Delivering Value

Albany International 2002 Annual Report Our Vision We want Albany International to be the Company of Choice that delivers value for: ¥ Shareholders Our Business ¥ Customers ¥ Employees Albany International supplies the worldwide pulp ¥ Suppliers and paper industry, as well as other process industries, with technologically advanced structured materials and related services. Our Mission Albany International’s mission is The Company is the world’s largest producer of custom- to supply the global paper and designed engineered fabrics called paper machine clothing paperboard industry, as well as (PMC). These consumable fabrics are used on all grades of paper other process industries, with the world’s leading advanced materi- from lightweight paper to heavyweight containerboard. PMC als and structural technologies, fabrics, essential to the papermaking process, are manufactured yielding attractive returns to our shareholders, exceptional value from monofilaments, multifilaments, and synthetic fiber materials. to our customers, outstanding Building on this core competency, Albany International has opportunities for our employees, and mutually rewarding relation- developed complementary technologies that allow for strate- ships with our suppliers. gic diversification and growth opportunities. These businesses include Albany Door Systems and Applied Technologies.

Founded in 1895, the Company is head- quartered in Albany, New York, and employs approximately 6,200 people worldwide. Our plants are strategically located to serve our global customers.

DRYING PRESSING

FORMING

PROCESS BELTS

Paper machine clothing from Albany Simulated paper machine of the 21st century with Albany International fabrics and belts. International is a consumable engineered product used in specific applications of the papermaking process. 2002 Financial Highlights

Years ended December 31, 2002 2001 ($ millions, except per share amounts)

Net sales $816.0 $836.7 Gross profit 340.3 339.4 Operating income 102.1 84.1 Net income 48.9 32.2 Net income per share Ð basic 1.52 1.04 Net income per share Ð diluted 1.50 1.03

($ millions, except per share amounts)

Excluding the cumulative effect of changes in accounting principles in both years, earnings are as follows:

Income before cumulative effect of accounting changes $54.8 $33.3

Income per share Ð basic $1.70 $1.07 Income per share Ð diluted $1.68 $1.06 Highlights of 2002 ¥ Completed $75 million cost reduction initiatives since 1999. Announced new $30 million cost reduction initiative to be ¥ completed by June 2004. Reduced Inventory and Accounts Receivable by a combined ¥ $30.8 Million*. * excludes effects of currency translation and sale of accounts receivable Table of Contents Financial Highlights ...... 1 YEAR-END TOTAL DEBT TOTAL CUMULATIVE millions SHAREHOLDER RETURN* Albany International Today/ $600 $200 Around the World ...... Foldout Section $500 Letter to Our Shareholders ...... 6 $150 Albany International $400 Delivering Value $300 $100 Our Customers...... 10 S&P 500 Our Employees ...... 12 $200 $50 Our Suppliers...... 14 $100 Financial Section ...... 16 0 0 1999 2000 2001 2002 1999 2000 2001 2002 Corporate Information ...... 49 * Total Cumulative Shareholder Return includes changes in market value of common stock plus dividends. Assumes $100 invested in 1999. Directors and Officers ...... 50

1 Albany International today...

ENGINEERED FABRICS

Engineered Products Albany International’s Burgo Verzuolo custom-engineered wires, PM 9 fabrics, and belts have applications in the nonwovens, pulp, building, Paper Machine food, and specialty indus- Clothing tries. These products are Corrugator Albany International is the manufactured to extremely Belts industry leader in the supply high standards and are These engineered belts of paper machine clothing, strategically significant to are used to produce custom-designed fabrics and the customers’ operations. boxboard from linerboard belts used to produce all With end products from and corrugated medium. grades of paper, paperboard, diapers to glass mat to With a presence in every and pulp. Paper machine industrial wipes, these board-producing region of the clothing fabrics, which fabrics offer high-quality world, Albany International include Forming, Press, and solutions to process Corrugator Belts are globally Dryer Fabrics and Process needs. recognized as durable, Belts, are strategic products dependable belts that for our customers. perform under the most demanding conditions. ALBANY APPLIE DOOR SYSTEMS

PrimaLoft Albany International’s patented “synthetic down” The global leader in the supply insulation is used in the of high-performance doors, home furnishings and outer- ¨ Albany Door Systems offers a wear markets. PrimaLoft complete range of products, synthetic insulation, originally service, and maintenance for developed for the U.S. Military, internal and external applica- offers “soft and comfortable Techniweave tions. This product line of flexible as goose down” properties Techniweave is a recog- and rigid doors includes roll-up for the home market and nized leader in the field of and sectional doors, bifold lightweight warmth and water advanced materials and and freezer doors, mining and resistance for the technical composite structures, dock doors, paint and machine outerwear market. Distributed with industrial, aerospace, protection doors, and more. worldwide, PrimaLoft has athletic, and personal care Each door is custom designed developed strong consumer applications. Using glass, to the customer’s specifications brand recognition. ceramics, graphite, and other and can be manufactured in nontraditional materials, sizes that range from 1 square Techniweave products build meter to 110 square meters our materials core compe- with operating speeds up to 3 tencies while developing meters per second. new market opportunities. D TECHNOLOGIES

Industrial Advanced Process Thermal Technologies Protection Albany International is a Systems specialty manufacturer of Albany International’s expert- high-quality filtration products ise in materials research and belts for liquids/solids High led to the development of and air/solids separation in a Performance personal security and aero- variety of process industries, Materials space insulation applications as well as similar products Combining textile and material for high-temperature protec- for tannery and textile process process technology, Albany tion. These specialty applica- applications. Using standard International has produced its tions bring our technologies materials as well as high- Pyropel ¨ high-temperature into high-temperature areas temperature and specialty insulation family. These prod- where we can expand our materials and structures, ucts feature superior resistance application of traditional these products are designed to thermal, electrical, and products. to offer superior operating chemical attack. Applications life and performance. include insulation in molding processes, as well as engineering components for chemical, analytical, and semiconductor equipment. Corporate Office Albany International Albany International Italia S.a.r.l. Albany, New York Techniweave, Inc. Marghera Ð Venezia, Italy Rochester, Research Co. Albany International Corp. Mansfield, Massachusetts Monofilament Plant Cowansville, Québec (2) Homer, New York Perth, Ontario U.S. Forming Fabrics Menasha, Albany International A.B. Albany International Pty. Ltd. Montgomery, Alabama Halmstad, (2) Gosford, N.S.W., Portland, Tennessee Albany International Oy Albany International U.S. Press Fabrics Helsinki, Finland Tecidos Tecnicos Ltda. East Greenbush, New York Järvenpää, Finland Indaial, St. Stephen, South Carolina Albany International Ltd. Albany International de México S.A. de C.V. U.S. Dryer Fabrics James Kenyon Cuautitlán, Menands, New York Bury, Lancashire, England Albany International () Co., Ltd. Geschmay Corp. Albany International B.V. Panyu City, Guangdong, China Greenville, South Carolina Dieren, (2) Albany International Korea, Inc. Process Belts Albany International France S.A.S. Chungju, Korea Tumwater, Washington Ribérac, France Sélestat, France Albany Door Systems Engineered Products Halmstad, Sweden Appleton, Wisconsin Württembergische Filztuchfabrik Lawrenceville, Georgia Portland, Tennessee D. Geschmay GmbH & Co KG Lippstadt, Germany Göppingen, Germany Gosford, N.S.W., Australia Barrie, Ont., Canada Cofpa S.A. St. Junien, France Associated Company Beier Albany & Company (Proprietary) Limited Pinetown, South Africa

(2) indicates two plants at the location

Albany International Around the World. Letter to Our Shareholders

Last year was a challenging one for our Company. At the beginning of 2002, I promised that we would continue to manage the business fundamen- tals by focusing on those areas within our direct control — operational efficiency, process improvement, and product and tech- nology innovation. Albany International employees have delivered on the promise with improvements in operations and increased earnings.

Chairman of the Board and Chief Executive Officer Frank R. Schmeler believes that by focusing our Company on delivering value, we can become the Company of Choice for our shareholders, customers, employees, and suppliers.

6 Delivering on platform for enhancing customer Albany Value the Promise service and relationships and for Concept improving internal efficiencies. In the weak economic environment While we are proud of our accom- Our team’s successful implemen- of 2002, we continued aggressively plishments, much remains to be done. tation of these initiatives delivered pursuing our key strategic initiatives, We want Albany International to be strong results. which enabled us to increase efficien- the Company of Choice that delivers cy, reduce costs, pay down debt, and 2002 Financial value for shareholders, customers, increase earnings. Results employees, and suppliers. To realize Albany people everywhere are this important vision, we must: Net sales declined 2.5% in com- working with these initiatives to create Create growth opportunities and parison to 2001 as economic condi- ¥ change in our business processes and generate attractive returns on tions negatively affected all of our practices. Our key strategic initiatives invested capital for our businesses. However, earnings per include: shareholders. share before the cumulative effect of New Product Development — Be the highest-value provider of ¥ changes in accounting principles grew ¥ extending our technological lead- critical products and services to $1.70 in 2002, compared to $1.07 ership through focused research delivered on time to our in 2001. Including the cumulative effect and development and the timely customers, and be the committed of changes in accounting principles in introduction of new products that technology leader with strategic both years, net income per share was allow customers to increase their new products that increase cus- $1.52 in 2002 and $1.04 in 2001. profitability, expand their markets, tomer profitability. Capital resource management and improve their products. Provide a stimulating work envi- resulted in another year of strong cash ¥ Process Improvements and Best ronment for our employees with ¥ flow. Net cash provided by operating Practices — globally seeking and challenging opportunities and a activities was $118.8 million in 2002 sharing new opportunities for culture rooted in participation, and $463.7 million for the 2000-2002 improvement in all our operations. where everyone can make a three-year period. The strong cash flow Revenue Enhancement — driving difference. ¥ enabled us to reduce our debt from top-line growth by aligning the Develop a common purpose and $564.3 million at the end of 1999 to ¥ pricing of our products with the mutually rewarding business $235.8 million at the end of 2002. value they deliver. relationships with our suppliers. Completion of restructuring initia- Capital Management — partnering Our Company has a remarkable ¥ tives announced in 2001 contributed with our customers to reduce history of creating value in the products to improved operating results in inventories and accounts receiv- and services provided to our cus- 2002, and will have additional positive able. tomers. Today, we know that to be the effects in 2003. In January 2003, we Information Technology — lever- Company of Choice we must continue ¥ announced our intention to reduce aging information technology as a to create additional value for all of our operating costs by an additional $30 million by June 2004.

7 stakeholders. We will reach that goal through the Albany Value Concept. Introduced in 2002, the Albany Value Concept highlights the impor- tant elements of our businesses and encourages understanding of the things we do well—our value portfolio—while identifying areas where improvements can deliver additional value. Focusing on the need to provide exceptional value drives change throughout our Company. The Albany Value Concept emphasizes the impor- Our Senior Management team is committed to increasing shareholder value. From left to right: tant role that employees play in William M. McCarthy, Group Vice PresidentÐTechnology and the Pacific Region; Michael C. Nahl, Senior Vice President and Chief Financial Officer; Edward Walther, Group Vice PresidentÐ delivering value and drives improve- North America; Michel J. Bacon, Group Vice PresidentÐEurope; Dieter Polt, Senior Vice ments in organization, efficiency, and PresidentÐIndustrial Products; Frank Kolf, Senior Vice PresidentÐAdministration and Development. new product development. purpose monofilament dryer fabrics, are not lacking in fresh, stimulating Understanding the strengths of our and a complete range of process belts ideas. The challenge in delivering business offers the potential to bring are examples of Albany technologies value is to select the right ideas and value to our key relationships. that significantly impacted the paper- to develop them into successful new Our employees are the core of the making process. We will continue products and processes. value we deliver. They reward us by to provide leading-edge technology Organizational structure require- being efficient, engaged, hard-working, solutions that meet the changing needs ments changed as our primary cus- and agents of change. For example, of our customers. tomer base consolidated and removed their efforts to match our business size By leveraging our core technical excess capacity. We responded with and efficiency to a changing customer competencies, we are able to seize restructuring initiatives, aimed at environment have improved operating new market opportunities. In the making our own organization and results. Albany Door Systems and Applied facilities more efficient, while matching Technology is a key value driver Technologies business segments, our capacity to customer demand. With for the industries we serve. In our products and services improve our world-class manufacturing facilities Engineered Fabrics segment, break- customers’ operations and bring addi- strategically located in 15 countries, we through technologies introduced by our tional value to their businesses. are well positioned globally to deliver Company have altered the landscape Intellectual Property is the corner- innovative products and services to of our industry. Triple-layer forming stone of our effort in new technologies. our customers. fabrics, seamed press fabrics, special- Idea generation is essential to our intellectual property portfolio, and we

8 Our management team is and to an expansion at our plant in control: operational efficiency, process delivering value by working together Finland that will consolidate dryer improvement, and product and tech- to identify and meet the needs of our production into two European nology innovation. global markets. They are committed to locations. It is important that we listen to our the success of our Company and to ¥ Revenue enhancement activities customers and understand their needs. delivering attractive returns to our will be supported and accelerated It is equally important that our cus- shareholders. by the Albany Value Concept, as tomers understand and identify the we demonstrate to our customers value we deliver through our products Growth the value delivered through our and services. We will continue to Opportunities products and services. develop new products and technology While we will continue to evaluate ¥ Our presence in Australia, to deliver value, which will assist our future growth opportunities, today we Korea, and China should lead customers in improving their products, are focused on several key areas that to the Company’s growth in the expanding their markets, and increas- will benefit all our stakeholders. emerging -Pacific region. ing their profitability. By delivering ¥ We will extend our earnings ¥ The Albany Door Systems and greater value to our customers, we success through continued Applied Technologies business believe we can deliver greater value to process improvement and cost segments are being reorganized to our shareholders as well. reduction.New analytical tools increase efficiency, reduce costs, I want to thank our employees for are being used to uncover addi- and accelerate new product devel- our 2002 accomplishments, and I have tional opportunities for increasing opment. These segments will be every confidence they will continue efficiency. As we identify best well positioned to take advantage to drive Albany’s success. Recently, practices and drive them through- of improving economic conditions, I asked one of our long-term employ- out our organization, we will see whenever they occur, and con- ees, “Where does the value in further process improvements. tribute to the Company’s growth. Albany International come from?” She ¥ We recognize the importance of ¥ Growth through acquisition, an responded, “Frank, it starts with me.” continued investment in facili- ongoing consideration, will depend She is right. ties and equipment to maximize on the results of our efforts to efficiency and product quality. identify opportunities that make Capital expenditures are expected sense for our shareholders. to increase to approximately $55 Frank R. Schmeler million in 2003. The increase is due What’s Next Chairman of the Board and Chief Executive Officer to a new plant in France, where we Looking ahead, there is uncertainty will consolidate production to serve about near-term business conditions, the expanding nonwovens market, and the timing and strength of eco- nomic recovery. We intend to continue our focus on those things within our

9 DELIVERING VALUE Our Customers

Finding solutions to problems requires a willing- ness to listen to customers and a culture in which understanding and delivering value is important to every employee. At the same time, it is important that customers see the value delivered through our products and services. Each customer has a different view of docu- mented economic gains that are tied to performance benefits. In paper grades from linerboard to light- weight tissue, Albany products have created excep- tional value for our customers. Communication of these benefits increases the understanding of value delivered. For example, Albany service teams are identifying baseline data before important field trials and projecting operating results that assist customers in developing trial expectations. The measured economic impact on operations can be significant. While our Company has long delivered value in the products and services offered, we recognize the need to identify new value opportunities that will assist customers in enhancing their products, expand- ing their markets, and improving their profitability. We intend to continue expanding our technology efforts to assist customers in creating new products that deliver value to their customers.

The Green Bay Packaging team understands delivered value. Pictured Top: Team members include (left to right) Mike Gillis, 3rd Hand; John Dettman, Back Tender; and Randy Ellis, 3rd Hand. Middle: Steve Heindel, Albany Sales/Service Engineer (left) reviews fabric performance with Ken Mollet, Machine Tender. Bottom: Production Manager David Meverden counts on Albany to deliver value.

10 “Our Albany International service team is an important part of the Green Bay Packaging team. Their ‘downday’ service evaluations are a critical component in keeping our machines running at peak efficiency. In addition to their day-to-day contributions, the Albany team stays on top of how their latest technology advances can provide us with solutions that give us the competitive edge.”

David L. Meverden Production Manager, Green Bay Packaging Inc.

11 DELIVERING VALUE Our Employees

Our employees are the core of the value we deliver. The global Albany team is working together to create value for our customers, shareholders, and suppliers. In the process, employees are building successful, interesting careers, where the decisions they make every day have an impact on the results of our business. We strive to provide our employees challenging work and an empowered culture, which includes educa- tion and training in both business and academic areas. In response, they deliver value in everything they do. In every region of the world, Albany employees have worked to eliminate unnecessary costs and improve business processes. While these efficiency improvements continue, the need to create additional value in every area of our business is broadly under- stood throughout the Company. To facilitate continued improvement and highlight value, our employees introduced the Albany Value Concept in 2002. The Albany Value Concept encourages under- standing of those things we do exceptionally well and promotes improvement in all areas. As employees consider the value they deliver in their daily routines, they uncover new opportunities for creating value. Where is the value in the Albany Value Concept? It is clearly in our people.

Here’s what delivering value means to these Albany employees: Pictured Top: “The value I bring to Albany International comes from doing what I love.” Mara Pfuetzenreiter, Sales Coordinator, Albany International Brazil Middle: “Value means venturing out beyond my job description and learning how I can improve my piece of the puzzle.” Mike Moroskey, Weaving Department, Albany International U.S. Dryer Fabrics Bottom: “Value means enhancing my skills, contributing my ideas, and being involved in new technologies. As a result, I am empowered to give my best.” Werner Röcker, Seaming Department, Geschmay Germany 12 “Value is understanding our customers’ needs and expectations. Meeting those needs and expectations means that we embrace new methods and programs to better serve them in an ever-changing business environment.”

Marilyn MacLeod Customer Service Representative, Albany International U.S.

13 DELIVERING VALUE Our Suppliers

In today’s competitive environment, value-driven organizations consider supply management a strate- gic function and their supplier relationships a source of value. Albany International is no exception, and the Albany Value Concept provides a platform to create superior value in supply-chain management. By combining our expertise and market know- how, supplier relationships create solutions for our supply-chain needs. We derive value by securing the highest-value products and services, based on criteria that include timely delivery, quality assurance, long- term stability, product consistency and repeatability, and pricing based on value delivered. To further streamline our supply-chain management and produce additional value, we have formed strategic alliances with suppliers that have global marketing networks. We believe that creating value for our suppliers ensures their profitability and long-term ability to supply new products and technologies. For example, shared forecasting can improve our suppliers’ asset use and ensure reliable supply, while increased volume may result in improved efficiency and productivity. Working together on new product developments pro- vides exceptional value, and by developing a single point of contact, we have streamlined our communi- cations and feedback systems in key relationships.

The relationship between DuPont and Albany International is a critical link in our supply chain. Pictured Top: Tim Stevens, Training and Safety Coordinator at the Albany International Monofilament Plant in Homer, New York, inspects DuPont PET resin at the plant’s resin staging area. Middle: Strands of monofilament exiting the last rollstand Bottom: In the Homer plant winder area, Albany International’s Dave Bordwell, Production Coordinator (left), and Frank DiTaranto, R&D/ Technical Manager, inspect various spools of nylon and polyester monofilaments made from DuPont resin.

14 Albany International and DuPont, its principal polyester resin supplier, share a common vision to pursue value in their business relationship. By combining market understanding and technology needs, new value has been created for both compa- nies in such areas as inventory manage- ment, product development, process improvement, shipping and receiving, and safety.

Inspecting resin at the DuPont facility in Old Hickory, Tennessee, are (left to right) Tom Mallison, Senior Account Representative, DuPont Specialty Resins and Chemicals, and Beth Arthur, Process Engineering Manager, and Jim Holl, Materials Manager, both with Albany International’s Monofilament Plant in Homer, New York.

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