What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-26 compared with 2022-04-26 · 202 added, 81 removed, 293 unchanged (49% of the section changed)

13 unchanged sentences

• 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.

General risks associated with macroeconomic conditions, as noted above, have changed during the first six months of 2022.

The Russia-Ukraine war 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.

These challenges have only increased as a result of the Russia-Ukraine war, 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 quarter 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 war will indirectly affect all sectors of the economy.

This conflict, 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.

16 unchanged sentences

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’s current portfolio of non-3D programs includes components for the CH-53K helicopter, components for the F-35, missile bodies for Lockheed Martin’s JASSM air-to-surface missiles, fuselage components for the Boeing 787, and vacuum waste tanks for Boeing 7-Series aircraft.

AEC is actively engaged in research to develop new applications in both commercial and defense aircraft engine and airframe markets.

7 unchanged sentences

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 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 (income)/expense, 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.

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.

During the first six months of 2022, energy costs soared, the supply market continued to tighten against strong demands and global logistics challenges persisted.

Our MC segment has continued experiencing input cost pressures.

Raw material costs increased due to higher crude oil and natural gas prices, coupled by non-contractual vendor surcharges to sustain price pressure and maintain their operations.

Supply limitation and high energy costs continue to put upward pressure on indirect supply costs.

Lastly, logistics costs remained elevated, due to higher fuel prices and limited availability.

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.

After consideration of possible offsets through corresponding price increases to our customers and productivity improvements, we 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, or an unfavorable impact to the segment gross margin of up to 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.

Due to the nature of AEC’s contracts with its customers, we currently anticipate passing through a majority of 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.

1 unchanged sentence

The following table summarizes our Net sales by business segment:

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands, except percentages)

2022 2021 % Change

2022 2021 % Change 2022 2021 % Change

Machine Clothing $151,670 $159,921 -5.2 % $305,732 $308,127 -0.8 %

9 unchanged sentences

Total $ 261,369 $ (7,441) $ 268,810 $ 234,519 14.6 %

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.

(in thousands, except percentages)

Net sales as reported, YTD 2022 Decrease due to changes in currency translation rates YTD 2022 sales on same basis as 2021 currency translation rates Net sales as reported, YTD 2021 % Change compared to 2021, excluding currency rate effects

Machine Clothing $ 305,732 $ (7,975) $ 313,707 $ 308,127 1.8 %

Albany Engineered Composites

199,806 (3,152) 202,958 148,753 36.4 %

Total $ 505,538 $ (11,127) $ 516,665 $ 456,880 13.1 %

Three month comparison

• Changes in currency translation rates had the effect of decreasing Net sales by $7.4 million during the second 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 14.6% 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.

• Net sales in MC decreased 1.8% compared to the second quarter of 2021, driven by declines in sales for engineered fabrics and tissue grades, partially due to our previously announced cessation of doing business in Russia.

• Net sales in AEC increased 49.7%, mainly due to growth on CH-53K and LEAP programs.

Six month comparison

• Changes in currency translation rates had the effect of decreasing Net sales by $11.1 million during the first six months 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 13.1% compared to the same period in 2021.

• Net sales in MC increased 1.8% compared to the first six months of 2021, primarily due to growth in sales for pulp and publication grades.

• Net sales in AEC increased 36.4%, primarily due to growth on CH-53K and LEAP programs.

The following table summarizes Gross profit by business segment:

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands, except percentages)

2022 2021 2022 2021

Machine Clothing $ 78,857 $ 84,597 $ 158,202 $ 160,990

4 unchanged sentences

38.5 % 43.4 % 38.0 % 41.6 %

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.

Three month comparison

The decrease in second quarter 2022 Gross profit, as compared to the same period in 2021, was due to a decline in MC Gross profit, partially offset by an increase at AEC.

Gross profit as a percentage of sales:

• Decreased from 52.9% in 2021 to 52.0% in 2022 in MC, due to an increase in input costs.

• Decreased from 23.0% in 2021 to 19.8% in 2022 in AEC, principally due to a smaller impact from changes in the estimated profitability of long-term contracts, which increased Gross profit by $1.2 million for the second quarter of 2022, compared to an increase of $4.3 million for the second quarter of 2021.

Six month comparison

The increase in Gross profit during the first half of 2022, as compared to the same period in 2021, was due to an increase in AEC Gross profit, partially offset by a decline in Gross profit in MC.

Gross profit as a percentage of sales:

• Decreased from 52.2% in 2021 to 51.7% in 2022 in MC, due to an increase in input costs.

• Decreased from 19.7% in 2021 to 17.0% in 2022 in AEC, driven by changes in the estimated profitability of long-term contracts, which decreased Gross profit by $0.6 million in the first half of 2022, as compared to an increase in Gross profit of $3.7 million in the first half of 2021.

In addition, during the first quarter, reserves were recorded on inventory that was damaged at an off-site storage facility, further reducing gross profit as a percent of sales.

Selling, Technical, General, and Research ("STG&R")

The following table summarizes STG&R expenses by business segment:

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands, except percentages)

2022 2021 2022 2021

Machine Clothing $ 24,009 $ 28,685 $ 53,486 $ 54,784

Albany Engineered Composites

12,202 10,014 23,266 19,140

Corporate expenses 13,695 13,071 25,750 24,522

1 unchanged sentence

% of Net sales 19.1 % 22.1 % 20.3 % 21.5 %

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.

Three month comparison

The overall decrease in STG&R expenses in the second quarter of 2022, compared to the same period in 2021, was due to the net effect of the following:

• In MC, changes in currency translation rates had the effect of decreasing STG&R by $1.8 million during 2022, driven by the weaker Euro, as compared to an increase to expense by $1.9 million during 2021.

• In AEC, selling and general expenses increased $1.4 million due to investment in business development activities, and research expense increased $0.8 million over the prior year.

Six month comparison

The overall increase in STG&R expenses in the first six months of 2022, compared to the same period in 2021, was due to the net effect of the following:

• In MC, changes in currency translation rates had the effect of decreasing STG&R by $0.8 million during 2022, driven by the weaker Euro, as compared to an increase to expense by $1.4 million during 2021.

This favorability was partially offset by customer credit loss reserve increases related to our dissolution of business relationships in Russia.

• In AEC, selling and general expenses increased $2.3 million, and research expense increased $1.8 million over the prior year.

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

Three months ended June 30, Six months ended June 30,

(in thousands) 2022 2021 2022 2021

6 unchanged sentences

The following table summarizes operating income/(loss) by business segment:

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands) 2022 2021 2022 2021

4 unchanged sentences

Other Earnings Items

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands) 2022 2021 2022 2021

Interest expense, net $ 3,933 $ 4,218 $ 7,542 $ 7,787

Other expense/(income), net (3,928) 600

Other (income)/expense, net (7,045) 862 (10,973) 1,462

Income tax expense 14,458 13,446 25,456 23,486

4 unchanged sentences

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.

Other (income)/expense, net, included foreign currency related transactions which resulted in gains of $7.3 million and $11.0 million in the three and six month periods ended June 30, 2022, respectively, as compared to losses of $0.2 million

and $0.3 million in the three and six month periods ended June 30, 2021, respectively.

The weaker Euro during the three and six month periods ended June 30, 2022 led to the gains on foreign currency related transactions during such periods.

The Company has operations which constitute a taxable presence in 18 countries outside of the United States.

4 unchanged sentences

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.

2 unchanged sentences

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 Company’s effective tax rates for the second quarter of 2022 was 26.9%, lower compared to 30.0% for the same period in 2021, mainly due to favorable discrete tax adjustments in the current period.

For the first half of 2022, the Company’s effective tax rate was 27.4%, lower compared to 28.5% for the same period in 2021, mainly due to a lower forecasted annual effective tax run rate.

The decrease in the forecasted annual effective tax run rate is mainly attributable to a change in forecasted earnings mix and the foreign exchange loss on previously taxed income targeted for future repatriation.

For more information on income tax, see Note 5 to the Consolidated Financial Statements.

1 unchanged sentence

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.

Machine Clothing is our primary business segment and accounted for 60% of our consolidated revenues during the six months of 2022.

MC products are purchased primarily by manufacturers of paper and paperboard.

6 unchanged sentences

Review of Operations

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands, except percentages)

2022 2021 2022 2021

Net sales $ 151,670 $ 159,921 $ 305,732 $ 308,127

4 unchanged sentences

Operating income 54,861 55,902 104,505 106,264

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.

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.

Three month comparison

• Net sales decreased by 5.2%.

• Changes in currency translation rates, driven by a weaker Euro, had the effect of decreasing second-quarter 2022 sales by $5.4 million.

• Excluding the effect of changes in currency translation rates, Net sales in MC decreased 1.8% compared to the second quarter of 2021, driven by declines in sales for engineered fabrics and tissue grades, partially due to our decision to cease doing business in Russia.

Six month comparison

• Net sales decreased by 0.8%.

• Changes in currency translation rates, driven by a weaker Euro, had the effect of decreasing 2022 sales by $8.0 million compared to the same period in 2021.

• Excluding the effect of changes in currency translation rates, Net sales in MC increased 1.8% compared to 2021, driven by growth in sales for pulp and publication grades.

For the three and six month periods ended June 30, 2022, the decrease in MC Gross profit was primarily due to lower sales as noted above, as well as increases in input costs.

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.

The reduction in Operating income was driven by lower gross profit, partially offset by the effect of currency translation rates, most notably the weaker Euro, reducing STG&R expenses.

Albany Engineered Composites Segment

2 unchanged sentences

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.

The LEAP engine is used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 aircraft.

Other significant AEC programs include CH-53K, F-35, JASSM, and Boeing 787 programs.

Review of Operations

Three months ended

Three months ended June 30, Six months ended June 30,

(in thousands, except percentages)

2022 2021 2022 2021

Net sales $ 109,699 $ 74,598 $ 199,806 $ 148,753

2 unchanged sentences

STG&R expenses

12,202 10,014 23,266 19,140

Operating income 9,535 7,164 10,730 10,102

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.

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.

For the three and six month periods ended June 30, 2022, the increase in Net sales was mainly due to growth on CH-53K and LEAP programs.

For the three and six month periods ended June 30, 2022, the decrease in Gross profit was primarily driven by changes in the estimated profitability of long-term contracts, which were more muted during 2022, as compared to larger favorable changes in the prior year.

We recognized $0.6 million net unfavorable change in the estimated profitability of long-term contracts during the first six months of 2022, as compared to a favorable change of $3.7 million in the first six months of 2021.

In addition, incremental reserves in excess of $2 million were recorded on inventory that was damaged at an off-site storage facility, decreasing Gross profit during 2022.

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.

Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for each of the first six months of 2022 and 2021.

LEAP engines are currently used on the Airbus A320neo, Boeing 737 MAX, and COMAC 919 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

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.

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.

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.

The increase in Operating income was driven by higher gross profit, partially offset by higher research and selling expense.

Working Capital, Liquidity and Capital Structure

Cash Flow Summary

Three months ended

Six months ended June 30,

(in thousands)

4 unchanged sentences

Other operating items (270) (775)

Net cash provided by/(used in) operating activities (5,391) 33,686

Net cash provided by operating activities 37,713 95,640

Net cash used in investing activities (36,025) (23,124)

Net cash (used in)/provided by financing activities 26,875 (21,694)

Net cash provided by/(used in) financing activities 35,404 (62,504)

Effect of exchange rate changes on cash and cash equivalents (18,258) 2,002

(Decrease)/increase in cash and cash equivalents 5,379 (3,445)

Increase in cash and cash equivalents 18,834 12,014

Cash and cash equivalents at beginning of year 302,036 241,316

2 unchanged sentences

(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.

Cash provided in operating activities was $37.7 million in the first six months of 2022, compared to $95.6 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.

In addition, during second quarter of 2022, the Company made necessary investments in working capital as it prepared to execute on its recently expanded CH-53K scope of work.

Customer payment is expected to be collected in a later period.

In addition, the timing of customer and vendor invoice payments, as well as higher incentive compensation payouts during the first six months in 2022 compared to the same period in 2021, contributed to reduced net cash provided by operating activities.

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 $36.0 million and $23.1 million for the first six months ended June 30, 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.

Net cash provided by financing activities during 2022 was $35.4 million compared to net cash used in financing activities of $62.5 million in 2021, driven by increased borrowings during the current year that were 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.

1 unchanged sentence

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%.

Under the Credit Agreement, $485 million of borrowings were outstanding as of June 30, 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 June 27, 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

borrow an additional $273 million under the Agreement.

We were in compliance with all debt covenants as of March 31, 2022.

Based on our maximum leverage ratio and our Consolidated Adjusted EBITDA (as defined in the Credit Agreement), and without modification to any other credit agreements, as of June 30, 2022, we would have been able to borrow an additional $215 million under the Agreement.

We were in compliance with all debt covenants as of June 30, 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.

As of June 30, 2022, we had cash and cash equivalents of approximately $321 million and availability under our Credit Agreement of $215 million, for a total liquidity of approximately $536 million.

As of June 30, 2022, $288.5 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.

were approximately $190.2 million at June 30, 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.

1 unchanged sentence

Repatriating such cash from certain jurisdictions may also result in additional withholding taxes.

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.

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.

During the first six months of 2022, we paid $13 million in dividends and repurchased 1 million shares of our Class A Common shares at a cost of $85 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.

As of June 30, 2022, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K.

Recent Pronouncements

7 unchanged sentences

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 have begun to incorporate certain climate-related disclosures and risk factors in our existing disclosures to this point.

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.

3 unchanged sentences

EBITDA and Adjusted EBITDA (for each segment and on a consolidated basis, represented in dollars or as a percentage of net sales);

Net leverage ratio;

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.

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.

25 unchanged sentences

The following tables show the calculation of EBITDA and Adjusted EBITDA:

Three months ended March 31, 2022

Three months ended June 30, 2022

(in thousands) Machine Clothing Albany Engineered

10 unchanged sentences

Foreign currency revaluation (gains)/losses (1,816) 210 (7,271) (8,877)

Acquisition/integration costs — 269 — 269

Pre-tax (income) attributable to noncontrolling interest — (205) — (205)

Adjusted EBITDA (non-GAAP) $ 57,895 $ 21,259 $ (13,123) $ 66,031

Three months ended June 30, 2021

(in thousands) Machine Clothing Albany Engineered

Composites Corporate expenses

and other Total Company

Operating income/(loss) (GAAP) $ 55,902 $ 7,164 $ (13,100) $ 49,966

Interest, taxes, other income/(expense) — — (18,526) (18,526)

Net income/(loss) (GAAP) 55,902 7,164 (31,626) 31,440

Interest expense, net — — 4,218 4,218

Income tax expense — — 13,446 13,446

Depreciation and amortization expense 5,138 12,194 919 18,251

EBITDA (non-GAAP) 61,040 19,358 (13,043) 67,355

Restructuring expenses, net 10 (48) 29 (9)

Foreign currency revaluation (gains)/losses 1,908 (244) 174 1,838

Acquisition/integration costs — 300 — 300

Pre-tax (income) attributable to noncontrolling interest — (65) — (65)

Adjusted EBITDA (non-GAAP) $ 62,958 $ 19,301 $ (12,840) $ 69,419

Six months ended June 30, 2022

(in thousands) Machine Clothing Albany Engineered

Composites Corporate expenses

and other Total Company

Operating income/(loss) (GAAP) $ 104,505 $ 10,730 $ (25,766) $ 89,469

Interest, taxes, other income/(expense) — — (22,025) (22,025)

Net income/(loss) (GAAP) 104,505 10,730 (47,791) 67,444

Interest expense, net — — 7,542 7,542

Income tax expense — — 25,456 25,456

Depreciation and amortization expense 9,803 23,489 1,582 34,874

EBITDA (non-GAAP) 114,308 34,219 (13,211) 135,316

Restructuring expenses, net 213 — 13 226

Foreign currency revaluation (gains)/losses (759) 633 (11,011) (11,137)

Dissolution of business relationships in Russia 1,787 — 781 2,568

2 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 115,549 $ 34,946 $ (23,428) $ 127,067

Three months ended March 31, 2021

Six months ended June 30, 2021

(in thousands) Machine Clothing Albany Engineered

19 unchanged sentences

The following tables show the earnings per share effect of certain income and expense items:

Three months ended March 31, 2022

Three months ended June 30, 2022

(in thousands, except per share amounts Pre tax

3 unchanged sentences

Foreign currency revaluation (gains)/losses (8,877) (2,492) (6,385) (0.20)

Acquisition/integration costs 269 80 189 0.01

Three months ended June 30, 2021

(in thousands, except per share amounts) Pre tax

Effect After tax

Effect Per share

Restructuring expenses, net $ (9) $ (3) $ (6) $ 0.00

Foreign currency revaluation (gains)/losses 1,838 781 1,057 0.03

Acquisition/integration costs 300 90 210 0.01

Six months ended June 30, 2022

(in thousands, except per share amounts) Pre tax

Effect After tax

Effect Per share

Restructuring expenses, net $ 226 $ 69 $ 157 $ 0.01

Foreign currency revaluation (gains)/losses (11,137) (3,135) (8,002) (0.25)

Dissolution of business relationships in Russia 2,568 332 2,236 0.07

Acquisition/integration costs 551 164 387 0.02

Three months ended March 31, 2021

Six months ended June 30, 2021

(in thousands, except per share amounts) Pre tax

5 unchanged sentences

The following table contains the calculation of Adjusted EPS:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

Per share amounts (Basic)

2022 2021 2022 2021

Earnings per share (GAAP) $ 1.25 $ 0.97 $ 2.12 $ 1.82

10 unchanged sentences

(in thousands)

March 31, 2022 December 31, 2021 March 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021

Current maturities of long-term debt $ — $ — $ —

5 unchanged sentences

Net debt (non GAAP) $ 164,130 $ 119,585 $ 47,964

Net leverage ratio informs the investors of the Company's financial leverage at the end of the reporting period, providing an indicator of the Company's ability to repay its debt.

The Company calculates net leverage ratio by subtracting cash and cash equivalents from total debt, and then dividing by trailing twelve months Adjusted EBITDA.

The calculation of net leverage ratio as of June 30, 2022 is as follows:

Total Company

Twelve months ended Six months ended Trailing twelve months ended

(in thousands) December 31, 2021 June 30, 2021 June 30, 2022 June 30, 2022 (non-GAAP) (a)

Operating income/(loss) (GAAP) $ 178,011 $ 91,785 $ 89,469 $ 175,695

Interest, taxes, other income/(expense) (59,243) (32,735) (22,025) (48,533)

Net income/(loss) (GAAP) 118,768 59,050 67,444 127,162

Interest expense, net 14,891 7,787 7,542 14,646

Income tax expense 47,163 23,486 25,456 49,133

Depreciation and amortization expense 74,255 37,133 34,874 71,996

EBITDA (non-GAAP) 255,077 127,456 135,316 262,937

Restructuring expenses, net 1,331 43 226 1,514

Foreign currency revaluation (gains)/losses (1,442) 2,088 (11,137) (14,667)

Aviation Manufacturing Job Protection (AMJP) grant (4,731) — — (4,731)

Dissolution of business relationships in Russia — — 2,568 2,568

Acquisition/integration costs 1,166 614 551 1,103

Pre-tax (income) attributable to noncontrolling interest (510) (111) (457) (856)

Adjusted EBITDA (non-GAAP) $ 250,891 $ 130,090 $ 127,067 $ 247,868

(in thousands, except for net leverage ratio) June 30, 2022

Net debt (non-GAAP) 164,130

Trailing twelve months Adjusted EBITDA (non-GAAP) 247,868

Net leverage ratio (non-GAAP) 0.66

(a) Calculated as amounts incurred during the twelve months ended December 31, 2021, less those incurred during the six months ended June 30, 2021, plus those incurred during the six months ended June 30, 2022.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis