transactions, as described below),
due in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Convertible notes, par value $28,437, issued in March 2006 with
fixed contractual interest rates of 2.25%, due in 2026, redeemed
March 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various notes and mortgages relative to operations principally
outside the United States, at an average end of period rate of
3.10% in 2013 and 3.06% in 2012, due in varying amounts
through 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
200,000
132,000
—
28,261
3,875
_______________
303,875
(3,764)
_______________
$300,111
_______________
8,892
_______________
319,153
(83,276)
_______________
$235,877
_______________
Principal payments due on long-term debt are: 2014, $3.8 million; 2015, $50.0 million; 2017, $50.0 million
and 2018, $200.0 million. Total principal payments in 2016, 2019 and thereafter total $0.0 million. Cash
payments of interest amounted to $16.1 million in 2013, $18.4 million in 2012, and $20.2 million in 2011.
A note agreement and guaranty (“Prudential agreement”) was entered into in October 2005, and was
amended and restated as September 17, 2010 and March 26, 2013, 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. The Prudential Agreement provides for mandatory payments of
$50 million on each of October 25, 2013, and October 25, 2015, of which the first payment was made on
schedule. 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 Prudential Agreement contains customary terms, as well as affirmative covenants, negative
covenants, and events of default comparable to those in our current principal credit facility (as described below).
For disclosure purposes, we are required to measure the fair value of outstanding debt on a recurring basis. As of
December 31, 2013, the fair value of the Prudential Agreement was approximately $114.5 million, which was
measured using active market interest rates, which would be considered Level 2 for fair value measurement
purposes.
On March 26, 2013, we entered into a $330 million, unsecured Five-Year Revolving Credit Facility
Agreement (“Credit Agreement”), under which $200 million of borrowings were outstanding as of December 31,
2013. The Credit Agreement replaces the previous $390 million five-year Credit Agreement made in 2010. The
applicable interest rate for borrowings under the Credit Agreement, as well as under the former agreement, is
LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on
December 23, 2013, the spread was 1.375%. The spread is based on a pricing grid, which ranges from 1.25% to
1.875%, based on our leverage ratio.
Our ability to borrow additional amounts under the Credit 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 Credit Agreement), and without modification to any other credit
agreements, as of December 31, 2013, we would have been able to borrow an additional $130 million under our
agreement.
75
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Financial Instruments – (continued)
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 Credit Agreement at the rate of 2.04% until July 16, 2015. 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 16, 2013 was 0.25%. 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 December 31, 2013, the all-in rate on the $105 million of debt was 3.415%.
On May 20, 2013, we entered into interest rate hedging transactions for the period July 16, 2015 through
March 16, 2018. These transactions have the effect of fixing the LIBOR portion of the effective interest rate
(before addition of the spread) on $110 million of indebtedness drawn under the Credit Agreement at the rate of
1.414% during this period. Under the terms of these transactions, we pay the fixed rate of 1.414% and the
counterparties pay a floating rate based on the one-month LIBOR rate at each monthly calculation date, which
on December 31, 2013 was 0.17%. The net effect is to fix the effective interest rate on $110 million of
indebtedness at 1.414%, plus the applicable spread, during the swap period.
These interest rate swaps are accounted for as a hedge of future cash flows, as further described in Note 15
of the Notes to Consolidated Financial Statements. No cash collateral was received or pledged in relation to the
swap agreements.
Under the Credit Agreement and Prudential Agreement, we are currently required to maintain a leverage
ratio (as defined in the agreements) of not greater than 3.50 to 1.00 and minimum interest coverage (as defined)
of 3.00 to 1.00.
As of December 31, 2013, our leverage ratio was 1.78 to 1.00 and our interest coverage ratio was 8.85 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 3.50 to 1.00
after giving pro forma effect to the acquisition.
On March 15, 2013, the Company redeemed, at 100 percent of par, all remaining 2.25% Convertible Senior
Notes due 2026 (the “Notes”). The cash payments of $28.4 million were funded by borrowings under the Credit
Agreement.
In connection with the original sale of the Notes in 2006, we entered into hedge and warrant transactions
with respect to our Class A common stock. These transactions were 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. These transactions had a net cost of $14.7 million. The hedge transactions expired on March
15, 2013 and all warrants were expired by September 10, 2013.
Indebtedness under each of the Prudential Agreement 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, 2013.
15. Fair-Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants at the measurement date. Accounting principles establish a hierarchy for inputs used
in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. 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, 2013 and 2012, we have no Level 3 financial assets or liabilities.
76
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Fair-Value Measurements – (continued)
The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial assets and
liabilities measured at fair value on a recurring basis:
(in thousands)
__________________________________________________________________________________________________
Fair Value
Assets:
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets:
December 31, 2013
___________________________________________________
Significant
other
observable
inputs
(Level 2)
_____________________
Quoted prices
in active
markets
(Level 1)
________________________
December 31, 2012
__________________________________________________
Significant
other
observable
inputs
(Level 2)
____________________
Quoted prices
in active
markets
(Level 1)
________________________
$25,073
$ —
$33,171
$ —
Foreign currency instruments . . . . . . . . . .
—
—
Other Assets:
Common stock of foreign public
company . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . .
952
—
—
1,517(a)
—
562
—
—
—
—
Liabilities:
Other noncurrent liabilities
Interest rate swap . . . . . . . . . . . . . . . . . . . .
—
(3,119)(b)
—
(4,718)(c)
(a) Net of $5.6 million receivable floating leg and $4.1 million liability fixed leg
(b) Net of $0.7 million receivable floating leg and $3.8 million liability fixed leg
(c) Net of $1.2 million receivable floating leg and $5.9 million liability fixed leg
During 2013 and 2012 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 unrealized 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.
Foreign currency instruments are entered into periodically, and consist of foreign currency option
contracts and 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 and Accounts payable, as applicable. Changes in fair
value of these instruments are recorded as gains or losses within Other expense/ (income), net. Losses totaled
$0.1 million during 2013, and gains totaled $0.0 million during 2012.
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.
77
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Fair-Value Measurements – (continued)
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, General
and Administrative expenses or Other expense/ (income), net. Revaluation gains and losses occur when our
business units have cash, intercompany (recorded in Other expense/ (income), net) or third-party trade receivable
or payable balances (recorded in Selling, General and Administrative expenses) 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 interest rate swaps are accounted for as hedges of future cash flows. The fair value of our interest rate
swaps are derived from a discounted cash flow analysis based on the terms of the contract and the interest rate
curve, and is included in Other assets and Other noncurrent liabilities in the Consolidated Balance Sheets.
Unrealized gains and losses on the swaps will flow through the caption Derivative valuation adjustment in the
Shareholders’ equity section of the Consolidated Balance Sheets, to the extent that the hedges are highly
effective. As of December 31, 2013, these interest rate swaps were determined to be 100% effective hedges of
interest rate cash flow risk. Gains and losses related to the ineffective portion of the hedges 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 swaps totaled $1.9 million for 2013, $1.7 million for 2012, and
$1.9 million for 2011.
Gains/(losses) related to changes in fair value of derivative instruments that were recognized in Other
expense/(income), net in the Statement of Income were as follows:
(in thousands)
________________________________________________________________________________________________________________________________________________
Derivatives not designated as hedging instruments
Years ended December 31,
_____________________________________________
2012
2013
_______________
________________
Forward exchange options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(107)
$33
16. Other Noncurrent Liabilities
As of December 31 of each year, Other noncurrent liabilities consists of:
(in thousands)
________________________________________________________________________________________________________________________________________________
Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . . . . .
Interest rate swap agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive and deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
__________________
$ 40,981
56,052
3,119
4,960
902
_______________
$106,014
_______________
_______________
2012
___________________
$ 49,820
78,821
4,718
2,087
566
_______________
$136,012
_______________
_______________
17. 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 2013. Total rental expense amounted to $4.6 million in 2013, $5.8 million in both 2012 and 2011.
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, 2013 are: 2014, $4.4 million; 2015, $2.7 million; 2016,
$1.4 million; 2017, $0.4 million, and 2018 and thereafter, $1.6 million.
78
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. 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 4,315 claims as of January 31, 2014.
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 . . . . . . . . . . . . . . . . . .
2013 as of
January 31, 2014 . . . . . .
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
4,463
233
85
4,315
$
82
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 31, 2014, we
had resolved, by means of settlement or dismissal, 36,603 claims. The total cost of resolving all claims was $8.7
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 7,815 claims as of January 31, 2014.
79
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. 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 . . . . . . . . . . . . . . . . . .
2013 as of
January 31, 2014 . . . . . .
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
_________________________
$—
—
—
—
—
—
—
—
7,867
55
3
7,815
$—
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 31, 2014, Brandon
has resolved, by means of settlement or dismissal, 9,788 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.
80
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. Commitments and Contingencies – (continued)
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.
18. Translation Adjustments
The Consolidated Statements of Cash Flows were affected by translation as follows:
(in thousands)
__________________________________________________________________________________________________________________
Change in cumulative translation adjustments . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . .
2013
_________________
$ 7,521
69
705
(625)
(2,368)
(116)
952
706
_____________
$ 6,844
_____________
_____________
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 . . . . . . . . . . . . . . . . . . .
2013
_________________
$25,573
(18,052)
_____________
$ 7,521
_____________
_____________
2012
_________________
$18,287
(1,119)
(779)
(7,859)
(1,053)
(7,895)
1,352
(1,015)
_____________
$
(81)
_____________
_____________
2012
_________________
$16,589
1,698
_____________
$18,287
_____________
_____________
2011
_________________
$(13,070)
4,284
2,756
2,789
2,449
1,204
(1,209)
(2,576)
______________
$ (3,373)
______________
______________
2011
_________________
$(17,061)
3,991
______________
$(13,070)
______________
______________
19. Stock Options and Incentive Plans
We recognized no stock option expense during 2013, 2012 or 2011 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 . . . . . . . . . . . . . . . .
2013
_____________
507,313
—
278,780
_____________
228,533
228,533
_____________
2012
_____________
597,313
23,300
66,700
_____________
507,313
507,313
_____________
2011
_____________
639,163
400
41,450
_____________
597,313
597,313
_____________
81
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Stock Options and Incentive Plans – (continued)
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 . . . . . . . . . . . . . . . . . .
2013
_____________
$19.45
—
—
19.87
___________
18.94
18.94
___________
2012
_____________
$19.54
—
21.23
19.65
___________
19.45
19.45
___________
2011
_____________
$19.51
—
20.54
19.03
___________
19.54
19.54
___________
As of December 31, 2013, the aggregate intrinsic value of vested options was $3.9 million. The aggregate
intrinsic value of options exercised was $3.1 million in 2013, $0.2 million in 2012, and $0.3 million in 2011.
Executive Management share-based compensation:
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 2013
we issued 40,255 shares and made cash payments totaling $1.1 million. 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. 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 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 per year in 2013, 2012 and 2011.
In 2011, the Board of Directors modified the annual incentive plan for executive management whereby 40
percent of the earned incentive compensation is payable in the form of shares of Class A Common Stock. In
March 2013, the Company issued 34,988 shares and made cash payments totaling $2.0 million as a result of
performance in 2012. 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 $2.3 million in 2013, $3.4 million
in 2012, and $2.7 million in 2011.
82
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Stock Options and Incentive Plans – (continued)
The grant date share price is determined when the awards are approved each year and that price is used for
measuring the cost for the share-based portion of the award. Shares payable under these plans generally vest
immediately prior to payment. Participants may elect to receive shares net of applicable income taxes, which is
taken into consideration for the calculation of diluted earnings per share. As of December 31, 2013, there were
339,050 shares of Company stock authorized for the payment of awards under these plans. Information with
respect to these plans is presented below:
Shares potentially payable at January 1, 2011 . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2011 performance . . . . . . . . . .
Shares potentially payable at December 31, 2011 . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2012 performance . . . . . . . . . .
Shares potentially payable at December 31, 2012 . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2013 performance . . . . . . . . . .
Shares potentially payable at December 31, 2013 . . . . . .
Number of
shares
___________________
90,871
—
(34,268)
104,677
______________
161,280
______________
—
(44,347)
112,428
______________
229,361
______________
—
(118,364)
74,567
______________
185,564
______________
Weighted
average grant
date value
per share
`________________________
$22.40
—
$22.40
$24.62
___________
$23.74
___________
—
$24.62
$27.15
___________
$24.13
___________
—
$23.05
$31.62
___________
$27.51
___________
Year-end
intrinsic
value (000’s)
______________________
$2,153
___________
$3,729
___________
___________
$5,202
___________
___________
$6,667
___________
Other Management share-based compensation:
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,
general and administrative expenses and was $2.5 million in 2013, $1.9 million in 2012, and $2.5 million in
2011. 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. Expense recognized for this plan amounted to $1.5 million in
2013 and $0.5 million in 2012.
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 and $1.3 million in 2011. 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, general, and administrative expenses. These grants will vest various periods
from 2015 to 2017. Expense recognized for these grants was $1.0 million in 2013 and $0.4 million in 2012.
83
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
The determination of compensation expense for other management share-based compensation plans is
based on the number of outstanding share units, the end-of-period share price, and company performance. Share
units payable under these plans generally vest immediately prior to payment. Information with respect to these
plans is presented below:
Share units potentially payable at January 1, 2011 . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2011 . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2012 . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2013 . .
Weighted
average
value
per share
`___________________
Cash paid for
share based
liabilities (000’s)
____________________________
$21.57
$5,727
$21.43
$4,206
$32.71
$2,810
Number of
shares
___________________
643,232
13,037
(265,574)
(29,276)
______________
361,419
______________
220,090
(196,360)
(34,389)
______________
350,760
______________
104,554
(85,902)
(8,223)
______________
361,189
______________
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 $4.1 million in 2013, $3.8 million for 2012, and $3.7 million for 2011.
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. Company
contributions to the plan are in the form of cash. The expense recorded for this plan was $1.6 million in 2013,
$1.8 million in 2012, and $2.3 million in 2011.
84
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. 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, 2013, 3.5 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 2011, 2012, and 2013 is
presented below:
(in thousands)
_________________________________
Balance: January 1, 2011 . . . . . . . . . . . .
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 . . . . . . . . .
Compensation and benefits paid
or payable in shares . . . . . . . . . . . . . .
Initial equity related to Noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . .
Shares issued to Directors . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared . . . . . . . . . . . . . . . . .
Cumulative translation adjustments . . . .
Pension and postretirement
liability adjustments . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . .
Balance: December 31, 2013 . . . . . . . . .
Accumulated
items of other
Class A
Retained comprehensive
Common Stock
earnings
_____________________________
Shares Amount Shares Amount Amount Amount
______________
______________
___________
$403,048
$36
36,442
_______________
______
___________
Class B
Common Stock
_____________________________
_____________
___________
$3
3,236
____
_________
Additional
paid-in
capital
__________________
$387,876
_______________
income
Amount
_________________________
($106,672)
________________
Treasury Stock
Class A
_____________________________ Noncontrolling
Shares Amount
Interest
__________________________
____________
______________
$ —
8,485 $(258,031)
___________
________________
_________
57
42
—
—
—
—
—
—
___________
36,541
___________
34
67
—
—
—
—
—
—
—
___________
36,642
___________
75
—
279
—
—
—
—
—
—
___________
36,996
___________
1
—
—
—
—
—
—
—
______
$37
______
—
—
—
—
—
—
—
—
—
______
$37
______
—
—
—
—
—
—
—
—
—
______
$37
______
—
—
—
—
—
—
—
—
_________
3,236
_________
—
—
—
—
—
—
—
—
—
_________
3,236
_________
—
—
—
—
—
—
—
—
—
_________
3,236
_________
—
—
—
—
—
—
—
—
____
$3
____
—
—
—
—
—
—
—
—
—
____
$3
____
—
—
—
—
—
—
—
—
—
____
$3
____
—
2,712
—
883
—
24
—
34,938
— (15,942)
—
—
—
—
—
—
—
(13,070)
—
—
(5)
—
—
—
—
—
111
—
—
—
—
—
—
—
—
—
—
_______________
$391,495
_______________
—
—
_______________
$422,044
_______________
(17,749)
(2,318)
________________
$(139,809)
________________
—
—
—
—
_________
________________
8,480 $(257,920)
________________
_________
—
—
___________
$ —
___________
—
2,573
—
1,352
—
(39)
—
30,977
— (17,246)
—
—
—
—
—
—
—
11,452
—
—
79,204
—
—
(12)
—
—
—
—
—
—
256
—
—
—
—
—
—
—
—
—
—
—
—
_______________
$395,381
_______________
—
—
_______________
$435,775
_______________
(30,584)
(284)
________________
$ (80,021)
________________
—
—
—
—
_________
________________
8,468 $(257,664)
________________
_________
—
—
___________
$ —
___________
(902)
—
—
—
15,535
—
6,670
—
44
—
17,517
— (18,694)
—
—
—
—
—
—
—
7,521
—
—
—
(4)
—
—
—
—
—
—
93
—
—
—
—
3,341
—
—
141
—
—
—
_______________
$416,728
_______________
—
—
_______________
$434,598
_______________
21,101
1,901
________________
$ (49,498)
________________
—
—
—
—
_________
________________
8,464 $(257,571)
________________
_________
—
—
___________
$3,482
___________
85
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
21. Quarterly Financial Data (unaudited)
(in millions, except per share amounts)
___________________________________________________________________________________________________
2013
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company . . . . . . .
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 attributable to the Company . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st
______________
2nd
_____________
3rd
_____________
4th
______________
$186.7
72.8
11.5
0.36
0.36
0.14
29.87
23.21
$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
$198.0
77.4
(7.4)
(0.23)
(0.23)
0.15
33.90
27.48
$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
$183.1
68.0
4.7
0.15
0.15
0.15
36.53
32.27
$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
$189.6
72.4
8.7
0.27
0.27
0.15
37.25
33.81
$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
In 2013, restructuring charges reduced earnings per share by $0.01 in the first quarter, $0.47 in the second
quarter, $0.04 in the third quarter, and increased earnings per share by $0.03 in the fourth quarter.
In the first quarter of 2013, we recognized a gain of $0.08 per share related to the sale of a former
manufacturing facility.
In 2012, earnings per share included 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.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of
December 31, 2013, there were approximately 6,200 beneficial owners of the Company’s common stock,
including employees owning shares through the Company’s 401(k) defined contribution plan.
86
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
87
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.
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, 2013. In making this assessment, management used the criteria set forth by the
1992 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, 2013, 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, 2013 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
2013 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.
88
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.
89
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 . . . . . . . . . . . . . . . . . . . . .
228,533(1)
Equity compensation plans not approved
by security holders . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
_____________
228,533(1)
_____________
_____________
$18.94
—
___________
$18.94
___________
___________
390,095(2,3,4)
—
_____________
390,095(2,3,4)
_____________
_____________
(1) Does not include 77,667, 52,737, and 29,082 shares that may be issued pursuant to 2011, 2012 and 2013,
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) 390,095 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 4,390,095.
(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.
90
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 December 31, 2008, and its relative performance is
tracked through December 31, 2013.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Albany International Corp., the S&P 500 Index, and the Dow Jones US Paper Index
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/08
12/09
12/10
12/11
12/12
12/13
Albany International Corp.
S&P 500
Dow Jones US Paper
*$100 invested on 12/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2014 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 2014 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.
91
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number
_______________________
3(a)
Exhibit Description
__________________________________
Certificate of Incorporation of Company
Filed
Herewith
________________
3(b)
4(a)
4(b)
Bylaws of Company
Article IV of Certificate of Incorporation of Company
Specimen Stock Certificate for Class A Common Stock
Credit Agreement
10(k)(xi)
10(k)(xii)
$330 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; J.P. Morgan Europe Limited, as
London Agent, dated as of March 26, 2013
Amended and Restated Note Agreement and Guaranty,
dated as of July 16, 2010, among the Company, the
Guarantors named therein, and the holders of the Notes
from time to time party thereto (“Amended and
Restated Note Agreement”)
10(k)(xiii)
First Amendment, dated as of February 17, 2012, to
Amended and Restated Note Agreement
10(k)(iv)
Second Amendment, dated as of March 26, 2013, to
Amended and Restated Note Agreement
Restricted Stock Units
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)
10(l)(i)
10(l)(ii)
10(l)(iii)
10(l)(iv)
10(l)(v)
10(l)(vi)
10(l)(vii)
10(l)(viii)
92
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
9/7/88
Form
__________________________
8-A, File
No. 1-10026
8-K
8-A, File
No. 1-10026
S-1,
No. 33-16254
2/23/11
9/7/88
9/30/87
8-K
3/28/13
8-K
9/23/10
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
2/22/12
3/28/13
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
Exhibit
Number
_______________________
10(l)(ix)
Exhibit Description
__________________________________
Form of Restricted Stock Unit Award for units granted
on February 17, 2012
Filed
Herewith
________________
Stock Options
10(m)(i)
1992 Stock Option Plan
10(m)(ii)
1997 Executive Stock Option Agreement
10(m)(iii)
1998 Stock Option Plan
10(m)(iv)
1998 Stock Option Plan, as amended and restated as
of August 7, 2003
10(m)(v)
2005 Incentive Plan
10(m)(vi)
2011 Incentive Plan
10(m)(vii)
Amendment No. 1, dated as of December 5, 2007, to
the Albany International Corp. 2005 Incentive Plan
10(m)(viii)
Form of 2010 Multi-Year Performance Bonus Agreement
10(m)(ix)
Form of 2011 Multi-Year Performance Bonus Agreement
Executive Compensation
10(n)(i)
Supplemental Executive Retirement Plan, adopted as
of January 1, 1994, as amended and restated as of
January 1, 2008
10(n)(ii)
Annual Bonus Program
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
Incorporated by Reference
_____________________________________________________________________
Form
__________________________
8-K
Period
Ending
__________________
Filing
Date
__________________
2/24/12
8-K
10-K
10-Q
1/18/93
12/31/97 3/16/98
6/30/98
8/10/98
8-K
8-K
8-K
8-K
8-K
8-K
8-K
S-1,
No. 33-16254
12/23/09
5/18/05
6/1/11
12/5/07
3/31/10
3/29/11
1/2/08
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
Excerpt from the Company’s Corporate Governance
Guidelines describing director compensation
X
Form of Severance Agreement between Albany
International Corp. and certain corporate officers or
key executives
Code of Ethics
Directors Pension Plan, amendment dated as of
January 12, 2005
8-K
8-K
8-K
1/3/13
1/2/08
1/13/05
93
10(n)(iii)
10(o)(i)
10(o)(ii)
10(o)(iii)
10(o)(iv)
10(o)(v)
10(o)(vi)
10(p)
10(q)
Incorporated by Reference
_____________________________________________________________________
Form
__________________________
8-K
Period
Ending
__________________
Filing
Date
__________________
5/18/05
8-K
8-K
2/23/11
11/1/11
Exhibit
Number
_______________________
10(r)
10(s)
10.1
10.2
11
21
23
24
31(a)
31(b)
32(a)
Exhibit Description
__________________________________
Employment agreement, dated May 12, 2005,
between the Company and Joseph G. Morone
Form of Indemnification Agreement
Filed
Herewith
________________
Stock and Asset Purchase Agreement by and between
Albany International Corp. and ASSA ABLOY AB,
dated as of October 27, 2011
Amended and restated LLC operating agreement by
and between Albany Engineered Composites and
Safran Aerospace Composites, Inc. 10% equity interest
in ASC for $28 million
Statement of Computation of Earnings per share
(provided in Footnote 9 to the Consolidated Financial
Statements)
Subsidiaries of Company
Consent of PricewaterhouseCoopers LLP
Powers of Attorney
Certification of Joseph G. Morone required pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
Certification of John B. Cozzolino required pursuant
to 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
X
X
X
X
X
X
X
The following information from the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2013, formatted in eXtensible Business Reporting Language (XBRL), filed herewith:
101(i)
101(ii)
101(iii)
101(iv)
Consolidated Statements of Income for the years ended X
December 31, 2013, 2012 and 2011
Consolidated Statements of Comprehensive Income for X
years ended December 31, 2013, 2012, and 2011
Consolidated Balance Sheets as of December 31, 2013 X
and 2012
Consolidated Statements of Cash Flows for the years
ended December 31, 2013, 2012, and 2011
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.
94
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 26th
day of February, 2014.
ALBANY INTERNATIONAL CORP.
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 26, 2014
/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 26, 2014
February 26, 2014
*
Erland E. Kailbourne
*
John C. Standish
*
John F. Cassidy, Jr.
*
Katharine Plourde
*
Edgar G. Hotard
*
John R. Scannell
*
Christine L. Standish
*By /s/ John B. Cozzolino
John B. Cozzolino
Attorney-in-fact
Chairman of the Board and Director
February 26, 2014
Vice Chairman of the Board and Director
February 26, 2014
Director
Director
Director
Director
Director
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
February 26, 2014
95
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
_______________________
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,862
10,729
12,331
$
235
1,411
3,081
$
(823)
(278)
(4,683)
$11,274
11,862
10,729
Allowance for sales returns
Year ended December 31:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,536
15,609
14,208
$25,013
19,911
18,942
$(22,121)
(15,984)
(17,541)
$22,428
19,536
15,609
Valuation allowance deferred tax assets
Year ended December 31:
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$60,348
63,413
42,140
$ (8,795)
(4,131)
18,529
$ (1,566)
1,066
2,744
$49,987
60,348
63,413
(A) Amounts sold, written off, or recovered, and the effect of changes in currency translation rates, are included
in Column D.
96
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 30170
College Station, TX 77842-3170
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 16, 2014, 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.”
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.
97
Trademarks
INLINE, HYDROCROSS, SPRING, SEAM HYDROCROSS, SEAMPLANE, Seam KMX, VENTABELT
EVM, VENTABELT XTS, TRANSBELT GX, AEROPULSE, DURASPIRAL, NEOSTAT and SUPRASTAT are
trademarks of Albany International Corp., registered in the United States and other countries.
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.
Katharine L. Plourde1,3
Retired – Principal and Analyst,
Donaldson, Lufkin & Jenrette, Inc.
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
Chairman and 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
President – 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
98
SUBSIDIARIES OF REGISTRANT
Exhibit 21
Affiliate
______________________________________________________________________________________________________________________________
Albany International Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holdings Two, Inc. . . . . . . . . . . . . . . . . .
Albany International Research Co. . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites, Inc. . . . . . . . . . . . . . . . . . . . .
Albany Safran Composites, LLC . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transamerican Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . .
Transglobal Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
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%
90%
100%
100%
100%
100%
100%
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%
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
99
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-
140995, 333-76078, 033-28028, 333-90069, 033-60767, 333-190774) of Albany International Corp. of our
report dated February 26, 2014 relating to the financial statements, financial statement schedules and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
Albany, New York
February 26, 2014
100
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, 2013 (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 26th day of
February, 2014.
/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
/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/ Katharine L. Plourde
________________________________________________________________________
Katharine L. Plourde
Director
/s/ Edgar G. Hotard
________________________________________________________________________
Edgar G. Hotard
Director
101
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: February 26, 2014
By /s/ Joseph G. Morone
______________________________________________________________________
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
102
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: February 26, 2014
By /s/ John B. Cozzolino
______________________________________________________________________
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
103
Exhibit 32(a)
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, 2013 (“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: February 26, 2014
/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)
104
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TRUE
BLANK
216 Airport Drive, Rochester, NH 03867 USA
Tel: 603 330 5850 • Fax: 603 994 3835 • www.albint.com • investor.relations@albint.com