CORRECTING and REPLACING Albany International Reports Fourth-Quarter Results

Fourth-quarter Highlights

• Net sales were $226.7 million, an increase of 6.4% compared to 2016
  (see Table 1).
• Net income attributable to the Company was $5.9 million ($0.18 per
  share), including a net charge of $5.1 million ($0.16 per share) for
  income tax adjustments resulting primarily from changes in U.S. tax
  laws. Q4 2016 Net income attributable to the Company was $15.8 million
  ($0.49 per share), including a net benefit of $2.5 million ($0.08 per
  share) from income tax adjustments.
• Net income attributable to the Company, excluding adjustments (a
  non-GAAP measure), was $0.44 per share, compared to $0.36 per share in
  Q4 2016 (see Table 18).
• Adjusted EBITDA (a non-GAAP measure) was $43.4 million, compared to
  $38.3 million in Q4 2016 (see Tables 8 and 9). Q4 2016 Adjusted EBITDA
  included a charge of $2.5 million related to the theft of cash in
  Japan.
• On February 5, the Company issued a press release announcing that
  Olivier Jarrault has been named President and Chief Executive Officer
  to succeed Joseph G. Morone, effective March 2.

ROCHESTER, N.H.–(BUSINESS WIRE)–On February 5, 2018 Albany International issued a news release reporting
fourth-quarter 2017 financial results. Subsequently, the Company
determined that fourth-quarter 2017 income tax expense was $10.0
million, rather than the $12.1 million initially reported. This
correction also resulted in changes to the originally reported Q4 and
full-year 2017 income tax rate, discrete tax expense, and net income
attributable to the Company (as reported and excluding adjustments). The
correction had no effect on fourth-quarter or full-year 2017 Adjusted
EBITDA.

The corrected release reads:

ALBANY INTERNATIONAL REPORTS FOURTH-QUARTER RESULTS

Fourth-quarter Highlights

• Net sales were $226.7 million, an increase of 6.4% compared to 2016
  (see Table 1).
• Net income attributable to the Company was $5.9 million ($0.18 per
  share), including a net charge of $5.1 million ($0.16 per share) for
  income tax adjustments resulting primarily from changes in U.S. tax
  laws. Q4 2016 Net income attributable to the Company was $15.8 million
  ($0.49 per share), including a net benefit of $2.5 million ($0.08 per
  share) from income tax adjustments.
• Net income attributable to the Company, excluding adjustments (a
  non-GAAP measure), was $0.44 per share, compared to $0.36 per share in
  Q4 2016 (see Table 18).
• Adjusted EBITDA (a non-GAAP measure) was $43.4 million, compared to
  $38.3 million in Q4 2016 (see Tables 8 and 9). Q4 2016 Adjusted EBITDA
  included a charge of $2.5 million related to the theft of cash in
  Japan.
• On February 5, the Company issued a press release announcing that
  Olivier Jarrault has been named President and Chief Executive Officer
  to succeed Joseph G. Morone, effective March 2.

Albany International Corp. (NYSE:AIN) reported that Q4 2017 Net income
attributable to the Company was $5.9 million, including a net charge of
$5.1 million for income tax adjustments, principally due to the U.S. tax
reform enacted in December 2017. Q4 2016 Net income attributable to the
Company was $15.8 million, including a net benefit of $2.5 million from
income tax adjustments.

Q4 2017 Income before income taxes was $15.1 million, including $3.3
million of restructuring charges and $1.8 million of losses from foreign
currency revaluation. Q4 2016 Income before income taxes was $20.8
million, including restructuring charges of $0.7 million and gains of
$3.2 million from foreign currency revaluation. Q4 2016 Income before
income taxes also included a charge of $2.5 million related to a theft
of cash in Japan.

Table 1 summarizes net sales and the effect of changes in currency
translation rates:

In Machine Clothing, continuing declines in the publication grades were
more than offset by growth in other grades. The increase in AEC Net
sales was primarily due to growth in the 787 fuselage frames, F-35
airframe and CH-53K programs.

Table 2 summarizes Gross profit by segment:

Fourth-quarter MC gross profit as a percentage of sales decreased due to
stronger than normal year-end negative effects on capacity utilization.
For the full year, MC gross profit as a percentage of sales remained
steady at 47.5% in both 2016 and 2017. The decrease in AEC gross profit
as a percentage of sales reflects ramp-up inefficiencies which were
partially offset by a favorable net adjustment to the estimated
profitability of long-term contracts.

Table 3 summarizes selling, technical, general and research (STG&R)
expenses by segment:

Gains from the revaluation of nonfunctional-currency assets and
liabilities decreased total fourth-quarter STG&R expenses by $0.5
million in 2017 and $2.0 million in 2016. The increase in MC STG&R
expenses was primarily due to lower revaluation gains and higher
research and development expenses. The decrease in AEC STG&R expenses
was due primarily to lower-than-average spending in research and
development activities during Q4 2017, and acquisition accounting
adjustments that increased STG&R expenses by $0.7 million in Q4 2016.

Table 4 summarizes fourth-quarter expenses associated with internally
funded research and development by segment:

Table 5 summarizes fourth-quarter operating income by segment:

Table 6 presents the effect on operating income from restructuring and
currency revaluation:

Restructuring charges in Q4 2017 were principally related to
previously-announced restructuring actions in Europe. Due to the ongoing
nature of discussions with the local works council associated with the
announced proposal for the restructuring of Machine Clothing operations
in France, the Company has not recorded a provision for potential
severance and other costs that could be incurred if the restructuring
proposal is approved.

Q4 2017 Other income/expense, net, was expense of $3.4 million,
including losses related to the revaluation of nonfunctional-currency
balances of $2.3 million. Q4 2016 Other income/expense, net, was expense
of $2.1 million, including income related to the revaluation of
nonfunctional-currency balances of $1.2 million and a charge of $2.5
million related to the theft of cash from the Company’s subsidiary in
Japan.

Table 7 summarizes currency revaluation effects on certain financial
metrics:

The Company’s income tax rate based on income from continuing operations
was 32.0% for Q4 2017, compared to 35.3% for Q4 2016. Discrete tax items
and the effect of a change in the estimated income tax rate increased
income tax expense by $5.1 million in Q4 2017, principally due to a
charge to reflect the Company’s estimate of the impact of U.S. tax law
changes. Discrete tax items and the effect of a change in the estimated
income tax rate decreased income tax expense by $2.5 million in Q4 2016.

Tables 8 and 9 provide a reconciliation of operating income and net
income to EBITDA and Adjusted EBITDA:

Payments for capital expenditures were $22.9 million in Q4 2017,
compared to $22.2 million in Q4 2016. Depreciation and amortization was
$18.7 million in Q4 2017, compared to $16.2 million in Q4 2016.

CFO Comments

CFO and Treasurer John Cozzolino commented, “During the fourth quarter,
the Company amended and extended its revolving credit facility with its
existing group of banks. The facility was increased from $550 million to
$685 million, the maturity date extended to November 2022, and the
leverage ratio limit increased to 3.75 through June 2019 (after which
the limit moves back to 3.50). The remaining terms of the new facility
are essentially the same as the previous facility. Additionally, during
the quarter the Company utilized its credit facility to pay down the
remaining $50 million due on the 6.84% notes with Prudential. At the end
of the year, borrowings under the new credit facility were $501 million.

“The Company replaced its existing interest rate swaps with new swap
agreements during the quarter. The previous swaps, which fixed LIBOR on
$300 million of debt at 1.245%, were terminated with the Company
receiving about $6 million of proceeds. The new swaps fix LIBOR on $350
million of debt at 2.11% through October 2022. At year end, the
effective interest rate for borrowings under the revolving credit
facility was 3.40%.

“Cash flow in the fourth quarter was strong due to good operating
performance and management of working capital. Cash balances increased
about $30 million to a total of $184 million, while total debt increased
about $11 million to $516 million as of the end of the year. The
combined effect of those two changes resulted in a $20 million decrease
in net debt (total debt less cash, see Table 20) to a balance of $332
million as of the end of the year. The Company’s leverage ratio, as
defined in our revolving credit facility, was 2.62 at the end of the
year, well below our limit of 3.75.

”Payments for capital expenditures in Q4 were about $23 million,
bringing the total for the year to approximately $85 million. As several
key AEC programs continue to ramp, we continue to expect total Company
capital expenditures in 2018 to be in the range of $20 million to $25
million per quarter.

“New tax legislation in the U.S. had a significant mostly non-cash
impact on discrete tax expense in Q4. Tax expense of $6 million was
recorded to reflect the impact of the mandatory deemed repatriation of
offshore earnings, while $1 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 materially 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 Company plans to
continue its repatriation program and expects that over the long run the
new tax legislation will have a beneficial impact on the program.

“The Company’s income tax rate, based on income from continuing
operations, decreased to 32% in 2017, compared to 35% in 2016. Cash paid
for income taxes was about $3 million in Q4, bringing the full-year
total to $24 million. Based on the Company’s current estimate of the mix
of earnings in the countries where we do business and including the
impact of the lower tax rate in the U.S., we estimate the 2018 tax rate
on income from continuing operations to be in the range of 27% to 31%.
Cash taxes in 2018 are expected to be in the range of $22 million to $24
million.

“Effective January 1, 2018, the Company adopted ASC 606, Revenue
from Contracts with Customers, utilizing the cumulative effect
method for transitioning to the new standard. As a result, in 2018 the
Company will report results under the new standard, and will also
provide disclosure of results calculated under the former standard.
Although the Company is still finalizing the implementation of this new
standard, it is clear that it will have an impact on both businesses.

“For MC, a large portion of revenue will continue to be recognized upon
delivery to customers. Revenue associated with certain contracts,
however, will be accelerated in situations where the Company satisfies
its performance obligation in advance of delivery. Additionally, the
Company expects to allocate a small portion of revenue to services to
reflect certain situations in which support services are provided to
customers. While these changes could increase volatility in quarterly
sales, total 2018 MC net sales should not be significantly impacted by
this new standard.

“In AEC, the impact of the new standard will vary based on the terms of
each customer contract. For most long-term contracts, we expect to
record revenue based on costs incurred as compared to units of delivery,
which we have used for several of our programs. For contracts previously
utilizing the units of delivery method, this change should result in the
acceleration of revenue. Additionally, profitability of many long-term
contracts will be estimated based on shorter time periods than those
used under the former standard. We expect that this change will result
in lower reported earnings during the early years of a program, with
higher reported earnings once a program is ramped up. Overall for 2018,
we do not expect this new standard to have a significant impact on AEC
net sales, however due to the effects on the accounting for certain new
or existing early-stage programs, 2018 reported earnings could be
somewhat lower than they would have been under the former standard.”

CEO Comments

CEO Joseph Morone said, “Q4 2017 was another good quarter for Albany
International. Although charges associated with the new tax law
contributed to a sharp drop in net income, both businesses performed
well in Q4, resulting in solid growth in total Company sales and
Adjusted EBITDA, and strong cash flow. MC and AEC both reached the
high-end of their projected outlooks for full-year 2017, and expect
continued strong performance in 2018.

“Q4 sales in MC were once again stable compared to Q4 2016, as market
trends of the previous eight quarters persisted. A roughly 10% decline
in publication grades sales was offset by stable or incrementally
growing sales in other grades. Publication grade sales declined to
approximately 23% of total sales compared to 25% in Q4 2016. Prices were
stable, although pricing pressure remained intense, particularly in
Asia. New product performance was once again strong across the board,
and we are greatly encouraged by advances in the new technology platform
across multiple segments and product lines. The only anomaly in the
quarter was a drop in gross margin due to higher than normal end-of-year
underutilization of capacity. We expect gross margin to bounce back in
2018 to the full-year average of the past two years.

“For the full-year 2017, sales excluding currency, gross margin,
operating income and Adjusted EBITDA were virtually identical to 2016,
with gross margin at 47.5% and Adjusted EBITDA again at the high end of
our expected range of $180 million to $195 million.

“After a decade of steady year-over-year sales declines due to the
collapse of the publication grades, 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. The last
two years suggest 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.

“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 expected range. While
growing inflationary pressures and a weakening U.S. dollar could lead to
some regression away from the very high end of our normal range for
Adjusted EBITDA, 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.

“AEC also had a good quarter and full year. Sales grew by 12% compared
to a strong Q4 2016, and 38% compared to full-year 2016. The
year-over-year Q4 increase was driven primarily by growth in the 787
fuselage frames, F-35 airframe, and CH-53K programs in Salt Lake City
along with the new program for engine parts in Boerne. LEAP, which
accounted for 44% of sales, was flat compared to an especially strong Q4
2016. Compared to Q3 2017, LEAP grew by 30%, and compared to full-year
2016, LEAP grew by 40%.

“All of AEC’s ramping programs made progress on quality and deliveries,
and the two new plants in Querétaro Mexico are on schedule. The first of
these two plants produced and shipped its first LEAP fan blades late in
Q4. We continue to see upward pressure on demand for the LEAP program,
while demand on all of AEC’s other ramping programs is either stable or
facing incremental upward pressure.

“AEC Q4 2017 operating income improved to slightly above break-even. As
expected, Gross profit was hurt by ramp-up inefficiencies in Q4, but the
negative impact was offset by a favorable net adjustment to estimated
profitability of long-term contracts. As a result, Adjusted EBITDA as a
percent of sales improved to 14% compared to 11% in Q3 2017, and 8% in
Q4 2016. As discussed earlier in this release in the CFO commentary,
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 continue to make progress on three
fronts: opportunities with our current customers on existing platforms,
opportunities on new platforms, and longer-term opportunities still in
development. We have made enough progress on each of these fronts to
revise our estimate of revenue potential for 2020. In 2016, following
the acquisition of our Salt Lake City operation, we stated that AEC had
the potential to grow to $450 million in revenue by 2020. In mid-year
2017, we revised that potential upward to $450 million to $500 million.
We now think $475 million to $550 million is a reasonable estimate. This
assumes both existing contracts and contracts that we believe we are
more likely than not to win. We continue to expect 18% to 20% EBITDA as
a percent of sales by 2020 (again, holding revenue recognition standards
constant).

“As for our outlook for 2018, we expect 20% to 30% growth in full-year
sales, driven primarily by the ramp-ups in LEAP, 787 fuselage frames,
and F-35 programs, and holding revenue recognition standards constant,
continued steady, incremental improvement in Adjusted EBITDA as a
percent of sales.

“In sum, this was another good quarter and year for Albany, with stable
year-over-year performance on both top and bottom lines in MC, continued
strong growth and incremental improvements in profitability in AEC, and
an outlook for both businesses of continued strong performance in 2018.”

About Albany International Corp.

Albany International is a global advanced textiles and materials
processing company, with two core businesses. Machine Clothing is the
world’s leading producer of custom-designed fabrics and belts essential
to production in the paper, nonwovens, and other process industries.
Albany Engineered Composites is a rapidly growing supplier of highly
engineered composite parts for the aerospace industry. Albany
International is headquartered in Rochester, New Hampshire, operates 22
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.

This release 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, represented in dollars or as a
percentage of net sales); net debt; and net income per share
attributable to the Company, excluding adjustments.

Contacts

Albany International Corp.
Investors
John Cozzolino,
518-445-2281
[email protected]
or
Media
Heather
Kralik, 801-505-7001
[email protected]

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