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 further expanded its market position in North America with the second-quarter 2007 acquisition of the assets and business of R-Bac Industries, the fastest-growing high-performance door company in North America, whose product lines were complementary to Albany's. 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.

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. In the most recent quarter, however, the global recession contributed to a reduction of 24% 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 this 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 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.

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 and Australia, and Doors segment manufacturing in Sweden. 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 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 less sensitive to economic changes 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 is preparing for a substantial decline in product sales, which will only be partially offset by aftermarket sales. 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 are almost at the same level as sales within the Americas. Sales in the fourth quarter of 2008 were 13% lower than the same quarter of 2007, and management expects the top line weakness to continue into 2009, reflecting the effects of the global recession.

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. The economic weakness in retail markets is likely to have a negative effect on 2009 sales in this segment.

Foreign Currency

Albany International operates in many geographic regions of the world and has more than half of its business in countries outside the United States. A substantial portion of the Company's sales are denominated in euros or other currencies. 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. As a result, changes in the relative values of U.S. dollars, euros and other currencies affect revenues and profits as the results are translated into U.S. dollars in the consolidated financial statements.

From time to time, the Company enters into foreign currency or other derivative contracts in order to enhance cash flows or to mitigate volatility in the financial statements that can be caused by changes in currency exchange rates.

Review of Operations

Total Company - three months ended March 31, 2009

In the first quarter of 2009, the Company modified its business segment reporting by reclassifying global information systems expenses from each of the segments to unallocated expenses. Also during the 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 has filed a Form 8-K 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.

Table 1

----------------------------------------------------------------------------
                                                  Impact of      Percent
                                                   Changes       Change
                                                 in Currency    excluding
                                         Percent Translation  Currency Rate
(in thousands)           2009     2008   Change     Rates        Effect
----------------------------------------------------------------------------
Paper Machine Clothing $139,074 $183,015  -24.0%   ($13,049)          -16.9%
----------------------------------------------------------------------------
Albany Door Systems      34,326   45,132   -23.9     (5,758)           -11.2
----------------------------------------------------------------------------
Engineered Fabrics       21,570   28,110   -23.3     (2,894)           -13.0
----------------------------------------------------------------------------
Engineered Composites     9,085   11,088   -18.1           -           -18.1
----------------------------------------------------------------------------
PrimaLoft® Products       5,150    5,863   -12.2       (131)           - 9.9
----------------------------------------------------------------------------
Total                  $209,205 $273,208  -23.4%   ($21,832)          -15.4%
----------------------------------------------------------------------------

Gross profit was 33.5 percent of net sales in the first quarter of 2009, compared to 34.7 percent in the same period of 2008. Cost-reduction initiatives helped to offset the effects on margin of having lower sales. As described in the paragraphs that follow Table 3, costs associated with idle-capacity and performance-improvement initiatives were $7.0 million in Q1 2009 and $3.0 million in Q1 2008.

Selling, technical, general, and research (STG&R) expenses were 32.3 percent of net sales in the first quarter of 2009, compared to 30.2 percent in the first quarter of 2008. The increase as a percentage of sales in 2009 is principally due to the significant decrease in sales. STG&R expenses were $67.6 million in the first quarter of 2009, in comparison to $82.4 million in the first quarter of 2008. First-quarter STG&R expenses include costs related to performance-improvement initiatives totaling $2.2 million in 2009 and $5.1 million in 2008. These expenses principally relate to costs associated with the SAP implementation. Revaluation of nonfunctional currency assets and liabilities resulted in a gain of $1.9 million in Q1 2009, compared to a loss of $0.7 million in Q1 2008. The decrease in the Company's share price had the effect of reducing incentive compensation by approximately $1.5 million, in comparison to Q1 2008. Changes in currency translation rates had the effect of decreasing STG&R expenses by $7.9 million in comparison to Q1 2008.

Operating income/loss was a loss of $14.8 million in the first quarter of 2009, compared to income of $7.2 million for the same period of 2008. The following table presents segment operating income:

Table 2
---------------------- -------------------------
                        Operating Income/(loss)
                             Three Months ended
                               March 31,
(in thousands)             2009         2008
------------------------------------------------
Paper Machine Clothing        $7,261     $22,539
------------------------------------------------
Albany Door Systems              228       3,437
------------------------------------------------
Engineered Fabrics             3,655       5,855
------------------------------------------------
Engineered Composites        (2,508)     (1,818)
------------------------------------------------
PrimaLoft® Products            1,089       1,112
------------------------------------------------
Research expenses            (5,610)     (5,871)
------------------------------------------------
Unallocated expenses        (18,882)    (18,074)
------------------------------------------------
Total                      ($14,767)      $7,180
------------------------------------------------

Table 3

------------------------------------------------------------------
                                         Q1 2009
                       ------------- --------------------- -------
                       Restructuring  Idle-   Performance-
                        and Other,   capacity improvement
(in thousands)              Net       Costs   Initiatives   Total
------------------------------------------------------------------
Paper Machine Clothing       $15,609   $3,079       $2,842 $21,530
------------------------------------------------------------------
Albany Door Systems              148        -          407     555
------------------------------------------------------------------
Engineered Composites              -        -          620     620
------------------------------------------------------------------
PrimaLoft® Products               42        -            -      42
------------------------------------------------------------------
Unallocated expenses           1,380        -        2,200   3,580
------------------------------------------------------------------
Total                        $17,179   $3,079       $6,069 $26,327
------------------------------------------------------------------


Table 4

                                         Q1 2008
                       ------------- --------------------- -------
                       Restructuring  Idle-   Performance-
                        and Other,   capacity improvement
(in thousands)              Net       Costs   Initiatives   Total
------------------------------------------------------------------
Paper Machine Clothing        $6,401     $684       $3,324 $10,409
------------------------------------------------------------------
Albany Door Systems                -        -          135     135
------------------------------------------------------------------
Engineered Composites              -        -            -       -
------------------------------------------------------------------
PrimaLoft® Products                -        -            -       -
------------------------------------------------------------------
Unallocated expenses         (1,040)        -        3,948   2,908
------------------------------------------------------------------
Total                         $5,361     $684       $7,407 $13,452
------------------------------------------------------------------

Q1 2009 restructuring costs totaled $17.2 million and related principally to the restructuring of PMC operations in North America and Europe.

Q1 2009 idle-capacity costs of $3.1 million were related to previously announced restructuring of paper machine clothing (PMC) plants in the U.S. and Europe. The Company expects idle-capacity costs to continue at least through the next two quarters.

Q1 2009 other performance-improvement costs totaled $6.1 million, of which $3.9 million was reported in cost of goods sold, and $2.2 million was reported in STG&R expenses. Items reported in cost of goods sold include $2.0 million for equipment relocation and $1.9 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 were related to the implementation of SAP.

Research expense decreased $0.3 million due to reductions from restructuring and performance improvement activities. Unallocated expenses increased by $0.8 million due to higher global information systems and restructuring and performance improvement costs offset by lower Corporate expenses. Global information systems costs were higher primarily due to costs related to maintaining two ERP systems while the Company completes its implementation of SAP. Lower Corporate expense reflects adjustments to compensation accruals resulting from a decrease in the Company's stock price.

Interest expense increased to $5.8 million for the first quarter of 2009, compared with $5.4 million for 2008. The increase is due to slightly higher average levels of debt outstanding during 2009.

Other income/expense, net was expense of $0.2 million in Q1 2009, including the $2.8 million ($0.06 per share) gain on extinguishment of debt, which was offset by losses totaling $1.5 million related to revaluation of nonfunctional currency intercompany loans, $0.9 million of debt financing costs, and other items. Other income/expense, net for Q1 2008 was income of $0.3 million, and included gains of $0.3 million for revaluation of intercompany loans, debt financing costs of $0.5 million, and other items.

First-quarter 2009 income tax benefit/expense includes a discrete tax charge of $1.1 million related to the gain on extinguishment of debt. First-quarter 2008 income tax expense includes discrete tax adjustments that decreased net income by $3.9 million ($0.13 per share).

Net loss per share was $0.63, after reductions of $0.78 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 $0.06 per share. Net loss per share for Q1 2008 was $0.07, after reductions of $0.36 from net restructuring charges, related idle-capacity costs, and costs related to performance-improvement initiatives and $0.13 for income tax adjustments.

Paper Machine Clothing (PMC)

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

Q1 2009 global net sales decreased 24.0 percent compared to the first quarter of 2008. Compared to the first quarter of 2008, trade sales declined 12.8 percent in the Americas, 25.8 percent in Europe (in euros), and 36.1 percent in Asia. The declines were primarily due to lower volume.

Cost savings resulting from plant closings, related reductions in employee expense, and other performance-improvement initiatives continued to help offset lower sales. Despite the sharp decline in sales, Q1 2009 gross profit was 37.4 percent of net sales, unchanged from Q1 2008. The gross profit percentage in Q1 2009 includes $5.9 million of costs associated with performance-improvement initiatives, as compared to $3.0 million in Q1 2008.

Albany Door Systems (ADS)

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

First-quarter gross profit as a percentage of net sales was 29.1 percent for 2009 and 32.7 percent for 2008. First-quarter operating income decreased to $0.2 million from $3.4 million in 2008, principally due to lower sales and a $0.4 million increase in costs related to restructuring and performance improvement initiatives.

Albany Engineered Composites (AEC)

This segment includes sales of specialty materials and composite structures for aircraft and other applications.

Net sales decreased from $11.1 million in Q1 2008 to $9.1 million in Q1 2009, a decreased of 18.1 percent. Q1 2008 net sales included $3.1 million of sales to Eclipse Aviation.

First-quarter gross profit as a percentage of net sales was (17.3) percent for 2009 and (4.4) percent for 2008. First-quarter operating income decreased to a loss of $2.5 million from a loss of $1.8 million in 2008, principally due to lower sales and a $0.6 million increase in costs related to restructuring and performance improvement initiatives.

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.

. . .