ALBANY INTERNATIONAL CORP /DE/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes. Forward-looking statements This quarterly report and the documents incorporated or deemed to be incorporated by reference in this quarterly report contain statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” "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. There are a number of risks, uncertainties, and other important factors that could cause actual results to differ materially from the forward-looking statements, including, but not limited to: • Conditions in the industries in which our Machine Clothing and Albany Engineered Composites segments compete, along with the general risks associated with macroeconomic conditions, including continuation of COVID-19 pandemic effects for an extended period of time; • Across the entire Company, increasing labor, raw material, energy, and 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, 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 ; and • Other risks and uncertainties detailed in this report and other periodic reports. Further information concerning important factors that could cause actual events or results to be materially different from the forward-looking statements can be found in “Business Environment Overview and Trends” sections of this quarterly report, as well as in Item 1A-“Risk Factors” section of our most recent Annual Report on Form 10-K. Although we believe the expectations reflected in our other forward-looking statements are based on reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements included or incorporated by reference in this report are made on the basis of our assumptions and analyses, as of the time the statements are made, in light of our experience and perception of historical conditions, expected future developments, and other factors believed to be appropriate under the circumstances. 20 Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained or incorporated by reference in this report to reflect any change in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Business Environment Overview and Trends Our reportable segments, Machine Clothing (“MC”) and Albany Engineered Composites (“AEC”), draw on the same advanced textiles and materials processing capabilities, and compete on the basis of product-based advantage that is grounded in those core capabilities. The MC segment is the Company’s long-established core business and primary generator of cash. While it has been negatively impacted by well-documented declines in publication grades in the Company’s traditional markets, there has been some offsetting effect due to growth in demand for packaging and tissue grades, as well as the expansion of paper consumption and production in Asia and South America. We feel we are well-positioned in key markets, with high-quality, low-cost production in growth markets, substantially lower fixed costs in mature markets, and continued strength in new product development, technical product support, and manufacturing technology. Some of the markets in which our products are sold are expected to have low levels of growth and we face pricing pressures in all markets. Despite these market pressures on revenue, the MC business retains the potential for maintaining stable earnings in the future. MC has been a significant generator of cash, and we seek to maintain the cash-generating potential of this business by maintaining the low costs that we have achieved through continuous focus on cost-reduction initiatives, and competing vigorously by using our differentiated and technically superior products to reduce our customers’ total cost of operation and improve their paper quality. 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. Our strategy is to grow by focusing our proprietary 3D-woven technology, as well as our non-3D technology capabilities, on high-value aerospace (both commercial and defense) applications, while at the same time performing successfully on our portfolio of growth programs. AEC (including Albany Safran Composites, LLC (“ASC”), in which our customer SAFRAN Group owns a 10 percent noncontrolling interest) supplies a number of customers in the aerospace industry. AEC’s largest aerospace customer is the SAFRAN Group ("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 revenues 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 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. 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 Net revenues 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 Machine Clothing $ 159,217 $ 151,670 5.0 % $ 312,439 $ 305,732 2.2 % Albany Engineered Composites 114,906 109,699 4.7 % 230,780 199,806 15.5 % Total $ 274,123 $ 261,369 4.9 % $ 543,219 $ 505,538 7.5 % The following tables provide a comparison of 2023 Net revenues, excluding currency translation effects, to 2022 Net revenues: 21 (in thousands, except percentages) 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 % Albany Engineered Composites 114,906 1,072 113,834 109,699 3.8 % Total $ 274,123 $ 194 $ 273,929 $ 261,369 4.8 % (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 % Albany Engineered Composites 230,780 (424) 231,204 199,806 15.7 % Total $ 543,219 $ (4,770) $ 547,989 $ 505,538 8.4 % 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. Gross Profit 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 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. 22 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 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 Albany Engineered Composites 13,117 12,202 25,162 23,266 Corporate expenses 16,893 13,695 34,733 25,750 Total $ 57,078 $ 49,906 $ 115,834 $ 102,502 % 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, 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. 23 Operating Income The following table summarizes operating income/(loss) by business segment: Three months ended June 30, Six months ended June 30, (in thousands) 2023 2022 2023 2022 Machine Clothing $ 53,726 $ 54,861 $ 102,690 $ 104,505 Albany Engineered Composites 8,668 9,535 18,086 10,730 Corporate expenses (16,893) (13,681) (34,733) (25,766) Total $ 45,501 $ 50,715 $ 86,043 $ 89,469 Other Earnings Items Three months ended June 30, Six months ended June 30, (in thousands) 2023 2022 2023 2022 Interest expense, net $ 3,106 $ 3,933 $ 6,396 $ 7,542 Other (income)/expense, net (4,511) (7,045) (4,966) (10,973) Income tax expense 20,080 14,458 30,701 25,456 Net income attributable to the noncontrolling interest 154 168 351 506 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, 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) The Company has operations which constitute a taxable presence in 18 countries outside of the United States. The majority of these countries had income tax rates that are above the United States federal tax rate of 21 percent during the periods reported. The jurisdictional location of earnings is a significant component of our effective tax rate each year. The rate impact of this component is influenced by the specific location of non-U.S. earnings and the level of our total earnings. From period to period, the jurisdictional mix of earnings can vary as a result of operating fluctuations in the normal course of business, as well as the extent and location of other income and expense items, such as pension settlement and restructuring charges. The tax rate is affected by recurring items, such as the income tax rate in the U.S. and non-U.S. jurisdictions and the mix of income earned in those jurisdictions. The tax rate is also affected by U.S. tax costs on foreign earnings, and by discrete items that may occur in any given year but are not consistent from year to year. The Company’s effective tax 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. 24 Segment Results of Operations Machine Clothing Segment 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. 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. Technological advances in paper machine clothing, while contributing to the papermaking efficiency of customers, have lengthened the useful life of many of our products and had an adverse impact on overall paper machine clothing demand. Additionally, we face pricing pressures in all of our markets. The Company’s manufacturing and product platforms position us well to meet these shifting demands across product grades and geographic regions. Our strategy for meeting these challenges continues to be to grow share in all markets, with new products and technology and 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 June 30, Six months ended June 30, (in thousands, except percentages) 2023 2022 2023 2022 Net revenues $ 159,217 $ 151,670 $ 312,439 $ 305,732 Gross profit 80,919 78,857 158,774 158,202 % of Net revenues 50.8 % 52.0 % 50.8 % 51.7 % STG&R expenses 27,068 24,009 55,939 53,486 Operating income 53,726 54,861 102,690 104,505 Net Revenues 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. Gross Profit 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 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. 25 Albany Engineered Composites ("AEC") Segment The 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, Boeing 737 MAX, and COMAC 919 aircraft. 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. Review of Operations Three months ended June 30, Six months ended June 30, (in thousands, except percentages) 2023 2022 2023 2022 Net revenues $ 114,906 $ 109,699 $ 230,780 $ 199,806 Gross profit 21,785 21,736 43,248 33,995 % of Net revenues 19.0 % 19.8 % 18.7 % 17.0 % STG&R expenses 13,117 12,202 25,162 23,266 Operating income 8,668 9,535 18,086 10,730 Net Revenues 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 six months of 2023 and 2022. In addition, AEC has long-term contracts in which the selling price is fixed. In accounting for those contracts, we estimate the profit margin expected at the completion of the contract and recognize a pro-rata share of that profit during the course of the contract using a cost-to-cost approach. Changes in estimated contract profitability will affect revenue and gross profit when the change occurs, which could have a significant favorable or unfavorable effect on revenue and gross profit in any reporting period. For contracts with anticipated losses, a provision for the entire amount of the estimated remaining loss is charged against income in the period in which the loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of any selling, general or administrative cost allocations, which are treated as period expenses. Expected losses on projects include losses on contract options that are probable of exercise, excluding profitable options that often follow. Gross Profit 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 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. 26 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 Six months ended June 30, (in thousands) 2023 2022 Net income $ 53,912 $ 67,444 Depreciation and amortization 35,317 34,874 Changes in working capital (a) (71,524) (63,679) Changes in other noncurrent liabilities and deferred taxes (135) (656) Other operating items (2,895) (270) Net cash provided by operating activities 14,675 37,713 Net cash used in investing activities (34,971) (36,025) Net cash provided by financing activities 29,294 35,404 Effect of exchange rate changes on cash and cash equivalents 142 (18,258) Increase in cash and cash equivalents 9,140 18,834 Cash and cash equivalents at beginning of year 291,776 302,036 Cash and cash equivalents at end of period $ 300,916 $ 320,870 (a) Includes Accounts receivable, Contract assets, Inventories, Accounts payable, and Accrued liabilities. 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. 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 $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 We finance our business activities principally 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 to be insignificant. 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. 27 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 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. 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 six months of 2023, we paid $15.6 million in dividends and had no share repurchases. Off-Balance Sheet Arrangements 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 revenues and percent change in net revenues, excluding the impact of currency translation effects; EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin; Net debt; Net leverage ratio; and Adjusted earnings per share (or Adjusted EPS). Management believes that these non-GAAP measures provide additional useful information to investors regarding the Company’s operational performance. 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. These amounts are then compared to the U.S. dollar amount as reported in the current period. 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 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. 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. 28 The following tables show the calculation of EBITDA and Adjusted EBITDA: Three months ended June 30, 2023 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Net income/(loss) (GAAP) $ 53,726 $ 8,668 $ (35,568) $ 26,826 Interest expense/(income), net — — 3,106 3,106 Income tax expense — — 20,080 20,080 Depreciation and amortization expense 4,931 12,072 947 17,950 EBITDA (non-GAAP) 58,657 20,740 (11,435) 67,962 Restructuring expenses, net 125 — — 125 Foreign currency revaluation (gains)/losses (a) 566 133 (4,185) (3,486) Acquisition/integration costs — 271 363 634 Pre-tax (income) attributable to noncontrolling interest — (212) — (212) Adjusted EBITDA (non-GAAP) $ 59,348 $ 20,932 $ (15,257) $ 65,023 Three months ended June 30, 2022 (in thousands) Machine Clothing Albany Engineered Composites Corporate expenses and other Total Company Net income/(loss) (GAAP) $ 54,861 $ 9,535 $ (25,027) $ 39,369 Interest expense/(income), net — — 3,933 3,933 Income tax expense — — 14,458 14,458 Depreciation and amortization expense 4,880 11,450 782 17,112 EBITDA (non-GAAP) 59,741 20,985 (5,854) 74,872 Restructuring expenses, net (30) — 2 (28) Foreign currency revaluation (gains)/losses (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 29 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 Acquisition/integration costs — 551 — 551 Pre-tax (income) attributable to noncontrolling interest — (457) — (457) Adjusted EBITDA (non-GAAP) $ 115,549 $ 34,946 $ (23,428) $ 127,067 The Company discloses certain income and expense items on a per-share basis. The Company believes that such disclosures provide important insights into the underlying quarterly earnings and are financial performance metrics commonly used by investors. The Company calculates the quarterly per-share amount for items included in continuing operations by using the income tax rate based on either the tax rates in specific countries or the estimated tax rate applied to total company results. The after-tax amount is then divided by the weighted-average number of shares outstanding for each period. Year-to-date earnings per-share effects are determined by adding the amounts calculated at each reporting period. The following tables show the earnings per share effect of certain income and expense items: Three months ended June 30, 2023 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ 125 $ 31 $ 94 $ 0.00 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 30 Three months ended June 30, 2022 (in thousands, except per share amounts) Pre tax Amounts Tax Effect After tax Effect Per share Effect Restructuring expenses, net $ (28) $ (4) $ (24) $ 0.00 Foreign currency revaluation (gains)/losses (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 Amounts Tax Effect After tax Effect Per share Effect 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 Amounts Tax Effect After tax Effect Per share Effect 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 Acquisition/integration costs 551 164 387 0.02 The following table contains the calculation of Adjusted EPS: 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 Adjustments, after tax: Restructuring expenses, net — — — 0.01 Foreign currency revaluation (gains)/losses (a) (0.08) (0.20) (0.04) (0.25) 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 Net debt is, in the opinion of the Company, helpful to investors wishing to understand what the Company’s debt position would be if all available cash were applied to pay down indebtedness. The Company calculates Net debt by subtracting Cash and cash equivalents from Total debt. Total debt is calculated by adding Long-term debt, Current maturities of long-term debt, and Notes and loans payable, if any. The following table contains the calculation of net debt: (in thousands) June 30, 2023 December 31, 2022 June 30, 2022 Current maturities of long-term debt $ — $ — $ — Long-term debt 487,000 439,000 485,000 Total debt 487,000 439,000 485,000 Cash and cash equivalents 300,916 291,776 320,870 Net debt (non GAAP) $ 186,084 $ 147,224 $ 164,130 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. 31 The calculation of net leverage ratio as of June 30, 2023 is as follows: Total Company 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/(income), net 14,000 7,542 6,396 12,854 Income tax expense 35,472 25,456 30,701 40,717 Depreciation and amortization expense 69,049 34,874 35,317 69,492 EBITDA (non-GAAP) 215,029 135,316 126,326 206,039 Restructuring expenses, net 106 226 145 25 Foreign currency revaluation (gains)/losses (a) (9,829) (11,137) (1,599) (291) Dissolution of business relationships in Russia 2,275 2,568 — (293) Pension settlement expense 49,128 — — 49,128 IP address sales (3,420) — — (3,420) Acquisition/integration costs 1,057 551 903 1,409 Pre-tax (income) attributable to noncontrolling interest (817) (457) (401) (761) Adjusted EBITDA (non-GAAP) $ 253,529 $ 127,067 $ 125,374 $ 251,836 (in thousands, except for net leverage ratio) June 30, 2023 Net debt (non-GAAP) 186,084 Trailing twelve months Adjusted EBITDA (non-GAAP) 251,836 Net leverage ratio (non-GAAP) 0.74 (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) 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk For discussion of our exposure to market risk, refer to “Quantitative and Qualitative Disclosures about Market Risk”, which is included as an exhibit to this Form 10-Q.