ALBANY INTERNATIONAL CORP /DE/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes. 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,” “estimate,” “project,” ”look for,” “will,” “should,” “guidance,” “guide” and similar expressions identify forward-looking statements, which generally are not historical in nature. Because forward-looking statements are subject to certain risks and uncertainties, (including, without limitation, those set forth in the Company’s most recent Annual Report on Form 10-K or prior Quarterly Reports on Form 10-Q) actual results may differ materially from those expressed or implied by such 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: • Conditions in the industries in which our Machine Clothing and Albany Engineered Composites segments compete, along with the general risks associated with macroeconomic conditions, including continuation of COVID-19 pandemic effects for an extended period of time; • In both the Machine Clothing and Albany Engineered Composites segments, increasing labor, raw material, energy, and logistic costs due to supply chain constraints and inflationary pressures • In the Machine Clothing segment, greater than anticipated declines in the demand for publication grades of paper, or lower than anticipated growth in other paper grades; • In the Albany Engineered Composites segment, longer than expected timeframe for the aerospace industry to utilize existing inventories, and unanticipated reductions in demand, delays, technical difficulties, or cancellations in aerospace programs that are expected to generate revenue and drive long-term growth; • Failure to achieve or maintain anticipated profitable growth in our Albany Engineered Composites segment; and • Other risks and uncertainties detailed in this report. 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 “Business Environment Overview and Trends” sections of this quarterly report, as well as in Item 1A-“Risk Factors” section of our most recent Annual Report on Form 10-K. Although we believe the expectations reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements included or incorporated by reference in this report are made on the basis of our assumptions and analyses, as of the time the statements are made, in light of our 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, we disclaim 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 our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Business Environment Overview and Trends Our reportable segments, Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”), draw on the same advanced textiles and materials processing capabilities, and compete on the basis of product-based advantage that is grounded in those core capabilities. The MC segment is the Company’s long-established core business and primary generator of cash. While it has been negatively impacted by well-documented declines in publication grades in the Company’s traditional markets, there has been some offsetting effect due to growth in demand for packaging and tissue grades, as well as the 23 Index expansion of paper consumption and production in Asia and South America. We feel we are well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Some of the markets in which our products are sold are expected to have low levels of growth and we face pricing pressures in all markets. Despite these market pressures on revenue, the MC business retains the potential for maintaining stable earnings in the future. MC has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality. The AEC segment provides significant longer term growth potential for our Company. Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites, LLC (“ASC”), in which our customer, SAFRAN Group, owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 11 percent of the Company’s consolidated Net sales in 2020. AEC, through ASC, also supplies 3D-woven composite fan cases for the GE9X engine. AEC’s current portfolio of non-3D programs includes components for the F-35, fuselage components for the Boeing 787, components for the CH-53K helicopter, vacuum waste tanks for Boeing 7-Series aircraft, and missile bodies for Lockheed Martin’s JASSM air-to-surface missiles. AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets. In 2020, approximately 46 percent of AEC sales were related to U.S. government contracts or programs. 24 Index Consolidated Results of Operations Net sales The following table summarizes our Net sales by business segment: Three months ended September 30, Nine months ended September 30, (in thousands, except percentages) 2021 2020 % Change 2021 2020 % Change Machine Clothing $ 154,171 $ 138,747 11.1 % $ 462,298 $ 428,782 7.8 % Albany Engineered Composites 78,271 73,252 6.9 % 227,024 244,971 -7.3 % Total $ 232,442 $ 211,999 9.6 % $ 689,322 $ 673,753 2.3 % The following tables provide a comparison of 2021 Net sales, excluding the impact of currency translation effects, to 2020 Net sales: (in thousands, except percentages) Net sales as reported, Q3 2021 Increase due to changes in currency translation rates Q3 2021 sales on same basis as Q3 2020 currency translation rates Net sales as reported, Q3 2020 % Change compared to Q3 2020, excluding currency rate effects Machine Clothing $ 154,171 $ 1,688 $ 152,483 $ 138,747 9.9 % Albany Engineered Composites 78,271 90 78,181 73,252 6.7 % Consolidated total $ 232,442 $ 1,778 $ 230,664 $ 211,999 8.8 % (in thousands, except percentages) Net sales as reported, YTD 2021 Increase due to changes in currency translation rates YTD 2021 sales on same basis as 2020 currency translation rates Net sales as reported, YTD 2020 % Change compared to 2020, excluding currency rate effects Machine Clothing $ 462,298 $ 11,829 $ 450,469 $ 428,782 5.1 % Albany Engineered Composites 227,024 2,356 224,668 244,971 -8.3 % Consolidated total $ 689,322 $ 14,185 $ 675,137 $ 673,753 0.2 % Three month comparison • Changes in currency translation rates had the effect of increasing Net sales by $1.8 million during the third quarter of 2021, as compared to 2020, principally due to stronger Euro and Chinese Yuan Renminbi in 2021. • Excluding the effect of changes in currency translation rates: • Net sales increased 8.8% compared to the same period in 2020. • Net sales in MC increased 9.9% compared to the third quarter of 2020, due to growth in all major grades of product, led by engineered fabric and packaging grades. • Net sales in AEC increased 6.7%, mainly due to growth on LEAP and CH-53K programs, partially offset by a decline in sales for the Boeing 787 and F-35 platforms. Nine month comparison • Changes in currency translation rates had the effect of increasing Net sales by $14.2 million during the first nine months of 2021, as compared to 2020, mainly due to stronger Euro and Chinese Yuan Renminbi in 2021. • Excluding the effect of changes in currency translation rates: • Net sales increased 0.2% compared to the same period in 2020. • Net sales in MC increased 5.1% compared to the same period in 2020, primarily due to growth in engineered fabric and packaging grades, offset by a decline in publication grades. • Net sales in AEC decreased 8.3%, primarily due to declines in sales for the Boeing 787 program, partially offset by growth on the LEAP program. Gross Profit The following table summarizes Gross profit by business segment: 25 Index Three months ended September 30, Nine months ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Machine Clothing $ 79,437 $ 71,471 $ 240,427 $ 227,734 Albany Engineered Composites 12,605 15,831 41,889 52,020 Total $ 92,042 $ 87,302 $ 282,316 $ 279,754 % of Net sales 39.6 % 41.2 % 41.0 % 41.5 % Three month comparison Third quarter 2021 gross profit increased 5.4% compared to that for the same period in 2020. Gross profit as a percentage of sales: • Was flat at 51.5% in MC. • Decreased from 21.6% in 2020 to 16.1% in 2021 in AEC, driven by a smaller impact from changes in the estimated profitability of long-term contracts, lower fixed cost absorption, and the effect of sharing with our customer base a portion of the AMJP grant received during the quarter. We recognized $2.1 million net favorable change in the estimated profitability of long-term contracts during for the third quarter of 2021, compared to a $3.5 million net favorable impact during the same period in 2020. Nine month comparison Gross profit for the third quarter of 2021 was effectively flat compared to that for the same period in 2020. Gross profit as a percentage of sales: • Decreased from 53.1% in 2020 to 52.0% in 2021 in MC, due to higher production costs, offset by improved absorption. • Decreased from 21.2% in 2020 to 18.5% in 2021 in AEC, driven by unfavorable shift in program revenue mix. Selling, Technical, General, and Research (STG&R) The following table summarizes STG&R expenses by business segment: Three months ended September 30, Nine months ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Machine Clothing $ 23,717 $ 25,386 $ 78,501 $ 76,903 Albany Engineered Composites 9,769 8,646 28,909 26,664 Corporate expenses 13,883 13,787 38,405 40,904 Total $ 47,369 $ 47,819 $ 145,815 $ 144,471 % of Net sales 20.4 % 22.6 % 21.2 % 21.4 % Three month comparison The overall decrease in STG&R expenses in the third quarter of 2021, compared to the same period in 2020, was primarily due to foreign currency revaluation gains as compared to a foreign currency revaluation losses in the same quarter of last year, offset by higher travel and R&D expenses. Nine month comparison The overall increase in STG&R expenses in the third quarter of 2021, compared to the same period in 2020, was due to the net effect of the following: • Revaluation of nonfunctional currency assets and liabilities in Machine Clothing resulted in a gain of $0.2 million in 2021, compared to a gain of $1.3 million in 2020. • Former CEO termination costs of $2.7 million were recorded in Corporate expenses during the first quarter of 2020. 26 Index • Higher incentive compensation in all business segments in 2021. Restructuring Expense, net In addition to the items discussed above affecting gross profit and STG&R expenses, operating income was minimally affected by restructuring costs during the year-to-date period ended September 30, 2021, but totaled $4.2 million for the same period in 2020. The following table summarizes Restructuring expenses, net by business segment: Three months ended September 30, Nine months ended September 30, (in thousands) 2021 2020 2021 2020 Machine Clothing $ 251 $ 384 $ 193 $ 1,414 Albany Engineered Composites (81) 358 (40) 2,606 Corporate expenses 17 (32) 77 169 Total $ 187 $ 710 $ 230 $ 4,189 Machine Clothing restructuring charges in both years are mainly related to discontinued operations at its production facility in Sélestat, France, announced in 2017. The restructuring program was driven by the Company’s need to balance manufacturing capacity with demand. Since 2017, we have recorded $13.9 million of restructuring charges related to this action. Operating Income The following table summarizes operating income/(loss) by business segment: Three months ended September 30, Nine months ended September 30, (in thousands) 2021 2020 2021 2020 Machine Clothing $ 55,467 $ 45,699 $ 161,731 $ 149,418 Albany Engineered Composites 2,917 6,828 13,019 22,749 Corporate expenses (13,898) (13,754) (38,479) (41,073) Total $ 44,486 $ 38,773 $ 136,271 $ 131,094 Other Earnings Items Three months ended September 30, Nine months ended September 30, (in thousands) 2021 2020 2021 2020 Interest expense, net $ 3,734 $ 2,242 $ 11,521 $ 10,042 AMJP grant (see Note 1) (5,832) — (5,832) — Other expense/(income), net 2,753 (2,745) 4,215 13,915 Income tax expense 12,889 9,686 36,375 37,504 Net income/(loss) attributable to the noncontrolling interest 80 1 150 (1,419) Interest Expense, net Interest expense, net was higher during the quarter and year-to-date ended September 30, 2021, compared to the same periods in 2020, primarily as a result of the following. During 2020, the Company successfully resolved its claim for a rebate of foreign sales tax paid in previous years, reducing interest expense for the year-to-date ended September 30, 2020 by $0.9 million. In addition, the Company completed amortizing its swap buyouts during the first quarter of 2021, eliminating interest income amortization of $0.6 million. Other (income)/expense, net 27 Index Other (income)/expense net included losses related to the revaluation of nonfunctional-currency balances of $0.8 million for the first nine months of 2021, compared to losses of $14.7 million for the first nine months of 2020, which principally resulted from an intercompany demand loan payable by a Mexican subsidiary. As a result of changes in business conditions that occurred in the first quarter of 2020, loan repayments on that intercompany loan are not expected in the foreseeable future and, beginning April 1, 2020, the revaluation effects are recorded in Other comprehensive income. Income Tax The Company has operations, which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21 percent during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges. Three and nine month comparison The Company’s effective tax rates for the third quarter of 2021 and 2020 were 29.4% and 24.7%, respectively, and for the nine months ended September 30, 2021 and 2020, were 28.8% and 35.0%, respectively. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and non-U.S. jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The increase in the Q3 2021 income tax rate from continuing operations, excluding discrete items, was driven by an increase in losses in a foreign jurisdiction that were excluded in calculating the quarterly income tax provision. The effective tax rate for the nine months ended September 30, 2020 was significantly affected by a non-recurring tax adjustment due to non-deductible foreign exchange losses, which occurred in the first quarter of 2020. For more information on income tax, see Note 5 to the Consolidated Financial Statements. 28 Index Segment Results of Operations Machine Clothing Segment Machine Clothing accounted for approximately 67% of our consolidated revenues during the nine months of 2021. MC products are purchased primarily by manufacturers of paper and paperboard. We feel we are well-positioned in these markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Recent technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand. Additionally, we face pricing pressures in all of our markets. The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology, and to maintain our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement. We have incurred significant restructuring charges in recent years as we reduced MC manufacturing capacity and administrative positions in various countries. Review of Operations Three months ended September 30, Nine months ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Net sales $ 154,171 $ 138,747 $ 462,298 $ 428,782 Gross profit 79,437 71,471 240,427 227,734 % of Net sales 51.5 % 51.5 % 52.0 % 53.1 % STG&R expenses 23,717 25,386 78,501 76,903 Operating income 55,467 45,699 161,731 149,418 Net Sales Three month comparison • Net sales increased by 11.1%. • Changes in currency translation rates had the effect of increasing third-quarter 2021 sales by $1.7 million compared to the same period in 2020. That currency translation effect was mainly due to stronger Euro and Chinese Yuan Renminbi in the third quarter of 2021, compared to 2020. • Excluding the effect of changes in currency translation rates, Net sales in MC increased 9.9% compared to the third quarter of 2020, principally due to growth in sales for packaging grades and engineered fabrics, partially offset by declines in other grades. Nine month comparison • Net sales increased by 7.8%. • Changes in currency translation rates had the effect of increasing 2021 sales by $11.8 million compared to the same period in 2020. That currency translation effect was principally due to stronger Euro and Chinese Yuan Renminbi in the first nine months of 2021, compared to 2020. • Excluding the effect of changes in currency translation rates, Net sales in MC increased 5.1% compared to 2020, due to growth in all major grades of product, led by engineered fabric and packaging grades. Gross Profit Three and nine month comparison MC gross profit margin was flat at 51.5% in each of the third quarters in 2021 and 2020. 29 Index For the nine months ended September 31, 2021, gross profit margin was lower compared to the same period in 2020, due to higher input and fixed costs, partially offset by improved absorption. Operating Income Three and nine month comparison The operating income improvement in the third quarter of 2021, compared to the same period in 2020, was primarily due to higher gross profit and lower STG&R expenses. The increase in operating income in nine months ended September 30, 2021 was driven by higher gross profit, offset by higher STG&R expenses, compared to the same period in 2020. Albany Engineered Composites Segment The Albany Engineered Composites (AEC) segment, including Albany Safran Composites, LLC (ASC), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest, provides highly engineered advanced composite structures to customers, primarily in the aerospace (both commercial and defense) industry. AEC’s largest program relates to CFM International’s LEAP engine. AEC, through ASC, is the exclusive supplier of advanced composite fan blades and cases for this program under a long-term supply contract. The LEAP engine is used on the Boeing 737 MAX, Airbus A320neo and COMAC aircraft family of jets. Other significant AEC programs include components for the F-35, components for the CH-53K helicopter, fuselage frames for the Boeing 787, and the fan case for the GE9X engine. Review of Operations Three months ended September 30, Nine months ended September 30, (in thousands, except percentages) 2021 2020 2021 2020 Net sales $ 78,271 $ 73,252 $ 227,024 $ 244,971 Gross profit 12,605 15,831 41,889 52,020 % of Net sales 16.1 % 21.6 % 18.5 % 21.2 % STG&R expenses 9,769 8,646 28,909 26,664 Operating income 2,917 6,828 13,019 22,749 Net Sales Three and nine month comparison Third quarter 2021 net sales increased compared to third quarter 2020, mainly due to growth on LEAP and CH-53K programs, partially offset by a decline in sales for the Boeing 787 and F-35 platforms. Net sales for the nine months ended September 30, 2021 decreased compared to those in the same period in 2020, primarily due to declines in sales for the Boeing 787 program, partially offset by growth on the CH-53K programs. Gross Profit Three and nine month comparison The decrease in gross profit for the third quarter in 2021 compared to the same period in 2020 was driven by a smaller impact from changes in the estimated profitability of long-term contracts, lower fixed cost absorption, and the effect of sharing with our customer base a portion of the AMJP grant received during the quarter. For the year-to-date ended September 30, 2021, gross profit was lower compared to that for the same period in 2020, driven by unfavorable shift in program revenue mix. Long-term contracts 30 Index AEC has contracts with certain customers, including its contract for the LEAP program, where revenue is determined by a cost-plus-fee agreement. Revenue earned under these arrangements accounted for approximately 34 percent of segment revenue for year-to-date ended September 30, 2021 and 29 percent for the same period of 2020. LEAP engines are currently used on the Boeing 737 MAX, Airbus A320neo and COMAC aircraft. In addition, AEC has long-term contracts in which the selling price is fixed. In accounting for those contracts, we estimate the profit margin expected at the completion of the contracts and recognize a pro-rata share of that profit during the course of the contracts using a cost-to-cost approach. Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue and gross profit in any reporting period. For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as period expenses. Expected losses on projects include losses on contract options that are probable of exercise, excluding profitable options that often follow. Operating Income Three and nine month comparison Operating income was lower for the three and nine months ended September 30, 2021 compared to the same periods in 2020, primarily due to lower gross profit and higher STG&R expenses. Liquidity and Capital Resources Cash Flow Summary Nine months ended September 30, (in thousands) 2021 2020 Net income $ 89,992 $ 69,633 Depreciation and amortization 55,347 54,306 Changes in working capital (a) (9,959) (65,460) Changes in other noncurrent liabilities and deferred taxes 1,440 12,021 Other operating items 11,679 13,193 Net cash provided by/(used in) operating activities 148,499 83,693 Net cash (used in)/ provided by investing activities (32,148) (31,475) Net cash (used in)/provided by financing activities (69,339) (31,703) Effect of exchange rate changes on cash and cash equivalents (2,111) (751) Increase/(decrease) in cash and cash equivalents 44,901 19,764 Cash and cash equivalents at beginning of year 241,316 195,540 Cash and cash equivalents at end of period $ 286,217 $ 215,304 (a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable, and Accrued liabilities. Operating activities Cash flow provided by operating activities was $148.5 million in the first nine months of 2021, compared to $83.7 million in the first nine months of 2020. This improvement was due to improved working capital cash flows in AEC, primarily due to higher income from the LEAP program, and an increase in consolidated net income. Cash paid for income taxes was $27.8 million and $21.9 million for the first nine months of 2021 and 2020, respectively. The increase is primarily due to an increase in corporate income tax payments in Brazil, China and Switzerland related to prior year tax liabilities, partially offset by a decrease in corporate income tax payments in the United States due to an increase in prior year state overpayments. At September 30, 2021, we had $286.2 million of cash and cash equivalents, of which $223.1 million was held by subsidiaries outside of the United States. 31 Index Investing and Financing Activities Capital expenditures for the first nine months were $32.1 million in 2021 and $31.5 million in 2020. Net cash outflows from financing activities for the year-to-date ended September 30, 2021 were higher than those for the same period in 2020, primarily due to increased net principal payments on debt. Dividends have been declared each quarter since the fourth quarter of 2001. 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. Future cash dividends will also depend on debt covenants and on the Board’s assessment of our ability to generate sufficient cash flows. Capital Resources We finance our business activities primarily with cash generated from operations and borrowings, largely through our revolving credit agreement as discussed below. Our subsidiaries outside of the United States may also maintain working capital lines with local banks, but borrowings under such local facilities tend to be insignificant. The majority of our cash balance at September 30, 2021 was held by non-U.S. subsidiaries. Based on cash on hand and credit facilities, we anticipate that the Company has sufficient capital resources to operate for the foreseeable future. We were in compliance with all debt covenants as of September 30, 2021. On October 27, 2020, we entered into a $700 million unsecured Four-Year Revolving Credit Facility Agreement (the “Credit Agreement”) which amended and restated the prior amended and restated $685 million Five-Year Revolving Credit Facility Agreement, which we had entered into on November 7, 2017 (the “Prior Agreement”). Under the Credit Agreement, $350 million of borrowings were outstanding as of September 30, 2021. The applicable interest rate for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing. At the time of the last borrowing on September 16, 2021, the spread was 1.625%. The spread was based on a pricing grid, which ranged from 1.500% to 2.000%, based on our leverage ratio. Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification to any other credit agreements, as of September 30, 2021, we would have been able to borrow an additional $350 million under the Agreement. For more information, see Note 13 to the Consolidated Financial Statements. Off-Balance Sheet Arrangements As of September 30, 2021, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K. Non-GAAP Measures This Form 10-Q contains certain non-GAAP measures, including: Net sales, and percent change in Net sales, excluding the impact of currency translation effects (for each segment and on a consolidated basis); EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis, represented in dollars or as a percentage of net sales); Net debt; and Adjusted earnings per share (or Adjusted EPS). Such items are provided because management believes that they provide additional useful information to investors regarding the Company’s operational performance. Presenting Net sales and increases or decreases in Net sales, after currency effects are excluded, can give management and investors insight into underlying sales trends. EBITDA, Adjusted EBITDA and Adjusted EPS are performance measures that relate to the Company’s continuing operations. EBITDA, or net income with interest, taxes, depreciation, and amortization added back, is a common indicator of financial performance used, among other things, to analyze and compare core profitability between companies and industries because it eliminates effects due to differences in financing, asset bases and taxes. An understanding of the impact in a particular quarter of specific restructuring costs, former CEO termination costs, acquisition/integrations costs, currency revaluation, government grants, pension settlement/curtailment charges, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to quarters in which such items had a greater or lesser effect, or no effect. Restructuring expenses, while frequent in recent years, are reflective of significant reductions in manufacturing capacity and associated headcount in response to shifting markets, and not of the profitability of the business going forward as restructured. 32 Index Net sales, or percent changes in Net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S. dollars at the exchange rate of a prior period. These amounts are then compared to the U.S. dollar amount as reported in the current period. The Company calculates EBITDA by removing the following from Net income: Interest expense net, Income tax expense, and Depreciation and amortization expense. Adjusted EBITDA is calculated by: adding to EBITDA costs associated with restructuring, former CEO termination costs, and inventory write-offs associated with discontinued businesses; adding charges and credits related to pension plan settlements and curtailments; adding (or subtracting) revaluation losses (or gains); subtracting income (net of associated costs) recognized related to government grants; subtracting (or adding) gains (or losses) from the sale of buildings or investments; adding acquisition/integration costs and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC). Adjusted earnings per share (Adjusted EPS) is calculated by adding to (or subtracting from) net income attributable to the Company per share, on an after-tax basis: restructuring charges; former CEO severance costs; inventory write-offs associated with discontinued businesses; charges and credits related to pension settlements and curtailments; foreign currency revaluation losses (or gains); and acquisition-related expenses. EBITDA, Adjusted EBITDA, and Adjusted earnings per share as defined by the Company may not be similar to similarly named measures of other companies. Such measures are not considered measurements under GAAP, and should be considered in addition to, but not as substitutes for, the information contained in the Company’s statements of income. The following tables show the calculation of EBITDA and Adjusted EBITDA: Three months ended September 30, 2021 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 55,467 $ 2,917 $ (13,898) $ 44,486 Interest, taxes, other income/(expense) — — (13,544) (13,544) Net income/(loss) (GAAP) 55,467 2,917 (27,442) 30,942 Interest expense, net — — 3,734 3,734 Income tax expense — — 12,889 12,889 Depreciation and amortization expense 5,014 12,265 935 18,214 EBITDA (non-GAAP) 60,481 15,182 (9,884) 65,779 Restructuring expenses, net 251 (81) 17 187 Foreign currency revaluation (gains)/losses (1,571) 31 472 (1,068) AMJP grant — 963 (5,832) (4,869) Acquisition/integration costs — 297 — 297 Pre-tax (income) attributable to noncontrolling interest — (95) — (95) Adjusted EBITDA (non-GAAP) $ 59,161 $ 16,297 $ (15,227) $ 60,231 33 Index Three months ended September 30, 2020 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 45,699 $ 6,828 $ (13,754) $ 38,773 Interest, taxes, other income/(expense) — — (9,183) (9,183) Net income/(loss) (GAAP) 45,699 6,828 (22,937) 29,590 Interest expense, net — — 2,242 2,242 Income tax expense — — 9,686 9,686 Depreciation and amortization expense 5,074 12,236 972 18,282 EBITDA (non-GAAP) 50,773 19,064 (10,037) 59,800 Restructuring expenses, net 384 358 (32) 710 Foreign currency revaluation (gains)/losses 1,422 (226) (144) 1,052 Acquisition/integration costs — 291 — 291 Pre-tax (income) attributable to noncontrolling interest — (22) — (22) Adjusted EBITDA (non-GAAP) $ 52,579 $ 19,465 $ (10,213) $ 61,831 Nine months ended September 30, 2021 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 161,731 $ 13,019 $ (38,479) $ 136,271 Interest, taxes, other income/(expense) — — (46,279) (46,279) Net income/(loss) (GAAP) 161,731 13,019 (84,758) 89,992 Interest expense, net — — 11,521 11,521 Income tax expense — — 36,375 36,375 Depreciation and amortization expense 15,272 37,326 2,749 55,347 EBITDA (non-GAAP) 177,003 50,345 (34,113) 193,235 Restructuring expenses, net 193 (40) 77 230 Foreign currency revaluation (gains)/losses (156) 363 813 1,020 AMJP grant 963 (5,832) (4,869) Acquisition/integration costs — 911 — 911 Pre-tax (income) attributable to noncontrolling interest — (206) — (206) Adjusted EBITDA (non-GAAP) $ 177,040 $ 52,336 $ (39,055) $ 190,321 34 Index Nine months ended September 30, 2020 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 149,418 $ 22,749 $ (41,073) $ 131,094 Interest, taxes, other income/(expense) — — (61,461) (61,461) Net income/(loss) (GAAP) 149,418 22,749 (102,534) 69,633 Interest expense, net — — 10,042 10,042 Income tax expense — — 37,504 37,504 Depreciation and amortization expense 15,142 36,192 2,972 54,306 EBITDA (non-GAAP) 164,560 58,941 (52,016) 171,485 Restructuring expenses, net 1,414 2,606 169 4,189 Foreign currency revaluation (gains)/losses (1,265) 501 14,705 13,941 Former CEO termination costs — — 2,742 2,742 Acquisition/integration costs — 867 — 867 Pre-tax loss attributable to noncontrolling interest — 1,412 — 1,412 Adjusted EBITDA (non-GAAP) $ 164,709 $ 64,327 $ (34,400) $ 194,636 The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insight into the underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on either the tax rates in specific countries or the estimated tax rate applied to total company results. The after-tax amount is then divided by the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period. The following tables show the earnings per share effect of certain income and expense items: Three months ended September 30, 2021 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 187 $ 55 $ 132 $ 0.00 Foreign currency revaluation (gains)/losses (1,068) (314) (754) (0.02) AMJP grant (4,869) (1,446) (3,423) (0.11) Acquisition/integration costs 297 89 208 0.01 Three months ended September 30, 2020 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 710 $ 232 $ 478 $ 0.01 Foreign currency revaluation (gains)/losses 1,052 526 526 0.02 Acquisition/integration costs 291 87 204 0.01 35 Index Nine months ended September 30, 2021 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 230 $ 67 $ 163 $ 0.00 Foreign currency revaluation (gains)/losses 1,020 332 688 0.02 AMJP grant (4,869) (1,446) (3,423) (0.11) Acquisition/integration costs 911 273 638 0.03 Nine months ended September 30, 2020 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 4,189 $ 1,377 $ 2,812 $ 0.08 Foreign currency revaluation (gains)/losses (a) 13,941 (483) 14,424 0.46 Former CEO termination costs 2,742 713 2,029 0.06 Acquisition/integration costs 867 259 608 0.03 (a) In Q1 2020, the Company incurred losses of approximately $17 million in jurisdictions where it cannot record a tax benefit from the losses, which results in an unusual relationship between the pre-tax and after-tax amounts. The following table provides a reconciliation of Earnings per share to Adjusted Earnings per share: Three months ended September 30, Nine months ended September 30, Per share amounts (Basic) 2021 2020 2021 2020 Earnings per share (GAAP) $ 0.95 $ 0.92 $ 2.78 $ 2.20 Adjustments, after tax: Restructuring expenses, net — 0.01 — 0.08 Foreign currency revaluation (gains)/losses (0.02) 0.02 0.02 0.46 AMJP grant (0.11) — (0.11) — Former CEO termination costs — — — 0.06 Acquisition/integration costs 0.01 0.01 0.03 0.03 Adjusted Earnings per share (non-GAAP) $ 0.83 $ 0.96 $ 2.72 $ 2.83 Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any. The following table contains the calculation of net debt: (in thousands) September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 Current maturities of long-term debt $ — $ — $ 2 $ 9 Long-term debt 350,000 350,000 384,000 398,000 Total debt 350,000 350,000 384,002 398,009 Cash and cash equivalents 286,217 253,330 237,871 241,316 Net debt (non GAAP) $ 63,783 $ 96,670 $ 146,131 $ 156,693 Item 3. Quantitative and Qualitative Disclosures about Market Risk For discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures about Market Risk”, which is included as an exhibit to this Form 10-Q.