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 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 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. 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 20 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 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. 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 (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 six months of 2022, energy costs soared, the supply market continued to tighten against strong demands and global logistics challenges persisted. 21 Index 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 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 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. 22 Index Consolidated Results of Operations Net sales The following table summarizes our Net sales by business segment: Three months ended June 30, Six months ended June 30, (in thousands, except percentages) 2022 2021 % Change 2022 2021 % Change Machine Clothing $151,670 $159,921 -5.2 % $305,732 $308,127 -0.8 % Albany Engineered Composites 109,699 74,598 47.1 % 199,806 148,753 34.3 % Total $261,369 $234,519 11.4 % $505,538 $456,880 10.7 % 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, Q2 2022 Decrease due to changes in currency translation rates Q2 2022 sales on same basis as Q2 2021 currency translation rates Net sales as reported, Q2 2021 % Change compared to Q2 2021, excluding currency rate effects Machine Clothing $ 151,670 $ (5,447) $ 157,117 $ 159,921 -1.8 % Albany Engineered Composites 109,699 (1,994) 111,693 74,598 49.7 % Total $ 261,369 $ (7,441) $ 268,810 $ 234,519 14.6 % (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 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. Gross Profit The following table summarizes Gross profit by business segment: 23 Index 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 Albany Engineered Composites 21,736 17,131 33,995 29,284 Total $ 100,593 $ 101,728 $ 192,197 $ 190,274 % of Net sales 38.5 % 43.4 % 38.0 % 41.6 % 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 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 Total $ 49,906 $ 51,770 $ 102,502 $ 98,446 % of Net sales 19.1 % 22.1 % 20.3 % 21.5 % 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: 24 Index • 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 June 30, Six months ended June 30, (in thousands) 2022 2021 2022 2021 Machine Clothing $ (30) $ 10 $ 213 $ (58) Albany Engineered Composites — (48) — 41 Corporate expenses 2 29 13 60 Total $ (28) $ (9) $ 226 $ 43 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 June 30, Six months ended June 30, (in thousands) 2022 2021 2022 2021 Machine Clothing $ 54,861 $ 55,902 $ 104,505 $ 106,264 Albany Engineered Composites 9,535 7,164 10,730 10,102 Corporate expenses (13,681) (13,100) (25,766) (24,581) Total $ 50,715 $ 49,966 $ 89,469 $ 91,785 Other Earnings Items 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 (income)/expense, net (7,045) 862 (10,973) 1,462 Income tax expense 14,458 13,446 25,456 23,486 Net income/(loss) attributable to the noncontrolling interest 168 43 506 70 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. Other (income)/expense, net 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 25 Index 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. 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 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 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. 26 Index Segment Results of Operations Machine Clothing Segment 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. 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 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 Gross profit 78,857 84,597 158,202 160,990 % of Net sales 52.0 % 52.9 % 51.7 % 52.2 % STG&R expenses 24,009 28,685 53,486 54,784 Operating income 54,861 55,902 104,505 106,264 Net Sales 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. Gross Profit 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. 27 Index Operating Income 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 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, 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 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 Gross profit 21,736 17,131 33,995 29,284 % of Net sales 19.8 % 23.0 % 17.0 % 19.7 % STG&R expenses 12,202 10,014 23,266 19,140 Operating income 9,535 7,164 10,730 10,102 Net Sales 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. Gross Profit 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 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. 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 28 Index 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 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 Six months ended June 30, (in thousands) 2022 2021 Net income $ 67,444 $ 59,050 Depreciation and amortization 34,874 37,133 Changes in working capital (a) (63,679) (921) Changes in other noncurrent liabilities and deferred taxes (656) 1,153 Other operating items (270) (775) Net cash provided by operating activities 37,713 95,640 Net cash used in investing activities (36,025) (23,124) 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 Increase in cash and cash equivalents 18,834 12,014 Cash and cash equivalents at beginning of year 302,036 241,316 Cash and cash equivalents at end of period $ 320,870 $ 253,330 (a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable, and Accrued liabilities. 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, 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. 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, $485 million of borrowings were outstanding as of June 30, 2022. The applicable interest rate 29 Index 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 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 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 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. 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 have also returned cash to shareholders through dividends and share repurchases. 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 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 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. 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. 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; Net leverage ratio; and Adjusted earnings per share (or Adjusted EPS). Such items are provided 30 Index 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. The following tables show the calculation of EBITDA and Adjusted EBITDA: Three months ended June 30, 2022 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 54,861 $ 9,535 $ (13,681) $ 50,715 Interest, taxes, other income/(expense) — — (11,346) (11,346) Net income/(loss) (GAAP) 54,861 9,535 (25,027) 39,369 Interest expense, net — — 3,933 3,933 Income tax expense — — 14,458 14,458 Depreciation and amortization expense 4,880 11,450 782 17,112 EBITDA (non-GAAP) 59,741 20,985 (5,854) 74,872 Restructuring expenses, net (30) — 2 (28) 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 31 Index 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 Acquisition/integration costs — 551 — 551 Pre-tax (income) attributable to noncontrolling interest — (457) — (457) Adjusted EBITDA (non-GAAP) $ 115,549 $ 34,946 $ (23,428) $ 127,067 32 Index Six months ended June 30, 2021 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Operating income/(loss) (GAAP) $ 106,264 $ 10,102 $ (24,581) $ 91,785 Interest, taxes, other income/(expense) — — (32,735) (32,735) Net income/(loss) (GAAP) 106,264 10,102 (57,316) 59,050 Interest expense, net — — 7,787 7,787 Income tax expense — — 23,486 23,486 Depreciation and amortization expense 10,258 25,061 1,814 37,133 EBITDA (non-GAAP) 116,522 35,163 (24,229) 127,456 Restructuring expenses, net (58) 41 60 43 Foreign currency revaluation (gains)/losses 1,415 332 341 2,088 Acquisition/integration costs — 614 — 614 Pre-tax (income) attributable to noncontrolling interest — (111) — (111) Adjusted EBITDA (non-GAAP) $ 117,879 $ 36,039 $ (23,828) $ 130,090 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 June 30, 2022 (in thousands, except per share amounts Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ (28) $ (4) $ (24) $ 0.00 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 Amounts Tax Effect After tax Effect Per share Effect 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 Amounts Tax Effect After tax Effect Per share Effect 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 Six months ended June 30, 2021 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 43 $ 12 $ 31 $ 0.00 Foreign currency revaluation (gains)/losses 2,088 646 1,442 0.04 Acquisition/integration costs 614 184 430 0.02 33 Index The following table contains the calculation of Adjusted EPS: 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 Adjustments, after tax: Restructuring expenses, net — — 0.01 — Foreign currency revaluation (gains)/losses (0.20) 0.03 (0.25) 0.04 Dissolution of business relationships in Russia — — 0.07 — Acquisition/integration costs 0.01 0.01 0.02 0.02 Adjusted Earnings per share (non-GAAP) $ 1.06 $ 1.01 $ 1.97 $ 1.88 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) June 30, 2022 March 31, 2022 December 31, 2021 Current maturities of long-term debt $ — $ — $ — Long-term debt 485,000 427,000 350,000 Total debt 485,000 427,000 350,000 Cash and cash equivalents 320,870 307,415 302,036 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. 34 Index 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. 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.