annual report & 10-K
14 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
processing company, with two core businesses. The Machine Clothing
segment 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 4,000 people worldwide,
and is listed on the New York Stock Exchange (Symbol AIN). Additional
information about the Company and its products and services can be
found at www.albint.com.
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2014
US $ million, except per share
Q1 Q2 Q3 Q4
Net sales:
Machine Clothing
Albany Engineered Composites
$164.1
16.2
$180.3
$172.8
20.7
$193.5
$157.9
22.0
$179.9
$160.2
31.4
$191.6
Operating income
$ 20.6 $ 19.0
Net income attributable to the Company 10.6 11.2
Earnings per share - basic
Earnings per share - diluted
$ 12.6
8.0
0.33 0.35 0.37 0.26
0.33 0.35 0.37 0.25
$ 19.2
11.8
Years ended
US $ million,
except per
share data
Dec
31
2012 2013
2014
$760.9 $757.4 $745.3
Net sales
Gross profit
305.4
(44.1)
Operating income/(loss)
Net income attributable to the Company 31.0
0.99
Earnings per share - basic
0.97
Earnings per share - diluted
290.6
52.1
17.5
0.55
0.55
291.6
71.4
41.6
1.31
1.30
Table Of
CONTENTS 2 CEO LETTER 6 GLOBAL LOCATIONS 7 FORM 10-K
1
14
CEO
Letter to Shareholders
2014 was a good year for Albany International, as
both businesses met short-term expectations while
remaining firmly on track toward their long-term
objectives. Although aggregate sales declined 1.1
percent excluding currency effects, Adjusted EBITDA
improved by 7.0 percent, even after 10 percent
increases in R&D spending in both businesses.
Total debt decreased by $32 million, and by the
end of the year, our largest pension plans (U.S.,
Canada, and the U.K.) were fully funded.
In my letter to you last year, I wrote that our strategy,
both short- and long-term, comprises three
imperatives: hold Machine Clothing (MC) cash flow;
execute the LEAP ramp; and advance the Albany
Engineered Composites (AEC) pipeline. In 2014,
we performed well on all three fronts; we look to
do the same in 2015.
Hold Machine Clothing Cash Flow
To hold Machine Clothing cash flow steady, we must
Joseph G. Morone
President & Chief Executive Officer
cost increases, and pricing pressures. The essence
of our strategy is to offset these downward forces
with a combination of (a) strong performance
in the GNP-driven growth segments of tissue,
packaging, and pulp, and in the growth regions of
Asia and South America; (b) incremental productivity
improvements coupled with periodic adjustments of
capacity to market conditions; and (c) development
and delivery of superior products and services.
All three components of our MC strategy contributed
to the good performance in 2014. While our efforts to
offset declines in the North American and European
publication grades were hampered by economic
weakness in South America and the combination
of a slowing economy and overcapacity in China,
they were helped by strong Albany performance in
offset three sources of downward pressure in the
the packaging, tissue, and pulp markets. Likewise,
machine clothing industry: the structural decline in
incremental productivity improvements and lower
the printing and writing grades of paper, inflationary
costs resulting from the 2013 restructuring of our
2
14 two MC operations in France led to an improvement
The latter event was attended by François Hollande,
in gross margins, from 42.8 percent in 2013 to
President of the Republic of France. Both plants are
43.1 percent in 2014. And 2014 saw an intensifying
now producing the parts required for CFM’s engine
investment and growing momentum in our efforts
testing and certification program. 2014 was also
to advance our new technology platform toward
notable for the turnaround in our Boerne, Texas,
initial market applications.
We expect a similar pattern in 2015. While
inflationary pressure could be somewhat alleviated
by the decline in oil prices, the volume declines in
the publication grades will likely continue, and with
several large contract negotiations at the end of the
year, pricing pressures will likely intensify. Offsetting
these downward pressures, we expect continued
improvement in productivity from our Lean/Six
Sigma activities and from the impact of our recently
announced restructuring in Germany; our sales into
the packaging, tissue, and pulp market segments
should benefit from the combination of a stronger
U.S. GNP in 2015 and the start-up around the world
of several significant machines in these grades.
And 2015 should be an important year for learning
more about the potential impact of our new
technology platform. As I mentioned in our Q4
earnings call, we are starting to see enough success
with this new technology in initial applications in the
high-performance ends of the tissue and nonwovens
markets that we are adding capacity to serve these
initial niche markets, while at the same time exploring
the broader applicability of this platform through
several preliminary field trials.
It is this combination of a focus on the growth
grades and segments, continued pursuit of
productivity improvements, and growing investment
in new technology that we believe provides the
foundation for sustained MC cash flow in 2015
and beyond.
Execute the LEAP Ramp
In Albany Safran Composites (ASC), 2014 was
devoted to installing, qualifying, and starting up
the initial production modules in our two LEAP
plants. The most outwardly visible milestones of
progress were the plants’ formal openings, the first
in Rochester, New Hampshire, on March 31, and
the second in Commercy, France, on November 24.
operation, which accounts for roughly a quarter of
AEC sales. Following the same approach toward
operational discipline being implemented at the two
net sales
USD MILLIONS
2012
760.9
2013
757.4
2014
745.3
adjusted EBITDA*
USD MILLIONS
2012
145.4
2013
135.4
2014
144.8
TOTAL debt (december 31)
USD MILLIONS
2012
319.7
2013
304.5
2014
272.8
Total debt includes notes and loans payable, current and long-term debt.
* EBITDA from continuing operations, excluding restructuring charges, revaluation effects,
pension settlement expense, gain on insurance recovery, gains from building sales, and
pretax income attributable to noncontrolling interest; see item 7 of Form 10-K for disclosure
of non-GAAP data.
3
LEAP plants, the team at Boerne made significant
manufacturing process before the ramp begins in
improvements in yield and on-time delivery across all
earnest. The slope of the ramp curve, and the rate
of its programs, and most notably in AEC’s second
of required production, simply won’t allow for a more
largest program – the development and production
of composite parts for the LiftFan® of the Joint Strike
traditional learning-curve-based process of improving
yields incrementally as manufacturing volumes ramp
Fighter. These improvements at Boerne accounted
gradually. While it will not be particularly apparent
for most of the swing in AEC Adjusted EBITDA, from
in the form of externally visible milestones, the next
a loss of $5.5 million in 2013 to positive $1.1 million
year-and-a-half for ASC will be dominated by
in 2014.
In 2015 and into 2016, the primary focus for AEC
operations shifts from start-up of the LEAP plants
and improvements in Boerne to preparation for
the ramp-up in LEAP production. When I wrote
to you last year, CFM (the joint venture between
Safran and GE) had recorded 6,100 orders for the
LEAP engine and was suggesting that total annual
production volume might reach as high as 1,700
engines per year. As of March 2015, the number
an all-out Albany effort, coupled with intense
collaboration with Safran, to align Safran’s required
design tolerances with Albany’s manufacturing
capabilities. It is worth noting in this regard that our
partnership with Safran is stronger than ever and
by now extends deep into both organizations.
Advance the AEC Pipeline
A year ago I outlined the significant investments
of orders for LEAP had grown to over 8,500, and
that we have made in both talent and capital to
CFM was suggesting that total annual production
develop AEC’s research and technology pipeline,
volume would likely reach 1,800 engines (i.e., 32,400
and explained that our challenge would be to
blades) by 2020. In order to hit such historically high
broaden our portfolio of potential customers and
production rates in such a historically short period of
applications while simultaneously moving at least
time, we must achieve a high-yield, highly repeatable
some projects closer to commercial reality.
In Albany Safran Composites, 2014 was devoted to installing, qualifying, and starting
up the initial production modules in our two LEAP plants. The most outwardly visible
milestones of progress were the plants’ formal openings, the first in Rochester, New Hampshire, on March 31, and
the second in Commercy, France, on November 24. Here, Albany’s President & CEO Joe Morone (above and insert
left) addresses the approximately 300 attendees at the Rochester plant dedication ceremonies.
© Safran
4
development of new technology as any in the
“2015 could well be as important a year for
Company’s 120-year history.”
to 2014’s: hold MC cash flow, execute the LEAP
In 2014, the pipeline produced its first significant
On the surface, not much will change for Albany
Composites, AEC was selected to develop and
commercial agreement. Through Albany Safran
International in 2015. Our strategy will be identical
supply the composite fan case for the GE9X, the
ramp, and grow the AEC pipeline. But beneath
engine that will power Boeing’s new 777x aircraft.
the surface, 2015 will be an important year for
According to GE, the 9X will be the largest
both businesses. With new machine start-ups
turbofan engine ever developed, and thus will
in critical MC market segments and preliminary
require the largest fan case, let alone composite
field-based trials of our new technology platform
fan case, ever manufactured. AEC’s participation
in equally critical MC market segments, an intense
on a component as critical and challenging as
concentration on preparing for the LEAP ramp,
this fan case represents a significant and highly
and the continued exploration of new applications
visible market validation of the advantages of
for our composites technology in the engine,
our technology.
At the Farnborough Airshow in June 2014,
CFM disclosed that it was looking to make
enhancements to LEAP, and that it should be
possible to further reduce engine weight by
airframe, and automotive markets, 2015 could
well be as important a year for development of
new technology as any in the Company’s
120-year history. I look forward to providing
you an update as the year progresses.
“hundreds of pounds.” As we have discussed
Finally, let me close with a word about the
before, AEC is developing with Safran additional
approximately 4,000 members of the Albany
composite parts that are candidates for
community. Everything I’ve written about
inclusion in future upgrades to the LEAP engine,
here is the product of their good work. Each
and we continue to view this as one of our
of them has my sincere thanks for their
most promising areas of potential growth.
commitment to the Company, to each other,
As we turn to 2015, we expect our R&D activities
in aerospace to continue to advance across a
range of customers and applications for engines
and airframes. We are also intensifying our
exploration of applications in the automotive
industry. Early in 2015, AEC signed a joint
development agreement with Ricardo plc, a
U.K.-based engineering company with a strong
presence in the automotive industry. Initially
the joint effort will probe the high-performance
end of the automotive market.
and to you, our shareholders.
Joseph G. Morone
President & Chief Executive Officer
5
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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 R&D
CHINA
Hangzhou MC
Panyu MC
MEXICO
Cuautitlán MC
USA
Boerne, Texas AEC
Homer, New York MC R&D
Kaukauna, Wisconsin MC R&D
Menasha, Wisconsin MC R&D
Rochester, New Hampshire AEC R&D
St. Stephen, South Carolina MC
6
ITALY
Ballò di Mirano (VE) MC
S. KOREA
Chungju MC
BRAZIL
Indaial MC
14 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, 2014
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 27, 2014, 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 $1,072.4 million.
The registrant had 28.6 million shares of Class A Common Stock and 3.2 million shares of Class B Common Stock outstanding as
of January 31, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 15, 2015
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.
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23
24
25
42
44
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95
95
96
97
97
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98
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;
• Recent declines in demand for paper in certain regions and market segments could continue at a rate that
is greater than anticipated, and growth in demand in other segments or regions could be lower or slower
than anticipated;
• Failure to achieve or maintain anticipated profitable growth in our Albany 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 Albany 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 supplies permeable and impermeable belts used in the manufacture
of paper, paperboard, nonwovens, fiber cement and several other industrial applications.
We design, manufacture, and market paper machine clothing for each section of the paper machine and for
every grade of paper. We manufacture and sell approximately twice as much paper machine clothing worldwide
than any other company. Paper machine clothing products are customized, 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 customized, consumable fabrics used in the manufacturing
process in the pulp, corrugator, nonwovens, fiber cement, building products, tannery and textile industries.
We sell our Machine Clothing products directly to customer end-users. 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 paper machine clothing forming, pressing, and dryer fabrics, individually and
in the aggregate, accounted for more than 10 percent of our consolidated net sales during one or more of the last
three years.
The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in
which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered,
advanced composite structures based on proprietary technology to customers in the aerospace and defense
industries. AEC’s largest program relates to CFM International’s LEAP engine, which is scheduled to enter into
service in 2016. AEC, through ASC, is the exclusive supplier to this program of advanced composite fan blades
and cases under a long-term supply contract. In 2014, approximately 20 percent 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 2014, 2013, and 2012.
(in thousands)
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$655,026
90,319
_______________
$745,345
_______________
_______________
2013
___________________
$674,747
82,667
_______________
$757,414
_______________
_______________
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
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.
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).
10
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 regional economic downturns.
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.
Working Capital, Customers, Seasonality, and Backlog
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.
The Albany Engineered Composites segment primarily serves customers in commercial and military
aircraft engine and airframe markets. Sales and Accounts receivable rose sharply in the last couple years in this
segment. 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 Albany
Engineered Composites segment.
Backlog in the Machine Clothing segment was $195.5 million at December 31, 2014, compared to
$225.6 million at December 31, 2013. The decrease reflects a trend toward shorter order-to-delivery times.
Backlog in the Albany Engineered Composites segment was $22.8 million at December 31, 2014, compared to
$21.7 million at December 31, 2013. The backlog in each segment is generally expected to be invoiced during
the next 12 months.
Research and Development and Technology
We invest in research, new product development, and technical analysis with the objective of maintaining
our technological leadership in each business segment. While much of our research activity supports existing
products, we also engage in significant research and development activities for new technology platforms,
products and product enhancements.
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. This innovation has resulted in
a stream of new Machine Clothing products and enhancements, including the INLINE forming fabric family
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including KRAFTLINE and PRINTLINE; press fabrics such as HYDROCROSS, SEAM HYDROCROSS,
SEAMPLANE, Seam KMX, and SPRING; process belts such as VENTABELT EVM, VENTABELT XTS and
TRANSBELT GX; dryer fabrics such as SPIRALTOP, AEROPULSE and AEROPOINT; DURASPIRAL
corrugator belts; and TOPSTAT, SUPRASTAT and NOVALACE fabrics for the nonwovens industry.
Albany Engineered Composites designs, develops and manufactures advanced composite parts for complex
aerospace and other high-performance applications, using a range of core technologies, including its proprietary
3D woven reinforced composites technology. AEC is capable of designing and manufacturing 3D composite
structures that are reinforced in multiple directions. By controlling the fiber and matrix materials, as well as the
weaving architecture, it is able to engineer components that meet specific performance goals while also meeting
cost, qualification, certification and production needs. AEC’s other core technologies include traditional and
non-traditional 2D laminated composite structures, contour weaving, steered weaving, discrete through-thickness
reinforcement technologies (such as Z-fiber™ reinforcements), and sandwich structures (X_COR™, K_COR™
and Ceramic Truss Core or CTC™). AEC’s research and technology team also works actively with existing and
potential customers on applications involving other emerging technologies, such as ceramic matrix composites,
pin insertion and 3D fiber placement.
Company-funded research expenses totaled $32.4 million in 2014, $30.2 million in 2013, and $27.6 million
in 2012. In 2014, these costs were 4.3% of total Company net sales, including $11.0 million or 12.2% of net sales
spent in our AEC segment. Research and development in the AEC segment includes both Company-sponsored
and customer-funded activities. Some customer-funded research and development may be on a cost-sharing
basis, in which case amounts charged to the customer are credited against research and development expense.
Expenses were reduced by $0.4 million in 2014, $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. Cost of sales associated with
customer-funded research was $3.6 million in 2014, $2.8 million in 2013, and $1.5 million in 2012.
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, trade names 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 1,900
patents, and more than 200 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 percent
of consolidated 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. In the AEC segment, the
primary raw materials are carbon fiber and resin. While there are a number of potential suppliers of carbon fiber
and other raw materials used by AEC, the use of certain suppliers may be mandated by customer agreements,
and alternative suppliers would be subject to material qualification or other requirements. Currently, the primary
raw materials used in each segment are derived from petroleum, and are therefore sensitive to changes in the
price of petroleum and petroleum intermediates.
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Competition
In the paper machine clothing market, we believe that we had a worldwide market share of approximately
30% in 2014, while the two largest competitors each had a market share of approximately half of ours.
While some competitors in the Machine Clothing segment tend to compete more on the basis of price, and
others attempt to compete more on the basis of technology, both are significant competitive factors in this
industry. Some of the Company’s paper machine clothing competitors also supply paper machines and
papermaking equipment, and endeavor to compete by bundling clothing and equipment sales. We, like our
competitors, provide technical support to customers through our sales and technical service personnel, including
(1) consulting on performance of the machine, (2) consulting on machine configurations, both new and rebuilt,
(3) selection and custom manufacture of the appropriate machine clothing, and (4) storing fabrics for delivery to
the user. Revenues earned from these services are reflected in the prices charged for our products.
The primary competitive factor in the markets in which our Albany Engineered Composites segment
competes is product performance. Achieving lower weight without sacrificing strength is the key to improving
fuel efficiency, and is a critical performance requirement in the aerospace industry. Our unique, proprietary
capabilities in composites enable us to offer customers the opportunity to displace metal components and, in
some cases, conventional composites with lower-weight, high-strength, and potentially high-temperature
composites. The dominant competitive factor is how the customer weighs these performance benefits, which
include fuel savings due to lower weight, against the possible cost advantage of more traditional metal and
composite components.
Employees
We employ approximately 4,000 persons, of whom 66% 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 27, 2015:
Joseph G. Morone, 61, 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, 48, 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, and 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.
Daniel A. Halftermeyer, 53, 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.
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Ralph M. Polumbo, 63, 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.
Robert A. Hansen, 57, 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, 53, 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., 55, 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, 57, 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, 51, 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 Reading Room at 100 F Street,
N.E., Room 1580, Washington, D.C. The public may obtain information on the operation of the Public Reading
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, which has had, and is likely to
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 and Asia, which has negatively affected our net sales and operating results. Increased
competition in Europe has been due mainly due to decreases in demand, while new market entrants in the Asian
market have increased competition in that region. We expect price competition to remain intense in all paper
machine clothing markets, especially during periods of customer consolidation, plant closures, or when major
contracts are being renegotiated. The emergence of new market entrants in China is likely to exacerbate this risk.
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 program schedule and production-readiness milestones at its LEAP facilities in Rochester, New
Hampshire and Commercy, France. In the medium-term, AEC will be required to continue to ramp up its LEAP
plants 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
The prospect of future growth and long-term success of AEC depends in large part on its ability to maintain
and grow a healthy pipeline of potential new products and applications for its technologies, to transform a
sufficient number of those potential opportunities into commercial supply agreements, and to then execute its
obligations under such agreements. In addition, existing and future supply agreements, especially for
commercial and military aircraft programs, are subject to the same curtailment or cancellation risks as the
programs they support.
AEC is currently working on a broad portfolio of potential new product applications, in aerospace and
other industries. These development projects may or may not result in commercial 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. Failure to manage these
development, commercialization and execution risks could have a material adverse impact on AEC’s growth.
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 in equipment, capital, and development
efforts needed 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, 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
Long-term supply contracts in our Albany Engineered Composites segment pose certain risks
AEC has a number of long-term or life-of-program contracts, including a number with fixed pricing, and is
likely to enter into similar contracts in future. While long-term or life-of-program contracts provide an
opportunity to realize steady and reliable revenues for extended periods, program cancellations, reductions or
delays in orders by AEC’s customers under these contracts, the termination of such contracts or orders, or the
occurrence of similar events over which AEC has no or limited control, could 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 revenues.
While long-term fixed-price 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 have a material adverse effect on our
operating results.
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 may also
be adversely affected by unfavorable economic conditions. Similarly, in the Company’s AEC segment, a decline
in global or regional economic conditions could result in lower orders for aircraft or aircraft engines, or the
cancellation of existing orders, which would in turn result in reduced demand for the AEC components utilized
on such aircraft or engines.
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, both the Machine Clothing and AEC business segments manufacture products that are
custom-designed for a specific customer application. In the event of a customer liquidity issue, the Company
could also be required to write off amounts that are included in inventories. In the case of AEC, such write-offs
could also include investments in equipment, tooling, and non-recurring engineering, some of which could be
significant depending on the program.
The loss of one or more major customers or the closure of one or more customer mills could have a material
adverse effect on sales and profitability in our Machine Clothing segment
Our top ten customers in the Machine Clothing segment accounted for 33% of our net sales in 2014. The
loss of one or more of these customers, or a significant decrease in the amount of Machine Clothing they
purchase from us, could have a material adverse impact on segment sales and profitability. We could also be
subject to similar impacts if one or more such customers were to suffer financial difficulties and be unable to
pay us for products they have purchased. While we normally enter into long-term supply agreements with
significant Machine Clothing customers, they generally do not obligate the customer to purchase any products
from us, and may be terminated by the customer at any time with appropriate notice.
16
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 in each of the Machine Clothing
and AEC segments. 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 or 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, expensive 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.
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.
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.
Natural disasters at one or more of our facilities could make it difficult for us to meet our supply obligations
to our customers
Significant consolidation of manufacturing operations in our Machine Clothing segment has reduced the
number of facilities available to produce our products, and increased utilization significantly at remaining
facilities. Not all product lines are produced at, or capable of being produced at, all facilities. A significant
interruption in the operation of any one or more of our Machine Clothing plants, whether as a result of a natural
disaster or other causes, could significantly impair our ability to meet our supply obligations to customers being
supplied from an affected facility on a timely basis. We have Machine Clothing facilities located near Mexico
City, which has been identified as an area vulnerable to flood, storm surge and earthquake risks, and in the Pearl
River Delta area of China, which has been identified as vulnerable to flood, storm and storm surge risks.
17
Moreover, AEC’s production of LEAP engine components is located in two facilities. An interruption at
either of these locations could have a significant adverse effect on AEC’s ability to timely satisfy orders for
LEAP components.
While the occurrence of a natural disaster or other business interruption event in an area where we have a
facility may not result in any direct damage to the facility itself, it may cause disruptions in local transportation
and public utilities on which such locations are reliant, and may also hinder the ability of affected employees to
report for work. Although we carry property and business interruption insurance to help mitigate the risk of
property loss or business interruption that could result from the occurrence of such events, such coverage may
not be adequate to compensate us for all loss or damage that we may incur.
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, 2014, 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 if such transaction were favored by our other stockholders.
We are a “controlled company” within the meaning of the Corporate Governance Rules of the New York
Stock Exchange (the “NYSE”) and qualify for, and rely on, certain exemptions from corporate governance
requirements applicable to other listed companies
As a result of the greater than 50% voting power of the Standish family described above, we are a
“controlled company” within the meaning of the rules of the NYSE. Therefore, we are not required to comply
with certain corporate governance rules that would otherwise apply to us as a listed company on the NYSE,
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.
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.
In the AEC segment, demand for its light-weight composite aircraft components is driven by demand for
the lighter, more fuel-efficient aircraft engine and other applications into which they are incorporated, such as
the CFM LEAP engine. Fuel costs are a significant part of airlines’ overall operating costs, and in many cases
may constitute a carrier’s single largest operating expense. A sustained drop in oil prices, and related decline in
the price of jet fuel, could prompt airlines to defer orders or delivery dates for such newer, more fuel-efficient
airframes and aircraft engines, as the urgency to reduce fuel consumption may be lessened. These actions could
reduce or postpone AEC’s anticipated revenues, and reduce profitability.
18
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, 2014, the Company had outstanding short-term debt of $50 million and long-term debt of
$222.1 million.
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, 2014, we had
borrowed $172 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.
The Company is increasingly dependent on information technology and our business, systems, assets and
infrastructure face certain risks, including cybersecurity and data leakage risks. The failure to prevent attacks
on our operational systems or infrastructure could result in disruptions to our businesses, or the loss or
disclosure of confidential and proprietary intellectual property or other assets.
We are increasingly dependent on information technology and communication systems and infrastructure.
As our dependence has increased, so have the risks associated with cyber-attacks from third parties attempting to
gain access to our systems, data, or assets using varied means, from electronic “hacking” to traditional social
engineering aimed at our employees. The Company has been, and will likely continue to be, the target of such
attacks, none of which have, individually or in the aggregate, been material to the Company.
Any significant breakdown, invasion, destruction or interruption of our business 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 other assets, or
19
reputational damage. While we have made, and will continue to make, significant investments in business
systems, information technology infrastructure, internal controls systems and employee training to attempt to
reduce these risks, there can be no assurance that our efforts will prevent breakdowns, losses or breaches that
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 have reduced pension liabilities by a significant amount during the past few years, as of
December 31, 2014, remaining net liabilities under our defined benefit pension plans exceeded plan assets by
$29.9 million ($8.5 million for the U.S. plan, $21.4 million for non-U.S. plans). Additionally, the liability for
unfunded postretirement welfare benefits, principally in the United States, totaled $65.0 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 2014, we settled certain pension obligations as part of a de-risking strategy in the United States
which led to charges totaling $8.2 million. 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 similar charges in the periods in which
such actions were taken, which charges could be significant.
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.
The Company is exposed to the risk of increased expense in health-care related costs
We are largely self-insured for some employee and business risks, including health care and workers’
compensation programs in the United States. Losses under all of these programs are accrued based upon
estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported, with
assistance from third-party actuaries and service providers. However, these liabilities are difficult to assess and
estimate due to unknown factors, including the severity of an illness or injury and the number of incidents not
reported. The accruals are based upon known facts and historical trends, and management believes such accruals
to be adequate. The Company also maintains stop-loss insurance policies to protect against catastrophic claims
above certain limits. If actual results significantly differ from estimates, our financial condition, results of
operations, and cash flows could be materially impacted by losses under these programs, as well as higher
stop-loss premiums in future periods.
20
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 substantial deferred tax assets in several tax jurisdictions, including the U.S. Realization
of deferred tax assets is dependent upon many factors, including generation of future income in specific countries.
(See Note 8 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference, for a
discussion of this matter.) 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 certain jurisdictions and could be audited in other jurisdictions in
the future. In addition, tax authorities in Germany are challenging certain tax benefits related to a 1999
reorganization. (See Note 8 to the Consolidated Financial Statements in Item 8, which is incorporated herein by
reference, for a discussion of this matter.) While the Company believes that its position is correct, 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.
The Company has significant manufacturing operations outside of the U.S., which could involve many
uncertainties
We currently have manufacturing facilities outside the U.S. In 2014, 56% 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.
Our global presence subjects us to certain risks, including controls on foreign exchange and the repatriation
of funds. While 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, there can be no assurance
that we will be able to cost effectively repatriate foreign earnings in the future.
21
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 2.2 million square feet, of which 1.6 million square
feet are owned and 0.6 million square feet are leased. Our facilities located outside the United States and Canada
comprise approximately 3.1 million square feet, of which 2.9 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 2015.
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.
22
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, 2014, we estimate that there were
7,000 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, 2014, there
were 16 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
__________________________________________________________________________________________________
2014
Cash dividends per share . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
Cash dividends per share . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31
_________________
June 30
_______________
September 30
________________________
December 31
_______________________
$ 0.15
$ 0.16
$ 0.16
$ 0.16
$37.59
$32.85
$38.01
$33.67
$38.53
$34.04
$38.15
$32.46
$ 0.14
$ 0.15
$ 0.15
$ 0.15
$29.87
$23.21
$33.90
$27.48
$36.53
$32.27
$37.25
$33.81
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 had 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 this authorization.
23
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(5) . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold(5) . . . . . . . . . . . . . .
Restructuring and other(3) . . . . . . . . . . .
Pension settlement charges(2) . . . . . . . .
Operating income/(loss)(5) . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . .
Income/(loss) from continuing
2014
_______________________
2013
_______________________
2012
_______________________
2011
_______________________
2010
________________________
$ 745,345
453,710
5,759
8,190
71,360
10,713
$ 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
operations(6) . . . . . . . . . . . . . . . . . . .
41,749
17,704
(40,843)
21,266
27,423
Income/(loss) from discontinued
operations(5) . . . . . . . . . . . . . . . . . . .
—
(46)
71,820
13,672
10,213
Net income attributable to the
Company . . . . . . . . . . . . . . . . . . . . .
41,569
17,517
30,977
34,938
37,636
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
1.31
1.30
0.63
0.55
0.55
0.59
(1.30)
(1.30)
0.55
0.68
0.67
0.51
0.88
0.88
0.48
outstanding — basic . . . . . . . . . . . .
31,832
31,649
31,356
31,262
31,072
Capital expenditures, including
software . . . . . . . . . . . . . . . . . . . . . .
58,873
64,457
37,207
27,428
30,957
Financial position
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . .
Total assets(1)(5) . . . . . . . . . . . . . . . . . . .
Current liabilities(1) . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . .
Total noncurrent liabilities(1) . . . . . . . .
Total liabilities(1)(5) . . . . . . . . . . . . . . . .
Shareholders’ equity(4) . . . . . . . . . . . . .
$ 179,802
395,113
1,029,304
183,398
222,096
332,338
515,736
513,568
$ 222,666
418,830
1,126,157
157,546
300,111
420,832
578,378
547,779
$ 190,718
420,154
1,117,691
234,120
235,877
390,060
624,180
493,511
$ 118,909
438,953
1,189,570
167,012
373,125
606,708
773,720
415,850
$ 117,925
480,711
1,238,564
162,417
423,634
649,888
812,305
426,259
(1) Amounts for each of 2010, 2011, 2012 and 2013 reflect a revision from previously reported amounts to
correct an error in the presentation of deferred tax assets and liabilities. The amounts previously reported
presented deferred tax assets and liabilities on a gross basis instead of a net basis as required under U.S.
GAAP. The error had no impact on Shareholders’ equity, the Consolidated Statements of Income, or the
Consolidated Statements of Cash Flows. The Company concluded that the error is immaterial to any
previously filed Consolidated Balance Sheet and, accordingly, the correction is being handled as a revision to
previously filed financial statements. The table below presents the amount of the revision on various lines of
the Consolidated Balance Sheet.
Overstatement of deferred taxes (000’s):
______________________________________________________________________
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . .
Net impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
________________
968
$
39,763
962
39,769
________________
—
________________
________________
2012
________________
$ 1,668
37,338
1,668
37,338
________________
—
________________
________________
2011
________________
$ 3,699
37,659
3,699
37,659
________________
—
________________
________________
2010
________________
$ 3,439
36,290
3,439
36,290
________________
—
________________
________________
For more information on this matter, see Note 8 to the Consolidated Financial Statements in Item 8.
24
(2)
In 2014, we took action to settle certain pension plan liabilities in the United States which led to charges
totaling $8.2 million. 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 2010 through 2014, we recorded restructuring charges related to organizational changes
(4)
(5)
(6)
and cost reduction initiatives.
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.
In 2012, we sold our Albany Door Systems and PrimaLoft Products businesses resulting in a pre-tax gain of
$92.3 million. Previously reported data for net sales, cost of goods sold, operating income, assets and
liabilities for years prior to 2012 have been adjusted to reflect only the activity from continuing operations.
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.
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 Albany 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.
The Machine Clothing segment 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 the AEC segment 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 percent 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.
25
Consolidated Results of Operations
Net sales
The following table summarizes our net sales by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2013
___________________
$674,747
82,667
_______________
$757,414
_______________
_______________
2014
___________________
$655,026
90,319
_______________
$745,345
_______________
_______________
2012
___________________
$693,176
67,765
_______________
$760,941
_______________
_______________
% change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-1.6%
-0.5%
2014 vs. 2013
• Changes in currency translation rates had the effect of decreasing net sales by $3.6 million during 2014
as compared to 2013.
• Excluding the effect of changes in currency translation rates:
• Net sales were down 1.1% compared to 2013.
• Net sales in MC decreased 2.4%.
• Net sales in AEC increased 9.3%.
• The year-over year decline in MC segment sales was primarily attributable to lower sales in the
Americas, which were negatively impacted by certain mill closures by key customers.
• The AEC segment sales increase was due to higher sales related to the LEAP and JSF LiftFan® programs.
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 AEC increased 22.0%.
• 2012 included a change in contract terms with a North American MC customer that increased sales by
$8.0 million.
• The increase in AEC sales was principally due to LEAP program activities.
Backlog
Backlog in the Machine Clothing segment was $195.5 million at December 31, 2014, compared to
$225.6 million at December 31, 2013. The decrease reflects a trend toward shorter order-to-delivery times.
Backlog in the Albany Engineered Composites segment was $22.8 million at December 31, 2014 compared to
$21.7 million at December 31, 2013. The backlog in each segment is generally expected to be invoiced during
the next 12 months.
26
Gross Profit
The following table summarizes gross profit by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2013
___________________
$289,100
4,799
(3,345)
_______________
$290,554
_______________
_______________
2014
___________________
$282,300
10,750
(1,415)
_______________
$291,635
_______________
_______________
2012
___________________
$303,801
5,627
(4,032)
_______________
$305,396
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39.1%
38.4%
40.1%
The increase in gross profit during 2014 was principally due to the net effect of the following:
• An improvement in gross profit margin in the AEC segment from 5.8 percent to 11.9 percent, principally
due to improvements in profitability at AEC’s Boerne, Texas operation.
• A reduction of $8.5 million in the MC segment due to lower sales.
• MC gross profit margin improvement, principally due to the effect of restructuring in France and
productivity improvement.
• A charge of $1.6 million in 2014 to correct an error in the value of Machine Clothing inventories
reported in prior periods.
• A $1.9 million reduction in cost associated with the Company’s U.S. postretirement plan, principally
resulting from plan changes 2013.
The decrease in gross profit during 2013 was principally due to the net effect of the following:
• An $8.1 million decrease due to lower sales in North America in the MC segment, principally due to
2012 change in contract terms with a key customer.
• A $6.8 million decrease due to lower gross profit margin in the MC segment resulting from lower sales
volume.
• Unfavorable changes in contract accounting estimates associated with legacy programs at the Boerne,
Texas facility results in gross profit loss of $2.3 million in 2013. Those losses were partially offset by
increased revenue associated with the LEAP program.
Selling, Technical, General, and Research (STG&R)
The following table summarizes STG&R by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2013
___________________
$150,164
18,663
44,528
_______________
$213,355
_______________
_______________
2014
___________________
$141,023
20,301
45,002
_______________
$206,326
_______________
_______________
2012
___________________
$153,058
16,545
53,133
_______________
$222,736
_______________
_______________
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.7%
28.2%
29.3%
STG&R expenses decreased $7.0 million, compared to 2013, principally due to the net effect of the
following:
• Revaluation of nonfunctional currency assets and liabilities, primarily in the MC segment, which resulted
in gains of $3.9 million during 2014 and losses of $0.3 million in 2013.
• Currency translation effects, primarily in the MC segment, which decreased STG&R, by $2.8 million as
compared to 2013.
• An increase of $2.2 million due to research and development activities associated with new technology
platforms in the MC segment.
27
• A reduction of approximately $1.8 million in 2014 due to reduced travel and lower costs for pensions in
the MC segment.
• An increase of $1.6 million in the AEC segment, principally due to increased research activities.
• A gain on the sale of former manufacturing facility in Australia, which reduced 2013 Corporate expenses
by $3.8 million, which was mostly offset by reductions in Corporate expenses for research, professional
fees, health care expenses and incentive compensation in 2014.
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, which reduced 2013 expenses by
$3.8 million.
• Revaluation of nonfunctional currency assets and liabilities, which resulted in losses of $0.3 million
during 2013 and $1.6 million in 2012.
• A decrease in U.S. pension expense of $1.7 million, principally due to the settlement in 2012 of certain
pension plan liabilities.
Research and Development
The following table summarizes expenses associated with internally funded research and development by
business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension Plan Settlement Charges
(in thousands)
_______________________________________________________________________________
2013
___________________
$18,335
10,065
1,820
_____________
$30,220
_____________
_____________
2012
___________________
$17,685
8,689
1,242
_____________
$27,616
_____________
_____________
2014
___________________
$20,575
11,050
745
_____________
$32,370
_____________
_____________
In 2014, certain participants of the U.S. pension plan were notified of a limited-time opportunity whereby
they could elect to receive the value of their pension benefit in a lump-sum payment. All lump-sum payments
were funded from pension plan assets and were paid during 2014. The initiative was part of the Company’s
pension plan de-risking strategy, and resulted in a non-cash settlement charge of $8.2 million in 2014. The
payments did not have a significant impact on the plan’s funded status.
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. No similar charges were incurred in 2013.
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 $5.8 million in 2014, $25.1 million in 2013, and
$7.1 million in 2012.
The following table summarizes restructuring expense by business segment:
Years ended December 31,
__________________________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28
(in thousands)
_______________________________________________________________________________
2013
___________________
$24,568
540
—
_____________
$25,108
_____________
_____________
2012
___________________
$7,386
—
(325)
___________
$7,061
___________
___________
2014
___________________
$4,828
931
—
___________
$5,759
___________
___________
Machine Clothing restructuring expense in 2013 and 2014 was principally related to the reduction in
manufacturing capacity at production facilities in France, while 2012 expense principally resulted from work
force reductions in Sweden, and U.S. operations in Wisconsin and New York. Restructuring expenses in the
Albany Engineered Composites segment were principally related to organization changes and exiting certain
aerospace programs.
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 reduced employment by
approximately 200 positions at these locations. 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. The restructuring resulted in cost savings of approximately $10 million per year, almost all of which
was realized in 2014, primarily in the form of lower manufacturing costs.
On February 20, 2015, the Company announced plans to discontinue manufacturing operations at its press
fabric manufacturing facility in Göppingen, Germany. This planned action is driven by the continuing
consolidation of paper industry customers in Europe, and the continuous need to match the Company’s paper
machine clothing manufacturing capacity in Europe with the demands of our customers, so that customer
sourcing is optimized. The Göppingen plan would be subject to applicable local law and would be implemented
in accordance with such law and in consultation with the Works Council. The Company is presently unable to
determine the restructuring costs associated with this plan.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses-pension settlement . . . . . . . . . . . . . .
Corporate expenses-other . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Earnings Items
Years ended December 31,
__________________________________________________________________________________________________________________
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income)/expenses, net . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) from discontinued operations,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the noncontrolling interest . .
Interest Expense, net
(in thousands)
_______________________________________________________________________________
2013
___________________
$114,370
(14,404)
—
(47,875)
_______________
$ 52,091
_______________
_______________
2014
___________________
$136,450
(10,483)
(8,190)
(46,417)
_______________
$ 71,360
_______________
_______________
2012
____________________
$ 143,358
(10,918)
(119,735)
(56,841)
________________
$ (44,136)
________________
________________
(in thousands)
_______________________________________________________________________________
2013
___________________
$ 13,759
7,256
13,372
2014
___________________
$ 10,713
(6,853)
25,751
2012
___________________
$ 16,601
7,629
(27,523)
—
180
(46)
141
71,820
—
Interest expense, net, decreased $3.0 million in 2014 and $2.8 million in 2013 principally due to lower
interest rates. See the Capital Resources section below for further discussion of borrowings and interest rates.
Other (Income)/Expenses, net
Other (income)/expenses, net included the following:
• Foreign currency revaluations of cash and intercompany balances resulted in gains of $6.4 million in
2014, losses of $5.2 million in 2013, and losses of $5.7 million in 2012. The 2014 revaluation effects
were principally due to the weakening of the euro against a basket of currencies, including the Swedish
Krona and the Australian, Canadian and U.S. dollars.
29
• Bank fees and amortization of debt issuance costs were $1.2 million, $1.5 million, and $2.4 million in
2014, 2013, and 2012, respectively.
• In July 2013, the Company’s MC manufacturing facility in Germany was damaged by severe weather.
The insurance recovery gain resulted in income of $1.1 million in 2014.
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 2014, 2013 and 2012 was 38.1%, 43.0%, and 40.3%,
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 2014 tax rate included the following (percentages reflect the effect of
each item as a percentage of income before income taxes):
• Tax charge of $7.5 million (11.1%), primarily related to an unfavorable outcome in the tax court
pertaining to another taxpayer with similar facts to the Company.
• A net tax benefit was recognized in the amount of $6.8 million (-10.0%) primarily due to the lapse in a
tax statute.
• A $0.3 million (0.3%) net tax expense related to other discrete items.
• A net tax reduction of 10.2% was recognized from rate differences between non-U.S. and U.S.
jurisdictions. Earnings in Brazil, Switzerland, and China, 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 8%.
Included in the U.S. tax costs on foreign earnings is a $2.2 million (3.3%) expense recognized for the
future repatriation of prior year earnings.
• Income tax rate on continuing operations, excluding discrete items, was 34%.
Significant items that impacted the 2013 tax rate included the following:
• 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 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.
30
• 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%.
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. 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 2012, the Company recorded a pre-tax gain of
$57.4 million as a result of that sale.
In May 2012, we announced an agreement to sell our PrimaLoft Products business and that transaction
closed on June 29, 2012. The purchase price of $38.0 million included $3.8 million held in escrow accounts,
and which was received in 2013. In 2012, the Company recorded a pre-tax gain of $34.9 million as result of
that sale.
For more information on discontinued operations, see Note 2 to the Consolidated Financial Statements in
Item 8, which is incorporated herein by reference.
Segment Results of Operations
Machine Clothing Segment
Business Environment and Trends
Machine Clothing is our primary business segment and accounted for 88% of our consolidated revenues
during 2014. Machine Clothing products are 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.
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 are 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, France, Sweden, and Australia.
Review of Operations
Years ended December 31,
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
_______________________________________________________________________________
2013
___________________
$674,747
2012
___________________
$693,176
2014
___________________
$655,026
-2.9%
-2.7%
282,300
289,100
303,801
43.1%
42.8%
43.8%
136,450
114,370
143,358
31
Net Sales
2014 vs. 2013
• Changes in currency translation rates had the effect of decreasing 2014 sales by $3.6 million compared to
2013. Excluding the effect of changes in currency translation rates, sales decreased 2.4%.
• The year-over year decline in MC sales was primarily attributable to lower sales in the Americas,
reflecting certain mill closures by key customers. Sales in other regions were relatively flat compared
to 2013.
2013 vs. 2012
• Changes in currency translation rates had the effect of increasing 2013 net sales by $1.6 million
compared to 2012. Excluding the effect of changes in currency translation rates, 2013 sales decreased
2.9% 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, where sales were very
strong in the first half of 2012.
Gross Profit
The decrease in 2014 gross profit was principally due to the net effect of the following:
• An $8.5 million decrease due to lower sales.
• A $1.7 million increase due to improved gross margin, offset by a $1.6 million charge for the correction
of the inventory valuation error during 2014. The improvement in gross profit percentage in 2014 was
principally due to cost savings from restructuring activities, partially offset by inflation on wages and
other manufacturing costs.
The decrease in 2013 gross profit was principally due to the net effect of the following:
• An $8.1 million decrease due to lower sales.
• A $6.8 million decrease due to lower gross profit margin, resulting from lower sales volume.
Operating Income
The increase in 2014 operating income was principally due to the net effect of the following:
• Restructuring charges of $4.8 million in 2014, compared to $24.6 million in 2013.
• Revaluation of nonfunctional currency assets and liabilities, which resulted in gains of $3.9 million in
2014 compared to losses of $0.3 million in 2013.
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, which resulted in losses of $0.3 million in
2013 compared to $1.6 million in 2012.
32
Albany Engineered Composites Segment
Business Environment and Trends
The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in
which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered
advanced composite structures based on proprietary technology to customers in the aerospace and defense
industries. AEC’s largest program relates to CFM International’s LEAP engine, which is scheduled to enter into
service in 2016. AEC, through ASC, is the exclusive supplier of advanced composite fan blades and cases for
this program under a long-term supply contract. In 2014, approximately 20% of this segment’s sales were related
to U.S. government contracts or programs.
Review of Operations
Years ended December 31,
__________________________________________________________________________________________________________________
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Sales
2014 vs. 2013
(in thousands, except percentages)
_______________________________________________________________________________
2013
___________________
$82,667
2012
___________________
$67,765
2014
___________________
$90,319
9.3%
10,750
11.9%
(10,483)
22.0%
4,799
5.8%
5,627
8.3%
(14,404)
(10,918)
• The increase in 2014 sales was principally due to higher sales in the LEAP and JSF LiftFan® programs.
2013 vs. 2012
• The increase in 2013 sales over 2012 was principally due to LEAP program activities.
Gross Profit
2014 vs. 2013
• Higher gross profit margin due to improvements in profitability at AEC’s Boerne, Texas operation
increased gross profit by $5.0 million.
2013 vs. 2012
• Unfavorable changes in contract accounting estimates associated with legacy programs at the Boerne,
Texas facility resulted in gross profit losses of $2.3 million in 2013. Those losses were partially offset by
increased revenue associated with the LEAP program.
Long-term contracts
AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is
determined by cost, plus a defined profit margin. Revenue earned under these arrangements accounted for
approximately 54 percent, 48 percent and 39 percent of segment revenue for 2014, 2013 and 2012 respectively.
In addition, AEC has long-term fixed price contracts. In accounting for those 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. Changes in estimates had the
effect of reducing gross profit by $0.6 million in 2014 and $2.3 million in 2013, while the impact on 2012 was
insignificant.
33
The table below provides a summary of long-term fixed price contracts that were in process at the end of
each year.
As of December 31,
__________________________________________________________________________________________________________________
Revenue earned during year . . . . . . . . . . . . . . . . . . . . . . .
Total value of contracts in process . . . . . . . . . . . . . . . . . .
Revenue recognized to date . . . . . . . . . . . . . . . . . . . . . . .
Revenue to be recognized in future periods . . . . . . . . . .
Operating Loss
(in thousands)
_______________________________________________________________________________
2013
___________________
$10,366
9,690
7,776
1,914
2012
___________________
$19,647
37,937
26,319
11,618
2014
___________________
$15,439
27,541
20,360
7,181
• 2014 operating income improved due to higher sales and improved gross profit margin, as described
above.
• 2013 operating income/(loss) decreased principally due to the decrease 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 . . . . . . . .
(Decrease)/increase in cash and cash equivalents . . . . . .
Cash and cash equivalents at beginning of year . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2013
___________________
$ 17,658
63,789
(1,511)
(3,763)
2014
___________________
$ 41,749
64,292
(21,423)
(1,126)
2012
___________________
$ 30,977
63,235
34,085
(92,457)
(10,725)
8,331
3,098
_______________
84,196
(57,747)
(50,483)
(18,830)
_______________
(42,864)
222,666
_______________
$179,802
_______________
_______________
(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
_______________
_______________
Operating activities
Cash provided by operating activities was $84.2 million in 2014 compared to $62.6 million in 2013, and
$34.5 million in 2012. Cash flows from operating activities in 2012 were unusually low due to significant
pension contributions that were part of our pension settlement activity. Significant changes in working capital in
2014 include an $11.0 million decrease in Accrued liabilities principally due to restructuring activities in France.
Cash paid for income taxes was $17.6 million, $29.4 million, and $15.1 million in 2014, 2013 and 2012,
respectively. Cash paid for restructuring was $13.2 million, $22.4 million, and $9.7 million in 2014, 2013 and
2012, respectively.
At December 31, 2014, the Company had $179.8 million of cash and cash equivalents, of which
$161.1 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 $59.4 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.
34
Investing Activities
Total capital expenditures for continuing operations, including purchased software, were $58.9 million in
2014, compared to $64.4 million in 2013, and $37.2 million in 2012. The decrease in 2014 reflects investments
in new LEAP plants in 2013 in the AEC segment, for which capital expenditures were $32.1 million in 2014,
compared to $36.9 million in 2013, and $19.0 million in 2012. We currently estimate full-year spending in 2015
to be $65-$75 million, and 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 its Albany Door Systems business, 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 million
was received in July 2013. During Q2 2012, the Company completed the sale of its PrimaLoft Products
business. Of the $38 million sale price, $34 million was received in June 2012, with the remainder received in
December 2013.
Financing Activities
Effective October 31, 2013, Safran S.A. (Safran) acquired a 10 percent equity interest in our 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 $19.7
million, $13.9 million, and $21.3 million, in 2014, 2013, and 2012, 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.
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, 2014 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, 2014.
On March 26, 2013, we entered into a $330 million, unsecured Five-Year Revolving Credit Facility
Agreement (“Credit Agreement”), under which $172 million of borrowings were outstanding as of December 31,
2014. The Credit Agreement replaced an earlier $390 million five-year credit facility entered into in 2010. The
applicable interest rate for borrowings under the Credit Agreement is LIBOR plus a spread, based on our
leverage ratio at the time of borrowing, as it was under the prior facility. At the time of the last borrowing on
December 22, 2014, 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 in 2013 to
substantially conform the financial and other covenants to those in 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
35
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, 2014 was 0.23%. 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, 2014, 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, 2014 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, 2014, our
leverage ratio was 1.30 to 1.00 and our interest coverage ratio was 13.01 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 a hedge of future cash flows, as further described in Note 15
to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
As of December 31, 2014, we have no off-balance sheet arrangements required to be disclosed pursuant to
Item 303(a)(4) of Regulation S-K.
Contractual Obligations
As of December 31, 2014, 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
______________
$272.8
25.6
5.3
65.0
1.9
—
9.9
___________
$380.5
___________
___________
Payments Due by Period
____________________________________________________________________________________________________________
Less than
one year
__________________
$50.7
10.4
5.3
4.8
1.9
—
3.5
_________
$76.6
_________
_________
One to
three years
____________________
$50.0
14.2
—
9.0
—
—
4.0
_________
$77.2
_________
_________
Three to
five years
_________________
$172.1
1.0
—
8.5
—
—
1.5
___________
$183.1
___________
___________
After
five years
_________________
$ —
—
—
42.7
—
—
0.9
_________
$43.6
_________
_________
(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 $172.0 million of variable rate debt until the March 2013 Credit Agreement matures on March 26,
2018, and the rate as of December 31, 2014 (2.69%) continues until July 16, 2015, then continues at 2.34%
until maturity. Both rates include the effects of interest rate hedging transactions.
(b) We estimate that our 2015 contributions to defined benefit pension plans and pension benefits to be paid
directly by the Company to be $5.3 million. However, that estimate is subject to revision based on many
factors. The amount of contributions after 2015 is subject to many variables, including return of pension plan
assets, interest rates, and tax and employee benefit laws. Therefore, contributions beyond 2015 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, 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.
36
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.
Revenue Recognition
Products and services provided under long-term contracts represent a significant portion of sales in the
Albany Engineered Composites segment. We have a contract with a major customer for which revenue is
recognized under a cost plus fixed fee arrangement. We also have fixed price long-term contracts, for which we
use the percentage of completion (actual cost to estimated cost) method. 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 Albany Engineered Composites segment also has some long-term aerospace contracts under which
there are two phases: a phase during which the production part is designed and tested, and a phase of supplying
production parts. Certain costs are capitalized during the first phase, such as costs for engineering, equipment,
and inventory, where recovery is probable. Revenue will be recognized during the second phase using a
percentage of completion (units of delivery) 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.
37
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, 2014, total liabilities under our defined
benefit pension plans (including unfunded plans) exceeded plan assets by $29.9 million, of which $21.4 million
was for plans outside of the U.S. Additionally, at December 31, 2014, other postretirement liabilities totaled
$65.0 million, substantially all of which related to our U.S plan. The liabilities for our U.S. plans were increased
in 2014 as a result of adopting new mortality tables. As of December 31, 2014, we have unrecognized net losses
of $72.4 million for pension plans and $4.3 million for other 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. For 2015, we anticipate pension contributions and direct payments to retirees to total $5.3 million,
and payments for other postretirement benefit plans to be $4.8 million. Changes in the related pension and other
postretirement benefit costs or credits may occur in the future due to changes in the assumptions. The amount of
annual pension plan funding and annual expense is subject to many variables, including the investment return on
pension plan assets and interest rates, and actual contributions could vary significantly. Assumptions used for
determining pension plan liabilities and expenses are evaluated and updated at least annually.
Income Taxes
In the ordinary course of business there is inherent uncertainty in determining assets and liabilities related
to income tax balances. We exercise significant judgment in order to estimate taxes payable or receivable in
future periods. Tax-related balances may also be impacted by organizational changes or changes in the tax laws
of any country in which we operate. We assess our income tax positions and record tax assets and liabilities 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.
Deferred tax assets are expected to be realized through the reversal of existing temporary differences and
future taxable income. 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.
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,
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
38
effectiveness, which would be tested by the Company periodically, is dependent upon market factors and
changes in currency exchange rates, which are unpredictable. 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 excluding adjustments, net debt,
net income attributable to the Company, excluding adjustments (on an absolute and per-share basis), and certain
income and expense items on a per-share basis that could be considered non-GAAP financial measures. Such
items are provided because management believes that, when presented together with the GAAP items to which
they relate, they provide additional useful information to investors regarding the Company’s operational
performance. Presenting increases or decreases in sales, after currency effects are excluded, can give management
and investors insight into underlying sales trends. An understanding of the impact in a particular period of
specific restructuring costs, or other gains and losses, on operating income or EBITDA can give management and
investors additional insight into period performance, especially when compared to periods in which such items
had a greater or lesser effect, or no effect. All non-GAAP financial measures in this document 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 income taxes. The Company calculates EBITDA by
removing the following from Net income: Interest expense net, Income tax expense, 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 and insurance-recovery gains, and subtracting Income attributable to the
noncontrolling interest in Albany Safran Composites, LLC (ASC). 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 and insurance-recovery 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
Consolidated Statements of Income.
39
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 (gains)/losses . . . . . . . . . . . . . . .
Gain on sale of former manufacturing facilities . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pretax income attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2013
___________________
$ 17,658
46
13,759
13,372
63,789
_______________
108,624
25,108
5,567
(3,763)
—
—
2014
___________________
$ 41,749
—
10,713
25,751
64,292
_______________
142,505
5,759
(10,310)
—
(1,126)
8,190
2012
___________________
$ 30,977
(71,820)
16,601
(27,523)
63,067
_______________
11,302
7,061
7,350
—
—
119,735
(211)
_______________
$144,807
_______________
_______________
(141)
_______________
$135,395
_______________
_______________
—
_______________
$145,448
_______________
_______________
Year ended December 31, 2014
_____________________________________________________
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation gains . . . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . .
Pension settlement charge . . . . . . . . . . . . . . . . . . . .
Pretax income attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . .
Pretax income attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_____________________________________________________________________________________________________________
Machine
Clothing
___________________
$136,450
—
—
45,066
___________________
181,516
4,828
(3,921)
—
—
Albany
Engineered
Composites
____________________
$(10,483)
—
—
10,880
__________________
397
931
(15)
—
—
Corporate
Expenses
and Other
____________________
$(84,218)
10,713
25,751
8,346
__________________
(39,408)
—
(6,374)
(1,126)
8,190
Total Company
__________________________
$ 41,749
10,713
25,751
64,292
___________________
142,505
5,759
(10,310)
(1,126)
8,190
—
___________________
$182,423
___________________
___________________
(211)
__________________
$ 1,102
__________________
__________________
—
__________________
$(38,718)
__________________
__________________
(211)
___________________
$144,807
___________________
___________________
(in thousands)
_____________________________________________________________________________________________________________
Machine
Clothing
___________________
$114,370
—
—
—
46,521
___________________
160,891
24,568
296
—
Albany
Engineered
Composites
____________________
$(14,404)
—
—
—
8,460
__________________
(5,944)
540
41
—
Corporate
Expenses
and Other
____________________
$(82,308)
46
13,759
13,372
8,808
__________________
(46,323)
—
5,230
(3,763)
Total Company
__________________________
$ 17,658
46
13,759
13,372
63,789
___________________
108,624
25,108
5,567
(3,763)
—
___________________
$185,755
___________________
___________________
(141)
__________________
$ (5,504)
__________________
__________________
—
__________________
$(44,856)
__________________
__________________
(141)
___________________
$135,395
___________________
___________________
40
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 settlement charge . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_____________________________________________________________________________________________________________
Machine
Clothing
___________________
$143,358
—
—
48,052
___________________
191,410
7,386
1,633
—
___________________
$200,429
___________________
___________________
Albany
Engineered
Composites
____________________
$(10,918)
—
—
5,963
__________________
(4,955)
(325)
2
—
__________________
$ (5,278)
__________________
__________________
Corporate
Expenses
and Other
____________________
$(101,463)
(71,820)
16,601
(27,523)
9,052
____________________
(175,153)
—
5,715
119,735
____________________
$ (49,703)
____________________
____________________
Total Company
__________________________
$ 30,977
(71,820)
16,601
(27,523)
63,067
___________________
11,302
7,061
7,350
119,735
___________________
$145,448
___________________
___________________
The Company discloses certain income and expense items on a per-share basis. The Company believes that
such disclosures provide important insight into the underlying earnings and are financial performance metrics
commonly used by investors. The Company calculates the per-share amount for items included in continuing
operations by using the effective tax rate utilized in that reporting period and the weighted average number of
shares outstanding for each period. Starting in 2014, the full year earnings per share effects were determined by
adding the amounts calculated at each quarterly reporting period. The earnings per share effects for 2013 and
2012 have been recalculated using that same methodology.
The following tables show the earnings per share effect of certain income and expense items:
Year ended December 31, 2014
_______________________________________________________________________________________________________________
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation gain . . . . . . . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . .
Pension settlement charge . . . . . . . . . . . . . . . . . . . . . . .
Net discrete income tax charges . . . . . . . . . . . . . . . . . .
Year ended December 31, 2013
_______________________________________________________________________________________________________________
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . . . . . . . . .
Gain on sale of former manufacturing
facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net discrete income tax benefit . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2012
_______________________________________________________________________________________________________________
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . . . . . . . . .
Pension settlement charge . . . . . . . . . . . . . . . . . . . . . . .
Net discrete income tax benefit . . . . . . . . . . . . . . . . . . .
(in thousands, except per share amounts)
_______________________________________________________________________________________________________
Per Share
Effect
_________________
$0.12
0.21
0.04
0.16
0.10
Pre tax
Amounts
___________________
5,759
$
10,310
1,126
8,190
—
After tax
Effect
_________________
$ 3,744
6,775
1,126
4,996
3,242
Tax
Effect
_________________
$ 2,015
3,535
—
3,194
3,242
(in thousands, except per share amounts)
_______________________________________________________________________________________________________
Per Share
Effect
_________________
$0.49
0.10
Pre tax
Amounts
___________________
$ 25,108
5,567
After tax
Effect
_________________
$15,509
3,142
Tax
Effect
_________________
$ 9,599
2,425
3,763
—
1,279
1,800
2,484
1,800
0.08
0.05
(in thousands, except per share amounts)
_______________________________________________________________________________________________________
Per Share
Effect
_________________
$0.16
0.13
2.56
0.25
Pre tax
Amounts
___________________
7,061
$
7,348
119,735
—
Tax
Effect
_________________
$ 2,236
3,000
39,460
7,833
After tax
Effect
_________________
$ 4,825
4,348
80,275
7,833
41
The following table contains the calculation of net income per share attributable to the Company, excluding
adjustments:
Years ended December 31,
_____________________________________________________________________________________________________________________________
Net income attributable to the Company . . . . . . . . . . . . . . . . .
Adjustments:
Income from discontinued operations . . . . . . . . . . . . . . . . . . .
Restructuring and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete tax charges/(benefits) . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . . . . . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension settlement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of former manufacturing facility . . . . . . . . . . . . .
Net income attributable to the Company,
Per share amounts (Basic)
_______________________________________________________________________________
2013
___________________
$ 0.55
2012
___________________
$ 0.99
2014
___________________
$ 1.31
—
0.12
0.10
(0.21)
(0.04)
0.16
—
—
0.49
(0.05)
0.10
—
—
(0.08)
(2.29)
0.16
(0.25)
0.13
—
2.56
—
excluding adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.44
$ 1.01
$ 1.30
The following table contains the calculation of net debt:
As of December 31,
_____________________________________________________________________________________________________________________________
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
_______________________________________________________________________________
2013
___________________
625
$
3,764
300,111
_______________
304,500
_______________
_______________
222,666
_______________
$ 81,834
_______________
_______________
2014
___________________
661
$
50,015
222,096
_______________
272,772
_______________
_______________
179,802
_______________
$ 92,970
_______________
_______________
2012
___________________
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 $563.3 million. The
potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency
exchange rates amounts to $56.3 million. Furthermore, related to foreign currency transactions, we have
exposure to various nonfunctional currency balances totaling $97.5 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 $20.7 million of foreign currency liabilities as of December 31, 2014. 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 $2.1 million. Actual results may differ.
42
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, 2014, we had the following variable rate debt:
(in thousands, except interest rates)
_____________________________________________________________
Short-term debt
Notes payable, end of period interest rate of 1.27% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Credit agreement with borrowings outstanding, net of fixed rate portion,
at an end of period interest rate of 1.54% in 2014, due in 2018 . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
661
67,000
_____________
$67,661
_____________
_____________
Assuming borrowings were outstanding for an entire year, an increase of one percentage point in weighted
average interest rates would increase/decrease interest expense by $0.7 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. (See Note 15 to the Consolidated Financial Statements in Item 8, which is
incorporated herein by reference).
43
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of KPMG LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of PricewaterhouseCoopers LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45
45
46
Consolidated Statements of Income for the years ended
December 31, 2014, 2013, and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
Consolidated Statements of Comprehensive Income/(loss) for the years ended
December 31, 2014, 2013, and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2014 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013, and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48
49
50
51
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albany International Corp.:
We have audited the accompanying consolidated balance sheet of Albany International Corp. and
subsidiaries as of December 31, 2014, and the related consolidated statements of income, comprehensive
income/(loss), and cash flows for the year then ended. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement schedule of valuation and qualifying accounts. We also
have audited Albany International Corp.’s internal control over financial reporting as of December 31, 2014,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Albany International Corp.’s management is
responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A). Our responsibility
is to express an opinion on these consolidated financial statements and an opinion on the Albany International
Corp.’s internal control over financial reporting based on our 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 audit of the consolidated 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 (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) 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 (3) 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Albany International Corp. and subsidiaries as of December 31, 2014, and the
results of their operations and their cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles. In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects,
the information set forth therein. Also in our opinion, Albany International Corp. maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2014, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/ KPMG LLP
Albany, New York
February 27, 2015
45
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Albany International Corp.:
In our opinion, the consolidated balance sheet as of December 31, 2013 and the related consolidated
statements of income, comprehensive income/(loss) and cash flows for each of two years in the period ended
December 31, 2013 present fairly, in all material respects, the financial position of Albany International Corp.
and its subsidiaries at December 31, 2013, and the results of their operations and their cash flows for each of the
two 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 for each of the two
years in the period ended December 31, 2013 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 26, 2014, except for the effects of the revisions discussed in Notes 5, 8 and 11 to the consolidated
financial statements, as to which the date is February 27, 2015
46
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 (income)/expense, 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 the Company . . . . . . . . . . . . . . .
Earnings per share attributable to Company
shareholders — Diluted
Income/(loss) from continuing operations . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income attributable to the Company . . . . . . . . . . . . . . .
Dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$745,345
453,710
_______________
291,635
147,198
59,128
5,759
8,190
_______________
71,360
(1,541)
12,254
(6,853)
_______________
67,500
25,751
_______________
41,749
_______________
—
—
—
_______________
—
_______________
41,749
180
_______________
$ 41,569
_______________
_______________
1.31
$
0.00
_______________
$
1.31
_______________
_______________
$
1.30
0.00
_______________
$
1.30
_______________
_______________
$
0.63
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
The accompanying notes are an integral part of the consolidated financial statements.
47
Albany International Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the years ended December 31,
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, before tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . .
Pension/postretirement settlements and curtailments . . . . . .
Pension/postretirement plan remeasurement . . . . . . . . . . . .
Pension/postretirement plan amendments . . . . . . . . . . . . . .
Amortization of pension liability adjustments:
Transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service (credit)/cost . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to interest rate swaps included in earnings
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . .
Income taxes related to items of other comprehensive income:
Pension/postretirement settlements and curtailments . . . . . .
Pension/postretirement plan remeasurement . . . . . . . . . . . .
Pension/postretirement plan amendments . . . . . . . . . . . . . .
Amortization of pension liability adjustments . . . . . . . . . . .
Payments related to interest rate swaps included
in earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income and comprehensive loss attributable to the
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss)/income attributable to the Company . .
2014
___________________
$ 41,749
2013
___________________
$17,658
2012
___________________
$ 30,977
(54,850)
8,377
(14,707)
—
—
(4,436)
5,329
1,914
(1,724)
(3,210)
5,442
—
(330)
(746)
672
_______________
(16,520)
178
_______________
$(16,342)
_______________
_______________
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
_______________
_______________
The accompanying notes are an integral part of the consolidated financial statements.
48
Albany International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except share and per share data)
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 37,085,489 in 2014 and
36,996,227 in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock, par value $.001 per share;
authorized 25,000,000 shares; issued and outstanding 3,235,048 in
2014 and 3,236,048 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 8,459,498 shares in 2014 and
8,463,635 shares in 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . .
2014
____________________
2013
_____________________
$ 179,802
158,237
107,274
6,743
8,074
____________________
460,130
395,113
385
71,680
69,540
32,456
____________________
$1,029,304
____________________
$
661
34,787
95,149
50,015
2,786
____________________
183,398
222,096
103,079
7,163
____________________
515,736
____________________
—
37
3
418,972
456,105
(55,240)
(51,666)
(861)
$ 222,666
163,547
112,739
12,905
9,659
____________________
521,516
418,830
616
78,890
79,849
26,456
____________________
$1,126,157
____________________
$
625
36,397
112,331
3,764
4,429
____________________
157,546
300,111
106,014
14,707
____________________
578,378
____________________
—
37
3
416,728
434,598
(138)
(48,383)
(977)
(257,481)
____________________
509,869
3,699
____________________
513,568
____________________
$1,029,304
____________________
____________________
(257,571)
____________________
544,297
3,482
____________________
547,779
____________________
$1,126,157
____________________
____________________
The accompanying notes are an integral part of the consolidated financial statements.
49
Albany International Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in long-term liabilities, deferred taxes and other credits . . . . .
Provision for write-off of property, plant and equipment . . . . . . . . . .
Write-off of pension liability adjustment due to settlement . . . . . . . . .
Gain on disposition or involuntary conversion of assets . . . . . . . . . . .
Excess tax benefit of options exercised . . . . . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or payable in Class A
2014
_________________
2013
_________________
2012
_________________
$ 41,749
$ 17,658
$ 30,977
56,575
7,717
—
(10,725)
1,915
8,331
(1,126)
(201)
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)
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,384
(766)
2,790
Changes in operating assets and liabilities that provide/(use) cash,
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 or involuntary conversion 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 (used in)/provided by financing activities . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . .
(Decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . .
(6,564)
(744)
1,318
2,566
640
(11,042)
1,535
(9,132)
_________________
84,196
_________________
(58,224)
(649)
1,126
—
_________________
(57,747)
_________________
(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)
__________________
(4,990)
11,565
592
9,472
3,298
7,616
7,308
(776)
__________________
34,507
__________________
(37,046)
(161)
—
150,654
__________________
113,447
__________________
13,396
(45,124)
117,452
(132,691)
46,028
(102,128)
—
773
201
—
(19,729)
_________________
(50,483)
_________________
(18,830)
_________________
(42,864)
222,666
_________________
$179,802
_________________
_________________
28,000
5,538
1,134
(1,639)
(13,929)
__________________
3,865
__________________
6,844
__________________
31,948
190,718
__________________
$ 222,666
__________________
__________________
—
1,311
40
—
(21,315)
__________________
(76,064)
__________________
(81)
__________________
71,809
118,909
__________________
$ 190,718
__________________
__________________
The accompanying notes are an integral part of the consolidated financial statements.
50
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, Albany, 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) which is
reported within the Albany Engineered Composites (AEC) segment. 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, income tax related balances, 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
Albany Engineered Composites segment. We have a contract with a major customer for which revenue is
recognized under a cost plus fixed fee arrangement. We also have fixed price long-term contracts, for which we
use the percentage of completion (actual cost to estimated cost) method. 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. Changes in estimates had the effect of reducing gross profit
by $0.6 million in 2014 and $2.3 million in 2013, while the impact on 2012 was insignificant.
The AEC 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 Other assets is capitalized cost of $9.2 million as of December 31, 2014
and $4.1 million as of December 31, 2013, principally for engineering services, that will be amortized into
expense as deliveries are made in the future. Capitalized costs as of December 31, 2014 included $8.6 million
for a contract that began production in 2014, $0.6 million for other contracts.
51
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. Selling expense includes provisions for bad debts and costs related to contract acquisition.
Research expenses are charged to operations as incurred and consist primarily of compensation, supplies, and
professional fees incurred in connection with intellectual property. Total Company research expense was
$32.4 million in 2014, $30.2 million in 2013, and $27.6 million in 2012.
The Albany Engineered Composites segment participates in both Company-sponsored, and customer-funded
research and development. Some customer-funded research and development may be on a cost-sharing basis, in
which case amounts charged to the customer are credited against research and development expense. Expenses
were reduced by $0.4 million in 2014, $1.4 million in 2013 and $0.8 million 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, while expenses are included in Cost of goods sold.
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.
Restructuring expenses may also include impairment of Property, plant and equipment, as described below.
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
52
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 have 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 Corporate
expenses, and Other (income)/expense that were directly related to the divested businesses. Corporate 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”.
Selling, general, and administrative expenses include foreign currency gains and losses resulting from third
party balances, such as receivables and payables, which are denominated in a currency other than the entity’s
local currency. Gains or losses resulting from cash and short-term intercompany loans and balances denominated
in a currency other than the entity’s local currency, and foreign currency options are generally included 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.
The following table summarizes foreign currency transaction gains and losses recognized in the income
statement:
(in thousands)
__________________________________________________________________________________________________________________
(Gains)/losses included in:
Selling, general, and administrative expenses . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . .
Total transaction (gains)/losses . . . . . . . . . . . . . . . . . . . .
2014
_________________
2013
________________
2012
________________
$ (3,931)
(6,379)
_______________
$(10,310)
_______________
_______________
$ 341
5,227
___________
$5,568
___________
___________
$1,642
5,708
___________
$7,350
___________
___________
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 AEC segment which are invoiced at various times during the project execution. 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.
53
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
As of December 31, 2014 and 2013, Accounts receivable consisted of the following:
(in thousands)
__________________________________________________________________________________________________________________________________________
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue in excess of progress billings . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$153,905
13,045
(8,713)
_______________
$158,237
_______________
_______________
2013
___________________
$154,296
20,525
(11,274)
_______________
$163,547
_______________
_______________
Inventories
Inventories are stated at the lower of cost or market, and are valued at average cost, net of reserves. Costs
included in inventory are raw materials, labor, supplies, and allocable depreciation and overhead. 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, 2014 and 2013, inventories consisted of the following:
(in thousands)
__________________________________________________________________________________________________________________________________________
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$ 27,006
43,512
36,756
_______________
$107,274
_______________
_______________
2013
___________________
$ 25,754
45,998
40,987
_______________
$112,739
_______________
_______________
During 2014, the Company identified an error in the value of Machine Clothing inventories reported in
prior periods. Included in cost of goods sold in 2014 is a charge of $1.6 million to reduce inventories to their
proper carrying values. The error relates to intercompany transfers of inventory and originated when the
Company transitioned to a new ERP system in the Americas in 2008 and Europe in 2011.
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
$0.6 million in 2014 and $1.1 million in 2013.
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.
54
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
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 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 amounting to $0.3 million in 2014 and $0.7 million in 2013. 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.
Other assets also includes $10.1 million in 2014 and $7.4 million in 2013 for defined benefit pension plans
where plan assets exceed the projected benefit obligations.
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
55
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
January 2005, our postretirement benefit plan in the U.S. 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.
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 (MC) and Albany Engineered Composites (AEC). In the determination of segment
operating income, we exclude expenses for certain Corporate expenses, which consist primarily of corporate
headquarters and global information systems costs.
Effective January 1, 2014, Albany International Corp. (the “Company) changed its business segment
reporting by recasting, for all prior periods, certain expenses previously identified as Research and Unallocated
expenses to existing segments. Substantially all research and development expenses are now included in segment
operating expenses. Prior to this change, Unallocated expenses included long-term incentive compensation for
all Company employees. To the extent such programs are related to MC and AEC employees, such expenses will
now be included in segment operating expenses. Additionally, expenses previously referred to as Unallocated
expenses, are now referred to as Corporate expenses. These changes were made to be consistent with how the
chief operating decision maker assesses Company performance. On April 10, 2014, we filed a Form 8-K to show
the effect of these changes on previously reported results and, accordingly, the 2013 and 2012 segment results in
this report include the effect of this change.
Recent Accounting Pronouncements
In March 2013, an accounting update was issued that addressed the accounting for the cumulative
translation adjustment upon derecognition of subsidiaries. Upon the sale of part of a foreign entity, or if the
parent no longer holds a controlling financial interest in a subsidiary or group of assets, the parent company
must transfer the cumulative translation adjustment to net income. We adopted this update January 1, 2014, and
it had no effect on our financial statements.
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 tax credit carryforward
exists. This guidance was adopted January 1, 2014 and had the effect of reducing noncurrent deferred tax assets
and noncurrent deferred tax liabilities by $7.1 million.
In April 2014, an accounting update was issued regarding which disposals qualify for reporting as
discontinued operations. Additionally, new disclosures will apply for discontinued operations. This accounting
update is to be applied prospectively to new disposals and new classifications of disposal groups as held for sale
beginning in periods after December 15, 2014. We do not expect the adoption of this update to have a significant
effect on our financial statements.
56
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies – (continued)
In June 2014, an accounting update was issued that replaces the existing revenue recognition framework
regarding contracts with customers. This accounting update is effective for reporting periods beginning after
December 15, 2016. We have not determined the impact of this update on our financial statements.
In June 2014, an accounting update was issued relating to accounting for share-based payments with a
performance target that could be achieved after the requisite service period. The adoption of this accounting
guidance will be effective for reporting periods beginning after December 15, 2015. We do not expect the
adoption of this update to have a significant effect on our financial statements.
In August 2014, an accounting update was issued relating to how management assesses conditions and
events that could raise substantial doubt about an entity’s ability to continue as a going concern. This accounting
update is effective for reporting periods beginning after December 15, 2016. We do not expect the adoption of
this update to have a significant effect on our financial statements.
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. 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. The Company recorded a pre-tax gain of $57.4 million as a result of that sale.
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.
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 . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$ —
2013
___________________
$ —
2012
___________________
$19,774
—
—
—
(75)
—
(29)
4,776
92,296
25,252
Income tax expense includes a charge of $5.4 million in 2012 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 may
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.
57
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Noncontrolling Interest – (continued)
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 . . . . . . . . . . . . . . .
Noncontrolling interest, beginning of year . . . . . . . . . . . . . . . . . . . . .
Adjustment to net assets contributed by Albany . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interest . . . . . . . . . . . . . . .
Changes in other comprehensive income attributable to
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest, end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
__________________
$2,816
1,019
___________
1,797
___________
$ 180
___________
3,482
39
180
10%
2013
__________________
$1,569
164
___________
1,405
___________
$ 141
___________
3,341
—
141
10%
(2)
___________
$3,699
___________
___________
—
___________
$3,482
___________
___________
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. Corporate 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. These costs are not
allocated to the reportable segments because the decision-making for these functions lies outside of the segments.
Machine Clothing:
The Machine Clothing segment supplies permeable and impermeable belts used in the manufacture of
paper, paperboard, nonwovens, fiber cement and several other industrial applications. The Machine Clothing
segment also supplies customized, consumable fabrics used in the manufacturing process in the pulp, corrugator,
nonwovens, fiber cement, building products, and tannery and textile industries. We sell our Machine Clothing
products directly to customer end-users. 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 and for
every grade of paper. Paper machine clothing products are customized, consumable products of technologically
sophisticated design that utilize polymeric materials in a complex structure.
58
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Reportable Segments and Geographic Data – (continued)
Albany Engineered Composites:
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 highly engineered,
advanced composite structures based on proprietary technology to customers in the aerospace and defense
industries. AEC’s largest program relates to CFM International’s LEAP engine, which is scheduled to enter into
service in 2016. Under this program, AEC through ASC, is the exclusive supplier of advanced composite fan
blades and cases under a long-term supply contract. In 2014, approximately 20 percent of AEC sales were
related to U.S. government contracts or programs.
The following tables show data by reportable segment, reconciled to consolidated totals included in the
financial statements:
(in thousands)
__________________________________________________________________________________________________________________
Net Sales
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income/(loss) before reconciling items . . . . . .
Reconciling items:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense/(income),net . . . . . . . . . . . . . . . . . . . . .
Income/(loss) from continuing operations
2014
____________________
2013
____________________
2012
____________________
$655,026
90,319
_______________
$745,345
_______________
45,066
10,880
8,346
_______________
$ 64,292
_______________
136,450
(10,483)
(54,607)
_______________
$ 71,360
(1,541)
12,254
(6,853)
_______________
$674,747
82,667
_______________
$757,414
_______________
46,521
8,460
8,808
_______________
$ 63,789
_______________
$ 693,176
67,765
________________
$ 760,941
________________
48,052
5,963
9,052
________________
$ 63,067
________________
114,370
(14,404)
(47,875)
_______________
$ 52,091
143,358
(10,918)
(176,576)
________________
$ (44,136)
(1,468)
15,227
7,256
_______________
(1,517)
18,118
7,629
________________
before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 67,500
_______________
$ 31,076
_______________
$ (68,366)
________________
The table below presents pension settlement and restructuring costs by reportable segment (also see Note 6):
(in thousands)
__________________________________________________________________________________________________________________
Pension settlement
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expense
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
____________________
2013
____________________
2012
____________________
$8,190
___________
$ —
_____________
$119,735
_______________
$4,828
931
—
___________
$5,759
___________
___________
$24,568
540
—
_____________
$25,108
_____________
_____________
$
7,386
—
(325)
_______________
$
7,061
_______________
_______________
59
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, and certain other assets not directly associated with segment
operations. The following table presents assets and capital expenditures by reportable segment:
(in thousands)
__________________________________________________________________________________________________________________
Segment assets
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . .
Reconciling items:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable and deferred . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures and purchased software
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
_______________________
2013
_______________________
2012
_______________________
$ 565,853
175,338
$ 624,388
147,104
$ 660,595
109,717
179,802
76,283
32,028
__________________
$1,029,304
__________________
__________________
$
23,202
32,141
3,530
__________________
$
58,873
__________________
__________________
222,666
92,754
39,245
__________________
$1,126,157
__________________
__________________
$
22,892
36,928
4,637
__________________
$
64,457
__________________
__________________
190,718
105,474
51,187
__________________
$1,117,691
__________________
__________________
$
16,210
18,979
2,018
__________________
$
37,207
__________________
__________________
The decrease in Other assets from 2012 to 2013 includes $16.6 million of receivables related to the sale of
discontinued operations which were received during 2013.
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. Net sales recorded by our entity in Switzerland are derived from
products sold throughout Europe and Asia, and are invoiced in various currencies.
(in thousands)
__________________________________________________________________________________________________________________
Net sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost, net
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
_______________________
2013
_______________________
2012
_______________________
$324,750
184,022
59,332
52,822
27,431
26,654
70,334
_______________
$745,345
_______________
_______________
$168,848
93,182
25,091
23,473
22,222
18,236
44,061
_______________
$395,113
_______________
_______________
$338,729
190,035
62,076
43,265
24,938
21,557
76,814
_______________
$757,414
_______________
_______________
$162,380
103,109
15,893
35,542
25,246
22,434
54,226
_______________
$418,830
_______________
_______________
$324,764
203,478
58,755
39,929
26,117
21,487
86,411
_______________
$760,941
_______________
_______________
$137,405
114,037
12,296
38,266
26,269
27,396
64,485
_______________
$420,154
_______________
_______________
60
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 42 percent of consolidated pension plan obligations. The eligibility, benefit formulas, and contribution
requirements for plans outside of the U.S. vary by location.
The December 31, 2014 benefit obligations for the U.S. pension and postretirement plans was calculated
using the RP-2014 (2006 rates) mortality table. The benefit obligation as of December 31, 2013, as well as
pension expense for 2014, was calculated using the IRS 2014 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.
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, 2014, the accrued postretirement liability was $63.9 million in the U.S. and $1.1 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
2014 and 2013, 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.
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
61
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 lower discount rates in recent years, and
unfavorable investment returns in 2008, after which we adopted the liability driven investment strategy in the U.S.
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, 2014
________________________________________________
Other
postretirement
Pension plans
benefits
_______________________
_________________________
$61,108
$218,538
_______________
_____________
314
3,662
2,741
8,852
—
331
5,926
(17,461)
(5,010)
(5,999)
—
(2,950)
—
613
(92)
(1,252)
_______________
_____________
$64,987
$204,334
_______________
_____________
$ — $190,561
_______________
_____________
As of December 31, 2013
___________________________________________________
Other
postretirement
benefits
__________________________
$84,368
_____________
875
3,080
—
(13,396)
(5,773)
—
(7,974)
(72)
_____________
$61,108
_____________
$ —
_____________
Pension plans
_______________________
$204,334
_______________
3,269
9,505
323
30,943
(6,205)
(17,936)
—
(11,123)
_______________
$213,110
_______________
$199,622
_______________
4.18%
3.58%
—
3.23%
3.90%
3.85%
—
3.00%
5.22%
4.50%
—
3.39%
4.68%
4.75%
—
3.00%
The following sets forth information about plan assets:
As of December 31, 2014
________________________________________________
Other
postretirement
benefits
Pension plans
_______________________
_________________________
$ — $173,434
_____________
_______________
—
(2,292)
3,606
6,777
1,404
331
(5,010)
(5,999)
—
(1,650)
—
(2,211)
_______________
_____________
$ — $168,390
_______________
_____________
As of December 31, 2013
___________________________________________________
Other
postretirement
benefits
__________________________
$ —
_____________
—
4,438
1,335
(5,773)
—
—
_____________
$ —
_____________
Pension plans
_______________________
$168,390
_______________
29,638
15,768
323
(6,205)
(16,945)
(7,770)
_______________
$183,199
_______________
(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 . . . . . . . . . .
62
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 consolidated
balance sheet 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
__________________________
As of December 31, 2014
________________________________________________
Other
postretirement
benefits
_________________________
$
64,987
_______________
$(64,987)
_______________
$(64,987)
_______________
Pension plans
_______________________
$183,199
213,110
________________
$ (29,911)
________________
$ (29,911)
________________
Pension plans
_______________________
— $168,390
204,334
________________
$ (35,944)
________________
$ (35,944)
________________
$ 10,097
(2,141)
(37,867)
________________
$ (29,911)
________________
$
— $
(4,750)
(60,237)
_______________
$(64,987)
_______________
7,358
(2,321)
(40,981)
________________
$ (35,944)
________________
$ 71,623
753
—
________________
$ 72,376
________________
$ 44,195
(39,875)
_______________
$ 4,320
_______________
$ 73,908
866
—
________________
$ 74,774
________________
$ 41,175
(44,364)
_______________
$ (3,189)
_______________
$
—
61,108
_______________
$(61,108)
_______________
$(61,108)
_______________
$
—
(5,056)
(56,052)
_______________
$(61,108)
_______________
The composition of the net pension plan funded status as of December 31, 2014 was as follows:
(in thousands)
__________________________________________________________________________________________________________________
Pension plans with pension assets . . . . . . . . . . . . . . . . . .
Pension plans without pension assets . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. plan
____________________
$ (105)
(8,441)
_____________
$(8,546)
_____________
Non-U.S.
plans
____________________
$ 5,139
(26,504)
______________
$(21,365)
______________
Total
____________________
$ 5,034
(34,945)
______________
$(29,911)
______________
63
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, 2014, 2013 and
2012, was as follows:
(in thousands)
______________________________________________________________
Components of net periodic
benefit cost:
Service cost . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . .
Expected return on assets . . . . . .
Amortization of prior service
cost/(credit) . . . . . . . . . . . . . . .
Amortization of transition
obligation . . . . . . . . . . . . . . . . .
Amortization of net
actuarial loss . . . . . . . . . . . . . .
Settlement . . . . . . . . . . . . . . . . . .
Curtailment (gain)/loss . . . . . . . .
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
_________________________________________________________________
2012
2013
2014
________________
________________
________________
Other postretirement benefits
_________________________________________________________________
2012
2013
2014
________________
________________
________________
$ 3,269
9,505
(9,577)
$ 3,662
8,852
(8,677)
$
3,486
12,180
(11,799)
$ 314
2,741
—
$
875
3,080
—
$ 1,071
3,691
—
53
—
35
70
35
79
(4,488)
(3,940)
(3,666)
—
—
—
2,421
8,331
(942)
_____________
$13,060
_____________
3,117
502
(1,143)
____________
$ 6,418
____________
4,223
119,986
—
_______________
$128,190
_______________
2,908
—
—
___________
$1,475
___________
3,395
—
—
____________
$ 3,410
____________
3,215
—
—
____________
$ 4,311
____________
5.22%
4.50%
4.28%
4.09%
4.82%
4.48%
4.68%
4.75%
3.93%
4.00%
4.86%
4.20%
assets — U.S. plan . . . . . . . . . .
5.40%
4.61%
4.82%
Expected return on plan
assets — non-U.S. plans . . . . .
5.65%
5.53%
6.26%
Rate of compensation
increase — U.S. plan . . . . . . . .
—
—
—
—
—
—
—
—
—
—
3.00%
3.00%
Rate of compensation
increase — non-U.S. plans . . .
3.39%
3.26%
3.19%
3.00%
3.00%
3.00%
Health care cost trend rate
(U.S. and non-U.S. plans):
Initial rate . . . . . . . . . . . . . . . . . . .
Ultimate rate . . . . . . . . . . . . . . . .
Years to ultimate . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(Gains)/losses in plan assets and benefit obligations recognized in other comprehensive income during 2014
were as follows:
(in thousands)
____________________________________________________________________________________________________________________________________________
Settlements/curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset/liability loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service (cost)/credit . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition (obligation) . . . . . . . . . . . . . . . . . . . . . . . .
Currency impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss in other comprehensive income . . . . . . . . . . . . . . . . . . . . .
Total recognized in net periodic benefit cost and other
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension
plan
______________________
$ (8,377)
10,881
(2,421)
(53)
—
(2,428)
______________
$ (2,398)
______________
Other
postretirement
benefits
__________________________
$ —
5,926
(2,908)
4,489
—
2
____________
$ 7,509
____________
$10,662
______________
$ 8,984
____________
64
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 2015 are as follows:
(in thousands)
_____________________________________________________________________________________________________________________________________________
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Strategy
Total
pension
__________________
$2,678
50
___________
$2,728
___________
Total
postretirement
benefits
__________________________
$ 3,338
(4,488)
_____________
$(1,150)
_____________
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, 2014 and 2013, 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 and equity funds . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . .
Total fair
value at
December 31,
2014
________________________
$ 34,624
136,984
2,133
6,522
364
2,572
_______________
$183,199
_______________
_______________
Quoted prices Significant other
in active
markets
(Level 1)
________________________
$ 803
—
—
—
—
2,572
___________
$3,375
___________
___________
observable
inputs
(Level 2)
_____________________________
$ 33,821
136,984
—
—
—
—
_______________
$170,805
_______________
_______________
Significant
unobservable
inputs
(Level 3)
_______________________
$ —
—
2,133
6,522
364
—
___________
$9,019
___________
___________
65
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Pensions and Other Postretirement Benefit Plans – (continued)
(in thousands)
___________________________________________________________________________________________
Common stocks and equity funds . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . .
Total fair
value at
December 31,
2013
________________________
$ 46,360
109,330
2,875
7,034
392
2,399
_______________
$168,390
_______________
_______________
Quoted prices Significant other
in active
markets
(Level 1)
________________________
$ 983
—
—
—
—
2,399
___________
$3,382
___________
___________
observable
inputs
(Level 2)
_____________________________
$ 45,377
109,330
—
—
—
—
_______________
$154,707
_______________
_______________
Significant
unobservable
inputs
(Level 3)
_______________________
$ —
—
2,875
7,034
392
—
_____________
$10,301
_____________
_____________
Plan assets for 2013 have been revised from previously filed reports to correct the classification of
investments. In previously filed reports, we included pooled equity fund investments, which comprise substantially
all of our holdings in common stocks and equity funds, in Level 1 assets. Whereas such investments do not meet
the requirements for Level 1, we have corrected that error and reported those investments as Level 2. We have also
corrected the allocation of assets between types of investments. There was no change in total plan assets or
reclassification related to Level 3 assets. The Company has determined that the error is immaterial to previously
filed financial reports and, accordingly, has corrected the error by revising the previously disclosed amounts.
(in thousands)
__________________________________________________________________________________________________
Common stocks and equity funds . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total fair value at
December 31, 2013
as originally reported
_____________________________________
$ 33,685
122,699
2,875
7,034
392
1,705
___________________
$168,390
___________________
___________________
Revision
________________
$ 12,675
(13,369)
—
—
—
694
_________________
$
—
_________________
_________________
Total fair value at
December 31, 2013
as revised
_________________________________
$ 46,360
109,330
2,875
7,034
392
2,399
___________________
$168,390
___________________
___________________
The following tables present a reconciliation of Level 3 assets held during the years ended December 31,
2014 and 2013:
(in thousands)
_____________________________________________
Insurance contracts . . . .
Limited partnerships . . .
Hedge funds . . . . . . . . .
Total . . . . . . . . . . . . . . .
December 31, Net realized Net unrealized
gains/(losses)
(losses)/ gains
2013
_________________________
_______________________
_______________________
$ 49
$—
$ 2,875
613
44
7,034
3
—
392
________
______
_____________
$655
$44
$10,301
________
______
_____________
________
______
_____________
(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
________
______
_____________
________
______
_____________
Net
purchases,
issuances
and
settlements
________________________
$ (791)
(1,169)
(31)
____________
$(1,991)
____________
____________
Net
purchases,
issuances
and
settlements
________________________
292
(1,149)
(159)
____________
$(1,016)
____________
____________
$
Net
transfers
(out of)
Level 3
_______________________
$ —
—
—
_______
$ —
_______
_______
Net
transfers
(out of)
Level 3
_______________________
$ —
—
—
_______
$ —
_______
_______
December 31,
2014
_______________________
$2,133
6,522
364
___________
$9,019
___________
___________
December 31,
2013
_______________________
$ 2,875
7,034
392
_____________
$10,301
_____________
_____________
66
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Pensions and Other Postretirement Benefit Plans – (continued)
The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2014 and 2013, and the target
allocation for 2015, 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
_____________________________________________
2014
2013
__________________
__________________
3%
91%
5%
1%
______
100%
______
______
Target
Allocation
__________________
2015
__________________
—
100%
—
—
______
100%
______
______
5%
88%
5%
2%
______
100%
______
______
Target
Allocation
__________________
2015
__________________
34%
57%
6%
3%
______
100%
______
______
Non-U.S. Plans
________________________________________________________________________
Percentage of plan assets
at plan measurement date
______________________________________________
2013
2014
__________________
__________________
32%
59%
4%
5%
______
100%
______
______
36%
57%
4%
3%
______
100%
______
______
(1) Other includes hedged equity and absolute return strategies, and private equity. The Company has procedures
to closely monitor the performance of these investments and compares asset valuations to audited financial
statements of the funds.
The targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset
classes, and an analysis of the expected rate of return, risk, and other investment characteristics of various
investment asset classes.
At the end of 2014 and 2013, 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
__________________________________________________
2013
2014
____________________
____________________
$126,029
$123,749
122,855
120,287
86,021
80,447
Plans with accumulated
benefit obligation in
excess of plan assets
__________________________________________________
2013
2014
____________________
____________________
$126,029
$123,749
122,855
120,287
86,021
80,447
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
_____________________
$ 3,143
_____________
Other
postretirement
benefits
__________________________
$ 5,010
_________________
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020-2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,286
6,562
7,030
7,488
7,704
47,270
$ 4,750
4,574
4,443
4,307
4,163
19,731
67
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
6. Restructuring
Machine Clothing restructuring expense in 2013 and 2014 was principally related to the reduction in
manufacturing capacity at production facilities in France, while 2012 expense principally resulted from work
force reductions in Sweden, and U.S. operations in Wisconsin and New York.
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 reduced employment by
approximately 200 positions at these locations. 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.
Restructuring expenses in the Albany Engineered Composites operations were principally related to
organizational changes and exiting certain aerospace programs.
The following table summarizes charges reported in the Consolidated Statements of Income under
“Restructuring and other, net”:
Year ended December 31, 2014
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2013
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2012
(in thousands)
___________________________________________________________________________________________________
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
restructuring
costs incurred
__________________________
$ 4,828
931
—
_____________
$ 5,759
_____________
_____________
Total
restructuring
costs incurred
__________________________
$24,568
540
—
_____________
$25,108
_____________
_____________
Total
restructuring
costs incurred
__________________________
$ 7,386
—
(325)
_____________
$ 7,061
_____________
_____________
Termination
and other
costs
_____________________
$ 5,769
319
—
_____________
$ 6,088
_____________
_____________
Termination
and other
costs
_____________________
$25,838
452
—
_____________
$26,290
_____________
_____________
Termination
and other
costs
_____________________
$ 7,386
—
380
_____________
$ 7,766
_____________
_____________
Impairment of Benefit plan
curtailment/
settlement
______________________
$ (941)
—
—
_____________
$ (941)
_____________
_____________
plant and
equipment
_________________________
$ —
612
—
__________
$ 612
__________
__________
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)
__________
__________
We expect that substantially all Accrued liabilities for restructuring liabilities will be paid within one year. The
table below presents the changes in restructuring liabilities for 2014 and 2013, all of which related to termination costs:
(in thousands)
_________________________________________________________
Total Termination costs . . .
(in thousands)
_________________________________________________________
Total Termination costs . . .
December 31,
2013
_______________________
$9,656
___________
___________
December 31,
2012
_______________________
$4,947
___________
___________
Restructuring
charges
accrued
________________________
$6,088
_____________
_____________
Restructuring
charges
accrued
________________________
$26,408
_____________
_____________
Payments
_______________________
$(13,240)
______________
______________
Payments
_______________________
$(22,478)
______________
______________
Currency
translation/
other
_______________________
$(630)
________
________
Currency
translation/
other
_______________________
$779
________
________
December 31,
2014
_______________________
$1,874
___________
___________
December 31,
2013
_______________________
$9,656
___________
___________
On February 20, 2015, the Company announced plans to discontinue operations at its press fabric
manufacturing facility in Göppingen, Germany. This planned action is driven by the continuing consolidation of
paper industry customers in Europe, and the continuous need to match the Company’s paper machine clothing
manufacturing capacity in Europe with the demands of our customers, so that customer sourcing is optimized.
The Göppingen plan would be subject to applicable local law and would be implemented in accordance with
such law and in consultation with the Works Council. The Company is presently unable to determine the
restructuring costs associated with this plan.
68
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Other (Income)/Expenses, net
The components of Other (Income)/expenses, net, are:
(in thousands)
__________________________________________________________________________________________________________________
Currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank fees and amortization of debt issuance costs . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . .
Letter of credit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
____________________
$(6,379)
1,174
(1,126)
—
(522)
____________
$(6,853)
____________
____________
2013
____________________
$5,227
1,542
—
—
487
___________
$7,256
___________
___________
2012
____________________
$ 5,708
2,385
—
963
(1,427)
____________
$ 7,629
____________
____________
In July 2013, the Company’s manufacturing facility in Germany was damaged by severe weather. At that
time, the Company expensed the remaining book value of the damaged property, but the value was minimal. The
gain recorded in 2014 represents the finalization of the insurance claim.
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 34%, 49%,
and 39%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan settlements . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax before discrete items . . . . . . . . . . . . . . . . . . .
Discrete tax expense/(benefit):
Repatriation of non-U.S. prior years’ earnings . . . . . .
Provision for/resolution of tax audits and
contingencies, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to prior period tax liabilities . . . . . . . . . .
Provision for/adjustment to beginning of year
valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . .
Enacted tax legislation . . . . . . . . . . . . . . . . . . . . . . . . .
Other discrete tax adjustments, net . . . . . . . . . . . . . . .
Total income tax expense/(benefit) . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . .
2014
____________________
2013
____________________
2012
____________________
$ 25,703
(3,194)
_____________
22,509
$ 15,172
—
______________
15,172
$ 19,769
(39,460)
______________
(19,691)
2,210
618
—
744
397
2,643
(942)
(2,747)
(1,471)
(109)
—
—
_____________
$ 25,751
_____________
_____________
$ 4,993
62,507
_____________
$67,500
_____________
$ 1,874
1,102
17,474
_____________
$20,450
_____________
$ (1,707)
(495)
7,503
_____________
$ 5,301
_____________
$25,751
_____________
_____________
(3,741)
(282)
(96)
______________
$ 13,372
______________
______________
$14,395
16,681
_____________
$31,076
_____________
$ 3,508
2,301
14,957
_____________
$20,766
_____________
$ 1,723
(180)
(8,937)
_____________
$ (7,394)
_____________
$13,372
_____________
_____________
(2,442)
(973)
(199)
______________
$(27,523)
______________
______________
$(84,624)
16,258
______________
$(68,366)
______________
$(20,123)
(1,212)
12,413
______________
$ (8,922)
______________
$(12,851)
(1,538)
(4,212)
______________
$(18,601)
______________
$(27,523)
______________
______________
69
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
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 . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
____________________
$(1,667)
(481)
1,438
6,120
—
2013
____________________
$ (334)
2,378
1,482
(6,897)
(282)
2012
____________________
$ (7,557)
9,468
(18,337)
1,240
(973)
(109)
___________
$5,301
___________
___________
(3,741)
_____________
$(7,394)
_____________
_____________
(2,442)
_______________
$(18,601)
_______________
_______________
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 adjustments and rate differential . . . . . . . . . . . .
U.S. tax on non-U.S. earnings and
foreign withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for/resolution of tax audits and
contingencies, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development and other tax credits . . . . . . .
Provision for/adjustment to beginning of year
valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . .
2014
____________________
35.0%
1.7
4.0
(10.2)
2013
____________________
35.0%
4.9
8.7
0.2
2012
____________________
35.0%
3.5
0.5
(1.7)
8.0
1.0
(1.6)
5.3
8.5
(3.8)
(1.2)
4.0
0.9
(0.2)
0.4
__________
38.1%
__________
__________
(12.0)
(3.8)
__________
43.0%
__________
__________
(3.7)
3.0
____________
40.3%
____________
____________
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 outside of the U.S. was heavily concentrated within Brazil, China,
(25% tax rates) and Switzerland (8% tax rate). 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.
In 2014, we identified an error in the presentation of deferred tax assets and liabilities in balance sheets
prior to 2014. The previously filed Consolidated Balance Sheets presented deferred tax assets and liabilities
within the same tax jurisdiction on a gross basis. ASC 740-10-45-6 requires netting of current deferred tax assets
and liabilities, and netting of noncurrent deferred tax assets and liabilities. The error had no impact on
Shareholders’ equity, the Consolidated Statements of Income, or the Consolidated Statements of Cash Flows.
The Company concluded that the error is immaterial to any previously filed balance sheet and, accordingly, the
correction is being handled as a revision to previously filed financial statements.
70
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
The following table presents amounts previously reported in the 2013 Consolidated Balance Sheet, the
correction, and the 2013 amounts in the accompanying Consolidated Balance Sheet.
As of December 31, 2013
(in thousands)
__________________________________________________________
Assets
Deferred taxes . . . . . . . . .
Taxes receivable and
deferred . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
Liabilities
Taxes payable and
deferred . . . . . . . . . . . . . .
Deferred taxes and other
credits . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . .
Total
deferred
taxes as
reported in
tax footnote
_____________________
Taxes
receivable or
payable, and
tax reserves
______________________
Total as
previously
reported in
Balance
Sheet
__________________
Amount of
revision
____________________
Corrected
Balance sheet
as revised
_______________________
$ 13,873
$ —
$ 13,873
$
(968)
$12,905
103,185
___________________
$117,058
___________________
___________________
16,427
________________
$16,427
________________
________________
119,612
___________________
$133,485
___________________
___________________
(39,763)
__________________
$(40,731)
__________________
__________________
79,849
________________
$92,754
________________
________________
$
3,855
$ 1,536
$
5,391
$
(962)
$ 4,429
46,690
___________________
$ 50,545
___________________
___________________
7,786
________________
$ 9,322
________________
________________
54,476
___________________
$ 59,867
___________________
___________________
(39,769)
__________________
$(40,731)
__________________
__________________
14,707
________________
$19,136
________________
________________
71
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
certain assets and liabilities for financial reporting and the amounts used for income tax expense purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows:
(in thousands)
______________________________________________________________________________________________________________
Current deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
_____________________________________________
2013
2014
________________
_________________
Non-U.S.
___________________________________________
2013
2014
________________
________________
$ 1,597
343
—
2,662
________________
$ 4,602
—
________________
$ 4,602
________________
________________
5,981
3,575
28,344
1,358
24,426
2,939
________________
66,623
—
________________
66,623
________________
$71,225
________________
________________
$ 3,679
—
—
________________
3,679
________________
________________
11,587
—
8,396
—
—
________________
19,983
________________
23,662
________________
$47,563
________________
________________
$ 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
_________________
_________________
$ 1,537
1,240
—
3,574
_________________
$ 6,351
(497)
_________________
$ 5,854
_________________
_________________
—
4,460
4,804
34,980
1,772
428
_________________
46,444
(21,363)
_________________
25,081
_________________
$30,935
_________________
_________________
$ —
32
577
_________________
609
_________________
_________________
3,106
1,917
—
11,369
1,888
_________________
18,280
_________________
18,889
_________________
$12,046
_________________
_________________
$ 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
________________
________________
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 2014, the Company recorded a net decrease
in its valuation allowance of $28.1 million. The reduction in deferred valuation allowances in 2014 was
principally due to the recognition of an uncertain tax benefit of $12.5 million that decreased a reserved deferred
tax asset and $9.7 million related to a write-off of a reserved deferred tax loss that expired.
At December 31, 2014, the Company had available approximately $250.2 million of net operating loss
carryforwards, for which we have a deferred tax asset of $36.3 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 $17.8 million as of December 31, 2014. Included in the net operating loss
72
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
carryforwards is approximately $22.3 million of state net operating loss carryforwards that are subject to various
business apportionment factors and multiple jurisdictional requirements when utilized. In addition, the Company
had available a foreign tax credit carryforward of $17.3 million that will begin to expire in 2019, research and
development credit carryforwards of $6.6 million that will begin to expire in 2025, 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 $47.6 million at December 31, 2014, which
contained $25.8 million of tax attributes with limited lives. The Company is in a cumulative book income
position over the evaluation period (three-year period ending December 31, 2014). 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 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, 2014 the Company reported a deferred tax liability of $3.7 million on $59.4 million
of non-U.S. earnings that have been targeted for future repatriation to the U.S. Included in these amounts is
$1.5 million of tax expense on approximately $22.2 million of foreign earnings that were generated in 2014.
The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation
to the U.S. were approximately $334.3 million, and are intended to remain permanently invested in foreign
operations. Accordingly, no taxes have been provided on these earnings at December 31, 2014. 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. Determination of the amount of any unrecognized deferred tax
liability on these earnings is not practicable because of the complexities of the hypothetical calculation.
The following table provides a reconciliation of the beginning and ending amount of unrecognized tax
benefits, all of which, if recognized, would impact the effective tax rate.
(in thousands)
__________________________________________________________________________________________________________________
Unrecognized tax benefits balance at January 1 . . . . . . .
Increase in gross amounts of tax positions related
2014
________________
$12,538
2013
________________
$24,386
2012
________________
$27,053
to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,699
2,121
9,454
Decrease in gross amounts of tax positions related
to prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(67)
—
—
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 . . . .
1,077
(32)
(6,775)
(1,931)
_____________
$19,509
_____________
2,622
(16,721)
—
130
_____________
$12,538
_____________
381
(13,099)
(20)
617
_____________
$24,386
_____________
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 related to the
unrecognized tax benefits noted above of $1.0 million, ($1.3) million and ($6.4) million in the Consolidated
Statements of Income in 2014, 2013 and 2012, 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, 2014, 2013, and 2012 the Company had approximately $0.4 million, $0.1 million, and $1.4
million respectively, of accrued interest and penalties related to unrecognized tax benefits.
73
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Income Taxes – (continued)
We conduct business globally and, as a result, the Company 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, France, Germany, Italy, Mexico, and Switzerland. The open tax years in these jurisdictions range
from 2000 to 2014. We are currently under audit in the U.S. and in other non-U.S. tax jurisdictions, including
but not limited to Canada, Germany, and Italy.
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 $8.8 million to a net decrease of $2.4 million, from the reevaluation of
uncertain tax positions arising in examinations, in appeals, or in the courts, or from the closure of tax statutes.
The Company recognized current and deferred tax benefits of approximately $25.3 million on their
corporate income tax returns filed in Germany related to a 1999 reorganization that have been challenged by the
German tax authorities in the course of an audit. 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. On July 2, 2014, the FTC conducted a hearing in
the aforementioned case involving the other taxpayer, and the taxpayer lost. The final written decision of the FTC
was published during the fourth quarter of 2014. Although the decision of the FTC in the case is not determinative
of the outcome in our case, management views the conclusion of this matter as an opportunity to approach the
German tax authorities with the goal of a settlement agreement. We were required to pay tax and interest of
approximately $14.5 million to the German tax authorities in order to pursue our appeal position. In anticipation of
a settlement, a portion of the prepaid taxes and interest along with certain deferred tax assets were adjusted
downward by $6.3 million in 2014. The recognition of the uncertain tax position in deferred tax assets was partially
offset by a reduction in a valuation allowance that offset the deferred tax assets. The remaining tax benefits
sustained on the books are related to current tax benefits that were recognized in earlier tax years. Included in the
range above is approximately $8.8 million of tax benefits that will continue to be challenged by the German tax
authorities.
The deferred tax amounts reported below and in the Consolidated Balance Sheets have been revised to
properly reflect the netting of current and noncurrent deferred tax assets and liabilities that had previously not
been completed in accordance with ASC 740-10-45-6.
As of December 31, 2014 and 2013 and including the effect of the revision to 2013 described above,
noncurrent taxes receivable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred taxes and taxes receivable . . . . . . . . . . . . . . .
2014
__________________
$10,518
59,022
_____________
$69,540
_____________
_____________
2013
__________________
$ 16,427
103,185
_______________
$119,612
_______________
_______________
As of December 31, 2014 and 2013 and including the effect of the revision to 2013 described above,
current taxes payable and deferred consisted of the following:
(in thousands)
________________________________________________________________________________________________________________________________________________
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes payable and deferred . . . . . . . . . . . . . . . . . .
2014
__________________
$2,211
575
___________
$2,786
___________
___________
2013
__________________
$
1,536
3,855
_______________
$
5,391
_______________
_______________
74
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
Taxes paid, net of refunds, amounted to $17.6 million in 2014, $29.4 million in 2013, and $15.1 million in 2012.
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 and earnings per share)
__________________________________________________________________________________________________________________
Net income attributable to the Company . . . . . . . . . . . . .
Weighted average number of shares:
Weighted average number of shares used in
2014
___________________
$41,569
_____________
2013
___________________
$17,517
_____________
2012
___________________
$30,977
_____________
calculating basic net income/(loss) per share . . . . . .
31,832
31,649
31,356
Effect of dilutive stock-based compensation plans:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in
99
57
129
156
57
223
calculating diluted net income per share . . . . . . . . . . .
31,988
_____________
31,934
_____________
31,636
_____________
Average market price of common stock used
for calculation of dilutive shares . . . . . . . . . . . . . . . . .
$ 36.29
_____________
$ 31.85
_____________
$ 21.51
_____________
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.31
1.30
$
$
0.55
0.55
$
$
0.99
0.97*
*
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 31.9 million as of December 31, 2014, 31.8 million as of
December 31, 2013, and 31.4 million as of December 31, 2012.
75
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Accumulated Other Comprehensive Income
The table below presents changes in the components of AOCI for the period December 31, 2012 to
December 31, 2014:
(in thousands)
___________________________________________________________________________________________________
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income before
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)
_________________
_________________
reclassifications . . . . . . . . . . . . . . . . . . . . . . . .
(55,102)
252
(1,052)
(55,902)
Pension/postretirement settlements and
curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . .
5,167
(9,265)
5,167
(9,265)
1,168
1,168
563
563
(55,102)
_______________
$(55,240)
_______________
_______________
(3,283)
_______________
$(51,666)
_______________
_______________
116
_____________
$ (861)
_____________
_____________
(58,269)
_________________
$(107,767)
_________________
_________________
As part of the Company’s pension de-risking strategy, in 2014, certain U.S. participants received a lump-
sum distribution from the pension plan, which led to a pension settlement charge of $8.2 million. Including other
2014 pension plan settlements and curtailments, the amount reclassified from AOCI was $8.4 million before tax,
and $5.2 million after tax effects.
In 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 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.
76
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Accumulated Other Comprehensive Income – (continued)
The table below presents the expense/(income) amounts reclassified, and the line items of the Statement of
Income that were affected for the period December 31, 2014 and 2013.
(in thousands)
________________________________________________________________________________________________________________________________________________
Pretax Derivative valuation reclassified from Accumulated
2014
_____________
2013
______________
Other Comprehensive Income:
Payments made on interest rate swaps included in
Income before taxes (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,914
(746)
_____________
$ 1,900
(741)
_____________
Effect on net income due to items reclassified from Accumulated
Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,168
_____________
$ 1,159
_____________
Pretax pension and postretirement liabilities reclassified from
Accumulated Other Comprehensive Income:
Pension/postretirement settlements and curtailments . . . . . . . . . . . . .
Amortization of prior service cost/(credit) . . . . . . . . . . . . . . . . . . . . . .
Amortization of transition obligation . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pretax amount reclassified (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on net income due to items reclassified from Accumulated
Other Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,377
(4,436)
—
5,329
_____________
9,270
(3,540)
_____________
$ —
(3,905)
70
6,512
_____________
2,677
(451)
_____________
$ 5,730
_____________
$ 2,226
_____________
Included in Interest expense.
(a)
(b) These accumulated other comprehensive income components are included in the computation of net periodic
pension cost (see Note 5).
11. Property, Plant and Equipment
Balances of property, plant and equipment for 2013 have been revised from previously filed reports to
correct an error that resulted in the misstatement of cost and accumulated depreciation and amortization by the
same amount. The Company has determined that the error is immaterial to previously filed financial reports and,
accordingly, has corrected the error by revising the previously disclosed amounts.
The table below sets forth the revision and the components of property, plant and equipment.
(in thousands)
________________________________________________________
Land and land
2013
Error
revised
correction
balance
_____________________ ____________ __________________
2014
As
previously
reported
2013
_____________________
Estimated useful life
______________________________________________________
improvements . . . . . . . . . $
Buildings . . . . . . . . . . . . . . .
Machinery and equipment . .
Furniture and fixtures . . . . .
Computer and other
equipment . . . . . . . . . . . .
Software . . . . . . . . . . . . . . .
Property, plant and
22,967 $
225,094
940,764
6,716
25,321 $ (1,760) $
236,963
980,055
7,465
(3,886)
77,018
647
27,081
240,849
903,037
6,818
25 years for improvements
25 to 40 years
10 years
5 years
13,692
50,586
_________________
12,086
50,100
__________________
(757)
(146)
______________
12,843
50,246
__________________
3 to 10 years
5 to 8 years
equipment, gross . . . . . . .
1,259,819
1,311,990
71,116
1,240,874
Accumulated depreciation
and amortization . . . . . . .
(864,706)
__________________
(893,160)
__________________
(71,116)
______________
(822,044)
__________________
Property, plant and
equipment, net . . . . . . . . . $ 395,113 $ 418,830 $
__________________
__________________
__________________
__________________
______________
______________
— $ 418,830
__________________
__________________
77
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
11. Property, Plant and Equipment – (continued)
Expenditures for maintenance and repairs are charged to income as incurred and amounted to $17.4 million
in 2014, $17.5 million in 2013, and $17.0 million in 2012.
Depreciation expense was $56.6 million in 2014, $57.2 million in 2013, $56.7 million in 2012. Software
amortization is recorded in Selling, general, and administrative expense and was $6.2 million in 2014, $6.0
million in 2013 and $5.8 million in 2012. Capital expenditures, including purchased software, were $58.9
million in 2014, $64.5 million in 2013, and $37.2 million in 2012. Unamortized software cost was $13.8 million
and $19.2 million as of December 31, 2014 and 2013, 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 2014, the Company applied the qualitative 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.
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, 2012 to December 31, 2014,
were as follows:
Balance at
Balance at
December 31, 2013 Amortization Translation December 31, 2014
________________________________
_________________________________
Currency
___________________
_______________________
$
33
404
179
_____________
616
$
_____________
$78,890
_____________
_____________
(4)
$
(202)
(25)
_________
$(231)
_________
$ —
—
—
____________
$ —
____________
$
29
202
154
_____________
385
$
_____________
$ —
_________
_________
$(7,210)
____________
____________
$71,680
_____________
_____________
(in thousands)
__________________________________________________________________________________________
Amortized intangible assets:
AEC trade names . . . . . . . . . . . . . . . . . . .
AEC customer contracts . . . . . . . . . . . . . .
AEC technology . . . . . . . . . . . . . . . . . . . .
Total amortized intangible assets . . . . . . . . .
Unamortized intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . .
78
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Goodwill and Other Intangible Assets – (continued)
(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)
_________
$ —
—
—
____________
$ —
____________
$
33
404
179
_____________
616
$
_____________
$ —
_________
_________
$ 2,368
____________
____________
$78,890
_____________
_____________
Estimated amortization expense of intangibles for the years ending December 31, 2015 through 2019, is as
follows:
Year
____________________________________________________________________________________________________________________________________________________
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual
amortization
(in thousands)
____________________________
$231
29
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
___________________
$19,229
11,330
11,525
2,141
4,750
17,265
2,052
1,873
5,098
2,502
2,024
2,051
962
12,347
_______________
$95,149
_______________
_______________
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
_______________
_______________
79
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%,
2014
___________________
2013
___________________
due 2015 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100,000
$100,000
Credit agreement with borrowings outstanding at an end of period
interest rate of 2.69% in 2014 and 2.53% in 2013 (including the
effect of interest rate hedging transactions, as described below),
due in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various notes and mortgages, at an average end of period rate of
5.50% in 2014 and 3.10% in 2013, due in varying amounts
through 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
172,000
200,000
111
_______________
272,111
(50,015)
_______________
$222,096
_______________
3,875
_______________
303,875
(3,764)
_______________
$300,111
_______________
Principal payments due on long-term debt are: 2015, $50.0 million; 2017, $50.0 million and 2018,
$172.0 million. Total principal payments in 2016, 2019 and thereafter total $0.1 million. Cash payments of
interest amounted to $13.0 million in 2014, $16.1 million in 2013 and $18.4 million in 2012.
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, with interest at 6.84% and a maturity date of October 25, 2017. The
remaining obligation under the Prudential Agreement has a mandatory payment of $50 million due on October
25, 2015, and the final payment is due October 25, 2017. 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, 2014, the fair value of this debt was
approximately $110.6 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 $172 million of borrowings were outstanding as of December 31,
2014. 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 22, 2014, 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, 2014, we would have been able to borrow an additional $158 million under our
agreement.
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
80
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Financial Instruments – (continued)
LIBOR rate at each quarterly calculation date, which on October 16, 2014 was 0.23%. 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, 2014, 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, 2014 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, 2014, our leverage ratio was 1.30 to 1.00 and our interest coverage ratio was 13.01 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.
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, 2014.
81
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
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, 2014 and 2013, we have no Level 3 financial assets or liabilities.
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, 2014
___________________________________________________
Significant
other
observable
inputs
(Level 2)
_____________________
Quoted prices
in active
markets
(Level 1)
________________________
December 31, 2013
__________________________________________________
Significant
other
observable
inputs
(Level 2)
____________________
Quoted prices
in active
markets
(Level 1)
________________________
$14,096
$ —
$25,073
$ —
Foreign currency options . . . . . . . . . . . . . .
69
Other Assets:
Common stock of foreign public
company . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . .
701
—
—
—
—
—
—
952
—
—
1,517(b)
Liabilities:
Other noncurrent liabilities
Interest rate swaps . . . . . . . . . . . . . . . . . . .
—
(1,411)(a)
—
(3,119)(c)
(a) Net of $4.3 million receivable floating leg and $5.7 million liability fixed leg
(b) Net of $5.6 million receivable floating leg and $4.1 million liability fixed leg
(c) Net of $0.7 million receivable floating leg and $3.8 million liability fixed leg
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 will be reported in 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 (income)/expenses, net.
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
82
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Fair-Value Measurements – (continued)
interest and currency rates, which may reduce the value of the instruments. We seek to control risk by evaluating
the creditworthiness of counterparties and by monitoring the currency exchange and interest rate markets while
reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and policies.
We operate our business in many regions of the world, and currency rate movements can have a significant
effect on operating results.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, General
and Administrative expenses or Other (income)/expenses, net. Revaluation gains and losses occur when our
business units have cash, intercompany (recorded in Other (income)/expenses, net) or third-party trade (recorded
in Selling, General and Administrative expenses) 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 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. As of
December 31, 2014, these interest rate swaps were determined to be 100% effective hedges of interest rate cash
flow risk, and accordingly, 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. 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 in both 2014 and 2013.
Gains/(losses) related to changes in fair value of derivative instruments that were recognized in Other
(income)/expenses, net in the Consolidated Statements of Income were as follows:
(in thousands)
__________________________________________________________________________________________________________________
Derivatives not designated as hedging instruments
Years ended December 31,
___________________________________________________________________________
2013
______________
2014
______________
2012
______________
Foreign currency options . . . . . . . . . . . . . . . . . . . . . . .
$(81)
$(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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
__________________
$ 37,867
60,237
1,411
2,730
834
_______________
$103,079
_______________
_______________
2013
___________________
$ 40,981
56,052
3,119
4,960
902
_______________
$106,014
_______________
_______________
83
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
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
2014. Total rental expense amounted to $4.2 million in 2014, $4.6 million in 2013 and $5.8 million in 2012.
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, 2014 are: 2015, $3.5 million; 2016, $2.5 million; 2017,
$1.5 million; 2018, $0.8 million, and 2019 and thereafter, $1.6 million.
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 3,821 claims as of December 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 . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
___________________
29,411
24,451
19,416
18,798
18,385
8,945
5,170
4,446
4,463
4,299
Claims
Dismissed,
Settled, or
Resolved
___________________
6,257
6,841
808
523
9,482
3,963
789
90
230
625
Closing
Number of
Claims
___________________
24,451
19,416
18,798
18,385
8,945
5,170
4,446
4,463
4,299
3,821
Amounts Paid
(thousands) to
Settle or
Resolve
_________________________
$ 504
3,879
15
52
88
159
1,111
530
78
$437
New Claims
______________________
1,297
1,806
190
110
42
188
65
107
66
147
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 December 31, 2014, we
had resolved, by means of settlement or dismissal, 37,225 claims. The total cost of resolving all claims was $9.2
million. Of this amount, almost 100% was paid by our insurance carrier. The Company’s insurer has confirmed
that although coverage limits under two (of approximately 23) primary insurance policies have been exhausted,
there still remains approximately $3 million in coverage under other applicable primary policies, and $140
million in coverage under excess umbrella coverage policies that should be available for current and future
asbestos claims.
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 7,730 claims as of December 31, 2014.
84
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 . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
___________________
9,985
9,566
9,114
8,740
8,664
7,907
7,869
7,877
7,867
7,815
Claims
Dismissed,
Settled, or
Resolved
___________________
642
1,182
462
86
760
47
3
12
55
87
Closing
Number of
Claims
___________________
9,566
9,114
8,740
8,664
7,907
7,869
7,877
7,867
7,815
7,730
Amounts Paid
(thousands) to
Settle or
Resolve
_________________________
$ —
—
—
—
—
—
—
—
—
$ —
New Claims
______________________
223
730
88
10
3
9
11
2
3
2
We acquired Geschmay Corp., formerly known as Wangner Systems Corporation, in 1999. Brandon is a
wholly owned subsidiary of Geschmay Corp. In 1978, Brandon acquired certain assets from Abney Mills
(“Abney”), a South Carolina textile manufacturer. Among the assets acquired by Brandon from Abney were
assets of Abney’s wholly owned subsidiary, Brandon Sales, Inc. which had sold, among other things, dryer
fabrics containing asbestos made by its parent, Abney. Although Brandon manufactured and sold dryer fabrics
under its own name subsequent to the asset purchase, none of such fabrics contained asbestos. Because Brandon
did not manufacture asbestos-containing products, and because it does not believe that it was the legal successor
to, or otherwise responsible for obligations of Abney with respect to products manufactured by Abney, it
believes it has strong defenses to the claims that have been asserted against it. As of December 31, 2014,
Brandon has resolved, by means of settlement or dismissal, 9,875 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.
85
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 on cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014
_________________
$(55,102)
10,949
7,244
16,959
7,210
4,734
(4,363)
(6,461)
_______________
2013
_________________
$ 7,521
69
705
(625)
(2,368)
(116)
952
706
____________
2012
_________________
$18,287
(1,119)
(779)
(7,859)
(1,053)
(7,895)
1,352
(1,015)
_____________
$(18,830)
_______________
_______________
$ 6,844
____________
____________
$
(81)
_____________
_____________
The change in cumulative translation adjustments includes the following:
(in thousands)
__________________________________________________________________________________________________________________
Foreign currency translation of non-U.S. subsidiaries . .
Gain/(loss) on long-term intercompany loans . . . . . . . . .
Change in cumulative translation adjustments . . . . . . . .
2014
_________________
$(60,419)
5,317
_______________
$(55,102)
_______________
_______________
2013
_________________
$25,573
(18,052)
____________
$ 7,521
_____________
_____________
2012
_________________
$16,589
1,698
_____________
$18,287
_____________
_____________
19. Stock Options and Incentive Plans
We recognized no stock option expense during 2014, 2013 or 2012 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 . . . . . . . . . . . . . . . .
2014
_________________
228,533
—
41,300
_____________
187,233
187,233
_____________
2013
_________________
507,313
—
278,780
_____________
228,533
228,533
_____________
2012
_________________
597,313
23,300
66,700
_____________
507,313
507,313
_____________
86
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 canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares under option December 31 . . . . . . . . . . . . . . . . . .
Options exercisable December 31 . . . . . . . . . . . . . . . . . .
2014
_____________
$18.94
—
18.71
___________
18.99
18.99
___________
2013
_____________
$19.45
—
19.87
___________
18.94
18.94
___________
2012
_____________
$19.54
21.23
19.65
___________
19.45
19.45
___________
As of December 31, 2014, the aggregate intrinsic value of vested options was $3.5 million. The aggregate
intrinsic value of options exercised was $0.7 million in 2014, $3.1 million in 2013, and $0.2 million in 2012.
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. Participants may
elect to receive shares net of applicable income taxes. In March 2014 we issued 29,321 shares and made cash
payments totaling $1.1 million. 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. 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. 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. Expense associated with
these awards is recognized over the three year vesting period. In connection with this plan, we recognized
expense of $2.4 million in each of 2014, 2013 and 2012. For share-based awards that are dependent on
performance after 2014, we expect to record additional compensation expense of approximately $0.4 million in
each of 2015 and 2016.
In 2011, the Board of Directors modified the annual incentive plan for executive management whereby
40 to 50 percent of the earned incentive compensation is payable in the form of shares of Class A Common
Stock. Participants may elect to receive shares net of applicable income taxes. In March 2014, the Company
issued 15,910 shares and made cash payments totaling $1.4 million as a result of performance in 2013. 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. The allocation of the award between cash and shares is
determined by an average share price after the year of performance. Expense recorded for this plan was
$2.7 million in 2014, $2.3 million in 2013, and $3.4 million in 2012.
87
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Stock Options and Incentive Plans – (continued)
Shares payable under these plans generally vest immediately prior to payment. As of December 31, 2014,
there were 343,183 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, 2012 . . . . . . . . .
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 . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2014 performance . . . . . . . . . .
Shares potentially payable at December 31, 2014 . . . . . .
Number of
shares
___________________
161,280
—
(44,347)
112,428
______________
229,361
______________
—
(118,364)
74,567
______________
185,564
______________
—
(75,385)
75,020
______________
185,199
______________
Weighted
average grant
date value
per share
________________________
$23.74
—
$24.62
$27.15
___________
$24.13
___________
—
$23.05
$31.62
___________
$27.51
___________
—
$28.60
$34.65
___________
$30.69
___________
Year-end
intrinsic
value (000’s)
______________________
$3,729
___________
$5,202
___________
___________
$6,667
___________
___________
$5,683
___________
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 $1.4 million in 2014, $2.5 million in 2013, and $1.9 million in
2012. The Company has not awarded new restricted stock units since November 2010. However, awards up to
that time will continue to vest until 2015. We expect to record $0.7 million of expense in 2015 related to
outstanding restricted stock units.
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 $2.2 million in
2014, $1.5 million in 2013, and $0.5 million in 2012. Based on awards outstanding at December 31, 2014, we
expect to record $6.5 million of compensation cost from 2015 to 2018. The weighted average period for
recognition of that cost is approximately 2 years.
In 2012, the Company granted 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 in various periods from 2015 to 2017. Expense recognized for
these grants was $0.7 million in 2014, $1.0 million in 2013, and $0.4 million in 2012. Based on awards
outstanding at December 31, 2014, we expect to record $0.3 million of compensation cost, principally in 2015.
88
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Stock Options and Incentive Plans – (continued)
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.
Information with respect to these plans is presented below:
Share units potentially payable at January 1, 2012 . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2012 . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2013 . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2014 . .
Weighted
average
value
per share
________________
Cash paid for
share based
liabilities (000’s)
____________________________
$21.43
$4,206
$32.71
$2,810
$35.01
$3,040
Number of
shares
___________________
361,419
220,090
(196,360)
(34,389)
______________
350,760
______________
104,554
(85,902)
(8,223)
______________
361,189
______________
91,631
(8,793)
(86,840)
(9,246)
______________
347,941
______________
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, in the form of cash,
between 50% and 100% of each dollar contributed by employees up to a maximum of 5% of pretax income. The
investment of employee contributions to the plan is self-directed. The Company’s cost of the plan amounted to
$4.3 million in 2014, $4.1 million in 2013, and $3.8 million for 2012.
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 $1.5 million in 2014,
$1.6 million in 2013, and $1.8 million in 2012.
89
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, 2014, 3.4 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 2012, 2013, and 2014 is
presented below:
Class B
Class A
Common Stock
Preferred Stock
_____________________________
_____________________________
Shares Amount Shares Amount
_____________
___________
______________
___________
$3
3,236
$37
36,541
____
_________
______
___________
Additional
paid-in
capital
__________________
$391,495
_______________
Accumulated
items of other
Class A
Treasury Stock
Retained comprehensive _____________________________ Noncontrolling
Shares Amount
Interest
earnings
__________________________
____________
______________
______________
$ —
8,480 $(257,920)
$422,044
___________
________________
_________
_______________
income
_________________________
$(139,809)
________________
34
67
—
—
—
—
—
—
—
___________
36,642
___________
75
—
279
—
—
—
—
—
—
___________
36,996
___________
47
1
—
41
—
—
—
—
—
—
—
—
—
—
—
—
—
______
$37
______
—
—
—
—
—
—
—
—
—
______
$37
______
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_________
3,236
_________
—
—
—
—
—
—
—
—
—
_________
3,236
_________
—
(1)
—
—
—
—
—
—
—
—
___________
37,085
___________
—
—
______
$37
______
—
—
_________
3,235
_________
—
—
—
—
—
—
—
—
—
____
$3
____
—
—
—
—
—
—
—
—
—
____
$3
____
—
—
—
—
—
—
—
—
—
—
____
$3
____
—
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
—
—
—
—
—
_______________
$416,728
_______________
—
—
_______________
$434,598
_______________
21,101
1,901
________________
$ (49,498)
________________
—
—
—
—
________________
_________
8,464 $(257,571)
________________
_________
1,234
—
—
—
—
(24)
—
974
—
60
—
41,569
— (20,062)
—
—
—
—
—
—
—
—
—
(55,102)
—
—
—
—
(5)
—
—
—
—
—
—
—
90
—
—
—
—
—
—
—
—
—
—
—
___________
$ —
___________
—
3,341
—
—
141
—
—
—
___________
$3,482
___________
—
—
38
—
—
180
(1)
—
—
_______________
$418,972
_______________
—
—
_______________
$456,105
_______________
(3,283)
116
________________
$(107,767)
________________
—
—
—
—
________________
_________
8,459 $(257,481)
________________
_________
—
—
___________
$3,699
___________
(in thousands)
_________________________________
January 1, 2012 . . . . . . . . . . . . . . . . . . . .
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 . . . . . . .
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 . . . . . . .
December 31, 2013 . . . . . . . . . . . . . . . . .
Compensation and benefits
paid or payable in shares . . . . . . . . . .
Conversion of Class B shares
to Class A shares . . . . . . . . . . . . . . . . .
Changes in 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 . . . . . . .
December 31, 2014 . . . . . . . . . . . . . . . . .
90
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
21. Quarterly Financial Data (unaudited)
(in millions, except per share amounts)
___________________________________________________________________________________________________
2014
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st
______________
2nd
_____________
3rd
_____________
4th
______________
$180.3
74.8
10.6
0.33
0.33
0.15
37.59
32.85
$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
$193.5
75.3
11.2
0.35
0.35
0.16
38.01
33.67
$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
$179.9
68.6
11.8
0.37
0.37
0.16
38.53
34.04
$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
$191.6
72.9
8.0
0.26
0.25
0.16
38.15
32.46
$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
In 2014, restructuring charges reduced earnings per share by $0.02 in the first quarter, $0.04 in the second
quarter, $0.02 in the third quarter, and $0.04 in the fourth quarter.
In 2014, we recognized a gain related to the insurance recovery due to damage to a Machine Clothing
manufacturing facility, $0.03 per share in the second quarter and $0.01 per share in the third quarter.
In 2014, earnings per share included a pension plan settlement charge of $0.16 per share in the fourth
quarter.
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 2012, income tax expense includes a favorable discrete adjustment for a Canadian audit settlement of
$0.22 per share.
In 2012, restructuring charges reduced earnings per share by $0.02 in the first quarter, $0.06 in the second
quarter, $0.07 in the third quarter, and $0.01 in the fourth quarter.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of
December 31, 2014, there were approximately 7,000 beneficial owners of the Company’s common stock,
including employees owning shares through the Company’s 401(k) defined contribution plan.
91
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in Certifying Accountants
As previously reported by the Company in a Current Report on Form 8-K filed with Securities and
Exchange Commission on May 22, 2014, on May 19, 2014, PricewaterhouseCoopers LLP (“PwC”) was
dismissed as the Company’s independent registered public accounting firm. On May 19, 2014, the Company
appointed KPMG LLP (“KPMG”) as its independent registered public accounting firm to audit the Company’s
consolidated financial statements as of and for the fiscal year ending December 31, 2014. The Audit Committee
recommended and approved the decision to change independent registered public accounting firms.
PwC’s reports on the Company’s consolidated financial statements for the fiscal years ended December 31,
2013 and 2012 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2013 and
2012 and through May 19, 2014, there have been (1) no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of PwC, would have caused it to make reference to the subject matter of such
disagreements in connection with its audit report and (2) no reportable events as defined by Item 304(a)(1)(v) of
Regulation S-K of the Exchange Act. The Company has given permission to PwC to respond fully to the
inquiries of the successor auditor.
The Company previously furnished a copy of these disclosures to PwC, and requested that PwC furnish the
Company with a letter addressed to the Securities and Exchange Commission stating whether it agreed with such
disclosures. PwC provided such a letter, which was filed as an exhibit to the report.
During the two most recent fiscal years and through May 19, 2014, the Company did not consult with
KPMG regarding either (1) the application of accounting principles to a specified transaction, either
contemplated or proposed, or the type of audit opinion that might be rendered on the financial statements of the
Company, or (2) any matter that was the subject of a disagreement or a reportable event described in Items
304(a)(1)(iv) or (v), respectively, of Regulation S-K under the Exchange Act.
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.
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
92
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;
f.
The term internal control over financial reporting is defined as a process designed by, or under the
supervision of, the principal executive and principal financial officers, or persons performing similar
functions, and effected by the board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
1.
2.
3.
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations of management
and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of assets that could have a material effect on the financial
statements.
Based upon and as of the date of that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that the disclosure controls and procedures of the Company were effective in ensuring that the
information required to be disclosed in the periodic reports is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and forms and ensuring that information required to
be disclosed in reports is accumulated and communicated to the management of the Company, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
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, 2014. In making this assessment, management used the criteria set forth by the
2013 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, 2014, 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, 2014 has
been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report included
herein.
93
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our fourth fiscal quarter of
2014 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.
94
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
or chosen to become director or executive officer, and significant employees. Information about the
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.
95
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 . . . . . . . . . . . . . . . . . . . . . . .
187,233(1)
Equity compensation plans not approved
by security holders . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
_____________
187,233(1)
_____________
_____________
$18.99
—
___________
$18.99
___________
___________
343,183(2,3,4)
—
_____________
343,183(2,3,4)
_____________
_____________
(1) Does not include 60,114, 46,649, and 75,942 shares that may be issued pursuant to 2012, 2013 and 2014,
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) 343,183 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 3,843,183.
(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. A director who owns shares
of Common Stock with a value of at least $300,000 may elect to receive, in cash, all or any portion of the
retainer otherwise payable in shares of Common Stock.
96
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, 2009, and its relative performance is
tracked through December 31, 2014.
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.
97
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
10(l)(i)
10(l)(ii)
10(l)(iii)
10(l)(iv)
10(l)(v)
10(l)(vi)
10(l)(vii)
10(l)(viii)
10(l)(ix)
98
2003 Restricted Stock Unit Plan, as adopted
November 13, 2003
2003 Form of Restricted Stock Unit Award, as adopted
November 13, 2003
Amendment No. 1, dated as of November 30, 2005, to
the 2003 Restricted Stock Unit Plan
Amendment No. 2, dated as of February 15, 2006, to the
2003 Restricted Stock Unit Plan
Form of Restricted Stock Unit Award for units granted
on February 15, 2008
Amended and Restated 2003 Restricted Stock Unit Plan
as adopted on May 7, 2008
Form of Restricted Stock Unit Award for units granted
on July 8, 2009
2011 Performance Phantom Stock Plan as adopted on
May 26, 2011 (42)
Form of Restricted Stock Unit Award for units granted
on February 17, 2012
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
8-K
6/30/11
8/9/11
2/24/12
Exhibit
Number
_______________________
Stock Options
Exhibit Description
__________________________________
10(m)(i)
1992 Stock Option Plan
Filed
Herewith
________________
10(m)(ii)
1997 Executive Stock Option Agreement
10(m)(iii)
2011 Incentive Plan
10(m)(iv)
Form of 2011 Annual Performance Bonus Agreement
10(m)(v)
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
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)
10(r)
10(s)
10.1
10.2
Form of Executive Deferred Compensation Plan
adopted September 1, 1985, as amended and restated
as of August 8, 2001
Form of Directors’ Deferred Compensation Plan
adopted September 1, 1985, as amended and restated
as of August 8, 2001
Deferred Compensation Plan of Albany International
Corp., as amended and restated as of August 8, 2001
Centennial Deferred Compensation Plan, as amended
and restated as of August 8, 2001
Directors’ Annual Retainer Plan, as amended and
restated as of December 8, 2009
Excerpt from the Company’s Corporate Governance
Guidelines describing director compensation
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
Employment agreement, dated May 12, 2005, between
the Company and Joseph G. Morone
Form of Indemnification Agreement
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
Incorporated by Reference
_____________________________________________________________________
Period
Ending
__________________
Filing
Date
__________________
Form
__________________________
8-K
10-K
8-K
8-K
8-K
8-K
S-1,
No. 33-16254
1/18/93
12/31/97 3/16/98
6/1/11
3/29/11
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
8-K
8-K
8-K
8-K
8-K
8-K
1/3/13
1/2/08
1/13/05
5/18/05
2/23/11
11/1/11
10-K
12/31/13 2/26/14
99
Incorporated by Reference
_____________________________________________________________________
Form
__________________________
Period
Ending
__________________
Filing
Date
__________________
Exhibit
Number
_______________________
11
21
23
24
31(a)
31(b)
32(a)
Exhibit Description
__________________________________
Statement of Computation of Earnings per share
(provided in Footnote 9 to the Consolidated
Financial Statements)
Subsidiaries of Company
Consent of Independent Registered Public
Accounting Firms
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
Filed
Herewith
________________
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, 2014, 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 December 31, 2014, 2013 and 2012
Consolidated Statements of Comprehensive
Income/(loss) for years ended December 31, 2014,
2013, and 2012
X
X
Consolidated Balance Sheets as of December 31, 2014 X
and 2013
Consolidated Statements of Cash Flows for the years
ended December 31, 2014, 2013, and 2012
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.
100
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 27th
day of February, 2015.
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 27, 2015
/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 27, 2015
February 27, 2015
*
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 27, 2015
Vice Chairman of the Board and Director
February 27, 2015
Director
Director
Director
Director
Director
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
February 27, 2015
101
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
_______________________
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,274
11,862
10,729
$ (341)
235
1,411
$ (2,220)
(823)
(278)
$ 8,713
11,274
11,862
Allowance for sales returns
Year ended December 31:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,428
19,536
15,609
$13,879
25,013
19,911
$(19,042)
(22,121)
(15,984)
$17,265
22,428
19,536
Valuation allowance deferred tax assets
Year ended December 31:
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49,987
60,348
63,413
$ (3,347)
(8,795)
(4,131)
$(24,780)
(1,566)
1,066
$21,860
49,987
60,348
(A) Amounts sold, written off, or recovered, and the effect of changes in currency translation rates, are included
in Column D.
102
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 15, 2015, at 9:00 a.m. at
The One Hundred Club, 100 Market Street, Suite 500, 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.
103
Trademarks and Trade Names
INLINE, KRAFTLINE, PRINTLINE, HYDROCROSS, SEAM HYDROCROSS, SEAMPLANE, Seam
KMX, SPRING, VENTABELT EVM, VENTABELT XTS, TRANSBELT GX, SPIRALTOP, AEROPULSE,
AEROPOINT, DURASPIRAL, TOPSTAT, SUPRASTAT and NOVALACE are all are trade names of Albany
International Corp.
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.
Officers
Joseph G. Morone
President and Chief Executive Officer
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
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
104
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transglobal Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brandon Drying Fabrics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Forming Fabrics Corp. . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Wet Felts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International 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 Safran 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%
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Australia
Brazil
Canada
China
China
Finland
France
France
Germany
Germany
Germany
Italy
Japan
Korea
Mexico
Netherlands
Russia
South Africa
Sweden
Sweden
Sweden
Sweden
Switzerland
Switzerland
Switzerland
United Kingdom
United Kingdom
United Kingdom
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
105
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
We consent to the incorporation by reference in the registration statements (Nos. 333-195269, 333-140995,
333-76078, 333-90069, 033-60767, 333-190774) on Form S-8 of Albany International Corp. of our report dated
February 27, 2015, with respect to the consolidated balance sheet of Albany International Corp. as of December 31,
2014, and the related consolidated statements of income, comprehensive income/(loss), and cash flows for the year
then ended, and the related financial statement schedule, and the effectiveness of internal control over financial
reporting as of December 31, 2014, which report appears in the December 31, 2014 annual report on Form 10-K of
Albany International Corp.
/s/ KPMG LLP
Albany, New York
February 27, 2015
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. File
Nos. 333-195269, 333-140995, 333-76078, 333-90069, 033-60767, 333-190774 ) of Albany International Corp.
of our report dated February 26, 2014 except for the effects of the revisions discussed in Notes 5, 8 and 11, as to
which the date is February 27, 2015 relating to the consolidated financial statements and financial statement
schedule, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2015
106
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, 2014 (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 27th day of
February, 2015.
/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
107
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 27, 2015
By /s/ Joseph G. Morone
______________________________________________________________________
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
108
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 27, 2015
By /s/ John B. Cozzolino
______________________________________________________________________
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
109
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, 2014 (“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 27, 2015
/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)
110
216 Airport Drive, Rochester, NH 03867 USA
Tel: 603 330 5850 • Fax: 603 994 3835 • www.albint.com • investor.relations@albint.com