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 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. For the first nine months of 2009, however, the global recession contributed to a reduction of 22% 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, there is risk that fourth quarter 2009 sales could be dampened as a result of sharper than normal seasonal slow-downs and inventory effects.

During 2006, the Company initiated 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,

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 of2008 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 are almost at the same level as sales within the Americas. Sales in the first three quarters of 2009 were 19% lower than the same period of 2008, 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 had experienced significant growth in net sales during the last few years, due both to the introduction of new products as well as growth in

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 three quarters of 2009 were 14 percent lower than the same period of 2008.

Foreign Currency

The Company operates in many regions of the world, and currency rate movements can have a significant effect on our operating results. Changes in exchange rates can result in revaluation gains and losses that could flow through Selling, Technical, General and Research expenses or Other income/expense, net. Operating margins can also be affected by the translation of sales and costs, for each non-U.S. subsidiary, from the local functional currency to the U.S. dollar. A strengthening of the local functional currency against the U.S. dollar has a negative effect on operating margins in situations where the local manufacturing costs, which are based in the local functional currency, exceed the amount of local-currency-based sales in that same currency. This situation arises most often when a non-U.S. subsidiary has a significant amount of its sales denominated, or pegged to, the U.S. dollar. A strengthening of the local functional currency against the U.S. dollar has a positive effect on operating margins when local functional currency based sales exceed the functional currency based costs in any given country. In order to mitigate foreign exchange volatility in our financial statements, we enter into foreign currency financial instruments from time to time. There were no foreign currency financial instruments designated as hedging instruments at September 30, 2009.

Total Company - three months ended September 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 FASB guidance related to accounting for convertible debt instruments that may be settled in cash upon conversion. 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 for Q3 2009 were $217.9 million, an increase of 2.5 percent compared to Q2 2009 and a decrease of 18.4 percent compared to Q3 2008. Excluding the effect of changes in currency translation rates, net sales in Q3 2009 decreased 16.5 percent as compared to Q3 2008, as shown below:

Table 1
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                                                          Impact of
                              Net Sales                    Changes      Percent Change
                         Three Months ended              in Currency      excluding
                            September 30,      Percent   Translation    Currency Rate
(in thousands)            2009        2008      Change      Rates           Effect
---------------------------------------------------------------------------------------
Paper Machine Clothing $ 154,290   $ 179,449    -14.0 %  $    (2,866 )        -12.4 %
---------------------------------------------------------------------------------------
Albany Door Systems       31,198      46,268    -32.6         (1,295 )        -29.8
---------------------------------------------------------------------------------------
Engineered Fabrics        21,001      24,117    -12.9           (723 )         -9.9
---------------------------------------------------------------------------------------
Engineered Composites      8,068      12,000    -32.8          -              -32.8
---------------------------------------------------------------------------------------
PrimaLoft® Products        3,374       5,088    -33.7              9          -33.9
---------------------------------------------------------------------------------------
Total                  $ 217,931   $ 266,922    -18.4 %  $    (4,875 )        -16.5 %
---------------------------------------------------------------------------------------

Gross profit was 33.9 percent of net sales in Q3 2009, compared to 33.4 percent in the same period of 2008. The improvement was principally due to cost reduction initiatives and a decrease in idle-capacity and performance-improvement costs, which more than offset the effect on gross margin of lower sales. As described in the paragraphs that follow Table 4, cost of goods sold included costs associated with idle-capacity and performance-improvement initiatives of $3 million in Q3 2009 and $5.9 million in Q3 2008.

Selling, technical, general, and research (STG&R) expenses were $61.2 million, or 28.1 percent of net sales in Q3 2009, in comparison to $78.3 million or 29.3 percent of net sales in Q3 2008. Changes in currency translation rates had the effect of decreasing STG&R expenses by $2 million in comparison to Q3 2008. Q3 STG&R expenses include costs related to performance-improvement initiatives totaling $1.5 million in 2009 and $4.8 million in 2008. The revaluation of non-functional currency assets and liabilities increased STG&R by $1.6 million in Q3 2009 and decreased STG&R by $1.8 million in Q3 2008.

STG&R expenses were $64.6 million, or 30.4 percent of net sales, in Q2 2009. Q2 2009 STG&R expenses included costs related to performance-improvement initiatives totaling $1.4 million and the revaluation of nonfunctional currency assets and liabilities increased STG&R by $1.7 million.

Operating income/loss was a loss of $8.5 million in Q3 2009, compared to income of $4.1 million for the same period of 2008.

Table 2
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                         Operating Income/(loss)
                            Three Months ended
                              September 30,
(in thousands)              2009          2008
---------------------------------------------------
Paper Machine Clothing  $   13,628      $  22,391
---------------------------------------------------
Albany Door Systems         (1,060 )        3,590
---------------------------------------------------
Engineered Fabrics           2,128          4,284
---------------------------------------------------
Engineered Composites       (2,582 )       (3,334 )
---------------------------------------------------
PrimaLoft® Products            (15 )          672
---------------------------------------------------
Research expenses           (5,019 )       (6,004 )
---------------------------------------------------
Unallocated expenses       (15,577 )      (17,477 )
---------------------------------------------------
Total                   $   (8,497 )    $   4,122
---------------------------------------------------

Operating income included the following expenses associated with restructuring and performance-improvement initiatives:

Table 3
---------------------------------------------------------------------------

                                             Q3 2009
                       ----------------------------------------------------

                        Restructuring    Idle-     Performance-
                         and Other,     capacity   improvement
(in thousands)               Net         Costs     Initiatives     Total
---------------------------------------------------------------------------
Paper Machine Clothing  $     18,356   $ 2,623     $       505   $ 21,484
---------------------------------------------------------------------------
Albany Door Systems            1,515         -             (94 )    1,421
---------------------------------------------------------------------------
Engineered Fabrics               168         -               -        168
---------------------------------------------------------------------------
Engineered Composites            157         -               -        157
---------------------------------------------------------------------------
Unallocated expenses              35         -           1,484      1,519
---------------------------------------------------------------------------
Total                   $     20,231   $ 2,623     $     1,895   $ 24,749
---------------------------------------------------------------------------

Table 4
---------------------------------------------------------------------------
                                             Q3 2008
                       ----------------------------------------------------
                        Restructuring    Idle-     Performance-
                         and Other,     capacity   improvement
(in thousands)               Net         Costs     Initiatives     Total
---------------------- --------------- ------------------------------------
Paper Machine Clothing  $      6,761     2,551           3,986   $ 13,298
---------------------------------------------------------------------------
Albany Door Systems              227         -               -        227
---------------------------------------------------------------------------
Engineered Composites            366         -               -        366
---------------------------------------------------------------------------
Research expenses               (191 )       -               -       (191 )
---------------------------------------------------------------------------
Unallocated expenses            (432 )       -           4,166      3,734
---------------------------------------------------------------------------
Total                   $      6,731   $ 2,551     $     8,152   $ 17,434
---------------------------------------------------------------------------

Q3 2009 performance-improvement initiatives totaled $1.9 million, of which $0.4 million was reported in cost of goods sold, and $1.5 million was reported in STG&R expenses. Included in idle-capacity costs was $0.2 million of depreciation expense. Performance-improvement costs reported as STG&R expenses included $1.3 million related to the ongoing implementation of SAP.

Q3 2008 costs for restructuring and performance-improvement initiatives amounted to $17.4 million, of which $6.7 million was reported as restructuring, $5.9 million was included in cost of goods sold, and $4.8 million was included in STG&R expenses.

Q3 2009 research expense decreased $1 million compared to Q3 2008, due to reductions from restructuring and cost reduction initiatives. Unallocated expenses decreased by $1.9 million principally due to lower restructuring and performance expenses.

Interest expense decreased to $4.8 million for Q3 2009, compared with $5.7 million for Q3 2008. The decrease is due to lower interest rates along with lower average levels of debt outstanding during Q3 2009.

Other income/expense, net was income of $8.1 million in Q3 2009, including a $7.9 million ($0.16 per share) gain on extinguishment of debt, and income of $0.8 million related to revaluation of non-functional currency intercompany balances. Other income/expense, net was income of $0.7 million for Q3 2008, including income of $1.5 million related to revaluation of non-functional currency intercompany balances.

Q2 2009 Other income/expense, net was income of $37.2 million in Q2 2009, including a $36.6 million gain on extinguishment of debt and income of $1.2 million related to revaluation of non-functional currency intercompany balances.

Q3 2009 income tax benefit/expense includes expense of $3.1 million related to the gain on extinguishment of debt. Additionally, Q3 2009 includes a charge of $0.5 million due to an out-of-period adjustment to correct deferred tax asset balances originating in a prior year. The corrected item has no impact on EBITDA or cash flows in any period presented. Discrete tax adjustments and an unfavorable out-of-period adjustment decreased 2008 net income by $5.9 million. (See Note 7 of the Notes to Consolidated Financial Statements for further discussion of discrete items.)

Net loss per share was $0.20, after reductions of $0.62 per share 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 $0.16 per share, and tax and out-of-period adjustments decreased earnings by $0.05 per share. The impact of out-of-period adjustments was assessed on the current year and all prior periods and it was determined that the cumulative effect of the adjustments was not material to full year 2009 results and did not result in a material misstatement to any previously issued annual or quarterly financial statements. Net Income per share for Q3 2008 was $0.00, after reductions of $0.48 per share from net restructuring charges, related idle-capacity costs, and costs related to performance-improvement initiatives. Income tax adjustments reduced Q3 2008 net income by $0.20 per share, while a gain on the sale of the Company's Filtration Technologies business increased net income by $0.21 per share. (See non-GAAP table below.)

Net sales were $639.7 million, a decrease of 23.6 percent compared to the same period last year. Excluding the effect of changes in currency translation rates, net sales decreased 18.5 percent as shown in Table 5 below:

Table 5
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                                                          Impact of
                              Net Sales                    Changes      Percent Change
                          Nine Months ended              in Currency      excluding
                            September 30,      Percent   Translation    Currency Rate
(in thousands)            2009        2008      Change      Rates           Effect
---------------------------------------------------------------------------------------
Paper Machine Clothing $ 438,897   $ 561,941    -21.9 %  $   (25,162 )        -17.4 %
---------------------------------------------------------------------------------------
Albany Door Systems       96,054     140,245    -31.5        (11,278 )        -23.5
---------------------------------------------------------------------------------------
Engineered Fabrics        64,200      79,482    -19.2         (5,947 )        -11.7
---------------------------------------------------------------------------------------
. . .