What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-26 compared with 2023-04-26 · 196 added, 93 removed, 247 unchanged (54% of the section changed)

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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.

The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” "forecast," ”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.

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• 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;

• Across the entire Company, increasing labor, raw material, energy, and logistics costs due to supply chain constraints and inflationary pressures;

challenges that have only increased as a result of the ongoing Russia-Ukraine war;

• 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;

• In the Albany Engineered Composites segment, longer-than-expected timeframe for the aerospace industry to utilize existing inventories, unanticipated reductions in demand, including reductions driven by supply chain shortages on other aircraft components, delays, technical difficulties, and cancellations in aerospace programs that are expected to generate revenue and drive long-term growth;

• Slower to achieve or maintain anticipated profitable growth in our Albany Engineered Composites segment;

• Failure to consummate the recently announced acquisition of Heimbach GmbH ("Heimbach"), as further described in the below Business Environment Overview and Trends section, within the expected timeframe or at all, and if consummated, failure to or delayed realization of anticipated benefits of the acquisition could adversely impact the Company’s business, financial condition and results of operations, as further described in Item 1A.

Risk Factors ;

• Other risks and uncertainties detailed in this report and other periodic reports.

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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.

On June 14, 2023, the Company entered into an agreement to acquire Heimbach, a privately-held manufacturer of paper machine clothing and technical textiles located in Düren, Germany.

The Company will acquire Heimbach for a purchase price of approximately €153 million, including net debt of approximately €21 million, subject to regulatory approvals and other customary closing conditions.

The AEC segment provides significant longer term growth potential for the Company.

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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 ("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 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’s current portfolio of non-3D programs includes components for the CH-53K helicopter, components for the F-35 joint strike fighter, 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.

For the year ended December 31, 2022, approximately 46 percent of AEC revenues were related to U.S.

government contracts or programs.

Consolidated Results of Operations

The following table summarizes our Net sales by business segment:

Three months ended March 31,

The following table summarizes our Net revenues by business segment:

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

(in thousands, except percentages)

2023 2022 % Change

2023 2022 % Change 2023 2022 % Change

Machine Clothing $ 159,217 $ 151,670 5.0 % $ 312,439 $ 305,732 2.2 %

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Total $ 274,123 $ 261,369 4.9 % $ 543,219 $ 505,538 7.5 %

The following tables provide a comparison of 2023 Net sales, excluding currency translation effects, to 2022 Net sales:

The following tables provide a comparison of 2023 Net revenues, excluding currency translation effects, to 2022 Net revenues:

(in thousands, except percentages)

Net sales as reported, Q1 2023 Decrease due to changes in currency translation rates Q1 2023 sales on same basis as Q1 2022 currency translation rates Net sales as reported, Q1 2022 % Change compared to Q1 2022, excluding currency rate effects

Net revenues as reported, Q2 2023 (Decrease)/increase due to changes in currency translation rates Q2 2023 revenues on same basis as Q2 2022 currency translation rates Net revenues as reported, Q2 2022 % Change compared to Q2 2022, excluding currency rate effects

Machine Clothing $ 159,217 $ (878) $ 160,095 $ 151,670 5.6 %

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Total $ 274,123 $ 194 $ 273,929 $ 261,369 4.8 %

Changes in currency translation rates had the effect of decreasing Net sales by $5.0 million, driven by the weaker Euro and Renminbi, as compared to 2022.

Excluding the effect of changes in currency translation rates, consolidated Net sales increased 12.2%.

Net sales at MC increased 1.7%, driven by higher net sales in packaging and publication grades, and AEC Net sales increased 30.3%, primarily driven by growth in CH-53K and LEAP programs.

The following table summarizes Gross profit by business segment:

Three months ended March 31,

(in thousands, except percentages)

Net revenues as reported, YTD 2023 (Decrease) due to changes in currency translation rates YTD 2023 revenues on same basis as 2022 currency translation rates Net revenues as reported, YTD 2022 % Change compared to 2022, excluding currency rate effects

Machine Clothing $ 312,439 $ (4,346) $ 316,785 $ 305,732 3.6 %

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Total $ 543,219 $ (4,770) $ 547,989 $ 505,538 8.4 %

% of Net sales

Three month comparison

Net revenues increased 4.9% compared to the same period in 2022, and overall were largely unaffected by changes in currency translation rates.

MC's, net revenues increased 5.0% compared to the second quarter of 2022, driven by higher net revenues in packaging, tissue and pulp grades, partially offset by decreases in Engineered Fabrics.

AEC's net revenues increased 4.7%, primarily driven by growth in LEAP programs and other commercial programs, offset by lower CH-53K sales.

Six month comparison

Changes in currency translation rates had the effect of decreasing Net revenues by $4.8 million, driven by a weaker Euro and Renminbi as compared to 2022.

Excluding the effect of changes in currency translation rates:

• Net revenues increased 8.4% compared to the same period in 2022.

• Net revenues in MC increased 3.6% compared to the first six months of 2022, primarily due to growth in revenues for packaging and tissue grades, partially offset by decreases in Engineered Fabrics.

• Net revenues in AEC increased 15.7%, primarily due to growth on LEAP, CH-53K, and JSF programs.

The following table summarizes Gross profit by business segment:

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

(in thousands, except percentages)

2023 2022 2023 2022

The increase in 2023 Gross profit, as compared to the same period last year, was due to increased Net sales at AEC.

Gross profit as a percentage of sales:

• At MC, decreased from 51.5% in 2022 to 50.8% in 2023, due to an increase in input costs, mainly due to the inflationary environment.

• At AEC, increased from 13.6% in 2022 to 18.5% in 2023, driven by improved absorption and the absence of a raw material reserve recorded in the prior year, offset by losses on a new program.

Machine Clothing $ 80,919 $ 78,857 $ 158,774 $ 158,202

Albany Engineered Composites

21,785 21,736 43,248 33,995

Total $ 102,704 $ 100,593 $ 202,022 $ 192,197

% of Net revenues 37.5 % 38.5 % 37.2 % 38.0 %

Three month comparison

The increase in 2023 Gross profit, as compared to the same period last year, was driven by strong continued execution

at MC, despite several headwinds.

Gross profit as a percentage of revenues:

• MC's gross profit margin decreased from 52.0% in 2022 to 50.8% in 2023, due to an increase in input costs, mainly due to the inflationary environment, and lower absorption.

• AEC's gross profit margin decreased from 19.8% in 2022 to 19.0% in 2023, driven by an unfavorable shift in program revenue mix, coupled with unfavorable changes in the estimated profitability of long-term contracts, which decreased operating income by $1.9 million in 2023 and increased operating income by $1.2 million in 2022.

Six month comparison

The increase in Gross profit during the first half of 2023, as compared to the same period in 2022, was due to growth in LEAP and CH-53K programs at AEC.

Gross profit as a percentage of revenues:

• MC's gross profit margin decreased from 51.7% in 2022 to 50.8% in 2023, due to an increase in input costs.

• AEC's gross profit margin increased from 17.0% in 2022 to 18.7% in 2023, driven by significant growth in revenues in the first quarter of 2023, primarily on the CH-53K, LEAP and other commercial programs.

In addition, gross profit margin increased as a result of improved overhead absorption and the absence of a $2 million raw material reserve on damaged inventory, as compared to prior year.

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

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

Three months ended March 31,

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

(in thousands, except percentages)

2023 2022 2023 2022

Machine Clothing $ 27,068 $ 24,009 $ 55,939 $ 53,486

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$ 57,078 $ 49,906 $ 115,834 $ 102,502

% of Net sales 21.8 % 21.5 %

Consolidated STG&R expenses increased 11.7% as compared to 2022, but represented a fairly consistent percentage of Net Sales.

• MC STG&R expenses remained largely in line with the prior year and improved $0.7 million as a result of changes in currency translation rates, notably the weaker Euro and Renminbi

• AEC Research expense increased related to investments in new technologies and enhanced capabilities, driving higher STG&R as compared to the prior year

• Corporate STG&R expenses increased principally due to higher personnel-related costs and professional fees

% of Net revenues 20.8 % 19.1 % 21.3 % 20.3 %

Three month comparison

Consolidated STG&R expenses increased 14.4% as compared to 2022, and as a percentage of revenues increased from 19.1% in 2022 to 20.8% in 2023.

• In MC, changes in currency translation rates had the effect of increasing STG&R by $2.4 million over the prior year.

In addition, customer credit loss reserves were $0.6 million higher in 2023 as compared to 2022, as the prior year included the reversal of a large reserve related to our announced cessation of doing business in Russia.

• In AEC, Selling and general expenses increased $1.0 million related to investments in business development, including an increase in marketing and trade show activities.

• Corporate STG&R expenses increased $3.2 million, principally due to higher professional fees, including acquisition-related expenses, personnel-related costs, and software subscription fees.

Six month comparison

The overall increase in STG&R expenses in the first six months of 2023, compared to the same period in 2022, was due to the net effect of the following:

• In MC, changes in currency translation rates had the effect of increasing STG&R by $3.3 million over the prior year, which was partially offset by $0.5 million lower customer credit loss reserves in 2023.

Credit loss reserves were larger during 2022 related to the dissolution of business relationships in Russia.

• In AEC, Selling and general expenses increased $1.0 million related to investments in business development, including an increase in marketing and trade show activities, as well as an increase of $0.5 million in Research expense related to investments in new technologies and enhanced capabilities.

• Corporate STG&R expenses increased $9.0 million principally due to higher professional fees, including acquisition-related expenses, personnel-related costs, and software subscription fees.

Restructuring Expense, net

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.

In addition to the items discussed above affecting Gross profit and STG&R expenses, Operating income was affected by restructuring expense, net, of $0.1 million in both the three and six months ended June 30, 2023, and was related primarily to the winding down of restructuring actions taken in prior periods.

Operating Income

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

Three months ended March 31,

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

(in thousands) 2023 2022 2023 2022

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Other Earnings Items

Three months ended March 31,

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

(in thousands) 2023 2022 2023 2022

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Net income attributable to the noncontrolling interest 154 168 351 506

Interest Expense, net

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.

Interest expense/(income), net

Interest expense/(income), 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.

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 includes losses related to the revaluation of nonfunctional-currency balances of $0.1 million, as compared to gains of $3.7 million during 2022, driven by changes in exchange rates.

Other (income)/expense, net, included foreign currency related transactions which resulted in gains of $4.2 million and $4.1 million in the three and six months ended June 30, 2023, respectively, as compared to gains of $7.3 million and $11.0 million in the same period last year.

The stronger Euro and Mexican Peso during 2023, relative to the same period last year, led to smaller gains on foreign currency related transactions.

Income Tax expense/(benefit)

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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 rate for the first quarter of 2023 was 28.2%, compared to 28.1% for the same period in 2022.

The effective tax rate for the first quarter of 2023 includes the impact of certain tax planning initiatives related to future repatriation of additional earnings to the U.S.

and managing overall cash tax exposure.

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

The Company’s effective tax rate for the second quarter of 2023 was 42.8%, higher compared to 26.9% for the same period in 2022, mainly due to unfavorable discrete tax adjustments in the current period.

For the first half of 2023, the Company's effective tax rate was 36.3%, higher compared to 27.4% for the same period in 2022, mainly due to unfavorable discrete tax adjustments in the current year.

For more information, see Note 5.

Income Taxes in the Notes to the Consolidated Financial Statements.

Segment Results of Operations

Machine Clothing Segment

Machine Clothing is our primary business segment and accounted for 57% of our consolidated revenues during the first three months of 2023.

Machine Clothing is our primary business segment and accounted for 58% of our consolidated revenues during the first six months of 2023.

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

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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.

Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology and selective business acquisitions, and to maintain and grow our manufacturing footprint to align with global demand, while we offset the effects of inflation through continuous productivity improvement.

As noted in the above Business Environment Overview and Trends section, on June 14, 2023, the Company entered into an agreement to acquire Heimbach, a privately-held manufacturer of paper machine clothing and technical textiles located in Düren, Germany, which is expected to enhance the Company's scale and geographic footprint, provide complimentary technology, and create a differentiated manufacturing, sales and service network.

Review of Operations

Three months ended March 31,

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

(in thousands, except percentages)

Net sales $ 153,222 $ 154,062

2023 2022 2023 2022

% of Net sales 50.8 % 51.5 %

Net revenues $ 159,217 $ 151,670 $ 312,439 $ 305,732

80,919 78,857 158,774 158,202

% of Net revenues 50.8 % 52.0 % 50.8 % 51.7 %

STG&R expenses

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Operating income 53,726 54,861 102,690 104,505

Changes in currency translation rates, driven by a weaker Euro and Renminbi, decreased 2023 net sales by $3.5 million compared to 2022.

Excluding the effect of changes in currency translation rates, Net sales in MC increased 1.7% compared to 2022, driven by higher net sales in packaging and publication grades.

The decrease in MC Gross profit was driven by higher input costs.

This had the effect of decreasing Gross margin from 51.5% in 2022 to 50.8% in 2023.

Three month comparison

Net revenues increased by 5.0%.

Changes in currency translation rates, driven by a weaker Renminbi, had the effect of decreasing second quarter 2023 revenues by $0.9 million.

Excluding the effect of changes in translation rates, net revenues in MC increased 5.6% compared to the second quarter of 2022, driven by higher net revenues in packaging, tissue and pulp grades, partially offset by decreases in Engineered Fabrics.

Six month comparison

Net revenues increased by 2.2%.

Changes in currency translation rates, driven by a weaker Euro and Renminbi, had the effect of decreasing 2023 revenues by $4.3 million compared to the same period in 2022.

Excluding the effect of changes in currency translation rates, Net revenues in MC increased 3.6% compared to 2022, primarily due to growth in revenues for packaging and tissue grades, partially offset by decreases in Engineered Fabrics.

MC delivered higher Gross profit in the three and six months ended June 30, 2023 as compared to the prior year, though it experienced some reduction in gross margin on account of increased input costs and lower overhead absorption.

Operating Income

The decrease in Operating income was principally due to the decrease in Gross profit noted above, offset partially by lower STG&R expenses, reflecting the benefit from changes in currency translation rates.

Operating income decreased year-over-year, as the favorability in Gross profit was more than offset by higher STG&R expenses.

Changes in currency translation rates had the effect of increasing STG&R by $2.4 million and $3.3 million for the three and six months ended June 30, 2023, respectively, as compared to the prior year.

Albany Engineered Composites ("AEC") Segment

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Review of Operations

Three months ended March 31,

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

(in thousands, except percentages)

Net sales $ 115,874 $ 90,107

2023 2022 2023 2022

% of Net sales 18.5 % 13.6 %

Net revenues $ 114,906 $ 109,699 $ 230,780 $ 199,806

21,785 21,736 43,248 33,995

% of Net revenues 19.0 % 19.8 % 18.7 % 17.0 %

STG&R expenses

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Operating income 8,668 9,535 18,086 10,730

Net sales increased 28.6% compared to prior year, driven by growth in CH-53K and LEAP programs.

Excluding the effect of changes in currency translation rates, the increase in Net sales was 30.3%.

For the three months ended June 30, 2023, net revenues increased 4.7% compared to the prior year, driven by growth in LEAP programs.

Excluding the effect of changes in currency translation rates, the increase in Net revenues was 3.8%.

For the six months ended June 30, 2023, net revenues in AEC increased 15.5%, primarily due to growth on LEAP, CH-53K, and JSF programs.

Excluding the effect of changes in currency translation rates, the increase in Net revenues was 15.7%.

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 the first three months of 2023 and 2022.

Revenue earned under these arrangements accounted for approximately 40 percent of segment revenue for the first six months of 2023 and 2022.

In addition, AEC has long-term contracts in which the selling price is fixed.

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

Gross profit as a percentage of sales increased from 13.6% in 2022 to 18.5% in 2023, driven by improved absorption and the absence of a raw material reserve recorded in the prior year, offset by losses on a new program.

For the three months ended June 30, 2023, Gross profit remained largely in line with the prior year, and as a percentage of revenues decreased from 19.8% in 2022 to 19.0% in 2023, driven by an unfavorable shift in program revenue mix, coupled with unfavorable changes in the estimated profitability of long-term contracts.

For the six months ended June 30, 2023, Gross profit increased $9.3 million and as a percentage of revenues increased from 17.0% in the prior year to 18.7% in 2023.

The increase was driven by a significant growth in revenues in the first quarter of 2023, primarily on the CH-53K, LEAP and other commercial programs, with improved overhead absorption and reductions in raw material reserves as compared to 2022.

Operating Income

Operating income increased year over year, principally due to higher Net sales and Gross profit, as described above, partially offset by an increase in Research expenses related to investments in new technologies and enhanced capabilities.

For the three months ended June 30, 2023, Operating income decreased $0.9 million, principally due to an increase in Selling, general, and research expenses, as described above.

For the six months ended June 30, 2023, Operating income increased $7.3 million, principally due to higher Net revenues and Gross profit, as described above, partially offset by higher Selling, general and Research expenses.

Changes in the estimated profitability of long-term contracts decreased operating income by $1.9 million for the second quarter of 2023 and decreased operating income $4.0 million for the first half of 2023.

For the 2022 year, adjustments in the estimated profitability of long-term contracts increased operating income by $1.2 million in the second quarter and decreased operating income by $0.6 million for the first half of the year.

Working Capital, Liquidity and Capital Structure

Cash Flow Summary

Three months ended March 31,

Six months ended June 30,

(in thousands)

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Other operating items (2,895) (270)

Net cash used in operating activities (16,393) (5,391)

Net cash provided by operating activities 14,675 37,713

Net cash used in investing activities (34,971) (36,025)

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

Net cash used in operating activities was $16.4 million in 2023, compared to $5.4 million in the same period last year.

Such increase was primarily due to AEC's investment in working capital, as we continue to execute on the expanded CH-53K scope of work and build-up inventory to position ourselves for ongoing demand on the LEAP program.

Net cash provided by operating activities was $14.7 million in 2023, compared to $37.7 million in the same period last year.

Such decrease was primarily due to AEC's investment in working capital, as we continue to execute on the expanded CH-53K scope of work and build-up inventory to position ourselves for ongoing demand on the LEAP program.

We 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 $16.3 million and $15.8 million for the first three months of 2023 and 2022, respectively, comprised of both sustaining and return seeking projects.

Net cash used in investing activities consisted of capital expenditures totaling $35.0 million and $36.0 million for the first six months of 2023 and 2022, 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 provided by financing activities during 2023 was $41.1 million compared to $26.9 million in 2022, driven by the absence of Treasury share purchases in the current year, which resulted in lower borrowings from the revolving credit facility, as compared to the prior year.

Net cash provided by financing activities during 2023 was $29.3 million compared to $35.4 million in 2022.

The decrease was, in part, due to the absence of share repurchases in the current year, which resulted in lower borrowings from the revolving credit facility.

Liquidity and Capital Structure

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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, $491.0 million of borrowings were outstanding as of March 31, 2023.

As of March 31, 2023, we had cash and cash equivalents of $304 million and availability under our Credit Agreement of $209 million, for a total liquidity of approximately $513 million.

We believe cash flows from operations and the availability of funds under our Credit Agreement will be adequate to cover our operations and business needs over the next twelve months.

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

As of March 31, 2023, $273 million of our total cash and cash equivalents was held by non-U.S.

Under our $700 million unsecured Amended Credit Agreement, $487.0 million of borrowings were outstanding as of June 30, 2023.

As of June 30, 2023, we had cash and cash equivalents of $301 million and available borrowings under our Amended Credit Agreement of $213 million, for a total liquidity of approximately $514 million.

We believe cash flows from operations and the availability of funds under our Amended Credit Agreement will be adequate to cover our operations and business needs over the next twelve months.

For more information on the revolving credit agreement, see Note 13.

Financial Instruments in the Notes to Consolidated Financial Statements.

As of June 30, 2023, $284 million of our total cash and cash equivalents were 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 in excess of $201 m illion at March 31, 2023, and are intended to remain indefinitely invested in foreign operations.

were in excess of $201 m illion at June 30, 2023, 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.

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.

On June 14, 2023, the Company entered into an agreement to acquire Heimbach, a privately-held manufacturer of paper machine clothing and technical textiles located in Düren, Germany.

The Company will acquire Heimbach for a purchase price of approximately €153 million, including net debt of approximately €21 million.

Albany expects to fund the acquisition and acquisition-related costs using cash on hand.

The transaction is subject to regulatory approvals and other customary closing conditions.

We have also returned cash to shareholders through dividends and share repurchases.

During the first three months of 2023, we paid $7.8 million in dividends.

During the first six months of 2023, we paid $15.6 million in dividends and had no share repurchases.

Off-Balance Sheet Arrangements

As of March 31, 2023, we have no off-balance sheet arrangements required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K.

The Company is party to certain off-balance sheet arrangements, including certain guarantees.

The Company provides financial assurance, such as letters of credit and surety bonds, primarily to support workers’ compensation programs and customs clearance, of less than $5 million.

There were no material changes in the Company’s off-balance sheet arrangements during 2023.

Non-GAAP Measures

This Form 10-Q 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;

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

EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin;

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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.

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

Net revenues, or percent changes in net revenues, 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.

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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.

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

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.

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

Three months ended March 31, 2023

Three months ended June 30, 2023

(in thousands) Machine Clothing Albany Engineered

2 unchanged sentences

Net income/(loss) (GAAP) $ 53,726 $ 8,668 $ (35,568) $ 26,826

Interest expense, net — — 3,290 3,290

Interest expense/(income), net — — 3,106 3,106

Income tax expense — — 20,080 20,080

6 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 59,348 $ 20,932 $ (15,257) $ 65,023

Three months ended March 31, 2022

Three months ended June 30, 2022

(in thousands) Machine Clothing Albany Engineered

2 unchanged sentences

Net income/(loss) (GAAP) $ 54,861 $ 9,535 $ (25,027) $ 39,369

Interest expense, net — — 3,609 3,609

Interest expense/(income), net — — 3,933 3,933

Income tax expense — — 14,458 14,458

3 unchanged sentences

Foreign currency revaluation (gains)/losses (a) (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

Six months ended June 30, 2023

(in thousands) Machine Clothing Albany Engineered

Composites Corporate expenses

and other Total Company

Net income/(loss) (GAAP) $ 102,690 $ 18,086 $ (66,864) $ 53,912

Interest expense/(income), net — — 6,396 6,396

Income tax expense — — 30,701 30,701

Depreciation and amortization expense 9,706 23,736 1,875 35,317

EBITDA (non-GAAP) 112,396 41,822 (27,892) 126,326

Restructuring expenses, net 145 — — 145

Foreign currency revaluation (gains)/losses (a) 2,526 — (4,125) (1,599)

Acquisition/integration costs — 540 363 903

Pre-tax (income) attributable to noncontrolling interest — (401) — (401)

Adjusted EBITDA (non-GAAP) $ 115,067 $ 41,961 $ (31,654) $ 125,374

Six months ended June 30, 2022

(in thousands) Machine Clothing Albany Engineered

Composites Corporate expenses

and other Total Company

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

Interest expense/(income), 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 (a) (759) 633 (11,011) (11,137)

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

8 unchanged sentences

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

Three months ended March 31, 2023

Three months ended June 30, 2023

(in thousands, except per share amounts) Pre tax

3 unchanged sentences

Foreign currency revaluation (gains)/losses (a) (3,486) (1,034) (2,452) (0.08)

Withholding tax related to internal restructuring — (3,026) 3,026 0.10

Acquisition/integration costs 634 158 476 0.02

Three months ended March 31, 2022

Three months ended June 30, 2022

(in thousands, except per share amounts) Pre tax

3 unchanged sentences

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

Acquisition/integration costs 269 80 189 0.01

Six months ended June 30, 2023

(in thousands, except per share amounts) Pre tax

Effect After tax

Effect Per share

Restructuring expenses, net $ 145 $ 35 $ 110 $ 0.00

Foreign currency revaluation (gains)/losses (a) (1,599) (481) (1,118) (0.04)

Withholding tax related to internal restructuring — (3,026) 3,026 0.10

Acquisition/integration costs 903 235 668 0.02

Six months ended June 30, 2022

(in thousands, except per share amounts) Pre tax

Effect After tax

Effect Per share

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

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

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

1 unchanged sentence

The following table contains the calculation of Adjusted EPS:

Three months ended March 31,

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

Per share amounts (Basic)

2023 2022 2023 2022

Earnings per share (GAAP) $ 0.86 $ 1.25 $ 1.72 $ 2.12

2 unchanged sentences

Foreign currency revaluation (gains)/losses (a) (0.08) (0.20) (0.04) (0.25)

Dissolution of business relationships in Russia — 0.07

Withholding tax related to internal restructuring 0.10 — 0.10 —

Acquisition/ integration costs 0.02 0.01 0.02 0.02

Dissolution of business relationships in Russia — — — 0.07

Adjusted Earnings per share (non-GAAP) $ 0.90 $ 1.06 $ 1.80 $ 1.97

(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.

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.

3 unchanged sentences

(in thousands)

March 31, 2023 December 31, 2022 March 31, 2022

June 30, 2023 December 31, 2022 June 30, 2022

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

7 unchanged sentences

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

The calculation of net leverage ratio as of March 31, 2023 is as follows:

The calculation of net leverage ratio as of June 30, 2023 is as follows:

Total Company

Twelve months ended Three months ended Trailing twelve months ended

(in thousands) December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2023 (non-GAAP) (b)

Twelve months ended Six months ended Trailing twelve months ended

(in thousands) December 31, 2022 June 30, 2022 June 30, 2023 June 30, 2023 (non-GAAP) (b)

Net income/(loss) (GAAP) $ 96,508 $ 67,444 $ 53,912 $ 82,976

Interest expense, net 14,000 3,609 3,290 13,681

Interest expense/(income), net 14,000 7,542 6,396 12,854

Income tax expense 35,472 25,456 30,701 40,717

9 unchanged sentences

Adjusted EBITDA (non-GAAP) $ 253,529 $ 127,067 $ 125,374 $ 251,836

(in thousands, except for net leverage ratio) March 31, 2023

(in thousands, except for net leverage ratio) June 30, 2023

Net debt (non-GAAP) 186,084

1 unchanged sentence

Net leverage ratio (non-GAAP) 0.74

(b) Calculated as amounts incurred during the twelve months ended December 31, 2022, less those incurred during the three months ended March 31, 2022, plus those incurred during the three months ended March 31, 2023.

(b) Calculated as amounts incurred during the twelve months ended December 31, 2022, less those incurred during the six months ended June 30, 2022, plus those incurred during the six months ended June 30, 2023.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis