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; • Across the entire Company, 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. General risks associated with macroeconomic conditions, as noted above, have changed during the first three months of 2022. The recent escalation in the Russia-Ukraine military conflict has had and may continue to have profound effects on macroeconomic business conditions around the world, including in our Machine Clothing and Albany Engineered Composites segments. Certain COVID-19 related disruptions and risks have persisted during the current year, causing inflationary pressure connected to global supply chain bottlenecks and elevated energy price pressures. These challenges have only increased as a result of the Russia-Ukraine military conflict, which also has quickly prompted a global imposition of stringent sanctions that have resulted in a sharp decline in trade with Russia. Correspondingly, and in union with the global community, we voluntarily decided to dissolve business relationships in Russia during the first three months of 2022, despite the associated cost to our investment and the loss of future revenue in the region. While our Albany Engineered Composites segment does not have significant direct exposure in this region of the world, and our Machine Clothing segment has now significantly reduced its exposure, the broader economic ramifications of this conflict will indirectly affect all sectors of the economy. This conflict, which may yet be in its early stages, including imposed sanctions, has amplified inflationary pressures, driving higher prices for global oil, natural gas, agricultural and metal prices, as well as causing additional supply-chain disruptions. 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 21 Index 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 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 12 percent of the Company’s consolidated Net sales in 2021. 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 2021, approximately 47 percent of AEC sales were related to U.S. government contracts or programs. Effect of Russia-Military Conflict The war between Russia and Ukraine is affecting the economic and global financial markets and exacerbating ongoing economic challenges caused by impacts of the ongoing COVID-19 pandemic, including rising inflation and global supply chain disruptions. Our MC segment generates approximately 2% of its annual net sales from customers in Russia and Ukraine. In addition, a subsidiary within our Machine Clothing segment has been a partner in a joint venture (“JV”) that supplies paper machine clothing products to local papermakers in Russia. In March 2022, we made the decision to cease doing business in Russia, including giving notice to our JV partner of our intent to exit the venture. As a result, we recognized $1.8 million expense in cost of goods sold and in Selling, Administrative, and General expense, representing reserves against the risk of obsolescence of certain inventory destined for Russian customers and uncollectible receivables from Russian customers, respectively. We also wrote down the net book value of our investment in the aforementioned JV to reflect our intent to exit such venture, resulting in $0.8 million impairment loss included in Other expense/income - net during the first quarter of 2022. We anticipate approximately $10.0 million reduction in future annual net sales in the MC segment, due to our cessation of doing business in Russia. During the first three months of 2022, energy costs soared, the supply market continued to tighten against strong demands and global logistics challenges persisted. 22 Index Our MC segment has continued experiencing price increases in raw materials, indirect supply, and logistics. Moreover, the ongoing impact of the COVID-19 pandemic in certain regions, such as China where zero COVID tolerance policy is enforced, further limiting the availability of raw materials. The ultimate financial impact due to the war between Russia and Ukraine, the ongoing COVID-19 pandemic, and inflationary environment is difficult to predict. After consideration of possible offsets through corresponding price increases to our customers and productivity improvements, we currently estimate a net increase to the MC segment input costs of between $8.0 million and $10.0 million for the year ending December 31, 2022. We estimate such net cost increases to unfavorably affect the MC segment gross margin by between 100 and 140 basis points for the year ending December 31, 2022. Our Albany Engineered Composites segment does not have significant direct exposure in Russia. However, it has not been immune from supply chain disruptions due to raw material shortages, abnormally high commodity prices, labor shortages, and logistic constraints. Due to the nature of AEC’s contracts with its customers, we currently anticipate being able to pass through such cost increases to the customers. Until the effects of the war between Russia and Ukraine, as well as the COVID-19 pandemic, on the economic and global financial markets subside, there can be no assurance that our input costs will not continue to rise beyond our current estimate, thus unfavorably impacting our future results of operations, financial position and liquidity. 23 Index Consolidated Results of Operations Net sales The following table summarizes our Net sales by business segment: Three months ended March 31, (in thousands, except percentages) 2022 2021 % Change Machine Clothing $154,062 $148,206 4.0 % Albany Engineered Composites 90,107 74,156 21.5 % Total $244,169 $222,362 9.8 % The following tables provide a comparison of 2022 Net sales, excluding the impact of currency translation effects, to 2021 Net sales: (in thousands, except percentages) Net sales as reported, Q1 2022 Decrease due to changes in currency translation rates Q1 2022 sales on same basis as Q1 2021 currency translation rates Net sales as reported, Q1 2021 % Change compared to Q1 2021, excluding currency rate effects Machine Clothing $ 154,062 $ (2,528) $ 156,590 $ 148,206 5.7 % Albany Engineered Composites 90,107 (1,158) 91,265 74,156 23.1 % Total $ 244,169 $ (3,686) $ 247,855 $ 222,362 11.5 % Changes in currency translation rates had the effect of decreasing Net sales by $3.7 million during the first quarter of 2022, as compared to 2021, principally due to a weaker Euro in 2022. Excluding the effect of changes in currency translation rates: • Net sales increased 11.5% compared to the same period in 2021. • Net sales in MC increased 5.7% compared to the first quarter of 2021, driven by growth in sales for packaging and tissue grades. • Net sales in AEC increased 23.1%, mainly due to growth on LEAP and CH-53K programs, partially offset by a decline on the F-35 platform. Gross Profit The following table summarizes Gross profit by business segment: Three months ended March 31, (in thousands, except percentages) 2022 2021 Machine Clothing $ 79,345 $ 76,393 Albany Engineered Composites 12,259 12,153 Total $ 91,604 $ 88,546 % of Net sales 37.5 % 39.8 % The increase in 2022 Gross profit, as compared to the same period in 2021, was due to the effect of higher Net sales in MC and AEC business segments. Gross profit as a percentage of sales at Machine Clothing was flat at 51.5% as compared to the prior year, and at AEC decreased from 16.4% in 2021 to 13.6% in 2022, driven by recognition of reserves recorded on inventory that was damaged at an off-site storage facility. We recognized $0.7 million net unfavorable change in the estimated profitability of long-term contracts during the first quarter of 2022, compared to an insignificant amount in the first quarter of 2021. Selling, Technical, General, and Research ("STG&R") The following table summarizes STG&R expenses by business segment: 24 Index Three months ended March 31, (in thousands, except percentages) 2022 2021 Machine Clothing $ 29,477 $ 26,099 Albany Engineered Composites 11,064 9,126 Corporate expenses 12,055 11,451 Total $ 52,596 $ 46,676 % of Net sales 21.5 % 21.0 % The overall increase in STG&R expenses was driven by customer credit loss reserve increases related to our dissolution of business relationships in Russia, higher incentive compensation costs, and the unfavorable effect of the revaluation of foreign currency balances. Restructuring Expense, net In addition to the items discussed above affecting Gross profit and STG&R expenses, operating income was affected by restructuring expenses, as summarized in the following table: Three months ended March 31, (in thousands) 2022 2021 Machine Clothing $ 243 $ (69) Albany Engineered Composites — 89 Corporate expenses 11 32 Total $ 254 $ 52 Restructuring expense, net was insignificant in both the current and prior year, and was related primarily to the winding down of restructuring actions taken in prior periods. Operating Income The following table summarizes operating income/(loss) by business segment: Three months ended March 31, (in thousands) 2022 2021 Machine Clothing $ 49,644 $ 50,363 Albany Engineered Composites 1,195 2,938 Corporate expenses (12,085) (11,483) Total $ 38,754 $ 41,818 Other Earnings Items Three months ended March 31, (in thousands) 2022 2021 Interest expense, net $ 3,609 $ 3,569 Other expense/(income), net (3,928) 600 Income tax expense 10,998 10,040 Net income/(loss) attributable to the noncontrolling interest 338 27 Interest Expense, net Interest expense, net, was largely in line with the prior year. See the Working Capital, Liquidity and Capital Structure section for further discussion of borrowings and interest rates. 25 Index Other (income)/expense, net Other (income)/expense, net, included foreign currency related transactions which resulted in gains of $3.7 million in the first three months of 2022, as compared to losses of $0.2 million in the same period last year. Current year gains were primarily driven by the remeasurement of intercompany demand loans payable by a Mexican subsidiary. 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. The Company’s effective tax rates for the first quarter of 2022 and 2021 were 28.1% and 26.7%, 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. For more information on income tax, see Note 5 to the Consolidated Financial Statements. Segment Results of Operations Machine Clothing Segment Machine Clothing is our primary business segment and accounted for 63% of our consolidated revenues during the first three months of 2022. 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 March 31, (in thousands, except percentages) 2022 2021 Net sales $ 154,062 $ 148,206 Gross profit 79,345 76,393 % of Net sales 51.5 % 51.5 % STG&R expenses 29,477 26,099 Operating income 49,644 50,363 Net Sales Net sales increased by 4.0%. Changes in currency translation rates, driven by a weaker Euro, had the effect of decreasing first-quarter 2022 sales by $2.5 million. Excluding the effect of changes in currency translation rates, Net sales in MC increased 5.7% compared to the first quarter of 2021, driven by growth in sales for packaging and tissue grades. 26 Index Gross Profit The increase in MC Gross profit was primarily due to higher sales as noted above, while MC gross margins were maintained at 51.5% year over year. Operating Income Operating income remained largely in line with the prior year, as higher STG&R expenses, driven by customer credit loss reserve increases related to our dissolution of business relationships in Russia, higher incentive compensation, and the unfavorable effect of the revaluation of foreign currency balances, more than offset the increase in gross profit. Albany Engineered Composites Segment The Albany Engineered Composites segment, including Albany Safran Composites, LLC, 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 Airbus A320neo and Boeing 737 MAX family of jets. Other significant AEC programs include components for the F-35, fuselage frames for the Boeing 787, components for the CH53-K helicopter, and the fan case for the GE9X engine. Review of Operations Three months ended March 31, (in thousands, except percentages) 2022 2021 Net sales $ 90,107 $ 74,156 Gross profit 12,259 12,153 % of Net sales 13.6 % 16.4 % STG&R expenses 11,064 9,126 Operating income 1,195 2,938 Net Sales The increase in Net sales was mainly due to growth on LEAP and CH-53K programs, partially offset by a decline on the F-35 platform. Gross Profit The increase in Gross profit of $0.1 million was primarily driven by the increase in Net sales, offset by reserves recorded on inventory that was damaged at an off-site storage facility. We recognized $0.7 million net unfavorable change in the estimated profitability of long-term contracts during the first quarter of 2022, compared to an insignificant amount in the first quarter of 2021. Long-term contracts 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 40 percent of segment revenue for each of the first three months of 2022 and 2021. 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 contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach. Changes in estimated contract profitability will affect 27 Index 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 Operating income was lower for the three months ended March 31, 2022 compared to the same period in 2021, primarily due to lower profit margins and increased STG&R expenses. Working Capital, Liquidity and Capital Structure Cash Flow Summary Three months ended March 31, (in thousands) 2022 2021 Net income $ 28,075 $ 27,609 Depreciation and amortization 17,762 18,882 Changes in working capital (a) (42,676) (5,992) Changes in other noncurrent liabilities and deferred taxes (122) 2,345 Other operating items (8,430) (9,158) Net cash provided by/(used in) operating activities (5,391) 33,686 Net cash used in investing activities (15,754) (12,536) Net cash (used in)/provided by financing activities 26,875 (21,694) Effect of exchange rate changes on cash and cash equivalents (351) (2,901) (Decrease)/increase in cash and cash equivalents 5,379 (3,445) Cash and cash equivalents at beginning of year 302,036 241,316 Cash and cash equivalents at end of period $ 307,415 $ 237,871 (a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable, and Accrued liabilities. Cash used in operating activities was $5.4 million in the first three months of 2022, compared to cash provided by operating activities of $33.7 million in the same period last year. AEC experienced particularly strong working capital cash flows in Accounts receivable and Contract assets during 2021, driven by significant deliveries of LEAP components throughout the year. In addition, timing of customer and vendor invoice payments, as well as higher incentive compensation payouts during the first three months in 2022 compared to the same period in 2021, contributed to the net cash used in operating activities. Net cash provided by financing activities during 2022 increased $48.6 million compared to 2021, driven by increased borrowings, partially used to fund repurchases of shares. 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 not to be significant. 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, $427 million of borrowings were outstanding as of March 31, 2022. 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 March 31, 2022, 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 March 31, 2022, we would have been able to 28 Index borrow an additional $273 million under the Agreement. We were in compliance with all debt covenants as of March 31, 2022. For more information, see Note 13 to the Consolidated Financial Statements. We believe cash flows from operations and availability under our Credit Agreement will be adequate to cover our operations and business needs over the next twelve months. As of March 31, 2022, we had cash and cash equivalents of approximately $307 million and availability under our Credit Agreement of $273 million, for a total liquidity of approximately $580 million. As of March 31, 2022, $289.5 million of our total cash and cash equivalents was held by non-U.S. subsidiaries. The accumulated undistributed earnings of the Company’s foreign operations not targeted for repatriation to the U.S. were approximately $190.2 million at March 31, 2022, and are intended to remain indefinitely invested in foreign operations. Our cash planning strategy includes repatriating current earnings in excess of working capital requirements from certain countries in which our subsidiaries operate. While we have been successful in such endeavor to date, there can be no assurance that we will be able to cost effectively repatriate funds in the future. Repatriating such cash from certain jurisdictions may also result in additional withholding taxes. We strategically deploy our cash with a focus on investing in our business and new technologies to provide our customers with enhanced capabilities, to increase shareholder value, and to position ourselves to take advantage of new business opportunities as they arise. Based on such strategy, we have continued to invest in our business and technologies through capital expenditures, research and development, and when appropriate, selective business acquisitions. Our capital expenditures totaled $15.8 million and $12.5 million for the first three months ended March 31, 2022 and 2021, respectively, comprised of both sustaining and return seeking projects. In the recent past, a portion of our capital expenditures consist of investments which improve operational productivity, in addition to producing a meaningful impact on energy and resource efficiency. We have also returned cash to shareholders through dividends and share repurchases. During the first three months of 2022, we paid $6.7 million in dividends and repurchased 515 thousand shares of our Class A Common shares at a cost of $43.9 million under the $200 million share repurchase program that our Board approved in October 2021. Off-Balance Sheet Arrangements As of March 31, 2022, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K. Recent Pronouncements On March 9, 2022, the SEC issued a proposed rule to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The proposed rules are intended to provide more consistent, comparable and decision-useful information so that investors can better evaluate the Company’s exposure to cybersecurity risks, incidents, and strategies to mitigate risks and incidents. We will continue to monitor developments around this proposed rule. On March 21, 2022, the SEC issued a proposed rule that would enhance and standardize the climate-related disclosures provided by public companies. Under the proposed rule, we would be required to provide quantitative and qualitative disclosures in registration statements and annual reports that include climate-related financial impact and expenditure metrics as well as a discussion of climate-related impacts on financial estimates and assumptions, all of which would be presented in a footnote to the financials statements. Such disclosures would also be subject to management's internal control over financial reporting ("ICFR") and external audit. As a Company, we have long been committed to sustainable practices and corporate social responsibility and have more recently taken steps to articulate our values and goals, some of which are summarized in our published sustainability report that is included at our website www.albint.com. In 2020, we began establishing more formalized and scalable approaches to our sustainability practices, reporting and systems, in order to ensure we prioritize efforts that are impactful to our business and stakeholders. We have begun to incorporate certain climate-related disclosures and risk factors in our existing disclosures to this point, but recognize the benefit of clearly defined rules and metrics that may drive more measurable, consistent, comparable and reliable information for investors. We will continue to monitor developments around this proposed rule, which once finalized, is expected to allow for a multi-year phased transition to achieving compliance. 29 Index 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, 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. 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 (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. 30 Index The following tables show the calculation of EBITDA and Adjusted EBITDA: Three months ended March 31, 2022 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 49,644 $ 1,195 $ (12,085) $ 38,754 Interest, taxes, other income/(expense) — — (10,679) (10,679) Net income/(loss) (GAAP) 49,644 1,195 (22,764) 28,075 Interest expense, net — — 3,609 3,609 Income tax expense — — 10,998 10,998 Depreciation and amortization expense 4,923 12,039 800 17,762 EBITDA (non-GAAP) 54,567 13,234 (7,357) 60,444 Restructuring expenses, net 243 — 11 254 Foreign currency revaluation (gains)/losses 1,057 423 (3,740) (2,260) Dissolution of business relationships in Russia 1,787 — 781 2,568 Acquisition/integration costs — 282 — 282 Pre-tax (income) attributable to noncontrolling interest — (252) — (252) Adjusted EBITDA (non-GAAP) $ 57,654 $ 13,687 $ (10,305) $ 61,036 Three months ended March 31, 2021 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 50,363 $ 2,938 $ (11,483) $ 41,818 Interest, taxes, other income/(expense) — — (14,209) (14,209) Net income/(loss) (GAAP) 50,363 2,938 (25,692) 27,609 Interest expense, net — — 3,569 3,569 Income tax expense — — 10,040 10,040 Depreciation and amortization expense 5,122 12,865 895 18,882 EBITDA (non-GAAP) 55,485 15,803 (11,188) 60,100 Restructuring expenses, net (69) 89 32 52 Foreign currency revaluation (gains)/losses (492) 575 167 250 Acquisition/integration costs — 314 — 314 Pre-tax (income) attributable to noncontrolling interest — (46) — (46) Adjusted EBITDA (non-GAAP) $ 54,924 $ 16,735 $ (10,989) $ 60,670 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: 31 Index Three months ended March 31, 2022 (in thousands, except per share amounts Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 254 $ 73 $ 181 $ 0.01 Foreign currency revaluation (gains)/losses (2,260) (653) (1,607) (0.05) Dissolution of business relationships in Russia 2,568 332 2,236 0.07 Acquisition/integration costs 282 84 198 0.01 Three months ended March 31, 2021 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 52 $ 15 $ 37 $ 0.00 Foreign currency revaluation (gains)/losses 250 (135) 385 0.01 Acquisition/integration costs 314 94 220 0.01 The following table contains the calculation of Adjusted EPS: Three months ended March 31, Per share amounts (Basic) 2022 2021 Earnings per share (GAAP) $ 0.87 $ 0.85 Adjustments, after tax: Restructuring expenses, net 0.01 — Foreign currency revaluation (gains)/losses (0.05) 0.01 Dissolution of business relationships in Russia 0.07 — Acquisition/integration costs 0.01 0.01 Adjusted Earnings per share (non-GAAP) $ 0.91 $ 0.87 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) March 31, 2022 December 31, 2021 March 31, 2021 Current maturities of long-term debt $ — $ — $ 2 Long-term debt 427,000 350,000 384,000 Total debt 427,000 350,000 384,002 Cash and cash equivalents 307,415 302,036 237,871 Net debt (non GAAP) $ 119,585 $ 47,964 $ 146,131 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.