What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 204 added, 170 removed, 371 unchanged (50% of the section changed)

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The MD&A generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 25, 2021.

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022, incorporated herein by reference.

Business Environment Overview and Trends

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The MC segment is the Company’s long-established core business and primary generator of cash.

Declines in publication grades has been partially offset by demand for packaging and tissue grades and growth in Asia and South America.

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.

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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.

The LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets.

AEC’s largest aerospace customer is the SAFRAN Group ("SAFRAN") and sales to SAFRAN, through ASC, (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 16 percent of the Company’s consolidated Net sales in 2022.

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.

In 2022, approximately 46 percent of AEC sales were related to U.S.

government contracts or programs.

Consolidated Results of Operations

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11.4 % 3.2 % -14.6 %

• Changes in currency translation rates had the effect of increasing 2021 Net sales by $12.7 million (1.4% of Net sales) compared to 2020.

That currency translation effect was principally due to the stronger Euro and Chinese Yuan Renminbi in 2021, as compared to 2020.

Changes in currency translation rates had the effect of decreasing 2022 Net sales by $28.5 million (3% of Net sales) driven by the weaker Euro, as compared to 2021.

Excluding the effect of changes in currency translation rates:

• Consolidated Net sales increased 1.8%.

• Net sales in MC increased 6.1% compared to 2020, principally due to increases in sales for packaging grades and engineered fabrics.

• Net sales in AEC decreased 5.9%, primarily driven by lower sales for fuselage frames on the Boeing 787 program, offset in part by improving sales for the LEAP program.

Backlog in the MC segment was $190 million at both December 31, 2020 and December, 31 2021.

consolidated Net sales increased 14.4%, Net sales in MC increased 1.8% compared to 2021, driven by increased sales of packaging, pulp and tissue grades, and AEC experienced significant growth during 2022, with Net sales increasing 39.6%, primarily driven by CH-53K and LEAP programs.

Backlog in the MC segment was $172 million at December 31, 2022 and $190 million December, 31 2021.

Backlog in the AEC segment increased to $414 million at December 31, 2022, compared to $347 million at December 31, 2021.

The increase in AEC’s backlog was primarily due to increased demand for LEAP engines on the Boeing 737 MAX and Airbus A320neo family of jets.

The increase in AEC’s backlog was primarily due to increased demand on the CH-53K program.

All of the backlog in MC and approximately 65% of the AEC backlog is expected to be invoiced during the next 12 months.

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37.7 % 40.7 % 41.2 %

The increase in 2021 Gross profit, as compared to 2020, was principally due to increased Net sales at the Machine Clothing segment, partially offset by decreased Net sales at the Albany Engineered Composites segment.

The increase in 2022 Gross profit, as compared to 2021, was principally due to increased Net sales at AEC.

Gross profit as a percentage of sales:

• Decreased from 52.6% in 2020 to 52.1% in 2021 in Machine Clothing, principally due to higher production costs, offset by improved absorption.

• Decreased from 21.3% in 2020 to 18.0% in 2021 in AEC, driven by an unfavorable shift in program revenue mix, coupled with lower net favorable changes in the estimated profitability of long-term contracts.

• At MC, decreased from 52.1% in 2021 to 51.2% in 2022 in MC, due to an increase in input costs

• At AEC, was largely in line with the prior year, increasing from 18.0% in 2021 to 18.2% in 2022

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

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20.2 % 21.4 % 22.1 %

Consolidated STG&R expenses in 2021 were effectively flat compared to 2020, due to the net effect of the following:

• In MC, changes in currency translation rates had the effect of increasing STG&R by $1.9 million during 2021.

Reductions in current expected loss reserves reduced STG&R $1.0 million in 2021.

In addition, the revaluation of nonfunctional currency assets and liabilities resulted in gains of $0.3 million in 2021 and losses of $1.7 million in 2020.

• Former CEO termination costs of $2.7 million were recorded in Corporate expenses during the first quarter of 2020.

• In AEC, Research expenses increased $3.1 million during 2021.

Consolidated STG&R expenses increased 5% as compared to 2021, but represented a smaller percentage of Net Sales.

• At MC, STG&R remained largely in line with the prior year.

• At AEC, Selling and general expenses increased $3.7 million related to investments in business development activities, and Research expense increased $2.5 million related to investments in new technologies and enhanced capabilities.

Research and Development

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Restructuring

In addition to the items discussed above affecting gross profit and STG&R expenses, operating income was affected by restructuring costs of $1.3 million in 2021, $5.7 million in 2020, and $2.9 million in 2019.

The following table summarizes Restructuring expense, net by business segment:

(in thousands)

Years ended December 31, 2021 2020 2019

Machine Clothing

$ 1,202 $ 2,746 $ 1,129

Albany Engineered Composites

32 2,821 1,833

Corporate expenses

$ 1,331 $ 5,736 $ 2,905

In 2021 and 2020, Machine Clothing and Albany Engineered Composites reduced its workforce at various locations, leading primarily to termination restructuring charges.

In addition to the items discussed above affecting Gross profit and STG&R expenses, operating income was affected by restructuring expense, net, which was insignificant in both the current and prior year, and was related primarily to the winding down of restructuring actions taken in prior periods.

For more information on our restructuring charges, see Note 5 of the Consolidated Financial Statements, included under Item 8 of this Form 10-K.

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$ 14,000 $ 14,891 $ 13,584

Pension settlement expense 49,128 — —

AMJP grant — (5,832) —

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746 290 (1,346)

See Note 1 for the discussion around the Aviation Manufacturing Job Protection ("AMJP") grant.

Interest Expense

Interest expense, net, was higher during 2021 as compared to the same period of 2020, primarily due to the Company's successful resolution of its claim for a rebate of foreign sales taxes paid in previous years.

This resolution resulted in the reduction of interest expense by $0.9 million in 2020.

In addition, the Company completed amortizing its swap buyouts during the first quarter of 2021, eliminating interest income amortization of $0.6 million.

See “Liquidity and Capital Resources” for further discussion of borrowings and interest rates.

Interest expense, net, decreased over the prior year as a result of higher interest earned on Cash and cash equivalents, in addition to decreased interest expense on Finance leases during the fourth quarter.

See the Working Capital, Liquidity and Capital Structure section for further discussion of borrowings and interest rates.

Pension settlement expense

In the third quarter of 2022, the Company took actions to settle certain pension plan liabilities in the U.S., leading to charges totaling $49.1 million.

No similar charges were incurred in the prior year.

See Note 4 to the Consolidated Financial Statements for additional information.

During the third quarter of 2021, the Company was awarded an Aviation Manufacturing Jobs Protection Program ("AMJP") grant of $5.8 million, under the American Rescue Plan of the U.S.

Department of Transportation.

No such award was granted during 2022.

See Note 1 to the Consolidated Financial Statements for additional information.

Other (income)/expense, net

The change in Other (income)/expense, net was driven by the revaluation of foreign currency cash and intercompany balances, which resulted in a gain of $1.2 million during 2021 and a loss of $13.6 million during 2020.

The loss in 2020 principally resulted from intercompany demand loans payable by Mexican subsidiaries, combined with the effects of a weaker Peso in 2020.

In 2022, Other (income)/expense, net included gains related to the revaluation of nonfunctional-currency balances of $10.0 million, as compared to a gain of $1.2 million during 2021, principally resulting from a weaker Euro throughout the course of 2022.

Also in 2022, the Company recorded a gain of $3.4 million on the sale of IP addresses that the Company had no future critical need to retain.

There were no similar gains of this nature in the previous two years.

Significant items that impacted the effective tax rate in the years 2022, 2021 and 2020, included the following (percentages reflect the effect of each item as a percentage of income before income taxes):

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Enacted tax legislation and rate change (587) (0.4) 352 0.2 — —

US Pension Plan and interest rate swap settlements - Release of Residual Tax Effect (4,926) (3.8) — — — —

Foreign withholding on incremental earnings repatriation 1,518 1.2 — — — —

Impact of non-election of high tax exclusion under GILTI * 1,723 1.3 — — — —

Other tax adjustments 363 0.3 (741) (0.5) (14) 0.2

Effective Tax Rate $ 35,472 26.9% $ 47,163 28.4% $ 41,831 30.1%

* Global Intangible Low-Taxed Income

Our tax planning initiatives included repatriating additional earnings to the U.S.

and managing overall cash taxes in the short term.

Such initiatives resulted in discrete adjustments that increased our 2022 effective tax rate, partially offset by true ups of prior year estimated taxes and the release of residual tax effects due to termination of our U.S.

Pension Plan and settlements of interest rate swaps.

For more information on income tax, see Note 7 to the Consolidated Statements in item 8.

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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.

We believe 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.

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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 periods as we reduced MC manufacturing capacity and administrative positions in various countries.

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.

Review of Operations

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206,214 215,654 190,805

• Net sales increased 8.0%

• Changes in currency translation rates had the effect of increasing 2021 sales by $10.8 million compared to 2020.

That currency translation effect was principally due to the stronger Euro and Chinese Yuan Renminbi in 2021, as compared to 2020.

• Excluding the effect of changes in currency translation rates, Net sales in MC increased 6.1% compared to 2020, principally due to increases in sales for packaging grades and engineered fabrics.

• MC Gross profit increased principally due to increased Net sales, partially offset by higher freight, wage, and supply costs.

Net sales decreased 1.5%.

Changes in currency translation rates, driven by a weaker Euro, had the effect of decreasing 2022 sales by $20.8 million compared to 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 of packaging, pulp and tissue grades.

The decrease in MC Gross profit was primarily driven by changes in currency translation rates, principally the weaker Euro, as well as increases in input costs, causing a decrease in Gross margin from 52.1% in 2021 to 51.2% in 2022.

Operating Income

The increase in Operating income was principally due to the net effect of the following individually significant items:

• Gross profit increased $21.3 million, principally due to increased Net sales as described above.

• STG&R expenses decreased $2.0 million, principally due to reductions in current expected loss reserves, partially offset by year-over-year changes in foreign currency revaluation gains and losses, as described above.

• Restructuring charges were $1.2 million in 2021, compared to $2.7 million in 2020.

The decrease in Operating income was principally due to the decrease in Gross profit.

STG&R expenses remained largely in line with the prior year.

Albany Engineered Composites Segment

The Albany Engineered Composites (“AEC”) segment, provides highly engineered, advanced composite structures to customers in the commercial and defense aerospace industries.

The segment includes Albany Safran Composites, LLC (“ASC”), in which our customer, SAFRAN Group, owns a 10 percent noncontrolling interest, AEC, through ASC, is the exclusive supplier to the LEAP program of advanced composite fan blades and fan cases under a

long-term supply contract.

The LEAP engine is used on the Airbus A320neo and Boeing 737 MAX family of jets.

AEC’s largest aerospace customer is the SAFRAN Group and sales to SAFRAN (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.

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

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

AEC’s largest aerospace customer is SAFRAN and sales to SAFRAN (consisting primarily of fan blades and cases for CFM’s LEAP engine) accounted for approximately 16 percent of the Company’s consolidated Net sales in 2022.

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

AEC also supplies vacuum waste tanks for the Boeing 7-Series programs, and specialty components for the Rolls Royce lift fan on the F-35, as well as the fan case for the GE9X engine.

In 2022, approximately 46 percent of AEC sales were related to U.S.

government contracts or programs.

Review of Operations

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31,579 16,160 31,536

Excluding the effect of changes in currency translation rates, Net sales decreased 5.9%, primarily driven by lower sales for fuselage frames on the Boeing 787 program, offset in part by improving sales for the LEAP program.

The decrease in AEC Gross profit in 2021 was principally due to an approximately $12 million decline in profitability of major programs as a result of lower Net sales in 2021 compared to 2020.

In addition, favorable adjustments to the estimated profitability of long-term contracts increased Gross profit by $6.2 million in 2021, compared to $9.9 million in 2020.

AEC Gross profit was effected by:

• The decrease in Net sales of components for certain F-35 programs reduced gross profit by approximately $5 million compared to 2020.

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 arrangement.

Revenue earned under these arrangements accounted for approximately 36 percent of segment revenue in 2021, 29 percent in 2020, and 49 percent in 2019.

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

AEC experienced significant growth during 2022, with Net sales increasing approximately $115 million, primarily due to CH-53K and LEAP programs.

Excluding the effect of changes in currency translation rates, the increase in Net sales was 39.6%.

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 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 for the contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach.

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.

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Expected losses on projects include losses on contract options that are probable of exercise, excluding profitable options that often follow.

The sum of net adjustments to the estimated profitability of long-term contracts increased AEC operating income by $6.2 million in 2021, $9.9 million in 2020, and $10.8 million in 2019.

The favorable effects in each year were largely attributable to efficiency improvements during the ramp-up of several programs.

The increase in Gross profit was primarily due to increased Net Sales due to growth on CH-53K and LEAP programs.

Gross margin remained largely in line with the prior year.

Operating Income/(Loss)

The decrease in Operating income of $15.4 million in 2021 was principally due to the net effect of the following individually significant items:

• A decrease in Net sales and Gross margin, as described above.

• An increase of $3.1 million in Research expense, offset by a reduction of $2.8 million in Restructuring expenses, as described above.

Operating income nearly doubled year over year, increasing $15.4 million in 2022, principally due to an increase in Gross profit, as described above, partially offset by an increase in Selling and general expenses of $3.7 million related to investments in business development activities, and an increase in Research expense of $2.5 million related to investments in new technologies and enhanced capabilities.

Working Capital, Liquidity and Capital Structure

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The AEC segment primarily serves customers in the commercial and defense aerospace market through both engine and airframe applications.

AEC's working capital levels rose sharply in the last few years.

In 2018 and 2019, the increased working capital was associated with revenue growth while, in 2020, a slowdown in several key programs resulted in working capital increases, primarily Contract assets In 2021, we were able to reduce some of those Contract Assets balances as volumes recovered on commercial programs.

AEC's working capital levels rose sharply in the last few years in line with the segment's growth.

In the MC segment, the Chinese New Year, summer months, and the end of the year are often periods of lower production for some of our customers, which, in the past contributed to seasonal variation in sales and orders.

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(18,629) (1,532) 8,664

Write-off of pension liability adjustment due to settlement/curtailment

Non-cash portion of pension settlement expense 42,657 — 411

Other operating items

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_________________________

(a) Includes Accounts receivable, net, Contract assets, net, Inventories, Accounts payable and Accrued liabilities.

Cash provided by operating activities was $217.5 million in 2021, compared to $140.3 million in 2020.

The increase in cash provided by operating activities in 2021 was primarily due to higher net income and improved working capital at the AEC segment, offset by cash paid for income taxes.

Significant deliveries of LEAP components occurred throughout 2021, resulting in $25.4 million of cash inflows to Contract Assets compared to $59.1 million of cash outflows in 2020, driven by delays in the Boeing 737 MAX return to service and a slowdown in several key aerospace programs.

These cash inflows were offset by cash paid for income taxes of $32.5 million in 2021, as compared to $25.1 million in 2020.

Capital expenditures for 2021 were $11.3 million higher than those for 2020, mainly due to increased investment to support AEC's organic growth.

Net cash used in financing activities during 2021 increased $39 million compared to 2020, driven by cash paid to fund our share repurchases and higher net payments from borrowings under our Credit Facility, reducing long-term debt from $398 million at December 31, 2020 to $350 million at December 31, 2021.

(a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable and Accrued liabilities.

Net cash provided by operating activities was $128.2 million in 2022, compared to $217.5 million in the same period last year.

The decrease in net cash provided by operating activities was driven primarily by the following.

AEC generated working capital cash inflows in Accounts receivable and Contract assets during 2021 (due to significant deliveries of LEAP components throughout the year), while during 2022, AEC invested in working capital as it prepared to execute on its expanded CH-53K scope of work.

The Company made contributions of approximately $12.6 million to the U.S.

pension plan during 2022, in connection with the termination of such plan (see discussion in Note 4 to the Consolidated Financial Statements) .

In addition, the timing of customer and vendor invoice payments, as well as higher incentive compensation payouts during 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, increase shareholder value, and 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 $96.3 million and $53.7 million for 2022 and 2021, respectively, comprised of both sustaining and return seeking projects.

In the recent past, a portion of our capital expenditures consisted of investments to improve operational productivity, in addition to producing a meaningful impact on energy and resource efficiency.

Net cash used in financing activities during 2022 was $23.7 million compared to $99.6 million in 2021, driven by increased borrowings during the current year that were partially used to fund repurchases of shares.

Liquidity and Capital Structure

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, $350 million of borrowings were outstanding as of December 31, 2021.

The applicable interest rate for borrowings was LIBOR plus a spread, based on our leverage ratio at the time of borrowing.

At the time of the last borrowing on December 30, 2021, the spread was 1.625%.

The spread was based on a pricing grid, which ranged from 1.500% to 2.000%, based on our leverage ratio.

Based on our maximum leverage ratio and our Consolidated EBITDA, and without modification to any other credit agreements, as of December 31, 2021, we would have been able to borrow an additional $350 million under the Agreement.

We were in compliance with all debt covenants as of December 31, 2021.

For more information, see Note 17 of the Consolidated Financial Statements, included under Item 8 of this Form 10-K.

Our subsidiaries outside of the United States may also maintain working capital lines with local banks, but borrowings under such local facilities tend to be insignificant.

Under our $700 million unsecured credit agreement, $439 million of borrowings were outstanding as of December 31, 2022.

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 December 31, 2021, we had cash and cash equivalents of approximately $302 million and availability under our Credit Agreement of $350 million, for a total liquidity of approximately $652 million.

As of December 31, 2022, we had cash and cash equivalents of $292 million and availability under our Credit Agreement of $261 million, for a total liquidity of approximately $553 million.

For more information on the revolving credit agreement, see Note 13 to the Consolidated Financial Statements.

As of December 31, 2022, $273.2 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 December 31, 2021, and are intended to remain indefinitely invested in foreign operations.

The accumulated undistributed earnings of the Company’s foreign operations not targeted for

repatriation to the U.S.

were in excess of $201 m illion at December 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.

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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 $53.7 million and $42.4 million for the year-ended December 31, 2021 and 2020, respectively, comprising 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 2021, we paid $25.9 million in dividends and repurchased 285 thousand shares of our Class A Common shares at a cost of $24.4 million under the $200 million share repurchase program that our Board approved in October 2021.

During 2022, we paid $26.5 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.

At December 31, 2022, we had no off-balance sheet arrangements.

We have contractual commitments to repay debt, make payments under operating leases and financing leases, contribute to our pension and postretirement plans, and settle obligations related to agreements to purchase goods and services, income taxes, compensation plans, and as applicable, interest rate swaps.

We estimate these contractual commitments amount to $469.1 million as of December 31, 2021, of which $45.5 million is expected to paid within the next year.

We have contractual commitments to repay debt, make payments under leases, contribute to our pension and postretirement plans, and settle obligations related to agreements to purchase goods and services, income taxes, compensation plans, and as applicable, interest rate swaps.

We estimate these contractual commitments amount to approximately $588 million as of December 31, 2022, of which we expect to pay $44 million within the next year.

Such commitments are not representative of all our future cash requirements, which will vary based on future needs.

Recent Accounting Pronouncements

A discussion of recent accounting pronouncements is set forth in Item 8 Financial Statements and Supplementary Data, Note 1.

Critical Accounting Policies and Estimates

For the discussion of our accounting policies, see Item 8 Financial Statements and Supplementary Data, Note 1.

For the discussion of our accounting policies, see Note 1 to the Consolidated Financial Statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements.

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Under this contract, there is significant judgment involved in determining applicable contract costs and the amount of revenue to be recognized.

We also have fixed price long-term contracts, for which we use the percentage of completion (actual cost to estimated cost) method.

We also have fixed price long-term contracts, for which we use the percentage of completion (incurred cost to total estimated cost) method.

That method requires significant judgment and estimation, which could be considerably different if the underlying circumstances were to change.

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We are required to limit our estimate of contract values to the period of the legally enforceable contract.

While certain contracts are expected to be profitable over the course of

the program life when including expected renewals, our estimate of contract revenues and costs is limited to the estimated value of enforceable rights and obligations, excluding anticipated renewals.

While certain contracts are expected to be profitable over the course of the program life when including expected renewals, our estimate of contract revenues and costs is limited to the estimated value of enforceable rights and obligations, excluding anticipated renewals.

In some cases, the contract period may result in a loss contract provision at the inception of the contract.

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We review amortizable intangible asset groups for impairment whenever events and changes in circumstances indicate that the related carrying amounts may not be recoverable.

Recent Pronouncements

In March 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.

Also in March 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 financial 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.

In October 2022, the SEC adopted final rules regarding the recovery of erroneously awarded incentive-based

executive compensation.

The rules direct US securities exchanges to establish standards to require listed

issuers to develop and implement a written policy providing for the recovery of incentive-based compensation

received by current and former executive officers in the event of a required accounting restatement when that

compensation was based on an erroneously reported financial reporting measure.

The new rule and related amendments include a number of new disclosure requirements, including requiring issuers to file their recovery policy as an exhibit to their annual reports and establishing new cover page disclosures on Forms 10-K indicating whether the financial statements included in the filing reflect the correction of an error and whether the error correction required an incentive-based compensation recovery analysis.

The exchanges must file proposed listing standards to implement the SEC’s directive no later than February 26, 2023 (which is 90 days after the final rules were published in the Federal Register), and those listing standards must be effective no later than November 28, 2023.

We will be required to adopt a recovery policy no later than 60 days after the listing standards become effective.

In November 2022, the Federal Acquisition Regulatory Council proposed new rules that would require many federal contractors to provide certain climate-related disclosures.

The proposed rule has a stated intent of prompting

suppliers to take action on measuring and managing greenhouse gas (GHG) emissions reductions via public

transparency.

The proposal would require “major” federal contractors, as defined, to provide public disclosure of:

• scope 1, scope 2, and relevant scope 3 GHG emissions;

• climate-related financial risk factors based on the Task Force on Climate-Related Financial Disclosures (TCFD)

• GHG reduction targets established in line with the Science Based Targets initiative (SBTi).

Major contractors

without existing targets would be required to establish them.

Smaller contractors, defined as “significant,” would be required to provide disclosure of scope 1 and scope 2

GHG emissions.

“Major” contractors are those receiving more than $50 million in federal contracts, while

“significant” contractors are those receiving from $7.5 to $50 million in federal contracts.

These thresholds are

based on the size of contracts awarded and not on related revenue in any given year.

There are also limited

Based on our business with the federal government, we are highly likely to be considered a "significant" or "major" federal contractor in a given year and would be subject to the requirements in this proposal, if passed.

We will continue to monitor developments around this proposed rule, which if finalized, is expected to allow for a multi-year phased transition to achieving compliance .

Non-GAAP Measures

This Form 10-K contains certain non-GAAP metrics, 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);

This Form 10-K contains certain non-GAAP measures that should not be considered in isolation or as a substitute for the related GAAP measures.

Such non-GAAP measures include net sales and percent change in net sales, excluding the impact of currency translation effects;

EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin;

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.

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 period of specific restructuring costs, former CEO severance costs, acquisition/ integrations costs, currency revaluation, government grants, pension settlement/curtailment charges, inventory write-offs associated with discontinued businesses, or other gains and losses, on net income (absolute as well as on a per-share basis), operating income or EBITDA can give management and investors additional insight into core financial performance, especially when compared to periods 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 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.

Management believes that these non-GAAP measures provide additional useful information to investors regarding the Company’s operational performance.

Presenting Net sales and change in Net sales, after currency effects are excluded, provides management and investors insight into underlying sales trends.

Net sales, or percent changes in net sales, excluding currency rate effects, are calculated by converting amounts reported in local currencies into U.S.

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dollar amount as reported in the current period.

The Company calculates EBITDA by removing the following from Net income:

Interest expense net, Income tax expense, and Depreciation and amortization expense.

Adjusted EBITDA is calculated by:

adding to EBITDA costs associated with restructuring, former CEO termination costs, and inventory write-offs associated with discontinued businesses;

adding charges and credits related to pension plan settlements and curtailments;

adding (or subtracting) revaluation losses (or gains);

subtracting income (net of associated costs) recognized related to government grants;

subtracting (or adding) gains (or losses) from the sale of buildings or investments;

adding acquisition/ integration costs and subtracting (or adding) Income (or loss) attributable to the non-controlling interest in Albany Safran Composites (ASC).

Adjusted EBITDA may also be presented as a percentage of net sales by dividing it by sales.

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;

income (net of associated costs) recognized related to government grants;

foreign currency revaluation losses (or gains);

and acquisition/ integration costs.

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.

EBITDA (calculated as net income excluding interest, income taxes, depreciation and amortization), Adjusted EBITDA, and Adjusted EPS are performance measures that relate to the Company’s continuing operations.

The Company defines Adjusted EBITDA as EBITDA excluding costs or benefits that are not reflective of the Company’s ongoing or expected future operational performance.

Such excluded costs or benefits do not consist of normal,

recurring cash items necessary to generate revenues or operate our business.

Adjusted EBITDA margin represents Adjusted EBITDA expressed as a percentage of net sales.

The Company defines Adjusted EPS as basic earnings per share (GAAP), adjusted by the after tax per share amount of costs or benefits not reflective of the Company’s ongoing or expected future operational performance.

The income tax effects are calculated using the applicable statutory income tax rate of the jurisdictions where such costs or benefits were incurred or the effective tax rate applicable to total company results.

The Company’s Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted EPS may not be comparable to similarly titled measures of other companies.

Net debt aids investors in understanding the Company’s debt position if all available cash were applied to pay down indebtedness.

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.

We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

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

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2022 2021 2020

Operating income (GAAP)

$ 178,011 $ 166,080 $ 193,576

Interest, taxes, other income/(expense)

(59,243) (68,837) (60,193)

Net income (GAAP)

11 unchanged sentences

(9,829) (1,442) 15,444

Dissolution of business relationships in Russia 2,275 — —

Pension settlement expense 49,128 — —

IP address sales (3,420) — —

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

Pension settlement/curtailment expense

Former CEO termination costs — — 2,742

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Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company

Operating income/(loss) (GAAP) $215,654 $16,160 ($53,803) $178,011

Interest, taxes, other income/(expense) — — (59,243) (59,243)

Net income/(loss) (GAAP) 206,214 31,579 (141,285) 96,508

4 unchanged sentences

Restructuring expenses, net 92 — 14 106

Foreign currency revaluation (gains)/losses (307) 50 (1,185) (1,442)

AMJP grant — 1,101 (5,832) (4,731)

Foreign currency revaluation (gains)/losses (a) (520) 672 (9,981) (9,829)

Dissolution of business relationships in Russia 1,494 — 781 2,275

Pension settlement expense — — 49,128 49,128

IP address sales — — (3,420) (3,420)

Acquisition/integration costs — 1,057 — 1,057

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Total Company

Operating income/(loss) (GAAP) $ 190,805 $ 31,536 $ (56,261) $ 166,080

Interest, taxes, other income/(expense) — — (68,837) (68,837)

Net income/(loss) (GAAP) $ 215,654 $ 16,160 $ (113,046) $ 118,768

4 unchanged sentences

Restructuring expenses, net 1,202 32 97 1,331

Foreign currency revaluation (gains)/losses 1,743 130 13,571 15,444

Former CEO termination costs — — 2,742 2,742

Foreign currency revaluation (gains)/losses (a) (307) 50 (1,185) (1,442)

AMJP grant — 1,101 (5,832) (4,731)

Acquisition/integration costs — 1,166 — 1,166

Pre-tax loss attributable to noncontrolling interest — 1,348 — 1,348

Pre-tax (income) attributable to noncontrolling interest — (510) — (510)

Adjusted EBITDA (non-GAAP) $ 236,740 $ 68,401 $ (54,250) $ 250,891

5 unchanged sentences

Total Company

Operating income/(loss) (GAAP)

$ 191,965 $ 55,520 $ (53,909) $ 193,576

Interest, taxes, other income/(expense)

— — (60,193) (60,193)

Net income/(loss) (GAAP)

10 unchanged sentences

2,746 2,821 169 5,736

Foreign currency revaluation (gains)/losses 630 643 (4,463) (3,190)

Pension curtailment expense — — 478 478

Foreign currency revaluation (gains)/losses (a) 1,743 130 13,571 15,444

Former CEO termination costs — — 2,742 2,742

Acquisition/integration costs — 1,272 — 1,272

Pre-tax (income) attributable to noncontrolling interest in ASC — (1,308) — (1,308)

Pre-tax loss attributable to noncontrolling interest — 1,348 — 1,348

Adjusted EBITDA (non-GAAP)

9 unchanged sentences

Restructuring expenses, net $ 106 $ 34 $ 72 $ 0.01

Foreign currency revaluation (gains)/losses (1,442) (323) (1,119) (0.04)

AMJP grant (4,731) (1,404) (3,327) (0.11)

Foreign currency revaluation (gains)/losses (a) (9,829) (2,582) (7,247) (0.23)

Dissolution of business relationships in Russia 2,275 305 1,970 0.06

Pension settlement expense 49,128 11,947 37,181 1.20

Tax impact of stranded OCI benefit from Tax Cuts and Job Act (TCJA) for pension liability — 5,217 (5,217) (0.17)

IP address sales (3,420) (872) (2,548) (0.08)

Acquisition/integration costs 1,057 316 741 0.04

3 unchanged sentences

Foreign currency revaluation (gains)/losses (a) (1,442) (323) (1,119) (0.04)

Former CEO termination costs 2,742 713 2,029 0.06

AMJP grant (4,731) (1,404) (3,327) (0.11)

Acquisition/integration costs 1,166 349 817 0.04

(a) In 2020, the company recorded losses of approximately $14 million in jurisdictions where it cannot record a tax benefit from the losses, which results in an unusual relationship between the pre-tax and after-tax amounts.

(in thousands, except per share amounts)

1 unchanged sentence

Restructuring expenses, net $ 5,736 $ 1,862 $ 3,874 $ 0.11

Foreign currency revaluation (gains)/losses

(3,190) (904) (2,286) (0.07)

Pension curtailment charge 478 91 387 0.01

Foreign currency revaluation (gains)/losses (a) (c) 15,444 896 14,548 0.46

Former CEO termination costs 2,742 713 2,029 0.06

Acquisition/integration costs 1,272 380 892 0.04

5 unchanged sentences

$ 3.06 $ 3.66 $ 3.05

Adjustments, after tax:

Adjustments, after tax (c):

Restructuring expenses, net 0.01 0.02 0.11

Foreign currency revaluation (gains)/losses

(0.04) 0.46 (0.07)

Foreign currency revaluation (gains)/losses (a) (0.23) (0.04) 0.46

Dissolution of business relationships in Russia 0.06 — —

Pension settlement expense 1.20 — —

IP address sales (0.08) — —

Tax impact of stranded OCI benefit from TCJA for pension liability (b) (0.17) — —

AMJP grant — (0.11) —

Former CEO termination costs — — 0.06

Pension curtailment charge — — 0.01

Acquisition/integration costs 0.04 0.04 0.04

1 unchanged sentence

$ 3.89 $ 3.57 $ 3.72

(a) Foreign currency revaluation (gains)/losses represent unrealized gains and losses arising from the remeasurement of monetary assets and liabilities denominated in non-functional currencies on the balance sheet date.

(b) Our Adjusted EPS excluded the benefit from the reclassification of stranded income tax effects caused by the TCJA associated with the US pension plan liability that was eliminated in September 2022, a one-time event that would not recur in the future.

Such stranded income tax effect represented a one-time benefit that distorted the effective tax rate for the quarter and year-to-date ended September 30, 2022 , and would not be indicative of ongoing or expected future income tax rate at the Company.

Management believes excluding pension settlement expense and its income tax impact, including the stranded income tax effects, from its Adjusted EBITDA and Adjusted EPS for the quarter and year-to-date ended September 30, 2022 would provide investors a transparent view and enhanced ability to better assess the Company’s ongoing operational and financial performance.

(c) In 2020, the company recorded losses of approximately $14 million in jurisdictions where it cannot record a tax benefit from the losses, which results in an unusual relationship between the pre-tax and after-tax amounts.

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:

9 unchanged sentences

$ 147,224 $ 47,964 $ 156,693

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 is as follows:

Total Company

(in thousands) December 31, 2022

Net income/(loss) (GAAP) 96,508

Interest expense, net 14,000

Income tax expense 35,472

Depreciation and amortization expense 69,049

EBITDA (non-GAAP) 215,029

Restructuring expenses, net 106

Foreign currency revaluation (gains)/losses (a) (9,829)

Dissolution of business relationships in Russia 2,275

Pension settlement expense 49,128

IP address sales (3,420)

Acquisition/integration costs 1,057

Pre-tax (income) attributable to noncontrolling interest (817)

Adjusted EBITDA (non-GAAP) $ 253,529

(in thousands, except for net leverage ratio) December 31, 2022

Net debt (non-GAAP) $ 147,224

Adjusted EBITDA (non-GAAP) 253,529

Net leverage ratio (non-GAAP) 0.58

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-K

Item 7. Management’s Discussion and Analysis