UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2009

OR

o 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: 1-10026ALBANY INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

Delaware
      14-0462060(State or other jurisdiction of
      (IRS Employer Identification No.)incorporation or organization)1373 Broadway, Albany, New York
      12204(Address of principal executive offices)
      (Zip Code)


Registrants telephone number, including area code            518-445-2200

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 x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.

Large accelerated filer
      x
      Accelerated filer
      oNon-accelerated filer
      o
      Smaller reporting company
      o  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o Nox


The registrant had 27,551,529 shares of Class A Common Stock and 3,236,098 shares of Class B Common Stock outstanding as of June 30, 2009.

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ALBANY INTERNATIONAL CORP.
TABLE OF CONTENTS

Page No.Part I
      Financial informationItem 1. Financial Statements (unaudited)Consolidated statements of operations - three and six months ended June 30, 2009 and 2008
      1Consolidated balance sheets - June 30, 2009 and December 31, 2008
      2Consolidated statements of cash flows - six months ended June 30, 2009 and 2008
      3Notes to consolidated financial statements
      4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
      31Item 3. Quantitative and Qualitative Disclosures about Market Risk
      54Item 4. Controls and Procedures
      54Part II
      Other informationItem 1. Legal Proceedings
      55Item 1A. Risk Factors
      59Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
      59Item 3. Defaults upon Senior Securities
      59Item 4. Submission of Matters to a Vote of Security Holders
      59Item 5. Other Information
      60Item 6. Exhibits
      61


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ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(unaudited)

Three Months Ended
      
      
      Six Months EndedJune 30,
      
      
      June 30,2009
      
      2008
      
      
      2009
      
      2008$212,559
      
      $297,201
      
      Net sales
      $421,764
      
      $570,409143,671
      
      194,003
      
      Cost of goods sold
      282,845
      
      372,28168,888
      
      103,198
      
      Gross profit
      138,919
      
      198,12864,633
      
      86,940
      
      Selling, technical, general and research expenses
      132,252
      
      169,32833,810
      
      1,732
      
      Restructuring and other, net
      50,989
      
      7,094(29,555
      )
      14,526
      
      Operating (loss)/income
      (44,322
      )
      21,7066,086
      
      5,880
      
      Interest expense, net
      11,920
      
      11,277(37,201
      )
      2,114
      
      Other (income)/expense, net
      (37,020
      )
      1,7991,560
      
      6,532
      
      Income/(loss) from continuing operations before income taxes
      (19,222
      )
      8,6304,339
      
      1,293
      
      Income tax expense
      2,734
      
      5,411(2,779
      )
      5,239
      
      (Loss)/income before associated companies
      (21,956
      )
      3,21935
      
      58
      
      Equity in income/(losses) of associated companies
      315
      
      (245
      )(2,744
      )
      5,297
      
      (Loss)/income from continuing operations
      (21,641
      )
      2,974Discontinued operations:(10,000
      )
      53
      
      (Loss)/income from discontinued operations
      (10,000
      )
      313-
      
      97
      
      Income tax expense
      -
      
      130(10,000
      )
      (44
      )
      (Loss)/income from discontinued operations
      (10,000
      )
      183($12,744
      )
      $5,253
      
      Net (loss)/income
      ($31,641
      )
      $3,157(Loss)/income from continuing operations per share:($0.08
      )
      $0.18
      
      Basic
      ($0.71
      )
      $0.10($0.08
      )
      $0.18
      
      Diluted
      ($0.71
      )
      $0.10(Loss)/income from discontinued operations per share:($0.33
      )
      $0.00
      
      Basic
      ($0.33
      )
      $0.01($0.33
      )
      ($0.01
      )
      Diluted
      ($0.33
      )
      $0.01Net (loss)/income per share:($0.41
      )
      $0.18
      
      Basic
      ($1.04
      )
      $0.11($0.41
      )
      $0.17
      
      Diluted
      ($1.04
      )
      $0.11Shares used in computing earnings per share:30,723
      
      29,760
      
      Basic
      30,386
      
      29,68630,723
      
      30,051
      
      Diluted
      30,386
      
      29,990$0.12
      
      $0.12
      
      Dividends declared per share
      $0.24
      
      $0.23


The accompanying notes are an integral part of the financial statements

1

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ALBANY INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)

June 30,
      
      December 31,2009
      
      2008ASSETSCash and cash equivalents
      $120,708
      
      $106,571Accounts receivable, net
      170,843
      
      204,157Inventories
      202,170
      
      206,488Income taxes receivable and deferred
      26,885
      
      26,319Prepaid expenses and other current assets
      9,886
      
      11,341Total current assets
      530,492
      
      554,876Property, plant and equipment, net
      541,526
      
      536,576Investments in associated companies
      3,117
      
      3,899Intangibles
      8,340
      
      9,636Goodwill
      116,658
      
      115,415Deferred taxes
      133,274
      
      115,818Cash surrender value of life insurance policies
      49,043
      
      47,425Other assets
      17,957
      
      21,412Total assets
      $1,400,407
      
      $1,405,057LIABILITIES AND SHAREHOLDERS EQUITYNotes and loans payable
      $8,747
      
      $12,597Accounts payable
      45,817
      
      74,001Accrued liabilities
      147,729
      
      116,361Current maturities of long-term debt
      11
      
      13Income taxes payable and deferred
      4,109
      
      7,205Total current liabilities
      206,413
      
      210,177Long-term debt
      524,723
      
      508,386Other noncurrent liabilities
      183,851
      
      187,968Deferred taxes and other credits
      55,322
      
      65,590Total liabilities
      970,309
      
      972,121Commitments and Contingencies
      -
      
      -SHAREHOLDERS EQUITYPreferred 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; issued36,048,268 in 2009 and 35,245,482 in 2008
      36
      
      35Class B Common Stock, par value $.001 per share;authorized 25,000,000 shares; issued andoutstanding 3,236,098 in 2009 and 2008
      3
      
      3Additional paid in capital
      381,458
      
      363,918Retained earnings
      390,862
      
      429,804Accumulated items of other comprehensive income:Translation adjustments
      (16,786
      )
      (34,196
      )Pension and post retirement liability adjustments
      (67,176
      )
      (67,757
      )688,397
      
      691,807Less treasury stock (Class A), at cost; 8,496,739 sharesin 2009 and 8,523,139 shares in 2008
      258,299
      
      258,871Total shareholders equity
      430,098
      
      432,936Total liabilities and shareholders equity
      $1,400,407
      
      $1,405,057


The accompanying notes are an integral part of the financial statements

2

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ALBANY INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

Six Months EndedJune 30,2009
      
      2008OPERATING ACTIVITIESNet (loss)/income
      ($31,641
      )
      $3,157Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:Equity in (earnings)/losses of associated companies
      (315
      )
      245Depreciation
      29,093
      
      30,005Amortization
      4,406
      
      2,364Non cash interest expense
      1,772
      
      2,195Gain on early retirement of debt
      (39,453
      )
      -Settlement of accreted debt discount
      (7,457
      )
      -Provision for deferred income taxes, other credits and long-term liabilities
      (12,026
      )
      (2,730
      )Loss on disposal of property, plant and equipment
      1,609
      
      790Provision for impairment of investment
      2,624
      
      -Increase in cash surrender value of life insurance
      (1,827
      )
      (1,862
      )Unrealized currency transaction gains
      (6,004
      )
      (1,975
      )Provision for purchase price adjustment of discontinued operation
      10,000
      
      -Stock option expense
      70
      
      85Excess tax benefit of options exercised
      -
      
      (807
      )Compensation and benefits paid or payable in Class A Common Stock
      3,354
      
      4,209Changes in operating assets and liabilities, net of business acquisitions and divestitures:Accounts receivable
      43,308
      
      (5,757
      )Inventories
      8,537
      
      425Prepaid expenses and other current assets
      1,863
      
      1,311Accounts payable
      (29,103
      )
      (15,246
      )Accrued liabilities
      19,165
      
      5,347Income taxes payable
      (2,943
      )
      3,373Other, net
      1,704
      
      (2,500
      )Net cash (used in)/provided by operating activities
      (3,264
      )
      22,629INVESTING ACTIVITIESPurchases of property, plant and equipment
      (26,299
      )
      (73,560
      )Purchased software
      (1,873
      )
      (7,404
      )Cash received from life insurance policy terminations
      239
      
      -Net cash used in investing activities
      (27,933
      )
      (80,964
      )FINANCING ACTIVITIESProceeds from borrowings
      105,072
      
      64,001Principal payments on debt
      (4,633
      )
      (18,321
      )Early retirement of debt
      (46,502
      )
      -Proceeds from options exercised
      -
      
      2,759Excess tax benefit of options exercised
      -
      
      807Dividends paid
      (7,202
      )
      (6,514
      )Net cash provided by financing activities
      46,735
      
      42,732Effect of exchange rate changes on cash flows
      (1,401
      )
      1,410Increase/(decrease) in cash and cash equivalents
      14,137
      
      (14,193
      )Cash and cash equivalents at beginning of year
      106,571
      
      73,305Cash and cash equivalents at end of period
      $120,708
      
      $59,112


The accompanying notes are an integral part of the financial statements

3

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ALBANY INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated
  financial statements contain all adjustments, consisting of only normal, recurring
  adjustments, necessary for a fair presentation of results for such periods.
  The results for any interim period are not necessarily indicative of results
  for the full year. The preparation of financial statements for interim periods
  does not require all of the disclosures normally included in financial statements
  prepared in accordance with accounting principles generally accepted in the
  United States of America. Accordingly, certain information and footnote disclosures
  normally included in financial statements prepared in accordance with accounting
  principles generally accepted in the United States of America have been omitted.
  These consolidated financial statements should be read in conjunction with the
  Companys Annual Report on Form 10-K as filed with the SEC for the year
  ended December 31, 2008, as supplemented by the Companys Current Report
  on Form 8-K filed on May 1, 2009 to reflect certain retrospective adjustments
  relating to the adoption of Financial Accounting Standards Board Staff Position
  No. APB 14-1 (FSP 14-1) and the changes in the business segments as discussed
  in this Form 10-Q.

For purposes of preparing this Form 10-Q, the Company considered
  events through August 6, 2009. See Financial Instruments Footnote 11 for disclosure
  regarding third and fourth quarter note transactions. No material events have
  occurred since June 30, 2009, which have not been disclosed in these financial
  statements.

4

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2. Reportable Segment Data

The following table shows data by reportable segment, reconciled
  to consolidated totals included in the financial statements:

Three Months EndedJune 30,
      
      Six Months Ended
      June 30,(in thousands)
      2009
      
      2008
      
      2009
      
      2008Net SalesPaper Machine Clothing
      $145,533
      
      $199,477
      
      $284,607
      
      $382,492Albany Door Systems
      30,530
      
      48,845
      
      64,856
      
      93,977Engineered Fabrics
      21,629
      
      27,255
      
      43,199
      
      55,365Engineered Composites
      7,379
      
      13,977
      
      16,464
      
      25,065PrimaLoft® Products
      7,488
      
      7,647
      
      12,638
      
      13,510Consolidated total
      $212,559
      
      $297,201
      
      $421,764
      
      $570,409Operating (loss)/incomePaper Machine Clothing
      ($8,732
      )
      $31,231
      
      ($1,471
      )
      $53,770Albany Door Systems
      (1,639
      )
      4,836
      
      (1,411
      )
      8,273Engineered Fabrics
      837
      
      3,880
      
      4,492
      
      9,735Engineered Composites
      (2,372
      )
      (217
      )
      (4,880
      )
      (2,035
      )PrimaLoft® Products
      2,594
      
      1,718
      
      3,683
      
      2,830Research expense
      (5,767
      )
      (8,288
      )
      (11,377
      )
      (14,159
      )Unallocated expenses
      (14,476
      )
      (18,634
      )
      (33,358
      )
      (36,708
      )Operating (loss)/income before reconciling items
      (29,555
      )
      14,526
      
      (44,322
      )
      21,706Reconciling items:Interest expense, net
      6,086
      
      5,880
      
      11,920
      
      11,277Other (income)/expense, net
      (37,201
      )
      2,114
      
      (37,020
      )
      1,799Income/(loss) from continuing operations beforeincome taxes
      $1,560
      
      $6,532
      
      ($19,222
      )
      $8,630


5

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In the third quarter of 2006, the Company announced the initial
  steps in its three-year restructuring and performance improvement plan. In addition
  to costs reported as restructuring in the Statement of Operations, the Company
  has incurred costs (referred to as performance improvement costs) that are related
  to terminations of employees or agreements, costs related to relocation of manufacturing
  equipment, and costs related to the implementation of a new enterprise resource
  planning system. The table below presents restructuring and performance improvement
  costs by reportable segment:

Three Months Ended
      Six Months EndedJune 30, 2009
      June 30, 2009(in thousands)
      Restructuringand other
      Performanceimprovementcosts
      Total
      Restructuringand other
      Performanceimprovementcosts
      TotalPaper Machine Clothing
      $27,923
      
      $5,880
      
      $33,803
      
      $43,533
      
      $11,803
      
      $55,336Albany Door Systems
      1,900
      
      99
      
      $1,999
      
      2,048
      
      506
      
      $2,554Engineered Composites
      110
      
      205
      
      $315
      
      110
      
      825
      
      $935PrimaLoft® Products
      19
      
      -
      
      $19
      
      61
      
      -
      
      $61Engineered Fabrics
      2,515
      
      -
      
      $2,515
      
      2,515
      
      -
      
      $2,515Unallocated
      1,343
      
      1,374
      
      $2,717
      
      2,722
      
      3,574
      
      $6,296Consolidated total
      $33,810
      
      $7,558
      
      $41,368
      
      $50,989
      
      $16,708
      
      $67,697Three Months Ended
      Six Months EndedJune 30, 2008
      June 30, 2008(in thousands)
      Restructuring
        and other
      Performance
        improvement
        costs
      Total
      Restructuring
        and other
      Performance
        improvement
        costs
      TotalPaper Machine Clothing
      $628
      
      $8,958
      
      $9,586
      
      $7,031
      
      $12,965
      
      $19,996Albany Door Systems
      322
      
      78
      
      400
      
      322
      
      213
      
      535Research expenses
      1,826
      
      -
      
      1,826
      
      1,827
      
      -
      
      1,827Unallocated
      (1,044
      )
      6,760
      
      5,716
      
      (2,086
      )
      10,708
      
      8,622Consolidated total
      $1,732
      
      $15,796
      
      $17,528
      
      $7,094
      
      $23,886
      
      $30,980


There were no material changes in the total assets of the reportable segments during the three and six months ended June 30, 2009.

6

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3. Pensions and Other Benefits

The Company sponsors defined benefit pension plans in various countries.
  The amount of contributions to the plans is based on several factors including
  the funding rules in each country. The Company expects to contribute approximately
  $13,000,000 to its postretirement and pension plans in 2009, compared to $17,700,000
  in 2008. The Companys current year estimated contribution includes nothing to its US plan. In prior years the Company has also made contributions
  to the US pension plan, and that is possible again this year, particularly in
  light of the decline in the value of equities since October 2007. In the coming
  months, the Company will make the decision about the exact timing and amount.
  Contributions to the US plan over the last few years have ranged from zero to
  $20,000,000 per year. The Company also provides certain medical, dental and
  life insurance benefits (Other Postretirement Benefits) for retired
  United States employees that meet program qualifications. The Company currently
  funds this plan as claims are paid.

The components of net periodic benefit cost for the six months ended
  June 30, 2009 and 2008 are, as follows:

Pension Plans
      
      
      
      
      Other Postretirement Benefits(in thousands)
      2009
      
      2008
      
      2009
      
      2008Service cost
      $2,202
      
      
      $4,334
      
      
      $563
      
      
      $1,018Interest cost
      9,465
      
      
      12,906
      
      
      1,910
      
      
      3,100Expected return on plan assets
      (10,261
      )
      
      (10,390
      )
      
      -
      
      
      -Amortization:Transition obligation
      47
      
      
      -
      
      
      -
      
      
      -Prior service cost/(credit)
      54
      
      
      388
      
      
      (2,163
      )
      
      (1,904
      )Net actuarial loss
      1,016
      
      
      1,238
      
      
      1,390
      
      
      1,778Curtailment loss/(gain)
      -
      
      
      226
      
      
      -
      
      
      (2,693
      )Net periodic benefit costs
      $2,523
      
      
      $8,702
      
      
      $1,700
      
      
      $1,299


7

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4. Restructuring

The Company has ongoing restructuring activities related to the
  reduction of manufacturing capacity, reduction of administrative personnel,
  and curtailment of benefits under pension and postretirement plans. The actions
  are part of a three-year restructuring and performance improvement plan and
  have affected each of the Companys reportable segments. The actions taken
  to reduce manufacturing capacity are driven by the need to balance the Companys
  manufacturing capacity with anticipated demand.

The following table summarizes charges reported in the Statement
  of Operations under Restructuring and other, net for the first six
  months of 2009:

Six months ended June 30, 2009
        (in thousands)
      Total  restructuringcosts incurred
      Termination andother costs
      Writedown of plant,equipment, andinvestmentPaper Machine Clothing
      $43,533
      
      $40,466
      
      $3,067Albany Door Systems
      2,048
      
      2,048
      
      -Engineered Composites
      110
      
      110
      
      -PrimaLoft® Products
      61
      
      61
      
      -Engineered Fabrics
      2,515
      
      2,515
      
      -Unallocated
      2,722
      
      2,722
      
      -Total
      $50,989
      
      $47,922
      
      $3,067 The Company expects that substantially all of its accruals for restructuring
      liabilities will be paid out within one year. The table below presents a
      year to date summary of changes in restructuring liabilities:


(in thousands)
      Restructuringcharges accruedDecember 31, 2008
      Restructuringaccruals in2009
      Payments
      Currencytranslation/other
      Restructuringcharges accruedJune 30, 2009Terminationcosts
      $21,284
      
      $43,707
      
      ($23,793
      )
      $937
      
      $42,135Otherrestructuringcosts
      624
      
      480
      
      (817
      )
      8
      
      295Total
      $21,908
      
      $44,187
      
      ($24,610
      )
      $945
      
      $42,430




8

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5. Other (Income)/Expense, net

Other (income)/expense, net consists of the following:

Three Months EndedJune 30,
      Six Months EndedJune 30,(in thousands)
      
      2009
      
      2008
      2009
      
      2008Currency transactions
      
      ($1,236
      )
      
      $612
      
      $228
      
      
      $325Amortization of debt issuance costs and loanorigination fees
      
      468
      
      
      558
      
      1,351
      
      
      1,103Gain on early retirement of debt
      
      (36,631
      )
      
      -
      
      (39,453
      )
      
      -License fee/(income)
      
      52
      
      
      45
      
      (103
      )
      
      (180
      )Other miscellaneous expense
      
      146
      
      
      899
      
      957
      
      
      551Total
      
      ($37,201
      )
      
      $2,114
      
      ($37,020
      )
      
      $1,799




9

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6. Discontinued Operations

In July 2008, the Company closed on the sale of its Filtration
  Technologies business, the principal operations of which were in Gosford, Australia,
  and Zhangjiagang, China. At closing, the Company received approximately $45,000,000,
  which resulted in a pre-tax gain of $5,413,000.

In evaluating the financial statement presentation, the Company
  concluded that the business met the definition of a discontinued operation,
  as defined in Statement of Financial Accounting Standards No. 144, Accounting
  for Impairment or Disposal of Long-Lived Assets (FAS No. 144) and, accordingly,
  the results of operations of this business have been reported as income from
  discontinued operations for all periods presented. For the six months ended
  June 30, 2008, Income from discontinued operations was $183,000. As permitted
  by FAS No. 144, cash flows of the discontinued operation were combined with
  cash flows from continuing operations in the consolidated statements of cash
  flows.

Results for the second quarter of 2009 include a charge of $10,000,000
  representing an estimated purchase price adjustment related to the Companys
  2008 sale of its discontinued Filtration Technologies business. The charge results
  from a tentative agreement between the Company and the purchaser of the Filtration
  Technologies business to return a portion of the original $45,000,000 purchase
  price in exchange for a release of certain future claims under the related sale
  agreement.

10

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7. Income Taxes

The following tables present components of income tax expense for
  the three and six month periods ending June 30, 2009 and 2008:

Three Months EndedJune 30,
      
      Six Months Ended
      June 30,(in thousands)
      2009
      
      2008
      
      2009
      
      2008Income tax based on ordinary (loss)/incomefrom continuing operations before incometaxes at estimated tax rates of 23% in 2009and 14% in 2008.
      ($7,960
      )
      
      $1,043
      
      
      ($13,320
      )
      
      $1,215Provision for change in estimated tax rates
      (2,663
      )
      
      (41
      )
      
      -
      
      
      -Discrete tax expense:Provision for Extinguishment of Debt Gain
      14,286
      
      
      -
      
      
      15,387
      
      
      -Provision for/resolution of tax audits andcontingencies
      676
      
      
      291
      
      
      667
      
      
      4,196Total income tax expense from continuingoperations
      $4,339
      
      
      $1,293
      
      
      $2,734
      
      
      $5,411


In the Companys Annual Report on Form 10-K for the period ending December 31, 2008, it was disclosed that tax benefits of approximately $23,096,000 claimed in Germany were under challenge and that a reassessment notice in the amount of $47,007,000 had been issued by the Canadian Revenue Agency. There has been no change to the Companys view of its position with regard to either of these matters. As warranted, the Company will continue to assess its positions.

The Company records reserves for the outcome of these uncertainties in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS No. 109. It is reasonably possible that a change in the reserve for these uncertainties could occur in the next twelve months. However, it is not possible to estimate a range at this time.

11

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8. Earnings Per Share

Earnings per share are computed using the weighted average number of shares of Class A Common Stock and Class B Common Stock outstanding during the period. Diluted earnings per share include the effect of all potentially dilutive securities.

The amounts used in computing earnings per share, including the effect on income and the weighted average number of shares of potentially dilutive securities, are as follows:

Three Months Ended 
        June 30,
      
      Six Months Ended 
        June 30,(in thousands, except market price data)
      2009
      
      
      2008
      
      2009
      
      
      2008Net (loss)/income
      ($12,744
      )
      
      $5,253
      
      ($31,641
      )
      
      $3,157Weighted average number of shares:Weighted average number of shares
        used incalculating basic earnings per
        share
      30,723
      
      
      29,760
      
      30,386
      
      
      29,686Effect of dilutive stock-based compensationawards:Stock options
      -
      
      
      261
      
      -
      
      
      274Long-term incentive awards
      -
      
      
      30
      
      -
      
      
      30Weighted average number of shares used incalculating diluted earnings per share
      30,723
      
      
      30,051
      
      30,386
      
      
      29,990Effect of stock-based compensation awards that
        were notincluded in the computation of diluted earnings
        per sharebecause to do so would be antidilutive
      132
      
      
      -
      
      277
      
      
      -Average market price of common stock usedfor calculation of dilutive shares
      $10.82
      
      
      $34.33
      
      $10.15
      
      
      $ 34.53Net (loss)/income per share:Basic
      ($0.41
      )
      
      $0.18
      
      ($1.04
      )
      
      $0.11Diluted
      ($0.41
      )
      
      $0.17
      
      ($1.04
      )
      
      $0.11


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The following table presents the number of shares issued and outstanding:

Class AShares
      Class BShares
      Less: TreasuryShares
      Net sharesOutstandingDecember 31, 2008
      35,245,482
      3,236,098
      (8,523,139)
      29,958,441March 31, 2009
      35,970,944
      3,236,098
      (8,523,139)
      30,683,903June 30, 2009
      36,048,268
      3,236,098
      (8,496,739)
      30,787,627


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9. Inventories

Inventories consist of the following:

(in thousands)
      June 30,2009
      
      December 31,2008Finished goods
      $95,004
      
      $97,090Work in process
      60,360
      
      57,582Raw material and supplies
      46,806
      
      51,816Total inventories
      $202,170
      
      $206,488


Inventories are stated at the lower of cost or market and are valued
  at average cost, net of reserves. The Company records a provision for obsolete
  inventory based on the age and category of the inventories.

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10. Goodwill and Other Intangible Assets

The Company accounts for goodwill and other intangible assets under
  the provisions of Statement of Financial Accounting Standards No. 142 (FAS No.
  142), Goodwill and Other Intangible Assets. FAS No. 142 requires
  that goodwill and intangible assets with indefinite useful lives no longer be
  amortized, but instead 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. The Companys reporting units are consistent with the Companys operating segments.  The Company completed its annual evaluation of goodwill by for its Paper Machine Clothing reporting unit and Albany Door System reporting unit as of June 30, 2009. The Companys assessment of goodwill impairment indicated that the fair value of each of the Companys reporting units exceeded its carrying value and therefore goodwill in each of the reporting units was not impaired.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, operating margins, discount rates and future market conditions, among others. Goodwill and other long-lived
  assets are reviewed for impairment whenever events, such as significant changes
  in the business climate, plant closures, changes in product offerings, or other
  circumstances indicate that the carrying amount may not be recoverable.

To determine fair value, the Company utilized two market-based approaches and an income approach. Under the market-based approaches, the Company utilized information regarding the Company as well as publicly available industry information to determine earnings multiples and sales multiples. Under the income approach, the Company determined fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

The Company is continuing to amortize certain patents, trade names,
  customer contracts and technology assets that have finite lives. The changes
  in intangible assets and goodwill from January 1, 2009 to June 30, 2009, were
  as follows:

(in thousands)
      Balance atJanuary 1,
        2009
      
      Amortization
      
      
      Currencytranslation
      
      Balance atJune 30,
        2009Amortized intangible assets:Patents
      $1,420
      
      ($242
      )
      
      $10
      
      $1,188Trade names
      1,164
      
      (325
      )
      
      7
      
      846Customer contracts
      6,701
      
      (726
      )
      
      -
      
      5,975Technology
      351
      
      (20
      )
      
      -
      
      331Total amortized intangible assets
      $9,636
      
      ($1,313
      )
      
      $17
      
      $8,340Unamortized intangible assets:Goodwill
      $115,415
      
      $  -
      
      
      $1,243
      
      $116,658


15

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Estimated amortization expense of intangibles for the years ending
  December 31, 2009 through 2013 is as follows:

|        
|--------
|**Year**
|        
|2009    
|2010    
|2011    
|2012    
|2013    
|        

16

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11. Financial Instruments

Long-term debt consists of:

(in thousands)
      June 30,2009
      
      
      December 31,2008Convertible notes issued in March 2006with fixed contractual interest rates of2.25%, due in year 2026
      $70,353
      
      
      $158,019Private placement with an interest rate of6.84%, due in years 2013 through 2017
      150,000
      
      
      150,000April 2006 revolving credit agreementwith borrowings outstanding at anaverage interest rate of 2.68% in 2009and 1.93% in 2008.
      294,000
      
      
      190,000Various notes and mortgages relativeto operations principally outside theUnited States, at an average rate of4.81% in 2009 and 4.84% in 2008 due invarying amounts through 2021
      10,381
      
      
      10,380Long term debt
      524,734
      
      
      508,399Less: current portion
      (11
      )
      
      (13
      )Long term debt, net of current portion
      $524,723
      
      
      $508,386


In October 2005, the Company entered into a Note Agreement and Guaranty
  (the Prudential Agreement) with the Prudential Insurance Company
  of America, and certain other purchasers, in an aggregate principal amount of
  $150,000,000, with interest at 6.84% and a maturity date of October 25, 2017.
  There are mandatory prepayments of $50,000,000 on October 25, 2013 and October
  25, 2015. At the noteholders election, certain prepayments may also be
  required in connection with certain asset dispositions or financings. The notes
  may not otherwise be prepaid without a premium, under certain market conditions.
  The Note Agreement contains customary terms, as well as affirmative covenants,
  negative covenants and events of default comparable to those in the Companys
  current principal revolving credit facility. For disclosure purposes, the Company
  is required to measure the fair value of outstanding debt on a recurring basis.
  The fair value of the note agreement was approximately $138,955,000, which was
  measured using active market interest rates.

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In December 2008, the Company and Prudential amended the agreement
  to increase the allowed leverage ratio from 3.00 to 3.50, which is effective
  through December 2010, after which time the allowed leverage ratio changes to
  2.50. The amendment to the agreement also requires that the Company pay a higher
  rate of interest. The maximum interest rate is 1.50% over the 5.34% in the original
  agreement. The Company anticipates it will pay interest on this loan at the
  rate of 6.84% in 2009.

In March 2006, the Company issued $180,000,000 principal
  amount of 2.25% convertible notes. The notes are convertible upon the occurrence
  of specified events and at any time on or after February 15, 2013, into cash
  up to the principal amount of notes converted and shares of the Companys
  Class A common stock with respect to the remainder, if any, of the Companys
  conversion obligation at a conversion rate of 22.7633 shares per $1,000
  principal amount of notes (equivalent to a conversion price of $43.93 per
  share of Class A common stock). As of June 30, 2009, $78,937,000 principal amount of convertible notes were outstanding, with a fair value of approximately
  $47,757,000, which was measured using quoted prices in active markets. These
  amounts reflect the reduction in fair value as a result of the purchase made
  in March and April 2009 as described below.

Holders may convert their notes at any time on or after February
  15, 2013. Before February 15, 2013, a holder may convert notes during the five-business
  day period immediately after any period of five consecutive trading days in
  which the trading price per note for each of such five days was less than 103%
  of the product of the last reported sale price of the Companys Class A
  common stock and the conversion rate on such day. Additionally, holders may
  convert prior to February 15, 2013 if the Company elects to distribute to all
  or substantially all of its Class A shareholders (a) rights or warrants to purchase
  shares of Class A common stock for less than their trading value, or (b) assets,
  debt securities or rights to purchase securities, which distribution has a per-share
  value exceeding 15% of the current trading value of the Class A common stock.

Converting holders are entitled to receive, upon conversion of
  their notes, (1) an amount in cash equal to the lesser of the principal amount
  of the note and the notes conversion value, and (2) if the conversion
  value of the note exceeds the principal amount, shares of the Companys
  Class A common stock in respect of the excess conversion value. The conversion
  rate of the notes (subject to adjustment upon the occurrence of certain events)
  is 22.7633 shares per $1,000 principal amount of notes (equivalent to a
  conversion price of $43.93 per share of Class A common stock). The exact
  amount payable upon conversion would be determined in accordance with the terms
  of the indenture pursuant to which the notes were issued and will be based on
  a daily conversion value calculated on a proportionate basis by reference to
  the volume-weighted average price of the Companys Class A common stock
  for each day during a twenty-five day period relating to the conversion.

The notes are not redeemable before March 15, 2013. On or after
  March 15, 2013, the Company may, at its option, redeem for cash all or part
  of the notes for a price equal to 100% of the principal amount of the notes
  to be purchased, plus any accrued and unpaid interest, including any additional
  interest, up to but excluding the redemption date.

On each of March 15, 2013 and March 15, 2021, holders may require
  the Company to purchase all or a portion of their notes at a purchase price
  equal to 100% of the principal amount of the notes to be purchased, plus any
  accrued and unpaid interest, including any additional interest, to but excluding
  the purchase date. Holders also have the right to require the Company to repurchase
  notes upon the occurrence of certain fundamental events, including, without
  limitation, (1) a person or group, other than the Standish family, becoming
  beneficial owner of shares of common stock carrying more than 50% of the voting
  power of our common stock, (2) consummation of an exchange offer, tender offer
  or similar event whereby our Class A common stock is converted into cash, securities
  or other property, or any sale, lease or other transfer of all or substantially
  all of our consolidated assets, (3) approval by our stockholders of a plan or
  proposal of liquidation or dissolution, or (4) the delisting of our Class A
  common stock under certain circumstances.

18

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In connection with the sale of the notes, the Company entered into
  hedge and warrant transactions with respect to its Class A common stock. These
  transactions are intended to reduce the potential dilution upon conversion of
  the notes by providing the Company with the option, subject to certain exceptions,
  to acquire shares in an amount equal to the number of shares which the Company
  would be required to deliver upon conversion of the notes. These transactions
  had the economic effect to the Company of increasing the conversion price of
  the Notes to $52.25 per share.

Pursuant to the hedge transactions, if the Company delivers notice
  to the counterparties of any conversion of the Notes on or prior to March 15,
  2013, the counterparties are in the aggregate obligated to deliver to the Company
  the number of shares of Class A common stock that the Company is obligated to
  deliver to the holders of the notes with respect to such conversion, exclusive
  of any shares deliverable by the Company by reason of any additional (or make
  whole) premium relating to the notes or by reason of any election by the
  Company to unilaterally increase the conversion rate. The note hedge and warrant
  transactions had a net cost of $14,700,000.

Pursuant to the warrant transactions, the Company sold a total of
  4,123,986 warrants, each exercisable to buy a single share of Class A common
  stock at an initial strike price of $52.25 per share. The warrants are American-style
  warrants (exercisable at any time), and expire over a period of sixty trading
  days beginning on September 15, 2013. If the warrants are exercised when they
  expire, the Company may choose either net cash or net share settlement. If the
  warrants are exercised before they expire, they must be net share settled. If
  the Company elects to net cash settle the warrants, the Company will pay cash
  in an amount equal to, for each exercise of warrants, (i) the number of warrants
  exercised multiplied by (ii) the excess of the volume weighted average price
  of the Companys Class A common stock on the expiration date of such warrants
  (the Settlement Price) over the strike price. Under net share settlement,
  the Company will deliver to the warrant holders a number of shares of the Companys
  Class A common stock equal to, for each exercise of warrants, (x) the amount
  payable upon net cash settlement divided by (y) the Settlement Price.

During 2009 the Company entered into several agreements to exchange
  Company 2.25% Convertible Senior Notes due 2026 for cash plus an equivalent
  amount of the Companys 2.25% Senior Notes due 2026 (the New Notes).
  In each case, the Company simultaneously entered into additional agreements
  to purchase the New Notes. Information pertinent to these transactions is noted
  below:

(in thousands)Month of agreement
      Month of settlement
      Par value
      Aggregate cost
      Pretax gain on earlyretirement of debtMarch 2009
      March 2009
      $7,074
      $3,360
      $2,822April 2009
      April 2009
      93,989
      53,515
      36,631May 2009
      July 2009
      30,500
      18,887
      7,500May 2009
      October 2009
      20,000
      13,100
      4,500


The July and October 2009 pretax gains on early retirement of debt
  are estimates.

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Financial Accounting Standards Board Staff Position No. APB 14-1
  (FSP 14-1), requires that the liability and equity components of convertible
  debt instruments that may be settled in cash upon conversion (including partial
  cash settlement) be separately accounted for in a manner that reflects an issuers
  nonconvertible debt borrowing rate. In the first quarter of 2009, the Company
  implemented FSP 14-1 and filed a Form 8-K on May 1, 2009 with restated income
  statement and balance sheet items for quarterly periods in 2008, as well as
  annual data for 2006, 2007, and 2008.

As of June 30, 2009, the carrying amounts of the debt and equity
  components of the Companys bifurcated convertible debt instrument were
  $70,361,000 and $28,760,000, respectively. The carrying values of the debt and
  equity components include reductions of $89,430,000 and $5,326,000, respectively,
  related to the Companys convertible note purchases in March and April
  2009. The equity component is included in additional paid in capital in the
  equity section of the Companys balance sheet.

Adopting FSP 14-1 had the impact of increasing interest expense
  by approximately $1,187,000 for the first quarter 2009. Due to the note transactions
  in March and April, reducing outstanding 2.25% Convertible Senior Notes due
  2026, the effect of FSP 14-1 for the second quarter had the impact of increasing
  interest expense by approximately $585,000. The additional interest is non-cash
  and represents the difference between the rate at the time of the offering (2.25%)
  and the Companys non-convertible debt borrowing rate (5.59%). The non-cash
  interest is amortized into interest expense and increases the book value of
  the notes until the time that the notes can be redeemed on March 15, 2013. The
  Company has concluded that the amortization period of 7 years is appropriate
  because March 15, 2013 is the earliest date that the convertible noteholders
  can require the Company to buy back the notes.

Including amortization of non-cash interest, the effective interest
  rate on the convertible notes for the second quarterly periods of 2009 and 2008
  was 5.59%. Unamortized non-cash interest was $12,752,000 at June 30, 2009 with
  a remaining amortization period of approximately 4 years.

The following table details interest expense on convertible debt:

Three months-ended 
        June 30,
      Six months-ended 
        June 30,(in thousands)
      2009
      2008
      2009
      2008Contractual interest (2.25%)
      $478
      $1,009
      $1,470
      $2,008Non-cash interest (3.34%)
      585
      1,117
      1,772
      2,195Total (5.59%)
      $1,063
      $2,126
      $3,242
      $4,203


Reflecting, in each case, the effect of subsequent amendments to
  each agreement, the Company is required to maintain a leverage ratio of not
  greater than 3.50 to 1.00 under the Credit Agreement and under the Prudential
  Agreement. The Company is also required to maintain minimum interest coverage
  of 3.00 to 1.00 under each agreement. As of June 30, 2009, the Companys
  leverage ratio under the agreement was 2.40 to 1.00 and the interest coverage
  ratio was 6.59 to 1.00. The Company may purchase its Common Stock or pay dividends
  to the extent its leverage ratio remains at or below 3.50 to 1.00, and may make
  acquisitions for cash provided its

20

---



leverage ratio would not exceed 3.50 to 1.00 after giving pro forma
  effect to the acquisition. The Companys ability to borrow additional amounts
  under the credit agreement is conditional upon the absence of any defaults,
  as well as the absence of any material adverse change. Based on the maximum
  leverage ratio and the Companys consolidated EBITDA (as defined in the
  agreement), and without modification to any other credit agreements as of June
  30, 2009, the Company would have been able to borrow an additional $167,108,000
  under its credit agreements.

Indebtedness under the Note and Guaranty agreement, the convertible
  notes, and the revolving credit agreement is ranked equally in right of payment
  to all unsecured senior debt of the Company.

As of June 30, 2009, the Company issued letters of credit totaling
  $47,400,000 in respect of preliminary assessments for income tax contingencies.

The Company was in compliance with all debt covenants as of June 30, 2009.

Fair Value Measurements:

Financial Accounting Statement No. 157 issued by the Financial Accounting
  Standards Board establishes 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.
  The hierarchy is broken down into three general levels: Level 1 inputs are quoted
  prices in active markets for identical assets or liabilities; Level 2 inputs
  include data points that are observable such as quoted prices for similar assets
  or liabilities in active markets, quoted prices for identical assets or similar
  assets or liabilities in markets that are not active, and inputs (other than
  quoted prices) such as interest rates and yield curves that are observable for
  the asset and liability, either directly or indirectly; 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.

The following table presents the fair value hierarchy for the Companys
  financial assets and liabilities measured at fair value on a recurring basis
  as of June 30, 2009:

(in thousands)
      Total FairValue
        atJune 30, 2009
      Quoted pricesin active markets(Level
        1)
      Significant otherobservable inputs(Level
        2)
      Significantunobservable inputs(Level
        3)Assets:Cash equivalents
      $4,052
      $4,052
      -
      -Available for sale securities
      709
      709
      -
      -Foreign currency contracts
      2,040
      2,040
      -
      -


Available for sale securities represent shares of common stock that
  are 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. Because the securities are classified as available for sale,
  any resulting gain or loss is recorded to the shareholders equity section
  of the balance sheet, rather than to the statements of

21

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operations. When the security is sold or impaired, gains and losses
  are reported on the statement of operations. Investments are considered to be
  impaired when a decline in fair value is judged to be other-than-temporary.

Foreign currency contracts consist of foreign exchange forward contracts
  that are valued using market-based inputs obtained from independent pricing
  sources. The contracts are measured using market foreign exchange prices and
  are recorded in the Consolidated Balance Sheets as Accounts receivable. For
  all positions there is risk from the possible inability of the counterparties
  (major financial institutions) to meet the terms of the contracts and the risk
  of unfavorable changes in interest and currency rates, which may reduce the
  benefit of the contracts. However, for most forward exchange contracts, both
  the purchase and sale sides of the Companys exposures are with the same
  financial institution. The Company seeks to control risk by evaluating the creditworthiness
  of counterparties and by monitoring the currency exchange and interest rate
  markets, hedging risks in compliance with internal guidelines and reviewing
  all principal economic hedging contracts with designated directors of the Company.

Financial Accounting Statement No. 161 issued by the Financial Accounting
  Standards Board requires enhanced disclosures about derivative instruments,
  amending and expanding the disclosure requirements of Financial Accounting Statement
  No. 133 (FAS No. 133), to provide users of financial statements with enhanced
  understanding of (i) how and why an entity uses derivative instruments, (ii)
  how derivative instruments and related hedged items are accounted for under
  FAS No. 133 and its related interpretations, and (iii) how derivative instruments
  and related hedged items affect an entitys financial position, results
  of operations, and cash flows.

The Company operates in many geographic regions of the world, and
  more than half of the Companys business is in countries outside the United
  States. A substantial portion of the Companys sales is denominated in
  euros or other foreign currencies. As a result, changes in the relative values
  of U.S. dollars, euros and such other currencies impact reported net sales and
  operating income. If the value of the euro or other currencies were to decline
  relative to the U.S. dollar, the Companys reported net sales and operating
  income could decline. In some locations, the profitability of transactions is
  affected by the fact that sales are denominated in a currency different from
  the currency in which the costs to manufacture and distribute the products are
  denominated. These sales are typically denominated in U.S. dollars while the
  manufacturing costs are based mainly on local currencies, which could have a
  negative effect on earnings if the local currencies were to strengthen against
  the U.S. dollar. As a result, the Company enters into foreign currency contracts
  from time to time, which are generally less than 12 months in duration, in order
  to mitigate volatility in the Companys earnings that can be caused by
  changes in currency exchange rates. There were no foreign currency forward contracts
  designated as hedging instruments at June 30, 2009.

The following table presents foreign currency forward contract information
  as of June 30, 2009:

(in thousands)Contract AmountBuy currency:
      Sell currency:
      Buy
      Sell
      Fair ValueMexican peso
      U.S. dollar
      $12,208
      $13,658
      $1,450Australian dollar
      U.S. dollar
      3,000
      3,232
      232South Korean won
      U.S. dollar
      3,912
      4,270
      358




22

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12. Contingencies

Albany International Corp. (Albany) is a defendant in
  suits brought in various courts in the United States by plaintiffs who allege
  that they have suffered personal injury as a result of exposure to asbestos-containing
  products previously manufactured by Albany. Albany produced asbestos-containing
  paper machine clothing synthetic dryer fabrics marketed during the period from
  1967 to 1976 and used in certain paper mills. Such fabrics generally had a useful
  life of three to twelve months.

Albany was defending against 16,060 claims as of July 23, 2009.
  This compares with 16,818 such claims as of May 1, 2009, 17,854 claims as of
  February 6, 2009, 18,385 claims as of October 27, 2008, 18,462 claims as of
  July 25, 2008, 18,529 claims as of May 2, 2008, 18,789 claims as of February
  1, 2008, 18,791 claims as of October 19, 2007, 18,813 claims as of July 27,
  2007, 19,120 claims as of April 27, 2007, 19,388 claims as of February 16, 2007,
  19,416 claims as of December 31, 2006, 24,451 claims as of December 31, 2005,
  29,411 claims as of December 31, 2004, 28,838 claims as of December 31, 2003,
  22,593 claims as of December 31, 2002, 7,347 claims as of December 31, 2001,
  1,997 claims as of December 31, 2000, and 2,276 claims as of December 31, 1999.
  These suits allege a variety of lung and other diseases based on alleged exposure
  to products previously manufactured by Albany. 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 endedDecember31,
      Opening Numberof claims
      Claims Dismissed,Settled orResolved
      New Claims
      ClosingNumberofClaims
      Amounts Paid(thousands) toSettle orResolve ($$)2005
      29,411
      6,257
      1,297
      24,451
      5042006
      24,451
      6,841
      1,806
      19,416
      3,8792007
      19,416
      808
      190
      18,798
      152008
      18,798
      523
      110
      18,385
      522009 to date
      18,385
      2,358
      33
      16,060
      78


Albany anticipates that additional claims will be filed against
  it and related companies in the future, but is unable to predict the number
  and timing of such future claims. These suits typically involve claims against
  from twenty to more than two hundred defendants, and the complaints usually
  fail to identify the plaintiffs work history or the nature of the plaintiffs
  alleged exposure to Albanys products. Pleadings and discovery responses
  in those cases in which work histories have been provided indicate claimants
  with paper mill exposure in approximately 10% of the total claims filed against
  Albany, and only a portion of those claimants have alleged time spent in a paper
  mill to which Albany is believed to have supplied asbestos-containing products.

As of July 23, 2009, approximately 11,358 of the claims pending
  against Albany were pending in Mississippi. Of these, approximately 10,816 are
  in federal court, at the multidistrict litigation panel (MDL), either
  through removal or original jurisdiction. (In addition to the 10,816 Mississippi
  claims pending against the Company at the MDL, there are approximately 509 claims
  pending against the Company at the MDL removed from various United States District
  Courts in other states.)

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On May 31, 2007 the MDL issued an administrative order that required
  each MDL plaintiff to provide detailed information regarding, among other things,
  the alleged asbestos-related medical diagnoses. The order did not require exposure
  information with this initial filing. The deadline for submission of such filings
  was December 1, 2007, but the process continued for several months thereafter
  with defense counsel monitoring filing obligations and reviewing the submissions
  for compliance. On December 23, 2008, the MDL issued another administrative
  order providing a mechanism whereby defendants could seek dismissals against
  plaintiffs who failed to comply with the prior administrative order. The deadline
  for such motions was originally set as January 31, 2009, but was amended when
  the court began scheduling hearings based upon the original jurisdiction of
  the underlying claim. Filing deadlines were set as 30 days prior to the hearing
  dates, which were scheduled beginning in April 2009. The Company has already
  begun to see dismissals as a result of this procedure, including some which
  have yet to be fully processed and therefore not reflected in the table above.
  At this point, the Company cannot currently predict how many more dismissals
  will be granted through this process. Also in April 2009, the MDL also ordered
  that the claims of individual plaintiffs in mass joinder cases be severed and
  that the severed plaintiffs re-file their claims, accompanied by payment of
  the statutory filing fee. It is unclear how many of the severed plaintiffs will
  re-file their claims, though it can be expected that some claims will be abandoned.

With respect to the remaining claims where plaintiffs have complied
  with the original administrative order, the MDL expects to begin conducting
  settlement conferences, at which time the plaintiffs will be required to submit
  short position statements setting forth exposure information. The MDL has not
  yet begun the process of scheduling the settlement conferences, but it has instituted
  a procedure by which plaintiffs may request remand of their claims back to the
  court of original jurisdiction for trial. Since a settlement conference is a
  prerequisite to remand, it is expected that institution of this procedures will
  expedite the requests for settlement conferences. The Company believes that
  the effects of these administrative orders may not be fully known or realized
  for some time.

Based on past experience, communications from certain plaintiffs
  counsel, and the advice of the Companys Mississippi counsel, the Company
  expects the percentage of Mississippi claimants able to demonstrate time spent
  in a paper mill to which Albany supplied asbestos-containing products during
  a period in which Albanys asbestos-containing products were in use to
  be considerably lower than the total number of claims still pending. However,
  due to the still large number of inactive claims pending in the MDL and the
  lack of alleged exposure information, the Company does not believe a meaningful
  estimate can be made regarding the range of possible loss with respect to these
  remaining claims.

As of July 23, 2009, the remaining 4,702 claims pending against
  Albany were pending in states other than Mississippi. Pleadings and discovery
  responses in those cases in which work histories have been provided indicate
  claimants with paper mill exposure in approximately 25% of total claims reported,
  and only a portion of those claimants have alleged time spent in a paper mill
  to which Albany is believed to have supplied asbestos-containing products. For
  these reasons, the Company expects the percentage of these remaining claimants
  able to demonstrate time spent in a paper mill to which Albany supplied asbestos-containing
  products during a period in which Albanys asbestos-containing products
  were in use to be considerably lower than the total number of pending claims.
  In addition, over half of these remaining non-Mississippi claims have not provided
  any disease information. Detailed exposure and disease information sufficient
  meaningfully to estimate a range of possible loss of a particular claim is typically
  not available until late in the discovery process, and often not until a trial
  date is imminent and a settlement demand has been received. For these reasons,
  the Company does not believe a meaningful estimate can be made regarding the
  range of possible loss with respect to these remaining claims.

It is the position of Albany and the other paper machine clothing
  defendants that there was insufficient exposure to asbestos from any paper machine
  clothing products to cause asbestos-related injury to any

24

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plaintiff. Furthermore, asbestos contained in Albanys synthetic
  products was encapsulated in a resin-coated yarn woven into the interior of
  the fabric, further reducing the likelihood of fiber release. While the Company
  believes it has meritorious defenses to these claims, it has settled certain
  of these cases for amounts it considers reasonable given the facts and circumstances
  of each case. The Companys insurer, Liberty Mutual, has defended each
  case and funded settlements under a standard reservation of rights. As of July
  23, 2009, the Company had resolved, by means of settlement or dismissal, 24,404
  claims. The total cost of resolving all claims was $6,836,000. Of this amount,
  $6,791,000, or 99%, was paid by the Companys insurance carrier. The Company
  has approximately $130 million in confirmed insurance coverage that should be
  available with respect to current and future asbestos claims, as well as additional
  insurance coverage that it should be able to access.

Brandon Drying Fabrics, Inc.

Brandon Drying Fabrics, Inc. (Brandon), a subsidiary
  of Geschmay Corp., which is a subsidiary of the Company, is also a separate
  defendant in many of the asbestos cases in which Albany is named as a defendant.
  Brandon was defending against 8,139 claims as of July 23, 2009. This compares
  with 8,604 such claims as of May 1, 2009, 8,607 claims as of February 6, 2009,
  8,664 such claims as of October 27, 2008, 8,672 claims as of July 25, 2008,
  8,689 claims as of May 2, 2008, 8,741 claims as of February 1, 2008 and October
  19, 2007, 9,023 claims as of July 27, 2007, 9,089 claims as of April 27, 2007,
  9,189 claims as of February 16, 2007, 9,114 claims as of December 31, 2006,
  9,566 claims as of December 31, 2005, 9,985 claims as of December 31, 2004,
  10,242 claims as of December 31, 2003, 11,802 claims as of December 31, 2002,
  8,759 claims as of December 31, 2001, 3,598 claims as of December 31, 2000,
  and 1,887 claims as of December 31, 1999. 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 endedDecember31,
      Opening Numberof claims
      Claims Dismissed,Settled orResolved
      New Claims
      ClosingNumberofClaims
      Amounts Paid(thousands) toSettle orResolve ($$)2005
      9,985
      642
      223
      9,566
      02006
      9,566
      1182
      730
      9,114
      02007
      9,114
      462
      88
      8,740
      02008
      8,740
      86
      10
      8,664
      02009 to date
      8,664
      528
      3
      8,139
      0


The Company acquired Geschmay Corp., formerly known as Wangner Systems
  Corporation, in 1999. Brandon is a wholly-owned subsidiary of Geschmay Corp.
  In 1978, Brandon acquired certain assets from Abney Mills (Abney),
  a South Carolina textile manufacturer. Among the assets acquired by Brandon
  from Abney were assets of Abneys wholly-owned subsidiary, Brandon Sales,
  Inc. which had sold, among other things, dryer fabrics containing asbestos made
  by its parent, Abney. It is believed that Abney ceased production of asbestos-containing
  fabrics prior to the 1978 transaction. Although Brandon manufactured and sold
  dryer fabrics under its own name subsequent to the asset purchase, none of such
  fabrics contained asbestos. Under the terms of the Assets Purchase Agreement
  between Brandon and Abney, Abney agreed to indemnify, defend, and hold Brandon
  harmless from any actions or claims on account of products manufactured by Abney
  and its related corporations prior to the date of the sale, whether or not the
  product was sold subsequent to the date of the sale. It appears that Abney has
  since been dissolved. Nevertheless, a representative of Abney has been notified
  of the pendency of these actions and demand has been made that it assume the
  defense of

25

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these actions. Because Brandon did not manufacture asbestos-containing
  products, and because it does not believe that it was the legal successor to,
  or otherwise responsible for obligations of Abney with respect to products manufactured
  by Abney, it believes it has strong defenses to the claims that have been asserted
  against it. In some instances, plaintiffs have voluntarily dismissed claims
  against it, while in others it has entered into what it considers to be reasonable
  settlements. As of July 23, 2009, Brandon has resolved, by means of settlement
  or dismissal, 9,439 claims for a total of $152,499. Brandons insurance
  carriers initially agreed to pay 88.2% of the total indemnification and defense
  costs related to these proceedings, subject to the standard reservation of rights.
  The remaining 11.8% of the costs had been borne directly by Brandon. During
  2004, Brandons insurance carriers agreed to cover 100% of indemnification
  and defense costs, subject to policy limits and the standard reservation of
  rights, and to reimburse Brandon for all indemnity and defense costs paid directly
  by Brandon related to these proceedings.

As of July 23, 2009, 6,821 (or approximately 84%) of the claims
  pending against Brandon were pending in Mississippi. For the same reasons set
  forth above with respect to Albanys Mississippi and other claims, as well
  as the fact that no amounts have been paid to resolve any Brandon claims since
  2001, the Company does not believe a meaningful estimate can be made regarding
  the range of possible loss with respect to these remaining claims.

Mount Vernon

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). The Company 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. The Company denies 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, the Company has successfully
  moved for dismissal in a number of actions.

---

While the Company does not believe, based on currently available
  information and for the reasons stated above, that a meaningful estimate of
  a range of possible loss can be made with respect to such claims, based on its
  understanding of the insurance policies available, how settlement amounts have
  been allocated to various policies, its settlement experience, the absence of
  any judgments against the Company or Brandon, the ratio of paper mill claims
  to total claims filed, and the defenses available, the Company currently does
  not anticipate any material liability relating to the resolution of the aforementioned
  pending proceedings in excess of existing insurance limits. Consequently, the
  Company currently does 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 the Company cannot predict the number and timing of
  future claims, based on the foregoing factors and the trends in claims against
  it to date, the Company does not anticipate that additional claims likely to
  be filed against it in the future will have a material adverse effect on its
  financial position, results of operations, or cash flows. The Company is aware
  that litigation is inherently uncertain, especially when the outcome is dependent
  primarily on determinations of factual matters to be made by juries. The Company
  is also aware that numerous other defendants in asbestos cases, as well as others
  who claim to have knowledge and expertise on the subject, have found it difficult
  to anticipate the outcome of asbestos litigation, the volume of future asbestos
  claims, and the anticipated settlement values of those claims. For these reasons,
  there can be no assurance that the foregoing conclusions will not change.

26

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13. Changes in Stockholders Equity

The following table summarizes changes in Stockholders Equity:

(in thousands)
      
      Class ACommonStock
      
      Class BCommonStock
      
      Additionalpaid incapital
      
      
      Retainedearnings
      
      
      Accumulateditems
        of othercomprehensiveincome
      
      
      Treasurystock
      
      
      TotalShareholdersEquityDecember 31, 2008
      
      $35
      
      $3
      
      $363,918
      
      
      $429,804
      
      
      ($101,953
      )
      
      ($258,871
      )
      
      $432,936Net (loss)
      
      -
      
      -
      
      -
      
      
      (31,641
      )
      
      -
      
      
      -
      
      
      (31,641
      )Shares contributedto ESOP
      
      1
      
      -
      
      1,926
      
      
      -
      
      
      -
      
      
      -
      
      
      1,927Dividends declared
      
      -
      
      -
      
      -
      
      
      (7,301
      )
      
      -
      
      
      -
      
      
      (7,301
      )Stock optionexpense
      
      -
      
      -
      
      70
      
      
      -
      
      
      -
      
      
      -
      
      
      70Compensation paidor payable in ClassA Common Stock
      
      -
      
      -
      
      1,428
      
      
      -
      
      
      -
      
      
      -
      
      
      1,428Convertible notespurchased
      
      -
      
      -
      
      (5,326
      )
      
      -
      
      
      -
      
      
      -
      
      
      (5,326
      )Settlement ofequity related taxissues
      
      -
      
      -
      
      19,658
      
      
      -
      
      
      -
      
      
      -
      
      
      19,658Amortization ofadjustment ofpension liability
      
      -
      
      -
      
      -
      
      
      -
      
      
      581
      
      
      -
      
      
      581Cumulativetranslationadjustment/other
      
      -
      
      -
      
      (216
      )
      
      -
      
      
      17,410
      
      
      572
      
      
      17,766June 30, 2009
      
      $36
      
      $3
      
      $381,458
      
      
      $390,862
      
      
      ($83,962
      )
      
      ($258,299
      )
      
      $430,098


27

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14. Comprehensive Income/(Loss)

Comprehensive income/(loss) consists of the following:

Three Months Ended 
        June 30,
      
      
      Six Months Ended 
        June 30,(in thousands)
      2009
      
      
      2008
      
      
      2009
      
      
      2008Net (loss)/income
      ($12,744
      )
      
      $5,253
      
      
      ($31,641
      )
      
      $3,157Other comprehensive income, before tax:Foreign currency translation adjustments
      79,771
      
      
      4,355
      
      
      17,410
      
      
      40,688Amortization of pension liability adjustment
      953
      
      
      371
      
      
      953
      
      
      742Pension and postretirement liability adjustments
      -
      
      
      (1,385
      )
      
      -
      
      
      (6,127
      )Derivative valuation adjustment
      -
      
      
      414
      
      
      -
      
      
      (9,479
      )Income taxes related to items of othercomprehensive income:Amortization of pension liability adjustment
      (372
      )
      
      (145
      )
      
      (372
      )
      
      (290
      )Pension and postretirement liability adjustments
      -
      
      
      540
      
      
      -
      
      
      2,362Derivative valuation adjustment
      -
      
      
      (628
      )
      
      -
      
      
      3,246Other comprehensive income, net of tax
      80,352
      
      
      3,522
      
      
      17,991
      
      
      31,142Comprehensive income/(loss)
      $67,608
      
      
      $8,775
      
      
      ($13,650
      )
      
      $34,299


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15. Recent Accounting Pronouncements

In December 2008, the FASB issued FASB Staff Position (FSP) No.132
  (R)-1, Employers Disclosures about Pensions and Other Postretirement
  Benefits (FSP 132R-1). FSP 132R-1 requires enhanced disclosures about
  the plan assets of a Companys defined benefit pension and other postretirement
  plans. The enhanced disclosures required by this FSP are intended to provide
  users of financial statements with a greater understanding of: (1) how investment
  allocation decisions are made, including the factors that are pertinent to an
  understanding of investment policies and strategies; (2) the major categories
  of plan assets; (3) the inputs and valuation techniques used to measure the
  fair value of plan assets; (4) the effect of fair value measurements using significant
  unobservable inputs (Level 3) on changes in plan assets for the period; and
  (5) significant concentrations of risk within plan assets. FSP No. FAS 132(R)-1
  is effective for financial statements issued for fiscal years ending after December
  15, 2009. It is expected that the adoption of FSP No. FAS 132(R)-1 will not
  have a material effect on the Companys financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining
  Fair Value When the Volume and Level of Activity for the Asset or the Liability
  Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
  FSP No. FAS 157-4 amends SFAS No. 157 to provide additional guidance on (i)
  estimating fair value when the volume and level of activity for an asset or
  liability have significantly decreased in relation to normal market activity
  for the asset or liability, and (ii) circumstances that may indicate that a
  transaction is not orderly. FSP No. FAS 157-4 also requires additional disclosures
  about fair value measurements in interim and annual reporting periods. FSP No.
  FAS 157-4 is effective for interim and annual reporting periods ending after
  June 15, 2009. The Companys adoption of this Standard did not have a material
  effect on its financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
  Recognition and Presentation of Other-Than-Temporary Impairments
  (FSP No. FAS 115-2). FSP No. FAS 115-2 provides additional guidance
  on the timing of impairment recognition and greater clarity about the credit
  and noncredit components of impaired debt securities that are not expected to
  be sold. FSP No. FAS 115-2 also requires additional disclosures about impairments
  in interim and annual reporting periods. FSP No. FAS 115-2 is effective for
  interim and annual reporting periods ending after June 15, 2009. The Companys
  adoption of this Standard did not have a material effect on its financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1,
  Interim Disclosures about Fair Value of Financial Instruments. FSP
  No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value
  of Financial Instruments, to require disclosures about fair value of financial
  instruments in interim as well as in annual financial statements. This FSP also
  amends Accounting Principles Board (APB) Opinion No. 28, Interim
  Financial Reporting, to require those disclosures in all interim financial statements.
  FSP No. FAS 107-1 and APB 28-1 is effective for interim reporting periods ending
  after June 15, 2009. The Companys adoption of this Standard did not have
  a material effect on its financial statements.

In May 2009, the FASB issued Statement No. 165, Subsequent
  Events (SFAS 165), which establishes general standards of
  accounting for, and requires disclosure of, events that occur after the balance
  sheet date but before financial statements are issued or are available to be
  issued. The provisions of SFAS 165 were adopted for the quarter ended June 30,
  2009. The adoption of these provisions did not have a material effect on the
  Companys consolidated financial statements.

In June 2009, the FASB issued Statement No. 166, Accounting
  for Transfers of Financial Assets, an amendment to FASB Statement No. 140
  (SFAS 166). SFAS 166 eliminates the concept of a qualifying
  special-purpose entity, changes the requirements for derecognizing financial
  assets, and requires additional disclosures in order to enhance information
  reported to users of financial statements by providing greater

29

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transparency about transfers of financial assets, including securitization
  transactions, and an entitys continuing involvement in and exposure to
  the risks related to transferred financial assets. SFAS 166 is effective for
  fiscal years beginning after November 15, 2009. The Company expects that adoption
  of SFAS 166 in fiscal year 2010 will not have a material effect on its financial
  statements.

In June 2009, the FASB issued Statement No. 167, Amendments
  to FASB Interpretation No. 46(R) (SFAS 167). The amendments
  include: (1) the elimination of the exemption for qualifying special purpose
  entities, (2) a new approach for determining who should consolidate a variable-interest
  entity, and (3) changes to when it is necessary to reassess who should consolidate
  a variable-interest entity. SFAS 167 is effective for the first annual reporting
  period beginning after November 15, 2009 and for interim periods within that
  first annual reporting period. The Company expects that adoption of SFAS 167
  in fiscal year 2010 will not have a material effect on its financial statements.

In June 2009, the FASB issued Statement No. 168, The FASB
  Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
  Principles- a replacement of FASB Statement No. 162 (SFAS 168).
  SFAS 168 replaces FASB Statement No. 162, The Hierarchy of Generally Accepted
  Accounting Principles, and establishes the FASB Accounting Standards CodificationTM (the Codification) as the source of authoritative accounting principles recognized
  by the FASB to be applied by nongovernmental entities in the preparation of
  financial statements in conformity with generally accepted accounting principles
  (GAAP). SFAS 168 is effective for interim and annual periods ending after September
  15, 2009. The Company will begin to use the new Codification when referring
  to GAAP in its Form 10-Q for the quarter ending September 30, 2009. The Company
  expects that adoption of SFAS 168 will not have a material effect on its financial
  statements.

30

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS

The following Managements Discussion and Analysis (MD&A)
  is intended to help the reader understand the results of operations and financial
  condition of the Company. The MD&A is provided as a supplement to, and should
  be read in conjunction with, the Companys Consolidated Financial Statements
  and the accompanying Notes.

Overview

Albany International Corp. (the Registrant, the Company, or we)
  and its subsidiaries are engaged in five business segments.

The Paper Machine Clothing segment includes fabrics and belts
  used in the manufacture of paper and paperboard (PMC or paper machine clothing).
  The Company designs, manufactures, and markets paper machine clothing for each
  section of the paper machine. It manufactures and sells more paper machine clothing
  worldwide than any other company. PMC consists of large permeable and non-permeable
  continuous belts of custom-designed and custom-manufactured engineered fabrics
  that are installed on paper machines and carry the paper stock through each
  stage of the paper production process. PMC products are consumable products
  of technologically sophisticated design that utilize polymeric materials in
  a complex structure. The design and material composition of PMC can have a considerable
  effect on the quality of paper products produced and the efficiency of the paper
  machines on which it is used. Principal products in the PMC segment include
  forming, pressing and dryer fabrics, and process belts. A forming fabric assists
  in sheet formation and conveys the very dilute sheet through the section. Press
  fabrics are designed to carry the sheet through the presses, where water pressed
  from the sheet is carried through the press nip in the fabric. 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 Companys
  customers in the PMC segment are paper industry companies, some of which operate
  in multiple regions of the world. The Companys products, manufacturing
  processes and distribution channels for PMC are substantially the same in each
  region of the world in which it operates.

Albany Door Systems (ADS) designs, manufactures, sells, and services
  high-speed, high-performance industrial doors worldwide, for a wide range of
  interior, exterior, and machine protection industrial applications. Already
  a high performance door leader, ADS added to its product offerings through its
  acquisitions of Aktor GmbH in 2008 and R-Bac Industries in 2007. The business
  segment also derives revenue from aftermarket sales and service.

The Companys other reportable segments are emerging businesses
  that apply the Companys core competencies in advanced textiles and materials
  to other industries, including specialty materials and composite structures
  for aircraft and other applications (Albany Engineered Composites); a variety
  of products similar to PMC for application in the corrugators, pulp, nonwovens,
  building products, tannery and textile industries (Albany Engineered Fabrics); and
  insulation for outdoor clothing, gloves, footwear, sleeping bags and home furnishings
  (PrimaLoft® Products). No class of similar products or services within
  these segments accounted for 10% or more of the Companys consolidated
  net sales in any of the past three years.

31

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Trends

The Companys primary segment, Paper Machine Clothing, accounted
  for approximately 67% of consolidated revenues during 2008. Paper machine clothing
  is purchased primarily by manufacturers of paper and paperboard. According to
  data published by RISI, Inc., world paper and paperboard production volumes
  grew at an annual rate of approximately 2.6% between 1999 and 2008. However,
  recent economic changes have led to uncertainty about paper and paperboard production
  volumes in the near term.

The paper and paperboard industry has been characterized by an
  evolving but essentially stable manufacturing technology based on the wet-forming
  papermaking process. This process, of which paper machine clothing is an integral
  element, requires a very large capital investment. Consequently, management
  does not believe that a commercially feasible substitute technology to paper
  machine clothing is likely to be developed and incorporated into the paper production
  process by paper manufacturers in the foreseeable future. For this reason, management
  expects that demand for paper machine clothing will continue into the foreseeable
  future.

The world paper and paperboard industry tends to be cyclical,
  with periods of healthy paper prices followed by increases in new capacity,
  which then leads to increased production and higher inventories of paper and
  paperboard, followed by a period of price competition and reduced profitability
  among the Companys customers. Although sales of paper machine clothing
  do not tend to be as cyclical, the Company may experience somewhat greater demand
  during periods of increased production and somewhat reduced demand during periods
  of lesser production.

The world paper and paperboard industry has experienced a significant
  period of consolidation and rationalization since 2000. During this period,
  a number of older, less efficient machines in areas where significant established
  capacity existed were closed or were the subject of planned closure announcements,
  while at the same time a number of newer, faster and more efficient machines
  began production or plans for the installation of such newer machines were announced
  in areas of growing demand for paper and paperboard (such as Asia and South
  America). Management anticipates that this trend is likely to continue in the
  near term.

At the same time, technological advances in paper machine clothing,
  while contributing to the papermaking efficiency of customers, have lengthened
  the useful life of many of the Companys products and reduced the number
  of pieces required to produce the same volume of paper. As the Company introduces
  new value creating products and services, it is often able to charge higher
  prices or increase market share in certain areas as a result of these improvements.
  However, increased prices and share have not always been sufficient to offset
  completely a decrease in the number of fabrics sold.

The factors described above result in a steady decline in the
  number of pieces of paper machine clothing, while the average fabric size is
  increasing. The net effect of these trends in recent years was that the specific
  volume of paper machine clothing consumption (measured in kilograms or square
  meters) had been increasing at a rate of approximately 1% per year. For the
  first six months of 2009, however, the global recession contributed to a reduction
  of 26% in the Companys PMC sales, compared to the same period in 2008.
  Although there is evidence that the decline in sales has reached the bottom
  in some regions and some product lines, the Company is unable to determine whether
  overall consumption of PMC will increase or decrease in the short term.

During 2006, the Company reported that price competition in Western
  Europe had an adverse impact on the Companys operating results in the
  PMC segment. In the third and fourth quarters of 2006, and in the first two
  quarters of 2007, sales of paper machine clothing to customers in Western Europe
  were significantly lower

32

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than the same quarter of the previous year. This also contributed
  to reduced operating income within this segment, as well as overall operating
  income, during those quarters.

The Companys response to that pricing disruption was to
  initiate a deliberate, intensive three-year process of restructuring and performance
  improvement initiatives. In PMC, the Companys strategy has been to offset
  the impacts of the maturation of the North American and Western European markets
  by (a) growing volume in these mature markets, (b) growing with the emerging
  markets in Asia and South America, and (c) reducing costs significantly through
  a company-wide, three-year restructuring and performance improvement program.

During this process of adjusting its manufacturing footprint
  to align with these regional markets, the Company has incurred restructuring
  charges. Specific charges reported have been incurred in connection with the
  reduction of PMC manufacturing capacity in the United States, Canada, Germany,
  Finland, France and Australia, and Doors segment manufacturing in Sweden and
  Germany. The Company has also incurred costs for idle capacity and equipment
  relocation that are related to the shutdown of these plants, and underutilized
  costs related to the new PMC plant in China. Expenses related to these items
  are included in Cost of Goods Sold. In addition, the Company also
  incurred restructuring charges related to the centralization of PMC administrative
  functions in Europe, and reorganization of the Companys research and development
  function that has improved the Companys ability to bring value-added products
  to market faster.

In addition to these restructuring and restructuring-related
  activities, management has launched significant cost reduction and performance
  improvement initiatives. In 2006, the Company announced a plan to migrate its
  global enterprise resource planning system to SAP, and began a strategic procurement
  initiative designed to establish a world-class supply chain organization and
  processes that would lead to significant cost savings. Expenses incurred in
  connection with these actions are included in Selling Technical, General and
  Research (STG&R) expenses. These expenses were not allocated to the reportable
  segments because they are Corporate-wide initiatives.

The Company expects its three-year plan of restructuring and
  performance improvement initiatives to come to a conclusion by the end of 2009.
  The only remaining planned process improvement initiatives that will run through
  2010 will be the conversion of the Companys Eurasia and Brazilian operations
  to SAP, and the relocation of equipment related to recent restructuring announcements.

The Albany Door Systems segment derives most of its revenue from
  the sale of high-performance doors, particularly to customers in Europe. The
  purchase of these doors is normally a capital expenditure item for customers
  and, as such, market opportunities tend to fluctuate with industrial capital
  spending. If economic conditions weaken, customers may reduce levels of capital
  expenditures, which could have a negative effect on sales and earnings in the
  Albany Door Systems segment. The Companys response to this trend includes
  expansion of its aftermarket business which tends to be more profitable than
  sales of new doors. The large amount of revenue derived from sales and manufacturing
  outside the United States could cause the reported financial results for the
  Albany Door Systems segment to be more sensitive than the other segments of
  the Company to changes in currency rates. Orders for new doors began to drop
  off at the end of the year and into January, and the Company experienced a substantial
  decline in product and aftermarket sales in the first half of 2009. Accordingly,
  the Company has been taking steps, across the business, to accelerate structural
  changes that permanently reduce costs.

The Engineered Fabrics segment derives its revenue from various
  industries that use fabrics and belts for industrial applications other than
  the manufacture of paper and paperboard. Approximately 40% of revenue in this
  segment is derived from sales to the nonwovens industry, which includes the
  manufacture of diapers, personal care and household wipes, and fiberglass-reinforced
  roofing shingles. Approximately 30% of segment revenue is derived from sales
  to markets that are adjacent to the paper industry, and 20% of revenue is derived
  from the building products market. Segment sales in the European and Pacific
  regions combined

33

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are almost at the same level as sales within the Americas. Sales
  in the first half of 2009 were 22% lower than the same quarter of 2008, and
  management expects the top line weakness to continue through 2009, reflecting
  the effects of the global recession.

The Engineered Composites segment (AEC) serves primarily the
  aerospace industry, with custom-designed composite and advanced composite parts
  for static and dynamic applications. AEC has experienced significant growth
  in net sales during the last few years, due both to the introduction of new
  products as well as growth in demand and application for previously existing
  products. The global recession is forcing many of AECs customers to sharply
  curtail production, which has led to a sharp decline in segment sales and operating
  income.

The PrimaLoft®  Products segment includes sales of insulation
  for outdoor clothing, gloves, footwear, sleeping bags, and home furnishings.
  The segment has manufacturing and sales operations in the United States, Europe,
  and Asia. Reflecting global economic pressures, segment sales for the first
  half of 2009 were 6.5 percent lower than the same period of 2008.

Foreign Currency

The Company operates in many geographic regions of the world,
  and more than half of the Companys business is in countries outside the
  United States. A substantial portion of the Companys sales is denominated
  in euros or other foreign currencies. As a result, changes in the relative values
  of U.S. dollars, euros and such other currencies impact reported net sales and
  operating income. If the value of the euro or other currencies were to decline
  relative to the U.S. dollar, the Companys reported net sales and operating
  income could decline. In some locations, the profitability of transactions is
  affected by the fact that sales are denominated in a currency different from
  the currency in which the costs to manufacture and distribute the products are
  denominated. These sales are typically denominated in U.S. dollars while the
  manufacturing costs are based mainly on local currencies, which could have a
  negative effect on earnings if the local currencies were to strengthen against
  the U.S. dollar. As a result, the Company enters into foreign currency contracts
  from time to time, which are generally less than 12 months in duration, in order
  to mitigate volatility in the Companys earnings that can be caused by
  changes in currency exchange rates. There were no foreign currency forward contracts
  designated as hedging instruments at June 30, 2009.

34

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Review of Operations

Total Company  three months ended June 30, 2009

In Q1 2009, the Company modified its business segment reporting
  by reclassifying global information systems expenses from each of the segments
  to unallocated expenses. Also during that quarter, the Company implemented Financial
  Accounting Standards Board Staff Position No. APB 14-1 (FSP 14-1). Prior year
  data has been modified to conform to the current year presentation. The Company
  filed a Form 8-K on May 1, 2009 with reclassified segment data and restated
  income statement and balance sheet items for quarterly periods in 2008, as well
  as annual data for 2006, 2007, and 2008.

Net sales were $212.6 million, an increase of 1.6 percent compared
  to Q1 2009 and a decrease of 28.5 percent compared to Q2 2008. Excluding the
  effect of changes in currency translation rates, net sales in Q2 2009 decreased
  23.0 percent as compared to Q2 2008, as shown in Table 1 below:

Table 1

(in thousands)
      Net SalesThree
        Months endedJune 30,
      PercentChange
      Impact ofChangesin CurrencyTranslationRates
      Percent ChangeexcludingCurrency RateEffect2009
      2008Paper Machine Clothing
      $145,533
      $199,477
      -27.0%
      ($9,247)
      -22.4%Albany Door Systems
      30,530
      48,845
      -37.5
      (4,225)
      -28.8Engineered Fabrics
      21,629
      27,255
      -20.6
      (2,330)
      -12.1Engineered Composites
      7,379
      13,977
      -47.2
      -
      -47.2PrimaLoft®Products
      7,488
      7,647
      -2.1
      (341)
      2.4Total
      $212,559
      $297,201
      -28.5%
      ($16,143)
      -23.0%


Selling, technical, general, and research (STG&R) expenses were
  $64.6 million, or 30.4 percent of net sales, in Q2 2009 in comparison to $86.9
  million or 29.3 percent of net sales in Q2 2008. Changes in currency translation
  rates had the effect of decreasing STG&R expenses by $6.9 million in comparison
  to Q2 2008. Q2 STG&R expenses include costs related to performance-improvement
  initiatives totaling $1.4 million in 2009 and $7.9 million in 2008. Revaluation
  of non-functional currency assets and liabilities resulted in losses of $1.7
  million in Q2 2009 and $0.5 million in Q2 2008.

STG&R expenses were $67.6 million, or 32.3 percent of net sales,
  in Q1 2009. Q1 2009 STG&R expenses included costs related to performance-improvement
  initiatives totaling $2.2 million. Revaluation of non-functional currency assets
  and liabilities resulted in a gain of $1.9 million in Q1 2009.

Operating income/loss was a loss of $29.6 million in Q2 2009, compared
  to income of $14.5 million for the same period of 2008.

35

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The following table presents Q2 segment operating income:

Table 2

(in thousands)
        Operating (loss)/incomeThree Months endedJune 30,2009
        2008Paper Machine Clothing
        ($8,732)
        $31,231Albany Door Systems
        (1,639)
        4,836Engineered Fabrics
        837
        3,880Engineered Composites
        (2,372)
        (217)PrimaLoft®Products
        2,594
        1,718Research expenses
        (5,767)
        (8,288)Unallocated expenses
        (14,476)
        (18,634)Total
        ($29,555)
        $14,526 Q2 segment operating income included the following expenses
      associated with restructuring and performance-improvement initiatives: Table 3
 (in thousands)
        Q2 2009Restructuringand
          Other, 
           Net
        Idle-capacityCosts
        Performance-improvementInitiatives
        TotalPaper Machine Clothing
        $27,923
        $3,099
        $2,781
        $33,803Albany Door Systems
        1,900
        -
        99
        1,999Engineered Fabrics
        2,515
        -
        -
        2,515Engineered Composites
        110
        -
        205
        315PrimaLoft®Products
        19
        -
        -
        19Research expenses
        -
        -
        -
        -Unallocated expenses
        1,343
        -
        1,374
        2,717Total
        $33,810
        $3,099
        $4,459
        $41,368
 Table 4 (in thousands)
      Q2 2008Restructuring
        and Other,
         Net
      Idle- capacity Costs
      Performance-
        improvement
        Initiatives
      TotalPaper Machine Clothing
      $628
      $1,735
      $7,225
      $9,587Albany Door Systems
      322
      -
      78
      400Engineered Fabrics
      -
      -
      -
      -Engineered Composites
      -
      -
      -
      -PrimaLoft®Products
      -
      -
      -
      -Research expenses
      1,827
      -
      -
      1,827Unallocated expenses
      (1,045)
      -
      6,759
      5,714Total
      $1,732
      $1,735
      $14,062
      $17,528


36

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Q2 2009 restructuring costs totaled $33.8 million and included
  charges related to restructuring announced in June and July 2009. The Company
  has not yet completed a review for potential asset impairment associated with
  these recent announcements, and expects that review to result in non-cash restructuring
  charges in the third quarter.

Q2 2009 idle-capacity costs of $3.1 million were related
  to previously announced restructuring at PMC plants in the U.S. and Europe.
  As a result of the recent restructuring announcements, the Company expects idle-capacity
  costs to continue at least through the next two quarters.

Q2 2009 performance-improvement initiatives totaled $4.5
  million, of which $3.1 million was reported in cost of goods sold, and $1.4
  million was reported in STG&R expenses. Items reported in cost of goods
  sold include $1.3 million for equipment relocation and $1.1 million
  related to underutilized capacity at the new plant in Hangzhou, China. Included
  in underutilized expense and idle-capacity costs was $0.9 million of depreciation
  expense. Performance-improvement costs reported as STG&R expenses included
  $1.4 million related to the ongoing implementation of SAP.

Q2 2008 costs for restructuring and performance-improvement initiatives
  amounted to $17.5 million, of which $1.7 million was reported as restructuring,
  $7.9 million was included in cost of goods sold, and $7.9 million was
  included in STG&R expenses.

Cost reduction initiatives contributed to an improvement of $3.7
  million in Q2 2009 Adjusted EBITDA, compared with Q1 2009. The Company estimates
  that cost reduction initiatives announced to date will contribute to an improvement
  in Adjusted EBITDA of $3.0 million per quarter by Q4 2009, growing to $7.0
  million per quarter by Q2 2010. These estimates assume all other factors that
  influence EBITDA such as sales, currency, and inflation remain constant.

Research expense decreased $2.5 million due to reductions
  from restructuring and cost reduction initiatives. Unallocated expenses decreased
  by $4.2 million principally due to lower restructuring and performance expenses.

Interest expense increased to $6.1 million for Q2 2009, compared
  with $5.9 million for Q2 2008. The increase is due to slightly higher average
  levels of debt outstanding during 2009.

Other income/expense, net was income of $37.2 million in
  Q2 2009, including a $36.6 million or $0.73 per share gain on extinguishment
  of debt and income of $1.2 million related to revaluation of non-functional
  currency intercompany balances. Other income/expense, net was expense of $2.1
  million for Q2 2008. Other income/expense, net was expense of $0.2 million
  in Q1 2009, including a $2.8 million or $0.06 per share gain on extinguishment
  of debt, which was partially offset by losses totaling $1.5 million related
  to revaluation of non-functional currency intercompany balances.

Q2 2009 income tax benefit/expense includes a provision of $14.3
  million related to the gain on extinguishment of debt. Additionally, Q2 2009
  results include a discrete tax charge of $0.7 million or $0.02 per share,
  and an income tax benefit in the quarter related to a change in the estimated
  tax rate that increased earnings by $2.7 million or $0.09 per share.
  Q2 2008 income tax expense includes discrete tax adjustments that decreased
  net income by $0.3 million or $0.01 per share.

Net loss per share was $0.41, after reductions of $1.04
  from net restructuring charges, related idle-capacity costs, and costs related
  to continuing performance-improvement initiatives. A gain on extinguishment
  of debt increased earnings by $0.73 per share and tax adjustments increased
  earnings by $0.07 per share. Results for Q2 2009 also include a charge of
  $10 million, or $0.33 per share, representing an estimated purchase
  price

37

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adjustment related to the Companys 2008 sale of its discontinued
  Filtration Technologies business. The charge results from a tentative agreement
  between the Company and the purchaser of the Filtration Technologies business
  to return a portion of the original $45 million purchase price in exchange for
  a release of certain future claims under the related sale agreement.

Net Income per share for Q2 2008 was $0.18, after reductions of
  $0.47 from net restructuring charges, related idle-capacity costs, and costs
  related to performance-improvement initiatives and $0.01 for income tax adjustments.

Total Company  six months ended June 30, 2009

Net sales were $421.8 million, a decrease of 26.1 percent compared
  to the same period last year. Excluding the effect of changes in currency translation
  rates, net sales decreased 19.4 percent as shown in Table 5 below:

Table 5

(in thousands)
      Net SalesSix
        Months endedJune 30,
      PercentChange
      Impact ofChangesin CurrencyTranslationRates
      Percent ChangeexcludingCurrency RateEffect2009
      2008Paper Machine Clothing
      $284,607
      $382,492
      -25.6%
      ($22,296)
      -19.8%Albany Door Systems
      64,856
      93,977
      -31.0
      (9,983)
      -20.4Engineered Fabrics
      43,199
      55,365
      -22.0
      (5,224)
      -12.5Engineered Composites
      16,464
      25,065
      -34.3
      -
      -34.3PrimaLoft®Products
      12,638
      13,510
      -6.5
      (472)
      -3.0Total
      $421,764
      $570,409
      -26.1%
      ($37,975)
      -19.4%


Selling, technical, general, and research (STG&R) expenses were
  $132.3 million, or 31.4 percent of net sales, in 2009, in comparison to $169.3
  million, or 29.7 percent of net sales, in 2008. Changes in currency translation
  rates had the effect of decreasing STG&R expenses by $14.7 million in comparison
  to 2008. STG&R expenses in 2009 include costs related to performance-improvement
  initiatives totaling $3.6 million in 2009 and $13.1 million in 2008. STG&R
  expenses were reduced by employee reductions due to restructuring activities
  along with reductions in travel and other expenses due to cost reduction initiatives.
  Revaluation of non-functional currency assets and liabilities resulted in a
  gain of $0.3 million in 2009 and a loss of $1.0 million in 2008.

Operating income/loss was a loss of $44.3 million compared to income
  of $21.7 million for the same period of 2008.

38

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The following table presents second-quarter segment operating income:

Table 6

(in thousands)
        Operating (loss)/incomeSix Months endedJune 30,2009
        2008Paper Machine Clothing
        ($1,471)
        $53,770Albany Door Systems
        (1,411)
        8,273Engineered Fabrics
        4,492
        9,735Engineered Composites
        (4,880)
        (2,035)PrimaLoft®Products
        3,683
        2,830Research expenses
        (11,377)
        (14,159)Unallocated expenses
        (33,358)
        (36,708)Total
        ($44,322)
        $21,706
 Table 7 (in thousands)
        2009Restructuringand
          Other, Net
        Idle-capacityCosts
        Performance-improvementInitiatives
        TotalPaper Machine Clothing
        $43,533
        $6,178
        $5,625
        $55,336Albany Door Systems
        2,048
        -
        506
        2,554Engineered Fabrics
        2,515
        -
        -
        2,515Engineered Composites
        110
        -
        825
        935PrimaLoft®Products
        61
        -
        -
        61Research expenses
        -
        -
        -
        -Unallocated expenses
        2,722
        -
        3,575
        6,297Total
        $50,989
        $6,178
        $10,531
        $67,698
 Table 8 (in thousands)
      2008Restructuring
        and Other, Net
      Idle- capacityCosts
      Performance-
        improvement
        Initiatives
      TotalPaper Machine Clothing
      $7,031
      $2,418
      $10,547
      $19,996Albany Door Systems
      322
      -
      213
      535Engineered Fabrics
      -
      -
      -
      -Engineered Composites
      -
      -
      -
      -PrimaLoft®Products
      -
      -
      -
      -Research expenses
      1,827
      -
      -
      1,827Unallocated expenses
      (2,086)
      -
      10,708
      8,622Total
      $7,094
      $2,418
      $21,468
      $30,980


39

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Restructuring costs in 2009 totaled $51.0 million and included
  charges related to restructuring of PMC operations in North America and Europe.
  Restructuring costs also included charges to restructure the Companys
  Doors operations in Europe and Engineered Fabrics operations in Australia, Europe,
  and North America.

Idle-capacity costs in 2009 of $6.2 million were related
  to previously announced restructuring at PMC plants in the U.S. and Europe.

Costs associated with performance-improvement initiatives totaled
  $10.5 million in 2009, of which $6.9 million was reported in cost of
  goods sold, and $3.6 million was reported in STG&R expenses. Items reported
  in cost of goods sold include $3.3 million for equipment relocation and
  $2.9 million related to underutilized capacity at the new plant in Hangzhou,
  China. Included in underutilized expense and idle-capacity costs was $1.9
  million of depreciation expense. Performance-improvement costs reported as STG&R
  expenses included $3.6 million related to the ongoing implementation of
  SAP.

Restructuring and performance-improvement initiatives costs in
  2008 amounted to $31.0 million, of which $7.1 million was reported as
  restructuring, $10.9 million was included in cost of goods sold, and $13.0
  million was included in STG&R expenses.

Research expense decreased $2.8 million due to reductions
  from restructuring and cost reduction initiatives. Unallocated expenses decreased
  by $3.3 million principally due to lower restructuring and performance expenses.

Interest expense increased to $11.9 million in 2009, compared
  with $11.3 million in 2008. The increase is due to higher average levels
  of debt outstanding during 2009.

Other income/expense, net was income of $37.0 million in
  2009, including a $39.5 million or $0.79 per share gain on extinguishment
  of debt and expense of $0.7 million related to revaluation of non-functional
  currency intercompany balances. Other income/expense, net was expense of $1.8
  million for 2008.

The effective tax rate before discrete tax items was 23% in 2009
  and 20% in 2008. Included in income tax expense in 2009 includes a provision
  of $15.4 million related to the gain on extinguishment of debt. 2009 income
  tax expense also includes $0.7 million related to discrete tax items that
  increased earnings by $0.02 per share. Discrete tax adjustments decreased
  2008 net income by $4.2 million or $0.14 per share.

Net loss per share was $1.04, after reductions of $1.71
  from net restructuring charges, related idle-capacity costs, and costs related
  to continuing performance-improvement initiatives. A gain on extinguishment
  of debt increased earnings by $0.79 per share and discrete tax adjustments decreased
  earnings by $0.02 per share. Results in 2009 also include a charge of $10
  million or $0.33 per share representing an estimated purchase price adjustment
  related to the Companys 2008 sale of its discontinued Filtration Technologies
  business.

Net income per share for 2008 was $0.11, after reductions
  of $0.83 from net restructuring charges, related idle-capacity costs, and
  costs related to performance-improvement initiatives, and $0.14 for discrete income
  tax adjustments.

40

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Paper Machine Clothing (PMC)

This segment includes Paper Machine Clothing and Process Belts
  used in the manufacture of paper and paperboard products.

Three months ended June 30, 2009

Q2 2009 global net sales decreased 27.0 percent compared to Q2
  2008, but increased 4.6 percent compared to Q1 2009. Compared to Q1 2009, trade
  sales increased 2.6 percent in the Americas and 37.8 percent in Asia, while
  sales in Europe (in euros) declined 5.7 percent.

Cost reduction and other performance-improvement initiatives
  are ongoing throughout all facets of the PMC organization.

Six months ended June 30, 2009

Net sales decreased 25.6 percent compared to the same period
  of 2008. Excluding the effect of currency translation rates, net sales decreased
  19.8 percent. The declines were primarily due to lower volume.

Gross profit as a percentage of net sales was 36.0 percent compared
  with 37.3 percent for 2008. The difference is principally due to lower sales
  offset in part by cost savings resulting from plant closings, related reductions
  in employee expense, and other performance-improvement initiatives. Geographically,
  the majority of the decline in gross profit percentage was in Europe and Asia.
  The decrease in those regions is principally due to the ramp-up of operations
  at the new plant in Hangzhou, China and an increase in idle capacity costs in
  Europe due to restructuring activities.

Segment operating income decreased from income of $53.8 million
  in 2008 to a loss of $1.5 million in 2009. Restructuring and performance
  improvement costs reduced operating income by $55.3 million in 2009 and
  $20.0 million in 2008. The remaining decrease in segment operating income
  is the result of lower gross margin offset by improvements in STG&R expenses
  due to employee reductions and cost savings initiatives.

Albany Door Systems (ADS)

This segment includes products, parts, and service sales of
  High Performance Doors to a variety of industrial customers.

Three months ended June 30, 2009

Compared to Q2 2008, net sales in Europe were down 32.0 percent;
  net sales in North America decreased 24.5 percent and net sales in Asia decreased
  39.6 percent. Ongoing cost reduction initiatives resulted in a Q2 restructuring
  charge of $1.9 million. Operating income from aftermarket sales more than
  offset losses incurred by product sales.

Six months ended June 30, 2009

Net sales decreased 31.0 percent compared to the same period
  of 2008. Excluding the effect of currency translation rates, net sales decreased
  20.4 percent. The declines were primarily due lower product sales experienced
  in the European and North American markets with less significant declines in
  aftermarket sales.

Gross profit as a percentage of net sales was 29.7 percent compared
  with 32.5 percent for 2008. The decrease is due to lower product and aftermarket
  sales. Segment operating income decreased from income of

41

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$8.3 million in 2008 to a loss of $1.4 million in 2009.
  Segment operating income included restructuring and performance improvements
  costs of $2.6 million in 2009 and $0.5 million in 2008.

Albany Engineered Composites (AEC)

This segment includes sales of specialty materials and composite
  structures for aerospace and defense applications.

Three months ended June 30, 2009

Net sales decreased from $14.0 million in Q2 2008 to $7.4
  million in Q2 2009, a decrease of 47.2 percent. Q2 2008 net sales included $3.1
  million of sales to Eclipse Aviation. AEC reported an operating loss of $2.4
  million in Q2 2009, including expenses of $0.3 million related to performance-improvement
  initiatives. The operating loss in Q2 2008 was $0.2 million.

Six months ended June 30, 2009

Net sales decreased from $25.1 million in 2008 to $16.5
  million in 2009 or a decline of 34.3 percent. Sales during 2008 included $6.2
  million in sales to Eclipse Aviation.

Gross profit as a percentage of net sales was a negative 16.6
  percent compared with a positive 3.7 percent for 2008. The decrease is principally
  due to lower sales in 2009. Segment operating income decreased from a loss of
  $2.0 million in 2008 to a loss of $4.5 million in 2009. Segment operating
  income included restructuring and performance improvements costs of $0.9
  million in 2009.

Albany Engineered Fabrics (EF)

This segment includes sales of a variety of products similar
  to PMC for application in the corrugator, pulp, nonwovens, building products,
  tannery, and textile industries.

Three months ended June 30, 2009

Compared to Q2 2008, net sales decreased 20.6 percent, while
  sales were flat compared to Q1 of 2009. Q2 2009 results include charges related
  to the restructuring of operations in Australia and Europe. Operating margins
  compared to Q2 2008, excluding restructuring and performance-improvement initiatives,
  improved due to continued efforts to reduce costs.

Six months ended June 30, 2009

Net sales decreased 22.0 percent compared to the same period
  of 2008. Excluding the effect of currency translation rates, net sales decreased
  12.5 percent. The declines in sales were experienced throughout all product
  lines in the segment.

Gross profit as a percentage of net sales was 35.4 percent compared
  with 37.3 percent for 2008. The decrease was principally due to lower sales.
  Segment operating income decreased from $9.7 million in 2008 to $4.5
  million in 2009. Segment operating income included restructuring and performance
  improvements costs of $2.5 million in 2009. The remaining decrease in operating
  income was the result of lower gross margin due to lower sales offset in part
  employee reductions due to restructuring activities.

42

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PrimaLoft®Products

This segment includes sales of insulation for outdoor clothing,
  gloves, footwear, sleeping bags, and home furnishings.

Three months ended June 30, 2009

Net sales decreased 2.1 percent compared to the same period last
  year while the effect of cost reduction initiatives contributed to a 51.0 percent
  improvement in operating income.

Six months ended June 30, 2009

Net sales decreased 6.5 percent compared to the same period of
  2008. Excluding the effect of currency translation rates, net sales decreased
  3.0 percent.

Gross profit as a percentage of net sales was 50.7 percent compared
  with 47.3 percent for 2008. Segment operating income increased from $2.8
  million in 2008 to $3.7 million in 2009. The increase in gross profit percentage and operating income is the result of
  cost reduction initiatives.

International Activities

The Company conducts more than half of its business in countries
  outside of the United States. As a result, the Company experiences transaction
  and translation gains and losses because of currency fluctuations. The Company
  periodically enters into foreign currency contracts to hedge this exposure (see
  Notes 5 and 11 of Notes to Consolidated Financial Statements). The Company believes
  that the risks associated with its operations and locations outside the United
  States are not other than those normally associated with operations in such
  locations.

Liquidity and Capital Resources

The Company finances its business activities primarily with cash
  generated from operations and borrowings, primarily under its 2.25% convertible
  notes issued in March 2006, 6.84% long-term indebtedness to Prudential Capital
  Group issued in October 2005, and its revolving credit agreement as described
  in Notes to Consolidated Financial Statements. Company 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.

Net cash (used in)/provided by operating activities was ($3.3)
  million for the six months ended June 30, 2009, compared to $22.6 million
  for the same period of 2008

Capital spending during the second quarter of 2009 was $11.4
  million, bringing the year-to-date total to $26.3 million. The Company is
  on track with its estimate for 2009 capital spending of $50.0 million, of
  which $30.0 million is a carryover from 2008. Depreciation and amortization
  were $14.5 million and $2.3 million for the second quarter of 2009 and
  are estimated to total $58.0 million and $10.0 million for 2009. For
  2010, the Company expects depreciation and amortization to be close to current
  year levels, and for 2010 capital expenditures to be at or below depreciation.

In the second quarter the Company purchased $94.0 million
  principal amount of the 2.25% Convertible Senior Notes due in 2026 at a cost
  of $53.5 million, which had the effect of reducing debt on the balance sheet
  by

43

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$29.2 million, and contributed $36.6 million to earnings.
  In the second quarter, the Company entered into additional transactions to purchase
  $30 million of the 2.25% Convertible Senior Notes in July, and $20 million
  of the 2.25% Convertible Senior Notes in October. The Company expects those
  transactions to result in gains of approximately $7 million in the third
  quarter, and $4 million in the fourth quarter. The combined effect of the
  four purchase agreements entered into by the Company in the first half of 2009
  will result in the repurchase of $151.6 million principal value of convertible
  notes at a cost of $88.9 million, for a net reduction of $62.7 million
  in obligations which the Company would otherwise have been required to pay.
  This will reduce net debt on the balance sheet by approximately $45.0 million.
  After completing all of these buyback transactions, approximately $28.4
  million principal value of the 2.25% Convertible Senior Notes will remain outstanding.

Earnings before interest, taxes, depreciation, and amortization
  (EBITDA) were $14.5 million in Q2 2009, and included expenses related to
  restructuring and performance-improvement initiatives totaling $40.5 million,
  a gain of $36.6 million related to extinguishment of debt, and a charge
  of $10 million representing an estimated purchase price adjustment related
  to the Companys 2008 sale of its discontinued Filtration Technologies
  business. EBITDA for the same period last year was $28.9 million and included
  expenses related to restructuring and performance-improvement initiatives totaling
  $16.9 million.

Adjusted EBITDA was $28.3 million in Q2 2009 compared to
  $24.6 million in Q1 2009 and $45.9 million in Q2 2008 (see non-GAAP
  disclosure below). The improvement compared to Q1 2009 reflects the positive
  impact of lower STG&R expenses resulting from previously announced restructuring
  and performance-improvement initiatives.

The Company currently expects that its tax rate for the remainder
  of 2009 will be approximately 23 percent, before any discrete items. However,
  there is no assurance that this estimate will not change in future periods.

Under Trends, management discussed certain recent
  trends in its paper machine clothing segment that have had a negative impact
  on demand for the Companys products within that segment, as well as its
  strategy for addressing these trends. Management also discussed pricing competition
  within this segment and the negative effect of such competition on segment sales
  and earnings. If these trends continue or intensify, and if managements
  strategy for addressing them should prove inadequate, the Companys operating
  cash flow could be adversely affected. In any event, although historical cash
  flows may not, for all of these reasons, necessarily be indicative of future
  cash flows, the Company believes that cash generated from operations and other
  resources will be sufficient for short and long-term liquidity.

In October 2005, the Company entered into a Note Agreement and
  Guaranty (the Prudential Agreement) with the Prudential Insurance
  Company of America, and certain other purchasers, in an aggregate principal
  amount of $150 million, with interest at 6.84% and a maturity date of October
  25, 2017. There are mandatory prepayments of $50 million on October 25,
  2013 and October 25, 2015. At the noteholders election, certain prepayments
  may also be required in connection with certain asset dispositions or financings.
  The notes may not otherwise be prepaid without a premium, under certain market
  conditions. The Note Agreement contains customary terms, as well as affirmative
  covenants, negative covenants and events of default comparable to those in the
  Companys current principal revolving credit facility. For disclosure purposes,
  the Company is required to measure the fair value of outstanding debt on a recurring
  basis. The fair value of the note agreement was approximately $139 million,
  which was measured using active market interest rates.

In December 2008, the Company and Prudential amended the agreement
  to increase the allowed leverage ratio from 3.00 to 3.50, which is effective
  through December 2010, after which time the allowed leverage ratio changes to
  2.50. The amendment to the agreement also requires that the Company pay a higher
  rate of interest. The maximum interest rate is 1.50% over the 5.34% in the original
  agreement. The Company anticipates it will pay interest on this loan at the
  rate of 6.84% in 2009.

44

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In March 2006, the Company issued $180,000,000 principal
  amount of 2.25% convertible notes. The notes are convertible upon the occurrence
  of specified events and at any time on or after February 15, 2013, into cash
  up to the principal amount of notes converted and shares of the Companys
  Class A common stock with respect to the remainder, if any, of the Companys
  conversion obligation at a conversion rate of 22.7633 shares per $1,000
  principal amount of notes (equivalent to a conversion price of $43.93 per
  share of Class A common stock). As of June 30, 2009, $78,937,000 principal amount of convertible notes were outstanding, with a fair value of approximately
  $47,757,000, which was measured using quoted prices in active markets. These
  amounts reflect the reduction in fair value as a result of the purchase made
  in March and April 2009 as described below.

Holders may convert their notes at any time on or after February
  15, 2013. Before February 15, 2013, a holder may convert notes during the five-business
  day period immediately after any period of five consecutive trading days in
  which the trading price per note for each of such five days was less than 103%
  of the product of the last reported sale price of the Companys Class A
  common stock and the conversion rate on such day. Additionally, holders may
  convert prior to February 15, 2013 if the Company elects to distribute to all
  or substantially all of its Class A shareholders (a) rights or warrants to purchase
  shares of Class A common stock for less than their trading value, or (b) assets,
  debt securities or rights to purchase securities, which distribution has a per-share
  value exceeding 15% of the current trading value of the Class A common stock.

Converting holders are entitled to receive, upon conversion of
  their notes, (1) an amount in cash equal to the lesser of the principal amount
  of the note and the notes conversion value, and (2) if the conversion
  value of the note exceeds the principal amount, shares of the Companys
  Class A common stock in respect of the excess conversion value. The conversion
  rate of the notes (subject to adjustment upon the occurrence of certain events)
  is 22.5351 shares per $1,000 principal amount of notes (equivalent to a
  conversion price of $44.38 per share of Class A common stock). The exact
  amount payable upon conversion would be determined in accordance with the terms
  of the indenture pursuant to which the notes were issued and will be based on
  a daily conversion value calculated on a proportionate basis by reference to
  the volume-weighted average price of the Companys Class A common stock
  for each day during a twenty-five day period relating to the conversion.

In May 2008, the Financial Accounting Standards Board issued
  Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments that
  May be Settled in Cash Upon Conversion (FSP APB 14-1). FSP APB 14-1
  requires that the liability and equity components of convertible debt instruments
  that may be settled in cash upon conversion (including partial cash settlement)
  be separately accounted for in a manner that reflects an issuers nonconvertible
  debt borrowing rate.

As of June 30, 2009, the carrying amounts of the debt and equity
  components of the Companys bifurcated convertible debt instrument were
  $70.4 million and $28.8 million, respectively. The carrying values of
  the debt and equity components include reductions of $89.4 million and $5.3
  million, respectively, related to the Companys convertible note purchases
  in March and April 2009. The equity component is included in additional paid
  in capital in the equity section of the Companys balance sheet.

Adopting FSP 14-1 had the impact of increasing interest expense
  by approximately $1.2 million for the first quarter 2009. Due to the note
  transactions in March and April, reducing outstanding 2.25% Convertible Senior
  Notes due 2026, the effect of FSP 14-1 for the second quarter had the impact
  of increasing interest expense by approximately $585 thousand. The additional
  interest is non-cash and represents the difference between the rate at the time
  of the offering (2.25%) and the Companys non-convertible debt borrowing
  rate (5.59%). The non-cash interest is amortized into interest expense and
  increases the book value of the notes until the time that the notes can be redeemed
  on March 15, 2013. The Company has concluded that the amortization period of
  7 years is appropriate because March 15, 2013 is the earliest date that the
  convertible noteholders can require the Company to buy back the notes.

45

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Including amortization of non-cash interest, the effective interest
  rate on the convertible notes for the second quarterly periods of 2009 and 2008
  was 5.59%. Unamortized non-cash interest was $12.8 million at June 30, 2009
  with a remaining amortization period of approximately 4 years.

The following table details interest expense on convertible debt:

Three months-ended 
        June 30,
      Six months-ended 
        June 30,(in thousands)
      2009
      2008
      2009
      2008Contractual interest (2.25%)
      $478
      $1,009
      $1,470
      $2,008Non-cash interest (3.34%)
      585
      1,117
      1,772
      2,195Total (5.59%)
      $1,063
      $2,126
      $3,242
      $4,203


On April 14, 2006, the Company entered into a $460 million five-year
  revolving credit agreement (the Credit Agreement), under which $294
  million was outstanding as of June 30, 2009. The applicable interest rate for
  borrowings under the agreement is LIBOR plus a spread, based on the Companys
  leverage ratio at the time of borrowing. The agreement includes covenants that
  could limit the Companys ability to purchase Common Stock, pay dividends,
  acquire other companies or dispose of its assets.

Reflecting, in each case, the effect of subsequent amendments to
  each agreement, the Company is required to maintain a leverage ratio of not
  greater than 3.50 to 1.00 under the Credit Agreement and under the Prudential
  Agreement. The Company is also required to maintain minimum interest coverage
  of 3.00 to 1.00 under each agreement. As of June 30, 2009, the Companys
  leverage ratio under the agreement was 2.40 to 1.00 and the interest coverage
  ratio was 6.59 to 1.00. The Company may purchase its Common Stock or pay dividends
  to the extent its leverage ratio remains at or below 3.50 to 1.00, and may make
  acquisitions for cash provided its leverage ratio would not exceed 3.50 to 1.00
  after giving pro forma effect to the acquisition. The Companys ability
  to borrow additional amounts under the credit agreement is conditional upon
  the absence of any defaults, as well as the absence of any material adverse
  change. Based on the maximum leverage ratio and the Companys consolidated
  EBITDA (as defined in the agreement), and without modification to any other
  credit agreements as of June 30, 2009, the Company would have been able to borrow
  an additional $167,108,000 under its loan agreements.

If the Companys earnings were to decline as a result of continued
  difficult market conditions or for other reasons, it may impact the Companys
  ability to maintain compliance with these covenants. If the Company determined
  that its compliance with these covenants may be under pressure, the Company
  may elect to take a number of actions, including reducing expenses in order
  to increase earnings, using available cash to repay all or a portion of the
  outstanding debt subject to these covenants or seeking to negotiate with lenders
  to modify the terms or to restructure the debt. Using available cash to repay
  indebtedness would make the cash unavailable for other uses and might affect
  the liquidity discussions and conclusions above. Entering into any modification
  or restructuring of the Companys debt would likely result in additional
  fees or interest payments.

As of June 30, 2009, the Company has issued letters of credit totaling
  $47.4 million in respect of preliminary assessments for income tax contingencies.

Restructuring costs had a non-operational effect in the quarter
  of $33.8 million in connection with layoffs, plant closures and downsizings.
  Cash payments for restructuring activities were $25.0 million in 2009 and $12.7
  million in 2008. Restructuring costs of $42.4 million are accrued on the balance
  sheet as of the end of the

46

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second quarter. There will be approximately $25.0 to $30.0
  million in cash payments in the second half of 2009 associated with the accrual
  for restructuring, and most of the remainder of the $42.4 million will be
  paid in the first half of 2010.

The Company expects to contribute approximately $13,000,000
  to its postretirement and pension plans in 2009, compared to 17,700,000 in 2008.
  The Companys current year estimated contribution includes nothing to its US plan. In prior years the Company has also made contributions to the
  US pension plan, and that is possible again this year, particularly in light
  of the decline in the value of equities since October 2007. In the coming months,
  the Company will make the decision about the exact timing and amount. Contributions
  to the US plan over the last few years have ranged from zero to $20,000,000
  per year.

Dividends have been declared each quarter since the fourth quarter
  of 2001, and second quarter dividends per share were $0.12 in 2009 and 2008.
  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. To the extent
  the Board declares cash dividends in the future, the Company would expect to
  pay such dividends out of operating cash flow. Future cash dividends will be
  dependent on debt covenants and on the Boards assessment of the Companys
  ability to generate sufficient cash flows.

In August 2006, the Company announced that the Board of Directors
  authorized management to purchase up to 2 million additional shares of its 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 the Companys shareholders, and it is otherwise
  legally permitted to do so. As of June 30, 2009, no share purchases had been
  made under the 2006 authorization.

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Outlook

The Companys second quarter results were affected by several
  large, non-operational items, most notably the previously announced buyback
  of convertible debt, which had an unusually large effect on net income. But
  management observed three other developments that should have an enduring impact
  on future operating results:

First, for the first time since Q2 2008, sequential quarter-to-quarter
        global sales increased and the end- markets in each of the Companys
        businesses showed signs of having bottomed.
    Second, the recently announced plant closures and reductions represent
        the final steps in the Companys three year restructuring program.
    Third, for the first time since Q2 2008, sequential quarter-to-quarter
        Adjusted EBITDA also improved, reflecting the growing impact of previously
        completed restructuring.


Ever since the third quarter of 2008, when it became clear that
  the economy was sliding into global recession, managements near term objective
  has been to take the steps necessary to generate strong free cash flow in 2010.
  Specifically, managements objective is to exit 2009 as a fundamentally
  more profitable business with the capacity for sustained and growing free cash
  flow in 2010, even if the recession extends beyond 2009. The three major Q2
  developments -- the stabilizing sales outlook, the approaching completion of
  the restructuring process, and improving EBITDA -- indicate that the Company
  is firmly on track toward realizing that objective.

Sales in Q2 were 29 percent lower than in Q2 2008. But in this
  economic environment, year-over-year trends are less relevant than sequential
  quarter-to-quarter trends. And in Q2, sales were roughly flat compared to the
  previous quarter. Perhaps of greater significance, in Q2 management finally
  began to see evidence across all of the Companys businesses that the end-markets
  served appear to be bottoming. The only exceptions are Asia, especially China,
  where the paper industry is well off the bottom, and the newsprint markets in
  North America and Europe, which continue to erode. There was one other significant
  market development in Q2. Average prices of PMC orders in Europe were comparable
  to those of the previous quarter, suggesting that the Company may finally be
  entering a period of price stability in Europe.

Despite these signs of stabilization in the Companys markets,
  management still sees short term downside risk in its sales in PMC in the Americas
  and Europe. Primarily because of seasonal and inventory effects, orders in Q2
  in these PMC markets declined. But there is no question that management sees
  growing evidence of an approaching end to the recessionary effect on sales.
  As for the nature of the recovery when sales finally do bottom, the available
  evidence suggests a V shaped recovery in PMC in Asia and in AEC,
  and an L shaped recovery in PMC in the Americas and Europe. The
  nature of recovery in ADS, Engineered Fabrics and PrimaLoft®products
  is still uncertain.

Q2 also marks the rapidly approaching completion of the Companys
  three year restructuring program. The magnitude of the restructuring and associated
  charges in Q2 was greater than had originally been planned, but as the recession
  drove sales to even lower levels in Q1 than had been anticipated, management
  took additional measures. While there will be more charges in Q3 and perhaps
  Q4 associated with the steps recently announced, cash charges will decline sharply.
  The only remaining planned process improvement initiatives that will run through
  2010 will be the conversion of the Companys Eurasian and Brazilian operations
  to SAP and the relocation of equipment related to the recently announced restructuring.

Reflecting the growing impact of previously announced restructuring
  and process improvement initiatives, Q2 Adjusted EBITDA improved by almost $4
  million compared to Q1 Adjusted EBITDA. Management now estimates that lower
  costs from restructuring and performance-improvement initiatives, including
  the recently announced measures, will lead to an additional improvement in EBITDA
  of about $3 million per quarter by Q4

48

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2009, growing to $7 million per quarter by Q2 2010. These
  estimates assume all other factors that influence EBITDA, such as sales, currency
  and inflation remain constant.

In sum, developments in Q2 suggest the Company is on trend toward
  its 2010 objective. While there remains downside risk for sales in the short
  term because of seasonal and inventory effects, the signs of stabilization in
  the Companys end-markets, the announcements of the final steps in the
  Companys three year restructuring process, and the continued improvement
  in profitability all point in the same direction: barring unforeseen further
  deterioration in the Companys markets, management believes the Company
  is well on its way toward exiting 2009 as a fundamentally more profitable company.
  Coupled with an end to restructuring charges, and 2010 capital expenditure spending
  at or below depreciation, these higher levels of profitability should assure
  strong free cash flow in 2010, even if 2010 sales remain 20 percent below 2008
  sales.

Non-GAAP Measures:

This Form 10-Q contains certain items, such as sales excluding
  currency effects, earnings before interest, taxes, depreciation, and amortization
  (EBITDA), costs associated with restructuring and performance-improvement initiatives,
  Adjusted EBITDA, net charges for special items, and certain income and expense
  items on a per share basis that could be considered non-GAAP financial measures.
  Such items are provided because management believes that, when presented together
  with the GAAP items to which they relate, they provide additional useful information
  to investors regarding the registrants financial condition, results of
  operations, and cash flows. Presenting increases or decreases in sales, after
  currency effects are excluded, can give management and investors insight into
  underlying sales trends. An understanding of the impact in a particular quarter
  of specific restructuring and performance-improvement measures, and in particular
  of the costs associated with the implementation of such measures, on the Companys
  net income (both absolute and on a per share basis), operating income, operating
  margins and EBITDA can give management and investors additional insight into
  quarterly performance, especially when compared to quarters in which such measures
  had a greater or lesser effect, or no effect.

The effect of changes in currency translation rates is calculated
  by converting amounts reported in local currencies into U.S. dollars at the
  exchange rate of a prior period. That amount is then compared to the U.S. dollar
  amount reported in the current period. The Company calculates EBITDA by adding
  Interest expense net, Income taxes, Depreciation and Amortization to Net income.
  Adjusted EBITDA is calculated by adding to EBITDA, costs associated with restructuring
  and performance improvement initiatives, and then adding or subtracting certain
  losses or gains. The Company believes that EBITDA and Adjusted EBITDA provide
  useful information to investors because they provide an indication of the strength
  and performance of the Companys ongoing business operations, including
  its ability to fund discretionary spending such as capital expenditures and
  strategic investments, as well as its ability to incur and service debt. While
  depreciation and amortization are operating costs under GAAP, they are non-cash
  expenses equal to current period allocation of costs associated with capital
  and other long-lived investments made in prior periods. While the Company will
  continue to make capital and other investments in the future, it is currently
  in the process of concluding a period of significant investment in plant, equipment
  and software. Depreciation and amortization associated with these investments
  has a significant impact on the Companys net income. While other losses
  or gains have an impact on the Companys cash position, they are removed
  when calculating Adjusted EBITDA because doing so provides, in the opinion of
  the Company, a better measure of operating performance. EBITDA is also a calculation
  commonly used by investors and analysts to evaluate and compare the periodic
  and future operating performance and value of companies. EBITDA, as defined
  by the Company, may not be similar to EBITDA measures of other companies, is
  not a measurement under GAAP and should be considered in addition to, but not
  as a substitute for, the information contained in the Companys statements
  of operations.

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The following table contains the calculation of EBITDA and Adjusted
  EBITDA:

(in thousands)
        Three Months endedJune 30,
        March 31,2009
        2008
        2009Net (loss)/income
        ($12,744)
        $5,253
        ($18,897)Interest expense, net
        6,086
        5,880
        5,834Income tax (benefit)/expense
        4,339
        1,390
        (1,605)Depreciation
        14,520
        15,217
        14,573Amortization
        2,268
        1,182
        2,138EBITDA
        14,469
        28,922
        2,043Restructuring and other, net
        33,810
        1,732
        17,179Idle-capacity costs
        3,099
        1,734
        3,079Depreciation included in idle-capacity costs
        (919)
        (592)
        (936)Performance-improvement initiatives
        4,459
        14,062
        6,069Gain on extinguishment of debt
        (36,631)
        -
        (2,822)Discontinued operations purchase price  adjustment
        10,000
        -
        -Adjusted EBITDA
        $28,287
        $45,858
        $24,612
 Quarter ended June 30, 2009 (in thousands, except per shareamounts)
        Pretaxamounts
        Tax Effect
        After-taxEffect
        SharesOutstanding
        Per ShareEffectSpecial items:Restructuring and other, net
        $33,810
        $7,776
        $26,034
        30,723
        $0.85Idle-capacity and performance-improvement costs
        7,558
        1,738
        5,820
        30,723
        0.19Discontinued business purchase priceadjustment
        10,000
        -
        10,000
        30,723
        0.33Gain on extinguishment of debt
        (36,631)
        (14,286)
        (22,345)
        30,723
        (0.73)Effect of change in estimated income  tax rate
        
        
        (2,663)
        30,723
        (0.09)Other discrete tax adjustments
        -
        
        676
        30,723
        0.02Total special items
        
        
        
        
        $0.57




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Six months ended June 30, 2009 (in thousands, except per share
              amounts)
            Pretax amounts
            Tax Effect
            After-tax Effect
            Shares
              Outstanding
            Per Share
              EffectSpecial items:Restructuring and other, net
            $50,989
            $11,727
            $39,262
            30,386
            $1.29Idle-capacity and performance-improvement costs
            16,708
            3,843
            12,865
            30,386
            0.42Discontinued business purchase price adjustment
            10,000
            -
            10,000
            30,386
            0.33Gain on extinguishment of debt
            (39,453)
            (15,387)
            (24,066)
            30,386
            (0.79)Other discrete tax adjustments
            -
            
            676
            30,386
            0.02Total special items
            
            
            
            
            $1.27 Quarter ended June 30, 2008 (in thousands, except per share
              amounts)
            Pretax amounts
            Tax Effect
            After-tax Effect
            Shares
              Outstanding
            Per Share
              EffectSpecial items:Restructuring and other, net
            $1,732
            $346
            $1,386
            29,760
            $0.05Idle-capacity and performance-improvement costs
            15,796
            3,159
            12,637
            29,760
            0.42Other discrete tax adjustments
            -
            
            291
            29,760
            0.01Total special items
            
            
            
            
            $0.48 Six months ended June 30, 2008 (in thousands, except per share
              amounts)
            Pretax amounts
            Tax Effect
            After-tax Effect
            Shares
              Outstanding
            Per Share
              EffectSpecial items:Restructuring and other, net
            $7,094
            $1,419
            $5,675
            29,686
            $0.19Idle-capacity and performance-improvement costs
            23,886
            4,777
            19,109
            29,686
            0.64Other discrete tax adjustments
            -
            
            4,196
            29,686
            0.14Total special items
            
            
            
            
            $0.97


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Tax rate disclosures:

The Company discloses its tax rate before the effect of any discrete
  items as a forward looking estimate of the income tax rate that would be incurred
  in future quarters. Management believes that this information can provide valuable
  insight about possible future operating results or cash flows. The estimated
  tax rate is subject to many variables, including geographical distribution of
  income or loss, and the total amount of income or loss. The estimated tax rate
  does not take into account any discrete tax items that could arise in future
  quarters.

Recent Accounting Pronouncements

In December 2008, the FASB issued FASB Staff Position (FSP) No.132
  (R)-1, Employers Disclosures about Pensions and Other Postretirement
  Benefits (FSP 132R-1). FSP 132R-1 requires enhanced disclosures about
  the plan assets of a Companys defined benefit pension and other postretirement
  plans. The enhanced disclosures required by this FSP are intended to provide
  users of financial statements with a greater understanding of: (1) how investment
  allocation decisions are made, including the factors that are pertinent to an
  understanding of investment policies and strategies; (2) the major categories
  of plan assets; (3) the inputs and valuation techniques used to measure the
  fair value of plan assets; (4) the effect of fair value measurements using significant
  unobservable inputs (Level 3) on changes in plan assets for the period; and
  (5) significant concentrations of risk within plan assets. FSP No. FAS 132(R)-1
  is effective for financial statements issued for fiscal years ending after December
  15, 2009. It is expected that the adoption of FSP No. FAS 132(R)-1 will not
  have a material effect on the Companys financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining
  Fair Value When the Volume and Level of Activity for the Asset or the Liability
  Have Significantly Decreased and Identifying Transactions That Are Not Orderly.
  FSP No. FAS 157-4 amends SFAS No. 157 to provide additional guidance on (i)
  estimating fair value when the volume and level of activity for an asset or
  liability have significantly decreased in relation to normal market activity
  for the asset or liability, and (ii) circumstances that may indicate that a
  transaction is not orderly. FSP No. FAS 157-4 also requires additional disclosures
  about fair value measurements in interim and annual reporting periods. FSP No.
  FAS 157-4 is effective for interim and annual reporting periods ending after
  June 15, 2009. The Companys adoption of this Standard did not have a material
  effect on its financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2,
  Recognition and Presentation of Other-Than-Temporary Impairments
  (FSP No. FAS 115-2). FSP No. FAS 115-2 provides additional guidance
  on the timing of impairment recognition and greater clarity about the credit
  and noncredit components of impaired debt securities that are not expected to
  be sold. FSP No. FAS 115-2 also requires additional disclosures about impairments
  in interim and annual reporting periods. FSP No. FAS 115-2 is effective for
  interim and annual reporting periods ending after June 15, 2009. The Companys
  adoption of this Standard did not have a material effect on its financial statements.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1,
  Interim Disclosures about Fair Value of Financial Instruments. FSP
  No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value
  of Financial Instruments, to require disclosures about fair value of financial
  instruments in interim as well as in annual financial statements. This FSP also
  amends Accounting Principles Board (APB) Opinion No. 28, Interim
  Financial Reporting, to require those disclosures in all interim financial statements.
  FSP No. FAS 107-1 and APB 28-1 is effective for interim reporting periods ending
  after June 15, 2009. The Companys adoption of this Standard did not have
  a material effect on its financial statements.

In May 2009, the FASB issued Statement No. 165, Subsequent
  Events (SFAS 165), which establishes general standards of
  accounting for, and requires disclosure of, events that occur after the balance
  sheet date

52

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but before financial statements are issued or are available to
  be issued. The provisions of SFAS 165 were adopted for the quarter ended June
  30, 2009. The adoption of these provisions did not have a material effect on
  the Companys consolidated financial statements.

In June 2009, the FASB issued Statement No. 166, Accounting
  for Transfers of Financial Assets, an amendment to FASB Statement No. 140
  (SFAS 166). SFAS 166 eliminates the concept of a qualifying
  special-purpose entity, changes the requirements for derecognizing financial
  assets, and requires additional disclosures in order to enhance information
  reported to users of financial statements by providing greater transparency
  about transfers of financial assets, including securitization transactions,
  and an entitys continuing involvement in and exposure to the risks related
  to transferred financial assets. SFAS 166 is effective for fiscal years beginning
  after November 15, 2009. The Company expects that adoption of SFAS 166 in fiscal
  year 2010 will not have a material effect on its financial statements.

In June 2009, the FASB issued Statement No. 167, Amendments
  to FASB Interpretation No. 46(R) (SFAS 167). The amendments
  include: (1) the elimination of the exemption for qualifying special purpose
  entities, (2) a new approach for determining who should consolidate a variable-interest
  entity, and (3) changes to when it is necessary to reassess who should consolidate
  a variable-interest entity. SFAS 167 is effective for the first annual reporting
  period beginning after November 15, 2009 and for interim periods within that
  first annual reporting period. The Company expects that adoption of SFAS 167
  in fiscal year 2010 will not have a material effect on its financial statements.

In June 2009, the FASB issued Statement No. 168, The FASB
  Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
  Principles- a replacement of FASB Statement No. 162 (SFAS 168).
  SFAS 168 replaces FASB Statement No. 162, The Hierarchy of Generally Accepted
  Accounting Principles, and establishes the FASB Accounting Standards CodificationTM (the Codification) as the source of authoritative accounting principles recognized
  by the FASB to be applied by nongovernmental entities in the preparation of
  financial statements in conformity with generally accepted accounting principles
  (GAAP). SFAS 168 is effective for interim and annual periods ending after September
  15, 2009. The Company will begin to use the new Codification when referring
  to GAAP in its Form 10-Q for the quarter ending September 30, 2009. The Company
  expects that adoption of SFAS 168 will not have a material effect on its financial
  statements.

Critical Accounting Policies and Assumptions

There have been no material changes to the Companys Critical
  Accounting Policies and Assumptions filed in the Companys 2008 Annual
  Report on Form 10-K.

Forward-looking statements

This quarterly report and the documents incorporated or deemed
  to be incorporated by reference in this quarterly report contain statements
  concerning our 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,
  plan, project, may, will 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: changes in conditions in the

53

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industry in which the Companys Paper Machine Clothing segment
  competes or in the papermaking industry in general could change; failure to
  remain competitive in the industry in which the Companys Paper Machine
  Clothing segment competes; material and petroleum-related costs could increase
  more or faster than anticipated; failure to receive, or a delay in receiving,
  the benefits from the Companys capital expenditures and investments; the
  strategies described in this report to address certain business or operational
  matters could fail to be effective, or their effectiveness could be delayed;
  other risks and uncertainties detailed from time to time in the Companys
  filings with the SEC.

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 Trends, Liquidity, Outlook,
  and Legal Proceedings sections of this quarterly report, as well
  as in the Risk Factors, section of the Companys most recent
  Annual Report on Form 10-K. Although the Company believes the expectations reflected
  in the Companys forward-looking statements are based upon reasonable assumptions,
  it is not possible to foresee or identify all factors that could have a material
  and negative impact on future performance. The forward-looking statements included
  or incorporated by reference in this quarterly report are made on the basis
  of managements assumptions and analyses, as of the time the statements
  are made, in light of their 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,
  the Company disclaims any obligations or undertaking to publicly release any
  updates or revisions to any forward-looking statement contained or incorporated
  by reference in this report to reflect any change in the Companys expectations
  with regard thereto or any change in events, conditions or circumstances on
  which any such statement is based.

Item 3. Quantitative and Qualitative Disclosures about Market
  Risk

For discussion of the Companys exposure to market risk,
  refer to Quantitative and Qualitative Disclosures About Market Risk
  under Item 7A of form 10-K, which is included as an exhibit to this Form 10-Q.

Item 4. Controls and Procedures
  (a) Disclosure controls and procedures.

The principal executive officers and principal financial officer,
  based on their evaluation of disclosure controls and procedures (as defined
  in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
  by this Quarterly Report on Form 10-Q, have concluded that the Companys
  disclosure controls and procedures are effective for ensuring that information
  required to be disclosed in the reports that it files or submits under the Securities
  Exchange Act of 1934 is recorded, processed, summarized and reported within
  the time periods specified in the Commissions rules and forms. Disclosure
  controls and procedures, include, without limitation, controls and procedures
  designed to ensure that information required to be disclosed in filed or submitted
  reports is accumulated and communicated to the Companys management, including
  its principal executive officer and principal financial officer as appropriate,
  to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

There were no changes in the Companys internal control
  over financial reporting that occurred during the last fiscal quarter that have
  materially affected, or are reasonably likely to materially affect, the Companys
  internal control over financial reporting.

54

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PART II  OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Albany International Corp. (Albany) is a defendant in
  suits brought in various courts in the United States by plaintiffs who allege
  that they have suffered personal injury as a result of exposure to asbestos-containing
  products previously manufactured by Albany. Albany produced asbestos-containing
  paper machine clothing synthetic dryer fabrics marketed during the period from
  1967 to 1976 and used in certain paper mills. Such fabrics generally had a useful
  life of three to twelve months.

Albany was defending against 16,060 claims as of July 23, 2009.
  This compares with 16,818 such claims as of May 1, 2009, 17,854 claims as of
  February 6, 2009, 18,385 claims as of October 27, 2008, 18,462 claims as of
  July 25, 2008, 18,529 claims as of May 2, 2008, 18,789 claims as of February
  1, 2008, 18,791 claims as of October 19, 2007, 18,813 claims as of July 27,
  2007, 19,120 claims as of April 27, 2007, 19,388 claims as of February 16, 2007,
  19,416 claims as of December 31, 2006, 24,451 claims as of December 31, 2005,
  29,411 claims as of December 31, 2004, 28,838 claims as of December 31, 2003,
  22,593 claims as of December 31, 2002, 7,347 claims as of December 31, 2001,
  1,997 claims as of December 31, 2000, and 2,276 claims as of December 31, 1999.
  These suits allege a variety of lung and other diseases based on alleged exposure
  to products previously manufactured by Albany. 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 endedDecember31,
      Opening Numberof claims
      Claims Dismissed,Settled orResolved
      New Claims
      ClosingNumberofClaims
      Amounts Paid(thousands) toSettle orResolve ($$)2005
      29,411
      6,257
      1,297
      24,451
      5042006
      24,451
      6,841
      1,806
      19,416
      3,8792007
      19,416
      808
      190
      18,798
      152008
      18,798
      523
      110
      18,385
      522009 to date
      18,385
      2,358
      33
      16,060
      78


Albany anticipates that additional claims will be filed against
  it and related companies in the future, but is unable to predict the number
  and timing of such future claims. These suits typically involve claims against
  from twenty to more than two hundred defendants, and the complaints usually
  fail to identify the plaintiffs work history or the nature of the plaintiffs
  alleged exposure to Albanys products. Pleadings and discovery responses
  in those cases in which work histories have been provided indicate claimants
  with paper mill exposure in approximately 10% of the total claims filed against
  Albany, and only a portion of those claimants have alleged time spent in a paper
  mill to which Albany is believed to have supplied asbestos-containing products.

As of July 23, 2009, approximately 11,358 of the claims pending
  against Albany were pending in Mississippi. Of these, approximately 10,816 are
  in federal court, at the multidistrict litigation panel (MDL), either
  through removal or original jurisdiction. (In addition to the 10,816 Mississippi
  claims pending against the Company at the MDL, there are approximately 509 claims
  pending against the Company at the MDL removed from various United States District
  Courts in other states.)

55

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On May 31, 2007 the MDL issued an administrative order that required
  each MDL plaintiff to provide detailed information regarding, among other things,
  the alleged asbestos-related medical diagnoses. The order did not require exposure
  information with this initial filing. The deadline for submission of such filings
  was December 1, 2007, but the process continued for several months thereafter
  with defense counsel monitoring filing obligations and reviewing the submissions
  for compliance. On December 23, 2008, the MDL issued another administrative
  order providing a mechanism whereby defendants could seek dismissals against
  plaintiffs who failed to comply with the prior administrative order. The deadline
  for such motions was originally set as January 31, 2009, but was amended when
  the court began scheduling hearings based upon the original jurisdiction of
  the underlying claim. Filing deadlines were set as 30 days prior to the hearing
  dates, which were scheduled beginning in April 2009. The Company has already
  begun to see dismissals as a result of this procedure, including some which
  have yet to be fully processed and therefore not reflected in the table above.
  At this point, the Company cannot currently predict how many more dismissals
  will be granted through this process. Also in April 2009, the MDL also ordered
  that the claims of individual plaintiffs in mass joinder cases be severed and
  that the severed plaintiffs re-file their claims, accompanied by payment of
  the statutory filing fee. It is unclear how many of the severed plaintiffs will
  re-file their claims, though it can be expected that some claims will be abandoned.

With respect to the remaining claims where plaintiffs have complied
  with the original administrative order, the MDL expects to begin conducting
  settlement conferences, at which time the plaintiffs will be required to submit
  short position statements setting forth exposure information. The MDL has not
  yet begun the process of scheduling the settlement conferences, but it has instituted
  a procedure by which plaintiffs may request remand of their claims back to the
  court of original jurisdiction for trial. Since a settlement conference is a
  prerequisite to remand, it is expected that institution of this procedures will
  expedite the requests for settlement conferences. The Company believes that
  the effects of these administrative orders may not be fully known or realized
  for some time.

Based on past experience, communications from certain plaintiffs
  counsel, and the advice of the Companys Mississippi counsel, the Company
  expects the percentage of Mississippi claimants able to demonstrate time spent
  in a paper mill to which Albany supplied asbestos-containing products during
  a period in which Albanys asbestos-containing products were in use to
  be considerably lower than the total number of claims still pending. However,
  due to the still large number of inactive claims pending in the MDL and the
  lack of alleged exposure information, the Company does not believe a meaningful
  estimate can be made regarding the range of possible loss with respect to these
  remaining claims.

As of July 23, 2009, the remaining 4,702 claims pending against
  Albany were pending in states other than Mississippi. Pleadings and discovery
  responses in those cases in which work histories have been provided indicate
  claimants with paper mill exposure in approximately 25% of total claims reported,
  and only a portion of those claimants have alleged time spent in a paper mill
  to which Albany is believed to have supplied asbestos-containing products. For
  these reasons, the Company expects the percentage of these remaining claimants
  able to demonstrate time spent in a paper mill to which Albany supplied asbestos-containing
  products during a period in which Albanys asbestos-containing products
  were in use to be considerably lower than the total number of pending claims.
  In addition, over half of these remaining non-Mississippi claims have not provided
  any disease information. Detailed exposure and disease information sufficient
  meaningfully to estimate a range of possible loss of a particular claim is typically
  not available until late in the discovery process, and often not until a trial
  date is imminent and a settlement demand has been received. For these reasons,
  the Company does not believe a meaningful estimate can be made regarding the
  range of possible loss with respect to these remaining claims.

It is the position of Albany and the other paper machine clothing
  defendants that there was insufficient exposure to asbestos from any paper machine
  clothing products to cause asbestos-related injury to any

56

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plaintiff. Furthermore, asbestos contained in Albanys synthetic
  products was encapsulated in a resin-coated yarn woven into the interior of
  the fabric, further reducing the likelihood of fiber release. While the Company
  believes it has meritorious defenses to these claims, it has settled certain
  of these cases for amounts it considers reasonable given the facts and circumstances
  of each case. The Companys insurer, Liberty Mutual, has defended each
  case and funded settlements under a standard reservation of rights. As of July
  23, 2009, the Company had resolved, by means of settlement or dismissal, 24,404
  claims. The total cost of resolving all claims was $6,836,000. Of this amount,
  $6,791,000, or 99%, was paid by the Companys insurance carrier. The Company
  has approximately $130 million in confirmed insurance coverage that should be
  available with respect to current and future asbestos claims, as well as additional
  insurance coverage that it should be able to access.

Brandon Drying Fabrics, Inc.

Brandon Drying Fabrics, Inc. (Brandon), a subsidiary
  of Geschmay Corp., which is a subsidiary of the Company, is also a separate
  defendant in many of the asbestos cases in which Albany is named as a defendant.
  Brandon was defending against 8,139 claims as of July 23, 2009. This compares
  with 8,604 such claims as of May 1, 2009, 8,607 claims as of February 6, 2009,
  8,664 such claims as of October 27, 2008, 8,672 claims as of July 25, 2008,
  8,689 claims as of May 2, 2008, 8,741 claims as of February 1, 2008 and October
  19, 2007, 9,023 claims as of July 27, 2007, 9,089 claims as of April 27, 2007,
  9,189 claims as of February 16, 2007, 9,114 claims as of December 31, 2006,
  9,566 claims as of December 31, 2005, 9,985 claims as of December 31, 2004,
  10,242 claims as of December 31, 2003, 11,802 claims as of December 31, 2002,
  8,759 claims as of December 31, 2001, 3,598 claims as of December 31, 2000,
  and 1,887 claims as of December 31, 1999. 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 endedDecember31,
      Opening Numberof claims
      Claims Dismissed,Settled orResolved
      New Claims
      ClosingNumberofClaims
      Amounts Paid(thousands) toSettle orResolve ($$)2005
      9,985
      642
      223
      9,566
      02006
      9,566
      1182
      730
      9,114
      02007
      9,114
      462
      88
      8,740
      02008
      8,740
      86
      10
      8,664
      02009 to date
      8,664
      528
      3
      8,139
      0


(The data reported in the above table (as well as elsewhere in this
  report) does not reflect a significant number of additional dismissals that
  have been granted in recent weeks but which the Company has not yet been able
  to reflect in its databases.)

The Company acquired Geschmay Corp., formerly known as Wangner Systems
  Corporation, in 1999. Brandon is a wholly-owned subsidiary of Geschmay Corp.
  In 1978, Brandon acquired certain assets from Abney Mills (Abney),
  a South Carolina textile manufacturer. Among the assets acquired by Brandon
  from Abney were assets of Abneys wholly-owned subsidiary, Brandon Sales,
  Inc. which had sold, among other things, dryer fabrics containing asbestos made
  by its parent, Abney. It is believed that Abney ceased production of asbestos-containing
  fabrics prior to the 1978 transaction. Although Brandon manufactured and sold
  dryer fabrics under its own name subsequent to the asset purchase, none of such
  fabrics contained asbestos. Under the terms of the Assets Purchase Agreement
  between Brandon and Abney, Abney agreed to indemnify, defend, and hold Brandon
  harmless from any actions or claims on account of products manufactured by Abney
  and its related corporations prior to the date of the sale, whether or not the
  product was sold subsequent to the date of the sale. It appears that Abney has
  since been dissolved. Nevertheless, a representative of Abney has been notified
  of the pendency of these actions and demand has been made that it assume the
  defense of

57

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these actions. Because Brandon did not manufacture asbestos-containing
  products, and because it does not believe that it was the legal successor to,
  or otherwise responsible for obligations of Abney with respect to products manufactured
  by Abney, it believes it has strong defenses to the claims that have been asserted
  against it. In some instances, plaintiffs have voluntarily dismissed claims
  against it, while in others it has entered into what it considers to be reasonable
  settlements. As of July 23, 2009, Brandon has resolved, by means of settlement
  or dismissal, 9,439 claims for a total of $152,499. Brandons insurance
  carriers initially agreed to pay 88.2% of the total indemnification and defense
  costs related to these proceedings, subject to the standard reservation of rights.
  The remaining 11.8% of the costs had been borne directly by Brandon. During
  2004, Brandons insurance carriers agreed to cover 100% of indemnification
  and defense costs, subject to policy limits and the standard reservation of
  rights, and to reimburse Brandon for all indemnity and defense costs paid directly
  by Brandon related to these proceedings.

As of July 23, 2009, 6,821 (or approximately 84%) of the claims
  pending against Brandon were pending in Mississippi. For the same reasons set
  forth above with respect to Albanys Mississippi and other claims, as well
  as the fact that no amounts have been paid to resolve any Brandon claims since
  2001, the Company does not believe a meaningful estimate can be made regarding
  the range of possible loss with respect to these remaining claims.

Mount Vernon

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). The Company 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. The Company denies 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, the Company has successfully
  moved for dismissal in a number of actions.

---

While the Company does not believe, based on currently available
  information and for the reasons stated above, that a meaningful estimate of
  a range of possible loss can be made with respect to such claims, based on its
  understanding of the insurance policies available, how settlement amounts have
  been allocated to various policies, its settlement experience, the absence of
  any judgments against the Company or Brandon, the ratio of paper mill claims
  to total claims filed, and the defenses available, the Company currently does
  not anticipate any material liability relating to the resolution of the aforementioned
  pending proceedings in excess of existing insurance limits. Consequently, the
  Company currently does 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 the Company cannot predict the number and timing of
  future claims, based on the foregoing factors and the trends in claims against
  it to date, the Company does not anticipate that additional claims likely to
  be filed against it in the future will have a material adverse effect on its
  financial position, results of operations, or cash flows. The Company is aware
  that litigation is inherently uncertain, especially when the outcome is dependent
  primarily on determinations of factual matters to be made by juries. The Company
  is also aware that numerous other defendants in asbestos cases, as well as others
  who claim to have knowledge and expertise on the subject, have found it difficult
  to anticipate the outcome of asbestos litigation, the volume of future asbestos
  claims, and the anticipated settlement values of those claims. For these reasons,
  there can be no assurance that the foregoing conclusions will not change.

58

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Item 1A. Risk Factors.

There have been no material changes in risks since December 31,
  2008. For discussion of risk factors, refer to Item 1A of the Companys
  Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Management made no share purchases during the second quarter of
  2009. Management remains authorized by the Board of Directors to purchase up
  to 2, million shares of its Class A Common Stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

At the annual meeting of shareholders held May 29, 2009, there were
  three items subject to a vote of security holders. The first item was for the
  election of eight members of the Board of Directors of the Company, the second
  item was for approval of the Directors Annual Retainer Plan, and the third
  item was the ratification of the selection of PricewaterhouseCoopers LLP as
  the Companys independent auditor.

In the vote for the election of eight members of the Board of Directors
  of the Company, the number of votes cast for, and the number of votes withheld
  from, each of the nominees were as follows:

Number of Votes For
      
      Number of Votes Withheld
      
      Broker Non-VotesNominee
      Class A
      
      Class B
      
      Class A
      
      Class B
      
      Class A
      
      Class BJoseph G. Morone
      23,260,286
      
      32,339,440
      
      914,991
      
      -
      
      -
      
      -Christine L. Standish
      10,700,007
      
      32,339,440
      
      13,475,270
      
      -
      
      -
      
      -Erland E. Kailbourne
      23,490,163
      
      32,339,440
      
      685,114
      
      -
      
      -
      
      -John C. Standish
      11,884,490
      
      32,339,440
      
      12,290,787
      
      -
      
      -
      
      -Juhani Pakkala
      14,236,726
      
      32,339,440
      
      9,938,551
      
      -
      
      -
      
      -Paula H. J. Cholmondeley
      14,148,528
      
      32,339,440
      
      10,025,606
      
      -
      
      1,143
      
      -John F. Cassidy, Jr.
      14,232,103
      
      32,339,440
      
      9,942,031
      
      1,040
      
      1,143
      
      -Edgar G. Hotard
      23,396,583
      
      32,339,440
      
      777,551
      
      -
      
      1,143
      
      - In the vote for the approval of the Directors Annual
    Retainer Plan, the number of votes cast for, the number of votes cast against,
    and the number cast as abstentions were as follows:


For
      
      Against
      
      Abstain54,126,118
      
      336,474
      
      1,021,009


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For
      
      Against
      
      Abstain55,985,709
      
      524,854
      
      4,154 Item 5. Other Information


On August 5, 2009, the Company entered into an Executive Separation
  Agreement with departing Chief Financial Officer Michael C. Nahl. Mr. Nahl will
  step down as the Companys Chief Financial Officer effective upon the close
  of business on August 7, 2009. A copy of the agreement is filed with this report
  as Exhibit 10(o) (xiv)and is incorporated herein by reference.

Albany International Corp. (the Company) has entered
  into Severance Agreements (collectively the Severance Agreements)
  with various corporate officers or key executives including two named executive
  officers, but excluding its principal executive officer and principal financial
  officer (each a Counterparty). The Severance Agreements became effective
  August 5, 2009. The material terms of the Severance Agreements provide that
  in the event a Counterpartys employment is terminated by the Company at
  any time before December 31, 2012 for any reason other than Cause (as defined
  in the Severance Agreement), the Counterparty shall be entitled to receive his
  or her gross monthly base salary in effect at the time of termination, less
  applicable withholdings and deductions, for the period of months specified in
  the Severance Agreement (the Severance Period). The Severance Period
  differs among Counterparty, and ranges from 12 months to 18 months. For named
  executive officers Michael J. Joyce and Daniel A. Halftermeyer, the Severance
  Period is 18 months. In order to receive the severance benefits, the Counterparty
  is obligated to execute a release in favor of the Company at the time of termination.
  The Counterparty is also bound to a restrictive covenant during the Severance
  Period. A copy of the form of Severance Agreement is attached and being filed
  as exhibit Exhibit 10(o) (xv)to this report. The foregoing summary of
  provisions is not complete and reference is made to the exhibit for the complete
  terms.

In the second quarter, the Company entered into agreements to
  exchange $50.5 million principal amount of the Companys 2.25% Convertible
  Senior Notes due 2026 for cash plus any accrued unpaid interest, plus an equivalent
  amount of the Companys 2.25% Senior Notes due 2026 (the New Notes). The Company
  simultaneously entered into another agreement to purchase the New Notes. Closing
  for the exchange of $30.5 million principal amount of Convertible Notes
  took place in July and closing on the remaining $20.0 million is expected
  to take place in October. The Company expects these transactions to result in
  gains of approximately $7.5 million in the third quarter, and $4.5 million in
  the fourth quarter. A Form 8-K was filed with the SEC on May 22, 2009 describing
  these agreements. Attached to this Form 10-Q are Exhibits 10.9 and 10.10, which depict Securities Purchase and Exchange Agreements between Albany
  International Corp. and Citadel Equity Fund Ltd. related to these second quarter
  transactions.

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Item 6. Exhibits

Exhibit No.
        10(o) (xiv)
      Description
        Executive Separation Agreement between Albany International Corp. and Michael C. Nahl (filed herewith)10(o) (xv)
      Form of Severance Agreement between Albany International Corp. and certain corporate officers or key executives (filed herewith)10.9
      Securities Purchase Agreement between Albany International Corp. and Citadel Equity Fund Ltd. dated May 21, 2009.10.10
      Securities Exchange Agreement between Albany International Corp. and Citadel Equity Fund Ltd. dated May 21, 2009.31.1
      Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.31.2
      Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act.32.1
      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)99.1
      Quantitative and qualitative disclosures about market risks as reported at December 31, 2008.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
  1934, the registrant has duly caused this report to be signed on its behalf
  by the undersigned thereunto duly authorized.

ALBANY INTERNATIONAL CORP.(Registrant)Date: August 6, 2009By
      /s/ Michael C. NahlMichael C. NahlExecutive Vice President
        and Chief FinancialOfficer (Principal Financial
        Officer)


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