17annual report & 10-K
our investment proposition
A small cap that combines the cash generation potential
of a value stock with the revenue potential of a growth stock.
our strategy
Focus on markets in which we have the basis for sustainable
competitive advantage, and in those markets, through investment in
talent and technology, strive to deliver to our customers the highest
value combination of performance and price possible.
our objective, near- and long-term
Hold Machine Clothing cash flow steady for as long as possible,
while growing AEC as rapidly as possible.
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 23 plants in 10 countries, employs 4,400 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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4,400
EMPLOYEES
23
PLANTS
10
COUNTRIES
AIN
(NYSE)
17
Q1 Q2 Q3 Q4
$150.7
71.4
$222.1
$146.6
69.0
$215.6
$142.8
56.5
$199.3
$150.3
76.4
$226.7
$ 22.1 $ 9.2
$ 22.3
$ 22.6
10.8 1.1
5.9
0.34 0.03 0.47 0.19
0.34 0.03 0.47 0.19
15.3
2015
2016
2017
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2017
US $ million, except per share
Net sales:
Machine Clothing
Albany Engineered Composites
Operating income
Net income attributable
to the Company
Earnings per share - basic
Earnings per share - diluted
Years ended
US $ million,
except per
share data
Dec
31
$709.9
Net sales
278.7
Gross profit
Operating income
63.9
Net income attributable to the Company 57.3
1.79
Earnings per share - basic
1.79
Earnings per share - diluted
$779.8
300.6
91.8
52.7
1.64
1.64
$863.7
295.8
76.2
33.1
1.03
1.03
Table Of
CONTENTS 2 CEO LETTER 6 GLOBAL LOCATIONS 7 FORM 10-K
1
17CEO
Letter to Shareholders
Joseph G. Morone
President & Chief Executive Officer
(retired March 1, 2018)
In my letter to you last year, I wrote that Albany
was firmly on track toward its cash-and-grow
objectives for both 2017 and beyond. I am
happy to report a year later that we are still on
track, and if anything, somewhat ahead of our
prior expectations. MC and AEC exceeded
their performance targets for 2017, and their
long-term outlooks now appear to be a bit
brighter than the already bright expectations
that we had for them last year.
2
CASH
Machine Clothing had another good year in
2017. Sales excluding changes in currency
rates, gross margin, operating income and
Adjusted EBITDA were all virtually identical to
the strong levels of 2016. The market trends of
2016 persisted through 2017. A 7% decline in
publication grades sales was offset by stable or
incrementally growing sales in other grades.
Publication grade sales declined to approxi-
mately 23% of total sales compared to 25%
in 2016. Prices were stable, although pricing
pressure remained intense, particularly in Asia.
New product performance was strong across
17 the board, and we are greatly encouraged
...It may now be
appropriate to think
of MC for the long
term as a stable
business with some
potential for small
increases in sales
volume during
strong economic
conditions...
by advances in the new technology platform
across multiple segments and product lines.
For the full year, gross margin held at 47.5%,
and Adjusted EBITDA held at the high end
of our expected range of $180 million to
$195 million.
We expect full-year 2018 to be comparable
to full-year 2017, and thus for MC to again
perform in the upper half of our normal range
for Adjusted EBITDA. While growing inflationary
pressures and a weakening U.S. dollar could
lead to some regression away from the very
high end of the range, a strong order backlog,
healthy economic conditions around the
world, and continued strong product
performance should lead to another good
year for MC in 2018.
But of greater significance than this outlook
for continued stability in the short term is what
MC’s 2017 performance suggests about its
longer-term prospects. Since 2007, MC has
faced three sources of downward pressure
on margins: declining sales volume due to
the collapse of the publication grades; pricing
pressure stemming in large measure from the
declining volume coupled with new entrants in
China; and cost inflation. Of these three, the
declining volumes have had the most power-
ful impact. Since 2007, the total market for
machine clothing (and Albany’s sales in that
market) declined roughly 30%. Against the
backdrop of this decade-long decline in sales
volumes, we view the stability of MC sales
over the past two years as an indicator of an
important structural change. Although
publication grade sales are likely to continue
to erode at a 5% to 10% annual rate and to
cause periodic volatility when large numbers of
publication machines are shut down in a short
period of time, the publication grades have
become a small enough part of MC’s sales
mix that, under normal economic conditions,
incremental growth in the other grades should
usually be sufficient to offset those declines.
net sales
USD MILLIONS
2015
2016
2017
709.9
779.8
863.7
adjusted EBITDA (1) (2)
USD MILLIONS
2015
141.0
2016
2017
168.9
169.4
(1) Adjusted EBTIDA includes second-quarter charges of $15.8 million in 2017 and $14.0
million in 2015 related to revisions in the estimated profitability of the BR725 (2017 and
2015) and A380 (2017) programs.
(2) EBITDA from continuing operations, excluding restructuring charges, revaluation effects,
acquisition expenses, pension settlement expense, gains from insurance recovery and
sale of investment, write-off of inventory in a discontinued product line, and pretax income
attributable to noncontrolling interest; see item 7 in the 10-K included in this Annual Report
for a reconciliation of Adjusted EBITDA to Net Income.
3
‘‘‘‘
MC will still have to deal with pricing pressure
and inflation. But as the last two years have
demonstrated, without also having to fight the
volume effect, we have been able to offset the
pricing and inflationary pressures through a
combination of investment in technology and
continuous productivity improvement. As a
result, we think it may now be appropriate to
think of MC for the long term as a stable
business with some potential for small
increases in sales volume during strong
economic conditions, rather than as a
gradually deteriorating business fighting a
market in structural decline.
GROW
AEC also had a good year in 2017. Sales
grew by 38%, driven by growth in the LEAP,
Boeing 787 fuselage frames, F-35 airframe and
CH-53K programs. LEAP accounted for 43%
of full-year sales; the next largest programs,
Boeing 787 fuselage frames and F-35 airframe,
each accounted for approximately 10%. All of
AEC’s ramping programs made good progress
on quality and deliveries, and the first of our
two new plants in Querétaro, Mexico produced
and shipped its initial LEAP fan blades late in
Q4. We continue to see upward pressure on
demand for the LEAP program, as Boeing
and Airbus explore the possibility of additional
increases in monthly production of the 737
MAX and A320neo, while demand on all of
AEC’s other ramping programs is either stable
or facing incremental upward pressure. We
expect the trend of rapid growth to continue
in 2018, with a 20% to 30% increase in sales,
driven once again by the LEAP, 787 fuselage
frames and F-35 programs.
Despite the strong sales growth in 2017,
operating income declined compared to
2016, due to the $16 million second quarter
charge associated with the BR725 and A380
programs. Aside from these charges, AEC
continued to make steady, incremental
progress during 2017 toward our target of
18% to 20% Adjusted EBITDA as a percent
of sales by 2020. Future AEC profit margins
will be affected by the change in revenue
recognition standards that went into effect on
January 1 of this year. But holding revenue
recognition standards constant, the trend
toward incrementally improving profit margins
should continue through 2018 and 2019, as
the rate of hiring, training and new equipment
installation begins to slow and operating
efficiencies advance.
In new business development, we continued
to make progress on multiple fronts during
2017, and as a result, we revised our estimate
for 2020 revenue potential upward from $450
million to $500 million to $475 million to $550
million. Looking beyond 2020, we see organic
growth potential on four fronts: entirely new
platforms, both commercial and defense, such
as the potential Boeing 797 program; new
contract wins on existing platforms, primarily
commercial airframes and engines; additional
demand on programs on which we are already
well established, such as LEAP and CH-53K;
and diversification outside aerospace.
There is also potential to pursue inorganic
growth opportunities in the years beyond
2020. As AEC executes the ramp-ups on
its existing contracts, it should generate
significantly more Adjusted EBITDA, while
simultaneously reducing capital expenditures.
This increase in AEC cash flow, coupled
with stable MC cash flow, should make the
potential for inorganic growth once again
a realistic prospect for the Company by early
next decade. This of course assumes good
execution across all of our programs and
ramp-ups. One of the inescapable realities of
this business is that the most direct pathway
to growth beyond 2020 is good execution
to 2020. The better AEC performs in the
short-term, the greater the long-term
opportunities for growth, both organic
and inorganic.
4
The better AEC performs in the short-term,
the greater the long-term opportunities for
growth, both organic and inorganic.
So 2017 was a good year for Albany, not
just in comparison to 2016 and to the
expectations we had for 2017, but also
for what 2017 performance suggests
about the potential for future stability in
MC and continued growth in AEC to 2020
and beyond.
This is my thirteenth and last annual letter.
By the time you read this, I will have retired
and Olivier Jarrault will have begun his tenure
as Albany International’s new President and
CEO. I close this letter and my tenure at
Albany with two strong sentiments –
optimism about the future of our company,
our new CEO, and where he’ll lead Albany
International; and gratitude to my 4400
colleagues around the world and across
both businesses. The progress we’ve
made over these past 12 years is above
all a testament to their commitment to
the Company, our customers, and
especially, to you our shareholders.
With warm regards,
Joseph G. Morone
President & Chief Executive Officer
February 28, 2018
“I am privileged to have the
opportunity to lead Albany -
a company with such a
proud and compelling
history, with significant
strengths and exceptional
growth potential.
I am excited to engage
with our customers, the
entire Albany organization
and the Board, to continue
and further expand the
efforts already underway
to provide greater value to
our customers, and to
deliver increased returns
for our shareholders.”
— Olivier Jarrault
President & Chief Executive Officer
(elected March 2, 2018)
5
‘‘‘‘
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France
Commercy AEC
St. Junien MC
Sélestat 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
MEXICO
Cuautitlán MC
Querétaro AEC
ITALY
Ballò di Mirano (VE) MC
USA
Boerne, Texas AEC
Homer, New York MC R&D
Kaukauna, Wisconsin MC R&D
Menasha, Wisconsin MC
Rochester, New Hampshire AEC R&D
St. Stephen, South Carolina MC
Salt Lake City, Utah AEC
17
BRAZIL
Indaial MC
6
CHINA
Hangzhou MC
Panyu MC
S. KOREA
Chungju MC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2017
OR
M 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 A No M
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 M No A
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 A No M
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 A No M
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. M
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 A
Non-accelerated filer M
Accelerated filer M
Smaller reporting company M
Emerging growth company M
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. M
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes M No A
The aggregate market value of the Common Stock held by non-affiliates of the registrant on June 30, 2017, 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 $1.5 billion.
The registrant had 29 million shares of Class A Common Stock and 3.2 million shares of Class B Common Stock outstanding as of
January 31, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 11, 2018
PART
III
7
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships, Related Transactions and Director Independence . . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
14
23
24
24
24
25
27
28
48
49
100
100
102
103
103
104
105
105
Item 15.
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106
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 and Albany Engineered Composites
segments compete, along with general risks associated with macroeconomic conditions;
• In the Machine Clothing segment, greater than anticipated declines in the demand for publication
grades of paper or, lower than anticipated growth in other paper grades;
• In the Albany Engineered Composites segment, unanticipated reductions in demand, delays, technical
difficulties or cancellations in aerospace programs that are expected to drive growth;
• 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 Overview and Trends” 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. 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 other 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
Item 1. Business
PART I
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, tissue and towel, pulp, 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 paper machine
clothing products 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 percent 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, and tannery and textile industries.
We sell our Machine Clothing products directly to customer end-users in countries across the globe. 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. No individual customer accounted for as much as 10 percent
of Machine Clothing net sales in any of the periods presented.
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 to customers in the aerospace and defense industries. AEC’s largest aerospace
customer is the SAFRAN Group and sales to SAFRAN (consist primarily of fan blades and cases for CFM’s
LEAP engine) accounted for approximately 14 percent of the Company’s consolidated net sales in 2017. AEC,
through ASC, is the exclusive supplier to this program of advanced composite fan blades and cases under a
long-term supply contract. Other significant AEC programs include components for the Lockheed F-35 Joint
Strike Fighter (JSF), fuselage frame components for the Boeing 787, Sikorsky CH-53K, and Lockheed
JASSM programs; vacuum waste tanks for Boeing 7-Series aircraft; components for the Rolls Royce lift fan
of JSF; and the fan case for the GE9X engine. In 2017, approximately 30 percent of the AEC segment’s sales
were related to U.S. government contracts or programs.
See “Business Environment Overview 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 2017, 2016, and 2015.
(in thousands)
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$590,357
273,360
$863,717
$582,190
197,649
$779,839
$608,581
101,287
$709,868
The table setting forth certain sales, operating income, and balance sheet data that appears in Note 3,
“Reportable Segments and Geographic Data,” of the Consolidated Financial Statements, included under Item 8
of this Form 10-K, is incorporated herein.
10
International Operations
Our Machine Clothing business segment maintains manufacturing facilities in Brazil, Canada, China,
France, Italy, Mexico, South Korea, Sweden, the United Kingdom, and the United States. Our AEC business
segment maintains manufacturing facilities in the United States, France, and Mexico.
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 indefinitely reinvested. To date, while we have been able to make such repatriations
without substantial governmental restrictions, and while the 2017 U.S. tax reform should reduce the costs of
such repatriation, changes in the trade or regulatory compliance in any country that we have significant cash
balances could make it more difficult to repatriate foreign earnings cost-effectively in the future. 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, paperboard, and tissue companies, the Machine Clothing segment is a
leading supplier to the nonwovens (which includes the manufacture of products such as diapers, personal care
and household wipes), building products, and tannery and textile industries. 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 working capital rose sharply in the last few 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 Chinese New Year, summer months, and the end of the year are
often periods of lower production for some of our customers, which, in the past has contributed to seasonal
variation in sales and orders. In recent years, shorter order cycles and lower inventory levels throughout the
supply chain have become a more significant factor in quarterly sales. The impact of these combined factors
on any quarter can be difficult to predict, and can make quarterly comparisons less meaningful than in prior
years. While seasonality is generally not a significant factor in the Albany Engineered Composites segment,
the commercial terms of the supply agreement governing the LEAP program has resulted in fourth quarter
sales volatility in recent years.
Backlog in the MC segment was $201.1 million at December 31, 2017, compared to $163.8 million at
December 31, 2016. The increase reflects a weakening of the U.S. dollar in 2017 and strong orders during the
fourth quarter of 2017. Backlog in the AEC segment increased to $157.7 million at December 31, 2017,
compared to $128.4 million at December 31, 2016, reflecting the ramp-up in several key programs. 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, 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
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commitment to technological innovation. This innovation has resulted in a continuing stream of new Machine
Clothing products and enhancements across all of our product lines.
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, traditional 2D laminated composite structures,
automated material placement, filament winding, through-thickness reinforcement and braiding.
In addition to continuous significant investment in core research and development activities in pursuit of
new proprietary products and manufacturing processes, experienced research and development employees in
each business segment also work collaboratively with customers, OEMs and suppliers on targeted
development efforts to introduce new products and applications in their respective markets.
Company-funded research expenses totaled $30.7 million in 2017, $28.8 million in 2016, and $31.7 million in
2015. In 2017, these costs were 3.6 percent of total Company net sales, including $12.2 million, or 4.5 percent of
net sales, 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 costs. 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
$4.7 million in 2017, $2.0 million in 2016, and $3.4 million in 2015.
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 2,300 patents, and more than 250 new patents are typically granted each year. While we
consider our total portfolio of intellectual property, including our patents, to be an important competitive
advantage, we do not believe that any single patent is critical to the continuation of our business. All brand
names and product names are trade names of Albany International Corp. or its subsidiaries. We have from
time to time licensed some of our patents and/or know-how to one or more competitors, and have been
licensed under some competitors’ patents, in each case mainly to enhance customer acceptance of new
products. The revenue from such licenses is less than 1 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. 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 32 percent 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 that may
preclude or delay their availability. In the case of mandated suppliers, AEC endeavors to enter into long-term
supply agreements to help mitigate price and availability risks. 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.
Competition
In the paper machine clothing market, we believe that we had a worldwide market share of approximately
30 percent in 2017, 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. Albany’s Machine Clothing product portfolio is broad and deep, with products for every part of the
machine and for every machine type and paper grade. The Company’s research and development team works
closely with the sales and technical organization to develop new products to meet changes in customer needs,
12
and also pursues targeted joint development activities with customers and equipment manufacturers to create
new products. Albany’s experienced sales and technical team members – many of whom have worked in the
industries that we serve – work closely with each customer to acquire deep understanding of the customer’s
combination of raw materials, manufacturing equipment, manufacturing processes, and paper, pulp, nonwovens
or other product being produced – a combination that is unique to each customer, plant and machine. This
experience and knowledge, combined with knowledge of and experience with the Company’s own extensive
product portfolio, allows the sales and technical teams to ensure that the appropriate machine clothing
products are being supplied for each part of the machine, to customize those products as needed for best
performance, and to continuously propose new Machine Clothing products that offer each customer the
possibility of even better performance and increased savings. These efforts – which effectively integrate the
Company’s experience and technological expertise into each product we sell – are reflected in the Company’s
strong competitive position in the marketplace. Some of the Company’s paper machine clothing competitors
also supply paper machines, papermaking equipment, and aftermarket parts and services, and endeavor to
compete by bundling clothing with original equipment and aftermarket services.
The primary competitive factors in the markets in which our Albany Engineered Composites segment competes is
product performance and price. Achieving lower weight without sacrificing strength is the key to improving fuel
efficiency, and is a critical performance requirement in the aerospace industry. Our broad array of 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 4,400 persons, of whom 68 percent 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 28, 2018:
Joseph G. Morone, 64, 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. Effective
January 1, 2018, he assumed the role of President, Albany Engineered Composites. 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. During 2017,
Mr. Morone announced his intent to retire from the Company in 2018. On February 5, 2018, the Company announced
that Mr. Morone would retire effective March 2, 2018, and Olivier Jarrault will join the Company on that day as
President and Chief Executive Officer.
John B. Cozzolino, 51, Chief Financial Officer and Treasurer, joined the Company in 1994. He has
served the Company as Chief Financial Officer and Treasurer since February 2011. From September 2010 to
February 2011, he served as Vice President – Corporate Treasurer and Strategic Planning/Acting Chief
Financial Officer, from February 2009 to September 2010, he served as Vice President – Corporate Treasurer
and Strategic Planning, and from 2007 to February 2009 he served 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, 56, 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
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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 Se´lestat, France, from 1987 to 1993.
Robert A. Hansen, 60, 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. He
previously served as 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, Go¨ppingen, Germany. Before 2000, he served the
Company in a number of technical management and research and development positions in Europe and
the U.S.
David M. Pawlick, 56, Vice President – Controller, joined the Company in 2000. He has served the
Company as Vice President – Controller since 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., 58, 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, 60, 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 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, 54, 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.
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.
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A number of industry factors have had, and in future periods could have, an adverse impact on sales,
profitability and cash flow in the Company’s Machine Clothing and AEC segments
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 pressure to
provide more favorable commercial terms, which has negatively affected our operating results. We expect such
pressure 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 Chinese
competitors exacerbates this risk.
Similar pressures exist in the markets in which AEC competes. Many of AEC’s customers, as well as the
companies supplied by our customers in turn, are under pressure to achieve acceptable returns on their
substantial investments in recent years in new technology, new programs and new product platforms. This has
contributed to a relentless focus on reducing costs, resulting in growing pressure for cost and price
improvements throughout the supply chain. The recent wave of consolidation in the aerospace industry could
intensify these pressures.
AEC is subject to significant execution risk related to the ramp up of key programs 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, as well as at the third LEAP facility in Queretaro, Mexico. In addition, a
number of programs acquired in the purchase of Harris Corporation’s composite aerostructures business –
including airframe components for the F-35 Joint Strike Fighter, forward fuselage frames for the Boeing 787,
and sponsons, tail-rotor pylons and horizontal stabilizers for the CH-53K helicopter – will be ramping
significantly during the next few years while LEAP output increases toward full production. AEC will be
required to execute all of these ramp-ups while continuing to maintain and improve performance on legacy
programs. AEC’s ability to realize its full growth potential 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 AEC revenues, income, and cash flows, which could in turn have a material adverse impact on
our consolidated financial results.
AEC is subject to significant financial risk related to potential quality escapes that could cause customer
recalls, or production shortfalls that could cause delays in customer deliveries
In the short term, AEC must continue to ramp up and mature its manufacturing capacity while meeting
increasingly demanding quality, delivery, and cost targets across a broad spectrum of programs and facilities.
In addition to LEAP, these programs include airframe components for the F-35 Joint Strike Fighter, forward
fuselage frames for the Boeing 787, and sponsons, tail-rotor pylons and horizontal stabilizers for the CH-53K
helicopter. AEC’s ability to realize its full financial objectives will depend on how effectively it meets these
execution challenges. Failure to accomplish these customer quality, delivery, and cost targets on any key
program could result in material losses to the Company and have a material adverse impact on the amount
and timing of anticipated AEC 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
15
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, primarily in the
aerospace and defense 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 and other programs, 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 prospects for revenue 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,
absent the incurrence of additional indebtedness to fund this growth, AEC 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.
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 the future. While long-term or life-of-program contracts provide an
opportunity to realize steady and reliable revenues for extended periods, they pose a number of risks, such as
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. The occurrence of one or more of these events 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 also provide AEC with the opportunity to enjoy increased profits as
the result of cost reductions and efficiencies, their profitability is dependent on estimates and assumptions
regarding contract performance costs over the life of the contract, which in some cases can last for many
years. Such estimates and assumptions are subject to many variables, and may prove over time to have been
inaccurate when made, or may become inaccurate over time. Additionally, many of the parts AEC agrees to
develop and produce have highly complex designs, and technical, quality, or other specifications.
Manufacturing or development challenges, disagreements over technical, quality or other contract
requirements, and other variables 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. One or more of these events could have a material adverse effect on
AEC’s revenues or operating results in any period. Such events could also result in the write-off of deferred
charges that have been or could be accumulated in anticipation of future revenues.
In the second quarter of 2017, AEC recorded a charge of $15.8 million related to the revision in the
estimated profitability of its BR 725 and A380 programs. The charge was driven primarily by a reduction in
the estimated future demand in these long-term contracts. That charge followed a $14.0 million charge in 2015
for the BR 725 program. Each quarter, the Company updates its outlook for each of its long-term contracts
and records the effect of the change in estimated profitability. While the Company believes its estimates on
long-term contracts to be accurate based on available information, new information may become available in
future periods, or other changes in the program could occur, which may lead to additional program losses,
which could have a material effect on operating results in future periods.
Sales of components for a number of programs that are currently considered to be important to the future
sales growth of AEC are pursuant to short-term purchase orders for a finite period or number of parts,
or short-term supply agreements with terms of one to four years. Such programs include airframe components
for the F-35 Joint Strike Fighter, forward fuselage frames for the Boeing 787, and sponsons, tail-rotor pylons
16
and horizontal stabilizers for the CH-53K helicopter. As a result, while AEC reasonably expects to continue as
a supplier on these programs as long as it meets its obligations, there can be no assurance that this will be the
case, or that, in programs where it is currently a sole supplier that this sole supplier status will continue even
if it continues as a supplier. Even if AEC’s status as a supplier is extended or renewed, there can be no
assurance that such extension or renewal will be on the same or similar commercial or other terms. Any
failure by AEC to maintain its current supplier status under these programs, or any material change in their
commercial or other terms, could have a material adverse effect on AEC’s future sales and operating income.
AEC is subject to significant risks related to the potential manufacture and sale of defective or non-
conforming products
AEC manufactures and sells products that are incorporated into commercial and military aircraft. If AEC
were to supply products with manufacturing defects, or products that failed to conform to contractual
requirements, we could be required to recall and/or replace them, and could also be subject to substantial
contractual damages or warranty claims from our customers. AEC could also be subject to product liability
claims if such failures were to cause death, injury or losses to third parties, or damage claims resulting from
the grounding of aircraft into which such defective or non-conforming products had been incorporated. While
we maintain product liability insurance and other insurance at levels we believe to be prudent and consistent
with industry practice to help mitigate these risks, these coverages may not be sufficient to fully cover AEC’s
exposure for such risks, which could have a material adverse effect on AEC’s results of operations and
cash flows.
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, a recession could lead to lower consumption in all paper grades
including tissue and packaging, which would not only reduce consumption of paper machine clothing but
could also increase the risk of greater price competition in the machine clothing industry.
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. Demand for AEC’s 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 operating costs for airlines 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. In addition, any economic
conditions that led to sustained high interest rates could affect the airline’s ability to finance new aircraft and
engine orders.
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 business, financial condition, or operating results.
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.
AEC derives a significant portion of its revenue from contracts with the U.S. government, which are subject
to unique risks
The funding of U.S. government programs is subject to congressional appropriations. Many of the U.S.
government programs in which we participate may last several years, but they are normally funded annually.
Changes in military strategy and priorities may affect our future procurement opportunities and existing
programs. Long-term government contracts and related orders are subject to cancellation, delay or restructure,
if appropriations for subsequent performance periods are not made. The termination or reduction of funding
17
for existing or new U.S. government programs could result in a material adverse effect on our earnings, cash
flow and financial position.
Additionally, our business with the U.S. government is subject to specific procurement regulations and
our contract costs are subject to audits by U.S. government agencies. U.S. government representatives may
audit our compliance with government regulations, and such audits could result in adjustments to our contract
costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and such costs
already reimbursed must be refunded. If any audit uncovers improper or illegal activities, we may be subject
to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of
profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S.
government, which could result in a material adverse effect on our earnings, cash flow and financial position.
The loss of one or more major customers could have a material adverse effect on sales and profitability
One customer (Safran) accounted for approximately 44 percent of net sales in the AEC segment in 2017,
substantially all of which was under an exclusive long-term supply agreement relating to parts for the LEAP
engine. Although we are an exclusive supplier of such parts, our customer is not obligated to purchase any
minimum quantity of parts, and cancellation of the LEAP program, or of existing orders for LEAP engines,
would have a material adverse impact on segment sales and profitability. The LEAP long-term supply
agreement also contains certain events of default that, if triggered, could result in termination of the agreement
by the customer, which would also have a material adverse impact on segment sales and profitability.
AEC’s short- and medium-term non-LEAP future sales growth is currently limited to and dependent upon
a small number of customers and program. Unlike the 3D-woven composite components supplied by ASC,
parts supplied for such non-LEAP programs are capable of being made by a number of other suppliers. Such
programs include airframe components for the F-35 Joint Strike Fighter, forward fuselage frames for the
Boeing 787, and sponsons, tail-rotor pylons and horizontal stabilizers for the CH-53K helicopter. Any failure
by AEC to maintain its current supplier status under these programs, or any material change in their
commercial or other terms, could have a material adverse effect on AEC’s future sales and operating income.
Our top ten customers in the Machine Clothing segment accounted for a significant portion of our net
sales in 2017. 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, the agreements 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.
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 bundle fabrics with new machines
and after-market services could provide a competitive advantage. This underscores the importance of our
18
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. 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 plan each step of the
process carefully, and work to reassure customers who could be affected that their requirements will continue
to be met, we could lose customers and associated revenues if we fail to execute properly.
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 over the past
decade 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. 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.
AEC’s production of LEAP engine components is currently located in three facilities. An interruption at any of
these locations would have a significant adverse effect on AEC’s ability to timely satisfy orders for LEAP components.
Production of almost all of AEC’s other legacy and growth programs – including components for the F-35 Joint Strike
Fighter, fuselage components for the Boeing 787, components for the CH-53K helicopter, vacuum waste tanks for
Boeing 7-Series aircraft, and missile bodies for Lockheed Martin’s JASSM air-to-surface missiles – is located primarily
in facilities in Salt Lake City, Utah or Boerne, Texas.
A significant interruption in the operation of any one or more of our plants, whether as the result of a
natural disaster or other causes, could significantly impair our ability to timely meet our supply obligations to
customers being supplied from an affected facility. 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, 2017, Standish Family Holdings, LLC 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 percent 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
19
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 percent 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 all of our
current directors, other than Dr. Morone, Christine Standish and John Standish 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,
it is possible that 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.
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.
As our dependence on information technology and communication systems 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
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.
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 raw materials that are based on petroleum or petroleum derivatives.
Increases in the prices of petroleum or petroleum derivatives, 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.
The Company also relies on the labor market in many regions of the world to meet our operational
requirements, advance our technology and differentiate products. Low rates of unemployment in key
geographic areas in which the Company operates can lead to high rates of turnover and loss of critical talent,
which could in turn lead to higher labor costs.
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. The effect of currency rate changes on gross profit in the Machine
Clothing segment can be difficult to anticipate because we use a global sourcing and manufacturing model.
Under this model, while some non-U.S. sales and associated costs are in the same currency, other non-
U.S. sales are denominated in currencies other than the currency in which most costs of such sales are
incurred. At the same time, the geographic sources of materials purchased (and the currencies in which these
20
purchases are denominated) can vary depending on market forces, and the Company may also shift production
of its products between manufacturing locations, which can result in a change in the currency in which certain
costs to produce such products are incurred.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling,
Technical, General and Research expenses or Other expense/(income), 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.
As a result of these exposures to foreign currency transactions and balances, changes in currency rates
could adversely affect the Company’s business, financial condition or results of operations.
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.
We have a substantial amount of indebtedness. At December 31, 2017, the Company had outstanding
short-term debt of $2.1 million and long-term debt of $514 million
At December 31, 2017, our leverage ratio (as defined in our primary borrowing agreement) was 2.62
to 1, and we had borrowed $501 million under our $685 million revolving credit facility. While we feel that
we generate sufficient cash from operations and have sufficient borrowing capacity to make required capital
expenditures to maintain and grow our business, any decrease in our cash generation could result in higher
leverage. Higher leverage could hinder our ability to make acquisitions, capital expenditures, or other
investments in our businesses, pay dividends, or withstand business and economic downturns. Our primary
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 the debt on attractive terms, or at all.
As of December 31, 2017, we had approximately $184 million of additional borrowing capacity under
our $685 million revolving credit facility. Incurrence of additional indebtedness could increase the above-
described risks associated with higher leverage. In addition, any such indebtedness could contain terms that
are more restrictive than our current facilities.
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.
21
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, 2017, remaining net liabilities under our defined benefit pension plans exceeded plan assets by
$25.3 million ($13.8 million for the U.S. plan, $11.5 million for non-U.S. plans). Additionally, the liability for
unfunded postretirement welfare benefits, principally in the United States, totaled $58.5 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. Those liabilities include $76.2 million of deferred costs which are included in Accumulated
other comprehensive income. The deferred costs will be amortized into expense in future periods, or a
significant charge could be recorded if we were to settle pension or postretirement obligations.
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.
Changes in or interpretations of tax rules, structures, country profitability mix, and regulations may
adversely affect our effective tax rate
We are a United States-based multinational company subject to tax in the United States and foreign tax
jurisdictions. Unanticipated changes in tax rates, or tax policies in the countries in which we operate, could
affect our future results of operations. Our future effective tax rate 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.
Additionally, changes in the tax laws in any country, including the U.S. tax reform in 2017, may be difficult
to interpret without additional guidance, which could lead to future adjustments to our financial statements.
The Company has substantial deferred tax assets that could become impaired, resulting 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 taxable
income in specific countries. (See Note 7 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.
22
Our business could be adversely affected by adverse outcomes of pending or future tax audits
The Company is currently under audit in certain jurisdictions and could be audited in other jurisdictions
in the future. While the Company believes its tax filings to be correct, a final adverse outcome with respect to
pending or future audits 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 2017, 47 percent 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.
We have significant manufacturing operations in Mexico, Canada and China. Changes in U.S. trade
policy with these countries (including the North American Free Trade Agreement, or NAFTA), or other
changes in U.S. laws and policies governing foreign trade, as well as any responsive or retaliatory changes in
regulations or policies by such countries, could have an adverse impact on our business.
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.
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 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.
23
Item 2.
PROPERTIES
Our principal manufacturing facilities are located in Brazil, Canada, China, France, Italy, Mexico, South
Korea, Sweden, the United Kingdom, and the United States. The aggregate square footage of our operating
facilities in the United States is approximately 2.1 million square feet, of which 1.1 million square feet are
owned and 1.0 million square feet are leased. Our facilities located outside the United States comprise
approximately 3.4 million square feet, of which 3.0 million square feet are owned and 0.4 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 2017.
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.
24
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, 2017, we estimate that there were
over 20,000 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,
2017, there were 6 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
March 31
June 30
September 30
December 31
2017
Cash dividends per share . . . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
$ 0.17
$ 0.17
$ 0.17
$ 0.17
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$49.05
$43.90
$53.40
$43.90
$57.60
$50.25
$65.25
$56.45
2016
Cash dividends per share . . . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
$ 0.17
$ 0.17
$ 0.17
$ 0.17
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38.21
$31.43
$41.31
$37.27
$43.78
$38.92
$49.25
$38.65
25
The graph below matches the cumulative 5-Year total return of holders of Albany International Corp.’s
common stock with the cumulative total returns of the Russell 2000 index and a customized peer group of
twenty- six companies that includes: Actuant Corp., Astronics Corp., Barnes Group, Inc., Circor International
Inc., Curtiss-Wright Corp., Ducommun Inc., Enpro Industries, Inc., Esco Technologies, Inc., Esterline
Technologies, Corp., Heico Corp., Hexcel Corp., Idex Corp., Kadant, Inc., Key W Holding Corp., National
Presto Industries, Neenah Paper, Inc., Nordson Corp., Omnova Solutions, Inc., P H Glatfelter Co., Raven
Industries, Inc., Rogers Corp., Schweitzer-Maudit International, Inc., Tredegar Corp., Trimas Corp., Watts
Water Technologies Inc., Xerium Technologies Inc., The graph assumes that the value of the investment in our
common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on
December 31, 2012 and tracks it through December 31, 2017.
* $100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2018 Russell Investment Group. All rights reserved.
December 31,
Albany International Corp. . . . .
Russell 2000 . . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . .
2012
100.00
100.00
100.00
2013
161.36
138.82
149.71
2014
173.57
145.62
147.54
2015
170.14
139.19
130.94
2016
219.14
168.85
175.49
2017
294.70
193.58
219.19
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
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.
26
Disclosures of securities authorized for issuance under equity compensation plans 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.
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)
2017
2016
2015
2014
2013
Summary of Operations
Net sales(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold(1) . . . . . . . . . . . . . . . . .
Restructuring and other(1)(6) . . . . . . . . . .
Pension settlement expense(5)
. . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . .
Interest expense, net
. . . . . . . . . . . . . . . . .
Income from continuing operations . .
(Loss) from discontinued operations . .
Net income attributable to the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share attributable to
Company Shareholders – Basic . . . .
Earnings per share attributable to
Company Shareholders – Diluted . . .
Dividends declared per share . . . . . . . .
Weighted average number of shares
outstanding – basic . . . . . . . . . . . . . . . . .
Capital expenditures, including
software . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial position
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset held for sale(3) . . . . . . . . . . . . . . . . .
Property, plant and equipment, net(3) .
Total assets(1)(2) . . . . . . . . . . . . . . . . . . . . . .
Current liabilities(4)
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Total noncurrent liabilities(4)
. . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . .
Total equity(7) . . . . . . . . . . . . . . . . . . . . . . . .
$ 863,717
567,937
13,491
—
76,151
17,091
32,585
—
$ 779,839
479,271
8,376
—
91,776
13,464
52,812
—
$ 709,868
431,182
23,846
—
63,895
9,984
57,265
—
$ 745,345
453,710
5,759
8,190
71,360
10,713
41,749
—
$ 757,414
466,860
25,108
—
52,091
13,759
17,704
(46)
33,111
52,733
57,279
41,569
17,517
1.03
1.03
0.68
1.64
1.64
0.68
1.79
1.79
0.67
1.31
1.30
0.63
0.55
0.55
0.59
32,169
32,086
31,978
31,832
31,649
87,637
73,492
50,595
58,873
64,457
$ 183,727
—
454,302
1,361,198
161,517
514,120
626,666
788,183
573,015
$ 181,742
—
422,564
1,263,433
200,009
432,918
552,134
752,143
511,290
$ 185,113
4,988
357,470
1,009,562
126,231
265,080
380,778
507,009
502,553
$ 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
(1)
(2)
In 2017, we discontinued the Bear Clawt line of hydraulic fracturing components used in the oil and gas
industry, which led to a charge of $2.8 million to Cost of goods sold for the write-off of inventory, and a
non-cash restructuring charge of $4.5 million for the write-off of equipment and intangibles.
In 2016, we acquired the outstanding shares of Harris Corporation’s composite aerostructures business for
cash of $187 million, plus the assumption of certain liabilities. The table above includes operational
results from April 8, 2016 to December 31, 2016 and for full year 2017.
27
(3)
(4)
In 2015, we discontinued operations at the Company’s press fabric manufacturing facility in Germany,
and recorded a charge of $3.3 million related to the write down of the land and building to their
estimated fair market value. This asset was reclassified from Property, plant, and equipment to Asset held
for sale.
In 2015, we adopted the provisions of ASU 2015-17, “Income Taxes” using the prospective transition
method. This accounting update affected the amount and classification of deferred tax assets
and liabilities.
(5)
In 2014, we took action to settle certain pension plan liabilities in the United States which led to charges
totaling $8.2 million.
(6) During the period 2013 through 2017, we recorded restructuring charges related to organizational
changes and cost reduction initiatives.
(7)
In 2013, Safran S.A. obtained a 10 percent noncontrolling equity interest in Albany Safran Composites,
LLC (ASC) resulting in an $18.9 million increase in Shareholders’ equity.
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.
Business Environment Overview and Trends
Our reportable segments, Machine Clothing (MC) and Albany Engineered Composites (AEC) draw on
the same advanced textiles and materials processing capabilities, and compete on the basis of product-based
advantage that is grounded in those core capabilities.
The Machine Clothing segment is the Company’s long-established core business and primary generator
of cash. While it has suffered from well-documented declines in publication grades in the Company’s
traditional markets, the paper and paperboard industry is still expected to grow slightly 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, technical product support, and manufacturing technology.
Because of pricing pressures and industry overcapacity, the machine clothing and paper industries will
continue to face top line pressure. Nonetheless, the business retains the potential for maintaining stable
earnings in the future. It 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 have achieved through previous restructuring,
and competing vigorously by using our differentiated and technically superior products to reduce our
customers’ total cost of operation and improve their paper quality.
The AEC segment provides significant growth potential for our Company both near and long term. Our
strategy is to grow by focusing our proprietary 3D-woven technology, as well as our conventional non-3D
technology, on high-value aerospace and defense applications, while at the same time performing successfully
on our portfolio of growth programs. 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 and defense industry. AEC’s largest aerospace customer is the SAFRAN Group and sales to
SAFRAN (consist primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately
14 percent of the Company’s consolidated net sales in 2017. Through ASC, AEC develops and sells
3D-woven composite aerospace components to SAFRAN, with the most significant current program being the
production of fan blades and other components for the LEAP engine. AEC, through ASC, also supplies
3D-woven composite fan cases for the GE9X engine. AEC’s current portfolio of non-3D programs includes
components for the F-35 Joint Strike Fighter, fuselage components for the Boeing 787, components for the
CH-53K helicopter, vacuum waste tanks for Boeing 7-Series aircraft, and missile bodies for Lockheed
Martin’s JASSM air-to-surface missiles. AEC is actively engaged in research to develop new applications in
the aircraft engine, airframe, and automotive markets.
28
Consolidated Results of Operations
On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite
aerostructures business for $187 million in cash, plus the assumption of certain liabilities. The acquired entity,
located in Salt Lake City (SLC), Utah, is part of the AEC segment. Management believes that the acquisition
broadened and deepened AEC’s products, experience and manufacturing capabilities, and significantly
increased opportunities for future growth.
The following table presents operational results of the acquired entity that are included in the
Consolidated Statements of Income:
(in thousands)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, technical, general and research expenses . . . . . . . . . . . . . . . . . .
Restructuring expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales
The following table summarizes our net sales by business segment:
January 1 to
December 31,
2017
April 8 to
December 31,
2016
$108,112
12,524
11,849
6,594
(5,919)
$67,011
9,375
10,310
311
(1,246)
Years ended December 31,
(in thousands, except percentages)
2017
2016
2015
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$590,357
273,360
$863,717
$582,190
197,649
$779,839
$608,581
101,287
$709,868
% change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.8%
9.9%
—
2017 vs. 2016
• Changes in currency translation rates had the effect of increasing net sales by $3.7 million (0.4% of
net sales), compared to 2016. That currency translation effect was principally due to the effect on
European sales that resulted from the euro strengthening in the second half of 2017.
• Excluding the effect of changes in currency translation rates:
• Consolidated Net sales increased 10.3%.
• Net sales in MC increased $5.1 million, or 0.9%.
• Net sales in AEC increased $75.0 million, or 38.0%.
• The increase in MC net sales was due to the growth in tissue, packaging and pulp grades, which more
than offset continuing declines in the publication grades.
• The increase in AEC Net sales was principally due to:
• SLC sales increased $41.1 million. The 2016 SLC acquisition occurred in the second quarter of
2016, resulting in an additional quarter of sales in 2017. The SLC sales increase was also due to
the ramping up of key programs.
• Sales in the LEAP program increased $32.8 million, or 39.5%, compared to 2016.
2016 vs. 2015
• Changes in currency translation rates had the effect of decreasing net sales by $3.0 million (0.4% of
net sales), compared to 2015. That currency translation effect was principally due to sales in China, as
the Chinese renminbi was approximately 5% weaker in 2016, compared to 2015.
29
• Excluding the effect of changes in currency translation rates:
• Consolidated Net sales increased 10.3%.
• Net sales in MC decreased $26.3 million, or 3.9%.
• Net sales in AEC increased $96.4 million, or 95.3%.
• The reduction in MC net sales was due to the continuation of declines in the market for publication
grades, coupled with economic weakness in South America.
• The SLC acquisition increased AEC segment sales by $67.0 million. The remaining increase was due
to growth in the LEAP program.
Backlog
Backlog in the MC segment was $201.1 million at December 31, 2017, compared to $163.8 million at
December 31, 2016. The increase reflects a weakening of the U.S. dollar in 2017 and strong orders in the
fourth quarter of 2017. Backlog in the AEC segment increased to $157.7 million at December 31, 2017,
compared to $128.4 million at December 31, 2016, reflecting the ramp-up in several key programs. The
backlog in each segment is generally expected to be invoiced during the next 12 months.
Gross Profit
The following table summarizes gross profit by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
2017
2016
2015
$280,683
15,875
(778)
$295,780
$276,402
25,121
(955)
$300,568
$286,847
(6,596)
(1,565)
$278,686
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.2%
38.5%
39.3%
The decrease in 2017 gross profit, as compared to 2016, was principally due to the net effect of the
following individually significant items:
• The increase in MC gross profit was principally due to the increase in net sales, as noted above.
Changes in currency translation rates did not have a significant effect on MC gross profit in 2017.
• Machine Clothing gross profit as a percentage of sales was 47.5% in both 2017 and 2016.
• The decrease in AEC gross profit was principally due to the net effect of the following individually
significant items:
• In the second quarter of 2017, we recorded a charge of $15.8 million for a revision in the contract
profitability of two long-term manufacturing contracts for the BR 725 and A380 programs.
• During the third quarter of 2017, the Company decided to discontinue the Bear Clawt line of
hydraulic fracking components used in the oil and gas industry, which was part of the 2016 SLC
acquisition. This decision resulted in a $2.8 million charge to Cost of goods sold for the write-off
of inventory.
• The acquired SLC business generated $3.1 million of additional gross profit in 2017 as compared
2016 due, in part, to an additional quarter of operations in 2017.
• In the fourth quarter of 2017, we recorded the following items that had only a minor net effect on
Gross profit:
• A $4.9 million decrease to Cost of goods sold for an amendment to a long-term agreement
with a licensor for the A380 program.
30
• Additional Cost of goods sold of approximately $4 million for inefficiencies in the ramp-up of
production.
• A charge of $1.1 million related to an unfavorable change in the estimated profitability of a
long-term contract.
The increase in 2016 gross profit, as compared to 2015, was principally due to the net effect of the
following individually significant items:
• The decline in MC gross profit was principally due to the decline in net sales, as noted above.
• Changes in currency translation rates did not have a significant effect on MC gross profit in 2016.
• The increase in AEC gross profit was principally due to:
• In 2015, we recorded a charge of $14.0 million for a revision in the contract profitability of a
long-term manufacturing contract for the BR 725 program.
• The acquired SLC business generated $9.4 million of gross profit in 2016.
• The remaining $8.3 million increase in AEC gross profit was principally due to increased sales in
the LEAP program.
Selling, Technical, General, and Research (STG&R)
Selling, Technical, General and Research (STG&R) expenses include selling, general, administrative,
technical, product engineering and research expenses. 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)
2017
2016
2015
$123,318
37,470
45,350
$206,138
$117,804
38,170
44,442
$200,416
$123,325
21,882
45,738
$190,945
% of Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.9%
25.7%
26.9%
The increase in STG&R expenses in 2017 compared to 2016, was principally due to the following
individually significant items:
• MC revaluation of nonfunctional currency assets and liabilities resulted in losses of $3.9 million in
2017 and gains of $0.4 million in 2016.
• Changes in currency translation rates increased MC STG&R expenses by $1.1 million, of which
approximately $0.7 million was attributable to the Brazilian real which strengthened during 2017. The
remainder of the increase was principally attributable to the stronger euro.
• AEC STG&R expenses decreased $0.7 million, principally due to the net effect of the following
individually significant items:
• 2016 SLC acquisition expenses were $5.4 million. There was no comparable item in 2017.
• STG&R expenses of the SLC business were $1.5 million higher in 2017, principally due to the
timing of the acquisition in 2016.
• STG&R expenses were $2.3 million higher in 2017 due to expansion of our facilities outside of the
U.S.
The increase in STG&R expenses in 2016 compared to 2015, was principally due to the following
individually significant items:
• Changes in currency translation rates reduced MC STG&R expenses by $1.7 million, of which
approximately $0.5 million resulted from expenses in Brazil, and $0.6 million from European-based
costs, which were principally incurred in locations with the euro and the Swedish krona as the
functional currency.
31
• MC revaluation of nonfunctional currency assets and liabilities resulted in gains of $0.4 million in
2016 and $5.1 million in 2015.
• Restructuring actions taken in 2015 and 2016 reduced 2016 MC STG&R costs by approximately $7
million.
• AEC STG&R expenses increased $16.3 million, principally due to the net effect of the following
individually significant items:
• The acquired SLC business had STG&R expenses of $10.3 million.
• We recorded expenses of $5.4 million related to the SLC acquisition transaction.
• We incurred expenses of approximately $1.0 million related to integration activities.
• Corporate STG&R expenses decreased $1.3 million principally due to restructuring actions announced
in 2015.
Research and Development
The following table is a subset of the STG&R table above and summarizes expenses associated with
internally funded research and development by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$18,483
12,188
—
$30,671
(in thousands)
2016
$16,882
11,920
—
$28,802
2015
$19,838
11,042
868
$31,748
Restructuring
In addition to the items discussed above affecting gross profit, and STG&R expenses, operating income
was affected by restructuring costs of $13.5 million in 2017, $8.4 million in 2016, and $23.8 million in 2015.
The following table summarizes restructuring expense by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 3,429
10,062
—
$13,491
(in thousands)
2016
$6,069
2,314
(7)
$8,376
2015
$22,211
—
1,635
$23,846
In 2017, the Company announced the initiation of discussions with the local works council regarding a
proposal to discontinue operations at its MC production facility in Se´lestat, France. During 2017, we incurred
$1.1 million of restructuring expense associated with this proposal. In February 2018, we completed
negotiations with the Works Council regarding benefits that would be provided to affected employees, and
submitted the proposed plan to the government labor authorities for approval. While there can be no assurance
that such approval will be obtained, we consider it probable that such approval will be obtained in the first
quarter of 2018. We are presently unable to reasonably estimate the total costs for severance and other charges
associated with the proposal.
AEC restructuring charges in 2017 included the discontinuation of the Bear Clawt line of hydraulic
fracturing components used in the oil and gas industry, which led to restructuring charges totaling
$4.5 million. We also reduced our direct labor workforce in Salt Lake City and administrative positions in Salt
Lake City, Utah and Rochester, New Hampshire, which led to restructuring charges of $5.0 million. Cost
savings from these actions principally affect Cost of goods sold. While some cost savings were recognized in
2017, we expect the actions will result in additional cost savings of approximately $2.0 million in 2018.
In 2016, the Company discontinued research and development activities at its MC facility in Se´lestat,
France, which resulted in $2.2 million of restructuring expense in 2016. In 2017, we recorded additional
32
restructuring charges of $1.6 million principally related to additional termination benefits paid to
former employees.
AEC restructuring expenses in 2016 were principally related to the consolidation of legacy programs into
Boerne, Texas.
In 2015, the Company announced a plan to discontinue manufacturing operations at its MC
manufacturing facility in Go¨ppingen, Germany and manufacturing operations were discontinued during the
second quarter. The restructuring program was driven by the Company’s need to balance manufacturing
capacity with demand. In 2015, we recorded charges of $11.4 million related to this restructuring. In 2016 and
2017, we recorded additional restructuring charges of $2.6 million and $0.8 million, respectively, related to the
final closure of the plant.
In the fourth quarter of 2015, the Company implemented an early retirement program for certain
employees in the United States. Restructuring charges associated with this restructuring program were
$8.1 million. 2015 restructuring charges also include $4.3 million related to the reduction in STG&R
employment in the MC and Corporate segments.
For more information on our restructuring charges, see Note 5 to the Consolidated Financial Statements
in Item 8, which is incorporated herein by reference.
Operating Income
The following table summarizes operating income/(loss) by business segment:
Years ended December 31,
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Earnings Items
Years ended December 31,
Interest expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income attributable to the
(in thousands)
2017
2016
2015
$153,936
(31,657)
(46,128)
$ 76,151
$152,529
(15,363)
(45,390)
$ 91,776
$141,311
(28,478)
(48,938)
$ 63,895
2017
$17,091
4,352
22,123
(in thousands)
2016
$13,464
46
25,454
2015
$ 9,984
2,433
(5,787)
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(526)
79
(14)
Interest Expense, net
Interest expense, net, increased $3.6 million in 2017 principally due to borrowings to fund the 2016
SLC acquisition, and the interest associated with the capital lease obligation assumed in the acquisition.
See “Liquidity and Capital Resources” for further discussion of borrowings and interest rates.
Other Expense, net
The increase in Other expense, net included the following individually significant items:
• Foreign currency revaluations of cash and intercompany balances resulted in losses of $4.6 million in
2017, gains of $3.5 million in 2016, and losses of $1.5 million in 2015.
• In 2016, we recorded a $2.5 million charge related to the theft of cash at the Company’s subsidiary in
Japan. In 2017, we recorded a gain of $2.0 million based on an insurance settlement related to
that theft.
33
Income Taxes
The Company has operations which constitute a taxable presence in 18 countries outside of the United
States. All of these countries had income tax rates that are below 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 2017, 2016 and 2015 was 40.4%, 32.5% and (11.2%),
respectively. New tax legislation in the U.S. had a significant impact on tax expense in 2017; tax expense of
$5.8 million was recorded to reflect the impact of the mandatory deemed repatriation of the post-1986
earnings and profits of the Company’s foreign subsidiaries, while expense of $1.0 million was recorded as the
result of the revaluation of U.S. net deferred tax assets using the new lower rate of 21%. These charges are
based on the Company’s current estimates. The final impact of the new tax legislation may differ due to
factors such as further refinement of the Company’s calculations, changes in interpretations and assumptions
that the Company has made, additional guidance that may be issued by the U.S. Government, and actions the
Company may take, among other items.
The tax rate is also 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 and discrete items that may occur in any
given year but are not consistent from year to year.
Significant items that impacted the 2017 effective tax rate included the following (percentages reflect the
effect of each item as a percentage of income before income taxes):
• A tax charge of $5.8 million (10.5%) related to the impact of the U.S. mandatory deemed repatriation.
• A tax charge of $1.9 million (3.4%) related to tax rate changes, both foreign and domestic.
• A tax benefit of $0.8 million (-1.5%) related to U.S. and non-U.S. return to provision adjustments.
• A tax benefit of $3.5 million (-6.4%) related to changes in the opening valuation allowances.
• A net effective tax rate reduction of 10.5% was recognized from income tax rate differences between
non-U.S. and U.S. jurisdictions. Earnings in Brazil, Switzerland, Mexico 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 that have been or will be repatriated and foreign withholdings resulted in
an increase of 1.4% to the effective tax rate.
• A tax charge of $1.4 million (2.4%) related to the settlement of audits throughout the year.
• Income tax rate on continuing operations, excluding discrete items, was 32%.
Significant items that impacted the 2016 tax rate included the following (percentages reflect the effect of
each item as a percentage of income before income taxes):
• A tax benefit of $2.6 million (-3.4%) related to changes in uncertain tax positions.
• A $0.5 million (0.6%) net tax expense related to other discrete items.
• A net effective tax rate reduction of 9.7% was recognized from income tax rate differences between
non-U.S. and U.S. jurisdictions. Earnings in Brazil, Switzerland, Mexico 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 that have been or will be repatriated and foreign withholdings resulted in
an increase of 5.8% to the effective tax rate.
• Income tax rate on continuing operations, excluding discrete items, was 35%.
Significant items that impacted the 2015 tax rate included the following (percentages reflect the effect of
each item as a percentage of income before income taxes):
• A tax benefit of $28.6 million (-55.5%) for a worthless stock deduction related to the Company’s
investment in its Germany subsidiary, where manufacturing operations have ceased.
• A tax charge of $6.4 million (12.5%) related to the estimated settlement of the German step-up
appeal.
34
• A tax charge of $0.4 million (0.8%) related to changes in uncertain tax positions.
• A $0.5 million (-0.9%) net tax benefit related to other discrete items.
• A net rate reduction of 6.2% was recognized from income tax rate differences between non-U.S. and
U.S. jurisdictions. Earnings in Brazil, Switzerland, Mexico and China, where tax rates are lower than
the U.S. notional rate of 35%, contributed to the majority of the reduction noted. Additionally, U.S.
tax costs on foreign earnings that have been or will be repatriated and foreign withholdings resulted in
a reduction of 1.8% to the effective tax rate.
• Income tax rate on continuing operations, excluding discrete items, was 32%.
Segment Results of Operations
Machine Clothing Segment
Machine Clothing is our primary business segment and accounted for 68 percent of our consolidated
revenues during 2017. 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 1 percent over the next five years, driven primarily by global growth in packaging and
tissue, which is expected to be greater than expected declines in publication grades.
While the Machine Clothing business has suffered from well-documented declines in publication grades
in the Company’s traditional markets, the paper and paperboard industry is still expected to grow slightly 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, technical product support, and manufacturing
technology. 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 and administrative positions in the United States, Germany and France.
Review of Operations
Years ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STG&R expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
2017
2016
2015
$590,357
$582,190
1.4%
-4.3%
280,683
276,402
$608,581
—
286,847
47.5%
47.5%
47.1%
123,318
153,936
117,804
152,529
123,325
141,311
35
Net Sales
2017 vs. 2016
• Changes in currency translation rates had the effect of increasing 2017 sales by $3.1 million compared
to 2016. That currency translation effect was principally due to the effect on European sales that
resulted from the euro strengthening in the second half of 2017.
• Excluding the effect of changes in currency translation rates, Net sales in MC increased $5.1 million,
or 0.9%, principally due to the growth in tissue, packaging and pulp grades, which more than offset
continuing declines in the publication grades.
2016 vs. 2015
• Changes in currency translation rates had the effect of decreasing 2016 sales by $2.8 million
compared to 2015. That currency translation effect was principally due to sales in China, as the
Chinese renminbi was approximately 5% weaker in 2016 compared to 2015. Excluding the effect of
changes in translation rates, net sales decreased 3.9%.
• The reduction in MC net sales was due to the continuation of declines in the market for publication
grades, coupled with economic weakness in South America.
Gross Profit
2017 vs. 2016
• The increase in MC gross profit was principally due to the increase in net sales, as noted above. Gross
profit, as a percentage of sales, was 47.5% in both 2017 and 2016. Changes in currency translation
rates did not have a significant effect on gross profit in 2016.
2016 vs. 2015
• The decline in MC gross profit was principally due to the decline in net sales, as noted above.
• Changes in currency translation rates did not have a significant effect on gross profit in 2016.
Operating Income
2017 vs. 2016
The increase in operating income was principally due to the net effect of the following individually
significant items:
• Gross profit increased $4.3 million due to higher sales, as described above.
• STG&R expenses increased $5.5 million, as described above.
• Restructuring charges were $3.4 million in 2017, compared to $6.1 million in 2016.
2016 vs. 2015
The increase in operating income was principally due to the net effect of the following individually
significant items:
• Gross profit decreased $10.4 million due to lower sales, as described above.
• STG&R expenses decreased $5.5 million, as described above.
• Restructuring charges were $6.1 million in 2016, compared to $22.2 million in 2015.
Albany Engineered Composites Segment
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 to customers primarily in the aerospace and defense industries. AEC’s largest
program relates to CFM International’s LEAP engine. AEC, through ASC, is the exclusive supplier of
advanced composite fan blades and cases for this program under a long-term supply contract. Other significant
AEC programs include components for the F-35 Joint Strike Fighter, fuselage frame components for the
Boeing 787, and the fan case for the GE9X engine. The AEC segment also includes the Company’s
36
April 2016 SLC acquisition of Harris Corporation’s composite aerostructures business for cash of
$187 million, plus the assumption of certain liabilities.
Review of Operations
Years ended December 31,
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% change from prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STG&R expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands, except percentages)
2017
2016
2015
$273,360
$197,649
38.3%
15,875
5.8%
37,470
(31,657)
95.1%
25,121
12.7%
38,170
(15,363)
$101,287
—
(6,596)
-6.5%
21,882
(28,478)
Net Sales
2017 vs. 2016
The increase in net sales was principally due to the net effect of the following individually
significant items:
• Net sales for the SLC business increased $41.1 million, compared to 2016. The 2016 SLC acquisition
occurred in the second quarter of 2016, resulting in an additional quarter of sales in 2017. SLC net
sales were also higher as a result of growth in the 787 fuselage frames and F-35 Joint Strike
Fighter programs.
• Sales in the LEAP program increased $32.8 million, or 39.5%, compared to 2016.
2016 vs. 2015
The increase in sales was principally due to the net effect of the following individually significant items:
• AEC sales increased $67.0 million in 2016 due to the acquisition.
• The remainder of the sales increase was due to growth in the LEAP program.
Gross Profit
2017 vs. 2016
The decrease in AEC gross profit in 2017 was principally due to the net effect of the following:
• In the second quarter of 2017, we recorded a charge of $15.8 million for a revision in the contract
profitability of two long-term manufacturing contracts for the BR 725 and A380 programs.
• During the third quarter of 2017, the Company decided to discontinue the Bear Clawt line of
hydraulic fracking components used in the oil and gas industry, which was part of the 2016 SLC
acquisition. This decision resulted in a $2.8 million charge to Cost of goods sold for the write-off of
inventory.
• The acquired business generated $3.1 million of additional gross profit in 2017 as compared 2016 due,
in part, to an additional quarter of operations in 2017.
• In the fourth quarter of 2017, we recorded the following items that had only a minor net effect on
Gross profit:
• A $4.9 million decrease to Cost of goods sold for an amendment to a long-term agreement with a
licensor for the A380 program.
• Additional Cost of goods sold of approximately $4 million for inefficiencies in the ramp-up of
production.
• A charge of $1.1 million related to an unfavorable change in the estimated profitability of a
long-term contract.
37
2016 vs. 2015
The increase in gross profit was principally due to the net effect of the following individually
significant items:
• In 2015, we recorded a charge of $14.0 million for a revision in the profitability of a long-term
manufacturing contract for the BR 725 program.
• The business acquired in 2016 generated $9.4 million of gross profit.
• The remaining $8.3 million increase in AEC gross profit was principally due to increased sales in 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 44 percent, 45 percent, and 50 percent of segment revenue for 2017, 2016, and 2015
respectively.
In addition, AEC has long-term contracts in which the total contract price is fixed. 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.
AEC has a contract for the manufacture of composite components for the Rolls-Royce BR 725 engine,
which powers Gulfstream’s G-650 business jet. The contract obligates AEC to supply these components for
the life of the BR 725 program. During the second quarter of 2017, the Company revised its estimate of the
profitability of this contract and we recorded a charge of $10.2 million as a provision for anticipated losses
through the end of the program. The charge was driven primarily by a reduction in the estimated future
demand for these components. The Company previously recorded a charge of $14.0 million in the second
quarter of 2015 for this program, including $10.9 million for the write-off of development costs for
nonrecurring engineering and tooling, and $3.1 million for anticipated future losses.
The SLC business has a contract for the manufacture of composite struts for the Airbus A380, under
which it is obligated to supply composite wing box struts through 2020 and floor beam struts through 2023.
During the second quarter of 2017, the Company revised its estimate of the profitability of this contract and
determined that a charge of $5.6 million should be recorded as a provision for anticipated losses through
contract completion. The revision was driven by a decrease in estimated demand for these components during
the contract term, as well as by program inefficiencies. In the fourth quarter of 2017, we amended a long-term
agreement with a licensor for the A380 program, which resulted in a $4.9 million decrease to Cost of
goods sold.
Other than the adjustments noted above for the BR 725 and A380 programs, changes in contract
estimates decreased gross profit by $0.6 million in 2017, increased gross profit by $1.5 million in 2016 and by
$0.4 million in 2015.
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 on incomplete long-term contracts . . . .
Contracts in process at year-end:
Total value of contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue recognized to date . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue to be recognized in future periods . . . . . . . . . . . .
(in thousands)
2017
2016
2015
$123,688
$ 77,190
$16,891
568,739
164,093
404,646
351,779
55,091
296,688
17,670
6,471
11,199
38
Selling, Technical, General, and Research (STG&R)
2017 vs. 2016
STG&R expenses decreased $0.7 million principally due to the following individually significant items:
• 2016 acquisition expenses were $5.4 million. There was no comparable item in 2017.
• STG&R expenses of the SLC business were $1.5 million higher in 2017, principally due to the timing
of the acquisition in 2016.
• STG&R expenses were $2.3 million higher in 2017 due to expansion of our facilities outside of
the U.S.
2016 vs. 2015
STG&R expenses increased $16.3 million principally due to the following individually significant items:
• The acquired business had STG&R expenses of $10.3 million.
• We recorded expenses of $5.4 million related to the acquisition transaction.
• We incurred expenses of approximately $1.0 million related to integration activities.
Operating Loss
2017 vs. 2016
The operating loss increased by $16.3 million in 2017, principally due to the following individually
significant items:
• Gross profit decreased $9.2 million in 2017, principally due to the $10.2 million charge for the BR
725 program noted above.
• Restructuring charges increased by $7.7 million in 2017.
2016 vs. 2015
The operating loss improved by $13.1 million in 2016, principally due to the following individually
significant items:
• The $14.0 million charge recorded in 2015 for the revision to estimated contract profitability.
• Gross profit increased by approximately $6 million due to higher sales in the LEAP program.
• The acquired business had an operating loss of $1.2 million in 2016.
• The Company incurred costs of $6.4 million related to the SLC acquisition transaction and
integration activities.
39
Liquidity and Capital Resources
Cash Flow Summary
For the years ended December 31,
2017
2016
2015
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
Changes in working capital
. . . . . . . . . . . . . . . . . . . . . . . . .
Fair value adjustment on asset held for sale . . . . . . . . .
Gain on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . .
Changes in long-term liabilities, deferred taxes and
other credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Write-off of pension liability adjustment
Write-off of intangible assets in a discontinued
product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) financing activities . . . .
Effect of exchange rate changes on cash flows . . . . . . . .
Increase/(decrease) in cash and cash equivalents . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . .
$ 32,585
71,956
(38,728)
—
—
(11,409)
—
4,149
5,663
64,216
(87,637)
12,867
12,539
1,985
181,742
$183,727
$ 52,812
67,461
(45,816)
—
—
$ 57,265
60,114
1,707
3,212
(1,056)
657
51
(25,909)
103
—
5,775
80,940
(253,553)
172,038
(2,796)
(3,371)
185,113
$ 181,742
—
2,574
98,010
(47,798)
(29,402)
(15,499)
5,311
179,802
$185,113
Operating activities
Cash provided by operating activities was $64.2 million in 2017, compared to $80.9 million in 2016, and
$98.0 million in 2015. Changes in working capital for 2017 includes a use of cash of $44.3 million for AEC
segment Accounts receivable, Inventories and Contract receivables, due to the ongoing ramp up of several key
programs. Changes in working capital for 2016 includes a use of cash of $42.8 million for AEC segment
Accounts receivable, Inventories, Contract receivables and Other assets. Changes in working capital for
2015 includes the $14.0 million write-off related to the BR 725 program, while changes in Accounts
receivable, Inventories and Accounts payable resulted in an offsetting use of cash. Changes in long-term
liabilities, deferred taxes and other liabilities resulted in a use of cash totaling $11.4 million in 2017, a
provision of cash totaling $0.7 million in 2016, and a use of cash totaling $25.9 million in 2015. The amount
reported for 2017 was principally due to an amendment to a long-term agreement with a licensor for the A380
program. That agreement resulted in a $3.0 million cash payment, plus a $4.9 million reduction in the present
value of the obligation to the supplier. The amount reported for 2015 was principally due to the $28.6 million
deferred tax benefit related to the elimination of the value of the Company’s investment in its Germany
subsidiary. Cash paid for income taxes was $23.7 million, $23.4 million, and $18.4 million in 2017, 2016, and
2015, respectively.
At December 31, 2017, the Company had $183.7 million of cash and cash equivalents, of which
$156.7 million was held by subsidiaries outside of the United States. As disclosed in Note 7 of the Notes to
Consolidated Financial Statements in Item 8, which is incorporated herein by reference, we determined that all
but $40.8 million of this amount (which represents the amount of cumulative earnings expected to be
repatriated to the United States at some point in the future) is intended to be utilized by these non-U.S.
operations for an indefinite period of time. Our current plans do not anticipate that we will need funds
generated from foreign operations to fund our domestic operations or satisfy debt obligations in the
United States.
Investing Activities
On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite
aerostructures business for $187 million in cash, plus the assumption of certain liabilities. Total capital
expenditures for continuing operations, including purchased software, were $87.6 million in 2017, compared
to $73.5 million in 2016, and $50.6 million in 2015. In the AEC segment, capital expenditures were
40
$63.9 million in 2017, compared to $54.7 million in 2016, and $30.4 million in 2015. We currently estimate
full-year spending in 2018 to be $80 million to $100 million.
Financing Activities and 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. The majority of our cash balance at December 31, 2017 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, 2017.
On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility
Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered
into on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement, $501 million of borrowings were
outstanding as of December 31, 2017. The applicable interest rate for borrowings was LIBOR plus a spread,
based on our leverage ratio at the time of borrowing. At the time of the last borrowing on December 18,
2017, the spread was 1.500%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%,
based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and
without modification to any other credit agreements, as of December 31, 2017, we would have been able to
borrow an additional $184 million under the Agreement.
As of December 31, 2017, our leverage ratio was 2.62 to 1.00 and our interest coverage ratio was 9.27
to 1.00. Under the Credit Agreement we are currently required to maintain a leverage ratio (as defined in the
agreement) of not greater than 3.75 to 1.00 for each fiscal quarter ending prior to (but not including)
September 30, 2019, and 3.50 to 1.00 for each fiscal quarter ending on or after September 30, 2019, and
minimum interest coverage (as defined) of 3.00 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 does not exceed the limits noted above.
On November 28, 2017, we entered into interest rate swap agreements for the period December 18, 2017
through October 17, 2022. These transactions have the effect of fixing the LIBOR portion of the effective
interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit
Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate
of 2.11% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly
calculation date, which on December 18, 2017 was 1.50%, during the swap period. On December 18, 2017,
the all-in-rate on the $350 million of debt was 3.61%.
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. Cash dividends paid were $21.9 million, $21.8 million, and $21.1 million, in 2017, 2016, and 2015,
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.
On May 6, 2016, we terminated our interest rate swap agreements that had effectively fixed the interest
rate on $120 million of revolving credit borrowings, in order to enter into a new interest rate swap with a
greater notional amount, and the same maturity as the Credit Agreement. We paid $5.2 million to terminate
these swap agreements and that cost will be amortized into interest expense through June 2020. On
November 27, 2017, we terminated interest rate swap agreements, originally entered into on May 9, 2016, that
had effectively fixed the interest rate on $300 million of revolving credit borrowings, in order to enter into a
new interest rate swap with a greater notional amount, and the same maturity as the Credit Agreement. We
received $6.3 million to terminate the swap agreements. The amounts paid and received to terminate these
swap agreements will be amortized into Interest expense through March 2021.
Off-Balance Sheet Arrangements
As of December 31, 2017, we have no off-balance sheet arrangements required to be disclosed pursuant
to Item 303(a)(4) of Regulation S-K.
41
Contractual Obligations
As of December 31, 2017, 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
$516.2
104.0
4.8
58.5
3.3
—
15.6
$702.4
Payments Due by Period
Less than
one year
One to three
years
Three to
five years
After
five years
$ 2.1
18.1
4.8
4.1
2.7
—
4.1
$35.9
$ 3.9
36.0
—
7.9
0.6
—
5.7
$54.1
$510.2
35.5
—
7.6
—
—
3.3
$556.6
—
14.4
—
38.9
—
—
2.5
$55.8
(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 $151.0 million of variable rate debt until the November 2017 Credit Agreement matures
on November 7, 2022, and the rate as of December 31, 2017 (3.40%) continues until October 17, 2022,
then continues at 3.00% until maturity. Both rates include the effects of interest rate hedging transactions.
(b) We estimate pension benefits to be paid directly by the Company in 2017 to be $4.8 million, however,
that estimate is subject to revision based on many factors. The Company may also make contributions to
pension trusts that exist in certain countries. The amount of contributions after 2017 is subject to many
variables, including return of pension plan assets, interest rates, and tax and employee benefit laws.
Therefore, contributions beyond 2017 are not included in this schedule.
(c) Estimated cash outflow for other postretirement benefits is consistent with the expected benefit payments
as presented in Note 4 of Notes to Consolidated Financial Statements in Item 8. Estimated payments
beyond five years are subject to many variables, therefore no estimate is included in the table above.
(d) Estimated payments for deferred compensation, interest rate swap agreements, 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 7 of
the Consolidated Financial Statements in Item 8, which is incorporated herein by reference, for additional
discussion on unrecognized tax benefits.
The foregoing table should not be deemed to represent all of our future cash requirements, which will
vary based on our future needs. While the cash required to satisfy the obligations set forth in the table is
reasonably determinable in advance, many other cash needs, such as raw materials costs, payroll, and taxes,
are dependent on future events and are harder to predict. In addition, while the contingencies described in
Note 17 of Notes to Consolidated Financial Statements are not currently anticipated to have a material adverse
effect on our Company, there can be no assurance that this may not change. Subject to the foregoing, we
currently expect that cash from operations and the other sources of liquidity described above will be sufficient
to enable us to meet the foregoing cash obligations, as well as to meet our other cash requirements.
Recent Accounting Pronouncements
The information set forth above may be found under Item 8. Financial Statements and Supplementary
Data, Note 1, which is incorporated herein by reference.
Critical Accounting Policies and Estimates
For the discussion of 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
42
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 a defined profit margin. 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. For contracts with anticipated losses at
completion, a provision for the entire amount of the estimated remaining loss is charged against income in the
period in which the loss becomes known. Contract losses are determined considering all direct and indirect
contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as
period expenses.
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.
Effective January 1, 2018, the Company adopted the provisions of ASU 2014-09, Revenue from
Contracts with Customers, which could have a significant effect on how we account for certain contracts in
the AEC segment. We will also be implementing new controls and procedures in 2018 to ensure accurate
reporting under the new standard. See additional information in Item 8.
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, 2017, total liabilities under
our defined benefit pension plans (including unfunded plans) exceeded plan assets by $25.3 million, of which
$11.5 million was for plans outside of the U.S. Additionally, at December 31, 2017, other postretirement
liabilities totaled $58.5 million, substantially all of which related to our U.S. plan. As of December 31, 2017,
we have unrecognized pretax net losses of $67.9 million for pension plans and $8.3 million for other
postretirement benefit plans that may be amortized into earnings in future periods.
We are required to consider current market conditions, including changes in interest rates, in making
these assumptions. For 2017, we anticipate pension contributions and direct payments to retirees to total $4.8
million, and payments for other postretirement benefit plans to be $4.1 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 percent likelihood of
43
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 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 valuation allowances will not be needed, the valuation allowance will be adjusted.
In late 2017, new tax legislation was enacted in the United States which resulted in significant charges to
income tax expense. The charges associated with the Tax Reform Act represent provisional amounts and the
Company’s current best estimates. Any adjustments recorded to the provisional amounts through the fourth
quarter of fiscal 2018 will be included in income from operations as an adjustment to tax expense. The
provisional amounts incorporate assumptions made based upon the Company’s current interpretation of the
Tax Reform Act and may change as the Company receives additional clarification and
implementation guidance.
Goodwill and Intangible assets
Goodwill is not amortized, but is tested for impairment at least annually. Estimating the fair value of
reporting units requires the use of estimates and significant judgments that are based on a number of factors
including actual operating results. It is possible that these judgments and estimates could change in
future periods.
The determination of the fair value of intangible assets and liabilities acquired in a business acquisition,
including the Company’s acquisition in 2016, is subject to many estimates and assumptions. We review
amortizable intangible asset groups for impairment whenever events or changes in circumstances indicate that
the related carrying amounts may not be recoverable.
Non-GAAP Measures
This Form 10-K contains certain non-GAAP metrics, including: percent change in net sales excluding
currency rate effects (for each segment and the Company as a whole); EBITDA and Adjusted EBITDA (for
each segment and the Company as a whole); net debt; and net income per share attributable to the Company,
excluding adjustments. 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. EBITDA, or net income with interest, taxes, depreciation, and amortization added
back, is a common indicator of financial performance used, among other things, to analyze and compare core profitability
between companies and industries because it eliminates effects due to differences in financing, asset bases and taxes. An
understanding of the impact in a particular period of specific restructuring costs, acquisition expenses, currency
revaluation, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income
(absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional
insight into core financial performance, especially when compared to periods in which such items had a greater or lesser
effect, or no effect. Restructuring expenses in the MC segment, while frequent in recent years, are reflective of significant
reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the profitability
of the business going forward as restructured. Net debt is, in the opinion of the Company, helpful to investors wishing to
understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness.
EBITDA, Adjusted EBITDA, and net income per share attributable to the Company, excluding adjustments, are
performance measures that relate to the Company’s continuing operations.
Percent changes in net sales, excluding currency rate effects, are 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 EBITDA by
removing the following from Net income: Interest expense net, Income tax expense, and Depreciation and
amortization. Adjusted EBITDA is calculated by: adding to EBITDA costs associated with restructuring,
inventory write-offs associated with discontinued businesses and pension settlement charges; adding (or
subtracting) revaluation losses (or gains); subtracting (or adding) gains (or losses) from the sale of buildings
or investments; subtracting insurance recovery gains in excess of previously recorded losses; subtracting (or
44
adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC); and
adding expenses related to the Company’s acquisition of Harris Corporation’s composite aerostructures
division. Net income per share attributable to the Company, excluding adjustments, is calculated by adding to
(or subtracting from) net income attributable to the Company per share, on an after-tax basis: restructuring
charges; inventory write-offs associated with discontinued businesses; discrete tax charges (or gains) and the
effect of changes in the income tax rate; foreign currency revaluation losses (or gains); acquisition expenses;
and losses (or gains) from the sale of investments.
EBITDA, Adjusted EBITDA, and net income per share attributable to the Company, excluding
adjustments, as defined by the Company, may not be similar to similarly named measures of other companies.
Such measures are not considered measurements under GAAP, and should be considered in addition to, but
not as substitutes for, the information in the Company’s Consolidated Statements of Income.
The following tables show the calculation of EBITDA and Adjusted EBITDA:
Consolidated results
Years ended December 31,
Operating income (GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest, taxes, other income/expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (GAAP)
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses/(gains) . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of inventory in a discontinued product line . . . . . . . . . . . . . . . .
Pretax loss/(income) attributable to noncontrolling interest in ASC . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
2017
2016
2015
$ 76,151
(43,566)
32,585
17,091
22,123
71,956
143,755
13,491
8,761
—
—
2,800
567
$169,374
$ 91,776
(38,964)
52,812
13,464
25,454
67,461
159,191
8,376
(3,913)
5,367
—
—
(125)
$168,896
$ 63,895
(6,630)
57,265
9,984
(5,787)
60,114
121,576
23,846
(3,594)
—
(872)
—
20
$140,976
Year ended December 31, 2017
Operating income/(loss) (GAAP) . . . . . . . . . . . . . . . . . .
Interest, taxes, other income/expense . . . . . . . . . . . . . .
Net income (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
Foreign currency revaluation losses . . . . . . . . . . . . . . .
Write-off of inventory in a discontinued
product line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pretax loss attributable to noncontrolling
(in thousands)
Albany
Engineered
Composites
$(31,657)(a)
—
(31,657)
—
—
33,533
1,876
10,062
214
Corporate
expenses
and other
$(46,128)
(43,566)
(89,694)
17,091
22,123
4,896
(45,584)
—
4,644
Total
Company
$ 76,151
(43,566)
32,585
17,091
22,123
71,956
143,755
13,491
8,761
Machine
Clothing
$153,936
—
153,936
—
—
33,527
187,463
3,429
3,903
—
2,800
—
2,800
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . .
—
$194,795
567
$ 15,519
—
$(40,940)
567
$169,374
(a)
Includes second-quarter charge of $15.8 million related to revisions in the estimated profitability of two
long-term contracts.
45
Year ended December 31, 2016
Operating income/(loss) (GAAP) . . . . . . . . . . . . . . . . . .
Interest, taxes, other income/expense . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (GAAP)
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
. . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pretax income attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2015
Operating income/(loss) (GAAP) . . . . . . . . . . . . . . . . . .
Interest, taxes, other income/expense . . . . . . . . . . . . . .
Net income (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
. . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation (gains)/losses . . . . . . . .
Gain on sale of investment . . . . . . . . . . . . . . . . . . . . . . . .
Pretax loss attributable to noncontrolling
interest in ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA (non-GAAP) . . . . . . . . . . . . . . . . . . .
(in thousands)
Albany
Engineered
Composites
$(15,363)
—
(15,363)
—
—
24,211
8,848
2,314
16
5,367
Corporate
expenses
and other
$(45,390)
(38,964)
(84,354)
13,464
25,454
6,822
(38,614)
(7)
(3,525)
—
Total
Company
$ 91,776
(38,964)
52,812
13,464
25,454
67,461
159,191
8,376
(3,913)
5,367
Machine
Clothing
$152,529
—
152,529
—
—
36,428
188,957
6,069
(404)
—
—
$194,622
(125)
$ 16,420
—
$(42,146)
(125)
$168,896
(in thousands)
Albany
Engineered
Composites
Corporate
expenses
and other
$(28,478)(a) $(48,938)
(6,630)
(55,568)
9,984
(5,787)
8,471
(42,900)
1,635
1,498
(872)
—
(28,478)
—
—
12,140
(16,338)
—
(17)
—
Total
Company
$ 63,895
(6,630)
57,265
9,984
(5,787)
60,114
121,576
23,846
(3,594)
(872)
Machine
Clothing
$141,311
—
141,311
—
—
39,503
180,814
22,211
(5,075)
—
—
$197,950
20
$(16,335)
—
$(40,639)
20
$140,976
(a)
Includes a second-quarter charge of $14.0 million related to BR 725 program
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 income tax rate based on income from continuing operations and the
weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects were
determined by adding the amounts calculated at each reporting period.
46
The following tables show the earnings per share effect of certain income and expense items:
Year ended December 31, 2017
Restructuring and other, net
. . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses . . . . . . . . . . . . . . .
Inventory write-off from discontinued product line . .
Net discrete income tax charge . . . . . . . . . . . . . . . . . . . .
Charge for Q2 revision to estimated profitability of
AEC contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2016
. . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
Foreign currency revaluation gains . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss due to theft
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net discrete income tax benefit . . . . . . . . . . . . . . . . . . . .
Year ended December 31, 2015
. . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other, net
Foreign currency revaluation gains . . . . . . . . . . . . . . . .
Gain on sale of investment . . . . . . . . . . . . . . . . . . . . . . . .
Net discrete income tax benefit . . . . . . . . . . . . . . . . . . . .
Charge for revision in estimated contract
(in thousands, except per share amounts)
Pre tax
Amounts
$13,491
8,761
2,800
—
Tax
Effect
$4,768
3,107
1,036
4,602
After tax
Effect
$8,723
5,654
1,764
4,602
15,821
5,854
9,967
Per Share
Effect
$0.27
0.18
0.05
0.14
0.31
(in thousands, except per share amounts)
Tax
Effect
$3,220
1,389
1,933
877
2,175
After tax
Effect
$5,156
2,524
3,434
1,629
2,175
Per Share
Effect
$0.16
0.07
0.11
0.05
0.07
(in thousands, except per share amounts)
Tax
Effect
$ 8,434
1,422
331
22,174
After tax
Effect
$15,412
2,172
541
22,174
Per Share
Effect
$0.48
0.07
0.02
0.69
0.28
Pre tax
Amounts
$8,376
3,913
5,367
2,506
—
Pre tax
Amounts
$23,846
3,594
872
—
profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,000
5,180
8,820
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: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discrete tax charges/(benefits) . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency revaluation losses/(gains) . . . . . . . . . . . .
Write-off of inventory in a discontinued product line . .
Gain on sale of investment
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to the Company, excluding
Per share amounts (Basic)
2017(a)
$1.03
0.27
0.14
0.18
0.05
—
—
2016
$ 1.64
0.16
(0.07)
(0.07)
—
—
0.11
2015 (b)
$ 1.79
0.48
(0.69)
(0.07)
—
(0.02)
—
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1.67
$ 1.77
$ 1.49
(a)
(b)
includes a second-quarter charge of $0.31 per share for revisions in estimated profitability of two AEC
contracts
includes a second-quarter charge of $0.28 per share related to BR 725 program
47
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)
2017
2016
2015
$
262
1,799
514,120
516,181
183,727
$332,454
$
312
51,666
432,918
484,896
181,742
$303,154
$
587
16
265,080
265,683
185,113
$ 80,570
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
$527 million. The potential loss in fair value resulting from a hypothetical 10 percent adverse change in
quoted foreign currency exchange rates amounts to $52.7 million. Furthermore, related to foreign currency
transactions, we have exposure to various nonfunctional currency balances totaling $119.3 million. This
amount includes, on an absolute basis, exposures to assets and liabilities held in currencies other than our
local entity’s functional currency. On a net basis, we had $88.3 million of foreign currency assets as of
December 31, 2017. 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 percent in
currency rates could result in an adjustment to the income statement of approximately $8.8 million. Actual
results may differ.
Interest Rate Risk
We are exposed to interest rate fluctuations with respect to our variable rate debt, depending on general
economic conditions.
On December 31, 2017, we had the following variable rate debt:
(in thousands, except interest rates)
Short-term debt
Notes payable, end of period interest rate of 1.190% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Credit agreement with borrowings outstanding, net of fixed rate portion, at an end of
$
262
period interest rate of 2.915% in 2017, due in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151,000
$151,262
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 $1.5 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).
48
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2017, 2016, and 2015 . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2017,
2016, and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50
52
53
54
55
56
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Albany International Corp.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Albany International Corp. and
subsidiaries (“Albany International Corp.”) as of December 31, 2017 and 2016, and the related consolidated
statements of income, comprehensive income/(loss), and cash flows for each of the years in the three-year
period ended December 31, 2017, and the related notes and the financial statement schedule of valuation and
qualifying accounts (collectively, the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of Albany International Corp.
as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), Albany International Corp.’s internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 28, 2018 expressed an unqualified opinion on the effectiveness of Albany International Corp.’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of Albany International Corp.’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to Albany International Corp. in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on
a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of Albany International Corp. since 2014.
Albany, New York
February 28, 2018
50
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors of Albany International Corp.:
Opinion on Internal Control Over Financial Reporting
We have audited Albany International Corp. and subsidiaries’ (“Albany International Corp.”) internal control over
financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, Albany
International Corp. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the consolidated balance sheets of Albany International Corp. as of
December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income/
(loss), and cash flows for each of the years in the three-year period ended December 31, 2017, and the related
notes and the financial statement schedule of valuation and qualifying accounts (collectively, the “consolidated
financial statements”) and our report dated February 28, 2018 expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
Albany International Corp.’s management is responsible 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 Albany International Corp.’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to Albany International Corp. in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. 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 audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Albany, New York
February 28, 2018
51
Albany International Corp.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
(in thousands, except per share amounts)
Gross profit
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
Technical and research expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring expenses, net
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income attributable to the noncontrolling interest
.
Net income attributable to the Company . . . . . . . . . . . . . . . . . . . . .
Earnings per share attributable to Company
shareholders — Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share attributable to Company
shareholders — Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared per share, Class A and Class B . . . . . . . . . .
2017
2016
2015
$863,717
567,937
295,780
164,964
41,174
13,491
76,151
(1,511)
18,602
4,352
54,708
22,123
32,585
(526)
$ 33,111
$
$
$
1.03
1.03
0.68
$779,839
479,271
300,568
160,112
40,304
8,376
91,776
(2,077)
15,541
46
78,266
25,454
52,812
79
$ 52,733
$
$
$
1.64
1.64
0.68
$709,868
431,182
278,686
146,192
44,753
23,846
63,895
(1,857)
11,841
2,433
51,478
(5,787)
57,265
(14)
$ 57,279
$
$
$
1.79
1.79
0.67
The accompanying notes are an integral part of the consolidated financial statements.
52
Albany International Corp.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
For the years ended December 31,
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss), before tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . .
Pension/postretirement settlements and curtailments . . . . . . .
Pension/postretirement plan remeasurement
. . . . . . . . . . . . . . .
Amortization of pension liability adjustments:
Prior service credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments related to interest rate swaps included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes related to items of other comprehensive
income/(loss):
Pension/postretirement settlements and curtailments . . . . . . .
Pension/postretirement plan remeasurement
. . . . . . . . . . . . . . .
Amortization of pension liability adjustments . . . . . . . . . . . . .
Payments related to interest rate swaps included in
earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive (loss)/income attributable to the
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to the Company . . . . . . . . .
2017
$32,585
44,162
—
2,955
(4,453)
5,439
1,490
325
—
(918)
(22)
(566)
(124)
80,873
2016
2015
$ 52,812
$ 57,265
(23,967)
51
(5,498)
(4,450)
5,102
2,400
1,297
(6)
1,104
27
(912)
(493)
27,467
(51,177)
103
(700)
(4,440)
5,932
1,988
(2,961)
—
78
(270)
(755)
1,125
6,188
(520)
$81,393
77
$ 27,390
(9)
$ 6,197
The accompanying notes are an integral part of the consolidated financial statements.
53
Albany International Corp.
CONSOLIDATED BALANCE SHEETS
At December 31,
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Current liabilities:
Notes and loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 37,395,753 in 2017 and
37,319,266 in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Class B Common Stock, par value $.001 per share; authorized
25,000,000 shares; issued and outstanding 3,233,998 in 2017 and
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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; 8,431,335 shares in 2017 and
8,443,444 shares in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Company shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
$ 183,727
202,675
136,519
6,266
14,520
543,707
454,302
55,441
166,796
68,648
32,811
39,493
$1,361,198
$
262
44,899
105,914
1,799
8,643
161,517
514,120
101,555
10,991
788,183
$ 181,742
171,193
133,906
5,213
9,251
501,305
422,564
66,454
160,375
68,865
14,045
29,825
$1,263,433
$
312
43,305
95,195
51,666
9,531
200,009
432,918
106,827
12,389
752,143
—
37
—
37
3
428,423
534,082
(87,318)
(50,536)
1,953
(256,876)
569,768
3,247
573,015
$1,361,198
3
425,953
522,855
(133,298)
(51,719)
828
(257,136)
507,523
3,767
511,290
$1,263,433
The accompanying notes are an integral part of the consolidated financial statements.
54
Albany International Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(in thousands)
2017
2016
2015
$ 32,585
$ 52,812
$ 57,265
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Change in deferred taxes and other liabilities . . . . . . . . . . . . . . . . .
Provision for write-off of property, plant and equipment . . . . . .
Fair value adjustment on available-for-sale assets . . . . . . . . . . . . .
Gain on disposition or involuntary conversion of assets . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of pension liability adjustment due to settlement
. . .
Compensation and benefits paid or payable in Class A
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Write-off of intangible assets in a discontinued product line . .
Changes in operating assets and liabilities that provide/(use)
cash, net of impact of business acquisition:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Purchase of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Purchases of property, plant and equipment
. . . . . . . . . . . . . . . . . . . . .
Purchased software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale or involuntary conversion of assets . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received/(paid) to settle swap agreements . . . . . . . . . . . . . . . . . .
Proceeds from options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes paid in lieu of share issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by/(used in) financing activities . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . .
Increase/(decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . .
61,517
10,439
(10,145)
(1,264)
2,870
—
—
660
—
2,133
4,149
(21,859)
3,090
(4,989)
(941)
(18,766)
2,910
5,303
(799)
(2,677)
64,216
—
(85,510)
(2,127)
—
(87,637)
115,334
(84,047)
(2,130)
6,346
597
(1,364)
(21,869)
12,867
12,539
1,985
181,742
$183,727
58,106
9,355
(5,232)
5,889
2,778
—
—
564
51
2,433
—
(12,697)
(12,520)
(2,595)
(2,206)
(14,045)
2,108
1,312
1,398
(6,571)
80,940
(187,000)
(71,244)
(2,248)
6,939
(253,553)
235,907
(34,356)
(1,771)
(5,175)
517
(1,272)
(21,812)
172,038
(2,796)
(3,371)
185,113
$ 181,742
52,974
7,140
3,608
(29,517)
867
3,212
(1,056)
—
103
1,707
—
(404)
(8,277)
1,253
(3,156)
—
(6,001)
2,081
9,072
7,139
98,010
—
(48,622)
(1,973)
2,797
(47,798)
95,126
(102,215)
(1,673)
—
1,897
(1,449)
(21,088)
(29,402)
(15,499)
5,311
179,802
$ 185,113
55
The accompanying notes are an integral part of the consolidated financial statements.
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 percent 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, LLC (ASC) which
is reported within the Albany Engineered Composites (AEC) segment. Additional information regarding that
entity is included in Note 10.
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, contract
profitability, 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
For sales that are recognized at a point in time, 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 a defined profit margin. We also have fixed price long-term contracts, for which
we use the percentage of completion method (actual cost to estimated cost, or units of delivery). Accounting
for long-term contracts 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. In the
second quarter of 2017, we recorded a $15.8 million charge to Cost of goods sold related to revisions on
estimated profitability of our BR 725 and A380 programs, which included the write-off of $4.0 million of
program inventory costs and a reserve of $11.8 million for additional anticipated losses. Later in 2017, we
amended a long-term agreement with a licensor for the A380 program that resulted in a reduction to Cost of
goods sold of $4.9 million. In 2015, we recorded a $14.0 million charge on our BR 725 contract, which
included the write-off of $10.9 million of deferred contract costs and a reserve of $3.1 million for additional
anticipated losses. Changes in estimates on contracts other than the profitability changes noted above,
decreased gross profit by $0.6 million in 2017, increased gross profit by $1.5 million in 2016, and increased
gross profit by $0.4 million in 2015. The Company includes contractual change orders and claims in the
estimated value of customer contracts when there is a legal basis for such items and recovery is probable. As
of December 31, 2017 and 2016, the value of change orders and claims that was included in estimated
56
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
contract value was not significant. For contracts with anticipated losses at completion, a provision for the
entire amount of the estimated remaining loss is charged against income in the period in which the loss
becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of
any selling, general or administrative cost allocations that are treated as period expenses.
For programs in which we use the units of delivery method, there are generally 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 is recognized during the second phase, as parts are delivered. Accumulated
capitalized costs are written off when those costs are determined to be unrecoverable.
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. Cost of goods sold also includes provisions for loss contracts and charges
for the write-off of inventories that result from an exit activity.
Selling, General, Administrative, Technical, and Research Expenses
Selling, general, administrative, and technical 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
$30.7 million in 2017, $28.8 million in 2016, $31.7 million in 2015.
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 and be considered a collaborative arrangement, in which case both parties are active
participants and are exposed to the risks and rewards dependent on the success of the activity. In such cases,
amounts charged to the customer are credited against research and development expense. While no such
arrangements existed during the last three years, we may enter into such arrangements in the future. 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.
57
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
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 existing assets and liabilities for
financial reporting and income tax return purposes. 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 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 valuation 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 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full
knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that
a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Where
applicable, associated interest and penalties have also been recognized. We recognize accrued interest and
penalties related to unrecognized tax benefits as a component of income tax expense.
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 average exchange rates. 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)
Losses/(gains) included in:
2017
2016
2015
Selling, general, and administrative expenses . . . . . . . .
Other expense/(income), net . . . . . . . . . . . . . . . . . . . . . . . . .
Total transaction losses/(gains) . . . . . . . . . . . . . . . . . . . . . . . . .
$4,127
4,634
$8,761
$ (381)
(3,532)
$(3,913)
(5,090)
1,496
$(3,594)
58
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
The following table presents foreign currency gains and losses on long-term intercompany loans that
were recognized in Other comprehensive income:
(in thousands)
Gain/(loss) on long-term intercompany loans . . . . . . . . . .
2017
$1,867
2016
$3,515
2015
$(5,225)
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 Albany Engineered Composites segment. 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.
As of December 31, 2017 and 2016, Accounts receivable consisted of the following:
(in thousands)
2017
Trade and other accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank promissory notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue in excess of progress billings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$152,375
20,255
37,964
(7,919)
$202,675
2016
$146,460
15,759
15,926
(6,952)
$171,193
In connection with certain sales in Asia Pacific, the Company accepts a bank promissory note as
customer payment. The notes may be presented for payment at maturity, which is less than one year.
The Company also has Contract receivables that are included in noncurrent assets, which represent
revenue earned in 2017 and 2016. The Contract receivables will be invoiced to the customer, with 2 percent
interest, over a 10 year period starting in 2020.
Inventories
Costs included in inventories are raw materials, labor, supplies and allocable depreciation and overhead.
Raw material inventories are valued on an average cost basis. Other inventory cost elements are valued at
cost, using the first-in, first out method. The Company writes down inventories for estimated obsolescence,
and to the lower of cost or net realizable value based upon assumptions about future demand and market
conditions. If actual demand or market conditions are less favorable than those projected by the Company,
additional inventory write-downs may be required. Once established, the original cost of the inventory less the
related write-down represents the new cost basis of such inventories. The AEC segment has long-term
contracts under which we incur engineering and development costs that are allocable to parts that will be
delivered over multiple years. These costs are included in Work in process in the table below.
As of December 31, 2017 and 2016, inventories consisted of the following:
(in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 42,215
65,448
28,856
$136,519
2016
$ 37,691
58,715
37,500
$133,906
59
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, or if acquired as part of a business combination, at
fair value. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets
for financial reporting purposes; in some cases, accelerated methods are used for income tax purposes.
Significant additions or improvements extending assets’ useful lives are capitalized; normal maintenance and
repair costs are expensed as incurred. The cost of fully depreciated assets remaining in use is included in the
respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses
are included in net income.
Computer software purchased for internal use, at cost, is amortized on a straight-line basis over five to
eight years, depending on the nature of the asset, after being placed into service, and is included in property,
plant, and equipment. We capitalize internal and external costs incurred related to the software development
stage. Capitalized salaries, travel, and consulting costs related to the software development amounted to
$1.2 million in both 2017 and 2016.
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 group may not be
recoverable from the estimated future cash flows expected to result from its use and eventual disposition.
Goodwill, Intangibles, and Other Assets
Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for
impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the
net tangible and identifiable intangible assets acquired in each business combination. Our reportable segments
are consistent with our operating segments. See additional information set forth under Note 12.
Intangible assets acquired in a business combination are recognized at fair value and amortized to Cost
of goods sold or Selling, general and administrative expenses over the estimated useful lives of the assets. We
review amortizable intangible asset groups for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
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 $0.5 million in 2017 and $0.4 million in 2016. 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.
Included in Other assets is $16.2 million in 2017 and $7.8 million in 2016 for defined benefit pension
plans where plan assets exceed the projected benefit obligations. Other assets also includes financial assets of
$1.3 million in 2017 and $6.5 million in 2016 (see Note 15).
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 18.
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
60
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
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 at fair value, as a net asset or a net liability. 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 4, we have pension and postretirement benefit plans covering substantially all
employees. Our defined benefit pension plan in the United States was closed to new participants as of October
1998 and, as of February 2009, benefits accrued under this plan were frozen. We have liabilities for
postretirement benefits in the U.S. and Canada. Substantially all of the liability relates to the U.S. plan.
Effective January 2005, our postretirement benefit plan 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. 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 with durations that match expected future payments. The
assumption for expected return on plan assets is based on historical and expected returns on various categories
of plan assets.
Recent Accounting Pronouncements
In May 2014, an accounting update was issued that replaces the existing revenue recognition framework
regarding contracts with customers. We adopted the standard effective January 1, 2018 using the modified
retrospective method for transition, under which, years prior to 2018 will not be restated. In our Machine
Clothing segment, we currently record revenue for the sale of a product when persuasive evidence of an
arrangement exists, delivery has occurred, title has been transferred, the selling price is fixed, and
collectability is reasonably assured. In this segment, we often have contracts with customers whereby the
Company satisfies its performance obligation related to the manufacture and delivery of a product before title
has transferred to the customer. Under the new accounting standard, this will result in earlier recognition of
revenue associated with these contracts. The selling price of products may include a performance obligation to
provide certain support services for no additional cost. We have substantially completed our assessment as to
how the new standard effects the Machine Clothing contracts. When we adopt the new standard, we expect to
allocate a portion of the associated revenue to such services. We currently estimate less than 5% of revenue
will be allocated to such services. While we currently expect that the timing of revenue recognition and the
61
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
line-item description of Machine Clothing revenue will be affected by the new standard, we do not expect
total annual Machine Clothing revenue to be significantly affected. We have also substantially completed our
assessment as to how the new standard affects contracts in the Albany Engineered Composites (AEC)
segment. Due to the complexity and variability of certain of our AEC contracts, the actual accounting
treatment required under the new standard for these arrangements is dependent on contract-specific terms and
therefore may vary. A significant change that we anticipate relates to our use of the units-of-delivery method
for some long-term contracts, which is considered an output method. Under the new standard, we expect that
revenue for most of these contracts will be recognized over time using an input method as the measure of
progress, which is expected to result in earlier recognition of revenue. In addition, any expected losses on a
project will be recorded in full in the period in which they become probable, which we expect will include
losses on requirement contract options that are probable of exercise, excluding profitable options that often
follow. Under the new standard, we will be required to limit our estimate of contract value to the period of
the legally enforceable contract, which may be considerably shorter than the contract period used under the
former standard. Some master contracts in this segment do not contain minimum order quantities and have
fixed unit selling prices throughout the contract. Such arrangements could lead to lower profitability or losses
in the early portion of the performance period. We are currently evaluating the full effect the new standard
will have on our financial statements in order to quantify the cumulative effect of adopting the new standard.
In Machine Clothing, we expect that the transition adjustment to the new standard will result in an increase to
Accounts receivable, a decrease to Inventories, and an increase to Retained earnings. In AEC, we expect the
transition adjustment will result in the reclassification of contract-related receivables from Accounts receivable
to Contract assets (a new current asset), an increase to Accrued liabilities, and decreases to Inventories and
Retained earnings. The new standard will also require some additional footnote disclosures, including footnote
disclosure of 2018 results under the former standard. During 2017, the Company implemented controls
designed to properly assess the impact of the new standard on existing customer contracts and, for 2018, we
are implementing new controls and modifying other controls, to ensure accurate reporting under the new
standard.
In January 2016, an accounting update was issued which requires entities to present separately in Other
comprehensive income the portion of the total change in the fair value of a liability resulting from a change in
the instrument-specific credit risk if the entity has elected to measure the liability at fair value in accordance
with the fair value option for financial instruments. This accounting update is effective for reporting periods
beginning after December 15, 2017. We do not expect the adoption of this update to have a significant effect
on our financial statements.
In February 2016, an accounting update was issued which requires lessees to recognize most leases on
the balance sheet. The update may significantly increase reported assets and liabilities. This accounting update
is effective for reporting periods beginning after December 15, 2018. We are currently evaluating the impact
of this update on our financial statements.
In March 2016, an accounting update was issued which simplifies several aspects related to the
accounting for share-based payment transactions, including the income tax consequences, statutory tax
withholding requirements, and classification of excess tax benefits and cash paid to a tax authority in lieu of
share issuances to employees on the statements of cash flows. The update also affects presentation in the
Statements of Cash Flows of income tax effects of shares withheld for incentive compensation, and the
exercise of stock options. We adopted this accounting update on January 1, 2017 and it had an insignificant
effect on income tax expense. The updates affecting the Statements of Cash Flows have been applied
retrospectively as follows:
• As a result of the change affecting cash payments of taxes in lieu of share issuance, operating cash
flows for the years ended December 31, 2016 and 2015 were increased $1.3 million and $1.4 million,
respectively, and financing cash flows were decreased by the same amount.
62
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
1. Accounting Policies — (continued)
• As a result of the change affecting classification of excess tax benefits, operating cash flows were
increased $0.1 million and financing cash flows were decreased by the same amount in the years
ended December 31, 2016 and 2015.
In October 2016, an accounting update was issued which modifies the recognition of income tax effects
on intracompany transfers of assets, other than inventory. This accounting update is effective for reporting
periods beginning after December 15, 2017. We do not expect the adoption of this update to have a significant
effect on our financial statements.
In November 2016, an accounting update was issued which provides clarification of how changes in
restricted cash should be reported in the statement of cash flows. This accounting update is effective for
reporting periods beginning after December 15, 2017. We do not expect this update to have a significant effect
on our financial statements.
In January 2017, an accounting update was issued which provides the definition of a business for the
purposes of business combination accounting. This accounting update is effective for reporting periods
beginning after December 15, 2017 and is to be applied prospectively. Accordingly, there will be no effect on
prior business combinations. We have not determined the impact of the update due to the absence of
transactions that would be impacted.
In January 2017, an accounting update was issued which simplifies the process for determining the
amount of goodwill impairment. This accounting update is effective for reporting periods beginning after
December 15, 2019. Early adoption is permitted. We are presently unable to determine the effect that the
update will have on our financial statements.
In March 2017, an accounting update was issued which requires that service cost for defined benefit
pension and postretirement plans be reported in the same line item or items as other compensation costs
arising from services rendered by the pertinent employees during the period. Additionally, the other
components of net benefit cost are required to be presented in the income statement separately from the
service cost component and outside a subtotal of income from operations. This accounting update is effective
for reporting periods beginning after December 15, 2017. We expect that the principal effect of adopting this
standard will be to reclassify a portion of our pension and postretirement costs to Other expense/(income), net.
In May 2017, an accounting update was issued to provide clarity as to when a company must account for
changes to stock-based compensation programs as award modifications. Award modifications require an update
to the value of the award, resulting in an adjustment to compensation expense. We have not made changes to
awards in recent years that would be affected by this update, but such changes are possible in future periods.
The update is effective for periods beginning after December 15, 2017.
In August 2017, an accounting update was issued that will make more financial and nonfinancial hedging
strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and
changes how companies assess effectiveness. It is intended to more closely align hedge accounting with
companies’ risk management strategies, simplify the application of hedge accounting, and increase
transparency as to the scope and results of hedging programs. This accounting update is effective for years
beginning after December 15, 2018, with early adoption permitted. We do not expect the adoption of this
update to have a significant effect on our financial statements.
2. Business Acquisition
On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite
aerostructures business for cash of $187 million, plus the assumption of certain liabilities. The Company
funded the cash payable at closing by utilizing proceeds from a $550 million, unsecured credit facility
agreement that was completed April 8, 2016 (see Note 14). The seller provided representations, warranties and
indemnities customary for acquisition transactions, including indemnities for certain customer claims identified
before closing. The acquired entity is part of the Albany Engineered Composites (AEC) segment.
63
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Business Acquisition — (continued)
There were no changes during 2017 to the provisional allocation recorded in 2016. The following table
summarizes the allocation of the purchase price to the fair value of the assets and liabilities acquired:
(in thousands)
Assets acquired
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 8, 2016
$ 15,443
16,670
402
62,784
71,630
95,730
$262,659
$ 10,323
2,862
17,560
33,143
11,771
$ 75,659
$187,000
Goodwill of $95.7 million reflects that the acquisition broadened and deepened AEC’s products,
experience and manufacturing capabilities, and significantly increases opportunities for future growth. The
goodwill is non-deductible for tax purposes.
The following table presents operational results of the acquired entity that are included in the
Consolidated Statements of Income (unaudited):
(in thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
April 8 to
December 31, 2016
$67,011
(1,246)
(2,342)
(1,495)
$ (0.05)
$ (0.05)
64
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
2. Business Acquisition — (continued)
The Consolidated Statements of Income reflect operational activity of the acquired business for only the
period subsequent to the closing, which affects comparability of results. The following table shows total
Company pro forma statements of what results would have been if the 2016 acquisition had occurred as of
January 1, 2015.
(in thousands, except per share amounts)
Combined Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma increase/(decrease) to income before income taxes:
Acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense related to purchase price . . . . . . . . . . . . . . . . . . . . . . .
Acquisition accounting adjustments:
Depreciation and amortization on property, plant and equipment,
and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation of contract inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on capital lease obligation . . . . . . . . . . . . . . . . . . . . . .
Interest expense on other obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma Net Income attributable to the Company . . . . . . . . . . . . . . . .
Unaudited — Pro forma
2016
$802,023
$ 80,639
2015
$786,623
$ 52,542
5,367
(1,382)
—
(5,133)
(1,575)
1,997
300
(133)
$ 85,213
$ 57,229
(7,875)
6,908
1,096
(533)
$ 47,005
$ 54,245
3. Reportable Segments and Geographic Data
In accordance with applicable disclosure guidance for enterprise segments and related information, the
internal organization that is used by management for making operating decisions and assessing performance is
used as the basis for our reportable segments.
The accounting policies of the segments are the same as those described in Note 1. 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 in countries across the globe. 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.
Albany Engineered Composites:
The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC),
in which our customer SAFRAN Group (Safran) owns a 10 percent noncontrolling interest, provides highly
engineered, advanced composite structures to customers in the aerospace and defense industries. AEC’s largest
program relates to CFM International’s LEAP engine. Under this program, AEC through ASC, is the exclusive
supplier of advanced composite fan blades and cases under a long-term supply contract. The manufacturing
65
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data — (continued)
spaces used for the production of parts under the long-term supply agreement are owned by Safran, and leased
to the Company at either a market rent or a minimal cost. All lease expense is reimbursable by Safran to the
Company due to the cost-plus nature of the supply agreement. AEC net sales to Safran were $119.2 million in
2017, $88.9 million in 2016, and $58.1 million in 2015. The total of invoiced receivables, unbilled receivables
and contract receivables due from Safran amounted to $58.6 million and $37.1 million as of December 31,
2017 and 2016, respectively. Other significant AEC programs include components for the F-35 Joint Strike
Fighter, fuselage frame components for the Boeing 787, and the fan case for the GE9X engine. In 2017,
approximately 30 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items:
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$590,357
273,360
$863,717
33,527
33,533
4,896
$ 71,956
153,936
(31,657)
(46,128)
$ 76,151
(1,511)
18,602
4,352
$ 54,708
$582,190
197,649
$779,839
36,428
24,211
6,822
$ 67,461
152,529
(15,363)
(45,390)
$ 91,776
(2,077)
15,541
46
$ 78,266
$608,581
101,287
$709,868
39,503
12,140
8,471
$ 60,114
141,311
(28,478)
(48,938)
$ 63,895
(1,857)
11,841
2,433
$ 51,478
The table below presents restructuring costs by reportable segment (also see Note 5):
(in thousands)
2017
2016
2015
Restructuring expenses, net
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,429
10,062
—
$13,491
$6,069
2,314
(7)
$8,376
$22,211
—
1,635
$23,846
In the measurement of assets utilized by each reportable segment, we include accounts and contract
receivables, 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.
66
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
3. Reportable Segments and Geographic Data — (continued)
The following table presents assets and capital expenditures by reportable segment:
(in thousands)
2017
2016
2015
Segment assets
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling items:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes prepaid, receivable and deferred . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures and purchased software
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 464,468
584,076
$ 454,010
514,527
$ 494,347
181,825
183,727
—
74,914
54,013
$1,361,198
181,742
—
74,078
39,076
$1,263,433
185,113
4,988
111,872
31,417
$1,009,562
$
$
20,522
63,865
3,250
87,637
$
$
15,651
54,678
3,163
73,492
$
$
16,010
30,378
4,207
50,595
In 2016, the Company recorded expense of $5.4 million for cost directly related to the acquisition. These
costs are included in Selling, general and administrative expenses of the AEC segment.
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)
2017
2016
2015
Net sales
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, at cost, net
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$459,525
147,601
60,535
48,920
57,195
31,902
58,039
$863,717
$252,639
61,840
58,196
22,981
14,558
14,256
10,230
19,602
$454,302
$396,238
145,479
60,287
48,043
42,862
27,526
59,404
$779,839
$245,626
65,987
42,272
7,781
15,585
14,591
11,455
$ 19,267
$422,564
$323,399
159,804
58,846
48,490
26,081
30,581
62,667
$709,868
$172,372
80,786
28,539
5,264
19,095
19,029
12,861
19,524
$357,470
67
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans
Pension Plans
The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The U.S.
qualified defined benefit pension plan has been closed to new participants since October 1998 and, as of
February 2009, benefits accrued under this plan were frozen. As a result of the freeze, employees covered by
the pension plan will receive, at retirement, benefits already accrued through February 2009, but no new
benefits accrue after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan
(“SERP”) were similarly frozen. The U.S. pension plan accounts for 42 percent of consolidated pension plan
assets, and 43 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, 2017 benefit obligation for the U.S. pension and postretirement plans were calculated
using the RP-2014 mortality table with MP-2017 generational projection. 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, 2017, the accrued postretirement liability was $57.4 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 plans 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
2017 and 2016, 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 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
68
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
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 following table sets forth the plan benefit obligations:
(in thousands)
Benefit obligation, beginning of year . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . .
Actuarial (gain)/loss . . . . . . . . . . . . . . . . . . . . . .
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, 2017
As of December 31, 2016
Pension plans
Other
postretirement
benefits
Pension plans
Other
postretirement
benefits
$210,856
2,720
7,476
211
6,626
(7,697)
(8)
(3)
10,730
$230,911
$220,622
$57,488
244
2,214
—
2,743
(4,230)
—
—
72
$58,531
$ —
$199,856
2,656
7,885
249
17,676
(7,057)
(2,436)
36
(8,009)
$210,856
$200,790
$59,970
254
2,443
—
(395)
(4,812)
—
—
28
$57,488
$ —
3.70%
2.83%
—
3.02%
3.59%
3.40%
—
3.00%
4.20%
2.98%
—
3.29%
4.00%
3.70%
—
3.00%
The following sets forth information about plan assets:
(in thousands)
Fair value of plan assets,
beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets, net of
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . .
Plan participants’ contributions . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency changes . . . . . . . . . . . . . . . . .
. . . . . . .
Fair value of plan assets, end of year
As of December 31, 2017
As of December 31, 2016
Pension plans
Other
postretirement
benefits
Pension plans
Other
postretirement
benefits
$180,672
$ —
$171,387
$ —
19,182
4,645
211
(7,697)
(8)
8,581
$205,586
—
4,230
37
(4,267)
—
—
$ —
19,740
6,605
249
(7,057)
(2,308)
(7,944)
$180,672
—
4,812
72
(4,884)
—
—
$ —
69
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The funded status of the plans was as follows:
As of December 31, 2017
As of December 31, 2016
(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:
Pension plans
$205,586
230,911
$ (25,325)
$ (25,325)
$ 16,242
(2,094)
(39,473)
$ (25,325)
Other
postretirement
benefits
Pension plans
$
— $180,672
210,856
$ (30,184)
$ (30,184)
58,531
$(58,531)
$(58,531)
$
— $
(4,108)
(54,423)
$(58,531)
7,794
(2,057)
(35,921)
$ (30,184)
Other
postretirement
benefits
$
—
57,488
$(57,488)
$(57,488)
$
—
(4,195)
(53,293)
$(57,488)
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(credit) . . . . . . . . . . . . . . . . . . . .
Net amount recognized . . . . . . . . . . . . . . . . . . . . . .
$ 67,283
572
$ 67,855
$ 34,717
(26,411)
$ 8,306
$ 72,400
597
$ 72,997
$ 34,782
(30,899)
$ 3,883
The composition of the net pension plan funded status as of December 31, 2017 was as follows:
(in thousands)
Pension plans with pension assets . . . . . . . . . . . . . . . . . . . . .
Pension plans without pension assets . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. plan
$ (6,466)
(7,356)
$(13,822)
Non-U.S.
plans
$ 13,870
(25,373)
$(11,503)
Total
$ 7,404
(32,729)
$(25,325)
70
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The composition of the net periodic benefit plan cost for the years ended December 31, 2017, 2016, and
2015, was as follows:
(in thousands)
2017
2016
2015
2017
2016
2015
Pension plans
Other postretirement benefits
Components of net periodic
benefit cost:
. . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . .
Expected return on assets . . . . . . .
Amortization of prior service
cost/(credit) . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . .
Settlement . . . . . . . . . . . . . . . . . . . . . . .
Curtailment (gain)/loss . . . . . . . . . .
Special/contractual termination of
benefits . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Net periodic benefit cost
Weighted average assumptions
used to determine net cost:
Discount rate — U.S. plan . . . . . .
Discount rate — non-U.S. plan . .
Expected return on plan assets —
$ 2,720
7,476
(8,152)
$ 2,656
7,885
(8,675)
$ 2,959
7,787
(8,630)
$
244
2,214
—
$
254
2,443
—
$
330
2,437
—
36
2,628
—
—
38
2,283
162
(111)
48
2,594
103
—
(4,488)
2,811
—
—
(4,488)
2,819
—
—
(4,488)
3,338
—
—
—
$ 4,708
—
$ 4,238
44
$ 4,905
—
781
$
—
$ 1,028
—
$ 1,617
4.20% 4.54%
2.98% 3.67%
4.18%
3.58%
4.00% 4.24%
3.70% 4.00%
3.90%
3.85%
U.S. plan . . . . . . . . . . . . . . . . . . . . .
4.40% 4.74%
4.43%
Expected return on plan assets —
non-U.S. plans . . . . . . . . . . . . . . . .
4.46% 5.39%
5.52%
Rate of compensation increase —
U.S. plan . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
Rate of compensation increase —
non-U.S. plans . . . . . . . . . . . . . . . .
3.29% 3.24%
3.23%
3.00% 3.00%
3.00%
Pretax (gains)/losses on plan assets and benefit obligations recognized in other comprehensive income
during 2017 were as follows:
(in thousands)
Settlements/curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset/liability loss/(gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of actuarial (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of prior service (cost)/credit
Currency impact
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost/(benefit) in other comprehensive income . . . . . . . . . . . . . . . . . . . . .
Total cost/(benefit) recognized in net periodic benefit cost and
Pension
plan
$ —
(4,408)
(2,628)
(36)
1,930
$(5,142)
Other
postretirement
benefits
$ —
2,743
(2,811)
4,488
2
$ 4,422
other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (434)
$ 5,203
71
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The estimated amounts that will be amortized from accumulated other comprehensive income into net
periodic benefit cost in 2018 are as follows:
(in thousands)
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior service cost/(benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
pension
$2,232
35
$2,267
Total
postretirement
benefits
$ 2,956
(4,488)
$(1,532)
Investment Strategy
Our investment strategy for pension assets differs for the various countries in which we have defined benefit
pension plans. Some of our defined benefit plans do not require funded trusts and, in those arrangements, the
Company funds the plans on a “pay as you go” basis. The largest of the funded defined benefit plans is the United
States plan.
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, 2017, and 2016, using the fair-value hierarchy,
which has three levels based on the reliability of inputs used, as described in Note 15. Certain investments that
are measured at fair value using net asset value (NAV) as a practical expedient are not required to be categorized
in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit
reconciliation of the fair value hierarchy to amounts presented in the funded status table above. As of December 31,
2017 and 2016, there were no investments expected to be sold at a value materially different than NAV.
72
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
(in thousands)
Common Stocks and equity funds . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . .
Total investments in the fair
Assets at Fair Value as of December 31, 2017
Quoted prices
in active
markets
Level 1
Significant other
observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
$ 335
—
—
3,253
$ —
81,363
—
—
$ — $
—
2,407
—
Total
335
81,363
2,407
3,253
value hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,588
$81,363
$2,407
87,358
Investments at net asset value:
Common Stocks and equity funds . . . . . . . .
Fixed income funds . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Common Stocks and equity funds . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . .
Total investments in the fair
37,768
75,881
4,579
—
$205,586
Assets at Fair Value as of December 31, 2016
Quoted prices
in active
markets
Level 1
Significant other
observable
inputs
Level 2
Significant
unobservable
inputs
Level 3
$ 309
—
—
3,401
$ —
74,449
—
—
$ — $
—
2,238
—
Total
309
74,449
2,238
3,401
value hierarchy . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,710
$74,449
$2,238
80,397
Investments at net asset value:
Common Stocks and equity funds . . . . . . . .
Fixed income funds . . . . . . . . . . . . . . . . . . . . . . .
Limited partnerships . . . . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,510
59,662
5,065
38
$180,672
The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2017
and 2016:
(in thousands)
December 31,
2016
Insurance contracts . . . . . . . . . . .
Total level 3 assets . . . . . . . . . . .
$2,238
$2,238
(in thousands)
December 31,
2015
Insurance contracts . . . . . . . . . . .
Total level 3 assets . . . . . . . . . . .
$2,403
$2,403
Net
realized
gains
$ —
$ —
Net
unrealized
gains
$56
$56
Net
realized
gains
$ —
$ —
Net
unrealized
gains
$26
$26
Net
purchases,
issuances
and
settlements
$113
$113
Net
purchases,
issuances
and
settlements
$(191)
$(191)
Net
transfers
(out of)
Level 3
$ —
$ —
Net
transfers
(out of)
Level 3
$ —
$ —
December 31,
2017
$2,407
$2,407
December 31,
2016
$2,238
$2,238
73
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
4. Pensions and Other Postretirement Benefit Plans — (continued)
The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2016 and 2017, and the target
allocation for 2018, by asset category, are as follows:
Asset category
Equity securities . . . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . .
United States Plan
Non-U.S. Plans
Target
Allocation
Percentage of plan assets
at plan measurement date
Target
Allocation
Percentage of plan assets
at plan measurement date
2018
—
100%
—
—
100%
2017
1%
95%
4%
—
100%
2016
2%
92%
5%
1%
100%
2018
32%
64%
1%
3%
100%
2017
30%
64%
1%
5%
100%
2016
33%
61%
—
6%
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 2017 and 2016, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans with projected
benefit obligation in
excess of plan assets
2017
$131,717
90,149
2016
$121,600
83,622
Plans with accumulated
benefit obligation in
excess of plan assets
2017
$129,698
90,149
2016
$119,728
83,558
Information about expected cash flows for the pension and other benefit obligations are as follows:
(in thousands)
Pension
plans
Other
postretirement
benefits
Expected employer contributions and direct employer payments in
the next fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,787
$ 4,108
Expected benefit payments
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023-2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,495
7,605
8,104
8,925
9,207
55,897
$ 4,108
3,985
3,872
3,801
3,749
17,890
74
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Restructuring
In 2017, the Company announced the initiation of discussions with the local works council regarding a
proposal to discontinue operations at its Machine Clothing production facility in Se´lestat, France. During
2017, we incurred $1.1 million of restructuring expense associated with this proposal. In February 2018, we
completed negotiations with the Works Council regarding benefits that would be provided to affected
employees, and submitted the proposed plan to the government labor authorities for approval. While there can
be no assurance that such approval will be obtained, we consider it probable that such approval will be
obtained in the first quarter of 2018. We are presently unable to reasonably estimate the total costs for
severance and other charges associated with the proposal.
AEC restructuring charges in 2017 included the discontinuation of the Bear Clawt line of hydraulic
fracturing components used in the oil and gas industry, which led to non-cash restructuring charges totaling
$4.5 million relating to the impairment of long-lived assets. We also incurred restructuring charges of
$5.0 million in 2017 related to completed work force reductions in Salt Lake City, Utah and Rochester, New
Hampshire. Cost savings associated with these actions will result, principally, in lower cost of goods sold
in 2018.
In 2016, the Company discontinued research and development activities at its Machine Clothing facility
in Se´lestat, France as part of a plan to reduce research and development costs. This initiative resulted in 2016
expense of $2.2 million for severance, outplacement, and the write-off of equipment. In 2017, we recorded
additional restructuring charges of $1.6 million, principally related to additional termination benefits paid to
former employees.
In 2015, the Company announced a plan to discontinue manufacturing operations at its press fabric
manufacturing facility in Go¨ppingen, Germany and manufacturing operations were discontinued during the
second quarter which led to total restructuring charges of $14.8 million from 2015 to 2017. The restructuring
program was driven by the Company’s need to balance manufacturing capacity with demand. In 2015, we
recorded charges of $11.4 million related to this restructuring, including $3.3 million related to the write down
of the land and former manufacturing facility to estimated fair market value, and the property was sold in
2016 at that value. In 2016 and 2017, we recorded additional restructuring charges of $2.6 million and
$0.8 million, respectively, principally related to the final closure of the plant in Germany.
AEC restructuring expenses in 2016 were principally related to the consolidation of legacy programs into
Boerne, Texas.
In the fourth quarter of 2015, the Company implemented an early retirement program for certain
employees in the United States. Restructuring charges associated with this restructuring program were
$8.1 million. 2015 restructuring charges also include $4.3 million related to the reduction in selling, general
and administrative employment in Machine Clothing and Corporate.
75
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
5. Restructuring — (continued)
The following table summarizes charges reported in the Consolidated Statements of Income under
“Restructuring expenses, net”:
Year ended December 31, 2017
(in thousands)
Total
restructuring
costs incurred
Termination
and other
costs
Impairment
of
assets
Benefit plan
curtailment/
settlement
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 3,429
10,062
—
$13,491
$2,945
5,004
—
$7,949
$ 484
5,058
—
$5,542
$ —
—
—
$ —
Year ended December 31, 2016
(in thousands)
Total
restructuring
costs incurred
Termination
and other
costs
Impairment
of
assets
Benefit plan
curtailment/
settlement
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$6,069
2,314
(7)
$8,376
$5,756
1,502
(7)
$7,251
$ 425
812
—
$1,237
$(112)
—
—
$(112)
Year ended December 31, 2015
(in thousands)
Total
restructuring
costs incurred
Termination
and other
costs
Impairment
of
assets
Benefit plan
curtailment/
settlement
Machine Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites . . . . . . . . . . . . .
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$22,211
—
1,635
$23,846
$18,906
—
1,635
$20,541
$3,305
—
—
$3,305
$ —
—
—
$ —
We expect that approximately $2.7 million of Accrued liabilities for restructuring at December 31, 2017
will be paid within one year and approximately $0.6 million will be paid the following year. The table below
presents the changes in restructuring liabilities for 2017 and 2016, all of which related to termination costs:
(in thousands)
Total termination and other
costs . . . . . . . . . . . . . . . . . . . .
(in thousands)
Total termination and other
costs . . . . . . . . . . . . . . . . . . . .
6. Other Expense/(Income), net
December 31,
2016
Restructuring
charges
accrued
Payments
Currency
translation/
other
December 31,
2017
$5,559
$7,949
$(10,351)
$169
$3,326
December 31,
2015
Restructuring
charges
accrued
Payments
Currency
translation/
other
December 31,
2016
$10,177
$7,251
$(11,800)
$(69)
$5,559
The components of Other Expense/(Income), net, are:
(in thousands)
Currency transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank fees and amortization of debt issuance costs . . . . .
Gain on insurance recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss due to theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investment
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 4,634
487
(2,000)
—
—
1,231
$ 4,352
2016
$(3,532)
759
—
2,506
—
313
46
$
2015
$1,496
916
—
—
(872)
893
$2,433
76
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
6. Other Expense/(Income), net — (continued)
In 2016, the Company had a loss due to theft of cash in Japan, resulting in a loss of $2.5 million. In
September 2017, the Company recorded an insurance recovery gain of $2.0 million related to that incident.
In March 2015, the Company sold its total equity investment in an unaffiliated company, resulting in a
gain of $0.9 million. The value of the investment had been written off in 2004.
7. Income Taxes
The following tables present components of income tax expense/(benefit) and income before income
taxes on continuing operations:
(in thousands)
2017
2016
2015
Income tax based on income from continuing
operations, at estimated tax rates of 32%, 35%, and
32%, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax before discrete items . . . . . . . . . . . . . . . . . . . . . . .
Discrete tax expense(benefit):
Worthless stock deduction . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impact of mandatory deemed repatriations . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . .
(in thousands)
Income/(loss) before income taxes:
U.S.
Non-U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax provision:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.
Total income tax expense/(benefit) . . . . . . . . . . . . . . . . . . . . .
$17,519
17,519
$27,629
27,629
$ 16,388
16,388
—
5,758
1,329
(840)
(3,522)
1,879
$22,123
—
—
(2,856)
586
(88)
183
$25,454
(28,553)
—
6,500
(867)
75
670
$ (5,787)
2017
2016
2015
$ (5,865)
60,573
$54,708
$ 8,556
69,710
$78,266
$ (7,211)
58,689
$ 51,478
$ 1,551
1,770
19,282
$22,603
$ 1,881
(1,237)
(1,124)
$ (480)
$22,123
$ 3,728
176
19,979
$23,883
$ 2,138
1,984
(2,551)
$ 1,571
$25,454
$
—
1,993
20,842
$ 22,835
$(34,135)
(40)
5,553
$(28,622)
$ (5,787)
77
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
The significant components of deferred income tax expense/(benefit) are as follows:
(in thousands)
Net effect of temporary differences . . . . . . . . . . . . . . . . . . . .
Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retirement benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net impact to operating loss carryforwards . . . . . . . . . . . .
Enacted changes in tax laws and rates . . . . . . . . . . . . . . . . .
Adjustment to beginning-of-the-year valuation
allowance balance for changes in circumstances . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$(5,774)
8,340
(502)
(900)
1,878
(3,522)
$ (480)
2016
$ 7,214
(6,869)
1,734
(603)
183
(88)
$ 1,571
2015
$ (7,615)
(17,874)
1,844
(5,722)
670
75
$(28,622)
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 permanent adjustments . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net 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 . . . . . . .
Adjustment to beginning-of-the-year valuation
allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Worthless stock deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
35.0%
1.0
5.9
0.4
(10.5)
11.9
2.4
(1.5)
(6.4)
—
2.2
40.4%
2016
35.0%
2.3
3.5
1.6
(11.3)
5.8
(3.4)
(1.2)
(0.1)
—
0.3
32.5%
2015
35.0%
2.4
4.1
7.4
(13.6)
(1.8)
12.6
(2.4)
0.1
(55.5)
0.5
(11.2)%
The Company has operations which constitute a taxable presence in 18 countries outside of the United
States. All of these countries had income tax rates that were below 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. 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 (blended
34% tax rate), China, (25% tax rate), Mexico (30% tax rate) and France (33.33% tax rate). As a result, the
foreign income tax rate differential was primarily attributable to these tax rate differences.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law.
The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things,
lowering the U.S. corporate tax rate from 35% to 21% effective January 1, 2018, while also repealing the
deduction for domestic production activities, implementing a territorial tax system and imposing a transition
tax on deemed repatriated earnings of foreign subsidiaries. U.S. GAAP requires that the impact of tax
legislation be recognized in the period in which the law was enacted.
78
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin
No. 118 (SAB 118), which addresses how a company recognizes provisional amounts when a company does
not have the necessary information available, prepared or analyzed (including computations) in reasonable
detail to complete its accounting for the effect of the changes in the Tax Reform Act. The measurement period
ends when a company has obtained, prepared and analyzed the information necessary to finalize its
accounting, but cannot extend beyond one year. The Company has elected to apply the measurement period
guidance provided in SAB 118.
Deferred tax assets and liabilities: The Company remeasured certain deferred tax assets and liabilities
based on the federal rate of 21%. However, the Company is still analyzing certain aspects of the Tax Reform
Act, such as IRC section 162(m), and refining its calculations which could potentially affect the measurement
of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded
related to the remeasurement of the Company’s deferred tax balance was a tax charge of $1.0 million.
Foreign tax effects: The one-time transition tax is based on the Company’s total post 1986 earnings and
profits (E&P). The Company recorded a provisional federal tax charge of $5.8 million due to the transition tax
on deemed repatriation of foreign earnings, for the year-ended December 31, 2017.
The final impact on the Company from the Tax Reform Act’s transition tax legislation may differ from
the aforementioned reasonable estimate of $5.8 million due to the complexity of calculating and supporting
with primary evidence such U.S. tax attributes as accumulated foreign earnings and profits, foreign tax paid,
and other tax components involved in foreign tax credit calculations for prior years back to 1986. Such
differences could be material, due to, among other things, changes in interpretations of the Tax Reform Act,
future legislative action to address questions that arise because of the Tax Reform Act, changes in accounting
standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or
changes to estimates the Company has utilized to calculate the transition tax’s reasonable estimate.
Given the lack of guidance from various states on the treatment of the mandatory deemed repatriation,
the Company did not record any additional tax provision for the potential state tax impact of this item, but
will, if necessary, as guidance is provided and analyzed during the measurement period.
The Company has foreign tax credit carryforward that can be applied against the federal tax liability of
the mandatory deemed repatriation, therefore, the Company did not record a tax payable liability for the
mandatory deemed repatriation.
The Company has determined at this time that the Base Erosion Anti-Abuse Tax (BEAT) does not apply
under the Company’s current policies. Therefore no adjustments have been recorded in the December 31, 2017
consolidated financial statements.
Because of the complexity of the new Global Intangible Low-Taxed Income (GILTI) tax rules, the
Company continues to evaluate this provision of the Tax Reform Act and the application of ASC 740, Income
Taxes. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating
taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when
incurred (the “period cost method”) or (2) factoring such amounts into the Company is measurement of its
deferred taxes (the “deferred method”). The Company’s selection of an accounting policy with respect to the
new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to
have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be.
Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on
not only the Company’s current structure and estimated future results of global operations, but also its intent
and ability to modify its structure. The Company is currently in the process of analyzing its structure and, as a
result, is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, the
Company has not made any adjustments related to potential GILTI tax in its financial statements and has not
made a policy decision regarding whether to record deferred tax on GILTI.
79
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
Other federal tax: As a result of the Tax Reform Act, the corporate alternative minimum tax (AMT) was
repealed. In addition, taxpayers with AMT carryforwards in excess of their regular tax liability may have the
credits refunded over years from 2018 to 2022. The Company has $1.0 million of AMT credit carryforward;
the Company is still determining the potential future AMT credit utilization and any carryforward remaining
will be reclassified to non-current federal tax receivable during the measurement period.
The charges associated with the Tax Reform Act represent provisional amounts and the Company’s
current best estimates. Any adjustments recorded to the provisional amounts through the end of the
measurement period, and no later than the fourth quarter of fiscal 2018, will be included in income from
operations as an adjustment to tax expense. The provisional amounts incorporate assumptions made based
upon the Company’s current interpretation of the Tax Reform Act and may change as the Company receives
additional clarification and implementation guidance.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts
of certain assets and liabilities for financial reporting purposes and income tax return purposes. Significant
components of the Company’s deferred tax assets and liabilities are as follows:
(in thousands)
Noncurrent deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . .
Noncurrent deferred tax liabilities:
Unrepatriated foreign earnings . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . .
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total deferred tax liabilities . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset
U.S.
Non-U.S.
2017
2016
2017
2016
$
557
1,109
3,300
—
18,286
1,368
41,920
3,891
70,431
—
70,431
$70,431
$
914
20,170
4,169
81
$25,334
$45,097
$ 1,155
1,193
7,533
2,786
26,602
1,760
50,624
7,828
99,481
—
99,481
$99,481
$ 1,602
43,156
7,156
2,198
$54,112
$45,369
$ 1,341
961
1,362
3,211
1,464
22,639
1,654
—
$ 1,381
1,868
—
2,564
2,067
26,084
1,186
2,876
32,632
(16,057)
16,575
$ 16,575
38,026
(22,821)
15,205
$ 15,205
$
—
—
—
2,597
$ 2,597
$ 13,978
$
—
—
—
2,897
$ 2,897
$ 12,308
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 2017, the Company recorded the
following movements in its valuation allowance: $5.3 million decrease in a valuation allowance due to a net
reduction in the related deferred tax assets, $3.6 million decrease due to the elimination of previously recorded
valuation allowances, and $2.1 million increase due to the effect of the changes in currency translation rates.
At December 31, 2017, the Company had available approximately $111 million of net operating loss
carryforwards, for which we have a deferred tax asset of $23.4 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,
80
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
we have recorded a valuation allowance of $12.7 million as of December 31, 2017. Additionally, management
has evaluated its ability to utilize its other Non-U.S. tax attributes during the various carryforward periods and
has concluded that the Company will more likely than not be able to utilize the remaining Non-U.S. tax
attributes. Included in the net operating loss carryforwards is approximately $20.1 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 $33.7 million that will begin to expire in 2020, U.S. and Non-U.S. research and development
credit carryforwards of $7.6 million and $1.5 million, respectively, that will begin to expire in 2025, and
alternative minimum tax credit carryforwards of $1.3 million with no expiration date.
The Company reported a U.S. net deferred tax asset of $45.1 million at December 31, 2017, which
contained $43.3 million of tax attributes with limited lives. Management has evaluated its ability to utilize
these tax attributes during the carryforward period. Based on the Company’s cumulative book income position
over the past three years, the Company’s expected future profits from operations, available tax elections and
tax planning opportunities, management has concluded that the Company will more likely than not be able 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. These amounts are not considered to be indefinitely reinvested,
and the Company accrued for the tax cost on these earnings to the extent they cannot be repatriated in a
tax-free manner.
The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation
to the U.S. were approximately $200 million, and are intended to remain indefinitely invested in foreign
operations. U.S. income taxes have been provided on these earnings at December 31, 2017 which are included
in the provisional transition tax of $5.8 million. The Company has targeted for repatriation $41 million of
current year and prior year earnings of the Company’s foreign operations. If these earnings were distributed,
the Company would be subject to foreign withholding taxes of $0.9 million which have already been
recorded.
No additional income taxes have been provided on the indefinitely invested foreign earnings at
December 31, 2017. If these earnings were distributed, the Company could be subject to both foreign income
taxes and additional foreign withholding taxes. Determining the amount of unrecognized deferred tax liability
related to any additional outside basis difference in these entities is not practicable. In addition, the Company
is still evaluating the impact of the one-time transition tax on the outside basis differences and cumulative
temporary differences inherent in these subsidiaries as of December 31, 2017 and as a result, it is not
practicable to provide the amount of any cumulative temporary differences related to unrecorded differences.
81
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
7. Income Taxes — (continued)
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 to
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in gross amounts of tax positions related to
prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in gross amounts of tax positions related to
current years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease due to settlements with tax authorities . . . . . . .
Decrease due to lapse in statute of limitations . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits balance at December 31 . . . .
2017
$4,183
2016
2015
$ 19,606
$19,509
480
(50)
—
(381)
(29)
306
$4,509
62
2,315
(2,129)
(145)
585
(14,029)
(163)
251
$ 4,183
79
(42)
(90)
(2,020)
$19,606
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 $0.1 million or less in each of 2017, 2016 and 2015. As of
December 31, 2017, 2016 and 2015 the Company had approximately $0.4 million, $0.3 million, and
$0.4 million respectively, of accrued interest and penalties related to unrecognized tax benefits.
The Company conducts business globally and, as a result, files income tax returns in the U.S. federal
jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is
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 2007 to 2017. The Company is currently under audit in non-U.S. tax jurisdictions,
including but not limited to Canada and Italy.
As of December 31, 2017 and 2016, current income taxes prepaid and receivable consisted of the
following:
(in thousands)
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current income taxes prepaid and receivable . . . . . . . . . . . . . . . . . . . . .
2017
$4,872
1,394
$6,266
2016
$3,914
1,299
$5,213
As of December 31, 2017 and 2016, noncurrent deferred tax liabilities and other credits consisted of the
following:
(in thousands)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent deferred taxes and other liabilities . . . . . . . . . . . . . . . . . . .
2017
$ 9,573
1,418
$10,991
2016
$11,188
1,201
$12,389
Taxes paid, net of refunds, amounted to $23.7 million in 2017, $23.4 million in 2016, and $18.3 million
in 2015.
82
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
8. Earnings Per Share
The amounts used in computing earnings per share and the weighted average number of shares of
potentially dilutive securities are as follows:
(in thousands, except market price and earnings per share)
2017
2016
2015
Net income attributable to the Company . . . . . . . . . . . . . . .
Weighted average number of shares:
Weighted average number of shares used in
$ 33,111
$52,733
$57,279
calculating basic net income per share . . . . . . . . . . . .
32,169
32,086
31,978
Effect of dilutive stock-based compensation plans:
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term incentive plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in calculating
diluted net income per share . . . . . . . . . . . . . . . . . . . . . . . .
Average market price of common stock used for
30
45
39
45
58
52
32,244
32,170
32,088
calculation of dilutive shares . . . . . . . . . . . . . . . . . . . . . . . .
$ 52.19
$ 40.25
$ 36.68
Net income per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.03
1.03
$
$
1.64
1.64
$
$
1.79
1.79
Shares outstanding, net of treasury shares, were 32.2 million as of December 31, 2017, 32.1 million as of
December 31, 2016, and 32.0 million as of December 31, 2015.
9. Accumulated Other Comprehensive Income (AOCI)
The table below presents changes in the components of AOCI from January 1, 2015 to December 31,
2017:
(in thousands)
January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income/(loss) before
Pension and
postretirement
liability
adjustments
Translation
adjustments
Derivative
valuation
adjustment
Total Other
Comprehensive
Income
$ (55,240)
$(51,666)
$ (861)
$(107,767)
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
(53,415)
2,238
(1,836)
(53,013)
Pension/postretirement settlements and
curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Pension/postretirement plan remeasurement
Interest expense related to swaps reclassified
to the Statements of Income, net of tax . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
103
(622)
103
(622)
1,233
1,233
1,222
1,222
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . .
(53,415)
(108,655)
2,941
(48,725)
(603)
(1,464)
(51,077)
(158,844)
83
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. Accumulated Other Comprehensive Income (AOCI) — (continued)
(in thousands)
Other comprehensive income/(loss) before
Pension and
postretirement
liability
adjustments
Translation
adjustments
Derivative
valuation
adjustment
Total Other
Comprehensive
Income
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (24,643)
$
676
$ 804
$ (23,163)
Pension/postretirement settlements and
curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement
. . .
Interest expense related to swaps reclassified
to the Statements of Income, net of tax . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
—
—
—
—
45
(4,394)
—
—
45
(4,394)
—
1,488
1,488
679
—
679
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . .
(24,643)
(133,298)
(2,994)
(51,719)
2,292
828
(25,345)
(184,189)
Other comprehensive income/(loss) before
reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension/postretirement plan remeasurement
. . .
Interest expense related to swaps reclassified
to the Statements of Income, net of tax . . .
Pension and postretirement liability
adjustments reclassified to Statements of
Income, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Net current period other comprehensive
45,980
—
(1,818)
2,037
—
201
—
924
964
—
—
—
44,363
2,037
924
964
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . .
45,980
$ (87,318)
1,183
$(50,536)
1,125
$1,953
48,288
$(135,901)
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.
84
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
9. Accumulated Other Comprehensive Income (AOCI) — (continued)
The table below presents the expense/(income) amounts reclassified, and the line items of the Statement
of Income that were affected for the periods ended December 31, 2017, 2016 and 2015.
(in thousands)
2017
2016
2015
Pretax Derivative valuation reclassified from
Accumulated Other Comprehensive Income:
Expense related to interest rate swaps included in
Income before taxes(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on net income due to items reclassified from
$ 1,490
(566)
$ 2,400
(912)
$ 1,988
(755)
Accumulated Other Comprehensive Income . . . . . . . . .
$
924
$ 1,488
$ 1,233
Pretax pension and postretirement liabilities
reclassified from Accumulated Other
Comprehensive Income:
Pension/postretirement settlements and curtailments . . .
Amortization of prior service credit
. . . . . . . . . . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total pretax amount reclassified(b)
Income tax effect
Effect on net income due to items reclassified from
$ —
(4,453)
5,439
986
(22)
$
51
(4,450)
5,102
703
21
$
103
(4,440)
5,932
1,595
(270)
Accumulated Other Comprehensive Income . . . . . . . . .
$
964
$
724
$ 1,325
(a)
Included in Interest expense are payments related to the interest rate swap agreements and amortization
of swap buyouts (see Note 15).
(b) These accumulated other comprehensive income components are included in the computation of net
periodic pension cost (see Note 4).
10. 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.
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 percent 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.
85
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
10. Noncontrolling Interest — (continued)
The table below presents a reconciliation of income attributable to the noncontrolling interest and
noncontrolling equity:
(in thousands, except percentages)
Net (loss)/income of ASC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Return attributable to the Company’s preferred holding . . . . . . . . .
Net (loss)/income of ASC available for common ownership . . . . . . . . . . .
Ownership percentage of noncontrolling shareholder . . . . . . . . . . . . . . . . . .
Net (loss)/income attributable to noncontrolling interest . . . . . . . . . . . . . . .
Noncontrolling interest, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income attributable to noncontrolling interest . . . . . . . . . . . . . . .
Changes in other comprehensive income attributable to noncontrolling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$(4,224)
1,032
$(5,256)
10%
$ (526)
$ 3,767
(526)
6
$ 3,247
2016
$1,777
987
$ 790
10%
$
79
$3,690
79
(2)
$3,767
11. Property, Plant and Equipment
The table below sets forth the reclassification and components of property, plant and equipment as of
December 31, 2017 and 2016:
(in thousands)
2017
2016
Estimated useful life
Land and land improvements . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building under capital lease . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer and other equipment
. . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures in progress . . . . . . . . . . . . . . . .
Property, plant and equipment, gross . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . .
13,339 25 years for improvements
214,086 25 to 40 years
8,140 7 years
842,921 5 to 15 years
7,632 5 years
$
14,853 $
230,987
8,140
950,519
8,861
15,610
57,847
63,951
1,350,768
(896,466)
15,264 3 to 10 years
54,212 5 to 8 years
66,900
1,222,494
(799,930)
$ 454,302 $ 422,564
Depreciation expense was $61.5 million in 2017, $58.1 million in 2016, and $53.0 million in 2015.
Software amortization is recorded in Selling, general, and administrative expense and was $3.6 million in
2017, $4.0 million in 2016, and $6.5 million in 2015. We include amortization of the capital lease in
depreciation expense. Accumulated amortization of the capital lease was $2.4 million and $0.9 million as of
December 31, 2017 and 2016, respectively.
Capital expenditures, including purchased software, were $87.6 million in 2017, $73.5 million in 2016,
and $50.6 million in 2015. Unamortized software cost was $7.6 million and $7.2 million as of December 31,
2017 and 2016, respectively. Expenditures for maintenance and repairs are charged to income as incurred and
amounted to $19.1 million in 2017, $16.6 million in 2016, and $16.6 million in 2015.
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 reportable segments
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.
86
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Goodwill and Other Intangible Assets — (continued)
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.
In the second quarter of 2017, the Company applied the qualitative assessment approach in performing
its annual evaluation of goodwill and concluded that no impairment provision was required. There were no
amounts at risk due to the large spread between the fair, and carrying values, of each reporting unit.
In the third quarter of 2017, the Company decided to discontinue the Bear Clawt line of hydraulic
fracturing components used in the oil and gas industry, which was part of the Harris aerostructures business
acquired by AEC in 2016. This decision resulted in a non-cash write-off of intangibles for $4.1 million to
restructuring expense, which is presented as other changes in the table below for intangible assets and
goodwill in 2017. The write-off represents the full carrying value of intangible assets associated with the Bear
Clawt product line as, based upon anticipated cash flows and the Company’s plan to exit the business, we
determined the product line to have no fair value as of September 30, 2017. Due to the decision to exit this
product line, management performed an interim assessment of goodwill and concluded that no goodwill was
allocable to the Bear Clawt product line, and no impairment provision was required.
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, 2015 to December 31,
2017, were as follows:
Amortization
life in years
Balance at
December 31,
2016
Amortization Other Changes
Currency
Translation
Balance at
December 31,
2017
(in thousands, except for years)
Amortized intangible assets:
AEC trade names . . . . . . . . . .
AEC technology . . . . . . . . . . .
AEC customer contracts . . .
AEC customer
relationships . . . . . . . . . . . . .
AEC other intangibles . . . . .
Total amortized intangible
assets . . . . . . . . . . . . . . . . . . . . . .
Unamortized intangible
assets:
MC Goodwill . . . . . . . . . . . . . .
AEC Goodwill . . . . . . . . . . . . .
Total amortized intangible
assets . . . . . . . . . . . . . . . . . . . . . .
15
15
6
15
5
$
20
104
17,859
$
(5)
(24)
(3,280)
47,009
1,462
(3,280)
(275)
$ —
—
(961)
(2,211)
(977)
$ — $
—
—
15
80
13,618
—
—
41,518
210
$ 66,454
$(6,864)
$(4,149)
$ — $ 55,441
$ 64,645
95,730
$ —
—
$ —
—
$6,421
—
$ 71,066
95,730
$160,375
$ —
$ —
$6,421
$166,796
87
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
12. Goodwill and Other Intangible Assets — (continued)
(in thousands, except for years)
Amortized intangible assets:
AEC trade names . . . . . . . . . .
AEC technology . . . . . . . . . . .
AEC customer contracts . . .
AEC customer relationships
AEC other intangibles . . . . .
Total amortized intangible
assets . . . . . . . . . . . . . . . . . . . . . .
Unamortized intangible
assets:
MC Goodwill . . . . . . . . . . . . . .
AEC Goodwill . . . . . . . . . . . . .
Total amortized intangible
assets . . . . . . . . . . . . . . . . . . . . . .
Amortization
life in years
Balance at
December 31,
2015
Acquisition Amortization
Currency
Translation
Balance at
December 31,
2016
15
15
6
15
5
$
25
129
—
—
—
$ —
—
20,420
49,490
1,720
$
(5)
(25)
(2,561)
(2,481)
(258)
$ — $
—
—
—
—
20
104
17,859
47,009
1,462
$
154
$71,630
$(5,330)
$ — $ 66,454
$66,373
—
$ —
95,730
$ —
—
$(1,728)
—
$ 64,645
95,730
$66,373
$95,730
$ —
$(1,728)
$160,375
As of December 31, 2017, the gross carrying amount and accumulated amortization of amortized
intangible assets was $66.7 million and $11.3 million, respectively. As of December 31, 2016, the gross
carrying amount and accumulated amortization of amortized intangible assets was $72.1 million and
$5.6 million, respectively.
On April 8, 2016, the Company acquired the outstanding shares of Harris Corporation’s composite
aerostructures business. The assets acquired include amortizable intangible assets of $71.6 million and
goodwill of $95.7 million.
Amortization expense related to intangible assets was reported in the Consolidated Statement of Income
as follows: $3.3 million in Cost of goods sold and $3.6 million in Selling, general and administrative expenses
in 2017; and $2.6 million in Cost of goods sold and $2.7 million in Selling, general and administrative
expenses in 2016. In 2015, all intangible amortization expense was included in Cost of goods sold. Estimated
amortization expense of intangibles for the years ending December 31, 2018 through 2022, is as follows:
Year
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual
amortization
(in thousands)
$6,232
6,232
6,232
6,161
3,955
88
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
13. Accrued Liabilities
Accrued liabilities consist of:
(in thousands)
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual for compensated absences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension liability — current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement medical benefits — current portion . . . . . . . . . . . . . . . . . . . . .
Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Billings in excess of revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract loss reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 17,916
11,223
13,553
2,397
2,094
4,108
11,370
2,569
11,902
2,310
910
5,474
2,714
817
16,557
$105,914
2016
$18,520
10,181
13,277
2,053
2,057
4,195
13,714
2,334
56
3,068
991
5,458
4,668
1,218
13,405
$95,195
14. Financial Instruments
Long-term debt, principally to banks and noteholders, consists of:
(in thousands, except interest rates)
Revolving credit agreements with borrowings outstanding at an end of
period interest rate of 3.40% in 2017 and 2.58% in 2016 (including
the effect of interest rate hedging transactions, as described below),
due in 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private placement with a fixed interest rate of 6.84%, final payment
was made October 25, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under capital lease, matures 2022 . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
$501,000
$418,000
—
14,919
515,919
(1,799)
$514,120
50,000
16,584
484,584
(51,666)
$432,918
Principal payments due on long-term debt are: 2019, $1.9 million, 2020, $2.0 million, 2021, $2.1 million,
and 2022, $508.1 million. Cash payments of interest amounted to $16.0 million in 2017, $13.7 million in
2016, and $12.6 million in 2015.
A note agreement and guaranty (“Prudential Agreement”) was originally entered into in October 2005
with the Prudential Insurance Company of America, and certain other purchasers, with interest at 6.84%. The
final principal payment under the Prudential Agreement of $50.0 million was made on October 25, 2017.
On November 7, 2017, we entered into a $685 million unsecured Five-Year Revolving Credit Facility
Agreement (the “Credit Agreement”) which amended and restated the prior $550 million Agreement, entered into
on April 8, 2016 (the “Prior Agreement”). Under the Credit Agreement, $501 million of borrowings were
outstanding as of December 31, 2017. The applicable interest rate for borrowings was LIBOR plus a spread, based
on our leverage ratio at the time of borrowing. At the time of the last borrowing on December 18, 2017, the spread
was 1.500%. The spread was based on a pricing grid, which ranged from 1.250% to 1.750%, based on our
leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification
to any other credit agreements, as of December 31, 2017, we would have been able to borrow an additional
$184 million under the Agreement.
89
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Financial Instruments — (continued)
The Credit Agreement contains customary terms, as well as affirmative covenants, negative covenants
and events of default that are substantially comparable to those in the Prior Agreement. The Borrowings are
guaranteed by certain of the Company’s subsidiaries.
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 (as defined in the Credit Agreement).
The Company has a long-term capital lease obligation for real property in Salt Lake City, Utah. The
lease has an implied interest rate of 5.0% and matures in 2022.
The following schedule presents future minimum annual lease payments under the capital lease
obligation and the present value of the minimum lease payments, as of December 31, 2017.
Years ending December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in thousands)
$ 2,473
2,473
2,520
2,520
7,373
17,359
(2,440)
$14,919
On November 27, 2017, we terminated our interest rate swap agreements, originally entered into on
May 9, 2016, that had effectively fixed the interest rate on $300 million of revolving credit borrowings, in
order to enter into a new interest rate swap with a greater notional amount, and the same maturity as the
Credit Agreement. We received $6.3 million to terminate the swap agreements and that payment will be
amortized into interest expense through March 2021.
On May 6, 2016, we terminated other interest rate swap agreements that had effectively fixed the interest
rate on $120 million of revolving credit borrowings, in order to enter into a new interest rate swap with a
greater notional amount, and the same maturity as the Credit Agreement. We paid $5.2 million to terminate
the swap agreements and that cost will be amortized into interest expense through June 2020.
On November 28, 2017, we entered into interest rate swap agreements for the period December 18, 2017
through October 17, 2022. These transactions have the effect of fixing the LIBOR portion of the effective
interest rate (before addition of the spread) on $350 million of indebtedness drawn under the Credit
Agreement at the rate of 2.11% during the period. Under the terms of these transactions, we pay the fixed rate
of 2.11% and the counterparties pay a floating rate based on the one-month LIBOR rate at each monthly
calculation date, which on December 18, 2017 was 1.50%, during the swap period. On December 18, 2017,
the all-in-rate on the $350 million of debt was 3.61%.
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 we are currently required to maintain a leverage ratio (as defined in the
agreement) of not greater than 3.75 to 1.00 for each fiscal quarter ending prior to (but not including)
September 30, 2019, and 3.50 to 1.00 for each fiscal quarter ending on or after September 30, 2019, and
minimum interest coverage (as defined) of 3.00 to 1.00.
As of December 31, 2017, our leverage ratio was 2.62 to 1.00 and our interest coverage ratio was 9.27
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 does not exceed the
limits noted above.
90
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
14. Financial Instruments — (continued)
Indebtedness under 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, 2017.
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. We had no Level 3 financial assets or liabilities at December 31, 2017, or at
December 31, 2016.
The following table presents the fair-value hierarchy for our Level 1 and Level 2 financial and
non-financial assets and liabilities, which are measured at fair value on a recurring basis:
December 31, 2017
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
December 31, 2016
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Unobservable
inputs
(Level 3)
Unobservable
inputs
(Level 3)
$13,601
$ —
$—
$8,468
$ —
$—
999
—
—
313(b)
—
—
—
—
—
762
—
—
5,784(c)
—
—
—
—
—
(in thousands)
Fair Value
Assets:
. . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents . . . . . . . . . . .
Other Assets: . . . . . . . . . . . . . . . . .
Common stock of foreign
public company(a)
. . . . . . .
Interest rate swaps . . . . . . . . .
Liabilities: . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities:
Interest rate swaps . . . . . . . . .
(a) Original cost basis $0.5 million.
(b) Net of $34.9 million receivable floating leg and $34.6 million liability fixed leg
(c) Net of $21.4 million receivable floating leg and $15.6 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 the unaffiliated foreign public company is traded in an active market exchange.
The shares are measured at fair value using closing stock prices and are recorded in the Consolidated Balance
Sheets as Other assets. The securities are classified as available for sale, and as a result any unrealized gain or
loss is recorded in the Shareholders’ Equity section of the Consolidated Balance Sheets rather than in the
Consolidated Statements of Income. When the security is sold or impaired, gains and losses are reported on
the Consolidated Statements of Income. Investments are considered to be impaired when a decline in fair
value is judged to be other than temporary.
We operate our business in many regions of the world, and currency rate movements can have a
significant effect on operating results. 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
91
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
15. Fair-Value Measurements — (continued)
exchange prices and are recorded in the Consolidated Balance Sheets as Other current assets and Accounts
payable, as applicable. Changes in fair value of these instruments are recorded as gains or losses within Other
expense/(income), net.
When exercised, the foreign currency instruments are net settled with the same financial institution that
bought or sold them. For all positions, whether options or forward contracts, there is risk from the possible
inability of the financial institution to meet the terms of the contracts and the risk of unfavorable changes in
interest and currency rates, which may reduce the value of the instruments. We seek to control risk by
evaluating the creditworthiness of counterparties and by monitoring the currency exchange and interest rate
markets while reviewing the hedging risks and contracts to ensure compliance with our internal guidelines and
policies.
Changes in exchange rates can result in revaluation gains and losses that are recorded in Selling, General
and Administrative expenses or Other expense/(income), net. Revaluation gains and losses occur when our
business units have cash, intercompany (recorded in Other expense/(income), net) or third-party trade
(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 Consolidated Statements of
Income 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/or Other noncurrent liabilities in the Consolidated Balance
Sheets. Unrealized gains and losses on the swaps flow through the caption Derivative valuation adjustment in
the Shareholders’ equity section of the Consolidated Balance Sheets, to the extent that the hedges are highly
effective. As of December 31, 2017, these interest rate swaps were determined to be highly effective hedges
of interest rate cash flow risk. Any gains and losses related to the ineffective portion of the hedges will be
recognized in the current period in earnings. Amounts accumulated in Other comprehensive income are
reclassified as Interest expense, net when the related interest payments (that is, the hedged forecasted
transactions), and amortization related to the swap buyouts, affect earnings. Interest expense related to
payments under the active swap agreements totaled $0.8 million in 2017, $1.9 million in 2016 and
$1.9 million in 2015. Additionally, non-cash interest expense related to the amortization of swap buyouts
totaled $0.7 million in 2017, $0.6 million in 2016, and is expected to be reduce interest expense by
$0.6 million in 2018.
Gains/(losses) related to changes in fair value of derivative instruments that were recognized in Other
expense/(income), net in the Consolidated Statements of Income were as follows:
(in thousands)
Derivatives not designated as hedging instruments
Years ended December 31,
2017
2016
2015
Foreign currency options . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(131)
$202
$(121)
92
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under license agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive and deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
$ 39,473
54,423
897
3,048
600
3,114
$101,555
$ 35,921
53,293
10,254
3,468
908
2,983
$106,827
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. Total rental expense amounted to $4.9 million in 2017,
$5.2 million in 2016, and $3.5 million in 2015.
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, 2017, are: 2018, $4.1 million; 2019, $3.3 million; 2020,
$2.4 million; 2021, $1.8 million; and 2022 and thereafter, $4.0 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
paper machine clothing synthetic dryer fabrics marketed during the period from 1967 to 1976 and used in
certain paper mills.
We were defending 3,730 claims as of December 31, 2017.
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,
2012 . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . .
Opening
Number of
Claims
Claims
Dismissed,
Settled, or
Resolved
Closing
Number of
Claims
Amounts Paid
(thousands) to
Settle or
Resolve
New Claims
4,446
4,463
4,299
3,821
3,791
3,745
90
230
625
116
148
105
107
66
147
86
102
90
4,463
4,299
3,821
3,791
3,745
3,730
$530
78
437
164
758
$ 55
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. Due to the fact that information
sufficient to meaningfully estimate a range of possible loss of a particular claim is typically not available until
late in the discovery process, we do not believe a meaningful estimate can be made regarding the range of
possible loss with respect to pending or future claims and therefore are unable to estimate a range of
reasonably possible loss in excess of amounts already accrued for 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 insurance carrier has
defended each case and funded settlements under a standard reservation of rights. As of December 31, 2017
we had resolved, by means of settlement or dismissal, 37,594 claims. The total cost of resolving all claims
was $10.2 million. Of this amount, almost 100 percent was paid by our insurance carrier, who has confirmed
93
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
17. Commitments and Contingencies — (continued)
that we have approximately $140 million of remaining coverage under primary and excess policies that should
be available with respect to current and future asbestos claims.
The Company’s subsidiary, Brandon Drying Fabrics, Inc. (“Brandon”), is also a separate defendant in
many of the asbestos cases in which Albany is named as a defendant, despite never having manufactured any
fabrics containing asbestos. While Brandon was defending against 7,707 claims as of December 31, 2017,
only nine claims have been filed against Brandon since January 1, 2012, and no settlement costs have been
incurred since 2001. Brandon was acquired by the Company in 1999, and has its own insurance policies
covering periods prior to 1999. Since 2004, Brandon’s insurance carriers have covered 100 percent of
indemnification and defense costs, subject to policy limits and a standard reservation of rights.
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.
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, the trends in claims filed against us, and available insurance, we also
do not currently anticipate that potential future claims will have a material adverse effect on our financial
position, results of operations, or cash flows.
18. Stock Options and Incentive Plans
We recognized no stock option expense during 2017, 2016 or 2015 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, although options may be granted under the Company’s 2011 incentive plan.
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 . . . . . . . . . . . . . . . . . . .
2017
62,390
150
32,900
29,340
29,340
2016
88,773
—
26,383
62,390
62,390
2015
187,233
—
98,460
88,773
88,773
94
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. 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 . . . . . . . . . . . . . . . . . . . . . .
2017
$18.28
20.63
18.16
18.40
18.40
2016
$18.67
—
19.60
18.28
18.28
2015
$18.99
—
19.27
18.67
18.67
As of December 31, 2017, the aggregate intrinsic value of vested options was $1.3 million. The
aggregate intrinsic value of options exercised was $1.1 million in 2017, $0.5 million in 2016, and $2.0 million
in 2015.
Executive Management share-based compensation:
In 2011, shareholders approved the Albany International 2011 Incentive Plan. 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 2017, we issued 25,899 shares and made cash payments totaling $1.0 million. In March 2016, we
issued 26,146 shares and made cash payments totaling $0.8 million. In March 2015, we issued 35,393 shares
and made cash payments totaling $1.2 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 $2.6 million in 2017,
$2.7 million in 2016 and $3.0 million in 2015. For share-based awards that are dependent on performance
after 2017, we expect to record additional compensation expense of approximately $1.2 million in 2018 and
$0.4 million in 2019.
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 2017, the Company
issued 18,784 shares and made cash payments totaling $1.9 million as a result of performance in 2016. In
March 2016, the Company issued 26,774 shares and made cash payments totaling $1.9 million as a result of
performance in 2015. In March 2015, the Company issued 19,571 shares and made cash payments totaling
$1.5 million as a result of performance in 2014. 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
$2.6 million in 2017, $3.3 million in 2016, and $3.4 million in 2015.
95
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. Stock Options and Incentive Plans — (continued)
Shares payable under these plans generally vest immediately prior to payment. As of December 31, 2017,
there were 190,616 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, 2015 . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2015 performance . . . . . . . . . . . .
Shares potentially payable at December 31, 2015 . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2016 performance . . . . . . . . . . . .
Shares potentially payable at December 31, 2016 . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares accrued based on 2017 performance . . . . . . . . . . . .
Shares potentially payable at December 31, 2017 . . . . . .
Weighted
average grant
date value per
share
$30.69
—
$29.09
$38.01
$35.35
—
$33.43
$36.78
$36.90
—
$36.35
$48.26
$40.30
Number of
shares
185,199
—
(95,889)
98,998
188,308
—
(86,926)
88,036
189,418
—
(75,545)
43,532
157,405
Year-end
intrinsic value
(000’s)
$5,683
$6,657
$6,989
$6,343
Other Management share-based compensation:
In 2012, the Company adopted a Phantom Stock Plan that replaced the Restricted Stock Program.
Awards under this program 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
$4.9 million in 2017, $3.8 million in 2016, and $2.6 million in 2015. Based on awards outstanding at
December 31, 2017, we expect to record approximately $10.0 million of compensation cost from 2018 to
2021. The weighted average period for recognition of that cost is approximately 2 years.
96
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
18. 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:
Number of
shares
Weighted average
value per share
Cash paid for
share based
liabilities (000’s)
Share units potentially payable at January 1, 2015 . . . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2015 . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2016 . . .
Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes due to performance . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share units potentially payable at December 31, 2017 . . .
347,941
90,065
13,966
(167,482)
(31,624)
252,866
118,279
18,779
(88,073)
(40,706)
261,145
96,505
(11,891)
(89,190)
(20,473)
236,096
$36.08
$6,040
$33.20
$2,924
$46.64
$4,160
The Company maintains a voluntary savings plan covering substantially all employees in the United
States. The Plan, known as the Prosperity Plus Savings Plan, is a qualified plan under section 401(k) of the
U.S. Internal Revenue Code. The Company matches, in the form of cash, between 50 percent and 100 percent
of employee contributions up to a defined maximum. The investment of employee contributions to the plan is
self-directed. The Company’s cost of the plan amounted to $5.9 million in 2017, $5.5 million in 2016, and
$4.8 million in 2015.
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 $2.6 million in 2017,
$2.9 million in 2016, and $2.4 million in 2015.
19. 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, 2017, 3.3 million shares of Class A Common Stock
were reserved for the conversion of Class B Common Stock and the exercise of stock options.
97
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
19. Shareholders’ Equity — (continued)
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 2015, 2016, and 2017 is
presented below:
Class B
Class A
Common Stock
Common Stock
Shares Amount Shares Amount
Additional
paid-in
capital
Retained
earnings
37,085
$37
— —
3,235
$ 3
— —
$418,972 $456,105
— 57,279
Accumulated
items of other
comprehensive
income
Class A
Treasury Stock
Shares Amount
$(107,767) 8,459 $(257,481)
—
—
—
55 —
99 —
— —
— —
— —
— —
— —
— —
— —
— —
—
1,540
—
2,520
76
—
— (21,434)
—
—
—
—
—
(53,415)
—
—
(4)
—
—
—
—
90
—
—
— —
— —
$37
— —
37,239
— —
— —
$ 3
— —
3,235
—
—
—
—
$423,108 $491,950
— 52,733
—
—
2,941
(603)
—
—
$(158,844) 8,455 $(257,391)
—
—
—
53 —
26 —
1 —
— —
— —
— —
— —
(1) —
— —
— —
—
1,980
—
667
—
198
— (21,828)
—
—
—
—
—
—
(24,643)
—
—
(12)
—
—
—
—
255
—
—
— —
— —
$37
— —
37,319
— —
— —
$ 3
— —
3,234
—
—
—
—
$425,953 $522,855
— 33,111
—
—
(2,994)
2,292
—
—
$(184,189) 8,443 $(257,136)
—
—
—
44 —
33 —
— —
— —
— —
— —
— —
— —
— —
— —
—
1,564
—
597
309
—
— (21,884)
—
—
—
—
—
—
45,980
—
—
(12)
—
—
—
—
260
—
—
— —
— —
$37
37,396
— —
— —
$ 3
3,234
—
—
—
—
$428,423 $534,082
1,183
1,125
—
—
$(135,901) 8,431 $(256,876)
—
—
Noncontrolling
Interest
$3,699
(14)
—
—
—
—
5
—
—
$3,690
79
—
—
—
—
(2)
—
—
$3,767
(526)
—
—
—
—
6
—
—
$3,247
(in thousands)
January 1, 2015 . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or
payable in shares . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
Shares issued to Directors’
. . . . . . .
Dividends declared . . . . . . . . . . . . . .
Cumulative translation adjustments . .
Pension and postretirement liability
adjustments . . . . . . . . . . . . . . . . . .
Derivative valuation adjustment
. . .
December 31, 2015 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or
payable in shares . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
. . . . . . .
Shares issued to Directors’
Dividends declared . . . . . . . . . . . . . .
Cumulative translation adjustments . .
Pension and postretirement liability
adjustments . . . . . . . . . . . . . . . . . .
. . .
Derivative valuation adjustment
December 31, 2016 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . .
Compensation and benefits paid or
payable in shares . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
Shares issued to Directors’
. . . . . . .
Dividends declared . . . . . . . . . . . . . .
Cumulative translation adjustments . .
Pension and postretirement liability
adjustments . . . . . . . . . . . . . . . . . .
. . .
Derivative valuation adjustment
December 31, 2017 . . . . . . . . . . . . .
98
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Quarterly Financial Data (unaudited)
The following table presents certain unaudited quarterly consolidated statement of operations data from
continuing operations for each of the quarters in the periods ended December 31, 2017, 2016, and 2015. The
information has been derived from our unaudited financial statements, which have been prepared on
substantially the same basis as the audited consolidated financial statements contained in this report. We have
presented quarterly earnings per share numbers as reported in our earnings releases. The table below presents
operating results as filed in our quarterly reports for the first three quarters of each year. Fourth quarter
results presented below may vary from our quarterly earnings report in order to agree to the full year totals.
The results of operations for any quarter are not necessarily indicative of the results to be expected for any
future period.
(in millions, except per share amounts)
1st
2nd
3rd
4th
Total
2017
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) attributable to the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . .
Class A Common Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$199.3
75.9
10.8
0.34
0.34
0.17
49.05
43.90
$172.3
72.5
13.5
0.42
0.42
0.17
38.21
31.43
$215.6
63.1
1.1
0.03
0.03
0.17
53.40
43.90
$203.2
78.3
10.4
0.32
0.32
0.17
41.31
37.27
$222.1
79.4
15.3
0.47
0.47
0.17
57.60
50.25
$191.3
72.4
13.1
0.41
0.41
0.17
43.78
38.92
$226.7
77.4
5.9
0.19
0.19
0.17
65.25
56.45
$213.0
77.4
15.8
0.49
0.49
0.17
49.25
38.65
$863.7
295.8
33.1
1.03
1.03
0.68
$779.8
300.6
52.8
1.64
1.64
0.68
$181.3
76.7
$172.3
54.6
$178.8
75.7
$177.5
71.7
$709.9
278.7
12.2
0.38
0.38
0.16
(2.2)
(0.07)
(0.07)
0.17
9.7
0.30
0.30
0.17
37.6
1.18
1.18
0.17
57.3
1.79
1.79
0.67
40.31
34.13
41.15
39.15
40.21
28.28
39.25
28.19
Earnings per share for the fourth quarter of 2017, as reported in the table above, is $0.01 higher than our
quarterly earnings report due to rounding needed to match the full year total.
In 2017, restructuring charges reduced earnings per share by $0.05 in the first quarter, $0.04 in the
second quarter, $0.11 in the third quarter, and $0.07 in the fourth quarter. The amount recognized in the third
quarter was primarily non-cash charges associated with the decision to exit a discontinued product line.
99
ALBANY INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
20. Quarterly Financial Data (unaudited) — (continued)
In 2017, discrete income tax adjustments, increased/(decreased) earnings per share by ($0.03) in the first
quarter, ($0.02) in the second quarter, $0.12 in the third quarter, and ($0.21) in the fourth quarter. The amount
recognized in the fourth quarter was primarily from changes in U.S. tax laws.
In 2017, we recorded a write-off of inventory in a discontinued product line in the third quarter of 2017.
The write-off (decreased)/increased earnings per share by ($0.06) in the third quarter and $0.01 in the fourth
quarter.
In 2016, restructuring charges reduced earnings per share by $0.01 in the first quarter, $0.13 in the
second quarter, $0.01 in the third quarter, and $0.01 in the fourth quarter.
In 2016, we recorded measurement period adjustments related to the business acquisition that occurred in
the second quarter of 2016. Measurement period adjustments decreased earnings per share by $0.03 in the
third quarter, and $0.00 in the fourth quarter. Costs related to the acquisition transaction reduced earnings per
share by $0.03 in the first quarter, $0.08 in the second quarter, $0.00 in the third quarter, and $0.00 in the
fourth quarter.
In 2016, discrete income tax adjustments, increased earnings per share by $0.03 in the first quarter, $0.00
in the second quarter, $0.00 in the third quarter, and $0.04 in the fourth quarter.
In 2015, restructuring charges reduced earnings per share by $0.18 in the first quarter, $0.02 in the
second quarter, $0.07 in the third quarter, and $0.21 in the fourth quarter.
In 2015, discrete income tax adjustments, increased/(decreased) earnings per share by $(0.01) in the first
quarter, $0.00 in the second quarter, ($0.15) in the third quarter, and $0.85 in the fourth quarter. The amount
recognized in the fourth quarter was principally due to a worthless stock deduction for the Company’s
investment in its German subsidiary.
In 2015, we recognized a gain related to the sale of investment of $0.02 per share in the first quarter.
The Company’s Class A Common Stock is traded principally on the New York Stock Exchange. As of
December 31, 2017, there were over 20,000 beneficial owners of the Company’s common stock, including
employees owning shares through the Company’s 401(k) defined contribution plan.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of 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
December 31, 2017. Such disclosure controls and procedures are designed to ensure that information required
to be disclosed in reports under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Commission’s rules and forms, and to ensure that information required to be
disclosed under the Exchange 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.
Based on and as of the date of this evaluation, the Chief Executive Officer and the Chief Financial
Officer have concluded that the Company’s disclosure controls and procedures were effective as of such date.
100
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, under the supervision of the Company’s Chief Executive Officer and Chief Financial
Officer, and oversight of the Board of Directors, conducted an assessment of the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2017. 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. The objective of this assessment was to
determine whether our internal controls over financial reporting was effective at December 31, 2017.
Based on management’s assessment, we have concluded that our internal control over financial reporting
was effective at December 31, 2017. Our independent registered accounting firm has issued a report on the
effectiveness of our internal control over financial reporting which is included under Item 8.
Remediation of Prior Material Weaknesses
As disclosed in Form 10-K for the year ended December 31, 2016, we identified the following material
weaknesses in our internal controls: The Company did not establish effective reporting lines, appropriate
authorities, responsibilities and monitoring activities for financial reporting processes and internal controls, as
well as the assignment of banking signatory authorities, limits and responsibilities, at its subsidiary in Japan
and certain other foreign locations. As a result, the Company lacked effective written entity and process level
controls over initiation, authorization, processing and recording of transactions and safeguarding of assets
managed by a third party service provider at the Japan location. In addition, the Company did not have
effective management review controls over the assessment of a potential reserve for a loss contract due to a
failure to understand and document the design requirements and operation of an effective management
review control.
When the materials weaknesses were identified, management immediately commenced actions to
remediate the material weaknesses. To accomplish this we designed several new controls and enhanced the
design of other controls, including a review of financial reporting processes relating to the subsidiary in Japan,
and enhancements and additions to internal controls for that location; increasing senior financial and
accounting management monitoring of financial reporting at smaller Company locations, establishing effective
reporting lines, appropriate authorities, responsibilities and monitoring for financial reporting activities, and
assignment of banking signatory authorities, limits and responsibilities at such locations; enhancements to
management review controls and procedures for the assessment of potential reserves for loss contracts, and
additional training regarding the required documentation of design and operating effectiveness of internal
control over financial reporting.
As part of our assessment of internal control over financial reporting as of December 31, 2017,
management tested and evaluated whether these controls were designed and operating effectively for a
sufficient period of time. Based on this assessment, management concluded that the material weaknesses were
remediated.
101
Changes in Internal Control over Financial Reporting
Other than the efforts described above, there were no changes in our internal control over financial
reporting during our fourth fiscal quarter of 2017 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)
Item 9B. OTHER INFORMATION
None.
/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)
102
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) Executive Officers. Information about the officers of the Company is set forth in Item 1 above.
c) 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.
103
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
Equity compensation plans approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of securities
to be issued upon
exercise of
outstanding options,
warrants, and rights
Weighted average
exercise price of
outstanding
options, warrants,
and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding securities
reflected in column (a))
(a)
29,340(1)
—
29,340(1)
(b)
$18.40
—
$18.40
(c)
190,616(2,3,4)
—
190,616(2,3,4)
(1) Does not include 56,452, 45,985, and 29,056 shares that may be issued pursuant to 2015, 2016 and 2017,
respectively, performance incentive awards granted to certain executive officers pursuant to the 2011
Incentive Plan. 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 4 below). No
additional shares are available under any of the stock option plans pursuant to which outstanding options
were granted.
(3) 190,616 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 2,190,616.
(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.
104
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.
105
Incorporated by Reference
Form
8-K
8-K
8-K
S-1,
No. 33-16254
Period
Ending
Filing
Date
6/2/15
2/23/11
6/2/15
9/30/87
8-K
11/7/17
10-Q
6/30/11
8/9/11
8-K
10-K
8-K
8-K
8-K
8-K
S-1, No.
33-16254
10-Q
1/18/93
12/31/97 3/16/98
6/1/11
3/29/11
3/29/11
1/2/08
9/30/87
9/30/01 11/12/01
10-Q
9/30/01 11/12/01
10-K
12/31/02 3/21/03
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
Filed
Herewith
Exhibit
Number
3 (a)
3 (b)
4 (a)
Exhibit Description
Amended and Restated Certificate of Incorporation
of Company
Bylaws of Company
Article IV of Certificate of Incorporation of
Company
Specimen Stock Certificate for Class A Common
Stock
Credit Agreement
10(k)(xix)
4 (b)
$685 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, dated as of November 7,
2017
Restricted Stock Units
10(l)(viii)
2011 Performance Phantom Stock Plan as adopted
on May 26, 2011 (42)
1992 Stock Option Plan
1997 Executive Stock Option Agreement
2011 Incentive Plan
Form of 2011 Annual Performance Bonus
Agreement
Form of 2011 Multi-Year Performance Bonus
Agreement
Supplemental Executive Retirement Plan, adopted as
of January 1, 1994, as amended and restated as of
January 1, 2008
Annual Bonus Program
Form of Executive Deferred Compensation Plan
adopted September 1, 1985, as amended and
restated as of August 8, 2001
Form of Directors’ Deferred Compensation Plan
adopted September 1, 1985, as amended and
restated as of August 8, 2001
Deferred Compensation Plan of Albany International
Corp., as amended and restated as of August 8,
2001
Stock Options
10(m)(i)
10(m)(ii)
10(m)(iii)
10(m)(iv)
10(m)(v)
10(n)(i)
10(n)(ii)
10(n)(iii)
10(o)(i)
10(o)(ii)
106
Exhibit
Number
10(o)(iii)
10(o)(iv)
10(o)(viii)
10(p)
10(q)
10(r)
10(s)
10(t)
10.1
10.2
2.1
11
21
23
24
31(a)
31(b)
32(a)
Exhibit Description
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
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
Executive separation agreement, dated December 4,
2017, between the Company and Diane Loudon
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
Stock Purchase Agreement by and between Albany
International Corp. and Harris Corporation, dated as
of February 27, 2016
Statement of Computation of Earnings per share
(provided in Footnote 8 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
Incorporated by Reference
Filed
Herewith
Form
Period
Ending
Filing
Date
10-Q
9/30/01
11/12/01
8-K
8-K
8-K
8-K
8-K
8-K
8-K
12/23/09
1/4/16
1/2/08
1/13/05
5/18/05
4/12/06
11/1/11
10-K 12/31/13
2/26/14
8-K
3/1/16
X
X
X
X
X
X
X
X
The following information from the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2017, formatted in eXtensible Business Reporting Language (XBRL), filed herewith:
101(i)
X
101(ii)
Consolidated Statements of Income for the years
ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income/
(loss) for the years ended December 31, 2017, 2016,
and 2015
X
107
Exhibit
Number
101(iii)
101(iv)
101(v)
Exhibit Description
Incorporated by Reference
Filed
Herewith
Form
Period
Ending
Filing
Date
Consolidated Balance Sheets as of December 31,
2017 and 2016
Consolidated Statements of Cash Flows for the
years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
X
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.
108
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 28th day of February, 2018.
SIGNATURES
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
*
Joseph G. Morone
Title
Date
President and Chief Executive Officer and Director
(Principal Executive Officer)
February 28, 2018
/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 28, 2018
February 28, 2018
*
Erland E. Kailbourne
*
John C. Standish
*
John F. Cassidy, Jr.
*
Katharine Plourde
*
Edgar G. Hotard
*
John R. Scannell
*
Christine L. Standish
*
A. William Higgins
*
Kenneth W. Krueger
*By /s/ John B. Cozzolino
John B. Cozzolino
Attorney-in-fact
Chairman of the Board and Director
February 28, 2018
Vice Chairman of the Board and Director
February 28, 2018
Director
Director
Director
Director
Director
Director
Director
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
109
SCHEDULE II
ALBANY INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Column A
Description
Column B
Balance at
beginning of
period
Column C
Column D
Charge to
expense
Other (A)
Column E
Balance at
end of the
period
Allowance for doubtful accounts
Year ended December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for sales returns
Year ended December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance deferred tax assets
Year ended December 31:
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,952
8,530
8,713
$13,714
14,024
17,265
$22,821
24,439
21,860
$ 1,388
23
744
$
(421)
(1,601)
(927)
$ 7,919
6,952
8,530
$ 8,909
10,851
10,640
$(11,253)
(11,161)
(13,881)
$11,370
13,714
14,024
$ (3,552)
(88)
75
$ (3,212)
(1,530)
2,504
$16,057
22,821
24,439
(A) Amounts sold, written off, or recovered, and the effect of changes in currency translation rates, are
included in Column D.
110
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 505000
Louisville, KY 40233-5000
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 at Investor Center. For more
information, go to www.computershare.com/investor.
Notice of Annual Meeting
The Annual Meeting of the Company’s shareholders is scheduled to be held on Friday, May 11, 2018 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.
111
Trademarks and Trade Names
INLINE, KRAFTLINE, PRINTLINE, HYDROCROSS, SEAM HYDROCROSS, SEAMPLANE, Seam
KMX, SPRING, VENTABELT EVM, VENTABELT XTS, VENTABELT XTR, TRANSBELT GX,
TRANSBELT GXM, SPIRALTOP, AEROPULSE, AEROPOINT, DURASPIRAL, TOPSTAT, SUPRASTAT,
PROVANTAGE, PROVANTAGE LC, PACKLINE and NOVALACE are all 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
Chairman and Chief Executive Officer, J.S. Standish
Company
John F. Cassidy, Jr.2,3
Retired – Senior Vice President,
Science and Technology, United Technologies Corp.
Katharine L. Plourde1,3
Retired – Principal and Analyst,
Donaldson, Lufkin & Jenrette, Inc.
Edgar G. Hotard1
Retired – President and COO, Praxair, Inc.
Joseph G. Morone
President and Chief Executive Officer
Christine L. Standish3
President, J.S. Standish Company
John R. Scannell2
Chairman and Chief Executive Officer, Moog Inc.
A. William Higgins2
Director, Kaman Corporation and the Bristow Group
Kenneth Krueger1
Chairman of the Board, Manitowoc Company Inc.
1 Member, Audit Committee
2 Member, Compensation Committee
3 Member, Governance Committee
Officers
Joseph G. Morone
President and Chief Executive Officer
John B. Cozzolino
Chief Financial Officer and Treasurer
Daniel A. Halftermeyer
President – Machine Clothing
David M. Pawlick
Vice President – Controller
Robert A. Hansen
Senior Vice President and Chief Technology Officer
Charles J. Silva, Jr.
Vice President – General Counsel and Secretary
Joseph M. Gaug
Associate General Counsel and Assistant Secretary
Dawne H. Wimbrow
Vice President – Global Information Services and
Chief Information Officer
112
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Brandon Drying Fabrics, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Forming Fabrics Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Geschmay Wet Felts, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transglobal Enterprises, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Aerostructures Composites, LLC . . . . . . . . . . . . . . . . . . . . .
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 Safran Composites, S.A.S . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International France, S.A.S. . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Germany GmbH . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Italia S.r.l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Japan Kabushiki Kaisha . . . . . . . . . . . . . . . .
Albany International Korea, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites Mexico, S.de R.L. de C.V. . .
Albany Safran Composites Mexico, S. de R.L. de C.V. . . . . . .
Albany Engineered Composites Services Company, S. de
R.L. de C.V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Mexico Services, S. de R.L. de C.V. . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AI (Switzerland) GmbH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Holding (Switzerland) AG . . . . . . . . . . . . . .
Albany International Europe GmbH . . . . . . . . . . . . . . . . . . . . . . . . . .
Albany Engineered Composites Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Albany International Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent
Ownership
Percent
Ownership
Country of
Incorporation
Direct
Indirect
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
100%
100%
100%
100%
90%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Australia
Brazil
Canada
China
China
Finland
France
France
Germany
Italy
Japan
Korea
Mexico
Mexico
Mexico
Mexico
Mexico
Netherlands
Russia
South Africa
Sweden
Sweden
Switzerland
Switzerland
Switzerland
United Kingdom
United Kingdom
113
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
The Board of Directors
Albany International Corp.:
We consent to the incorporation by reference in the registration statements (Nos. 333-218122,
333-218121, 333-195269, 333-190774, 333-140995, 333-76078, 333-90069, 033-60767) on Form S-8 of
Albany International Corp. and subsidiaries (Albany International Corp.) of our reports dated February 28,
2018, with respect to the consolidated balance sheets of Albany International Corp. as of December 31, 2017
and 2016, and the related consolidated statements of income, comprehensive income/(loss), and cash flows for
each of the years in the three-year period ended December 31, 2017, and the related notes and the financial
statement schedule (collectively, the “consolidated financial statements”), and the effectiveness of internal
control over financial reporting as of December 31, 2017, which reports appear in the December 31, 2017
annual report on Form 10-K of Albany International Corp.
/s/ KPMG LLP
Albany, New York
February 28, 2018
114
Exhibit 24
Powers of Attorney
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, 2017 (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 28th day of
February, 2018.
/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/ A. William Higgins
A. William Higgins
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
/s/ Kenneth W. Krueger
Kenneth W. Krueger
Director
115
I, Joseph G. Morone, certify that:
Certification of the Chief Executive Officer
Exhibit 31(a)
1.
I have reviewed this report on Form 10-K of Albany International Corp.;
2. 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;
3. 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;
4. 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 28, 2018
By
/s/ Joseph G. Morone
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
116
I, John B. Cozzolino, certify that:
Certification of the Chief Financial Officer
Exhibit 31(b)
1.
I have reviewed this report on Form 10-K of Albany International Corp.;
2. 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;
3. 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;
4. 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 28, 2018
By
/s/ John B. Cozzolino
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
117
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, 2017 (“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 28, 2018
/s/ Joseph G. Morone
Joseph G. Morone
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John B. Cozzolino
John B. Cozzolino
Chief Financial Officer and Treasurer
(Principal Financial Officer)
118
216 Airport Drive, Rochester, NH 03867 USA
Tel: 603 330 5850 • Fax: 603 994 3835 • www.albint.com • investor.relations@albint.com